Pandox Anual Report 2009 (Eng)

Report on Pandox business operations 2009 The Pandox Spirit o n e o f t h e l e a d i n g h o t e l P r o P e r t y c o m Pa n i e s

Pandox is one of europe’s leading hotel property companies. the portfolio is of the highest quality, embracing 46 hotels with a total of 11,100 rooms as well as nine operating companies. the business model is that through active and committed ownership, work with four operational strategies, situation adapted for each hotel. the hotels are located in international hotel markets such as london, Berlin, stockholm, copenhagen, Brussels and montreal, as well as stable cities with a high proportion of domestic demand such as Bremen, antwerp, gothenburg and swedish regional and university cities. all hotels have strong natural positions with an average size of 240 rooms, which limits risks and provides prerequisites for efficient operations. Pandox has a unique network within the hotel market and works together with many of the major brand names, including hilton, intercontinental, hyatt, scandic, crowne Plaza, radisson BlU, holiday inn, clarion, Quality, elite, first, or through independent distribution channels. Content The Company The hotel properties Business model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 List of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Success factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Hotel properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 History/Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Business philosophy/Knowledge . . . . . . . . . . . . . . . . . . . . .8 Finances Strategic orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Financial overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Business processes/Pandox Model . . . . . . . . . . . . . . 14 Sensitivity analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Types of agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Valuation and fiscal situation . . . . . . . . . . . . . . . . . . . . . . 44 The Pandox Model in practice . . . . . . . . . . . . . . . . . . . . . 18 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Södertälje . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Ten-year overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Berlin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Quarterly data 2008–2009 . . . . . . . . . . . . . . . . . . . . . . . . 48 Brussels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Montreal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Market communication . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Surrounding world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

2009 was yet another successful year for Pandox. despite global anxiety, cash flow increased whereas revenues and profits declined. the driving force behind the good developments is a combination of the company’s business model, the high quality of the property portfolio and lower interest costs. read more in the message from the ceo on page 74. Financial statements 2009 Other information Report of the Board of Directors . . . . . . . . . . . . . . . . . . . 50 Work of the Board of Directors . . . . . . . . . . . . . . . . . . . . . 68 Income statement and comments . . . . . . . . . . . . . . . . . . 52 Board of Directors and auditors . . . . . . . . . . . . . . . . . . . . 68 Balance sheet and comments . . . . . . . . . . . . . . . . . . . . . 54 Senior executives and hotel managers . . . . . . . . . . . . . . 70 Changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Pandox’ management team . . . . . . . . . . . . . . . . . . . . . . . 72 Cash flow statement and comments . . . . . . . . . . . . . . . . 57 CEO summary of the year 2009 . . . . . . . . . . . . . . . . . . . . 74 Accounting principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Notes to the accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Proposed disposition of earnings . . . . . . . . . . . . . . . . . . . 66 Auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

2 | Pa nd o x 2009 The business model is based on methodical work, defined structures and individually skilful and creative employees. development success factors & individual capital consistent strategy Knowledge, network

Pandox has had rapid business development since its start in 1995. the success factors are a combination of the company’s expertise and experience, as well as a strategy that implies active ownership and committed industrial owners. 4 Read more on page Pandox has achieved constant progress in size, cash flow and value-growth – and consequently a strong market position. the portfolio value has increased from seK 800 million to approximately seK 13 billion, while cash flow has increased 40 times since the start 1995. 6 Read more on page 8 one of Pandox’ most important cornerstones is to constantly develop its areas of competence and expertise. in order to inspire our employees, an informal leadership style has been developed to give each individual considerable freedom and development opportunities. the corporate culture includes an interactive discussion with an extensive network, which provides valuable input in both large and small issues. Read more on page 10 Pandox has a well-defined strategy that is thoroughly embodied with the Board of directors, senior executives and banks – a strategy that has been consistently followed since the company was formed nearly 15 years ago. starting point is to acquire under-performing large hotels in strong locations, where the company’s specialist expertise can be used to develop the assets. this in turn creates good conditions for long-term value development and a strong company. Read more on page Pan dox 2009 |3

Pandox’ business model Successindividually important – together invaluable 1 short and rapid decision-making paths Pandox’ shareholders and Board of directors possess industrial expertise in hotel operations, properties and business development. their experience creates confidence, and is utilised by being organised and taking rapid decisions within, for example, different acquisition questions. this is a competitive advantage in a significantly slower surrounding world. 2 flexible business model depending on the local conditions, Pandox can choose between four operational strategies; through leases with professional operators where Pandox remains as a strategic partner; management agreements where a partner runs the daily operations on behalf of Pandox; by managing one’s own operations within the framework of a franchise agreement with a well-known brand; or through independent distribution channels. the business model provides excellent opportunities to create a situation-adapted strategy of “asset by asset”. 3 expertise and network Pandox’ management team has extensive experience of hotel and capital markets. the company’s specialist expertise embraces hotel markets, 4 hotel operations, properties, finance and business development. Well-defined and consistent strategy Pandox has a well-defined strategy within geography, types of hotel and yield requirements that have been consistently observed since the company was formed. 4 | Pa nd o x 2009

factors 5 Portfolio of the highest quality the hotels are located in international hotel markets such as london, Brussels, Berlin, stockholm, copenhagen and montreal, as well as cities with a high proportion of domestic demand, which in turn creates a balance in revenues. all hotels have strong natural positions with an average size of 240 rooms, which limits risks and provides strong conditions for efficient operations. the hotels are large, thus providing a critical volume, and they are marketed by the sector’s most well-known brand names. the agreements structure, with a combina- 6 tion of leases, management agreements and own operations, provides good potential with a limited risk. acquisition strategy 7 Pandox primarily acquires hotels with a potential that can be brought out through active measures and where the company’s areas of expertise can be utilised. corporate culture Pandox has established an informal leadership style where a high level of expertise is combined 8 with low bureaucracy and effective monitoring methods. Keywords are inspiration, simplicity, rapidity, expertise and visible leadership. choice of countries and locations 9 Pandox is established in major hotel markets that have good potential and stable demand. strategic alliances Pandox seeks strategic alliances with brand names that are interested in forming a partnership that creates benefits for both parties. Pan dox 2009 |5

Pandox’ business model Development from financial crisis to a successful hotel property company 1995–2009 Background and history Expansion to North America Pandox has it’s origin in the swedish financial and property crisis in the early in 2007, Pandox continued its international expansion with its first acquisition 1990s. the company was founded in 1995 by skanska and securum. its in north america. the acquisition of the intercontinental in montreal, with its task was to structure the owners’ hotel portfolio and prepare it for sale, which 357 rooms, laid the foundation for selective expansion in north america. in was a fact when the company was listed on the stock exchange two years 2008, the 605-room hyatt regency montreal was acquired. thereby Pandox later. all in all, some 100 assets from the swedish and international hotel and had within a year acquired 1,000 rooms in montreal. tourist industry were sorted, systematised and structured. this was the start of Pandox. Strong growth and stable profitability the Pandox cash flow has increased 40 times since the company started in The original hotel property portfolio 1995. this has been achieved by an active ownership of existing hotels and initially, Pandox consisted of 18 properties and three small operations. all the profitable acquisitions. the company’s hotel property portofolio is now worth hotels were situated in sweden, most of them were small and located in around seK 13 billion, seeing a thirteen-fold increase in its value since the secondary locations, which reduced the profitability of the company. start 1995. Listing on the stock exchange Expertise provides ability to rapidly adapt When Pandox was listed on the stockholm stock exchange in 1997, it was Pandox’ market expertise, business culture and network enable the com- the first time a company offering this business concept had ever been listed pany to rapidly adapt and adjust – where 2009 is an excellent example. in europe. the company’s portfolio was valued at seK 1.3 billion, with a mar- in a demanding global economic climate with dramatically falling demand, ket value of seK 520 million, and it had 4,000 new shareholders. after being Pandox’ hotel property portfolio has managed considerably better than listed, Pandox underwent massive expansion, taking over larger hotels in the rest of the market. strong locations while disposing the smaller hotels. Internationalisation in 2000, Pandox expanded its geographical strategy to also include northern europe. this strategy was turned into reality thanks to the acquisition of strong result hotellus, with its 16 hotel properties, thereby creating a foundation for the despite a troubled surrounding world, Pandox’ internationalisation of Pandox. cashflow increased during 2009. Bought out from the stock exchange Key figures, SEK M 2009 2008 Pandox was reprivatised in 2004. the company was deregistered following a Property revenue 895.2 915.5 public offer, and had new industrial owners through eiendomsspar as and operating net 778.2 782.7 sundt as. operating revenue hotel operations 1,095.0 1,105.3 operating income hotel operations1) –34.0 20.8 Profit before tax 2) 252.5 280.4 Leading position in Europe cash flow 2) 446.4 444.5 after the privatisation, the acquisition speed increased and a number of major 1) the negative result is primarily attributable to large investments hotels in cities such as Berlin, Brussels, Basel, copenhagen, stockholm and made in holiday inn Brussels airport and intercontinental montreal. 2) excluding non-recurring items. malmö were acquired. these transactions reinforced the position of Pandox as one of the leading hotel property players in europe. 6 | Pa nd o x 2009

growing operator activities a natural part of Pandox’ active ownership is to operate its own hotels. at the end of 2009, Pandox’ operating activities, including management depending on local conditions, the best strategy can be to develop agreements, embraced nine hotels with total revenues of seK 1,1 billion operations ourselves, and then choose another solution at a later stage. located in Berlin, Brussels, antwerp, montreal and the Bahamas. in recent this creates a situation-adapted strategy – hotel by hotel. another reason years, four operations that were acquired as under performers, and then is that business cultures differ among various geographic areas. in scandi- developed, have been leased to well-known operators with long-term navia, leases dominate while in north america management and franchise agreements. this in turn creates prerequisites for new acquisitions. agreements are more common. europe has a mixture of both. it is there- the philosophy behind Pandox’ operating activities is to build up each fore important to master different strategies in order to successfully operate hotel’s strategy and expertise locally. this implies that most decisions are in an international hotel environment. own operational expertise also delegated, and reporting is made to a board of directors with external implies possessing specialist knowledge to evaluate the operators one members who are selected for their specialist competence. to be has lease agreements with, and be able to realise acquisitions where both successful with business processes requires an ability to attract the best the property and the operations are included. management, and that such persons will get genuine influence on as a consequence of the market trend, where hotel companies are operations. more becoming management companies, it is also natural for Pandox to integrate vertically and assume responsibility for operations. Hotels operated by Pandox City Hotel Brand No. rooms Location Profile Berlin hotel Berlin, Berlin independent 701 central full service conference hotel montreal hyatt regency hyatt 605 central, entertainment district full service intercontinental intercontinental 357 city centre, business district Business and conference hotel Brussels crowne Plaza Brussels city – le Palace crowne Plaza 354 city centre Business and conference hotel hotel Bloom! independent 305 central lifestyle hilton Brussels city hilton 283 city Business hotel holiday inn Brussels airport holiday inn 310 airport Business and conference hotel antwerp crowne Plaza crowne Plaza 264 ring road Business and conference hotel Bahamas Pelican Bay at lucaya independent 184 central, marina resort Further details about how the operating activities function in practice are set forth on pages 18–25. Pan dox 2009 |7

Pandox’ business model Knowledge Knowledge within the entire value-growth chain – prerequisite for success Value-growth chain the base for Pandox’ vision, strategy and choice of business model are the value-growth chain in a hotel property. this can be divided into ten different parts: 10. Financing and taxes 1. Macro-economy the choice of financing and legal structure is a key issue the level of activity (global, regional or local) constitutes that creates preconditions for stable value growth. an important component for how demand shall be developed within the hotel market. macro also influences the direction of the economy, which implies that one can choose different points in time to enter a specific market. 9. Contract/agreement structure 2. The hotel economic cycle the hotel industry has many forms of contracts a part of the macro-economy can be divided into and agreements, which influence a hotel’s five different phases: downturn, lower pace of profitability, financing and value growth. in downturn, level-out, growth and peak. With know- general, a contract or agreement should con- ledge of the pattern of a hotel economic cycle, one tain mutual incitements so that the parties can exploit each situation by investing in different work for the same objectives. geographic markets and endeavouring to limit the risk in the markets that have poorer outlooks. 8. Asset management 3. Location and size the hotel industry is capital-intensive and spe- two important factors are that hotels have strong cialist expertise is required within both the hotel locations and that they have the right size to contain a and property operations in order to effectively critical volume and thereby good preconditions for take care of and develop the properties. profitability. 4. Competition – new capacity 7. Investments – different market positions a hotel must be constantly developed in each market is unique and deep knowledge of order to maintain a strong market position. the local conditions is required in order to create a product that provides sustainable profitability. 6. Operational issues and management 5. Brand name hotel operations are complicated and require a high level of a strong brand name strengthens the hotel’s market position expertise, active presence and strong leadership. a good and competition in the chosen product segment. local hotel team creates both satisfied customers and employees as well as high profitability. 8 | Pa nd o x 2009

& network international network enables access to unique expertise Pandox’ international network – a precondition for rapid development Pandox has a small management organisation. a total of 17 people work at mented by a national and international network composed of people with the office in stockholm, of whom 10 are directly involved in the company’s specialist expertise within market, management, hotel operations, property development and management. in addition, one of the company’s business development, brand names, finance and taxes. Pandox works active to att- area managers is based in Brussels where the largest operating activities are ract people to the network, which is a cornerstone for the company’s rapid located. the model provides major benefits with rapid decision-making paths, growth and development. the model places demands on both visionary and a high level of interactivity, and considerable individual freedom. in order to be operative leadership, as well as an ability to create forms of collaboration with able to maintain all business processes in motion, the organisation is supple- individuals with different backgrounds. Pan dox 2009 |9

Pandox’ business model Individual Pandox’ corporate culture creates room for unique employees Aldert Mikael Pandox’ basic management philosophy is 1. Leadership with spirit of enterprise. Pandox believes in people and allows the individual to it is the individuals at more about inspiration than control, and more about the individual than the system. have significant influence. for the right person, Pandox which makes this is an excellent environment, simultane- one precondition for this is individual freedom ously as it also implies significant demands on the company so unique. delivering results. where entrepreneurship and “out of the box” solu- 2. Outside in. one of the driving forces is to the principal ingredients tions can be created simultaneously as the environment must be characterised by stringency and constantly learn from new market trends and are experience, the will structure. the business climate therefore places new products. the message to management considerable demands on each person’s power of is often – “go out and see”. to constantly improve, 3. Human touch. the point of departure is that initiative and ability to deliver their own commit- ments – where the points of departure are distinct people with considerable motivation do not to find new opportunities and transparent goals. need to be controlled, but instead inspired. operations are of course monitored carefully, and to win, of course! the philosophy is expressed in a special program called “force of individuals”, based on but without reports and bureaucracy taking – as well as a strong five cornerstones: an upper hand. 4. Down-to-earth. the motto is “Walk the talk”. dose of responsibility 5. Lean. an important part of Pandox’ success and initiative.” at Pandox, is to maintain high productivity that creates prerequisites for good profits, which in turn hierarchy has been provides resources for development. the implementation of modern organisation struc- replaced by power tures is part of the strategy. of enterprise.” the Pandox team’s will to always find solutions is outstanding – nobody understands the word impossible!” 10 | Pa ndox 2009

assets Liia Lars Erik to act quickly and informally is a great freedom, which at the same time places heavy demands on one’s own motivation. demands and expectations are definitely high, but there is also room for making mistakes – that is a challenge i like.” the dynamic of the cooperation within Pandox is the complete and transparent information.” an informal environment with considerable freedom creates room for personal responsibility, power of initiative and devotion, which in turn leads to good results.” Pan dox 2009 | 11

Pandox’ business model Strategic consistent strategy provides stability and spread of risks Pandox’ vision is to be one of the for the vision to become reality, the company must Business concept and strategy retain its specialist expertise as to how the value- Pandox’ business concept – based on expertise world’s leading hotel property com- growth chain interacts, and that the balance within hotel properties, hotel operations and busi- panies with regard to specialist between international and national revenues, brand ness development – is to actively own, develop and names and types of hotel are maintained. another lease hotel properties. expertise in both hotel and property important aspect is to constantly develop the busi- operations and active ownership. ness model in order to choose the best situation- adapted strategy with regards to the local market. Corner stones in Pandox’ strategy one type of asset – hotel properties Business model geographic market 1 2 3 a hotel property has characteristics to maximise value-development in focusing on one type of asset that distinguish it from other types of each hotel requires a flexible busi- requires a broad geographic market property – which demands specialist ness model that creates potential for in order to create growth precondi- expertise in order to pursue active a situation-adapted strategy. tions and to be able to benefit from ownership. changes in the hotel economic cycle. Business position: Pandox has a contractual Business position: Pandox owns 45 hotels structure that embraces lease, management Business position: Pandox is currently present with a total of 10,800 rooms. the company has and franchise contracts and agreements, as in eight countries, of which sweden is the largest never invested outside its core area. well as contracts with independent players. the market. major markets outside the domestic mar- largest proportion includes leases that generate ket include Brussels, copenhagen and montreal. 76 percent of revenues. Pandox is represented in locations that have a mix of national and international demand. Hilton Stockholm Slussen, Sweden Lease structure Geographic distribution, share of hotel rooms Revenue-based lease, 33% Revenue-based leases with guarantee, 43% Sweden, 56% Management agreements, International, 44% own operation, 7% Franchise agreement, own operation, 8% Own operation, 10% 12 | Pa ndox 2009

orientation Overall objective specific goals are set each year for net operating Pandox’ principal objective, through specialist results, return on shareholders’ equity, value expertise within hotels, hotel properties and busi- growth in the existing hotel property portfolio, and ness development, is to achieve optimal return on equity/assets ratio. the goals are broken down to investment and value growth in the hotel property each individual property, and act as guidelines portfolio. upon investment decisions. choice of brand name location and size type of hotel and partners 4 5 6 large hotels with strong locations the hotels shall belong to the upper- each hotel shall have the best possi- increase potential and reduce risks, medium and high-price segments. ble brand name that strengthens the as well as being attractive for both profile – which requires that Pandox partners and guests. these hotels maintain a broad network within have higher liquidity and are easier domestic and international hotel to finance. Business position: the portfolio is a mix of companies. high and medium-priced hotels. examples of Business position: all Pandox hotels have those in the high-price segment include the Business position: Pandox works with twelwe strong locations and an average of 240 rooms intercontinental montreal, crowne Plaza Brus- different brand names today, as well as with – which is three to four times larger than the sels city centre and hilton stockholm slussen. independent distribution channels. the brand average hotel in europe. medium-priced hotels cover many scandic names are well-known and established which hotels and the holiday inn Brussels airport. provides a unique position and network. Clarion Hotel Grand, Östersund, Sweden InterContinental, Montreal, Canada Pan dox 2009 | 13

