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Pandox rules: Competitive Nissen will manage his way


By Jeff Weinstein on 3/2/2017

Anders Nissen is a sportsman and competitive by nature, which might explain why he is also considered by hotel management companies to be one demanding owner who prefers his operators participate via lease – when productivity and profitability don’t take a back seat to brand marketing and fee collection. Nissen is CEO of Stockholm-based Pandox, owners of 120 hotels (98 leased, 22 owner-operated) with more than 26,000 rooms in 10 countries and a value of approximately US$4 billion, and is legendary for espousing similar combative opinions on stage in front of 2,000 contemporaries at events such as Berlin’s annual investment conference – with his brand partner CEOs squirming in their seats next to him.

With more than 30 years of industry experience, including years as a hotel GM, and CEO since Pandox’s inception, Nissen can walk the talk with a knack for turning underperforming hotels into profitable ones. Pandox started out in 1995 with a disparate collection of 17 bankrupt hotels. Since then, the company has profited and executed transactions worth more than €2.5 billion (US$2.7 biilion), corresponding to some 200 properties.

His latest venture was the creation of a separate operating company, which he views as a necessary response to the change in the risk profile between owners and operators. Pandox recently took over four hotels in Norway and Sweden, and has entered into agreements to take over a further two. Belgium is the largest country for the group operationally, with 1,936 rooms.

Despite his discourse, Nissen is not averse to brands because he understands the muscle they bring, but he wishes he had more relationships based on Europe’s popular lease model and similar to the one he has with one of his local and biggest partners, Scandic Hotels. No long-term business relationship is without challenges, admits Scandic’s outgoing CEO Frank Fiskers, but over their many years of cooperation, Scandic and Pandox have found a strong model that incentivizes each party to continually improve the competitiveness and cash flows of their joint hotels.

“In other words, we are totally aligned on how a hotel becomes totally more profitable,” Fiskers says. “It is clear in our relationship who does what – and that tradition has made it possible for Anders and me to together literally make hotel deals on the back of a napkin.”

“I will be working another 30 years, at least. I will go to 100 – at least 100. I’m a sport guy. I wake up every morning, I try to be better every day, and I will do that till I will be 100, at least.” – Anders Nissen

Nissen believes the bigger global brands have lost their way as operators, which is why he mostly prefers the lease model, where managers are more accountable to the bottom line. “When I, as an owner, give a management contract to someone who doesn’t understand what they should do with the operation, I mean, it couldn’t be worse. Their fee-based model doesn’t incentivize them to operate things efficiently,” he says.

Operators he does have more respect for include the likes of Europe’s NH Hotels, Meliá Hotels International and Scandic. “They are very good at productivity. They understand management and segmentation,” Nissen says. “They know how to operate hotels because that is the full focus of the companies, and, of course, a lot of good general managers love to work for these companies.”

When asked if the big brands might change their approaches, especially as the hotel business continues to mature, Nissen opines that just maybe they are realizing they have gone too far with the asset-light model and need a better mix of deals that take into account lease arrangements, or at least offer some more guarantees.

Until those strategies do evolve, however, Nissen continues to do business with the likes of Scandic, which whom Pandox recently renewed and extended 19 leases. The new agreement, which happened not long after the two companies finished upgrading 30 other hotels, will see a US$56 million renovation plan split between the two organizations. Included in the investment, expected to be made between 2017 and 2020, is the creation of 73 new hotel rooms.

Previously, the two partners renovated a group of 30 newly acquired assets for more than US$180 million, for which Scandic invested two-thirds of the required equity. The goal was to gain market share to generate more revenue and, if operated efficiently, deliver a lot of new cash for both sides.  “We have a turnover-based contract; we didn’t ask for any guarantees,” Nissen explains. “So when they’re gaining market share, we have more rental income and they have more cash.”

Derek Gammage, chairman, EMEA, for CBRE Hotels Ltd. in London, says he has followed Pandox for probably 25 years, and at every stage, he says, it has remained either one step ahead of the market or at least at the cutting edge. “The key to their success is that they are 100% focused on hotels and their region, whereas their comp set (in the main) are sub-sets of wider institutions and as such have tended to be less fleet of foot,” he adds. “The growth, focus and hands-on nature of a group like Pandox have allowed them to shape the markets requirements both from an investor’s point of view, but also their end use – the customer.”

Scandic Kramer, Malmö, Sweden

Deeper into Europe

The leading owner of hotels in Northern Europe, Pandox (which means innkeeper in Greek) continues to be as aggressive at its leader, who sees big growth opportunities ahead. It is further expanding outside the Nordics, having made several deals in Germany as of late to further diversify its revenue base.

To help manage planned growth, Pandox in December raised SEK1.01 billion (US$112 million) by issuing 7.5 million B shares, which Nissen says the market accepted very well. “We have done acquisitions for $1 billion without going out to the market. So that was the time to do it for financial flexibility,” he says.

Currently, Germany stands for 21% of Pandox’s value or revenue. Nissen says he would love to continue to grow that proportion – both relatively and absolutely.

