Ladies and gentlemen, thank you for standing by. Welcome to today's Pandox Q1 2020 report conference call. I would now like to hand the conference over to your first speaker today, Mr. Anders Nissen. Please go ahead, sir.
Yes, hello. It's actually Anders Berg here. I would like to welcome you all to this presentation of Pandox interim report for the first quarter 2020. I'm Head of Investor Relations of Pandox, and with me, I have Anders Nissen, our CEO, Liia Nõu, our CFO. We also have three special guests with us today, Robin Rossmann, David Goodger, and Johan Johander. I will introduce them shortly. Let's turn to the next page, please. This report presentation is divided into three parts and will be a bit longer than normal. First of all, Anders and Liia will present the quarter and the business situation. Secondly, we will get an external hotel market update provided by Robin Rossmann, Managing Director, International at STR. David Goodger, Managing Director, EMEA at Oxford Economics and Tourism Economics, and Johan Johander, Partner and Head of Research at Benchmarking Alliance.
Robin, David, and Johan represent leading independent research firms focused on the economy, tourism, and hotels. I think it will be well worth listening to them. After that, we wrap everything up with a quick summary and open up for questions. Next page, please. With that, I hand over to Anders Nissen.
Well, good morning, everybody, and also welcome from my side to this presentation. Let me start by saying the obvious this time are not normal. Country and city are closed down. People work from home. We can say that the abnormal has started to be normal. Ladies and gentlemen, this will change. Pandox was born in a crisis at the beginning of the 1990s. I was already in the company. This is 25 years ago. We are back, as we say, to square one again and ready to manage a new crisis, more experience with more knowledge, more humble as also as of course. We're facing this crisis from a market-leading position and with a solid financial position. So hopefully we will be going out stronger than we go into this crisis. Thank you very much for listening to this. Let's go over to the Q1 report.
The first quarter 2020, you can divide into two phases. We had a stable start in January. February was two good hotel months, then historical demand collapse in March when COVID-19 hit and very strong government actions were taken to stop the virus. From mid-March, there came a tsunami, and occupancy rates fell to 5%-25% across all markets in Europe. Let's take a quick look at the numbers. For the first quarter, total net operating income decreased by 14%. Like for like, property management decreased by 12%, and like for like operator activities decreased by 78%. Return on equity was still strong due to a few good acquisition last year, 10%. Next page, please. Page four. In the quarter, Pandox total operating income decreased by SEK 97 million. The strong drivers was a good January, February, said before.
We have a positive contribution from recent acquisition in both business segments, and we have a positive current effect. Support the revenue came also supporting from minimum and fixed rent. The negative factors in the quarter was this historical lockdown, of course, but also some increased hotel supply in some markets and some renovations costs from Pandox side. Page five, please. Currently, the revenue is coming from minimum rent and fixed rent. It's about approximately SEK 2 billion a year and SEK 500 million per quarter or SEK 160 million approximately per month. The minimum rent is structures that is normally higher in Europe than lower than in Nordics. Also linked to that, we have been more active of due acquisition out in Europe the last couple of years.
We have close discussions with our business partner how to help them, and we help them with temporary payment terms, but we don't change in the lease agreement. So far, rent payments is on track. Next page, please. Let me point out a few, don't forget. First, don't forget that Pandox, even in this period, has a very high quality portfolio of 156 hotels with 35,000 rooms. That will take long time to build up a similar portfolio. 84% of the value is coming from the property management business, which representing where we lease out to third parties, and 16% with 20 hotels coming from operator activities that we own and operate. In these operator activities in the 20 hotels is also including the two hotels we recently took over in Copenhagen. Next page, please.
Don't forget, we're coming into this crisis and we still have a very strong position as market leader and a pan-European geographic position as one of the few player in Europe. In size and scale, partner network, and stakeholders recognitions. Next page, please. We also have a good geographic balance in 15 countries and 90 good hotel destinations, together with 30 brands and partners. Next page, please. That take me to the last. Don't forget that Pandox platform is having most likely Europe's strongest network of brands and partners. You see them all here. We have a weekly, at least, dialogue with most of them and talking about not only how to get in rent, but also learn from their experience and share different knowledge. Next page, please. Then I hand over to Liia.
Thank you. Thank you, Anders. This is a summary of the COVID-19 effects on Pandox. For a fuller description, please go to page three in the interim report. Demand in the hotel market is very low due to COVID-19 and unprecedented government actions. Currently, Pandox's main sources of revenue are minimum and fixed rent. Operating activities is operating at a minimum capacity with very limited revenue. We have taken action on costs, and Pandox's cost base is now largely at par with minimum and fixed rent. Pandox has taken part of government relief programs within operating activities in Belgium, Germany, U.K., Denmark, and Canada. We also have negative unrealized value changes in the first quarter explained by lower cash flows in 2020. I will come back to this later in the presentation.
Since only part of the first quarter was affected by COVID-19, we expect a substantially larger negative earnings effect in the second quarter. Next page, please. It's a very strange quarter. As Anders said, the quarter has two phases. We had two stable months followed by a historically weak March. Let me quickly run through the numbers. I'm starting with property management. In the first quarter, rental income amounted to SEK 672 million, a decrease of 2%. If we adjust for the previous accounting changes for property tax in the U.K. and Ireland, the increase was 1%. Like for like, property management reported a decrease in rental income and net operating income of -11% and -12% respectively. Continuing with operating activities. In the first quarter, net operating income amounted to SEK 20 million, a decrease of 79%. Like for like, the decrease was -78%.
The decline is explained by the severe market decrease following COVID-19 and the unprecedented government actions which have been taken to limit the spread of the virus. The action taken to reduce costs, mainly in form of staff reductions, did not materialize in full in March. So with the reductions now completed, we expect the loss rate to be substantially lower from April onwards. We also had some negative renovation and reposition effects in Hotel Indigo Brussels - City, Hilton Garden Inn Heathrow Airport, and DoubleTree by Hilton Montreal. Total cash earnings amounted to SEK 262 million, a decrease of 29%. Total cash earnings per share decreased by 34%. Measured from year-end 2019, sorry, the unrealized and realized value change for investment properties amounted to a - 1.1%. For operating properties, the unrealized value change was a -3.6%.
