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    PNDX B   SE0007100359


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Pandox : Interim report January–June 2021 (PDF) Report

07/16/2021 | 04:21am EDT
  • Revenue from Property Management amounted to MSEK 568 (527). For comparable units the increase was 12 percent, adjusted for currency effects
  • Net operating income from Property Management amounted to MSEK 470 (448). For comparable units the increase was 11 percent, adjusted for currency effects
  • Net operating income from Operator Activities amounted to MSEK 10 (-85)
  • EBITDA amounted to MSEK 447 (327)
  • Cash earnings amounted to MSEK 162 (75)
  • Cash earnings per share amounted to SEK 0.88 (0.42)
  • Profit for the period amounted to MSEK -6(-332), including unrealised changes in value for Investment Properties of MSEK -105
  • Earnings per share amounted to SEK -0.04(-1.79)
  • Per 30 June 2021, cash and cash equivalents and unutilised credit facilities amounted to MSEK 4,377, compared with MSEK 4,689 per 31 March 2021
  • On 21 May 2021, it was announced that the board had appointed CFO Liia Nõu as acting CEO due to CEO Anders Nissen undergoing medical treatment
  • On 30 May 2021, it was announced that CEO Anders Nissen had tragically passed away after a short period of illness
  • Revenue from Property Management amounted to MSEK 1,122 (1,199). For comparable units, the decrease was 3 percent, adjusted for currency effects
  • Net operating income from Property Management amounted to MSEK 932 (1,009). For comparable units the decrease was 3 percent, adjusted for currency effects
  • Net operating income from Operator Activities amounted to MSEK -70(-65)
  • EBITDA amounted to MSEK 797 (865)
  • Cash earnings amounted to MSEK 247 (337)
  • Cash earnings per share amounted to SEK 1.37 (1.85)
  • Profit for the period amounted to MSEK 30 (-1,000), including unrealised changes in value for Investment Properties of MSEK -456
  • Earnings per share amounted to SEK 0.18 (-5.42)

The second quarter has been characterized by the tragic passing of our CEO Anders Nissen. The loss of Anders is immeasurable on many levels.

Anders had a big heart and a genuine interest in making the people around him grow. He was fearless, honest and a great source of inspiration for everyone he met. We have lost an exceptional leader, a close colleague and, above all, a dear friend.

Anders Nissen has been the CEO of Pandox since 1995 and under Anders' leadership, the company has developed into one of the leading hotel property companies in Europe. We will continue to build on this fantastic company in memory of Anders.

I have had the privilege of working with Anders Nissen for over 14 years as CFO of Pandox. It makes the sorrow over Anders extra severe. I have respect for the assignment as acting CEO and I am very motivated to continue to develop this strong company. Together with a close-knit organisation with competent, entrepreneurial employees and a clear game plan, I feel - despite the difficult situation - optimism for the future.

Pandox works in a structured way in three areas in response to the difficult situation created by Covid-19:

Respond - Steps to help alleviate the acute crisis Restart - Plan for recovery

Reinvent - Create insights into how the hotel market will change

Hotel demand increased in all markets in the second quarter, but the development in April and May remained weak due to extensive restrictions remaining in place and delayed reopening in many markets. However, supported by a strong recovery in the UK and improvement in other markets - particularly in June - Pandox saw positive growth in the quarter in both business segments. Altogether, Pandox's revenue and net operating income increased by 19 and 32 percent respectively, compared to the second quarter 2020. For comparable units the increase was 25 and 39 percent respectively, adjusted for currency effects. The comparison quarter was, however, very weak.

The majority of Pandox's revenue was made up of contractual minimum rents and fixed rents within Property Management. In addition, a gradual increase in occupancy during the quarter provided an increased contribution from pure, revenue-based rent in the Nordics and revenue from Operator Activities.

Pandox's financial position remains strong with a loan-to-value ratio of 49.7 percent and cash and cash equivalents and unutilised credit facilities of MSEK 4,377 as of 30 June 2021.

Positive RevPAR growth was reported in the second quarter in all of the countries where Pandox has operations, partly explained by increased demand due to eased restrictions, partly a weak comparison quarter. Occupancy remained higher in regional cities than in larger cities with an international profile. However, towards the end of the quarter there were clear signs of improved demand in larger cities as well.

