Welcome everyone to this Q&A session for existing shareholders in Pandox. Traditionally, a Q&A opportunity is provided during the AGM. But as you know, due to COVID-19, Pandox's AGM 2021 is conducted by advance voting only, without physical presence of shareholders, proxies, and third parties. The AGM took place earlier today, and a press release regarding its resolutions has already been published. But still, to provide an opportunity for shareholders to ask questions, we are arranging this digital Q&A separate from the AGM. We will begin with a presentation by Anders Nissen, the CEO of Pandox, followed by a few words from Christian Ringnes, Pandox Chairman of the Board, and Dick Bergqvist, Member of the Nomination Committee. There is a possibility to ask written questions at the bottom of the page.
Since we are currently in our silent period in view of the upcoming first quarter report on the 27th of April, we will not discuss or answer any questions regarding the first quarter. This call will end at approximately 10:45 AM. at the latest. Now, I leave the word over to Anders Nissen.
Well, good morning dear shareholders also from my side. As Anders Berg said, my name is Anders Nissen, and I am the CEO of Pandox. I am honored to give a presentation of Pandox activities 2020 and the priorities we have had last year. Let's say it in this way, it was a difficult year. I starting with business update. Next page, please. Pandox is today one of Europe's largest hotel property owner. We only invest in one asset class, hotels and hotel properties. But when we come to the operational side, we have a very flexible model that we can be active in the full value chain. That worked very well the first 25 years, where the size have been growth 100 times since we started the company 1995.
Pandox main strategy is to acquire underperforming hotel assets and sign long-term lease agreement with the best operator in the industry. If that is not in place, we can choose to operate hotel itself. Next page, please. Today, the group is including 156 hotel properties in 15 countries and in 90 destination with more than 35,000 rooms for a property value of SEK 59.5 billion. As said, we have two segments, the property management on the lease portfolio representing 84% of the company values. That is 136 properties. And the operator activities, which is the hotel we operate itself, it is 20 hotel representing 16% of the property value. Next page, please. To be present in this very dynamic industry, you need to have very strong network of brand and partners. We have in Pandox, I would say we have a strategic position of world-class.
Here you see a number of our partners today. Scandic is the largest, but we also have many hotels together with Radisson, Hilton, Jurys Inn, Leonardo, to name a few of them. We also have some independent hotel brands like Hotel Berlin, The Hotel in Brussels to just take out two of them. This is a very strong driver for our success that we have this very good network. Next page, please. If we then move over for the development in 2020. The start of the year was very solid with a good January and February. After that, the COVID-19 arrived in Northern Europe in March 2020. Society closed down. You all remember. Travel restriction was implemented. All activity was gone. We couldn't operate any hotel efficient anymore. The market bottomed out in April, and restriction was easier and lifted in June and July.
The recovery started with domestic leisure as main driver. First in Scandinavia, where you see a very strong July and beginning of August, and then rest of Europe will follow with the same pattern where domestic leisure was the main driver. Next page, please. After summer period, the local business segment started to travel, and in September, the occupancy was 45%-55% in most of the Pandox domestic markets. That was up to this point, I believe, recovered faster than many had expected. The market shows very strong recovery. However, demand in larger and more international city remained weak over this period, but again, the domestic city were very strong. Then you remember in October, new restrictions are implemented due to second wave. Demand decreased substantially, and at the moment, we are just waiting for restriction to ease here. Again, next page, please.
Over this period, very difficult year, we have had three focus areas. Respond, restart, and reinvent, we call them. Respond is how to manage the acute phase of this very difficult time, where we basically changed our business model over a weekend. From active in acquisitions, investment, and operate the large international operations, we changed to secure liquidity, daily contact with banks and partners. With this, we got control quite immediately, and we could start to look at restart, how will the market recover. We have presented a few recovery plans since then when we have analytical meeting. The third focus areas is reinvent. It basically works next. Business model, what will change, what will be the same, and we have used this time quite efficient, also to try to learn from this new situation. Next page, please.
Pandox way of looking at the going back to full performance is development in a few different levels. The first is that city and country must open up. Hotel demand coming basically from activities. When you have no activities, you have no demand in our industry. From there, you need to open up our hotels so we can measure from what happened in the year before, and then domestic leisure will return first. After that, domestic business will return. Small and medium-sized company will start to travel immediately, and then international meeting and group would return later on. This is the case also, or has it looked like in market who is ahead of Europe. It also looked that when we saw the recovery in the summer in Scandinavian and Europe.
