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Pandox Anual Report 2006 (Eng)

Pandox Anual Report 2006 (Eng)






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    Pandox Anual Report 2006 (Eng) Pandox Anual Report 2006 (Eng) Document Transcript

    • PAN DOX P A N D O X ’ R E P O R T I N G O F 06 B U S I N E S S B U S I N E S S O P E R A T I O N S F O R 2 0 0 6
    • CONT ENTS 06 Pandox is one of Europe’s leading hotel property companies. The Company has built up special- ist expertise within the key areas of hotel markets, hotel operations, hotel properties and business development. Active ownership, with well-developed and strategic plans for each hotel, enables the creation of good prerequisites for stable and improved cash flow, and thereby growth in value for the shareholders. Read more about Pandox’ business concept and strategy on page 8. Pandox business development Pandox business development INTERNATIONAL OPERATIONS OPERATING COMPANIES 10 16 Contents The Company The hotel portfolio The year in brief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 List of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Message from the CEO . . . . . . . . . . . . . . . . . . . . . . . . . 4 Hotel properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Vision, business concept, objectives and strategies . . . . . 8 The Pandox Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Finances Types of lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Financial overview . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Operating companies . . . . . . . . . . . . . . . . . . . . . . . . . 16 Sensitivity analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Market overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Evaluation and fiscal situation . . . . . . . . . . . . . . . . . . 40 Human resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Ten-year overview . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Quarterly data 2005–2006 . . . . . . . . . . . . . . . . . . . . 44
    • PAN B U S I N E S S DOX 2006 was a new successful year for Pandox with a high rate of growth in revenues, earnings and quality, resulting in a significant increase in value of the hotel property portfolio. Read more of the Message from the CEO on page 4. Pandox’ skills and competences Pandox’ economic situation HUMAN RESOURCES FINANCES 24 35 Financial statements 2006 Report of the Board of Directors . . . . . . . . . . . . . . . . . 46 Pandox’ management . . . . . . . . . . . . . . . . . . . . . . . . 64 Income statement and comments . . . . . . . . . . . . . . . . 48 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Balance sheet and comments . . . . . . . . . . . . . . . . . . . 50 Senior executives and auditors . . . . . . . . . . . . . . . . . . 66 Changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Pandox Upgrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Cash flow statement and comments . . . . . . . . . . . . . . . 53 Accounting principles . . . . . . . . . . . . . . . . . . . . . . . . 54 Notes to the Accounts . . . . . . . . . . . . . . . . . . . . . . . . 56 Proposed disposition of earnings . . . . . . . . . . . . . . . . . 62 Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
    • The year in brief Record year for Property management the hotel industry revenues and total revenues General growth within the hotel industry has resulted in records Pandox’ property revenues amounted to SEK 634.9 M (574.0), in both room occupancy and average room rate levels, but also which for comparable units represented an increase of 9.7 in the number of transactions. The underlying growth has percent against last year. The Group’s total revenue amounted attracted an increasing number of investors, and competition to SEK 967.5 M (778.6). has been tough. Profits Cash flow The pre-tax profit for 2006, excluding non-recurring items, Cash flow from ongoing operations, excluding non-recurring amounted to SEK 226.1 M (222.9). Profit after tax, including items, amounted to SEK 317.6 M (301.4). non-recurring items, amounted to SEK 201.6 M (688.3). Key figures 2006 2005 Property revenues, SEK M 634.9 574.0 London higher Operating net, SEK M 523.4 470.2 Profit before tax 1), SEK M 226.1 222.9 growth than Profit after tax 2), SEK M Cash flow 1), SEK M 201.6 317.6 688.3 301.4 New York 1) Excluding non-recurring items. London’s hotel market 2) Including non-recurring items. developed strongly during the year. New York on the Accounting principles other hand has reached a Pandox do not follow the accounting principles recommended by ceiling in demand, and room IFRS as the Company is not listed and therefore not obliged to do occupancy was the same as so. Pandox applies the stipulations of the Swedish Annual Accounts the previous year. RevPAR Act and generally accepted accounting principles, as well as the recommendations of the Swedish Accounting Standards Board rose in 2006 by 18 percent unless otherwise stated. in London, compared with 13 percent in New York. Record acquisition in Berlin In 2006, Pandox carried out its largest single acquisition ever. Hotel Berlin, Berlin, has 701 rooms and is located right in the centre of Berlin – at walking distance from the popular tourist area of Kurfürstendamm. The acquisition in- cluded both the property and operation. 2 PANDOx 2006
    • Bloom – new concept in Brussels About Pandox The Royal Crown Hotel in Brussels was acquired Pure business concept with focused strategy at the end of last year. A plan was put together during 2006 for the introduction of the hotel’s new • Pandox is one of Europe’s leading hotel property strategy and business concept. The new concept companies. The Company has built up specialist goes under the name of Bloom. The entire hotel expertise within the key areas of hotel markets, will be refurbished. Work was started in October hotel operations, hotel properties and business de- 2006 and will continue for about two years. velopment. Active ownership, with well-developed and strategic plans for each hotel, enables the creation of good prerequisites for stable and improved cash flow, and thereby growth in value for the shareholders. • Pandox’ strategy is to own one type of property – hotel properties. Its focus is strengthened by a prioritised market segment. Pandox is to own large hotel properties in Sweden, major locations in Europe, as well as developing regions in eastern Europe. • The hotels should be in central, natural and strong locations such as city centres, airports and exhi- bition centres. The hotels should be in the upper medium to high price range and focus on the business and leisure segments. • The hotels owned by Pandox are operated and Two Swedish acquisitions marketed by the most powerful players in the hotel The hotel properties Radisson SAS Hotel Malmö and Scandic Plaza in Borås were market, who with well known brands and dynamic independent distribution channels create strong acquired in the summer. Pandox owns hotels from previously in both cities. After market positions and thereby stable revenues. the acquisition of Radisson SAS Hotel in Malmö, Pandox now has more than 600 rooms in central Malmö and more than 1,600 rooms in the expansive Öresund • Revenues are created by flexible lease agreements region. related to the operator’s turnover and results or through management agreements where Pandox assigns a third party to manage operations, or alter- Effects of low cost airlines natively through its own management. Irrespective Pandox held its ninth Hotel Market Day on 14 of the form of operation, Pandox contributes via its November at the Hilton Stockholm Slussen as in pre- active ownership to increasing total cash flows and vious years. The principal theme, apart from market reducing risks. trends, was low cost airlines and their influence on the hotel industry. More than 150 people took part in • At the end of the year, the Company owned 38 hotel properties, of which six operating compa- the event. Representatives from low cost airlines, nies as well as one asset management assignment. the Swedish Civil Aviation Administration, the hotel Pandox owns and develops assets in Sweden, sector and the retail trade presented their viewpoints. Denmark, Belgium, Germany, Switzerland, UK, The BBC’s expert commentator John Strickland and and the Bahamas. David Leitch from easyJet contributed, and thus gave the questions an international perspective. PANDO x 2006 3
    • message from the ceo Exciting acquisitions 2006 was a new successful year for Pandox with sion and the development of quality have been expected to be record high. Current trends in the a high rate of growth in revenues, earnings and carried out with a high rate of growth in earnings. hotel economic cycle are characterised by good quality, resulting in a significant increase in value Cash flow has increased from minus SEK 10 million growth in both volume and price. New York, which of the hotel property portfolio. in 1995 to approximately SEK 320 million, which usually leads the business trend, has increased its implies that the hotel property portfolio at the end of RevPAR since the spring of 2003. Market develop- Pandox was formed in 1995 and has since then 2006 had a market value of more than SEK 10 bil- ments during the year show however slowing growth built up one of the leading hotel property portfolios lion. Value has thereby grown by 10 times since the where volumes are declining marginally and that in Europe. The Company has carried out transac- Company was formed. prices, which in absolute figures are record high, tions for approximately SEK 8 billion, representing Demand in the hotel market continued to are beginning to fall. It appears the peak has been the purchase/sale of 52 hotels and 14 operations. improve in 2006. A favourable global situation and a reached in New York. The question is how long we The portfolio has grown from 17 small hotels of high level of economic growth along with general are able to stay at the current level? Perhaps we are varying quality to 39 hotels of international standard prosperity have created excellent preconditions for observing the beginning of a weakening trend? – all in strong locations and positioned towards the the hotel industry. Combined with relatively low London, which normally follows New York with a profitable full-service segment. The average size additional capacity, most markets created a high 3–6 months lag, is in a strong growth phase and is has increased from 106 to 228 rooms. The expan- level of profitability, and earnings for 2006 are rising in both volume and price. A similar pattern is 4 PANDOx 2006
    • to be found in other major European cities such as lease structure in the hotel market. The trend is on service, products and investments over to the Berlin, Amsterdam, Paris and Brussels. The same moving towards a rising number of management owners. The conclusion is that vertical integration trend can also be observed in Scandinavia where agreements. This implies that hotel companies that continues. Active owners will choose more situation the underlying domestic growth has driven up previously owned and operated the hotels have now adapted solutions. The historically obvious measure demand in large cities to levels that are not far from reduced their business model to only managing the of providing a hotel property with an international those at the beginning of the new millennium. Gen- operations. One has very skilfully succeeded in sell- brand name will become the object of increasingly erally speaking, trends are relatively distinct. Prices ing hotel properties at aggressive valuations to non more critical scrutiny – particularly when such are currently developing faster than volumes, and industrial players, while still maintaining control over cooperation is based on operator friendly manage- are becoming an increasingly important part of the assets with the help of operator friendly man- ment agreements. It is consequently more impor- revenue improvements – and thus ultimately good agement agreements. The results for shareholders tant than ever to possess one’s own skills and work- preconditions for profitability. Simultaneously, these have so far been excellent. In most cases, good ing methodology in order to be able to evaluate the trends indicate that the economic business cycle is capital gains have been created simultaneously as significance of the brand name. currently going at full speed. The wise man poses nonetheless keeping the possibility to spread the In this competition exposed world of transac- the question – for how long? potential with the new hotel property owners without tions, Pandox has succeeded over the last 15 Liquidity and depth within the market are reach- taking any financial risks. For how long can this months to complete five exciting acquisitions. All ing new records, and it is estimated that transac- situation continue? of them are characterised by the need for active tions in 2006 will amount to a total of about 70 bil- One question that has subsequently become measures and that the hotels are underperforming lion dollars. These business transactions are often more relevant is the value of brand names and in in one way or another. Taking over these operations financially driven, and the major brokerage houses which way they contribute to value growth in a hotel suits Pandox’ business model and enables us to skilfully compose large hotel property portfolios that property. Historically, the large hotel companies utilise our specialist competence required in hotel are packaged to enable financial creativity. A form have had sole right to advanced distribution sys- property questions. The Royal Crown Hotel in of bond market has appeared within the hotel world, tems, developed sales and marketing organisations, Brussels with 307 rooms and the Copenhagen while revenues are valued with everlasting growth and been holders of important key skills. This mar- Hotel 27 with 200 rooms were acquired in the and with historically low demands on yield. It is ket picture has partly changed through the Internet autumn of 2005, and both hotels are currently interesting that many of the new purchasers are creating cheap distribution alternatives. The com- undergoing a considerable investment and develop- financial players without industrial competence, petetive advantage has decreased through the ment program. In the spring of 2006, we completed while the vendors are players who have a long his- property ownership obtaining own operational and our largest single acquisition ever when Hotel tory in the hotel market and are well aware of the market competence and skills. Furthermore, costs Berlin, Berlin was added to the portfolio. The hotel, conditions that normally prevail in the sector. for cooperating with most international companies which is Berlin’s third largest with 701 rooms, needs The massive divestments have affected the have increased. One tries to shift higher demands to strengthen its local profile and recreate its posi- Scandic Kramer, Malmö PANDO x 2006 5
    • message from the ceo Destination development is increasingly The ability of cities and towns to develop and market themselves as attractive destinations has increased in significance, and a rising number of political systems see the benefits in positioning their cities vis-à-vis the increasing demand of congresses and conferences, tourism, shopping and entertainment. The rea- sons are improved fiscal conditions in several aspects and the creation of new jobs. But this situation also places demands on the cities to develop a dynamic offer with congress halls, arenas, different types of hotel, good shopping and exciting restaurants. One of the obstacles in many industrially characterised countries is the level of compe- tence of local politicians. In addition to infra- structural investments, one also needs an ability to create professional forms of coopera- tion with local commerce and industry. So far, cities such as Barcelona, Copenha- gen, Gothenburg and Amsterdam have been best at exploiting the benefits with destination development, although competition is increas- ing. In Stockholm, a large congress centre is currently planned in an excellent central loca- tion, as well as several arenas that should significantly increase the city’s power of attrac- tion. The entire region will be a winner if the plans are carried through, resulting in tens of thousands new jobs. tion as one of the leading full-service hotels in the three operating companies. The trend is that an uct has been developed from a group tourist unit city. increasing number of operations are under own to one of Brussels’ leading meeting and business A comprehensive profile program, including the management. The reason being that a combination hotels. All 354 rooms have been upgraded, and decoration of the façade with graphite paintings, is of good commercial prerequisites to materialise the eight junior suites and a presidential suite have the first stage of the hotel’s new appearance. potential in development projects oneself, and the been added. The conference and meeting capacity Two well-known Swedish hotel properties have lack of hotel companies that are interested in enter- has been developed so that the hotel in total can also been added during the year – the Radisson ing into leases or in other ways wishing to share the cater for 2,500 conference guests simultaneously. SAS Hotel Malmö with 229 rooms and well devel- risks. Part of the meeting concept is Balanced Senses oped conference operations was acquired in the The existing portfolio has also witnessed a high where a special area has been created to stimulate summer. The hotel needs to be upgraded. Discus- level of activity during the year. The Crowne Plaza and inspire the meeting participants’ senses sions are currently in progress with the operator Brussels City Centre, which since being acquired in through fragrances, soothing colours, as well as Rezidor regarding the creation of a joint approach in the beginning of 2004 has undergone a compre- sound and pictures from nature that are shown in a new investment program. Scandic Plaza in Borås hensive development program, is now ready. all public areas, including the toilets. At the Hilton with 135 rooms is one of the region’s leading hotels, The last quarter of 2006 represented the first London Docklands, the second part of the develop- and there is good potential to add several hotel months since Pandox took over ownership that the ment program has been completed with the rooms. All in all, acquisitions for a total of SEK 1.8 hotel was operated under normal conditions. The upgrading of about 100 hotel rooms and part of the billion have been made over a 15-month period, results are quite exceptional. Under the manage- public areas. In Copenhagen, the Scandic Copen- covering the purchase of five hotel properties and ment of the hotel’s CEO, Eric van Dalsum, the prod- hagen with 484 rooms has obtained a new confer- 6 PANDOx 2006
    • Development and marketing of destinations have greater significance. Cities such important as Barcelona, Copenhagen, Gothenburg and Amsterdam have been successful in their destination marketing. The football World Cup in Germany and the European Athletic Championships in Gothenburg were two major attractions during the year – two events that played an important marketing role for the respective destinations. ence and banquet department that has increased Hotel in Gothenburg has now entered its final tions create a good business climate for the hotel its attractiveness in the local market, and the hotel investment phase with the objective of re-establish- industry, and the major part of the markets where is now one of Copenhagen’s leading business and ing it as one of the leading hotels in the Gothenburg Pandox is active show good preconditions for conference establishments. On the other side of the area. The development program, which is being growth in RevPAR, which will probably be main- sound, the Scandic St Jörgen has been given a sig- carried out in close cooperation with the operator, tained during the whole of 2007. Thereafter, there nificant facelift with new lobby, conference depart- started in the beginning of 2005 and is next year appear to be a few storm clouds in the form of a ment and health centre, which strengthen the hotel anticipated to become one of the three leading decline in economic activity, trends in the hotel as one of the city’s leading full-service products. hotels in the area in terms of RevPAR development. economic cycle, as well as additional capacity. The Radisson SAS Grand Hotel Helsingborg (under- In total we invested SEK 280 million during the Earnings for 2007 are anticipated to exceed this going change of name to Clarion Grand Hotel) year in the existing portfolio, and are planning SEK year’s level. implemented its arcade concept during the year 110 million for the recently acquired hotels. where a broad offer of different food and beverage The outlook for 2007 is considered to be good. Stockholm, February 2007 products are packaged in the hotel’s lobby which Global growth is expected to slacken but to remain implies that the operations have seriously taken up strong. The risk is associated with developments in the title of being Helsingborg’s leading business and the United States and movements in interest rates. pleasure hotel. Reactions from the market have Europe’s current trend with increased investments been very positive and the hotel outperformed its is continuing, which in turn creates good prerequi- Anders Nissen competitors in the autumn. The Elite Park Avenue sites for Scandinavia. The favourable microcondi- CEO PANDO x 2006 7
