Pandox AB (publ) (PNDXB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Pandox Q4 2020 Report Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, 11th of February 2021. I would now like to hand the conference over to the first speaker today, Mr. Anders Berg. Thank you. Please go ahead.

Thank you very much. Welcome, everyone, to this presentation of Pandox' fourth quarter and year-end report for 2020 on this beautiful winter's day in Stockholm. I'm Anders Berg. I'm Head of IR at Pandox. And with me, as usual, I have Anders Nissen, our CEO; and Liia Nõu, our CFO. And like last time, during this difficult market situation, we have an external guest with us, and that is Robin Rossmann, Managing Director of International at STR. And as you know by now, he represents a leading independent research firm focused on the hotel market, and he will share his view on this market. So we are very happy to have him on board for this presentation. As usual, we divided presentation into 3 parts. We start with a business update and financial highlights from Anders and Liia, and then we hand over to Robin. And then we conclude everything with questions. So with that, Anders?

Well, thank you very much, and welcome, everyone, even from my desk. Let me start this presentation by give you a short Pandox update. Pandox is one of Europe's largest hotel property company. We own -- we have a portfolio with 156 hotels with 35,000 rooms in 15 countries. We are managing in 2 different segments: Property Management and Operator Activities. Property Management is our lease portfolio, that we lease out hotels to professional operators in, normally, turnover-based contract with a minimum level, that representing 84% of our market value. And we also -- our segment is Operator Activities that we own and operate ourselves under an independent brand or under a franchise model, that representing 16% of the company. The next page, please. And this shows our strong world-class network of brands and partner. And as you can see, it takes long time to build up this sort of strategic position. And this is, of course, then a strength on these days that we both have the capacity of taking a hotel if we need to, if our part of this didn't perform or we can find other tailor-made situation together with our partners. Let me then move over to Q4 in brief. And let me start to say that we had a quite promising start of the quarter, and it came from a good start after holiday. But with new restrictions of the second wave, demand flow away, and there was no chance to run an efficient hotel business in Q4. Despite of this, we are again profitable before value changes, and we have a positive cash flow, so that meaning that our financial situation is -- continues strong, and we have also a good liquidity position. Some quick numbers. Return on equity, minus 10%; growth of a total operating -- net operating income is minus 53 and like-for-like Property Management, minus 26. I really hope this is last time I need to present this sort of number before we had an average 18% return on equity in 25 years. So now we have learned that it also can have a minus in front of these figures. Again, strong financial position, SEK 5.5 billion (sic) [ SEK 5.2 billion ]. And with that, I hand over to our CFO, Liia Nõu.

Thank you, Anders. We're now at Page 5. Yes, as Anders just said, demand on the hotel market decreased in the fourth quarter, and contractual minimum rents and fixed rents were Pandox main sources of income. We expect this to be the case also in the first quarter of 2021. We had negative unrealized value changes in both Property Management and Operating Activities, which reflect lower expected cash flows. I will come back to this in a minute. At the end of the fourth quarter, accounts receivable related to new payment terms. Temporary new payment terms amounted to some SEK 439 million, which is in line with the third quarter. Next page, please, Page 6. Pandox' revenue base is diversified with revenues from different operational models and geographies. Currently, minimum rents and fixed rents are Pandox' main sources of revenue. This amount to almost SEK 2 billion per year or almost SEK 500 million per quarter. In the fourth quarter, revenue-based rent amounted to SEK 48 million. For the full year, revenue-based rent amounted to SEK 249 million. Rent collection has progressed in line with new and temporary payment channels. No reductions in hotel rents have been given. In the fourth quarter, revenues from Operating Activities amounted to SEK 117 million. Next page, please. In the fourth quarter, Pandox valued the property portfolio according to the same method and model used since the April 2015. Values have been adjusted downward due to lower anticipated cash flows, mainly as a result of COVID-19. Yields are largely unchanged due to still inconclusive transaction evidence. As we learn more about the effects of the COVID-19 crisis, we expect to be able to estimate both yields and cash flows with great position. Only some 60, 6-0, external valuations were made during 2020 due to practical limitation due to COVID-19. External valuations exhibit larger disbursements, both between and -- both within and between markets. External valuations are on average, some 6% below Pandox' internal valuations, all due to deal assumptions. The valuation difference is smaller in the Nordics and larger outside the Nordics. In the fourth quarter, total unrealized and realized changes in value amounted to a negative SEK 634 million, of which a negative SEK 533 million for Investment Properties and a negative SEK 101 million for Operating Properties. Please note that according to IFRS, unrealized changes in value for Operating Properties are only reported for information purposes but is included in the EPRA NAV. End of period, the average valuation yield for Investment Properties was 5.44%, and for Operating Properties, it was 6.37%. Next page, please, Page 8. Finally, let's take a quick look at our EPRA NAV and financial position. End of period EPRA NAV per share amounted to a rounded SEK 167.6. This corresponds to a decrease of approximately 10% on an annualized basis. Loan-to-value amounted to 48.7%. Cash and cash equivalents and long-term unutilized credit facilities amounted to approximately SEK 5.2 billion. Credit facilities maturing in less than a year amount to approximately SEK 5.5 billion, of which approximately SEK 3.8 billion will mature in December 2021. Pandox have a positive and close dialogue with its lenders on new financing, refinancing as well as adjustment of terms and covenants in existing credit agreements with consideration to COVID-19. In the fourth quarter, lenders have given waivers in individual credit agreement. Next page, please, and with this, I hand back to Anders again.

