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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to today's Pandox Q1 2019 Report. [Operator Instructions] I must advise you that this conference is being recorded today, on the 26th of April 2019. And without any further delay, I would now like to turn the conference over to your presenter today, CEO, Anders Nissen. Please go ahead, sir.
Well, good morning, everybody, and welcome to Pandox presentation of the first quarter report of 2019. As said, my name is Anders Nissen, and with me I have Liia Nõu, our CFO; and Anders Berg, Head of Communication and Investor Relation. And as always, the presentation will be divided into 2 parts. We start with the presentation for the report and followed by Q&A session. So please go to Page 2. So for the first quarter, we at Pandox report a sustained profit growth and a good return on equity. The total net operating income increased by 14% including IFRS 16 and 11% excluding IFRS 16. Return on equity on an annual basis was 15%. And the driver behind this positive report is add-on acquisitions in U.K., a strong Brussels market and also, important to say, a positive calendar effect due to Easter was last year in Q1; this year, in Q2. Like-for-like Property Management increased net operating income by 1.3% and like-for-like Operator Activities increased by strong 17.1%. So next page, please. I think we have a stable increase in total net operating income based on a combination of different factors: first, the acquisitions in Manchester and in Glasgow, both profitable from day 1 and both have a good potential to grow profit further; second, a strong growth in Brussels and Berlin that we have a big business and a strong footprint specifically in Brussels that we also have been successful of converting new revenue into cash earning; and again, a positive calendar effect. On the negative side, we can point out 2 things: first, increased capacity. That is mainly Heathrow and Frankfurt in Q1. And you will also -- there were also negative renovation effect, negative in that way that we're taking out capacity to renovate for a chance of taking new market shares further on. So that would be hopefully some positive things for next quarter. And we estimate that the calendar effect for Easter had a positive effect on growth of 2% to 3% for comparable portfolio in the quarter 1. And we believe that, that will be neutralized in the second quarter. So next page, please. Since we returned on the stock market in June 2015, the company or we in Pandox have had a high business tempo, and I would point out 4 strong drivers. We have done acquisitions for approximately SEK 19 billion, all of them done out of Scandinavia. We had invested SEK 2 billion in growth-driving project in our existing hotels. We have secured more than 60 new leases. And finally, we have also sold out hotel for SEK 1.5 billion in Belgium and in Sweden. Over these years, the net operating income has doubled from SEK 1.5 billion to SEK 3.1 billion, and the total cash earning has grown from SEK 900 million up to SEK 1.9 billion. So quite strong number, if I may say so. Next page, please. Pandox overview. We have -- today, I would say in general we are totally different company since we came back to the stock market 4 years ago. We have today a well-diversified portfolio dominated by revenue-based leases, and we have also a well balance between different countries, location and guest segments. At the end of the year, Pandox property portfolio comprised of 144 hotels with 32,000 rooms, with a total market value of SEK 56.7 billion. 118 -- 128 of this is owned and leased and representing 85% of the total property value. 16 hotel properties is owned and operated, representing 15% of the total property value. Next page, please. The world of Pandox is more and more diversified and more and more internationally. And now we are in 15 countries and 82 different destinations. 45% of the value is in Scandinavia. Sweden is the largest, and then we had the same share from Finland, Norway and Denmark. 32% coming from Germany, Belgium, Netherlands and Switzerland. And 21%, the new big market for us, is U.K. and Ireland and 2% in Canada. So more diversified and more international. Next page, please. Here is our broad selections of operator and brands. But we cooperate in different ways: as operator with leases or as franchise in owned operations. As you can see, we have all important -- most of the more important brands in Europe, strong footprint together with company like Hilton, NH, Radisson, Scandic, Jurys Inn, InterContinental. And we have a strong footprint together with this company today with our more pan-European position that the interest on them has, of course, increased now when we have hotels across North Europe. Next page, please. Into the market. The Q1 2019 has 1% growth, and that is slower than the end of last year. I would say that the quarter was a bit disappointing, and hopefully, we will come back to better numbers later this year. If you looked at specific market, you can see strong growth in Austria, Norway. You see Germany, Finland, Ireland is still strong. Sweden and U.K. is stable. If we go to next page, please, you can see some key markets for Pandox. Brussels, Berlin, a number of 10%, very strong, where we also are -- has a strong footprint. Stockholm is coming back from the overcapacity situation that it had for 1.5 years ago and has now 4 positive quarter in a row. Helsinki is good; Copenhagen, stable. And then you have U.K. regional with its minus 3%, a slower start in regional -- in U.K. regional than expected; and Frankfurt, minus 5%. Their big exhibition market hasn't started yet in Germany. That will come in May and June. The next graph is Stockholm. And you can see, as I said, that we have 4 positive quarters with RevPAR growth, and we are back even stronger than we was before the overcapacity situation. And now I will hand over to Liia Nõu for the final -- financial highlights.
