STOCKHOLM—Pandox CEO Anders Nissen has seen a few economic cycles during his 30 years in the hotel industry. One thing he’s learned from them is they provide opportunities for patient executives.
Nissen—who has guided the Stockholm-based company through an aggressive expansion cycle that includes the 2010 acquisition of Norgani Hotels, with its portfolio of 73 hotels in Sweden, Finland, Norway and Denmark—is waiting for the right moment to again start the buying process. That moment will come when banks, which assumed control of many distressed hotels during the recent global recession, realize they have no business being in the hotel-ownership game.
“It will be another one-and-a-half years before the banks have to be more active,” the executive said during a telephone interview with HotelNewsNow.com. “If the macro economy is better than expected, then it could be sooner.
“What they will understand a year or two from now is that a hotel in a bank system is not in an environment where they create good value growth,” Nissen added. “They will not have the best management, and it’s a slow process if they are more focused on financial issues than revenue.”
That means hotels in distress during 2009 and 2010 are still in a distressed position despite being on a bank’s roster, he said.
“The banks will evaluate the low value growth and change their strategy,” Nissen said. “In the next two to three years there will be very low turnover growth in the world. Everything will be about smart investments and productivity, and that’s not the area where banks are good at.”
So Pandox, which is majority owned by Norwegian companies Eiendomsspar AS and Sundt AS through the wholly owned Swedish company APES Holding AB, is ready to jump on hotels when banks decide it’s time to set them free.
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A hotel-only mentality
Pandox only invests in hotels and has 121 properties around the world. The company’s properties are located in Sweden, Denmark, Norway, Finland, Belgium, Germany, Switzerland, Great Britain, Canada and the Bahamas. Nissen said Pandox will look at acquisition opportunities worldwide, but most of the focus will be on Europe.
“We bought a lot last year—everything we could buy in Northern Europe we bought,” Nissen said. “We haven’t done anything this year, but are ready to buy when the timing is right.”
Pandox doesn’t have a specific fund for acquiring hotels, but Nissen said equity won’t be a problem. Financing, on the other hand, is a different story. The company likes full-service, upscale city-center hotels with more than 250 guestrooms.
The company will focus on underperforming hotels when it does become active. Nissen said there is no goal in terms of the number of hotels to acquire.
“We would like to be the best hotel company in the world in terms of knowledge and operations, not the biggest,” he said.
Back to private ownership
Nissen launched Pandox in 1995. At the time he was CEO of a workout company.
“After learning and understanding how the equities work in the hotel business, I asked two of the owners who had a lot of hotels to put them into one piece,” he said. “I said, ‘Why don’t we put them all in one company and take it to the stock market?’”
Pandox went public in 1997 but returned to private ownership in 2004. It has been involved in 170 hotel transactions since 1995.
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“Most of them were underperforming, which means we bought something with a low value per room but needed a lot of renovation,” Nissen said. “When value increased, we were able to use that to buy another hotel, and so on.”
Varied business model
Pandox’s model is to own the land, building and rights then lease the hotels to a third party. Its various types of models include:
Revenue-based: Linked to sales generated by the hotel business.
Result-based: The hotel property owner receives a share of the hotel operator’s operating net income. Result-based hotel leases also can specify a minimum rent (guarantee/base rent).
Fixed-fee hotel lease: Fixed-fee hotel leases with an index linked to the development of the Consumer Price Index are used in mature markets and in well-established hotel products.
Management agreement: The main characteristic is the hotel property owner also owns the hotel business. Through a management agreement, an operator/manager is assigned to operate and manage the hotel on behalf of the hotel property’s owner, for which a management fee is paid to the operator/manager.
Franchise agreement: Franchise contracts can be entered into where Pandox gains the benefits of a larger system that embraces the hotel’s overall marketing and sales.
Eighty percent of the company’s portfolio involves a lease contract in which a third party operates them. Pandox operates the other 20% of the portfolio.
“We have a management group board for each hotel that discusses the hotels,” Nissen said. “We are deeply involved in the daily business, but they run them.”
He said the operator assumes an operational risk with Pandox, which makes it a win-win situation. Among its largest partners is Scandic, which Nissen said has the best operational platform in the world.
The typical lease with Pandox is for 10 years to 15 years.
Quality employees are the key
Nissen said true success comes in the form of a quality GM and the supporting team—especially if that team has cross-trained employees. That’s where his days as a management trainee and a GM become important.
“I started my career after university as management trainee, and I was working everywhere,” he said. “I still have that knowledge, and it’s a strong (unique selling proposition) for me. If I were educating young people today, I would stress the importance of learning multiple skills—to be active in more than one or two processes.”
He said that approach has been successful for Pandox in all markets, including the Brussels market, which is well known for its staunch union.