Thank you, Liia. Yes. Let's move. I will go for a more market-related presentation, and let me start to say that since this COVID-19 arrived in our life, we have had 3 focus areas in Pandox: respond, restart and reinvent. The respond has been how to manage this acute phase of the crisis, basically secure liquidity, make sure our banks understand what we are doing and frequently contact with our partners and of course, reduce cost in our international operations. Restart is how to plan for the recovery, how we do, how we do analysis, what sort of information we need to have and how we put it together in presentation. That's what we have done 2 times before, and we do it also today. And reinvent. What's next? What can we expect to the hotel market? And that's something we have spent a lot of time on Pandox [indiscernible] Day, we will be happy to share this sort of information. So let me then go over for market status and condition for recovery. Let me then also start to say that hotel market is one of the pandemic's worst victim. We all know that. I believe that the challenge now is to understand what the recovery will look like. At the first glance, I speak for everyone, it may look simple. But to understand the market, it's requiring in-deep analysis for how different segments will develop and interact with destination-specific factors. You will see that later. And this pandemic had increased its complexity, again, I will say that even more. In Pandox, we regularly monitor hundreds of different markets and do analysis of short and long term. So now we now provide and share some of this data, which can be guidelines we all for how you believe that then the conditions for recovery will be. So then what we will do, we will present 4 different areas. The first is a recap, hotel market development 2020 short recap. We will show demand segment in Pandox portfolio to have a deeper understanding that market had many different segments and patterns. We will explore hotel market outside Europe and their drivers for recovery. And then we will gain new insight for recovery. So next page, please, Page #11. This is Pandox' way of looking at how development will come back in levels before full performance. It's starting with city and country must open up, I mean the restriction have to go down. Hotel open up. Then the domestic leisure will return. To this, domestic business will return. After that, international meeting and group will return. When we had our call in Q3, we were something between Level 3 and 4. Now we are back to 1 and 2 again. Next page, please. Page 12. COVID-19, as we remember, the first virus arrived in Northern Europe in March 2020. Society closed down. Market bottomed out in April. And when restrictions are lifted in June/July, the recovery starts. Page 13. During the summer, demand increased rapidly, first in Scandinavia and then in Europe, the same thing. Domestic driver -- domestic leisure was the driver. After the vacation period, leisure demand remains stable over weekends, and domestic business began to travel with first sign of smaller meetings, domestic businesses in terms of smaller and medium-sized companies. Page 14. In September, occupancy was 45% to 55% in most of Pandox' domestic markets. Up to this point, I believe the recovery was faster than many expected. However, demand in larger and more international city remained weak. Page 15, please. In October, we had this quite good position with a good domestic demand. And then when the second wave was -- came and new restrictions were implemented, it became much more difficult to operate hotels again, and demand decreased substantially across all segments. Page 16. This is the same presentation, but in number, you see Germany had a good start, and market collapsed in March, came back over summer. And this is -- the total markets, domestic market was slightly better. And then everything came down again when new restriction was implemented. Page #17 shows U.K. Again, good start, collapsed April/March and then very hard restriction up to beginning of July. Despite of that, strong August-September, promising into October, but then when restriction was implemented, even U.K. came down to a very low level. And the Nordic, same, some sort of same pattern