Thank you, Anders. Overall, Pandox recorded profitable earnings growth in both business segments in the first quarter. I'll give you some key numbers, starting with Property Management. In the first quarter, rental income amounted to SEK 685 million, an increase of 10%. Like-for-like Property Management reported an increase in rental income of 1.3%. In the first quarter, net operating income amounted to SEK 583 million, an increase of 10%. Excluding IFRS 16, net operating income amounted to SEK 568 million. Continuing to operating activities (sic) [ Operator Activities ]. In the first quarter, net operating income amounted to SEK 95 million, an increase of 44%. The strong uplift is mainly explained by the acquisition of Radisson Blu Glasgow and good conversion in Brussels. Excluding IFRS 16, net operating income amounted to SEK 90 million. Like-for-like operating activities reported an increase in net operating profit of 17.1%. EBITDA amounted to SEK 634 million, including central admin of SEK 43 million, which is in line with Q4 2018. The increase versus Q1 in 2018 is explained by the company's geographical expansion, the implementation of a new long-term performance-based -- long-term based incentive program starting in Q1 2019 as well as some costs for external valuations relating to Q4 2018. Total cash earnings amounted to SEK 362 million, an increase of 8%. Total cash earnings per share also increased by 8%. Measured from year-end 2018, the unrealized value increase for Investment Properties amounted to 0.3%, and for Operating Properties, it was 0%.End of period EPRA NAV per share amounted to approximately SEK 170.5. And adjusted for dividend, the annualized increase in EPRA NAV was approximately 15%. Next page, please. Financial expense amounted to a negative SEK 207 million and is explained by several factors: A, an increase in interest-bearing liabilities after implementing acquisitions where debt denominated in foreign currencies have increased. And here, we're talking especially of British pounds, where LIBOR is markedly higher than Stibor or Euribor. Also, Pandox has interest hedged a large share of its loan portfolio. And finally, a weaker Swedish krona versus the other currencies that Pandox has loans in. I would also like to mention that financial cost in use-of-right (sic) [ right-of-use ] assets according to IFRS 16 amounted to a negative SEK 19 million. Next page, please. In the first quarter, Property Management benefited from previous acquisitions, positive currency and calendar effects while underlying demand also remained positive. However, Pandox growth was constrained by negative supply and renovation effect in some markets, as Anders previously explained. Rental growth in the comparable portfolio was positive in Norway, Germany, Denmark, the U.K. and Austria. In the U.K. and Ireland, our hotels continue to gain market share. Strong destinations were Munich and Brussels. Several domestic cities such as Lillehammer also had a positive development. And in Stockholm, rental growth increased marginally in the quarter. Next page, please. In the first quarter, both revenue and net operating income increased at a good pace, supported by previous acquisitions, currency and a solid development in Brussels with good conversion. Berlin was also strong. Brussels currently benefits from a combination of good demand and limited inflow of new hotel rooms. The ongoing rebranding of DoubleTree by Hilton Montreal continue to have a negative impact on the profitability in the business segment. Next page, please. In the quarter, only around 7% of the portfolio was externally valued. Total unrealized and realized changes in value amounted to approximately SEK 136 million, of which SEK 135 million for Investment Properties and the rest for Operating Properties. The value increase is explained by combination of improved cash flow and lower yield. End of period, the average valuation yield for Investment Properties was 51 -- 5.51%, and for Operating Properties, it was 6.71%. Next page, please. Finally, let's take a quick look at our EPRA NAV and financial position. End of period EPRA NAV per share amounted to a rounded SEK 170.5. Adjusted for dividends paid in April of SEK 4.70, it was SEK 165.82. This correspond to an increase of approximately 15.2% on an annualized basis adjusted for dividend and proceeds from direct share issue. The increase is in part explained by changes in currency exchange rates following a weaker Swedish krona. Loan to value amounted to 48.5%. And adjusted for the said dividend which was SEK 787 million, it was 49.9%. Liquid funds and long-term unutilized credit facilities amounted to approximately SEK 3.6 billion. So Pandox financial position remains strong and stable. So next page, please. And with that, I hand over to Anders for some final words.
Yes. Thank you, Liia. Yes, let's look at the driver for the future. We see a few strong driver will continue to help us. That is, firstly, economic activities in the market. We see an increase in travel. We see a good fair trade market specifically in Germany. That is also a strong profitability in the hotel market, and that is so solid now so we could do a lot of wealth-driving project together with them, which would also increase the value of the company. So that is a strong picture. With that said, it is also important to point out that the hotel market is more in maturing phase and the growth is slower than it was for perhaps 2 years ago. And we will -- the negative impact in -- for that is we will see strong comparison. We will see some increased capacity in some market we will take some time to digest. And also, on the top of the that, some negative renovations in our existing hotels. But with that, all in all, is a positive outlook that we look at -- that we see with, as I said before, a strong economic activity. And with our diversified portfolio profit acquisitions -- profitable acquisitions we did in last year, that is conditioned for some growth in 2019. And with this said, I -- we're now ready -- we close this part, and we are ready for questions.
