Good morning. Welcome to the Pandox Q4 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal for a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Anders Berg. Please go ahead, sir.
Thank you very much, welcome to this presentation of Pandox fourth quarter and full year 2022 report. I'm Anders Berg, Head of IR Pandox, and I'm here together with Liia Nõu, our CEO, and Anneli Lindblom, our CFO. As always, we have STR with us as well, represented by Robin Rossmann, Managing Director at STR. He represents a leading independent research firm focused on the hotel market, and he will share STR's view on the market. I would like to remind you that the views expressed by STR are completely separate from Pandox, and that the presentation is offered only as a service to Pandox stakeholders. Before we let Robin in, Liia, Anneli, and myself will present a business update with financial highlights for the fourth quarter and the full year, followed by the Q&A session.
After that, Robin will provide the external hotel market update. Next page, please. With that, I hand over to Liia Nõu, CEO of Pandox.
Thank you, Anders. Good morning, everyone, and welcome. I am happy to say that we ended the year strongly with stable demand and normal seasonal patterns in the fourth quarter. These are clear signs of a healthy hotel market. For Pandox, the positive market conditions translated into strong growth in cash earnings on the back of increasing revenue-based rents and good development in our own operated hotels. This confirms the power and performance of Pandox business model and what we are capable of delivering in a more normal hotel market. We ended the fourth quarter with a solid financial position with the LTV of 46.7%, which is in the low range or low end of our financial target. It's worth repeating that Pandox has all of its financing through banks, and that we have good and constructive dialogues on future refinancing.
Based on the recovery in the hotel market, our strong cash flow and stable financial position, the board of directors is proposing a dividend of SEK 2.50 per share for the financial year 2022. Next page, please. We have a well-diversified hotel property portfolio. We have 157 hotel properties with approximately 35,500 rooms in 15 countries and 90 cities, and with a property market value of more than SEK 69 billion. We are divided into two business segments, property management and operating activities. In property management, we lease hotel properties to strong and well-known operators under long revenue-based agreement, often with minimum rent. This segment makes up for 83% of our property market value. In the other segment, operating activities, we operate our hotels ourselves in properties we own under different operating models.
Operating activities makes up for some 17% of our property market value. The focus of our portfolio is upper mid-market hotels with mostly domestic demand, which is the backbone of the hotel market. It's also strength in more uncertain economic times. Next page, please. We have one of the strongest networks of brands and partners in the hotel property industry. This ensures efficient operations and revenue management, which maximize cash flow and property value. As you can see in this picture, we work together with several well-known operators, for example, Scandic and Nordic Choice in the Nordics and Leonardo Hotels in Germany and in the U.K. We also have long relationship with strong international brands such as Hilton, Holiday Inn, and Radisson Group. In our operating activities segment, we have also some independent brands created by Pandox.
For example, our newly renovated Hotel Berlin, which is our largest hotel with over 700 rooms. Next page, please. The hotel market's recovery in 2022 was both faster and stronger than we had dared to hope for when the year began. The fourth quarter cemented this trend further. RevPAR in our portfolio is now largely back to levels before the pandemic in nominal terms, and the difference being that the average prices are higher and occupancy is slightly lower. We once again have proof of the hotel market's ability to overcome difficult crisis. The strong market recovery translated into strong growth and profitability for Pandox also in the fourth quarter. For comparable units, total net sales and net operating income increased by 54% and 44%, respectively.
Like-for-like, property management increased net operating income by 22%. Our relationship with our banks are strong. We have almost SEK 4.5 billion in cash and unutilized credit facilities at the end of the quarter. Our loan to value fell down to 46.7%, which is in the low end of our financial target. Return on equity measured by annualized growth in EPRA NRV grew substantially and was approximately 18%. Next page, please. Here we see a comparison of the RevPAR level for our business segment Property Management from 2019 until today. The numbers are on a comparable basis. You can see, 2022 started weak due to travel restrictions, but saw a strong bounce back during the spring and early summer, a trend that has continued since then.
