The CEO of one of the Nordic region's largest hotel owner-operators, Pandox AB, said he is excited by the potential for a recovery in 2021. He believes demand could explode in the summer, with no one being able to wait for the opportunity to stay in hotels and dine at restaurants.

Anders Nissen said during a presentation of the firm’s fourth-quarter 2020 earnings that he is cheered by the recovery in such markets as China and the United Arab Emirates.

He added the recovery has begun in Sweden, where Pandox is based.

“We have not given a specific forecast for (the second quarter) 2021, but given a successful vaccination, the market will of course be coming back quite immediately," Nissen said. "We believe [it will be ] much better than [second quarter] 2020, so a positive trend.”

But he said the rebound remains very muted in most of Europe.

“First, we need to understand Germany, [the United Kingdom], even The Netherlands, are still in lockdown, completely [in] lockdown, people are not allowed out in the evenings, so we need to understand that," he said. "In Sweden, it is completely different … and we already see the first pickup in leisure over the weekend. You will be surprised of the numbers, if I tell you many hotels (in the market) today have 50% or 60% every weekend."

He noted that increases in demand follow closely with governments easing regulations.

“Everything is about restrictions,” he said.

Pandox has one of Europe’s largest hotel portfolios, with 156 hotels and approximately 35,000 rooms in 15 countries.

Of those assets, 84% are leases, while the rest are operated under independent brands or franchises. Brands it partners with include Hilton, Accor, Radisson Hotels Group, Scandic Hotels, NH Hotels, IHG Hotels & Resorts and Nordic Choice.

Liia Nõu, senior vice president and chief financial officer, said Pandox benefited from having a diversified revenue base across different models and geographies during the pandemic.

She said rents have not been reduced for any Pandox hotels.

Revenue in the fourth quarter from operator activities totaled 117 million Swedish krona ($14.2 million).

She said the value of the firm’s ownership portfolio has been deemed to have declined by 3.3% due to diminished revenue streams but added “only some 60 external valuations were made during 2020 due to practical limitations” and the number is moot as no properties are up for sale.

She added valuation differences are smaller in the Nordic countries than they are outside of the region.

“In the fourth quarter, total unrealized and realized changes in value amounted to a negative SEK634 million ($76.7 million), of which negative SEK533 million ($64.5 million) was [from] investment properties and a negative SEK101 million ($12.2 million) was from operating properties,” Nõu said.

Nissen said the firm remains in good shape.

“I really hope this is the last time I need to present these sorts of numbers. Before [the pandemic] we had average +18% return [annually] on equity in 25 years,” he said.

There have been signs of hope, though.

“We had a quite promising start to the quarter, and it came after a good start to the holidays, [although] with new restrictions of the second wave, demand flowed away, and there was no chance to run an efficient hotel business,” he said.

Perhaps the best sign, Nissen said, was a return to profitability.

"We have a positive cash flow, that meaning that our financial situation continues strong, and we also have a good liquidity position,” he said.

In the fourth quarter, the firm posted a year-over-year decline of 10% on return on equity, a 53% decline in the growth of total net operating income and a 26% decline in like-for-like growth in net operating income.

Nõu added capital and long-term, unused credit facilities totaled SEK5.2 billion ($628.8 million), although a notable share of that matures at the end of 2021.

“Pandox has a positive and close airlock with its lenders on new financing, refinancing, as well as adjustment of terms and covenants in existing credit agreements,” she said.

Nissen said the company had divided the pandemic response into three focus areas: restarting, recovering and reinventing its offerings.

He said recovery in 2020 in most of Pandox’s main markets had been faster than many had expected until new lockdowns were put in place across much of Europe.

In September, occupancy across those main markets averaged between 45% and 55%, he said, although demand remained weaker in urban locations, mirroring the experience of much of the industry.

In the Nordic region, July occupancy reached 72% driven entirely by domestic business, he said. That figure fell to 28% in December. The lowest point in 2020 for that metric was April, with 19%.

Robin Rossmann, managing director of CoStar's hospitality analytics firm STR, who was invited to the earnings call to give an overview of current hotel industry metrics, said there would be a “ketchup effect” starting in the third quarter of 2021. He cited improvements in hotel business in markets such as China and the United Arab Emirates, referring to how fast ketchup can come out of a bottle if the base of the bottle is hit firmly with the palm of the hand.

He said due to the dip in metrics from the second series of lockdowns, recovery across Europe will now look like the letter “W,” not the letter “V” predicted during the first lockdown.

The reason far fewer hotels have closed during second lockdowns, he said, "is that many learned from the first lockdown that the hotels that remained open were able to be far more resilient and perform far better coming out of the first round of lockdown."

Hotels had a better grip on cost controls and were able to more quickly respond to demand, he added.