Pandox’ five business processes – for increased cash flow and limited risk With the value-growth chain as the starting point, Pandox has organised its operations into five business processes. Market analysis To create knowledge of the market situation and change patterns . The Pandox Model The methodology process for the systematic evaluation of each hotel . Asset management Daily management and major investments in order to increase the value of the properties in the long-term . Economic and financial reporting how operations are monitored through established goals, evaluated and valued. Market communication Regular market activities aimed towards target groups . 14 | Pa ndox 2009

the Pandox model Market analysis Market strategy Profitability optimisation Agreement optimisation a market analysis is performed in a strategic plan is established for in view of that a property’s value the optimal cash flow in each order to assess the potential pro- each hotel property based on the is influenced by the hotel opera- respective hotel property is then fitability of a hotel, and thereby respective location’s specific pre- tions’ profitability, the operator is divided among the operator, its ability to pay rent. the local requisites, the local market and naturally Pandox’ most important Pandox and other parties market is identified and analysed its position in the hotel economic partner. in order to ensure positive concerned. lease agreements regarding demand, competition cycle. When preparing the strate- developments within the hotel are formulated so that all parties and the current and future offer. gic plan, the property’s continued operations and the value of involved have an incentive to utilisation scope is evaluated the property, the operator and continuously improve the hotel objectively and impartially. related activities are continuously property’s overall profitability. evaluated. Possibility to Action plan acquire hotel with concrete property measures Market analysis Market strategy Profitability Agreement Evaluation of optimization optimization each hotel property and the hotel property portfolio Divestment in accordance with the strategy Pan dox 2009 | 15

Pandox’ contracts and agreements the value of a hotel property is governed to a considerable degree by the content and formulation of the hotel lease. the objective is to formulate an agreement where all parties concerned are given an incentive to continuously improve the hotel property’s profitability. Each property has its own characteristics anticipated market trends, local competition, Result-based Before Pandox enters into a lease, a compre- planned investments, as well as choice of oper- a result-based hotel lease implies that the hotel hensive market analysis is performed that ator and distributor. By combining various types property owner receives a share of the hotel includes known changes in the market and of leases, Pandox has achieved a lease struc- operator’s operating net. this type of lease competition from various players both in the ture that provides the company with increased requires that the hotel property owner under- short and long-term. different models are cash flow in a rising market while simultaneously stands the operator’s financial control system. applied in the leases in order to limit the risk in offering protection against downturns in the result-based hotel leases can also specify a a declining market, simultaneously as Pandox market through rental guarantees. minimum rent (guarantee/base rent). may participate in an upward trend. should an operator’s liquidity weaken, Pandox has the Types of lease Fixed-fee hotel lease expertise and ability to manage the related hotel Revenue-based fixed-fee hotel leases with an index linked to the operations, which indeed has occurred on revenue-based hotel leases are linked to sales development of the consumer Price index (cPi) several occasions. generated by the hotel business. this form of are used in mature markets and in well-estab- lease provides Pandox with a share of growth in lished hotel products. a fixed-fee lease limits the Lease structure both the market as a whole and in the market risk factor but also the potential. Pandox’ active and situation-adapted owner- share. to limit the risk, these leases often specify ship is reflected in the various lease models. the a minimum rent (guarantee/base rent). lease structure is governed by factors such as Scandic Skogshöjd, Södertälje, Sweden 16 | Pa ndox 2009

RENTAL REVENUES 2009 LEASE AGREEMENTS Management agreement Per type of contract/agreements Maturity date structure a management agreement can be perceived as a sort of agent contract. the main characteristic is Revenue-based leases, 33% Year 2010, 3% that the hotel property owner also owns the hotel Revenue-based leases Year 2011, 2% with guarantee, 43% business. through a management agreement, an Year 2012, 2% Management agreements, operator/manager is assigned to operate and own operation, 7% Year 2013, 20% manage the hotel on behalf of the hotel property’s Franchise agreement, Year 2014–, 73% owner, for which a management fee is paid to the own operation, 8% operator/manager. Own operation, 10% Franchise agreement in its own operations, franchise contracts can be entered into where Pandox gains the benefits of a larger system that embraces the hotel’s overall marketing and sales. The Pandox Model in practice Pandox has developed a large number of hotel properties and hotel operations over the years . The philosophy behind Pandox’ operational activities is to build up each hotel’s strategy locally . One of the most important factors to succeed is to attract the best people and give them considerable influence and responsibility . The following pages describe some of our completed repositioning programs and projects . Some of the key people behind this successful process are also presented here . Scandic Skogshöjd and Quality Hotel Park Södertälje City pages 18–19 Hotel Berlin, Berlin pages 20–21 Holiday Inn Brussels Airport pages 22–23 InterContinental and Hyatt in Montreal pages 24–25 Pan dox 2009 | 17

The Pandox Model in practice Södertälje Successful restructuring of the hotel market Two “sleeping beauties” old-fashioned design, functions and technology. was performed at several levels. First, a number of Pandox acquired Best Western Skogshöjd The other hotel, Quality Hotel Park, was a previ- activities were organised in order to become better and Quality Hotel Park in Södertälje, including ous leisure hotel located in central Södertälje. The known in the area south of Stockholm, which also the operations, in 2006. Both hotels were then in product was shabby, and at the time of the acqui- included becoming a more distinct part of Greater need of product development, new leadership sition was positioned as a medium-priced hotel Stockholm and to attract shops and stores with a and inspiration. Skogshöjd is the city’s largest and despite an excellent location. In general, profita- city profile. Skogshöjd, which had the strongest best-known hotel with 225 rooms and large con- bility was weak. name, established the vision of assuming the role ference facilities. at the end of the 1980s, the as an important conference hotel. hotel was one of Sweden’s leading conference Development of Södertälje as a destination hotels, but time had taken its toll and when it was The initial work focused on opening up the market Transformation with clear objectives acquired in 2006, the product was dreary with and to strengthen Södertälje as a destination. This as for Park, the goal was established of becoming 18 | Pa ndox 2009

southern Stockholm’s best business hotel. The showed interest in the hotels. In 2009, a lease was results are expected to be very good. Park Hotel first phase was concentrated on Park, which was signed with Choice Hotels Scandinavia for Park has rapidly become a favourite among business rapidly transformed to a business hotel with the under the Quality brand, and in 2008 a lease was travellers, and obtained a young public at week- help of a new and tough design, a large lobby with signed with Scandic with regard to Skogshöjd. ends. Similar developments, with focus on the lounge atmosphere, and a modern selection of conference segment, are expected in Skogshöjd. food and drinks. The second phase started the Restructuring completed For Pandox, the value of the assets has risen transformation of Skogshöjd where the lobby and The process of repositioning and restructuring significantly since they were acquired. The driving conference product were upgraded. during both Södertälje’s hotel market has thereby been com- forces have been modern products with distinct phases, the hotels were operated by Pandox with pleted. a sales and operating system must now positions that are operated in effective and well- a management team to maintain the business be developed, which will be done with Pandox as developed management systems, which processes. Quite quickly, several hotel chains strategic partner for each respective hotel. The increased the overall profitability of both hotels. After a successful repositioning, Park and Skogshöjd are now close to their goal of becoming the leading business and conference hotels in southern Stockholm. Pan dox 2009 | 19

The Pandox Model in practice Berlin From a boring hotel complex to a creative meeting place – Hotel Berlin, Berlin Which hotel concept Hotel Berlin was built in the 1950s and for a long is successful in a city that time was one of the best-known hotels in the city. Further to several extensions, it had also become has everything? The question arose one of Berlin’s largest hotels. But in terms of con- when Pandox acquired the then Clarion cept, design, spirit and profitability, the product Hotel Berlin in the summer of 2006. Fur- performed below par. The principal target group ther to the fall of the wall, the market in consisted of tourist groups from across the world. Berlin became significantly tougher. While the profitable business and conference seg- Many new hotels had opened with ment chose other hotels. Hotel Berlin subsequently had a real challenge ahead in order to rec- modern concepts, and were technically reate the hotel’s historical position. built in accordance with state-of-the- art criteria. New position with own profile The first phase was to survey the market in terms 20 | Pa ndox 2009

Cornelia Kausch Managing Director, Hotel Berlin, Berlin Cornelia was literally born and raised in the family’s hotel operations, educated at Lausanne, and has many years’ international experience from leading positions at hotels in the upper segment. Together with Pandox, Cornelia has created the new Hotel Berlin, Berlin – and made it the leading meeting place in the city. With her unique competence and leadership based on a will for change and strong visions, she has successfully led the transformation of the hotel in a spirit characterised by belief in the individual and the ability to combine effectiveness with pleasure. of products and competition. The conclusion was façade, entrance and lobby became important Berlin’s leading and creative meeting place that most of the newly built hotels held high inter- communication instruments and created a after three years’ hard work, the hotel’s overall national standards with regard to technology and fun-profile where the guests can now be seen, re-profiling is complete. despite the extensive product. at the same time, the products were welcomed and met by a different hotel with an refurbishment, profitability has risen by 40 percent similar and lacked a local profile. They were exciting design and atmosphere. The rooms due primarily to having regained the position as an more “brand standards” than with an own soul. product has been improved and the F&B product excellent conference hotel. Hotel Berlin, Berlin Hotel Berlin’s new position originated here – to has been developed to support the new market now has the potential to become established as reposition the hotel to the most creative meeting profile. Considerable work has also gone into one of Berlin’s leading conference hotels. The place with a distinct bond to the city of Berlin’s his- creating a new market profile and a modern graph- driving force has been the local management tory and name. With the help of an investment ical profile program. Substantial resources have with Cornelia Kausch as leader who, step by program of EUR 10 million, the hotel has been been put into recruiting and training new employ- step, has positioned the hotel as one of the city’s repositioned and upgraded. The existing confer- ees, as well as enabling all employees, via work- leading meeting places and definitely one of the ence product has been developed and ineffective shops, to participate in the development process. most creative. areas converted to modern meeting rooms. The Hotel Berlin, Berlin welcomes guests as a creative and different meeting hotel with exciting design and atmosphere. Nothing has been overlooked. The investment program has embraced everything from the facade to the room product. Pan dox 2009 | 21

The Pandox Model in practice Brussels With the vision to create the best Pandox acquired the phase two, the lobby was developed with new embodied business plan along with a long-term property and operations of service products and a tough and tasteful design. vision and objective, both for the owners and Phase three included the meeting rooms, which management. The results have been excellent. Holiday Inn Brussels airport in 2006. were given a new approach with a fun feeling. at Holiday Inn was also the first hotel in Benelux to The product is characterised by a the same time, the F&B offer was strengthened be approved in accordance with IHG’s global strong location close to the airport, in with a modern look, and the pool and fitness area brand standard launch. The development pro- the centre of a growing business park. was upgraded to modern standards. To carry out gram, which amounted to approximately EUR 8 Good size with 310 rooms, and a full- a change program of this size right in the middle of million, also included major organisational devel- service product with two restaurants, a rapidly declining market requires a stringent and opments. bar, pool and 15 conference rooms. However, trends were on a downward slope, and the hotel needed extensive refurbishment and development. new leadership was required that could inspire the staff and implement a modern organisation. a number of strategic changes were initially carried out at management level, and a dialogue was started with the franchiser, Holiday Inn, in order to establish stronger cooperation with the IHG system. at board and management level, a vision was established to create the best upper- medium-priced hotel at Brussels airport, with key words such as full service, attractive design and high effectiveness. Successful change step by step The development program was started in the summer of 2008. The first phase involved produc- ing and implementing a new rooms concept. In 22 | Pa ndox 2009

Charles Boelen Managing Director, Holiday Inn Brussels Airport Charles Boelen is the man behind the successful refurbishment of Holiday Inn Brussels Airport. Charles has an extensive background within the hotel industry and has previously worked at the Crowne Plaza Brussels City Centre. He is extremely results-oriented but always with an eye on the client’s best interests. Charles’ secret weapon is his smile, and it is not at all surprising that he introduced “the SKOJ experience” as part of the new hotel. SKOJ is indeed exactly the same as having a good time, it brings out our childhood emotions and stimulates creativity and productivity, encourages new knowledge and gets everyone to exert themselves just a little bit more. Many people would no doubt say that Charles is SKOJ personified. Key words in the development program with Holiday Inn Brussels Airport have been full service, attractive design and high effectiveness. SKOJ is an appreciated aspect of the new hotel. SKOJ includes a number of features with much humour and a twinklie in the eye approach. A new room concept was part of the Pan dox 2009 | 23 first phase in the repositioning process.

The Pandox Model in practice Montreal For both business and pleasure Pandox developed its strategy in 2007 to also Pure magic! design, management and style, the hotel embrace north america. The reason was to estab- The InterContinental has created a new concept with more bou- Montreal, with 357 rooms, was tique atmosphere. The range of food and lish a broad geographic market in order to look for acquired in the summer of 2007. The hotel drinks consists mainly of Canadian raw profitable acquisitions and development projects. was positioned as a traditional business materials and production methods. The The strategy has so far been applied in clusters, hotel with international style. The product management comes from Quebec, which where Montreal has become the base with two lacked a local profile and competed primar- has strengthened the local embodiment ily within its own pitch. The InterContinen- and created a more European feeling. The hotels and a total of nearly 1,000 rooms. Both tal’s competitors had a similar approach – response has been purely magical! The acquisitions have been typical for Pandox where good hotels that one can find in any large hotel has already received several awards. the hotels have required extensive development city. This became our strategic point of So far, developments have embraced all with regard to product, profitability and leadership. departure. Through changes in layout, rooms, corridors, lobby and the F&B offer. The creation of a local profile has been one of the starting points within the transformation of the InterContinental Montreal. Both of Pandox’ hotels in Montreal are currently in the middle of a transformation process – and the results so far have exceeded the expectations. 24 | Pa ndox 2009

Bernard Chênevert Managing Director, InterContinental Montreal Educated at Lausanne, with more than 15 years’ experience of the hotel industry and repositioning of hotels. Bernard was furthermore responsible for the transformation of W Montreal, which received the Hotel of the Year Worldwide 2007 award. Bernard’s recipe for success is based on the philosophy that a good team is one that purposefully moves operations forwards with continuously ongoing projects that render operations more effective. To succeed requires close contact and dialogue with the guests and to be able to identify and adapt to their changing needs. It is a question of constantly improving processes and offers so as to exceed the guests’ expectations. The next stage is to develop the conference product and to continue the implementation of a modern organisation. On the way to becoming something very special! Hyatt, with 605 rooms, was acquired in 2008. The hotel is strategically located in the centre of the leisure and entertainment district, where the city of Montreal is investing considerable capital to strengthen the destination. The hotel’s vision is to become Montreal’s best conference and festival hotel. The dynamics that surround the city’s fes- meeting room has really become something tivals and entertainment must also be felt in the very special! The same atmosphere will now be hotel. The first phase in the repositioning pro- implemented in the reception and lobby, starting cess has been completed with the large ball- in november 2010. Montreal will subsequently room and the meeting rooms being upgraded obtain next year an entertainment hotel that with a new style and a high fun factor. The large goes hand in hand with the city’s ambitions. The InterContinental Montreal exuding a timeless elegance that provides an exciting Pan dox 2009 | 25 experience again and again.

Market communication Network Pandox’ hotel market day – one of the sector’s most important meeting places Pandox arranges a hotel market day each companies, politicians and media come together. year, where current issues that affect the They can listen to interesting presentations that industry and sector are presented and dis- increase knowledge and insight about the sector’s cussed. The event has been held every conditions, and are given the opportunity to net- year since 1997 and interest is constantly work and obtain a forecast and prognosis for next growing. Recent years have seen a full year. The evening always closes with a banquet in house with around 300 people taking part, a pleasant and relaxed environment. The event is of which a large part is composed of inter- held in november at the Hilton Stockholm Slus- national guests. sen, which apart from being owned by Pandox is a conference hotel of the highest class. In recent The hotel market day is a dynamic meeting place years, items taken up have included the effect of where hotel owners, operators, brand names, low-price airlines on the hotel industry, the signifi- banks, public opinion lobbyists, construction cance of shopping tourism for a destination, as well as the signification of the term “brand profitability” and the business models it offers. The theme for 2009 was economic trends under the heading “The effects of the financial crisis on various players within the hotel industry”. The speakers are top-quality. In november, we had the honour of presenting annika Winsth, CFo of nordea, S. Kirk Kinsell, President of the EMEa InterContinental Hotels Group, Urban Jansson, company director with considerable knowledge of the hotel industry, as well as Torgeir Silseth, CEo of Choice Hotels Scandinavia. Staffan olsson, well-known handball profile and Swedish national handball team manager, also talked about different leadership styles and the characteristics of a 26 | Pa ndox 2009 successful coach.

national team coach Regular information about and Pandox’ marketing market trends and acquisitions The Swedish Handball association, with the When Pandox was formed in 1995, a newsletter property market. Pandox Upgrade is therefore support of Sweden’s olympic Committee and was started in order to promote the Company vis- issued on a regular basis. Three newsletters were together with Pandox, entered into an agree- à-vis the capital market prior to being floated on published in 2009, covering market trends and cur- ment in the spring of 2009 with Staffan olsson the stock market. This publication later became rent Swedish and international hotel market topics. that enables him to stay in Sweden and con- part of the public reports that the Company tinue to lead the Swedish national team tog- issued. despite the Company no longer being You are most welcome to become a subscriber ether with ola Lindgren. The agreement listed on the Stockholm Stock Exchange, Pandox Pandox Upgrade is free of charge and can implies that the important national team man- continue to maintain the flow of information to be ordered from Pandox by telephone at ager issue be solved regarding Sweden host- those who are interested in the hotel and hotel- +46 (0)8 506 205 50 or via pandox@pandox.com ing the World Championship 2011 and further ahead to the olympic Games in London in 2012. The solution also implies that Staffan olsson will continue as trainer at Hammarby PA N D O X Handball. He will furthermore work with mar- NO. 2 • 2008 MAR K ET INFO R MATIO N FR O M PAND O X ONE OF THE LEADING HOTEL PROPERTY COMPANIES IN EUROPE keting issues at Pandox. Pandox is extremely proud to be able to contribute to Staffan remaining national team manager. Staffan Olsson, National manager of the Swedish handball team, and member of the marketing group within Pandox. Strong half-year despite increase in supply Hotel room of the future without boundaries Pandox communicates its acquisitions and other changes in the hotel property portfolio in separate fact sheets and folders. Pan dox 2009 | 27

