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Reason for optimism

CEO comment from the year-end report 2021.

Good underlying demand

Hotel demand was good during most of the fourth quarter, supported by increased business travel, stable leisure travel and good average price development in general. Demand gradually slowed during the second half of the quarter due to a new virus variant which led to increased infection rates and new restrictions. The domestic and regional hotel markets saw the best development again in the fourth quarter, with the UK remaining at the top. Occupancy in the Nordic regional markets was periodically well in line with the 2019 levels*.

The development experienced in the fourth quarter is a clear indication that underlying demand is strong and that there is substantial pent-up demand among both leisure and business travellers to travel and meet in person – and this demand is growing with each new round of restrictions.

Clear earnings improvement

Pandox’s total revenue and net operating income increased by 42 and 37 percent respectively compared with the fourth quarter of 2020. For comparable units the increase was 49 and 32 percent respectively, adjusted for currency effects. The majority of Pandox’s revenue was made up of contractual minimum rents and fixed rents within Property Management. The amount contributed from revenue-based rents and revenue from Operator Activities was higher than in the third quarter. Occupancy for comparable units in the Property Management and Operator Activities business segments amounted to around 51 percent (22) and 38 percent (12) respectively in the fourth quarter.

Acquisition, positive cash flow and strong financial position

At the end of the fourth quarter Pandox acquired the 146-room Aparthotel Adagio Edinburgh Royal Mile for around MGBP 40.5. This is an attractive hotel property in an exciting segment in a dynamic and growing city. The hotel is strategically and centrally located in one of the UK’s most attractive hotel markets with well-diversified demand and very good RevPAR levels. This acquisition gives Pandox exposure to the extended stay segment, a segment of our portfolio that we hope to be able to grow over time.

Pandox has reported positive cash earnings every quarter since the pandemic started and the Company’s financial position is strong. As of 31 December 2021, the net loan-to-value ratio was 49.8 percent and cash and cash equivalents plus unutilised credit facilities amounted to MSEK 3,576. Refinancing transactions equivalent to MSEK 2,313 were executed during the quarter. The majority of credit facilities maturing in 2022 will mature in the fourth quarter.

Phased recovery with various levels of development

As previous communicated, Pandox is expecting the hotel market’s recovery to take place in phases – provided that restrictions are eased and economic activity remains high – 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 increased occupancy and revenue, which in turn will create the conditions for higher average prices and increased revenue per room. 

Throughout the pandemic the hotel market has vacillated between levels 1 and 4. Pandox’s assessment is that the hotel market is currently in a holding pattern between levels 3 and 4. In the wake of eased restrictions the hotel market is expected to quickly recover the ground lost at the end of the fourth quarter, supported by increased domestic business travel.

Pandemic’s new phase increases stability in demand

The trend in the fourth quarter shows once again that there is a substantial pent-up desire for travel, which is quickly converted into demand once restrictions are reduced and it becomes easier to travel. Good average prices also signal a high willingness to pay for a hotel stay.

With the spread of the omicron variant the pandemic has entered a new phase. There is discussion in many countries about removing restrictions and finding new ways to live with the virus that have less impact on society. With the exception of Germany and Canada, the authorities in all of the countries where Pandox operates have now announced a date – mostly in February – for when Covid-19 restrictions will be lifted. This will lead to higher hotel demand and will also likely increase demand predictability and stability.

So far in the first quarter hotel demand has been higher than in the corresponding period last year. The first quarter is also seasonally the weakest one of the year.

The recently announced and implemented easing of restrictions has resulted in more booking inquiries from both individuals and businesses. In the most recent phase of restrictions, businesses have opted to postpone meetings rather than cancel them altogether, because the need for meetings is constantly growing. Pandox has therefore made the assessment that the hotel market is in a good position to quickly recover lost ground once restrictions are eased again.

Taking into account the effects of the pandemic and the Covid-related government support received, the Board of Directors is proposing no dividend payment for 2021.

Liia Nõu, CEO


*Benchmarking Alliance based on open hotels