To try to understand how Europe will open up, we spending a lot of time to do analysis of market who is ahead of Europe. Basically, U.S. and China, Australia and New Zealand have been four countries that we have looked very closely into and have contact with people who is sitting in the market. We can see a very strong development in all this market who is before Europe in recovery phase, where restrictions has easier. The main driver is, as we said, the same as in Europe in the summer. Individual leisure coming first over weekends, and then domestic business, small or medium-sized companies start to travel immediately. The winner are premium resort hotel, economy mid-market hotel, easy reach by train or car. Loser are large city, in general, and international meeting hotels also.
What we also see a strong trend of is that domestic demand, it look like we're expecting to increase and be larger than ever. We see now already sign in China, the domestic market look more or less the same as international and domestic market looked before together, which is, of course, the conclusion is that if you not traveling outbound, then you're traveling in your country. That had been said, a very few sign of new consumer trends. What's holding back demand are restrictions. Next page, please. Just a few things about what's happened as we speak in U.S. American Airlines reporting that booking rolling 7 days are 90% 2019 year's level. That means that big company has started travel also in U.S.
They had, last week, 58% occupancy, and they are at 80% of the level of 2019 in terms of volumes, where the domestic and regional city are even closer and the big 25 take a longer time to come back. We also see that several major airlines have started to recruit pilots again, and domestic leisure travel, you remember I said, that is the first segment open up, is more or less to full recovery versus 2019. Next page, please. This is what I will sum up this or say, with having a very strong domestic and regional portfolio, 84% of our value in these two categories. We are very well-positioned for the recovery, which we know how it look like and how it will come, which we will come back to also in our next report.
With that said, I hand over now to Mr. Chairman, Christian Ringnes. Thank you very much.
Thank you very much, Anders. Dear shareholders, a really good morning. Pandox was born during the mother of all crisis. Pandox is used to difficult times. That was the banking crisis in 1992 that led to the formation in Pandox as a workout company in 1995. Already at that time, the board was so forward-looking that they employed Anders Nissen. He was almost alone at the time, but the organization has grown and today we are one of Europe's largest companies. We have traveled through some crisis. We went through the dot-com crisis, we went through the financial crisis, and all these crises kind of hit similar on most parts of business. The crisis that we are in now, fortunately about to pass, is a different one.
It's a crisis that has hit some sectors of the economy very strongly, and unfortunately, the next strongest one to be hit was the hotel sector. Airlines and cruise has been even worse. This means that the economy as such is doing okay, but we have been suffering. I would like to thank especially our partner operators for their resilience during these times. I would like to thank our banks for the full-hearted support that they have given us. I would like to thank you, the shareholders, for your patience and your forward-looking manner. First and foremost, I would like to thank the administration of Pandox, led by Anders Nissen, for a fantastic job done during difficult times. Now, fortunately, we do see the light at the end of the tunnel, as Anders just described. It is a fact that vaccinations are gaining speed.
As of now, 3%-4% of the population is vaccinated every week. This means that by the end of the summer, we should be in a situation which is going to look much like what Israel is in now, more or less the whole population is immune to COVID. We do see things picking up slowly but surely, and I think at the end of the summer things will look a lot better. Fortunately, as COVID is, after all, a flu-like illness, we will also have a good, nice warm summer in Northern Europe, and that kind of makes the virus go away for a while. Then probably during vaccination, it will all be gone by the second half of 2021. We are optimistic. Again, thank you, shareholders, for your support during these difficult times.
I now leave the word to the spokesman for the nomination committee, Dick Bergqvist.
Thank you, Christian. My name is Dick Bergqvist. I am employed by AMF, which is currently the fourth largest owner in Pandox, and I am a member of the nomination committee. AMF has followed Pandox closely since it was relisted in 2015, both as an owner and member of the nomination committee. The nomination committee has a positive view of the Board of Directors' work and is of the opinion that it is competent, efficient, and well-balanced. 2020 was a difficult year for many companies, particularly those active in the hospitality industry. Given the challenges Pandox faced in 2020, the nomination committee's main priority was to ensure the board's continuity and stability, and where possible, offer constructive support. One such area is the constitution of a Finance Committee, which the nominating committee, subject to annual evaluations, sees well-motivated from a risk mitigation and value-creating perspective. Thank you.
Yes, with that, we move into the question part. You can ask written questions at the bottom end of the page. We have one question regarding construction projects in Stockholm. It goes, "Are you planning any construction projects in Stockholm area in the coming years?