    • vision , business concept , objectives and strategies Leading and profitable Pandox’ principal task from a shareholder’s perspective is to create conditions that enable an increase in the value of the Company through Scandic Copenhagen the development of cash flow in the hotel property portfolio, combined with profitable acquisitions and divestments. The Company’s vision, business role is to contribute to the production of a strate- Financial goal concept, objectives and strategies have been gic plan and that operations be continuously The goal for the capital structure is that the group formulated with this philosophy acting as the evaluated via management group meetings. shall have a solidity which fulfil internal and external principal point of departure. • Lease agreement with a partner that only acts objectives on financial strength in order to enable as operator, and that is supplemented by a continued expansion. The equity/assets goal shall be Vision franchise agreement with a distributor. Pandox’ regularly reviewed in order to achieve an optimal re- Pandox’ vision is to be the leading hotel property role is as above, but can imply that the Company turn on investment for the shareholders. company in Europe with regard to specialist exper- is more active in pure operating questions. tise in both hotel and property operations and active • Management with a partner that runs the opera- Strategy ownership. tions on behalf of Pandox. Pandox’ role is via The following strategies have been defined to ena- board meetings to monitor and evaluate opera- ble Pandox to achieve its established goals and Business concept tions and to actively participate in development objectives. Pandox’ business concept is to actively own, deve- questions together with the management Pandox’ principal strategy is to own one type of lop and lease hotel properties based on expertise company. property – hotel properties. within hotel properties, hotel operations and busi- • Pandox manages the hotel operations itself. ness development. Pandox’ role here is to organise the operations Portfolio strategy Each hotel property has its own specific charac- via a local management team and to actively In order to maximise revenues and cash flow, Pandox teristics. The value is more dependent on the opera- participate in the development of the hotel. concentrates on one prioritised, expansive market tion’s (the tenant’s) profitability than for example segment. office or industrial premises. Furthermore, a hotel The first and last alternatives dominate, although all Pandox’ market segment comprises hotel prop- property in general has one single tenant – the hotel forms of cooperation are included in Pandox’ busi- erties in Sweden, major cities in Europe, as well as operator. Cash flow is generated in the hotel pro- ness concept. The trend is that own operations are developing regions in Eastern Europe. The hotel perty. This in turn increases demand on compe- currently increasing most, which is partly attributa- properties shall be centrally situated in natural and tence and insight of the underlying market of the ble to that the majority of international hotel compa- strong hotel locations such as city centres, airports tenant, which places considerable demand on spe- nies are no longer entering into lease agreements. and exhibition centres. The hotels shall be in the cialist skills within three areas: hotel and hotel oper- medium to high price range, and focus on business ations, hotel properties and business development. Overall objective travellers and tourists. Pandox believes that hotels When the business concept is broken down into its The principal objective is to achieve an optimal included in these market segments have the best various components, the Company can choose return on investment and growth in value through chances of success in a growing hotel economic between the following operational forms: specific knowledge of hotels, hotel properties, and cycle, while risks are limited in the event of a down- • Lease agreement with a partner that handles business development. turn. This is due to hotel markets in large locations both operations and distribution where Pandox’ being more stable and having better growth potential, 8 PANDOx 2006
    • “Cool” development program Pandox acquired the Mermaid Hotel property in Copenhagen in the autumn of 2005, including the rights to the related operations. The hotel has 200 rooms and is located in central Copen­ hagen close to Tivoli and the Ströget shopping street. The hotel, which was closed at the time of taking possession, had performed badly for several years and required considerable upgrading and modernisation, including product quality, design, concept and logis- tics. Upon acquisition, an activity plan was drawn up for upgrading in three phases. The development program started with the recruitment of a new management team and board with experience of turn- around cases, as well as the change of name to Copenhagen Hotel 27. The first phase of the program has now been com- pleted and covered the total refurbishment of 73 hotel rooms and partial upgrading of the lobby. The remaining of the hotel rooms will be refurbished during the spring of 2007 and at the same time the lobby and the adjacent restaurant and lounge bar will because they attract more capital and people. Strong tised partners in order to jointly make acquisitions be totally refurbished. The overall develop- and strategic locations are always important in the and undertake restructuring programs or major ment program will cost about DKK 60 mil- hotel industry, and the size of the hotel provides pro- investments. lion and is estimated to be completed in fitability benefits – which in turn increases Pandox’ the spring of 2007. potential for improved return on investment. Leases and agreements structure The new concept also includes an Pandox enters into all forms of leases and manage- Absolut Icebar that will be inaugurated in Strategy for active ownership ment agreements to create joint incentives and April 2007 – which will further strengthen Pandox further develops its focus and expertise in benefit the development of total cash flow. the profile as a design and lifestyle hotel. the chosen market segment through active owner- The objective is to create one of Copen- ship. Active ownership is adapted to each situation Own operations hagen’s leading medium-priced hotels – with regard to both procedures and partnership Pandox has its own expertise for operating hotels. “the coolest place in town” – through its strategy, with the aim to add value through higher Experience has shown that there are situations size, strategic location and attractive design. cash flow or through limiting the risk involved. when this is the most profitable and most effective Examples of active ownership are set out below. way of improving cash flow. Acquisitions Participation in the restructuring process Pandox has built up its own expertise in the field of Pandox plays an active role in the ongoing restruc- acquisitions and acquisition methods. This implies turing of the hotel property market. This implies that Pandox analyses, evaluates, negotiates and that Pandox participates through acquisitions, executes all acquisitions in-house, and enables a divestments and choice of partner. deep insight into acquisitions and their real poten- tial and risks, while increasing knowledge of the Cash flow strategy market. Pandox adapts to each individual situation with the support of the working methodology of the Pandox Choice of partners Model. Pandox is thus able to actively participate in Pandox works together with all competitive market the development and implementation of cash flow players where joint forms of cooperation can be strategies together with its partners. developed and applied for the optimisation of total cash flow. Divestments Pandox cultivates its portfolio in accordance with Copenhagen Hotel 27 Strategic alliances its portfolio strategy. The majority of divestments Pandox can deepen the cooperation with its priori- are managed directly by the Company. PANDO x 2006 
    • Pandox business development INTERNATIONAL OPERATIONS Brussels – meeting and tourist segment in focus The Royal Crown Hotel Brussels and its opera­ will also be prioritised. The development program – tions were acquired in the autumn of 2005. which is proceeding under the hotel’s new name of The hotel is located close to Place Rogier, which Bloom – covers a new distribution strategy, the is adjacent to a large business district. The area upgrading of the current product offer, significant is undergoing strong development, including upgrading of the property technology, as well as several new large office complexes. modernisation of the organisation. The investment is estimated to cost about 12 million euros and is The hotel property was built in 1976 as a Hyatt expected to take up to two years to complete. Regency Hotel and has a total area of approximately The radical program has already started with the 15,500 square metres. It is a full-service product refurbishment of 110 rooms on two floors. All rooms with 307 rooms and large conference facilities with will have an individual design concept produced by nine conference rooms – an area of more than 1,720 different artists. The first rooms will be ready in the square metres. The hotel also has a restaurant, beginning of 2007, and all rooms are expected to be breakfast room, bar, gym and garage with about 100 completed during the summer of 2008. spaces. The conference rooms and façade will also be Pandox’ vision is to develop the hotel via a new refurbished in the beginning of 2007, followed by business concept to one of the leading medium- the remaining areas including the lobby, bar and res- priced hotels in central Brussels. Focus is being taurant. The entire hotel is expected to be completed placed on the meeting segment, although tourism during the summer of 2008. 10 PANDO x 2006
    • 06 London – active development Hilton London Docklands is located next to the River Thames, overlooking Canary Wharf and the Tower of London. The hotel has 365 rooms, a restaurant, confer­ ence rooms, as well as a spa and health centre. It was built in 1991 and consists of both old and new build- ings, giving a unique design where the properties integrate well with each other and the surrounding river environment. The hotel is currently undergoing an extensive develop- ment program that was started in 2002 when the restaurant and the adjacent bar were refurbished. A year later, the LivingWell Health Club area was refurbished and upgraded, and is now very popular with both hotel and external guests. So far, 254 hotel rooms have been completely refur- bished. The next stage will include the remaining rooms as well as the upgrading of the reception and lobby areas. The 26 conference rooms – with a maximum capacity of 350 people – have already been reorganised in accordance with Hilton’s meeting concept. This has created a strong meeting product and position within the market. The total cost of the refurbishment program is estimated to be about £7.5 million, including the Hilton part. Hilton London Docklands has undergone a development program covering the restaurant, health club and most of the hotel rooms. The development program at the Royal Crown Hotel in Brussels has been named Bloom. It covers a new distribution strategy, upgrading of the current product, upgrading of property technology and modernisation of the organisation. PANDO x 2006 PANDO x 2006 11 11
    • the pandox model Improved cash flow with limited risk Hotel properties have characteristics that are Market survey to establish a hotel’s position and standard com- distinctly different to other types of property, and The point of departure for a market survey is to pared with competitors. demand specialist skills and knowledge. Value assess the market situation and trends within a growth is complex and is based on revenues and specific market, based on current and correct Manuals for lease and management agreements profits being influenced by several factors such market information. To support this principal pro- Our manuals for lease and management agree- as the underlying hotel market, choice of brand cedure, Pandox employs a market information sys- ments form the basis for the various types of hotel name, price and product segment, type of lease, tem, external marketing systems and databases, agreements that Pandox uses. They contain clear and active ownership. Successful results demand research and analyses, as well as the Company’s allocation of responsibility and checklists to support that the hotels are continuously reviewed and networks and media monitoring. Taken together, ongoing operations. The manuals are also an excel- analysed with the help of well developed working market surveys provide up to date and reliable lent tool for assessing risk exposure in connection methodology that provides support to the deci­ knowledge of prevailing market conditions. with acquisitions. sion making process. Market information system Hotel evaluation and investment In order to maintain and benefit from the know- • Pandox has an IT system that contains informa- This system developed by Pandox assesses the ledge and experience that the organisation con- tion about the hotel market in terms of occu- profitability of a hotel business, and can conse- stantly develops, Pandox has produced and deve- pancy, average room rates, growth trends, com- quently establish the value of a hotel property. loped business procedures and operating systems. parative past performance figures, as well as a The system is used for acquisitions and major These are used on a daily basis and the results are target group analysis. The system covers the investments. documented. Clear and user friendly processes im- major part of Pandox’ market. The assembled prove the quality of analyses and decision making, information is structured by location, geographi- Financial reporting and facilitate the transmission of knowledge while cal area, as well as price and product segments, Pandox’ focus on increased cash flow and the reducing the risk of losing important experience and is updated each month. optimisation of return on investment in its hotel and skills when key people leave. • Pandox also has access to external databases properties requires a detailed evaluation of pro- Pandox’ principal procedures consist of the that contain basic information about all hotels in posed and implemented measures. Pandox has Pandox Model, Market Survey and Financial Pandox’ markets. The Company furthermore therefore developed a system to enable the finan- Reporting. has an agreement with various consultancy cial reporting and follow up of target variables. firms that constantly monitor and analyse Euro- Financial reporting is based on the annual The Pandox Model pean and American hotel markets in particular. budget prepared for each hotel property, which is Pandox’ working methodology to generate in- followed up on a monthly basis at both hotel and creased cash flow with limited risk is known as the Networks Group level. Long term forecasts are drawn up for Pandox Model, and is the Company’s most impor- Pandox works via external consultants and con- several years ahead as an integral part of the tant principal operating procedure. The model in- tacts, either where the competence needs to be budget process in conjunction with the strategic cludes four different stages, before implementation strengthened or to gain access to expertise that is plans prepared according to the Pandox Model. and follow-up. Each hotel property is regularly not available within the Company. This network is The ongoing revenue reporting follows changes evaluated based on the four stages of the Pandox assembled in a database, divided into markets and observed within the hotel market, and provides Model. Similarly, each investment and divestment functions. good underlying data for the quarterly forecasts is preceded by such an evaluation. The four stages prepared per hotel property and for the Group. are market analysis, market strategy, profitability Media monitoring All in all, this financial system provides current optimisation, and lease optimisation (see diagram Articles about hotels published in Sweden and information and data that enable the continuous on the opposite page). abroad are registered daily. assessment of the portfolio’s potential and risks, The operating tools described in the following and consequently the active measures that should market survey section are used within the Pandox Hotel product analysis be prioritised. Model. The hotel product analysis is a tool used as support 12 PANDO x 2006
    • Scandic Copenhagen The Pandox Model Market analysis Market strategy Profitability optimisation Lease optimisation A market analysis is performed in or- A strategic plan is established for each In view of that a property’s value is The optimal cash flow in each respec- der to assess the potential profitability hotel property based on the respective influenced by the hotel operations’ tive hotel property is then divided of a hotel, and thereby its ability to pay location’s specific prerequisites, the profitability, the operator is naturally among the operator, Pandox and other rent. The local market is identified and local market and its position in the Pandox’ most important partner. In parties concerned. Lease agreements analysed regarding demand, competi- hotel economic cycle. When preparing order to ensure positive developments are formulated so that all parties tion and the current and future offer. the strategic plan, the property’s con- within the hotel operations and the involved have an incentive to con- tinued utilisation scope is evaluated value of the property, the operator tinuously improve the hotel property’s objectively and impartially. and related activities are continuously overall profitability. evaluated. Possibility to Action plan acquire hotel with concrete property measures Market analysis Market strategy Profitability Lease optimisation Evaluation of optimisation each hotel property and the hotel property portfolio Sales as per the strategy PANDO x 2006 13
    • the pandox model Types of lease – incentive for both parties The value of a hotel property is governed to a considerable degree by the formulation of the hotel lease. market as a whole and in the market share. To limit To produce a good hotel lease that is dynamic for both parties is a complicated process. In addition to the risk, these leases generally specify a minimum legal expertise, substantial knowledge of conditions within the hotel industry is required, as well as guaranteed amount of rental revenue (guarantee/ insight into the priorities of each respective party. base rent). Specific characteristics governed by factors such as anticipated market Result based Each hotel lease is the result of a comprehensive trends, local competition, planned investments, A result based hotel lease implies that the hotel market analysis that includes changes in the mar- as well as choice of operators and distributors. property owner receives a share of the hotel opera- ket and competition from different players both in By combining various types of lease, Pandox has tor’s operating net. This type of lease requires that the short and long term. achieved a lease structure that is 94 percent flexi- the hotel property owner understands the opera- By using various techniques, Pandox can limit ble, which provides Pandox with increased cash tor’s financial control system. Result based hotel the risk in a declining market and simultaneously flow in a rising market while simultaneously offer- leases can also specify minimum guaranteed rental participate in a market that is showing an upward ing a 38 percent protection against downturns in revenue (guarantee/base rent). trend. Should the operator’s liquidity weaken, the market through fixed fee leases and rental Pandox has the expertise and ability to manage the guarantees. Fixed fee hotel lease hotel itself, which indeed has occurred on several Fixed fee hotel leases with an index linked to the occasions. Types of lease development of the Consumer Price Index (CPI) Revenue based are used in mature markets and in well established Pandox’ lease structure Revenue based hotel leases are linked to sales gen- hotel products. A fixed fee lease limits the risk but Pandox’ lease structure reflects its active and situ- erated by the hotel business. This form of lease also the potential. ation adapted ownership. The lease structure is provides Pandox with a share of growth in both the The year’s two Swedish acquisitions Two of the three hotels acquired during the year are in Sweden. Both have central and strong locations in each respective market. Radisson SAS Hotel Malmö The hotel property was acquired after the summer with possession on 1 September. The Radisson SAS Hotel Malmö is one of southern Sweden’s leading business hotels with an excellent position in central Malmö. It is located in the same building as the Caroli shopping centre and is close to the business district, shopping areas and communications. Malmö is a central part of the dynamic Öresund region. Pandox previously owns two hotels in the city – Scandic St Jörgen and Scandic Kramer. Pandox strengthens its position in the market through the acquisition of the Radisson SAS Hotel. In addition to the Malmö hotels, Pandox also owns the Scandic Radisson SAS Hotel Malmö Star in Lund and two hotels in Copenhagen – the 14 PANDO x 2006
