Pandox Anual Report 2006 (Eng)

• 1. PAN DOX P A N D O X R E P O R T I N G O F 06 B U S I N E S S B U S I N E S SO P E R A T I O N S F O R 2 0 0 6

2. CONTENTS06 Pandox is one of Europes leading hotel property companies. The Company has built up special- ist expertise within the key areas of hotel markets, hotel operations, hotel properties and business development. Active ownership, with well-developed and strategic plans for each hotel, enables the creation of good prerequisites for stable and improved cash flow, and thereby growth in value for the shareholders. Read more about Pandox business concept and strategy on page 8.Pandox business development Pandox business developmentINTERNATIONAL OPERATIONSOPERATING COMPANIES10 16ContentsThe Company The hotel portfolioThe year in brief............................. 2List of properties............................ 28Message from the CEO......................... 4 Hotel properties............................. 30Vision, business concept, objectives and strategies..... 8The Pandox Model........................... 12FinancesTypes of lease.............................. 14 Financial overview........................... 35Operating companies......................... 16 Sensitivity analysis.......................... 38Market overview............................ 18Evaluation and fiscal situation.................. 40Human resources........................... 24 Definitions................................ 41Ten-year overview........................... 42Quarterly data 20052006.................... 44 3. PANB U S I N E S SDOX 2006 was a new successful year for Pandox with a high rate of growth in revenues, earnings and quality, resulting in a significant increase in value of the hotel property portfolio. Read more of the Message from the CEO on page 4. Pandox skills and competencesPandox economic situationHUMAN RESOURCES FINANCES2435 Financial statements 2006 Report of the Board of Directors................. 46Pandox management........................ 64 Income statement and comments................ 48Board of Directors........................... 65 Balance sheet and comments................... 50Senior executives and auditors.................. 66 Changes in equity........................... 52 Pandox Upgrade............................ 67 Cash flow statement and comments............... 53 Accounting principles........................ 54 Notes to the Accounts........................ 56 Proposed disposition of earnings................. 62 Auditors Report............................ 63 4. The year in brief Record year for Property managementthe hotel industryrevenues and total revenuesGeneral growth within the hotel industry has resulted in recordsPandox property revenues amounted to SEK 634.9 M (574.0),in both room occupancy and average room rate levels, but also which for comparable units represented an increase of 9.7in the number of transactions. The underlying growth haspercent against last year. The Groups total revenue amountedattracted an increasing number of investors, and competitionto SEK 967.5 M (778.6).has been tough.Profits Cash flowThe pre-tax profit for 2006, excluding non-recurring items, Cash flow from ongoing operations, excluding non-recurringamounted to SEK 226.1 M (222.9). Profit after tax, includingitems, amounted to SEK 317.6 M (301.4).non-recurring items, amounted to SEK 201.6 M (688.3).Key figures 2006 2005Property revenues, SEK M634.9574.0 London higherOperating net, SEK M523.4470.2Profit before tax 1), SEK M 226.1222.9 growth thanProfit after tax 2), SEK MCash flow 1), SEK M201.6317.6 688.3 301.4 New York1) Excluding non-recurring items.Londons hotel market2) Including non-recurring items. developed strongly during the year. New York on theAccounting principlesother hand has reached aPandox do not follow the accounting principles recommended byceiling in demand, and roomIFRS as the Company is not listed and therefore not obliged to do occupancy was the same asso. Pandox applies the stipulations of the Swedish Annual Accounts the previous year. RevPARAct and generally accepted accounting principles, as well as therecommendations of the Swedish Accounting Standards Boardrose in 2006 by 18 percentunless otherwise stated. in London, compared with 13 percent in New York.Record acquisition inBerlinIn 2006, Pandox carried out its largestsingle acquisition ever. Hotel Berlin,Berlin, has 701 rooms and is locatedright in the centre of Berlin at walkingdistance from the popular tourist area ofKurfrstendamm. The acquisition in-cluded both the property and operation. 2 PANDOx 2006 5. Bloom new concept in Brussels About Pandox The Royal Crown Hotel in Brussels was acquired Pure business concept with focused strategy at the end of last year. A plan was put together during 2006 for the introduction of the hotels new Pandox is one of Europes leading hotel property strategy and business concept. The new concept companies. The Company has built up specialist goes under the name of Bloom. The entire hotelexpertise within the key areas of hotel markets, will be refurbished. Work was started in Octoberhotel operations, hotel properties and business de- 2006 and will continue for about two years. velopment. Active ownership, with well-developed and strategic plans for each hotel, enables the creation of good prerequisites for stable and improved cash flow, and thereby growth in value for the shareholders. Pandox strategy is to own one type of property hotel properties. Its focus is strengthened by a prioritised market segment. Pandox is to own large hotel properties in Sweden, major locations in Europe, as well as developing regions in eastern Europe. The hotels should be in central, natural and strong locations such as city centres, airports and exhi- bition centres. The hotels should be in the upper medium to high price range and focus on the business and leisure segments. The hotels owned by Pandox are operated and Two Swedish acquisitionsmarketed by the most powerful players in the hotel The hotel properties Radisson SAS Hotel Malm and Scandic Plaza in Bors were market, who with well known brands and dynamic independent distribution channels create strong acquired in the summer. Pandox owns hotels from previously in both cities. After market positions and thereby stable revenues. the acquisition of Radisson SAS Hotel in Malm, Pandox now has more than 600 rooms in central Malm and more than 1,600 rooms in the expansive resund Revenues are created by flexible lease agreements region. related to the operators turnover and results or through management agreements where Pandox assigns a third party to manage operations, or alter- Effects of low cost airlinesnatively through its own management. Irrespective Pandox held its ninth Hotel Market Day on 14of the form of operation, Pandox contributes via its November at the Hilton Stockholm Slussen as in pre- active ownership to increasing total cash flows and vious years. The principal theme, apart from market reducing risks. trends, was low cost airlines and their influence on the hotel industry. More than 150 people took part in At the end of the year, the Company owned 38 hotel properties, of which six operating compa- the event. Representatives from low cost airlines, nies as well as one asset management assignment. the Swedish Civil Aviation Administration, the hotel Pandox owns and develops assets in Sweden, sector and the retail trade presented their viewpoints. Denmark, Belgium, Germany, Switzerland, UK, The BBCs expert commentator John Strickland andand the Bahamas. David Leitch from easyJet contributed, and thus gave the questions an international perspective. PANDO x 2006 3 6. message from the ceo Exciting acquisitions 2006 was a new successful year for Pandox with sion and the development of quality have been expected to be record high. Current trends in the a high rate of growth in revenues, earnings andcarried out with a high rate of growth in earnings. hotel economic cycle are characterised by good quality, resulting in a significant increase in valueCash flow has increased from minus SEK 10 million growth in both volume and price. New York, which of the hotel property portfolio. in 1995 to approximately SEK 320 million, which usually leads the business trend, has increased itsimplies that the hotel property portfolio at the end of RevPAR since the spring of 2003. Market develop- Pandox was formed in 1995 and has since then 2006 had a market value of more than