In the fourth quarter, the hotel demand was at a good level in all markets. In line with normal seasonality, December was a bit weaker due to Christmas holiday seasons. The comparison to 2020 and 2021 is no longer relevant, as the current performance is now much more in line with 2019, since we have now moved out of the pandemic. Remember, 2019 was a record year for the hotel industry. Hotel demand in many larger cities increased significantly, while smaller and regional cities. Public areas, gym and restaurant and bar area. In addition, the hotel has changed its name from Staybridge Suites to Leonardo Royal Hotel Birmingham. Royal Hotel means that the product and service maintains a higher level of service and a more international character. Next page, please. With that, I hand over to Anneli Lindblom, our CFO.
Thank you, Liia. Good morning, everyone. We are happy to report another quarter with strong growth in cash earnings. It is, of course, satisfying for a CFO to see the recovery of the hotel market translating into strong results for Pandox. It is also an indication of the earnings we are capable of delivering during normal market conditions. What we saw in the fourth quarter was also a return to traditional seasonality with just a week in December due to lower business demands. Cash earnings increased to SEK 550 million, driven by solid earnings improvements, both in property management and in operator activities. Operator activities recorded a net operating margin of 24%, which was well in line with the level from 2019.
As Liia said earlier, the board of directors proposed a dividend of SEK 2.50 per share for the financial year 2022, which totals to SEK 460 million. Next page, please. On this slide, we show the progression of variable rent in our leases over the past eight quarters. In total, we have 96 leases with revenue-based rent and with the minimum rent level, and 32 leases which are purely revenue-based without the minimum level. On top of this, we have variable ones. On top of these variable ones, we do have seven fixed leases. In the fourth quarter, total variable rents amounted to SEK 286 million. The number of minimum leases generating variable rent continued to increase and reached 78, as you can see on the graph to the right on this slide.
The reason why we generate less revenue-based rent in the fourth quarter compared to the third quarter is seasonality, with Q4 being generally a bit weaker than Q3. Next page, please. Pandox performs internal valuation on the hotel's properties each quarter. 96% of the properties have been externally valued during the past 12 months, and the valuation are in line with our internal valuations. The total value change were a positive SEK 1.5 billion in the period, as a higher cash flow outweighed the slight increase in yield. Of this one, SEK 1.2 billion was for investment properties, and SEK 300 million was for operating properties. Please remember that investment properties are recognized with fair value, but according to IFRS, unrealized changes in value for our operating properties are only reported for information purpose, but it is included in the EPRA NRV.
End of period, the average valuation yield for investment properties was 5.58%, and for operating property, it was 6.50%. Next page, please. On this slide, you can see the accumulated change in value of our property portfolio since the start of the pandemic in the beginning of 2020. During the most uncertain phase of the pandemic, we had negative changes in value 6 quarters in a row, mainly due to the lower cash flows. From the third quarter 2021, based on gradually improving cash flows, changes in value turned positive again. In the fourth quarter 2022, changes in value were slightly negative. More on this on the next page. Next page, please.
Here we show how increasing yield requirements and stronger cash flow have affected our property values. 96% of the property was externally valued in the last 12 months. As said before, we have enjoyed a very strong hotel market recovery in 2022, and it has been reflected in increased cash flow projections, both in our internal valuation, but also the ones made externally. For the full year, a strong cash flow had a positive value impact on SEK 2.8 billion, while higher yields had a negative value impact on SEK 1.3 billion. In the fourth quarter, isolated higher cash flow and higher yields were largely balancing each other out. Next page, please. As said before, Pandox have two sources of financing, equity and bank loans secured by underlying properties.
We have no market financing in form of bonds. We have no external rating requirements. Given our business model, we focus on hotels and variable loans. It has proven to be the most efficient and predictable financing over time. On the right, we highlight our capital structure at the end of the period. Based on the closing price of yesterday, we are still valued with a discount to EPRA NAV of over 40% at the moment. Next page, please. On this slide, we have some balance sheet KPIs, loan to value, as well as EPRA LTV amounted to 46.7%, which is in the lower end of our financial targets. Cash and unutilized credit facilities amounted to SEK 4.5 billion.
