Scandic Hotels and landlord Pandox have renewed and extended the leases on 19 hotels. The agreement will see a SEK470-million ($56-million) renovation plan split between the two, which the pair said would strengthen their product in the Nordic countries.

Included in the investment, which is expected to be made 2017 to 2020, is the creation of 73 new hotel rooms. The implementation follows the cooperation model established by Pandox and Scandic Hotels in the earlier-completed Project Shark, which comprised renovation, upgrade and development of 40 hotels in the Nordic region.

“Scandic Hotels have successfully operated the hotels over a long period of time and we are pleased to be able to present an extension of the lease agreements. With renewed leases and joint investments we are strengthening both our strategic partnership and joint product offering in the Nordics,” said Erik Hvesser, VP and area manager for Sweden and Finland at Pandox.

The lease extension with Scandic includes 19 hotel properties in the Nordic region with Scandic Hotels as hotel operator, of which eight are in Sweden, six in Finland, three in Denmark and two in Norway with lease expirations particularly during 2017-2020. The total number of rooms amount to 3,437.

Pandox continues to look to its owned hotels for 80 percent of its business. “Pandox’s strategy to own and lease hotel properties under long term revenue-based lease agreements remains intact,” CEO Anders Nissen said at the group’s recent Capital Markets Day. “As an active hotel property owner Pandox also has long experience in operating hotels itself. It is a tool which creates opportunities across the hotel value chain, as well as minimizes risk and increases the possibilities for favorable long term value growth in the company’s complete hotel property portfolio.”

For the first quarter, Pandox said that it had seen “slight yield compression and strong cash flows.” At the end of March, average valuation yield for operating properties was 7.5, flat on the year, while investment properties were at 5.8, against 5.9 at the year-end. The total value of the portfolio was SKr31.3 billion.

Nissen described the portfolio as “well diversified” with 80 percent on long-term lease agreements and 20 percent operated by the company. Of the 113 hotels, 94 were leased on a long-term basis to, the group said: “Well-known tenants with established brands providing income stability, lower capital expenditure and risk.”

The company continues to grow its operations business, which it described as having been “formed as a response to the change in risk profile between hotel owners and hotel operators”. As part of the restructuring and consolidation of the Nordic hotel market, in its operator activities, Pandox has taken over the operation of four hotels in Norway and Sweden, and has entered into agreements to take over a further two hotels. “By taking over and developing underperforming hotels, Pandox is laying the foundation for a higher risk-adjusted return over time,” said Nissen.

Operational activities took in 19 hotels, with a total value of SKr6.6 billionn. Belgium was the largest country for the group operationally, with 1,936 rooms and 41 percent of revenue in the first quarter of this year.
For the first quarter, the company reported a 1-percent increase in revenue from property management to SKR386 million, with revenue from operator activities up 4 percent to SKr442 million. Ebitda was up 21 percent to SKr350 million.