SEK 10 bil-ments during the year show however slowing growth built up one of the leading hotel property portfolioslion. Value has thereby grown by 10 times since the where volumes are declining marginally and that in Europe. The Company has carried out transac-Company was formed. prices, which in absolute figures are record high, tions for approximately SEK 8 billion, representingDemand in the hotel market continued to are beginning to fall. It appears the peak has been the purchase/sale of 52 hotels and 14 operations.improve in 2006. A favourable global situation and areached in New York. The question is how long we The portfolio has grown from 17 small hotels ofhigh level of economic growth along with generalare able to stay at the current level? Perhaps we are varying quality to 39 hotels of international standard prosperity have created excellent preconditions for observing the beginning of a weakening trend? all in strong locations and positioned towards the the hotel industry. Combined with relatively lowLondon, which normally follows New York with a profitable full-service segment. The average sizeadditional capacity, most markets created a high36 months lag, is in a strong growth phase and is has increased from 106 to 228 rooms. The expan-level of profitability, and earnings for 2006 are rising in both volume and price. A similar pattern is4 PANDOx 2006 7. to be found in other major European cities such aslease structure in the hotel market. The trend ison service, products and investments over to the Berlin, Amsterdam, Paris and Brussels. The same moving towards a rising number of management owners. The conclusion is that vertical integration trend can also be observed in Scandinavia where agreements. This implies that hotel companies that continues. Active owners will choose more situation the underlying domestic growth has driven uppreviously owned and operated the hotels have nowadapted solutions. The historically obvious measure demand in large cities to levels that are not far fromreduced their business model to only managing theof providing a hotel property with an international those at the beginning of the new millennium. Gen-operations. One has very skilfully succeeded in sell-brand name will become the object of increasingly erally speaking, trends are relatively distinct. Prices ing hotel properties at aggressive valuations to non more critical scrutiny particularly when such are currently developing faster than volumes, and industrial players, while still maintaining control over cooperation is based on operator friendly manage- are becoming an increasingly important part ofthe assets with the help of operator friendly man- ment agreements. It is consequently more impor- revenue improvements and thus ultimately good agement agreements. The results for shareholders tant than ever to possess ones own skills and work- preconditions for profitability. Simultaneously, thesehave so far been excellent. In most cases, gooding methodology in order to be able to evaluate the trends indicate that the economic business cycle is capital gains have been created simultaneously assignificance of the brand name. currently going at full speed. The wise man poses nonetheless keeping the possibility to spread the In this competition exposed world of transac- the question for how long?potential with the new hotel property owners without tions, Pandox has succeeded over the last 15 Liquidity and depth within the market are reach-taking any financial risks. For how long can thismonths to complete five exciting acquisitions. All ing new records, and it is estimated that transac-situation continue?of them are characterised by the need for active tions in 2006 will amount to a total of about 70 bil- One question that has subsequently becomemeasures and that the hotels are underperforming lion dollars. These business transactions are often more relevant is the value of brand names and in in one way or another. Taking over these operations financially driven, and the major brokerage houseswhich way they contribute to value growth in a hotel suits Pandox business model and enables us to skilfully compose large hotel property portfolios thatproperty. Historically, the large hotel companiesutilise our specialist competence required in hotel are packaged to enable financial creativity. A form have had sole right to advanced distribution sys-property questions. The Royal Crown Hotel in of bond market has appeared within the hotel world, tems, developed sales and marketing organisations, Brussels with 307 rooms and the Copenhagen while revenues are valued with everlasting growth and been holders of important key skills. This mar-Hotel 27 with 200 rooms were acquired in the and with historically low demands on yield. It is ket picture has partly changed through the Internetautumn of 2005, and both hotels are currently interesting that many of the new purchasers are creating cheap distribution alternatives. The com- undergoing a considerable investment and develop- financial players without industrial competence,petetive advantage has decreased through the ment program. In the spring of 2006, we completed while the vendors are players who have a long his-property ownership obtaining own operational and our largest single acquisition ever when Hotel tory in the hotel market and are well aware of themarket competence and skills. Furthermore, costs Berlin, Berlin was added to the portfolio. The hotel, conditions that normally prevail in the sector. for cooperating with most international companieswhich is Berlins third largest with 701 rooms, needs The massive divestments have affected the have increased. One tries to shift higher demandsto strengthen its local profile and recreate its posi-Scandic Kramer, MalmPANDO x 20065 8. message from the ceoDestination development is increasinglyThe ability of cities and towns to develop andmarket themselves as attractive destinationshas increased in significance, and a risingnumber of political systems see the benefits inpositioning their cities vis--vis the increasingdemand of congresses and conferences,tourism, shopping and entertainment. The rea-sons are improved fiscal conditions in severalaspects and the creation of new jobs. But thissituation also places demands on the cities todevelop a dynamic offer with congress halls,arenas, different types of hotel, good shoppingand exciting restaurants.One of the obstacles in many industriallycharacterised countries is the level of compe-tence of local politicians. In addition to infra-structural investments, one also needs anability to create professional forms of coopera-tion with local commerce and industry.So far, cities such as Barcelona, Copenha-gen, Gothenburg and Amsterdam have beenbest at exploiting the benefits with destinationdevelopment, although competition is increas-ing. In Stockholm, a large congress centre iscurrently planned in an excellent central loca-tion, as well as several arenas that shouldsignificantly increase the citys power of attrac-tion. The entire region will be a winner if theplans are carried through, resulting in tensof thousands new jobs. tion as one of the leading full-service hotels in the three operating companies. The trend is that an uct has been developed from a group tourist unit city. increasing number of operations are under own to one of Brussels leading meeting and businessA comprehensive profile program, including the management. The reason being that a combination hotels. All 354 rooms have been upgraded, and decoration of the faade with graphite paintings, isof good commercial prerequisites to materialise the eight junior suites and a presidential suite have the first stage of the hotels new appearance.potential in development projects oneself, and thebeen added. The conference and meeting capacityTwo well-known Swedish hotel properties have lack of hotel companies that are interested in enter- has been developed so that the hotel in total can also been added during the year the Radissoning into leases or in other ways wishing to share the cater for 2,500 conference guests simultaneously. SAS Hotel Malm with 229 rooms and well devel-risks.Part of the meeting concept is Balanced Senses oped conference operations was acquired in theThe existing portfolio has also witnessed a highwhere a special area has been created to stimulate summer. The hotel needs to be upgraded. Discus- level of activity during the year. The Crowne Plaza and inspire