Pandox AB

STO:PNDX B

Earnings Call Transcript 2021-Q1

[Anders Berg, Senior VP & Head of Communications and IR]

Welcome, everyone, to this presentation of Pandox's first quarter report for 2021. I'm Anders Berg, Head of Investor Relations at Pandox. And with me in this room, I have Anders Nissen, our CEO; and Liia Nõu, our CFO. And in line with our tradition, through this pandemic, we also have an internal guest with us, and that is Robin Rossmann, who is Managing Director, International, at STR. And as you all know well by now, Robin represents a leading independent research firm focused on the hotel market, and he will share their view on this market. And as always, we are very happy to have him on board for this presentation.As we always do, we divide our presentation into 3 parts. We start with Anders and Liia going through the business update and the financial highlights for the quarter. And then we'll let Robin talk about the external hotel market view. And as a final step, we open up for questions.So with that, I hand over to you, Anders.

[Anders Nissen, CEO & President]

Well, thank you very much, Anders, and welcome also from my side to this Q1 report for 2021. We start with a short update about Pandox. Pandox is one of Europe's largest hotel property company. Our main strategy is to buy underperforming hotel and sign long-term revenue-based lease agreement with the best operator, with -- together with our partner of developed hotels. If that strategy is not in place, we can choose to operate hotels itself.At the moment, we own 156 hotel properties with 35,000 rooms in 15 countries and in 90 destinations. 136 of this is linked to what we call the property market -- property management, meaning the lease portfolio, that's representing 84% of the property value. And 20 hotels is operator activity. That means our own operations, that's representing 16% of the property market value.As you all know, who have followed us, Pandox has a world-class strong network of brands and partners, which are very strong to have in all market conditions, maybe specifically in these days. Just a few words about the quarter from my side before I hand over to Liia. This another tough quarter for hotel industry and even for Pandox. The negative trend from Q4 continued. As you all remember, the hotel market 2020 was a really much rollercoaster. Starting very strong, there was a collapse in March when COVID-19 arrived. Good come back over summer period and a promising start after the summer and then new restrictions was imposed again and the market substantially decreased, and we are still in that business environment.With that said, we are still profitable, and we still have a strong financial position in Pandox. And we see a positive development the market outside of Europe, we will come back to this later on. And there, we have an attractive position in the recovery phase by having most of our hotels in the regional and domestic markets.And some numbers. The return on equity is minus 9%. And growth in total net operating income is minus 34%. Like-for-like growth in property management, minus 14%. As you all remember, we had a good start in last year, January, February, so we compare numbers from a very strong performing market even in this quarter. And liquid funds and credit facilities SEK 4.6 billion. So we are a strong -- we have a strong financial position. With that, I hand over for Liia.

[Liia Nõu, Senior Executive VP & CFO]

Yes. Thank you, Anders. Page 5, I think we are on now. Yes, as Anders just said, demand in the hotel market followed the trend from the fourth quarter with very difficult business conditions in the hotel market.As a consequence, contractual minimum rent and fixed rent were Pandox' main sources of income in the quarter. As you know, this income covers all Pandox' operating costs, including interest payments. Cash flow in the quarter was impacted by an increase in the trade accounts receivables as well as investments. End of quarter, trade account receivables related to new payment terms amounted to some SEK 566 million, which is an increase compared with the fourth quarter, which was SEK 439 million. We report negative unrealized value changes in the property management, which reflects lower expected cash flows, and I will come back to that later in the presentation. Next page, please. Pandox' revenue base is diversified with revenues from different operational models and agreement types. Currently, minimum rent and fixed rent are Pandox' main source of revenue. These amount to almost SEK 2 billion per year or slightly less than SEK 500 million per quarter.In the first quarter, revenue-based rent amounted to SEK 31 million. No reductions in hotel rents have been given. In the first quarter, revenue from operator activities amounted to SEK 92 million.Next page, please. On this slide, you can see our portfolio split per operational model, measured in number of rooms. As you can see, 36, 3-6, percent are fully variable from first unit of rent or revenue. 58% are fully variable only above the minimum guaranteed level and 7% is fixed. Next page, please. In our revenue-based leases with a minimum guaranteed rents, the rent is variable but can't fall below a certain minimum level. For variable rent to materialize, the accumulated total rent must exceed the accumulated minimum level during a certain period. This is normally a calendar year. [indiscernible] protection in a weak market, it can also limit Pandox' revenue growth in the first phase of a recovery that starts from a very low level. The occupancy rates required for variable rent to materials in Pandox' revenue-based leases with a minimum rent differ between markets. This is due to market practice, commercial considerations and also contract age. Generally, the minimum level is lower in the Nordic region. At the end of this presentation, you can find more information about this facility.Next page, please. In the first quarter, Pandox valued the property portfolio according to the same method and same model we used since the IPO 2015. Values have been adjusted downward due to lower anticipated cash flows, mainly as a result of COVID-19. Yields are again largely unchanged due to still inconclusive transaction evidence. As we learn more about the effects of COVID-19 crisis, we expect to be able to estimate both yields and cash flows with greater position. Our target is to have 100% of the property portfolio externally valued each year as a reference point. Currently, approximately 50% of the properties have been externally valued during the last -- past 12 months. External valuations exhibit large dispersions, both within and between markets. External valuations are on average some 5% below Pandox internal valuations. The valuation difference is smaller in the Nordics and larger outside the Nordics.In the first quarter, total unrealized changes in value amounted to a negative SEK 344 million, of which a negative SEK 351 million for investment properties and a positive SEK 7 million for operating properties. Please note that according to IFRS, unrealized changes in value for operating properties are only reported for information purpose but is included in the EPRA NRV calculation. End of period, the average valuation yield for investment properties was 5.46%, and for operating properties, it was 6.38%. Next page, please, Page 10. On this slide, we can see the value change of our portfolio per quarter as well as accumulated value change from the start of the pandemic in Q1 2020. For the total portfolio, the accumulated negative value change over this period amounts to negative 4.9%. Our approach to property valuation is fact-based and rests on a combination of external and internal factors and considerations.As said, we see high correlation between restrictions and demand in the hotel market. When restrictions go up, demand goes down and vice versa. We saw it in Europe during last summer, and we have seen it recently in major markets -- hotel markets outside Europe, such as the U.S. When restrictions go down, demand go up driven by domestic travelers, which benefits hotels with the domestic and regional demand exposure, just like Pandox portfolio. Furthermore, transactions relevant for Pandox indicate a resilient valuation. You are still out how the world will look like after the pandemic, of course. But so far, demand is clearly linked to restrictions, not change of behavior. In addition, we have a well-developed bottom-up approach to our valuation. We know our hotel properties better than anyone else. We have individual business plans for each and every property, and we have a detailed understanding of the specific revenue drivers for each asset. Yes, the pandemic has a negative short-term effect on the cash flows in the hotel properties, but we [indiscernible] assumptions of in a negative long-term yield effect.Next page, please, Page 11. Again, let's take a quick look at our EPRA NRV and financial position. End of period, EPRA NRV per share amounted to around SEK 170. This corresponds to a decrease of approximately 9% on an annualized basis. Loan to value amounted to 49.5%. Cash and cash equivalents and long-term unutilized credit facilities amounted to approximately SEK 4.7 billion. Credit facilities maturing in less than 1 year amount to approximately SEK 5.5 billion, of which approximately SEK 3.8 billion will mature in December 2021. Pandox has a positive and closed dialogue with all of its lenders on new financing, refinancing as well as adjustment of terms and covenants in existing credit agreements with consolidation to COVID-19. In the first quarter, lenders have given waivers in individual credit agreement. Next page, please. And with that, I hand back to Anders again.

