Pandox on the move again

Scandinavian hotel owner and operator Pandox is starting to shuffle its portfolio, as international hotel markets open up.  

In recent weeks, the group has taken back one German property for repositioning, and has relet  a Copenhagen hotel, indicating it is now ready to do deals as the way out of the pandemic becomes clear.  

The group is restarting work under the leadership of new CEO Liia Nou, who replaced Anders Nissen, after his sudden death in May 2021. Nou has been with the company as its chief financial officer for 14 years.  

Recent weeks have seen Pandox move to reposition two properties in the portfolio, as a consequence of operators failing under the pandemic. In Copenhagen, the company’s H27 hotel has been relet to German budget operator Motel One. The property was one of two taken back by Pandox in April 2020, when the tenant of two First Hotel properties in the Danish capital faltered.  

Pandox took the opportunity, during the pandemic downturn, to refurbish and reposition the 200 room H27, which it has owned since 2005. It is the first time Pandox has signed Motel One as  a tenant in one of its hotels. Pandox CEO Liia Nou said the deal “confirms the value of the hotel property. The lease is competitive and shows that it is possible to create value even in a tougher market climate.” 

As is familiar in Pandox lease agreements, the 20-year deal is revenue-based, with a minimum guaranteed rent. The company has also agreed a four-year ramp-up of both elements, allowing Motel One to build their presence in Denmark out of the pandemic; and the tenant will bear the costs of the rebranding, while Pandox will retain responsibility to maintain the external building structure and technical fabric.  

In Germany, the company has recently taken back another property, after the expiry of the lease. There, Pandox plans EUR20m of improvements to the former Maritim Hotel, and will close it for the upgrade until autumn 2022.  

Jan-Patrick Krüger, director of operations in Germany, explained: “The hotel has a very strong location in the center of Nuremberg, with direct proximity to the main railway station, but it needs revitalisation and complete renovation. We have ambitious plans for the hotel, which we believe has great potential to create value for Pandox as well as for Nuremberg as a city.” 

The company only acquired the 316 room hotel in 2019 for EUR61m from an institutional seller. At the time, former CEO Anders Nissen said it had been bought with refurbishment and repositioning in mind, noting the asset’s presence in a German city with substantial exhibition business through the year.  

Nou told Hotel Analyst that domestic business travellers are now starting to make more bookings, following the summer boost of domestic leisure. “Domestic business has come back to some extent,” and with the ending of Covid restrictions imminent in Sweden, “we should expect to see an increase in demand – though it’s not the big groups, just yet.”  

While Pandox took back two hotels from a tenant in 2020, Nou said the operator already had financial issues, ahead of the pandemic – and she expects little distress-related activity now that markets are improving. “There have been so few transactions – of course, we are searching, and it needs to be at the right price.”  

The Copenhagen deal with with Motel One is, said Nou, “a fantastic deal – we are pleased to have done the deal with Motel One.” Once again, the transaction follows Pandox’s preferred route of a flexible lease, with no practical change to pre-pandemic contract terms: “We believe it’s fair, and a win-win.”  

HA Perspective [by Chris Bown]: Pandox’s favoured hybrid lease model served it very well through the pandemic, with its base rents just about matching its outgoings through the darkest months. Now, with booking levels returning, its tenants will be paying higher rents – and should be in a position to make some headway against any deferred rents previously agreed.  

While Pandox has made some modest concessions with its tenants, the operational expertise within the business means it is always quite happy to take back a property, should a tenant be in default. And, as it has shown with the Copenhagen Motel One deal, it can usually turn such opportunities into a profitable solution before too long.  

While the company won’t find it easy to spot bargain acquisitions, the search for value in coming months could take different forms, including that followed with the Nuremburg hotel. There, it bought a property in need of upgrade towards the end of a lease, happy to sit on it in the short term, and prepare for refurbishment and active management once the lease came to its end.  

Having signed the first lease with Motel One, Pandox has added another valuable brand partner to its stable – and we should not be surprised to see the pair to do more in future.  

One frustration for Pandox must be the arrival of Starwood Capital into the Nordics. At the end of last year, the private equity investor agreed a deal to support the hotel operations of Petter Storladen’s Strawberry group. Strawberry holds hotel assets in the region, as well as operator Nordic Choice Hotels, in which case it is also a tenant of Pandox. The arrangement saw StarCap first buy the Skt Petri hotel in Copenhagen, which Strawberry will continue to operate while plans are drawn up for a redevelopment. More recently, a sale and leaseback of Copenhagen’s Comfort Hotel Vesterbro has released further cash to ease liquidity at Strawberry. Pandox has a cash rich competitor on its hands, should it wish to add to its local portfolio. 

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