Market Overview 2009 was gloomier than for a long time The first half-year 2009 felt like a helter- regard to how different price segments developed Different patterns in New York and London skelter. The sector experienced a sub- over the year, all segments fell in RevPaR com- new York and London are two markets that nor- pared with the previous year, with the largest mally follow each other in trends, although with a stantial international downturn, with the downturn being noted in the luxury segment. The certain lage of time where new York as a rule is american hotel industry at the head of trends in all segments are the same as the national first to show upward and downward phases. This the economic cycle. a small improve- average with lower occ upancy compared with does not seem to apply this time. London’s aver- ment could be perceived by the end of last year and a fall in average rates – resulting in age rates started to fall already in august 2008, the summer in the United States, partic- RevPaR for the whole of the United States closing while new York maintained its prices up until Sep- ularly in new York’s high-price segment, at 17 percent down compared with 2008. tember the same year. In 2009, new York was hit new York has been one of the world’s major considerably harder with a significant fall in Rev- where the downturn in occupancy cities hardest hit in the downturn – albeit from a PaR while London remained surprisingly stable in started to subside. Whether this is a high level. occupancy fell by 6 percent compared the prevailing world at large. occupancy in Lon- temporary break in trends or the with 2008 and average rates were 22 percent don started to recover already in the summer of first sign of a real recovery for the lower than last year. occupancy for 2009 closed 2009, while new York’s volumes first started to sector remains to be seen. at 77 percent and the average rate at USd 215. recover in the autumn. RevPaR in new York fell by In many large European cities, the first half- 26 percent for the full-year, but was only 4 percent For the full-year, occupancy in the United States year 2009 was somewhat hair-raising with a fall in down in London compared with 2008. closed at 55 percent, which is 9 percent lower RevPaR of between 20 and 30 percent compared Most major European cities were under pres- than the previous year. demand for hotel rooms with 2008. The downturn has since continued, sure during the year. In Western Europe, revenues fell by 6 percent during the year. The number of although at a slower pace, and a real change in per room fell by 15 to 20 percent. Eastern Europe available rooms increased during the period by 3 trends cannot yet be perceived. was hit even harder with falls in RevPaR of 40, 30 percent, and the fall in occupancy was thereby 9 one shining exception is London. occupancy for and 26 percent respectively in Riga, Prague and percent in total. 2009 closed at 82 percent, representing an increase Warsaw for the full-year. average rates closed at USd 98, representing of 2 percent compared with the previous year. How- Berlin closed at 70 percent occupancy, which a decline of 9 percent compared with 2008. With ever, average rates fell by 5 percent for the full-year. is 1 percent lower than 2008. The average rate The transactions market collapsed in 2009 The transactions market ran completely The global transactions market was a stagger- turnover in the same period was USD 1.0 billion, out of steam in 2008, and did not show any ing 78 percent lower in the first half-year 2009 implying a fall of 86 percent. Asia stood for the signs of improvement in 2009. Turnover for compared with the same period in 2008. smallest transactions volume during the period the full-year will probably be in line with Europe, the Middle East and Africa represented with USD 0.9 billion, representing a decrease of 2002, which has so far been the worst year the largest downturn in transactions in absolute 55 percent compared with the year before. in the new millennium with a volume of 10 terms, where turnover closed at USD 1.9 billion Of the total number of transactions, only 13 billion dollars. – representing a fall of 76 percent compared exceeded USD 100 million, compared with 34 in with the previous year. In the United States, the first half-year 2008. 28 | Pa ndox 2009

was EUR 83, which is 8 percent below 2008. recovery could be perceived in the last quarter hotels, representing a decrease of 4 percent RevPaR in Berlin was EUR 58 for the full-year due to the large number of meetings held in the against the previous year. Prices declined by 2 2009, representing a fall of 9 percent. Munich city in conjunction with the international climate percent for the year. Mölndal showed similar closed 2009 with 68 percent occupancy, repre- meeting in december. occupancy in 2009 was 64 patterns. RevPaR fell by 8 percent in Mölndal and senting a decline of 3 percent, and average rates percent in Copenhagen – a decline of 6 percent by 6 percent in the centre of Gothenburg. fell by 14 percent. compared with the previous year. The average Malmö managed quite well during the year, Paris managed less well than London and rate was dKK 855, representing a decrease of 5 due partly to domestic demand, but also through closed the year with occupancy at 74 percent, percent against last year. the city taking a number of customers from the which was 5 percent lower than the previous year. The Swedish market was drawn down during Copenhagen region. RevPaR retreated by 3 per- Prices were under pressure and closed 9 percent the year by the general international decline. cent compared with 2008, due to both lower below 2008 with an average rate of EUR 214. Hardest hit was the high-price segment in the prices and volume. The average rate was SEK RevPaR was EUR 158, representing a fall of city of Stockholm, followed by the municipality 878, compared with SEK 882 for the year 2008. around 14 percent compared with 2008. of Stockholm. The high-price segment in the city centre showed occupancy in Brussels declined by 6 percent The municipality of Stockholm closed 2009 the same pattern as for the municipality in general. compared with the previous year, and average with a downturn in RevPaR of 10 percent com- The Swedish regional cities, which as a rule rates by 11 percent, resulting in RevPaR closing at pared with 2008, due principally to lower average lag slightly behind Stockholm, Gothenburg and EUR 68 for the year, representing a fall of 16 per- rates. The five-start segment lost 11 percent in Malmö in the economic cycle, showed a general cent. In antwerp, occupancy was 9 percent down price in 2009, while occupancy slightly increased downturn in RevPaR in the latter part of the year, and average rates 10 percent down, giving a fall of by 3 percent. occupancy closed at 79 percent due primarily to pressure on prices. 18 percent in RevPaR. while the average rate was SEK 1,518 in 2009. all market data concerns the calendar year 2009. Gothenburg has so far managed the down- General downturn in Scandinavia turn relatively well, due substantially to an inten- 122.0 Copenhagen, which has seen quite a lot of addi- sive entertainment summer with several international capacity in recent years, was under consid- tional concerts in the city. occupancy closed at 68 erable pressure for most of the year. a certain percent for Gothenburg’s city-centre four-star 75.6 44.5 30.9 24.5 18.6 The lack of financial capital, the difficulty in Many people probably believed that transaction 12.7 15.6 10.0 6.8 appraising economic outlooks and the general volumes would start to increase in the autumn feeling of uncertainty are the principal causes of of 2009 as a consequence of “distressed 00 01 02 03 04 05 06 07 08 09* the continued low activity. Furthermore, high assets” coming out onto the market. However, yield requirements and low turnover have it would seem so far that banks prefer to work Global transaction trends resulted in the market becoming uncertain with their customers and try to solve their prob- Year 2000-2009, USD billions about the real level of market prices. lems rather than force bankruptcies and to con- * YTD September 2009 sequently generate losses. Source: Jones Lang LaSalle Hotels Pan dox 2009 | 29

Pandox owns hotels with strategic locations in Sweden, denmark, Belgium, Germany, Switzerland, United Kingdom, Bahamas and Canada. Hotel pro Pandox works with many different brand names – all are well-known and established, which provides a unique position and network. 30 | Pa ndox 2009

46 perties Pan dox 2009 | 31

Total Type of Number Year of constr. area Property Operator/Brand name lease Location of rooms extension (sqm) Stockholm Radisson BLU arlandia Hotel, arlanda Rezidor/Radisson BLU og International airport 335 1979/89 15,260 Hilton Stockholm Slussen Hilton o City centre 289 1989 18,416 Scandic Skogshöjd, Södertälje Scandic o Södertälje/Central 225 1972/81/87 14,115 Scandic Järva Krog, Stockholm Scandic o Stockholm north 215 1971/97 11,300 Scandic Park, Stockholm Scandic o City centre 201 1969/88 12,290 Quality Hotel, nacka Choice Hotels Scandinavia/Quality og Sickla-nacka 164 1986 10,830 Mr Chip Hotel, Kista Kista Hotell aB og Stockholm north 150 1984 5,517 Quality Hotel Park Södertälje City Choice Hotels Scandinavia o Södertälje/City centre 157 1890s/1984 10,292 Scandic Upplands Väsby Scandic o Stockholm north 150 1986 6,955 TOTaL STOcKhOLM 1,886 104,975 Gothenburg Scandic Crown, Gothenburg Scandic o City centre 338 1988 24,380 Elite Park avenue Hotel, Gothenburg Elite Hotels og City centre 317 1950/74/90 21,998 Scandic Mölndal, Gothenburg Scandic o City centre 208 2000 11,000 TOTaL GOThENBURG 863 57,378 Öresund Scandic Copenhagen Scandic o City centre 484 1970/99 31,500 Scandic S:t Jörgen, Malmö Scandic og City centre 288 1967/95 21,485 Radisson BLU Hotel, Malmö Rezidor/Radisson BLU og City centre 229 1971/88 18,969 Clarion Collection Hotel Twentyseven Choice Hotels Scandinavia/Clarion og City centre 200 1913/55/65 7,568 Scandic Star, Lund Scandic og Central 196 1991 15,711 Clarion Hotel Grand, Helsingborg Choice Hotels Scandinavia og City centre 164 1926/29/96 8,555 Scandic Kramer, Malmö Scandic o City centre 113 1875/1994 6,913 TOTaL ÖRESUNd 1,674 110,701 Regional cities and other location Scandic Grand, Örebro Scandic o City centre 221 1985 12,900 Scandic Winn, Karlstad Scandic og City centre 199 1984/90 10,580 Scandic Swania, Trollhättan Scandic o City centre 198 1918/83/89 10,399 Clarion Hotel Grand, Östersund Choice Hotels Scandinavia/Clarion og City centre 176 1978 8,766 First Hotel Grand, Borås Utlanda Hotell aB/First Hotels og City centre 158 1972/87/90/97 9,593 Scandic Plaza, Borås Scandic og City centre 135 1988 10,592 Elite Stora Hotellet, Jönköping Elite Hotels og City centre 135 1860/1930/95 11,378 Clarion Hotel Plaza, Karlstad Plaza Hotell & Restaurang i Karlstad aB/Choice og City centre 131 1929/91 5,907 Scandic Hallandia, Halmstad Scandic o City centre 154 1890s/1950/75/2007 7,617 Scandic Billingen, Skövde Scandic og City centre 107 1888/1939/65 7,743 Vildmarkshotellet, Kolmården Parks & Resorts Scandinavia og Resort 213 1985 10,300 TOTaL REGiONaL ciTiES aNd OThER LOcaTiONS 1,827 95,475 international2) Crowne Plaza Brussels City Centre Pandox/Crowne Plaza Fr City centre 354 1910 28,095 Holiday Inn Brussels airport Pandox/InterContinental Fr airport 310 1971 21,072 Hotel BLooM!, Brussels Pandox Io City centre 305 1976 23,445 Hilton Brussels City Pandox/Hilton M City centre 283 1910/30 13,850 Scandic Grand Place, Brussels Scandic o City centre 100 1900/91 4,500 Crowne Plaza antwerp Pandox/InterContinental Fr Central 264 1971 18,340 Scandic antwerp Scandic o Ring road 204 1974 13,200 Hotel Berlin, Berlin Pandox Io City centre 701 1958/87/96 41,093 Hilton Bremen Hilton o City centre 235 1991 21,000 Hilton dortmund Hilton o Exhibition centre 190 1990 12,500 Scandic Lübeck Scandic o Ring road 158 1991 9,700 Hilton London docklands Hilton o docklands 365 1991 22,800 Hyatt Regency, Montreal Pandox/Hyatt Hotels M Central 605 1976 44,148 InterContinental Montreal Pandox/InterContinental M Central 357 1991 31,091 Radisson BLU Hotel, Basel Rezidor/Radisson BLU og Central 205 1957/63/72 17,800 Pelican Bay at Lucaya, Grand Bahama Island Sundt GB Management/Pandox aM Resort 184 7,983 TOTaL iNTERNaTiONaL 4,820 330,617 TOTaL PaNdOx 11,070 699,146 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, Fr = Franchise, aM = asset management agreement Pandox’ hotel operations (hotels operated by Pandox) 32 | Pa ndox 2009

Tax asses- Of which Offices Shops Other Right of Property ment value hotels1) (sqm) (sqm) (sqm) (sqm) disposal designation (SEK M) Pandox’ market segment Proportion of total 15,260 – – – Land leasehold Benstocken 1:5 132.7 number of rooms 15,725 2,097 – 594 Land leasehold Överkikaren 31 365.9 Stockholm 14,115 – – – Yxan 8 46.2 Number of hotels 9 Number of rooms 1,886 11,300 – – – Land leasehold Tanken 2 77.6 Property revenues, SEK M 167.7 10,290 – – 2,000 Lönnen 30 213.0 17% Operating net, SEK M 141.2 8,090 2,705 – 35 Sicklaön 363:2 84.8 5,517 Land leasehold Knarrarnäs 7 50.2 10,110 182 – – Herkules 13 35.6 6,955 – – – Vilunda 6:48 34.6 97,362 4,984 – 2,629 1,040.6 Proportion of total number of rooms Gothenburg 21,800 – 300 2,280 Stampen 5:5 170.0 Number of hotels 3 21,998 – – – Lorensberg 28:4 208.0 Number of rooms 863 11,000 – – – Laken 1 55.2 Property revenues, SEK M 85.2 8% 54,798 – 300 2,280 433.2 Operating net, SEK M 78.0 25,200 – – 6,300 99943-2 – 14,655 – 4,230 2,600 S:t Jörgen 11 222.0 18,969 Carolus 33 123.0 Proportion of total number of rooms 7,568 169 Vester Kvarter København – Öresund 15,711 – – – Porfyren 2 102.4 Number of hotels 7 7,325 – 1,230 – Högvakten 8 59.4 Number of rooms 1,674 6,373 – 540 – Gripen 1 73.8 Property revenues, SEK M 182.3 95,801 – 6,000 8,900 580.6 15% Operating net, SEK M 151.6 10,900 – – 2,000 Land leasehold Mältaren 1 50.6 10,580 – – – negern 2 49.0 10,399 – – – Svan 7 48.5 Proportion of total 8,766 – – – Borgens 6 33.8 number of rooms 9,365 – – 228 Land leasehold Prometeus 3 31.9 Regional cities and 7,961 2,631 Balder 6 62.8 other locations 9,379 – 899 1,100 alhambra 1 60.6 Number of hotels 11 Number of rooms 1,827 5,907 – – – Höken 1 39.6 15% Property revenues, SEK M 120.1 6,813 360 427 17 Erik dahlberg 14 & 15 44.8 Operating net, SEK M 104.3 6,844 – – 899 Fjolner 7 27.6 10,300 Marmorbrottet 1:18 37.2 86,914 2,991 1,326 4,244 486.4 Proportion of total number of rooms 28,095 – – – – International 21,072 Number of hotels 16 23,445 Number of rooms 4,820 13,850 – – – Saint-Josseten-noode (1div) 032 – Property revenues, SEK M 339.9 44% 4,500 – – – – Operating net, SEK M 303.1 16,780 1,560 Land leasehold 13,200 – – – 24th div, Borgerhout 1st div, ar – 41,093 15,100 – – 5,900 Grundbuch altstadt IV, Blatt 60 – Proportion of total 11,300 – – 1,200 Grundbuch dortmund, Blatt 897 – number of rooms 8,800 – – 900 Grundbuch Lübeck, Blatt 54545 – Hotel operations 21,500 – – 1,300 HM Land Registry: SGL465779 – Number of hotels 9 29,000 – – – – Number of rooms 3 326 31,091 Operating revenues, SEK M 1,095.0 31% 17,000 800 Operating profit, SEK M 177.7 7,983 303,809 1,560 – 10,100 – 638,684 9,535 7,626 28,153 2,540.8 Pan dox 2009 | 33

stockholm stockholm Radisson BLU arlandia hotel , arlanda airport Quality hotel Nacka number of rooms: 335 operator: Rezidor/Radisson BLU number of rooms: 164 operator: Choice Hotels Scandinavia/Quality hilton Stockholm Slussen Mr chip hotel, Kista number of rooms: 289 operator: Hilton number of rooms: 150 operator: Kista Hotell aB Scandic Skogshöjd, Södertälje Quality hotel Park Södertälje city number of rooms: 225 operator: Scandic number of rooms: 157 operator: Choice Hotels Scandinavia Scandic Järva Krog Scandic Upplands Väsby number of rooms: 215 operator: Scandic number of rooms: 150 operator: Scandic gothenburg Scandic Park, Stockholm Scandic crown, Gothenburg number of rooms: 201 operator: Scandic number of rooms: 338 operator: Scandic 34 | Pa ndox 2009

gothenburg öresund Elite Park avenue hotel, Gothenburg clarion collection hotel Twentyseven, copenhagen number of rooms: 317 operator: Elite Hotels number of rooms: 200 operator: Choice Hotels Scandinavia/Clarion Collection Scandic Mölndal, Gothenburg Scandic Star, Lund number of rooms: 208 operator: Scandic number of rooms: 196 operator: Scandic öresund Scandic copenhagen, copenhagen clarion hotel Grand, helsingborg number of rooms: 484 operator: Scandic number of rooms: 164 operator: Choice Hotels Scandinavia Scandic S:t Jörgen, Malmö Scandic Kramer, Malmö number of rooms: 288 operator: Scandic number of rooms: 113 operator: Scandic other locations regional cities and Radisson BLU hotel, Malmö Scandic Grand, Örebro number of rooms: 229 operator: Rezidor/Radisson BLU number of rooms: 221 operator: Scandic Pan dox 2009 | 35

other locations regional cities and other locations regional cities and Scandic Winn, Karlstad Elite Stora hotellet, Jönköping number of rooms: 199 operator: Scandic number of rooms: 135 operator: Elite Hotels Scandic Swania, Trollhättan clarion hotel Plaza, Karlstad number of rooms: 198 operator: Scandic number of rooms: 131 operator: Plaza Hotell & Restaurang i Karlstad aB/Choice clarion hotel Grand, Östersund Scandic hallandia, halmstad number of rooms: 176 operator: Choice Hotels Scandinavia number of rooms: 155 operator: Scandic First hotel Grand, Borås Vildmarkshotellet, Kolmården number of rooms: 158 operator: Västsvenska Hotellfastigheter aB/ number of rooms: 213 operator: Parks & Resort Scandinavia aB First Hotels Scandic Plaza, Borås Scandic Billingen, Skövde number of rooms: 135 operator: Scandic number of rooms: 107 operator: Scandic 36 | Pa ndox 2009

international international crowne Plaza Brussels city centre crowne Plaza antwerp number of rooms: 354 operator: Pandox/Crowne Plaza number of rooms: 264 operator: Pandox/Crowne Plaza holiday inn Brussels airport Scandic antwerp number of rooms: 310 operator: Pandox/Holiday Inn number of rooms: 204 operator: Scandic hotel BLOOM!, Brussels hotel Berlin, Berlin number of rooms: 305 operator: Pandox number of rooms: 701 operator: Pandox hilton Brussels city hilton Bremen number of rooms: 283 operator: Pandox/Hilton number of rooms: 235 operator: Hilton Scandic Grand Place, Brussels hilton dortmund number of rooms: 100 operator: Scandic number of rooms: 190 operator: Hilton Pan dox 2009 | 37

international international Scandic Lübeck intercontinental Montreal number of rooms: 158 operator: Scandic number of rooms: 357 operator: Pandox/InterContinental Hotels hilton London docklands Radisson BLU hotel, Basel number of rooms: 365 operator: Hilton number of rooms: 205 operator: Rezidor/Radisson BLU hyatt Regency Montreal Pelican Bay at Lucaya, Bahamas number of rooms: 605 operator: Pandox/Hyatt Hotels number of rooms: 184 operator: Sundt GB Management/Pandox 38 | Pa ndox 2009

Hotel BLOOM!, Brussels Finances Financial overview . . . . . . . . . . . . . . . . . . . 40 Sensitivity analysis . . . . . . . . . . . . . . . . . . . 42 Valuation and tax situation . . . . . . . . . . . . . 44 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 45 Ten-year overview . . . . . . . . . . . . . . . . . . . 46 Quarterly data 2008–2009 . . . . . . . . . . . . . 48 Financial statements 2009 . . . . . . . . . . . . . 49 Report of the Board of Directors . . . . . . . . 50 Income statement and comments . . . . . . . 52 Balance sheet and comments . . . . . . . . . . 54 Changes in equity . . . . . . . . . . . . . . . . . . . 56 Cash flow statement and comments . . . . . 57 Accounting principles . . . . . . . . . . . . . . . . 58 Notes to the Accounts . . . . . . . . . . . . . . . . 60 Proposed disposition of earnings . . . . . . . 66 Auditor’s report . . . . . . . . . . . . . . . . . . . . . 67 Pan dox 2009 | 39

