Good afternoon, everyone, and thank you for joining this conference call where we will present the new large acquisition for Pandox. My name is Anders Nissen. I am the CEO of the company, and with me on the call I have Liia Nõu, our CFO, and Anders Berg, Head of Investor Relation and Communication. The idea behind this presentation is to give you a quick walk through the main points and give you possibility to ask questions. For practical reason, we do not webcast the slides. The slides available on Pandox corporate website. If you have this, please turn to page two. We are very proud today to present a landmark deal in U.K. and Ireland, which fulfills all Pandox strategic criteria. We have, in cooperation with Fattal Hotel Group and Leonardo, enter into an agreement to acquire Jurys Inn, with 36 hotel operations and 21 hotel properties.
The total price is GBP 800 million on debt-free basis. The assets will be split in between Pandox and Leonardo, where Pandox, after reorganization, will retain 20 investment properties and one operating property, while Leonardo will acquire the operation platform and the Jurys Inn brand. In connection with the transactions, we also have signed a long-term revenue-based lease agreement between Leonardo and Pandox for these 20 investment properties.
The same model as we have with these 18 hotels that we already had together with Leonardo, which has been very successful so far. After this reorganization, Pandox share of the total acquisition price is expected to be around GBP 680 million. The acquisition is fully financed and expected to completion before year-end 2017. Next page, please. The driver between this large acquisition, which will most likely will been one of the largest in Europe this year, I suppose. It is a landmark transaction.
It is 21 high-quality hotel properties, and it establish Pandox in U.K. and in Ireland. That is important because that give us access to a new market. It is five countries. It is 20 cities, including five capitals, and is 4,700 rooms, so the big size. It is large hotel with an average size of 224 rooms, which gives the critical mass for the hotel and give a reason to invest into the assets. The hotels are well established with a strong local position, and all of them has strong locations and strong position. It is also an attractive mix of domestic and international demand, which is important because that balance out the risk. It belong to the stable and profitable upper mid-market segment.
We also have, as I said before, signed a 25 years revenue-based lease agreement with Leonardo for 20 of those hotels, which is itself is a value driver. We believe it is a good growth potential and an attractive price and immediately contribute to Pandox earnings. As you can see, this ticking most of the boxes for Pandox. Please turn to next page and I leave over to Liia.
Thank you, Anders. How does this then translate into our financials? For property management, the 20 hotels, their rental income is expected to increase by approximately SEK 440 million, and net operating income by approximately SEK 425 million during 2018. For operating activities, corresponding to one hotel, revenues are expected to increase by approximately SEK 130 million, and net operating income by approximately SEK 25 million during 2018. For Pandox in total, cash earnings are expected to increase by around SEK 200 million for the full year of 2018. The acquired portfolio has a yield of approximately 5.8% and an acquisition price per room of approximately SEK 1.6 million. Pandox will consolidate and report 20 hotel properties, property management, and one under operating activities. In the fourth quarter 2017, marginal positive contributions are expected pending on the date of closing. Next page, please.
Based on the market value of the property portfolio as per our third quarter 2017, the portfolio value will increase from approximately SEK 41 billion to approximately SEK 49 billion. Investment properties share of total property values will increase from around 83% to approximately 85%. Pandox loan to value will increase from around 48% to approximately 56%, excluding the loan from Leonardo. This should be compared with the company's financial target of a loan-to-value ratio of between 45%-60%. The assets and liabilities attributed to the business, which will be divested to Leonardo, will be reported in the balance sheet as assets held for sale and debts related to assets held for sale until the ownership of these assets have been transferred to Leonardo. Next page, please. After completion, a reorganization will follow.
The seller is a company owned by Lone Star, and the buyer is Pandox, via wholly owned company, in cooperation with Leonardo. Total purchase price of GBP 800 million, approximately SEK 9 billion on a debt-free basis. The acquisition is financed by a new five-year bank loan from Bank of America, Merrill Lynch International, existing credit facilities, and a loan from Leonardo in the amount of GBP 120 million to the acquiring company. After completion, a reorganization will be implemented in accordance with a frame agreement between the parties, whereby the operational business will be spun off to Leonardo against set off of the loan. After this, Pandox share of the total acquisition price is expected to amount to approximately GBP 680 million, which is approximately SEK 7.7 billion. Next page, please, and I leave over back to Anders.
Thank you, Liia. The Pandox portfolio overview, including this new asset. You can see that we will own, in the portfolio, we will have 143 hotel properties for the value of close to SEK 49 billion. Where 127 will be according to property management, meaning lease agreements that representing 85% of Pandox market value, and 16 will be in operation activities, and they're representing 15% of the market value. On the map you see Sweden is the largest company. U.K. and Germany are the same. Then Norway, Finland, Denmark and Belgium are other large markets for Pandox. Next page, please. U.K. market overview. You can say that in the end, we're speaking that U.K. can be divided into two boxes. One is London and one is U.K. regionals. Both of them are very solid markets. Some important criterias. It is the fifth-largest hotel market in Europe.
It is the well-developed hospitality market with a good mix of transients, meeting, and leisure, and its solid volumes and good rates. You see in the graphs on the right, occupancy rate in London is about 80% year-on-year, and in U.K. regionals it is mid-70s. So strong numbers. Daily rate is in London, close to or around GBP 140 and mid-60s or upper 60s in U.K. regionals. This revenue is coming from occupancy rate gives strong RevPAR, which is the most important part for having a solid business in hotel. You can also look at that U.K. regional and London the last seven years have had growth more or less in the same speed.
I will say based on this, that you have less investment in London regionals, and you buy it for a little bit better yield that U.K. regionals have been a stronger investment market for hotel investor in U.K., and we hope that will continue. Next page, please. Here is a map over U.K. and Ireland, where you can see that we cover more or less all markets. This is a total country population of 70 million, where in this city where we will have hotels, that is about 23 million. You can understand it is quite large cities. We acquire 13 hotels in England and four hotels in Ireland and Republic of Ireland, two in Scotland and one in Wales. Next page, please. Here is the portfolio overview where you can see all the hotels, all the countries, cities, population in the area, number of room and location.
My comments is really starting on the population in the areas. You can see that this is large cities. London, of course, is close to 10 billion, but then you have Birmingham and Manchester, which is approximately 2.5 million each. You have more than 1.3 million, 1.4 million in Dublin. Glasgow is 1 million. Sheffield, Leeds, and Cork. It is large cities, specifically if you compare it with Scandinavian eyes. These are very good and large cities with a lot of people. It is a good base for hotel business as we all know. In these markets with these people, you can see number of rooms are very good. The average size is 224 rooms and many of them is about 200 rooms and up to 300 rooms. Meaning that this is big cities who have a strong local locations.
Locations are strong city center or airports and then city. You most likely know all those cities that are mentioned on that line. Next page, please. What are we buying? We are buying two hotels in Greater London in top destinations. One is Hilton Garden Inn, which will be in our own operations, meaning that we will be in operator activities. This is a 364-room hotel, not so far away from the other Hilton as we had before at Heathrow, and we will operate them in Pandox's own organization. It is a great mid-market hotel renovated in the last couple of years. Another hotel in Greater London is Jurys Inn Croydon, which is a very growing area of London, where many of the big banks and insurance companies have their back office offices. It is a good hotel market as well with this Croydon hotel.
We have here on the next page, please, page number 12, we have taken a few of these good hotels in England, which represent strong regional hubs like Birmingham, 2.5 million people, and a hotel with 445 rooms in an absolute city center location. The same with Manchester, a 265-room hotel in a very strong location. In Oxford, you know that city, of course. Brighton, which I understand people call Southern London, and we have a hotel with a waterfront location, and then Leeds, to give you a few of these strong cities and good hotels in regional strong cities in England. Next page, please. We have five capitals, which is amazing. It is ourselves. Here are four in this picture. Belfast, 190 rooms in the shopping district. Glasgow, in an absolute city center location in Glasgow, more than 300 rooms.
You have in Dublin, a hotel with also a very central location, and in Cardiff, a 142-room hotel in the location of the shopping district. Here is an example of great markets and that we have hotels in all these five capitals in the U.K. Next page, please. Of course, important that we also have hotels which more belong to the domestic cities who have more domestic demand for having a stable revenue here from the portfolio. Sheffield is one of the examples, Middlesbrough. This might be domestic demand, but it is a large city. Sheffield has more than 800,000 people, and Middlesbrough has 450,000 people. You can see, even if they are more of domestic profile, they are large and stable in terms of size, which gives a good base for the hotel business.
Ladies and gentlemen, to quickly sum up, this is a large land market acquisition in the U.K. and Ireland, 21 hotels with 4,700 rooms, an attractive yield, and immediately contribute to Pandox cash and earnings per shares. Thank you very much. Now I go over for Q&A.
Ladies and gentlemen, if you would like to ask a question over the phone, please press star one on your telephone keypad. Please make sure that the mute function on your telephone is switched off to allow the signal to reach our equipment. Once again, please press star one if you wish to ask a question over the phone. Our first question is coming from Christopher Fremantle from Morgan Stanley. Please go ahead, your line is open.
Hello, good afternoon. I just wanted to ask you three questions. The first is on the split of the hotel operations and the hotel properties, 36 hotel operations and 21 hotel properties. Just so I am clear, and maybe it is clearer in the press release, were the other hotel operations also put up for sale, and you only selected to buy 21 of them? Or were they never part of the transaction that was offered by the seller? Secondly, can you just explain why you have chosen to retain one of the hotels as an operating business? Just explain what the differing circumstances of that hotel are. Then finally, just on the financing, obviously, you are taking your loan-to-value ratio up to the upper end of your range. Are you expecting to recycle some capital from other disposals to bring your leverage back down again?