    • Berlin – acquisition strengthens the position The Hotel Berlin, Berlin, including the re­ lated operations was acquired in the spring of 2006 with possession on 1 June. The hotel is Berlin’s third largest with 701 rooms, 18 conference rooms and several restaurants and bars. It is a refurbished property in a central location within walking distance to the popular tourist area of Management agreement Through a management agreement, an opera- Kurfürstendamm. A management agreement can be perceived as a tor/manager is assigned to operate and manage sort of agent contract. The main characteristic is the hotel on behalf of the hotel property’s owner Pandox’ principal strategy is to reposition the that the hotel property owner also owns the hotel – “manage the manager” – for which a manage- hotel towards the more profitable meeting business. ment fee is paid to the operator/manager. and events segment. Via active ownership, the local management is provided support in the process of implementing effective and modern forms of operation. The development program is estimated to take 2–3 years and comprise an investment of approximately DuE­DATE STRuCTuRE 7– 8 million euros. Berlin’s hotel market is well OF THE LEASE AgREEMEnTS REnTAL REVEnuE 2006 By TyPE OF LEASE developed and covers 45,000 rooms with most of the major international operators and Revenue-based leases, 48% brand names being represented. The market KSEK has been characterised in recent years by 400,000 Revenue-based leases considerable additional capacity which has 300,000 with guarantee, 32% affected room occupancy negatively and put Management leases 200,000 own operations, 14% pressure on prices. The situation has how- 100,000 ever improved, and more stable trends and Fixed leases, other tenants, 4% 0 improved profitability are now anticipated. 2007 2008 2009 2010 2011– Fixed leases, 2% The acquisition of Hotel Berlin, Berlin, ful- fils all of Pandox’ acquisition criteria and the hotel is located in one of Europe’s largest and most interesting markets. It is Pandox’ first hotel in Berlin. The Company owns from pre- viously three hotels in Germany – the Hilton Bremen, Hilton Dortmund and Scandic Lübeck. With the latest acquisition, Pandox strengthens its position as one of the leading Scandic Copenhagen and Copenhagen Hotel 27. hotel property companies in Europe. The Radisson SAS Hotel has 229 rooms of inter- national standard, 12 conference rooms, a health centre and restaurant. The vendor was Wihlborgs Fastigheter AB and the acquisition price was SEK 260 million. Scandic Plaza, Borås The Scandic Plaza was acquired in the summer with possession on 3 July. It is one of the leading provin- cial hotels in Sweden. The hotel has a good location in central Borås on the city’s main street, Allégatan. The local market is composed of eight hotels with almost 700 rooms. Pandox previously owns the First Hotel Grand in Borås with 158 rooms. The Scandic Plaza has 135 rooms, 18 conference rooms, a health centre and restaurant. There is a Scandic Plaza Borås potential to extend the property with an additional 30 rooms. The acquisition price was SEK 136.5 million. PANDO x 2006 15
    • Pandox business development OPERATING COMPANIES Active ownership Pandox’ current portfolio contains seven operating companies that are forecasted to generate a total turnover of approximately SEK 575 million in 2007. The strategy is to build up independent companies where the major part of responsibility can be delegated to each respective company’s board of directors and management team. The operations are monitored, developed and analysed through regular board meetings where the companies’ boards also comprise external members. Pandox’ most important tasks are to support the compa- nies’ business processes through the appointment HOTEL BERLIN, BERLIN of professional boards and management teams, Both the property and the operation were acquired in the spring of 2006. The hotel, which was previ- as well as to assist with management systems and ously operated by Choice Hotel International as a Clarion hotel, is today marketed via independent working methods being established in order to distribution channels. Pandox’ strategy is to reposition the hotel towards the more profitable meeting optimally utilise the development potential in each and events segment and to develop effective and modern forms of operation. The development pro- respective unit. gram will be in progress for 2–3 years and the cost is estimated to be between 7 and 8 million euros. COPENHAGEN HOTEL 27 Copenhagen Hotel 27 including the right to run the operation was acquired in 2005. The hotel is marketed via independent distribution channels since being taken over. The strategy is to develop the hotel to one of the leading upper-medium priced hotels in Copenhagen. This will be achieved with the help of its strong location and a modern and attractive design, which will also include an Absolut Icebar. The development program is estimated to cost approximately DKK 80 million. 16 PANDO x 2006
    • 06 RADISSON SAS HOTEL ÖSTERSUND The property was acquired in 1995 and the opera- tion was taken over in 2004. The hotel is marketed via a franchise agreement with Radisson SAS. An ROYAL CROWN HOTEL BRUSSELS action plan has been implemented under Pandox’ The operation and property were acquired in the autumn of 2005. The hotel has been marketed via management with the objective of increasing opera- independent distribution channels since Pandox took over. The strategy is to develop the hotel to one tional effectiveness, and the investment has given of the leading upper-medium priced hotels with focus on the business and meeting segment as well an improvement in results. A new development as the tourist sector. The restructure, excluding the acquisition cost, is estimated to amount to approx- program of approximately SEK 5 million has been imately 13.5 million euros. started to upgrade the rooms. CROWNE PLAZA BRUSSELS CITY CENTRE The operation and property were acquired at the end of 2003 and represent one of the leading business and city meeting hotels in Brussels. The hotel is operated under a fran- chise agreement with Crowne Plaza, which is one of the brand names of the Intercontinental Group. Distribution takes place via one of the PELICAN BAY HOTEL & RESORT world’s most powerful channels – Holidex. AT LUCAYA The hotel has recently undergone an upgrad- The hotel is located on grand Bahama ing and modernisation program at a cost of Island and has 186 rooms, of which 96 are 13 million euros. junior suites. The hotel is marketed as a resort hotel via independent distribution channels. Hotel City/location Rooms Hotel manager Pandox has an asset management agree- Radisson SAS Hotel Östersund Östersund 177 Anders Hallin ment, which implies that the Company pro- Copenhagen Hotel 27 Copenhagen 200 Jette Schjött, acting*** vides the owner, Sundt AS, with support to the Crowne Plaza Brussels City Centre Brussels 354 Eric van Dalsum company’s management and for the develop- Royal Crown Hotel Brussels Brussels 307 Aldert Schaaphok ment of operations. During the initial period, Hilton Brussels City* Brussels 283 Noël de Munck the management has focused on creating Hotel Berlin, Berlin Berlin 701 Cornelia Kausch procedures and standards for the operating Pelican Bay Hotel & Resort at Lucaya** Bahamas 186 Magnus Alnebeck company. An analysis and evaluation of possi- Total 2,208 *Management contract. **Asset management agreement, owned by Sundt AS. ble investment in a new conference and ban- ***New CEO Christopher Alm to commence in January 2007. quet department are currently in progress. PANDO x 2006 17
    • market overview Record year in the hotel industry Hotel Berlin, Berlin 2006 was a record year for the hotel industry. In percent, and towards the summer growth was even Amsterdam, Paris and Berlin were among the several areas, the market exceeded the levels of higher compared with the previous year. Western cities where the average rate rose more than room the peak years experienced around the turn of the Europe, which is the origin of most of the visitors, occupancy during the year. Amsterdam’s RevPAR millennium. There was a mixture of growth in both increased its volume of travel. Incoming travel from was 109 euros, representing an increase of 12.5 room occupancy and average room rates, although North America also rose. London finished at 83 per- percent. Paris rose in a similar way in both average average room rates represented the major propor­ cent in occupancy and £118 in average rate, result- rate and occupancy, and RevPAR closed at 149 tion of growth towards the end of the year. ing in a rise in RevPAR of 17.5 percent. In 2006 euros, representing an increase of 11.7 percent. growth in London was thereby higher than New York. The US market broke record after record. In the Most German cities also experienced an in- Sweden latter part of 2006, it was mainly average rates that crease during the year. The German economy had Both room occupancy and average rates increased moved forward. Room occupancy started to decline a good year in 2006 and laid stable foundations for in Sweden. Occupancy closed at 49 percent and during the year and finished at 63 percent, which is growth in the hotel industry. The football World Cup average rate at SEK 827. RevPAR rose in total by 8 in line with the previous year’s figure. RevPAR rose that was held in Germany during the summer also percent during the year. Generally speaking, it was by a total of 7.5 percent and finished at 62 dollars. helped. Twelve cities were hosts for match during a strong year in Sweden, even if the parameters that Leisure travel developed slightly weaker during the World Cup. The event also helped to strengthen had the highest growth vary slightly. the year. general self confidence in the country and to Gothenburg had a very good year. The European Occupancy was affected by the low number broaden international interest. According to the Athletic Championships were held in Gothenburg of additional rooms. The growth in available rooms Economist Intelligence Unit (EIU), the corporate in August, which had a positive effect on the city. in the United States has been lower than normal and investment climate has not been so good The number of sold rooms broke records during the during an upward economic trend. The difference since the country’s reunification in 1991. year, and occupancy finished at 66 percent. Aver- between growth in demand and growth in available Berlin was host for the final of the football age rates also attained new highs and increased to hotel rooms has not been so large since the 1970s. World Cup. The previous years’ considerable addi- SEK 849. Malmö also experienced growth, despite Due to limited growth in additional rooms restricts tional capacity has finally been absorbed and the at strong year in 2005, and finished with room growth of room occupancy. city’s hotel market started to strengthen during occupancy at 65 percent and an average rate of In New York, average rate rose by more than 2006. Room occupancy in Berlin ended at 69 SEK 777. RevPAR closed at SEK 506, representing 10 percent and room occupancy finished at the percent and the average rate at 94 euros. RevPAR a rise of 7 percent compared to the previous year. same level as in 2005. Occupancy closed at 83 per- closed at 65 euros, representing an increase of Stockholm finished the year with RevPAR close cent and the average rate at 240 dollars. RevPAR 17 percent. to 8 percent over 2005. This rise was equally attribu- for the full-year 2006 was 190 dollars, representing In European cities such as Brussels, Copen- table to growth in both occupancy and average rate. an increase of 12.8 percent compared to 2005. hagen and London, room occupancy has still been The structure of travellers has changed and the pro- the parameter that increased the most during the portion of leisure travellers has increased compared Europe year. RevPAR for Brussels finished at 72 euros, rep- with previous years, which in turn has burdened London recovered from last year’s terrorist attacks resenting a rise of 9.3 percent, while Copenhagen the development of average rates. during 2006. Already in the spring, both average closed at DKK 591, equivalent to an increase of rates and room occupancy increased by about 5 6.9 percent. 18 PANDO x 2006
    • Radisson SAS Hotel Malmö Hotel economic cycle The hotel economic cycle has the same pattern but vary in time for different markets. Speed and posi- Greater interest for transactions tion in the cycle are dependent on external factors In line with RevPAR increasing across the world, • The private equity company Dubai Interna- such as underlying economic activity, fairs and exhi- interest in hotel properties is becoming larger and tional Capital has acquired Travelodge for bitions, sports events, international focus, trends wider. Hotel properties have previously been per- £675 million from Permira Funds. within the hotel sector, etc. Despite all markets hav- ceived as being risky investments, and traditional • The private equity company Permira has ing their own position, one can draw general conclu- investors such as financial institutions, private acquired Principal Hotels for £300 million. sions regarding the overall hotel economic business equity companies and even pure property funds Individual properties have also been sold. Exam- cycle – at least when divided into geographic areas. have avoided investing in hotel properties. With ples include Pandox’ acquisition of the Hotel The current trend within the hotel industry indi- this rise in interest, competition surrounding Berlin, Berlin with 701 rooms, Marylebone cates general growth in RevPAR. In large cities, the acquisitions has become tougher, and the price Warwick Balfour’s sale of Marriott Park Lane increase in RevPAR is currently being driven by of hotel properties has continued to rise. with 157 rooms and the 301-roomed London rising average rates. This phase, when occupancy Growth in the underlying hotel market has Marriott West India Quay in London. growth decrease and room rates increase more than also influenced activities and price setting within Activity in Scandinavia has also been unusu- occupancy, is usually called “peak”. This can now the hotel property market. Many transactions ally high with increased international interest in be observed in New York, but also in major interna- were completed during the year, both as individ- the northern parts of Europe. The stock-exchange tional cities in Europe. New York, which normally ual acquisitions and portfolio transactions. listing of Rezidor SAS and Hilton Hotels Corpora- lies furthest forward in the hotel economic cycle, Major portfolio acquisitions completed in tion’s decision to sell its portfolio of Scandic has not had any growth in occupancy during the 2006 included the following: Hotels represented some of the more interna- year while average rates have risen strongly by more • Marriott International and Whitbread have tionally noticeable events. Another transaction than 10 percent. The city has broken the demand sold 46 co-owned hotels for £1 billion. that drew attention was the Nordic hotel property ceiling, which implies that the offer of hotel rooms is • Kingdom Hotels International and the invest- company Norgani Hotels’ acquisition of the restricting any further growth in demand. Average ment company Colony Capital have together Finnish hotel portfolio Kapiteeli. Klaraterminalen rates have taken over as the driving parameter for acquired Fairmont Hotels & Resorts. Fair- Stockholm Klara was sold again – this time to a higher RevPAR. mont will be merged with Raffles Hotels and group of financial investors. Other cities that are well placed in the hotel eco- thereby create an overall portfolio of 120 Interest for Eastern Europe has continued to nomic cycle include London and Paris. Stockholm luxury hotels in 24 countries. increase. The Wenaas Group purchased Pribal- and Gothenburg are also at a relatively high level • The Blackstone Group has acquired the tiyskaya in St Petersburg during the year, which while locations such as Brussels, Berlin and Oslo still HEBV portfolio, including eight hotels in will become Rezidor SAS’ second Park Inn in St have a bit further to go before they reach the peak. Europe, for 650 million euros. Petersburg. The Finnish hotel chain Sokos also • Morgan Stanley Real Estate Funds have announced an expansion of two further hotels in acquired seven hotels with a total of 2,537 St Petersburg, and Hilton Hotels Corporation will rooms. open its first hotel in Moscow in 2007. PANDO x 2006 1
    • Pandox business development PRODUCT DEvELOPMENT Brussels – attracting the business segment Pandox acquired the Crowne Plaza Brussels also led to the hotel being made more effective by City Centre at the end of 2003. The hotel is modifying the layout of the area. located at Place Rogier in central Brussels When Pandox took over the hotel a new mana- gement team was appointed and new forms of con- within walking distance of the tourist and trol and booking system were simultaneously shopping district around grand Place. The implemented. This was followed by a total refur- area is also adjacent to a large business dis­ bishment of all rooms and the development of a trict that is undergoing strong development. new conference centre – Balanced Senses Confer- ence Floor. This is a new concept that offers the The hotel opened in 1908 and over the years has most recent meeting technology in an inspired had many different owners and operators. Intercon- environment. tinental Hotels has had a 20-year franchise agree- It is based on stimulating and inspiring meeting ment for the hotel since 1998 under the Crowne participants’ senses through fragrances, calm Plaza profile. colours and sound and pictures from nature, The total area is about 28,000 square metres which are present in all public areas. spread over eleven floors. The hotel is a full-service Through the refurbishment and upgrading, product with 354 rooms as well as a large confer- Pandox has created a high class hotel product ence and banqueting department with 20 con- that opens opportunities for stable and profitable ference rooms and a maximum capacity of 600 developments. The overall investment to create guests. There is also a restaurant, breakfast room, one of Brussels’ leading conference hotels is esti- bar and a fitness centre. mated to be approximately 13 million euros. The hotel has recently been re-profiled and totally refurbished. The original art nouveau lines have been kept and combined with a relaxed modern style this has created rooms and general space that meet all demands for comfort. From The Crowne Plaza Brussels City Centre was acquired in 2003 previously being a tourist hotel, focus is now and has been re-profiled and totally refurbished. The original instead on the business and meeting segment. art nouveau lines have been preserved and combined with a The refurbishment has taken two years and has relaxed and modern style. 20 PANDO x 2006
    • 06 PANDO x 2006 21
    • Pandox business development PRODUCT DEvELOPMENT Helsingborg – a successful mixture of old and new The Radisson SAS Grand Hotel Helsingborg was modernised, simultaneously as the rooms were attractive for both overnight guests and residents included when Pandox was formed. At that time, refurbished. A passage was also opened up be- of Helsingborg looking for a moment’s peace and it was a classic hotel in the centre of town with 117 tween the lobby and the news kiosk. Together with quiet or a social meeting with friends or business rooms. Eleven years later, it is modern and full of Wayne’s Coffee, lounge, bar and beauty salon this acquaintances. life and a natural meeting place in the city. created a living hotel arcade. Pandox also owned another hotel in Helsing- Today the hotel has 164 rooms, including ten borg, which was acquired in 2001. It was called suites, three modern meeting rooms, as well as Best Western Hotel Högvakten and was right next the arcade to attract people passing by. The total door to the Radisson SAS Grand Hotel. investment amounted to approximately SEK 25 In 2005, the two hotels were merged, and parts million and was carried out together with the owners of the hotel were modified as part of the project. of the operations – Kjell and Karin Jakobsson. Unutilised surfaces were made into conference With a mixture of old and new, the operator rooms, the breakfast room was enlarged and has created with Pandox an inviting hotel that is Radisson SAS Grand Hotel Helsingborg Elite Park Avenue Hotel 22 PANDO x 2006
