Our strongest quarter so far

Strong growth in a restriction-free quarter
The third quarter of 2022 was the first quarter since 2019 without significant pandemic restrictions. The hotel markets have now returned to a more or less normal seasonal pattern and business mix. RevPAR have fully recovered to pre-pandemic levels mainly driven by higher average prices. For the first nine months 2022 RevPAR in Europe was approximately 1 percent* higher than in the corresponding period 2019, with an average price which was 16 percent higher and an occupancy which was approximately 5 percentage points lower than in 2019. Hotel demand is broadly anchored, and business and group travel have increased.

The strong market recovery translated into strong growth and profitability for Pandox. For comparable units, net sales and net operating income increased by 78 and 84 percent respectively in the third quarter, compared with the corresponding period in 2021. Revenue-based rents increased to around MSEK 378 (147).

Strong financial position
The financial development was overall strong with an increase in net operating income, positive unrealised changes in value for properties and derivatives as well as positive changes in currency.

The unrealised changes in value for properties in the quarter are explained by stronger cash flows as an effect of the hotel market’s recovery which outweighed increased yield requirements. There is a risk that higher financial costs will lead to higher yield requirements, but this has not yet had an impact on the transaction market for hotel properties.

Despite considerations paid for two acquisitions equivalent to around MSEK 878, Pandox’s loan-to-value ratio fell to 47.1 percent. It is worth emphasising that Pandox’s only financing is through banks and that we have a good dialogue with our lenders on future refinancing. Recent development in the interest market will cause Pandox’s interest costs to rise gradually in 2023.

Deferred rent decreased to MSEK 352 in the third quarter, compared with MSEK 537 in the second quarter. Most of the leases have now reverted to advance invoicing according to the original terms of the leases. 

High business activity
Pandox’s strategy is based on active ownership and long-term development of hotel properties. We also look for opportunities to challenge ourselves in terms of the individual hotel properties’ position in the portfolio. We are not averse to divesting hotel properties when the price is right. The agreement to sell InterContinental Montreal in Canada for MCAD 80 is a good example where we are reinvesting the capital in profitable growth in Europe.

In terms of acquisitions, we are currently seeing the most significant opportunities within Operator Activities. In the third quarter we completed the acquisitions of NH Brussels Louise in Belgium and DoubleTree by Hilton Bath in the UK. The hotel in Bath is fully invested and there is good potential to optimise operations and further grow market share. We are currently evaluating suitable options for NH Brussels Louise regarding how to best position the hotel and enable it to reach its full potential. In both of these cases we are seeing a stabilised valuation yield that is expected to easily compensate for the market’s increased yield requirements. We generally evaluate changes in cost levels on an ongoing basis in investments to ensure we set the right priorities and generate a good return.

Good starting point in more uncertain times
Our assessment is that the pandemic-related financial effects are now over and that the hotel market has more or less returned to a new normal. RevPAR is at the same level or higher than in 2019 in most markets and the demand mix is relatively well balanced. However, long-haul international travel and larger conferences and congresses still have a way to go to reach 2019 levels. Rising inflation and higher energy prices have not had any clear negative impact on hotel demand up to now.

In the Property Management segment, the tenants carry the cost of energy, and higher energy prices do not therefore have any direct impact on Pandox. In Operator Activities the effects of higher energy prices have so far been limited. Costs are, however, expected to rise from the first quarter of 2023.

Having predominantly variable revenue, which normally provides protection against both increased costs and higher interest rates, puts Pandox in a strong position. Our good financial position and strong cash flow gives us the freedom to seize opportunities in terms of investments and acquisitions. We are open to selling hotel properties if the price is right and, in doing so, free up additional capital so that we can reinvest in new projects with high value-creation potential.