Well, good morning everybody, and welcome to Pandox Q1 Report 2016. We will do as we normally do, a presentation. I will start, and then Liia, the Chief Financial Officer of Pandox, will do the financial, and I will end up with talking about some of our ongoing investments. I am on page number three. Pandox is a property company specialized in hotel properties. At the end of Q1, we own 113 hotel properties of the market value of SEK 31.3 billion. 79% of these hotels are leased out in long-term lease agreements with the best operators. 19 is operated of Pandox self, that's representing 21% of the portfolio value. If you look at the map on the right-hand side, you can see a map. There you can see that Sweden is the largest revenue or value coming from Sweden, 41%.
We have out of Scandinavian, 32%, and a good balance in 9% and 10% in Finland, Denmark, and Norway. I give over to page number four, and talking about business highlights in January, March 2016. If we adjust for the Easter and the sadly terrorist attack in Brussels, we believe this was a good quarter. Like-for-like, the property management grow about 3%-4%, and operator activities grow something around 5%-7%. That's coming from a strong hotel market. We adding both volume and rate in most of our market. And with the high-quality portfolio as we owned, we are taking more than average in that market. And some of those hotels have been under renovation, it's coming out, and has an uplift.
On the top of this, we also have the Leonardo Hotels, 18 hotels in Germany, who has also give us a strong growth in reporting from what we are reporting before these 18 hotels as we own since 1st of January. With this said, the two negative effect on quarter one is the Easter. Number one is Easter, which taking out a one business week and has a negative effect for about SEK 10 million NOI. And that is a minor problem because that will coming back in April. And that will be, as you understand, a stronger April than normal. The other negative effect is the terrorist attack in Brussels, which has having an high impact on all sort of business in Brussels, specifically because of the airport has been closed for a couple of weeks.
That happened on the 22nd of March, which was at the end of Q1. And the financial effect for Pandox in Q1 was a - 7% in Q1. We have estimate and forecast for full year, SEK 40 million, and most of it will come on Q2. With that said, we move over to page number five, and it's Liia taking over. Thank you.
Thank you, and good morning. Overall good underlying earnings growth. We reported like-for-like growth in the revenue and net operating income from property management of 1% respectively. Reported like-for-like growth in revenue and net operating income from operating activities of 4% and negative 0.5% respectively. Cash earnings grew by 37%. During the period January to March 2016, the investment properties experienced an unrealized and realized portfolio value increase of 1.4%, and operating properties an unrealized increase of 1.2%. EPRA NAV amounted to SEK 112.16, an increase with 4.1% from year-end 2015. Turning to page six. Asset of good growth due to favorable market conditions with renovated hotels gaining market shares and productivity improvements. We consolidated the 18 hotel properties we bought in Germany, the Leonardo portfolio from January the 1st.
Taking a repeat, the negative effect on net operating income in operating activities from the terror attacks in Brussels amounted around SEK 7 million in the quarter, and we estimate the total effect for the full year to be around SEK 40 million. Like-for-like growth in net operating income, only adjusting for Easter effect, is estimated to be the growth of 3.4% for property management, and for operating activities, around growth of 5%-7%. The eight hotel properties in Sweden were divested in the end of the quarter, giving a realized value gain of SEK 159 million. Financial expenses in Q1 are in line with last year, but of course in Q1, it includes the financing of the Leonardo portfolio, EUR 400 million. Also the divestment of the eight properties in Sweden were under the end of Q1.
Current tax is expected to be higher in 2016 versus 2015, mainly due to a tax position in Germany due to the Leonardo portfolio. Turning to page seven, the segment property management. 49% of the rental income is coming from Sweden, and now around 20% coming from a segment internationals, which primarily is Germany, the 18 hotels in Germany. The net operating income drove from SEK 216 million in Q1 2015 to SEK 320 million in this quarter.
