Pandox : Interim report January–September 2020 (PDF) Report

• Revenue from Property Management amounted to MSEK 630 (851), which includes a one-time revenue of MSEK 28. For comparable units the decrease was 35 percent, adjusted for currency effects
• Net operating income from Property Management amounted to MSEK 531 (761). For comparable units the decrease was 37 percent, adjusted for currency effects
• Net operating income from Operator Activities amounted to MSEK -39 (160)
• EBITDA amounted to MSEK 456 (886)
• Cash earnings amounted to MSEK 194 (586)
• Cash earnings per share amounted to SEK 1.06 (3.51)
• Profit for the period amounted to MSEK -103 (242), including unrealised changes in value for Investment Properties of MSEK -315
• Earnings per share amounted to SEK -0.56 (1.45)
• Per 30 September 2020, liquid funds and unutilised credit facilities amounted to MSEK 5,348, compared with MSEK 5,516 per 30 June 2020

• Revenue from Property Management amounted to MSEK 1,829 (2,319). For comparable units, the decrease was 30 percent, adjusted for currency effects
• Net operating income from Property Management amounted to MSEK 1,540 (2,048). For comparable units the decrease was 32 percent, adjusted for currency effects
• Net operating income from Operator Activities amounted to MSEK -104 (467)
• EBITDA amounted to MSEK 1,321 (2,397)
• Cash earnings amounted to MSEK 531 (1,523)
• Cash earnings per share amounted to SEK 2.91 (9.09)
• Profit for the period amounted to MSEK -1,103 (1,409), including unrealised changes in value for Investment Properties of MSEK -1,246
• Earnings per share amounted to SEK -5.98 (8.41)

The hotel market in the third quarter recovered in line with Pandox's expectations. The summer season was actually stronger than expected, driven by good domestic demand in the leisure segment in regional cities in all countries. Most of Pandox's revenue in the third quarter still consisted of contractual minimum rents and fixed rents, but revenue from purely revenue-based leases and Operator Activities was higher than in the second quarter. Overall, Pandox's total revenue and net operating income decreased in the third quarter by 54 and 47 percent respectively compared with the corresponding period the previous year, but increased sequentially by 5 and 36 percent respectively.

Pandox has continued to focus on 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

The focus is still mainly on issues relating to the acute crisis, i.e. Respond, with the following priorities:

• Cash is king! On 30 September 2020, Pandox had liquid funds and unutilised credit facilities of MSEK 5,348. All credit agreements maturing in 2020 have been refinanced
• Defend our profitability! Pandox's costs are in line with our contractual minimum rents and fixed rents, amounting to around MSEK 2,000 a year. Moreover, revenue-based leases with no guaranteed minimum level are contributing positively to some extent to both revenue and profit
• Stay alive, stay open! Pandox has kept as many hotels as possible open throughout the crisis, which has facilitated both maintenance and start-up
• Protect the assets! Pandox is prepared to protect the value of the hotel properties and take over hotel operations if necessary
• Active leadership! Leadership that is open, active and present is more important than ever in the difficult situation presented by COVID-19

Within the framework of Restart Pandox is constantly focusing on various scenarios for the recovery of the hotel market. So far, the hotel market development is in line with the outlook we provided in our second quarter interim report. In the third quarter we also noted an intensification of the trends we identified in the second quarter.

The most obvious trend is that it is the restrictions that have lowered demand in the hotel market rather than behavioural changes. When restrictions are eased, demand increases and vice versa. This may sound trivial, but it is highly significant for how the hotel market's potential for recovery is perceived when restrictions are actually eased. One example is that people not currently permitted to travel on business are still travelling within the country in their leisure time, and this has contributed to the strong comeback in the most important segment for the hotel industry - domestic travel, while international demand has remained low. Economy, mid-scale, and resort hotels and holiday apartment hotels in regional hubs and attractive leisure destinations - easy to reach by car or train - have been the winners. Those losing out are mainly premium hotels and large conference hotels with an international profile.

Room prices by segment have been relatively stable, but average prices have fallen due to mix effects explained by a lower percentage of international travel, fewer conferences and fewer compression nights*.

Pandox is expecting recovery - provided that restrictions are eased and economic activity increases - to take place in phases, with six development levels where different market segments gradually building up demand in the hotel market:

1. Cities and countries are opening up and restrictions are gradually easing
2. Hotels open up
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 help to raise occupancy and revenue, which in turn will create more compression nights* and lay the foundations for higher average prices and increased revenue per room.

The hotel market is currently in "Phase 3" with good underlying demand from domestic leisure travel and some initial demand from domestic business travel.

Phase 1 - Bottom

• Total lockdown in most countries
• Demand bottom at the end of April
• Weak recovery starting in May
• Occupancy in Europe around 5-25 percent

Phase 2 - Summer

• The easing of restrictions in May-June opened the door for domestic travel and in certain cases international travel as well
• Domestic leisure travel increased more or less right away
• Occupancy rose in the Nordics from around 20 to around 60 percent during the holiday period, which was higher than expected

Phase 3 - Autumn and winter

• Lower leisure demand during the week but good on weekends
• SMEs have started to travel, some demand for smaller conferences
• Initial occupancy in Germany around 40-45 percent, in the Nordics around 45-50 percent and in UK Regional around 50-55 percent
• Some increase in international markets from a low level
• New restrictions in October resulted in increased uncertainty and reduced demand

The biggest challenge facing the hotel market is new restrictions that limit various aspects of social life and result in a more drawn-out recovery. There is good basic demand in the hotel market and the conditions for a fast recovery are good once the restrictions are eased. In the fourth quarter rental income is expected to be stable within Property Management while Operator Activities is expected to weaken somewhat compared with the third quarter. Contractual minimum rents and fixed rents are still expected to make up the majority of Pandox's total revenue in the fourth quarter.

