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

Yes.

Okay. Perfect. So moving over to cost of debt declined somewhat quarter-on-quarter, and you do have quite a lot of debt maturing within that year. Do you think your cost of debt has peaked?

Sorry, that's our cost debt has peaked. Well, yes. And as we read in the report and what we're seeing the credit margins are coming down on the refinancing. And also, of course, we take the opportunity to refinance where it's possible. So the credit margins are both from our old pandemic times, but also sort of in a different more worrying environment. So I do believe we are -- of course, we have more than 70% hedged, so we'll take a little bit more time, but we are refinancing continuously, and it definitely will come down.

And then my final question relates to acquisitions. There has been quite a few deals in the European hotel market year-to-date. Has the price levels been too elevated for your taste? Or is it more related to what kind of assets and portfolios has been out there?

It's -- we are -- as always, we are looking and we are looking more at different both single assets and small portfolios than ever. Typically, these put us through and as it takes a little bit of time to put in place. There are quite a few interesting things out there, but is also, of course, a big chunk which also hasn't been moved or turnover for a long time. So there's a lot of especially fixed leases, which were not really our cup of tea. But there are definitely interesting things out there, both price-wise and market-wise.

The next question comes from Albin Sandberg from Kepler.

So a couple of questions, please. And if we take -- I think you said, Liia, that basically repeating the hotel market outlook for this year. And just looking at Q2 isolated, how did that play out versus your expectations when you ended Q1?

Well, we were not least disappointed, if I going to say so. I mean at plan slightly better, I would assume, because you never know, of course. And of course, there's always worrying about everything from inflation, interest rate recessions, and God knows what. But very positive from the -- from Germany. Germany as such in April-June was pretty flat, but the June jumped up, and we are not sort of on plan or even better. And U.K., Ireland fantastic, all going along speaking for.

And if one were to compare the market RevPAR numbers that you provided in the report with Pandox own sort of RevPAR is your feel that you are outperforming the market or in line with the market or maybe even underperforming the market?

Would it come to prices?

RevPAR in general.

Well, so far, a lot of the RevPAR growth, I mean, on the sort of most extreme upside has been the South of Europe. And as you know, we don't have so much presence in the Europe. But you could say that we have more potential as Germany is coming in. I mean you had a strong performance in Belgium, et cetera, this quarter. But we are -- country by country, I think we are in line with the performance. On the total Europe level, then, of course, we don't have the presence in the South of Europe, and especially Italy, Spain, and Portugal has been heading the pack.

Yes. I'll let that. I was thinking more on the markets where you're actually present. So I'll take it. [indiscernible] And on your ongoing developments where you indicate SEK 300 million of NOI increase. And I guess 2 of them are completed, how much of those 300 are already in the numbers by Q2?

Well, basically, nothing yet. I mean we have Pomander which come into place in, I think it was 1st of March. Scandic Go, Citybox, et cetera, they will come in, in the second half -- so basically, there is very little yet, which are coming in.

And then, of course, I understand the -- especially the stock market is changing quite rapidly direction. And just thinking about your commenting about the refinancing and so on. And of course, been a lot of focus on that. And then we have seen, I guess, a very supportive start to the overall refinancing opportunities, not going to for you but for your peers. But you still spend some time commenting on that. And I guess, being a property company with a lot of debt, it's not unusual in that sense. But I guess when we look at the upcoming refinancing now over this year and maybe next. You indicated that you're expecting a positive outcome on that, not a negative, I guess, it's the -- but do you think that this kind of -- when do we get into some kind of a steady state on the refinancing? Or are we still in a special stage or in states where you sort of, I don't know, maybe adjust your debt portfolio for a longer credit maturity or anything like that? I guess we will always have the comment when you -- when we report going forward. Or is it still something especially you want to highlight to us?

I think we are -- as we are sort of refinancing our portfolio, we indicated on the last call that new refinancings are around 40 basis points lower. If anything, I think maybe the lowering of the credit are even higher than that. So as -- so pre-pandemic, the average margin was around 150 or so. Maybe it's peaked about 230, 240. Now we are heading back hopefully below 2% again. So whether we'll go back to 150 for the whole portfolio, and that will probably take a little bit longer time, but I'm sure we'll actually get there as well.

The next question comes from Edoardo Gili from Green Street.

One question for me. In terms of -- it sounds like you're going to be a grower, so either acquisitions or more developments. I'm going to know what sort of yield on costs you'd be targeting for sort of new developments, either new ground-up developments or value-add type opportunities.

Well, we only do a value add. We don't do sort of newly built. So the acquisition -- either we develop in our own existing portfolio or we acquire properties where there is possibility to continue to do some development and value creation, which would be sort of -- and it would be in line with what we have seen before with our average yield on.

So could you elaborate on the average that you've seen before?