No. We never construct new hotels. We have only done it once in Pandox life, and that was because we tore down the other hotel, so we did a new one on the next land. We don't believe in building new hotels. We buy them. We acquire hotels for 60% of their construction value. So that is our model. The question is, no, we are not planning any more, and we will not plan any on any other places as well.
As it stands right now, there are no further questions. I suggest we wait an awkward 30 seconds or more if there is anything more coming in.
You are welcome to ask whatever Even Vattenfall, if you want to. Please, one more.
Here is another question regarding discounts in the second market on hotel properties, whether we see any, and to what extent?
You mean a distressed asset?
Yeah.
No, we don't see any distressed asset in our market in Europe so far. Maybe a surprise for many, but we should remember that the banks have been very supportive this time, and that it's also a lot of capital is available and has been available. So those transactions who has been done so far has been on value level, mostly in the level of 2019 years values. So quite aggressive. People seem to believe in these hotels. So those few transactions that have been done, as again, have been done on levels that is not even a small sign of distress. Would it come? Maybe, but we don't see anything, and that also confirm the value in Pandox portfolio, of course.
Do you have any plans for new acquisitions?
Well, we have, of course, been active and we follow things who is in the market. But again, they have been very expensive. Our priorities is to first make sure that our partners and ourself are a little bit more stable and that we could see maybe a little bit more into the future. We will not surprise anyone by coming up with something who is on the radar with a lot of acquisition at the moment. We would rather stay where we are in our very strong financial position. Then maybe later when the markets are stronger and the lending market is maybe easier, we may be able to come back. But not at the moment. Defensive strategy for once.
Could you expand on what reinvent means for your strategy, in terms of crisis response? Will you look to redesign your hotel properties for other purposes, apartments, et cetera?
Yeah, that's a very interesting question. We are spending a lot of time in trying to understand what is the big difference. What we see is that with a stronger domestic market, and that probably will continue for a long time. That means that the business model will change a bit. That mean, first of all, that hotel in domestic market will be stronger than those who is in larger market, like Karlstad and Jönköping will be probably a better market to be into than Stockholm is of the next two years. That also means that for the branding side, that the regional and local brands maybe will be stronger compared to international brands. That probably also mean that franchise agreement will need to change, and you will see more of independent hotel in the near terms.
In terms of product, we think that extended stays product in general will be more appreciated and people are willing to pay for it. If we can reorganize room with a kitchenette or something like that, or having more of shops in the lobby that people can take their own food. We have already installed that. Then, of course, another trend we also see that we also have implemented, that some people would want to check in with hotel with contact and contactless environment. That is also something that people can do. Today in most of our hotel, people can come, they can check in before, they can stay a few nights in the hotel and don't meet anyone from the staff, if they feel that is how they would like to have it. That is also some improvement we have.
Many small things combined with more better system in general to support the people's independency. Yeah, and more local business.
How long do you think the recovery can take for the hotel industry to get back to pre-pandemic levels?
Yeah. Then we need to split it in different segment. If you look at domestic segment, like a city in U.K., like Leeds or Sheffield or Mönchengladbach in Germany or Karlstad and Jönköping in Sweden, I think it will go quite fast and you will see strong recovery here given success of vaccination program. You will see a very strong second half of this year. When we come to larger city, which is not international city, but larger city like Stockholm, London, it will take a longer time. They need more of event, and probably more larger meeting to compensate. That is too many rooms for just the domestic markets. Winner will be resort hotel, premium hotel in resort areas, economy middle market hotel, easy reached by train or car. As I said before. That is, of course, totally new.
That means also that at the moment, it is probably much more healthy to own hotels in regional city than in international destinations. That will take a longer time.
What do you see as the biggest challenges for the coming months?
Well, I normally try to focus on things that I can have an impact on, but at this time, I think it's a vaccination program. If that will speed up, then that will help us a lot. We see that in market, like in U.S. when the program, and even in U.K., we see now an optimism which is driving by a successful vaccination program. We have a partner in Israel, Fattal Group, and they have their headquarter in Israel, and I talk to him weekly, and they are very happy at the moment, and they see that the country open up, which means that people start to first stay in the resort hotel, and then gradually, they open up hotels in Tel Aviv and Jerusalem. So that trend we will see. Vaccination is the key.
After that, the government easier the restrictions, because that is what holding back demand.
How do you see the split between your two business segments evolving in terms of perhaps taking over hotel operations from leases going into the operator segment?
