Ladies and gentlemen, thank you for standing by, and welcome to the Pandox Q2 2020 Report Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question -and -answer session. To ask a question during the Q&A session, you will need to press Star and One on your telephone. I must advise you that this conference is being recorded today, Wednesday, 15th of July, 2020. I would like to hand the conference over to first speaker today, Pandox. Thank you, and please go ahead.
Thank you. Welcome to this presentation of Pandox Interim Report for the second quarter and first six months of 2020. My name is Anders Berg. I am Head of Investor Relations at Pandox. With me, I have Anders Nissen, our CEO, and Liia Nõu, our CFO. We also have two external guests with us today. Robin Rossmann, Managing Director, International at STR, and Johan Johander, Partner and Head of Research at Benchmarking Alliance. Robin and Johan represent leading independent research firms focused on the hotel market, and they will share their view on the hotel market with us a bit later.
This report is divided into three parts. This presentation rather is divided into three parts. First of all, Anders and Liia will present a business update and the financial highlights for the second quarter. Secondly, Robin and Johan will provide the external hotel market update. After that, we open up for questions. Next page, please. With that, I hand over to Anders Nissen, CEO of Pandox.
Well, good morning also from my side. I will start with Page number two. Pandox is, as many of you know, one of the largest player in the hotel property market in Europe. We own a high quality portfolio including 156 hotels in 90 destinations and in 15 countries. The major strategy is to buy underperforming hotel and rent it out to a business partner that we sign a revenue-based agreement with a minimum level, and we share investment and risk and opportunities. At the moment, as I said, we own 156 hotel with 35,000 room for the market value of SEK 62 billion. The lease model, as I just present, together with a business partner with a revenue-based lease agreement representing 84% of the property market value of the company. If this lease model not work, we can choose to operate the hotel itself within our own platform.
At the moment, we operate 20 hotels with close to 5,700 rooms, and that representing 16% of the property value. Move over. Hand over to the Page number three. Pandox has a very strong Pan-European position in size and recognitions and also in brands and partners. At the moment, we are active with 24 different hotel companies or hotel brands, which give us a world-class network and, of course, a place for knowledge sharing, I believe very useful in this current environment today. If we then move over to our quarter report. As we have been guided before, Q2 was a historical weak quarter. In my close to 40 years in this industry, I never saw something similar. With that said, we bottomed out in April, and from the beginning of May, we have seen a gradual improvement, and the trends are quite strong.
We also have been successful in the quarter at improving and strengthening our financial and equity position, which has now increased our credit facilities and liquidity funds up to SEK 5.5 billion. In general, a weak quarter return on equity, which normally is 15%-20%, was now 1.6%. The total net operating income was - 60%, and like-for-like, Property Management was 43%. Let's look a little bit more closely into the numbers before I go back to the market update. Then I hand over to Liia.
Thank you, Anders. Okay, now we're at Page five. Yes, as Anders said, demand in the hotel market was very low in the second quarter, and contractual minimum rent and fixed rent were Pandox's main sources of income. Some restrictions in most countries were lifted at the end of the second quarter, but this has only a marginal positive effect on the revenue-based rents and own operations in this quarter. The U.K. and Ireland were largely closed in the second quarter. Cost reductions, undertaking and operating activities in the first quarter have full effect in the whole second quarter. We had negative unrealized value changes in both Property Management and operating activities, which reflects lower expected cash flows in 2020 and also 2021. I will come back to this in a minute.
Trade accounts receivables have temporarily increased due to new and temporary payment terms for tenants in Property Management. Next page, please. Page six. Currently, minimum rent and fixed rent are Pandox's main source of revenue. These amounts to approximately SEK 2 billion per year or approximately SEK 500 million per quarter. Agreements on temporary changes to payment terms are made where this is possible and appropriate, and rent collection has progressed in line with new and temporary payment terms. No reductions in hotel rents have been given. Revenues from pure revenue-based leases without minimum rent, which we have some 29 in the Nordics, increased gradually from low levels in the second quarter and are expected to increase further in the third quarter. Next page, please. Page seven.
In the second quarter, Pandox valued the property portfolio according to the same method and model used in the IPO 2015, with internal valuations on the total property portfolio. No external valuations were made in the second quarter to some extent because of practical limitations due to COVID-19. We have made downward adjustments of property values due to lower cash flows in 2020. Have been left unchanged since we still think transaction evidence is inconclusive. The valuation effects will continue to be monitored closely as the COVID-19 situation becomes clearer and valuation yields and future cash flows are expected to be able to be estimated with greater precision. In the second quarter, total unrealized and realized changes in value amounted to a SEK -602 million, out of which a SEK -320 million for investment properties and a SEK -282 million for operating properties.
Please note that according to IFRS, unrealized changes in value for operating properties are only reported for information purposes and is included in the EPRA NAV. End of period, the average valuation yields for investment properties was 5.42%, and for operating properties, it was 6.39%. Next page, please. If we take a quick look at our EPRA NAV and financial position. In the end of the period, EPRA NAV per share amounted to around SEK 177. This corresponds to an increase of approximately 2% on an annualized basis, adjusted for proceeds from the rights issue we did in November 2019. Loan-to-value amounted to 48.0%, and liquid funds and long-term unutilized credit facilities amounted to approximately SEK 5.5 billion. On top of this amount, there is an additional credit facility covering the issued volume under Pandox commercial paper program.