as well. Now we're at Page 19. And now -- that was Page 18. So -- and to sum up 2020, as you have seen, the market developing stages that it's good to have with you when you look at 2021 with a strong dominance of domestic demand. Don't forget that domestic demand where Pandox has our base is the largest and most important segment, 3.5x bigger than international segment. So that is, of course, strong that the domestic business has been good when the restriction has come down. And there is restriction holding back demand. And other way around, when restriction easier, demand is coming back, also something we have learned in 2020. And again, we don't see, so far, any big change in consumer behaviors. Let's then move over to picture 19, which is about segmentation. And Pandox portfolio can be divided into 6 different segments: interstate, resort, airport, suburbs, regional, smaller and larger city. And as you can see, market segment have totally different patterns due to different drivers. Large cities, what we normally refer to as international demand, and that is mostly what international investor has focused on. But you can see that most of the other segment performing much better. And I don't think total market can be presenting with one line. It's just an average number and not an analysis. So if you look here, you can see that Pandox is performing very different in different segments, and so it is for every hotels or every hotel company in -- even globally. So that is something we also can take with us, that you need to look at each by segment and in stages. If we then go over to guidelines for recovery, we are choosing 4 markets: China, New Zealand, Australia and India. And Page #21. And why this? They are relevant because they are well ahead in the recovery. They are well-developed markets with many different segments. They have a mix of domestic and international and a considerable inbound and outbound travels. Page 22. This is China. I believe Robin maybe will also talk about China. China is the market who is first in line. And you can see now that China's domestic market, representing by leisure and domestic operations, now are close to the total demand of domestic and international markets in 2019. I will call it a bit sensational because that means that domestic demand in regional city in China is above the level of 2019. And the conclusion is that -- the conclusion is that people continue to travel. If they are not allowed to travel internationally, then they travel in their country. And if you're not possible to have meeting out of China, then you have them in China in different ways. And this is something -- a very exciting way for us, of course, to understand more about China's development now the next couple of months. And then you have New Zealand. You have Australian, 24; and you have Indian, which are similar in stage. It's similar in pattern. Open up in stages. Domestic demand is the driver. And all of them are coming up now close to the total demand for 2019. So when we have now a look at 2020 and learn from that, look at segmentation, get an insight also market who is ahead of Europe, we can now give you some sort of outlook what we believe it will be. Demand will be lower in Q1, and that is on ongoing restrictions, nothing we can do about that. We are half way into Q1. But in Q2, given successful vaccinations and reduced restrictions, of course, demand will return in stages with individual leisure will return first. It will be followed by domestic business travels by small- or medium-sized markets. And there will be a strong recovery in domestic market. This is the same pattern as we see in market who is ahead of Europe. The summer, my friend, it will be a bomb or as we say, in Southern Sweden language, it will be a bomb. There will be -- I can't -- I think no one can wait for be -- stay in hotels or sitting in restaurants for this summer. And the period after summer could be very exciting with first sign of meeting and international travels. With that, I would now would like to hand over to our guest speaker, Robin Rossmann, for hotel market update. And please remember that Robin is totally separate from Pandox, and his research is totally separate from Pandox. So please go ahead, Robin.

