Well, good morning, everybody, and welcome to Pandox Quarter Two Report 2015. Here is the agenda. The introduction is what I am doing now. Then Liia Nõu, the Pandox CFO, is doing the financial review. I come back and I talk about the model and then values and the strategy. Then we have a Q&A. Also, of course, welcome to everybody who follows us on the web.
This is Pandox comeback report. As many of you remember, we were a floated company for first time. We were into the stock market, was 1997, and now we are back again. So this is also some sort of comeback breakfast report for Pandox. At that time, when we floated the company in 1997, we were a rather small company with an unproven business model. And now we are a much larger company with a much more established concept.
We are today the leading northern European hotel property company. That also means that we are leading in Europe. The Pandox group owns 104 hotel properties in the upscale and the full service segment, for a value for SEK 27.3 billion . 87 of these is leased out to third parties, where we have a long lease agreement with a professional operator that decreases, of course, Pandox risk.
And that is standing for representing 77% of Pandox business. Then we have 17 hotels who is operated in the segment operator activities under Pandox own operator company called Pandox Operations. 17 hotels, and that representing 23% of the company's business. As you can see on the map on the right, you see that we have focus on the Nordic countries, where Sweden is the largest.
And we have a hub in Europe on the Netherlands, Germany, Switzerland. Then we have two beautiful hotels in Montreal. This is Pandox 20 years, and that tells you that we have had a long, steady, and good growth in cash, coming from strong value growth. When we started a company in 1995, and I was there, we had about SEK 1 billion . Now, as I said before, we had passed SEK 27 billion.
That also tells you that we had managed three downturns, the first at 1999, the second 2001, and the third 2008, 2009. And you all remember that had been crash in many markets, but we had managed in the model we have to have stable cash. And we also had used the business cycle in doing acquisitions in a very favorable timing, like the Norgani deal we did 2000, the largest acquisition globally for SEK 9.7 billion .
And that also starting up an investment program for close to SEK 2 billion , which we are now gaining from, and we see strong growth from recently renovated hotels. The business model is rather unique in our sector. We are active across the value chain. The major strategy is to own and manage properties, as I said. We sign long lease agreement with the best partners there is in the market, and that is the base, and that is the major strategy for Pandox.
That gives us stable revenue. We share the CapEx, and then meaning that we have a limited risk in that part of our business. This is managed and organized from Stockholm, and as I said before, representing 77% of Pandox business. The other one is that we operate hotels ourself. If the partner is missing or not performing, Pandox can take over the business.
And that is the biggest risk in our industry when a passive owner are pressed out because of the operator not performing and had to sign agreement where they do not want to do. We do not need to do that. We have a capacity of running hotels, and that means that Pandox Own Operations is in first time, on one hand, a risk minimizer, but also creating a lot of opportunities for us in terms of that we can buy property with the operations and that of course, in that area, not so high competition. We have long experience of transforming this sort of asset. We have in Pandox done transactions for close to 200 hotels over these 20 years, and most of them that we had inquired had been underperforming. So that is something part of it, and then it naturally for us to also operate them.
This is organized from Stockholm and managed regionally, and that is representing 23% of our business. Then we also manage external properties for other owners. That is a complementary business, but also of course, a value chain for business intelligence. So all in all, the strategy is to be active across the value chain but focus in on long lease agreements.
Business highlights. The first report that we are coming back to, we are reporting continued good hotel market. We are reporting that we are taking market shares for recently renovated hotels from this big investment program, as I spoke about before. We also have taking over hotels as a lead of the market restructuring. We are listed at the Nasdaq Stockholm for the second time in 20 years. That was the 18th of June this year. The last time it was also June, it was the 23rd of June. June is a month we like in Pandox. The outlook remains unchanged. Now we go over for the more numbers that you need someone who is little bit smarter than I am, so I give it to Liia Nõu, who is the CFO of Pandox.
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Sorry. Okay, thank you. We are very happy to present a solid quarter with increased economic activity and a good growth in underlying rental income and cash earnings. The revenue increased with the property management with 2.1%, but one has to remember again, we sold 15 hotels in April last year. We reclassified Mr. Chip, the Hotel Mr. Chip and Lillehammer in June. So like-for-like growth for the same hotels quarter-over-quarter is 6.7%, and on net operating income, the underlying growth is 6.3%.