In the Reinvent part of the game plan, analysis and evaluation of the effects of possible structural changes in the hotel market are in progress. Certain behavioural changes cannot be ruled out, but when restrictions are eased and activity levels in society are normalised, travel will follow. So far, we have not seen any significant changes in guest behaviour. Changes we implemented in Operator Activities include enhanced cleaning and sanitising protocols in cooperation with certification company Bureau Veritas, accelerated digital investments to facilitate contactless check-in and check-out and the creation of multifunctional rooms that can better meet various types of demand and guest requests. At Pandox's Hotel Market Day 2020 on 17 November we will look more closely at the effects of COVID-19 on our society, our minds and naturally the hotel market too. I can venture to promise an interesting and action-packed programme. You can read more about the event and register to attend at www.pandox.se.

* When occupancy rate in a market is above 90 percent

Pandox is monitoring and evaluating the business conditions on an ongoing basis and is in close dialogue with business partners in the Property Management business segment regarding the respective party's earnings development and liquidity.

An easing of restrictions that had an impact on the hotel market took place in most of Pandox's key markets during the third quarter. However, during the end of the quarter some new local restrictions impacted some aspects of social life including in the Netherlands and the UK. As of 30 September 2020, essentially all hotel properties in this business segment were open.

Contractual minimum guaranteed rent combined with fixed rent amount to the equivalent of around MSEK 2,000 on an annualised basis and is also expected to constitute the majority of Pandox's total revenue in the fourth quarter.

Revenue from revenue-based leases without minimum rent levels in the Nordics amounted to the equivalent of around MSEK 69 in the third quarter.

Agreements on temporary changes to payment terms are made with tenants where this is possible and appropriate. During the third quarter, rent collection has progressed according to new and temporary payment terms. No reductions in hotel rents have been granted. As of 30 September 2020, accounts receivable relating to deferred rent under the new temporary payment terms amounted to the equivalent of

MSEK 421.

Tenants have taken advantage of government relief regulations allowing them to defer rent payment for a certain period of time (see the section "Government relief programmes" below).

Pandox received transition relief in government programmes in Norway and Sweden totalling an amount equivalent to MSEK 16 in the third quarter, which was recognised in Other property income.

For more information, see pages 5, 6, 7, 22 and 23.

Pandox has taken advantage of government relief programmes in each of its market, totalling around MSEK 84 in the third quarter.

For more information, see pages 5, 6, 7, 22 and 23.

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

For more information, see pages 5, 6 and 7.

Planned investments in 2020 amount to the equivalent of around MSEK 850-860, to which will be added approximately MSEK 50 for maintenance. Possible practical restrictions due to COVID-19 in most of Pandox's markets still pose a risk that planned investment volumes may not be fully reached in 2020.

For more information, see page 8.

At the end of the third quarter of 2020 Pandox valued the hotel properties based on the same method and model used since the IPO in 2015. The valuation model is an accepted and established model where the future cash flows the hotel properties are expected to generate are discounted by a valuation yield obtained from external property appraisers.

Due to material uncertainty about the long-term effects of COVID-19 on the economy in general, it is more difficult to assess future cash flows and valuation yields for Pandox's hotel properties. Effects on valuation yields cannot yet be established as there is still insufficient evidence in the hotel properties' transaction markets.

Due to COVID-19 only a few external valuations have been carried out. In the third quarter, unrealised changes in value amounted to

MSEK -315 for Investment Properties and MSEK -284 for Operating Properties, reflecting lower anticipated cash flows in 2020 and up to 2022 due to COVID-19. Unrealised changes in value of Operating Properties are reported according to IFRS for disclosure purposes only and are included in EPRA NAV.

The valuation effects will be monitored closely as the COVID-19 situation becomes clearer and as valuation yields and future cash flows can be estimated with greater precision.

For more information, see pages 8 and 20.

Pandox has a strong financial position. As of 30 September 2020, the net loan-to-value ratio was 48.5 percent and cash and cash equivalents plus unutilised credit facilities amounted to MSEK 5,348.

Other credit facilities are also in place that fully cover the issued volume under Pandox's commercial paper programme in which MSEK 105 had been issued as of 30 September 2020.

Pandox's debt financing consists exclusively of credit facilities from 11 Nordic and international banks secured mainly by mortgage collateral. In the third quarter all credit facilities maturing in 2020, equivalent to MSEK 4,272, were extended between 12 and 18 months. Credit facilities maturing in less than one year amount to MSEK 1,818.

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

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

headroom

Pandox has a positive and close dialogue with its lenders on new financing, refinancing and adjustment of existing terms and covenants taking COVID-19 into account. In the third quarter lenders provided waivers in individual credit agreements.

For more information, see pages 9 and 10.

In certain countries there are programmes that cover a specific percentage of a company's fixed costs. There is in general no rent support for property owners. On the other hand, tenants in Germany and the UK were able to delay rent payment in the second quarter and capitalise and pay their rents subsequently over an extended period. The programme has been extended until 1 January 2021 in the UK but has expired in Germany.