During the second quarter, we secured new financing of previously completed acquisitions in the amount of approximately SEK 1.7 billion with a tenor of four years. We also extended a credit facility of approximately SEK 1.5 billion maturing in 2020 by one year. Other credit facilities with the maturity of less than one year amount to approximately SEK 4.7 billion, out of which a majority will mature in the end of 2020. Refinancing of these facilities maturing in the end of 2020 is expected to be completed during the third quarter. We have a positive and close dialogue with our lenders on new financing, refinancing, as well as adjustment of terms and covenants in existing credit agreements with consideration to COVID-19. In the second quarter, lenders have given waivers in the individual credit agreements. Next page, please. With that, I hand over to Anders again.
Thank you, Liia. I am now at Page number nine, three focus areas. When the COVID-19 arrived in Pandox markets, we changed overnight our business model from buying hotels, value adding investment, and operating a quite large hotel operations to more a workout company, focus on secure liquidity, frequented dialogue with banks and business partners, and strong focus on reduced cost. An environment we have been into before, and I believe that the experience we had was something was good for us. If you ask me, we have today a good control of our daily business, and we had on top of that strengthened our financial position since the start of this crisis. We call this working methodology respond, restart, and reinvent. The respond is to manage the acute phase, as I was into here years before.
The restart is to talk about the recovery, which we did already at Q1, and we will now, on next slide, be restarting very soon an updated version 2.0. Also we are spending time on what we call reinvent, and that means what is next. In general, that is how the market and the platform hotel business should be when everything is back to normal again in terms of consumer trends, business models, investments, branding, distribution, to name a few interested areas. Let us go over to Page number 10, and then starting to talk about the recovery which we see coming the next couple of months and an outlook also for the first half of 2021.
To make sure that everyone is starting on the same point, we are starting with on Page 10 to present these six development level as we see who need to return before we are back in old days. The first is that city and counties had to open up and restriction has to gradually reduce. The second one is that hotel, because of this, can open for business. The third is that domestic leisure is return. The fourth is that domestic business return after that. Then you will see an international meeting who will picking up. At the end, the group business, the group segment will return as the last segment in this phase. Every crisis is unique. Even this is unique, and it is starting where you can see that restrictions gradually go down.
If we then move over to Page number 11, this recovery will or these phases will be managed over a few different phases. The first one has already happened. That was April to May when we saw a total lockdown in most of the countries, and the demand bottom out at the end of April and slight recovery from beginning of May. The occupancy at that time was in Europe between 5% to 25%. It was all business were more or less gone. If we now move over to the second phase, what we call here summer. It is restriction. When restrictions start gradually to reduce and domestic travel was allowed, you saw a strong pick-up immediately in domestic individual leisure. First of camping and housing, and then to resort hotel, focus on also mid-market economy hotel, and that trend is strong.
If you look at Nordic, who was for just a few weeks ago, just at 15%, is now more than 40% in all hotels and 50% of all open hotels. You see similar trends in Germany and in Netherlands and France, and next in line who will follow will be U.K. If we then move over to next phase, autumn and year end. Let me say that given no second wave and given that restriction gradually will reduce, we believe that the hotel market in Q4 can be up at 25%- 55% occupancy, supporting by a quite strong leisure period the whole autumn. I believe that brands and hotel company will focus more on leisure campaign than normal, and we will see a good leisure domestic pick-up. People like to travel, and it is easier to travel in domestic, and hotel will use that.
We will also see a domestic business return, and we see that now also in China. That is two segments who really are strong. That gives the reason why we believe that occupancy will grow more than we said in our Q1. We believe also at the end of the year, we will see the first pick-up in meeting segment in international travels. We think that, or we have the report from flight industry said that 50% of capacity is back in Q4. We mean that has a positive effect on international travel as well. Let's move over to Page number 13. General comments about 2020. Demand recovery is faster than we outlook in Q1 report, and that's supported by this current trend and also what we see in market who is in head of Europe, specifically in China.
We can confirm still that food and beverage activity in hotels will be low during the rest of this year. There will be a lot of focus on hygiene, cleanliness, and safety, and we will see more digital solution for contactless and cashless service. A few words about rates, which are relatively stable per segment so far but down because of sales mix. It's so easy as we're selling more to families than to international travelers will take down the price. But in respectively segment, people pay more or less the same as they did last year. On this stage, I think that's also important to mention that we don't see any new consumer trend that change the fundamental of the hotel market. It is more or less as it always had been so far.
What's holding back consumer are government restrictions, and when they coming down, we see immediately a pick-up in demand. Page number 14, please. If we then look ahead into 2021 and take that including the domestic leisure segment will continue to be stable as well as domestic business. They are not back to normal, but they are much stronger than it was in Q3 and Q4, and that will continue to grow slightly. We see more pickup of international meetings and international travelers and domestic meetings.