the meeting participants senses sions are currently in progress with the operator Brussels City Centre, which since being acquired in through fragrances, soothing colours, as well as Rezidor regarding the creation of a joint approach in the beginning of 2004 has undergone a compre- sound and pictures from nature that are shown in a new investment program. Scandic Plaza in Borshensive development program, is now ready.all public areas, including the toilets. At the Hilton with 135 rooms is one of the regions leading hotels, The last quarter of 2006 represented the firstLondon Docklands, the second part of the develop- and there is good potential to add several hotelmonths since Pandox took over ownership that thement program has been completed with the rooms. All in all, acquisitions for a total of SEK 1.8hotel was operated under normal conditions. The upgrading of about 100 hotel rooms and part of the billion have been made over a 15-month period,results are quite exceptional. Under the manage-public areas. In Copenhagen, the Scandic Copen- covering the purchase of five hotel properties andment of the hotels CEO, Eric van Dalsum, the prod- hagen with 484 rooms has obtained a new confer- 6 PANDOx 2006 9. Development and marketing of destinations have greater significance. Cities such importantas Barcelona, Copenhagen, Gothenburg and Amsterdam have been successful intheir destination marketing. The football World Cup in Germany and the European Athletic Championships inGothenburg were two major attractions during the year two events that played animportant marketing role for the respective destinations. ence and banquet department that has increased Hotel in Gothenburg has now entered its final tions create a good business climate for the hotel its attractiveness in the local market, and the hotelinvestment phase with the objective of re-establish-industry, and the major part of the markets where is now one of Copenhagens leading business anding it as one of the leading hotels in the Gothenburg Pandox is active show good preconditions for conference establishments. On the other side of thearea. The development program, which is being growth in RevPAR, which will probably be main- sound, the Scandic St Jrgen has been given a sig- carried out in close cooperation with the operator, tained during the whole of 2007. Thereafter, there nificant facelift with new lobby, conference depart- started in the beginning of 2005 and is next year appear to be a few storm clouds in the form of a ment and health centre, which strengthen the hotel anticipated to become one of the three leadingdecline in economic activity, trends in the hotel as one of the citys leading full-service products.hotels in the area in terms of RevPAR development.economic cycle, as well as additional capacity. The Radisson SAS Grand Hotel Helsingborg (under- In total we invested SEK 280 million during the Earnings for 2007 are anticipated to exceed this going change of name to Clarion Grand Hotel) year in the existing portfolio, and are planning SEKyears level. implemented its arcade concept during the year 110 million for the recently acquired hotels. where a broad offer of different food and beverage The outlook for 2007 is considered to be good.Stockholm, February 2007 products are packaged in the hotels lobby which Global growth is expected to slacken but to remain implies that the operations have seriously taken upstrong. The risk is associated with developments in the title of being Helsingborgs leading business andthe United States and movements in interest rates. pleasure hotel. Reactions from the market have Europes current trend with increased investments been very positive and the hotel outperformed itsis continuing, which in turn creates good prerequi- Anders Nissen competitors in the autumn. The Elite Park Avenue sites for Scandinavia. The favourable microcondi- CEO PANDO x 20067 10. vision , business concept ,objectives and strategies Leading and profitable Pandox principal task from a shareholders perspective is to create conditions that enable an increase in the value of the Company through Scandic Copenhagen the development of cash flow in the hotel property portfolio, combined with profitable acquisitions and divestments. The Companys vision, businessrole is to contribute to the production of a strate- Financial goal concept, objectives and strategies have been gic plan and that operations be continuously The goal for the capital structure is that the group formulated with this philosophy acting as theevaluated via management group meetings. shall have a solidity which fulfil internal and external principal point of departure. Lease agreement with a partner that only actsobjectives on financial strength in order to enableas operator, and that is supplemented by a continued expansion. The equity/assets goal shall be Vision franchise agreement with a distributor. Pandoxregularly reviewed in order to achieve an optimal re- Pandox vision is to be the leading hotel property role is as above, but can imply that the Company turn on investment for the shareholders. company in Europe with regard to specialist exper- is more active in pure operating questions. tise in both hotel and property operations and active Management with a partner that runs the opera- Strategy ownership. tions on behalf of Pandox. Pandox role is via The following strategies have been defined to ena-board meetings to monitor and evaluate opera-ble Pandox to achieve its established goals and Business concept tions and to actively participate in development objectives. Pandox business concept is to actively own, deve- questions together with the management Pandox principal strategy is to own one type of lop and lease hotel properties based on expertisecompany. property hotel properties. within hotel properties, hotel operations and busi- Pandox manages the hotel operations itself. ness development.Pandox role here is to organise the operationsPortfolio strategy Each hotel property has its own specific charac- via a local management team and to activelyIn order to maximise revenues and cash flow, Pandox teristics. The value is more dependent on the opera- participate in the development of the hotel. concentrates on one prioritised, expansive market tions (the tenants) profitability than for examplesegment. office or industrial premises. Furthermore, a hotelThe first and last alternatives dominate, although all Pandox market segment comprises hotel prop- property in general has one single tenant the hotelforms of cooperation are included in Pandox busi- erties in Sweden, major cities in Europe, as well as operator. Cash flow is generated in the hotel pro- ness concept. The trend is that own operations are developing regions in Eastern Europe. The hotel perty. This in turn increases demand on compe- currently increasing most, which is partly attributa-properties shall be centrally situated in natural and tence and insight of the underlying market of theble to that the majority of international hotel compa- strong hotel locations such as city centres, airports tenant, which places considerable demand on spe- nies are no longer entering into lease agreements. and exhibition centres. The hotels shall be in the cialist skills within three areas: hotel and hotel oper-medium to high price range, and focus on business ations, hotel properties and business development. Overall objectivetravellers and tourists. Pandox believes that hotels When the business concept is broken down into itsThe principal objective is to achieve an optimal included in these market segments have the best various components, the Company can choose return on investment and growth in value through chances of success in a growing hotel economic between the following operational forms: specific knowledge of hotels, hotel properties, andcycle, while risks are limited in the event of a down- Lease agreement with a partner that handlesbusiness development.turn. This is due to hotel markets in large locations both operations and distribution where Pandoxbeing more stable and having better growth potential,8PANDOx 2006 11. Cool development program Pandox acquired the Mermaid Hotel property in Copenhagen in the autumn of 2005, including the rights to the related operations. The hotel has 200 rooms and is located in central Copen hagen close to Tivoli and the Strget shopping street.The hotel, which was closed at the time of taking possession, had performed badly