1. antwerp BerLIn BrusseLs copenhagen London montreaL stockhoLm pa n d o x r e p o r t i n g o f b u s i n e s s o p e r a t i o n s f o r 2 0 0 8

2. BeLgIum Bahamas canada denmark germany unIted kIngdomsweden pandox is one of europes leading hotel property companies. the portfolio is of the highest quality, embracing 45 hotels with a total of 10,800 rooms as well as nine operating companies. the hotels are located in dynamic hotel markets such as London, Berlin, montreal, stockholm, copenhagen and Brussels. all hotels have strong natural positions with an average size of 240 rooms. the hotels are operated through various operational structures under well- known brand names such as Hilton, Intercontinental, hyatt, scandic, radisson sas, clarion, Quality, elite or through independent distribution channels. 3. Crowne Plaza Brussels City Centre, Belgium the Company the hotel portfolio Success factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 List of properties . . . . . . . . . . . . . . . . . . . . . . . . . 26 Pandox development . . . . . . . . . . . . . . . . . . . . . . 4 Hotel properties . . . . . . . . . . . . . . . . . . . . . . . . . 28 Business philosophy . . . . . . . . . . . . . . . . . . . . . . . 6 Strategic orientation . . . . . . . . . . . . . . . . . . . . . . . 8 finances Business processes . . . . . . . . . . . . . . . . . . . . . . . 10 Financial overview . . . . . . . . . . . . . . . . . . . . . . . . 34 Pandox contracts and agreements . . . . . . . . . . . . 12 Sensitivity analysis . . . . . . . . . . . . . . . . . . . . . . . 36 The Pandox Model in practice . . . . . . . . . . . . . . . . 13 Valuation and tax situation . . . . . . . . . . . . . . . . . . 38 Market communication . . . . . . . . . . . . . . . . . . . . 20 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Market overview . . . . . . . . . . . . . . . . . . . . . . . . . 22Ten-year overview . . . . . . . . . . . . . . . . . . . . . . . . 40 Quarterly data 20072008 . . . . . . . . . . . . . . . . . 42Crowne Plaza Brussels City Centre, Belgium 4. Hilton Brussels City, Belgium financial statements 2008 other information Report of the Board of Directors . . . . . . . . . . . . . . 44 Work of the Board of Directors . . . . . . . . . . . . . . . . 62 Income statement and comments . . . . . . . . . . . . . 46Board of Directors and Auditors . . . . . . . . . . . . . . . 62 Balance sheet and comments . . . . . . . . . . . . . . . . 48 Senior executives and hotel managers . . . . . . . . . . 64 Changes in equity . . . . . . . . . . . . . . . . . . . . . . . . 50CEO comments on 2008 . . . . . . . . . . . . . . . . . . . 66 Cash flow statement and comments . . . . . . . . . . . . 51 Pandox human resources . . . . . . . . . . . . . . . . . . . 69 Accounting principles . . . . . . . . . . . . . . . . . . . . . 52 Notes to the Accounts . . . . . . . . . . . . . . . . . . . . . 54 Proposed disposition of earnings . . . . . . . . . . . . . . 60 Auditors report . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Hotel BLOOM!, Brussels, Belgium 5. Hotel BLOOM!, Brussels, Belgium 2008 was a new successful year for Pandox with an increase in revenues, profits and cash flows. The driving force behind the increase in profits despite a turbulent world has been good developments in the hotel markets where Pandox is active. Furthermore, the investments and acquisitionscarried out by the Company in the past year have provided positive effects.read more in the message from the ceo on page 66. Hotel BLOOM!, Brussels, Belgium 6. pan dox 1 expertise and experience Pandox owners, board of directors and management have extensive experience of real estate and the capital market. the companys specialist competence includes hotel market and operations, property management, finance and business development. 2 consistent and thoroughly prepared strategy pandox has a well worked strategy within geographic loca- tion, type of hotel and yields which has been consistentlys ucce s s followed since the company was formed in 1995. F a C T o r s 3 Flexible business model with a varied contractual and agreement structure depending on the local conditions, pandox can sign lease agreements, management agreements or operate the business with a franchise agreement or through an independent distributor, which enables situation-adapted solutions where profitability can be maximised. 2 | Pandox 2008 7. 4 acquisition strategy pandox primarily acquires hotels with a potential 7 strategic alliances Pandox looks for strategic alliances with brand that can be materialised through active measuresnames that have an interest in establishing and where the Companys areas of expertise can be cooperation agreements that create benefits for used fully. both parties. 5 portfolio of highest quality The hotel property portfolio embraces a mix of 8 stable profitability pandox has had high cash-flow and value international and national hotels which all are growth over the years. the cash flow has located in strong positions with an average sizeincreased 40 times and the value has risen of 240 rooms. 13 times since the start in 1995. 6 choice of country and location Pandox establishes in major hotel markets that 9 corporate culture Pandox has established an informal management have good potential and stable demand.style where a high level of expertise is combined with minimum bureaucracy. Key words are simplicity, speed, expertise and visible leadership.Pandox 2008 |3 8. pandox deveLopmentFrom financial crisis to asuccessful hotel property companyBackground and historyBought out from the stock exchange pandox has its origin in the swedish financial and property crisis in the earlypandox was reprivatised in 2004. the company was deregistered following 1990s. The company was founded in 1995 by skanska and securum. Its task a public tender, and had new industrial owners through Eiendomsspar as was to structure the owners hotel portfolio and prepare it for sale, which was a and sundt as. fact when the company was listed on the stock exchange two years later. all in all, some 100 assets from the swedish and international hotel and tourist industry Leading position in europe were sorted, systematised and structured. this was the start of pandox. after privatisation, the acquisition rate increased and a number of major hotels in cities such as Berlin, Brussels, Basel, copenhagen, stockholmthe original hotel property portfolio and malm were acquired. these transactions reinforced the position of pandox as one of the leading hotel property players in europe. Initially, Pandox consisted of 18 properties and three small operations. all the hotels were situated in sweden, most of them were small and located in secondary locations, which reduced the profitability of the company. expansion to north america In 2007, Pandox continued its international expansion with its first acquisition Listing on the stock exchange in north america. the acquisition of the Intercontinental in montreal, with its 357 rooms, laid the foundation for selective expansion in north america. In When Pandox was listed on the stockholm stock Exchange in 1997, it was the 2008, the 605-room Hyatt regency Montreal was acquired. Thereby Pandox first time a company offering this business concept had ever been listed in had within a year acquired 1,000 rooms in montreal. Europe. The companys portfolio was valued at sEK 1.3 billion, with a market value of sEK 520 million, and it had 4,000 new shareholders. after being listed, Pandox underwent massive expansion, taking over larger hotels in strong locations while disposing the smaller hotels. record results and Internationalisationa strong position In 2000, pandox expanded its geographical strategy to also include northern 2008 was yet another record-breaking year. Pandox shows a positive europe. this strategy was turned into reality thanks to the acquisition of hotellus,result with increasing profitability. with its 16 hotel properties, thereby creating a foundation for the internationalisa- tion of pandox. Key figures, seK M 20082007 Property revenue872.3782.2 operator business growing Operating net Operating revenue hotel operations 782.7 1,105.3655.9788.8 as Pandox underwent international expansion, its number of operations has Operating income hotel operations20.8 20.6 increased, resulting in a more flexible business model and enhanced opportunities Profit before tax1) 280.4259.4 for expansion. this has made it easier to acquire underperforming hotels. at theCash flow1) 444.5 389 end of 2008, Pandox operations, including management contracts, includes nine1) excluding non-recurring items.operations with a turnover of sEK 1.2 billion. 4 | Pandox 2008 9. Hilton London Docklands, United Kingdom strong growth and stable profitability, 19952008 The Pandox cash flow has increased 40 times since the company started in 1995. This has been achieved by an active ownership of existing hotels and profitable acquisitions. The companys hotel property portofolio is now worth around sEK 13 billion, seeing a thirteen-fold increase in its value since the start 1995. Cash flow froM Current aCtivities exCluding non-reCurring iteMs, seK M500445400389 Cash flow increase 40 times since the start 318 299 301 300267 266 272 228200 11910097 5321 120 1995 199619971998 199920001)20012002 200320042)2005 2006200720081) hotellus, with a total of 16 hotels, was acquired in 2000.2) Twelve hotels were sold at the end of June 2004, which influenced cash flow negatively by about sEK 55 million on a full-year basis. The disposals generated a capital gain (non-recurring item) of approximately sek 500 million.Pandox 2008|5 10. pandox BusIness phILosophy Knowledge knowledge within the entire value-growth chain prerequisite for success the base for pandox vision, strategy and choice of business model are the value-growth chain in a hotel property. this can be divided into ten different parts: 10. financing and taxes 1. Macro-economythe choice of financing and legal structure is a key issue The level of activity (global, regional or local) constitutes an that creates preconditions for stable value growth.important component for how demand shall be developedwithin the hotel market. macro also influences the direc- tion of the economy, which implies that one can choosedifferent points in time to enter a specific market. 9. Contract/agreement structure2. the hotel economic cyclethe hotel industry has many forms of contractsa part of the macro-economy can be divided into and agreements, which influence a hotelsfive different phases: downturn, lower pace of profitability, financing and value growth. Indownturn, level-out, growth and peak. with know- general, a contract or agreement should con-ledge of the pattern of a hotel economic cycle, one tain mutual incitements so that the partiescan exploit each situation by investing in different work for the same objectives.geographic markets and endeavouring to limit the risk in the markets that have poorer outlooks.8. asset management 3. location and sizethe hotel industry is capital-intensive and spe- two important factors are that hotels have strong cialist expertise is required within both the hotel locations and that they have the right size to contain a and property operations in order to effectivelycritical volume and thereby good preconditions for take care of and develop the properties.profitability. 