[Anders Nissen, CEO & President]

Thank you very much, Liia. So let's then move over to market presentation. And we would like to -- we have chosen 3 areas to create more insight for 2021. The first is a recap and an update on market in Pandox business areas. The second part will be -- take a look at market ahead of Europe, what sort of patent do we see. And finally, guiding for markets and effects for Pandox. So let's start on the 3 focus areas, which we have had since the pandemic started. And we call it the working methodology: restart; respond; and reinvent. The respond is how we manage this acute phase of the crisis, where we basically change business model over the weekend from an active investor and operate in large international operations to secure liquidity and data contact with banks and our partners. We are still in that phase, but we have been spending more and more time on restart, which is the plan for recovery. And what sort of action do we need to take to be ready and reinvent what's next for this -- our industry.So page -- next page, please. To get back to full performance, if you start there, we think it's -- we need different development levels. It, of course, starts with that the countries and cities open up and activity starts. After that, hotel will open, and then we will see domestic leisure return. After that, we will see domestic business return. And then, we will call international meetings and group return. And that is basically how the market also had reacted over this recovery phase in market ahead of Europe or as it was in Europe over summer period. Next page, please. A quick recap. Everybody starts from the same point. As you remember, COVID-19 arrived in Northern Europe in March. Societies closed down, economic activity decreased. But when restriction was lifted in June and July, a recovery started across Europe with domestic leisure as main driver. After the holiday period, the local business travel returned and Q4 looked quite promising. And then in October, new restrictions was imposed, demand decreased substantially across all segments. And this low business environment are continuing into Q1 2021. And now we are waiting for this vaccine program will gain confidence again.Next page, please. I'm now at Page #15. If you look at the numbers, in Nordic, regional market, we saw a strong start in '20, collapse in March as good recovery over summer, a good platform in September before these new restrictions was implemented. And since then, it has been a very slow market.Next page, please. I'm on Page #16. What you can see now rolling 7 days trend in the Nordic regionals. A small uplift but very slow still. Everything is linked to this that restrictions has not eased yet. If we then move over to Stockholm, you also see a strong start in the last year, the same with a substantial decrease in March. And then market has been -- at all large city has been slower than regional and domestic markets has been, so even Stockholm and it's still weak market in Stockholm. Next page, please. I'm on Page #18, looking at Germany occupancy, and you see also here a good start, a collapse in March. And then we were okay after summer period. But since then, Germany is perhaps one of those countries who have had hardest restrictions. You haven't been allowed to travel and stay in hotels. So of course, they had no demand, and we cannot expect anything happen in Germany before the ease of the restrictions.But if you come to U.K., that is more optimistic view. You see here, again, a good start in '20, and you see in March and April things came down and after restrictions was easier in June, August. It was quite a strong regional market, which came down also when new restrictions was implemented. But if you look at the next Page 20, you will see that the rolling trends start to move. I know it is just a week, but I see ahead of this, and I see business on the book gradually coming up. So with very small change or positive of restrictions was easier, the market had in regional market come -- start to come down. It's all started to lift up again, and you see that the market for the summer is start to looking very promising. So U.K. is the one who is leading the Europe train out of back-end recovery.And if we then -- yes quick in London, you see as in Stockholm, large markets are weak, and they will take longer time for this sort of market to come back compared to regional and domestic markets. I'm now at Page #22 and I am now moving over for a market who is ahead of Europe, trying to see what can we see and what sort of pattern is there. You can see that the same pattern everywhere. Strong recovery, driver is domestic demand, and there's a strong correlation between restrictions and demand in this market. Let's start with China. China is first out in the recovery phase. And the driver is domestic leisure. And then also domestic business had opened up. We see an improve in meeting segment, we see also large conventions are taking place in the market. Very positive and very interesting, large city like Shanghai and Beijing are start to moving. And that is the first sign since the pandemic started, the large markets start to increase the demand. And they are coming now very -- in a strong speed, up to -- close to 2019 year's level very soon. And that is, of course, very promising also for Europe that you can see that the first market has -- large markets are also coming back to the one who is the first in line. And super interesting, strong domestic demand trend compensates for lack of international travelers something we had talked about a lot in Pandox, that we believe that