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

Good day, and thank you for standing by. Welcome to the Pandox Q3 2021 report. [Operator Instructions] Please be advised that today's conference is being recorded Wednesday the 27th of October 2021. [Operator Instructions] I would like to hand the conference over to the first speaker for today, Mr. Anders Berg. Please go ahead, sir.

Thank you very much, and I would like to welcome you all to this presentation of Pandox' third quarter 2021. I'm here with Liia Nou, our CEO and also acting CFO for the time being at least. In line with our tradition, through this pandemic, we also have an external guest, Robin Rossmann, Managing Director, International at STR. And as you well know by now, Robin represents a leading independent research firm focused on the hotel market, and he will share STR's view on this market. And please remember that the views expressed by STR are completely separate from Pandox and that we offer this presentation only as a service to Pandox' stakeholders. And also note that Robin's presentation will be held after we have completed the formal earnings presentation, including the Q&A. So we will start with Liia and myself presenting a business update with financial highlights for the third quarter, followed by Q&A, and then after that, Robin will do his external hotel market presentation. Next page, please. And I'll now hand over to Liia Nou, CEO of Pandox.

Thank you, Anders. A lot has happened during this quarter. One thing is that I've been appointed a permanent CEO of Pandox. I'm very honored and pleased with the trust placed in me to lead this fantastic company, which I've been a part of for more than 14 years. Pandox has everything I admire in a modern company, being a clear -- having a clear and strong business idea; a competent, experienced, and committed organization and board; as well as a corporate culture, which reflects the core values I cherish, being courage, integrity, competence, expertise, low sense of prestige, warmth, and a bit of playfulness. Also, we are very happy of the recent news that Anneli Lindblom will join as our new CFO. She has extensive experience from publicly-listed companies, both in the roles of CFO and Board member. And most importantly, she has strong personal qualities that will be very valuable to us. So, she will take on her new role 1st of December this year, so welcome Anneli to Pandox. Next page, please. Pandox has a well-diversified hotel property portfolio. In total, we have 156 hotel properties with more than 35,000 rooms in 15 countries and 90 cities with a property market value of more than SEK 61 billion. Pandox is divided into 2 business segments, Property Management and Operator Activities. In Property Management, we lease hotels to strong and well-known operators under long revenue-based agreements, and this makes up for some 83% of our property market value. In Operator Activities, we operate the hotel ourselves under different operating models and Operator Activities makes up for some 17% of our property market value. Next page, please. Pandox has one of the strongest networks of brands and partners in the hotel industry. As you can see in the picture, we work together with several well-known operators, for example, Scandic in the Nordics, we work with Jurys Inn in U.K., and Leonardo Hotels in Germany. We also have long relationships with strong international brands, such as Hilton, Holiday Inn, and the Radisson Group. We also recently added Motel One to our network. In the Operator Activities segment, we also have some independent brands created by Pandox, for example, Hotel Berlin, Berlin, which is our largest hotel with over 700 rooms. Next page, please. Hotel demand increased in all markets in the third quarter, supported by strong domestic leisure travel and increased business travel. The underlying drivers of demand were higher economic activity, lifted government restrictions, and increased vaccination rates. Our relationship with our banks are strong, and we have close to SEK 4.2 billion in cash and unutilized credit facilities at the end of the quarter. At the same time, our loan-to-value is a strong 49.6%. The level of economic activity in Pandox markets is high and household finances are strong. Vaccination rates are high and many restrictions that impact travel, conferences, and events have been eased considerably or lifted altogether in most countries. Companies have also started to return to the physical workplaces, laying the foundation for more conferences and increased domestic business travel, alongside continued active domestic leisure travel. All in all, the hotel market is now on