Pandox has taken advantage of government relief programmes in Operator Activities in Belgium, Germany, the Netherlands, Denmark, Canada and Finland and in Property Management in Norway and Sweden.

In the third quarter the programmes that are still active and can be utilised are mainly lay-off/furlough support in Pandox's various markets.

To address the financial impact of COVID-19 for Pandox, certain tax actions have been implemented, for example correction of preliminary tax payments, deferral of VAT payments and property tax. Pandox has taken a cautious approach with respect to certain relief programmes that involve additional cost - for example interest and deferral of tax payments - to lower the one-time effect when the COVID-19 crisis is over and the relief packages expire. Pandox is continually monitoring all new tax incentives that are offered in the jurisdictions where the company operates and will act when it is deemed appropriate to do so.

When the WHO confirmed on 11 March that COVID-19 was a pandemic, a long list of restrictions were introduced in many countries. They included restrictions on domestic and international travel, guidelines for certain business and conference activities, and social distancing requirements aimed at preventing the spread of the virus and to avoid overloading healthcare systems.

Irrespective of the extent of the restrictions, all hotel markets have been significantly affected by COVID-19 and its consequences. Europe's hotel market bottomed out in mid-April and then gradually recovered in the second quarter. In connection with the start of the European holiday season and the gradual removal of travel restrictions, a significant increase in demand was noted. The link was clear between the degree of restrictions and hotel market demand.

By and large, the third quarter developed in line with Pandox's expectations with some markets even performing above expectations during the summer months. The Nordic region, where the European summer season started first, saw a strong increase, mainly in domestic demand and especially in regional markets that are easily reached by car or train and have an attractive offering for the leisure traveller. The total Nordic market saw an occupancy peak at around 64 percent* at the end of July, measured on a weekly basis, compared with 76 percent in the corresponding period 2019. In the latter part of July occupancy in several regional markets was higher than the same period the previous year. The Nordic capitals did not develop as well however due, among other things, to higher dependence on international tourism and fewer activities due to the closure of amusement parks and other tourist attractions.

The pattern was similar in Europe where demand also increased as restrictions were eased. At the end of June Europe had occupancy of around 25 percent**, which gradually improved to just over 40 percent at the height of the tourist season in August. Winners were destinations such as coastal resorts by the Baltic Sea or North Sea and holiday destinations in the UK and Ireland. Similar to in the Nordic region, large cities had the weakest occupancy, especially those highly dependent on international airborne tourism.

As the holiday season came to an end the market returned to a situation with business-driven demand during the week and leisure-driven demand at weekends. For the Nordics where the holiday period ended first (in mid-August), this resulted in a decline in demand in the hotel market with basic occupancy at around 40 percent. The pattern from

before - with good occupancy in many local and regional cities and lower occupancy in capital cities - remained the same.

It is worth noting that the underlying demand from leisure travellers at weekends is stable despite a limited leisure offering. Initial demand was also noted in the conference segment in certain markets. Activity during the week was lowered by weaker business demand due to travel restrictions and a general restrictive travel policy among many businesses.

The pattern was the same in Europe where occupancy declined again after the holiday period. There was, however, a significantly higher level of activity in most of Pandox's markets compared with the pre-summer period. Overall, occupancy amounted to 39 percent in Europe for September driven, for example, by the Germany market where occupancy was at 44 percent. The UK also experienced a strong recovery at the beginning of September but expanded restrictions in the latter part of the month led to a decline in demand. Despite this, occupancy in the UK as a whole amounted to 46 percent and UK Regional to 53 percent in the third quarter.

So far, development in Europe is more or less tracking the development in China, which is about two months ahead of Europe in its recovery. Certain parallels can also be drawn from past crises and virus outbreaks, where domestic leisure demand normally recovers first followed by domestic business demand. Markets that are more dependent on international incoming flights normally see a longer recovery period. Demand in the group and conference segments is not expected to recover until restrictions on gatherings are eased and economic activity increases further.

• Markets with clear local and/or regional demand recover the fastest
• Hotels that are easy to reach by car and train have recovered faster
• Destinations with a strong leisure offering are most attractive in earlier phases, such as coastal towns in the Nordics, Germany and the Netherlands
• Hotels in the economy and mid-scale segments have shown the most resilience and are also the first out of the gate in the reopening phase
• Premium hotels and hotels with significant conference activity that are dependent on international demand will have a longer recovery period
• Markets with significant new capacity are especially vulnerable in the recovery phase

• Benchmarking Alliance based on open hotels
• STR based on open hotels

10%						0%
	2%
2%
0%						-10%
-10%
					-20%
-20%
-30%						-30%
		-25%
-40%						-40%
-50%
					-39%
					-50%
-60%
				-61%		-55%-53%
-70%					-60%
-80%						-56%
					-70%		-65%-62%
-90%						-67%-67%
			-89%		-80%
-100%
Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020		Ireland UK Denmark Austria Sweden Finland Germany Norway

Source: STR, Benchmarking Alliance. Rounded numbers.