4. Competition new capacity 7. investments different market positionsa hotel must be constantly developed in order to each market is unique and deep knowledge of maintain a strong market position. the local conditions is required in order to create a product that provides sustainable profitability. 6. operational issues and management5. brand namehotel operations are complicated and require aa strong brand name strengthens the hotels market high level of expertise, active presence andposition and competition in the chosen product segment. strong leadership. a good local hotel team cre- ates both satisfied customers and employees as well as high profitability.Radisson SAS Hotel, Malm, Sweden 6 | Pandox 2008 11. Quality Hotel Park Sdertlje City, SwedenQuality Hotel Park Sdertlje City, Sweden Pandox 2008 |7 12. strategIc orIentatIon consistent strategy provides stability and spread of risks pandox vision is to be one of the worlds leading brand names and types of hotel are maintained.ness development is to actively own, develop and hotel property companies with regard to special- another important aspect is to constantly develop lease hotel properties. ist expertise in both hotel and property opera-the business model in order to choose the best sit- tions and active ownership.uation-adapted strategy with regards to the local overall objectivemarket. Pandox principal objective, through specialist For the vision to become reality, the Companyexpertise within hotels, hotel properties and busi- must retain its specialist expertise as to how the business concept and strategy ness development, is to achieve optimal return on value-growth chain interacts, and that the balance Pandox business concept based on expertise investment and value growth in the hotel property between international and national revenues, within hotel properties, hotel operations and busi- portfolio. corner stones in pandox strategy12 3one type of asset hotel properties.geographic market. Focusing onlocation and size. Large hotels witha hotel property has characteristics one type of asset requires a broadstrong locations increase potentialthat distinguish it from other types geographic market in order to and reduce risks, as well as beingof property which demandscreate growth preconditions and attractive for both partners andspecialist expertise in order to to be able to benefit from changesguests. these hotels have higher pursue active ownership. in the hotel economic cycle.liquidity and are easier to finance. business position: pandox owns 45 hotels with abusiness position: pandox is currently present in business position: all pandox hotels have strong total of 10,800 rooms. The Company has never eight countries, of which sweden is the largest locations and an average of 240 rooms which is invested outside its core area.market. Major markets outside the domesticthree to four times larger than the average hotel inmarket include Brussels, copenhagen and europe.montreal. pandox is represented in locations thathave a mix of national and international demand.Scandic Plaza, Bors, Sweden Hyatt Regency, Montreal, Canadageographic distribution, share of hotel roomsSweden, 56% International, 44% 8 | Pandox 2008 13. Hotel BLOOM!, Brussels, Belgium specific goals are set each year for net operat- ing results, return on shareholders equity, value growth in the existing hotel property portfolio, and equity/assets ratio. The goals are broken down to each individual property, and act as guidelines upon investment decisions.First Hotel Grand, Bors, Sweden 45 6type of hotel. The hotels shall belong Choice of brand name and partners.business model. to maximise value-to the upper-medium and high-price Each hotel shall have the best possible development in each hotel requires asegments.brand name that strengthens the flexible business model that creates profile which requires that pandoxpotential for a situation-adapted maintain a broad network within strategy. business position: the portfolio is a mix of highdomestic and international hotel companies. and medium-priced hotels. examples of those in business position: pandox has a contractual the high-price segment include the Intercontinen-business position: pandox works with twelwe structure that embraces lease, management and tal montreal, crowne plaza Brussels city centredifferent brand names today, as well as with indepen- franchise contracts and agreements, as well as and hilton stockholm slussen. medium-priceddent distribution channels. The brand names are contracts with independent players. the largest hotels cover many scandic hotels and the holiday well-known and established which provides a uniqueproportion includes leases that generate 74 % of Inn Brussels airport.position and network. revenues. Crowne Plaza Brussels City Centre, Belgiumlease structureRevenue-based leases, 40% Revenue-based leases with guarantee, 29%Management agreements, own operation, 26% Fixed other leases, 4% Fixed hotel leases, 1%Pandox 2008|9 14. strategIc orIentatIon Pandox five business processes for increased cash flow and limited risk with the value-growth chain as the starting point, pandox has organised its operations into five business processes.Market analysis the pandox Model asset managementeconomic andMarket communicationto create knowledge of the methodology daily management and financial reportingregular market activitiesthe market situationprocess for the system-major investments in orderhow operations are moni- aimed towards target and change patterns.atic evaluation ofto increase the value of thetored through established groups.each hotel.properties in the long-term. goals, evaluated and valued. First Hotel Grand, Bors, Sweden the pandox modelMarket analysis Market strategyProfitability optimisationAgreement optimisation a market analysis is performed in or- a strategic plan is established for each In view of that a propertys value is the optimal cash flow in each re- der to assess the potential profitability hotel property based on the respective influenced by the hotel operations spective hotel property is then divided of a hotel, and thereby its ability to paylocations specific prerequisites, the profitability, the operator is naturallyamong the operator, pandox and other rent. the local market is identified andlocal market and its position in the pandox most important partner. Inparties concerned. Lease agreements analysed regarding demand, competi- hotel economic cycle. when preparing order to ensure positive developments are formulated so that all parties invol- tion and the current and future offer.the strategic plan, the propertys con-within the hotel operations and the ved have an incentive to continuously tinued utilisation scope is evaluatedvalue of the property, the operator improve the hotel propertys overall objectively and impartially. and related activities are continuously profitability.evaluated.possibility toaction planacquire hotel with concretepropertymeasures Market analysisMarket strategyprofitability agreementevaluation of optimisationoptimisationeach hotel propertyand the hotelproperty portfolio divestment in accordance with the strategy 10 | Pand o x 2008 15. Crowne Plaza Brussels City Centre, BelgiumFirst Hotel Grand, Bors, SwedenPandox 2008 | 11 16. strategIc orIentatIon pandox contracts and agreements the value of a hotel property is governed to a considerable degree by the content and formulation of the hotel lease. the objective is to formulate an agreement where all parties concerned are given an incentive to continuously improve the hotel propertys profitability. each property has its own characteristics Result-based Before pandox enters into a lease, a comprehen- a result-based hotel lease implies that the hotel sive market analysis is performed that includes property owner receives a share of the hotel opera- known changes in the market and competition tors operating net. this type of lease requires that from various players both in the short and long-the hotel property owner understands the opera- term. different models are applied in the leases in tors financial control system. result-based hotel order to limit the risk in a declining market, simul- leases can also specify a minimum rent (guaran- taneously as pandox may participate in an upwardtee/base rent). trend. should an operators liquidity weaken, pan- dox has the expertise and ability to manage the Fixed-fee hotel lease related hotel operations, which indeed hasFixed-fee hotel leases with an index linked to the occurred on several occasions.development of the Consumer Price Index (CPI) are used in mature markets and in well-estab- lease structure lished hotel products. a fixed-fee lease limits the pandox active and situation-adapted ownership is risk factor but also the potential. reflected in the various lease models. the lease structure is governed by factors such as antici-Management agreement pated market trends, local competition, planned a management agreement can be perceived as a investments, as well as choice of operator and dis- sort of agent contract. the main characteristic is tributor. By combining various types of leases, that the hotel property owner also owns the hotel pandox has achieved a lease structure that pro- business. Through a management agreement, an vides the company with increased cash flow in a operator/manager is assigned to operate and man- rising market while simultaneously offering protec- age the hotel on behalf of the hotel propertys tion against downturns in the market throughowner, for which a management fee is paid to the rental guarantees.operator/manager. types of leaseFranchise agreement Revenue-based In its own operations, franchise contracts can be revenue-based hotel leases are linked to salesentered into where Pandox gains the benefits of a generated by the hotel business. This form of lease larger system that embraces the hotels overall provides Pandox with a share of growth in both themarketing and sales. market as a whole and in the market share. to limit the risk, these leases often specify a minimum rent (guarantee/base rent).Hotel Berlin, Berlin, Germanyrental revenues 2008 lease agreeMents Maturity date struCtureper type of ContraCt/agreeMentsYear 2009, 4% Revenue-based leases, 40% Year 2010, 3%Revenue-based leaseswith guarantee, 29%Year 2011, 2% Year 2012, 2% Management agreements,own operation, 26%Year 2013, 89% Fixed other leases, 4%Fixed hotel leases, 1% 12 | Pand o x 2008 17. Hotel BLOOM!, Brussels, Belgiumthe pandox modeL In practIce Pandox has developed a large number of hotel properties and hotel operations over the years.the following pages contain a description of some recent successfulrepositioning and ongoing projects.Hotel Berlin, Berlin, Germany InterContinental, Montreal, CanadaPandox 2008 | 13 18. welcome to hotel BLoom! Brussels a real success story inhotel BLoom! is a unique hotel where the