The net operating income margin went from 82% to 85%, among other things reflecting the Leonardo portfolio, which represents agreements where the operator takes a larger part of the property go. Turning to page eight, operating activities. The net operating income was SEK 54 million in the first quarter versus SEK 31 million in 2015, rather flat, an underlying like-for-like decrease of - 0.5%. But with the Easter effect, it would have been a growth of 5%-7%.
Also, in addition to that, the shortfall in Brussels and also Grand Hotel Oslo, which is under renovation, but also reflects a business model where we operate and do not own the properties. Page nine. Total property portfolio market value at the end of the first quarter amounts to SEK 31.3 billion. In the end of the quarter, the average valuation yield of investment properties was 5.8%, down from 5.9% in the end of 2015. With slight yield compression mainly in Sweden and some extent in Norway. End of Q1 2016, the average valuation yield for operating properties was 7.5% in line with year-end 2015. Turning to page 10. Solid growth in our EPRA NAV and maintaining good financial flexibility. EPRA NAV increasing with 4.1% to SEK 112.16. Our loan to value of 48.6% gross. Net of cash, 46%.
The cash position at the end of the quarter was pretty high, more than SEK 800 million, and of course, due to the divestments made in the very last day of the quarter. Liquid funds and unutilized long-term committed credit facilities of SEK 3 billion, giving a maintained good financial flexibility for the future. Turning to page 11. All in all, repeating again, good underlying growth in the quarter affected by tragic attacks in Brussels, but also a negative Easter effect. Cash earning of SEK 235 million, an increase of 37%. Solid financial flexibility based on cash earnings growth and low financial leverage. With that, I turn over to you, Anders, again.
Yeah. A few words about the market condition in page 12. As you can see, U.S. has a slower growth in Q1 versus end of last year, but is still stable. New York is going down, as you see, also happened in quarter four. That is most because of new capacity coming into the market, where you have see a press on price, but the volume is up, and they still gaining close to 90% occupancy. So it's a strong market. Montreal has continued its very strong trend with a favorable currency and strong domestic activities giving a perfect circumstances for hotel in Montreal. Most of the growth is linked to better rate. Europe in general is also stable, 3%. London down, most likely because of an unfavorable currency rate. The sterling is expensive to go specifically for leisure.
But also a lot of new capacity coming into the London market the last couple of years. Then you have the Brussels, which is down 8%, everything is linked to the terrorist attack. If you look at the period before the attack, the market was up about, slightly up or level out compared to last year. So they have a recovery good from the first attack in November. Now when the second one came, and of course it's a heavy effect on the market. We believe we see a recovery now in the market. That was from the 22nd of March the attack happened, and until the 10th of April, it was a decrease in demand. Now we have seen a recovery coming steady into the market again, and we hope that the most effect will be in quarter two. April and May will be the worst months.
Q3 will also be negative, and the end of this year will have a positive effect, specifically because of the first attack, which happened in November. So we believe that we will be coming out with some positive numbers in Q4. That is the best guess we have at the moment. Berlin, strong, a good meeting month, both March and February. It's driving rate, which is good for us because that gives a strong boost to our Hotel Berlin. The 700 rooms hotels that we operate ourselves. Scandinavian, if I may say so, very strong. Stockholm, in spite of Easter, has 4% up in Q1. Had been a strong meeting for Stockholm with a lot of fairs at the exhibition center in Stockholm. You see Oslo slowing down, but still a positive trend.
You see Helsinki, which is now the third quarter in a row, which has a positive effect spite of the other problems. The hospitality market is showing a strong development. In Copenhagen we have had a very strong meeting year 2016, which I believe Q1 is the slowest quarter. All in all, still a strong market condition, and we do not see any reason why that will change in the near time. If we go to page number 13, you can see some examples of those ongoing renovation. At the moment, we do SEK 695 million. If I remember right, it was SEK 790 million in last quarter, so it is SEK 100 million less. That meaning that a couple of hotels that we reporting about last time is now ready, and one of them who is ready is Holiday Inn Brussels Airport.