Credit facilities maturing in less than one year amounted to SEK 16.2 billion, of which 50% will mature during the first half of 2023. We do have ongoing dialogues with banks regarding all these credit maturities, and we expect to refinance at least SEK 5 billion during the first quarter in 2023. We have seen our interest cost increase during 2022, and they are, of course, expected to increase a bit further in 2023 given the development in the credit markets. With that said, our interest cover ratio is still very solid. Next page, please. With that, I hand over to Anders Berg, Head of IR, to guide us through what happened in sustainability and in the hotel market in the quarter.
Thank you very much, Anneli. Yes, starting with sustainability. In the fourth quarter, we file our commitment letter to Science Based Targets initiative. We also shared our targets with SBTi, which we have produced in cooperation with the Swedish Environmental Institute. These cover both Scope 1 and 2 and Scope 3, and they are meaningful and aimed at meeting the Paris Agreement. We have a target validation slot booked with SBTi for the 12th of June in 2023.
Hi, this is the operator. May I have a name, please?
Turning to the hotel market, as you know, 2022 had a slow start. After that, we have seen a remarkable recovery, as both private individuals and business travels have been taking to the road again. As Anneli said previously, RevPAR is now back at pre-pandemic levels, at least nominally. The composition within RevPAR is a bit different compared to 2019, with ADR markedly higher and occupancy slightly lower, than the levels we saw in that year. As hotels are working actively with revenue management and prioritizing rate in an environment with operational cost pressures, it appears that ADR is now at a sustainable higher level than in 2019.
In the fourth quarter, domestic and regional demand remained strong in all our markets, although as both Anneli and Liia has said before, normal seasonality led to a gradually weaker demand in December in particular. So far, the hotel market has been very resilient from rising inflation, higher interest rates and higher energy prices. That said, it's reasonable to think that the market would have been even stronger in the absence of these headwinds. Next page, please. In the following six charts, we track occupancy, average daily rate, and RevPAR for Nordic regional, Nordic capitals, Germany, Frankfurt, UK regional, and London, and how they compare to 2019. The data points are monthly and year-to-date. The bars are indexed to occupancy, and ADR, for 2019, and the lines are nominal RevPAR in local currency.
Except for Nordic regional and Nordic capital, where RevPAR are in Swedish krona. I will start with Nordic regional. As restrictions were eased in the second half of the first quarter, demand came back quickly, as you know. ADR began to rise from an already solid level. In the fourth quarter, average daily rate continued well above 2019 levels, while occupancy was largely in line with 2019. The recovery in the Nordics is broad-based, but Finland remains a slightly weaker performer than the rest of the countries, due to its dependence on Asian transit traffic, which is basically non-existent at the moment, and its proximity to Russia and the absence of Russian demand. Next page, please. Nordic capitals.
Due to the high dependence on international demand, the recovery for larger cities in general, have taken a longer time than for smaller cities. In the fourth quarter, Nordic capital cities continued to form on an occupancy and ADR level, largely in line with the third quarter. For 2022, RevPAR was largely in line with 2019 in the fourth quarter, but for the full year it was some 9% below 2019. This compares to the third quarter, where RevPAR was 12% lower year-to-date, so the gap has been shrinking in the fourth quarter. Next page, please. Restrictions in Germany were the last to be lifted in Europe.
And it was not until the 20th of March that that happened, which meant the country started its recovery later than most of the Nordic countries. As you can see, occupancy and ADR have improved steadily from reopening. In November and December, the pace of recovery slowed somewhat due to a weaker trades fair and event calendar. However, the calendar looks stronger for 2023. For the full year 2022, RevPAR in Germany was some 15% below 2019. Next page, please. In the fourth quarter, development in Frankfurt mirrored Germany as a whole, and it was explained by the same reasons, primarily a less active trades fair calendar. For the full year 2022, RevPAR ended approximately 24% below 2019, thereby indicating sort of further improvement potential. Next page, please.
U.K. regional continued to perform strongly, also in the fourth quarter. Domestic demand remaining solid, the weaker pound attracted additional inbound travel, which further supported the market. With the exception of January 2022, RevPAR in the U.K. regional exceeded 2019 levels every single month of the year. For the full year 2022, RevPAR was approximately 15% higher than 2019. Next page, please. London was a very strong performer in the fourth quarter, with 2022 RevPAR trending clearly above 2019 levels as inbound travel increased due to the weak British pound. The strong finish in December meant that RevPAR for 2022 was some 5% higher than 2019, despite the slow start. Next page, please. With that, I'll hand over to Liia again.