    • 06 Gothenburg – once again one of Sweden’s leading hotels The Elite Park Avenue Hotel has undergone total A joint plan for the future was drawn up with burg’s strong leisure market. Ten new rooms have refurbishment over the last two years, and has the operator when the new agreement was signed. been added and 42 of today’s 291 rooms are suites. retaken its former place as one of Sweden’s best The goal was to recreate the hotel’s previously strong All rooms and bathrooms have been refurbished hotels. position, both in the local Gothenburg market and and the restaurant modernised with a new concept. It was built in 1950 and quickly became one in the Swedish hotel market in general. Elite Hotels’ own franchise – The Bishop’s Arms – of the country’s leading hotels. Pandox acquired The development and modernisation will now now has a pub in the building, which is appreciated the property in 1997, at which time the hotel was soon be completed at a cost of approximately by both hotel guests and strollers on Kungsports- operated under the Radisson SAS brand name. SEK 100 million and in close cooperation between avenyn. The restaurant Park Aveny Café – which A major refurbishment program was carried out Pandox and Elite. The hotel has been rebuilt and was awarded “Business Restaurant of the Year” by during the 1990s. However, the hotel became less today has 291 rooms, a restaurant, pub and con- the Dagens Industri newspaper shortly after open- attractive during the latter part of the 1990s and ference facilities. The surface layout was modified ing – also contributes in giving the hotel a new and the operations were taken over by Elite Hotels as part of the project. The number of double rooms more modern profile. of Sweden in 2005. has been increased in order to benefit from Gothen- PANDO x 2006 23
    • human resources Anders Nissen, Chief Executive Officer, born in 1957. Anders Nissen has a strong background from the hotel industry, and has been active within the sector for nearly 20 years. His operating experience includes being hotel director as well as holding leading positions within the group management team of the hotel operator Reso. In the beginning of 1993, Anders became CEO of Securum Hotel Anders Nissen & Turism AB, where he led the process of structuring Securum’s hotel activities. Anders was a key player behind Lars Häggström the initiative to form Pandox, and has been CEO since the Company was started in 1995. Knowledge Jonas Pettersson Jill Jansson Josefin Nilsson Anders Hallin, Hotel Manager and Business Area Man- ager, born in 1962. Anders Hallin is both hotel manager of the Radisson SAS Hotel Östersund and Business Area Manager. He has solid experience of the hotel industry and comes most recently from Mora Hotell. Anette Österberg, Acquisition and Investment Analyst, born in 1975. Anette Österberg is a graduate in business Salme Olsson Folke Holmqvist administration from the European Business School in London. She has also studied property valuation at the Royal Institute of Technology (KTH) in Stockholm. Upon completion of her studies, Anette worked with Corporate Finance at Deloitte & Touche. She was recruited by Pandox in the spring of 2003 as analyst, and works with acquisitions, market analysis, market communication and decision making support for the business area managers. Ann-Sophie Forsmark, Property Accountant, born in 1971. Ann-Sophie Forsmark is a graduate economist from the IHM Business School. She joined Pandox in 1999 after having previously been employed by Riddarstaden AB, Marco Polo and Fritidsresor. Ann-Sophie works within Pandox’ finance and accounting department. Erik Hvesser, Business Area Manager, born in 1969. Nils Lindberg Erik Hvesser is an economics graduate of the School of Economics & Business Administration in Oslo. He came Ulrika Norrbrink to Pandox in the autumn of 2006 from the position as asset manager with Norgani ASA. Erik has 15 years’ operating experience within the hotel industry as hotel manager, business area manager, business controller, as well as various senior positions within Hilton/Scandic’s Swedish management team. He is currently responsible for the major part of Pandox’ Swedish hotel property portfolio. Folke Holmqvist, Property Manager Sweden, born in Ann-Sophie Forsmark 1943. Folke Holmqvist is a construction engineer with 25 years’ experience of the building sector and five years as CEO of a hotel company. He became property manager of Securum Hotel & Turism AB in 1993 and took part in the formation of Pandox. Folke has been project manager for several major refurbishment programs, and as Prop- erty Manager for the Swedish properties works closely with the three business area managers. 24 PANDO x 2006
    • Erik Hvesser Anders Hallin Mikael Planell – enables success Jill Jansson, Assistant to the CEO, born in 1952. Jill Jans- Josefin Bergqvist, Acquisiton and Investment Analyst, Louise Ceder, Property Support, born in 1970. Louise son joined Pandox in September 2005 as Assistant to the born in 1974. Josefin Bergqvist holds a master’s degree Ceder works with property support and during the last CEO. Her position implies providing support to the board in hotel management from Griffith University in Australia year has produced a new website for reporting and follow of directors and management of the Company, as well as as well as a master’s degree in property finance from up. Louise reports to our business area managers and internal and external communication including the an- the Royal Institute of Technology (KTH) in Stockholm. has worked at Pandox since 2000. nual report and accounts. Jill comes most recently from Josefin has previously worked for CBRE Hotels in London Ventelo Sverige AB, and has also worked within group as analyst and operationally for Marriott International. Mikael Planell, Business Area Manager, born in 1960. functions at Pharmacia. She has been with Pandox since August 2006. Mikael Planell’s area of responsibility covers eleven major hotel projects, including the Hotel Berlin, Berlin and the Jonas Pettersson, Controller, born in 1971. Jonas Petters- Josefin Nilsson, Receptionist, born in 1983. Josefin Nils- Copenhagen Hotel 27 where he is also a member of their son is a graduate in business administration and economics son is responsible for daily office procedures together boards. Mikael has a solid background from the hotel from Stockholm University, and has also studied to become with the Assistant to the CEO. She has been with Pandox sector with 20 years as hotel manager and area manager, an electrical engineer at the Royal Institute of Technology since September 2006. including in London and Stockholm. Before joining (KTH) in Stockholm. He has previously worked with Corpo- Pandox in the beginning of 2005, he was manager of rate Finance at Deloitte & Touche and Nordea Securities, Lars Häggström, Business Area Manager and Interna- operating and business development for Accor Hotels’ and most recently comes from the position as group control- tional Property Manager, born in 1954. Lars Häggström Nordic operations. ler of the industrial company DeLaval. Jonas was recruited is a graduate engineer and has considerable experience by Pandox as Controller in the autumn of 2005. During his of the hotel sector, with an emphasis on property related Nils Lindberg, Chief Financial Officer, born in 1947. time with Pandox, Jonas has built up operating systems that questions. He was technical manager of Scandic Hotels Nils Lindberg has considerable experience in the eco- have grown considerably in recent years, thus enabling from 1993 to 1998, and property manager of Hotellus nomic and financial area within industry and the banking operations to be monitored in a simple and analytical way. International from 1998 to 2000 when Pandox acquired sector. He has worked as controller and treasurer of Dow the company. Lars has business area responsibility for Chemical Nordic Region, as well as bank manager with the international hotels, as well as several major Swedish Nordbanken and business manager within Securum Louise Ceder properties. He has furthermore managed the re-branding Finans. Nils joined Pandox in 1995, and is responsible for of five large Hilton hotels as well as the further develop- economic and financial issues within the Group with a ment of the Crowne Plaza Brussels City Centre, Hilton focus on financial control and reporting, as well as the Brussels City as well as the ongoing refurbishment of the management of the Group’s financing. Elite Park Avenue Hotel. Salme Olsson, Property Accountant, born in 1944. Salme Olsson studied economics at Stockholm University. She joined Pandox in 1995 after having previously worked within the Beijer Group and AEG, and now currently works within Pandox’ finance and accounting department. Ulrika Norrbrink, Property Accountant, born in 1966. Ulrika Norrbrink came to Pandox in March 2006 after having worked previously for Power Hemelektronik AB, Proact IT Sweden AB and Lars Gullstedts Fastigheter AB. Ulrika currently works within Pandox’ finance and ac- counting department. Anette Österberg Anette Österberg Josefin Bergqvist PANDO x 2006 25
    • 39 hotels with strategic locations in Sweden, Denmark, Belgium, Germany, Switzerland, the United Kingdom and the Bahamas. Hotel properti Scandic Plaza Borås 26 PANDO x 2006
    • Hotel Berlin, Berlin Copenhagen Hotel 27 es Copenhagen Hotel 27 PANDO x 2006 27
    • hotel properties Type of number year of constr. Total area Property Operator/Brand name Location lease of rooms extension (sqm) Stockholm Radisson SAS Arlandia Hotel, Arlanda Rezidor/Radisson SAS Og International airport 335 1979/89 15,260 Hilton Stockholm Slussen Hilton/Hilton O City centre 288 1989 18,416 Scandic Järva Krog, Stockholm Hilton/Scandic O Stockholm north 215 1971/97 11,300 Scandic Park, Stockholm Hilton/Scandic O City centre 198 1969/88 12,290 Quality Hotel, Nacka Choice Hotels Scandinavia/Quality Og Sickla-Nacka 162 1986 10,830 Scandic Upplands Väsby Hilton/Scandic O Stockholm north 150 1986 6,955 Mr Chip Hotel, Kista Kista Hotell AB Og Stockholm north 150 1984 5,517 TOTAL STOCKHOLM 1,498 80,568 gothenburg Scandic Crown, Gothenburg Hilton/Scandic O City centre 338 1988 24,380 Elite Park Avenue Hotel, Gothenburg Elite Hotels/Elite Og City centre 291 1950/74/90 21,998 Scandic Mölndal, Gothenburg Hilton/Scandic O City centre 208 2000 11,000 TOTAL gOTHEnBuRg 837 57,378 Öresund region Scandic Copenhagen Hilton/Scandic O City centre 484 1970/99 31,500 Scandic S:t Jörgen, Malmö Hilton/Scandic Og City centre 265 1967/95 21,485 Radisson SAS Hotel, Malmö Rezidor/Radisson SAS Og City centre 229 1971/88 18,969 Copenhagen Hotel 27 Pandox Io City centre 200 1913/55/65 7,568 Scandic Star, Lund Hilton/Scandic Og Central 196 1991 15,711 Radisson SAS Grand Hotel, Helsingborg Sverigeråd AB/Radisson SAS Og City centre 164 1926/29/96 8,555 Scandic Kramer, Malmö Hilton/Scandic O City centre 113 1875/1994 6,913 TOTAL ÖRESunD REgIOn 1,651 110,701 Regional towns and other locations Scandic Grand, Örebro Hilton/Scandic O City centre 219 1985 12,900 Scandic Winn, Karlstad Hilton/Scandic Og City centre 199 1984/90 10,580 Scandic Swania, Trollhättan Hilton/Scandic Og City centre 196 1918/83/89 10,399 Radisson SAS Hotel, Östersund Pandox/Radisson SAS Io City centre 177 1978 8,766 First Hotel Grand, Borås Västsvenska Hotellfastigheter AB/First Hotel Og City centre 158 1972/87/90/97 9,593 Scandic Plaza, Borås Hilton/Scandic O City centre 135 1988 10,592 Elite Stora Hotellet, Jönköping Elite Hotels/Elite Og City centre 135 1860/1930/95 11,378 Scandic Hallandia, Halmstad Hilton/Scandic O City centre 130 1890s/1950/75 7,617 Radisson SAS Plaza Hotel, Karlstad Plaza Hotell & Restaurang i Karlstad AB/Radisson SAS Og City centre 131 1929/91 5,907 Scandic Billingen, Skövde Hilton/Scandic F City centre 106 1888/1939/65 7,743 TOTAL REgIOnAL TOWnS AnD 1,586 95,475 OTHER LOCATIOnS International 2) Hotel Berlin, Berlin Pandox lo City centre 701 1958/87/96 41,093 Hilton London Docklands Hilton/Hilton O Docklands 365 1991 22,800 Crowne Plaza Brussels City Centre Pandox/Crowne Plaza Io City centre 354 1910 28,095 Royal Crown Hotel Brussels Pandox Io City centre 307 1976 15,530 Hilton Brussels City Pandox/Hilton M City centre 283 1910/30 13,850 Radisson SAS Hotel, Basel Rezidor/Radisson SAS Og Central 205 1957/63/72 17,800 Scandic Grand Place, Bryssel Hilton/Scandic O City centre 100 1900/91 4,500 Scandic Antwerpen Hilton/Scandic O Ring road 204 1974 13,200 Hilton Bremen Hilton/Hilton O City centre 235 1991 21,000 Hilton Dortmund Hilton/Hilton O Exhibition centre 190 1990 12,500 Scandic Lübeck Hilton/Scandic O Ring road 158 1991 9,700 Pelican Bay Hotel & Resort at Lucaya, Freeport, Grand Bahama Island Sundt GB Management AM Resort 186 7,983 TOTAL InTERnATIOnAL 3,288 208,051 TOTAL PAnDOx 8,860 552,173 1) Includes hotel, restaurant and conference areas. 2) Excluding Copenhagen (included in Öresund). 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, AM = Asset management agreement. Pandox’ operating businesses (hotels operated by Pandox) 28 PANDO x 2006
    • PANDOX’ MARKET SEGMENTS Of which Offices Shops Other Right of Property Tax assessment hotel1) (sqm) (sqm) (sqm) (sqm) disposal designation value (Mkr) 15,260 – – – Land leasehold Benstocken 1:5 92.0 Stockholm Share of 15,725 2,097 – 594 Land leasehold Överkikaren 31 345.0 Number of hotels 7 total rooms 11,300 – – – Land leasehold Tanken 2 57.4 Number of rooms 1,500 17% 10,290 – – 2,000 Lönnen 30 174.0 Property revenue, Mkr 144.4 8,090 2,705 – 35 Sicklaön 363:2 90.4 Operating net, Mkr 114.6 6,955 – – – Vilunda 6:48 27.6 5,517 Land leasehold Knarrarnäs 7 64.1 73,137 4,802 – 2,629 850.5 21,800 – 300 2,280 Stampen 5:5 191.0 gothenburg Share of 21,998 – – – Lorensberg 28:4 289.0 Number of hotels 3 total rooms 11,000 – – – Laken 1 61.8 Number of rooms 837 9% 54,798 – 300 2,280 541.8 Property revenue, Mkr 76.5 Operating net, Mkr 67.6 25,200 – – 6,300 99943-2 – 14,655 – 4,230 2,600 S:t Jörgen 11 120.0 18,969 Carolus 32 N/A 7,568 169 Vester Kvarter København 136 15,711 – – – Porfyren 2 77.4 Öresund Share of 7,325 – 1,230 – Högvakten 1+7 55.6 Number of hotels 7 total rooms 6,373 – 540 – Gripen 1 47.8 Number of rooms 1,651 19% 95,801 – 6,000 8,900 300.8 Property revenue, Mkr 125.4 Operating net, Mkr 96.8 10,900 – – 2,000 Land leasehold Mältaren 1 40.6 10,580 – – – Negern 2 38.6 10,399 – – – Svan 7 46.6 8,766 – – – Tenant-owner Borgens 3 33.8 9,365 – – 228 Land leasehold Prometeus 3 36.8 Regional towns and Share of 7,961 2,631 Balder 6 62.4 other locations total rooms Number of hotels 10 9,379 – 899 1,100 Alhambra 1 44.6 18% Number of rooms 1,586 6,813 360 427 17 Erik Dahlberg 14 & 15 35.7 Property revenue, Mkr 92.5 5,907 – – – Höken 1 28.6 Operating net, Mkr 76.8 6,844 – – 899 Fjolner 7 21.2 86,914 2,991 1,326 4,244 388.9 International Share of 41,093 Number of hotels 12 total rooms 21,500 – – 1,300 HM Land Registry: SGL465779 – Number of rooms 3,288 28,095 – – – – Property revenue, Mkr 196.1 37% 15,530 Operating net, Mkr 167.6 13,850 – – – Saint-Josseten-Noode (1div) 032 – 17,000 800 4,500 – – – – 13,200 – – – 24th div, Borgerhout 1st div, Ar – 15,100 – – 5,900 Grundbuch Altstadt IV, Blatt 60 – 11,300 – – 1,200 Grundbuch Dortmund, Blatt 897 – Operations 8,800 – – 900 Grundbuch Lübeck, Blatt 54545 – Number of hotels 7 Share of 7,983 Number of rooms 2,208 total rooms Operating revenue, Mkr 420.0 197,951 – – 10,100 – Operating income, Mkr 99.7 25% 508,601 7,793 7,626 28,153 2,082.0 PANDO x 2006 2
    • hotel properties Radisson SAS Arlandia Hotel Scandic upplands Väsby no. of rooms: 335 Operator: Rezidor/Radisson SAS no. of rooms: 150 Operator: Hilton/Scandic Scandic Järva Krog Mr Chip Hotel, Kista no. of rooms: 215 Operator: Hilton/Scandic no. of rooms: 150 Operator: Kista Hotell AB Hilton Stockholm Slussen Scandic Crown, gothenburg no. of rooms: 288 Operator: Hilton/Hilton no. of rooms: 338 Operator: Hilton/Scandic Scandic Park, Stockholm Elite Park Avenue Hotel, gothenburg no. of rooms: 198 Operator: Hilton/Scandic no. of rooms: 291 Operator: Elite Hotels/Elite Quality Hotel nacka Scandic Mölndal no. of rooms: 162 Operator: Choice Hotels Scandinavia/Quality no. of rooms: 208 Operator: Hilton/Scandic 30 PANDO x 2006
    • Scandic Copenhagen Radisson SAS grand Hotel Helsingborg no. of rooms: 484 Operator: Hilton/Scandic no. of rooms: 164 Operator: Sverigeråd AB/Radisson SAS Copenhagen Hotel 27 Scandic Kramer no. of rooms: 200 Operator: Pandox no. of rooms: 113 Operator: Hilton/Scandic Scandic S:t Jörgen Scandic grand Örebro no. of rooms: 265 Operator: Hilton/Scandic no. of rooms: 219 Operator: Hilton/Scandic Radisson SAS Hotel Malmö Scandic Winn Karlstad no. of rooms: 229 Operator: Rezidor/Radisson SAS no. of rooms: 199 Operator: Hilton/Scandic Scandic Star Lund Scandic Swania Trollhättan no. of rooms: 196 Operator: Hilton/Scandic no. of rooms: 196 Operator: Hilton/Scandic PANDO x 2006 31
    • hotel properties Radisson SAS Hotel Östersund Radisson SAS Plaza Hotel Karlstad no. of rooms: 177 Operator: Pandox /Radisson SAS no. of rooms: 131 Operator: Plaza Hotell & Restaurang i Karlstad AB/Radisson SAS First Hotel grand Borås Scandic Billingen no. of rooms: 158 Operator: Västsvenska Hotellfastigheter AB/First Hotel no. of rooms: 106 Operator: Hilton/Scandic Scandic Plaza Borås Hotel Berlin, Berlin no. of rooms: 135 Operator: Hilton/Scandic no. of rooms: 701 Operator: Pandox Elite Stora Hotellet Jönköping Hilton London Docklands no. of rooms: 135 Operator: Elite Hotels/Elite no. of rooms: 365 Operator: Hilton/Hilton Scandia Hallandia Halmstad Crowne Plaza Brussels City Centre no. of rooms: 130 Operator: Hilton/Scandic no. of rooms: 354 Operator: Pandox/Crowne Plaza 32 PANDO x 2006
    • Royal Crown Hotel Brussels Hilton Bremen no. of rooms: 307 Operator: Pandox no. of rooms: 235 Operator: Hilton/Hilton Hilton Brussels City Hilton Dortmund no. of rooms: 283 Operator: Pandox/Hilton no. of rooms: 190 Operator: Hilton/Hilton Radisson SAS Hotel Basel Scandic Lübeck no. of rooms: 205 Operator: Rezidor/Radisson SAS no. of rooms: 158 Operator: Hilton/Scandic Scandic grand Place Bryssel Pelican Bay Hotel & Resort at Lucaya, Freeport no. of rooms: 100 Operator: Hilton/Scandic no. of rooms: 186 Operator: Sundt GB Management Scandic Antwerpen no. of rooms: 204 Operator: Hilton/Scandic PANDO x 2006 33
    • Scandic Copenhagen 34 PANDO x 2006
    • Financials Financial overview . . . . . . . . . . . . . . . . . . . 36 Sensitivity analysis . . . . . . . . . . . . . . . . . . 38 Valuation and tax situation . . . . . . . . . . . . . 40 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 41 Ten-year overview . . . . . . . . . . . . . . . . . . . 42 Quarterly data 2005–2006 . . . . . . . . . . . . 44 Financial statements 2006 . . . . . . . . . . . . 45 Report of the Board of Directors . . . . . . . . . 46 Income statement and comments . . . . . . . . 48 Balance sheet and comments . . . . . . . . . . . 50 Changes in equity . . . . . . . . . . . . . . . . . . . 52 Cash flow statement and comments . . . . . . . 53 Accounting principles . . . . . . . . . . . . . . . . 54 Notes to the accounts . . . . . . . . . . . . . . . . 56 Proposed disposition of earnings . . . . . . . . . 62 Auditors’ report . . . . . . . . . . . . . . . . . . . . . 63 PANDO x 2006 35
    • financial overview Well weighted risk profile Elite Stora Hotellet Jönköping Financial policy terest periods. The long term objective is that the rowing in the Parent Company. The objective is to The basic objective of Pandox’ financial operations average fixed interest period be matched with the work with long-term framework agreements that is to achieve the lowest possible financing costs average point in time when rental revenues, based provide scope for borrowing with varying maturities while simultaneously limiting the risks related to on underlying leases, are estimated to be affected and fixed margins. Derivative instruments such as interest rates, foreign currencies and borrowings. by a change in interest rates. swaps are preferably used for the extension of fixed The interest rate risk is the risk that changes in interest rate periods. interest rate levels could negatively affect the Currency risk/currency risk strategy Group’s results. Currency risk is the risk that the Pandox is exposed to currency risks due to certain Capital structure Group’s balance sheet and income statement of the Group’s assets being denominated in foreign The objective for the Group’s capital structure is could be negatively affected by changes in the currencies. Pandox’ policy is to hedge the majority that the equity/asset ratio long term should meet in- value of the Swedish krona. Finally, the borrowing part of its exposure by raising loans in the local ternal and external financial strenght requirements risk is the risk that external financing may become currency of each respective country and by hedg- in order to enable continued expansion. more difficult to find. ing with appropriate currency hedging instruments. Financing Interest rate risk/interest rate strategy Methodology and systems As of 31 December 2006, the Pandox Group’s inte- Pandox’ basic objective is that interest rate expo- Pandox has developed and implemented systems rest bearing liabilities amounted to SEK 4,398.5 M sure shall be adapted so that increased costs as a and procedures to enable the continuous monitor- (3,165.3). The loan portfolio had an average fixed result of reasonable changes in interest rates shall ing and reporting of interest rate risk trends. interest rate period of 2.9 years (3.8) and the aver- be compensated by higher revenue. The interest age rate of interest on loans amounted to 4.3 per- rate risk must therefore be limited through con- Financing strategy cent (4.1). The financing of hotel properties is tracting periods of varying lengths with the aim of In order to gain flexibility and administrative bene- raised in each respective local currency in accord- creating an optimal due date structure and fixed in- fits, Pandox has centralised when possible all bor- ance with the financial policy. At the same point in 36 PANDO x 2006