[Operator Instructions] The first question comes from the line from Fredric Cyon from Carnegie.
A couple of questions from my side. Starting off -- first, directed towards Liia. What we all like to speak about is IFRS 16 these days. Just wanted to clarify on the cash earnings. That's a neutral effect, right? It's only on the EBITDA line that you have an effect?
Exactly. It's SEK 90 million higher EBITDA, but then it goes out on the financials. So it's a neutral effect.
That's clear. And then on the RevPAR development in Europe in the first quarter, it was 1%. And then, of course, you indicated that calendar effect was a positive 2% to 3%. That suggests that the underlying market actually declined. Do you expect us to return to underlying growth in the coming quarter?
No, I don't think so. As I say, I believe that Q1 was a bit under -- there was a bit disappointment, but as you said, it was slower than the end of last year.
Okay. And then finally, on the transaction market, do you see a lot of bids being made? And generally, can you say anything about price levels on the bids that you have access to?
I'd just start off acquisition in general, a very, very broad answer. It's slower than it was last year ago. If that means that, that will continue the whole year, I don't know. But you see that, at the moment, the seller sell for forever growth, and the buyers believe that there is a slowdown in the market and they will -- maybe are not ready to pay for forever growth. So that will -- that gap is now will be too high between seller and buyer, and that is normal for this part of the business cycle. I would say that's maybe going to be adjusting in the few next months.
The next question comes from the line from Albin Sandberg from Kepler.
So 3 questions, please. One, if you just could put some more color there, Anders, on what exactly were the disappointing factors in Q1, you think, on the overall market.
You can say that Germany, we do have high -- a little bit higher expectation this year compared to last year because the fair trade market is stronger. This year, it hasn't -- that market hasn't really started yet. That's coming May and June. So that is one factor. And you can also say diversified picture in U.K., where London is very strong and U.K. regional are a bit slower. And we don't give you -- we didn't maybe expect that. And then Scandinavia in general has coming new capacity into the market, so down the line, it's good but it's pressing RevPAR. So in general, there had been a few new pattern in the market that we might -- didn't thought should have that strong impact. We will see in Q2 if that will be better.
Yes. And do you see anything different when it comes to business or leisure travel? Is that a specific impact if you look at maybe year-on-year or quarter-on-quarter comparison?
If you see in general the travelers, the number of travelers are increasing across Europe, specifically for the tourist market and the leisure market. We also see in most of the market in -- out in Europe that the domestic leisure segment going up and the business and meeting segment so far had been fairly stable. So no difference there. And yes, sometimes a quarter is too short a time to just explain what's really exactly -- what is happening.
Yes. Great. And then I think I've touched upon this question before, but I just wanted to repeat it a bit since you're highlighting renovation as a negative impact. And I guess that you have prior indicated that you are now in a phase where renovation is maybe running a bit above your kind of normal average run rate. Even though -- I mean your portfolio is constantly evolving, so it's hard to really get a grip on what's the steady run rate. But when do you expect this kind of renovation phase to move into a more normal state?
First of all, you're absolutely right that when you are in this maturing phase where [ relic ] is a strong driver in the market, there is more opportunity to do cash flow-giving projects together with operator because now we have strong incentive to do it. And that means that we do more now than we have done ever before. So that will be something we will continue to do in whole 2019. And I will say the big effect upon -- in general, big effect, you -- in general, you will see positive effect maybe end of this year or beginning of next year. That depends on if you signed up more into that process. But with the position we have today, we will be very active on doing investments in 2019 -- full year 2019. I think that will give you some...
Okay. Yes. No, I think that's very helpful. And then fourth, follow-up question from the previous -- Fredric there. When it comes to the value changes that were quite low in the quarter, is that a sign of the slower transaction market? Is that why you're kind of a bit cautious on that side? Or is it more a seasonal thing that you think 1 quarter is too little to do -- really do anything on the values?
I think -- I would assume that most companies probably have sort of a lower pace of external valuations in Q1. We did 50% of external valuations in Q4. The first quarter hasn't changed so much. There is half of that, that the unrealized value change is yield. The other one is cash flow. But normally, the first quarter is always a very a slow quarter when it comes to valuation changes.
[Operator Instructions] We have one further question at the moment, which comes from the line from Christopher Fremantle from Morgan Stanley.