the domestic market will be stronger than ever, and the driver will be -- for its recovery will be domestic demand.If you look at the numbers in Page 24, you can see since the restriction was easier in February, March last year, there had been a strong growth in market. And you can see in September, October, November, they were more or less up to 2019 year's level in occupancy. And you see also now a strong underlying trend. What -- the decrease in January, February was temporary restriction was implemented due to Chinese New Year eve. As many of you know, it's a mega market with 100 million people traveling back to small cities where they came from, and they don't want to spread the virus, so they had a temporary restrictions there. But when that was easier, the market came back immediately, and you see a strong business on the books in China. So this is super promising.And if you look over -- go over to U.S. that is the runner up market at the moment, a very successful vaccination rollout had lead to travel confidence, and now -- and also here, you see that demand is driving by domestic leisure and local business. These 2 segments are fully back in U.S. as well. And you see an early sign of meeting and event however, still in low levels. We are trying to calculate it. We think the market on these 2 segments are around 20% of total '19 year's level. Despite of that, the occupancy is around 80% of 2019 year's level, which, of course, is sensational because low meeting demand, low event activity, as said, no international demand and big and large corporations have to start the travel yet. So U.S. are really coming very strong. And again, as I said, domestic leisure and local buses are fully back in this large hotel market. In numbers in the Page 26, you see in U.S. has been a strong start, and then it came down in March and April promising summer, and now it's back in 55% occupancy again. So they are in -- 1 or 2 quarters, they are probably back in 2019 year's level in terms of occupancy and then you need to gain rate, of course. And that will be coming with a large 25 big country -- cities will start to come back with the same trend as beginning in Shanghai, that we're waiting for. And so Page #27, get back to full performance. Now our U.S. and China on Level 4. And I will say, China is very much on the way up to Level #5. And in Europe, after the summer, we were at #3 and 4, and it's likely that the Europe will come back to #3 and 4 quite immediately here when restrictions were easier.So some sort of outlook. And of course, again, and I very emphasize this. That all -- everything depends on the restrictions. That is out of our control. But given this that the recovery restrictions will easier in the same rate as in U.S., we are about a quarter behind U.S. or probably a little more. That means that the recovery will start in Q1, Q2. This year, we're already in Q2, and the one who will take the train there is U.K., and then hopefully, the summer will be strong. In autumn after the summer, the market will establish around Level 4, which are something around at least 50% occupancy. And that is supported by domestic leisure and local regional business. And of course, this is our -- that Pandox has an attractive position here with 80% of rooms in domestic and regional markets. So what does this mean for Pandox? Yet the contracts try to give different revenue exposure, as Liia was into before, and this is just a repeat of what had already been said. Full and immediate impact coming from operator activity and revenue-based lease agreement without a minimum level. That is representing 36% of the company's number of room -- room stock. And then you had a gradual impact from market recovery, it's representing 64% of the revenue-based leases with minimum guaranteed rent. And given this to give you some guidelines here, so given the hotel market weak start of the year and the sign of the agreement where we are strong [indiscernible] downside, and only limited variable revenue is expecting in lease with minimum guaranteed rent in 2021. But of course, it's very good for our partner if market will be stronger and they will coming back to a positive cash position.So before I hand over to Robin, I would also like to jump on a very interesting area, transactions, which we have discussed here before. And the transactions market had gradually opened. Over this quarter, there had been done 15 major single acquisitions who has -- is relevant for Pandox to follow that will be doing more acquisitions or transactions, but 15 of them are relevant to us. And the seller operators sell because they need to have to increase or strengthen their financial position. Very strong interest from Bio.So far, the acquisitions confirm Pandox valuations. And we don't see any distressed prices, and we don't see any distressed asset as we speak. It might happen further here, but not today. A few example, large hotel in Stockholm was sold by approximately EUR 320,000 per room. That is in line with or above what we have in our books. In Copenhagen, a sensational high price, EUR 520,000 per room, which is very much above our valuations. You have one in Berlin and a big -- very good hotel, I will say, a EUR 170 million per room. Yes, it's fantastic hotel. And this is also in line with what we have with our hotel in Berlin. Then 2 hotels in Munich in the line what we have, and you have one in Dublin, and that price is above what we have in our books. So, so far, high prices, no distress and what they complete is confirming Pandox valuations. So with that, I hand over to Robin Rossmann. Thank you very much, and welcome, Robin.