steadier ground. Pandox is in an attractive position at around 80% of all rooms are regional and domestic cities. And, therefore, we have a high exposure to domestic demand, which is the main driver of the hotel market recovery. And to sum up this slide, we have a quick look at the numbers for the third quarter. Total net operating income increased by 17%. Like-for-like Property Management increased net operating income by 11%. Return on equity, measured by annualized growth in EPRA NRV was, approximately, minus 2%. Next page, please. In the third quarter, we saw a clear improvement in demand and earnings in both business segments. Like-for-like, our total revenue increased by 25%, while net operating income increased by 24%. Only minor government support was recorded in the quarter. In the quarter, accounts receivables relating to deferred rents under temporary payment terms amounted to, approximately, SEK 650 million, which is in line with the second quarter, and the difference is basically only currency change. Repayment of deferred rent is expected to begin in the fourth quarter of 2021. Next page, please. Pandox revenue base is diversified with revenues from different operational models and agreement types. Currently, the minimum rent and fixed rent in Property Management is our main source of revenue. This amounts to more than SEK 1.9 billion per year or, approximately, SEK 475 million per quarter. In the third quarter, we had the revenue-based rents of SEK 147 million, mainly from leases without any minimum guaranteed rents. And due to structure of agreements, we only expect limited variable revenue in leases with minimum guaranteed in 2021. The revenue from Operator Activities amounted to SEK 287 million. Next page, please. Here we have a comparison of the occupancy levels for our business segment Property Management from 2019 until today. The numbers are based on 135 hotels in more than 80 destinations. As you can see, occupancy is currently somewhere between the strong 2019 and the weak 2020 for the month of September being 55%. In Q4 2020, as you remember, Europe witnessed a rapid increase in COVID infection rates and tough restrictions, which led to very weak occupancy in the quarter of 2020. Currently, our prospects for the hotel markets are markedly stronger and occupancy in Q4 2021 will be higher than last year. All in all, the hotel market now rests on a much steadier ground. Next page, please. Here we have Pandox' portfolio in Property Management categorized based on type of location with occupancy index versus 2019. The locations being interstate, our classical roadside hotels; resort, like the hotels we have in Brighton and Lillehammer; airport, like Radisson Arlanda, T4 Heathrow; suburban, that is outside city centers, like Scandic Solli to [ north of Italia ]; we have regional cities, meaning Stockholm, Copenhagen, Manchester, Glasgow, Hamburg, et cetera; we have small cities being hotels like in cities like Boras, Lubeck or Hamburg; and finally, we have large cities, for example, Amsterdam, Brussels, Dublin, et cetera. And as you can see, small cities and interstate are leading the recovery, which is explained by the higher degree of domestic demand. We can also see that large cities, which are more dependent on international demand, have had the slower development. However, large cities are likely to catch up as international travel becomes easier and the recovery continues. Next page, please. On this slide, we have divided the portfolio in Property Management into 4 different index categories. It showed that in third quarter of this year, 2021, 1/4 or 25% of the number of hotels in the portfolio have recovered up to at least 90% of the corresponding RevPAR level in Q3 2019. Another 26% were between 75% and 89% of the level of 2019 and another 26% between 50% and 75%. Lastly, 23% of the number of hotels were below 50% of the Q3 2019 RevPAR level. Next page, please. Now I would like to highlight some important business events in the third quarter. First out is in nhow Brussels Bloom, for which we recently completed a major renovation and upgrade. The hotel has been rebranded to nhow, which is the lifestyle brand of NH Hotel Group. It has a distinct eccentric design and really stands out in Brussels hotel market. The renovation covered all of the 305 rooms, the lobby, and the public area as well as expansion of our fitness area, which we like. Next page, please. Following an extensive renovation and change of brand, the DoubleTree by Hilton Brussels City has now opened its door to the public. As you may know, the hotel is located in an 8-story Art-Deco building, which is a landmark in Brussels. The hotel has very strong location, just minutes away from Grand Place and all main attractions of the city. This fully-renovated and refurbished hotel features 354 rooms and suites and extensive meeting and conference facilities. All in all, a very strong product. Next page, please. 