Good conditions for growth  

Strong recovery as restrictions are eased
The first quarter had a weak start due to restrictions and a normal season effect, but ended strong once restrictions were eased in many countries and the hotel market could regain lost ground from the winter’s Omicron-related dip. As before, domestic and regional hotel markets fared the best, but the difference between those and larger cities decreased. This is yet another step towards a normalisation in the hotel market.

The general perception in the hotel market is that we have now entered a more stable phase. The foundations are therefore in place for more sustained demand from leisure and business travellers, as well as larger conferences and events.

My colleagues and I have been affected on a human level by the very tragic war in Ukraine. For Pandox it has been important to help in any way we can. In addition to contributing financially to UNICEF, I am most proud of the efforts by many of our hotels in the Operator Activities segment, particularly in Germany, where those fleeing from the war were offered hotel rooms.

Good recovery in earnings and revenue
For comparable units, Pandox’s total net sales and total net operating income increased by 36 percent and 24 percent respectively in the first quarter, compared with the same period in 2021. Supporting factors was a gradual increase in travel among both individuals and businesses, and very good average price development in several markets. The comparison period in 2021 was however weak. Occupancy for comparable units in the Property Management and Operator Activities business segments was around 40 percent (16) and 31 percent (11) respectively in the first quarter. In March, occupancy for comparable units in the Property Management and Operator Activities segments amounted to around 51 percent (18) and 44 percent (12) respectively.

Strongest development in Norway and UK
As the quarter progressed, increased demand was noted in all hotel markets, albeit at varying rates and from different starting points. In general, demand was the highest in domestic and regional cities, with occupancy in many locations – particularly in the Nordics and the UK – well in line with 2019 levels in the latter part of the quarter. The German hotel market showed good tendencies but was held back by restrictions that were not lifted until 20 March.

It is particularly gratifying to see that demand in many larger cities, such as London, started to really recover and is now at the highest level since the outbreak of the pandemic.

Divestment in line with strategy
At the end of the quarter Pandox entered into an agreement to divest the hotel property that houses Mora Hotell & Spa in Mora, Sweden, to Cibola Holding AB. This divestment is in line with Pandox’s strategy to constantly optimise the portfolio, focusing on hotel properties in strategic locations, and will take place at an attractive price that exceeds Pandox’s internal valuation.

Next phase of the recovery
We are in a phase of less uncertainty regarding Covid-19 and the conditions are good for continued recovery in the hotel market. Willingness to pay for hotel accommodation is high, which to some extent compensates for lower international travel and lower demand for large conferences. The outlook for trade fairs and conferences is positive and demand is expected to rise in the second quarter and in particular in the second half of the year. An increase in international air travel is also expected to benefit more international destinations, above all Brussels, and this will have a particular positive impact on the Operator Activities segment.

We have noted that the price elasticity of hotel demand has been low so far due to significant pent-up travel demand after Covid-19. The possibility of compensating for increased costs through higher room prices without negatively impacting demand is considered good at this time. Higher room prices are having a positive impact on Pandox’s variable rental income in the Property Management segment. Higher room prices are also making it possible to compensate for potential cost inflation in the Operator Activities segment.

We expect Pandox to see good organic growth in both revenue and profits in 2022.

Liia Nõu, CEO