FINANCIAl oVeRVIew Well-weighted risk profile Radisson BLU, Basel Financial policy creating an optimal due date structure and fixed Financing strategy The basic objective of Pandox’ financial opera- interest periods. The long term objective is that In order to gain flexibility and administrative bene- tions is to achieve the lowest possible financing the average fixed interest period be matched with fits, Pandox has centralised when possible all bor- costs while simultaneously limiting the risks the average point in time when rental revenues, rowing in the Parent Company. The objective is to related to interest rates, foreign currencies and based on underlying leases, are estimated to be work with long-term framework agreements that borrowings. The interest rate risk is the risk that affected by a change in interest rates. Interest provide scope for borrowing with varying maturi- changes in interest rate levels which could nega- swaps are mainly used for extension of fixed inter- ties and fixed margins. derivative instruments tively affect the Group’s results. Currency risk is est rate periods. such as swaps are preferably used for the exten- the risk that the Group’s balance sheet and income sion of fixed interest rate periods. statement which could be negatively affected by Currency risk/currency risk strategy changes in the value of the Swedish krona. Finally, Pandox is exposed to currency risks due to certain Capital structure the borrowing risk is the risk that external financing of the Group’s assets being denominated in foreign The objective for the Group’s capital structure is may become more difficult to find. currencies. Pandox’ policy is to hedge the majority that the equity/asset ratio long term should meet part of its exposure by raising loans in the local cur- internal and external financial strength require- Interest rate risk/interest rate strategy rency of each respective country and by hedging ments in order to enable continued expansion. Pandox’ basic objective is that interest rate expo- with appropriate currency hedging instruments. sure shall be adapted so that increased costs as a Financing result of reasonable changes in interest rates shall Methodology and systems as of 31 december, the Pandox Group’s interest be compensated by higher revenue. The interest Pandox has developed and implemented systems bearing liabilities amounted to SEK 6,850.5 M rate risk must therefore be limited through con- and procedures to enable the continuous monitor- (6,808.6). The loan portfolio has a spread due- tracting periods of varying lengths with the aim of ing and reporting of interest rate risk trends. date structure with an average fixed-capital period 40 | Pa ndox 2009

of 7.5 years is without financial covenants and has Equity capital Working capital an average fixed-interest period of 2.3 years (1.7). The Group’s equity capital as per the balance Pandox receives rental revenue in advance and The average interest rate on loans at 31 decem- sheet at 31 december 2009 amounted to SEK pays most of its operating costs and interest ber was 2.6 percent (3.6). The financing of hotel 2,996.7 M of which SEK 1,424.6 M was restricted expense in arrears while hotel operations normally properties is raised in each respective local cur- equity and SEK 1,572.1 M unrestricted equity. receive revenues in arrears. altogether the Group rency in accordance with the financial policy. The The Pandox Group’s cash flow before changes normally has a relatively small working capital to Group’s liquid funds amounted to SEK 326.4 M in working capital, investments, other revenue and finance. (347.7). In addition, there was an unutilised credit capital gains amounted to SEK 446.4 M (444.5). facility of SEK 1,182 M. a facility of another SEK 300 M has been signed just after the end of 2009. INTeReST STRUCTURe1), SeK M Year due SEK DKK EUR GBP CHF CAD USD Total Share,% Interest, %2) 2010 834.9 449.8 1,578.3 251.9 62.6 137.7 447.1 3,762.3 54.9 1.6 2011 125.0 – 23.8 – – 119.0 – 267.8 3.9 4.6 2012 225.0 – – – 62.6 – – 287.6 4.2 4.2 2013 75.0 – 208.5 – – – – 283.5 4.1 5.1 2014 350.0 – 417.0 – – – – 767.0 11.2 3.2 2015 and later 350.0 140.1 614.0 – 125.2 253.0 – 1,482.3 21.7 3.9 Total 1,959.9 589.9 2,841.6 251.9 250.4 509.7 447.1 6,850.5 100.0 2.6 Share, % 29 9 40 4 4 7 7 100 average interest rate, % 3.4 2.2 2.4 1.2 3.1 3.5 0.7 2.6 average interest rate period, years 2.6 1.5 2.3 0.1 3.1 4.1 0.1 2.3 1) Converted to SEK. 2) average interest rate in percent. Pan dox 2009 | 41

SeNSITIVITy ANAlySIS Factors that affect Pandox Pandox’ operations and profitability are location, market segment and brand name/opera- who are active owners, the potential risk is consid- affected by a number of factors, of which the tor. Pandox’ strategy is to operate in a selected erably lower than it has been in historic terms. most important are described below. market segment, which in combination with its hotels market expertise and systems, limits Pan- Decisions by public authorities The hotel market dox’ agreement risk. The hotel market can be affected by decisions The development of Pandox’ earnings and the made by public authorities. Two examples of such value of its hotel properties are dependent upon Partners decisions are changes in taxation related to claims trends within the hotel market, which in turn Pandox’ agreement structure, with a large propor- for travel expenses or rules concerning value closely follow general economic developments. tion of variable leases, means that the Company is added tax both in general and for the hotel and Business travel and conference activities nor- more dependent on the individual tenant/opera- restaurant industry in particular. mally increase during periods of high economic tor’s business than other property companies. The activity, while there is a corresponding decrease Company’s strategy to actively cooperate with the Property tax during periods of low economic activity. There is market’s most competitive and powerful opera- Property tax on Pandox’ Swedish properties thus a strong connection between economic tors with well established brand names, reduces amounts to 1.0 percent of the tax assessment trends (GdP) and trends within the hotel market. both the related operative and financial risks. Pan- value. Changes in the tax rate or in the tax assess- developments of GdP can be closely monitored, dox’ largest tenants in terms of revenue are Scan- ment value affect Pandox’ earnings. However, an whereas factors that influence local hotel markets dic, Hilton, Rezidor, Elite Hotels, InterContinental increase only has a limited impact on the earnings are significantly more complex. The most impor- Hotels Group, Choice Hotels and First Hotels, because many lease agreements are formulated tant influential factors are local economic condi- which together accounted for 85 percent of all so that the property tax be passed on to the ten- tions, the proportion of new hotel capacity in the rental revenue in 2009. ant. Property tax on properties outside Sweden is market, how well developed a market is concern- generally less than one per cent of the book value. ing brand names and segments, currency fluctua- Leasing level about 59 percent of the property tax was debited tions, aswell as extraordinary events. The leasing level as of 31 december was 99.8 to tenants in 2009, which means that the net effect percent. Vacant space amounting to 1,700 sqm on Pandox’ earnings amounted to SEK 24 M. New capacity consisted entirely of store and office premises. new capacity introduced to the market implies an If for any reason a hotel operator should Site leasehold rents increased risk for local players. depending upon choose to terminate its lease agreement, Pandox as of 31 december 2009, Pandox held seven existing demand, additional hotel rooms through may either select a new suitable operator as ten- properties via site leasehold rights. Rents on these the construction of a new hotel can lead to a rapid ant or operate the hotel under its own manage- properties are currently calculated in such a man- negative influence on occupancy rates and aver- ment. With Pandox’ specialist expertise in the ner that a municipality that normally owns the land age prices. To deal with this risk, Pandox has hotel sector, the risk of vacant hotel space is seen receives what is deemed to be a reasonable real developed an information system that continually as being extremely low. rate of interest on the estimated market value of monitors planned new constructions within its For other commercial space, which represents the land in question. Site leasehold rents generally market areas, and thus enabling Pandox to be approximately 8.5 percent of total space in the run for periods of 10 to 20 years. prepared and proactive. Company’s properties, Pandox is exposed to the same fluctuations in supply and demand for prem- Interest rates Agreement structure ises experienced by other property owners. Interest expense is Pandox’ largest single cost Pandox has a large proportion of variable leases, item. Fluctuations in interest rates will therefore which represented 94 percent of total rental reve- Changed risk potential have an impact on Pandox’ earnings. In order to nue in 2009. Historically, the hotel industry and hotel property limit its financial risk, the Company’s average fixed about 33 percent of variable leases contained sector have always been associated with high interest period is 2.3 years. The full effect of a a guaranteed rent, meaning that 61 percent of risk. The market has however changed signifi- change in interest rates is accordingly not felt by rental revenues were fully variable downwards. a cantly in recent years. owners have become more Pandox until after this period. change in the occupancy rate and the average professional with restructured companies and room revenue consequently affects Pandox very focused strategies, with a greater holistic view and Currency risk differently, depending on the direction of change. specialised expertise. Reports from public com- Pandox’ policy is to hedge the major part of its The choice of agreement is based on optimal panies have substantially improved information currency exposure, including shareholders’ equity, distribution of cash flow between Pandox and the about the transparency of the market. The propor- by financing properties in local currencies and by operator so that both parties are motivated to tion of established strong brand names with effi- hedging through means of appropriate currency continuously increase the hotel property’s overall cient operations has increased. For streamlined instruments. Transaction exposure is limited as profitability. Factors that may influence risks asso- companies with own expertise in hotel operations, revenue and costs are usually in the same cur- ciated with variable leases are the hotel property’s hotel properties and business development, and rency. 42 | Pa ndox 2009

Quality Hotel Park Södertälje City Sensitivity analysis Earnings impact 2009, SEK The table to the right illustrates how Pandox’ Change in rental revenue earnings are affected by changes in certain key occupancy rate +5 percentage points +53.0 occupancy rate –5 percentage points –52.4 factors. average room rate SEK +50 +34.0 average room rate SEK –50 –34.0 other commercial premises +/–5 %1) +/–1.7 Change in other variables Interest expense during the year +/–1 percentage point +/–37.6 average interest expense +/–1 percentage point1) +/–68.5 Exchange rate fluctuation +/–5 % +/–2.4 operating and maintenance costs +/–5 % +/–2.6 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. Pan dox 2009 | 43

VAlUATIoN AND TAx SITUATIoN Hotel property portfolio value The valuation of hotel properties with their specific characteristics demands extensive knowledge and expertise of the hotel market and hotel operations. Cash flow valuation Pandox continuously evaluates all of its hotel properties in accordance with a valuation model based on the properties’ cash flow, and which is adapted to the characteristics specific to the hotel industry. The cash flow calculation is built up from underneath, with the property operator’s income statement as the point of departure. This in turn is Hotel Twentyseven, Copenhagen based on assumptions as to how the underlying hotel market will develop in terms of occupancy and average rates, as well as how each specific operator’s respective key ratios and figures develop in this market. The operator company’s The Company’s tax situation results and forecasts, together with the formulation of the agreement, provide underlying data to estimate revenues, which subsequently constitute The Pandox Group’s property holdings are exceeds book depreciation. Tax deduction for the basis of the cash flow calculation. The value reported for accounting purposes as fixed annual depreciation of properties has normally calculated is the present value of the next ten assets. The consolidated book value as of been made at the rate of 3 to 5 percent of a prop- years’ cash flow, with a supplement for the pres- 31 december 2009 amounted to SEK erty’s acquisition cost. as a result, the amount of ent value of the hotel properties’ residual value 8,735.8 M excluding equipment, of which fiscal depreciation exceeds that of book deprecia- after ten years. the consolidated surplus values amounted tion, and the difference between the book value The valuation model is based on the following to SEK 1,694.1 M. and the fiscal value of a property increases year on assumptions: year. The deferred tax liability generated by asset • Changes in rental revenue during the calcula- Accounting of deferred tax acquisitions has been calculated using the pres- tion period are based on the formulation of indi- Pandox applies the Swedish Financial accounting ent value method based on the shortest period of vidual agreements and on underlying factors. Standards Council’s recommendation (RR 9) on ownership estimated for each property, and corre- • Inflation is assumed to amount to an average income tax. In short, this recommendation implies sponds to an average tax rate of approximately 10 of 2.0 percent annually during the calculation that both deferred tax liabilities and tax claims are percent. This is based on the Swedish Financial period. to be included in the financial statements and that accounting Standards Council’s regulation for • operating costs are assumed to increase in any changes will affect the income statement as assessing deferred tax upon pure intrinsic acquisi- line with inflation. deferred tax. tions, where the tax effect is taken into consider- • The rate of interest used in the calculation is Pandox’ consolidated balance sheet as of 31 ation when calculating the acquisition price. The based on the real interest rate plus a risk pre- december 2009 includes a deferred tax liability in deferred tax relating to the difference between mium based on location, lease, and form of the net amount of SEK 146.8 M corresponding to book depreciation and fiscal depreciation is calcu- ownership. the difference between a deferred tax liability of lated based on the applicable tax rate. SEK 363.0 M and a deferred tax claim of SEK The deferred tax claim pertains mainly to defi- an internal valuation of Pandox’ 46 hotel proper- 216.2 M. The deferred tax liability refers mainly to cit deductions. at the end of 2009, there were ties in accordance with this method resulted in a the estimated deferred tax based on the differ- remaining deficit deductions totalling SEK 780 M total value as of december 2009 that substantially ence between the properties’ consolidated book in the Swedish companies. The valuation of exceeds the book value. In accordance with the value and the fiscal residual value of each respec- deferred tax claims is based on their potential utili- Swedish Financial accounting Standards Coun- tive legal unit. The difference in value has arisen as sation against future taxable profits, and is calcu- cil’s recommendation no 17, each individual prop- an effect of surplus value upon acquisitions of lated according to the applicable tax rate. Conse- erty’s recovery value was reconciled with its book property in companies, known as pure intrinsic quently, no deficit deductions in non-Swedish value, further to which it was noted that no write acquisitions, as well as fiscal depreciation that companies were reported at the end of 2009. downs were necessary. 44 | Pa ndox 2009

DeFINITIoNS Hotel Twentyseven, Copenhagen definitions of key data Property related key figures Financial key figures Hotel market related key figures Direct yield Return on equity Occupied rooms operating net as a percentage of the average Profit after net financial items and paid tax as a number of sold room nights during a given period book value of properties and hotel equipment percentage of average equity. of time – normally one year. during the year. Return on total assets Available rooms Operating net Profit after net financial items, plus financial costs available room capacity during a given period of Hotel property revenue less operating and mainte- as a percentage of average total assets. time – normally one year. nance costs, property tax, ground rent and other property costs. Interest coverage ratio Occupancy rate Profit before tax less depreciation and net financial number of occupied rooms as a percentage of Property related administration items (EBITda) in relation to net financial items. the number of available rooms. The portion of total administration costs that is directly related to the management and develop- Equity/asset ratio Average room rate ment of a property. other administration costs Equity at the end of the year as a percentage of Total revenue from sold rooms divided by the include central administration and costs for total assets. number of occupied rooms. administration of non-Swedish entities. RevPAR Total property revenue (Revenue Per Available Room) The sum of rental revenue and other property Total revenue from sold rooms divided by the revenue. number of available rooms. Market penetration The performance of an individual hotel in relation to the average of the market. GOP (Gross Operating Profit) net profit in hotel operator companies before depreciation, rent, net financial items and taxes. Pan dox 2009 | 45

TeN-yeAR oVeRVIew Condensed consolidated income statement SEK M 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Property operations Rental revenue 476.3 551.1 536.2 535.1 562.7 548.8 605.0 747.5 872.3 850.6 other property revenue 21.4 24.0 26.0 26.5 30.2 25.2 29.9 34.7 43.2 44.6 Total property revenue 497.7 575.1 562.2 561.6 592.9 574.0 634.9 782.2 915.5 895.2 operating and maintenance costs –88.9 –96.7 –93.2 –100.1 –118.7 –103.8 –111.5 –126.3 –132.8 –117.0 Operating net 408.8 478.4 469.0 461.5 474.2 470.2 523.4 655.9 782.7 778.2 depreciation1) –45.8 –56.2 –63.2 –64.3 –70.3 –78.2 –91.3 –129.3 –163.8 –193.6 Income from property operations 363.0 422.2 405.8 397.2 403.9 392.0 432.1 526.6 618.9 584.6 Hotel operations operating revenue 28.2 39.7 60.1 81.3 216.8 250.2 420.0 788.8 1,105.3 1,095.0 operating costs1) –25.5 –39.3 –58.2 –75.7 –204.4 –239.4 –407.7 –768.2 –1,084.5 –1,129.0 operating income hotel operations 2.7 0.4 1.9 5.6 12.4 10.8 12.3 20.6 20.8 –34.0 Gross income 365.7 422.6 407.7 402.8 416.3 402.8 444.4 547.2 639.7 550.6 administrative costs1) –31.8 –33.9 –34.5 –35.5 –39.3 –42.5 –51.9 –55.4 –64.6 –68.3 other revenue/realisation results 1.9 8.6 28.8 7.4 – 444.4 39.9 3.4 6.9 – Operating income 335.8 397.3 402.0 374.7 377 804.7 432.4 495.2 582.0 482.3 non-recurring financial income & costs – – – – –56.1 – – – – 79.5 net financial items for current operations –150.7 –178.1 –171.0 –159.2 –148.4 –137.4 –166.4 –232.4 –294.7 –229.8 Income after financial items 185.1 219.2 231.0 215.5 172.5 667.3 266 262.8 287.3 332.0 deferred tax2) –27.0 –28.3 –44.2 –50.3 –47.6 36.8 –33.0 –23.5 34.2 –10.1 Tax –1.4 –0.2 –0.1 11.4 –0.2 –15.8 –31.4 –9.3 –22.2 –20.4 Income/loss for the year 156.7 190.7 186.7 176.6 124.7 688.3 201.6 230.0 299.3 301.5 1) The depreciation rate on properties is 1.0 as of 2000 and amounted to SEK 193.6 M (163.8) in 2009 of which SEK 0.4 M (0.3) relates to administration. 2) as of 2001, Pandox applies the Swedish accounting Standards Council’s recommendation in income tax (RR:9). Comparative figures for 2000 have been restated to take this into account. 46 | Pa ndox 2009