for several years and required considerable upgrading and modernisation, including product quality, design, concept and logis- tics. Upon acquisition, an activity plan was drawn up for upgrading in three phases. The development program started with the recruitment of a new management team and board with experience of turn- around cases, as well as the change of name to Copenhagen Hotel 27. The first phase of the program has now been com- pleted and covered the total refurbishment of 73 hotel rooms and partial upgrading of the lobby. The remaining of the hotel rooms will be refurbished during the spring of 2007 and at the same time the lobby and the adjacent restaurant and lounge bar will because they attract more capital and people. Strongtised partners in order to jointly make acquisitionsbe totally refurbished. The overall develop- and strategic locations are always important in the and undertake restructuring programs or major ment program will cost about DKK 60 mil- hotel industry, and the size of the hotel provides pro- investments.lion and is estimated to be completed in fitability benefits which in turn increases Pandox the spring of 2007. potential for improved return on investment.Leases and agreements structure The new concept also includes an Pandox enters into all forms of leases and manage-Absolut Icebar that will be inaugurated in Strategy for active ownership ment agreements to create joint incentives andApril 2007 which will further strengthen Pandox further develops its focus and expertise inbenefit the development of total cash flow. the profile as a design and lifestyle hotel. the chosen market segment through active owner- The objective is to create one of Copen- ship. Active ownership is adapted to each situation Own operationshagens leading medium-priced hotels with regard to both procedures and partnershipPandox has its own expertise for operating hotels.the coolest place in town through its strategy, with the aim to add value through higherExperience has shown that there are situationssize, strategic location and attractive design. cash flow or through limiting the risk involved.when this is the most profitable and most effective Examples of active ownership are set out below. way of improving cash flow. AcquisitionsParticipation in the restructuring process Pandox has built up its own expertise in the field of Pandox plays an active role in the ongoing restruc- acquisitions and acquisition methods. This impliesturing of the hotel property market. This implies that Pandox analyses, evaluates, negotiates and that Pandox participates through acquisitions, executes all acquisitions in-house, and enables a divestments and choice of partner. deep insight into acquisitions and their real poten- tial and risks, while increasing knowledge of the Cash flow strategy market. Pandox adapts to each individual situation with the support of the working methodology of the Pandox Choice of partnersModel. Pandox is thus able to actively participate in Pandox works together with all competitive market the development and implementation of cash flow players where joint forms of cooperation can be strategies together with its partners. developed and applied for the optimisation of total cash flow.Divestments Pandox cultivates its portfolio in accordance withCopenhagen Hotel 27 Strategic alliances its portfolio strategy. The majority of divestments Pandox can deepen the cooperation with its priori-are managed directly by the Company. PANDO x 2006 12. Pandox business developmentINTERNATIONAL OPERATIONS Brussels meeting and tourist segment in focus The Royal Crown Hotel Brussels and its operawill also be prioritised. The development program tions were acquired in the autumn of 2005. which is proceeding under the hotels new name of The hotel is located close to Place Rogier, whichBloom covers a new distribution strategy, the is adjacent to a large business district. The area upgrading of the current product offer, significant is undergoing strong development, includingupgrading of the property technology, as well as several new large office complexes.modernisation of the organisation. The investment isestimated to cost about 12 million euros and is The hotel property was built in 1976 as a Hyattexpected to take up to two years to complete. Regency Hotel and has a total area of approximatelyThe radical program has already started with the 15,500 square metres. It is a full-service product refurbishment of 110 rooms on two floors. All rooms with 307 rooms and large conference facilities withwill have an individual design concept produced by nine conference rooms an area of more than 1,720 different artists. The first rooms will be ready in the square metres. The hotel also has a restaurant,beginning of 2007, and all rooms are expected to be breakfast room, bar, gym and garage with about 100 completed during the summer of 2008. spaces.The conference rooms and faade will also be Pandox vision is to develop the hotel via a new refurbished in the beginning of 2007, followed by business concept to one of the leading medium- the remaining areas including the lobby, bar and res- priced hotels in central Brussels. Focus is beingtaurant. The entire hotel is expected to be completed placed on the meeting segment, although tourismduring the summer of 2008. 10PANDO x 2006 13. 06 London active development Hilton London Docklands is located next to the River Thames, overlooking Canary Wharf and the Tower of London. The hotel has 365 rooms, a restaurant, confer ence rooms, as well as a spa and health centre. It was built in 1991 and consists of both old and new build- ings, giving a unique design where the properties integrate well with each other and the surrounding river environment. The hotel is currently undergoing an extensive develop- ment program that was started in 2002 when the restaurant and the adjacent bar were refurbished. A year later, the LivingWell Health Club area was refurbished and upgraded, and is now very popular with both hotel and external guests. So far, 254 hotel rooms have been completely refur- bished. The next stage will include the remaining rooms as well as the upgrading of the reception and lobby areas. The 26 conference rooms with a maximum capacity of 350 people have already been reorganised in accordance with Hiltons meeting concept. This has created a strong meeting product and position within the market. The total cost of the refurbishment program is estimated to be about 7.5 million, including the Hilton part. Hilton London Docklands has undergone a development program covering the restaurant, health club and most of the hotel rooms.The development program at the Royal Crown Hotel in Brussels has been named Bloom. It covers a new distribution strategy, upgrading of the current product, upgrading of property technology and modernisation of the organisation. PANDO x 2006PANDO x 2006 11 11 14. the pandox model Improved cash flow with limited risk Hotel properties have characteristics that are Market surveyto establish a hotels position and standard com- distinctly different to other types of property, and The point of departure for a market survey is to pared with competitors. demand specialist skills and knowledge. Valueassess the market situation and trends within a growth is complex and is based on revenues and specific market, based on current and correctManuals for lease and management agreements profits being influenced by several factors such market information. To support this principal pro- Our manuals for lease and management agree- as the underlying hotel market, choice of brandcedure, Pandox employs a market information sys- ments form the basis for the various types of hotel name, price and product segment, type of lease,tem, external marketing systems and databases, agreements that Pandox uses. They contain clear and active ownership. Successful results demandresearch and analyses, as well as the Companysallocation of responsibility and checklists to support that the hotels are continuously reviewed andnetworks and media monitoring. Taken together, ongoing operations. The manuals are also an excel- analysed with the help of well developed working market surveys provide up to date and reliable lent tool for assessing risk exposure in connection methodology that provides support to the deci knowledge of prevailing market conditions. with acquisitions. sion making process.Market information systemHotel evaluation and investment