Thank you, Anders. The hotel market has continued to perform well, also in the face of economic uncertainty. Clearly, both individuals and companies are prioritizing travel. We have a strong business model and a world-class team of people to support it, and frankly, it's an honor to go to work every day. As you know, a large percentage of our revenues is variable, which offers protection against increased financial and operating costs. This relationship is not one-to-one, but it's a tangible risk mitigating component in our business model In a world of high inflation and high interest rates. That said, overall, we are cautiously optimistic about the hotel market in 2023. The greatest economic fears appear to have subsided. Peak inflation is most likely behind us, and interest rates may well peak as soon as well.
From a hotel market perspective, there is an additional potential in business travel and international travel. Individual travelers appear to be very reluctant to give up on their travel plans. Gradually, Chinese inbound travel to Europe is also expected to increase from today's non-existing levels, which will support demand further. As before, the greatest risk is still related to the war in Ukraine. Next page, please. We now would like to move over to the Q&A. Operator, we are now ready for questions. Please do not forget to hand the call back to us afterwards for Robin's presentation.
Thank you very much. No problem. We will now begin the question and answer session. Once again, to ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will just pause momentarily to assemble our roster. Your first question comes from Fredrik Stensved from ABG. Please go ahead.
Excellent. Thank you and good morning. First, a question on the property value changes. You show in the presentation very nicely, sort of the impact from yields and the impact from cash flow assumptions. I was wondering, given where RevPAR is now and where occupancy is now, et cetera, the cash flow assumptions in your property valuationsDoes those sort of assume higher or lower trending from where we are today? Is it possible to quantify? Even though I'm well aware that the property valuations are done on a property by property basis. If you could comment anything in general, that would be much appreciated.
Hi, yeah. Oh. I think it comes back to the pent-up demand, which is still there to come. We still have, as we mentioned, some segments which hasn't come back. That, of course, will materialize when we see that even further in the cash projections. The ramp up will, and as you know, discounted cash flow work, that the further you go down the weaker quarters you leave behind, the stronger the valuation from a discount perspective will be.
Right. Just to clarify, the cash flow assumptions for the next year or the next two years does not fully incorporate a full rebound in occupancy as of today. So if we have a full rebound, you know, weaker quarters in the cash flow assumptions will sort of fade from the valuations. Is that correct?
Well, we have always tried to be cautiously cautious in our assumptions. We are as everyone, we are facing a lot of question marks. Of course we put in into the projections what we see today. We are a bit cautious maybe on the side.
Understood. Thank you. Then, a couple of maybe detailed questions on Q4. You had, or you state in the report that you had, both in the property management segment, you had SEK 20 million of non-recurring costs in property administration, and also in the operator segment, you had SEK 20 million of non-recurring costs. What are those costs?
Okay. In the operator segment, we have done some organization changes, and also some clean out in the balance sheet of minor posts. If you have a look at the property management, it's related to write-down of some unfinished projects that's not supposed to be in the balance sheet. We also did some extra maintenance that's sort of out of the ordinary. We put the numbers in, so it's easy to sort of recalculate. It's one-off costs.
You should see the, you know, in our operating business, you should see this as a sort of cleanup. We have, for the last two, three years, been in the pandemic. Of course, there hasn't been so many new initiatives. We are now taking the company to next levels. Usually with that, you need to sort of step up also when it comes to some organizational changes.
All right. Understood. Thanks. Last question. You mentioned in your prepared remarks here that electricity prices or the impact from higher electricity prices will come first from Q1 in 2023 and beyond. Is it possible to quantify that impact either in terms of an absolute amount or margins? Thanks.
It's still a little bit of an open question. When we did sort of the initial calculations, we had higher energy prices than we currently have moving into this new year. Ballpark estimation would be somewhere between SEK 4 million and SEK 60 million in cost.
Understood. Very helpful. Thank you very much.