The like-for-like growth in the operating income for operating activities is 24.5%. We did not sell any hotels. We operated our own last year, but of course, Mr. Chip and Lillehammer has been taking over for our own operations. So good solid quarter-over-quarter growth. Cash earnings up 17.5% on the quarter, close to 17% also year to date.
During the interim period for the six month, the unrealized or the uplift on the portfolio is 3.2% on the investment properties and 4.6% on the operating properties. Remember again that we report the operating properties at cost, but of course we do full valuations on the market value, and that is of course reflected in the EPRA NAV calculations. In the end, the EPRA NAV per share increased to SEK 99.23, an increase of close to 8% over the interim period. Hope you can see all this. Again, a broad-based improvement in the headline revenue. So in all our major markets, we have a good growth. Again, despite the divestment of the 15 hotels last year for comparables. High activity in our markets, increased demand of hotel rooms.
We have some new lease agreements with better conditions, rents, and also remembering newly renovated hotels coming back into market, increasing our market shares. In the revenue from operating activities, there is also now reported rental income from Grand Hotel Oslo. This is a hotel we lease. We do not own that hotel. In the second quarter, we have four month of. We took it over from 1st of March, so four month of revenues from Grand Hotel, around SEK 87 million. This is a great hotel. Of course on the revenue, it is around SEK 87 million for four month. There is some structural challenges. This will be a great hotel, but on the profit line, it is about a zero-sum game. So it does affect the net operating income margins. It inflates the revenue, and it is a sort of project that will increase for the future.
We have decreased in financial expenses, reflecting repayment again after the divestment last year, and also gradually lower interest due to interest rates falling compared to last year, but also some maturities of our interest derivates. A current tax, which is on a relatively low level, SEK 5 million for the quarter, as we have substantial tax loss carryforwards. EBITDA margin increased on the quarter with 7%, year- to- date 3%, and cash earnings 18%, 17.5% versus 16% for the interim period. Again, second quarter is a strong quarter.
Of the four quarters, the second quarter is probably most activity, second and the fourth quarter. So there are some seasonality in the numbers, but it's an expected good growth. This is how our revenue is by geography. On the left side, you have the property management, and of course, there's close to 60% of revenues coming from Sweden.
Around 15% in Finland, Norway, Denmark around 10%. Then there is a little part which is international. That's our hotel in Switzerland and two in Belgium. On the operating activities, the main focus is in Belgium. We have six hotels there, which we operate ourselves. 42% of the operating revenue. Germany, four hotels, representing around 20%. Two hotels in Canada, bigger hotels, also representing around 20%.
Now we also have Norway, which is then the rent agreement, or the property we don't own, but we operate, in Grand Hotel Oslo, and also Lillehammer coming in with one month for this period. We, as you know, have the two segment property management on the 87 hotels, and then the operating activities. In the operating management, the underlying net operating income before property admin is around 84%, and net of property management is around 80%.
That's a pretty stable number, which has been in the other quarters. Like-for-like growth, said 6.7% year to date. Sorry, for the quarter. Net operating income 6.3%. What has been affected in the quarter is again, the reclassification of the two hotels. A strong underlying performance, and I think Anders will come back to how the markets actually have performed. The operating activities, the 17 hotels. We have a very good quarter.
The net operating income of SEK 145.7 million versus SEK 117 million for last year. Like-for-like, 24.5% net operating income increase. The net operating income margin, which is to the right. We have been in 2014, around 20%. Remember, we typically take over low-performing hotels. There are some things to do, heavier investments. In the second quarter last year, the net operating income margin was 26%.
It looks like we have 24% margin this year, which would have been quite disappointing, but because again, you have the effect of Grand Hotel, a hotel we operate, but we don't own, so of course, we pay rent for that hotel. So the underlying like-for-like margin is actually a good 28%, showing that the yield assumptions we have for 7.5% of that portfolio, as well as what we're doing with conversion, with productivity, and getting these hotels is working.
Second quarter is a stronger quarter than the first quarter, but also there is a uplift in the net operating income margin. Portfolio valuations. On the interim period for the six months, the value has unrealized gain of total SEK 931 million. The total portfolio is SEK 27.3 billion, where it's SEK 21.1 billion is on the investment properties. This is the 87 hotels. We have full internal valuations every quarter.