End of period, EPRA NAV per share amounted to around SEK 187 . [CAR] affected EPRA NAV positively. Adjusted for dividend and proceeds from the new share issue in November 2019, the annualized increase in EPRA NAV was approximately 10%. Next page, please. In the first quarter, Pandox valued the property portfolio according to the same method and model we've used since the IPO 2015. No external valuations were made in the first quarter, primarily because of practical limitations due to COVID-19. Physical site visits have not been possible to carry out, and uncertainty is high. We have made downward adjustments of property values due to lower cash flows 2020 as a direct result of COVID-19. Yields have been left unchanged since we think transaction evidence is inconclusive. We expect to be able to estimate both yields and cash flow with a greater precision in the coming quarters.
In the first quarter, total unrealized and realized changes in value amounted to a SEK -958 million, of which a SEK -611 million for investment properties and a SEK -347 million for operating properties. Please note that we closed the acquisition on Maritim Hotel Nürnberg on January 31st this year. End of period, the average valuation yield for investment properties was 5.42%, and for operating properties, it was 6.40%. Next page, please. Let's take a quick look at our EPRA NAV and financial position. End of period, EPRA NAV per share amounted to a rounded SEK 187. This corresponds to an increase of approximately 10% on an annualized basis, adjusted for proceeds from the right to share issue, which we did in November 2019. Loan to value amounted to 47.2%. Liquid funds and long-term unutilized credit facilities amounted to approximately SEK 4.3 billion.
On top of this amount, there is an additional credit facilities covering 100% at each point in time of the issued volume under Pandox commercial paper program. During 2020, approximately SEK 5.8 billion will mature of loans, of which the absolute majority towards the end of the fourth quarter. Pandox, we have a close and constructive dialogue with all lenders on refinancing, new financing, and adjustment of conditions in existing credit agreements, taking COVID-19 into consideration. Next page, please. With that, I now hand over to Anders again.
Thank you, Liia. Yes, at the moment, we have right now three focus area in Pandox. Respond, where we manage the actual situation, and restart, where we start to look at the recovery, and reinvent what's next. Let's start with respond. After we get our hands around this new situation, we form a strategic plan with five priorities, which we still follow. The first one and the most important is liquidity. Make sure that we have cash available. We have different strategies by having reduced significant the operational cost. We have been looking over CapEx in investment plans, of course, and reduce it so much as is possible. We have a close and constructive dialogue with business partner of temporary payment, but still pay the rent.
A close and constructive dialogue with lenders and banks to make sure that they know how we are doing and how we are thinking. All in all, we have SEK 4.3 billion in liquidity funds and credit facilities. So a strong liquidity position. The second priority is earning. We have had a target to have a minimum loss in the daily business, and today we have a minimum rent of approximately SEK 2 billion, said before, SEK 500 million over a quarter, and that's corresponding more or less to the cost we have in each quarter and over the year.
So we mean that our earning, we have a minimum loss of these SEK 4.3 billion as we have for credit facilities will make sure that we will survive for a very long time. Our third priorities is stay alive. We don't have in Pandox DNA to don't want to be open.
We have the hotel open. We have contact with the local market. We speak to everyone. We have contact with local authorities, and we will be the first in frontline where activities start to go up again. We also, as number four, have a strategy of being ready to act if we have to, if our business partners don't fulfill their obligations. We can, for protect the asset, we are ready to taking over operations as we did in Copenhagen. It's not our wish, but if we need to, we have the capacity and knowledge how to do it. The last one, which we have learned from other crises, is a visible, open, and active leadership will keep up the spirit in the company.
If we then move over to the recovery, we believe now that the hotel market has hit bottom, and we are waiting for the world, frankly to say, to open up again. This recovery will come in different phases, but we believe that the first green shot is in June, July, given that restrictions is a little bit in a lower level as it is today. Then we believe that the leisure segment will start to grow already for the summer. That is domestic and regional demand who will start, and it will be leisure and business segment who will lead this first recovery.
When we go later, we believe that our occupancy in Europe as a whole or general, will be around 40% at the end of fourth quarter, where economy and mid-market hotel, which is easy to reach by car or train, are the winner, and the luxury hotel with big meeting facilities are the loser. If we then move over to reinvent, to next page. What's next? Yes, we have start to talk to all our network, and the general conclusion is that we believe that the business and leisure will remain more or less the same in short term. There is a strong need for businessmen, and we believe that leisure need to do something fun, and that will help us in our industry. But of course, this will also create new demands and new product segment.
We believe that keywords like less is more, more local products, sustainability, and good citizen is area where we will form new packages for our guests. We believe also, as Scandinavian base, that we are good positioned in these areas. On the other side, large meeting hotels, sport and cultural events will take longer time to recovery, and we most likely need vaccine before we can see, for example, an Olympic taking place. All change creates new opportunities. Again, don't forget, Pandox is in good position. Now I will hand over to our guest speaker. Please note that this is independent research, and they are totally separate from Pandox. Go ahead, Robin.
Thank you very much, Anders, and good morning to everyone. Thank you for that introduction. I guess just quickly a little about STR. We collect proprietary hotel performance data from about 70,000 hotels around the world. We have done so for over 35 years now. This is real hotel occupancy rates and RevPAR and profitability. We provide that back to hotels to enable them to benchmark their performance from a revenue management perspective. We also provide it to the industry to help the industry understand market dynamics. It is fair to say, next page, please, that we have honestly never seen anything like this. What I was hoping to cover in the next 10 minutes is really just to give you a flavor of the global impact of coronavirus and some of the green shoots that we are seeing in China.
