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Strong earnings growth

CEO comment from the interim report January-June 2022. The report can be found here.

Strong growth in revenue and net operating income
The hotel market experienced a very strong trend in the second quarter, with rising occupancy and higher average prices in all of Pandox’s markets. This strong growth is explained in part by continued normalisation of travel with increased underlying demand, and in part by pent-up demand following the pandemic, particularly in the leisure segment.

For comparable units, Pandox’s total net sales and total net operating income increased by 99 percent and 84 percent respectively in the second quarter, compared with the corresponding period in 2021. Occupancy for comparable units in the Property Management and Operator Activities business segments was around 64 percent (29) and 65 percent (20) respectively in the second quarter. In June individually, occupancy for comparable units in the Property Management and Operator Activities segments amounted to around 69 percent (36) and 76 percent (26) respectively. The amount contributed by revenue-based rent increased to around MSEK 258 (51). The tenants’ financial position improved and the amount of delayed rents decreased to MSEK 537, compared with MSEK 558 in the first quarter.

Important lease extensions and business-focused organisation
In the second quarter Pandox extended 15 hotel leases with Scandic in the Nordics. The extensions include a joint investment programme of around MSEK 700 for product development, repositioning and increased guest comfort. This is an important milestone; one that shows that the lease model works and that both property owner and tenant have a strong incentive to take a long-term approach based on a common, commercial perspective.

During the quarter Pandox also further strengthened the organisation’s business focus, and I am delighted that we recruited Tobias Ekman to serve as the new head of Property Management Nordics. Tobias has long experience from leading roles in the hotel industry and will start his new job on 1 September when he will also join Pandox’s group management team. This ensures a very strong team with extensive hotel and property expertise as we enter a new market phase.

Consistent financing strategy...
Pandox has two sources of financing: the Company’s equity and bank loans secured by underlying properties. We have no market financing in the form of bonds.

Pandox’s financing model is based on long-term relationships with shareholders and banks and is the same as when the Company was formed. In the second quarter, Pandox increased the number of lenders from 11 to 13, adding Swedbank and AMF Tjänstepension AB as new lenders. In total, Pandox refinanced loans equivalent to around MSEK 4,570 during the second quarter, whereof the majority with maturity in three to four years and with stable credit margins. During the pandemic, hotel properties were seen as a more risky asset class than other types of properties. This resulted in refinancing with shorter maturities and higher credit margins. Now when cash flow is improving, it is possible to refinance with longer maturities again

... and good financial flexibility
Pandox’s financial position is stable. As of 30 June 2022, the loan-to-value ratio was 47.8 percent, and cash and cash equivalents plus unutilised credit facilities amounted to MSEK 4,091. Pandox’s loan-to-value ratio has fluctuated between 46.0 and 50.8 percent since the stock exchange listing in 2015. The quarterly outcomes have consistently been at the lower end of the financial target range of 45–60 percent. The loan-to-value ratio is also lower than before the pandemic, which is the result of an effective business model and good risk management.

Good starting point for future quarters
A large percentage of Pandox’s revenue is variable, which normally offers protection against both increased costs and higher interest rates. We therefore have a good starting point in terms of growth and profitability as we head into future quarters. A good financial position and strong cash flow also enables future investments to be made in the existing portfolio, as well as in add-on acquisitions. With the rising cost of input goods and more expensive financing, our primary focus is investment projects and acquisitions with high value creation potential. Our emphasis is on profitable growth. Opportunities exist for us to further optimise our portfolio through selective divestments if the price is right.

Our assessment is that the conditions for Pandox to report good growth in revenue and earnings in 2022 are good.

Liia Nõu, CEO