We also do external valuations on a rolling basis. For the second quarter, we externally evaluated fully 25% of our portfolio. Of course, for 100% of our hotels every quarter, we apply external yield assumptions. We go through this and we look at the cash flow assumptions. In the second quarter, the investment properties, we yielded at 5.9%, going from 6.1% in the end of 2014.
On the operating properties, the yield went from 7.9% in the end of the year 2014 to 7.5% now in the second quarter. This is reflected by yield compression, which you have of course for all the real estate, but also a strong cash earnings in the portfolio. Coming from investments being done. We have invested more than SEK 2 billion, the recent three years. Working with productivity, working with always improving the portfolio.
Our portfolio composition, the average value per room is on our investment properties, SEK 1.3 million, SEK 1.2 million for our operating properties. It is pretty much in line in the first quarter. It has actually increased from SEK 1.2 million to SEK 1.3 million on the investment properties. You can see we have our 87 hotels, the investment properties, representing 77% of the total value, SEK 21.1 million and SEK 1.3 million valuation per room.
The rest, 17 hotels, where you have a value of SEK 6.2. It has increased, made a jump from last quarter, and that is the reclassification of Mr. Chip and Lillehammer. That is a reclassification of SEK 400 million, which has gone from one segment into another. The financing and capital structure, the EPRA NAV increased to SEK 14.9 billion and SEK 99.2 per share, close to 8% increase for the interim period. Loan to value is 46.9%. We have a very strong cash earnings.
It makes wonders for the loan to value. One of our financial target is to have a loan to value between 45% and 60%. We are in the lower end of that range, giving us some flexibility for the future, for future acquisitions, which is of course good to have. On the liquid funds and long-term committed credit lines, SEK 1.7 billion in the second quarter, dropping down to sorry, SEK 1.9 billion close to SEK 2 billion, dropping down to SEK 1.7 billion.
That reflects the repayment or the payment of dividend of SEK 150 million made in the second quarter, plus repayment of group contribution. In total, SEK 308 million was paid out, so the dividend and group contribution reflecting that change. Our interest rates are and will continue decreasing. Our debt of SEK 12.8 billion, net debt of cash SEK 12.5 billion, representing a loan to value of 46.9%, net 46%.
We have an average interest rate going out in the Q2 of 3.3%. This will continue to decrease over time as we have 75% of our interest is hedged, 67% of that is hedged more than a year. You can see the structure here. You have for the next coming three years, the interest rates on the derivatives we have is around 3.4% to 3.9%. Then we have a tail, which is hedged plus five years, which is in the lower. These are the interest rates, swaps rates, excluding, of course, bank margins. We have an average repayment period of 3.5 years. There was SEK 1.1 billion of loans maturing in Q1. In July, we refinance it, the major part of that. It is only a smaller part left for refinancing this year. We believe we represent an attractive yield.
On the operating properties, we have a yield of 7.5%, on our investment properties, 5.9. Yield compression about 10 basis points in the quarter. With the low interest environment, this of course looks interesting. With a strong underlying cash generation. Close to 18% in the second quarter, and cash earnings on a rolling 12-month basis to April now is 6.3%.
Our second financial target, as you know, is that we will have a dividend payout ratio of between 40%- 60%, on average 50% of our cash earnings. That would amount on the rolling 12-month basis, this six month in 2014, 50% close to SEK 475 million in dividend payout. Some final remarks before I hand over to Anders again. A solid good quarter, supported by increased economic activity in basically all our market. Increased market shares from renovated hotels coming back to the market.
Positive like-for-like growth between 6% and 7%, when you take into account the divestments we did last year, as well as the reclassification of the hotels from where we only lease them and where we also operate them ourself. A very strong cash earnings growth of close to 18% in the quarter, 60% year to date. Total property value of 27.3 from yield compression, but also very importantly from strong cash earnings, from strong underlying cash flow generation in our hotels.
From the investments we've done, we are gaining a lot of market share there. Net asset value increasing around 8% to 99.23. We also believe we have some financial flexibility for acquisitions, for whatever we want to do in the future with strong cash earnings backing that up. With that, we come back to questions of the day. Anders continue.