In order to maintain and benefit from the know- Pandox has an IT system that contains informa- This system developed by Pandox assesses the ledge and experience that the organisation con-tion about the hotel market in terms of occu-profitability of a hotel business, and can conse- stantly develops, Pandox has produced and deve-pancy, average room rates, growth trends, com- quently establish the value of a hotel property. loped business procedures and operating systems. parative past performance figures, as well as aThe system is used for acquisitions and major These are used on a daily basis and the results aretarget group analysis. The system covers the investments. documented. Clear and user friendly processes im-major part of Pandox market. The assembled prove the quality of analyses and decision making, information is structured by location, geographi-Financial reporting and facilitate the transmission of knowledge while cal area, as well as price and product segments, Pandox focus on increased cash flow and the reducing the risk of losing important experience and is updated each month. optimisation of return on investment in its hotel and skills when key people leave. Pandox also has access to external databases properties requires a detailed evaluation of pro- Pandox principal procedures consist of thethat contain basic information about all hotels in posed and implemented measures. Pandox has Pandox Model, Market Survey and FinancialPandox markets. The Company furthermore therefore developed a system to enable the finan- Reporting. has an agreement with various consultancycial reporting and follow up of target variables.firms that constantly monitor and analyse Euro- Financial reporting is based on the annual The Pandox Model pean and American hotel markets in particular. budget prepared for each hotel property, which is Pandox working methodology to generate in- followed up on a monthly basis at both hotel and creased cash flow with limited risk is known as theNetworks Group level. Long term forecasts are drawn up for Pandox Model, and is the Companys most impor- Pandox works via external consultants and con- several years ahead as an integral part of the tant principal operating procedure. The model in-tacts, either where the competence needs to be budget process in conjunction with the strategic cludes four different stages, before implementationstrengthened or to gain access to expertise that isplans prepared according to the Pandox Model. and follow-up. Each hotel property is regularlynot available within the Company. This network isThe ongoing revenue reporting follows changes evaluated based on the four stages of the Pandox assembled in a database, divided into markets andobserved within the hotel market, and provides Model. Similarly, each investment and divestment functions. good underlying data for the quarterly forecasts is preceded by such an evaluation. The four stagesprepared per hotel property and for the Group. are market analysis, market strategy, profitabilityMedia monitoring All in all, this financial system provides current optimisation, and lease optimisation (see diagramArticles about hotels published in Sweden andinformation and data that enable the continuous on the opposite page). abroad are registered daily. assessment of the portfolios potential and risks, The operating tools described in the followingand consequently the active measures that should market survey section are used within the Pandox Hotel product analysis be prioritised. Model. The hotel product analysis is a tool used as support 12PANDO x 2006 15. Scandic Copenhagen The Pandox ModelMarket analysisMarket strategyProfitability optimisation Lease optimisation A market analysis is performed in or-A strategic plan is established for each In view of that a propertys value isThe optimal cash flow in each respec- der to assess the potential profitabilityhotel property based on the respective influenced by the hotel operationstive hotel property is then divided of a hotel, and thereby its ability to pay locations specific prerequisites, the profitability, the operator is naturally among the operator, Pandox and other rent. The local market is identified and local market and its position in the Pandox most important partner. In parties concerned. Lease agreements analysed regarding demand, competi-hotel economic cycle. When preparing order to ensure positive developmentsare formulated so that all parties tion and the current and future offer. the strategic plan, the propertys con-within the hotel operations and theinvolved have an incentive to con-tinued utilisation scope is evaluatedvalue of the property, the operatortinuously improve the hotel propertysobjectively and impartially. and related activities are continuouslyoverall profitability. evaluated. Possibility toAction plan acquire hotel with concrete propertymeasuresMarket analysisMarket strategyProfitability Lease optimisation Evaluation of optimisation each hotel property and the hotel property portfolioSales as per the strategyPANDO x 2006 13 16. the pandox model Types of lease incentive for both partiesThe value of a hotel property is governed to a considerable degree by the formulation of the hotel lease.market as a whole and in the market share. To limit To produce a good hotel lease that is dynamic for both parties is a complicated process. In addition tothe risk, these leases generally specify a minimum legal expertise, substantial knowledge of conditions within the hotel industry is required, as well as guaranteed amount of rental revenue (guarantee/ insight into the priorities of each respective party.base rent).Specific characteristicsgoverned by factors such as anticipated market Result based Each hotel lease is the result of a comprehensive trends, local competition, planned investments,A result based hotel lease implies that the hotel market analysis that includes changes in the mar- as well as choice of operators and distributors. property owner receives a share of the hotel opera- ket and competition from different players both inBy combining various types of lease, Pandox hastors operating net. This type of lease requires that the short and long term.achieved a lease structure that is 94 percent flexi- the hotel property owner understands the opera- By using various techniques, Pandox can limit ble, which provides Pandox with increased cash tors financial control system. Result based hotel the risk in a declining market and simultaneously flow in a rising market while simultaneously offer-leases can also specify minimum guaranteed rental participate in a market that is showing an upward ing a 38 percent protection against downturns in revenue (guarantee/base rent). trend. Should the operators liquidity weaken,the market through fixed fee leases and rental Pandox has the expertise and ability to manage theguarantees.Fixed fee hotel lease hotel itself, which indeed has occurred on several Fixed fee hotel leases with an index linked to the occasions.Types of lease development of the Consumer Price Index (CPI) Revenue basedare used in mature markets and in well established Pandox lease structure Revenue based hotel leases are linked to sales gen-hotel products. A fixed fee lease limits the risk but Pandox lease structure reflects its active and situ- erated by the hotel business. This form of lease also the potential. ation adapted ownership. The lease structure is provides Pandox with a share of growth in both theThe years two Swedishacquisitions Two of the three hotels acquired during the year are in Sweden. Both have central and strong locations in each respective market. Radisson SAS Hotel Malm The hotel property was acquired after the summer with possession on 1 September. The Radisson SAS Hotel Malm is one of southern Swedens leading business hotels with an excellent position in central Malm. It is located in the same building as the Caroli shopping centre and is close to the business district, shopping areas and communications. Malm is a central part of the dynamic resund region. Pandox previously owns two hotels in the city Scandic St Jrgen and Scandic Kramer. Pandox strengthens its position in the market through the acquisition of the Radisson SAS Hotel. In addition to the Malm hotels, Pandox also owns the Scandic Radisson SAS Hotel Malm Star in Lund and two hotels in Copenhagen the 14PANDO x 2006 17. Berlin acquisitionstrengthens the positionThe Hotel Berlin, Berlin, including