Hello all InderesTV viewers and listeners. Sunborn International just organized their Capital Markets Day, and I have the company's CEO Hans Niemi here with me today for an interview. Welcome Hans, always a pleasure to have you here.

Good afternoon, Thomas.

If we start off with the big picture, how would you summarize Sunborn's Capital Markets Day?

First of all, it's our first ever Sunborn International Plc Capital Markets Day. What we brought to the table is perhaps a revision of our plans and strategies. I think we have more clarity now on some of the timings of our development processes. We brought to the table our aims for the capital raise that we can be engaging in for the various projects in different stages over the next six months. We announced the new executive team, with Ville joining the company, and also talked about the new financial targets for 2030 and the 2025 financial results, which have obviously been disclosed earlier.

So if we go into these one by one, let's start by double-clicking on your hotel pipeline. I guess you should say that for the upcoming years the new London, hotel and Vancouver, and the relocation of the current London hotel, are in the center stage. How are these new London and Vancouver hotels achieving a 40% EBITDA margin that you're targeting in this strategy period?

Well, it's a good question. In London, with the existing asset that we've been running, we've been able to have a range of between 32% and 37% EBITDA margin. It kind of depends on the year. It's impacted by the event center next to us, the cycle of biannual events and whatnot, but that's kind of where that product is able to go to, and what the new evolution series vessel does is it's a larger room base in a slightly larger hotel model. So it's a more efficient internal model. What also we have in the new concepts is our new Sunborn energy system, the thermal energy system, and the latest advancement in HVAC systems, energy-efficient plants and machinery, so that will play one part. And the other one is the scale economies that come out of having more rooms, but pretty much the same fixed cost base and the same amount of staff, of course. There can be a little difference there, but this will trickle down, and I think we will be able to do even better than what we're forecasting here. Vancouver and London are not exactly the same, but the hotel structure that we're building is based on the same hotel model. Vancouver has 250 bedrooms, and then the London hotel model is geared towards 325 rooms. There's not a big difference there, but that's kind of where that bridge to EBITDA is going to come from.

Both of these are quite a bit larger than the current London yacht hotel, with I think 130 rooms, but I guess the economics of the Vancouver hotel market is also one thing affecting these projections.

For sure. So as we disclosed in the CMD, Vancouver is one of the hottest property markets in North America and is in demand. According to the city and the latest studies, around 10,000 hotel rooms are needed in the market, but it's a very long-winded process for the local market to go through the development processes, which we know now by heart because we've been spending the last four years doing that. So the average time it takes to get permissions in Vancouver is up to seven years. So that's going to drag on the supply of new hotel rooms to the market, and Sunborn's speed-to-market, right-sizeable product we will be delivering to the Vancouver harbour area, and as we heard from Andrew Viggers, one of our partners in Vancouver from the Harbour Flight Center and Ledcor. It is the best prime real estate location for hotel development in Vancouver, and so on its own, if we look at the ADRs and RevPAR profiles for Vancouver over the city, that's been driven by the fact that there is this shortage of hotel rooms. They have the best in class occupancies for the whole market. Five-star occupancies and the whole market occupancy are very close to 90%, and the ADRs are just astronomically high. As new development comes online and new hotel rooms are being built, that will surely impact the market, but we're expecting that market situation to last for the foreseeable future, and then you have big things coming in Vancouver like the World Cup that is going to make it even more crazy in terms of rates and occupancy, so I wish we were already there.

Sounds like that timing is suitable for you guys, but considering the pipeline you laid out there, you are looking to begin the building of the Vancouver and London yacht hotels this year or early next year at the latest, and at the same time you're looking to relocate the current London hotel to Seville once the new hotel asset is ready. Isn't this quite a lot, building two hotels at the same time, three hotel openings in three years? Is there going to be a loss of sleep when thinking about all these?

Our development director likes a challenge and has a background of operating and opening multiple hotels around the world. So that's the rest of our team with Mark and other key team members on the operating side. We are of course going to be looking very carefully at the construction timing and what the deployment sequences are going to be. You have to remember that Vancouver is pretty far away on the other side of the Atlantic and the Pacific Ocean, so the delivery times when the ship comes out of the construction phase will depend on the final timing of the financing, on the construction schedule and the design phases. So we're not preparing to do them exactly at the same time, but in similar timing, maybe sequencing them. And I have to point out that we opened two brand new hotels in 2014 exactly at the same time, so yes, it's a challenge for any team, but I think we have the team and resources to actually accomplish that.