We believe that occupancy will go up to about 60% in domestic market and to around 30% on international markets, mostly deluxe market in large capital cities like London and Paris. In this environment, I think we have a quite good plan. Respond, restart, and reinvent, and we have a strong financial and liquidity position as well. If you also remember that the Pandox portfolio, 84% of our revenue coming from domestic and regional markets, I believe this trend is in favor for Pandox. The last Page is 15, where you now can see where the hotel market development are on this stage.
You can see that on number two, hotel open is U.K. You see a number of hotels who is at Stage Number three, domestic leisure return, and only one market is on domestic business return as well. That's China. U.S. is there also, but we just take China in here. Then you will see this step and step go up. At the end of the year, you will see both domestic leisure, domestic business, and first pick up in international meeting, and that will take market up to a level where most of the hotel will have a positive cash flow at the end of 2020. Thank you very much. Over to Anders Berg.
Yeah, and this concludes the first part. We will now turn our attention to the external hotel market presentations, starting with Robin Rossmann. Please go ahead.
Thank you so much, Anders. I think we're on Slide 16. Why don't we turn over to Slide 17? Really what I'll look to cover over the next few minutes is to give you all a bit of context around where the world is in its recovery cycle and how that differs by region. I think that gives us good insight to what we can expect to see in Europe. On to the second point there, which is how much of this summer season can hotels salvage through to the end of the year. Moving on to Slide 18. Clearly it is the beginning of summer holidays, and I'm sure many of you prefer to be starting or next to a fire than being on a conference call right now. That is not the reason why I put a picture of coals there.
It's actually, if you move on to Slide 19, because I think the best analogy that I've come across in terms of what we can expect for particularly hotels in the recovery cycle coming out of COVID-19 is demonstrated by the heat profile of meat and fat in a slow cooker when you're barbecuing meat in a slow cooker. What I mean by that is, if you look at the temperature of fat, that is a normal recovery cycle coming out of a downturn for hotels, which is it's low, and then it picks up quite quickly and then flattens out until it gets to its full recovery.
However, what we are seeing and what I expect will continue to see is the temperature profile of sponge or meat in a slow cooker, where there is a sort of a sharp jump up to a level of occupancy where it flat lines or plateaus until there is a cure for coronavirus, because there are just certain types of demands that will not come back to hotels fully until there is a wider cure for the disease. More on that in a bit as we move over to Slide 20 and just give some context on where we have come as an industry around the world and how that has impacted hotel performance. Here you can see across the globe, color-coded the level of impact in the hotel industry back at the middle of May, where red is all hotels forced to be closed.
Orange is they are allowed to open, but there is no real demand yet. Yellow is where domestic leisure has returned, and you can see at the middle of May, it was really only China that was at that stage where domestic leisure was coming back. Green, where domestic business, then international, then group. Moving on to Slide 21, you can see that by the end of May, things had definitely started to get better, and that is when things started reopening for Europe. Important, end of May, Europe starts to reopen. Not much demand yet. As we move now on to Slide 22 and the 30th of July, you can see certainly some more pleasing colors. A lot less red, really only in Central South America when forced closures left.
But for the whole of Europe, the hotels are now allowed to reopen or indeed domestic leisure has already come back. Then moving across the right there, it is important to see that domestic business is now coming back to China. Getting a bit more granular, moving on to Slide 23, and just to give you a bit more color on the shape of this recovery around the world. What we have got here is all the different sub-markets that we track, over 1,000 different sub-markets around the world. Breaking up the occupancy of those sub-markets into red, less than 25%, orange, 25%-50%, teal 50%-75%, and green greater than 75%. This is the occupancy of open hotels, so it excludes those that are temporarily closed because of coronavirus.
You can see back for the week ending last week of May, that really only China was in that position, where there was not that much red left. Most hotels are either greater than 25% or indeed even greater than 50% occupancy. U.S. was just coming out of its closures at the end of May. You can see not many markets less than 25% and most between 25%-50%. Europe at that stage, as I said, still mostly shut, just starting to reopen at the end of May. Just a quick one on this one. U.S. about a month behind China, and Europe about a month behind the U.S. As we move on to Slide 24, you can see that what has happened is China has remained broadly the same or static in terms of overall makeup.
The U.S. has caught up to China, so now really mostly orange and some teal coming through. A month later, Europe's starting to open, far less red, and most markets at the 25%-50% occupancy. Before I talk about those occupancy levels, though, it is important to note, moving on to Slide 25, that what we also need to take into consideration is all these hotels that have closed and are starting to reopen. Here you can see from January all the way through to July, across the major countries in the world, the percentage of hotels that closed and then the extent to which they've reopened. Moving from the bottom of the chart upwards, you can see that in China and the U.S., actually not that many hotels closed, only about 20% in the end.
In both of those markets, China, almost all those hotels reopened, and U.S. getting closer to it. Then I think quite encouragingly, even in Europe and Germany, where over half the hotels were closed, the dotted black line, are now only 15% are still closed. Moving further up, France, the U.K., and Italy that had well over 80% of hotels closed, now at 40%-50% closed. Then right at the top, Spain, due to some seasonal closures that are unlikely to open this year, still 60%-70% closed at the beginning of July. The reason we show that closure information is that when we move on to Slide 26 and just start to look at the actual occupancies of these markets and regions around the world. This is for the week ending the 5th of July. We show two different levels of performance.