Thank you so much, Anders. Can you give me [indiscernible] just to confirm before I go?

Oh, yes.

Excellent. So I think the next few slides that I show will follow on and build on a lot of what Anders has talked about there. And I'm really going to focus on Europe, but again, I will use some benchmarks from other countries and regions of the world to help validate and explain the way that we think that the recovery will take shape and look like across Europe in 2021 and beyond. And just moving on to Slide 28. Sort of, for this year, much like last year, I don't think you can look at it as just 1 year. The performance by quarter is going to be very different, just like it was very different in 2020. And so moving on to Slide 29. Really, there's no good way to paint the picture of what Q1 is likely to be because if you move on to Slide 30, you can see that all across Europe, we've seen occupancies really since the beginning of December, dip back down and then further down in January, as a result of the second wave of cases and lockdowns across Europe, and we're seeing occupancy levels that are just as bad, if not worse, than what we saw back in April and May. And the reason for that -- one of the reasons why the performance, moving on to Slide 31, is currently worse than what we saw in April and May as we saw far more hotels closed in April and May. I think with some more specific government requirements and uncertainty around whether or not hotels could stay open, so we saw across Europe, really 2 out of every 3 hotels closed. So 2/3 of the market closed. And that meant that the demand that was left was shared by only 1/3 of hotels that remained open. However, this time around, the restrictions haven't been -- the government restrictions haven't been as harsh. There's been more certainty that hotels can remain open as long as they're only serving business customers, where leisure demand has been forbidden. Travel has been stopped at this stage. And so as a result, we've seen currently only about 2 in every 10 hotels closed, so far less hotels closed. And the reason that less hotels are closed is the -- that many learned from the first lockdown, the hotels that remained open were able to be far more resilient and performed far better coming out of the first round of lockdown, so better at cost control and also have learned that to retain revenue coming out of the lockdown, it's important to be open before everybody else. So we've seen far less hotels closed. And as a result, if you move on to Slide 32, there's really more demand going around than the first set of lockdowns, but it's shared amongst the greater amount of open hotels. And so the occupancy of those open hotels is lower. And we report performance in 2 ways. The teal line at the top here, and this is just showing it for the U.K., is the occupancy of open hotels. So we're only collecting and showing the occupancy of open hotels. But we also obviously see the importance of tracking the occupancy of all those hotels that were temporarily closed were actually open, so showing true market occupancy, and that's the dark blue line, and we call that total room inventory. So you can see back in April and May in the U.K., open hotels were trading at a 20% to 30% occupancy. But if you added back all those closed hotels, the market would have been trading at 5% to 10%. And so that's why at this time around, less hotels closed, you can see that gap is much narrower, and that the teal occupancy has dipped below what it was in April or May. So that's just the way of saying it may look worse. It's certainly bad. But where it's worse because really more hotels are open, not less demand. Nonetheless, pretty terrible first quarter. I don't really see it getting much better for most of it because when you move on to Slide 33 and look at the forward bookings that we're collecting across Europe, you can see current business on the books for the next 90 days, how many rooms have already been sold for the next 90 days, this number would typically be much closer to 40% to 50%. It's now single digits. And the pickup, in other words, the room that was sold in the last week for the next 90 days, you'd usually expect this to be positive. In other words, you were selling rooms every week for stay dates in the future. It's 0. So not great. And obviously, this is because of where we are in terms of lockdowns and uncertainty and cases. So that, I'm afraid, is going to be the story of the first quarter. But moving on to Slide 34, we really do believe that we will see recovery starting in Q2. Now for Q2 and onwards and the rest of the year, the big assumption, the scenario that we are assuming here is that the combination of the impact of the lockdowns, which push cases and the risk of overcapacity of hospitalization is down, together with, at a minimum, warmer weather, which should typically reduce the case and spread of the disease like it did last year as well as, hopefully, and certainly, my personal belief is that a successful vaccination rollout, even if it is going slower than we would like, a successful vaccination rollout across Europe, which sees the vast majority of the vulnerable portion of population that are most at risk of being hospitalized