0%
-10%
-20%
-30%
-40%
-50%
-53%
-60%
-64%
-70%
-67%
	-68%
-80%	-76%-76%
-78%
	-79%
-90%-	84%-84%
Montreal London Copenhagen Brussels Stockholm Helsinki Oslo Frankfurt Berlin UK Regional

Revenue from Property Management amounted to MSEK 630 (851), a decrease of 26 percent. The decrease was offset by contractual minimum rent and fixed rent. Revenue includes one-time revenue equivalent to MSEK 28* as well as transition relief equivalent to MSEK 16. For comparable units revenue decreased by 35 percent, adjusted for currency effects. The reduction compared to the equivalent period the previous year is explained by effects related to COVID-19. Compared with the second quarter, an improvement was noted due to eased restrictions in most of Pandox's markets, mainly driven by domestic leisure travel during the holiday period. When this ended, the market returned to a situation with business-driven demand during the week and leisure-driven demand at weekends, but at a lower level overall compared to during the holiday period. Basic demand was significantly higher than in the second quarter.

Revenue from Operator Activities amounted to MSEK 169 (600), a decrease of 72 percent. For comparable units revenue decreased by

78 percent and RevPAR by 81 percent, adjusted for currency effects. This reduction was also explained by effects related to COVID-19. The

relatively large loss of revenue compared with Property Management is partly explained by higher direct market exposure and partly by a higher percentage of large conference hotels in international markets, particularly in Brussels. The decline was, however, offset by good development for Pandox hotels located in markets with a higher percentage of domestic demand, mainly from the leisure segment.

The Group's net sales amounted to MSEK 799 (1,451). For comparable units net sales decreased by 54 percent, adjusted for currency effects.

Net operating income from Property Management amounted to MSEK 531 (761), a decrease of 30 percent. For comparable units net operating income decreased by 37 percent, adjusted for currency effects.

Net operating income from Operator Activities amounted to MSEK -39 (160). Pandox took advantage of government relief programmes equivalent to around MSEK 84 during the quarter, mainly in the form of salary support for furloughed personnel.

Total net operating income amounted to MSEK 492 (921), a decrease of 47 percent.

Central administration costs amounted to MSEK -41(-40).

EBITDA amounted to MSEK 456 (886), a decrease of 49 percent.

Financial expense amounted to MSEK -227(-221), of which

MSEK -17(-15) consists of depreciation of capitalised loan arrangement fees.

Financial income amounted to MSEK 0 (-3).

Financial expense associated with right-of-use assets amounted to MSEK -21(-20).

Profit before changes in value amounted to MSEK 145 (586), a decrease of 75 percent.

Unrealised changes in value for Investment Properties amounted to MSEK -315 (353) and is explained by lower anticipated cash flows in 2020, 2021 and 2022.

Unrealised changes in value of derivatives amounted to MSEK 51 (-211).

Current tax amounted to MSEK -17(-60), which is mainly explained by intra-Group equalisation. Current tax being charged despite a negative result is explained by the fact that full intra-Group equalization - for example across national borders - is not possible. Deferred tax amounted to MSEK 33 (-536). See also page 10 and the section "Deferred tax".

Profit for the period amounted to MSEK -103 (242) and profit for the period attributable to the Parent Company's shareholders amounted to MSEK -102 (243), which is equivalent to SEK -0.56 (1.45) per share.

Total cash earnings amounted to MSEK 194 (586), a decrease of 67 percent.

1000			700
	921
900			600		586
800
		500
700
			17%
600
		400
492
500
		300			2019	2020
400
		194
300
		200
200			100		83%
100					108%
0			0
	2020	2019	2020	2019	Property Management

Operator Activities

Revenue from Property Management amounted to MSEK 1,829 (2,319), a decrease of 21 percent. Revenue includes one-time revenue equivalent to MSEK 28* as well as transition relief equivalent to MSEK 16 attributable to the third quarter.

For comparable units revenue decreased by 30 percent, adjusted for currency effects. The decrease is explained by low demand - from March onwards - due to extensive government restrictions in response to COVID-19, which reduced the ability to operate hotels. Certain markets, such as the UK, were largely shut down throughout the second quarter. The negative effects of COVID-19 were offset to some extent by stable development in January and February, revenue from contractual minimum rents and fixed rents and some improvement in demand in the third quarter.

Revenue from Operator Activities amounted to MSEK 662 (1,779), a decrease of 63 percent. For comparable units revenue and RevPAR decreased by 68 and 71 percent respectively, adjusted for currency effects.

Here too, the decrease is a consequence of low demand due to COVID-

19. The relatively large loss of revenue compared with Property Management is partly explained by higher direct market exposure and partly by a higher percentage of large conference hotels in international markets, particularly in Brussels.

The Group's net sales amounted to MSEK 2,491 (4,098). For comparable units net sales decreased by 47 percent, adjusted for currency effects.

Net operating income from Property Management amounted to

MSEK 1,540 (2,048), a decrease of 25 percent. For comparable units net operating income decreased by 32 percent, adjusted for currency effects.

Net operating income from Operator Activities amounted to MSEK -104 (467). The decrease is explained in its entirety by low demand as a result of COVID-19.

Pandox took advantage of government relief programmes equivalent to around MSEK 144 during the period, mainly in the form of salary support for furloughed personnel.

Total net operating income amounted to MSEK 1,436 (2,515), a decrease of 43 percent.

Central administration costs amounted to MSEK -130(-131).

EBIDTA amounted to MSEK 1,321 (2,397), a decrease of 45 percent.

Financial expense amounted to MSEK -674(-634), of which

MSEK -50(-42) consists of depreciation of capitalised loan arrangement fees.