[Robin Rossmann]

Thank you, Anders. Great to be here. So sort of going on to Slide 32 and agenda. This agenda is basically exactly what we were saying in January this year. And so Q1 has very much played out as we expected, certainly in Europe where Europe is going to be a tough quarter, and that's certainly what it was and when we look at what we're seeing and expecting for the rest of the year and beyond, if I'm honest, not much has changed from what we last shared 3 months ago. But what we do have is some more data, some more trends that help either validate or course correct some of the things that we've been saying.So just talking through that briefly, and I'll go through some of these quite quickly, as I'm sure you've seen many of them before, and I'll just really focus on the ones that I think are most pertinent.If we go on to Slide 34, something more seen, I hope you've seen before, indexing occupancy across the world back to 2019 levels. And really, the things I'd point out to are that are new is some really positive trends over the last 3 months in China, which has bounced back from the dip that they had back to now about 80% of 2019 levels, but perhaps more impressively, the U.S. -- and steadily recovering to about 80% of 2019 levels. And the Middle East after peaking quite significantly over the, sort of, December, January period of dip back as restrictions on international travel have been necessitated by the recent wave of COVID cases we're seeing across the world.But certainly, those 3 regions showing us some strong recovery patterns to 60% to 80% of 2019 occupancy levels, whereas, as you'll know, in Europe, restrictions mean that occupancies are now very low, about 20% of what we normally have at this time of the year.One last thing on this page that I'll reference and if you can remember for later on, it is the China line. And the reason -- what I'll just pull out there is if you go back and look at last year, when China dipped down, its recovery started in Q2 2020 from a very low base. And you could see it steadily climbed at that sort of 45-degree angle up to a point in mid-July, where it was 60% of 2019 occupancies and then it continued to climb thereafter. And by Q4 was actually 90%, 95% of 2019 occupancy levels.And then it dipped down again after that. And the reason for the dip down is a lot of that spark up was pent-up demand, which was released -- created a spike and then it dipped down, and we saw that sort of plateau where international -- or the lack of international travel were restricting some markets. And then as Anders mentioned, the recent number of cases and Chinese New Year dipped down, but it's recovered again quite quickly. So just keep that in the back of your mind. From starting a recovery in Q2 was pretty much up to 90% or more in Q4 because I think that will be relevant for Europe.On to Slide 35, just looking at average rates, and this one has always been a surprise to me. Certainly for the Middle East and for China, where you can see that average rates indexed to 2019 are pretty much back at 2019 levels. I personally had expected that they would be sitting more at around the 80% mark. Kind of where sort of the rest of the world is in Europe are sitting a bit lower at around about 70%. But what that does say is rate has the potential to recover maybe far faster than we might otherwise have thought. Given those markets are still only at 80% of 2019 occupancy levels. So some positive trends there in terms of the rate at which rate can recover even when the market isn't fully recovered from an occupancy perspective. So just very briefly on Europe, looking at Q1 on Slide 36. Very surprising is the gray line occupancies well below prior year levels. Moving on to Slide 37. You can see from March, in particular, March was when the lockdown started last year, sort of partially for the March to March. This year is certainly still worse than last year in most places, except for in Italy. And then as we go to Slide 38, there you go, that's what we call a bad data slide because it's showing fantastic improvements year-over-year, April month-to-date in 2021 is huge growth on 2020. Just ignore the y-axis and the percentage levels because then all excitement is removed. But nonetheless, things are getting better, and the comparables are going to get better as we go forward. So let's just talk about Q2. And on Slide 40. Got you just a snapshot of looking across Europe. At the beginning of February, we were -- if you looked 2 weeks out, how much occupancy was already on the books? So in other words, how many rooms had been sold as a percentage of available rooms for the next 2 weeks as at the 8th of February. And you can see that the numbers range from 4% to 7%, so very low. And how much will be picking up? In other words, over the last week, how much did we sold for the next 2 weeks? The answer was, nothing. Pretty universally. Why only 2 weeks? Well, the reality is the lead time for many reservations are so short at the moment that about 2 weeks is all that's really robust in terms of time frame to look at what -- how business on the books will play to actual.But long story short, we knew early on in Q1 that it was going to be pretty dire, and the data played out as such. When we look at business on the books now on the April 19, on Slide 41, you can see it's definitely much more positive. We're seeing occupancies in double digits, particularly in the U.K., 15%, Switzerland, 15%. And we're seeing that, that is growing each week. So picking up about 4 percentage points each week. So much better. Still relatively low numbers, but much better.So what does that mean as we go through the rest of the quarter? Well, interestingly, you'd expect U.K. to be showing much higher here than, say, Switzerland, but it's not, it looks pretty similar. And the reason for that is, if you go into Slide 42, that certainly, for the next months still, hotels are really still restricted from being fully reopened, can't do any kind of leisure travel. And I'd still say there is a push against business travel at the moment. And then it's really only from the designated opening date, I think, 17th of May, where things are more open for people to travel and hotels can fully open for leisure.And so that is where we're starting to see these certainly weekend sparks of business on the books at 25% and beyond. And the interesting thing, when you look at this, as usually you would expect business on the books to tail down from the left to the right-hand side of the axis. So you -- more business on the books today than 3 months in the future, whereas what we're seeing is confidence is building as we go into the future.So positive signs there. But what about the U.K. versus other markets around the world? Well, on Slide 43, we can see that Ireland, even though there is no definitive planned reopening date, there is optimism that's coming