In terms of individual countries, the UK was clearly the bright spot during the quarter. Hotel demand improved significantly after restrictions were eased on 17 May. At the end of June occupancy* for UK Regional was around 67 percent and for London around 45 percent. It is encouraging that the plans for full reopening on 19 July remain in place.

Germany has adopted a more cautious reopening strategy and the restrictions there are more extensive than in the UK. Despite this, a relatively strong increase in demand was noted in June, albeit from a lower starting point than in the UK. At the end of June occupancy** was around 37 percent for Germany as a whole, compared with around 15 percent in May.

Hotel demand also improved in all Nordic countries in the quarter. At the end of June occupancy*** was around 50 percent for the Nordics as a whole and around 60 percent for regional Nordic cities.

Pandox is expecting the hotel market's recovery to take place in phases - provided that restrictions are eased and economic activity picks up - with six development levels and with various market segments gradually building up demand in the hotel market:

  1. Cities and countries open up and restrictions are gradually lifted
  2. Hotels open
  3. Domestic leisure travel with a growing high-paying segment
  4. Domestic business travel
  5. Conferences and international travel
  6. Group travel

Each phase will contribute to raised occupancy and increased revenue, which in turn will create the conditions for higher average prices and increased revenue per room.

The hotel market is currently at "Level 3" with elements of "Level 4" in individual markets that have a higher proportion of blue-collar business travel. Based on Pandox's own analysis of corporate clients within Operator Activities, the Company expects a cautious transition to more white-collar business travel in September/October of this year. Company decisions are mainly influenced by infection rates, restrictions and vaccination rates. Internet searches for air travel and hotels during the work week in September/October have increased and Pandox's hotels within Operator Activities are gradually receiving more requests regarding small conferences. One conclusion indicated by the analysis is the possibility of business travel involving fewer trips, but compensated for by people staying more nights than before.

Demand in the hotel market is entirely dependent on the extent of restrictions. The easing of restrictions in the second quarter resulted in significantly higher hotel demand. The impact of new virus variants on restrictions and hotel demand is hard to assess. The European Commission has announced that sufficient doses have been delivered to

fully vaccinate 70 percent of the EU's adult population before the end of

July. The Commission has also confirmed its goal of delivering sufficient vaccine to vaccinate 100 percent of the adult population by the end of September.

Economic recovery in Pandox's markets is currently strong. This,

combined with increased vaccination rates and eased restrictions, is creating good underlying growth potential in the hotel markets. Progress in Europe and other large hotel markets, such as the USA, indicates that there is considerable pent-up desire to travel, which is quickly converted into demand once restrictions are reduced and travel becomes easier.

Pandox is in an attractive position as around 80 percent of all rooms are in regional and domestic cities and therefore have high exposure to domestic demand, which will lead to recovery in the hotel market.

Currently, contractual minimum rents and fixed rents are expected to

make up the majority of Pandox's total revenue.

Once demand in the hotel market picks up, the revenue increase -

thanks to Pandox's operating model and contract mix- will initially be

most obvious within Operator Activities as a whole and within Property Management in the Nordics.

Due to the structure of leases, variable revenue under leases with

minimum rents are only expected to materialise to a limited extent in 2021.

Source: *STR, **Fairmas and ***Benchmarking Alliance. Figures rounded off.

Pandox is monitoring and evaluating the business climate on an ongoing basis and is in close dialogue with tenants in the Property Management business segment regarding their respective business situations.

As of 30 June 2021 around 97 percent of the hotel properties in this segment were open, measured in number of rooms.

Contractual guaranteed minimum rent combined with fixed rent amounts to the equivalent of almost MSEK 2,000 on an annualised basis and this is also expected to make up most of Pandox's revenue in the third quarter of 2021.

Agreements with tenants on temporary changes to payment terms are made where this is possible and appropriate. Rent payments were received in the second quarter in line with original and new, temporary payment terms. No hotel rent reductions have been granted. As of 30 June 2021, accounts receivable relating to deferred rent under the new temporary payment terms amounted to the equivalent of MSEK 640, compared with MSEK 566 as of 31 March 2021.

Pandox received government grants in Sweden, Finland and Denmark totalling the equivalent of MSEK 2 in the second quarter of 2021 (MSEK 10 in the first quarter of 2021). These have been recognised as revenue under Other property revenue.