Yeah. First that had been said, there had been a mega strength for the company that we have a capacity to operate hotels itself. We had to taking over two hotels in Copenhagen, just at the beginning of the pandemic company, who was weak already before the pandemic, and they didn't could fulfill the obligation. Then we could take over the hotels when we were more or less ready for a few days after we were ready to operate them ourself. We still operate them. So we have that capacity, and that means that all our partners know that we have this knowledge and also means that so long as they respect our minimum leases, nothing will happen. But if someone say to us that they don't want to pay leases anymore, then we will definitely be active in the sector.
Hasn't been any reason for me to believe that that will happen because they have respect this minimum leases all the time, and they still do. But if it's happening, we are ready. That is something, I believe that when you meet someone and they know that you can partly or whatever, do your job, then you have a stronger negotiation possibilities. This can also, of course, be in here later on. I believe there we have the strongest opportunities if it comes to acquisition, that we can buy hotels with operations. Many don't want to have that, and that, of course, an advantage we have compared to many other owners. But again, it's not timing to be active on the acquisition side. We need first to make sure that everybody survive.
From a more general perspective regarding valuations, can you give us a view on the situation right now? How you see the valuations being affected by the RevPAR recovery and other parameters?
Well, as you know, our valuation is that what we do, we change because of cash flow. The cash for our hotel, if that change, then we also change the valuation based on lower or better cash flow the next six quarters or five quarters. That what we do at the moment. For the long term, we have a strong belief that our hotel asset is at the same level as it was before, and the terminal value should not have any change in terms of return expectations. I think that the model that we have done, that we have rate down because of lower cash flow the next coming quarters, is something that we see most of our public company do the same. We are quite sure that the model works and will continue to work well for our side.
Are you seeing or do you expect private equity funds and other investors to become more active in the secondary market in the second half of this year?
Yeah, I think so. As I said before, there is a lot of capital. If those market basically had been U.K. so far, have been most active. There have been a lot of new players, I would say, coming in and are bidding for transactions that had been out in the market. Again, they bid on level who was aggressive already 2019. People are willing to pay a premium even in these days.
Do you have any plans to change your valuation model?
Of course not. We have a model that we have been work more or less since the company started, and specifically when we came back to the market again at 2015. The model work very well in both upturns and downturns. So we of course not change anything.
What geographical markets do you expect to recover first? What market is most important to Pandox?
The most important market for Pandox is Scandinavian, U.K., and Germany. We also have a lot of hotels in Brussels as a specific city, but the other three is bigger. I think U.K. will have a tremendous summer already in front of them. There will be strong recovery because they are in the first front of vaccination program. Those country who's been a bit slower, like Sweden and Germany, maybe will come after. There is already transactions and transaction mood in U.K., and even the banks are interested of supporting that. So we hope that trend will spread over for Pandox. For Pandox side, if we should come to a situation to buy hotels, then of course, that will be easier for us to buy in market that we already have a presence. We already have all the knowledge and network there.
On the other hand, what we are basically looking at is to do acquisitions which are more from underperformance side, so that maybe we need also to step into new geographic markets. However, we are in 15 countries and 19 destinations, so basically that should be a lot of possibility even for the future to stay in those markets. Thank you.
If and when you acquire, do you think that you will look at other segments, and change the split between economy, mid-scale, resorts, and regional in the portfolio?
Well, looking ahead, we should have more resort hotels. We have something that is partly a resort. 26 hotels are partly a resort hotel. We basically could have more at the moment. They are very expensive, and that is more Spain and Canary Islands at the moment, that people are fighting about to do acquisition in that segment. I believe extended stays are very interesting. They have been more stable than normal hotel business. At the moment, it is, you can now say maybe that the full service hotel with international profile, a lot of meetings are the one who is, people are not looking at the moment.
It may be there we should look at, because I strongly believe that we will have an international meeting market also in the future, even if it will take a longer time to come back than maybe domestic market in Sweden and in U.K. Do not follow the crowd. Always try to find your own way of looking at things. Thank you.
Okay. This concludes the Q&A session. Any final words, Anders?
No. Thank you for very good questions, and thank you for be here for us, and thank you for, as Mr. Chairman, Christian Ringnes, said, thank you for all the support over these years. We have been fighting a lot and I am super proud to be head of this company. We have managed this last year with not having any loss in any quarter so far, and we will continue to be active every day. But first priority is to survive and have control, and then we will see opportunities later on. That is the step we are looking at the moment.
Thank you much for your participation. Take care, everyone. Stay safe.