Financial income amounted to MSEK 1 (3).

Financial expense associated with right-of-use assets amounted to MSEK -65(-60).

Profit before changes in value amounted to MSEK 396 (1,548), a decrease of 74 percent.

Unrealised changes in value for Investment Properties amounted to MSEK -1,246 (993) and is explained by lower anticipated cash flows in 2020, 2021 and 2022.

Unrealised changes in value of derivatives amounted to MSEK -330(-483).

Current tax amounted to MSEK -55(-181), mainly explained by intraGroup equalisation. Current tax being charged despite a negative result is explained by the fact that full intra-Group equalization - for example across national borders - is not possible. Deferred tax amounted to MSEK 132 (-579). See also page 10 and the section "Deferred tax".

Profit for the period amounted to MSEK -1,103 (1,409) and profit for the

period attributable to the Parent Company's shareholders amounted to

MSEK -1,099 (1,409), which is equivalent to SEK -5.98 (8.41) per share.

Total cash earnings amounted to MSEK 531 (1,523), a decrease of 65 percent.

3 000			1 600		1,523
	2,515
		1 400
2 500
		1 200
2 000
		1 000				19%
1,436
	800
1 500						2019	2020
			531
1 000			600
		400
500
		200				81%
0
		0				107%
2020	2019	2020	2019
							Property Management
							Operator Activities

Rental income and Other property income amounted to

MSEK 630 (851), of which MSEK 28 consists of one-time revenue for mediation* and MSEK 16 in transition relief, which is recognised under Other property income. The underlying decrease is a consequence of low demand due to COVID-19.

The hotel market strengthened in the third quarter as restrictions were eased and domestic leisure travel increased. Demand declined towards the end of the quarter due to the holiday period ending, in combination with new restrictions in certain markets. Basic demand in the hotel markets improved significantly, however, compared with the second quarter.

The decline in rental income was limited to some extent by the fact that a significant portion of Pandox's leases contain provisions on contractual minimum rent and fixed rent. Overall, occupancy in Pandox's key markets has been low but with large variations between markets and segments. Some regional markets with attractive leisure offerings developed well, while large international markets with a high percentage of international demand experienced weak development.

Individual markets with relatively higher occupancy were domestic hotel markets in Germany, the UK, Finland, Norway and Sweden, and included Bodø, Galway, Brighton, Salzburg, Aachen, Halmstad and Kuopio.

Net operating income amounted to MSEK 531 (761), a decrease of 30 percent.

For comparable units revenue fell by 35 percent while net operating income decreased by 37 percent, adjusted for currency effects.

Revenue from Operator Activities amounted to MSEK 169 (600), a decrease of 72 percent. The decrease is a consequence of low demand and hotel closures due to COVID-19 as well as ongoing renovation projects. The relatively large loss of revenue compared with Property Management is partly explained by the fact that in Operator Activities Pandox has full exposure to the hotels' revenue, and partly by a higher percentage of large conference hotels in international markets, in particular Brussels. The decrease was, however, offset by hotels located in markets with a higher percentage of domestic demand, mainly from the leisure segment, such as Lübeck and The Hague.

For comparable units revenue and RevPAR decreased by 78 and 81 percent respectively, adjusted for currency effects.

Net operating income amounted to MSEK -39 (160).

Pandox took advantage of government relief programmes equivalent to around MSEK 84 in the third quarter, mainly in the form of salary support for furloughed personnel.

		2% 7%							8%	3% 3%
		4%	26%
		8%									34%
						9%
		12%
					23%			21%
		19%
											22%
	Germany			Sweden		UK		Norway		Germany			UK			Belgium
	Finland			Denmark		Belgium		Other		The Netherlands			Canada			Finland

Denmark

At the end of the period, Pandox's property portfolio had a total market value of MSEK 62,022 (63,469), of which Investment Properties accounted for MSEK 52,208 (53,697) and Operating Properties for

MSEK 9,814 (9,772). As of the same date the carrying amount of the Operating Properties portfolio was MSEK 7,643 (6,857).

At the end of the period, Investment Properties had a weighted average unexpired lease term (WAULT) of 14.9 (15.6) years.

During the January-September 2020 period, investments in properties and fixed assets, excluding acquisitions, amounted to MSEK 694 (423), of which MSEK 414 (277) was for Investment Properties, MSEK 274 (142) was for Operating Properties and MSEK 6 (4) was for the head office.

At the end of the third quarter of 2020, approved investments for ongoing and future projects amounted to approximately MSEK 811, whereof approximately MSEK 170 is expected to be completed during the fourth quarter. In addition, approximately MSEK 50 will be maintenance.

Larger projects are Crowne Plaza Brussels Le Palace, Scandic Luleå, Hotel Berlin Berlin, Skyline Airport Hotel, Hotel Pullman Stuttgart Fontana, Dorint Parkhotel Bad Neuenahr, Jurys Inn Oxford, Jurys Inn Inverness, The Midland Manchester, Quality Park Södertälje, Hilton Garden Inn Heathrow Airport, NH Brussels Bloom, and the investment programme for green investments.