Thank you. Your next question comes from Fredric Cyon from Carnegie. Please go ahead.
Good morning. Good morning, Liia, Anneli, and Anders. A couple of questions from my side.
Good morning.
Good morning. Starting off with the dividend proposal, it represents a lower payout ratio than the long-term ambition is. What is the rationale behind the lower payout ratio?
I think we should remember that we have had three years of non-dividend. With the sort of a strong cash flow now coming out, we are proud to actually restating the dividend. Remember that 2022, we started out with Omicron in the first quarter, in the five months. There is some subsidies in this. I think if you compare it's around 25%, which is sort of slightly lower than our target range of 30%-50%, it should be seen that we are actually coming out of a really difficult time. With a strong cash flow, I think this is actually a quite strong statement.
That makes sense. Moving over to the refinancing, you're mentioning that it's about SEK 5 billion to be refinanced in the first quarter, and you did some refinancing during the end of the year. Can you say anything about margins compared to those that are expiring?
As we say in the report, I mean, both margins and underlying base rent is of course creeping up. Has been there. There is a pressure for that. It's not substantially higher, but still there are, I think the average interest cost is 3.2. It used to be 2.8. There is a sort of reflection on that already. Of course, it depends on where the refinancing is. The base interest is of course hopefully stabilizing now. It's actually lower than it was like one to two months ago when it was peaked. Slightly higher. Remember you have SEK 2.5 billion of derivatives which will sort of, which balance this to some extent.
Sure. The credit duration is rather short, now you're gonna prolong it. Given the pricing of loan money versus short, how are you planning to handle that?
Well, during the pandemic we're in agreement with the banks that we would actually roll most of our financing on a short basis, because of course there's a lot of uncertainty. We now see that there's actually the pricing and the appetite for refinancing is greater. We are of course rolling this more in line with which we did pre-pandemic, which is normally about 3-4 years, 3-5 years.
Perfect. Then two final questions. Investments in the report are stating that you're expecting about SEK 1.2 billion of the investment that is already committed will take place in 2023. That's a quite clear step up versus 2022. Is there anything you wanna highlight in terms of what is the delta in the investment volume year-over-year?
You are cutting up a little bit, but I think you were asking about that there's an increase in the investment from. I mean, of course inflation is to some part, but also we have during the pandemic, there is with less to acquire, there's of course more focus on also investing in our existing portfolio. As you know, the return on the investments we do in our own portfolio is substantially higher than when you go and try to buy something on the market. This is something we prioritize when we can. It's, there's some reflection of inflation on this, but also we have some really, really interesting and exciting projects which are going on. We've got the cash-
Sorry, one final. Yeah, go ahead. Sorry.
No, that's all right. We've got the cash flow to do it. With a strong cash flow we're very, we're happy to invest in these kinds of investments as much as we can.
Final question on the depreciation in the quarter. I don't know if you commented on that earlier, but it seems that it's picking up quite rapidly. Are they one-offs or are we supposed to expect a higher depreciation level here, from here on?
This is, let's unlock. This is a one-off related to one specific hotel which we are undergoing a full renovation and will come back to the market as a substantially stronger, better hotel with a much increased value. It's like a write-off for old equipment and old interiors that needs to be cleaned out from the balance sheet since we are doing a full construction of the hotel and new investments.
That's it.
That's it. Those are all my questions.
Thank you. Your next question comes from Albin Sandberg from Kepler. Please go ahead.
Yeah, hi there.
Hi.
I wonder about the outlook, if you could quantify that a little bit more, Leah. You say you're cautiously optimistic. If we use 2022 as sort of the new base here, is that assuming that, you know, you should beat 2022 or what is it you're trying to say?
You, when you look at 2022 and you take away the subsidies which are related to the SEK 260 million which is related to 2020 and 2021, which of course were protected in 2022, then when we look into this year, we see a stronger performance. We are comparing the first quarter, which was a slow quarter in 2022. Also Germany took a longer time to step up. I am cautiously optimistic that the pace we are coming out of the year with is sustained and that the sort of lagging demand segments, from business improving and also international dig around that this has come back and helping.
