Pandox CEO Anders Nissen told analysts: “We are in the hands of government restrictions”, with the recovery reliant on their relaxation.
In line with other hotel companies during the year, the group saw a strong summer, supported by the domestic market.
At the end of the quarter the company had Skr5.3bn (€510m) in liquidity.
Nissen said: “The summer season was actually stronger than expected, driven by good domestic demand in the leisure segment in regional cities in all countries. Most of Pandox’s revenue in the third quarter still consisted of contractual minimum rents and fixed rents, but revenue from purely revenue-based leases and Operator Activities was higher than in the second quarter.
“Most of our hotels are high quality hotels but in the domestic sand regional market so we are expecting them to be better than the wider market. 84% of our value comes from domestic and regional markets and we have a strong focus on the Nordic side which is less good in good days but much better in bad days.
“We believe that if the restrictions go down then as we saw in the summer, then we are very strong. If people are allowed to travel again then 2021 will be very interesting.”
Pandox’s total revenue and net operating income decreased in the third quarter by 54% and 47% respectively compared with the corresponding period the previous year, but increased sequentially by 5% and 36% respectively.
In the fourth quarter rental income was expected to be stable within Property Management - the leased portfolio, with 84% of the company’s value - while Operator Activities - the owned and operated business - were expected to "weaken somewhat” compared with the third quarter. Contractual minimum rents and fixed rents were expected to make up the majority of Pandox’s total revenue in the fourth quarter. The company said that it had made no reductions in hotel rents.
Nissen said: “All negotiations have been made and they are being paid accordingly. We are taking our part with the turnover-based model where we get less rent and we get better payment terms. If that’s enough then the operator needs to go to their banks and their shareholders for support. That’s something they respect and that’s something we believe they will continue to respect.”
The group concluded: “So far, development in Europe is more or less tracking the development in China, which is about two months ahead of Europe in its recovery. Certain parallels can also be drawn from past crises and virus outbreaks, where domestic leisure demand normally recovers first followed by domestic business demand. Markets that are more dependent on international incoming flights normally see a longer recovery period. Demand in the group and conference segments is not expected to recover until restrictions on gatherings are eased and economic activity increases further.”
Commenting on the transactions market, Nissen said: “There have been a number acquisitions far and the pricing of these hotels have been surprisingly good and shows that the interest of buyers has been strong. Is this going to change? We don’t know.”
Insight: Pandox is remaining deeply convinced by the hotel market and, with a hefty hotel portfolio which makes it one of the largest of the owners, there’s no reason why it shouldn’t. If Pandox started freaking out then the rest of the sector would be long gone. Indeed, when asked whether the company would consider converting some of its property away from hotels, Nissen responded: “We believe we are in a good market in a good position and it would be very expensive to convert them into other things. We have seen the market come back strong”.
So no, then.
What the current state of stasis has allowed Pandox to do is allow Nissen to pursue one of his hobby horses - the turnover-based model, which he feels is more equable than some of the old standards. Now is the time for those who can to experiment and this move should take all parties along with it. We watch with interest.