Then really focus on Europe and end off with some analysis on previous downturns and recovery cycles, which will feed in pretty well with David Goodger from Tourism Economics, who we work with on the forecasts that we do on hotel performance into the future. Next page, please. On to the impact of coronavirus. Next page, please. What I would like to start with is comparing to China. China is not a perfect comparison. Clearly, there are many things that are different about China versus the rest of the world. But one thing that is important is they clearly were the first to have to deal with the virus. The virus started there, and became an issue there about two months before the rest of the world.
Certainly when we look at hotel performance, you can see here, absolute hotel occupancies aligned not by the same start date, but more by when occupancy started to decline. What we saw is occupancies in China really fell off a cliff from the middle of January and hit the bottom, with occupancies below 10% at the beginning of February. When you look to the rest of the world, Europe and then the U.S. are about two months behind that. So Europe hitting occupancies of below 10% at the beginning of April, and is currently still at that level. Now, the positive thing to take from this chart is that whilst Chinese occupancies were at the bottom at the beginning of February, they have steadily recovered over the last two months and are now above Next slide, please. Heading above 35%.
So you can see here, starting from the 1st of February heading up to the middle of April, occupancy is over 35%. So occupancies in China did sit at the bottom for about a month, and then did start to recover. When we look towards Europe and the rest of the world, I think we can expect it is going to take at least a month for occupancies to start to recover, perhaps longer, given the impact of the virus has been more severe here. Next slide, please. One of the big shocking things about this impact of the pandemic on the hotel industry is the mass closures that we have seen around the world. It says a lot when you see a company like Hilton, been around for over 100 years, have never had to close a hotel through really all the previous world wars and other downturns.
This was the first time ever that global hotel companies had to close their properties en masse, with many having to close over half their portfolios. In China, we saw over half of hotels closed at the beginning of February, and the positive news there is that as we got to the end of March, the vast majority of those had reopened. Over 90% of hotels in China were open again. Not only was demand recovering, as I showed in the previous slide, but also that was off the back of supply nearing back to full capacity. Next slide, please. It is important to state that whilst China as a whole had reached about 35% occupancy, the recovery has definitely varied by region.
You can see here, scale is set to 0%-50%, that Beijing, at the bottom in the pink there, is really still only around about 20% occupancies, as their really strict controls are still in place by the government there. Whereas Shanghai and particularly Hangzhou, has seen occupancies heading up towards the 50% mark, as there have been less restrictions and more of the type of hotels that have benefited from the early stage of the recovery. Next slide, please. It is important to note that this is still some way off what occupancy levels would usually be. You can see here that if we move the scale up to 100%, that occupancies are really half of what they would usually be. How has that varied by scale? Next slide, please. First, we'll look at mid-scale and economy hotels.
What you can see here is they have recovered a lot faster than the rest of the market. Their occupancy across China is now at 50%, and well over half the way back to what it would usually be at around about 75%. If you contrast that to luxury, next slide, please. You can see that luxury dropped a lot lower than mid-scale and economy hotels. Occupancies dropped to 5% and are only now back to 25% and well off the 65% they would usually be at this time of the year. Next slide, please. Important lessons from China. It is a country that has over 95% of its demand being domestic. That's been important because certainly what we expect to see in this recovery is that domestic demand drivers will drive business first.
That will probably first be in leisure, where individuals are able to take more measured risks in advance of companies or groups around their personal desire to travel. Then the business demand that comes back will be those that are probably in markets where social distancing can be made and there's less density. There's also demand that's come back from quarantine guests, and we expect some of that as we see the recovery in the rest of the world. Lower scale hotels have benefited, and it's been really important for guests to be able to see those tangible factors of hygiene. Next slide, please. Next slide, please. Just moving on to Europe. We should be now on a map with RevPAR change at the beginning of the year, January 2020. What's important to say that the year started well.
Generally, there were some markets that were in decline, where supply was growing in excess of demand. As an overall summary, Europe had started the year well. Next slide, please. You can see that as we went into February, RevPARs did start to decline, not that significantly yet, and this was really driven by certain corporates implementing corporate travel bans ahead of government advice, as well as certain events being canceled. Next slide, please. As we moved into March, the impact really did start being felt significantly across Europe. Significant RevPARs down more than 50% and up to 70%, 80% across most of the major cities. On top of this, we also started to see large-scale closures, particularly in those countries that forced the closures of the majority of hotels. Next slide, please.
This is probably the most scary slide I've had to ever present, and it shows you rolling 28-day RevPAR change, going from January 2007 all the way through to current day. You can see that the impact of the 2008 and 2009 financial crisis, where RevPARs at their peak declined 60% in China and 28% in Europe on an individual month versus the prior year. It's fairly easy to conclude here that the impact of coronavirus has certainly in the short-term, been far more significant than the 2008 and 2009 financial crisis with RevPARs down 85% in China and almost 90% in Europe. Next slide, please. The real question then is, how long will this continue for? It's clearly been a short, sharp decline in the immediate short term. How long will that continue?
To a large degree, that will, this year and next, depend on the pace that governments start to open up, not just the economy, but also ease restrictions around travel. As we sit here today, the reality is there is still so much uncertainty around that. There is some talk. There are some countries that have given guidance, many that have not. Even those that have given guidance are subject to huge caveats around further reductions in cases and non-resurgence cases. I think the reality that we sit in is until there is a cure, it appears that restrictions will remain in place for some time. That is going to be a challenge for the hotel industry. Next slide, please.
When demand comes back, what we've seen in past recessions and downturns and what we've seen in China is that if you look at the three main categories of demand, leisure will come back first, then it will be corporate transient, and then it is likely to be corporate group or that event business that will come back last. As we sit here today, it seems highly likely that that final category certainly won't come back until next year. Next slide, please. As we move beyond just the short term, next six to twelve months, the question is: what will this recovery look like in the medium to long term? I'll let Dave Goodger from Tourism Economics answer that specifically. What I'd like to do is give you some previous downturn recovery analysis to help shape your understanding of that.
