Pandox waits to play

Swedish hotel landlord and operator Pandox has declared itself ready for action – just as soon as Covid-19 lockdowns in Europe are lifted. 

“We are absolutely at the bottom now – everything is about the restrictions,” said CEO Anders Nissen. “I really hope it’s the last time I have to present these sort of numbers.”  

Total net operating income was down 53% for the fourth quarter, and Pandox declared a SEK1,408m loss for the full year, largely due to a downward revaluation of investment properties. The company finished the year with SEK5,221m of liquidity, down a little on the SEK5,348m at the end of Q3. 

“We had a quite promising start to the quarter, from the holidays,” said Nissen. “But with new restrictions from the second wave, demand flew away – and there was no chance to run an efficient hotel business in Q4.” 

The company continues to collect all its fixed rents from tenants, although some – including operator Scandic – have been granted temporary modification to payment terms. Pandox CFO Liia Nou said the company’s lenders have granted waivers, across individual agreements.  

The company downvalued its portfolio by 4.8%, said Nou, in an acknowledgement of the reduction in cashflow in the near future. When quizzed by analysts over an apparent mismatch between internal and external valuations, she noted: “We kept the yield requirements unchanged. When we do external valuations, and we have done 60 in 2020, the operators outside the Nordic region have used a higher yield.”   

Nou said there had been few open market transactions that could help establish current values, and there was little evidence of distressed sales in locked down markets: “If this were to be the case, it would be easy to buy cheaply outside the Nordics, we don’t see that.” 

“I believe the challenge now is to understand what the recovery might look like,” said Nissen. “Q1 – there’s nothing we can do about that. Q2, demand will return in stages. Germany, the UK and Netherlands are still completely locked down, in Sweden it’s a little different and we already see a pickup in leisure demand at the weekends.” 

Looking ahead, Nissen predicted: “No one can wait to travel – the summer will be a bomb.” He also pointed to the substantial market recovery in China: “People continue to travel – if they’re not allowed to travel internationally, they travel domestically.” And he noted that hoteliers understand this latent strong demand: “I think most people understand that price will not drive demand – prices have been surprisingly stable.” 

“Given a successful vaccination, the market will be coming back quite quickly, we believe. But restrictions have to go down.”   

STR’s Robin Rossman provided a broad assessment of the likely shape of recovery. “There’s no good way to paint the picture about how Q1 will be. We’re seeing occupancy levels that are just as bad, if not worse, than we saw in April and May.”  

During that first lockdown, more hotels were closed, he added, “so the demand that was left was shared across less hotels.” But those that stayed open, bounced back stronger when the market reopened – a route more want to follow this time. “As a result, there’s really more demand going around, but it’s shared among a greater number of open hotels.” 

During the second quarter, STR expects to see recovery, aided by warmer weather, vaccinations, and the reduced incidence of Covid-19. “I have a large degree of confidence that we will have a large catch-up – I have strong confidence that when they’re allowed to travel, people will travel.” 

One useful indicator is the market recovery in Dubai: “Dubai had some of the strictest lockdowns, but quite quickly occupancy recovered to prior year levels.” While its easing of restrictions “was perhaps a bit too soon, as there’s been an increase in cases, but what that does show is how ready people are to travel.” 

“In Q3, the recovery will be strongest in leisure markets, and leisure hotels,” predicted Rossman. And business travel recovery will follow: “Zoom has not killed business travel.” 

For full year 2021, “I think Australia is a really good benchmark for where we will be in Q3 and Q4”, with revpar 40% below normal. This, he said, is “the international gap. We think it will take a while to recover in full – we do see it taking up to 2024 and potentially beyond to get to those 2019 levels.” 

Questioned over likely distress among his operator tenants, Nissen declared confidence in all of them. “We have no plans for taking over, we believe we will get through this crisis together, and get out the other side.” 

“All of them are not in good shape, but in a financial position that they will survive.” Questioned specifically on Scandic, he commented: “We have a good relationship, they pay their rent, we try to support them with payment terms – we are not negotiating, everybody needs to pay their minimum rent, and Scandic does that.” And on his portfolio of Leonardo properties: “Leonardo is owned by Fattal, a public company in Israel, they have a strong financial position as we understand it.” 