Sorry, the average -- when it comes to our own investments, I mean, in our existing portfolio, typically, we would have a return of around maybe 10% to 15% or 12% to 15%, depending on what kind of development it is when it comes to acquisitions, and of course, it depends on which country will do that in, but hopefully, we'll find some -- I mean the last acquisitions we did for 9%, 10%, of course, I would do hundreds of those if we were able to do. I think it is coming down. But typically, we do find ways of getting very healthy returns as we buy something and then we do continue the investments and develop the properties, adding even more value.

And maybe another quick one. Are you looking at also other geographies that you haven't invested in? I'm thinking Southern Europe has been pretty active in terms of acquisitions and deals. Is that an area you could expand in the future as well?

Well, we would typically do where we already are and of course, neighboring countries as well. I mean there's -- we are a small -- there's a lot of opportunities already where we are. There's a lot of huge markets. We've been looking at Spain. We've been looking at some different markets as well. It's typically sometimes been too expensive. We'll be a little bit too late in that, but we would never say never, but there is more than enough to do as well also in the regions where we are, especially U.K., Ireland, Nordics, Germany, Benelux, et cetera.

There are no more questions at this time. So I hand the conference back to the speakers for the next part of the presentation.

Yes, thank you for the questions. And now we would like to hand over to our guest speaker, Alex Robinson, for the hotel market update. And a reminder once again that Alex's presentation is totally separate and independent from Pandox. And it is arranged as a service to Pandox stakeholders. So with that, please go ahead, Alex.