For more information, see pages 7, 8 and 25.

Pandox benefitted from relief programmes within Operator Activities in Belgium, Germany, Canada, the UK and the Netherlands equivalent to around MSEK 98 in the second quarter (MSEK 44 in the first quarter of 2021), most of which is for previous periods. This is recognised as a cost reduction under Costs within Operator Activities.

In addition, around MSEK 26 (MSEK 33 in the first quarter of 2021) was transferred directly from the authorities to Pandox's employees in the form of salary support for furloughed personnel. These amounts are therefore not included in Pandox's numbers.

For more information, see pages 7, 8 and 25.

At the end of the second quarter, Pandox's total costs were on a par with revenue from contractual minimum rent and fixed rent.

For more information, see pages 7 and 8.

Planned investments in 2021 amount to the equivalent of around MSEK 1,100, to which MSEK 45 is added for maintenance. Due to possible practical Covid-19 restrictions there is a risk that planned investment volumes will not be fully reached in 2021.

For more information, see page 10.

Pandox performs internal valuations of properties in the hotel property portfolio. Investment properties are recognised at fair value in accordance with accounting standard IAS 40 and operating properties are recognised at cost less depreciation and any impairment. Internal valuations of operating properties are reported for disclosure purposes only and are included in EPRA NRV.

The valuation model incorporates an accepted and proven cash flow model, where the future cash flows the hotel properties are expected to generate are discounted based on the market's yield requirements. The valuation is based on the hotel's business plan which is updated at least twice a year and takes into consideration, among other things, developments in underlying operator activities, market development, the contract situation, operating and maintenance issues and investments aimed at maximising the hotel property's cash flow and return in the long term. External valuations of all properties are normally carried out annually by independent property appraisers. The external appraisers complete a more in-depth inspection at least every three years or in conjunction with major changes to the properties. The external valuations provide an important reference point for Pandox's internal valuations, to the extent that differences compared with internal valuations are analysed to challenge the internal valuation.

Pandox has a robust valuation process and a consistent valuation approach. At the end of the second quarter Pandox measured the value of the hotel properties according to the same method and established

cash flow model used since the IPO in 2015 after approved audit by the stock market auditor.

Pandox has managed uncertainties attributed to the Covid-19 pandemic primarily through the cash flow forecasts which lay the base for the valuations. Uncertainty about the pandemic's impact on future cash flows remains high. This is partly due to uncertainty about vaccination rates, infection rates and government restrictions, and partly to uncertainty about possible lasting effects of Covid-19 on economies and on the hotel market in the longer term. The pandemic's effects on valuation yields cannot be established yet with reasonable certainty, mainly because there is insufficient supporting evidence in transaction markets for valuation of hotel properties. During normal circumstances Pandox's estimated yield requirements tend to be very similar to those used by external property appraisers. These are in turn based on the market yield, which, subject to availability, has been derived from transactions of comparable hotel properties. However, the increased complexity due to the Covid-19 pandemic, has led to increased uncertainty about the future and a higher degree of estimates and assessments also regarding the market's yield requirements. The higher degree of assessments regarding the yield requirements has resulted in a greater deviation between Pandox's yield requirements and certain yield requirements used by the external property appraisers. Pandox has continuously managed the ensuing complexity and necessary assessments through continuous discussions and analysis internally in the company, as well as in Pandox's audit committee, finance committee and board of directors. Pandox believes that the Covid-19 pandemic is transitional in nature and will have a limited effect on long-term yield requirements.

Pandox is carefully monitoring the parameters that impact valuations. As the effects of Covid-19 become clearer, it is expected to be possible to estimate valuation yield and future cash flows with greater precision.

As a reference point for Pandox's internal valuations, 112 external valuations have been completed during the past 12 months. In the second quarter 22 external valuations were carried out in the Nordic countries and Switzerland and the results of 21 previously completed external valuations in the UK and Ireland were received by Pandox. It is Pandox's lenders who decide, or in certain cases participate in decisions, on which external appraiser to retain, which hotel properties to appraise and when to do it.