Is there quite a lot of preparation you can already do prior to the asset's arrival date?

Absolutely. The work starts months, if not a year, before any of these projects come online. So the beauty of London is that we have an existing asset, we've been there for years operating, so we have a well-established track record, team members on the site, the market, we have the clients and marketing department. So in a sense, when you're changing an existing product, there is no opening period per se. I can start those works and the sales and marketing, as you're already doing that, so it is a very different case. Vancouver is a new market, so we would typically look at a year ahead before we start all the key processes for establishing our sales and marketing teams and whatnot, so that's a different kind of case. Seville is also a new market for us and a new product, but I do believe very strongly that opening these hotels in this timeline is not an issue.

Speaking of Seville, you oftentimes highlight how well your London yacht hotel is doing compared to the local comp set, but according to your estimates, by retrofitting the London yacht hotel and moving it to Seville, you could even improve its profitability from the current levels. So what are you looking to do to the hotel asset per se, and what kind of other factors factor into this assumption of improving profitability?

Well, if we look at the relocation plan of the existing London hotel to Seville, I think we are being pragmatic and prudent in our estimations. We said that the whole process, from exiting deployment, some hull works and ship preparing for the next many years of operations in Seville, and then the opening phase infrastructure that we need to build, we are benchmarking five to six million euros for that. That by no means are we saying that the hotel needs five to six million euros of investment. That's going to go towards the different sequences of the relocation to Seville. The hotel is in a fantastic condition, both technically and outfitting-wise, and the experience for the clients is of the highest quality, but it is an older product, one of the first products that we built, and that's why we are going to be retrofitting some of our energy systems into it. Whereas the new hotels are best in class in energy consumption, heat pump systems and thermal energy systems. We can retrofit some of that into the existing hotel. That's part of the plan, and in terms of the outfitting, of course, when you're going to Seville, you need to look at the Mediterranean flavor and feel, and these are the things we're looking at, the experiential installations and how to improve the customer experience. How that's trickling down into profitability for us: the rates in Seville are super high, occupancies really, really good, where we're located next to the area of Feria, where you have some of the biggest events in the city a couple of times a year, and the labour cost in Seville is reasonable. Our mooring agreement for the 30 years plus license to be there is agreed and negotiated, and it's at a very reasonable level. So those things will trickle down into what I say will meet or exceed our profitability in London.

I'm looking forward to seeing what you can do in that location, but moving on to your other hotel, the Gibraltar asset, you didn't really provide so much color on the future of this hotel. Previously, it's been on the table that you should build a joint venture around it or relocate that current asset to a market that would be more suitable to its size, so what should we think about that asset going forward?

Well, that joint venture process and the ultimate replacement of the Gibraltar asset with a new asset is continuing. We don't do financing programs in Gibraltar for that specific reason, so we have three years plus two years sequencing of new financing at a more affordable rate. I would have to add to that that it is for the purpose that we now have time, that we're not painting ourselves in the corner of having to do something at a certain time and agree to certain terms and conditions in terms of the future plan of that ship. In the meantime, we continue operating that hotel in Gibraltar. We are just focusing a lot of resources and team members to continue now improving the service levels, looking at the improvements. We have high hopes that Gibraltar organically will be able to improve its results. It had a fantastic four quarters of growth in double digits, and then the first quarter of this year did not meet our expectations. That was to do with the market, geopolitical things, many things playing out in that, and I think that's a blip in our plan and that's certainly not expected to continue, and I'll have to wait until the August time when our results come out. But Gibraltar on its own will continue operating, improving its results, but with this joint venture endeavor and the ultimate transfer of the vessel to a new location that we would disclose when we get to that point, it is expected to have a very material positive impact in our capital stack for development and in terms of our annual EBITDA generation from that particular flagship asset that we have. And remember, this is the largest asset that we have and it is definitely underperforming at the moment. We think that it has the potential to do between three times the EBITDA that it is currently doing, and that's what the company is doing. We're going to drive it to the point where we can get the maximum optimized performance out of it.