31st of August, the lease agreement of Maritim Hotel, Nurnberg expired and Pandox took over the operations. We also reclassified it to Operator Activities on the same date. We see great value potential in developing the hotel, and we will invest, approximately, EUR20 million in a comprehensive renovation and repositioning of the hotel, and we expect this to be completed during the second half of 2022. The hotel will be closed during the renovation. Next page, please, Page 27. Pandox took over the operations of h27 in Central Copenhagen in April 2020, just when the pandemic started. We immediately started on a renovation and repositioning project, which has been completed in June 2021. 1st of September, we were happy to announce a new lease agreement with Motel One. The lease is a revenue based with a minimum guaranteed rent on attractive terms and a tenure of 20 years. We very much look forward to working together with the highly-skilled team at Motel One, and the hotel property has been reclassified to Property Management 1st of October 2021. Next page, please. In the third quarter, Pandox valued the property portfolio according to same method and model we've used since the IPO, which we did in 2015. Value changes in the third quarter were modestly positive and yields largely unchanged due to the still inconclusive transaction evidence. Approximately, 83% of the properties have now been externally valued during the last -- past 12 months and are on average some 5 percentage points below Pandox internal valuations. External valuations exhibit large dispersions both between -- within and between markets, and the valuation difference are smaller in Nordics and larger outside the Nordics. The 25 external valuations we carried out in the third quarter were on average some 3% above Pandox internal valuations. In the third quarter, total unrealized and realized changes in the value amounted to a positive SEK 48 million, of which a negative SEK 9 million for Investment Properties and a positive SEK 57 million for Operating Properties. And as always, please note that according to IFRS, our unrealized changes in value for operating properties are only reported for information purposes, but it's included in the EPRA NRV. End of period, the average valuation yield for Investment Properties was 5.45% and for Operating Properties, it was 6.4%. Next page, please. On this slide, we can see the value change of our portfolio per quarter as well as accumulated value change from the start of pandemic in the first quarter of 2020. For the total portfolio, the accumulated negative value change over this period amounts to 5.0. There's, of course, a high correlation between restrictions and demand in the hotel market. When restrictions go down, demand goes up and vice versa. There's proof from Pandox markets and other markets of a strong recovery in hotel demand when restrictions are eased. Banks are supportive, liquidity is strong, and transactions relevant for Pandox are supporting hotel property valuations to be quite resilient. We have an established and proven valuation process, and we know our hotel properties better than anyone else. We have individual business plans for every property, and we have a detailed understanding of the specific demand and revenue drivers for each asset. Next page, please. Quick look at the EPRA NRV and financial position. End of period, EPRA NRV per share amounted to SEK 171.49. This corresponds to a decrease of, approximately, 2% on an annualized basis. Loan-to-value, 49.6%, and cash and cash equivalents and long-term unutilized credit facilities amounted to SEK 4.2 billion. Our credit facilities maturing in less than 1 year amount to, approximately, SEK 3.9 billion, of which SEK 2.3 billion will mature in December 2021. Our refinance and transactions during the quarter amounted to the equivalents of around SEK 1.9 billion, and the remaining facilities maturing this year are expected to be refinanced in the very near future. In the third quarter, lenders have been giving waivers in the individual credit agreements. It is also worth mentioning that the appetite of our commercial paper program has increased, and we had, approximately, SEK 1 billion outstanding at the end of third quarter. Next page, please. And with that, I hand over to Anders Berg, Head of Investor Relations, to guide us through what happened in the hotel market in the quarter.