I will start with some data that is not our data. Next slide, please. It is the UNWTO statistics on international travel numbers. For me, this is incredibly powerful. It shows that as an industry, we have been through very significant challenges before, where at the time it felt like it would deal a pretty fundamental death blow to our industry. If you look at the impact of 9/11, you look at the impact of the previous SARS crisis, you look at the impact of the 2008/2009 financial crisis. There were many people at the time who thought that travel would not recover, that simply has not been the case. We have seen, as the world has grown and its wealth, as an expanding middle class has grown, that desire to travel and experience the world, either through business or leisure, is undeniable.
The demand drivers have seen significant growth in travel around the world. Yes, there have been dips, and yes, the dip this time will be far more significant than anything we have ever seen. However, I think it would be unwise to be too pessimistic that this is not going to bounce back, that is certainly what we expect. Next slide, please. Now, will it be as significant as fast a bounce back as SARS? You can see here that hotel occupancies there really only dropped for about three months and then recovered again within three months to the typical levels it would have been. We certainly hoped that at the beginning. I think we can all agree that is highly unlikely now, given the scale and significance of COVID-19 versus SARS. Next slide, please.
What we certainly hope it will not be like is what we saw with the 2008/2009 financial crisis. It took seven years for RevPAR to recover back to 2007 levels and nine years for profitability to recover back to 2007 and 2008 levels. Now, whilst this has been a more significant downturn in the short term than 2008 and 2009, that does not necessarily mean it will be in the long term. A lot of that will depend ultimately on the shape and the impact of the wider economic recovery. I will let Dave Goodger speak on that. What I would end with is, in terms of how we are seeing this at STR is, next slide, please, a recovery that is kind of be a sort of W-shaped recovery, where we have had the downturn.
We have a bounce back where economies reopen, but reopen at a level where they are not at full capacity and stay at that level until there is a full recovery of the virus and a vaccine or some way to enable social distancing measures to be removed. There will be a drag at that level until things eventually recover up. I can see there has been a problem on this slide. If you just imagine that blue upline actually being connected to the drag so that it does get back up to the previous level. That is what we are expecting and hoping for. Next slide, please. In conclusion, China is not a perfect example of what will happen in the rest of the world, but it is as good as we have got at the moment.
The reality there is they did get the virus under control, and once they did that, the economy has started to open up. That has resulted in a recovery in hotel demand and occupancy, certainly sooner than I had expected, with it now approaching half the level of occupancies and demand it would usually have. I suspect that it may flatten out there at a while, until we see a wider recovery across the world. The extent to which it recovers fully will ultimately depend on a wider economic recovery in China and the rest of the world. As we move across to Europe, the reality is that we have not yet seen the start of the recovery.
We are very much still at the bottom, and that recovery will only start when we see governments start to release those restrictions that are in place over people's movement. I would be positive on that in the sense that there is clearly an increasing urgency at the political level to help the industry get through this and a recognition of the importance of opening up travel, particularly in the summer months ahead, when many people are looking to take a holiday in Europe. I think I am very hopeful that measures will be in place to enable the industry to salvage some of that demand this year. Finally, as I hand over to David, I think it's important to say that if we've learned one thing from the past, and I'll go back to that UNWTO slide, that everything will be okay in the end.
It's clearly not okay at the moment, so it means we're not at the end. It's important to maintain that optimism, but it's also important to realize the reality of the situation that we're in at the moment and make the difficult decisions that need to be made so that we survive now and can thrive in the future. In a previous life, I did a lot of advisory work with a professional services firm back in the 2008 and 2009 financial crisis. The main thing I've learned there was the companies that got through, the ones that survived and ultimately thrived, were those that had good hotels in good locations with strong brands and management teams. I think that is what's most important when looking at who's going to come through this. With that, I'm going to hand over to David.
Okay. Thank you for that, Robin. I would like now just to zoom out. If you can move on to my slides. Thank you. Just give some of the wider economic background as has been trailed by Robin. Give some of that broader background of the wider economic trends, what we're looking at moving into the recovery phase, and what that means for travel. For those who don't know us, I'm here representing Tourism Economics, which is a part of Oxford Economics, which spun out of Oxford University and is one of the world's largest economic forecasting and advisory groups. If you move to the next slide, first slide.
Some things that are fairly self-explanatory on this first slide, that we can see that there is a huge amount of economic activity that is being affected by the lockdown measures that are being put in place to combat the spread of the coronavirus. The countries that have implemented lockdown measures account for around 80% of global GDP. It is not surprising that we are seeing this huge, immediate impact on economy and on travel, as you can see on the right, using some data taken from another of our partners, IATA, looking at where daily flights are around 80% lower than they were at the start of the year. Next slide, please. Which shows that we are, as a result of this, experiencing the deepest global recession that I have certainly looked at in my 20 years as a professional economist, either current experiences, previous experiences, previous analysis.
It is a much deeper recession than we saw during the global financial crisis. Q1 activity, very weak. China led us in terms of the downturn as they implemented the lockdown measures to combat the disease first. But in March, we started to see weakness, lower production numbers, falling activity across a range of advanced economies, and this is really hitting home in the second quarter in terms of this economic impact. Very weak second quarter, but as Robin has pointed out for travel, some green shoots in China. We are seeing that in terms of wider economic activity. Other sectors able to go back to work, factories reopening, offices reopening, and we are seeing some positive growth contribution from China in the second quarter to partly offset some of this weakness in other countries. And where China led on the downturn, we expect them to be leading in recovery.
We do expect to see some turnaround as we go into the second quarter of the year. Some relatively rapid-looking growth with some strong contributions coming from a whole range of economies. Next slide, please. But we can see, looking at just Europe now, that GDP fall, while it is worse than we saw at any point during the global financial crisis, very large falls for GDP. It is absolutely dwarfed by what we are seeing in terms of travel.