Of course I am, we have just this period of recession. Us being in the upper middle class segment with local and regional demand, and with the sort of stable demand on this one, we believe that if you take these things in concern that will actually be a improvement.
Okay. Yeah, that's good. Thank you. You comment on the rent receivables that I understand or I take it are still one of those deferred from, you know, the prior crisis and so on. It's coming down, so that's good. Is it still in line with?
With your expectations, I'm thinking, as you said, that it's... We're almost back to 2019 level. You wouldn't have expected a quicker payment of these or that is according to the timeline you had with those operators?
No, they're all paying as planned. It's like, you know, the plan we did with them. We are sort of expecting to get paid. But I mean, we did give them some other terms. They are all paying according to our plans. It would be great if they paid it quick, but I think they are utilizing the agreements we have in place.
Yeah. Yeah. Yeah. Okay. Well, great. Those were my two questions. Thank you.
Thank you.
Thank you. Once again, if you do wish to ask a question, you can register by pressing star then one on your phone. Our next question comes from Simen Mortensen from DNB. Please go ahead.
Thank you. Most of my questions have already been asked, I have one question left, and it's in operator activities. Given that we're now seeing RevPAR levels almost back to 2019, what can you say about the expected profit expectations from you guys for the operator activities? Will we see, like, a back to normal margin which you have pre-pandemic 2023, 2024? When do you expect to see that one coming back to all historical levels?
Well, of course there is some pressure when it comes to inflation, staffing, shortage of staffing, energy, et cetera, but with the sort of the sustained strong prices, we believe that we will, we sort of have stable NOI. If you take off the one-off in this quarter, we are at 26% operating income on the operating profit and on the activities. Pre-pandemic we used to be between 25% and 30%, so it's very much in line with this and we expect that to be pretty stable like that.
Thank you. That was my last question. My other question had been asked already.
Okay, great.
Thank you.
Thank you. Our next question comes from Edoardo Gili from Green Street. Please go ahead.
Hello. Hi, everybody.
Hi.
First question. I have two questions. My first question would be on, the margin for the property management arm for Q4, which seems to be around 82%, which compares to 88% for Q4 2019. I understand that there's cost pressures and, you know, different, you know, different geographic exposures as well, but can you explain a little bit the differential of the 6 percentage points between 2019 and 2022 when it comes to Q4?
You also have the one-offs in there, I guess. You have to, like, have to take out to get them comparable.
Understood. Thank you. In terms of the rest of the year, do you expect to be a net buyer or a net seller, considering where, you know, the cost of capital is both on the equity and the debt side?
Well, I'd love to be a net buyer. The golden rule is to buy cheap and sell at a good price. We are trying to, when if needed, reallocate if we see that we have the opportunities, but we definitely are net buyers, I would assume. There are issues obviously coming up.
Thank you very much. Very clear. Thank you.
Thank you. That concludes our question and answer session. I would like to hand the conference over now to Mr. Robin Rossmann. Please go ahead when you're ready.
Good morning. Can you, can you hear me all right?
Yes.
Yes.
Wonderful. Wonderful. Well, thank you for inviting me along today. I'm delighted to follow on from that just with our own independent analysis of what's been happening in the hotel market performance and the outlook for the coming year. Being entitled holding onto gains, facing off economic pains because of those headwinds, which are obviously very obvious in the media. The real question is how will that impact the hotel industry performance? Moving on to the cover slide that says some very important points to start with. If you go onto the next slide, I was reviewing some of our historical forecasts and we came up with a forecast in March 2020.
This was literally about a month, maybe even less than a month to, from the start of, all of the European lockdowns, which started at the beginning of March 2020. It was the time at which we produced our quarterly forecasts. At that stage, we did make a forecast that RevPAR, the teal line there, would dip about 40% and would recover to 2019 levels, by the end of 2022. If you go onto the next slide, you could say that we got that 100% right, because RevPAR has recovered to 2019 levels by the end of 2022.
You could also say that we got that completely wrong given we were expecting a 40% decline and in aggregate at its worst, it was a 90% decline. However, I would say we were right on the basis that what really matters here is our forecast was underpinned by the fundamental resilience of hotel demand in the face of temporary external shocks and downturns in economic performance. Yes, the shock lasted longer than certainly well, many people expected. The economic downturn was also harsher than many people expected back in March 2020. That being said, broadly, economic activity and GDP has recovered.