and death, being completed during Q2, which means that at a minimum, even if international is still somewhat restricted, domestic recovery should start in Q2 and will start earlier in those countries that are able to get to that safety level first. And so what that means, and this is going back on Slide 35, from 2019-2020 data, similar to what Anders said, we do expect the domestic regional markets to recover faster than certainly gateway cities. How you see gateway city occupancy in 2019, and in those really big countries with big gateway cities like the U.K., Netherlands, France, where London, Amsterdam, Paris, would all have occupancies of 10 percentage points higher than the regional markets. If you go across to Slide 36 -- and apologies, I just realized that the order of the countries have changed. And it's not exactly the same countries, but the trend here is nonetheless true. We've seen, in 2020, that obviously with international demand going away, less high-end business demand, those gateway city occupancies have dropped to be below or the same as the regional markets. And so, again, whereas in the past, those gateway cities would be 10 percentage points higher in occupancy, they're now 10 percentage points lower. And on Slide 37, what we also saw in 2020 is that from a rate perspective, those gateway cities had rate declines of 20% to 30%, whereas regional markets were much more resilient declines of maybe up to 10%, 15% or, even in many cases, flat or Turkey as an exception, currency driven, was positive. So we are expecting that regional recovery to come, and more on that in a bit. But as we get through Q2 towards the end and the leisure season starts, I have a high degree of confidence that we will see a large ketchup, excuse me, I do lack a pen, in recovery from Q3 onwards, really underpinned by that leisure growth and, if it's allowed, international recovery, too. And clearly, international is going to be the most difficult to recover, but I'll switch to some international benchmarks to show just how quickly it can recover. And on Slide 39, you can see Dubai occupancy 2019 versus 2020. Dubai had some of the strictest lockdowns back in the early days of the pandemic and were quite slow to reopen their borders. So demand up until October/November was purely domestic. But from November onwards, they opened up, and you could travel to Dubai as long as you had a negative test on arrival, no quarantine requirement. And rather a market, but you can see how quickly the occupancy recovered pretty close to '20 or prior year levels. And that really is remarkable because there was absolutely international demand, people getting on a flight that drove that. And moving on to Slide 40. It wasn't exactly like the hotels had to drop their rates to achieve that. They actually recovered back to 2019 -- sorry, the legend says occupancy, but it is actually rates. They dropped back to 2019 rates -- I mean they've got back to prior rates pretty quickly. Now clearly, Dubai showed that maybe that was a bit too soon in terms of they hadn't really vaccinated their local population. And so there's been a jump in cases there again. And certainly, global restrictions and travel that have resumed meant that, that demand has dropped away a bit. But what it does show us is just how ready people are to get on a flight and travel to escape and have that leisure demand. And I think that will be true in Europe as we get to the summer months. And moving on to Slide 41. Another example, Maldives, again, really just rapidly balancing back to prior year occupancy levels, dipping down a bit, again, January and February, which was more of source market restrictions. But strong confidence that when we're allowed to travel, people will travel and probably as much more than they did before to catch up on what they've missed out on. So moving back to Europe. I think it's important to say that even with, in many cases, government-mandated, no-travel messages, people are still booking ahead from June onwards, planning ahead to those events. So we do have business on the books across the selection of European markets where there are events, and people have that -- they are planning to travel on the assumption that they can. And as we get into Q3, I think the trend that will really play out is something that we saw, and this is going back to 2020 data, is that the recovery will be strongest in leisure markets and leisure hotels. Obviously, leisure hotels can be anything from luxury down to mid-scale and economy. But those leisure hotels that are able to be accessed by a car, instead of by air, will drive greater recovery. And here, you can see just the U.K. as an example, looking across 2020 occupancy versus prior year. The blue line is mid-scale and economy. So budget and economy hotels recovered occupancy stronger, particularly around that key holiday season. Then in purple, we have upper -- upscale and upper mid-scale -- sorry, upper mid-scale and upscale hotels. And then the ones that found it most difficult were luxury, at the bottom there, the most significant declines in prior year, the least recovery. But that was when you look at the U.K. as a whole. If you split out that data and you go on to Slide 