    • time, the Pandox Group’s liquid funds amounted to Equity capital Working capital SEK 174.1 M (236.4). In addition, there was an un- The Pandox Group’s equity capital as per the bal- Pandox receives rental revenue in advance and utilised overdraft facility of SEK 25 M (100) and un- ance sheet at 31 December 2006 amounted to SEK pays most of its operating costs and interest ex- utilised credit facilities of SEK 476 M. 2,272.3 M of which SEK 1,213.8 M was restricted pense in arrears, meaning that the Group does not equity and SEK 1,058.5 M unrestricted equity. normally have to finance any working capital. The Pandox Group’s cash flow before changes in working capital, investments and non-recurring revenue amounted in 2006 to SEK 317.6 M (301.4). InTEREST STRuCTuRE1), SEK M year due SEK DKK EuR gBP CHF Total Share,% Interest,%2) 2007 1,094.3 – 933.1 220.2 50.7 2,298.3 52.3 4.2 2008 100.0 162.7 – – – 262.7 6.0 4.8 2009 125.0 – – – – 125.0 2.8 4.6 2010 250.0 – – – – 250.0 5.7 4.8 2011 125.0 – 32.3 – – 157.3 3.6 5.1 2012 and later 500.0 121.4 531.8 – 152.0 1,305.2 29.7 4.1 Total 2,194.3 284.1 1,497.2 220.2 202.7 4,398.5 100.0 4.3 Share, % 50 6 34 5 5 100 Average interest rate, % 4.3 3.9 4.2 6.1 2.6 4.3 Average interest rate period, years 2.6 4.6 3.2 0.2 5.3 2.9 1) Converted to SEK. 2) Average interest rate in percent. PANDO x 2006 37
    • sensitivity analysis Factors that affect Pandox Pandox’ operations and profitability are affected existing demand, additional hotel rooms through market segment, which in combination with its by a number of factors, of which the most impor­ the construction of a new hotel can lead to a rapid hotels market expertise and systems, limits tant are described below. negative influence on occupancy rates and aver- Pandox’ lease risk. age prices. To deal with this risk, Pandox has devel- The hotel market oped an information system that continually moni- Partners The development of Pandox’ earnings and the tors planned new constructions within its market Pandox’ lease structure, with a large proportion of value of its hotel properties are dependent upon areas, and thus enabling Pandox to be prepared variable leases, means that the Company is more trends within the hotel market, which in turn and proactive. dependent on the individual tenant/operator’s closely follow general economic developments. business than other property companies. The Business travel and conference activities nor- Lease structure Company’s strategy to actively cooperate with the mally increase during periods of high economic Pandox has a large proportion of variable (revenue market’s most competitive and powerful operators activity, while there is a corresponding decrease and result based) leases, which represented 94 with well established brand names, reduces both during periods of low economic activity. There is percent of total rental revenue in 2006. the related operative and financial risks. Pandox’ thus a strong connection between economic trends About 32 percent of variable leases contained a largest tenants in terms of revenue are Scandic, (GDP) and trends within the hotel market. Develop- guaranteed rent, meaning that only 62 percent of Hilton, Radisson SAS, Elite Hotels, Crowne Plaza, ments of GDP can be closely monitored, whereas rental revenues were fully variable downwards. Choice Hotels and First Hotels, which together factors that influence local hotel markets are signif- A change in the occupancy rate and the average accounted for more than 91 percent of all rental icantly more complex. The most important influen- room revenue consequently affects Pandox very revenue in 2006. tial factors are local economic conditions, the pro- differently, depending on the direction of change. portion of new hotel capacity in the market, how The choice of lease agreement is based on opti- Leasing level well developed a market is concerning brand mal distribution of cash flow between Pandox and The leasing level as of 31 December was 99 per- names and segments, currency fluctuations, as the operator so that both parties are motivated to cent. Vacant space amounting to 3,333 m2 con- well as extraordinary events. continuously increase the hotel property’s overall sisted entirely of store and office premises. profitability. Factors that may influence risks asso- If for any reason a hotel operator should choose new capacity ciated with variable leases are the hotel property’s to terminate its lease agreement, Pandox may New capacity introduced to the market implies an location, market segment and brand name/opera- either select a new suitable operator as tenant or increased risk for local players. Depending upon tor. Pandox’ strategy is to operate in a selected operate the hotel under its own management. Crowne Plaza Brussels City Centre 38 PANDO x 2006
    • With Pandox’ specialist expertise in the hotel sec- Decisions by public authorities a municipality that normally owns the land receives tor, the risk of vacant hotel space is seen as being The hotel market can be affected by decisions what is deemed to be a reasonable real rate of extremely low. made by public authorities. Two examples of such interest on the estimated market value of the land For other commercial space, which represents decisions are changes in taxation related to claims in question. Site leasehold rents generally run for approximately 8 percent of total space in the Com- for travel expenses or rules concerning valued periods of 10 to 20 years. pany’s properties, Pandox is exposed to the same added tax both in general and for the hotel and fluctuations in supply and demand for premises restaurant industry in particular. Interest rates experienced by other property owners. Interest expense is Pandox’ largest single cost item. Property tax Continuous fluctuations in interest rates will there- Changed risk potential Property tax on Pandox’ Swedish properties fore have an impact on Pandox’ earnings. In order Historically, the hotel industry and hotel property amounts to 1.0 percent of the tax assessment to limit its financial risk, the Company’s average sector have always been associated with high risk. value. Changes in the tax rate or in the tax assess- fixed interest period is 2.9 years. The full effect of a The market has however changed significantly in ment value, which are adjusted annually, affect change in interest rates is accordingly not felt by recent years. Owners have become more profes- Pandox’ earnings. However, an increase only has a Pandox for several years. sional with restructured companies and focused limited impact on the Company’s earnings because strategies, with a greater holistic view and special- many lease agreements are formulated so that the Currency risk ised expertise. Reports from public companies have property tax be passed on to the tenant. Property Pandox’ policy is to hedge the major part of its cur- substantially improved information about the trans- tax on properties outside Sweden is generally less rency exposure, including shareholders’ equity, by parency of the market. The proportion of estab- than one per cent of the book value. About 45 per- financing properties in local currencies and by lished strong brand names with efficient operations cent of the property tax was debited to tenants in hedging through means of appropriate currency has increased. For streamlined companies with 2006, which means that the net effect on Pandox’ instruments. Transaction exposure is limited as own expertise in hotel operations, hotel properties earnings amounted to SEK 24 M. revenue and costs are usually in the same currency. and business development, and who are active owners, the potential risk is considerably lower than Site leasehold rents Sensitivity analysis it has been in historic terms. As of 31 December 2006, Pandox held six proper- The table below illustrates how Pandox’ earnings ties via site leasehold rights. Rents on these proper- are affected by changes in certain key factors. ties are currently calculated in such a manner that EARnIngS IMPACT 2006 SEK M Change in rental revenue Occupancy rate +5 percentage points +41.6 Occupancy rate –5 percentage points –41.5 Average room rate SEK +50 +31.3 Average room rate SEK –50 –31.0 Other commercial premises +/–5 %1) +/–1.3 Change in other variables Interest expense during the year +/–1 percentage point +/–23.1 Average interest expense +/–1 percentage point1) +/–44.0 Exchange rate fluctuation +/–5 % +/–5.5 Operating and maintenance costs +/–5 % +/–5.9 1) The figures in the table are standardised so that the effects of changes in rental revenue and interest rates are immediate, although such changes do not have full impact in reality until leases and loan agreements are renegotiated. PANDO x 2006 3
    • valuation and tax situation Hotel property portfolio value The valuation of hotel properties with their speci­ tive key ratios and figures develop in this market. • Operating costs are assumed to increase in line fic characteristics demands extensive knowledge The operator company’s results and forecasts, with inflation. and expertise of the hotel market and hotel together with the formulation of the lease agree- • The rate of interest used in the calculation is operations. ment, provide underlying data to estimate revenues, based on the real interest rate plus a risk pre- which subsequently constitute the basis of the cash mium based on location, lease, and form of Cash flow valuation flow calculation. The value calculated is the present ownership. Pandox continuously evaluates all of its hotel pro- value of the next ten years’ cash flow, with a supple- perties in accordance with a valuation model based ment for the present value of the hotel properties’ An internal valuation of Pandox’ 38 hotel properties on the properties’ cash flow, and which is adapted residual value after ten years. in accordance with this method resulted in a total to the characteristics specific to the hotel industry. The valuation model is based on the following value as of December 2006 that substantially The cash flow calculation is built up from under- assumptions: exceeds the book value. In accordance with the neath, with the property operator’s income state- • Changes in rental revenue during the calculation Swedish Financial Accounting Standards Council’s ment as the point of departure. This in turn is based period are based on the formulation of individual recommendation No 17, each individual property’s on assumptions as to how the underlying hotel mar- leases and on underlying factors. recovery value was reconciled with its book value, ket will develop in terms of occupancy and average • Inflation is assumed to amount to an average of further to which it was noted that no write downs rates, as well as how each specific operator’s respec- 2.0 percent annually during the calculation period. were necessary. Crowne Plaza Brussels City Centre The Company’s tax situation The Pandox group’s property holdings are re­ on income tax. In short, this recommendation 120.7 M. The deferred tax liability refers mainly ported for accounting purposes as fixed assets. implies that both deferred tax liabilities and tax to the estimated deferred tax based on the differ- The consolidated book value as of 31 Decem­ claims are to be included in the financial state- ence between the properties’ consolidated book ber 2006 amounted to SEK 6,631.8 M exclud­ ments and that any changes will affect the in- value and the fiscal residual value of each respec- ing equipment, of which the consolidated sur­ come statement as deferred tax. tive legal unit. The difference in value has arisen plus values amounted to SEK 1,164.8 M. Pandox’ consolidated balance sheet as of 31 as an effect of surplus value upon acquisitions of December 2006 includes a deferred tax liability property in companies, known as pure intrinsic Accounting of deferred tax in the net amount of SEK 159.0 M corresponding acquisitions, as well as fiscal depreciation that Pandox applies the Swedish Financial Account- to the difference between a deferred tax liability exceeds book depreciation. Tax deduction for ing Standards Council’s recommendation (RR 9) of SEK 279.7 M and a deferred tax claim of SEK annual depreciation of properties has normally 40 PANDO x 2006
    • definitions Definitions of key data Property related key figures Financial key figures Hotel 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 rooms capacity during a given period as a percentage of average total assets. of time – normally one year. Direct yield 2 Adjusted operating net including property related Interest coverage ratio Occupancy rate administration as a percentage of the book value of Profit after net financial items, less one-off items, Number of occupied rooms as a percentage of the properties. plus interest costs as a percentage of interest costs. the number of available rooms. Operating net Equity/asset ratio Average room rate Hotel property revenue less operating and main- Equity at the end of the year as a percentage of total Total revenue from sold rooms divided by the tenance costs, property tax, ground rent and other assets. number of occupied rooms. property costs. RevPAR (Revenue Per Available Room) Property related administration Total revenue from sold rooms divided by the The portion of total administration costs that is number of available rooms. directly related to the management and develop- ment of a property. Other administration costs Market penetration include central administration and costs for main- The performance of an individual hotel in relation to taining the Company’s market listing. the average of the market. Adjusted operating net GOP (Gross Operating Profit) Operating net adjusted for properties sold and Net profit in hotel operator companies before purchased during the year. depreciation, rent, net financial items and taxes. Total property revenue The sum of rental revenue and other property revenue. been made at the rate of 3 to 5 percent of a prop- of approximately 10 percent. This is based on the ing limited partnerships. At the end of 2006, there erty’s acquisition cost. As a result, the amount of Swedish Financial Accounting Standards Council’s were remaining deficit deductions totalling SEK fiscal depreciation exceeds that of book deprecia- regulation for assessing deferred tax upon pure 272 M in the Swedish companies. The valuation of tion, and the difference between the book value intrinsic acquisitions, where the tax effect is taken deferred tax claims is based on their potential utili- and the fiscal value of a property increases year on into consideration when calculating the acquisition sation against future taxable profits, and is calcu- year. The deferred tax liability generated by asset price. The deferred tax relating to the difference lated according to the applicable tax rate. Conse- acquisitions before 2004 has been calculated between book depreciation and fiscal depreciation quently, no deficit deductions in non-Swedish using the present value method based on the is calculated based on the applicable tax rate. companies were reported at the end of 2006. shortest period of ownership estimated for each The deferred tax claim pertains mainly to defi- property, and corresponds to an average tax rate cit deductions and the fiscal surplus value regard- PANDO x 2006 41
    • ten - year overview Condensed consolidated income statement SEK M 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Property operations Rental revenue 140.6 218.5 254.0 476.3 551.1 536.2 535.1 562.7 548.8 605.0 Other property revenue 11.6 16.1 18.0 21.4 24.0 26.0 26.5 30.2 25.2 29.9 Total property revenue4) 152.2 234.6 272.0 497.7 575.1 562.2 561.6 592.9 574.0 634.9 Operating and maintenance costs –31.5 –47.8 –54.2 –88.9 –96.7 –93.2 –100.1 –118.7 –103.8 –111.5 Operating net 120.7 186.8 217.8 408.8 478.4 469.0 461.5 474.2 470.2 523.4 Depreciation1), 2) –26.0 –36.0 –40.3 –45.8 –56.2 –63.2 –64.3 –70.3 –78.2 –91.3 Income from property operations 94.7 150.8 177.5 363.0 422.2 405.8 397.2 403.9 392.0 432.1 Hotel operations Operating revenue 41.5 18.5 – 28.2 39.7 60.1 81.3 216.8 250.2 420.0 Operating costs1) –42.2 –18.7 – –25.5 –39.3 –58.2 –75.7 –204.4 –239.4 –407.7 Operating income hotel operations4) –0.7 –0.2 – 2.7 0.4 1.9 5.6 12.4 10.8 12.3 gross income 94.0 150.6 177.5 365.7 422.6 407.7 402.8 416.3 402.8 444.4 Administrative costs1) –17.2 –19.2 –21.6 –31.8 –33.9 –34.5 –35.5 –39.3 –42.5 –51.9 Non-recurring revenue/expense 1.0 1.4 5.3 1.9 8.6 28.8 7.4 – 444.4 39.9 Operating income 77.8 132.8 161.2 335.8 397.3 402.0 374.7 377.0 804.7 432.4 Non-recurring financial charges – – – – – – – –56.1 – – Net financial items for current operations –50.3 –71.3 –77.5 –150.7 –178.1 –171.0 –159.2 –148.4 –137.4 –166.4 Income after financial items 27.5 61.5 83.7 185.1 219.2 231.0 215.5 172.5 667.3 266.0 Deferred tax 3) –0.3 – – –27.0 –28.3 –44.2 –50.3 –47.6 36.8 –65.2 Paid tax – – –0.3 –1.4 –0.2 –0.1 11.4 –0.2 –15.8 0.8 Acquired income/expense – – – – – – – – – – Income/loss for the year 27.2 61.5 83.4 156.7 190.7 186.7 176.6 124.7 688.3 201.6 1) The depreciation rate on properties is 1.0 percent as of 2000 and amounted in 2006 to SEK 91.3 M. Depreciation in administration and hotel operations amounted in 2006 to respectively 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 M and 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; in 1999 to SEK 0.7 M and SEK 0.0 M; in 1998 to SEK 0.5 M and SEK 0.2 M and in 1997 to SEK 0.4 M and SEK 0.1 M). 2) A depreciation rate of 1.0 in 1999 would have amounted to SEK 29.4 M (in 1998 to SEK 26.5 M and in 1997 to SEK 19.6 M). 3) As of 2001, Pandox applies the Swedish Accounting Standards Council’s 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. 42 PANDO x 2006
    • Condensed consolidated balance sheet SEK M, as of 31 December 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Assets Properties including hotel equipment 1,874.3 2,085.2 2,393.7 4,784.5 5,036.8 4,961.4 5,276.7 5,262.8 5,477.5 6,907.5 Other fixed assets 17.3 16.5 14.5 13.0 5.4 6.9 7.2 6.9 113.7 172.8 Current assets 23.7 14.6 17.9 61.9 37.1 29.5 34.6 58.6 201.7 174.4 Cash and bank 14.4 82.9 3.9 16.4 86.7 213.2 137.5 58.0 236.4 174.1 Total assets 1,929.7 2,199.2 2,430.0 4,875.8 5,166.0 5,211.0 5,456.0 5,386.3 6,029.3 7,428.8 Equity and liabilities Shareholders’ equity 582.9 830.1 883.6 1,670.8 1,772.1 1,853.9 1,919.2 1,923.0 2,307.7 2,272.3 Deferred tax liability – – – 8.8 37.0 83.5 135.9 184.3 208.5 279.7 Interest bearing liabilities 1,078.3 1,281.8 1,463.6 2,934.7 3,178.5 3,070.6 3,211.9 3,080.4 3,165.3 4,398.5 Non-interest bearing liabilities 268.5 87.3 82.8 261.5 178.4 203.0 189.0 198.5 347.8 478.3 Total equity and liabilities 1,929.7 2,199.2 2,430.0 4,875.8 5,166.0 5,211.0 5,456.0 5,386.3 6,029.3 7,428.8 Key data Property related key data Book value of properties including hotel equipment, SEK M 1,874.3 2,085.2 2,393.7 4,784.5 5,036.8 4,961.4 5,276.7 5,262.8 5,477.5 6,907.5 Total property revenue, SEK M 152.2 234.6 272.0 497.7 575.1 562.2 561.6 592.9 574.0 634.9 Operating net, SEK M 120.7 186.8 217.8 408.8 478.4 469.0 461.5 474.2 470.2 523.4 Adjusted operating net, SEK M 1) 169.1 194.6 229.2 459.4 484.3 472.7 464.1 474.2 433.3 561.0 Direct yield 1, % 2) 9.0 9.3 9.6 9.6 9.6 9.5 9.3 9.1 8.5 8.1 Direct yield 2, % 8.6 8.9 9.2 9.3 9.3 9.2 9.0 8.8 8.2 7.9 Financial key data Interest coverage ratio, multiple 1.5 1.8 2.0 2.2 2.2 2.3 2.3 2.6 2.63) 2.4 Return on total assets, % 5.9 6.6 7.0 8.1 8.0 7.8 7.1 7.0 14.2 5.9 Return on equity, % 4.8 7.6 9.7 11.6 11.0 12.6 12.0 12.0 30.8 10.4 Equity/assets ratio, % 30.2 37.7 36.4 34.6 34.3 35.6 35.2 35.7 38.3 30.6 Cash flow from current operations, SEK M 53.0 96.8 119.1 228.2 267.2 265.8 272.4 298.9 301.4 317.6 Investments excluding acquisitions, SEK M 11.2 22.6 28.6 101.3 149.1 67.3 60.8 70.5 165.1 282.6 Property acquisitions, SEK M 667.0 260.0 331.0 2,340.3 141.9 – 370.7 – 661.3 1,327.8 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. 3) Excluding non-recurring income due to the sale of hotel properties. PANDO x 2006 43