Condensed consolidated balance sheet SEK M, as of 31 December 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Assets Properties including hotel equipment 4,784.5 5,036.8 4,961.4 5,276.7 5,262.8 5,477.5 6,907.5 8,223.8 9,212.5 9,348.0 other fixed assets 13.0 5.4 6.9 7.2 6.9 113.7 172.8 139.0 794.6 843.3 Current assets 61.9 37.1 29.5 34.6 58.6 201.7 174.4 223.1 241.2 158.4 Cash and bank 16.4 86.7 213.2 137.5 58.0 236.4 174.1 272.8 347.7 326.4 Total assets 4,875.8 5,166.0 5,211.0 5,456.0 5,386.3 6,029.3 7,428.8 8,858.7 10,596.0 10,676.1 Equity and liabilities Shareholders’ equity 1,670.8 1,772.1 1,853.9 1,919.2 1,923.0 2,307.7 2,272.3 2,407.7 2,729.2 2,996.7 deferred tax liability 8.8 37.0 83.5 135.9 184.3 208.5 279.7 352.5 335.2 363.0 Interest bearing liabilities 2,934.7 3,178.5 3,070.6 3,211.9 3,080.4 3,165.3 4,398.5 5,516.8 6,808.6 6,850.5 non-interest bearing liabilities 261.5 178.4 203.0 189.0 198.5 347.8 478.3 581.7 723.0 465.9 Total equity and liabilities 4,875.8 5,166.0 5,211.0 5,456.0 5,386.3 6,029.3 7,428.8 8,858.7 10,596.0 10,676.1 Key data Property related key data Book value of properties including hotel equipment, SEK M 4,784.5 5,036.8 4,961.4 5,276.7 5,262.8 5,477.5 6,907.5 8,223.8 9,212.5 9,348.0 Total property revenue, SEK M 497.7 575.1 562.2 561.6 592.9 574.0 634.9 782.2 915.5 895.2 operating net, SEK M 408.8 478.4 469.0 461.5 474.2 470.2 523.4 655.9 782.7 778.2 direct yield, % 9.6 9.6 9.5 9.3 9.1 8.5 8.1 8.6 9.2 8.4 Financial key data Interest coverage ratio, multiple 2.5 2.6 2.6 2.7 2.2 3.2 2.9 2.7 2.5 4.5 Return on total assets, % 8.1 8.0 7.8 7.1 7.0 14.2 5.9 6.1 6.2 5.5 Return on equity, % 11.6 11.0 12.6 12.0 12.0 30.8 10.4 11.0 10.8 11.2 Equity/assets ratio, % 34.6 34.3 35.6 35.2 35.7 38.3 30.6 27.2 25.8 28.1 Cash flow from current operations, SEK M 228.2 267.2 265.8 272.4 298.9 301.4 317.6 389.0 444.5 446.4 Investments excluding acquisitions, SEK M 101.3 149.1 67.3 60.8 70.5 165.1 282.6 274.9 269.3 312.5 Property acquisitions, SEK M 2,340.3 141.9 – 370.7 – 661.3 1,327.8 1,063.4 370.9 163.3 Pan dox 2009 | 47

QUARTeRly DATA Quarterly data CoNDeNSeD INCoMe STATeMeNTS 2008 2009 SEK M Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total property revenue 199.6 243.4 220.5 252.0 203.0 230.8 218.1 243.3 operating net 165.3 209.3 187.7 220.4 171.0 201.9 188.9 216.4 Income from property operations 128.5 167.8 149.5 173.1 125.1 155.3 139.8 164.4 Income from hotel operations –15.8 18.4 8.0 10.2 –30.7 0.9 –1.6 –2.6 operating income 96.4 170.0 142.6 173.0 77.5 138.6 123.3 142.9 net financial items –72.7 –67.7 –74.8 –79.5 –74.6 –57.4 6.9 –25.2 Income after financial items 23.7 102.3 67.8 93.5 2.9 81.2 130.2 117.7 Income after tax 17.2 77.6 51.5 153.0 0.7 57.0 114.5 129.3 CoNDeNSeD CoNSolIDATeD BAlANCe SHeeTS 2008 2009 SEK M 31 Mar 30 Jun 30 Sep 31 Dec 31 Mar 30 Jun 30 Sep 31 Dec Assets Properties including hotel equipment 8,165.3 8,547.9 8,778.1 9,212.5 9,309.9 9,319.1 9,228.8 9,348.0 other fixed assets 324.2 466.2 558.6 794.6 1,214.2 1,180.6 869.4 843.3 Current assets 167.8 231.2 253.7 241.2 166.0 202.6 181.9 158.4 Cash and bank 204.7 315.3 428.8 347.7 244.4 313.0 371.4 326.4 Total assets 8,862.0 9,560.6 10,019.2 10,596.0 10,934.5 11,015.3 10,651.5 10,676.1 Equity and liabilities Shareholders’ equity 2,408.0 2,330.6 2,480.4 2,729.2 2,700.0 2,771.9 2,798.5 2,996.7 deferred tax liability 357.0 370.6 386.6 335.2 336.0 352.4 363.2 363.0 Interest bearing liabilities 5,555.0 6,232.8 6,482.6 6,808.6 7,171.8 7,333.2 6,952.6 6,850.5 non-interest bearing liabilities 542.0 626.6 669.6 723.0 726.7 557.8 537.2 465.9 Total equity and liabilities 8,862.0 9,560.6 10,019.2 10,596.0 10,934.5 11,015.3 10,651.5 10,676.1 PRoPeRTy RelATeD Key DATA 2008 2009 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 direct yield, % 8.1 10.1 8.7 9.9 7.3 8.7 8.2 9.3 FINANCIAl Key DATA 2008 2009 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Interest coverage ratio, multiple 1.8 3.1 2.4 2.8 1.7 3.7 2.8 6.1 Return on total assets, % 4.1 7.6 6.1 7.2 2.9 5.2 7.2 6.4 Return on equity, % 3.7 16.5 11.1 12.1 0.2 10.8 18.5 15.2 Equity/assets ratio, % 27.0 24.4 24.8 25.8 24.7 25.2 26.3 28.1 Cash flow from current operations, SEK M 61.3 143.2 106.0 134.0 48.9 124.0 110.6 162.9 Investments excluding acquisitions, SEK M 56.8 52.4 84.3 75.8 86.3 76.8 78.1 71.3 Property acquisitions, SEK M – 370.9 – – – – 163.3 – 48 | Pa ndox 2009

Financial statements 2009 Property revenues and total revenues Pandox’ property revenues for 2009 amounted to SEK 895.2 M (915.5), which for comparable units, including an adjustment for currency effects, represented a decrease of 7 percent against 2008. The Group’s total revenue amounted to SEK 1,778.5 M (1,804.1). Cash flow Cash flow from ongoing operations, excluding other revenue and capital gains, amounted to SEK 446.4 M (444.5). acquisitions during the year Pandox became new owner of the hotel property Vildmarkshotellet in Kolmården on 1 September. The purchase price for the property amounted to SEK 160 M and includes 213 room, large conference facilities an a newly built spa. Profits The pre-tax profit for 2009, excluding other revenue and capital gains, amounted to SEK 252.5 M (280.4). Profit after tax amounted to SEK 301.5 M (299.3). Pan dox 2009 | 49

Financial StatementS Report of the Board of directors The Board of directors and Chief Execu- Accounting principles trends of 5 to 10 percent depending on their tive officer of Pandox aB, Swedish corpo- Pandox does not apply IFRS. as an unlisted location. Relatively few markets have shown rate registration number 556030-7885, company, Pandox is not subject to the IFRS any positive developments. hereby submit the annual report and con- accounting requirements. Pandox applies the solidated accounts of the Company for stipulations of the Swedish annual accounts Pandox’ portfolio the financial year 2009. act and generally accepted accounting princip- as indicated above, Pandox’ portfolio has les, as well as the recommendations of the developed better than the market. In general, Operations and strategy Swedish accounting Standards Board unless the hotels in Malmö, Gothenburg and Swedish Pandox is one of Europe’s leading hotel pro- otherwise stated. regional cities have shown relatively stable perty companies. The Company has built up trends compared with last year. Pandox’ specialist expertise within the key areas of hotel Ownership situation Stockholm hotels have developed slightly less markets, hotel operations, hotel properties and Pandox is since the beginning of 2004 owned well than the market, although with relatively business development. active ownership, with by the norwegian companies Eiendomsspar large individual differences among the hotels. well developed strategic plans for each hotel, aS and Sundt aS through their wholly owned The Hilton Stockholm Slussen and the newly enables the creation of good prerequisites for Swedish company aPES Holding aB. refurbished Quality Hotel Park in Södertälje stable and improved cash flows, and thereby came out best, while the hotels in northern growth in value for the shareholders. The hotel market Stockholm showed poorer trends. Pandox’ strategy is to own one type of pro- Global demand in the hotel sector has fallen all Pandox hotels in Gothenburg have per- perty – hotel properties. Its focus is strengthe- substantially since the end of 2008 as a result formed better than the market as a whole, with ned by a prioritised market segment. of a troubled surrounding world with a broad only a marginal downturn compared with last Pandox is to own large hotel properties in financial crisis and subsequent economic year. Pandox’ Malmö hotels have also shown Sweden, major locations in Europe, as well as downturn. strong trends, due partly to good demand in developing regions in Eastern Europe and RevPaR in the United States fell by 17 per- conjunction with the U21 European Football north america. cent during the year compared with 2008, and Championship and considerable interest from The hotels should be in central and strong was spread equally between price and volume. denmark. In a tough Copenhagen market with locations such as city centres, airports and The luxury segment was affected hardest, with fewer international meetings the Scandic exhibition centres. The hotels should be in the a fall in RevPaR of 24 percent. new York, which Copenhagen and Clarion Collection Hotel 27 upper medium to high price range and focus on is placed in the beginning of the economic reported relatively weak results for the period. the business and leisure segments.The hotels cycle, recovered well in the last quarter of the Pandox’ four German hotels have seen owned by Pandox are operated and marketed year, and is relatively close to stabilisation of its uneven trends. Hotel Berlin, Berlin, which is run by the most powerful players in the hotel mar- revenues. as own operations and has undergone sub- ket, who with well known brands and dynamic Europe has experienced similar develop- stantial repositioning, generated stable cash independent distribution channels create ments as in the United States. The pattern nor- flows compared with last year. strong market positions and thereby stable mally progresses with a time-lapse of about six The Hilton London docklands has mana- revenues. months, but this time the markets have develo- ged the downturn well, but has nonetheless Revenues are created by flexible agree- ped almost in parallel. London managed well in lost to competitive groups. ments related to the operator’s turnover and 2009, and declined by only 3 percent, which Pandox’ Belgian hotel portfolio has develo- results or through management agreements was entirely attributable to lower average rates. ped unevenly. Hotel Bloom and the Crowne where Pandox assigns a third party to manage Berlin and Brussels both fell in volume and Plaza Brussels City Centre have taken market operations, or alternatively through its own price. Brussels came out worst with a decrease shares. after a difficult start, the Hilton Brussels management. Irrespective of the form of opera- in RevPaR of 16 percent, while Berlin declined City has increased its volumes and is well-pla- tion, Pandox contributes via its active owner- by 9 percent. ced as 2010 gets under way. Similar patterns ship to increasing total cash flows and reducing all of the major markets in Scandinavia can be seen at the Scandic Grand Place. The risks. experienced lower revenues during the year. Holiday Inn Brussels airport was totally refur- at the end of the year, the Company’s port- Copenhagen suffered already in the last quarter bished during the year with the goal of beco- folio contained 46 hotel properties and nine of 2008, and lost 11 percent in 2009 despite ming Brussels airport’s best medium-priced hotel operations of which one asset manage- several large international congresses at the hotel. Revenues subsequently declined more ment assignment. Pandox owns and develops end of the year. Stockholm and Helsinki fell by than the market, but the hotel is showing good assets in Sweden, denmark, Belgium, Ger- 11 percent and around 16 percent respectively, growth further to the launch of the new product many, Switzerland, the United Kingdom, due primarily to less international travel. in the autumn. In antwerp, the market is under Canada and the Bahamas. The Swedish regional cities, which are nor- considerable pressure in both price and mally stable, also experienced downward volume. The Pandox-owned Scandic antwerp 50 | Pa ndox 2009

has managed to maintain volumes, while the Financing and cash flow administrative court. The case has been put on Crowne Plaza antwerp, which is run as own net financial items relating to current opera- hold awaiting the Supreme administrative operations, has lost market shares due prima- tions for the period January–december 2009 Court’s judgement in another (non-Pandox rily to a fall in the number of meetings in the city. amounted to SEK –229.8 M (–294.7). related) case. The Company is of the opinion after a good start, revenues within Montreal’s The Group’s interest-bearing liabilities that all transactions and claims have been hotel market decreased by almost 14 percent amounted as of 31 december 2009 to SEK made in accordance with applicable laws and in 2009. Hyatt performed better than the mar- 6,850.5 M (6,808.6). The loan portfolio has a therefore no reserves have been booked in the ket, due mainly to greater focus on revenue spread due-date structure with an average Groups’ accounting. management, while the InterContinental deve- fixed-capital period of 7.5 years and an average loped less well due entirely to the hotel’s total fixed-interest period of 2.3 years. The average Personnel refurbishment during the year. interest rate on loans at 31 december 2009 Central administration counted 18 employees was 2.63 percent. Financing of Swedish pro- as at 31 december. Figures concerning aver- Revenues and operating net perties has been made in Swedish kronor age number of employees, as well as salaries – property operations (SEK), while properties outside Sweden have and other remuneration are set out in note 16. Property management revenues for the year essentially been financed in each respective amounted to SEK 895.2 M (915.5). For compa- local currency. The work of the Board of Directors 2009 rable units and currencies, the portfolio decli- available liquid funds, including unutilised The Board of directors of Pandox has been ned by –7 percent. This fall is principally attribu- bank overdraft and credit facilities totalling SEK composed of seven members since the annual table to the generally poorer underlying hotel 1,182 M amounted to SEK 1,508 M (1,521). General Meeting of Shareholders held in 2009. economic climate in all of Pandox’ sub-mar- Further to the end of the year, agreements for during the year, the Board has held four ordi- kets. In particular, the refurbishment projects at further credit facilities for a total of SEK 300 M nary meetings in accordance with the establis- the InterContinental Montreal and Holiday Inn have been signed. available liquid funds, inclu- hed annual agenda. The meetings have revie- Brussels airport simultaneously reduced the ding unutilised bank overdraft and credit facili- wed and discussed external and internal report- revenue capacity in the portfolio during the ties now amount to SEK 1,808 M. ing of operating results and the Company’s year. However, at the hotel property level in Cash flow before changes in working capi- financial position as well as various business each respective sub-market, there are relatively tal and investments, excluding non-recurring matters. other important items that are regu- large differences in results depending on their items and tax, amounted to SEK 446.4 M larly studied and reviewed each year are mar- location, market segment, type of agreement (444.5). keting, strategy, finance, and budget issues. and operator. Property costs excluding depreciation amounted to SEK 117.0 M (132.8). Investments Parent Company The operating net declined in total by SEK The Pandox Group’s investments, excluding Property activities in the Group’s property- 4.5 M to SEK 778.2 M (782.7). For comparable acquisitions, amounted for the year to SEK owning companies are administered by staff units, the operating net decreased by SEK 16.5 312.5 M (269.3). Investments pertained prima- employed by the Parent Company, Pandox aB. M, or by 2.1 percent. direct yield for the period rily to refurbishment programs at the Holiday The cost of these services has been invoiced to was 8.4 percent (9.2). Inn Brussels airport, Hotel Berlin, Berlin, Inter- the Group’s subsidiaries. Invoicing in 2009 Continental Montreal, Hyatt Regency Montreal amounted to SEK 51.1 M (55.2). The profit for Revenues and income – hotel operations and the Radisson Blu Basle, as well as product the year amounted to SEK 400.0 M (–161.1). Total revenues from hotel operations amounted improvements in a large number of properties. to SEK 1,095.0 M (1,105.3). For comparable The net book value of hotel properties, Outlook for 2010 units and adjusted for currency effects, reve- including furniture, fixtures and equipment, Revenues in the hotel sector are expected to nues fell by about 13 percent, due primarily to amounted to SEK 9,348.0 M (9,212.5). The be gradually more stable in 2010. If one studies the weaker hotel economic climate and a short- market value of the hotel properties significantly new York, which is placed in the beginning of fall in revenues and profits subsequent to exten- exceeds their book value. the economic cycle, and assuming that reve- sive refurbishments at the InterContinental nues will even out during the spring, the prere- Montreal and Holiday Inn Brussels airport. The Taxes quisites are that the same pattern will spread to overall loss from hotel operations amounted to The Swedish Tax agency has in a reassess- Europe during the summer and autumn – SEK –34.0 M (20.8). ment notice dated october 2007, decided to which is good news. at the same time, prices increase the assessed income of a number of are under pressure, which will reduce producti- Income Pandox’s subsidiaries by in total SEK 430 M vity and subsequently profitability. Pandox fore- The Group’s profit for 2009 before tax and (corresponding tax effect of SEK 120.4 M) as a casts that the Company will continue to pro- excluding non-recurring items amounted to consequence of the sale of real estate through duce stable cash flows in 2010. SEK 252.5 M (280.4). non-Swedish subsidiaries carried out in 2005. The decision has been appealed to the county Pan dox 2009 | 51

Financial StatementS Income statement Group Parent Company SEK M 2009 2008 2009 2008 Property operations Rental revenue note 1, 2, 3 850.6 872.3 – – other property revenue 44.6 43.2 – – Total property revenue 895.2 915.5 – – Property costs –117.0 –132.8 – – Operating net 778.2 782.7 – – depreciation as per plan note 4 –193.6 –163.8 – – Income from property operations 584.6 618.9 – – Hotel operations operating revenue 1,095.0 1,105.3 – – operating costs –1,129.0 –1,084.5 – – operating income from hotel operations note 1, 2, 16 –34.0 20.8 – – Gross income 550.6 639.7 – – administrative costs note 4, 15, 16 –68,3 –64.6 –62.3 –59.7 other revenue note 5 – 6.9 51.1 55.2 Operating income 482.3 582.0 –11.2 –4.5 Interest income note 6 25.5 12.6 457.8 234.3 Interest expense –256.5 –310.5 –202.9 –279.8 other financial income and costs note 6 80.7 3.2 188.1 –168.2 Net financial items –150.3 –294.7 443.0 –213.7 Income before tax 332.0 287.3 431.8 –218.2 Tax note 7 –20.4 –22.2 25.3 – deferred tax note 7 –10.1 34.2 –57.1 57.1 INCOME FOR THE YEAR 301.5 299.3 400.0 –161.1 Specification of external revenue Revenue from property operations 895.2 915.5 of which internal rentals –211.7 –216.7 Revenue from hotel operations 1,095.0 1,105.3 Total external revenue 1,778.5 1,804.1 52 | Pa ndox 2009

Comments on the income statement Rental revenue Maintenance costs Operating net Rental revenue pertains to hotel premises, hotel Maintenance costs are costs incurred to main- The operating net for 2009 amounted to SEK furniture and equipment, and other commercial tain the standards of buildings and equipment. 778.2 M, representing a decrease of SEK 4.5 M. premises. Rental revenue for 2009 decreased Pandox’ leases are in most cases structured direct yield amounted to 8.4 percent (9.2). in relation to the previous year and amounted to sothat the tenants – the hotel operators – are SEK 850.6 M (872.3). responsible for the greater part of interior main- Hotel operations tenance of the properties. For accounting purposes, the hotel operations Other property revenue conducted by Pandox are charged with internal other property revenue is primarily comprised Ground rent rent. The internal rent is linked to the operator’s of costs debited for heat, electricity and pro- a total of seven properties owned by Pandox revenue and based on what are deemed to be perty tax. are held under site leasehold rights. The condi- market conditions. The internal rent is debited tions and maturities in all cases are based on to hotel operations and credited to revenue in BReaKDOWn OF OtHeR PROPeRtY ReVenUe prevailing market terms. property management. SEK M 2009 2008 In 2009 no hotel operations was acquired. Payment for operating costs 10.3 9.5 Property tax In May an agreement was settled with Choice Invoicing of property tax 34.3 33.7 Pandox’ Swedish hotel properties are liable to Hotels Scandinavia regarding the their take Total 44.6 43.2 property tax at the rate of 1 percent of the tax over of the hotel operations in Quality Hotel assessment value. Properties located outside Park Södertälje. With that, eight hotel opera- Property costs Sweden are subject to varying percentages tions remains in Pandox portfolio at the end of Operating costs and underlying basis. 2009 of which five were directly operated by operating costs are costs that directly pertain Pandox and three via management contracts. to the operation of the properties, such as heat, Other costs water, electricity, and maintenance. Costs are These costs include costs of legal counsel on Administrative costs reported gross, meaning that the portion of leasing matters, insurance premiums, and administrative costs relate to central adminis- costs debited to tenants is reported as revenue costs of leasing external premises. tration, as well as foreign hotel property admi- under the heading other Property Revenue, nistration. all central administrative staff is BReaKDOWn OF PROPeRtY cOStS and that total costs are reported among costs based at the Stockholm office. The remunera- SEK M 2009 2008 in their full amount. tion of staff and auditors is set out in notes 15 operating costs 21.9 23.6 and 16. Maintenance costs 30.9 33.5 Ground rents 1.5 12.7 Property tax 58.5 57.2 other costs 4.2 5.8 Total 117.0 132.8 Pan dox 2009 | 53