Very rapid falls in travel. As this has been going on, we have been regularly updating our forecasts, our expectations based on the different lockdown measures, based on our expectations of what would be happening. And you can see this has just gradually been weakened. Our expectations, much greater falls for 2020 than we were seeing earlier in the year. We are now seeing around 40% fall in total travel for Europe.
Comparable for the world. This is weaker, even worse than on Robin's favorite UNWTO slide. It is not that we disagree completely with the UNWTO. It is partly a methodology approach and a timing approach. I am pretty sure the next time UNWTO run their surveys, they will then be coming out with some numbers looking at around 40% or worse in terms of their falls. But we do expect to see this recovery, some apparently strong growth, in the recovery. Looking at why we expect that, some of the factors behind that, if you move to the next slide. We can see that the near term, the travel behavior is going to be dominated by what happens in terms of the travel restrictions. We ordinarily see strong relationships between economic drivers and travel behavior.
Right now, this is being completely overwritten by the travel restrictions, and that will dominate 2020 and potentially the early stages of 2021. Our baseline expectation is based on this being a roughly eight-month effect. This will obviously vary a lot by market, by region. We do expect to see the current lockdown and travel restrictions in place for a total period of four months on average across all markets, taking us into June. Then we expect to see some easing into the second half of the year on average, this being a four-month process. Expect to see some earlier lifting of restrictions for domestic and short-haul travel, with longer-haul restrictions easing. This profile will cover a large amount of summer travel.
Hopefully, there will be some of that travel allowed, but we do expect some restrictions to remain in place during this process to avoid some of the second wave effects that may occur. That leads us to just these lockdown measures having a 37% negative impact on European travel, on top of all of the other impacts that we're seeing. Even once this is eased, we've got to say this is not going back to normal. There will be increase in tests and so on. If we change these assumptions, which we regularly do, we can see that this will have a much larger impact.
If we put a longer tail on it, say, put a 10-month impact onto this, take us right to the end of the year with some form of restrictions, we can easily see this impact getting well into the 40%, up to 50%. We could be seeing much larger impacts from this and into 2021. If we move to the next slide, there are actually some reasons for optimism once we get past this immediate effect, and once we expect the restrictions to be lifted, and we're getting back to what we'd see in terms of normal relationships, if not normal activity, we'd expect to see some of the economic drivers reassert themselves being important. This is where we see some reasons for optimism. The government response, the policy response that's out there has been massive.
There's huge amounts of stimulus being put in there, which may not be evident this year from our evidence of recovery from previous epidemics and pandemics. The current year is completely overtaken by effects. The amount of spending by governments doesn't really affect GDP or economic activity that year. But what it does is it supports the businesses, and it allows that recovery to come through. So what we're expecting is because of the large stimulus that's being put in place now, this may not necessarily mitigate the falls this year, but it will enable businesses to keep on going, and will take advantage of when that demand comes back into the medium-term. If we look at the next slide, you can see our expectation for GDP growth across a range of major economies globally for the U.S., Eurozone, China.
You can see there is sharp falls for 2020 leading into some apparently rapid growth in subsequent years. We do have to recognize that even for 2022 and by extension 2023, we will see some lingering impact. This will leave a mark. There will be some activity lower than what we would expect as the pre-recession trend. If we move to the next slide, you can see that we do expect a comparable picture for travel as a whole. Very sharp falls expected across Europe, across all parts of Europe. Same is true for all countries in Europe. Large falls in 2020, apparently large rapid growth in return in subsequent years, but still not back to normal immediately.
It will take this three-year period in our latest expectations to get back to 2019 levels because of some of these lingering travel restrictions, because of the longer run impact of the economy, plus also some effects on sentiment. Move to the next slide. Can see as we are looking at the impact by source market, this is important, and this will help to explain some of the destination differences. We can see some greater volatility in the downturn from long-haul markets, U.S. and China. We expect to see much bigger falls because of the lingering restrictions. Same is true for some other longer-haul markets. Because of the size of the short-haul source markets in Europe, these are the ones that we would expect to see having the much greater impact in terms of volumes. So the falls that we are seeing in travel is largely due to intra-regional travel.
The same we expect to be true longer in recovery. It will be the fact that the short-haul can come back sooner will help to really drive a lot of that recovery. Move to the next slide. Can see the absolute importance of the short and medium-haul, as we call it, travel to a range of destinations across Europe. It is the intra-regional travel from Europe that is really important in terms of international demand for a lot of countries. The long-haul travel, even if there are restrictions, it does mean we will get back to somewhere close to peaks relatively quickly if we can restore the short and medium-haul travel. If we look at the next slide, we can see that there is a somewhat different picture across some of the top city destinations. The main cities are much more reliant on that long-haul travel.
They have been very successful at selling destination activity tourism to long-haul source markets. So some of these larger cities are potentially more at risk in this recovery because of that long-haul reliance. It may be some of the smaller cities, towns, more rural destinations that will be set to recover from this first stages of the recovery due to the source market mix and due to some of the activities as well, as Robin mentioned, with some of the leisure coming back ahead of the major corporate. If you move to the next slide, just like to finish off then looking at the importance of domestic as well. Domestic travel is also very important for the vast majority of destinations across Europe. If we do see this domestic travel coming back sooner, then this will definitely help a lot of destinations.
We do expect domestic travel to come back sooner. If you look to the next slide, just like to share what we are seeing as a profile, what we expect the profile to be for domestic travel versus international travel. The domestic restrictions being lifted sooner will allow people to travel within their own countries more quickly than they are able to travel to even their neighbors, let alone long-haul destinations. Plus, as we have seen in previous downturns, there are effects on income. Even if it is temporary job losses, there will be blows to people's incomes, there will be blows to sentiment. Recovery from previous downturns, we have seen people switching to domestic rather than international travel, and we expect to see that again in this recovery period.
Expect to see a one to two year recovery period for domestic travel to regain 2019 levels, whereas more of a three-year, potentially four-year outlook for international travel. If we just finish on the final slide, quite a detailed one that I will not dwell on to a huge extent, but we just try to categorize a lot of different destinations across Europe in terms of their volatility due to market mix. In the bottom right, we see some of the more volatile markets, which have a higher reliance on long-haul demand and a less reliance on domestic. In the upper left, we see the less volatile markets with that greater typical reliance on domestic travel, and these are destinations that, based on just their market mix alone, should weather this storm and see a stronger recovery.
Shaded in red, a lot of markets of potential interest, looking at U.K., German markets, as well as a lot of the Nordic markets. We can see a lot of these markets sitting nicely up in that upper left region. At that point, I will move on to the next slide to move on to Johan, who will take us through some more details for Nordics.
Thank you, Dave. Just a few words on Benchmarking Alliance. We do pretty much what STR does, but we focus on the Nordics and the Baltics. Being last, I will try to keep this short and just focus on a few points that are particular to the Nordic markets. Try not to repeat what previous speakers have said. Next slide, please. If we start to look at the Nordic markets that Pandox are active in, we can see that there is a broad decline in line with what Robin showed. We can see some differences. Sweden doing better than the other markets. Partly be explained by less harsh measures being taken in Sweden than in the neighboring countries.
We can also see that Denmark has had a greater decline than the other markets, and that could especially be explained by Copenhagen being perhaps the most internationalized market in the Nordics, and then being hit by this crisis particularly hard. Another explanation could also be the decline in the leisure segment being a bit smaller and a bit later than the business segment, and especially than the domestic leisure segment. Also in the Nordics, we can see the decline in the MICE segment being particularly hard. The two markets in Sweden that has declined the most are almost exclusively driven by meetings and events. If we put this into the longer time perspective, we can see that the decline is massive and sudden in all these markets.
This is occupancy being split up in sold rooms and we also have room revenue and showing closed rooms as well, because that's a phenomenon that's worth taking into consideration here. Robin showed some numbers on that internationally, and we see this in the Nordics as well. We see this to a very varying extent in different countries. In particularly Finland and Norway, also Copenhagen in Denmark, not Denmark that much otherwise, but particularly Finland and Norway, we see a lot of closed hotels. Not so much in Sweden, actually, and that could be explained also by the less harsh measures being taken there. What we also should take into account here is that it's not only room revenue that's important, it's total revenue for the hotels.
In total revenue, we don't see as much decline as we do in room revenue, and we even see an increase in spend per guest. So that's a positive thing to keep into consideration. The room revenue has not gone down as much as the sold rooms, so we see a less decline in ADR than in occupancy. If we look at historical data, that is a positive thing. Recoveries have been faster when ADR has not declined as much. If there is a willingness to spend from the guests, that's something that could be worth a lot in the recovery when that comes. Looking at the closings and the effect, we can take Oslo as an example here. We see the occupancy excluding the closed hotels and including the closed hotels with the fixed capacity in the market, the blue line.
We see that the occupancy when taking the closed hotels out of the equation, we see that we have almost double the occupancy in those hotels staying open. So that's of course something that helps those hotels quite a lot. This is an effect that we see in Norway, especially. In Sweden, we haven't had that many closings. As a matter of fact, we have seen very few bankruptcies and hotels closing permanently so far. It's only a handful of hotels that have done so since 1st March. So that's something that indicates that the hotels are still keeping up and they're adjusting very quickly to the new situation in the short term. Just looking a bit at the effect of domestic travel that has been mentioned. If we take Sweden as an example. Swedish tourist spending abroad is bigger than the spending domestically.
If we can see an effect where the international tourist spending is more or less gone, we see very limited international travel. We might see a decrease in spending due to a general recession after this crisis. In a recovery then, we would like to see, ideally, that the spending abroad by Swedish as well as other Nordic tourists would be put domestically. It could compensate to quite a far extent for the loss in the foreign tourist spending. We might see some spending abroad, of course, still, even though, as Dave mentioned, this will probably be limited in the short term at least. There is also an infrastructural part of that with the airlines not operating and might not make it much longer. We might also see, of course, a decreased spending due to recession from Swedish tourists.
There is a significant potential in increased domestic travel spending in the Nordics and also looking at the other markets that Pandox operating. Those are all very heavily spending tourist nations, of course. Looking a bit ahead, if we look at the occupancy on the books for the coming twelve months, we have seen a negative pickup in all the major markets. This negative pickup is very short-term so far. It is two to three months. That is an indication of the market still viewing this as a short-term problem that might be turned around in the medium term. We have not seen any decreases really from the later part of the summer and on. Should be noted that for especially Copenhagen, the occupancy on the books compared to the same time last year is significantly lower, of course.
On the other hand, if this turns around, that might turn up quite quickly. Just to sum up, this is in the Nordics as well as in the other markets that we have seen a severe demand problem. There has been a break on the old demand for hotel rooms and also driven by the measures taken by the authorities. The million-dollar question, of course, is how long this will last. Also can this turn around before its short-term shock turns into a long-term recession and puts the broader economy on a downward slope? Hopefully, we can turn it around while the wheels are still turning, so to speak. We see still in the Nordics fiscal measures that could be added to. They have been unprecedented in dimensions so far, but there are discussions of even more measures being taken quite soon.
For the medium to long term, we think that if there is some international travel returning, at least in the medium term, especially Sweden, Norway, and also Iceland, Pandox are not present, but still, they will benefit from the quite big downturn in exchange rates, at least short term. We see the domestic leisure segment as the single most important factor to turn this around in the short to medium term. That is what I plan to say. I turn over to Anders.
Well, thank you, Robin. Thank you, David, and thank you, Johan, for this hotel market update, and thank you for sharing your deep knowledge in our industry. Very helpful. Thanks a lot. Let me sum up before the Q&A of saying just a few words that Q2 2020 will be substantially weaker than Q1, of course. The revenue will come mainly from minimum and fixed rent, approximately SEK 500 million in the quarter, which happen to be the similar number as our running cost. When you look at revenue-based rent and operator activity startup, that will gradually pick up on the second half of 2020, as we have been talking about before. We are facing this period with a solid financial strong position and a strong staying power, and I will say we are in a good relative position here now with a clear game plan.
With that said, ladies and gentlemen, thank you very much. This conclude the presentations part, and now we move over for Q&A.
Okay—
As you know, yeah. Sorry. Go ahead. Yeah, please.
Okay. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone, and your trade name to be announced. Okay, sir, would you like to take our first question now?
Yes, please.
Our first question comes from the line of Fredric Cyon . Your line is now open.
Good morning, Anders and Liia. A couple of questions from my side. Starting off with minimum and fixed rents. Do you expect all hotels to run at minimum levels during the second quarter?
Yes, we expect that everyone will.
Yeah.
I'm sorry.
What I mean is basically that you don't expect any contribution from any RevPAR sharing in the second quarter. It's just going to be the minimum level.
Yeah. We have a small part of revenue-based leases for the second quarter, but it's basically minimum rent.
You gave us some updates in the report on your occupancy outlook for the second half of 2020. Based on those numbers, will the levels be enough to have any RevPAR sharing in Q3, Q4, or it's going to remain at minimum rents also second half?
No. Specifically in Scandinavian and Nordic, we will have revenue-based leases in Q3 and 4. Yes, we will. We will also have some revenue from operator activities, we believe.
Moving over to the operating companies, how large losses should we expect? I understand that you have a somewhat higher flexibility on cost there. If the current situations prevail for some time, how large are your running losses for the time being?
Well, it is more or less balanced between the minimum rent and the running cost. So I would say very small losses. With these SEK 4.3 billion of credit facility, we will survive a couple of years.
Regarding—
Given the rent is there, yeah.
Yeah. But that—
This event, specifically the operating activity, it is part of the total cost. So of course, the minimum rent we receive on our investment properties, they basically cover for all of the cost, including interest, et cetera, which we have in Pandox, which means that we are basically at a SEK ±0 .
Yeah. Correct.
I have two more questions, if I may.
Please.
The first one being on rent renegotiations. You stated that so far, you have received rents according to the current negotiations.
Okay.
Do you see risks of changes to minimum rent in those renegotiations that are bound to occur?
No. We give them, as we had said before, temporary payment forms or terms.
Yes.
We don't change the agreement in the leases.
My final question, I understand it's extremely tricky to do fair value changes when the situation is as it is. Do you think that perhaps structurally there is a risk that yield requirements for hotels will move higher due to COVID-19?
I think the uncertainty out there is so large. We will monitor this with the valuators constantly. We can't guess anything. I mean, the interest rates may go down, so there may be other aspects to also take into account. But as of now, we don't have any actually forecast for this or any.
Okay. Those were my questions. Thank you.
Okay. Our next question comes from the line of Christopher Fremantle. Your line is now open.
Hi, good morning. Can you please give some more detail on covenants within your debt, please? Whether it is on an LTV basis or an interest coverage basis. Just trying to understand how far values need to fall before you start hitting covenants, please. That would be my first question. Just to follow up on a previous question, can you please just specify what proportion of your minimum rent roll is due for lease renewal in 2020, please? Or over the next twelve months, for example? So some color on that would be helpful, please. Thank you.
Okay. Well, if we start with the first question, then as we said before the majority part of our lending covenants is ICR, interest cover ratio and LTV. Again, according to before, you know our Pandox policy is to have LTV between 45% and 60%. We are at 47.2% at the time being. Of course, the covenants that we have in place is reflecting a marginal to what our policy would be. So, i.e., highly above 60%.
Okay. With respect, that doesn't really answer the question. Do your covenant agreements with your banks prevent you from giving any further detail on that?
Well, we choose not to give any more detail on this. As we said, we have 11 or 12 different banks. There is a multiple of facilities. There is not one single structure for the whole, but we are confident that we are within good margins from being in breach with anything. Also, we do have discussions which are ongoing with all our banks. This is unprecedented conditions for everyone. We don't have any reason to believe that we would be coming to difficulties with this.
Okay.
No, you won't get the specific ratio, sorry. In case of that.
Okay. On the ratios? Sorry, on the renewal of—
The new leases? Okay. But we don't have any negotiations in 2020, for renew any leases.
Okay. In 2021?
One or two, then they will be coming as a bigger part in 2022. About 20 hotels.
Okay. So it is less than 20 hotels in 2021.
Excuse me?
It's less than 20 hotels in 2021.
In 2021, we have just a few. But in 2022, we have a portfolio of hotels which we negotiate the new lease terms. So that is two more year before we are there.
Okay. If I may, I'm just going to ask one more question.
Please.
When you talk on rent collection, you talk about deferral of payment terms, can you give some more detail about what proportion of your rent roll is on deferred payment terms, and how deferred we should be talking here? Are we talking months of deferral, or are we talking a longer period of deferral?
I think the normal payment in the normal world, which we used to have up to February, was that you pay your rent monthly or quarterly in arrears or before.
In advance.
In advance. Now typically would maybe see pending, but maybe monthly afterwards in arrears. Going from maybe monthly in advance or monthly afterwards. Typically.
Okay. Thank you.
Okay. Our next question comes from the line of Simen Mortensen. Your line is now open.
Thank you. A few questions from my side as well. We also saw in terms of rent collection, Harry questioned that, but we also saw the first hotels in Copenhagen, the two hotels being taken back from property management to operator activities in the end of Q1. Could you please tell us what has been going on there in the transfer hotels, and how much of that is actually COVID-related? Is it on paid rents and et cetera?
Well, as you most likely understand, is that when you have financial problems so early into this crisis, it means that you had the problem even before the Corona crisis. So they were in a weak position, as said before. Now when they could not pay their rent and they could not pay authorities and other thing, we choose to taking over these operations, which was mainly because of protecting the assets. We have implement all our system there now. We have management on board. We have taking a few actions according to in smaller investment and other things. Now we make sure that things will open up again and the hotel will be stronger because I believe that we will have a stronger power into the online distribution market than the previous operator had. This is thing we have done many times in Pandox, mostly in crisis period.
This is nothing new and it took just a few day to get everything organized.
Thank you. In terms of also what you guide in report here for Q3 and Q4, just help us clarifying some of your assumptions being put down there and how come you are going to have rents above minimum rents. First of all, what kind of occupancy levels are we going to have to see before the operators are breaking even, and start contributing other than minimum rents? What are your assumptions of what restrictions have to be lifted, et cetera, before they actually reach those thresholds?
It is really difficult to answer your question because some hotels do not have a minimum rent and some have high minimum rent. So a typical market, and as you know, we are in 90 different cities. I do not know exactly where to start, but let me guess what I can try to guide you. You can say that in Nordic in general, when hotels start to picking up now as we expecting over the summer, little bit better, and you are coming up to level at the end of the year at close to 40%, perhaps some hotels will have more. We will gain rent from the revenue level immediately. If the same trend will happen in Germany and U.K., we will not gain the same sort of revenue and rent because their minimum level are higher there.
Thank you. In terms of what you will talk a lot about occupancy, of course. Price is also a part of the RevPAR equation. Could you please tell us a bit about your pricing strategies going forward and how you work with that part of the equation as well?
Well, so far the price has not been affected so much, and I believe that you will start to see some change maybe during the tourist summer, but you also have contract with companies and other things. So that is a risk of course, that you will see press on price as well. We have different strategies with different brands. So, it depends on which hotel you want to know about.
But, let us say in Germany, we believe that our price are quite solid because we are in the mid-market segment. If you already can get the room for EUR 80, you maybe can buy it from EUR 70, but it is not so dramatically. That might have been much harder if we would have been dominated by international hotel with international premium brand. They might like will have much more press on price than our mid-market hotel will have.
Thank you. Also coming back to the covenants. I understand you do not want to comment so much, but you keep talking about the LTV fall back to that. ICR seems also to be part of the covenant. It is pretty obvious when you say you are going to have costs and income roughly in par for some months and quarters here. I assume the ICR is supposed to be higher than one. Is there a risk also that if the ICR covenants kicks in, that you will see higher funding costs because of the credit margins going up? How will that working practical? Will we get a beat from the banks? Could you please help us understand the mechanisms here?
Yeah, again, there is different mechanism for we have a lot different facilities. Again, as I try to emphasize, the dialogue discussions with all our banks are very strong and they are very supportive. They are actually more supportive than actually pre-corona, because I think this is unprecedented and this is something that we all will come through with. There is not typically a mechanism that says that you will be punished when you reach a certain level or whatever, even though that level is very far away. Again, we have very constructive dialogues, which I think all of the companies in all regions and all industries are having with the banks, meaning that there are holidays, there are fruitful discussions of looking at continuing doing business with your relationship banks ongoing and also after this.
So we should not expect margins all of a sudden jump up because some letters from the banks are coming through?
I do not expect that, no.
No. But you also said here you kept SEK 1.2 billion in cash and cash equivalents on your balance sheet because if banks close credit lines. Is there any reason for us to expect that? Because you said that straight out.
No, I think what I-
Are you planning it or what's going on there?
No. I don't know if I actually said that or meant that. That was a misunderstanding. We have SEK 4.3 billion in liquid funds and long-term committed credit lines. It doesn't really matter whether it sits on the bank, cost a little bit of money depending on what currency it is, or whether it's in the long-term committed RCF. On top of that, we have committed credit lines which are backing up the commercial paper program we have. As all of you know, the commercial paper program isn't so liquid for the time being. I know in some countries and also in Sweden, there are states backing up as a lender for these programs. As we have said, when we launched our certificate program, we said that this is for optimizing the net financial cost, not for a borrowing position.
Even if the commercial program actually completely locks down, it does not affect our liquid funds.
Thank you. That were all my questions for now.
Okay. Our next question comes from the line of Tobias Kaj. Your line is now open.
Yes. Thank you. I have two questions. First, regarding the cost level in your operator activities. Can you guide for how much lower the cost level will be in Q2 compared to Q1? And also if you are able to reduce it further in Q3?
Well, the cost is what we have guided before. It is a part of this SEK 160 million-SEK 170 million we have every month, and I do not expect them to be lower in Q2 and Q3. When we open up, it will of course be higher again. But we have a good balance between, said before, income and cost.
Okay, thank you. Second one is regarding your guidance for breakeven or small losses. First of all, is that on an EBIT level? Is that based on the full year for 2020 or for individual quarters?
It is on a cash earnings basis, that the minimum rent level that basically will be in par with the total cost, including interest, et cetera, of cash earnings, basically.
Is it for the full year or for individual quarters?
It's for individual quarters. If you have a clean quarter of only minimum rent, no turnover-based revenue, basically for the hotels that don't have minimum rent, and then you have all the cost, then basically we are running at a small, small cost that we with our SEK 4.3 billion will hopefully cover this.
But in Q1 you had interest expenses of SEK 130 million and central admin of SEK 30 million. Does that mean that all the expenses in the operating activities are gone from Q2 and onwards?
Yes. Most of the operating cost in operating expenses from Q2 will be zero.
Yeah.
Okay. Thank you for taking my questions.
Thank you.
Okay. Once again, if you wish to ask a question, please press star and one. Okay, there are no further questions at this time. Please continue.
Well, thank you very much for listening to us today. I will say just thanks for questions. In this difficult time, stay safe, and speak to you on next report in mid of July. Thank you very much.