Thank you very much, Liia. Yes. Back to the model. Pandox has, since we start a company or since we floated it last time, delivering equity return on 18% year on year. The driver behind that return is six important driver to remember. The first one is our focus on large hotel, on strong strategic locations in strategic cities. The second one is with these very attractive hotels, we sign long leases with the best operator, which give us stable income. The third is the high-quality portfolio we have. The fourth is that if any reason we need to take over the operations, we have the capacity, and that's of course, both a risk minimizer and create opportunities. If I may say so, the management team, I think I have the best team to work together with, and the geographic spread.
These six driver have led up to this equity return of 18%. Let's look at them little bit more in pieces. You can see the good size. The average size of Pandox is at 211 rooms. That means that we have the critical mass of running hotels, wherever they are. 78% of our hotels belong to the premium and mid-market segment, which is the most stable segment in the market, good growth in a growing market and limited risk in downsides. Strong locations, all our hotels have a strong location, city center, ring roads, and airports. The second part is these very strong partners where we sign these long leases with, or we cooperate in other ways. The biggest is Scandic, together with Strawberry.
They are representing the two biggest players in the Nordic countries, where we have close to 60% of our hotel income is from that, representing the best brands in Scandic, the best operators in Scandinavia, and also coming from a market which is very stable. Then we have some European flag with the Radisson Blu, InterContinental, Hilton, Hyatt, and many others, so the best of the two worlds. We have these leases, as I said, that we signed with those partners, and we signed these long leases, which is 8.9 years average. On the quarter one , it was 8.7. In this period, we have signed two other long leases, which has increased the average size. This is a turnover-based lease which we sign, with guarantees. 95% of our rental income is coming from turnover-based contract.
When there is a RevPAR uplift, of course, of market, we take in market share, we have more rental income. At also a minimum rent of 72 hotels. A little bit of best of the two worlds. We have the potential, but we are protected on the downside. High-quality portfolio, we talk about for flagships hotel, just a few of them. There are many, but we are in Stockholm, Hilton, which we have converted an upgrade from a Hilton.
It is just fully booked there. I spoke to the general manager this morning. He said we had too high demand over the summer, which is, of course, a beautiful sign for us as a strong investor. Scandic Copenhagen, the largest hotel in city Copenhagen. Scandic Park Hotel, Finland, maybe Scandic's best hotel that we just had renovated, eating market shares, the biggest hotels in Helsinki.
We have Scandic Hasselbacken, beautiful building in a beautiful location at the Nygatan. Hotel Berlin, which is own operating ourselves, the third biggest hotel property in Berlin with 700 rooms on Park Avenue. Just some of these flagships that we have. All this here is positioned for growth, and when the market is coming better, they always take more shares than average.
When the market going down, it is normally good demand still for these because they are the most attractive hotels in each city. This is fantastic. We have investing a lot in this hotel. As you can see that we had investing close. Normally, we use the worth SEK 1.7 billion, but we had invested actually SEK 2 billion in investing in upgrade in our portfolio. You can see a lot of investment, 2012, 2013, and 2014.
Now it is coming down because the big Shark project with Scandic has come into the last phase. Let us come back to that. You can see what we said on the roadshow, that the average investment will come down from where we were, because now most of the hotels are well invested. Three examples, the project Shark, which is a joint venture together with Scandic, 40 hotels. We signed with them after the acquisition of Norgani, and we have done these 40 hotels together with them, and now we are on the last phase. We will close that project end of this year. We see now in all these hotel that we are taking market share month by month. It is a beautiful sign.
We have The Hotel Brussels, the former Hilton Tower, where we bought it as a Hilton, very underperforming, a lot of problems with union, management who do not want to go together. Beautiful, in the city center of Brussels. That took us three years to find a new structure, a new position, and the target is to double the money, and we are in the right way. The third example is the Radisson Blu Olümpia, which is a very normal, typical lease we have with Rezidor. Long lease, 15 years, an investment together with SEK 100 million. We share 50/50, and now the hotel is renovated and has a strong position in the market to expect to grow. That is out of three examples of transforming underperforming asset. That is what we are doing. I said before, we have done acquisitions or transactions that took close to 200 hotels.