Financial StatementS Balance sheet Group Parent Company SEK M 2009 2008 2009 2008 ASSETS Fixed assets Tangible fixed assets Properties note 8 8,735.8 8,665.8 – – Equipment note 9 613.5 547.4 1.3 0.7 9,349.3 9,213.2 1.3 0.8 Financial fixed assets Shares and participations in subsidiaries note 10 – – 4,270.6 3,835.6 other shares and participations note 11 610.2 544.4 – – amounts due by Group companies – – 3,885.3 2,965.5 other long-term receivables 15.6 15.0 14.7 14.0 625.8 559.4 8,170.6 6,815.1 deferred taxes recoverable 216.2 234.5 – 57.1 Total fixed assets 10,191.3 10,007.1 8 ,171.9 6,872.9 Current assets Inventories 8.2 6.5 – – accounts receivables 99.7 81.0 – – Tax receivables 5.3 – – – other receivables 16.9 122.6 5.6 5.5 Prepaid costs and accrued revenue 28.3 31.1 1.5 1.5 Cash and bank 326.4 347.7 199.3 111.4 Total current assets 484.8 588.9 206.4 118.4 TOTAL ASSETS 10,676.1 10,596.0 8,378.3 6,991.3 Comments on the balance sheet Properties and equipment the end of the year, the book value of the pro- quarterly and monthly in advance, amounts one hotel property was acquired in 2009. perties, including hotel furniture, fixtures and outstanding at year-end mainly comprise depreciation of properties amounted to SEK equipment, amounted to SEK 9,348.0 M. accrued revenue-based rents. 108.8 M (98.6), and the year’s investments to other items consist of administration equip- SEK 224.1 M (138.3). The book value of equipment with a book value of SEK 1.3 M. Other receivables ment, including hotel furniture and fixtures Short-term receivables such as those pertain- amounted to SEK 613.5 M (547.4). deprecia- Other long-term receivables ing to costs that are to be debited to external tion amounted to SEK 85.2 M (65.5) and invest- Pertain to a long-term promissory note and to a parties. ments to SEK 89.4 M (131.0). pledged deposit. The greater part of the book value of furni- Prepaid costs and accrued revenue ture, fixtures and equipment, representing SEK Inventories This item is comprised mainly of prepaid costs 613.5 M, pertains to that used by hotel opera- Relate to stocks of consumables in the hotel for the following year, such as insurance premi- tors. In certain cases, these items are included operations. ums and rents. as an unspecified portion of rent, and in other cases as a separate rental charge. When these Trade accounts receivable Cash and bank deposits items are included in rental revenues, Pandox Pandox’ accounts receivable normally consists The liquidity of the Pandox Group is primarily includes their value in the property value used of rental receivables and trade receivables in managed by the Parent Company through a to calculate direct yield from the properties. at hotel operations. Since rent is generally paid central bank account structure where liquidity 54 | Pa ndox 2009

Group Parent Company SEK M 2009 2008 2009 2008 EQUITY AND LIABILITIES Equity Restricted equity Share capital 373.5 373.5 373.5 373.5 Restricted reserves 1,051.1 1,050.2 830.0 830.0 1,424.6 1,423.7 1,203.5 1,203.5 Unrestricted equity Unrestricted reserves 1,207.6 1,006.2 129.1 219.4 Profit for the year 301.5 299.3 400.0 –161.1 1,572.1 1,305.5 529.1 58.3 Total shareholders’ equity 2,996.7 2,729.2 1,732.6 1,261.8 Provisions deferred tax liabilities note 7 363.0 335.2 – – 363.0 335.2 – – Liabilities Liabilities to credit institutions note 11 6,850.5 6,608.6 4,199.7 4,559.2 Trade accounts payable 87.3 100.1 21.3 23.2 Liabilities to Group companies – – 2,335.4 987.5 Tax liabilities 13.9 14.4 – – other liabilities 98.3 232.2 3.0 0.1 accrued expenses and prepaid revenue note 13 266.4 376.3 86.3 159.5 Total liabilities 7,679.4 7,531.6 6,645.7 5,729.5 TOTAL EQUITY AND LIABILITIES 10,676.1 10,596.0 8,378.3 6,991.3 Pledged assets note 14 4,961.9 5,239.2 12.2 12.2 Contingent liabilities note 14 2.5 2.3 2,675.3 2,221.6 is assembled in a joint interest-bearing transac- amounting to SEK 3,762.3 M carries a fixed Contingent liabilities tion account. Surplus liquidity can also be interest rate for a period of less than one year. The Parent Company’s contingent liabilities invested as a fixed term bank deposit. In addi- Further details are set out in the Financial over- refer mainly to guarantees to banks with regard tion, Pandox has unutilised credit facilities for a view section on page 40. to subsidiaries’ debts. total of SEK 1,182 M. Deferred tax liability Restricted reserves Parent Company In 2009 the deferred tax items are accounted for opening balance adjusted for non exercised on a gross basis. Further details are set out in options. the Pandox’ Tax Situation section on page 44. Liabilities to credit institutions Accrued expenses and prepaid income as at 31 december 2009, Pandox’ total inte- The amount pertains essentially to accrued rest-bearing liabilities amounted to SEK interest expense and prepaid rent. 6,850.5 M, spread over six lenders and seven currencies. Because financing is arranged Pledged assets mainly through long-term credit agreements, This item refers mainly to property mortgages the majority of the debt is considered as long- pledged to credit institutions as collateral for term. as regards fixed interest rates, debt loans. Pan dox 2009 | 55

Financial StatementS Changes in equity Restricted Unrestricted Profit SEK M Share capital reserves reserves for the year Total Group 2008 opening balance 373.5 886.8 917.4 230.0 2,407.7 appropriation of profits – – 230.0 –230.0 – other changes – –1.9 1.9 – – dividend – – –161.9 – –161.9 Group contribution – – – – – Translation differences including tax effect – 165.3 18.8 – 184.1 Profit for the year – – – 299.3 299.3 373.5 1,050.2 1,006.2 299.3 2,729.2 Group 2009 opening balance 373.5 1,050.2 1,006.2 299.3 2,729,2 appropriation of profits – – 299.3 –299.3 – other changes – –69.4 69.4 – – dividend – – – – – Group contribution – – – – – Translation differences including tax effect – 70.3 –104.3 – –34.0 Profit for the year – – – 301.5 301.5 373.5 1,051.1 1,270.6 301.5 2,996.7 Parent Company 2008 opening balance 373.5 830.0 394.4 –13.1 1,584.8 appropriation of profits – – –13.1 13.1 – dividend – – –161.9 – –161.9 Group contribution – – – – – Profit for the year – – – –161.1 –161.1 373.5 830.0 219.4 –161.1 1,261.8 Parent Company 2009 opening balance 373.5 830.0 219.4 –161.1 1,261.8 appropriation of profits – – –161.1 161.1 – dividend – – – – – Group contribution – – 70.8 – 70.8 Profit for the year – – – 400.0 400.0 373.5 830.0 129.1 400.0 1,732.6 Translation differences include a tax effect of SEK 43.5 M (–89.6) regarding currency hedging of non-Swedish operations. The number of shares as at 31 december 2009 amounted to 24,900,000 with one vote per share and a nominal value of SEK 15 per share. 56 | Pa ndox 2009

Cash flow statement Group Parent Company SEK M 2009 2008 2009 2008 Current operations Profit/loss before financial items 561.7 582.0 –11.2 –4.5 depreciation 194.0 164.1 0.4 0.3 Interest received 4.6 12.6 457.8 234.3 Interest paid and other financial costs –247.0 –307.2 –88.4 –467.7 Tax paid –26.2 –14.8 – – Cash flow from current operations before change in working capital and investments 487.1 436.7 358.6 –237.6 Change in working capital Increase/decrease (±) in operating receivables 87.5 –18.0 96.0 –2.2 Increase/decrease (±) in operating liabilities –98.8 45.7 1,349.2 365.9 Total change in working capital –11.3 27.7 1,445.2 363.7 Cash flow from current operations after change in working capital and investments 475.8 464.4 1,803.8 126.1 Investment operations Investment shares and participations –65.7 –544.4 –434.9 –544.8 Investments in properties and equipment –313.5 –269.3 –1.0 –0.2 acquisition of properties and equipment –163.3 –370.9 – – Sale of fixed assets – 1.8 – 2.7 Total investments –542.5 –1,182.8 –435.9 –542.3 Cash flow after investments –66.7 –718.4 1,367.9 –416.2 Financing operations Change in financial fixed assets – – –920.5 –50.9 Change in interest-bearing loans 42.0 970.9 –359.5 665.0 dividend – –161.9 – –161.9 Cash flow from financing operation 42.0 809.1 –1,280.0 452.2 Change in liquid funds –24.7 90.6 87.9 36.0 Liquid funds at the beginning of the year 347.7 272.8 111.4 75.4 Exchange rate difference in liquid assets 3.4 –15.7 – – Liquid funds at the end of the year 326.4 347.7 199.3 111.4 Change in liquid funds –24.7 90.6 87.9 36.0 Comments on the cash flow statement adjusted for other revenue and capital gains of SEK 79.5 M (6.9) the cash flow from current operations amounts to SEK 446.4 M (444.5). Cash flow per share rose to SEK 17.93 (17.85). Pan dox 2009 | 57

Financial StatementS accounting principles The annual report and accounts have dation implies that both deferred tax liabilities Tangible fixed assets been prepared in accordance with the and tax recoverable shall be included in the When new construction and additions are car- Swedish annual accounts act and gene- financial statements, and that any changes ried out, all direct costs including project costs rally accepted accounting principles, as shall affect the income statement as deferred are capitalised. In the case of refurbishments, well as taking into account the recom- tax. The deferred tax relating to the difference in direct costs related to the improvement of pro- mendations of the Swedish accounting book depreciation and fiscal depreciation shall perties compared with their original condition Standards Board if not stated otherwise. be calculated using the prevailing tax rate. are capitalised. Pandox’ accounting and evaluation prin- acquisitions based on the deferred tax lia- Costs of repairing a property to its original ciples are in general unchanged compa- bility relating to asset acquisitions shall be condition are not capitalised. an exception to red with last year. based on the acquisition price and be calcula- this principle involves the costs of measures ted from each respective property’s shortest taken further to neglected maintenance esta- Consolidated accounts estimated period of ownership, resulting in an blished at the time of an acquisition, and where The consolidated accounts for the Group average tax rate of approximately 10 percent. the acquisition price is adjusted accordingly. include all subsidiaries as at financial year-end. The deferred tax recoverable pertaining to Costs of tenant-related modifications that The Swedish Financial accounting Stan- estimated tax recoverable related to deficit imply that the rent may be increased are capita- dards Council’s recommendation RR 1:00 has deductions in the Company are valued based lised and depreciated over the remaining period been applied in the preparation of the financial on the estimated potential utilisation against of the lease. statements. The consolidated accounts have future taxable profits, and are calculated based depreciation according to plan is calculated been prepared in accordance with the on the prevailing tax rate. on the acquisition value at the following percen- purchase method, whereby assets and liabili- tages: ties have been taken over at market value in Property operations % accordance with an acquisition analysis. The The Group’s properties are reported in the Buildings 1.0 difference between acquisition value and balance sheet as fixed assets in view of the Building fixtures 4–6.7 purpose of the holdings being the long-term Land improvements 3.5 acquired shareholders’ equity has been added Equipment 6.7–33 to land and buildings as surplus value. Surplus ownership, management and development of value is amortised in accordance with the same the properties. principle used for properties. Estimated defer- Pandox changed the depreciation rate for buil- red tax liability with respect to Group surplus Hotel operations dings from 1.5 percent to 1 percent with effect value and estimated deferred tax recoverable The hotel operations conducted by Pandox are from 2000. are reported net as a deferred tax liability in the charged with internal rent for accounting pur- depreciation according to plan is calculated balance sheet. poses. The internal rent is linked to the opera- on the acquisition value and a residual value of ting companies’ revenue and based on what SEK 0. Tax are deemed to be market conditions. The inter- Pandox applies the Swedish Financial accoun- nal rent is expensed to hotel operations, and Write-down of fixed assets ting Standards Council’s recommendation RR carried as revenue in property operations. The Group’s properties are continuously valued 9 regarding income tax. Briefly, the recommen- in accordance with an internal cash flow model, 58 | Pa ndox 2009

which also fulfils the requirement to calculate Shares and participations Receivables and liabilities expressed in the utilisation value in accordance with RR:17 Shares and participations in subsidiaries and foreign currencies whereby the recoverable value, which is the subsidiaries of subsidiaries have been stated at Receivables and liabilities expressed in foreign greater of the net sales value and the utilisation acquisition value with the exception of holdings currencies are restated at the rate of exchange value, is compared with the property’s book that may have been written down to their esti- prevailing on balance sheet date. any differen- value in order to assess the need for a possible mated actual value. ces that may arise are either credited or debited write-down. to income. When loans or forward contracts Financial instruments are entered into to hedge investments in inter- Leasing Interest swaps are used to change underlying national subsidiaries, any exchange rate diffe- Pandox reports all leasing contracts as opera- financial liabilities’ interest-due structure. Reve- rences that may arise are offset in the Group by tional. Leasing contracts entered into concern nue and costs related to interest swaps are an amount corresponding to the differences private cars and office machines. They are not reported net as interest costs, and are spread arising from the recalculation of the net assets significant in size and do not therefore influence over the duration of each contract. of international subsidiaries. an assessment of the Group’s results and financial position. International subsidiaries Other receivables and liabilities International subsidiaries are stated as per the Receivables have been stated in the amounts Revenue current rate method, which implies that the expected to be received. other assets and lia- Management revenue pertains to rental reve- income statement is restated at the average bilities have been stated at nominal values. nue as well as re-debited operating costs and exchange rate of the period, and the balance property tax. Revenue and costs related to the sheet at the exchange rate prevailing on the operations of hotel operators are reported closing day. The exchange rate difference that separately in the consolidated income state- arises as a result of this method is recorded ment. Rental revenue is spread over a period of directly against the Group’s equity. any compa- time in accordance with the terms of each nies acquired during the year are included in lease. This implies that rent paid in advance is the Group at an amount relating to the period reported as prepaid rental revenue. following such acquisition. Pan dox 2009 | 59

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 2009 Stockholm Gothenburg Öresund Rest of Sweden International Adjustment Total Property revenue 167.7 85.2 182.3 120.1 339.9 –211.7 683.5 Property costs –26.5 –7.2 –30.7 –15.8 –36.8 – –117.0 operating net 141.2 78.0 151.6 104.3 303.1 –211.7 566.5 Book value of properties 1,386.2 756.1 1,488.1 998.8 4,718.8 – 9,348.0 Investments 50.6 1.8 12.2 13.9 234.0 – 312.5 operating revenue – hotel operations 16.1 – 8.9 – 1,070.0 – 1,095.0 operating costs – hotel operations –15.4 – –9.2 – –1,104.4 211.7 –917.3 operating profit – hotel operations 0.7 – –0.3 – –34.4 211.7 177.7 Year 2008 Stockholm Gothenburg Öresund Rest of Sweden International Adjustment Total Property revenue 187.9 84.5 183.5 116.7 342.9 –216.7 698.9 Property costs –39.3 –8.1 –33.0 –16.3 –36.1 –132.8 operating net 148.6 76.4 150.5 100.4 306.8 –216.7 566.0 Book value of properties 1,360.5 766.8 1,518.7 834.7 4,731.8 9,212.5 Investments 56.7 23.6 9.2 19.8 160.0 269.3 operating revenue – hotel operations 51.6 – 10.4 – 1,043.3 1,105.3 operating costs – hotel operations –55.1 – –10.6 – –1,018.9 216.7 –867.9 operating profit – hotel operations –3.5 – –0.2 – 24.4 216.7 237.4 NOTE 2 RENTAL REvENUE Revenues from hotel operations pertain to business, of which three are operated under management agreements with Hilton, InterContinental and Hyatt respectively, 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 211.7 M for the year 2009 (216.7). NOTE 3 GEOGRAPHICAL DISTRIBUTION OF RENTAL REvENUE % 2009 2008 Sweden 53 54 denmark 8 9 United Kingdom 5 5 Germany 13 12 Belgium 15 15 Switzerland 2 2 Canada 4 3 Total 100 100 60 | Pa ndox 2009