As restrictions on travel were released, we've seen hotel demand recover despite many doomsayers saying it would fundamentally change the shape of the industry. It hasn't. That's the most important thing here. It is also the most important thing as we look to the future, because it's not just about resilience and recovery, it is about the fundamental truth that hotel demand is irrevocably connected to broader economic activity. Long as we are not seeing a fundamental long-term decline in economic activity or GDP, you will continue to see recovery and growth of hotel demand. Next slide, please. We think about that in the context of where we are and looking slightly forward, yes, COVID is for the large part behind us.
There are some recession risks. We have benefited from some pent-up leisure demand that is mostly spent up now. However, most importantly, business has bounced back and has further to go. As I go on to the next slide, occupancy and rates, and then the next slide, which says, "Global demand has ended the year 8% below 2019." That is showing for all the hotels that work with us around the world, 75,000 hotels. If you aggregate them all up on a like-to-like basis and look at demand versus 2019, it is still about 88% below. That, if I showed you a wet map of the world, would be underpinned by Asia, because in Asia. Next slide, please.
China, to the most extent, but also places like Japan, have not fully come back yet. Now that we're seeing the last of those COVID restrictions slowly disappear, it does mean we will receive a recovery of that Chinese outward bound demand, which is a huge driver, not just for Asia-Pacific, but that does have an impact on the world. When you move on to the next slide, please. Here you can see Europe occupancy in 2022 versus 2019. Generally, where we are is about 5% behind. If you wanted to...
A rough estimate about how much Chinese demand would make a difference to that across Europe as a whole, it would represent a couple percentage points of occupancy recovery if all of that came back. A bit more in places like Germany, and a bit less in other places, like the UK. Broadly around that couple percentage points of occupancy. China is not the only missing piece of the demand puzzle. There's a bit more on business demand, which I'll come to in a bit. onto the next slide. When we look at the different countries in Europe or some of the bigger countries in Europe at least, it clearly is not all playing out the same way.
We are seeing Italy, Ireland, France, U.K., and Portugal, at about 100% recovered, whereas, you know, Germany and Belgium in particular are still struggling to get back up to that 100% recovery. Now, before I move on from this slide, you might look at those lines and note, and think there is a worrying downward trend in January. That really is fundamentally as a result of comparison to 2019 being less and less ideal as we go along because of the timing of the weeks when you compare it week to week, we're now almost a week different. We're comparing the first week of January in 2022 to kind of the second week of January in 2019.
That does have some seasonality impacts that are causing some of that of that weirdness in the up and down at the beginning of January and the end of January. Don't read too much into that. If you look at it on a rolling seven basis, it is as stable as we head towards the end of January with that sort of same countries at about 100% recovered. Moving on to the next slide. Just quickly touching on Germany. You know, I think in general, Germany is struggling with three negative factors that are more pronounced than anywhere else in Europe. The first is the importance of large events and fairs in particular.
Those are ones where we're seeing recovery, but still not full recovery. That's impacting markets in particular like Cologne and Munich. When comparing to 2019. The second factor is just general conservative behavior, and that applies both to businesses, which would impact places like Stuttgart in particular, but also consumers. So I think, you know, more than any other European country, there is a change in sentiment there that has is restricting the depth for recovery of demand. Moving on to the next slide.
The ADR recovery there across Europe as a whole, we did see that in nominal terms, that was up to 20%-30% higher than 2019 levels in the summer of last year, underpinned by that pent-up leisure demand. The really important thing here is that as that leisure demand season went away, we did see rates slightly taper as we expected it to, given there wasn't as much pent-up demand in the business month of the year. Nonetheless, it has remained broadly at around that 20% or on a real basis at 2019 levels of ADR. If you take that nominal rate and take out the inflationary piece to it. Certainly as we look forward, we're not expecting that to dip.