7
6.38	6.41
6
5.42	5.41
5
4
3
2
1
0
30 Sep. 2020	31 Dec. 2019

Property Management

Operator Activities

At the end of the period the loan-to-value net was 48.5 (46.0) percent. Equity attributable to the Parent Company's shareholders amounted to MSEK 24,944 (26,350). EPRA NAV (net asset value) amounted to MSEK 32,234 (34,270), equivalent to SEK 175,33 (186.40) per share. Liquid funds plus unutilised credit facilities amounted to MSEK 5,348 (4,215). In addition, there are additional credit facilities that, at any given time, fully cover the issued volume under the Pandox commercial paper programme.

At the end of the period the loan portfolio amounted to MSEK 32,366 (29,824), excluding loan arrangement fees. Unutilised credit facilities amounted to MSEK 3,039 (3,583) and the volume issued under the commercial paper programme amounted to MSEK 105 (1,688).

In the third quarter, all credit facilities maturing in 2020, corresponding to MSEK 4,272, were extended by between 12 and 18 months.

Pandox has 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 third quarter, lenders have given waivers in individual credit agreements.

The average fixed rate period was 3.0 (3.8) years and the average interest rate, corresponding to the interest rate level at the end of the period, was 2.4 (2.6) percent, including effects from interest-rate derivatives, but excluding accrued arrangement fees. The average repayment period was 3.0 (3.3) years. The loans are secured by a combination of mortgage collateral and pledged shares.

To reduce the currency exposure in foreign investment Pandox's aim is to finance the applicable portion of the investment in local currency. Equity is normally not hedged as Pandox's strategy is to have a long investment perspective. Currency exposures are largely in form of currency translation effects.

60

1. 48.3 46.0 47.2 48.0 48.5

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

40
		28
30			24	25
20
	14
10
5					4
0
<1 year	1-2 years	2-3 years	3-4 years	4-5 years	>5 years

In order to manage interest rate risk and increase the predictability of Pandox's earnings, interest rate derivatives are used, mainly in the form of interest rate swaps. At the end of the period interest rate derivatives amounted to MSEK 23,909 gross and MSEK 18,958 net, which is also the portion of Pandox's loan portfolio for which interest rates are hedged. Approximately 53 percent of Pandox's loan portfolio was thereby hedged against interest rate movements for periods longer than one year.

The market value of the derivatives portfolio is measured on each closing date, with the change in value recognised in profit or loss. Upon maturing, the market value of a derivative contract is dissolved entirely and the change in value over time thus does not affect equity.

At the end of the period, the net market value of Pandox's financial derivatives amounted to MSEK -907(-577).

At the end of the period, the deferred tax assets amounted to MSEK 559 (383). These represent mainly the book value of tax loss carry forwards which the Company expects to be able to use in upcoming fiscal years, and temporary measurement differences for interest rate derivatives. Deferred tax liabilities amounted to

MSEK 4,407 (4,552) and relate mainly to temporary differences between fair value and the taxable value of Investment Properties, as well as temporary differences between the book value and the taxable value of Operating Properties.

18 September 2020	Invitation to Hotel Market Day 2020
8 September	Nomination committee for the AGM 2021
15 July 2020	Interim report January-June 2020

To read the full press releases, see www.pandox.se.

Other property income for the third quarter 2020 includes one-time revenue in the equivalent of MSEK 28 after mediation with the Norwegian company Tribe Invest AS (in bankruptcy) relating to a long- term lease where the tenant declared bankruptcy in 2013. In 2015 Pandox received an amount equivalent to around MSEK 60 from the bankruptcy estate in the same case. The total amount therefore amounts to the equivalent of MSEK 88.

At the end of the period, Pandox had the equivalent of 700 (1,429) full- time employees, based on number of worked hours translated to full- time employees. Of the total number of employees, 653 (1,389) are employed in the Operator Activities segment and 47 (40) in the Property Management segment and in central administration.

Pandox's green investment programme of MEUR 8 remains in place but the time frame for completion has been extended from 2023 to 2024 due to practical conditions relating to COVID-19. The investment programme focuses on projects to reduce energy and water consumption and on technical installations. The programme is expected to generate an average return of around 20 percent.

Administration for activities within Pandox's property owning companies is provided by staff employed by the Parent Company, Pandox AB (publ). Pandox's subsidiaries are invoiced for these services. Amounts invoiced during the January-September 2020 period totalled MSEK 116 (92), and profit for the period amounted to

MSEK -459 (2,144).

At the end of the period the Parent Company's equity amounted to

MSEK 8,631 (9,089) and the interest-bearing debt was

MSEK 4,986 (6,305), of which MSEK 4,980 (3,427) was in the form of long-term debt.

The Parent Company carries out transactions with subsidiaries in the Group. Such transactions mainly entail allocation of centrally incurred administration cost and interest relating to receivables and liabilities. All related party transactions are entered into on market terms.

Eiendomsspar AS owns 5.1 percent of 22 hotel properties in Germany and 9.9 percent of another hotel property in Germany. The acquisitions were made by Pandox in 2015, 2016 and 2019.

Pandox has a management agreement regarding Pelican Bay Lucaya Resort in the Bahamas owned by affiliates of Helene Sundt AS and CGS Holding AS. During the first nine months of 2020, revenue from Pelican Bay Lucaya amounted to MSEK 0.4 (1).

Pandox applies the European Securities and Market Authority's (ESMA)

guidelines for Alternative Performance Measurements. The guidelines aim at making alternative Performance Measurements in financial reports more understandable, trustworthy and comparable and thereby enhance their usability. According to these guidelines, an Alternative Performance Measurement is a financial key ratio of past or future earnings development, financial position, financial result or cash flows which are not defined or mentioned in current legislation for financial reporting; IFRS and the Swedish Annual Accounts Act. Reconciliations of Alternative Performance Measurements are available on pages 17-18.