wallsof all rooms have different designs in theBLoom! theme. the fresco paintings havebeen produced by art students from around theworld. each hotel room has an individual wall hotel blooM! was acquired by pandox in thearea and that the hotel was positioned towards an 2) new management and new brand name. the autumn of 2005. the hotel was in bad conditionunprofitable group segment. The combination of low hotel was in need of inspiration, which started and under-performed in revenues, profitability andprices, an oversized organisation and an unfashion-with a new and dynamic management team that quality. furthermore, it needed major investment. able product had created catastrophically bad profit-spread a positive spirit and recreated pride ability. drastic measures were required when Pandoxamong the employees. The Mercur brand name The hotel, which was built in 1976, had been mar- took over the hotel. The adopted business plan con-was ended and pandox chose to position the keted over the years under various brand names buttained four principal aspects: hotel as an independent hotel and also to mar- none of them had really succeeded in positioning the ket it with a lifestyle concept. hotel for it to achieve satisfactory profitability. Pandox 1) repositioning towards a more profitable market analysis showed that the area where the hotel business segment. To be able to compensate the 3) product development of eur 13 million. the is located was undergoing a change from a residentialpoorer position, a special character was needed entire hotel has been upgraded and developed district with low standard to becoming part of the for the hotel which was created through the in accordance with the BLoom! concept. a dynamic business district around Place rogier. ThisBLoom! concept. large and lively lobby area with an exciting implied that segmentation had seriously started in the14 | Pand o x 2008 19. talk of the townHotel BLooM! has been refurbished,upgraded and developed over a two-yearperiod, and was completed in the spring of2007. Further to the first operational year, thehotel is a clear runner-up in the Brussels hotelmarket. the hotel has received several awards,including the best design hotel. revenues andvolumes have increased, which have enabledit to seriously compete with the citys largehotels. Profitability has gradually improved,which implies that the hotel already, after justone year, is valued higher than the originalinvestment. painting inspired by the hotels name. ELIa, the unique exhibition where all 305 rooms are differ- european League of the Institutes of the arts, has ent. each room also contains a description of the handled the artistic side of the project through painting and a presentation of the artist. selecting the young and promising students who have produced the wall paintings. the result is a restaurant named smoods has been cre-4) Competence and adaptation of the ated. all rooms have been refurbished withorganisation. In order to save the hotel, a individual fresco themes. the conferencemajor adaptation of the organisation was department has been upgraded in the samenecessary. more than 50 employees were style as rest of the hotel, also a new gym andterminated, including most of the manage- breakfast area have been established. The ment group. The organisation has subse- objective has been to create a special atmo-quently been selectively developed. Exten- sphere that breathes a young style and feelssive training programs have been carried out fresh and new which sometimes stands in to create a new culture, which has been an contrast to the product offer of many inter-important part of the hotels repositioning. national hotel companies.Stay away from the ordinary at Hotel Bloom!Pandox 2008 | 15 20. meeting place of the future hotel Berlin, Berlin Berlin the hotel, which is berlins third largest hotel radical change process The change has been made through both with 701 rooms, was acquired by pandox ina comprehensive and dynamic restructuring andmanagement and investment measures. when the 2006. the market analysis showed that the prod-repositioning program has been carried out since hotel was taken over, a new board of directors and uct under-performed in price, profitability andPandox took over the hotel. From having been a management team was appointed, who have quality. furthermore, the hotel was in need of tourist hotel oriented towards group travel, the actively developed the hotels business plan. The new inspired leadership. hotel has been repositioned towards the more prof- hotel was originally operated under the clarionitable business, conference and meeting segment. brand name, which was removed and replaced by the strong local name hotel Berlin, Berlin. 16 | Pand o x 2008 21. Back to the top pandox has now developed the hotels previous position as one of Berlins most creative meeting places with a completely new meeting and conference area, the latest technology and a fantastic spirit among the team and the management.Hotel Berlin, Berlin has been upgraded and new creative design that meets guests, whichexpanded through the conversion of ineffec-strengthens the hotel as an independent andtive surfaces. all hotel rooms have been dynamic player.refurbished, the lobby areas as well as theThe repositioning is expected to be com-food and beverage offer have been mod- pleted in 2009 at a cost of approximately eurernised to meet new customer demands.10 million.an important part of the re-profiling is thePandox 2008 | 17 22. continued expansion Montreal in Canadas business centre in 2008, pandox acquired an additional hotel inComplete hotel with strong location Montreal the hyatt regency Montreal for the equiva-the hyatt regency montreal is one of montreals lent of about seK 371 million. the hyatt regency is one of largest hotels with 605 rooms of international size Montreals largest hotels. the acquisition strengthens pandox and standard. The hotel offers considerable meet- position in Montreal further to the Company previously acquiring the ing and conference rooms, including a large interContinental Montreal thus leading to pandox now having nearly 1,000 rooms in Canadas second largest city.18 | Pand o x 2008 23. cooperation continuesIn conjunction with the acquisition of the Hyattregency, pandox took over a management con-tract with hyatt. the process of creating a new,joint business plan is in progress. The first mea-sures will be to upgrade the conference andbanquet room that has a capacity of up to 800guests. the hotel has development potentialparticularly through its good location in the centreof montreals leisure district an area that isundergoing strong development and is an impor-tant part of the citys future profile within theleisure and short-break segment.Future marketpandox took its first steps into the northamerican market in July 2007 when Inter-continental montreal was acquired. thehigh expectations of the canadian markethave been fulfilled with the acquisition in2008 of Hyatt regency Montreal, Pandoxhas reached a critical volume in montreal which is a market with significant potential. banquet and congress department with a capac- treal, in the middle of the leisure and shopping ity of up to 1,000 guests. the hyatt regencydistrict close to theatres and museums and also provides a broad food and beverage offer,within walking distance of the palais des con- as well as a large pool, gym and spa area. thegrs, Montreals exhibition and congress centre. hotel holds a strategic location in central mon- Pandox 2008 | 19 24. market communIcatIon pandox hotel market day a meeting place for the hotel industry pandox organise and arrange an annual hotel with the publication of business reports. Whenstudy of a current issue. recent years have Market day for the past twelve years focusedPandox become privately owned again in 2004, it included discussions on the effect of budget air- towards people in the Companys network primar- was decided to maintain the tradition albeit more lines on the hotel industry, how one creates and ily within the hotel and capital markets. in the form of a seminar. builds up a destination and the effects of shopping originally, the day was a capital market meeting the conference, which is always held at thetourism on demand within the sector. where Pandox invited shareholders, journalists, hilton stockholm slussen, starts with an overview Last years seminar, as is the custom, was banks and people within the sector in conjunction of hotel market trends, followed by an in-depth about international and domestic hotel market regular information about market trends and acquisitions when pandox was formed in 1995, a newsletter was reports that the company issued. despite the com- and hotel-property market. pandox upgrade is there- started in order to promote the company vis--vis thepany no longer being listed on the stockholm stockfore issued on a regular basis. Three newsletters were capital market prior to being floated on the stock mar-exchange, pandox continue to maintain the flow of published in 2008, covering market trends and cur- ket. This publication later became part of the publicinformation to those who are interested in the hotelrent swedish and international hotel market topics. 20 | Pand o x 2008 25. trends although now also in a troubled global ceo at scandic hotels, puneet chhatwal, senior each year. Last year, hiltons auditorium was filled economic climate. The interesting subject of HotelVP & Cdo at rezidor Hotels Group together with to capacity, which also creates excellent opportu- Brand Profitability was then discussed with a num-anders Johansson, managing director at nordicnities for the industry to network and to thereby ber of international experts such as Mark Wynne hotels in stockholm, also presented their respec-enable the Hotel Market day to develop as an smith, ceo emea from Jones Lang Lasalle hotelstive business models related to the subject. established meeting place. and russell kett, managing director at hvs inIt is very gratifying to see that the number of London. Furthermore Frank Fiskers, President &participants at the hotel market day increasespandox provides You are most welcome to become a subscriber. Pandox Upgrade is free of charge and can be orderedsupport from Pandox by telephone at +46 (0)8 506 205 50 or via pandox@pandox.comPandox policy is to actively contribute withdonations and support to organisations andfoundations that are in need of help. atpandox latest hotel market day, the com-pany made a donation to those in need inafrica which is just one of several donationsmade last year. It is also self-evident thatpandox simultaneously supports sport andculture at home. the company continues toprovide support where it is needed. pandox communicates its acquisitions and other changes in the hotel property portfolio in separate fact sheets and folders.Pandox 2008 | 21 26. market overvIew The Market 2008 started out sharp but went flatthe year 2008 opened strongly. average rates revPar of between 5 and 15 percent. Then cameage rates were eur 92, which was 6 percent continued to grow up until august followed bythe downturn related to the crisis in the united higher than 2007. revPar in Berlin closed at EUr the credit crisis as a result of the downfall of the states, which spread like wildfire across the world. 