44 and you split it between London, which is the full colored line versus the dotted line, which is regional markets, you can see those regional markets, all of them are from budget through to luxury outperformed the London market. And certainly, the luxury hotels were much closer to budget hotel performance, particularly because of those that are leisure driven. And an actual fact, when we look at rates, on a rate perspective, looking at the U.K. as a whole, pretty tight. But when you split it out to regional U.K. and London, you can see that, that way regional market is much more resilient, much lower rate declines and an actual fact that luxury hotels showing some rate gains where -- because there was a lack of luxury in upper and upscale, high-end leisure to supply in the U.K., lots of demand and having rate increases year-on-year. So I think any hotels that are positioned for that domestic leisure will do much better and recover faster. But on to the long-term and going back to some international benchmarks on Slide 47 and then on to 48. So Anders mentioned China. And whenever we talk about China as a benchmark, people go, "You can't use China. It's not relevant, it's completely different." And yes, true for us, China is a different country, but it is not Mars. It's not Martians. People travel in China for the same reasons that people travel in the U.S., for the same reasons that people travel in Europe, and that is for leisure, to visit family and for business. So the same reasons. And the reason why China is an important benchmark is even though it's completely different in terms of the control of the virus, they've managed to get the virus under control there. It shows you just how quickly that domestic recovery, that domestic business demand can come back. And the best way to show it is we've shown performance here. This is RevPAR change. Anders showed occupancy. This is taking into account rate, too. This is RevPAR change versus prior year, same week, mainland China, on the left, first-tier cities, Beijing, Shanghai in the middle and other cities on the right. And if you -- maybe if you start from the right, you can see all the way back from September and before, RevPAR for those other cities outside those first-tier cities, which rely more on international demand, has been, in many cases, flat or positive. A little bit down there in late December, January as a second round of cases came through. But I understand from our team on the ground and from looking at the data that, that's pretty much resolved again. And the spike that you can see there in January is really a change in timing, a slightly earlier Chinese New Year, which obviously started just a few days ago, and people stopped traveling before that. So really showing that in China, demand has been able to bounce back. People are traveling. Zoom has not killed business travel. And yes, first-tier cities are a bit lower, trending about 20% to 30% lower but because of the increased reliance on that international demand. And on that point, if we go across to Australia, and I showed it a bit earlier, I think Australia is a really good benchmark for, hopefully, where we will get to in Q3, Q4 for Europe, maybe more Q4 than Q3 when it's more about business demand because Australia is obviously a country, got the virus under control that has turned off the taps to international demand. And you can see that -- I mean pretty much back to normal people in stadiums watching sporting events, all of that. Nonetheless, a RevPAR, again, 40% below what it would usually be, and that 40% is the international gap, again, seen more in gateway cities and in regional markets. And so remember that 40% because -- in a couple of slides that will come back again. Moving on to Slide 50. This is what we expect for Europe. As I said, more of a W-shaped recovery. We had that recovery in the summer months, dropped down now with the second line of lockdowns, and we see that recovery back in 2021 from an occupancy perspective. Where we think that will end up, moving on to Slide 51, this is an aggregate of forecast across a selection of gateway cities. So these are probably more impacted than most, is that for 2021, we'll end up with a RevPAR around about 40% below what it would have been in the prior year. And that's going back to that Australia example because of the gap and the slower recovery in international demand. We think it will take a while to recover all of that. I certainly hope that -- and I believe there is a chance that the recovery will be faster than this. But based on the way we've modeled it out, looking at the recovery pattern and profile we saw coming out of global financial crises and other downturns, looking at macro economic factors and forecasts, looking at the supply forecast for the hotel markets, we do see it taking up to 2024 and potentially beyond to get back to those 2019 levels. And -- but it really will depend on the shape of the economic recovery. And it really will depend -- moving on to Slide 52, the degree to whichever market the hotel is in is reliant on international versus domestic demand. And so with that, I will say thank you very much, and thanks for having me along. Happy to answer any questions.