The first, and the one that we usually focus the most on, is we call reporting occupancy. This is the occupancies of the hotels that are open. The second, the smaller bubbles, is the occupancy of the whole market. If all those hotels which are temporarily closed by COVID-19 were to be open, and what that would bring the occupancy down to. You can see for the China and for North America, that reporting occupancy pretty close to economic occupancy at just below 50%, as most of the hotels reopened there. Whereas compare that to Europe, where hotels that are open currently at around 27% occupancy. But if you add back all those closed hotels, still at around 15%.
Now, that's important context as we move on to Slide 27, and then onto Slide 28, which is what does the future shape of the recovery look like for Europe? This is where I'll bring us back to that barbecue analogy. I'll start by looking at China, which is the blue line, which as you can see back at the beginning of February, had occupancies at below 10%. It stayed below 10% pretty much for the whole of February. Then at the beginning of March, started its three-month recovery. It took three months for China occupancy to get from around that 10% to just below 50% at the beginning of June. That's when we started asking the question: When will performance start to plateau? It looked like it might not.
You can see that little spike, just in around the 13th of June, where it flipped over 50%. Then we had a resurgence of cases in Beijing in particular. You can see that China occupancy has fallen back down a bit and then recovered to just below 15%. So it does look like, until there is a wider cure, that we're beginning to see that point at which occupancies flatline or plateau in China, where it cannot recover further until those other sources of demand come back. Moving on to the U.S., it didn't decline as far. You can see occupancies reached the bottom at the end of March and then started to recover at the beginning of April.
Again, it's taken three months from the beginning of April to where we are now at the beginning of July to get occupancies just below 50%, at which point it does seem like they're a bit flatlining there. We'll see what comes through for the holiday week, 4th of July holiday week. But given what we're seeing in cases there, I think we can expect occupancy to broadly flatline at that level. Middle East, similar story, flatlining a bit lower. Then we get to Europe. But before I talk about Europe, let's move on to Slide 29, because what I was showing you was reporting occupancy, which was fine for China and the U.S. because most hotels were open. But as I mentioned before, for Europe, still many hotels opening up.
On Slide 29, you can see that on an economic occupancy basis, Europe hotels really only started their recovery at the beginning of June and are up to about 15%. So if it followed the lines of the U.S. and China, it would take three months to get up to that 40%-50% occupancy. You'll see later on in the presentation, we think that that will be the case, or indeed, we think it'll be even a bit faster than that as the reopening has happened at a time where peak leisure demand is coming through, and it's the leisure demand that's driven this first phase of the recovery. So we do expect that purple occupancy line for Europe to jump up much closer to the U.S. and China lines over the course of the next month or two.
What will it look like when it gets there? Well, moving on to Slide 30, this is just showing you a bit more for China, the degree to which occupancy is versus same week in the prior year. So it's really the same data from the previous Slide, but you can see it was recovering to just about 20% below prior levels. Then we had that flare-up again, and it's now at between 40%-50% below prior occupancy levels. Importantly, though, there is a big difference between major gateway Tier one cities and other cities, with Tier one cities, gateway cities, having a much slower recovery and still much lower than prior year levels. Rather unsurprising given the high density is less appealing at the moment because of the risks associated with coronavirus. Moving on to Slide 31. So far, I've been talking mainly about occupancy.
Obviously, revenue and profitability is more important. Let me talk about RevPAR quickly here. You can see that RevPAR is in China a bit further below where occupancy levels were. For mainland China at around about that - 40% to -50%. It is worse in Tier one cities and not quite as bad, so about - 30% outside Tier one cities at the moment. Do we expect it to still recover from here? Yes, I hope so. As I mentioned before, we do think it will flatline there a bit for a while until there is a wider recovery. Moving on to the U.S. in Slide 32. Here you can see RevPAR versus prior year percentage change. Again, similar story, at its peak, - 80% behind prior year, currently trading at - 44% behind prior year.
We expect it will improve a little bit from there, but probably stay at that level for a while whilst cases are going up. Moving on to Slide 33. Clearly, the performance does differ by class of hotels, and we have seen that luxury top-end hotels are struggling more and that the mid-scale and economy certainly being a bit more resilient with RevPARs there in the U.S., 25%-30% below prior year levels, whereas luxury, upper upscale, 50%-60% behind. That is because of the type of demand that has come back. It is that high-paying business, international leisure demand that has not come back yet, which is why the performance at the top end is struggling more. So moving on to Slide 34 and how quickly can Europe get back to temperature.
Well, I have given some answers away already, but I think it is important to look at some granular country level detail. On Slide 35, you can see occupancies for the week ending 5th of July of open hotels range from just below 10% all the way up to 40%. I would not focus too much on that. I would move on to Slide 36, where you can see that when you add back those temporarily closed hotels, there are some significant differences there, particularly Spain, France, and obviously the U.K., where many hotels have not opened up yet. The big difference between reporting occupancies and actual occupancies including all those temporary closures. Moving on to Slide 37.