the related operations was acquired in the springof 2006 with possession on 1 June. Thehotel is Berlins third largest with 701rooms, 18 conference rooms and severalrestaurants and bars. It is a refurbishedproperty in a central location within walkingdistance to the popular tourist area of Management agreement Through a management agreement, an opera- Kurfrstendamm. A management agreement can be perceived as a tor/manager is assigned to operate and manage sort of agent contract. The main characteristic is the hotel on behalf of the hotel propertys owner Pandox principal strategy is to reposition the that the hotel property owner also owns the hotel manage the manager for which a manage-hotel towards the more profitable meeting business.ment fee is paid to the operator/manager. and events segment. Via active ownership,the local management is provided support inthe process of implementing effective andmodern forms of operation. The developmentprogram is estimated to take 23 years andcomprise an investment of approximately DuEDATE STRuCTuRE 7 8 million euros. Berlins hotel market is well OF THE LEASE AgREEMEnTSREnTAL REVEnuE 2006 By TyPE OF LEASEdeveloped and covers 45,000 rooms withmost of the major international operators andRevenue-based leases, 48%brand names being represented. The marketKSEKhas been characterised in recent years by 400,000Revenue-based leasesconsiderable additional capacity which has 300,000 with guarantee, 32%affected room occupancy negatively and put Management leases 200,000own operations, 14%pressure on prices. The situation has how- 100,000ever improved, and more stable trends andFixed leases, other tenants, 4%0improved profitability are now anticipated. 2007 2008200920102011 Fixed leases, 2% The acquisition of Hotel Berlin, Berlin, ful-fils all of Pandox acquisition criteria and thehotel is located in one of Europes largest andmost interesting markets. It is Pandox firsthotel in Berlin. The Company owns from pre-viously three hotels in Germany the HiltonBremen, Hilton Dortmund and ScandicLbeck. With the latest acquisition, Pandoxstrengthens its position as one of the leadingScandic Copenhagen and Copenhagen Hotel 27.hotel property companies in Europe. The Radisson SAS Hotel has 229 rooms of inter-national standard, 12 conference rooms, a healthcentre and restaurant. The vendor was WihlborgsFastigheter AB and the acquisition price was SEK260 million.Scandic Plaza, BorsThe Scandic Plaza was acquired in the summer withpossession on 3 July. It is one of the leading provin-cial hotels in Sweden. The hotel has a good locationin central Bors on the citys main street, Allgatan.The local market is composed of eight hotels withalmost 700 rooms. Pandox previously owns the FirstHotel Grand in Bors with 158 rooms.The Scandic Plaza has 135 rooms, 18 conferencerooms, a health centre and restaurant. There is aScandic Plaza Borspotential to extend the property with an additional 30rooms. The acquisition price was SEK 136.5 million. PANDO x 200615 18. Pandox business developmentOPERATING COMPANIES Active ownership Pandox current portfolio contains seven operating companies that are forecasted to generate a total turnover of approximately SEK 575 million in 2007. The strategy is to build up independent companies where the major part of responsibility can be delegated to each respective companys board of directors and management team. The operations are monitored, developed and analysed through regular board meetings where the companies boards also comprise external members. Pandox most important tasks are to support the compa- nies business processes through the appointmentHOTEL BERLIN, BERLIN of professional boards and management teams,Both the property and the operation were acquired in the spring of 2006. The hotel, which was previ- as well as to assist with management systems andously operated by Choice Hotel International as a Clarion hotel, is today marketed via independent working methods being established in order to distribution channels. Pandox strategy is to reposition the hotel towards the more profitable meeting optimally utilise the development potential in each and events segment and to develop effective and modern forms of operation. The development pro- respective unit.gram will be in progress for 23 years and the cost is estimated to be between 7 and 8 million euros. COPENHAGEN HOTEL 27 Copenhagen Hotel 27 including the right to run the operation was acquired in 2005. The hotel is marketed via independent distribution channels since being taken over. The strategy is to develop the hotel to one of the leading upper-medium priced hotels in Copenhagen. This will be achieved with the help of its strong location and a modern and attractive design, which will also include an Absolut Icebar. The development program is estimated to cost approximately DKK 80 million. 16PANDO x 2006 19. 06 RADISSON SAS HOTEL STERSUNDThe property was acquired in 1995 and the opera-tion was taken over in 2004. The hotel is marketedvia a franchise agreement with Radisson SAS. An ROYAL CROWN HOTEL BRUSSELS action plan has been implemented under Pandox The operation and property were acquired in the autumn of 2005. The hotel has been marketed viamanagement with the objective of increasing opera- independent distribution channels since Pandox took over. The strategy is to develop the hotel to onetional effectiveness, and the investment has given of the leading upper-medium priced hotels with focus on the business and meeting segment as well an improvement in results. A new development as the tourist sector. The restructure, excluding the acquisition cost, is estimated to amount to approx-program of approximately SEK 5 million has been imately 13.5 million euros.started to upgrade the rooms. CROWNE PLAZA BRUSSELS CITY CENTRE The operation and property were acquired at the end of 2003 and represent one of the leading business and city meeting hotels in Brussels. The hotel is operated under a fran- chise agreement with Crowne Plaza, which is one of the brand names of the Intercontinental Group. Distribution takes place via one of thePELICAN BAY HOTEL & RESORT worlds most powerful channels Holidex. AT LUCAYA The hotel has recently undergone an upgrad- The hotel is located on grand Bahama ing and modernisation program at a cost of Island and has 186 rooms, of which 96 are 13 million euros. junior suites. The hotel is marketed as a resort hotel via independent distribution channels. HotelCity/location RoomsHotel manager Pandox has an asset management agree- Radisson SAS Hotel stersund stersund 177Anders Hallin ment, which implies that the Company pro- Copenhagen Hotel 27Copenhagen200Jette Schjtt, acting***vides the owner, Sundt AS, with support to the Crowne Plaza Brussels City CentreBrussels354Eric van Dalsum companys management and for the develop- Royal Crown Hotel Brussels Brussels307Aldert Schaaphokment of operations. During the initial period, Hilton Brussels City*Brussels283Nol de Munck the management has focused on creating Hotel Berlin, Berlin Berlin701Cornelia Kausch procedures and standards for the operating Pelican Bay Hotel & Resort at Lucaya** Bahamas 186Magnus Alnebeck company. An analysis and evaluation of possi- Total2,208 *Management contract. **Asset management agreement, owned by Sundt AS. ble investment in a new conference and ban- ***New CEO Christopher Alm to commence in January 2007. quet department are currently in progress.PANDO x 2006 17 20. market overview Record year in the hotel industry Hotel Berlin, Berlin 2006 was a record year for the hotel industry. In percent, and towards the summer growth was evenAmsterdam, Paris and Berlin were among the several areas, the market exceeded the levels ofhigher compared with the previous year. Westerncities where the average rate rose more than room the peak years experienced around the turn of the Europe, which is the origin of most of the visitors, occupancy during the year. Amsterdams RevPAR millennium. There was a mixture of growth in both increased its volume of travel. Incoming travel from was 109 euros, representing an increase of 12.5 room occupancy and average room rates, although North America also rose. London finished at 83 per-percent. Paris rose in a similar way in both average average room rates represented the major proporcent in occupancy and 118 in average rate, result-rate and occupancy, and RevPAR closed at 149 tion of growth towards the end of the year. ing in a rise in RevPAR of 