In November, the company acquired seven hotels from Invesco Real Estate for €415 million (US$441 million) – four in Germany, two in Austria and one in the Netherlands. The properties are operated by NH Hotels, Rezidor Hotel Group and Grand City Hotels under long-term, revenue-based leases with good rental guarantee levels. The portfolio has a yield of approximately 5.7%.

In December 2015, Pandox made one of its first forays into Germany with a €400 million (US$432 million) purchase from Leopard Group and Israel-based Fattal Hotels. It included another 18 mid-market German hotels with 3,415 in stable markets like Frankfurt, Dusseldorf and Hamburg, as well as domestic markets with upside such as Karlesruhe, Monchengladbach and Hannover. As part of the deal, Fattal has 25-year lease agreements to continue operating the properties under its Leonardo brand.

Nissen says he expects to do more deals for Leonardo-branded hotels. “The company would like to expand their brand in Germany. We like their model,” he says.

Most recently in October, Pandox made what Nissen called a sound investment with good potential by acquiring the 224-room Hilton Brussels Grand Place in Belgium for €55 million (US$59 million). The hotel is being operated under a management contract with Hilton, but that can be converted to a franchise agreement in 2019.

Acquired after the March 2016 terrorist attack in Brussels, Nissen says assets like these are not often available, so it was a “no brainer” for Pandox to consider. He says performance rebounded quickly (the hotel had its best month ever in November) and that Pandox will implement its efficiencies to better control costs and increase productivity. “The most important driver for value growth in a hotel property is productivity. It’s more important than macro; it’s more important than average rate,” Nissen says.

Boasting that productivity improvements (like culling the management team of a Sheraton in Copenhagen from 36 to nine) have taken Pandox assets to 40% GOP from 20%, Nissen says the key ingredient is the property management team.

“We really try to implement an entrepreneurial style in the hotel where they feel that they have a lot of involvement in what’s happening and are quick to make decisions. Then, of course, there are big investments on other things from Pandox, but we make sure that we operate like a sport team where those general managers (who often office in the lobby) are the stars for us. In many hotel companies, it is the branding people who are the stars, which I can never understand and accept, but that’s how it is.”

Looking ahead, Nissen says Pandox will continue to buy in Scandinavia and the Netherlands, and would like to enter the U.K. and Spain but remain Euro-focused.

“We have been doing a lot the last two years, Nissen adds. “I don’t know if we can keep that speed but we are a very active company and will definitely get bigger.”

Making hay

When considering market conditions in Europe to support growth, Nissen suggests the hotel market is in a phase of stable growth, meaning that most of the market in Europe is good and there is growth – but at a decelerated pace. “Spain is a very good market and I think Finland is very interesting – two hotel markets going in the right direction,” he adds. “Of course, there is potential in Paris and Brussels as they come back from the attacks, but most of the other big markets will be stable growth.”

Nissen points to Finland because it is rebounding from weak economic development and because he says a lot of Asian people are coming to Finland. Why? “Because Finland is one of the hubs in Europe where a lot of people from Asia fly in and out, and stay one night.”

He likes Spain because it is rebounding economically and because even more tourists are coming there due to unrest in traditional Middle East destinations.

“I can see significant growth for Pandox over the coming years and would expect them to continue a move southwards into France and Spain in the not too distant future,” CBRE’s Gammage adds. “I would, however, expect their trailblazing public offering to be mimicked by others so ‘make hay whilst the sun shines’ would be a suitable mantra.”

For Nissen, making hay is indeed his plan for years to come. “I will be working another 30 years, at least. I will go to 100 – at least 100,” he says with the confidence of a man who knows what he wants and how to pursue it. “I’m a sport guy. I wake up every morning, I try to be better every day, and I will do that till I will be 100, at least.”

 


 

Pandox’s vision

Anders Nissen says the strategy contains six building blocks:

1. Focus on hotel properties with attractive risk-adjusted returns. The company invests exclusively in hotel properties and has consequently developed significant experience to identify, acquire and reposition properties within this asset class over the past 20 years.

 2. Pandox favors long-term and revenue-based leases, which provide revenue visibility, income stability, lower capital expenditure and reduced risk. These leases, combined with an active ownership strategy adopted on an asset-by-asset basis, create value and opportunities across the hotel value chain.

3. Focusing only on hotel properties as a single type of asset requires a broad geographical footprint to create the right conditions for growth and to benefit from positive dynamics in the macroeconomic conditions and the hotel business cycle. On aggregate, Pandox owns hotels across 50 cities in eight countries.

4. To create more opportunities and simultaneously reduce risk, Pandox is dedicated to large, full-service hotels in key leisure and corporate locations primarily in the upper-medium to high-end segments. It believes that typically larger hotels deliver stronger cash flows and historically have been easier to finance.

5. Pandox targets investments in underperforming hotel properties in strategic locations, which can be refurbished, restructured, and/or repositioned and where the company’s active ownership strategy and expertise can be leveraged.

6. Pandox seeks brands and partners that strengthen the profile, market position and operations of each individual hotel. Pandox currently collaborates with 10 hotel chains, making use of 18 different brands. In addition, Pandox has established and developed independent hotels.


 
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