    • quarterly data Quarterly data 2005–2006 COnDEnSED InCOME STATEMEnTS 2005 2006 SEK M Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total property revenue 140.5 157.5 135.5 140.5 134.3 154.8 161.8 184.0 Operating net 113.4 128.2 113.9 114.6 110.3 129.3 134.0 149.7 Income from property operations 93.9 108.1 95.9 94.4 89.2 109.0 109.0 124.8 Income from hotel operations 1.3 6.1 0.9 2.5 –4.1 7.9 4.9 3.6 Operating income 85.4 104.2 528.8 86.2 83.5 114.2 120.6 114.0 Net financial items –33.4 –35.7 –35.4 –33.0 –34.4 –37.2 –46.7 –48.1 Income after financial items 52.0 68.5 493.4 53.2 49.1 77.0 73.9 65.9 Income after tax 41.4 54.5 494.7 97.6 38.5 64.7 56.4 42.0 COnDEnSED COnSOLIDATED BALAnCE SHEETS 2005 2006 SEK M 31 Mar 30 Jun 30 Sep 31 Dec 31 Mar 30 Jun 30 Sep 31 Dec Assets Properties including hotel equipment 5,573.3 5,665.9 5,281.9 5,477.5 5,499.5 6,438.7 6,924.2 6,907.5 Other fixed assets 6.4 6.4 7.1 113.7 113.8 126.5 148.0 172.8 Current assets 62.1 86.9 64.8 201.7 190.5 162.6 175.0 174.4 Cash and bank 202.6 131.9 90.6 236.4 266.2 226.4 186.5 174.1 Total assets 5,844.4 5,891.1 5,444.4 6,029.3 6,070.0 6,954.2 7,433.7 7,428.8 Equity and liabilities Shareholders’ equity 1,963.9 1,899.7 2,017.2 2,307.7 2,345.0 2,273.8 2,331.1 2,272.3 Deferred tax liability 195.0 209.0 164.0 208.5 218.9 235.0 263.3 279.7 Interest bearing liabilities 3,462.8 3,546.7 3,039.1 3,165.3 3,148.3 4,084.0 4,450.1 4,398.5 Non-interest bearing liabilities 222.7 235.7 224.1 347.8 357.8 361.4 389.2 478.3 Total equity and liabilities 5,844.4 5,891.1 5,444.4 6,029.3 6,070.0 6,954.2 7,433.7 7,428.8 PROPERTy RELATED KEy DATA 2005 2006 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Direct yield 1, % 8.7 8.5 8.5 8.5 8.0 8.1 7.9 8.1 FInAnCIAL KEy DATA 2005 2006 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Interest coverage ratio, multiple 2.5 2.8 2.7 2.6 2.4 2.8 2.3 2.4 Return on total assets, % 6.6 6.7 6.4 14.2 5.5 6.1 5.5 5.9 Return on equity, % 11.9 11.6 10.6 32.5 6.6 10.1 12.0 10.4 Equity / assets ratio, % 33.6 32.2 40.1 38.3 38.6 32.7 31.4 30.6 Cash flow from current operations, SEK M 71.5 88.7 69.0 72.2 62.2 87.0 77.9 90.3 Investments excluding acquisitions, SEK M 38.3 47.4 36.9 42.5 63.0 65.6 85.4 68.6 Property acquisitions, SEK M 277.0 – – 384.3 – 916.4 411.4 – 44 PANDO x 2006
    • Financial statements 2006 Property revenues and total revenues Pandox’ property revenues for 2006 amounted to SEK 634.9 M (574.0), which for comparable units represented an increase of 9.7 percent against last year. The Group’s total revenue amounted to SEK 967.5 M (778.6). Acquisitions during the year Throughout the year three hotel properties were acquired. In June, the hotel property and operations of Hotel Berlin, Berlin with 701 rooms was acquired. In July the hotel property of Scandic Plaza Borås with 135 rooms was acquired and during the autumn the hotel property of Radisson SAS Hotel Malmö with 229 rooms was acquired. Total acquisition cost for the three hotels amounted to in excess of SEK 1.3 billion. Profits The pre-tax profit for 2006, excluding non-recurring items, amounted to SEK 226.1 M (222.9). Profit after tax, including non-recurring items, amounted to SEK 201.6 M (688.3). Cash flow Cash flow from ongoing operations, excluding non-recurring items, amounted to SEK 317.6 M (301.4). pandox 2006 45
    • financial statements Report of the Board of Directors The Board of Directors and Chief Accounting principles improvements in revenues. Gothenburg grew Executive Officer of Pandox AB, Pandox does not apply IFRS. As an unlisted by 11 percent in 2006 and Malmö attained company, Pandox is not subject to the IFRS growth of 7 percent. Both cities are at histori- Swedish corporate registration accounting requirements. Pandox applies the cally record levels. number 556030-7885, herewith stipulations of the Swedish Annual Accounts submit the annual report and con- Act and generally accepted accounting princi- Good close of the year for Pandox’ properties solidated accounts of the Company ples, as well as the recommendations of the Pandox’ Stockholm hotels are following similar for the financial year 2006. Swedish Accounting Standards Board unless patterns and are performing in line with or otherwise stated. better than the market. Most of the develop- Operations and strategy ment and refurbishment program of the Elite Pandox is one of Europe’s leading hotel pro- Ownership situation Park Avenue Hotel in Gothenburg has now perty companies. The Company has built up Pandox is since the beginning of 2004 owned been completed, which has contributed posi- specialist expertise within the key areas of hotel by the Norwegian companies Eiendomsspar tively to revenues compared with the reduction markets, hotel operations, hotel properties and AS and Sundt AS through their wholly owned in capacity last year. business development. Active ownership, with Swedish company APES Holding AB. The rental income of the Scandic St Jörgen well developed and strategic plans for each has temporarily decreased, due to the ongoing hotel, enables the creation of good prerequi- Growth declines in the United States refurbishment and development program in sites for stable and improved cash flows, and Growth in the American economy declined the property. The Scandic Kramer continues thereby growth in value for the shareholders. during the year, partly as a result of lower pri- to develop better in a strong Malmö market. Pandox’ strategy is to own one type of prop- vate consumption and stagnating house prices. Despite having undergone a major refurbish- erty – hotel properties. Its focus is strengthened In the short term the dollar is expected to ment of the hotel’s banquet and conference by a prioritised market segment. remain weak against the euro. The American product, the Scandic Copenhagen increased Pandox is to own large hotel properties in hotel market, which has experienced a rise in its revenues between the years. The Copen- Sweden, major locations in Europe, as well as RevPAR for three consecutive years, continues hagen Hotel 27 is currently undergoing total developing regions in Eastern Europe. to demonstrate good growth, particularly with refurbishment where the first phase has been The hotels should be in central, natural and improved average rates. New York, which is completed with about 70 new rooms in opera- strong locations such as city centres, airports leader of this economic cycle, experienced a tion. The new hotel product has been well- and exhibition centres. The hotels should be in further record year with growth in RevPAR of received by the market. The second phase of the upper medium to high price range and more than 12 percent. The trend shows a the refurbishment has started and is expected focus on the business and leisure segments. certain slowdown in room occupancy and a to be completed in the beginning of the summer The hotels owned by Pandox are operated and decline in growth of average rates. 2007. The German hotels experienced good marketed by the most powerful players in the trends, due partly to the football World Cup. hotel market, who with well known brands and Good growth in Europe Hilton Docklands lost ground slightly dynamic independent distribution channels Europe is in general experiencing good trends against the market due in particular to greater create strong market positions and thereby with growth in both occupancy and average competition from two new Hilton hotels in the stable revenues. rates in the major cities. RevPAR increased area. The hotel has also undergone major Revenues are created by flexible lease by approximately 9 percent during the year. refurbishment where 118 rooms were unavail- agreements related to the operator’s turnover Occupancy in Brussels developed better than able for two months. and results or through management agree- last year with a rise of 9 percent. The corre- The hotel market in Brussels is developing ments where Pandox assigns a third party to sponding figure for London was 17 percent. well with growth in both room occupancy and manage operations, or alternatively through its Berlin, which benefited from the football World average rates compared with last year. The own management. Irrespective of the form of Cup event, had an improvement in RevPAR of Crowne Plaza Brussels City Centre continues to operation, Pandox contributes via its active 19 percent. Other markets with positive trends grow well despite the hotel having been under ownership to increasing total cash flows and include Frankfurt and Paris, which increased refurbishment during the year. The Hilton reducing risks. 5 percent and 13 percent respectively. Brussels City is performing well in the market, At the end of the year, the Company owned Sweden shows continued good growth (+8 due primarily to good volume growth. Pandox’ 38 hotel properties, six operating companies as percent). Contrary to 2005, it is primarily ave- hotel in Antwerp has declined slightly com- well as one asset management assignment. rage rates that are behind the rise in RevPAR. pared with the market, while Scandic Grand Pandox owns and develops assets in Sweden, Stockholm had a very strong hotel year, in line Place in Brussels is doing better than the Denmark, Belgium, Germany, Switzerland, with the national growth rate. The trend is that market in general. Great Britain, and the Bahamas. average rates have a greater significance for 46 pandox 2006
    • Revenues and operating net – property loans at 31 December 2006 was 4.3 percent average number of employees, as well as operations (4.1). Financing of Swedish properties has salaries and other remuneration are set out Property revenue for the year amounted to SEK been made in Swedish kronor (SEK), while in Note 15. 634.9 M (574.0). For comparable units, the properties outside Sweden have essentially value growth of the portfolio was +9.7 percent been financed in each respective local cur- The work of the Board of Directors despite several ongoing large refurbishment rency. Available liquid funds, including an during 2006 programs. The increase is due to a good under- unutilised bank overdraft facility and credit The Board of Directors of Pandox has been lying hotel economic cycle in all of Pandox’ sub facilities for a total of SEK 501.4 M, amounted composed of six members since the Annual markets, new leases with better conditions, and to SEK 675.5 M (992.0). Cash flow before General Meeting of Shareholders held in 2006. that last year’s two major refurbishment changes in working capital, investments and During the year, the Board has held one statu- projects are now operating with higher capac- excluding non-recurring items and tax im- tory constituent meeting and four ordinary ity. Property costs, excluding depreciation, proved by SEK 16.2 M and amounted to SEK meetings in accordance with the established amounted to SEK 111.5 M (103.8). 317.6 M (301.4). annual agenda. The meetings have reviewed Operating net increased by SEK 53.2 M to and discussed external and internal reporting SEK 523.4 M (470.2). For comparable units, Investments of operating results and the Company’s finan- the operating net improved by SEK 46.7 M. The Pandox Group’s investments, excluding cial position as well as various business mat- Adjusted direct yield before administrative acquisitions, amounted for the year to SEK ters. Other important items that are regularly costs was 8.1 percent (8.5) for the period. 282.6 M (165.1). These investments essen- studied and reviewed each year are marketing, tially pertained to the refurbishment programs strategy, finance, and budget issues. Revenues and income – hotel operations at the Crowne Plaza in Brussels, Elite Park Revenues from hotel operations come from the Avenue Hotel in Gothenburg, Scandic St Parent Company Hilton Brussels City, which is operated through Jörgen in Malmö, Scandic Hallandia in Halm- Property activities in the Group’s property- a management agreement with Hilton, as well as stad, Scandic Copenhagen, and Copenhagen owning companies are administered by staff five hotels that are directly operated by Pandox Hotel 27, as well as product improvements in a employed by the Parent Company, Pandox AB. – namely the Crowne Plaza Brussels City Centre, number of properties. The book value of hotel The cost of these services has been invoiced to Royal Crown Hotel Brussels, Radisson SAS properties, including furniture, fixtures and the Group’s subsidiaries. Invoicing in 2006 Hotel Östersund, Copenhagen Hotel 27, as well equipment, amounted to SEK 6,907.5 M amounted to SEK 38.2 M (30.8). The loss for as the Hotel Berlin, Berlin as of June. Total rev- (5,477.5). the year amounted to SEK –8.3 M (profit: enues from operational activities for the year In June 2006, Pandox acquired the hotel 609.6). amounted to SEK 420.0 M (250.2), and in- property and related operations of Hotel Berlin, come increased by SEK 1.5 M to SEK 12.3 M Berlin, with 701 rooms at an acquisition cost of Outlook for 2007 (10.8). approximately 100 million euros. In July, the The favourable climate in the surrounding Scandic Plaza property was acquired in Borås world with a higher level of activity is expected Income with 135 hotel rooms at an acquisition cost of to continue in 2007, which in turn will generate Pre-tax consolidated income for 2006, exclud- SEK 138 M. The property of Radisson SAS a rise in demand within the hotel sector. Profit- ing non-recurring items, amounted to SEK Hotel in Malmö with 229 rooms was acquired in ability will also improve in general as a result of 226.1 M (222.9). For comparable units, in- September at an acquisition cost of SEK 260 M. limited additional capacity and the possibility to come improved by approximately SEK 23 M. increase average room rates. Liquidity within Income after tax and including non-recurring Asset management the hotel property market will probably remain items amounted to SEK 201.6 M. Pandox has an asset management agreement high, despite the risk for rising interest rates. since 2005 to assist the owner Sundt AS and Pandox holds a strong position within this en- Financing and cash flow support the management of the Hotel Pelican couraging market picture, which is expected Net financial items relating to current opera- Bay on Grand Bahama Island. The hotel, which to result in higher revenues and improved tions for the period January–December 2006 has 186 rooms including 90 suites, has experi- profitability compared with 2006, as well as amounted to SEK –166.4 M (–137.4). The enced positive trends and took market shares good potential to continue to make profitable Group’s interest-bearing liabilities as at 31 during the past year. acquisitions. December 2006 were SEK 4,398.5 M (3,165.3). The loan portfolio has a spread due-date struc- Personnel ture with an average fixed interest period of Central administration counted 15 employees 2.9 years (3.8). The average interest rate on as at 31 December 2006. Figures concerning pandox 2006 47
    • financial statements Income statement Group Parent Company SEK M 2006 2005 2006 2005 Property operations Rental revenue1) note 2, 3 605.0 548.8 – – Other property revenue1) 29.9 25.2 – – Total property revenue 634.9 574.0 – – Property costs –111.5 –103.8 – – Operating net 523.4 470.2 – – Depreciation as per plan note 4 –91.3 –78.2 – – Income from property operations 432.1 392.0 – – Hotel operations Operating revenue 420.0 250.2 – – Operating costs1) –407.7 –239.4 – – Operating income from hotel operations note 2, 15 12.3 10.8 – – Gross income 444.4 402.8 – – Administrative costs note 4, 14, 15 –51.9 –42.5 –48.5 –42.1 Other revenue – – 38.2 30.8 Operating income 392.5 360.3 –10.3 –11.3 Interest income note 6 4.2 6.8 116.0 67.7 Interest expense –167.8 –139.8 –146.4 –114.4 Dividend from shares in subsidiaries – – 1.5 700.0 Other financial income and costs –2.8 –4.4 9.2 –20.2 Extraordinary income note 5 39.9 444.4 18.5 5.8 Net financial items –126.5 307.0 –1.2 638.9 Shareholders’ contribution – – – –38.0 Income before tax 266.0 667.3 –11.5 589.6 Tax note 7 0.8 –15.8 – – Deferred tax note 7 –65.2 36.8 3.2 20.0 INCOME FOR THE YEAR 201.6 688.3 –8.3 609.6 Specification of external revenue Revenue from property operations 634.9 574.0 Of which internal rentals –87.4 –45.6 Revenue from hotel operations 420.0 250.2 Total external revenue 967.5 778.6 48 pandox 2006
    • Comments on the income statement Rental revenue Maintenance costs Operating net Rental revenue pertains to hotel premises, Maintenance costs are costs incurred to main- The operating net for 2006 amounted to SEK hotel furniture and equipment, and other com- tain the standards of buildings and equipment. 523.4 M, representing a increase of SEK 53.2 M. mercial premises. Rental revenue for 2006 Pandox’ leases are in most cases structured so Adjusted direct yield, excluding administrative increased in relation to the previous year and that the tenants – the hotel operators – are re- costs, amounted to 8.1 percent (8.5). amounted to SEK 605.0 M (548.8). sponsible for the greater part of interior main- tenance of the properties. Hotel operations Other property revenue For accounting purposes, the hotel operations Other property revenue is primarily comprised Ground rent conducted by Pandox are charged with inter- of costs debited for heat, electricity and prop- A total of six properties owned by Pandox are nal rent. The internal rent is linked to the oper- erty tax. held under site leasehold rights. The conditions ator’s revenue and based on what are deemed and maturities in all cases are based on prevail- to be market conditions. The internal rent is BREAKDOWN OF OTHER PROPERTY REVENUE ing market terms. debited to hotel operations and credited to SEK M 2006 2005 revenue in property management. In 2005, Payment for operating costs 9.9 9.2 Property tax two hotel properties including hotel operations Invoicing of property tax 20.0 16.0 Pandox’ Swedish hotel properties are liable to were acquired; Copenhagen Hotel 27 and Total 29.9 25.2 property tax at the rate of 1 percent of the tax Royal Crown in Brussels. In the beginning of assessment value. Properties located outside 2006, Pandox sold the hotel operations Mora Property costs Sweden are subject to varying percentages and Hotell and in June Hotel Berlin, Berlin was ac- Operating costs underlying basis. quired. With that, six hotel operations are in- Operating costs are costs that directly pertain cluded in Pandox portfolio of which five were to the operation of the properties, such as heat, Other costs directly operated by Pandox and one through a water, electricity, and maintenance. Costs are These costs include costs of legal counsel on management agreement with Hilton. reported gross, meaning that the portion of leasing matters, insurance premiums, and costs debited to tenants is reported as revenue costs of leasing external premises. Administrative costs under the heading Other Property Revenue, Administrative costs relate to central adminis- BREAKDOWN OF PROPERTY COSTS and that total costs are reported among costs tration, as well as foreign hotel property ad- in their full amount. SEK M 2006 2005 ministration. All central administrative staff is Operating costs 20.7 18.9 based at the Stockholm office. The remunera- Maintenance costs 35.7 29.5 tion of staff and auditors is set out in Notes 14 Ground rents 6.3 7.0 and 15. Property tax 44.1 41.1 . Other costs 4.7 7.3 Total 111.5 103.8 . pandox 2006 49
    • financial statements Balance sheet Group Parent Company SEK M 2006 2005 2006 2005 ASSETS Fixed assets Tangible fixed assets Properties note 8 6,631.8 5,324.1 – – Equipment note 9 276.5 153.9 0.9 0.5 6,908.3 5,478.0 0.9 0.5 Financial fixed assets Shares and participations in subsidiaries note 10 – – 2,668.9 2,482.7 Amounts due by Group companies – – 2,566.0 2,548.0 Other long-term receivables 35.1 6.3 12.5 48.2 35.1 6.3 5,247.4 5,079.4 Deferred taxes recoverable 120.7 106.9 – – Total fixed assets 7,064.1 5,591.2 5,248.3 5,079.4 Current assets Inventories 2.2 1.6 – – Accounts receivables 62.9 11.5 – – Tax receivables 4.2 – – – Other receivables 86.1 85.2 1.6 3.8 Prepaid costs and accrued revenue 19.1 55.7 2.8 2.2 Other shares and participations 16.1 47.8 – – Cash and bank 174.1 236.4 52.0 161.7 Total current assets 364.7 438.1 56.4 167.6 TOTAL ASSETS 7,428.8 6,029.3 5,304.7 5,247.1 Comments on the balance sheet Properties and equipment includes their value in the property value used Trade accounts receivable Three hotel properties were acquired in 2006. to calculate direct yield from the properties. Pandox’ accounts receivable normally consists Depreciation of properties amounted to SEK At the end of the year, the book value of the of rental receivables and trade receivables in 62.7 M (61.6), and the year’s investments to properties, including hotel furniture, fixtures hotel operations. Since rent is generally paid SEK 219.2 M (125.1). The book value of equip- and equipment, amounted to SEK 6,907.4 M. quarterly and monthly in advance, amounts ment, including hotel furniture and fixtures Other items consist of administration equip- outstanding at year-end mainly comprise ac- amounted to SEK 276.5 M (153.9). Deprecia- ment with a book value of SEK 0.9 M. crued revenue based rents. tion amounted to SEK 28.8 M (16.6) and in- vestments to SEK 63.4 M (40.0). Other long-term receivables Other receivables The greater part of the book value of furni- Pertain to a long-term promissory note and to Short-term receivables such as those pertaining ture, fixtures and equipment, representing SEK a pledged deposit. to costs that are to be debited to external parties. 276.5 M, pertains to that used by hotel opera- tors. In certain cases, these items are included Inventories Prepaid costs and accrued revenue as an unspecified portion of rent, and in other Relate to stocks of consumables in the hotel This item is comprised mainly of prepaid costs cases as a separate rental charge. When these operations. for the following year, such as insurance premi- items are included in rental revenues, Pandox ums and rents. 50 pandox 2006