At the end of the period, the total number of shares before and after dilution amounted to 75,000,000 A shares and 108,849,999 B shares. For the third quarter 2020 the weighted number of shares before and after dilution amounted to 75,000,000 A shares and 108,849,999 B shares.

Pandox seeks to achieve the lowest possible financing cost while simultaneously limiting the Company's interest rate, currency and liquidity risks. Pandox's approach is that increased financing cost resulting from moderate changes in interest rates is often compensated for by higher operating income due to increased economic activity. Also, Pandox has a loan portfolio with staggered maturities and fixed interest periods where the Company enters into interest rate swaps to hedge interest rate levels for a certain portion of the debt portfolio.

A significant amount of Pandox's operations are in countries outside Sweden and the Company is therefore exposed to exchange rate fluctuations. Pandox reduces currency exposure in foreign investments primarily by taking out loans in local currencies. In general, foreign operations report both income and costs in the local currency, which limits currency exposure in current flows.

Pandox aims to have a diversified loan portfolio in terms of the number of lenders, concentration and maturities in order to manage liquidity risk.

Pandox's financial risks and risk management are described on pages 130-133 of the 2019 Annual Report.

Pandox defines risk as a factor of uncertainty that may affect the Company's ability to fulfil its objectives. It is therefore of utmost importance that Pandox is able to identify and assess these factors of uncertainty.

Pandox's strategy is to invest in hotel properties with revenue-based leases with the best hotel operators, and also to be able to operate hotels itself when necessary. Based on this strategy, Pandox has classified risk in five categories: strategy risk, operational risk, financial risk, external risk and sustainability risk.

Pandox's risk management work is described on pages 84-88 in the section "Risk and risk management" in the 2019 Annual Report.

Considering the extraordinary situation created by COVID-19, a situation cannot be excluded where for example representations and covenants in the Company's credit agreements may not be met. In such cases, there are several actions that can be taken to, should there be a need, to cure non-compliance, such as payment of interest to an escrow account, adjustment of covenants, covenant holidays or certain repayments.

Besides the effects of COVID-19 described on page 3, there has been no significant change to Pandox's risk assessment after the publication of the 2019 Annual Report.

The hotel industry is seasonal in nature. The periods during which the Company's properties experience higher revenues vary from property to property, depending principally upon location and the customer base served. Since most of the customers that stay at Pandox owned or operated hotels are business travellers, the Company's total revenues have historically been greater particularly in the second quarter. The timing of holidays and major events can also impact the Company's quarterly results.

This report contains forward-looking statements. Such statements are subject to risks and uncertainties. Actual developments may differ materially from the expectations expressed, due to various factors, many of which are beyond the control of Pandox.

The report has been translated from Swedish. The Swedish text shall govern for all purposes and prevail in the event of any discrepancy.

Stockholm, 23 October 2020

Anders Nissen, CEO

Pandox will present the interim report for investors, analysts and media via a webcasted telephone conference, 23 October at 08:30 CEST. The presentation also includes an external update of the hotel market.

• Interim report and business update
  Anders Nissen CEO, Liia Nõu CFO
• The hotel market
  Robin Rossmann, Managing Director International STR, Johan Johander, Partner and Head of Research, Benchmarking Alliance

The presentation material will be available at www.pandox.seat approximately 08:00 CEST.

To follow the telephone conference online, go to https://edge.media- server.com/mmc/p/p5wxpp3z. Here you can also ask written questions.

To participate in the conference via telephone, please call in using any number indicated below well before the start of the conference.

Standard International: [phone]

SE LocalCall: [phone]

SE Tollfree: 200125160

UK LocalCall: [phone]

UK Tollfree: 8002796619

US LocalCall: [phone]

Conference ID: 2782856

A recorded version of the presentation will be available at www.pandox.se.

For further information, please contact:

Anders Nissen, CEO +46 (o) 708 46 02 02

Liia Nõu, CFO

[phone]

Anders Berg, SVP Head of Communications and IR [phone]

This information is information that Pandox AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above 23 October 2020, 07:00 CEST.

More information about Pandox is available at www.pandox.se.

We have reviewed the condensed interim financial information (interim report) of Pandox AB 556030-7885 as of 30th September 2020 and the ninemonth period then ended. The board of directors and the CEO are responsible for the preparation and presentation of the interim financial information in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.

Stockholm, 23 October 2020

PricewaterhouseCoopers AB

Patrik Adolfson	Linda Andersson
Authorised Public Accountant	Authorised Public Accountant
Auditor in charge

1

1

2

2

3

3

At the end of the period Pandox's property portfolio consisted of 156 (144) hotel properties with 35,059 (32,273) hotel rooms in fifteen countries, including the sub-markets England, Scotland, Wales and Northern Ireland.

Pandox's main geographical focus is Northern Europe. Germany (25 percent) is Pandox's single largest geographical market, measured as a percentage of the property portfolio's total market value, followed by Sweden (24 percent), UK (15 percent), Belgium (7 percent) and Finland (6 percent).

136 of the hotel properties are leased to third parties, which means that approximately 84 percent of the portfolio market value is covered by external leases. Pandox's tenant base consists of highly reputable hotel operators with strong hotel brands.