NOTE 4 DEPRECIATION ACCORDING TO PLAN Group Parent Company SEK M 2009 2008 2009 2008 Buildings –108.0 –97.8 – – Land improvements –0.8 –0.8 – – Equipment –85.2 –65.5 –0.4 –0.3 Total depreciation –194.0 –164.1 –0.4 –0.3 depreciation amounts to a total of SEK 194.0 M of which SEK 193.6 M (163.8) refers to property operations and SEK 0.4 M (0.3) to administration. NOTE 5 OTHER REvENUE other revenue of SEK 6.9 M in 2008 refered to a compensation for a parking rental contract and sale of a minor office asset in Östersund. Property activities in the Group’s property-owning companies are administered by staff employed by the Parent Company. The cost of these services has been invoiced to the Group’s subsidiaries. Invoicing in 2009 amounted to SEK 51.1 M (55.2). NOTE 6 INTEREST INCOME AND OTHER FINANCIAL INCOME AND COSTS The interest income of the Parent Company is divided into SEK 77.3 M (230.3) from Group companies, SEK 1.1 M (4.0) from external parties, and SEK 379.4 M from dividends from subsidiaries. of SEK 188.1 M (–168.2) in other financial income and cost in the Parent Company, SEK 190.3 M (–167.8) pertains to currency effects in valuation of liabilities in foreign currency at closing date exchange rate. of SEK 25.5 M (12.4) in Group interest income, SEK 4.6 M refers to external interest income and SEK 20.9 M refers to dividends from other shares and participations. other finacial and costs in the Group amounts to SEK 80.7 M (3.2) of which SEK 79.5 M pertains to capital gains further to the sale of shares in HoST Hotels & Resorts Inc. NOTE 7 DEFERRED TAx AND ACTUAL TAx Group Parent Company SEK M 2009 2008 2009 2008 Deferred tax expense for the year deferred tax expense relating to temporary differences –38.5 –2.9 –0.7 – deferred tax expense relating to deficit deductions –15.9 109.9 –56.4 60.0 deferred tax expense relating to other provisions 44.3 –80.0 – 0.8 Effect of income tax rate changes – 7.2 – –3.7 Deferred tax reported in the income statement –10.1 34.2 –57.1 57.1 Actual tax in the income statement –20.4 –22.2 25.3 – Difference between reported tax and nominal tax rate Reported profit before tax 332.0 283.3 431.8 –218.2 Tax as per applicable tax rate –87.3 –83.0 –113.6 57.4 Tax effect due to nontaxable income 36.8 0.1 134.5 0.0 Tax effect of nondeductible costs and other tax adjustments –21.1 52.8 –52.7 –0.3 Tax effect relating to foreign operations 41.1 34.9 – – Effect of income tax rate changes – 7.2 – – Reported tax expense –30.5 12.0 –31,8 57.1 Deferred tax recoverable deficit deductions 205.2 222.5 – 56.4 other deferred tax recoverable 11.0 12.0 – 0.7 Total deferred tax recoverable 216.2 234.5 – 57.1 Deferred tax liabilities differences between book value and fiscal value of properties 363.0 335.2 – – Total deferred tax liabilities 363.0 335.2 – – Total deferred tax liabilities/recoverable net –146.8 –100.7 – 57.1 The Group’s nominal tax rate is estimated at 26.9 percent and in the Parent Company it amounts to 26.3 percent. after income tax rate cut as per 1 January 2009 from 28.0 percent to 26.3 percent the deferred tax balance items was recalculated for the year 2008 in the Group as well as in the Parent Company to reflect the new tax rate. The effects 2008 are presented under deferred tax expense for the year. The effective income tax rate in the Group amounted in 2009 to 9.2 percent (–4.2) and in the Parent Company to 7.4 percent (26.2). Pan dox 2009 | 61

Financial StatementS NOTE 8 LAND AND BUILDINGS Group SEK M 2009 2008 opening acquisition value 9,641.4 8,589.3 Reclassified as equipment –5.2 –14.0 acquisition of properties 89.4 360.5 Investments 224.1 138.3 Sales – – Translation differences – balance sheet –151.0 567.3 Closing accumulated acquisition value 9,798.7 9,641.4 opening depreciation –975.6 –785.6 Sales – – depreciation for the year –108.8 –98.6 Translation differences – balance sheet 21.5 –91.4 Closing accumulated depreciation –1,062.9 –975,6 Closing residual value 8,735.8 8,665.8 Tax assessment value of Swedish properties 2,521.7 2,509.4 of which land 707.9 730.6 The Group’s opening acquisition value and opening depreciation regarding 2008 have been adjusted with SEK –242.8 M and SEK 242.8 M respectively. The closing residual value has thus not been affected. NOTE 9 EQUIPMENT Group Parent Company SEK M 2009 2008 2009 2008 opening acquisition value 900.4 641.6 3.6 3.4 Reclassified from land and buildings 5.2 14.0 – – acquisition of equipment 73.9 10.3 – – Investments 89.4 131.0 1.0 0.2 Sales/disposals – –3.5 – – Translation differences – balance sheet –31.0 107.0 – – Closing accumulated acquisition value 1,037.9 900.4 4.6 3.6 opening depreciation –353.0 –486.7 –2.9 –2.6 Sales/disposals – 1.7 – – depreciation for the year –85.2 –65.5 –0.4 –0.3 Translation differences – balance sheet 13.8 –68.5 – – Closing accumulated depreciation –424.4 –353.0 –3.3 –0.3 Closing residual value 613.5 547.4 1.3 0.7 The Group’s opening acquisition value and opening depreciation regarding 2008 have been adjusted with SEK –266.0 M and SEK 266.0 M respectively. The closing residual value has thus not been affected. 62 | Pa ndox 2009

NOTE 10 SHARES AND PARTICIPATIONS IN SUBSIDIARIES Registered Number Percent Corp. Reg. No. 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 5,500 100 100 304.7 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 Pandox Belgien aB 556495-0078 Stockholm 1,000 100 100 4.0 Pandox Hotel Management aB 556469-9782 Stockholm 1,000 100 100 0.1 Malmö Favorit Hotell aB 556475-9446 Stockholm 1,000 100 100 16.1 Pandox Luxemburg aB 556515-9216 Stockholm 10,000 10 100 68.3 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 61.5 Grand i Borås Fastighets aB 556030-7083 Stockholm 6,506 100 100 10.0 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 Hotellus Östersund aB 556367-3697 Stockholm 1,000 100 100 3.0 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 Sa 446188 Brussels 3,000 – 100 291.4 Convention Hotel International aG 270.3.001.168-3 Basel 14,000 – 100 6.2 Hotellus denmark a/S 28970927 Copenhagen 5,000 – 100 1,021.6 Hotel Bloom Sa 0476.704.322 Brussels 68,808 – 100 67.3 Pandox Belgium Sa 0890.427.732 Brussels 100,000 – 100 471.6 Pandox i Malmö aB 556704-3723 Stockholm 1,000 100 100 142.0 Ypsilon Hotell aB 556481-4134 Stockholm 1,000 100 100 39.8 Pandox Kolmården aB 556706-8316 Stockholm 100,000 1 100 0.1 Hotellus Sverige Ett aB 556778-8699 Stockholm 1,000 100 100 0.1 Hotellus Sverige Två aB 556778-8707 Stockholm 1,000 100 100 0.1 Total Pandox AB 4,270.6 Corp. reg. no. Registered office Corp. reg. no. Registered office Group Holcro nV – Belgium arlanda Flyghotell KB 916500-8021 Stockholm Hotellus Suomi oY – Finland Fastighetsbolaget Utkiken KB 916611-7755 Stockholm Hotellus nord oY – Finland Fastighets aB Hotell Kramer 556473-6402 Stockholm Euro Lifim BV – netherlands Hotellus nordic aB 556554-6594 Stockholm Hotellus Europe BV – netherlands Hotellus Järva Krog aB 556351-7365 Stockholm Pandox Holland BV – netherlands Hotellus Mölndal aB 556554-6636 Stockholm Pandox Holland 2 BV – netherlands Bioeffect aB 556244-5030 Stockholm Hotellus Luxemburg Sarl – Luxemburg Vestervold KB 916631-9534 Stockholm Hotellus deutschland GmbH – Germany Hotellus Mellansverige aB 556745-4656 Stockholm atlantis GmbH – Germany Skogshöjd Handels & Fastighets aB 556066-0432 Stockholm Pandox Berlin GmbH – Germany Hotellus Belgium nV – Belgium Hotellus Canada Holdings Inc – Canada Grand Hotel Brussels nV – Belgium Hotellus Montreal Holdings Inc – Canada Town Hotel Sa – Belgium Pan dox 2009 | 63

Financial StatementS NOTE 11 OTHER SHARES AND PARTICIPATIONS other shares and participations of SEK 610.2 M (544.4) refers to the american hotel property company HoST Hotels and Resorts Inc. The market value of the shares per 2009-12-31 amounted to USd 11.67 per share or SEK 883.4 M for the whole investment. NOTE 12 LIABILITIES TO CREDIT INSTITUTIONS Group Parent Company SEK M 2009 2008 2009 2008 Liabilities that fall due within one year following balance sheet date 738.9 877.8 562.3 877.8 Liabilities that fall due between one and four years following balance sheet date 980.5 1,181.4 809.1 815.8 Liabilities that fall due five or more years following balance sheet date 5,131.1 4,749.4 2,828.3 2,865.7 Total 6,850.5 6,808.6 4,199.7 4,559.3 NOTE 13 ACCRUED ASSETS AND CONTINGENT REvENUE Group Parent Company SEK M 2009 2008 2009 2008 Prepaid rents 54.7 61.0 – – accrued interest expenses 16.3 28.8 11.0 20.5 Property tax 4.7 4.7 – – Unrealised hedge results 64.1 126.8 61.6 126.8 other 126.6 155.0 13.7 12.2 Total 266.4 376.3 86.3 159.5 NOTE 14 PLEDGED ASSETS AND CONTINGENT LIABILITIES Group Parent Company SEK M 2009 2008 2009 2008 Pledged assets for loans from credit institutions Property mortgages 4,942.1 5,009.0 – – Pledged deposit 22.3 32.8 14.7 14.0 Contingent liabilities 2.5 2.3 2,675.3 2,221.6 NOTE 15 AUDIT FEES AND REMUNERATION Group Parent Company SEK M 2009 2008 2009 2008 KPMG audit assignments 3.5 2.8 1.0 0.9 other assignments 1.4 1.6 – – SET Revisionsbyrå audit assignments 0.1 0.1 0.1 0.1 Other other assignments 0.2 0.2 – – Total 5.2 4.7 1.1 1.0 64 | Pa ndox 2009

NOTE 16 PERSONNEL Group Parent Company 2009 2008 2009 2008 Average number of employees Men 474 534 9 8 Women 468 555 9 9 Total 942 1,089 18 17 of whom employed in Sweden 31 61 18 17 of whom employed in Belgium 341 432 – – of whom employed in Germany 189 219 – – of whom employed in Canada 381 377 – – Board of directors and senior managers and executives Men 11 11 10 10 Women 2 2 2 2 Total 13 13 12 12 Wages, salaries and other remuneration, SEK M Board of Directors and CEO Wages, salaries and other remuneration 5.6 5.6 5.6 5.6 Social security costs 1.6 1.4 1.6 1.4 Pension costs 0.8 0.8 0.8 0.8 Total 8.0 7.8 8.0 7.8 Other employees Wages, salaries and other remuneration 355.3 283.1 15.0 16.0 Social security costs 69.5 62.8 5.0 3.9 Pension costs 11.6 10.0 4.4 5.5 Total 436.4 355.9 24.4 25.4 Wages, salaries and other remuneration per country, SEK M Sweden Board of directors and CEo 5.6 7.8 5.6 7.8 other employees 19.6 37.7 15.0 25.4 Belgium other employees 132.4 165.8 – – Germany other employees 44.9 52.2 – – Canada other employees 158.4 97.5 – – Total 360.9 363.7 20.6 33.2 Personnel employed in Belgium relate to the operator activities of the Crowne Plaza Brussels City Centre, the Holiday Inn Brussels airport, the Crowne Plaza antwerp, the Hilton Brussels City, and the Hotel BLooM!. Personnel employed in Germany to Hotel Berlin, Berlin and in Canada to InterContinental Montreal and Hyatt Regency Montreal. 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. Sickness absence in the Parent Company amounted to 0.5 percent (0.9). Pan dox 2009 | 65

Financial StatementS Proposed disposition of earnings The following profits are at the disposition of the forthcoming annual General Meeting of Shareholders: Balance brought forward SEK 129,148,129 Profit for the year SEK 399,973,745 SEK 529,121,874 The Board of directors and Chief Executive officer propose that the accumulated profits be appropriated as follows: dividend to the shareholders, SEK 10.50 per share SEK 261,450,000 amount to be carried forward SEK 267,671,874 SEK 529,121,874 Stockholm, 9 February 2010 Christian Ringnes Chairman Leiv Askvig Christian Sundt Olaf Gauslå Bengt Kjell Helene Sundt Mats Wäppling Anders Nissen Chief Executive Officer our audit report pertaining to this annual report and consolidated financial statements was submitted on 10 February 2010. Per Gustafsson Willard Möller Authorised Public Accountant Authorised Public Accountant 66 | Pa ndox 2009

auditor’s Report To the annual meeting of the shareholders of Pandox AB Corporate identity 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 managing director of Pandox aB for the year 2009. These accounts and the administration of the company and the application of the annual accounts act when preparing the annual accounts and the consolidated accounts are the responsibility of the board of directors and the managing director. 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 high but not absolute assurance that the annual accounts and the consolidated 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 managing director and significant estimates made by the board of directors and the managing director when preparing the annual accounts and the 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 managing director. We also examined whether any board member or the managing director has, in any other way, acted in contra- vention of the Companies act, the 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 annual accounts act and 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. The statutory administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the annual 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 administration report and that the members of the board of directors and the managing director be discharged from liability for the financial year. Stockholm, 10 February 2010 Per Gustafsson Willard Möller Authorised Public Accountant Authorised Public Accountant Pan dox 2009 | 67

Work of the Board of Directors Control Industrial expertise and experience create confidence and an ability to act Board of Directors and auditors CHRISTIAN RINGNES, b. 1954 LEIV ASKVIG, b. 1957 OLAF GAUSLÅ, b. 1961 BENGT KJELL, b. 1954 Chairman CEO of Sundt AS CFO of Eiendomsspar AS CEO of AB Handel och Industri CEO of Eiendomsspar AS Member of the Board of Pandox since Member of the Board of Pandox since Member of the Board of Pandox since Member of the Board of Pandox since 2004. 2004. 1996. 2004. Other appointments: Other appointments: Other appointments: Chairman of Oslo Børs VPS Holding Chairman of Indutrade AB and Hemfosa Chairman of NSV-Invest AS, Sundt AS, ASA, Oslo Børs ASA and Alfarveg AS. Fastigheter AB. Board member of Dermanor AS and Mini Bottle Gallery Board member of Eiendomsspar AS, Skanska AB, Höganäs AB, Munters AB, AS. Board member of Schibsted ASA, Verdipairsentralen VPS ASA, Skips AS Helsingborgs Dagblad AB and Skånska Thor Corporation AS and Oslo City’s Tudor and Agder OPS Vegselskap AS. Byggvaror AB. Town Architecture Council (Oslo Bys Råd for Byarkitektur). 68 | Pa ndox 2009

Expertise and experience of the following areas Work procedures ings review and discuss the external and internal are important in an international hotel property The Board of directors has adopted procedures reporting of operating results and the Company’s company such as Pandox: for its own work along with directives for the Chief financial position, as well as various business mat- Executive officer, and has provided management ters. Marketing, strategy and budget issues are • Hotel operations and the hotel market with instructions with regard to reporting. Every also studied and reviewed each year. Underlying • Financing year, Pandox’ Board of directors establishes and material is sent to the members approximately one • Property and the real estate sector documents the objectives and strategy of the week in advance. The Company’s auditors attend • Business development Company. The Board has furthermore adopted a at least one meeting each year to present a report • Brand name strategies finance policy, an approval policy and guidelines of their audit and their review of the Company’s • development of international companies. for decision-making, as well as a particular strat- internal control systems. egy for acquisitions. In addition to their ongoing audit, the Compa- The Board of directors of Pandox, which is com- The Board of directors of Pandox holds four ny’s auditors were also commissioned by the posed of seven members, has broad experience ordinary meetings each year. The Board meetings Board to carry out a special review of major lease and knowledge of these areas. follow an established annual agenda. The meet- agreements during the year. AUDITORS The task of the auditors is to examine the Company’s accounts, administration and financial information. The audit leads to 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, b. 1959 Authorised Public Accountant KPMG WILLARD MÖLLER, b. 1943 Authorised Public Accountant SET Revisionsbyrå AB CHRISTIAN SUNDT, b. 1977 HELENE SUNDT, b. 1979 MATS WÄPPLING, b. 1956 Board member of Sundt AS Styrelseledamot i Sundt AS President and CEO of SWECO AB Member of the Board of Pandox since Member of the Board of Pandox since Member of the Board of Pandox since 2008. 2008. 2003. Other appointments: Other appointments: Other appointments: Owner and chairman of CGS Holding Owner and chairperson of Sundt Board member of SWECO AB. AS. Board member of Sundt Air Holding Helene AS. Chairperson of Dronningen AS, Sundt Sepa AS, Sundt Helene AS, Eiendom AS, Lanternen Eiendom AS. Sundt Air AS, Sundt Eiendom II AS and Board member of Sundt Sepa AS and Sundt Eiendom I AS. Sundt Christian Gruner AS. Pan dox 2009 | 69

Management team Coaches Creative, passionate and bold – Pandox’ leaders possess the right qualities Senior executives ANDERS NISSEN, b. 1957 LARS HÄGGSTRÖM, b. 1954 ALDERT SCHAAPHOK, b. 1959 CEo Vice President asset Management Business area Manager and Employed since 1995 and Business area Manager director of operations Employed since 2000 Employed since 2004 LIIA NÕU, b. 1965 Vice President and CFo MIKAEL PLANELL, b. 1960 ERIK HVESSER, b. 1969 Employed since 2007 Business area Manager Business area Manager Employed since 2005 Employed since 2006 70 | Pa ndox 2009

Hotel managers in operating companies MAGNUS ALNEBECK, b. 1964 BERNARD CHÊNEVERT, b. 1969 CHRISTEL CABANIER, b. 1970 Employed since 2005 Employed since 2008 Employed since 2008 Background: degree from SHM-Les Roches, Switzer- Background: degree from Lausanne Hotel Management Background: Considerable experience from several land. Has worked for Intercontinental, Cunard, Radisson/ School. More than 15 years’ experience of the hotel hotels in antwerp. Started as receptionist and became SaS and Forte Hotels in Switzerland and London. Hotel industry, including the repositioning of hotels. Led W the youngest hotel manager in Belgium at just 25 years manager for Ladera Resort, St. Lucia 1996–2004. Montreal to Hotel of the Year Worldwide in 2007. old. Christel is also a well-known TV profile in Belgium. Pelican Bay at Lucaya, Grand Bahama Island InterContinental, Montreal, Canada Hotel BLOOM! Brussels, Belgium Number of rooms: 184 Number of rooms: 357 Number of rooms: 305 Operator: Sundt GB Management/Pandox Operator: Pandox/InterContinental Hotels Operator: Pandox RAYMOND SOUMAKO, b. 1961 ERIC VAN DALSUM, b. 1962 CHARLES BOELEN, b. 1968 Employed since 2009 Employed since 2004 Employed since 2007 Background: degree from the University of Montreal in Background: degree from Lausanne Hotel Management Background: Came to the InterContinental Group and administration plus a Bachelor degree in Industrial Work School. Has held several leading positions at major hotels Crowne Plaza Brussels “Le Palace” in 2001, further to 10 Relations. More than 30 years’ experience within the across the world within Hilton, Shangri-La Hotels & years within Hilton International in Belgium, the nether- hotel industry. over 20 years with IHG, and 10 with Star- Resorts and Radisson SaS. Under Eric’s leadership, the lands and France. wood. also experience in the repositioning of hotels. Crowne Plaza in Brussels was awarded Hotel of the Year Holiday Inn Brussels Airport, Belgium Member of the Hotel association of Greater Montreal IHG Hotels Group EMEa in 2007. Number of rooms: 310 since 1995 and has been on the IaHI board for 5 years. Crowne Plaza Brussels City Centre, Belgium Operator: Pandox/Holiday Inn Hyatt Regency, Montreal, Canada Number of rooms: 354 Number of rooms: 605 Operator: Pandox/Crowne Plaza KATHARINA SCHLAIPFER, b. 1974 Operator: Pandox/Hyatt Employed since 2008 HANS WILS, b. 1959 Background: Has worked for several Hilton hotels, CORNELIA KAUSCH, b. 1962 Employed since 2009 including in Germany, France and Belgium, and was most Employed since 2006 Background: Considerable hotel experience within Mar- recently at the Hilton Molino Stucky Venice in Italy where Background: degree from Lausanne Hotel Management riott, Golden Tulip and accor. Has worked for Sofitel since she worked with business development. School. Considerable experience of hotel operations and 2001 and was most recently at the Lafayette Square in Hilton Brussels City, Belgium personnel management. Has held several leading posi- Washington dC, USa. Number of rooms: 283 tions within accor Germany, Louvre Hotels Paris, Inter- Crowne Plaza Antwerp, Belgium Operator: Pandox/Hilton Continental Hotels Germany and Corinthia Hotels Inter- Number of rooms: 264 national. Operator: Pandox/Crowne Plaza Hotel Berlin, Berlin, Germany Number of rooms: 701 Operator: Pandox Pan dox 2009 | 71