Just a couple of follow-ups on questions that have already been asked. When you are talking about the effectively maturing market and slowing growth, are you signaling a slowdown in the rate of EPS growth as we go through 2019? Or are you just talking about the rate of market RevPAR growth? I appreciate the 2 are linked, but if you just clarify what you're talking about for your EPS trend growth rate as we go through 2019 that would be helpful. Secondly, could you just clarify what your CapEx budget is for 2019? And then finally, can you just reflect on the U.K. acquisitions that you've made? Given the weak RevPAR growth rate, I mean, are -- was that part of your plan? Or is there more to come in the U.K. That you are not mentioning? Any reflections on the U.K. acquisitions that you've made would be helpful, please.
Yes. Thank you. Let's start with the U.K. And we -- as you remember, we did first Jurys Inn in 2017, and then we did The Midland last year, also with -- and also Glasgow. You can say that, in general, we are above plan with -- in terms of rental income. So there had been -- from profitable acquisition, the rental income had grown at least as expectations or a little bit above our internal expectations. So let me confirm that we did -- we were in the right timing. When you see now slowdown in the U.K. regional, it's such a big market with a lot of big cities, so that is uneven. Glasgow is coming down compared to last year. We know that when we bought the Radisson Blu, and that was due to a few big event that they had at the beginning of last year. And we believe that Glasgow will continue to be a little bit slower 2019 to '18 but not on the underlying business that we got, but that is due to these one-off events. And then the next year, the market looks very strong again in Glasgow. You see a little bit of that also in Manchester. That -- you can see that new capacity coming in and press the market. We are -- we had increased above plan in Midland already. So we have -- the defect had been not on us at all or big negative effect. That is in general, and that is the segment who is -- had been hardest defected. In Manchester had been the mid-mark defect, which we, of course, have already seen, which has slight slowdown but nothing specifically. But the big one, The Midland, has gone up. So you can see this leaves an uneven picture when you look at U.K. In general, it might -- could say that there is some sort of very early trend of saying that the government business maybe is a little bit slower then last year. Maybe you can see something about big events on company that they maybe wait for it, but the leisure and the business segment are still very strong. I hope that helped you, yes? And then we go to the next. Liia?
Yes. I can say a quick word regarding CapEx. As you've seen the report, we are -- we have committed investments of more than SEK 1.1 billion. And out of these, as we previously said and I'm repeating it again, maybe around SEK 100 million or so is things we have need to do with more of a sort of a technical level. Other parts are cash for doing investments where we typically have between 8%, 10% maybe up to 12% total ROE return. So -- but of course, it takes time to do all of these, so maybe we have time to spend maybe around SEK 750 million, SEK 800 million for this year. But it will be ongoing -- hopefully ongoing good new investments coming in moreover, so -- which will continue in '19, '20 and into '21.
And then on the earnings per share trend as we go through the year?
Yes, you said that it was -- you said it...
Could you repeat the question, sorry?
Yes, sure. So you -- in your guidance, in your outlook statement, you're signaling a maturing market RevPAR environment, slowing RevPAR growth for the market as a whole. Can you just give a little bit more color on your own earnings per share trajectory as we go through 2019? I know the 2 are related, but just a little bit more specifics on your EPS trend. Because, of course, there are a lot of moving parts, so a little bit more clarity on your earnings trend as we get through the year, please.
Yes. That was not an easy one. And let me say it in this way. We talked about the slowdown, Christopher. So it's not -- we don't talk about decline. So there is...
Slowdown of the increase.
Yes. There would be acceleration, so it's still a growth. So this -- we look at -- and that the RevPAR will go down in general for Europe will not happen. That will go down in some few markets. I don't know if exactly that is the answer you are looking for. But in general, we see a potential for some growth in '19 definitely.
And we don't see significant change in the earnings per share development. I mean, of course, it varies between the quarters, but it's -- there's no sort of significant de-acceleration or anything like that, the opposite, especially with all the investments, yes.
Sorry, on the earnings per share growth trend, you will see an EPS growth slowdown or you won't see an EPS growth slowdown? That's what I'm trying to get to. I know you're talking about...
But typically, we don't guide on that anyway. So we haven't -- so I think RevPAR -- the slowdown of the increase of the RevPAR. But then, again, we do a lot of investments, we do profitable investments, we work with our operations portfolio, et cetera, et cetera.
At the moment, we have no further questions. [Operator Instructions] At the moment, we have no further questions coming through. Please continue.
Yes. Thank you for your interest. And please notice that we have a Capital Market Day in Stockholm on the 9th of May at Fotografiska in Stockholm. And we also have a Capital Market Day in London on the 10th of May in Andaz at Liverpool Street. So 2 opportunities for us to meet all the investors. Hope there will be many who has a chance to participate. And please visit our website for more information. And we are looking forward to see you all there. Thank you very much. And again, thanks for your interest.
That does conclude the conference for today. Thank you all for participating. You may now disconnect. Speakers, please stay on the line.