64 for the full-year 2008, representing an increase sub-prime loan merry-go-round. the repercus- It became most noticeable in september, with of 4 percent. Munich closed 2008 with room occu- sions influenced the entire global economy occupancy falling strongly in major European citiespancy at 70 percent, representing a decline of 4 including the hotel industry. the importantcompared with 2007.percent, but a rise in average rates of 3 percent. In question now is how deep the recession will beIn London and Paris, occupancy fell by aboutthe rest of europe, many hotel chains experienced and for how long it will last. 5 percent compared with the previous year. the in august a start to a fall in both demand and prof-falling trend then continued for the rest of the year. its. occupancy fell in many of the major cities. room occupancy in the united states closed at 60 room occupancy in London closed at 80 percentsome destinations, such as rome, prague, vienna percent, which is 3 percent lower than last year.for 2008, representing a decline of 2 percent com- and amsterdam, distinctly felt the reduction in demand for rooms declined during the year by pared with the previous year. average rates for thedemand for hotel nights, caused above all by the about 2 percent. The number of available rooms year continued to rise, albeit at a slower pace, and absence of tourists from north america and increased during the year by 3 percent, and occu-increased by 4 percent for the full-year. revPar Japan. the autumn did not see any improvement. pancy fell by 4 percent. closed at GBP 108, representing a rise of about 2 paris has fared slightly less well than London average rates closed at Usd 107, representingpercent compared with 2007.and closed the year with occupancy of 78 percent, a growth of almost 2 percent compared with 2007.which is a decline of about 1 percent compared when looking at trends per price segment for the new york and londonwith the previous year. growth in prices is consider- year, all segments fell in revpar compared withnew york and London are two markets that usually ably more modest in 2008 than for 2007 and closed last year, with the luxury segment declining the follow each other albeit with a certain time delay at about 2 percent over 2007 with an average rate of most. developments in all segments are the samewhere new york as a rule is first to enter upturn241 euros. revPar closed at EUr 87, representing as the national average, with a decline in occu- and downturn phases. This year, events have been a rise of almost 1 percent compared with 2007. pancy compared with last year. average rates are the opposite. Londons average rates started to fallIn Brussels, room occupancy is slightly above still rising slightly, resulting in a fall of 2 percent in already in august while new york maintained itslast year, and average rates rose by 4 percent. In revpar for the whole of the united states com- prices up to and including september. Compared antwerp, occupancy fell by 7 percent while average pared with last year.with previous peak levels around the new millen- rates increased by 2 percent. revPar rose in Brus- new York is managing a little better, and is nium, new york lies at an amazing 69 percent sels by 5 percent while antwerp fell by 5 percent. above the average. occupancy has declinedplus, while London is 29 percent over. slightly while prices have shown a rise of about 2Germany has managed the global downturn scandinavia percent for the year. occupancy closed at 82 per-better, due primarily to there being higher domes- copenhagen, like London, has experienced high cent and the average rate at Usd 276.tic demand for hotel rooms compared with manyroom occupancy for a long period of time, and has For the first half-year 2008, trends in the Euro-other countries. Berlin closed at 70 percent occu- gone through the roof when it comes to demand pean market continued to be good with a rise inpancy, which is 2 percent lower than 2007. aver- which reduces growth potential. International22 | Pand o x 2008 27. The transactionmarket cameto a haltFurther to strong growth during five years,the transaction market ran out of steam in2008. Despite this situation, the transac-tion volume was significantly higher thanin 2002/2003 a period, which due to 11September, the Iraq war and the spreadingof the SARS disease, still saw the lowestactivity the industry has experienced inthe past ten years.A distinct trend for 2008 is that demands onreturn on investment have risen consider-ably. The largest changes have been seenin the United Kingdom. The underlying fac-tor is of course the credit crisis in the UnitedStates, although the weakened economyalso had an influence. Consequently, it isthe slowdown in the economy that will rep-resent the decisive effect on how the prop- Hotel Twentyseven, Copenhagen, Denmarkerty sector develops in the long-term.In Europe, the level of investment in thespring fell by a heavy 49 percent comparedwith the same period last year. Globally, the guest nights have stagnated and growth is now room occupancy closed at 69 percent whileequivalent figure is an amazing 76 percent. more dependent on domestic demand. copenha-average rates were sEK 1,714 in 2008. Gothen- The absence of financial capital, the weak- gen has also recently gained a lot of new capacity,burg, which has previously managed downturn ened economic outlook and general uncer- which also restrains occupancy trends. the cityperiods well, has a distinct slowdown in the rate oftainty are the reasons behind the standstill. has however been strengthened by an increase ingrowth with a negative revpar trend for the fourthFurthermore, when property turnover is low, growth in leisure travellers and an improved con-quarter. occupancy closed at 74 percent among the market becomes uncertain as to what is gress market coming from europe. the largest the citys four-star hotels, representing a rise of 1 the real market price. This has implied that proportion of travellers originates from the closest percent compared with last year. growth in prices sales transactions have become far more neighbouring countries such as the United King-closed at 2 percent. mlndal showed the samedifficult to complete in 2008 where ven- dom, sweden and norway. however, spain and pattern during the year, although it achieved lower dors and purchasers have many times been switzerland stand for the greatest increase. price growth than Gothenburg. revPar in Mlndal a long way from each other with regard to room occupancy in 2008 was 67 percent in increased by 2 percent, compared with 4 percent the transaction price. copenhagen, representing a decline of 5 percentin the centre of Gothenburg.The significant reduction in transactions against the previous year. average rates were dkk malm experienced a slowdown in the rate ofduring the year has been due to the difficult 890, representing a rise of 5 percent compared growth of revpar during the year, with occupancyfinancial situation that has arisen in the mar- with last year.starting to fall in the fourth quarter. average rates ket. In 2008, banks became considerably the swedish market experienced continued closed at sEK 881, which can be compared with more selective and restrictive in their lend- growth during the year. The break in the trend for the 2007 level of sEK 835. revPar rose in the ing than previously, and credit is granted at a stockholms hotel market came however in octo- municipality of Malm by 6 percent. The high- higher price. This has implied that there has ber, when occupancy started to fall and price risesprice segment in the city centre shows the same been an absence of major portfolio transac- levelled out. the hardest hit was the high-price pattern as the municipality.tions in 2008, which were frequent in previ- segment, which lies first in the economic cycle.the swedish regional towns and cities contin-ous years. It should however be noted that The trend continues to be downward.ued in general to be stable although trends show athe total transaction volume for 2008 is In conjunction with price increase and re-seg- slowdown in occupancy, which will lead to pres- expected to be roughly in line with menting, where city hotels increasingly choose sure on prices next year. 2004/2005, representing about USD 3045 high-paying guests instead of more volume-strong billion. It is primarily hotel operators and pri- groups at a lower price, the lower price segmentsvate equity who are behind the sale of prop- are being squeezed out of the centre of stockholm. erties. the five-star segment lost 6 percent in price in In order to place the current credit crisis 2008 while occupancy rose by 3 percent. averagein some perspective, it should be mentioned rates have a growing downward pace, while occu- all market figures for sweden refer to a rolling 12-month period that we are not yet back to the price levels of of december 2007 to november 2008. other countries and pancy is experiencing a slowdown in the rate of cities refer to the calendar year 2008 2006. This means that most investors are growth.still showing a plus in their holdings. Pandox 2008| 23 28. hotel ProP45 hotelswith strategic locations in Sweden, denmark,Belgium, Germany, Switzerland,United Kingdom, Bahamas and Canada. 