Pandox Bolsters War Chest

Main Photo: A Pandox Hotels of Sweden

Date: May 2019

Location: Europe

Who/What: Pandox said that it would continue to pursue growth through acquisitions, shifting its dividend strategy to help fund its ambitions.
The company was looking to new markets, including Spain, but remained focused on areas where it could build platforms.
Pandox adjusted its dividend policy, with its new target a dividend pay-out ratio of 30% to 50% (previously 40% to 50%) of total cash earnings, with an average dividend pay-out ratio over time of approximately 40% (previously approximately 50%).

CFO Liia Nõu told the company’s capital markets day: “It is simply because we want more firepower for acquisitions. It gives us flexibility to find good growth opportunities. It’s nothing dramatic, nothing urgent, we can buy anywhere as long as it is profitable. It is easy to dig where you are standing, but anywhere profitable.”

CEO Anders Nissen added: “We see a lot of opportunities to expand the company and we want to take all the opportunities we can. We want to have flexibility if something big comes along. A big acquisition does not come every year, 2019 might be slower, but single acquisitions are there all the time. We like profitable hotels, where they are is not important. Scandinavia, Germany and the UK are the best opportunities and they are the biggest hotel markets.

“Spain? Maybe. Portugal is starting to be expensive. Canada? Love to, if we have the chance.”
Nissen said that the company remained nimble in the transactions market, commenting: “Blackstone, Strategic, we don’t always meet them, but we do from time to time and we think we have an advantage; we have our platform and we are fast, the board responds quickly. We are not like these groups which have committees and committees and committees.”

Nissen said that the company would invest in its existing portfolio, with over SKr500m (EUR46m) earmarked, which he said offered “greater opportunities than ever before for growth-driving investment. This is because the portfolio is larger, includes more destinations and has a more diversified demand profile than before. A higher number of larger cities in the portfolio and demand from more segments are factors that increase the potential for various types of investment. It is not just about improving existing spaces, but also rebuilding and extending, and creating new hotel concepts for future hotel guests.”

He added: “We are in the phase of the business cycle where we will invest. We like bad hotels, because we can make them better. You should buy things which are not so good.”
For the first quarter the company reported a 13% increase in Ebitda to SKr634m. Nissen concluded: “Pandox is still of the opinion that, although the hotel market has growth potential, it is in a mature phase and growth is slowing. In some sub-markets new hotel capacity will put pressure on REVpar in the short and medium term.”

Commenting on the UK, Nissen said: “The first quarter in the regions was under expectations and in London it was above expectations. We are observing it but we are not negative.”

The company’s portfolio was under more than 20 flags, with Nissen maintaining his agnostic approach to the brands, which extended sometimes to none at all. He said: “You can find 250 brands, but to find good operators, that is difficult. Barcelo, Premier Inn, Steigenberger, these are good operators and I have respect for them, working 365 days a year.”

Pandox continued to make selective disposals, with Nõu commenting: “We will be selling the tail, where development potential is limited and we have an eager buyer.”
Nissen added: “If you sell a hotel, you should know what you’re doing, because there’s a high barrier to coming back into the market. We are very careful when we are selling.”

At Scandic, the company also saw growth in adjusted Ebitda, which climbed 39% to SKr160m.
Jens Mathiesen, president & CEO, said: “Demand for hotel nights continued to grow in our markets in the beginning of the year, but increased capacity growth in some destinations had a dampening impact, especially in the Oslo region where several new hotels opened during the quarter.

“We have a long-term positive outlook on our markets although higher capacity at some destinations may have a temporary negative effect on the market balance in 2019. There is new capacity in Oslo, and there will be an increase in Copenhagen during 2019.

Hotel Analyst Perspective [by Katherine Doggrell]: Tim Helliwell, head of hotel finance, Barclays, told us that Pandox was “Digesting and investing,” and this was the message from the capital markets day. With a healthy side order of waiting to leap on the next portfolio to come onto the market, although we suspect that despite Nissen’s admiration for Premier Inn, it won’t be the UK budget brand (which should, of course, be busy buying Scandic).

So the company is going site by site, but with that speedily-deployed war chest in the wings. If not Premier Inn, what? Eyes remain on Minor to start selling off the rest of NH’s assets, which could prove attractive given Nissen’s enthusiasm for both Spain and NH.

In the meantime, Fattal is looking ever-deeper into Europe and we wonder how much longer Pandox can work alongside them and, should the relationship become more competitive, what this will mean for their friendship status.

Additional comment [by Andrew Sangster]: Does being a specialist hospitality industry real estate investor position you to take advantage of the opportunities in other segments of real estate that are becoming more exposed to the operators of the invested building for driving returns?

Not at this point if you are Pandox. The latest company presentation makes clear early on that the success of the group is in part hinged on its “hotel properties only” focus.

But I suspect that this approach may flex a little in the future. Already the company has made a successful investment in a hostel and would most likely seize similar opportunities that came its way.

On the same slide in the presentation that mentions the hotel only focus, it also mentions: “ability to be active across the value chain reduces risk and creates opportunities”. A little wider remit in terms of what sort of operational real estate could be invested in would further fulfil these latter aims admirably.

THPT Comment: Interesting analysis by Hotel Analyst on Pandox, a major player in Europe…and ambitions further afield.

First Seen: Hotel Analyst

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