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Onwards and upwards

2021 was a year with many faces. Covid-19 and government restrictions had a very negative impact on the first part of the year. In the later part of the year there was strong recovery in the hotel market thanks to vaccina-tion programmes, eased restrictions and pent-up travel demand among both leisure and business travellers. Total revenue amounted to MSEK 3,273 and total net operating income to MSEK 2,005, representing an increase of 7 and 8 percent respectively compared with 2020.

See Liia Nõu summarize 2021 here.

I was appointed CEO of Pandox on 23 August after our former CEO Anders Nissen passed away tragically on 30 May. I had the privilege of working with Anders in my capacity as CFO for almost 15 years. I feel deep sorrow over losing him – both as a colleague and a friend. What Anders did for Pandox and the hotel industry cannot be overstated.

I feel very proud of the confidence the Board has shown in me and I am great-ly motivated to continue to develop this strong company. Although I have worked at Pandox for a long time, I am
seeing our strengths with new eyes in my new role. Our business model is well-proven in both good and bad times, and we have a unique, well-established strategy and a deeply united organisation with highly competent and enterprising employees. Despite the pandemic and the loss of Anders Nissen, I feel optimistic about the future.

Unique strategy remains in place
Pandox has a clear strategy of long-term ownership and of leasing out hotel properties in attractive locations. We partner with strong operators with well-known brands in revenue- based leases – often with a minimum rent level – under which we share both upsides and downsides, and have a joint incentive to develop each individual hotel product.

Pandox’s portfolio boasts various dimensions of diversification – we have 157 hotel properties in 15 countries and 90 cities, and broad exposure to most segments of demand in the hotel market. Our ambition is to continue to develop this unique position and constantly optimise and diversify our hotel property portfolio into new segments and new types of demand.
My goal is to maximise value growth and I will leave no stone unturned to achieve this.

"My goal is to maximise value growth and I will leave no stone unturned to achieve this."

Weak start – stronger finish
We have now lived with Covid-19 for just over two years. It is still too early to say what long-term effects the pandemic will have on the world and on the hotel industry, but a few short-term impacts are very clear. The most obvious one is that demand in the hotel market is determined to a high degree by government restrictions. The tougher the restrictions, the lower the hotel demand, and vice versa.

The first half of 2021 continued in the same vein as 2020 ended, with high infection rates and extensive restrictions in all of Pandox’s markets. As a result, hotel demand remained very low and Pandox’s revenue consisted mainly of contractual minimum rents and fixed rents within Property Management. The closer we got to the summer, and with successful vaccination programme rollouts in our markets, the stronger the hotel market recovery was, with domestic leisure travel as the clear leader.

Occupancy was particularly high in attractive leisure destinations such as Kalmar, Lübeck och Brighton. The brightest shining star in the recovery was without exception the UK which, by May 2021, had already lifted most of its restrictions and was rewarded by higher economic activity and rising occupancy rates in the hotel market.

As the holiday period came to an end we saw a growing positive trend in business travel, initially driven by small conferences. As the autumn progressed there was a clear trend of both large and small conferences being booked, particularly in domestic and regional cities. However, the spread of the Omicron variant in late autumn slowed the recovery.

Several Nordic regional cities had overall higher occupancy in the beginning of the autumn 2021 than in the same period in 2019. Occupancy in international cities also rose, albeit from low levels.

Promising acquisition concludes the year
On 21 December we announced our acquisition of Aparthotel Adagio Edinburgh Royal Mile. This apartment hotel has 146 rooms and is strategically and centrally located in one of the UK’s most attractive hotel markets with well-diversified demand and very good RevPAR levels. The acquisi-tion gives Pandox exposure to the extended stay segment, a segment of our portfolio that we hope to be able to grow over time. 