17.5 percent. In 2006 euros, representing an increase of 11.7 percent. growth in London was thereby higher than New York. The US market broke record after record. In the Most German cities also experienced an in- Sweden latter part of 2006, it was mainly average rates that crease during the year. The German economy had Both room occupancy and average rates increased moved forward. Room occupancy started to declinea good year in 2006 and laid stable foundations forin Sweden. Occupancy closed at 49 percent and during the year and finished at 63 percent, which isgrowth in the hotel industry. The football World Cup average rate at SEK 827. RevPAR rose in total by 8 in line with the previous years figure. RevPAR rosethat was held in Germany during the summer alsopercent during the year. Generally speaking, it was by a total of 7.5 percent and finished at 62 dollars. helped. Twelve cities were hosts for match duringa strong year in Sweden, even if the parameters that Leisure travel developed slightly weaker during the World Cup. The event also helped to strengthen had the highest growth vary slightly. the year. general self confidence in the country and toGothenburg had a very good year. The EuropeanOccupancy was affected by the low number broaden international interest. According to the Athletic Championships were held in Gothenburg of additional rooms. The growth in available roomsEconomist Intelligence Unit (EIU), the corporate in August, which had a positive effect on the city. in the United States has been lower than normal and investment climate has not been so goodThe number of sold rooms broke records during the during an upward economic trend. The difference since the countrys reunification in 1991. year, and occupancy finished at 66 percent. Aver- between growth in demand and growth in availableBerlin was host for the final of the footballage rates also attained new highs and increased to hotel rooms has not been so large since the 1970s.World Cup. The previous years considerable addi-SEK 849. Malm also experienced growth, despite Due to limited growth in additional rooms restricts tional capacity has finally been absorbed and theat strong year in 2005, and finished with room growth of room occupancy. citys hotel market started to strengthen during occupancy at 65 percent and an average rate ofIn New York, average rate rose by more than2006. Room occupancy in Berlin ended at 69 SEK 777. RevPAR closed at SEK 506, representing 10 percent and room occupancy finished at the percent and the average rate at 94 euros. RevPAR a rise of 7 percent compared to the previous year. same level as in 2005. Occupancy closed at 83 per-closed at 65 euros, representing an increase ofStockholm finished the year with RevPAR close cent and the average rate at 240 dollars. RevPAR17 percent.to 8 percent over 2005. This rise was equally attribu- for the full-year 2006 was 190 dollars, representingIn European cities such as Brussels, Copen-table to growth in both occupancy and average rate. an increase of 12.8 percent compared to 2005. hagen and London, room occupancy has still beenThe structure of travellers has changed and the pro- the parameter that increased the most during the portion of leisure travellers has increased compared Europeyear. RevPAR for Brussels finished at 72 euros, rep- with previous years, which in turn has burdened London recovered from last years terrorist attacks resenting a rise of 9.3 percent, while Copenhagenthe development of average rates. during 2006. Already in the spring, both averageclosed at DKK 591, equivalent to an increase of rates and room occupancy increased by about 5 6.9 percent.18PANDO x 2006 21. Radisson SAS Hotel Malm Hotel economic cycle The hotel economic cycle has the same pattern but vary in time for different markets. Speed and posi- Greater interest for transactions tion in the cycle are dependent on external factors In line with RevPAR increasing across the world, The private equity company Dubai Interna- such as underlying economic activity, fairs and exhi- interest in hotel properties is becoming larger andtional Capital has acquired Travelodge for bitions, sports events, international focus, trends wider. Hotel properties have previously been per-675 million from Permira Funds. within the hotel sector, etc. Despite all markets hav- ceived as being risky investments, and traditional The private equity company Permira has ing their own position, one can draw general conclu- investors such as financial institutions, privateacquired Principal Hotels for 300 million. sions regarding the overall hotel economic business equity companies and even pure property funds Individual properties have also been sold. Exam- cycle at least when divided into geographic areas. have avoided investing in hotel properties. Withples include Pandox acquisition of the Hotel The current trend within the hotel industry indi- this rise in interest, competition surroundingBerlin, Berlin with 701 rooms, Marylebone cates general growth in RevPAR. In large cities, the acquisitions has become tougher, and the priceWarwick Balfours sale of Marriott Park Lane increase in RevPAR is currently being driven by of hotel properties has continued to rise.with 157 rooms and the 301-roomed London rising average rates. This phase, when occupancyGrowth in the underlying hotel market hasMarriott West India Quay in London. growth decrease and room rates increase more than also influenced activities and price setting withinActivity in Scandinavia has also been unusu- occupancy, is usually called peak. This can now the hotel property market. Many transactionsally high with increased international interest in be observed in New York, but also in major interna- were completed during the year, both as individ-the northern parts of Europe. The stock-exchange tional cities in Europe. New York, which normally ual acquisitions and portfolio transactions.listing of Rezidor SAS and Hilton Hotels Corpora- lies furthest forward in the hotel economic cycle,Major portfolio acquisitions completed intions decision to sell its portfolio of Scandic has not had any growth in occupancy during the 2006 included the following:Hotels represented some of the more interna- year while average rates have risen strongly by more Marriott International and Whitbread have tionally noticeable events. Another transaction than 10 percent. The city has broken the demandsold 46 co-owned hotels for 1 billion.that drew attention was the Nordic hotel property ceiling, which implies that the offer of hotel rooms is Kingdom Hotels International and the invest-company Norgani Hotels acquisition of the restricting any further growth in demand. Averagement company Colony Capital have togetherFinnish hotel portfolio Kapiteeli. Klaraterminalen rates have taken over as the driving parameter foracquired Fairmont Hotels & Resorts. Fair-Stockholm Klara was sold again this time to a higher RevPAR.mont will be merged with Raffles Hotels andgroup of financial investors. Other cities that are well placed in the hotel eco-thereby create an overall portfolio of 120Interest for Eastern Europe has continued to nomic cycle include London and Paris. Stockholmluxury hotels in 24 countries. increase. The Wenaas Group purchased Pribal- and Gothenburg are also at a relatively high level The Blackstone Group has acquired the tiyskaya in St Petersburg during the year, which while locations such as Brussels, Berlin and Oslo stillHEBV portfolio, including eight hotels inwill become Rezidor SAS second Park Inn in St have a bit further to go before they reach the peak.Europe, for 650 million euros. Petersburg. The Finnish hotel chain Sokos also Morgan Stanley Real Estate Funds have announced an expansion of two further hotels inacquired seven hotels with a total of 2,537St Petersburg, and Hilton Hotels Corporation willrooms. open its first hotel in Moscow in 2007. PANDO x 20061 22. Pandox business developmentPRODUCT DEvELOPMENT Brussels attracting the business segment Pandox acquired the Crowne Plaza Brusselsalso led to the hotel being made more effective by City Centre at the end of 2003. The hotel is modifying the layout of the area. located at Place Rogier in central BrusselsWhen Pandox took over the hotel a new mana-gement team was appointed and new forms of con- within walking distance of the tourist andtrol and booking system were simultaneously shopping district around grand Place. Theimplemented. This was followed by a total