If you pull out and you only show full inventory economic occupancies, then the countries that are at the forefront of the recovery for Europe are definitely the DACH countries, so Germany, Austria, Switzerland, as well as the Netherlands, showing some stronger recovery than many others. Moving on to Slide 38. I think just referencing back to the China point, certainly what we are seeing in Europe is a big divide within countries between Tier one or main cities and regional cities or regional markets, with much stronger recovery coming sooner within those regional markets. So think about it in Germany as Baltic Coast versus Berlin. Or coastal towns versus city centers, where leisure demand is coming back and bringing that occupancy higher there versus the city center towns.
Moving on to Slide 39, just touching briefly on rate, it really is important to not draw too many conclusions yet on average room rates. Because where there are significant declines in rate versus prior year, this is really more due to change in mix than it is to discounting at this stage. When you look at performance of regional markets versus main cities, you can see that regional market rates much more resilient, in some cases, actually above prior year levels, with that pent-up demand coming through and enabling leisure destinations to price more, versus main cities, where it's definitely weaker than prior years. Again, don't draw too much from that at this stage. Because if you move on to Slide 40, whilst we do expect there to be pressure on rates as we come out of this recovery cycle.
When you look at average room rates in London versus U.K. regional markets, here London's the orange dots, U.K. regional is the blue dots. You can see London usually trading at room rates of pretty much double what you would get in regional cities. However, that gap has almost completely closed in the last couple of months. Again, that's really due to change in mix, not due to discounting. You can already see it starting to open up again in the first week of July. For those major cities, what can they expect in terms of demand coming back?
If we look on business on the books and move on to Slide 41 and then Slide 42, I think the context to start with here, this shows you net change in future bookings by week, going back from March all the way to where we are now, and we can see that for pretty much the whole of March, there were more cancellations than new bookings into the future, pretty much wiping out all business on the books. When you look at Slide 43, this is showing you a selection of major gateway cities around Europe, and showing how much business is on the books or rooms already sold in July, August, September, all the way through to June next year. You can see that for most months, it's ranging between 6% and 14%, or significantly less than what it would be at this stage usually.
Particularly for the key summer months, it would be usually two to three times at least this. Because of all those cancellations, there's not really much left on the books, so not a lot of visibility for hoteliers out there. However, moving on to Slide 44, we are seeing pickup going positive. For the first time in a long time, you can see that through the month of June, we saw positive pickup for business in July across most of those gateway cities. That was very last-minute leisure pickup coming through. Beyond that, in August and beyond, still negative. We do expect that to pick up quite a lot this month in July.
When you move on to Slide 45, this is looking at daily data for the same business on the books pickup. You can see pretty much unanimously positive, in the short term in July and then in August, negative again, but we do expect that to pick up. Onto Slide 46 and then Slide 47 for some conclusions. We do our forecast together with Tourism Economics. We do a range of about 30 different cities across Europe. We have aggregated them up here and compared them to occupancy levels in 2019, the blue line. You can see that where we are is we hit the bottom in April, and we have recovered in May and June to that just below 25% line. We are expecting it to continue to recover, as I said, in July and August.
By August, get back up to that just about 40%, 50%, 60% occupancy. Then we do hit a big caution line here because, we are expecting it to continue to recover. These do feel optimistic, I will say, but we are expecting it to continue to recover. The big caveat here is, of course, if there is a second major outbreak of COVID-19 in the second half of the year, which would cause more stricter lockdowns and this recovery not to occur. As it stands, we are positive that demand is coming back. Hotels are being able to open, and there is definitely pent-up leisure demand. As long as confidence continues, we expect that to continue in recovery towards the end of this year. With that, I will hand over to you, Anders.
Thank you very much, Robin. Our next speaker is then Johan, who will talk about the Nordic market. The floor is yours.
Thank you, Anders. Thank you, Robin. I will start at Page 49 to have a brief look at the Nordic capitals, to just give a picture of how the recovery looks in our region. It is quite a mixed picture, with some markets having a much quicker recovery than others. We can see, for example, Riga in the Baltics, has picked up pretty quickly. The Baltic countries opened up quite early for international travel within that particular region, and they seem to have benefited from that. Both Riga and Tallinn have seen quite significant growth from very low figures at the bottom of in the middle of April. We also see that some markets are struggling more than others. Stockholm, for example, the dotted light yellow line, is quite flat. Stockholm is, of course, very much affected by international travel, business travel, larger events, and groups.
They have not yet benefited from the increased domestic leisure travel as other markets have. We also see Reykjavik down at the bottom, and that is also a market that is very much affected by air travel, of course, the way to get there, and international travel. Not much domestic travel at all. If we turn to the next Slide 50, and just compare two of the markets to where they are in a normal situation. We can see Riga, the dark blue line from the previous slide, and a lighter blue line showing where they were last year.
Even if we have a start of a pickup, we still have quite a long way to go. Looking at Oslo, their line from the previous slide in dark red and the corresponding line from 2019 above. We also see that it is a significant gap still, but it is closing in, and we are about halfway in most markets in terms of occupancy. A little bit higher in some markets like Norway, but that is in the shorter term, where we have quite a downturn normally during summers.