    • Group Parent Company SEK M 2006 2005 2006 2005 EQUITY AND LIABILITIES Equity Restricted equity Share capital 373.5 373.5 373.5 373.5 Restricted reserves 840.3 848.5 830.0 830.0 1,213.8 1,222.0 1,203.5 1,203.5 Unrestricted equity Unrestricted reserves 856.9 397.4 523.6 64.6 Profit for the year 201.6 688.3 –8.3 609.6 1,058.5 1,085.7 515.3 674.2 Total shareholders’ equity 2,272.3 2,307.7 1,718.8 1,877.7 Untaxed reserves Tax allocation reserve 2004 – – 0.3 0.3 – – 0.3 0.3 Liabilities Liabilities to credit institutions note 11 4,398.5 3,165.3 2,963.3 2,360.2 Trade accounts payable 88.1 66.5 15.6 19.6 Liabilities to Group companies – – 578.8 959.7 Deferred tax liability note 7 279.7 208.5 – – Tax liabilities 3.9 0.6 – 0.3 Other liabilities 234.8 104.0 2.3 0.8 Accrued expenses and prepaid revenue note 12 151.5 176.7 25.6 28.5 Total liabilities 5,156.5 3,721.6 3,585.6 3,369.3 TOTAL EQUITY AND LIABILITIES 7,428.8 6,029.3 5,304.7 5,247.1 Pledged assets note 13 4,099.9 3,508.4 12.2 6.2 Contingent liabilities note 13 – – 1,344.2 685.6 Cash and bank deposits Liabilities to credit institutions Accrued expenses and prepaid income The liquidity of the Pandox Group is primarily As at 31 December 2006, Pandox’ total interest- The amount pertains essentially to accrued managed by the Parent Company through a bearing liabilities amounted to SEK 4,398.5 M, interest expense and prepaid rent. central bank account structure where liquidity spread over ten lenders and five currencies. is assembled in a joint interest-bearing transac- Because financing is arranged mainly through Pledged assets tion account. Surplus liquidity can also be in- long-term credit agreements, the majority of This item refers mainly to property mortgages vested as a fixed term bank deposit. In addi- the debt is considered as long-term. As regards pledged to credit institutions as collateral for tion, Pandox has an unutilised bank overdraft fixed interest rates, debt amounting to SEK loans. facility of SEK 25 M and credit facilities for a 2,298 M carries a fixed interest rate for a period total of SEK 476 M. of less than one year. Further details are set out Contingent liabilities in the Financial Overview section on page 37. The Parent Company’s contingent liabilities Restricted reserves Parent Company refer mainly to guarantees to banks with regard Opening balance adjusted for non exercised Deferred tax liability to subsidiaries’ debts. options. In 2006 the deferred tax items are accounted for on a gross basis. Further details are set out in the Pandox’ Tax Situation section on page 57. pandox 2006 51
    • financial statements Changes in equity Restricted Unrestricted Profit SEK M Share capital reserves reserves for the year Total Group 2005 Opening balance 373.5 842.1 582.7 124.7 1,923.0 Appropriation of profits – – 124.7 –124.7 0.0 Movement between unrestricted and restricted equity – – –273.9 – –273.9 Dividend – – –44.7 – –44.7 Translation differences including tax effect – 6.4 8.6 – 15.0 Profit for the year – – – 688.3 688.3 373.5 848.5 397.4 688.3 2,307.7 Restricted Unrestricted Profit SEK M Share capital reserves reserves for the year Total Group 2006 Opening balance 373.5 848.5 397.4 688.3 2,307.7 Appropriation of profits – 0.7 687.6 –688.3 0.0 Dividend – – –137.0 – –137.0 Group contribution – – –82.8 – –82.8 Translation differences including tax effect – –8.9 –8.3 – –17.2 Profit for the year – – – 201.6 201.6 373.5 840.3 856.9 201.6 2,272.3 Premium Restricted Unrestricted Profit SEK M Share capital reserve reserves reserves for the year Total Parent Company 2005 Opening balance 373.5 620.0 210.0 286.9 0.1 1,490.5 Appropriation of profits – – – 0.1 –0.1 0.0 Dividend – – – –273.9 – –273.9 Group contribution – – – 51.5 – 51.5 Profit for the year – – – – 609.6 609.6 373.5 620.0 210.0 64.6 609.6 1,877.7 Premium Restricted Unrestricted Profit SEK M Share capital reserve reserves reserves for the year Total Parent Company 2006 Opening balance 373.5 620.0 210.0 64.6 609.6 1,877.7 Appropriation of profits – – – 609.6 –609.6 0.0 Dividend – – – –137.0 – –137.0 Group contribution – – – –13.6 – –13.6 Profit for the year – – – – –8.3 –8.3 373.5 620.0 210.0 523.6 –8.3 1,718.8 Translation differences include a tax effect of SEK 10.0 M (–10.9) regarding currency hedging of non-Swedish operations. The number of shares as at 31 December 2006 amounted to 24,900,000 with one vote per share and a nominal value of SEK 15 per share. 52 pandox 2006
    • Cash flow statement Group Parent Company SEK M 2006 2005 2006 2005 Current operations Profit/loss before financial items 392.5 360.3 –10.3 –11.2 Depreciation 91.5 78.5 0.2 0.3 Income from sale of fixed assets 39.9 444.4 18.5 5.8 Interest income 4.2 6.8 116.0 67.7 Interest expense and other financial costs –148.1 –186.6 –137.2 –134.7 Tax paid 0.8 –15.8 0.0 0.0 Cash flow from current operations before change in working capital and investments 380.8 687.6 –12.8 –72.1 Change in working capital Increase/decrease (±) in operating receivables –58.0 –95.3 1.6 –3.0 Increase/decrease (±) in operating liabilities 34.6 99.2 –386.9 923.5 Total change in working capital –23.4 3.9 –385.3 920.5 Cash flow from current operations after change in working capital and investments 357.4 691.5 –398.1 848.4 Investment operations Investment shares and participations – –65.5 –186.3 –598.7 Investments in properties and equipment –282.5 –165.1 –0.6 –0.3 Acquisition of properties and equipment –1,327.7 –661.2 – – Sale of fixed assets 0.5 609.1 0.1 1.9 Total investments –1,609.7 –282.7 –186.8 –597.1 Cash flow after investments –1,252.3 408.8 –584.9 251.3 Financing operations Change in financial fixed assets 31.6 – 17.8 –168.2 Change in interest-bearing loans 1,298.1 44.9 603.7 –441.3 Dividend –137.0 –273.9 –124.0 497.6 Dividend via Group contributions – – – – Cash flow from financing operation 1,192.7 –229.0 497.5 –111.9 Change in liquid funds –59.6 179.8 –87.4 139.4 Liquid funds at the beginning of the year 236.4 58.0 139.4 22.3 Exchange rate difference in liquid assets –2.7 –1.4 – – Liquid funds at the end of the year 174.1 236.4 52.0 161.7 Change in liquid funds –59.6 179.8 –87.4 139.4 Comments on the cash flow statement Adjusted for an one-off income of SEK 39.9 M the cash flow from current operations amounts to SEK 317.6 M (301.4). Cash flow per share rose to SEK 12.76 (12.10). pandox 2006 53
    • financial statements Accounting principles The annual report and accounts have value and estimated deferred tax recoverable Property operations been prepared in accordance with are reported net as a deferred tax liability in The Group’s properties are reported in the the balance sheet. balance sheet as fixed assets in view of the the Swedish Annual Accounts Act purpose of the holdings being the long-term and generally accepted accounting Tax ownership, management and development of principles, as well as taking into Pandox applies the Swedish Financial Ac- the properties. account the recommendations of counting Standards Council’s recommenda- the Swedish Accounting Standards tion RR 9 regarding income tax. Briefly, the Hotel operations Board if not stated otherwise. Pandox’ recommendation implies that both deferred The hotel operations conducted by Pandox are tax liabilities and tax recoverable shall be in- charged with internal rent for accounting pur- accounting and evaluation principles cluded in the financial statements, and that poses. The internal rent is linked to the operat- are in general unchanged compared any changes shall affect the income statement ing companies’ revenue and based on what are with last year. as deferred tax. The deferred tax relating to deemed to be market conditions. The internal the difference in book depreciation and fiscal rent is expensed to hotel operations, and car- Consolidated accounts depreciation shall be calculated using the ried as revenue in property operations. The consolidated accounts for the Group in- prevailing tax rate. clude all subsidiaries as at financial year-end. Acquisitions before 2004 are based on Tangible fixed assets The Swedish Financial Accounting Stan- the deferred tax liability relating to the asset When new construction and additions are dards Council’s recommendation RR 1:00 has acquisition and shall however be based on the carried out, all direct costs including project been applied in the preparation of the financial acquisition price and be calculated from each costs are capitalised. In the case of refurbish- statements. The consolidated accounts have respective property’s shortest estimated period ments, direct costs related to the improvement been prepared in accordance with the pur- of ownership, resulting in an average tax rate of of properties compared with their original con- chase method, whereby assets and liabilities approximately 10 percent. dition are capitalised. have been taken over at market value in accord- The deferred tax recoverable pertaining to Costs of repairing a property to its original ance with an acquisition analysis. The differ- estimated tax recoverable related to deficit condition are not capitalised. An exception to ence between acquisition value and acquired deductions in the Company are valued based this principle involves the costs of measures shareholders’ equity has been added to land on the estimated potential utilisation against taken further to neglected maintenance estab- and buildings as surplus value. Surplus value future taxable profits, and are calculated based lished at the time of an acquisition, and where is amortised in accordance with the same prin- on the prevailing tax rate. the acquisition price is adjusted accordingly. ciple used for properties. Estimated deferred Costs of tenant-related modifications that tax liability with respect to Group surplus imply that the rent may be increased are capi- 54 pandox 2006
    • talised and depreciated over the remaining Leasing International subsidiaries period of the lease. Pandox reports all leasing contracts as opera- International subsidiaries are stated as per the Depreciation according to plan is calculated tional. Leasing contracts entered into concern current rate method, which implies that the on the acquisition value at the following per- private cars and office machines. They are not income statement is restated at the average centages: significant in size and do not therefore influ- exchange rate of the period, and the balance ence an assessment of the Group’s results and sheet at the exchange rate prevailing on the % financial position. closing day. The exchange rate difference that Buildings 1.0 arises as a result of this method is recorded Building fixtures 4 – 6.7 Revenue directly against the Group’s equity. Any compa- Land improvements 3.5 Management revenue pertains to rental reve- nies acquired during the year are included in Equipment 6.7–33 nue as well as re-debited operating costs and the Group at an amount relating to the period property tax. Revenue and costs related to the following such acquisition. Pandox changed the depreciation rate for operations of hotel operators are reported sepa- buildings from 1.5 percent to 1 percent with rately in the consolidated income statement. Receivables and liabilities expressed in effect from 2000. Rental revenue is spread over a period of time foreign currencies Depreciation according to plan is calculated in accordance with the terms of each lease. Receivables and liabilities expressed in foreign on the acquisition value and a residual value of This implies that rent paid in advance is re- currencies are restated at the rate of exchange SEK 0. ported as prepaid rental revenue. prevailing on balance sheet date. Any differ- ences that may arise are either credited or Write-down of fixed assets Shares and participations debited to income. When loans or forward con- The Group’s properties are continuously valued Shares and participations in subsidiaries and tracts are entered into to hedge investments in in accordance with an internal cash flow subsidiaries of subsidiaries have been stated at international subsidiaries, any exchange rate model, which also fulfils the requirement to acquisition value with the exception of holdings differences that may arise are offset in the calculate the utilisation value in accordance that may have been written down to their esti- Group by an amount corresponding to the dif- with RR:17 whereby the recoverable value, mated actual value. ferences arising from the recalculation of the which is the greater of the net sales value and net assets of international subsidiaries. the utilisation value, is compared with the Financial instruments property’s book value in order to assess the Interest swaps are used to change underlying Other receivables and liabilities need for a possible write-down. financial liabilities’ interest-due structure. Receivables have been stated in the amounts Revenue and costs related to interest swaps expected to be received. Other assets and lia- are reported net as interest costs, and are bilities have been stated at nominal values. spread over the duration of each contract. pandox 2006 55
    • financial statements Notes to the accounts NOTE 1 – SEGMENT REPORTING Primary segment Pandox’ primary segment is comprised of two operating branches – property operations and hotel operations. Information in accordance with segment reporting is presented in the consolidated income statement and balance sheet. Secondary segment Year 2006 Stockholm Gothenburg Öresund Rest of Sweden International Adjustment Total Property revenue 144.4 76.5 125.4 92.5 196.1 –87.4 547.5 Property costs –29.8 –8.9 –28.6 –15.7 –28.5 –111.5 Operating net 114.6 67.6 96.8 76.8 167.6 –87.4 436.0 Book value of properties 1,130.6 757.8 1,417.3 786.2 2,815.6 6,907.5 Investments 8.2 24.2 112.6 42.3 95.3 282.6 Operating revenue – hotel operations 17.8 42.2 360.0 420.0 Operating costs – hotel operations –23.0 –36.2 –348.5 87.4 –320.3 Operating profit – hotel operations –5.2 6.0 11.5 87.4 99.7 Year 2005 Stockholm Gothenburg Öresund Rest of Sweden International Adjustment Total Property revenue 147.7 58.8 114.5 109.0 143.9 –45.61) 528.4 Property costs –27.7 –8.4 –23.5 –19.0 –25.0 –103.7 Operating net 120.1 50.3 91.0 90.0 118.9 –45.6 424.7 Book value of properties 1,138.6 742.5 1,055.6 611.6 1,929.2 5,477.5 Investments 39.6 53.1 12.1 9.9 50.3 165.1 Operating revenue – hotel operations 66.1 184.1 250.2 Operating costs – hotel operations –59.1 –180.2 45.6 –193.7 Operating profit – hotel operations 7.0 3.9 45.6 56.4 1) Pertains to adjustment of internal rental. NOTE 2 – RENTAL REVENUE Revenues from hotel operations pertain to business, which is operated under a management agreement with Hilton, as well as the five hotels operated by Pandox. Rent and remuneration for other property costs which were paid by these hotel operator companies to the property company are reported gross, i.e. they have not been eliminated in the income statement. This is done to provide a more accurate picture of the operating net generated by the property company and the operating income of the hotel operating company. The elimination of these items would imply that the total management revenue and the operating company’s operating costs would be reduced by SEK 87.4 M for the year 2006 (45.6). NOTE 3 – GEOGRAPHICAL DISTRIBUTION OF RENTAL REVENUE % 2006 2005 Sweden 60 65 Denmark 8 9 United Kingdom 7 7 Germany 12 7 Belgium 10 9 Switzerland 3 3 Total 100 100 56 pandox 2006
    • NOTE 4 – DEPRECIATION ACCORDING TO PLAN Group Parent Company SEK M 2006 2005 2006 2005 Buildings –61.9 –60.7 – – Land improvements –0.8 –0.9 – – Equipment –28.8 –16.6 0.2 –0.3 Total depreciation –91.5 –78.2 0.2 –0.3 Depreciation amounts to a total of SEK 91.5 M of which SEK 91.3 M (78.2) refers to property operations and SEK 0.2 M (0.3) to administration. NOTE 5 – NON-RECURRING REVENUE/COSTS Total Group non-recurring revenue of SEK 39.9 M of which 28.9 refers to a capital gain generated by the sale of hotel properties and operations, SEK 10.3 M refers to a capital gain by the sale of shares and SEK 0.7 M refers to other one-off items. NOTE 6 – INTEREST REVENUE PARENT COMPANY The interest revenue of the Parent Company is divided into SEK 114.3 M from Group companies and SEK 1.7 M from other companies. NOTE 7 – DEFERRED TAX AND ACTUAL TAX Group Parent Company SEK M 2006 2005 2006 2005 Deferred tax expense for the year Deferred tax expense relating to temporary differences –43.0 6.7 – – Deferred tax relating to group contribution –32.2 –17.4 3.2 20.0 Deferred tax income due to acquired deductible deficits – 58.5 – – Deferred tax expense relating to other provisions 10.0 –11.0 – – Deferred tax reported in the income statement –65.2 36.8 3.2 20.0 Actual tax in the income statement 0.8 –15.8 – – Difference between reported tax and nominal tax rate of 28% Reported consolidated profit before tax 266.0 667.3 –11.5 589.5 Tax as per applicable tax rate of 28% –74.5 –186.9 3.2 –165.1 Acquired tax deductibles – 58.5 – – Tax effect due to nontaxable income 0.1 108.4 0.4 196.0 Tax effect of nondeductible costs and other tax adjustments 0.1 17.2 –0.4 –10.9 Tax effect due to group contributions – 17.4 – – Tax effect relating to foreign operations 9.9 6.4 – – Reported tax expense –64.4 21.0 3.2 20.0 Deferred tax recoverable Deficit deductions 76.3 76.3 – – Other temporary differences – 24.4 – – Other deferred tax recoverable 44.4 6.2 – – Total deferred tax recoverable 120.7 106.9 – – Deferred tax liabilities Differences between book value and fiscal value of properties 279.7 204.1 – – Other deferred tax liabilities – 4.4 – – Total deferred tax liabilities 279.7 208.5 – – Total deferred tax liabilities/recoverable net –159.0 –101.6 – – pandox 2006 57
    • financial statements NOTE 8 – LAND AND BUILDINGS Group SEK M 2006 2005 Opening acquisition value 5,959.6 5,697.6 Reclassified as equipment –53.9 – Acquisition of properties 1,298.9 717.5 Investments 219.2 125.1 Sales – –658.0 Translation differences – balance sheet –92.0 77.4 Closing accumulated acquisition value 7,331.8 5,959.6 Opening depreciation –635.4 –533.7 Acquired accumulated depreciation –11.7 –83.9 Sales – 49.4 Depreciation for the year –62.7 –61.6 Translation differences – balance sheet 9.8 –5.6 Closing accumulated depreciation –700.0 –635.4 Closing residual value 6,631.8 5,324.1 Tax assessment value of Swedish properties 2,073.5 2,019.6 Of which land 765.9 750.1 NOTE 9 – EQUIPMENT Group Parent Company SEK M 2006 2005 2006 2005 Opening acquisition value 262.2 168.3 2.6 2.3 Reclassified from land and buildings 53.9 – – – Acquisition of equipment 44.8 60.4 – – Investments 63.4 40.0 0.6 0.3 Sales/disposals –1.4 –10.6 – – Translation differences – balance sheet –10.2 4.1 – – Closing accumulated acquisition value 412.7 262.2 3.2 2.6 Opening depreciation –108.3 –68.9 –2.1 –1.8 Sales/disposals 0.9 10.1 – – Acquired accumulated depreciation –4.2 –32.7 – – Depreciation for the year –28.8 –16.6 –0.2 –0.3 Translation differences – balance sheet 4.2 –0.2 – – Closing accumulated depreciation –136.2 –108.3 –2.3 –2.1 Closing residual value 276.5 153.9 0.9 0.5 58 pandox 2006