Thank you very much, Robin. And with this, we move into the Q&A session. So please, operator.

[Operator Instructions] Okay. Your first question comes from the line of Fredric Cyon from Carnegie.

Yes. A couple of questions from my side. So starting off with, I guess, the million-dollar question. But how do you perceive Q2 2021 year-over-year versus Q2 2020? Or do you believe we will witness an improvement on a year-on-year basis?

Well, we haven't given any specific forecast for Q2 2021. But given a successful vaccination, the market will be, of course, coming back quite immediately, what we believe and, as we said before, in stages. And that will, of course, be much better than Q2 2020. So a positive trend. But it had to be -- restriction had to go down. And if the restriction go down more than we expected, then the market also will go up more. The follow...

Yes. And the second question on accounts receivable. They increased slightly in the fourth quarter. Do you anticipate that this line will continue to increase moving into 2021?

Yes. Actually, it was a margin -- it's actually -- it's in line because it's only reporting how much we actually had signed the agreements. So actually, it was actually SEK 2 million decrease. And over the lost time, we didn't expect it to be above SEK 500 million. A lot of the agreements are running off. We have some new ones coming in or which we agreed on in the end of the year, but we don't expect this to increase but stay on the level and decrease over time.

Okay. And then the external valuation, as I understood it, on average, they were 6% below the internal valuation, and you mentioned that one of the differences was yield requirements. Is there anything else? And why haven't you adjusted more based on the external valuation?

Well, as you know, we do the same way of -- method of valuating all our hotels every quarter. The only difference one can actually say is the yield -- long-term yield requirement, which the external appraisers outside the Nordic has used. Within the Nordics, we are very much in line. Cash flow-wise, we do have approximately the same expectations of COVID-19. But the external appraisers outside the Nordic have higher yield requirements, even long term. We don't see that evidence of any transactions, the opposite, actually, why we -- and well, there is insufficient evidence because there's very few transactions being made. If anything, they're actually at better yields. So we think it's insufficient for making valuation changes on that basis. But again, it's purely outside of Nordic. If this would be the case, we will be able to buy cheaply outside the Nordics. We don't see that at all.

That's clear. And then my final question, a question I've asked it before. Do you see any risks of having to take over any hotels for own operations in the near future?

No. Our partners are large professional operators, and they are what we can or what we have the information about. They have a financially stable situation. So we have no plans for taking over. We believe that we will go out together on this crisis and do business on the other side with all of that.

And our next question comes from the line of Chris Fremantle from Morgan Stanley.

I just wanted to make sure I had understood what you were saying on valuations. You went through it relatively quickly. So can you just explain what proportion of the total number of hotels by value have been externally valued?

Well, as we mentioned...

And of the -- sorry. And of the 5% year-to-date change, what is that number for the external valuations? And what is that number for the internal valuations, please?

Well, I'm not much sure of the questions, but let me start. We have, for the year, decreased the value of -- to 4.8%, out of which Investment Properties 3.3%; and Operating Properties 10.4% (sic) [ 1.4% ]. So in total, close to 5% down versus the -- versus December 2019. We have done 60, 6-0, valuations out of our 156 hotels, external valuations. Of course, we do internal valuations of all our 156 hotels. The difference of the external valuations versus the -- our internal valuations have been, on average, 6%, as I mentioned, to Carnegie -- to answer...

Sorry. Does that mean that your valuations at the beginning of the year were in line with external valuations and that they have moved their valuations down by 6 percentage points more than what you have moved them down? What is the valuation decline that the external valuers have moved their valuations down?

So we are when -- in the end of December 2020, for the properties outside the Nordic, mainly, there is a 6 percentage difference in the valuation, in the value amount. And that's all...

Let me ask in a different way. Let me ask...

Requirements long term.

I appreciate you've said that there's a 6% difference. What I'm asking you is what is the valuation change that you have applied when you haven't had them externally valued? And what is the valuation change for those that have been externally valued? I appreciate there's a difference. I appreciate there's a 6 percentage point difference. But what is the valuation change for the externally valued ones? That will allow me to have a flavor for the valuation change of the internal and the external. So have you made a valuation change for your internally valued hotels? Or have you not revalued them at all?

We have revalued all of our -- all our properties, as you say, with 5%, but we kept the yields unchanged, basically. So the total 5% downward adjustment for the full year is mainly or almost exclusively due to lower cash flow due to COVID-19. But we kept the yield requirements, both the yield and the terminal yield requirements, basically unchanged. When we do external valuations, which we do for reference points, then the value -- external valuations we have done, which are 60 in total in 2020, then especially the appraisers outside the Nordic region, have used a higher yield requirement long term.

And that's a good question. But that is basically the difference. They don't believe that this -- our industry will coming back in 10 years. And that is something that is surprise. For the rest, we agree about everything. And I would say if we don't think that hospitality industry back in 10 years, then I don't think that I have the job still. So we don't think that they are right. We -- I think we have a stronger point when we look at the future.