If we look at the recovery path in a little bit longer perspective from the beginning of the year, and also a bit longer average. This is 30 days rolling average on occupancy on Page 51. We see that for Sweden as a whole, we have had a clear turn upwards from mid-April, and it has had a bit of a kick in the last couple of weeks since the summer started. It is, of course, as both Robin and Anders mentioned earlier, the leisure segment that has taken off, and we are in that phase now with the summer.
If we look at typical leisure markets, I took Kalmar in Sweden as an example here. We can see at the seven-day rolling average on Page 52 that for the shorter trend, weekly trend, we can see that it is actually up to the levels where we were last year. The domestic leisure has really helped the typical leisure and summer markets for the shorter term, and hopefully this will last during the whole summer then. At the other end of the scale, we have a typical meetings market in Sigtuna outside Stockholm, almost exclusively meetings and events. They have gone down to much lower levels at the bottom, and the upward turn has been much, much slower. They are at similar levels like last year, but that is mainly due to their normal market going down this period of the year, of course.
They have compensated this by refocusing on the leisure segment or at least trying to refocus on that. But they have still the 50% limit for gatherings and meetings to handle. That is, of course, a trigger for when we will see that segment coming back. Turning to Page 54. Looking ahead a bit at the occupancy on the books. We have Stockholm and Oslo on the top representing the main markets. At the bottom, I have included two more typical summer markets. If we look at Stockholm and Oslo, we can see similar patterns. Quite a bit behind where we normally are on the books figures. There is quite a huge gap compared to the same month last year. The pickup is very, very slow, at least in Stockholm. In Oslo, it has taken off a bit more.
If you compare that to the pickup in Helsingborg and Kalmar at the bottom, you see that they have much, much higher pickups even a month before. If we dig a bit deeper into that, for Helsingborg, for example, at Page 55, we can see that the pickup is extremely short. The coming week, number 29 is this week we are in now. We see that just for the last three weeks including how it looks as of Monday this week, the pickup is really strong. So they look at high occupancy levels, and the outcome will probably be a bit higher, closer to 90% this particular week because the pickup is so short. We can see that nothing really happens beyond four weeks ahead. So it is one to four weeks and really one to two weeks ahead that we have the pickup right now.
Not so much negative pickup into the future. That has really already occurred. So it is quite flat, not much happening there in any market that we cover right now. If we turn to Page 56 to just sum up a bit. We do see this clear start of a recovery, and the question is, will it last? We have roughly half the occupancy levels overall, but it is mainly driven by leisure. The big questions are, will we see the prolonged leisure season lasting into the fall? Will that also be followed or being accompanied by the business segment coming back, events and also international travel? Those three are the big question marks right now. For Sweden, we saw that the summer started in midsummer. The leisure segment really took off at midsummer and the domestic market really captured quite a bit of the international travel.
The pickup is extremely short and we also have to remember that hotels now compete for the domestic travelers with campaigns, with other segments that has also been hit by this crisis. So it is really tricky for the hotels not to lower their prices too much to compete with the lower priced alternatives, of course. We see that some destinations suffers much more than others from being cut off from the world at large. That is, for example, then Stockholm, that really has to see some international travel and the business segment returning to see a rise in occupancy. They have not been able to capture any leisure travel so far to any larger extent. Yes, that is pretty much what I wanted to say. I hand over to Anders again.
Thank you very much, Johan. Operator, we are now ready for questions.
All right. Thank you. Ladies and gentlemen, those who wish to ask a question over the telephone line, please press star and one and wait for the operator to get your first and last name. Once again, star one if you wish to ask a question. Thank you.
First question.
All right. Our first question comes from the line of Fredric Cyon from Carnegie. Please ask your question.
Good morning. Three questions from my side. Starting off with the Property Management hotels, 136 in total. What proportion of them do you expect to run at minimum rent in Q3, Q4, roughly?
Majority will be at the minimum rent. We have 29 Scandic Hotels, which we don't have any minimum rent. We see a good pickup there. For the rest, I believe that it's minimum rent.
Throughout Q4 as well?
Excuse me?
Is that also viable for the fourth quarter?
Yeah. The fourth quarter, yeah. We believe that we
For the fourth.
For now, on the fourth quarter, we will see a more pickup on revenue, specifically in the Nordics, given no second wave.
The second question relates to threshold on occupancy to receive additional income besides the minimum rents. Generally speaking, what kind of threshold do you have on occupancy to get there?
Nordic 50%, international 50%, 55%.
Okay. That is very clear. Then my final question. In connection with the Q1 results, you said that you would be approximately break even in Q2 on profits before value changes. That was what you managed to do as well. Can you give us some guidance on Q3? Should we expect some kind of pickup, I guess, for Q3? So you should be clearly above the break even then?
Well, they will be slightly better because the market is stronger and you will see a pickup in variable rent. You will see the same minimum rent. They will be stable. You hopefully can see the first pickup in the end of the year in our own operational platform. Specifically for hotel in Netherlands and Germany, maybe not in Belgium and in Canada, where they are still closed or very close to closed.
Thank you, Anders. Those were my questions.
Thank you.
Okay, thank you. Your next question comes from the line of Simen Mortensen from DNB Markets. Please ask your question.