We are spending EUR 2 million, and we have a beautiful hotel with a new lobby, food and beverage, and we are also extending the meeting capacity. That hotel was ready now in January, and we see when all the other problems is taken care of in Brussels, a very strong development in that hotel. We go to Ekoxen and the Scandic Winn in Karlstad. These two hotels we have been reporting about before.
We are spending EUR 3 million in Ekoxen, 50% coming from the operator. We are spending EUR 4 million in Scandic Winn and 50% coming from Scandic Hotels. This is very typical from our business model with the long leases that we share investment. Both of these hotel will be ready in Q2, so we will not report them more. Prince Philip in Stockholm is the hotel that we are taking over ourselves.
We are starting up the investment there, and these are things that will ongoing this year and beginning of next. Totally, we will spend about EUR 7 million. InterContinental Montreal, we had talked about before, a new ballroom, in Q1 it will be completed. Leonardo Hotel Wolfsburg City Center is the first bigger renovation we do together with Leonardo Hotels after acquisition. We extend with more rooms and meeting space. We have a fixed return on 10%, linked to a contract with Wolfsburg.
This is something we already had decided together with Leonardo Hotels at the same time as we did acquisition. Then we can also present two new investment, Elite Park Avenue Hotel and Stay Hotel Copenhagen, which we have press released before that we have signed long leases with Elite Hotels. Now they have all the permissions from the city in Gothenburg and Jönköping, meaning that we can start these two renovations.
Elite Park Avenue Hotel, one of the leading hotels in Gothenburg. We extend with more rooms and a meeting space. In Stay Hotel Copenhagen, we upgrade the hotel, and we extend with more rooms. This is end of page 13. Now it is the end up in 14, growth drivers. Again, a strong market, which we continue to see, and we do not change our estimate that 2016 will be a good year. In that market, we have a high-quality portfolio which is taking at least average in the market. Normally, we gain more. We do a lot of portfolio investment in existing hotels, which give us historically something between 8%-12% return. We have our own operations. We are taking over five hotels, and that is an ongoing repositioning, which is ongoing at the moment, and that take maybe something between 12-18 months to do fully.
But then, of course, also a potential for cash earning. At the end, of course, always opportunistic acquisitions that we have demonstrated of buying the Leonardo, and of course, there will be coming more opportunities up to us with the strong balance sheet as we have. That was the end of Q1 2016. Now we are ready for question.
At this time, if you would like to ask a question, please press star one. We do have a question from Simen Mortensen.
Yeah. Hello, and congratulations with the good result. My question goes on, especially on the strike, which is currently ongoing in Norway in the hospitality industry. It seems like some of your hotels have been taken out in that strike, which was ramped up on Saturday. What kind of implications do you see from that strike on your figures for 2016, especially on Q2, and if you've seen any changes in the bookings, et cetera?
It's a very early stage, and we don't see any specific effects anymore today. But of course, if the strike will be a long strike, that will of course have an effect. There are three hotels that we, having our own operations, we've been taking out. That is part of Grand Hotel Oslo, not all part of Grand Hotel Oslo, but the part of Grand Hotel Oslo is taking out. We have Lillehammer and Fagernes. We have all three hotels open. We don't plan to close them, so they are open. So that will not be so big effect in the next couple of weeks. Then we have another 10 hotels where we have leases together with Scandic and Choice Hotels, who is also taking out.
That of course is also when, if the revenue go down in the hotel operations, then of course we will have less rent out from it. Sum up, too early, not dramatic effect on Q2 as I see it yet. If anything would happen, then we have to come back.
Okay. Thank you. Anything on the mark-to-market valuations? It seems like most of it was in Sweden, was it? What kind of developments do you see on yields in the other markets as well in terms of asset value gains and yield compression on the hotel assets?
Well, we saw some yield compression in Sweden. I said Sweden and Norway. In Finland, it has been flat, and in Denmark it has been pretty flat as well. As well as in Germany where we have a big new portfolio, we have also kept it flat. So no increases and no major compression. It all coming basically from Sweden and Norway for the time being. On the operating properties, the unrealized value change, it all comes from cash flow, strong cash flow, and no specific yield compression there.
Okay. Thank you. That was all from my side.
Thank you.
Your next question comes from Niklas Midby.
Good morning.
Morning.
I have a couple of questions. First, regarding the outlook. You mentioned during autumn that your forecast for the full year 2016 was low single-digit growth in key markets. Do you see any reason to revise that on the back of the present security situation and so on, that you mentioned in the report? Or are there any other events that would make you change that view?
No. We believe that this, what the forecast that we had, what we have presented before is still there. It looks overall as that 2016 will be a positive hotel year.
Okay. On new capacity, do you see any tendencies of increased pipelines in any of your key markets?
Nothing new. We know that it is coming in Stockholm 2016, 2017, and 2018. There will be coming something 2.5% of new hotels into the market. This we know before, and that had been including in our forecast. So that is nothing new. We can see that Malmö, who we have been quite worried about, they had been stronger start, but also linked to that had been a lot of police demand in the city because of all the problems that they had on the border there. So a couple of hotels have been filled up with people from the police department. So that maybe had helped Malmö a bit. But all in all, market is growing faster than new capacity coming into the market in our key markets.
Okay, thanks. My final question on your like-for-like growth. If I compare that to the RevPAR growth in your key markets, which is shown in the table on page five in the report. You report like-for-like growth in investment properties of 1%, but it seems like RevPAR growth in your key markets is quite a bit above that. You have Stockholm and Helsinki at 4% and 6% respectively. At the same time you say that you are taking more than the market at the moment. Is there any particular explanation for that or that we are not seeing a stronger like-for-like growth given the strong RevPAR growth in the key markets?
Well, the number you are talking about is Stockholm great, and we have most of our hotels in Stockholm North. Stockholm South had been stronger because of exhibition in the fair. That is maybe one of the question. That is not so easy quarter- by- quarter. But if you look at the long trend, I would say that our hotels is gaining market, yes.
Okay. Thank you.
Thank you.
The next question comes from Tobias Kaj.
Yes, thank you. First of all, regarding seasonality in your P&L, is that increasing or decreasing due to the German acquisition that you made recently?
You mean because of Easter?
Not only because of Easter, but seasonality in general. Q2 and Q3 are the strongest quarters, and that seasonality increases or not due to the acquisition.
Okay, then I understand. No, that will not change. This is hotel is in market, has more or less look like same pattern as we have in Scandinavian. Mid-market hotel in good cities, a mix of international and domestic segments. So that will not change anything.
Okay, thank you. Another question regarding your value revisions, if we look at the property value of international hotels in operator activities, the value increased by SEK 130 million YoY. Can you give some more details there, what kind of impact have we seen on the values in Brussels regarding the drop we have seen in income? Is that fully viewed as a temporary effect and doesn't have any impact on the values, or what do we see there?
The first question when it comes. Sorry, it was about the operating properties and the valuation yields externally? Sorry.
No, just that the value for international hotels in operating activities increased by SEK 130 million, and I guess that Brussels is a quite big part of that. So if you can give us some more details of the value trend for the hotels in Brussels.
Okay. When it comes to the other hotels other than Brussels, then there is a strong value increase, of course, because we are working with productivity gains. We are having investments, and we are performing very well on our operating properties. When it comes to Brussels, it's been kept flat. It's of course taking as a hit in the P&L. We expect this, as Anders says, not to be a long-term effect, but we're expecting the end of the year to reestablish. So there's no other negative effect taken into the Brussels property.
Okay, thank you. Then one final question, if I may, regarding your interest expenses. The level in Q1 is a bit higher than if you just take the average interest rate times the net debt in the beginning of the quarter, even though the amount of debt declined after the acquisition. Is it some temporary expenses in the Q1, or is it the effect of capitalized fees for debt, which is not included in the average interest rate?
Yes, you are right. There are three things, of course, happening in the first quarter. A is that we have financed EUR 400 million with the Leonardo portfolio. B is that the net debt in the end of the quarter is excluding the eight divested properties, whereas they were all financed during the quarter because it was sold on last day. We also put in place a SEK 1.5 billion revolving credit facility. This is unutilized, so there are some commitment fees that will be continuing.
Of course, also, when you put a large refinancing or refinancing, but financing in place, there is some cost that will be expensed over the period of the loan. All in all, the financial expenses for the quarter times four is not representative of the year. It will of course be something lower, but there are expenses with refinancing and having unutilized committed credit lines.
Okay. Can you give some details of how big those additional fees are on top of just the interest rates?
Well, they are customary refinancing costs, where you have with the banks, with the refinancing. So, no major impact, but there are some bits adding to the 2.8%, which is. But of course, then you have the other effect that we will have interest derivatives that will actually maturing. So that is the underlying which we have for the next three, four years.
Okay, thank you.
Your next question comes from Fredrik Stensved.
Morning, Anders and Liia. A few questions from my side. Starting off with the cost for investment properties, they decreased despite the increased portfolio size and also increased revenues, and hence the NOI margin improved. Should we continue to expect costs to be lower in 2016 than in 2015, and hence that the NOI margin should pick up within the investment properties?
Well, as I said, the Leonardo portfolio reflects a model where the operator takes a larger part of the cost, i.e., we have a higher NOI margin. So yes, there will be a higher NOI margin quarter- by- quarter and for the full year. Also, of course, we have a lot of renovated hotels where the maintenance cost has decreased.
Yeah.
There is a positive effect of both of these.
Yeah. The last one is important to know that we have renovated many hotels the last couple of years, as we have been talking about before. This is, of course, giving, hopefully, better revenue and lower cost at the same time.
What kind of margins do you expect within Leonardo? Just get a sense of that impact.
Well, that would be in the high 80s.
High 80s. Okay. When it comes to operating activities, obviously, the Brussels effect, you mentioned that. Can you say anything about the NOI margin within the Brussels portfolio? It was 20% last year for the whole portfolio. Is it higher in Brussels than elsewhere? Normally, that is.
Well, I do not really understand what you are meaning. Can you help me?
Yeah. If you look at the operating activities last year, you had an NOI margin of around 20%.
Okay.
I am wondering whether the Brussels hotels last year had a better margin than the average for the operating activities.
No. I don't think they had.
Okay. Then two more questions. You mentioned that you expect current tax to be higher in 2016 than in 2015. During the first quarter, it was lower. Can you give us some guidance of how much you expect to pay in tax for 2016?
Yes. Absolutely. The previous year it's been around. Of course, there's a lot of one-off items happened in 2015, but it has been around SEK 20 million-SEK 25 million previously. Now we expect it to be about double that. That's all coming from the acquisitions in Germany, which is healthy profitable.
That's very clear. Liia, then one final question on the property values. What's the lowest yield you have for an individual property in your investment properties?
Well, it's low 4% something, and I think that's an investment in Oslo or Stockholm. I don't have it exactly on top of mind, but it's on the low 4% something low.
Okay. Thank you.
Your next question comes from Christopher.
Sorry, all my questions have been answered. Thank you.
There are no other questions.
Okay. Just to sum up this, we would like just to repeat that we have a Capital Market Day in Brussels, the 24th of May, that we hope to see you all. We have a great program. You will see all these hotels. You will see the knowledge, intelligence behind all hotels, the investment, how we work with investments. You will have a presentation of the revenue management center, what that add, and of course, we will also have a chance to talk about the market in Brussels. So we hope you all have a chance to participate in the 24th of May Capital Market Day in Brussels. You are all invited. If you have any questions, please come to me. Thank you.
This concludes today's conference call. You may now disconnect.
Thank you. Bye.