Thank you very much, Liia. Yes, as you know, we expect the hotel market recovery to take place in phases where different segments are gradually building up demand in the hotel market. Over the course of the pandemic, our markets have moved largely between Phase 1 and 4, depending on the level of restrictions in each market. Most of Pandox markets are currently in various stages of Phase 4, with domestic business demand gradually increasing and thereby adding to the already strong demand from domestic leisure. As more demand segments are added to the mix, the hotel market recovery is getting more robust. Next page, please. The third quarter saw a marked improvement in hotel demand following increased vaccination rates and removed restrictions. The summer was strong in all markets with domestic leisure demand as the main driver. Smaller and regional cities continue to outperform, but larger cities improved steadily as the quarter progressed as removed restrictions made it possible to reopen various leisure attractions. Towards the end of the quarter, additional support came from an increase in domestic business travel, which also compensated for some of the lost leisure demand as parents went back to work and kids went back to school. Overall, ADR was quite resilient in the quarter. However, international demand remained low. Next page, please. The following 6 slides summarize the ebb and flow of demand throughout the pandemic in Nordic regional, Nordic capitals, Germany, Germany regional versus international cities, U.K. regional and London. The chart on the left is based on monthly occupancy data and the chart on the right is based on weekly data. I start with Nordic regional to illustrate the pattern, which is largely the same in all markets, and I'm now describing the chart to the left. The recovery that started in the second quarter 2021 continued in the third quarter on the back of increased vaccination rates and reduced restrictions. So far in October, Nordic regional has continued to perform well with occupancy levels close to or in some cases above those in 2019 as more segments have begun to contribute to demand. Next page, please. It is a general trend that larger cities with a high dependence on international demand have seen a slower development than smaller and regional cities throughout the pandemic. During the third quarter, however, larger cities saw a strong relative improvement in occupancy based on increased demand from both leisure and business. In August 2021, Nordic capitals recorded their highest occupancy since the pandemic started 18 months ago, and the trend looks promising also in the first weeks of October. Next page, please. Restrictions in Germany, as you know, have generally been tougher than in many other countries, which is reflected in the absolute occupancy numbers. That said, occupancy improved greatly in the third quarter, supported by the same trends we saw in the Nordic region, strong leisure demand during the vacation period. Also, RevPAR rose to very high levels, especially in attractive leisure destinations. Business demand also improved towards the end of September. And as you can see from the data, October has also started positively. Next page, please. Here you can see the relative difference in occupancy between a regional city like Hamburg and a more international city like Frankfurt, which is more dependent on international demand. Where Hamburg is clearly benefiting from strong domestic demand, Frankfurt is struggling more since important demand segments are still missing. However, September was the strongest month in Frankfurt since the start of the pandemic, also highlighting that business travel has begun to recover. Next page, please. Among Pandox' markets, U.K. regional was the brightest spot also in the third quarter. Occupancy rose immediately after the reopening, 17th of May and reached, approximately, 65% in June. And after the restrictions were completely scrapped, 19th of July, it increased further, reaching, approximately, 71% occupancy in July, 77% in August, and 76% in September, and October has started on a high level as well. And U.K. illustrates well the direct correlation between restrictions and demand as well as the pent-up demand for travel and experiences. Next page, please. London is one of the world's largest and most international cities, and it has been suffering greatly from closed offices, travel restrictions in general and, of course, low international demand. Starting in February 2021 -- from February 2021, occupancy has been increasing now for 8 consecutive months, reaching 62% in September on the back of eased restrictions and return to offices. And October has continued on reasonably good levels as well, as you can see from the data. Next page, please. With high economic activity, strong corporate profitability and companies reopening their offices, we expect demand for business, meetings, and travel to increase. Companies are reducing internal travel restrictions, and we think also reconsidering some of the most extreme ideas about travel that they had at the height of the pandemic. The pickup in white collar travel we saw in our markets in September has continued in October. While demand is mostly driven by business transient and smaller meetings, demand for regional meetings is also increasing in Operator Activities. Positive for business travel going forward is also that trade fair calendars are beginning to be restored. So, we still believe, yes, maybe fewer business trips, but also a high likelihood for more hotel nights once you travel. Next page, please. So to summarize, we currently see most of Pandox markets moving towards or are already in various stages of phase 4. From a relative perspective, U.K. remains the strongest market. All markets are showing improving occupancy, including larger and more international cities based on strong domestic leisure demand and a recovery in business travel. We also think that the planned easing of travel restrictions between the U.S. and Europe in November should lead to an increase in international demand from the current very low levels. Next page, please. And with that, I hand over to Liia again.