The external valuations show a large spread both within and between markets, which reflects the continued significant uncertainty and varying external valuation approaches. External valuations carried out over the past 12 months cover around 72 percent of the properties and their overall outcomes are around 6 percent lower than Pandox's internal valuations - ranging from around +6 percent to around -15 percent per country. Hotel properties in the Nordic region are all showing a smaller difference and spread with respect to Pandox's and the external appraisers' valuations, while hotel properties outside the Nordic region are showing a greater difference.

Overall, the 22 external valuations (9 in Sweden, 8 in Norway, 4 in Finland and 1 in Switzerland) carried out in the second quarter are around 2 percent higher than Pandox's internal valuations - ranging from around +6 percent to around -2 percent per country.

The difference in the valuations of hotel properties outside the Nordic region is mainly explained by the fact that the external valuations were carried out during a particularly challenging period in the pandemic, where the external property appraisers raised the hotel property yield requirements based on an assumption of long-lasting and sustained negative effects from Covid-19. See page 22 for information on the properties' market value by country.

In the second quarter the unrealised changes in value amounted to MSEK -105 for Investment Properties, mainly as an effect of lower anticipated cash flows due to Covid-19. The unrealised changes in value for Operating Properties amounted to MSEK -4.

Since the start of the Covid-19 pandemic in the first quarter of 2020, the accumulated unrealised changes in value amount to MSEK -2,235 for Property Management and MSEK -1,011 for Operating Properties, equivalent to a combined reduction of -5.1 percent, mainly explained by lower anticipated cash flows.

For more information, see page 10, 23 and 25.

Pandox's financial position is strong. As of 30 June 2021 the net loan-to- value ratio was 49.7 percent and cash and cash equivalents plus unutilised credit facilities amounted to MSEK 4,377.

Pandox's debt financing consists exclusively of credit facilities from 11 Nordic and international banks secured mainly by mortgage collateral. Credit facilities maturing in less than one year amount to MSEK 5,832, of which MSEK 3,787 will mature in December 2021. During the quarter, Pandox completed refinancing of the equivalent of around MSEK 867. Constructive discussions on additional refinancing are under way.

At the Group level, Pandox's financial covenants are:

  1. Loan-to-valueratio at a level where Pandox's financial loan-to-value target provides comfortable headroom
  2. Interest coverage ratio at a level where revenue from contractual minimum rents and fixed rents alone provides satisfactory headroom

Pandox has a positive and close dialogue with its lenders on refinancing

and adjustment of terms and covenants in existing credit agreements taking Covid-19 into account. In the second quarter, lenders provided waivers in individual credit agreements.

For more information, see pages 11 and 12.

In certain countries there are programmes in place that cover a specific percentage of companies' fixed costs. There is in general no rent support for property owners. Since the beginning of the pandemic, tenants in Germany and the UK have been able to postpone rent payments and to capitalise and pay their rents subsequently over an extended period. This possibility has been extended until 25 March 2022 in the UK but has expired in Germany. Germany has introduced income support for companies that were affected by restrictions in November and December 2020. This transitioned into fixed cost support for the first six months of 2021 and continued until 30 June 2021.

In the second quarter, other than the above-mentioned fixed cost support in Germany, the main form of relief that was still available and could be used was furlough support in Pandox's various markets.

Pandox intends to apply for additional government grants in 2021 to cover past costs and these will be recognised when the amounts are known.

To address the financial impact of Covid-19 for Pandox, certain fiscal measures have been implemented, for example correction of preliminary tax payments, and deferral of VAT payments and property tax. For example, tax payments mainly relating to VAT for 2020 and for the first six months of 2021, equivalent to around MSEK 87, have been deferred. Most of this amount is expected to be paid in 2021.

Pandox has taken a cautious approach with respect to certain relief programmes that can involve an additional cost, to lower the one-time effect when the Covid-19 crisis is over and relief packages expire. Pandox is continually monitoring all new tax incentives presented in the jurisdictions where the Company operates and will act when it is deemed appropriate to do so.


Pandox AB published this content on 16 July 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 July 2021 08:20:02 UTC.

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Mean consensus OUTPERFORM
Number of Analysts 3
Last Close Price 139,60 SEK
Average target price 153,33 SEK
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Managers and Directors
Liia N§u Senior VP, Chief Executive & Financial Officer
Christian Ringnes Chairman
Aldert Schaaphok Senior VP & Director-International Operations
Bengt David Harry Kjell Vice Chairman
Ann-Sofie Danielsson Independent Director