A clear game plan in a difficult situation
Throughout the pandemic Pandox has worked in a structured way within three areas:
– Steps to help alleviate the acute crisis
Restart – Plan for recovery
Reinvent – Create insights into how the hotel market will change

We invested the most time in Respond, but as societies opened up and people started wanting to stay at hotels again, Restart became a bigger focus. Reinvent is something that Pandox has always prioritised and our focus on it intensified after the pandemic broke out.

Effective business model in tailwinds and headwinds
We have known for a long time that Pandox’s business model – particularly our revenue-based leases with minimum rent levels – is effective in good times. Now the business model has shown its resilience during a pandemic too. Thanks to contractual minimum rents and fixed rents equivalent to around MSEK 1,900 annually, we have been able to generate positive cash earnings every quarter since Covid-19 hit in February 2020. This has enabled us to retain our strong financial position, which has in turn allowed us to make growth-driving investments in our existing portfolio and to offer our business partners better payment terms in the difficult situation created by the pandemic. We are therefore coming out of 2021 stronger, in the knowledge that our business model delivers in all situations.

Sustainability is increasingly important
In 2021 we made several strategic and business critical decisions regarding our sustainability work. We added expertise in this area to our executive management team to ensure that sustainability is incorporated throughout Pandox’s hotel property portfolio. We also decided to start a process of climate resilience analysis to determine the resilience of our properties and to make any necessary action plans. This is a long-term effort that will continue in 2022. Pandox continues to support the UN Global Compact and its Ten Principles, and we submitted our third Communication on Progress in 2021. The green investment programme for our own operations is proceeding according to plan and we are also planning a second investment programme. These programmes combined are aimed at developing the properties in line with the Paris Agreement.
During the year, two of the properties we operate ourselves were certified according to BREEAM at the Very Good level. A further seven properties will be certified in the first half of 2022.

Strong corporate culture leads the way
Witnessing the ordeals that all Pandox’s employees have gone through over the past two years – in both their personal and professional lives – has each day made me feel more and more proud of being part of this company. It is an honour to share my days at work with so many talented, driven and team oriented colleagues. The values we all share are equally important – we support each other, we are always striving to be better, and we are not afraid to laugh and look on the bright side even in the darkest times.

Good underlying growth potential
Demand in the hotel market throughout the pandemic has varied depending on the extent of restrictions. When restrictions were eased in the second half of the year there was a clear increase in hotel demand in all Pandox’s markets. Although the Omicron variant slowed demand at the end of the year, positive underlying development in the hotel market clearly shows that there is a substantial pent-up desire for travel, which is quickly converted into demand once restrictions are lowered and it becomes easier to travel.

Willingness to pay for hotel accommodation is high, as illustrated by the average price develop-ment in attractive leisure destinations in the third quarter in particular, with RevPAR in some cases significantly higher than in the corresponding quarter in 2019 before the pandemic.
The level of economic activity in Pandox’s markets is good and personal finances are strong. Vaccination levels are high and companies have returned to their physical workplaces, laying the foundation for more conferences and increased domestic business travel alongside continued
active domestic leisure travel.

Pandox is in an attractive position with around 80 percent of all rooms in regional and domestic cities, and therefore has high exposure to domestic demand, which is leading the hotel market’s recovery.

Sights set on the future
2021 has been a year with many faces and in which many insights have been gained. One of the most obvious and gratifying insights is that people start travelling again as soon as they can and when the restriction status allows them to. The strong recovery that happened in all of Pandox’s markets in the second half of the year is solid proof of that. Here at Pandox we are incurable optimists and we see opportunities for continued recovery in 2022.

With a strong balance sheet, a well-diversified portfolio of attractive hotel properties and strong partners, a well-balanced business model and a unique corporate culture, we are ready for anything that comes our way.

Thank you, dear shareholders, for your continued faith in us. Thank you to our lenders, business partners, guests and Pandox employees for a year in which we have hopefully left the worst behind us. Onwards to brighter times!

Stockholm, March 2022
Liia Nõu