Thank you, Anders. So we see improved conditions for growth. We base this on high economic activity and pent-up demand for travel. Domestic leisure demand is expected to remain strong, and we expect a gradual increase in business travel as offices and trade fairs reopen. For 2022, variable rent is likely in a majority of lease agreements with minimum guaranteed rents, provided that the recovery continues. The main uncertainty is governments' response to seasonal evaluations in infection rates and new virus variants. But let's hope that is all behind us now. Next page, please. Most importantly, don't forget our Annual Hotel Market Day on November 23, which will be live and recorded. We promise you a very interesting afternoon. So go to our website to find out more. Next page, please. And we now move over to the Q&A section. Operator, we're now ready for questions. And please do not forget to hand the call back to us afterwards for Robin's presentation after the Q&A.

[Operator Instructions]. We have one question on the line, and that comes from the line of Simen Mortensen from DNB.

This is Simen here. I just had a few questions. It was extremely strong July in the Nordics, for instance, and domestic demand during Q3 seems to be an inflated RevPARs in Q2. That stay-at-home vacation element, how do you think about the prospect for continued -- will we see Q-on-Q growth for Q4, given the very, very strong July impact or the summer impact in the various markets? What are your expectations there? Are the recoveries strong enough to compensate for that summer effect, which helped in Q3, please?

Sorry, it's, yes, year-on-year. Well, yes, in the...

The Q-on-Q, Q-on-Q and for Q4 because of the strong Q3.

From the first quarter.

Yes.

Well, yes, of course, you have the business travel coming in and also the sort of international. And when it comes to -- the question was regarding the...

Will you see an [ offering ] -- we'll have Q-on-Q recovery with the Q3 being as strong as it was on a lesser effect?

Yes. I think just starting off to answering the question, I think that, as you say, I mean, Q3 was really boosted by strong domestic demand on the leisure side. That has continued, I would say, on weekends going into the fourth quarter. And then we get additional support from business. That's certain. Whether that will be enough to really push us to a sequential increase compared to Q3 is really too early to tell. Year-on-year, of course, we are meeting a quite easy comparable quarter. But on a sequential basis, I would say it's possible, but it's still early to tell.

Okay. In the addendum on your presentation, Page 33, there seems to be some new information so I can see it. You have a slide where you have fully variable leases, and you state 6,666 hotels are, if I understand correctly, on fully-variable leases. Is that correct? And those will be just in the Property Management fully reflecting on the RevPAR performance of these hotels?

In the appendix, we have like 30 -- but this is still the same number of [ miles ] which were in the third quarter, meaning that we have, just let's check on the rooms. So, we have 32 hotels with fully-variable leases and 6,666 rooms.

Are these calculated quarterly or annually? And how will that affect eventually Q4?

The number you see there is based on the outcome of 2019. So, it has not been adjusted to the situation we have now, but it doesn't deviate that much.

[Operator Instructions] No further questions at this time. I'll hand over now the call to Robin Rossmann. Please go ahead, Robin.