Yeah. Hi. A few of my questions are very similar to Cyon's questions. But one final question could be in terms of the payment of the minimum rents, you say it has been according to plans. Could you please elaborate a bit on that? What does that mean? Does that mean you have agreed for postponed payments? To what extent, and how much of rents have been actually paid? Also perhaps a comment on that for Q3 as well.
Yeah. Thanks. As we said in the last call or last quarter, we have had discussions and agreements with some of our tenants to change payment terms, and typically that has been quarterly in advance to monthly in arrears. Especially in this pandemic times, it would have been cruel otherwise. There was some impact already in Q1, and as you see, our working capital has increased or the receivables have increased with some SEK 150 million or so in the second quarter.
These are temporary payment terms. This is what we have been having, and we expect to have it during 2020. But there is no changes in the minimum rents. This is purely payment terms. As you know, for example, in Germany, there has been some governmental restrictions and some possibilities for some tenants to actually postpone the full second quarter payment to later. That is also included in this.
Thank you. Just a final question then. In terms of you have the segment reporting, were you guided on the revenues or report your revenues per country, both in the Property Management assets and the operator activity assets? We do get them by country, and we do get the quarter-on-quarter stuff from you. What can you tell us about the levels which we have seen in the revenue for the Property Management in this quarter, which in some cases is just down 20% in terms of the break-even levels in those countries versus the operator assets? Especially on the operator assets, how is the run rate now at July versus what you reported in Q2?
The operator activities now is 20 hotels, and I think we said in Q1 that most of these hotels would be on a very low level. Lucky us, because we were one of the few who had open hotels, meaning when in Montreal, when the city needs 800 soldiers for the city to do a charity job, we get them all. So we had an occupancy of our hotels of close to 60% over six weeks, and that of course give us a much stronger profits out from these two hotels than we had forecasted.
We were also one of the few who had a hotel open at Heathrow, our Hilton Garden Inn, where we have had stable occupancy for 40% - 50% during this quarter. Now all hotels is open at Heathrow, so that means that our occupancy will make a bit down, but we are still open. You see also a good pickup in The Hague, where it is the same trend as in Nordic, when the resort hotel in Scheveningen, sorry for the pronunciation, are very strong and we have a good hotel there. We see the first pickup in Germany, specifically in Lübeck and in Hanover. If you then go for Brussels, it is very quiet.
Thank you. Those are all my questions for now. Thank you.
Thank you.
Thank you.
Okay, thank you. Your next question comes from the line of Stefan Andersson from SEB. Please ask your question.
Thank you. I have three questions as well. First, on your partners. If you look at your group of partners that you work with, would you say that all of them are healthy or do you see concerns somewhere? Connected to that, you have been taking over hotels in Copenhagen, for instance. I haven't seen any more announcements like that. My question number two to that is then, are you seeing any risks/opportunities during the summer taking over hotels?
The first question about the current status of our business partner. What we know, they are strong. We work, as you know, with a large company, and they are probably stronger in this weak environment. We know that many of them have taken actions with new share issue, taking of bank loans. We see a few of them selling assets. We see some of them go out of business where they have been into. It has not been in their favor. They have been very active, and from that, our conclusion is that they are in healthy condition.
We also see combined with a stronger market that the acute problem for the hotel market will be over the end of this year across our business partners, which are good news for us. The second one, if we're taking over. No, we don't want to take over any hotels for our business partner. We would like to gather up, go to the next level together, and be active together when this crisis is over. We have no plans for that. If they cannot pay rent or if there are other problems they have, then of course, we are ready to do it, but it's definitely not a strategy.
Yeah. Should I interpret that as your answer being that right now for the next two months, you don't see any risk for having to take over any of them?
No.
Correct.
Correct.
My final question is, I need to get to one, but I think the depreciations have been moving up gradually over the last quarters, and now it is up again here to SEK 57 million, I think. What is the reason behind that move up here? Is this a lag from acquisitions made before, or is there something else?
Sorry, could you take that question again?
Depreciation. It is moving up. It has been moving up for a while and of course, with the acquisitions, it should do, but it is moving up again here to SEK 57 million in the quarter, if I am being correct. Just wondering the reason behind that.
Okay. Yeah. But it is probably because we took over the operations on the two Copenhagen hotels. As you know, we have two different accounting structures for investment properties and operating properties. So that is to some part.
Okay. This is the level we should expect going forward as well?
Yes.
Yeah. Okay. Thank you. That's all for me.
Okay, thank you. Your next question comes from the line of Christopher Fremantle from Morgan Stanley. Please ask your question.
Hello, good morning. Just a quick question on the valuations. Sorry if I've missed it. When do you expect to do an external valuation of the assets? The second part of the question is, for the internal valuation that you have done, what assumptions have you made about RevPAR? Are you assuming that RevPAR plateaus as the gentleman from STR was suggesting before recovering back to normal? If you can just give some color about what your valuation is assuming—
Yes.
—particularly for 2021, please. Thank you.
Yes, absolutely. On the first question regarding external valuations, the expectation and the understanding, and I think it is also in agreement with most of the lending community, is that there will be very few external valuations being made in 2020. This is, of course, because there is no transactional sort of evidence. There is a lot of uncertainty. There have been practical problems of actually visiting the sites, of sort of seeing the sites. But at the same time, we of course make every quarter full internal valuations, and we monitor this closely. And together with a deep knowledge, with the details we have, and also with the network we have with valuators and with the property market. We believe this is sort of—
Good valuation.