    • NOTE 10 – SHARES AND PARTICIPATIONS IN SUBSIDIARIES Number Percent SEK M Corp. Reg. No. Registered office of shares Par value owned Book value Parent Company Hotab Förvaltnings AB 556475–5592 Stockholm 1,000 100 100 285.1 Pandox Förvaltning AB 556097–0815 Stockholm 550 100 100 304.7 Hotab 6 AB 556473–6352 Stockholm 1,000 100 100 0.1 Fastighets AB Grand Hotel i Helsingborg 556473–6329 Stockholm 1,000 100 100 15.9 Pandox Fastighets AB 556473–6261 Stockholm 1,000 100 100 0.1 Fastighets AB Mora Hotell 556475–9370 Stockholm 1,000 100 75 5.7 Fastighets AB Stora Hotellet i Jönköping 556469–4064 Stockholm 1,000 100 100 30.1 Nya P.A. Hotell AB 556495–0078 Stockholm 1,000 100 100 0.2 Pandox Hotel Management AB 556469–9782 Stockholm 1,000 100 100 0.1 Malmö Favorit Hotell AB 556475–9446 Stockholm 1,000 100 100 0.1 Grand Hotell i Kristianstad AB 556515–9216 Stockholm 10,000 100 100 0.6 Fastighets AB Porpur 556349–8327 Stockholm 10,000 100 100 0.1 Pandox i Halmstad AB 556549–8978 Stockholm 1,000 100 100 8.7 Pandox i Borås AB 556528–0160 Stockholm 1,000 100 100 45.3 Hotell Värmdövägen 84 AB 556286–4826 Stockholm 1,000 100 100 4.3 Hotellus International AB 556030–2506 Stockholm 7,480,000 100 100 970.2 KB Lorensberg 49:2 916833–3269 Gothenburg – – 100 0.0 Pandox i Östersund AB 556466–1352 Stockholm 1,000 100 100 2.7 Ademrac Holding 1 AB 556683–3371 Stockholm 10,093 100 100 219.4 Ademrac Holding 2 AB 556683–3363 Stockholm 10,010 100 100 219.6 Ademrac AB 556426–2748 Stockholm 1,790,042 100 6.6 3.4 Le Nouveau Palace S.A. 446188 Brussels 3,000 – 100 291.4 Convention Hotel International AG–3 Basle 14,000 – 100 6.2 Hotellus Denmark A/S 28970927 Copenhagen 5,000 – 100 0.6 Royal Crown Plaza SA 0476.704.322 Brussels 68,808 – 100 65.9 Pandox i Malmö AB 556704–3723 Stockholm 100,000 100 100 142.0 Ypsilon Hotell AB 556481-4134 Stockholm 100,000 100 100 46.3 Pandox i Ryssland AB 556706-8316 Stockholm 100,000 100 100 0.1 Total Pandox AB 2,668.9 Corp. Reg. No. Registered office The Group Arlanda Flyghotell KB 916500–8021 Stockholm Fastighetsbolaget Utkiken KB 916611–7755 Stockholm Fastighets AB Hotell Kramer 556473–6402 Stockholm Grand i Borås Fastighets AB 556030–7083 Stockholm Hotellus Nordic AB 556554–6594 Stockholm Hotellus Järva Krog AB 556351–7365 Stockholm Hotellus Mölndal AB 556554–6636 Stockholm Bioeffect AB 556244–5030 Stockholm Vestervold KB 916631–9534 Stockholm Förvaltningsbolaget Hotel Grand i Örebro KB 969622–8197 Stockholm KB Sjöstjärnan Fastighetsförvaltning 916850–4554 Gothenburg Hotellus Belgium NV – Belgium Grand Hotel Brussels NV – Belgium Town Hotel SA – Belgium Hotellus Suomi OY – Finland Hotellus Nord OY – Finland Euro Lifim BV – Netherlands Bru Hotels Holding BV – Netherlands Hotellus Europa BV – Netherlands Bru Hotels BV – Netherlands Hotellus Deutschland GmbH – Germany Atlantis GmbH – Germany Pandox Berlin GmbH – Germany pandox 2006 59
    • financial statements NOTE 11 – LIABILITIES TO CREDIT INSTITUTIONS Group Parent Company SEK M 2006 2005 2006 2005 Liabilities that fall due within one year following balance sheet date 308.5 223.2 204.1 208.5 Liabilities that fall due between one and four years following balance sheet date 844.5 2,452.6 576.2 2,151.7 Liabilities that fall due five or more years following balance sheet date 3,245.5 489.5 2,183.0 Total 4,398.5 3,165.3 2,963.3 2,360.2 NOTE 12 – ACCRUED EXPENSES AND PREPAID REVENUE Group Parent Company SEK M 2006 2005 2006 2005 Prepaid rents 57.0 40.2 – – Accrued interest expenses 19.0 11.9 15.6 8.5 Property tax 2.0 3.3 – – Other 73.5 121.3 10.0 20.0 Total 151.5 176.7 25.6 28.5 NOTE 13 – PLEDGED ASSETS AND CONTINGENT LIABILITIES Group Parent Company SEK M 2006 2005 2006 2005 Pledged assets for loans from credit institutions Property mortgages 4,051.3 3,454.4 – – Pledged deposit 48.6 54.0 12.2 6.2 Contingent liabilities – – 1,344.2 685.6 NOTE 14 – AUDIT FEES AND REMUNERATION Group Parent Company SEK M 2006 2005 2006 2005 KPMG Audit assignments 2.0 1.4 0.6 0.8 Other assignments 0.3 0.1 – 0.1 SET Revisionsbyrå Audit assignments 0.1 0.1 0.1 0.1 Other Other assignments 0.1 0.4 0.1 0.2 Total 2.5 2.0 0.8 1.2 60 pandox 2006
    • NOTE 15 – PERSONNEL Group Parent Company 2006 2005 2006 2005 Average number of employees Men 213 141 8 7 Women 226 154 6 7 Total 439 295 14 14 Of whom employed in Sweden 56 90 14 14 Of whom employed in Belgium 256 203 – – Of whom employed in Germany 110 – – – Of whom employed in Denmark 17 2 – – Wages, salaries and other remuneration, SEK M Board of Directors and CEO Wages, salaries and other remuneration 5.2 5.2 5.2 5.2 Social security costs 1.9 1.9 1.9 1.9 Pension costs 0.8 0.8 0.8 0.8 Total 7.9 7.9 7.9 7.9 Other employees Wages, salaries and other remuneration 126.5 76.4 13.0 10.1 Social security costs 25.5 22.9 2.8 2.8 Pension costs 4.5 3.1 2.4 1.8 Total 156.5 102.4 18.2 14.7 Wages, salaries and other remuneration per country, SEK M Sweden Board of Directors and CEO 7.9 7.9 7.9 7.9 Other employees 32.8 38.6 18.2 14.7 Belgium other employees 88.4 63.8 – – Germany other employees 25.9 – – – Denmark other employees 9.4 – – – Total 164.4 110.3 26.1 21.6 Personnel employed in Belgium relate to the operator activities of the Crowne Plaza Brussels City Centre, the Hilton Brussels City, and the Royal Crown Hotel Brussels. Personnel employed in Denmark refers to Copenhagen Hotel 27 and in Germany to Hotel Berlin, Berlin. The remuneration of the Members of the Board is established by the Annual General Meeting of Shareholders. The remuneration of the Chief Executive Officer (CEO) is composed of a basic salary, a bonus, a company car, and a retirement pension scheme. The age of retirement of the CEO is 65 years, with the possibility of retiring at the age of 60. In the case of termination, the CEO shall be given a period of notice of 24 months by the Company, with a deduction clause. Upon resignation by the CEO, a period of notice of 6 months shall apply. No reporting of sickness absence will be done in accordance with the exemption rule contained in prevailing legislation that states that statistics shall not be given if the number of employees in the group does not exceed ten people or if the information could be identified with one particular individual. The term “group” concerns both gender and age categories. pandox 2006 61
    • financial statements Proposed disposition of earnings The following profits are at the disposition of the forthcoming Annual General Meeting of Shareholders: Balance brought forward 523,668,837 SEK Profit for the year –8,311,146 SEK 515,357,691 SEK The Board of Directors and Chief Executive Officer propose that the accumulated profits be appropriated as follows: Dividend to the shareholders, 6,00 SEK per share 149,400,000 SEK Amount to be carried forward 365,957,691 SEK 515,357,691 SEK The Board of Directors believes that the proposed dividend is justifiable when taking into consideration the character, scope and risks placed by business operations on the amount of shareholders’ equity and the Company’s consolidation needs, liquidity and financial position in general. Stockholm, 14 February 2007 Christian Ringnes Chairman Leiv Askvig Olaf Gauslå Bengt Kjell Björn-Åke Wilsenius Mats Wäppling Anders Nissen Chief Executive Officer Our audit report pertaining to this annual report and consolidated financial statements was submitted on 15 February 2007. Per Gustafsson Willard Möller Authorised Public Accountant Authorised Public Accountant 62 pandox 2006
    • Auditors’ Report To the Annual General Meeting of Shareholders of PANDOX AB, Swedish corporate registration number 556030-7885. We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the chief executive officer of PANDOX AB for the year 2006. These accounts and the administra- tion of the company are the responsibility of the board of directors and the chief executive officer. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consoli- dated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the chief executive officer and significant estimates made by the board of direc- tors and the chief executive officer when preparing the annual accounts and consolidated accounts, as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the chief executive officer. We also examined whether any board member or the chief executive officer has, in any other way, acted in contravention of the Swedish Companies Act, the Swedish Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts and the consolidated accounts have been prepared in accordance with the Swedish Annual Accounts Act and thereby give a true and fair view of the company’s and the group’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. We recommend to the general meeting of shareholders that the income statements and balance sheets of the parent company and the group be adopted, that the profit of the parent company be dealt with in accordance with the proposal in the directors’ report and that the members of the board of directors and the chief executive officer be discharged from liability for the financial year. Stockholm, 15 February 2007 Per Gustafsson Willard Möller Authorised Public Accountant Authorised Public Accountant pandox 2006 63
    • pandox corporate governance Work of the Board of Directors Expertise and experience of the following areas The Board of Directors of Pandox holds five are important in an international hotel property ordinary meetings each year. In addition to the company such as Pandox: ordinary meetings, the Board held two extraordi- nary meetings during the year to discuss certain • Hotel operations and the hotel market business issues. • Financing The Board meetings follow an established • Property and the real estate sector annual agenda. The meetings review and discuss • Business development the external and internal reporting of operating • Brand name strategies results and the Company’s financial position, as • Development of international companies. well as various business matters. Other important items that are regularly studied and reviewed are The Board of Directors of Pandox, which is com- marketing, strategy, and budget issues. Board posed of six members, has broad experience and material is sent to the members approximately one knowledge of these areas. week in advance. The Company’s auditors attend at least one meeting each year to present a report Work procedures of their audit and their review of the Company’s The Board of Directors has adopted work proce- internal control systems. dures and directives for the Chief Executive Officer In addition to their ongoing audit, the Compa- and has provided management instructions on ny’s auditors were also commissioned by the Board reporting. Every year, Pandox’ Board of Directors to carry out special reviews of major lease agree- establishes and documents the objectives and ments during the year. According to this assign- strategy of the Company. The Board has also ment, all agreements shall be inspected during a adopted a finance policy, an approval policy and three year period according to a rolling timetable. guidelines for decision making, as well as a par- ticular strategy regarding acquisitions. 64 pandox 2006
    • pandox corporate governance Board members The Board of Directors of Pandox is composed and dimensioned so as to enable the establishment and implementation of the Company’s goals and strategy, to actively and effectively support the management team in the further development of the Company, and to monitor and control operations. CHRISTIAN RINGNES, CHAIRMAN LEIV ASKVIG OLAF GAUSLÅ b. 1954 b. 1957 b. 1961 CEO of Eiendomsspar AS. CEO of Sundt AS. CFO of Eiendomsspar AS. Member of the Board of Pandox since 2004. Member of the Board of Pandox since 2004. Member of the Board of Pandox since 2004. Other appointments: Other appointments: Chairman of NSV-Invest AS and Mini Bottle Chairman of Imarex NOS ASA and Fjellkraft Gallery AS. Board member of Schibsted ASA, AS. Deputy Chairman of Verdipapirsentralen Norsk Scania AS, Sundt AS and National- ASA. theatret (Deputy Chairman). BENGT KJELL BJÖRN-ÅKE WILSENIUS MATS WÄPPLING b. 1954 b. 1944 b. 1956 Executive Vice President, Head of Invest- Member of the Board of Pandox since 2004. CEO of SWECO AB. ments, Industrivärden AB. Member of the Board of Pandox since 2003. Other appointments: Member of the Board of Pandox since 1996. Chairman of BDB Bankernas Depå AB. Other appointments: Other appointments: Board member of Bergen Energi AB and Board member of SWECO AB. Chairman of Kungsleden AB and Indutrade Finansiell ID-teknik BID AB. AB. Board member of Helsingborgs Dagblad AB, Isaberg Rapid AB, Munters AB and Höganäs AB. pandox 2006 65
    • pandox corporate governance Senior executives The management team is responsible for the Company’s current operations and reports to the Board of Directors. Management prepares and implements strategies and action plans, and ensures that set targets are met. Other important areas of responsibility include overall planning, personnel development and an ongoing dialogue with the capital market. ANDERS NISSEN NILS LINDBERG b. 1957 b. 1947 Chief Executive Officer Chief Financial officer Employed since 1995 Employed since 1995 Auditors The task of the auditors is to examine the Company’s accounts, administration and financial information. The audit results in an audit report where the auditors give an opinion as to whether the annual accounts and financial statements have been prepared in accordance with the Swedish Annual Accounts Act and generally accepted accounting principles. Per Gustafsson Willard Möller b. 1959 b. 1943 Authorised Public Accountant Authorised Public Accountant KPMG SET Revisionsbyrå AB 66 pandox 2006
    • pandox upgrade A newsletter about the hotel industry When Pandox was formed in 1995, the publi- cation of a newsletter was started in order to PAN present the Company to the capital market DOX prior to being listed on the stock exchange. MARK NADS INFOR M AT I O N FRÅ N PA N D OX The newsletter was later replaced by the pub- E T T AV NORR A EUR NR 2 O PA S L EDAN DE RE NOD LADE HOTE • 200 L L FA S lic reports. Despite Pandox no longer being TIGHE T S BO LAG 6 listed on the Stockholm Stock Exchange, we continue to maintain the flow of information to people interested in the hotel sector and the hotel property market, which is why Pandox Upgrade is regularly issued. Three newsletters were published in 2006 with topics such as Somma market trends and current Swedish and inter- rens sto ra sport stärker eve ne national hotel market questions. hoPelNm Omang t A l DarX You are most welcome to become a sub- knaden scriber. Pandox Upgrade is free of charge MAR KET INF ORM ATI ON FRO M PAN DOX Framtid ONE OF Ra pport frå n årets and may be ordered from Pandox either by THE LEA stora hot ens h DIN G PUR E HOT EL ellkonf är skrä otellrum erens No. 3 • PRO PER TY COM PAN IES IN EUR OPE 2006 telephone at +46 (0)8-506 205 50 or via ddarsyd da pandox@pandox.se Market information from Pandox Market information from Pandox Focus on the industry Feeling – Lifest at home yle hote ls extend London a welco Continued howing strong g me s rowth strong development in 2006 Vienna, the city that binds together Eastern and Western Europe, tops the list of the world’s most popular cities for conferences. Other strong European cities include Barcelona, which had had to relinquish first place for third, followed by Berlin in forth place. So far, it seems that 2006 will also prices have continued to rise rapidly. that occurred between 200 and perhaps other countries lack. For the sense of self-confidence and the In Berlin, YTD August, the occu- develop at a good pace and is now Central Gothenburg broke a record reach record levels. New York has The occupancy rate, on the other 200. The number of foreign visitors second year in a row, the International German economy. According to the pancy rate was .% above the pre- more than 10% higher than in the in number of rooms sold, due to the remained on a high level. At the hand, has remained on the same level has continued to increase. Western Congress and Convention Association Economist Intelligence Unit (EIU), the ceding year, whereas the prices were preceding year on a rolling 12-month European Athletics Championships. same time, London is back on its as in 200. For YTD August, average Europe, which accounts for most of (ICCA) also ranked Vienna as the business and investment climate has slightly more than 16% higher. In basis. Central Stockholm is on the On a rolling 12-month basis, demand feet and now growing rapidly. Vienna prices are nearly 13% above the year- the visitor frequency, has increased its most popular city for international not been this good since the reunifi- Düsseldorf, which was not directly same level, whereas growth in its is slightly more than 3% over the best – the challenger – tops the ranking earlier period. Business travelers have travel – however, visitors from North conferences. Singapore was ranked cation of the country in 1991. affected by the World Cup, the occu- northern suburbs is somewhat year. Before the summer, the average list of the world’s most popular con- increased over the preceding year, America are also increasing. London’s second and Barcelona, another key The German hotel market is pri- pancy rate was 2.2% lower than the stronger. The southern suburbs of the prices were a few percentage points ference cities. RevPAR in the Aus- whereas the trend among leisure RevPAR YTD August is over 16% destination, third. Vienna also attracts marily driven by local demand. The preceding year and ARR 6.8% higher. city have also finally taken off and over the preceding year, but have now trian capital is growing at a pace travelers is somewhat weaker. The higher than in 200, and has thus leisure travelers, ensuring that hotels World Cup in soccer strengthened the Nor was Bremen host of any soccer now report the best growth. In the been pressed up further by the sports with other large cities in Europe. high price of gasoline, the decline in achieved a growth rate that is cur- fill up their entire week. Average country’s international profile and will game, and it reported a slightly more five-star segment, rooms sold are on event. prices on the commercial real estate rently higher than that of New York. prices are still relatively low. The occu- hopefully yield more foreign tourists in than 12% growth in RevPAR. This almost exactly the same level as in the The growth rate in RevPAR in Despite its already high levels, the market and the high level of debt have pancy rate was 73% YTD August, the future. However, the cities that was due to both a rise in the occu- peak year, 2000. The average prices Malmö is declining, but is still a strong American market continues to grow. contributed to this trend. Expansive neighbors an advantage after an increase of slightly more than were hosts for the various matches pancy rate and to an increase in aver- are still about 10% below that year. 10% over the preceding year on a Slightly more than one-fifth of the London has recovered its position for Vienna % over the preceding year. The aver- lost ground in the conference seg- age prices. A general upswing in the The leading conference hotels have rolling 12-month basis. Both average increase in rooms sold is from hotels as the most dynamic city in Europe. Vienna has become the dynamic hub age prices rose somewhat more, con- ment during the period. To avoid occupancy rate and average prices is also reported about the same growth prices and the occupancy rate that serve both leisure and business Ground lost after last summer’s terror of Europe. The city has become a tributing to a RevPAR increase of inconvenience, or simply because of also apparent in other large European momentum as the hotels in the large increase. travelers. The average prices are attack has now been regained, and natural link between Eastern and slightly more than 10%. there were no hotel rooms available, cities. cities. The group is on about the same slightly more than 7% higher than both the occupancy rate and average Western Europe. There are natural The World Cup soccer champion- many opted to postpone their confer- level as the average for Sweden, with YTD August 200, while the occu- prices are rising. July increased interfaces between the various adja- ships affected much of Germany. The ences or hold them earlier. This had Strong growth in Sweden RevPAR 8% to 9% compared with the pancy rate is slightly less than 2% slightly more than 30% compared cent countries, and Austrians have an effect was largely favorable, which an adverse effect on F&B revenues Scandinavian markets are also per- preceding year. The occupancy rate, over the preceding year. In New York, with 200, erasing the % slippage understanding of their neighbors that contributed to the Germans’ strong while the World Cup was under way. forming well. Oslo has continued to however, is well under the peak years. Hilton London Docklands MOST POPULAR CITIES FOR INTERNATIONAL CONFERENCES GROWTH IN RevPAR, NEW YORK versus LONDON, 2006 GROWTH IN SWEDEN YTD* (ICCA RANKING 2005) Location City No. of conferences % % 1 Vienna 129 40 8 London The occupancy rate 2 Singapore 12 35 7 30 New York 6 ARR 3 Barcelona 116 25 5  Berlin 100 20 4 15 3  Hong Kong 9 10 2 6 Paris 91 5 1 7 Amsterdam 82 0 0 April May June July August Stockholm Gothenburg Malmö 8 Budapest 77 London has recovered from the terror attacks of slightly more than a year ago. Growth in Both the occupancy rate and average prices rose in large Swedish cities. Gothenburg had an Explanations: Seoul 77 RevPAR per month more than erases the loss of the preceding year. Growth is now higher historically high level of demand – however, the city also increased in supply, so the effect on ARR: Average Room Rate 10 Stockholm 72 than in New York. the occupancy rate was not as great. The average prices increased sharply due to the RevPAR: Revenue Per Available Room European Athletics Championships. YTD: Year To Date *YTD August compared with the preceding year.   pandox 2006 67
    • Hotel Berlin, Berlin production: pandox/n3prenör. photo: Ulf Blomberg, Scanpix. printed by Wassberg & Skotte Tryckeri. 68 pandox 2006
    • Pandox AB, P O Box 5364, SE-102 49 Stockholm, Sweden Tel: +46-8-506 205 50 • Fax: +46-8-506 205 70 • www.pandox.se • e-mail: pandox@pandox.se Corporate registration number: 556030-7885