Good morning, everyone. Thank you for the welcome. If we commence with our first slide, what we can see is global demand for hotels, number of rooms sold, and the good news is, since Thomas last presented to you on the April call, is that trend of selling more rooms as a global industry is continuing now in effect for the last 17 months. If we then go to the next slide, please. What we can see is there has indeed been a slowdown in terms of percentage year-on-year change for demand. Notably, we saw contractions in February and March. So positive news, we've seen gains back in April and May. And a big driver of that, which we'll see if you head to the next slide, please, is the U.S., which did have declines towards the end of last year, start of this year. But as we can see in both April and May, albeit with muted supply growth of less than 1%, demand easily outstripped that generating overall growth. On to the next slide, please. What we can see is a picture of global occupancies. And much like Thomas presented in April, mixed picture, if you take into account the likes of Mainland China, Northern Africa, South America, where we do see declines. And if we look at Europe, we do see commendable growth year-to-date of 2% through until May, full occupancy of 66%, still slightly off the occupancies at 2019. But what I think is important to remember here is that since January of 2020, we had almost as many as 3,000 hotels approaching 320,000 new rooms open across Europe. So even while the industry did stand still for a period during those lockdowns, constructions did move forward. And we are indeed selling into a bigger pool of rooms, which I think makes the recovery and growth that we've seen a result even more impressive. On to the next slide, we'll start to take a look at occupancy, average daily rate, and revenue for available room percentage change for Europe. Again, we can see February and March, particularly in April with a shift in Easter, slower gains, but then back in May with more commendable growth of 6%. And overall, while it may appear to be a deceleration, I think it's important to contextualize that there's large double-digit percentage growth that we saw during the recovery period, are now making way for more single-digit range of growth that we would have expected pre-pandemic and would have been present in normal market trading. On to the next slide, and what we can see is that it's a positive picture of growth as far as occupancy on the books. When we last provided an update in April, we could see that weekend business was about even with where it stood last year. More good news that we can see as of July 1 when this data was captured that actually weekend stays are ahead. And one of the big questions that we get from investors on many calls, presentations, is can this European summer be as good as it was last? And the initial data is very positive. And one thing that we've been keen to highlight this year, which you can see again in the middle portion of the slide for weekday, is that weekday occupancy on the books is also ahead and is fostering growth, which you see on the next slide, please, what we'll then see is ADR by stay pattern. You've got your shoulder stays, Sundays to Thursday for the glass of wine. Midweek, the laptop representing a more corporate stay pattern, and then your golf bag for your leisure. And if we look at 2022, briefly, no surprise. We all know that leisure led us out in early stages of recovery. 2023, that got closed. We started to see midweek and shoulder stays get back and be on the map. And now into 2024, you can see that gap closing. And what's interesting is if you look at many cities, particularly across Europe, and it's actually that midweek stay pattern both in occupancy and rate that's driving that growth. So the next slide, please. What we'll then see is a comparison between European revenue per available room and U.S. per available room, index to 2019. And we talk about the importance of that summer that pack-outs calendar, the euros taking place in Germany, the Olympics upcoming in Paris. And you can see there in 2023, that was the inflection point for when European performance surged ahead and you now cast your eye to the end of the axis in May, and you can see that is taking into effect again. And that's also bolstered by, you can see the small graph there to the bottom right, within their 1 percentage point more occupancy than we did had same time last year in July and August, and also for September and October. So it does make for a very positive reading in general. So the next slide, please, what we see is talking about that regional picture, and you touched on this in some of the questions and commentary earlier. U.K. and Ireland fully recovered relative to 2019. Again, I think very impressive when you consider all new rooms, but also enter that market in the meantime, Southern Europe also performing well. And good news also for CEE and the dark countries where, yes, they are towards the end of the spectrum. But if you look at the very bottom there for year-over-year percentage change, you can see making games. So not standing still but actually pushing ahead to close that gap. So the next slide, please, what we'll see is rate, and this is really when is one of the questions answered earlier around the performance in the Mediterranean and you talk about Italy and France and Spain, which have had really strong performance in the convergence of international travel strong luxury offering and all catered towards leisure. Notwithstanding the rest of Europe, while not perhaps seeing those same levels of rate growth that we're seeing across the Mediterranean, also strong levels relative to 2019. And if you cast drive to the bottom again, in year-over-year percentage change, you can see still growing even on top of that already impressive growth. So the next slide, please. And now we pan out for a bird's eye view of capital in key cities across Europe. And it's not quite as bright viewing as Thomas shared with you. In April, it is a slight bit of softening in terms of occupancy growth. And you do start to see some of those markets, Dublin, for example, where supply growth is outstripping that of demand, starting to slow somewhat. Paris, you also see, which we'll touch on in more detail a bit of displacement in the lead up to the Olympics. But overall, very small declines, if any, and not quite the same level of growth but still growth overall. And to the next slide, please, when you look at the year-to-date figures for average daily rate, you can see those contractions in Dublin, again, which we highlighted where supply is outstripping that of demand. If you cast drive to Warsaw, for example, you'll be able to see that, that market had record years, year after year and does have more supply coming into it. So ADR growth more muted there. And then to the Baltic states where you do have some demand challenges or in the likes of Vilnius comping over an active event calendar last year. So looking south across the Mediterranean, you can see those encouraging figures of rate growth overall. On to the next slide and now having a cross-section of performance by class, luxury all the way through to economy. Again, we see that all classes are ahead in 2019, but we're still seeing the continuation of a theme, which indeed is a global theme, not just a European one, where our luxury hotels at one bookend, economy hotels at the other are the strongest in terms of performance and mid-scale, slightly less in terms of gains versus 2019. And on the next slide, we'd say what could we infer overall versus business on the book. So as of July 1 for each respective hotel class from July until September, what level of business on the books do we have versus the same period of '23. And you can see, again, it is economy and luxury hotels with a large number of business on the books, relative to the same period. But good news also for all classes that while they may not be performing at the same level, they do indeed have more positive occupancy on the books than they did versus last year. On to the next slide, and this is one I thought to include and Thomas could include again in April, but I think really important to highlight here what we're seeing in terms of occupancy week-over-week in '23 versus '17, highlighting no change in the data. There is no AI applied. We didn't add any intelligence to that. It simply those occupancy week-over-week percentage points difference overlap. And you can learn a great deal from the past and that we're very much perhaps creatures of habit and prove being if we go to the next slide, what we can see for the first half of 2024, albeit April and May, slightly less of a correlation due to the shift in Easter. But again, following those same week-over-week occupancy gains or declines relative overall. So we can learn a great deal of performance when looking at the past and taking that forward into the future. And on to the next slide, please, and I think at to cover Germany, as Thomas did in April, but also in light of the large events calendar, not just that of euros, but many other [indiscernible] and large-stage concerts. You can see occupancy there pushing closer and closer to 2019, April and May a bit of a gap. But now as we head into all of the fixtures for the euros and events throughout the summer, you can see June and July pushing ever so close. And to the next slide, please, you can really see the impact of the football there, that first weekend fixtures through into July, really steaming ahead in terms of rate and starting to push onwards. And on to the following slide, what we'll see, and I thought it's an interesting one to highlight. So here we have Paris as of the beginning of July. No surprise there, huge amount of compression over the dates during the Olympics, but also what's interesting, and this is a trend that we saw in London, also in Rio and Beijing, other Olympic coast cities where as rates increase and as crowds increase, there is indeed a bit of displacement in the lead up to in the period following where those who may have gone to Paris, whether they are put off by the rates or indeed the larger crowds, you don't quite see the same occupancy in those periods. However, it is still a great news for host city hoteliers where our rate growth during that period is so substantial, you'll expect to see very significant RevPAR growth over that period in Paris looks to be no exception. On to the next slide and touching briefly on our European forecast there. One caveat that we do not forecast for Europe on a continental level, but a concentration of the cities you can see highlighted below there. And almost equal parts occupancy and rate pushing RevPAR growth this year, if not more, on the rate side, which is not surprising when you can see the compression caused by many major events and the rates that hoteliers are able to achieve over that period, however, into '25 and '26, our analysts saying that rate growth, while it's been so great over recent year is tempering somewhat and occupancy taking over as the driver of growth for those subsequent years. And our next and final slide, just a big thank you for hosting us this morning. It's been a pleasure to join the group and provide some insight across Europe, wishing you a great weekend and some summer holidays, if you do have any coming up.

Thank you, Alex, for this hotel market update. And thank you all for participating in this call. We really appreciate your time and interest in Pandox. Save the date for our interim report for Q3, which is published on October 25. And we wish you all a very nice and relaxing summer and do not forget to stay at our hotels. Goodbye.