Some of them have been sold out. So all in all, maybe 230 is acquisition. Most of them had been underperforming. Just three examples of many. InterContinental Montreal, from an old-fashioned hotel to chic-y, boutique-y style, who is now one of the RevPAR leader in a city who is 3.5 million people. So Stockholm and Copenhagen, Oslo together.
In that city center, we have this beautiful hotel who is gaining market share now with a new style. The First Copenhagen we took over two years ago. The operator came in financial problems, and we had doubled the cash so far, just because of more control of daily productivity. Nothing special, no investment, same management, more focus on daily figures, things that we have done in all our life. And Crowne Plaza Brussels, another hotel that we upgrade from a tourist to a meeting hotels in Brussels.
That also is a good example of transforming underperforming assets. All these three hotels belongs to what I called present before this Pandox Own Operations, which is our own operational company, and that is 17 hotels. End of quarter two is seven hotels with 5,200 rooms. It is expertise in hotels and branding. We work with 12 brands. It is very few owner who has so many brands, and of course, we can use that in many ways. We have lot of people who has a background from hotel industry.
Productivity is one of the key word I think we use most in our company. Revenue center in Brussels to supporting a very difficult and complicated world that hotel is today with all these distributions standing and third parties that you need to have control of. We have people who do this every day, and of course, we are gaining from that knowledge.
This is organized from Stockholm, but managed locally from Brussels and Oslo. Oslo taking care of the Scandinavian hotels, and Brussels taking care of the international hotels. This is created as a response to development of hotel market. For you who know, within the industry, that happened a lot in our industry, and that had not been in a favor for owners.
Because what had happened has been that many operator had became brand or old operator had became brand. So Hilton and InterContinental, they do not have focus on operations anymore, they are just on focus on revenue and branding. And a consolidation on the top of that, meaning the risk is higher. The risk has increased for owners, and there is unbalance between risk and reward.
As a proactive strategy, we had created this Pandox Own Operations, meaning that if the operator is not performing, we have the capacity of taking over. As I said before, it is both a risk minimizer, but also creates a lot of opportunities. Most of the operators do not like this. That I think is the answer that it is a good idea. Several of those hotels that we are working with today are in the ramp-up phase, which is, of course, something we can see on the figures that we have strong potential growth. This is the management team, as I said before, most likely the best you have in this industry. You have met Liia before. Financial long experience for the capital market, also now in the business.
Some other people who are, some of them sitting in the room here, long experience with Pandox, some of them 10, 15 years working, growing, understanding. Just a fantastic team. So, this is the Barcelona team in the hotel industry, I suppose. Let us look a little bit about in the future, what has happened before we are going into the Q&A.
Just some sort of quick jump on the market. Here you see Europe. If you see Q1 2014, you see 6% growth, and then you see a stable growth on a good level. The market is stable, in spite of that, we have some difficulties on east and south. In that market, Brussels is doing fine. You can see here it is a little bit lower, so it is lower than average, which is good for us. We know most likely had it is more growth than you can see in Q2.
The growth is now coming to Brussels. That is tourists who have gone increasing quickest in Brussels, which is a new segment for Brussels. Brussels City has done a lot of activities for growing the tourist business the last couple of years, and a new, bigger airport is helping them. So we see a strong growth in all segments in Brussels. In Berlin, a fantastic 15% in Q2.
Do not forget, you have the UEFA Champions League final in Berlin end of, beginning of June. That put up the number a little bit more than average. But you can see a stable growth. Stockholm, minus 3%. The only market, and everybody in Stockholm talks about that we should build more hotels. You can see the numbers. It is good, but it is not so good as the rest of the world. But it is still fine.
For us, we have a growth in our portfolio, but the market general is down. Oslo, fantastic Q2, strong because of an exhibition of boats. Helsinki is down because of market, less Russian people. Copenhagen, still strong, and Montreal, which is our strongest market at the moment. They are ahead of every market in Europe. The U.S. market is ahead of Europe, and Montreal is gaining from it.
It is just an amazing market you see, and most of the growth you see in Montreal is now coming from rate. When that is coming, you can see in RevPAR upside in Pandox at 1% in market going up. That meaning SEK 10 million more in revenue for Pandox on the lease properties, and 1% on the operational hotel means SEK 17 million in revenue.
And let's say 60%-80% of those SEK 17 million we will convert to a better GOP. This, of course, is something we are gaining from. We are gaining quicker than the market. You can see that in the report because of recently a lot of new good hotels. This is, of course, a good sign. Finally, there is one I also mentioned that we are ongoing some pipelines interested investment.
At the moment, we have committed SEK 565 million, which is ongoing at the moment. All this hotel here will increase the average value and cash in Pandox. Vin and Crown will be ready end of this year. Hilton Helsinki Strand will also be ready this year. Quality Hotel Ekoxen next year, and Urban House had opened our first hostel, what we converted a two-star [low legacy], out-of-date hotel to a fantastic, touch for young people, Urban House.
We had sold 84,000 beds in [Urban House]. 84,000 beds. This is fantastic growth, but then also that had to be converted into profit, which will happen for the next year. But growth, you can see it's a lot of good investment. What is the key driver for cash earning and what do we see at the moment? We see a good market. We see a quality portfolio who is gaining market share. We see project pipelines of those hotels, as I said, that we will be gaining from. We see a good operation hotel in the ramp-up phase. We see interest rates going down, and of course, one day there will be a chance for us also to grow the portfolio by doing an opportunistic acquisition. Thank you very much.
With that said, it's time for Q&A, and I think we start, if there is any question in here before we let the people. Is there any? You have questions here? Albin, yeah. Please, can you present your name and speak in the microphone so they can hear what you say on the web. Thank you. Welcome.
Yes. Albin Sandberg from Handelsbanken. A few questions. Starting off with the results, I think you were making a comment that Q2 is seasonally stronger, but still it was a little bit better than your expectations. Can you give a little bit more details on where exactly in your portfolio was driving the like-for-like growth?
Yeah. First of all, if I answer the question, it's as we all know, four quarters in a year, and this is maybe the second best or sometimes even the best quarter, but this year it was a little better. Yeah, there is two reasons what is going better. The market had been a little stronger than we said when we did the roadshow. The second one, that recently renovated hotels is eating market shares over the plan.
And is that across your portfolio or any specific countries? I'm thinking Finland, for example, you have mentioned before that despite it's a weak market, you have had a lot of upgrades there and so on. Are there any other countries that stand out?
You can say that if you look at Finland specifically, there is two patterns. One is that those hotels had not been into any renovation. They follow the market. Those who had been into renovations like Park, [Keskuspuisto], and some other, they are gaining market share, so they of course growing. Some of them have been on the guarantee level, so you don't see that so much on the rental income there, some sign. But it's a positive underlying for us because we're gaining market shares. If you go to Sweden, you can see all regional hotels who has been renovated, Scandic Backadal, Scandic Segevång, Helsingborg, Kalmar, everywhere you can see a growth for something between 8% to 12%, which is fantastic. So this is for recently renovated hotels.
Then you can see also on the operation activity, a very strong growth in Germany for those hotels we took over 18 months ago, and Radisson Blu. That is because of a good market, but also that we convert a lot of this increased revenue. So it's coming from a little bit other level, but this is representing, of course, a good result.
And then just also tying that into your guidance for the full year, which you all said that you kind of reiterate, despite Q2 maybe being a bit stronger than you thought. Does that mean that you think H2 might be a little bit weaker than you initially thought, or do you have as strong view on H2 as you had before?
Yeah, we had the same sort of view for these two. We had represent, we have in our numbers. We know when we did the roadshow how Q2 should be, and that is now there, and we think that quarter three and four will be as we had said before. So we do not have any other information to give you, more than to say that we have the same outlook as we have had all the time.
If I just look at the CapEx in Q2, looking at the cash flow line is around SEK 80 million. Is that a fair run rate for you now? Now you have taken over one more hotel in Skärholmen. You all did a little bit about Grand Hotel in Oslo, or will we see more CapEx coming now in H2?
Did you answer?
Well, I think the guidance we gave before is that it may be between SEK 350 million and SEK 400 million for the year. There is, of course, it does not flow exactly the same each quarter, it depends on when you do the renovations. I think we are the same guidance we have given before, around SEK 350 million, SEK 400 million maybe for the year.
My final question is just around the Skärholmen hotel that you now will take over. Can you just let us know a little bit on how the discussions were going with the operator and was it a very quick decision or did you try to negotiate back and forth where they could renew the lease? Also if there, if you can say anything about other hotels in the potential pipeline being transferred into the operator activities.
Okay. If I start that, we believe that we are taking over now a few, a couple of hotels the last year, and we think we are coming to some sort of stage now that we do not see so many. There will always come in someone and someone will be leased out. But we see that this flow of two, three hotels per quarter, that is, I think that you will not see that after, from now up to end year-end. In Quality Hotel Prince Philip, we have a very tough discussion with the operator, because it is ourselves, and we challenge ourselves and make sure that what we are doing at the moment, we have under management of Helge, we have change management already.
We are under management of Lars Häggström, starting to clean up the hotel, make sure that there are nice things outside, the grass are looking nice, outside facade looking nice. Then we are starting to build a new business plan. Most likely we will concentrate on public areas as a first start, and that is something where those who have contract there, that what they do not like with the hotel. The rest, they think it is fine.
We can see that it is another hotel close to Quality Hotel Prince Philip in the same geographic area, which we own but have a lease on, who has much stronger markets. We believe that has potential. But you will not see anything of that this year. That will taking a year or five quarter, maybe, before you can see something ticking in, maybe even six quarter.
Then, of course, the most important is to start to work with the team there, and we have been there and talked and met. As very often, if you have a good manager, I think you will see some fantastic things. They have been working with an outdated product with the competitor who had been new renovated products, so that's not going to be so easy for them. This is the sort of hotel we like to take over. But so you understand, that would not be a big growth for Pandox AB, because we're taking over 200 room hotels in Skärholmen, but small pieces.
Great, thank you.
Hi, Nathan McBeth, SEB. A couple of questions. First, on the like-for-like growth and outlook for like-for-like growth for the rest of the year and rental revenues. Given what you've seen so far in July and August, would it be your expectation that you can keep up like-for-like rental growth of above 6% for the full year of 2015, which you achieved in this quarter?
We haven't given any guidance on the like-for-like growth or for the growth, but I think you see the markets, and as long as the markets are performing very well, I think you can make a fair assumption that we had a like-for-like growth around 3.7%, I think, in the first quarter, going to 6.7% in the second quarter. Again, a strong quarter, depending on how markets are performing. But yes, a growth, whether it's between 3% and 6%, et cetera, market will show.
Okay, on the property valuations. It seems like your value growth of 1.4% in the quarter on the investment properties was driven by yield compression, mainly. You had 100 basis points low yield requirement. When will we start seeing higher or the strong cash flow also translate into higher property valuations? Or have we seen that to some extent already? Could you bring some clarifications on that?
I think it was not only yield compression, because you do also have, for example, reclassification of these hotels. When you have one hotel going from the investment properties to operating property, of course, the yield for 5.9- 7.5, of course, there's average which is changing. There are constantly in our portfolio, we are evaluating and looking at each hotel. Maybe it wasn't a 10 basis point full yield compression. Seven, 8 basis points, sorry.
There are, of course, uplift from new agreements, likely to Elite Hotels, press release, which we signed in the second quarter. So there are underlying growth. As long as we are performing as we are doing in the quarter with the like-for-like growth between 6.7% in the second quarter, automatically, of course, these uplifts will come. With, again, close to 18% cash earnings increase in the quarter.
But would you say that this like-for-like rental growth trend is not reflected in the valuations you have yet? Or how should we think about that in the future? What's the assumptions behind your current valuations?
Well, it's a little bit difficult to do. Of course, on average, we have 104 individual valuations. These are called 10-year discounted cash flows. You have the discounted cash flow effect for the first year, of course, depending on when the investment is done and when you get sort of. We say that it takes two to three years before a hotel comes on a stabilized level. We've done SEK 2 billion, and the Shark project is not finalized. We have more than SEK 100 million left to do for the rest of 2015. So, the outlook we are making is that we will continue to have strong cash earnings, and that of course, yes, automatically with stable yields, will increase values.
Okay, and then finally on this topic as well. The yield compression you made in the quarter, 7-8 basis points. What is driving that? Are there any transactions you notice in the market, or any market pointing towards lower yields? Or what is driving that low yield requirement?
These, of course, are the yield assumptions made by external evaluators, and they are, I think, overall in all markets, basically, the yields have been coming down around 10%. I think that is the consensus around when you look at the other real estate companies as well. Around transactions, available transactions made, I do not have any extra comments on that.
No, this is more a consensus, I would say, that they say that now it is time to have another. The yield compression will also have an effect on Pandox there.
You also, of course, have some effect of that the yields are going down because you get improved hotels. There are stronger hotels, less need of investments. There is stronger cash flow earnings. There is less volatility.
This will look like that. As always, when you are coming to Pandox and when you enter into the property market, it takes some time before you can see what sort of bird we are, and that is also for the guys who do the valuations in combination with banks, that sometimes they do not understand the strong growth that is in the hotel market, and that is something that is surprising for many. They may be overestimating risks, I would say. Again, what is the risk in hotel? Yeah, if you cannot taking over the hotel, but if you can take over hotel, given that Hilton tomorrow will say they do not want to be here. What is the problem to run this hotel in a market like this if you have the understanding?
I think people will have confidence in that, and then you will see even more yield compression.
Okay, thanks.
Thank you very much. Yeah?
Fredrik Stensved, ABG. A couple of questions from my side as well. Starting off with RevPAR in Stockholm, where we saw some reduction in the second quarter. What is your outlook there? Do you believe it is a temporary reduction, or?
Yeah, it was very strong. You made very strong last year, and there could be some big good meetings in general. Stockholm, very positive. We do not give you any details more than to say very strong summer, and this is a good market. My remark was more than that many people think that Stockholm will grow forever and we need one more hotel every week, and I do not think we maybe do that. Again, it is a strong market, yeah. But the strongest market in. There is two markets who are stronger in Scandinavia, and one is Oslo and one is Copenhagen, so we are on the third place.
What are you seeing elsewhere in Sweden in terms of RevPAR trends?
Regional city, beautiful. All these, Jönköping, Örebro, Helsingborg, Halmstad, Umeå, Sundsvall, Östersund, you see strong growth in all these cities. They are much more stable in downturn, but they still have a good growth in good days. You see a market growth between 2% and 5%, 6% in those markets today, and we are taking at least average in every market. Of course, that gaining for us.
Is there any market in Sweden or elsewhere where you see risks of oversupply in the coming two years?
Yeah, we have said here before that Malmö is definitely in the risk soon because of new capacity coming in today. I've had a surprising good quarter two, which is nice. But you can see a press on the RevPAR because of, as I said, new capacity. That is most likely that market who Gothenburg have added in all this capacity as they had, the 1% coming in more this year because of the Gothia Towers, and that the market had absorbed.
Then final question on acquisitions. Do you see any deals out there that might be interesting for you, or do you still believe that the market is a little bit too hot for you guys to do anything major?
Yeah, I know there was a long discussion when I'm saying some sort of a web channel that maybe the market is too hot, and some like it, and some don't like it, but that's how it is. We had been so long time in this industry, so we will not do any stupid acquisition. But of course, there is possibility to do in a market like this. That is an ongoing, a very high number of deals going on all the time. Most of them are too expensive, I would say. But I will always coming underperforming things. We don't have anything we talk at the moment about, but things moving quick in this industry, so I say, yeah, that could be, maybe. But we will be careful as always when we do acquisition.
Thank you.
More.
Yes. Do we have any questions?
On telephone.
On the telephone, yeah.
Thank you. If you wish to ask a question via the phone, please press star one on your telephone.
No question from the international world? Everything is clear? Nothing. Okay. Any more question? Anything from the national handball team? I like when these guys are on the bench, and I am the player. Then thank you very much for coming to Pandox comeback quarter report. The next two, we have a new report on Q3 in November 4th. Is that right, Anders?
5th.
Fifth, sorry, fifth. Board meeting is on the 4th. The 5th of November, we are reporting Q3. Then we also have the hotel marketing day, which we will have on the 24th of November. That is now 20 years in a row, so it is an anniversary this year, and I hope to see you all there. Many of you have been there many years, many times, and I hope you will join us also this time. That will coming, save the date, next week, and the program will be coming out also in the next few weeks. It is just for invitational, so you all know that. Thank you very much. Thank you. Bye-bye, and welcome back.