—a good view of this. But we do not expect any major amount of external valuations being made this year. To the second question—
Market.
—market valuations. I hand it to Anders, but they reflect the forecast of what Anders has been talking about.
Yeah, it's basically what we say, Christopher. Good morning. That is, you see we have in our scenario two that we believe that in the first semester, we will see a quite stable pickup. At the end of the second quarter, we have not say anything about yet, but we believe that will be also a pickup there, but we don't have our hands around it. As you see, the trends are quite strong in the market at the moment. So we believe that we are maybe back in old performance or in much better performance already at the end of 2021 and beginning of 2022.
But it's not a forecast, it's just as an answer for you, so you have some sort of guidelines how we think about our valuations. That had been the base for how we having these internal discussions, but also, as Liia said, share it with some external people, and we believe that's on stable ground.
Okay. Thank you.
Thank you.
All right. Thank you once again. For those who wish to ask a question, please press star one. Your next question comes from the line of Tobias Kaj from ABG. Please ask your question.
Yes. Thank you, and good morning. I just have a follow-up on the comment regarding receivables. You said you have some SEK 150 million in receivables. Was that created in Q2 2020 or in the first half of the year? And also—
Well, there is a Yeah.
When do you expect to receive those money? Is it during 2021 or even further out?
Yeah. Thank you. As we said on the last call, we had some already in the end of Q1, some receivable increase. There is another like SEK 100 million-SEK 150 million coming, an increase of the receivables in the second quarter. This has mainly to do with the government in Germany, where they had the possibility of not paying any rent at all in Q2 and actually postpone it over a period of 12 - 24 months. Of course, it is tenant by tenant, and we look at this closely quarter -by -quarter, month -by -month. We do expect the lion part, the majority part of this coming back in end of 2020, beginning of 2021.
Are they all related to management properties or also to operator activities?
It is all related to investment properties, so not to our own operations.
Okay. Thank you very much.
All right. Thank you. Your next question comes from the line of Simen Mortensen from DNB Markets. Please ask your question.
Yeah. Hi, another question from my side here. In terms of the funding situation, it is good to see your buffer is now SEK 5.5 billion. But could you please give us some comments on what has been going on with the covenants in the company? And if you can give us a bit more detail or if there has been any need to waive a few covenants from any banks or financing source given the current situation. And if you just can give us some updates on the—
Absolutely.
—on that level.
Absolutely. As I said, we have a positive and constructive dialogue with all our lenders. We have 11 banks and twice the number of credit facilities. This is a strength, but it also means that we have a lot of considerations to make and many different activities to work through. We are well-organized and, of course, we have a good plan, but this takes some time. On a corporate group level, it is LTV and ICR, as we mentioned in the report, and LTV and ICR are at good, comfortable modern levels. We have a policy of LTV between 45% and 60%, and any covenant would be much higher than that. On the ICR, on the group level, the minimum rent is more than securely covering any group covenant level.
There is, of course, because we have 20 + different facility agreements on some asset level, some waivers that we have needed to be put in place and which we have in place. That would be maybe typically that you have some technical, you should have done an external evaluations, or there can even be some EBITDA performance or performance-based covenant that in a pandemic time when you have zero revenue would be impossible to have. But these have been very constructive and positive, and they have been in place.
Has there been any consequences for waiving those kind of covenants in the quarter, or will there be any in terms of financing costs, et c?
No, there has not been any consequences for that at all. Again, we have been proud of our banks and because there is a very good dialogue, it is almost even better than prior to the COVID-19 outbreak. The main part of the discussions has been on refinancing and actually new financing. You see, we have put SEK 1.7 billion in place for new financing. We have refinanced a lot, and we are very deep in discussions to put in place the rest of it. As I said last time, if anything, there is a slightly higher margin and a slightly shorter tenant for the refinancing. This I think has nothing to do with the sort of covenants or anything like that, but it is more the fact that the uncertainty, and the willingness to continue to look this in a one or two years time.
Thank you. Those were my questions.
Thank you. There are no further questions over the telephone lines. Please continue.
Yes. We have one question from the web, from Albin Sandberg at Kepler. He asks if Pandox has had any rental reductions on the minimum lease agreements in Q2 2020. Also, when is your next major rental renewal for the minimum rent contracts?
First, we have not changed any lease agreement. We have changed the payment terms. That is all. That has been the same, and we are still there. We have one negotiation in 2020. That is all. Then we have a couple of them, one or two next year, and we have a portfolio in 2022, but far away from now. So it will be the same sort of contract we have. I believe that our tenant with an uplifting market will have a positive cash at the end of the year, as I said before. So we believe they will continue to pay the minimum rent. They have to pay it. This is absolutely necessary.
Okay.
Well, ladies and gentlemen, if there is no more question, we say thank you. There have been a lot of people on the line. Thank you everyone for give us this attention. I wish you a nice summer, and stay at hotels, specifically at Pandox hotels. That is good for my bonus 2020. Thank you very much, and have a good day.
Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect.