Well, good morning, everybody. My name is Anders Nissen. I am the CEO of Pandox, and also here with me today is Liia Nõu, the CFO in Pandox, and Anders Berg, the investor relation manager. Welcome, everybody, and good morning. This is a presentation of the first acquisition for Pandox since our second flotation to the stock market. What we announced over the weekend is that we acquire 18 hotels in Germany in 12 different cities, totally 3,415 rooms. The price is EUR 400 million, corresponding to SEK 3.7 billion on debt-free basis, including minority shares. Markets in these 12 cities are a mix of international cities like Düsseldorf, Frankfurt, Hamburg, with what you can call a bit of premium markets mixed with a very stable domestic market like Wolfsburg, Mönchengladbach, Karlsruhe.
This exactly fit into our strategy that we can see the geographic diversification balance out the risk. The products are a mid-market, full-service hotel or upper mid-market. All hotels are marketing and operated by the Leonardo Hotels, which we will come back to in Leonardo brands. The model is lease model. We are entering into 25-year revenue-based guarantee with good guarantees. The partner there is the Fattal Hotels, who owns this brand, Leonardo Hotels. The value for this for the company and for the shareholders is that we increase the rental revenue by SEK 250 million and cash earning SEK 150 million 2016, given that we enter this portfolio at the beginning of January 2016. The seller is the Leonardo Group and Fattal Hotels. Fattal Hotels is an Israel-based hotel company which now expand in Europe, specifically in Germany.
There is also a minority shareholder stake of 5.1% of Eiendomsspar . Let us coming back to that later. I go to slide number four. That means that the Pandox group expanding now up to 121 fully owned hotel properties in the full service and premium segment of the market value of SEK 31.3 billion, corresponding to a little bit more than 25,000 rooms. That is divided into business areas, the property management with all the lease portfolio. That is 103 leased-out hotels. That is representing 80% of the company's value.
Then we have 18 hotels that we operate ourselves that is representing 20% of the company's value. You can see on the map on the right-hand side that we now have a bigger portion of revenues coming from Germany than it was before. I step to the slide number five. What is the driver for this acquisition?
There is six important drivers. First, I will say this fulfill all Pandox strategic criterias, which we have communicate during the roadshow. The first is, of course, that is both a profitable acquisition. It increase cash earning, and this creates also opportunities for value growth in terms of investing together with the Fattal Hotels in these hotels, value-driven cash flow investments. The second one is Germany, which is one of our priorities markets where we have exposure. We know the market since before. It is a huge hotel market, the biggest in Europe, with more than 600,000 rooms. It is a market that we would like to have a better presence into.
The third one is that these hotels are into that what we call our prioritized segment, which is full service hotel in the upper mid-market, and it is also well-balanced in terms of demand of the mix of international and domestic demand. As I said before, that mix is important for our risk profile. It is a lease model with long lease agreement with a very professional operator, and that the operator has the main responsibility for investments, future investment in CapEx. It increase shares of the property management, which is self open for doing acquisitions, maybe also on their own operation side, but most likely, this is our most important business area, long leases. As I said, we increase that share. We believe that we see future potential in corporations with this Fattal Hotels group. So this is the six important drivers.
If you look at slide number six, you can see some of these hotel. Just talking. Few of them. You see on the left up that we have this Leonardo Royal in Düsseldorf, Königsallee. For those who know Düsseldorf, you know this is a premium address. Very close to or in one of the most exclusive shopping district in Europe, 253 rooms, well renovated, strong position in city center Düsseldorf. You see the one in Mönchengladbach, which is an interesting market. This would be in Scandic Hotel.
If you understand what I compare to, a strong position in the business park and in a good location in Mönchengladbach. You have the three one is Mannheim city center. Leonardo is also city center in a beautiful city, very stable hotel market. This is more German demand, absolutely city center location. You have the Hanover Airport, beautiful hotels, more than 200 rooms.
You have the big one, Frankfurt, the 449 rooms, a big meeting hotel in a very central location in a very international market. You have Hamburg City North, which is located in a business district. This is also some sort of ordinary Holiday Inn or Scandic location. This is just six example of these 18 hotels that we have bought. You can see these are up mid-market. This is full service hotel and little bit up market. You can see in the next slide on the seven, you can see all these hotels in these 12 cities. Then you can see also here on this slide that we have also number room and location. You can see on the location side that all of them have natural good location and position in each market.
I go to slide eight, and then I am going to ask Liia to step in. Thank you.
Thank you, Anders. So at full consolidation and current exchange rate, the portfolio is expected to increase Pandox rental revenues by SEK 250 million on annual basis, and cash earnings by SEK 150 million, provided acquisition is complete before year-end, that is actually a full year. Fattal Hotels remains a long-term lessee in all of the hotel properties with new 25-year revenue-based lease agreements with good rental and guarantee levels. Our responsibility for future investments is limited to major technical investments and building structure, which means that property cost will be lower compared with our Nordic hotel property portfolio. We also see good potential that in close cooperation with Fattal Hotels make future cash flow enhancing investments in the acquired hotel portfolio. Turning to page 9.
Based on the market value of our portfolio per the end of third quarter, our portfolio value will increase from SEK 27.7 billion -SEK 31.4 billion. This is excluding the previously communicated divestment of Scandic Antwerp, which we closed on December 1st. Without that, the portfolio value will increase to SEK 31.3 billion. The investment property share of the total property value will increase from 77% - 80%. All of this based on the third quarter numbers. Our loan to value ratio net increases from 44% in third quarter to 51%, which should be compared with our financial target of a loan to value ratio of between 45%-60%. Turning to page 10. The acquisition price amounts to EUR 400 million, which corresponds to approximately SEK 3.7 billion at current exchange rate.
Pandox ownership share amounts to 94.9%, and Eiendomsspar AS ownership share is 5.1%. The acquisition is financed by new and agreed five-year bank loans, also existing bank loans and existing liquid funds. The seller is the Leopard Group, which is a holding company with property interest in U.K. and Germany, and also the Fattal Hotels of Israel, who will remain the operator of the 18 hotels. The acquisition is expected to be completed by the end of 2015, is conditional upon having received necessary approvals and fulfillment of terms and shares in the transfer agreement. We will consolidate the acquired hotels to 100% and report these under the business segment property management. We will also report a minority interest at a consolidated group level from the first quarter 2016. With those short words, I thank you, and we open up for questions.
Thank you. As a reminder, if you would like to ask a question, please press star and one on your telephone and wait for your name to be announced. If you wish to cancel that request, please press the hash key. Your first question comes from the line of Nicolas McBeath from SEB. Please go ahead.
Good morning. First of all, if you could please say something about how this transaction was conducted. Was it an off-market transaction, and how has the process been, and what do you think was the reason for the sellers for the divestment?
Hello, Nicolas. It was not totally off market, but I think they did talk to a few possible buyers. It is what we have been said before, and the chance of us doing good acquisition is when that is more. There is some complicated criteria, and this was a large deal, many cities, and for many players, a new brand. That means that the seller, I think they know that it could not go out to everyone. So I think they spoke just to a handful of players. We were one of them. We started these discussions late spring, and we spent the summer sending emails from left to right and trying to get into some sort of letter of intent, then it had taken a few months to negotiate the deal. So we completed now, a few days ago.
The reason for the seller, I think is three. The first one is that the 75% owner, they are some sort of investment company or something similar. They don't have any long-term interest in the hotel property market. They just are there. They're doing investment and have a return on the equity. So their model is to sell. The second one is that I think they were happy with the price. They have been doing an active job, and I think they see they had had that value growth that they could achieve. The third one, I believe that Fattal Hotels, who is a company who like to expand, they need this money to make sure that they can do the expansion. So this is three criteria I think they have mentioned to us.
Okay, thanks. If you could say something about what you see the potential being in the German hotel market. Do you see potential for market growth over time? Maybe if you could say something about how you view the room rate development in the overall market.
This is quite big hotel markets, all of them. We expect to see a growth in hotel market generally in Germany, maybe specifically in those international markets for next year. They have more potential in short term, but the German market has more stable market over longer time. I think there is, for us, a potential in terms of doing not so large as we have done with Scandic, but similar approach that we do cashflow-driven acquisition together with Leonardo Hotels and Fattal Hotels, but also a potential. We see also maybe, hopefully, a potential of doing more to expand our business together with Leonardo, which is, as I said, a company who would like to expand their brand in Germany specifically, and they need a partner. We like their model. They are focused on operations.
They are good at productivity and management, and that is the most important driver for value growth from our side, that they can secure that they have a so efficient daily business so they can pay the rent, and have available money for doing necessary investments. So that all in all these things together, I think we will have a good potential in the portfolio, but also to do additional acquisition together with them.
Okay, thanks. The final question, if you could say or explain why you have done the acquisition in the structure you have with Eiendomsspar as the minority shareholder.
Yes, thank you. The structure is, as I said, especially considered the most efficient solution for all Pandox shareholders. In Germany, you pay real estate transfer tax. If you have ownership of less than 94.9%, there will be no real estate transfer tax. We believe that we are happy to have Eiendomsspar here as the minority shareholder in order to enable us to do this transaction on the similar grounds as we have been doing them. Again, it's the most efficient solution for all Pandox shareholders.
Okay, it is really about tax efficiency and nothing else then, no?
Yeah.
Okay, thanks.
Your next question comes from the line of [Tobias Kaj]. Please go ahead. Tobias, your line is now open. Please go ahead.
Yeah, sorry, I was muted. Thank you. Most of my question has been asked, but regarding potential for new cashflow or cash earnings generating deal, should we view this as it will be like a new Shark program that you did together with Scandic, or is it more total new transactions that we should expect?
You should not expect in a way that we say we will do it, but I think lighter Shark, yes, possible to do. Shark was extremely big, but to have the same sort of model as we have with Scandic, that we together with the operator continuously looking for opportunities, see where our competitor is doing, and make sure that we always are on the top of the competitor set. That means that we need to do a common investment in the future, which will be above this contract as we have today. That, of course, something we are looking forward. We haven't decided anything to do that, but of course, that is an intention from both parties to make sure that we strengthen product by product.
Then again, it's a wish and hope for me to say when I'm saying that we can expand also our business together with Fattal Hotels. Of course, we will start to know each other more after this quite large acquisition. Because they would like to expand and we would like to expand, and we're working in the same business segment, of course that will be at least discussions how to do it. That is something that we understand that they share our view about, that they would like to see if it's possible to expand even with more hotels. We are, of these 18 hotels, of course, their biggest owner. So it is a little bit about Scandic and Pandox model that we can see between us and Fattal.
You don't have a program that you're expected to start in Q1 or Q2 or something like that?
No. They have a program that they already are into of investing in each hotel, and we have a list of actions that they are responsibility for taking care of the next year or two. So that is the first step. In the meantime, of course, we'll be looking for other opportunities. Of course, we see some of them already, but we need to come to agreement before we can start, of course. So that will take some time.
Okay. Thank you very much.
Thank you.
Once again, if you would like to ask a question, it is star and one on your telephone and wait for your name to be announced. If you wish to cancel that request, please press hash key. Once again, that is star and one if you would like to ask a question. There are no further questions coming through at this time. Please continue.
Yeah. Well, thank you very much. That was the end of this presentation if you do not have any other questions. So have a good day. Thank you. Bye-bye.
That does conclude our conference for today. Thank you all for participating, and you may now all disconnect.