24 | Pand o x 2008 29. ertieS Pandox works with many different brand names all are well-known and established,which provides a unique position and network.Pandox 2008 | 25 30. hotel ProPertieSType ofNumber Year of constr. Total areaProperty Operator/Brand namelease Location of rooms extension (sqm) StockholmRadisson SAS Arlandia Hotel, Arlanda Rezidor/Radisson SAS OgInternational airport3351979/89 15,260Hilton Stockholm Slussen Hilton O City centre288198918,416Scandic Skogshjd, SdertljeScandicO Sdertlje/Central 2251972/81/8714,115Scandic Jrva Krog, StockholmScandicO Stockholm north2151971/97 11,300Scandic Park, StockholmScandicO City centre2011969/88 12,290Quality Hotel, Nacka Choice Hotels Scandinavia/QualityOgSickla-Nacka 162198610,830Mr Chip Hotel, Kista Kista Hotell ABOgStockholm north15019845,517Quality Hotel Park Sdertlje City Pandox/Choice Hotels Scandinavia FrSdertlje/City centre 1491890s/198410,292Scandic Upplands Vsby ScandicO Stockholm north15019866,955TOTaL STOcKhOLM1,875104,975 GothenburgScandic Crown, GothenburgScandicO City centre338198824,380Elite Park Avenue Hotel, GothenburgElite Hotels OgCity centre3171950/74/9021,998Scandic Mlndal, GothenburgScandicO City centre208200011,000TOTaL GOThENBuRG 86357,378 resundScandic Copenhagen ScandicO City centre4841970/99 31,500Scandic S:t Jrgen, MalmScandicOgCity centre2881967/95 21,485Radisson SAS Hotel, MalmRezidor/Radisson SAS OgCity centre2291971/88 18,969Clarion Collection Hotel Twentyseven Choice Hotels Scandinavia/ClarionOgCity centre2001913/55/657,568Scandic Star, Lund ScandicOgCentral196199115,711Clarion Hotel Grand, Helsingborg Choice Hotels ScandinaviaOgCity centre1641926/29/968,555Scandic Kramer, MalmScandicO City centre1131875/1994 6,913TOTaL RESuNd1,674110,701 Regional cities and other locationsScandic Grand, rebroScandicO City centre221198512,900Scandic Winn, Karlstad ScandicOgCity centre1991984/90 10,580Scandic Swania, TrollhttanScandicO City centre1981918/83/8910,399Clarion Hotel Grand, stersund Choice Hotels Scandinavia/ClarionOgCity centre17619788,766First Hotel Grand, Bors Utlanda Hotell AB/First Hotels OgCity centre1581972/87/90/97 9,593Scandic Plaza, Bors ScandicOgCity centre135198810,592Elite Stora Hotellet, JnkpingElite Hotels OgCity centre1351860/1930/9511,378Clarion Hotel Plaza, KarlstadPlaza Hotell & Restaurang i Karlstad AB/Choice OgCity centre1311929/91 5,9071890s/Scandic Hallandia, HalmstadScandicO City centre1551950/75/20077,617Scandic Billingen, SkvdeScandicOgCity centre1071888/1939/657,743TOTaL REGiONaL ciTiES aNdOThER LOcaTiONS1,61595,475 international2)Crowne Plaza Brussels City CentrePandox/Crowne PlazaFrCity centre354191028,095Holiday Inn Brussels Airport Pandox/InterContinentalFrAirport310197121,072Hotel BLOOM!, Brussels Pandox IoCity centre305197623,445Hilton Brussels City Pandox/HiltonM City centre2831910/30 13,850Scandic Grand Place, BrusselsScandicO City centre1001900/91 4,500Crowne Plaza Antwerp Pandox/InterContinentalFrCentral262197118,340Scandic AntwerpScandicO Ring road204197413,200Hotel Berlin, Berlin Pandox IoCity centre7011958/87/9641,093Hilton BremenHilton O City centre235199121,000Hilton DortmundHilton O Exhibition centre190199012,500Scandic Lbeck ScandicO Ring road15819919,700Hilton London DocklandsHilton O Docklands365199122,800Hyatt Regency, MontrealHyatt Hotels M Central605197644,148InterContinental MontrealPandox/InterContinentalM Central357199131,091Radisson SAS Hotel, BaselRezidor/Radisson SAS OgCentral2051957/63/7217,800Pelican Bay at Lucaya, Grand Bahama Island Sundt GB Management/Pandox AMResort 1867,983TOTaL iNTERNaTiONaL4,820330,617TOTaL PaNdOx 10,847 699,146 1) Includes hotel, restaurant and conference areas. 2) Excluding Copenhagen (included in resund). O = Revenue-based, Og = Revenue-based with guaranteed rent, Or = Revenue and result-based, R = Result-based, F = Fixed, Io = Internal revenue-based, M = Management agreement, Fr = Franchise, AM = Asset management agreement Pandox hotel operations (hotels operated by Pandox)26 | Pand o x 2008 31. Of whichTax asses- hotels1) Offices Shops OtherRight of Property ment value (sqm)(sqm) (sqm) (sqm)disposal designation(SEK M)PaNdOx MaRKET SEGMENT15,260 Land leasehold Benstocken 1:5 132.7Proportion of total 15,725 2,097 594Land leasehold verkikaren 31 365.9Stockholm number of rooms 14,115 Yxan 8 46.2 number of hotels9 11,300 Land leasehold Tanken 2 77.6 number of rooms 1 875Property revenues, SeK M187.9 10,290 2,000 Lnnen 30213.0operating net, SeK M148.7 8,0902,705 35Sicklan 363:2 84.817% 5,517 Land leasehold Knarrarns 7 50.2 10,110 182 Herkules 1335.6 6,955 Vilunda 6:48 34.6 97,362 4,984 2,6291,040.6Proportion of totalGothenburgnumber of rooms 21,800 300 2,280 Stampen 5:5170.0number of hotels3 21,998 Lorensberg 28:4208.0number of rooms 863 11,000 Laken 155.2 Property revenues, SeK M 84.5 54,798 300 2,280433.2operating net, SeK M 76.4 8% 25,200 6,300 99943-2 14,655 4,230 2,600 S:t Jrgen 11222.0 18,969 Carolus 33 123.0 7,568169 Vester Kvarter Kbenhavn Proportion of totalresund number of rooms 15,711 Porfyren 2 102.4number of hotels7 7,325 1,230 Hgvakten 859.4 number of rooms 1,674 6,373 540 Gripen 1 73.8 Property revenues, SeK M183.5 95,801 6,000 8,900580.6operating net, SeK M150.5 15% 10,900 2,000Land leasehold Mltaren 1 50.6 10,580 Negern 2 49.0 10,399 Svan 7 48.5 8,766 Borgens 633.8 Proportion of total 9,365 228Land leasehold Prometeus 331.9 Regional cities and other locations number of roomsnumber of hotels10 7,9612,631 Balder 6 62.8number of rooms1,615 9,379 899 1,100 Alhambra 1 60.6Property revenues, SeK M 116.7 5,907 Hken 139.6 operating net, SeK M 100.4 15% 6,813360 427 17Erik Dahlberg 14 & 1544.8 6,844 899 Fjolner 727.686,914 2,991 1,326 4,244449.2Proportion of totalinternational number of rooms 28,095 number of hotels 16 21,072 number of rooms 4,820 23,445 Property revenues, SeK M342.9 13,850 Saint-Josseten-Noode (1div) 032 operating net, SeK M306.8 44% 4,500 16,780 1,560Land leasehold 13,200 24th div, Borgerhout 1st div, Ar 41,093 15,100 5,900 Grundbuch Altstadt IV, Blatt 60Proportion of total 11,300 1,200 Grundbuch Dortmund, Blatt 897hotel operationsnumber of rooms 8,800 900 Grundbuch Lbeck, Blatt 54545number of hotels9 21,500 1,300 HM Land Registry: SGL465779number of rooms 3,326 29,000 operating revenues, SeK M 1,105.3 31,091 operating profit, SeK M 237.4 31% 17,000 800 7,983 303,8091,560 10,100 638,6849,535 7,626 28,153 2,503.6 Pandox 2008 | 27 32. hotel ProPertieS Radisson SaS arlandia hotelQuality hotel Nacka Number of rooms: 335 Operator: rezidor/radisson SaSNumber of rooms: 162 Operator: Choice hotels Scandinavia/Quality stockholm stockholm hilton Stockholm Slussen Mr chip hotel, Kista Number of rooms: 288 Operator: hiltonNumber of rooms: 150 Operator: Kista hotell aB Scandic Skogshjd, SdertljeQuality hotel Park Sdertlje city Number of rooms: 225 Operator: Scandic Number of rooms: 149 Operator: Pandox/Choice hotels Scandinavia Scandic Jrva Krog Scandic upplands Vsby Number of rooms: 215 Operator: Scandic Number of rooms: 150 Operator: Scandic Scandic Park, StockholmScandic crown, Gothenburg Number of rooms: 201 Operator: Scandic Number of rooms: 338 Operator: Scandic gothenburg 28 | Pand o x 2008 33. Elite Park avenue hotel, Gothenburg clarion collection hotel TwentysevenNumber of rooms: 317 Operator: elite hotels Number of rooms: 200 Operator: Choice hotels Scandinavia/Clarion Collection gothenburgresundScandic Mlndal, Gothenburg Scandic Star LundNumber of rooms: 208 Operator: ScandicNumber of rooms: 196 Operator: ScandicScandic copenhagenclarion hotel Grand helsingborgNumber of rooms: 484 Operator: ScandicNumber of rooms: 164 Operator: Choice hotels Scandinavia resundScandic S:t Jrgen, Malm Scandic Kramer, MalmNumber of rooms: 288 Operator: ScandicNumber of rooms: 113 Operator: ScandicRadisson SaS hotel MalmScandic Grand rebroNumber of rooms: 229 Operator: rezidor/radisson SaS Number of rooms: 221 Operator: Scandicand other locationsregional citiesPandox 2008 | 29 34. hotel ProPertieS Scandic Winn KarlstadElite Stora hotellet Jnkping Number of rooms: 199 Operator: Scandic Number of rooms: 135 Operator: elite hotelsregional cities and other locations regional cities and other locations Scandic Swania Trollhttan clarion hotel Plaza Karlstad Number of rooms: 198 Operator: Scandic Number of rooms: 131 Operator: Plaza hotell & restaurang i Karlstad aB/Choice clarion hotel Grand, stersund Scandic hallandia halmstad Number of rooms: 176 Operator: Choice hotels Scandinavia Number of rooms: 155 Operator: Scandic First hotel Grand BorsScandic Billingen, Skvde Number of rooms: 158 Operator: Vstsvenska hotellfastigheter aB/First hotels Number of rooms: 107 Operator: Scandic Scandic Plaza Borscrowne Plaza Brussels city centre Number of rooms: 135 Operator: Scandic Number of rooms: 354 Operator: Pandox/Crowne Plazainternational 30 | Pand o x 2008 35. holiday inn Brussels airport Scandic antwerp Number of rooms: 310 Operator: Pandox/holiday innNumber of rooms: 204 Operator: Scandicinternational international hotel BLOOM!, Brussels hotel Berlin, Berlin Number of rooms: 305 Operator: PandoxNumber of rooms: 701 Operator: Pandox hilton Brussels city hilton Bremen Number of rooms: 283 Operator: Pandox/hilton Number of rooms: 235 Operator: hilton Scandic Grand Place Brussels hilton dortmund Number of rooms: 100 Operator: Scandic Number of rooms: 190 Operator: hilton crowne Plaza antwerp Scandic Lbeck Number of rooms: 262 Operator: Pandox/Crowne Plaza Number of rooms: 158 Operator: Scandic Pandox 2008 | 31 36. hotel ProPertieS hilton London docklands Number of rooms: 365 Operator: hilton international hyatt Regency Montreal Number of rooms: 605 Operator: Pandox/hyatt hotels intercontinental Montreal Number of rooms: 357 Operator: Pandox/interContinental hotels Radisson SaS hotel Basel Number of rooms: 205 Operator: rezidor/radisson SaS Pelican Bay at Lucaya, Grand Bahama island Number of rooms: 186 Operator: Sundt GB Management/Pandox Hilton Brussels City, Belgium32 | Pand o x 2008 37. Finances Financial overview............................34 Sensitivity analysis............................36 Valuation and tax situation...................... 38 definitions.................................. 39 Ten-year overview............................ 40 Quarterly data 20072008......................42 Financial statements 2008...................... 43 Report of the Board of directors..................44 Income statement and comments................ 46 Balance sheet and comments................... 48 Changes in equity............................ 50 Cash flow statement and comments............... 51 accounting principles.........................52 notes to the accounts.........................54 Proposed disposition of earnings................. 60 auditors report..............................61 Pandox 2008| 33 38. FInanCIal oVeRVIew well-weighted risk profile Hotel Berlin, Berlin, Germany Financial policy average fixed interest period be matched with the rowing in the Parent Company . The objective is to The basic objective of Pandox financial operationsaverage point in time when rental revenues, based work with long-term framework agreements that is to achieve the lowest possible financing costson underlying leases, are estimated to be affectedprovide scope for borrowing with varying maturities while simultaneously limiting the risks related to by a change in interest rates . Interest swaps areand fixed margins . derivative instruments such as interest rates, foreign currencies and borrowings .mainly used for extension of fixed interest rateswaps are preferably used for the extension of The interest rate risk is the risk that changes in periods . fixed interest rate periods . interest rate levels which could negatively affect the Groups results . Currency risk is the risk that Currency risk/currency risk strategyCapital structure the Groups balance sheet and income statement Pandox is exposed to currency risks due to certainThe objective for the Groups capital structure is which could be negatively affected by changes in of the Groups assets being denominated in foreignthat the equity/asset ratio long term should meet the value of the Swedish krona . Finally, the borrow-currencies . Pandox policy is to hedge the majorityinternal and external financial strength require- ing risk is the risk that external financing may part of its exposure by raising loans in the localments in order to enable continued expansion . become more difficult to find .currency of each respective country and by hedg-ing with appropriate currency hedging instruments . Financing Interest rate risk/interest rate strategyas of 31 december 2008, the Pandox Groups inte- Pandox basic objective is that interest rate expo-Methodology and systems rest bearing liabilities amounted to SeK 6,808 .6 M sure shall be adapted so that increased costs as a Pandox has developed and implemented systems(5,516 .8) . The loan portfolio has a spread due- result of reasonable changes in interest rates shall and procedures to enable the continuous monito- date structure with an average fixed-capital period be compensated by higher revenue . The interestring and reporting of interest rate risk trends . of 8 .5 years and an average fixed-interest period of rate risk must therefore be limited through con- 1 .7 years (1 .8) . The average interest rate on loans tracting periods of varying lengths with the aim ofFinancing strategyat 31 december 2008 was 3 .6 percent (4 .9) . The creating an optimal due date structure and fixed In order to gain flexibility and administrative bene- financing of hotel properties is raised in each interest periods . The long term objective is that the fits, Pandox has centralised when possible all bor- respective local currency in accordance with the 34 | Pand o x 2008 39. financial policy . at the same point in time, the Pan- SeK 2,729 .2 M of which SeK 1,423 .7 M wasWorking capital dox Groups liquid funds amounted to SeK 347 .7restricted equity and SeK 1,305 .5 M unrestricted Pandox receives rental revenue in advance and M (272 .8) . In addition, there was an unutilisedequity .pays most of its operating costs and interest credit facility of SeK 1,172 .9 M .The Pandox Groups cash flow before changes expense in arrears while hotel operations normallyin working capital, investments and other revenue receive revenues in arrears . altogether the Group Equity capital amounted in 2008 to SeK 444 .5 M (389 .0) . normally has a relatively small working capital to The Pandox Groups equity capital as per the bal-finance . ance sheet at 31 december 2008 amounted to INTEREST STRUCTURE1), SEK M Year due SEK DKKEURGBPCHFCADUSD TotalShare, % Interest, %2) 20091,786.5 137.3 2,062.7176.2 66.1377.64,606.4 67.73.4 2010250.0 250.03.74.8 2011125.0 30.1119.0274.14.04.7 2012225.0 66.1291.14.34.0 2013 75.0 437.4512.47.54.4 2014 and later200.0 146.8 164.0132.2231.6874.6 12.84.0 Total 2,661.5 284.1 2,694.2176.2264.4350.6377.66,808.6100.03.6 Share, %394 40 3455 100 Average interest rate, %3.7 4.8 3.54.72.94.32.93.6 Average interest rate period, years 1.4 3.6 1.40.23.86.50.11.7 1) Converted to SeK . 2) average interest rate in percent .Pandox 2008 | 35 40. SenSITIVITy analySIS Factors that affect PandoxPandox operations and profitability are affected negative influence on occupancy rates and aver- Partners by a number of factors, of which the most imporage prices . To deal with this risk, Pandox has Pandox agreement structure, with a large propor- tant are described below. developed an information system that continuallytion of variable leases, means that the Company is monitors planned new constructions within its more dependent on the individual tenant/opera- The hotel marketmarket areas, and thus enabling Pandox to be pre- tors business than other property companies . The The development of Pandox earnings and the pared and proactive . Companys strategy to actively cooperate with the value of its hotel properties are dependent uponmarkets most competitive and powerful operators trends within the hotel market, which in turn Agreement structure with well established brand names, reduces both closely follow general economic developments .Pandox has a large proportion of variable leases, the related operative and financial risks . Pandox Business travel and conference activities nor-which represented 94 percent of total rental reve-largest tenants in terms of revenue are Scandic, mally increase during periods of high economicnue in 2008 . Hilton, Radisson SaS, elite Hotels, InterContinen- activity, while there is a corresponding decrease about 30 percent of variable leases contained tal Hotels Group, Choice Hotels and First Hotels, during periods of low economic activity . There isa guaranteed rent, meaning that only 64 percent ofwhich together accounted for 87 percent of all thus a strong connection between economic rental revenues were fully variable downwards . a rental revenue in 2008 . trends (GdP) and trends within the hotel market . change in the occupancy rate and the average developments of GdP can be closely monitored, room revenue consequently affects Pandox very Leasing level whereas factors that influence local hotel marketsdifferently, depending on the direction of change . The leasing level as of 31 december was 99 .8 per- are significantly more complex . The most impor-The choice of agreement is based on optimal cent . Vacant space amounting to 1,482 sqm con- tant influential factors are local economic condi-distribution of cash flow between Pandox and thesisted entirely of store and office premises . tions, the proportion of new hotel capacity in theoperator so that both parties are motivated to con-If for any reason a hotel operator should market, how well developed a market is concern- tinuously increase the hotel propertys overall pro-choose to terminate its lease agreement, Pandox ing brand names and segments, currency fluctua- fitability . Factors that may influence risks associ- may either select a new suitable operator as tenant tions, aswell as extraordinary events . ated with variable leases are the hotel propertysor operate the hotel under its own management . location, market segment and brand name/opera-with Pandox specialist expertise in the hotel sec- New capacitytor . Pandox strategy is to operate in a selectedtor, the risk of vacant hotel space is seen as being new capacity introduced to the market implies anmarket segment, which in combination with its extremely low . increased risk for local players . depending upon hotels market expertise and systems, limits Pan- For other commercial space, which represents existing demand, additional hotel rooms through dox agreement risk . approximately 6 .5 percent of total space in the the construction of a new hotel can lead to a rapid Quality Hotel Park Sdertlje City, Sweden 36 | Pand o x 2008 41. Companys properties, Pandox is exposed to theProperty tax have an impact on Pandox earnings . In order to same fluctuations in supply and demand for prem-Property tax on Pandox Swedish properties limit its financial risk, the Companys average fixed ises experienced by other property owners . amounts to 1 .0 percent of the tax assessmentinterest period is 1 .7 years . The full effect of a value . Changes in the tax rate or in the tax assess-change in interest rates is accordingly not felt by Changed risk potentialment value, which are adjusted annually, affectPandox until after this period . Historically, the hotel industry and hotel property Pandox earnings . However, an increase only has a sector have always been associated with high risk . limited impact on the Companys earnings Currency risk The market has however changed significantly in because many lease agreements are formulated Pandox policy is to hedge the major part of its cur- recent years . owners have become more profes-so that the property tax be passed on to the tenant .rency exposure, including shareholders equity, by sional with restructured companies and focusedProperty tax on properties outside Sweden is gen-financing properties in local currencies and by strategies, with a greater holistic view and special- erally less than one per cent of the book value .hed-ging through means of appropriate currency ised expertise . Reports from public companiesabout 59 percent of the property tax was debited instruments . Transaction exposure is limited as have substantially improved information about the to tenants in 2008, which means that the net effectrevenue and costs are usually in the same cur- transparency of the market . The proportion ofon Pandox earnings amounted to SeK 23 M . rency . established strong brand names with efficient operations has increased . For streamlined compa- Site leasehold rents Sensitivity analysis nies with own expertise in hotel operations, hotelas of 31 december 2008, Pandox held sevenThe table below illustrates how Pandox earnings properties and business development, and whoproperties via site leasehold rights . Rents on theseare affected by changes in certain key factors . are active owners, the potential risk is considerably properties are currently calculated in such a man- lower than it has been in historic terms .ner that a municipality that normally owns the land receives what is deemed to be a reasonable real Decisions by public authorities rate of interest on the estimated market value of The hotel market can be affected by decisions the land in question . Site leasehold rents generally made by public authorities . Two examples of such run for periods of 10 to 20 years . decisions are changes in taxation related to claims for travel expenses or rules concerning value Interest rates added tax both in general and for the hotel and Interest expense is Pandox largest single cost restaurant industry in particular . item . Fluctuations in interest rates will therefore Earnings impact 2008, SEK M Change in rental revenue Occupancy rate +5 percentage points+52.4 Occupancy rate 5 percentage points51.0 Average room rate SEK +50+35.0 Average room rate SEK 5035.0 Other commercial premises +/5 %1) +/1.6Change in other variables Interest expense during the year +/1 percentage point+/46.1 Average interest expense +/1 percentage point1)+/68.1 Exchange rate fluctuation +/5 % +/5.9 Operating and maintenance costs +/5 % +/2.9 1) The figures in the table are standardised so that the effects of changes in rental revenue and interest rates are immediate, although suchchanges do not have full impact in reality until leases and loan agreements are renegotiated .Pandox 2008 | 37 42. ValuaTIon and Tax SITuaTIon Hotel property portfolio valueThe valuation of hotel properties with their spe operators respective key ratios and figures develop operating costs are assumed to increase in cific characteristics demands extensive know in this market . The operator companys results andline with inflation . ledge and expertise of the hotel market and hotel forecasts, together with the formulation of the The rate of interest used in the calculation is operations. agreement, provide underlying data to estimate based on the real interest rate plus a risk pre- revenues, which subsequently constitute the basismium based on location, lease, and form of Cash flow valuation of the cash flow calculation . The value calculated is ownership . Pandox continuously evaluates all of its hotelthe present value of the next ten years cash flow, pro-perties in accordance with a valuation modelwith a supplement for the present value of the hotelan internal valuation of Pandox 44 hotel proper- based on the properties cash flow, and which isproperties residual value after ten years .ties in accordance with this method resulted in a adapted to the characteristics specific to the hotel The valuation model is based on the followingtotal value as of december 2008 that substantially industry .assumptions:exceeds the book value . In accordance with the The cash flow calculation is built up from Changes in rental revenue during the calcula-Swedish Financial accounting Standards Councils underneath, with the property operators incometion period are based on the formulation of indi-recommendation no 17, each individual propertys statement as the point of departure . This in turn isvidual agreements and on underlying factors .recovery value was reconciled with its book value, based on assumptions as to how the underlying Inflation is assumed to amount to an average further to which it was noted that no write downs hotel market will develop in terms of occupancyof 2 .0 percent annually during the calculationwere necessary . and average rates, as well as how each specificperiod . The Companys tax situationThe Pandox Groups property holdings areSeK 335 .2 M and a deferred tax claim of SeKership estimated for each property, and corre- reported for accounting purposes as fixed assets. 234 .5 M . The deferred tax liability refers mainly tosponds to an average tax rate of approximately 10 The consolidated book value as of 31 December the estimated deferred tax based on the diffe-percent . This is based on the Swedish Financial 2008 amounted to SEK 8,665.8 M excludingrence between the properties consolidated book accounting Standards Councils regulation for equipment, of which the consolidated surplusvalue and the fiscal residual value of each respec- assessing deferred tax upon pure intrinsic acquisi- values amounted to SEK 1,751.1 M. tive legal unit . The difference in value has arisen as tions, where the tax effect is taken into consider- an effect of surplus value upon acquisitions of ation when calculating the acquisition price . TheAccounting of deferred tax property in companies, known as pure intrinsicdeferred tax relating to the difference between Pandox applies the Swedish Financial accounting acquisitions, as well as fiscal depreciation that book depreciation and fiscal depreciation is calcu- Standards Councils recommendation (RR 9) onexceeds book depreciation . Tax deduction for lated based on the applicable tax rate . income tax . In short, this recommendation impliesannual depreciation of properties has normally The deferred tax claim pertains mainly to defi- that both deferred tax liabilities and tax claims are been made at the rate of 3 to 5 percent of a prop-cit deductions . at the end of 2008, there were to be included in the financial statements and that ertys acquisition cost . as a result, the amount ofremaining deficit deductions totalling SeK 935 M any changes will affect the income statement as fiscal depreciation exceeds that of book deprecia-in the Swedish companies . The valuation of deferred tax .tion, and the difference between the book value deferred tax claims is based on their potential utili- Pandox consolidated balance sheet as of 31 and the fiscal value of a property increases year onsation against future taxable profits, and is calcu- december 2008 includes a deferred tax liability inyear . The deferred tax liability generated by assetlated according to the applicable tax rate . Conse- the net amount of SeK 100 .7 M corresponding to acquisitions has been calculated using the presentquently, no deficit deductions in non-Swedish the difference between a deferred tax liability ofvalue method based on the shortest period of own- companies were reported at the end of 2008 . 38 | Pand o x 2008 43. deFInITIonS definitions of key dataProperty related key figures Financial key figuresHotel market related key figures Direct yield 1 Return on equity Occupied rooms adjusted operating net as a percentage of the book Profit after net financial items and paid tax as a number of sold room nights during a given period value of properties and hotel equipment at the end percentage of average equity . of time normally one year . of the year . The book value of hotel equipment is included in the dominator in view of that the equip- Return on total assets Available rooms ment rental is included in the numerator . Profit after net financial items, plus financial costs available room capacity during a given period ofas a percentage of average total assets .time normally one year . Direct yield 2 adjusted operating net including property relatedInterest coverage ratioOccupancy rate administration as a percentage of the book value ofProfit before tax less depreciation and net financialnumber of occupied rooms as a percentage of the the properties . items (eBITda) in relation to net financial items .number of available rooms . Operating netEquity/asset ratio Average room rate Hotel property revenue less operating and mainte-equity at the end of the year as a percentage of Total revenue from sold rooms divided by the nance costs, property tax, ground rent and other total assets . number of occupied rooms . property costs . RevPAR Property related administration (Revenue Per Available Room) The portion of total administration costs that is Total revenue from sold rooms divided by the directly related to the management and develop- number of available rooms . ment of a property . other administration costs include central administration and costs for main-Market penetration taining the Companys market listing .The performance of an individual hotel in relation to the average of the market . Adjusted operating net operating net adjusted for properties sold andGOP (Gross Operating Profit) purchased during the year . net profit in hotel operator companies before depreciation, rent, net financial items and taxes . Total property revenue The sum of rental revenue and other property revenue . Pandox 2008 | 39 44. Ten-yeaR oVeRVIew Condensed consolidated income statementSEK M19992000 20012002200320042005200620072008 Property operations Rental revenue254.0 476.3 551.1 536.2535.1 562.7 548.8 605 747.5 872.3 Other property revenue 18.021.424.026.0 26.530.225.2 29.9 34.743.2 Total property revenue4)272.0 497.7 575.1 562.2561.6 592.9 574.0 634.9 782.2 915.5Operating and maintenance costs 54.2 88.9 96.7 93.2 100.1118.7103.8111.5126.3132.8 Operating net 217.8 408.8 478.4 469.0461.5 474.2 470.2 523.4 655.9 782.7Depreciation1), 2)40.3 45.8 56.2 63.2 64.3 70.3 78.291.3129.3163.8 Income from property operations 177.5 363.0 422.2 405.8397.2 403.9 392.0 432.1 526.6 618.9Hotel operations Operating revenue 28.239.760.181.3216.8 250.2 420.0 788.81,105.3 Operating costs1) 25.5 39.3 58.2 75.7 204.4239.4407.7768.2 1,084.5 Operating income hotel operations4) 2.7 0.4 1.9 5.6 12.410.812.320.6 20.8 Gross income177.5 365.7 422.6 407.7402.8 416.3 402.8 444.4 547.2 639.7Administrative costs1)21.6 31.8 33.9 34.5 35.5 39.342.5 51.9 55.464.6 Other revenue/realisation results 5.3 1.9 8.628.8 7.4 444.439.9 3.46.9 Operating income161.2 335.8 397.3 402.0374.7 377.0 804.7 432.4 495.2 582.0Non-recurring financial charges 56.1 Net financial items for current operations77.5 150.7178.1171.0159.2148.4137.4166.4232.4294.7 Income after financial items 83.7 185.1 219.2 231215.5 172.5 667.3 266.0 262.8 287.3Deferred tax3) 27.0 28.3 44.2 50.3 47.636.833.0 23.5 34.2 Tax 0.3 1.40.20.111.40.2 15.831.49.322.2 Income/loss for the year 83.4 156.7 190.7 186.7176.6 124.7 688.3 201.6 230.0 299.3 1) The depreciation rate on properties is 1 .0 percent as of 2000 and amounted in 2008 to SeK 163 .8 M . depreciation in administration and hotel operations amounted in 2008 to SeK 0 .3 M respectively SeK 0 .0 M (in2007 to SeK 0 .3 M respectively SeK 0 .0 M; 2006 to SeK 0 .2 M and SeK 0 .0 M; in 2005 to SeK 0 .3 M and SeK 0 .0 M; in 2004 to SeK 0 .3 M and 0 .0 M; in 2003 to SeK 0 .5 M and SeK 0 .0 M; in 2002 to SeK 0 .4 Mand SeK 0 .0 M; in 2001 to SeK 0 .5 M and SeK 0 .0 M; in 2000 to SeK 0 .6 M and SeK 0 .0 M and in 1999 to SeK 0 .7 M and SeK 0 .0 M) . 2) a depreciation rate of 1 .0 in 1999 would have amounted to SeK 29 .4 M . 3) as of 2001, Pandox applies the Swedish accounting Standards Councils recommendation on income tax (RR:9) . Comparative figures for 2000 have been restated to take this into account . 4) The 2004 figure has been adjusted regarding rental revenue within hotel operations of SeK 3 .7 M . 40 | Pand o x 2008 45. Condensed consolidated balance sheetSEK M, as of 31 December1999200020012002 200320042005200620072008 Assets Properties including hotel equipment2,393.7 4,784.55,036.8 4,961.4 5,276.7 5,262.8 5,477.5 6,907.5 8,223.8 9,212.5 Other fixed assets 14.513.05.4 6.9 7.2 6.9 113.7 172.8 139.0 794.6 Current assets 17.961.9 37.129.534.658.6 201.7 174.4 223.1 241.2 Cash and bank 3.916.4 86.7 213.2 137.558.0 236.4 174.1 272.8 347.7 Total assets2,430.0 4,875.85,166.0 5,211.0 5,456.0 5,386.3 6,029.3 7,428.8 8,858.7 10,596.0Equity and liabilities Shareholders equity883.6 1,670.81,772.1 1,853.9 1,919.2 1,923.0 2,307.7 2,272.3 2,407.7 2,729.2 Deferred tax liability 8.8 37.083.5 135.9 184.3 208.5 279.7 352.5 335.2 Interest bearing liabilities1,463.6 2,934.73,178.5 3,070.6 3,211.9 3,080.4 3,165.3 4,398.5 5,516.8 6,808.6 Non-interest bearing liabilities 82.8 261.5178.4 203.0 189.0 198.5 347.8 478.3 581.7 723.0 Total equity and liabilities2,430.0 4,875.85,166.0 5,211.0 5,456.0 5,386.3 6,029.3 7,428.8 8,858.7 10,596.0Key data Property related key data Book value of properties including hotel equipment, SEK M2,393.7 4,784.55,036.8 4,961.4 5,276.7 5,262.8 5,477.5 6,907.5 8,223.8 9,212.5 Total property revenue, SEK M 272.0 497.7575.1 562.2 561.6 592.9 574.0 634.9 782.2 915.5 Operating net, SEK M217.8 408.8478.4 469.0 461.5 474.2 470.2 523.4 655.9 782.7 Adjusted operating net, SEK M1) 229.2 459.4484.3 472.7 464.1 474.2 433.3 561.0 706.4 847.5 Direct yield 1, %2) 9.6 9.69.6 9.5 9.3 9.1 8.5 8.1 8.6 9.2 Direct yield 2, % 9.2 9.39.3 9.2 9.0 8.8 8.2 7.9 8.4 9.0Financial key data Interest coverage ratio, multiple2.62.52.6 2.62.7 2.2 3.22.9 2.72.5 Return on total assets, %7.08.18.0 7.87.1 7.014.25.9 6.16.2 Return on equity, %9.7 11.6 11.012.6 12.012.030.8 10.411.0 10.8 Equity/assets ratio, %36.4 34.6 34.335.6 35.235.738.3 30.627.2 25.8 Cash flow from current operations, SEK M 119.1228.2267.2 265.8272.4 298.9 301.4317.6 389.0444.5 Investments excluding acquisitions, SEK M 28.6101.3149.167.3 60.870.5 165.1282.6 274.9269.3 Property acquisitions, SEK M 331.02,340.3141.9 370.7 661.31,327.8 1,063.4370.9 1) Further to the sale of twelve hotel properties in 2005 . 2) direct yield based on the book-value of the hotel properties adjusted for the two acquired properties, which were not charged any internal rent in 2005 .Pandox 2008 | 41 46. QuaRTeRly daTa Quarterly data 20072008CONDENSED INCOME STATEMENTS20072008 SEK M Q1Q2Q3Q4Q1Q2Q3 Q4 Total property revenue 165.0 189.5 204.6 223.1 199.6 243.4 220.5252.0 Operating net135.5 160.7 174.2 185.5 165.3 209.3 187.7220.0 Income from property operations105.9 129.9 140.4 150.4 128.5 167.8 149.5173.1 Income from hotel operations2.7 9.9 1.212.2 15.818.4 8.0 10.2 Operating income91.0 125.3 127.5 151.496.4 170.0 142.6173.0 Net financial items49.3 52.5 64.2 66.4 72.6 67.7 74.879.5 Income after financial items41.772.863.385.023.7 102.367.8 93.5 Income after tax32.656.850.090.617.277.651.5153.0CONDENSED CONSOLIDATED BALANCE SHEETS20072008 SEK M31 Mar30 Jun30 Sep31 Dec31 Mar30 Jun30 Sep 31 Dec Assets Properties including hotel equipment7,260.0 7,793.7 8,141.0 8,223.8 8,165.3 8,547.9 8,778.19,212.5 Other fixed assets152.9 152.5 152.6 139.0 324.2 466.2 558.6794.6 Current assets161.9 213.7 221.4 223.1 167.8 231.2 253.7241.2 Cash and bank 229.8 229.2 258.2 272.8 204.7 315.3 428.8347.7 Total assets7,804.6 8,389.1 8,773.2 8,858.7 8,862.0 9,560.6 10,019.210.596.0Equity and liabilities Shareholders equity2,317.8 2,369.7 2,268.7 2,407.7 2,408.0 2,330.6 2,480.42,729.2 Deferred tax liability315.6 367.3 369.7 352.5 357.0 370.6 386.6335.2 Interest bearing liabilities4,631.8 5,102.1 5,562.4 5,516.8 5,555.0 6,232.8 6,482.66,808.6 Non-interest bearing liabilities539.4 550.0 572.3 581.7 542.0 626.6 699.6723.0 Total equity and liabilities7,804.6 8,389.1 8,773.2 8,858.7 8,862.0 9,560.6 10,019.210.596.0PROPERTY RELATED KEY DATA20072008 Q1Q2Q3Q4Q1Q2Q3 Q4 Direct yield 1, % 7.7 8.7 8.7 9.1 8.1 10.18.79.9 FINANCIAL KEY DATA20072008 Q1Q2Q3Q4Q1Q2Q3 Q4 Interest coverage ratio, multiple2.4 3.0 2.5 2.8 1.8 3.1 2.42.8 Return on total assets, %4.9 6.4 5.9 6.9 4.1 7.6 6.17.2 Return on equity, %7.212.311.013.4 3.716.511.1 12.1 Equity/assets ratio. %29.728.225.927.227.024.424.8 25.8 Cash flow from current operations, SEK M71.3 104.697.1116 61.3 143.2 106.0134.0 Investments excluding acquisitions, SEK M 79.773.293.428.656.852.484.3 75.8 Property acquisitions, SEK M 210.7 332.3 520.4 370.9 42 | Pand o x 2008 47. Financial statements 2008Property revenues and total revenues Pandox property revenues for 2008 amounted to SEK 915.5 M (782.2), which for comparable units represented an increase of 11.4 percent against last year. The Groups total revenue amounted to SEK 1,804.1 M (1,410.7). acquisitions during the year In June, the 605 room hotel Hyatt Regency Montreal was acquired at a pur- chase price of 58.5 M Canadian dollars, equivalent to approximately SEK 371 M. In conjunction with the acquisition, a management contract was taken over with Hyatt Hotels, who will operate and develop the hotel in close cooper- ation with Pandox. Profits The pre-tax profit for 2008, excluding other revenue, amounted to SEK 280.4 M (259.4). Profit after tax amounted to SEK 299.3 M (230.0). Cash flow Cash flow from ongoing operations, excluding other revenue and tax, amounted to SEK 444.5 M (389.0). Pandox 2008 | 43 48. FInanCIal STaTEMEnTS Report of the Board of directorsThe Board of Directors and Chief Executive Offi- accepted accounting principles, as well as the rec- Hotel nacka has kept pace with its competition cer of Pandox AB, Swedish corporate registration ommendations of the Swedish accounting Stan-group. The Scandic Mlndal and Scandic Crown in number 556030-7885, hereby submit thedards Board unless otherwise stated.Gothenburg both performed better than the mar- annual report and consolidated accounts of the ket, while the Elite Park avenue developed in line Company for the financial year 2008. Ownership situation with the market.Pandox is since the beginning of 2004 owned by The hotels in Malm have done well in general, Operations and strategythe norwegian companies Eiendomsspar aS and and the Scandic S:t Jrgens strong trend has been Pandox is one of Europes leading hotel property Sundt aS through their wholly owned Swedish maintained. The Scandic Copenhagen performed companies. The Company has built up specialist company aPES Holding aB.well in a market that started to weaken signifi- expertise within the key areas of hotel markets, cantly, and has gained market shares. hotel operations, hotel properties and businessRevPAR under pressureSimilar patterns have been shown by the Hil- development. active ownership, with well devel-The american hotel market, which always lies firstton Bremen and Hotel Berlin, which increased oped strategic plans for each hotel, enables the in the hotel economic cycle, saw the start of a their RevPaR by nine and four percent respec- creation of good prerequisites for stable anddownturn in RevPaR in the last quarter of the year. tively during the year as a positive effect of a re- improved cash flows, and thereby growth in value However, average rates for the full-year increasedpositioning towards the meeting segment. The for the shareholders.slightly while occupancy fell by more than 4 per- market has started to decline in london, althoughPandox strategy is to own one type of property cent resulting in an overall decline of RevPaR of the Hilton docklands has developed better than hotel properties. Its focus is strengthened by a 1.9 percent. The two large metropolises of newthe average. prioritised market segment.York and london showed similar patterns with a Pandox Belgian portfolio continues to developPandox is to own large hotel properties in Swe- downturn in revenues in the third quarter a trend better than its competitors. The Holiday Inn Brus- den, major locations in Europe, as well as develop-that became more significant in the last quarter of sels airport has improved its average rate, thus ing regions in Eastern Europe and north america. the year. Major markets in Europe experienced providing improved profits. The Crowne Plaza con-The hotels should be in central and stronggood growth until September, after which the mar- tinues to gain market shares with its strong meet- locations such as city centres, airports and exhibi- ket lost momentum.ing product, and the newly refurbished Hotel tion centres. The hotels should be in the upper Brussels, with a considerable proportion ofBlooM!, which has become Brussels leading life- medium to high price range and focus on the busi-meeting volume, achieved good growth of morestyle hotel, has got off to a fantastic start since ness and leisure segments.The hotels owned bythan 5 percent in the reporting period, althoughopening in april. Pandox are operated and marketed by the most the market turned downwards in the fourth quar-Montreal, which had a weak start to the year, powerful players in the hotel market, who with wellter. The hotel market in Berlin continues to grow,has recovered with the help of a number of inter- known brands and dynamic independent distribu- driven primarily by a large proportion of domesticnational meetings, which in turn has had good tion channels create strong market positions and demand. effects on the InterContinental with its proximity to thereby stable revenues.The spread effects from the financial crisis the Palais des Congrs. The Hyatt Montreal, whichRevenues are created by flexible agreements have been visible in Scandinavia since the end of has had an unlucky year with a fire in the pool area related to the operators turnover and results orthe summer. Most markets experienced growth up(before Pandox took over) and a strike, has recov- through management agreements where Pandox until September, but the fourth quarter showedered and achieved results as forecasted. assigns a third party to manage operations, or distinct signs of a downturn in the capital city Hotels with a negative development the last alternatively through its own management. Irre-regions, and in Copenhagen in particular. Gothen- year include Crowne Plaza antwerp and Scandic spective of the form of operation, Pandox contrib- burg was also hit as a consequence of the prob- antwerp both of which have underperformed their utes via its active ownership to increasing totallems experienced by industry and commerce inrespective competitive set. The hotels are subject cash flows and reducing risks. the region, while Malm and Swedish regionalto active measures. Park Sdertlje have shown aat the end of the year, the Companys portfolio towns and cities have been stable.similar trend but in this case because of the exten- contained 45 hotel properties and nine hotel oper- sive refurbishment program. ations of which one asset management assign- Pandox portfolio can summarise a good year ment. Pandox owns and develops assets in Swe-Pandox portfolio has shown good developments inRevenues and operating net den, denmark, Belgium, Germany, Switzerland, the turbulent global situation. Growth for the year property operations the United Kingdom, Canada and the Bahamas.was 17 percent overall, and 11 percent for compa- Property management revenues for the yearrable units which implies that most of Pandoxamounted to SEK 915.5 M (782.2). For compara- Accounting principleshotels have performed better than their respectiveble units, the portfolio grew by more than 11 per- Pandox does not apply IFRS. as an unlisted com-sub-markets.cent. This increase is due to a good underlying pany, Pandox is not subject to the IFRS account- In Stockholm, the Radisson SaS arlandia,hotel economic climate in all of Pandox sub-mar- ing requirements. Pandox applies the stipulationsScandic Upplands-Vsby and the Scandic Park kets during the first three quarters of the year, new of the Swedish annual accounts act and generally have shown strong development, while the Qualityagreements with better conditions, and that last 44 | Pand o x 2008 49. years refurbishment projects have been run with Investmentscussed external and internal reporting of operating high capacity. Property costs excluding deprecia-The Pandox Groups investments, excludingresults and the Companys financial position as tion amounted to SEK 132.8 M (126.3). Theacquisitions, amounted for the year to SEK 269.3 well as various business matters. other important increase is mainly due to the acquisitions and M (274.9). Investments pertained primarily toitems that are regularly studied and reviewed each higher property taxes in the Companys Belgian refurbishment programs in the Quality Hotel Park year are marketing, strategy, finance, and budget portfolio. in Sdertlje, Holiday Inn Brussels airport, Hotel issues. The operating net rose by SEK 126.8 M to SEK Bloom in Brussels and the InterContinental Mon- 782.7 M (655.9), and for comparable units thetreal, as well as product improvements in a num- Parent Company operating net improved by SEK 84 M, representing ber of properties. The Hyatt Regency Montreal, Property activities in the Groups property-owning 13 percent. direct yield for the period was 9.2 per- with 605 rooms, was acquired during the year. Thecompanies are administered by staff employed by cent (8.6).purchase price was 58.5 million Canadian dollars,the Parent Company, Pandox aB. The cost ofequivalent to approximately SEK 371 M. these services has been invoiced to the Groups Revenues and income hotel operations The book value of hotel properties, includingsubsidiaries. Invoicing in 2008 amounted to SEK Total revenues from hotel operations amounted to furniture, fixtures and equipment, amounted to 55.2 M (46.6). The loss for the year amounted to SEK 1,105.3 M (788.8), and the profit amounted toSEK 9,212.5 M (8,223.8). The market value of the SEK 161.1 M (13.1). SEK 20.8 M (20.6). The virtually unchanged profithotel properties significantly exceeds their book is due to the absence of profit contributions from value. Outlook for 2009 the sold operations in stersund and SkogshjdPandox forecast for the hotel market 2009 is that Sdertlje, and that the total refurbishments of the Taxesall quarters will be poorer than the previous year. Quality Park Hotel in Sdertlje and Holiday Inn The Swedish Tax agency has in a reasse