back and an expectation that by the beginning of June, things will start to reopen and people are starting to book for that. So we're seeing it ramp up and get pretty close. Obviously, they also had the hope of the Euros being hosted or some of the Euro games being hosted there. That's unfortunately now being canceled. So it'd be interesting to see how much of an impact that has on business on the books. I suspect not that much, to be honest, because those are all Saturday peaks going through into the future.On Slide 44 is where it gets. I think, quite interesting to see the difference between the U.K., France, Belgium and Italy, which really can be put down to the vaccination gap between the different countries. And it shows really, I think, good cause for hope that as soon as cases are down, as soon as there's more certainty around the ability to travel, that there is no reason why France, Belgium and Italy and other countries in Europe wouldn't bounce back quite quickly to the levels of business on books that we're seeing in the U.K. because that is really all underpinned by high levels of vaccination and certainty over the reopening dates.Slide 45 shows that certainly, Switzerland and Netherlands doing a bit better than France, Belgium and Italy. But still quite well below the U.K. business on the books. So what does those numbers actually mean? I mean, it's -- going up to Slide 46, what can we take away from looking at future business on the books that shows business at this levels? And it is really difficult to make any definitive conclusions at the moment because lead times to actual booking -- between booking and people staying are still very low, as I said, mostly within 2 weeks of stay, and we're outside that window.But what we can tell on Slide 46. This shows business on the books forward into the future for -- from when the announcement took place that hotels would reopen to where we are now on the 19th of April and really, the key takeaway is that as you move forward, the green line gets darker, and the darker green lines are always above the lighter green lines. So every week, hotels are picking up more business into the future. We're not seeing cancellations. We're seeing it grow. And we're seeing that growth accelerate. If you look in recent weeks, on those Saturday peaks, hotels -- the U.K. market as a whole is picking up 3 to 5 percentage points of occupancy every week. And that's likely to accelerate. So looking at this data just -- and assessing it from a high level, you would say that this should translate to occupancies of over 50% on the weekends really from the moment that the market reopens and that should continue to improve as we go through July and into the summer.Slide 47 shows regional U.K. Similar story, just a bit higher percentages versus London on Slide 48, which is tracking about 5 percentage points behind the U.K. average, which is actually a bit more robust than I had expected. And I think that speaks to what Anders mentioned earlier, and that with the lack of international travel, I think we will see some displacement where that will be replaced by domestic travel that will maybe like myself, take the opportunity to do a vacation in London, go and stay at a lovely hotel, eat at a fantastic restaurant and feel like you're in a different world all together.So that kind of takes me to Q3 and Q4 quite briefly. And I'll brief through this because it's very much similar to what we've been saying before, very much similar to what Anders mentioned earlier. On Slide 50, the profile of recovery will be leisure then business then events and groups, and that will be blended between domestic person and international later on. Going back to Slide 51. I just wanted to bring back that what I referenced earlier on, in terms of China, clearly a very different market to Europe. But nonetheless, I think a good benchmark of what is likely to happen. And again, recovery starting in Q2, and by Q4 was up to 90% plus of 2019 levels. And a really good start with those Saturday weekend, leisure peaks, and that is what we're seeing when we look at business on the books for the U.K. at the moment. And I personally see no reason why this -- the trend across the U.K. and the rest of Europe wouldn't look a little bit like this, although perhaps -- and this is my personal view, I actually think the bounce back is likely to be stronger. Kind of -- really down to pent-up demand in the same way that if you take a bottle of champagne out of the fridge and you leave it out getting warm and you open it after 1 hour, maybe the cork goes out a little faster than you expected it to. But if you take that bottle of champagne and instead of leaving it up for an hour, you leave it out for a whole year in the sun, then the moment you undo that metal wiring around the top, that cork is going to fly out and champagne is going to go everywhere. And I think that is much more likely what we will see in Europe, given the extreme state of pent-up demand, certainly from a leisure perspective as I perceive around the region.And so on Slide 52, it's no surprise that many people around the industry are expecting that in the summer, we will have a strong bounce back that we look at other verticals. We're seeing significant rate growth year-on-year for any kind of appealing leisure destination. So I think we will see that come back quite strongly. And then we may have a tail off like we did in China when the reliance on domestic business demand came back, but certainly continued growth in the long term.So moving to the long term. I think if you look at our forecast and these are just forecasts beyond 2 weeks, it's very difficult to really have any kind of certainty for them. But we do expect business travel will take longer to recover. And that's ultimately what will hold back full recovery of the market to something like 24 -- 2024 from a RevPAR perspective. But going to Q4, on to Slide 55, I think it's important to recognize that because of that pent-up demand, because of that recovery, we think things will get back to 2019 levels from a demand perspective, pretty quickly in the sense that by Q4 2022, most will be at 90% of 2019 levels of demand. And that when you look at rates and assume that won't be quite back yet on Slide 56, that RevPAR will be -- at the moment, we're forecasting around about 80% to 90% of 2019 levels by Q4 2022. Now that is on a quarterly basis. So when you go to annualized and you assume that the final 10% of recovery will take a bit longer, that is why you see, on an annualized basis, us forecasting full recovery out more towards 2024/'25. However, very much these are caveated by, as I said before, it's really quite hard to call a lot does depend on the shape of the economic recovery and how much longer there will be meaningful restrictions on international travel. And so with that, I will stop and hand back to Anders.