Surely your largest asset, if you're able to utilize it more efficiently, is going to have a positive result and

For sure.

performance, but one of the key topics you mentioned earlier during the Capital Markets Day was the upcoming fund raising. You're looking to issue new equity for 50 million euros. How should we think about it? Are you trying to or planning on issuing equity at the parent company level, or are you also looking into issuing equity on the local subsidiary or asset-based level?

Yeah, well spotted.

And the key question for the company's strategy. So yes, we identified now that in order for us to do not just the developments in Vancouver and London and Seville, but also to do some part of the broader development and developing our future pipeline, continuing to work on parallel in multiple cities so that we are always in a position to push the button for the next vessel to be built, that needs cash and funding too. We are tapping into the asset-backed financing and potential bonds and green equity. Those all form part of our cap stack, so what we've identified is that 50 million euros is the target for raising at both the parent company level and at the subsidiary company development levels. And so we are not specifying at this time. We get work and come out with an equity raise plan, and we do soundings in different markets. When we did the OTC listing in New York earlier this year, previous to that we had multiple soundings and presentations to the US market and local investors in New York, with the same in London, with the same in Stockholm. There is a great deal of interest from the international investment community in these types of environmentally friendly, unique asset class hospitality property investments. It has a lot going for it, has a global audience for it and opportunity to grow the business too. We have a lot of interested parties in these conversations. That's kind of where we're going to be lining up our equity raise, whether that can be at the parent, whether we're going to take more partners in Vancouver, whether there's going to be more equity investments directly in London or in Seville. We are not adverse to having investors at the subsidiary company levels, but we are protecting the interests of our shareholders by optimizing that so we don't lose out on cash flow coming out of the operating companies by giving away too much of a portion of them, but it's also about reinforcing our risk with the local partners. I think it is really key to find always the best partners who can help you deliver your strategy. In that city, if we go to Vancouver, with Ledcor and Vancouver Harbour Flight Center, what a great partner to have. And so it's important to find those relationships and those partners for your projects, and so that's definitely part of the game. And so this 50 million is a target raise. We are not expecting at this time exactly where that's going to come, and we have very much in mind the wellbeing and shareholder value of our shareholders.

Just to clarify, once the new hotel assets are up and running, we could be in a situation where a partner owns part of the asset per se, or even the whole.

Some minority part of it, yes, it is possible. The other thing that we're also exploring, which is very, very interesting, is as we said that there is, I believe, a very good pipeline over the next decade or so, and one way of accelerating our growth is to look at building these in somebody else's balance sheet or doing some sort of fund arrangement on some of the assets, because these are long-term assets with really, really great cash flow, so there's other solutions there. So we will try to optimize that. What we're flagging is that in order for us to raise the sufficient amount of asset-backed financing with the ECA credit, there's a certain amount of capital on the study side that needs to be put on the table, and if we want to do everything that we do without perhaps looking at putting it in somebody else's balance sheet or not looking at other types of securities like unsecured or secured bonds, that's what we're going for, so just flagging the target at this stage.

But considering the fact that you highlighted that you have a pipeline of 3,500 hotel rooms that you are looking to own, it seems obvious to me as an analyst that it is the financing side of the puzzle that is the bigger hurdle to growth than being able to.

And out of that also, we are expecting the future joint venture process with Gibraltar to play a part in this capital raise as well.

That's a good clarification, but moving on, you set financial targets for the year 2030. How would you describe these, and what today are some

So the assumptions for what we disclosed, we're expecting around 86 million euros in revenue, we're expecting around 30 million euros in EBITDA. Those are rough figures that we can see based on our modeling. That's entirely based on what has been disclosed to the market so far, which is Seville, London, Vancouver. Gibraltar is pretty much expected in the calculations to continue growing at a fair and prudent basis. It does not take into account a potential relocation and replacement of that because we don't know the exact timing of that, so once we're able to pinpoint exact timing of that, then we will update those forecasts accordingly. And so I think they are robust targets. They're based on current run rates, current market situation. As we know, obviously, forecasting years ahead, many things can happen in this world, as we've seen over the last five years. So that's based on certain key assumptions, also on development timing, finance rating, construction cycles and the market assumptions.

But to be clear, you outlined pretty well what kind of key variables you're assuming in these rough estimates.

That's correct.

Thank you, Hans, so much for the interview, and have a good summer. Thank you, Thomas.