Management team Assets a small coordinated team with mutual driving forces 1. Josefin Bergqvist, acquisition and Investment 6. Anders Nissen, Chief Executive officer, b. 1957. 11. Liia Nõu, Vice President and CFo, b. 1965. Liia was analyst, b. 1974. Josefin holds a master’s degree in hotel anders nissen has a strong background from the hotel recruited in 2007 and is responsible for economic and management from Griffith University in australia, as well industry and property sector, with more than 25 years’ financial issues within the Group. Her principal areas of as a master’s degree in property finance from the Royal experience. He started his career as hotel manager and work are financial control and reporting, the Group’s over- Institute of Technology (KTH) in Stockholm. Josefin has advanced to different leading positions within the group all financing, and acquisitions. Liia is a graduate in busi- previously worked for CBRE hotels in London as analyst management team of the hotel operator Reso. In the ness administration and economics from the Stockholm and operationally for Marriott International. She has been beginning of 1993, anders became CEo of Securum School of Economics (HHS), and was most recently nor- with Pandox since august 2006 and is member of some Hotel & Turism aB, where he led the process of structur- dic CFo of GE Money Bank aB. She has also been CFo of the Company’s international operative Boards. ing Securum’s hotel activities. He was a key player behind of Song networks, Tele2, Icon Medialab, further to work- the initiative to form Pandox, and has been CEo since the ing for Kuwait Petroleum and american Express. 2. Nils Lindberg, Senior advisor, b. 1947. nils has a long Company was formed in 1995. career at Pandox and was previously responsible for eco- 12. Ulrika Norrbrink, Property accountant, b. 1966. nomic and financial issues. He decided two years ago to 7. Annelie Sundström Aguilar, assistant to the CEo, b. Ulrika came to Pandox in 2006 after having previously go over to an advisory role within the Group. His experi- 1974. annelie joined Pandox in the autumn of 2008. Her worked for Expert Stormarknad aB, Proact IT Sweden ence includes working as controller and treasurer of dow position implies providing support to the CEo, the Board aB and Lars Gullstedts Fastigheter aB. Ulrika currently Chemical nordic Region, as well as bank manager with of directors and senior executives. annelie’s tasks also works within Pandox’ finance and accounting depart- nordbanken and director within Securum. nils joined include external communication, production of the annual ment. Pandox in 1995. report and Upgrade, as well as the coordination of the Com- pany’s events, along with Pandox’ annual Hotel Market day. 13. Erik Hvesser, Business area Manager, b. 1969. Erik 3. Ann-Sophie Forsmark, Property accountant, b. She has considerable experience of service and administra- is an economics graduate of the School of Economics & 1971. ann-Sophie is a graduate economist from the IHM tion, and worked most recently at Morgan Stanley. Business administration in oslo. He came to Pandox in Business School. She joined Pandox in 1999 after having 2006 from the position as asset manager with norgani previously been employed by Riddarstaden aB, Marco 8. Mikael Planell, Business area Manager, b. 1960. Solid aSa. Erik has 15 years’ operating experience within the Polo and Fritidsresor. ann-Sophie works within Pandox’ background within the hotel industry with more than 20 hotel industry as hotel manager, business area manager, finance and accounting department. years’ experience, including as hotel manager and opera- business controller, as well as various senior positions tions manager in London, Benelux and Stockholm. within Hilton/Scandic’s Swedish management team. He 4. Jonas Törner, Controller, b. 1971. Jonas is a graduate Mikael’s areas of responsibility cover several of Pandox’ is currently responsible for the major part of Pandox’ in business administration and economics from Stock- largest hotels such as Hotel Berlin, Berlin, which is Ger- Swedish hotel property portfolio. holm University. He has previously worked with Corpo- many’s fifth largest hotel with 701 rooms. Before joining rate Finance at nordea Securities and as group controller Pandox in 2005, he was manager of operating and busi- 14. Aldert Schaaphok, Business area Manager and for the industrial company deLaval. Jonas was recruited ness development for accor Hotels’ nordic operations. director of operations, based in Belgium, b. 1959. aldert by Pandox as controller in 2005. during his time with has solid experience of operations and concept develop- Pandox, Jonas has worked with improving quality in Pan- 9. Michaela Borg, acquisition and Investment analyst, ment, and has also been hotel manager of full-service dox’ reporting flow, the monitoring of Pandox’ operating b. 1968. Michaela is a graduate in business administra- hotels in the netherlands, Belgium and Germany. Before activities, as well as the development of Pandox’ valuation within mathematics and statistics from Karlstad Uni- coming to Pandox, he was Regional director operations tion model for hotel properties. versity, and also holds two MBas from Stockholm Univer- and Vice President operations of dorint Hotels & Resorts sity within organisation, leadership and entrepreneurship. aG. aldert was recruited by Pandox in 2004 on a consul- 5. Anette Paulsson, acquisition and Investment She has previously worked at Coor Service Management. tancy basis, and he is responsible for the Company’s analyst, b. 1975. anette is a graduate in business admin- Michaela joined Pandox in September 2008 and works operational activities in Belgium and Montreal. He is also istration and economics from the European Business with market analysis, market communication, decision- Board member of Hotel Berlin, Berlin. School in London. She has also studied property valua- making support for the CEo and business area manag- tion at the Royal Institute of Technology (KTH) in Stock- ers, as well as with acquisitions. 15. Louise Ceder, Property Support, b. 1970. Louise holm. Upon completion of her studies, anette worked works with property support, and during the last year has with Corporate Finance at deloitte & Touche. She was 10. Josefin Nilsson, Receptionist, b. 1983. Josefin is produced a new website for reporting and follow-up. recruited by Pandox in 2003 as analyst, and works with responsible for daily office procedures and ensures that Louise reports to our business area managers and has acquisitions, market analysis, market communication and everything flows properly. during the last year, she has worked at Pandox since 2000. decision-making support for the business area managers supervised the redecoration of Pandox’ offices. She has and upon acquisitions. been with Pandox since 2006 and worked previously within the travel sector. 72 | Pa ndox 2009

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.. 16. 17. 18. 19. 16. Stefan Kornhammar, Property Manager, b. 1960. 17. Lars Häggström, Vice President asset Management 18. Staffan Olsson, director of Health, Sports and Stefan is a graduate engineer and has 25 years’ experi- and Business area Manager, b. 1954. Lars is a graduate Coaching at Pandox, b. 1964. Staffan works on a half- ence of the consultancy sector, of which 15 years within marine engineer and has considerable experience of the time basis for Pandox, primarily with marketing and event this own firm. He has worked as consultant for Securum hotel industry, with an emphasis on property-related questions. His remaining time is spent as Manager of the Hotell & Turism and Pandox since 1993. Stefan has been questions. He was technical manager of Scandic Hotels Swedish national Handball Team. Staffan is a legend in project manager for several major rebuilding projects for from 1993 to 1998, and VP Building & Technology of the world of handball and has played 357 international Radisson SaS, novatel and Scandic, as well as the Hotellus International from 1998 to 2000. When Pandox matches and scored 852 goals. He has won 2 World recent conversion of Elite Park avenue in Gothenburg. acquired the company in 2000, Lars became Business Championship gold medals, 4 European Championship Stefan was recruited as property manager of Pandox in area Manager at Pandox. Lars now holds the position of gold medals, 3 olympic silver medals, 1 World Champion- the autumn of 2008, and he is responsible for the Com- VP with responsibility for all of the Company’s property ship silver medal and 2 World Championship bronze pany’s properties in Sweden and denmark. issues and development projects, as well as a number of medals, as well as a number of international champion- the Company’s international hotels. ship medals as a professional player in Germany. Staffan has represented Skånela IF, Huttenberg, niederwurz- bach, HK Cliff, THW Kiel and Hammarby during his career. Further details are available on page 27. 19. Enzo, Corporate dog Pan dox 2009 | 73

CEO summary of the year 2009 Results Pandox delivers – even in tough times 2009 was yet another successful year for ated high liquidity – and which is still the case. The The market was subsequently in free fall in the Pandox. despite global anxiety, cash flow high level of economic activity in combination with beginning of 2009. during the year’s first nine increased whereas revenues and profits relatively little new capacity created a fantastic months, revenues decreased by more than 30 declined. The driving force behind the business climate for the hotel industry. There were percent. The fall was even greater in the city’s good developments is a combination of more guests than ever and they accepted that business and luxury segments. Trends were the the Company’s business model, the high prices be raised several times a year. In this same for markets such as Boston, atlanta and quality of the property portfolio and lower favourable world at large, the hotel industry also Chicago. The euro area – which normally follows interest costs. received capital injections when new financial developments with a lag of about two quarters – players arrived, with limited – indeed in many was now shadowing the american market with a The past year was dramatic for the hotel industry, cases totally without – industrial competence. minimal delay. In countries with a large proportion demand, measured in RevPaR, decreased by a They stoked the number of transactions within the of domestic demand, the downturn came gradu- huge 20 percent in the United States and Europe. sector to a level that we had never previously ally during the year. The collapse was ruthless – all markets and seg- experienced. The good liquidity increased the However, trends changed in the autumn. The ments were dragged down. and the fall came per- value of assets and the interest in building new rate of downturn in volumes started to abate for haps faster than ever before in modern times. hotels was record high. The spiral just continued markets situated in the beginning of the economic upwards, but in the end came to a halt. cycle. But prices continued to decline, which put A stimulated surrounding world When the financial crisis then spread to the further pressure on operating results. However, Even if the collapse as such came as a surprise, hotel market and major parts of the artificial respi- over all, the year closed slightly better than the there were a number of indicators that a downturn ration disappeared, the downturn was even more dark predictions that were painted at the begin- was dangerously at hand. Volumes were on the dramatic. The market collapsed in new York’s ning of the year. way down in the summer of 2008. Most sectors high-price and luxury segments the day after the and economies lived in a stimulated surrounding bankruptcy of Lehman Brothers. The downturn Continued warning flag world where demand was record high. The stimu- then spread at lightening speed to other cities. an analysis shows that the course of events was lation consisted of inexpensive capital, which cre- a global hotel crisis had become reality. increasing significantly. The downturn phase was a fighting spirit was created with the motto: “We never give up” 74 | Pa ndox 2009

faster and deeper than normal. In the same way, the number of structural problems that need to be board of directors and management, who have upturn came more rapidly and stronger than after handled within the sector. not been involved in granting the credit, to handle previous downturns. Current developments indicate the situation. By proceeding actively and quickly a rapid recovery, which is supported by several 1. The banks with the assets, significant values can be saved. macro-economists’ opinions regarding 2010. one problem concerns the banks, which risk Indeed, Pandox has its roots in such active a crucial question is whether the recession is becoming major owners of hotels. This applies in management of distressed credits from the major already over, and whether or not we will see a particular to banks and other financial players in finance and property crisis in Sweden in the strong recovery. We at Pandox believe that it is too the United Kingdom. But large banks in the rest of beginning of the 1990s. early to say that the danger is over this time round. Europe have also been active and taken part in Irrespective of the model the banks choose, Experience from previous downturns, the propor- the inflated transaction market for hotels and hotel they play a key role. In the Baltic States, the Scan- tion of new hotel capacity expected in the market, properties. It is now time to take care of the prob- dinavian banks started early to build up specially and impending rises in interest rates together lead lems that the banks have considerably contrib- adapted organisations to be able to manage and us to not being too optimistic. We see two proba- uted to through far too generous financing com- transform bad credits to assets. apparently, ble developments ahead of us. Either we will bined with a lack of knowledge of how the sector finance institutions in Europe are handling similar experience developments for the economy and functions. The banks have two strategies to questions. a qualified guess is that we will see our sector in the form of a W with a short and choose between – one passive and one active. greater activity in 2010 to ensure that as much weak upturn followed by a further downturn – or Experience unfortunately says that they will choose value as possible be saved. Pandox is interested alternatively we will see a long and slow recovery. the former. But we hope that they choose a more in taking part, and our experience from this type of However, it would seem that it will take many active strategy where they can obtain inspiration situation is globally known within the sector. years before RevPaR levels return to the heights from the Swedish model from the beginning of the seen in 2008. 1990s. at that time, the Swedish government 2. Hotel brokers formed a special company, Securum, to take care Hotel brokers represent the next problem area. a Three problems that require a solution of distressed credits from the banking system. one large number of new hotels and business transac- In addition to weak economic trends, there are a prerequisite for success is to allow a competent tions have arisen based on calculations and valua- Photo: Jessica Gow Pan dox 2009 | 75

tions based on eternal growth, and produced by was carried out to prepare the operational activi- since their acquisition in 2006 with regard to both these so-called advisers. now that they have ties for a poorer market and lower revenues. The the product and the operating systems. The cashed in their amply sufficient fees, they offer action plans focused on strengthening products results are good and the operator has shown con- their services as managers of these stranded hotel to maintain existing customers and to increase siderable interest, which has led to both hotels projects. They should be disqualified from provid- productivity through lower and more flexible costs. being leased with long contracts to Choice and ing this kind of service. Perhaps it is time to intro- Prior to a major change process, it is impor- Scandic respectively. duce ethical rules within the hotel industry? tant that the entire organisation has the same driv- The prospects for 2010 are difficult to judge. ing forces, and that the leadership be situation- Pandox’ point of departure is that the markets in 3. Operator-friendly agreements adapted. It is necessary to be able to lead with the forefront of the economic cycle, particularly The last major problem area is the one-sided both demands and support simultaneously. With new York, will achieve stable RevPaR during the operator-friendly management agreements cre- the spirit on which Pandox is based, this was rela- summer, and the euro zone is expected to follow ated by the large hotel companies in conjunction tively easy. The model with delegated leadership with a certain time-lag. Prices will be under pres- with their massive sales of properties. This form of and considerable personal scope and responsibil- sure, which could create greater profitability agreement is directly counter-productive through ity was maintained. all plans were produced in problems. The Scandinavia markets have in offering low incentives for management compa- coordination with the local management teams. general a tough hotel year ahead. all in all, results nies who have responsibility for the assets. The Follow-up often took place in informal meetings will deteriorate, but trends will nonetheless structure does not reward knowledge of how prof- where we focused more on inspiration than con- improve, which should lead to better liquidity in itability be developed, which primarily affects own- trol. Solutions to problems were adapted to the the market. Pandox’ own forecast is that cash ers and banks. But the problem also spreads to local conditions so that the management in each flows will remain stable in 2010. the guests through a “fat cat” attitude being imple- location could develop competition advantages mented in daily operations. based on their own competence. Substantial Stockholm, February 2010 individual responsibility was given to find own Coming early with the right decision solutions. a fighting spirit was created with the Pandox’ activities in 2009 were primarily charac- motto: “We never give up”. terised by internal work. already in the spring of anders nissen 2008, we in the management team identified key Well-positioned for yet another tough year CEO issues and created action plans with the objective The hotel property Vildmarkshotellet was acquired of being prepared for a difficult economic down- during the year, thereby leading to Pandox turn. The plans principally embraced four areas: becoming part of the Kolmården destination, To perform an overview of the Company’s infor- which has seen impressive developments in mation systems to enable fast and correct infor- recent years. The vision is that the hotel shall mation regarding operational developments. To become one of Sweden’s most creative meeting raise requirements regarding orderliness in all places for both conferences and tourism. With parts of the Company so as to reduce the risk of regard to important investments in existing hotels, negative surprises. The important question of several projects were completed during the year. mapping all investment and maintenance ques- Hotel Berlin, Berlin, which was acquired in 2006, tions within the Pandox sphere, which annually is now repositioned further to an extensive devel- amounts to approximately SEK 500 million, opment program and new inspiring management. directly or indirectly. With this knowledge, particu- The InterContinental Montreal has been given a lar emphasis was placed on product development new image and, with its design in boutique style and cash-flow generating measures, while tech- and product offer, has every chance of achieving nology-related investments were given lower pri- the goal as RevPaR leader in the city. Holiday Inn ority. a considerable amount of work was carried Brussels airport has been upgraded and is now out, starting already in 2007, to increase the pro- the best medium-priced product in the area. portion of variable interest-bearing liabilities. This Radisson BLU Hotel in Basel has been refurbished enabled the Company to benefit from falling inter- in close cooperation with the operator, and has est rates and to thereby compensate the simulta- quickly increased its market share. Park and neous decline in revenues. other significant work Skogshöjd in Södertälje have been developed In fact it is simple, if you work together with the best people, you will often win.” 76 | Pa ndox 2009

PS a large bunch of roses If I may say so myself, the results were very satisfactory. In a difficult during the year. Of the Swedish hotels, Hilton Stockholm Slussen surrounding world, Pandox’ hotel property portfolio has performed has impressed with a stringent revenue-management process and significantly better than the market, and has been able to generate Quality Hotel Park in Södertälje, Radisson BLU in Malmö, Elite Stora cash flows that even exceed last year’s record levels. There are many Hotellet in Jönköping and Elite Park Avenue in Gothenburg have heroes involved in this process. I would like to take this opportunity improved their market positions in difficult times. The saying still to send roses out to those in the organisation. The first goes to the stands: a good hotel with a strong location, run by a skilful team, will Crowne Plaza Brussels City Centre, which year after year continues always have a market – even in bad times. to strengthen its market position irrespective of the business climate. In this context, Pandox’ shareholders and board of directors The next rose goes to Hotel Berlin, Berlin. The hotel is now reposi- should not be forgotten. Despite the greater risks due to the poorer tioned and an impressive amount of work has been carried out to market – and we have also had several major ongoing investments – improve the revenue structure through more and larger meetings, as they kept to their original plans. This created a peaceful climate for well as a well-organised process to adapt costs. The hotel is now the management team, which then spread through the entire organi- entering the next phase where the brand – Berlin’s most creative sation. I am also extremely proud to send a large bunch to all my co- meeting place – will be developed to the next level. Another rose workers at Pandox. In fact it is simple, if you work together with the goes to Hotel BLOOM! for its dynamic work with the organisation best people, you will often win. Pan dox 2009 | 77

Production: Pandox in cooperation with Hallvarsson & Halvarsson. Photo: Ulf Blomberg, Getty Images, Johnér Bildbyrå. Printing: Jernström offset, Stockholm, 2010. Pandox aB · P o Box 5364 · SE-102 49 Stockholm, Sweden · Tel +46 (0)8 506 205 50 · Fax +46 (0)8 506 205 70 · www.pandox.com

Pandox Anual Report 2009 (Eng)

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