[Anders Nissen, CEO & President]

Thank you very much, Robin, for this run-through. And now, operator, we are ready for questions.

[Operator]

[Operator Instructions] And we now have your first question for -- from the line of Simen Mortensen of DNB.

[Simen Mortensen, Analyst]

Do you hear me?

[Anders Nissen, CEO & President]

We hear you.

[Simen Mortensen, Analyst]

Good. I have a few questions, 4 actually. To start off, in terms of transactions in the market, yes, there had been no evidence of transactions when it comes to the yields and valuation of the stocks. But clearly, later on, Anders, you showed us some well-known transactions in the market. Could you please just clarify on what you actually meant by -- in that association because you communicated differently for the view?

[Anders Nissen, CEO & President]

What?

[Simen Mortensen, Analyst]

Liia, once she showed the yields in the transactions, she said there was not that liquid market, not many transactions being done. But we saw on the Grand Hotel in Copenhagen -- Grand Hotel in Stockholm has been sold, the Choice Hotel in Copenhagen. How is...

[Liia Nõu, Senior Executive VP & CFO]

Okay. You mean that we should actually decrease our yield. Well, I think, well, we're not in a position yet, but I think, as said, that our yields are resilient. And I think and as confirmed that the transactions that have been done have, if anything, been more aggressive than anything we've seen before. So yes, well, we won't, for time being, decrease our yields.

[Anders Nissen, CEO & President]

Interesting view, Simen. That's why I didn't understood your question, but I understood it now, yes. Well, very promising levels, if I may say so. We will see if that continue.

[Simen Mortensen, Analyst]

Okay. The other one is that Liia said, there had been some waivers on individual loan agreements. Is there anything you would clarify on that? And the implications, if there are any implications of that?

[Liia Nõu, Senior Executive VP & CFO]

Well, yes, nothing different from the previous year. 2021, of course, started the same way as 2020. So there are individuals given in some credit facilities, but we have all the waivers in place.

[Simen Mortensen, Analyst]

Okay. And my, perhaps, most concerning question this time around is the deferred rent payments in the quarter. You haven't touched up on this. But when we go into the balance sheet now, we see it's SEK 566 million in deferred rent payments, which is -- some of them are long term, some of them are short term. But when you compare just the gain in Q1, I can easily see it's SEK 127 million more now in Q1 than it was at the beginning of the quarter. This is a sum that, based on my calculations, corresponds to roughly actually 24% of the net rent in the operator activities paid in Q1.Is that rents not -- that actually means that 24% of the rents from the operators aren't being paid in the quarter? Or could you please elaborate a bit on these figures?

[Liia Nõu, Senior Executive VP & CFO]

Well, the SEK 566 million, this is accumulated delayed payment terms, and this is about SEK 120 million more than in Q4. And this is, of course, an effect of both that we -- in the end of 2020, we entered into some agreements, which are -- which, for example, there was a postponement, especially Germany, where like 50% of the rents paid up also for Q1 and Q2 will be delayed over a period of up to a year or more. I said before that I didn't expect this amount to be more than SEK 500 million. Now it's SEK 566 million, and it will, unfortunately, be maybe SEK 50 million, SEK 100 million more. But this is a consequence of the fact that we haven't seen the recovery as we expected as quickly. However, these are, again, with operators. It's a few operators where we have bank guarantees and corporate guarantees. So this is liquidity help we are giving them. We don't give any reductions in rent. I've said it 100 times and I'm saying it 100 times more. And we don't see this as any danger but opposite. This is the way for the operators to manage their liquidity.

[Simen Mortensen, Analyst]

Yes, but it sums actually -- it mostly refers then to the operator activities and that's [indiscernible]

[Liia Nõu, Senior Executive VP & CFO]

This is not the operating activity. This is only there...

[Simen Mortensen, Analyst]

No, no, no, not operating. Yes, I'm sorry, to the operators, I'm sorry, the external operators.

[Liia Nõu, Senior Executive VP & CFO]

Yes.

[Simen Mortensen, Analyst]

My fault. But it is more than 20% of the rents, which is included in the P&L every quarter so far, right?

[Liia Nõu, Senior Executive VP & CFO]

Well, it's also sometimes agreements in the end of the -- it's not only -- the increase is not only related to the Q1, but it's also how the payments have been for Q4 2020.

[Simen Mortensen, Analyst]

And I'll come to another part of the questions. You touched upon the regional levels. Is this mostly in Germany? Is it in the U.K. or it's in the Nordics because you have 3 large operators and pretty much everyone knows who they are.

[Liia Nõu, Senior Executive VP & CFO]

Well, it's outside the Nordics. And this is, again, typically the consequence that the lockdown has been much worse, more severe outside the Nordics also that we entered into agreements -- the more recently signed agreements outside the Nordics, where the minimum rent is maybe like 90% of the turnover rent, which is quite hard because, again, we did quite a lot of transactions in 2017, '18, '19. So of course, this is with operators outside the Nordic. In the Nordic, these are old agreements, which -- again, it's on a much lower level, which should not be a problem for the operators to pay.

[Simen Mortensen, Analyst]

Yes. Is there any cost for operator to delay payments? Or is it interest rate free? Or how do you solve that?

[Liia Nõu, Senior Executive VP & CFO]

Well, typically, there may be some interest, but a very low interest. It's not one standard, but if there's an interest content in the industry, but it's on a very low interest.

[Simen Mortensen, Analyst]

Okay. So it's not like normal delayed payment interest terms?

[Liia Nõu, Senior Executive VP & CFO]

Exactly. And again it's very [indiscernible], yes.