HA Perspective [by Chris Bown]: Becalmed – and raring to go, as soon as possible. A frustrated Nissen probably echoes the thoughts of many in the sector, wondering when they will be able to start trading once more. Enough plotting scenarios – the reality will require fast reactions and supportive partnerships to ensure as many as possible get through the recovery phase. With 156 hotels across 15 country markets, Pandox is well placed to read the nuances of individual markets, and can be expected to make a decent fist of reopening as efficiently as possible. 

But interestingly, this update was all about operations. Nissen has gone quiet on his earlier predictions of potential acquisitions, as markets reopen and distress becomes evident. As his finance chief noted, transactions to date have been few, and asset prices look to be holding up well.  

While Nissen talked positively about his partner operators and brands, Pandox has shown in the last few months that it is quite ready to grab back properties from cash-constrained tenants, and simply operate in-house.  

And with a substantial tranche of Pandox’s hotel leases up for renegotiation in 2022, there will be little time for some operators to defer rents any further into the future. Plus, this comes after Starwood Capital’s arrival in the Nordics, ready to shake up the region and introduce more international brands. Expect the Pandox pack to be shuffled next year.  


Additional comment [by Andrew Sangster]: The roadmap out of lockdown presented by Pandox is the same as the one we at Hotel Analyst see as most likely. It starts with a difficult Q1 due to ongoing restrictions before opening up in stages during Q2. 

Individual leisure returns first and then domestic business travel from SMEs which leads to a strong recovery in domestic markets. Pandox asks if “summer could be a bomb?” We would say it looks that way. 

Pandox goes on to say that the period after the summer could be exciting with meetings and the first signs of international travel. 

The only qualification I would put on the Pandox outlook is that domestic business travel will return quicker (it is already as significant portion of business where hotels are open in lockdown). And that international travel may take longer, particularly intercontinental travel. 

An element of this was seen in the autumn. Pandox said: “the recovery [was] faster than many had expected, however, demand in larger and more international cities remain[ed] weak”. 

It should be stressed that this is a northern European outlook – the UK, Benelux, Scandinavia and Germany. In southern Europe, the outlook could be far more mixed as the summer season is likely to be weak. (If borders remain shut it will be a disaster). 

There will be a trade-off here. The weaker the position of southern Europe, the stronger the position of northern Europe. This will matter particularly for the larger city markets of northern Europe which will have a chance to fill their properties at decent rates if holidays overseas are offline. 

My view is best summarised as being more bullish on domestic and more bearish on international / cross-border. In the UK, it is difficult to see the Government promoting vaccine passports until all of the UK population has been offered a vaccine. There are huge issues of fairness which politicians will be mindful of provoking. 

Unless children are going to be classified as exempt from being a risk of importing new variants (highly unlikely), then they too will need to be vaccinated before overseas travel can restart. Trials involving children are only just starting and any widespread vaccination is not likely to be completed until after the summer. In the meantime, existing quarantine rules will apply and most likely be extended.  

Currently, only Portugal is among European countries on the “red list” of countries requiring quarantine. But the UK Government has made clear that the list could be extended at short notice. 

Last summer, many Britons travelling overseas were caught out by the change in quarantine rules and closure of so-called air corridors. This summer, anyone finding the status of a country they are visiting suddenly changing before than can return faces an expensive and lengthy stay in a UK airport hotel rather than the option of quarantining at home. This raises the cost of falling fouling of lastminute rule changes and is likely to be a major deterrent to overseas travel. 

Within the EU, the biggest question revolves around the Schengen area. If borders are kept open, then southern Europe will enjoy a reasonable summer season, albeit without the Brits.  

There is some risk than there will be significant border controls within Schengen (Germany, Belgium and Sweden have tightened borders in the last few weeksbut given the vaccine roll outalbeit significantly slower than the UK, and the likelihood of the virus declining during the summer as last year, the risk appears small.  

The overhang of current restrictions means drive-to rather than fly-to will be preferred. This will likely inhibit the performance of Mediterranean islands but mainland holiday destinations should fare better. 

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