We're expecting that to stay there and slightly grow. On a country-by-country basis, there's clearly a correlation with the ADR strength and occupancy strength. We can see, you know, Portugal, Italy, Ireland, all at the top there. Really Spain, France, Netherlands, the U.K., not too far behind, all at that, an aggregate about sort of 20% plus recovered. The ones that are lagging behind are again, Belgium and then Germany in particular. Germany again with reliance on higher rates over those events. Because that demand isn't fully back yet, that's been what's holding it back. That does obviously represent an opportunity for further recovery, as we do expect those events to become more and more stronger and more on that in a bit.
On the next slide, you can see that when you look at those German cities, the ones that are more international and less reliant on large events like Berlin, doing best, and then Munich and Cologne at the bottom there, struggling. Just onto business and group travel in a bit more detail. Next slide, please. Then onto the next slide, which is slide 42 at the bottom there. There were many that suggested business travel would never fully recover. Bill Gates said it would never be more than half of what it was previously.
When you look at the composition of certainly weekday versus weekend there anymore, we are seeing weekday core business demand pretty much fully recovered, although it does depend on the country and the market, as I mentioned earlier. The important thing is, if you move on to the next slide, that's still in the context of really not full recovery of those demand drivers. We do forecast with Tourism Economics, and their underlying assumption is we will continue to see recovery in international business and domestic business travel into 2023 and beyond. That represents positive upside. As we go on to the next slide, please.
The other bit that is still not fully back is group demand, where, you know, we have seen it recovering in recent months to about 40% below 2019 levels. We expect that to continue to recover as we have seen in the U.S., where group demand is now fully recovered back to pre-pandemic levels. What does that mean as we move on to the next slide? Well, what that means is, I've just taken the U.K. here as an example, but this trend holds true throughout Europe, that is that to date we've seen regional markets have higher occupancy recovery than gateway cities like London. Gateway cities like London have been held back by that slow recovery in international demand and international business demand.
Also by the lack of demand coming out of places like China, and sort of a bit more reliance on that group demand. Because all of those still have positive upside and we are expecting that to continue to recover, we expect to see that those gateway cities will catch up and equal the occupancy recoveries that we've seen in regional markets in 2022. We'll see that during the 2023. Certainly when you move on to the next slide, and look at business on the books, which we collect for 365 days into the future.
If we take what we have on the books and add typical pickup, then you can see that through Q1, London as an example will be 100% recovered on 2019 levels of occupancy. As you stretch beyond that, there is a little bit of obviously flexibility and the fact that pickup will be stronger as we get close to the point on that chart. Moving on to the next slide, please. If rates, whereas gateway cities have not yet recovered to the same occupancy levels of regional markets, what has happened in recent months is gateway cities have caught up and in many cases surpassed, the occupancy, the rate levels that regional markets have had.
We do expect 2023 to be the year of those gateway cities, catching up on occupancies and also, seeing their rates, if not already, catching up on the regional market rates and surpassing it because of stronger demand drivers. In summary, just looking at some conclusions there. You know, at a RevPAR level, fully recovered, but not fully recovered at an occupancy level. Not far behind, 5 percentage points behind in Europe as a whole, but some countries a little further behind than that. There is upside on occupancy and that demand recovery that we do expect to see coming through in 2023. Expected, rates across Europe are recovered in real terms. Growth in 2023 is going to be harder.
There isn't gonna be that pent-up demand like there was for leisure in the summer months. Nonetheless, demand is robust enough, and there are positive drivers on demand growth that we don't expect to see declines, and we do expect it to be stable with some growth. Business travel is back and with potential for further recovery. Leisure, I haven't focused on too much today. We're not expecting a massive decline. It's just that those markets that saw, you know, 40%, 50%, 60% rate growth through pent-up demand will have some of that taper. As I started the presentation, the industry proved its resilience through this, the most incredible demand shock that anybody could have ever expected.
Yes, there are recessionary risks out there, but so long as broader economic activity, recovers, so will, demand for, the hotel industry. Thank you.
Thank you, Robin, for this hotel market update. That's all, folks. Thank you for participating in this call. We really appreciate your time and interest in Pandox and our interim report for Q1 is published on 26th of April. Thank you all. Hope for spring soon. Stay in our hotels and enjoy life. Goodbye.
Thank you. That concludes our conference for today. You may now disconnect your lines.