[Simen Mortensen, Analyst]

Okay. My last question is a bit more on positive note. It's -- the U.K. vaccination has been quite leading and the most -- the farthest of the markets you cover or invested in. How do you see the bookings aren't transcending there versus the rest of the markets you are? And how much -- because you've spoken about the performance of RevPAR so far, but you -- I assume you still have overviews of booking into Q2? And what you can tell us how much is actually the vaccination driving bookings, as you can see? And this one is...

[Anders Nissen, CEO & President]

There is a strong correlation between a successful valuation -- vaccination program, which leads to easier restrictions and demand growth. That is the strongest processes that you can find in the industry today. And U.K. have been probably the most successful in terms of vaccination program. And you see that now that the confidence is coming back even. If the restrictions are still quite hard, they start to book over summer. They already did that in Q4 last year, but that continued.I believe today, tough to get the hotel room in Brighton for July, August already. And I know all how is seen in the southern -- or in resort destinations in U.K. is also very high. A very, very strong trend in terms of booking. What we now see for the last couple of weeks, there's also some sort of improvement for Q2. But there, we wait for more data before we can say the trend are there.But as it looks now, U.K. will be the one, as I've said before, who will take lead of the recovery in Europe. And that is based on restriction, they will ease your restriction first. Sorry, Simen, what did you say?

[Simen Mortensen, Analyst]

No, no. Have you seen the same amount of bookings because last year also, the summer was very good in the Nordics with a lot of [indiscernible] staying at home.

[Anders Nissen, CEO & President]

Yes, that was...

[Simen Mortensen, Analyst]

Are the bookings -- you think it was full in Brighton, et cetera, in the U.K., are you seeing the same in the Nordics?

[Anders Nissen, CEO & President]

No, we don't -- we see some sort of positive movement over summer, but that hasn't really started in the Nordic. And Norway are still very much in lockdown and even in Finland. So it had to be more -- restrictions had to be easier before we will also see it in Nordic. But again, if this come and expect to come here in Q2, then immediately, you will see it.In all resort cities, you will see also in domestic and regional destination in Scandinavian will take a lead. And our forecast is that the summer will be stronger this year compared to last year basically because it will start earlier. You remember that last year, it was even above 2019 years level in Kristiansand and in Lillehammer. And so you see that Norway was the best market in Europe in July last year.

[Operator]

And your next question comes from the line of Fredric Cyon of Carnegie.

[Fredric Cyon, Research Analyst]

Yes. A couple of questions. So starting off, you made some remarks and clarifications in the quarterly report regarding the weak start of the year and the sign of the rental agreement, and that will have an adverse impact on revenue recognition in the -- during the coming quarters. Why did you feel obliged to mention that? Did you look at estimates and felt like investors did not understand the mix or what was the rationale behind mentioning that?

[Anders Nissen, CEO & President]

Well, the major reason was that we want to have -- give you good guidelines how we see the market is coming. And of course, when we, in one hand, are -- have a positive view about the market outcome, then, of course, on the other hand, when we have a mechanism in our lease agreement, and we think we should tell you all, so it did not come as a surprise.

[Fredric Cyon, Research Analyst]

Yes, I understand. The start of the year has been tougher than last year, but on the other hand, the outlook for the second quarter looks better. And those 2 factors are moving in opposite directions. But I would imagine that you still expect a gradual recovery year-on-year on top line for Pandox. And I'm thinking about the property management partner.

[Anders Nissen, CEO & President]

Yes. But coming back for having to come above minimum level, the minimum rent in market outside Europe. With the start of the year, they have been very slow, for example, in Germany. Then you need a very, very good Q3 and Q4. And we don't want to give you that expectations.

[Fredric Cyon, Research Analyst]

Yes, that's clear. And then on -- you mentioned behavioral changes. Of course, they are still out there and who knows how it will look like. But in your internal model that you use for your property valuation, have you assumed any behavior changes long term? Or is this purely driven by the cash flow impact during 2020 and the start of 2021?

[Anders Nissen, CEO & President]

No, we don't see any consumer trends. It's people who normally have not been in the -- not had so much experience about hotel business to talk about it. And when that had been in all crisis, it is my fixed crisis. So we always talk about big change in the market. And you will never come back and you kind of close their hotel and no business travels will be there. This maybe will happen this time, but we don't see it, and that's why we don't also take any other views in our valuations that we have done before. So let's wait and see. What we see in market head of Europe is that we very, very -- see very small change in consumer behavior. But what we see is that restriction holding back demand. And so let's wait for the restriction to get easier and see what's coming out.

[Fredric Cyon, Research Analyst]

And then one question on projects, generally in the market. Of course, the crisis leads to lower new supply. How are you looking at the supply situation across Europe? I know it very much 50 by 50 nature. But generally, are you seeing that new projects are put on hold and that could have a positive impact on situation 2 years out or something like that?

[Anders Nissen, CEO & President]

Yes. I would say most of the hotels who was published will be built, said to be set because there was already in contract. But you don't see any new hotel project development coming up, of course. So we will have -- recovery phase in some markets like Copenhagen will have a tougher than other because of new supply. But from, let's say, '23 or something like that, most of the new capacity has coming in. And then we have to take it from there. It is always the same, a new player coming into the market and when the market is peaking out then the new supply coming in and make things even worse. Hopefully, we can buy a few of those hotels.

[Fredric Cyon, Research Analyst]

Yes, that the usual economical cycle when it comes to construction, real estate. Then finally on the -- and the follow-up on the deferred rent that you mentioned. It increased somewhat in the first quarter. Liia, how do you pursue that line going forward to Q3? Do you expect it to be at a similar level or continue upwards?