Or are you expecting simply to earn your way through retained earnings back down to a more moderate loan-to-value ratio? Thank you.
Hi, Anders. Let me start with the first. That was not part of the deal. They have, as you can see, 36 operations, and they have 21 properties in the company, or 20, who was Jurys Inn operated. The other hotels that they operate Jurys Inn is with other property owner. That was not part of the deal.
Okay. Thank you.
That was number one. Regarding why are we choosing? One of the hotels, it was a regional before Jurys Inn, but Lone Star and the owner, they chose to change the brand there. That is a long-term franchise agreement, and it was not of interest of Leonardo to step in there, of course, because he wanted to have his own brand or keep the Jurys Inn brand. That is the major reason. For us, it is no-brainer. As you know, we can operate hotels also. That is even maybe good for us to have one operations in such a large market as London is, because you come a little bit more closer into other owners and in other networks.
On the disposals, any disposals planned or any other ways to moderate your loan to value ratio?
Well, hi. As we said, the acquisition is fully financed with new loans and existing credit facilities. However, it is always the company's and the board's responsibility to ensure that the company has the best possible capital structure. This is something we monitor and look at all the time, but it is fully financed by the loans.
Right. You would be comfortable maintaining that level of gearing for the foreseeable future?
As I said, it is a constant monitoring of the capital structure. We are, as we said, the acquisition is fully financed as it is. I think that is something I will say.
It is into our financial target, as you know.
Yeah. Between the 45%-50% capital.
Of course we can live with that. We have to remember, it is a very profitable acquisition as well, and we add SEK 200 million into the company cash for the first year. Of course, the capital structure will be changed over some time. That is what we can-
Yeah.
Comment to.
Okay. Just one follow-up while I have you. Is it Leonardo's plan to rebrand these hotels?
At the moment, the discussion we have had with Leonardo is that they will keep the brand Jurys Inn, and that will be evaluated of them that we hope that we will be a part of that discussion. There will be no change for the first six months or nine months or whatever, if it will be any change. That is an area which we have talked about, and I know that Leonardo spending some time on it. It's a well-known brand in U.K., as you know. Maybe need for some sort of utilization, I don't know, but maybe it is. Let's wait and see what's coming up for this first six months that we learn more about it.
Okay. Thank you.
Thank you.
Our next question is coming from Tobias Kaj from ABG Sundal Collier. Please go ahead, your line is open.
Yes, thank you. I have three questions regarding the property portfolio. First of all, how large part of the value of the acquisition is related to London? Secondly, regarding the yield of 5.8%, if that is an initial yield or if that is something that you aim to reach within a certain period. And third question is if you have any larger needs of investments in the portfolio you acquire now?
How much is London?
When it comes to the yield, it is the 2018 expected yield, the initial yield for the first year.
Yeah.
Then there, of course, we hope to get even some more out of it after the renovation. There has been quite some large investments done in this portfolio.
Yeah. To take you to the last question, Tobias. It is a very well renovated portfolio. We believe that had not coming out the full potential of this renovation yet. Regarding the two hotels in London, I think it is Sorry?
8%. 8% roughly.
8% of the total value.
Okay. Thank you. Finally, if I may ask one more question regarding, I am not sure if I understood it correctly in the press release, but just say something about the financing for Leonardo of their GBP 120 million for their acquisitions. Is that something that you fund initially, and then you get it back from them over time?
No. Leonardo's part of the reorg and everything is done. Leonardo's part of the acquisition price is GBP 120 million. We are chipping in this from day one and reflects the amount that the part which will go to them after reorg as well.
Okay. Thank you.
It is a loan from Leonardo to Pandox who is acquiring 100%, and then it will be offset versus when we sell off the 30 operations.
Okay. But in Q4, will your balance sheet then increase by GBP 800 million or by GBP 680 million?
Yeah. As we said on the call and as we say in the press release, our portfolio will increase with the GBP 680 million. The 120 will be assets held for sale versus the debt. So that will be a separate line on the balance sheet.
Okay. But are those items included in the 56% LTV?
No. It is only our part as it says in the press release. Absolutely. So it is a reorg we will done. The financial numbers in the P&L, our portfolio, our LTV and everything else will be from Q1 reflected as if the reorg was already done. The only thing which is extra in the balance sheet, which will not be there after the reorg is done, is the GBP 120 million of assets that we are holding for sale to Leonardo, and will then also not have the GBP 120 million loan. So these are two items that will be there during the reorg, which will not be there afterwards.
And that is only for one quarter, or?
Well, we will do the reorg during 2018.
Okay. Thank you very much for taking my questions.
Thank you.
Ladies and gentlemen, as a reminder, if you wish to ask a question over the phone, please press one on your telephone keypad. There is currently no question over the phone.
Okay. Thank you very much for listening to this conference call. Have a good Saint Lucy's Day. Thank you very much.