Thank you very much, and thank you for having me along again today just to share some of our insights on what's happening to performance across Europe. So, I think on the screen now should be a slide that says, European Performance Updates October 2022. And just as Anders said, we are an independent firm, and we're sharing these market insights. It is not investment advice or any of that. It is our own assessment of what's happening in the market. And if we go across to the next page on to the agenda, the 3 areas that I'd like to cover today are really taking a look at the big question that's been on everybody's minds through the summer months, which was we all recognized and saw the impact of really a very, very strong summer because of pent-up demand. But the question was when that summer season ends, will business travel return or not? So that'd be the first thing I look at. I'll then go on to average room rates and a bit of a rate roller coaster that we've been seeing in the markets and then finish off with how that rates have so far been driving a profitability rebound that was a bit stronger than everybody expected, and what we can expect going into the future on that. So next slide, please. The question is to will business say is it yes, no, or depends. And if you go to the next slide, I think this is -- it's a lot of different data across a lot of countries. We'll pull out some of the top performers and the bottom performers in a bit. But the big question around will business travel save us as leisure fade. The answer, I think, is either depends or yes, depending on the country that you're in, but generally, yes. This shows you occupancy indexed to 2019 through the months of January through pretty much the end of October in 2021. And what you can see is the ramp-up in the summer months where occupancy for countries as a whole went up to 60% to 80% of 2019 occupancy levels. Now -- and then -- and as we went through into September and October, instead of dropping back down to the 20% of 2019 levels that we saw happen at the end of last year and as was the case at the beginning of this year, we have seen that it's maintained. It's held steady at that 60% to 80% to 2019 levels. Now if you go out and look across commentators in the industry, everybody has a view around when will business travel recover. And I'm not here to give you that view. What I'm here is to show you the actual data that in the month of particularly October -- September, October, when yes, there might be some shoulder leisure travel, but the reality is most of it has gone away. The occupancies of countries as a whole have not fallen off a cliff like they did last year. And this is an environment where, I'm sure you all realize, we are still nowhere near back up to the normal levels of business travel activity as companies and as individuals ourselves. So, this is showing you actually quite a strong resilience of market occupancies even when we still don't have international travel back at all really, and we have some pan-European travel back, but not really that much back. People are only really beginning to get back to the office now. And we're only going to start seeing that proper recovery of business travel, I would say, beginning of next year. But even before that, we're seeing that there is this residual necessary business travel that has been stopped and is coming back already based on the data that we've seen. So next slide, please, on to Slide 5. As I said, it does depend on where you are in terms of how strong this has been. If you look at the top performers, Germany, Poland, Russia, Turkey, and the United Kingdom sort of indexing 60 -- 70% to 85% of 2019 levels. And please bear in mind, these are peak business travel months, peak conference months that typically happen in Q4s, and that conference demand is not back yet. So this is actually quite remarkably strong in that context. The U.K., obviously, ahead of most European countries because of the faster vaccine rollout. And even though cases are particularly high here in the U.K. at the moment, they're staying resilient because of the high vaccination rates at around about that 80% of 2019 levels. Germany, too, is about that -- around that 70% despite not really having fairs come back fully yet. Next slide, please. Some of the countries where performance is not as strong yet are Belgium, France, Italy, Netherlands, Portugal, Spain, back in the 50s to 60% indexed to 2019 and really still not as much recovery there. Digging into why they're so much behind the other countries, still haven't had a lot of solid answers. But that domestic travel not coming, business travel not coming back as fast there yet. But there's no reason to believe that it's gone forever given it has come back in other countries like the U.K. So next slide, please. So that data takes us up to the sort of the middle end of October. What we're also able to look at is what is the business on the books for the next 28 days. And this shows you what business on the books for the next 28 days was at various times throughout 2021. And you can see in the light green of each of these countries, back at the 10th of May, for the U.K. business on the books was only about 20%. So, as at the 20th of May or 10th of May, there was only 20% of rooms sold for the next 28 days. And as you've gone through the year, you can see how that's picked up through the [ single month ], and it's held steady. So even for the -- in the U.K. for the date, 18th of October, looking forward, to the next 28 days, business on the books was marginally stronger than the week before. And as you compare that across the countries we've got here, we can see those countries that I said were struggling, particularly Belgium, Netherlands. They are looking to continue to recover strongly. So, whereas the U.K. is likely to look stable going into November, December, we should see stronger recovery coming through Belgium and Netherlands based on the rooms that have already been sold as of effectively the middle of October. So, again, I can't say when business will recover fully. But what I can say is already it has recovered a lot and is trending to recover further. So, moving on to next slide, please. So clearly, that's a country level. And it's easy to -- well, it's important to recognize that countries are -- markets within a country performed very differently. Certainly, through the summer, leisure markets were indexing above 2019 occupancies and well above 2019 room rates, but major cities like these gateway cities across Europe were not. And if you look at September year-to-date occupancy, this is just absolute occupancy, you can see it's been a tough year across European gateway cities. As an example, London 31% occupancy, Amsterdam 21% occupancy. It's a pretty tough year. So moving on to next slide, please. But as we look for the month of September, so this is not year-to-date September, you can see it's actually a lot better. Again, this is occupancy of total rooms. So, this is adding back closed hotels. You can see London up at 58%. Many cities at over 50% occupancy. And if you move on to the next slide, please. If we look at open hotels and index them against their 2019 occupancy, so this is an absolute occupancy. This is indexed. You can see that many are indexing around about 2/3 of their 2019 occupancy already. So a lot of data there, but basically, what we're saying, hey, in September, it's not leisure month, international travel isn't back yet, we're still a long way from fully recovered, but it's very different to this time last year. We are still continuing on path of recovery and occupancies across those markets that have been impacted the most, which is major gateway cities, are actually indexing 2/3 of 2019 occupancies already, which is pretty strong. And when we move on to slide -- the next slide, this is looking at business on the books again and how it's looking for the next 28 days. It's at a city level instead of a country level. And you can see that actually, it's a much more positive trend than the country level in the sense it hasn't flattened out and stabled. It's actually continuing to grow in most places, especially places like Amsterdam, Brussels, Barcelona, Paris. Each week, the business on the books for the next 28 days is stronger, and it's not flattened out like it has from a country level. And the reason for that is the country level is a mix of cities like this, which are trending up and leisure destinations which are trending down a bit. So what that's saying is very much we're into the next phase of the recovery. Leisure is going away, as it always does in the winter months, but it is being replaced by that business travel. And importantly, particularly in these gateway cities that have been struggling, it is coming back. So, there you go, reference to all of you guys with kids, can Bob get that back? Yes, he can. So on to slide -- the next slide, which should be called ADR roller coaster. And then on to the next slide, which says, European rates recover ahead of occupancy. And this has been one of the biggest surprises looking at August absolute occupancy and rate index to 2019. You can see at a country level, similar to the data I showed you earlier, for the month, yes, there were some destinations and hotels that had occupancy indexed above 2019 levels. But for countries as a whole, occupancy was still indexed 60% to 80% of 2019 levels. However, rates for most countries was indexing at or above 2019 levels. Turkey a bit of an outlier there, obviously, because of the currency situation and most hotels in Turkey actually pricing in euros, so getting some uplift there. But if you ignore Turkey for the moment, you can see really strong rate recovery, which is certainly much faster than anyone would have predicted, underpinned by that pent-up leisure demand driving significant rate increases in those markets where there was leisure travel and then cities and those markets where there wasn't much demand, maybe not discounting as much, but really, it's a story of mix. So, where there was demand, it was high rates and demand. And as we go into September and that leisure demand has faded away, next slide, you can see that the indexing is slightly lower, but still rate is not far off 2019 levels. If we go into the next slide, please, this is actually just looking at rate by month indexed to 2019. And you can see that it definitely peaked up in the summer months. Rolling 28 days, it's a bit of a lag there. But you can see as we've gone into October, it has dipped down. Now that dip down is actually less to do with rates decreasing and more to do with the fact that rates are stable and that this data is indexed to 2019. And usually, we'd see rates go up because of that higher international business travel in October -- September, October, but instead, rates have been stable, and the comparables get harder. So that's why we're seeing that rate index lower again. And just looking at some of the individual countries. Next slide, please, on Slide 16, you can see that in countries like the U.K., which have been further ahead on the recovery, that actually rates have flattened out around about 2019 index levels. So -- and then Italy, Portugal, and Russia dipping off a bit but more leisure travel there. It's still indexing around about 100%. So I think the U.K. is a really good benchmark for what to expect for Europe in the long term as things normalize and pretty strong rate recovery there overall with really underpinned by leisure still being strong but fading, the regional cities doing really well. I don't have the slides in here to show you that data. But certainly, those secondary cities, Liverpool, Manchester doing really strong and London is starting to come back. The country is doing less well. Next slide, please. Similar to those from an occupancy perspective that are -- haven't come back as strongly as the U.K., yet, Belgium, France, Germany, Netherlands, Poland, Spain, all indexing at 70% to 90% of 2019 rates. So next slide, please. Just a few slides on profitability because, clearly, as we're now into the next phase of the recovery here, the initial phase was worrying about occupancies, well, will that come back. Once we've understood the occupancies and the volume coming back, then it's the profile of rate recovery, and we're starting to see that, and it's been stronger than we've expected. But clearly, what's most important from an investment perspective is what's happening to profitability. We also track that across Europe. And what we can say is, if we move on to the next slide and looking at the global picture, Europe is actually seeing gross operating profits recover very strongly through the year and indexing higher than most other regions of the world because of that strong rate growth in leisure markets in the summer months. So indexed to 78% of 2019 GOP. And if we look at it at a city level, next slide, please, you can see some of those gateway markets actually off to a particularly tough start to the year because of the low volumes, were indexing back at somewhere between 10% to 25% to 30% of 2019 levels as we went into August even at a gateway city level. So it's that stronger rate recovery than expected is helping drive that GOP recovery. And the big question around cost inflation is clearly one that everybody is looking at. And a lot of the extent to which the hotel industry will be able to absorb that incremental cost will depend on the ability to hold and get that rate recovery continuing. So that will be the one to watch in the months to come. And with that, I will say thank you and hand back to the Pandox team.

Thank you, Robin. I hope you can hear us now. Thank you, Robin, for this hotel market update, and thanks to all folks. Thank you for participating in this call. We really appreciated your time and interest in Pandox. And our year report for this year is published on February 10. Thank you all. Stay safe, stay at our hotels, and have a great day. Goodbye.

Thank you. This concludes the conference today. Thank you all for participating. You may all disconnect. Have a good day, everyone, and stay safe.