[Liia Nõu, Senior Executive VP & CFO]

No. I think it will be on the similar or slightly above in Q2 due to the fact that we are in Q2 now, and the restrictions are hitting hard. I expect this -- we have split this between the long-term and short term. So you can see that nothing was 270, which is long term, and the rest is short term, i.e., within 12 months. So I do expect it to peak maybe at another SEK 650 million or so and then diminish unless there is eighth or tenth wave of this horrific pandemic.

[Fredric Cyon, Research Analyst]

I hope not.

[Operator]

And your last question at this time comes from the line of Stefan Andersson of SEB.

[Stefan E. Andersson, Analyst]

Two questions from me. First on the valuation side, a little bit curious there where looking at extended values, seems like you're closer to them this quarter and it's a 12-month rolling number, I understand. Then in the last quarter, and in Q4, you also had Q1 valuations included. I think the external ones were 6% below then, and now it's 5%. So my question is first -- well, it's a two-fold question. First, have you seen -- if you don't look at the long-term development, the 12-month rolling, we just look from Q4 to Q1 now, have you seen the external values becoming more positive? Or is this just an effect of your negative revaluations in the quarter?And then connected to this, I think last quarter, in the Nordics, you are agreeing, and this quarter, you say that you have -- the external value is a little bit lower. So my question is then also, has there been a change in tone for some reason in the Nordics? Why such a big difference between other regions?

[Liia Nõu, Senior Executive VP & CFO]

Okay. Yes. Let me start. Well, when it comes to the undertone from the external valuations. I mean there are practical limitations to doing a lot of valuations. And of course, practically, every bad quarter you leave means that you actually -- it's getting better and better.My personal view is that valuators are cautious people. And that there may be getting more confidence and looking at more sort of how is it going? It's -- we're not all going to die. It's -- they take a more realistic long-term view on yields, long-term yields, et cetera, especially when you see other property assets, whether yields go down. So there's no reason why there should be such a yield gap between hotels and other property assets.When it comes to between the regions, I think still, maybe I wasn't clear, I think on average, it's 5%. If anything, the Nordics are in line with what we see and sometimes even more positive. I mean we do have external valuations where the value is higher than what we have. But especially when you look at Germany and maybe U.K. and where we have done some external valuations, they are initially a larger gap than the Nordics fill, which is, in my personal view, a reflection of the uncertainties of the transaction market, the lockdowns and all of the bad things I was going to say.

[Stefan E. Andersson, Analyst]

Yes. Okay. And then the second question relates more philosophical, but see what you can answer. On the contract side, when speaking to some of your operators given the situation, of course, everyone is trying to improve their situation also long term. And my impression is with talking to some of them is that it's not helpful to just get the lower price, which could be one discussion. It's more focus on a bigger flexibility, meaning that you could leave some of the upside to the property owner and get some more help on the other side, of course. You were already in that space in the Nordics. But so my question is really, do you think that your contract in the Nordics could become even more flexible than they are today? And the second question, do you think that your model, which is not as common outside of the Nordic, could gain traction that you could actually have some more valuable contracts also in other parts.

[Anders Nissen, CEO & President]

Well, Stefan, I think the model we have is what people talk about that they would like to achieve and a revenue-based model where you have a minimum level, you invest together, you have frequently -- and frequently dialogue about how to improve the hotel. That is rare in our industry is normal property company. We don't have any specific understanding or a lack of understanding hotel business, and you want to have so much fix as possible.So I think things are moving in our direction. So we see that what we are doing today is where most of the operator want to go. So we don't see any big things there. Then, of course, investment, as we speak, is something that some of the operator has not liquidity to do. And then we can support them. And that, I will say, have 2 positive effects. One is that we are ready when things are coming back. And the other thing is that will strengthen our partnerships, so that is only positive. So our knowledge in the hotel industry and the model we have to be an active investor is -- have never worked better than it works at the moment.

[Stefan E. Andersson, Analyst]

And on that note, do you think -- could you see a situation where you take more of the upside in a strong market and then give away even more in a downside when that happens? Or are you -- are you very, very happy with where you are?

[Anders Nissen, CEO & President]

Well, let's see what's coming up in discussions when new contracts will be signed. We have nothing in 2021. We [indiscernible] portfolio with scandic in 2022. And of course, I would say, our position is that we want to have more guarantees. We want to have higher minimum level and they want to have opposite. That is not something who is special. For this crisis has always been. But strong partners normally come to agreement because we now -- we [indiscernible] to cooperate and fight.

[Stefan E. Andersson, Analyst]

Sorry for having a final follow-up on that. Would there be a limitation from your financier bank, so when it comes to having more flexibility and lower guarantees?

[Liia Nõu, Senior Executive VP & CFO]

Well, typically not. I think the bank -- if we think we are doing a good deal, then the bank is actually confident that we are securing their interest as well.

[Anders Nissen, CEO & President]

Well, ladies and gentlemen, thank you very much. Thank you very much, Robin. And again, remember that Robin is an independent researcher and a very professional one, but very, very independent. What he say is nothing that we talked about before. So thank you for listening to us. And hope to meet you in mid of July with a more stronger market. And what I promise you is that Q2 will be better this year compared to last year. Thank you very much, and goodbye, and have a good day.

[Operator]

Thank you very much. And that does conclude our conference for today. Thank you for participating. You may all disconnect.