On 30 September 2020 Investment Properties had a weighted average unexpired lease term (WAULT) of 14.9 years (15.6).

600					100
500					90
				80
400					70
				60
300					50
200					40
				30
100					20
				10
0					0
	2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054

Expiring rental value,

MSEK (left hand scale)

Accumulated expired % (right hand scale)

1. 000

1. 000

1. 000

1. 000

1. 000

1. 000

1. 000

1. 000

1. 000

1. 000

1. 000

1. 000

1. 000
   0

Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020

17%

7%

18%

59%

Revenue-based with guarantee

Revenue-based without guarantee

Fixed

Own operations

Pandox AB follows the International Financial Reporting Standards (IFRS) and interpretations (IFRIC), as adopted by the EU. This interim report has been prepared according to IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act.

The interim report for the Parent Company has been prepared in accordance with Chapter 9 Interim Reports of the Swedish Annual Accounts Act. The Parent Company applies the Swedish Annual Accounts Act and RFR2 Accounting principles for legal entities. Under RFR2 the parent company of a legal entity applies all EU approved IFRS principles and interpretations within the framework defined by the Swedish Annual Accounts Act and taking into consideration the connection between accounting and taxation.

Rights of use and long-term leasing debt have adjusted the comparative figures retroactively regarding two site-leasehold rights.

The interim financial statements are included on pages 1-24 and pages 25-27 are thus an integrated part of this financial report.

The accounting principles applied are consistent with those described in Pandox's 2019 Annual Report.

Pandox is applying IFRS 16 prospectively as of 1 January 2019.

Pandox's operating segments consist of the Property Management and Operator Activities business streams. The Property Management segment owns, improves and manages hotel properties and provides external customers with premises for hotel operations, as well as other types of premises adjacent to hotel properties. The Operator Activities segment owns hotel properties and operates hotels in such owned properties. The Operator Activities segment also includes one hotel property under an asset management agreement. Non-allocated items are any items that are not attributable to a specific segment or are common to both segments, and financial cost for right-of-use assets according to IFRS 16. The segments have been established based on the reporting that takes place internally to executive management on financial outcomes and position. Segment reporting applies the same accounting principles as those used in the annual report in general, and the amounts reported for the segments are the same as those for the Group. Scandic Hotels Group and Fattal Hotels Group are tenants who account for more than 10 percent of revenues each.

Average interest expense based on interest maturity in respective currencies as a percentage of interest-bearing liabilities.

EBITDA plus financial income less financial expense less financial cost for right-of-use assets according to IFRS 16 less current tax, adjusted any unrealised translation effect on bank balances.

Total gross profit less central administration (excluding depreciation).

Growth measure that excludes effects of acquisitions, divestments and reclassifications, as well as exchange rate changes.

Accumulated percentage change in EPRA NAV, with dividends added back and issue proceeds deducted, for the immediately preceding 12- month period.

Revenue less directly related costs for Operator Activities including depreciation of Operator Activities.

Revenue less directly related costs for Property Management.

Current and non-currentinterest-bearing liabilities plus arrangement fee for loans less cash and cash equivalents and short-term investments that are equivalent to cash and cash equivalents. Long-term and short- term lease liabilities according to IFRS 16 are not included.

Profit before changes in value plus interest expense and depreciation, divided by interest expense. Financial cost for right-of-use assets according to IFRS 16 is not included.

Investments in non-current assets excluding acquisitions.

Interest-bearing liabilities, including arrangement fee for loans, less cash and cash equivalents as a percentage of the properties' market value at the end of the period.

Gross profit for Operator Activities plus depreciation included in costs for Operator Activities.

Net operating income corresponds to gross profit for Property Management.

Net operating income for Operator Activities as a percentage of total revenue from Operator Activities.

Since amounts have been rounded off in MSEK, the tables do not always add up.

EBITDA plus financial income less financial expense less current tax, after non-controlling interests, less financial expense for right-of-use assets according to IFRS 16 adjusted any unrealised translation effect on bank balances divided by the weighted average number of shares outstanding.

Comprehensive income attributable to the Parent Company's shareholders divided by the weighted average number of shares outstanding after dilution at the end of the period.

Proposed/approved dividend for the year divided by the weighted average number of outstanding shares after dilution at the end of the period.

Profit for the period attributable to the Parent Company's shareholders divided by the weighted average number of shares outstanding.

Recognised equity, attributable to the Parent Company's shareholders, including reversal of derivatives, deferred tax asset derivatives, deferred tax liabilities related to properties, and revaluation of Operating Properties, divided by the total number of shares outstanding after dilution at the end of the period.

The weighted average number of outstanding shares taking into account changes in the number of shares outstanding after dilution during the period.

The weighted average number of outstanding shares taking into account changes in the number of shares outstanding, before dilution, during the period.

Market value of Investment Properties plus market value of Operating Properties.

Number of owned hotel properties at the end of the period.

Number of rooms in owned hotel properties at the end of the period.

Revenue per available room, i.e. total revenue from sold rooms divided by the number of available rooms. Comparable units are defined as hotel properties that have been owned and operated during the entire current period and the comparative period. Constant exchange rate is defined as the exchange rate for the current period, and the comparative period is recalculated based on that rate.

Average lease term remaining to expiry, across the property portfolio, weighted by contracted rental income.