Below are the most common questions Pandox recieved in connection with the Q1 2022 interim report.
Last updated: May 2022
- How has the hotel market developed during the first quarter 2022 and in the beginning of the second quarter?
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.
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.
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.
The strong trend continued in April and business on the books look promising.
- How has business travel developed during the quarter?
The domestic and regional business travel recovered well once restrictions in Pandox’s markets were eased. This was mainly driven by transient demand and smaller meetings.
Trade-fairs, conferences, and large meetings, which requires more forward planning, are likely to see a stronger recovery in Q2 and particularly in the second half of the year.
The international business travel segment is steadily recovering but from lower levels.
- Can you explain the dynamics of revenue-based rents in leases with minimum contractual rent? How do you expect the revenue-based component to perform in 2022?
Of the 137 hotel properties Pandox has in the business segment Property Management, in which the properties are leased to operators, 96 leases are revenue-based with a minimum contractual rent. 32 leases are 100 percent revenue based, with no minimum contractual rent.
In Q1 2022, Pandox had revenue-based revenue of MSEK 98, of which the absolute majority was generated from pure revenue-based leases.
In Q1 2022, despite the weak start of the year, revenue-based rent was generated in 20 (of 96) leases with minimum contractual rent. This is a promising sign for the rest of the year.
The threshold in occupancy for revenue-based rents to materialise differs between countries and lease agreements. Generally, the level is lower in the Nordics than in UK and Germany.
- How will Operator Activities perform rest of 2022?
The composition of assets in Operator Activities is tilted towards international destinations such as Brussels, Berlin and Montreal, with several large full-service hotels, which has suffered the most throughout the pandemic.
Hence, the recovery in Q1 started from low levels but improved as the quarter progressed. In March, the occupancy level in Operator Activities was 44 percent, compared to 12 percent in March 2021.
The outlook is promising and the recovery is expected to continue on the back of pent-up demand from both leisure and business travelers.
- How will inflation affect Pandox's business?
Pandox has a natural protection against inflation given that most of our rents are variable. In cases where we have fixed leases or revenue-based leases with a minimum contractual level, index adjustments are made.
Currently, pent-up and price-insensitive demand for hotel rooms has resulted in higher average room prices in the hotel market.
Higher room prices affect variable rent positively in Property Management and makes it possible to compensate for higher costs in Operator Activities.
- How will higher interest rates affect Pandox?
Generally, higher interest rates reflect good economic growth, which normally translates into good occupancy and average room prices and thus higher variable revenue (rent and net sales) for Pandox. Historically, increased revenues have compensated for increased interest rate cost.
However, to manage interest rate risk and increase the predictability of Pandox’s earnings, interest rate derivatives are used, mainly in the form of interest rate swaps. Approximately 53 percent net of Pandox’s loan portfolio was hedged against interest rate movements for periods longer than one year, per 31 March 2022. Per this date Pandox’s average interest rate was 2.5 percent, including effects from interest-rate derivatives.
Pandox single source of debt is mortgage-backed bank loans from eleven relationship banks. Short-term credit facilities with a term of less than one year amount to MSEK 11,452, of which MSEK 10,241 matures in the fourth quarter 2022 and the first quarter 2023. Discussions on refinancing are ongoing and positive.
Pandox has a strong financial position with a loan-to-value of 49.1 percent per 31 March 2022.