refur- area is also adjacent to a large business dis bishment of all rooms and the development of a trict that is undergoing strong development. new conference centre Balanced Senses Confer-ence Floor. This is a new concept that offers the The hotel opened in 1908 and over the years hasmost recent meeting technology in an inspired had many different owners and operators. Intercon-environment. tinental Hotels has had a 20-year franchise agree-It is based on stimulating and inspiring meeting ment for the hotel since 1998 under the Crowneparticipants senses through fragrances, calm Plaza profile.colours and sound and pictures from nature, The total area is about 28,000 square metreswhich are present in all public areas. spread over eleven floors. The hotel is a full-serviceThrough the refurbishment and upgrading, product with 354 rooms as well as a large confer-Pandox has created a high class hotel product ence and banqueting department with 20 con-that opens opportunities for stable and profitable ference rooms and a maximum capacity of 600developments. The overall investment to create guests. There is also a restaurant, breakfast room,one of Brussels leading conference hotels is esti- bar and a fitness centre.mated to be approximately 13 million euros. The hotel has recently been re-profiled and totally refurbished. The original art nouveau lines have been kept and combined with a relaxed modern style this has created rooms and general space that meet all demands for comfort. FromThe Crowne Plaza Brussels City Centre was acquired in 2003 previously being a tourist hotel, focus is nowand has been re-profiled and totally refurbished. The original instead on the business and meeting segment. art nouveau lines have been preserved and combined with a The refurbishment has taken two years and hasrelaxed and modern style. 20PANDO x 2006 23. 06 PANDO x 2006 21 24. Pandox business developmentPRODUCT DEvELOPMENTHelsingborg a successful mixture of old and new The Radisson SAS Grand Hotel Helsingborg wasmodernised, simultaneously as the rooms were attractive for both overnight guests and residents included when Pandox was formed. At that time,refurbished. A passage was also opened up be-of Helsingborg looking for a moments peace and it was a classic hotel in the centre of town with 117 tween the lobby and the news kiosk. Together withquiet or a social meeting with friends or business rooms. Eleven years later, it is modern and full of Waynes Coffee, lounge, bar and beauty salon thisacquaintances. life and a natural meeting place in the city. created a living hotel arcade.Pandox also owned another hotel in Helsing-Today the hotel has 164 rooms, including ten borg, which was acquired in 2001. It was called suites, three modern meeting rooms, as well as Best Western Hotel Hgvakten and was right next the arcade to attract people passing by. The total door to the Radisson SAS Grand Hotel. investment amounted to approximately SEK 25In 2005, the two hotels were merged, and parts million and was carried out together with the owners of the hotel were modified as part of the project.of the operations Kjell and Karin Jakobsson. Unutilised surfaces were made into conference With a mixture of old and new, the operator rooms, the breakfast room was enlarged andhas created with Pandox an inviting hotel that is Radisson SAS Grand Hotel Helsingborg Elite Park Avenue Hotel 22PANDO x 2006 25. 06 Gothenburg once again one of Swedens leading hotels The Elite Park Avenue Hotel has undergone totalA joint plan for the future was drawn up withburgs strong leisure market. Ten new rooms have refurbishment over the last two years, and has the operator when the new agreement was signed.been added and 42 of todays 291 rooms are suites. retaken its former place as one of Swedens best The goal was to recreate the hotels previously strong All rooms and bathrooms have been refurbished hotels.position, both in the local Gothenburg market andand the restaurant modernised with a new concept. It was built in 1950 and quickly became onein the Swedish hotel market in general.Elite Hotels own franchise The Bishops Arms of the countrys leading hotels. Pandox acquired The development and modernisation will now now has a pub in the building, which is appreciated the property in 1997, at which time the hotel wassoon be completed at a cost of approximately by both hotel guests and strollers on Kungsports- operated under the Radisson SAS brand name.SEK 100 million and in close cooperation between avenyn. The restaurant Park Aveny Caf which A major refurbishment program was carried outPandox and Elite. The hotel has been rebuilt and was awarded Business Restaurant of the Year by during the 1990s. However, the hotel became less today has 291 rooms, a restaurant, pub and con-the Dagens Industri newspaper shortly after open- attractive during the latter part of the 1990s and ference facilities. The surface layout was modifieding also contributes in giving the hotel a new and the operations were taken over by Elite Hotels as part of the project. The number of double rooms more modern profile. of Sweden in 2005. has been increased in order to benefit from Gothen- PANDO x 200623 26. human resources Anders Nissen, Chief Executive Officer, born in 1957. Anders Nissen has a strong background from the hotel industry, and has been active within the sector for nearly 20 years. His operating experience includes being hotel director as well as holding leading positions within the group management team of the hotel operator Reso. In the beginning of 1993, Anders became CEO of Securum Hotel Anders Nissen & Turism AB, where he led the process of structuring Securums hotel activities. Anders was a key player behind Lars Hggstrm the initiative to form Pandox, and has been CEO since the Company was started in 1995. Knowledge Jonas Pettersson Jill JanssonJosefin Nilsson Anders Hallin, Hotel Manager and Business Area Man- ager, born in 1962. Anders Hallin is both hotel manager of the Radisson SAS Hotel stersund and Business Area Manager. He has solid experience of the hotel industry and comes most recently from Mora Hotell.Anette sterberg, Acquisition and Investment Analyst, born in 1975. Anette sterberg is a graduate in business Salme Olsson Folke Holmqvist administration from the European Business School in London. She has also studied property valuation at the Royal Institute of Technology (KTH) in Stockholm. Upon completion of her studies, Anette worked with Corporate Finance at Deloitte & Touche. She was recruited by Pandox in the spring of 2003 as analyst, and works with acquisitions, market analysis, market communication and decision making support for the business area managers.Ann-Sophie Forsmark, Property Accountant, born in 1971. Ann-Sophie Forsmark is a graduate economist from the IHM Business School. She joined Pandox in 1999 after having previously been employed by Riddarstaden AB, Marco Polo and Fritidsresor. Ann-Sophie works within Pandox finance and accounting department.Erik Hvesser, Business Area Manager, born in 1969.Nils Lindberg Erik Hvesser is an economics graduate of the School of Economics & Business Administration in Oslo. He came Ulrika Norrbrink to Pandox in the autumn of 2006 from the position as asset manager with Norgani ASA. Erik has 15 years operating experience within the hotel industry as hotel manager, business area manager, business controller, as well as various senior positions within Hilton/Scandics Swedish management team. He is currently responsible for the major part of Pandox Swedish hotel property portfolio.Folke Holmqvist, Property Manager Sweden, born in Ann-Sophie Forsmark 1943. Folke Holmqvist is a construction engineer with 25 years experience of the building sector and five years as CEO of a hotel company. He became property manager of Securum Hotel & Turism AB in 1993 and took part in the formation of Pandox. Folke has been project manager for several major refurbishment programs, and as Prop- erty Manager for the Swedish properties works closely with the three business area managers. 24 PANDO x 2006 27. Erik Hvesser Anders Hallin Mikael Planell enables successJill Jansson, Assistant to the CEO, born in 1952. Jill Jans- Josefin Bergqvist, Acquisiton and Investment Analyst, Louise Ceder, Property Support, born in 1970. Louiseson joined Pandox in September 2005 as Assistant to theborn in 1974. Josefin Bergqvist holds a masters degree Ceder works with property support and during the lastCEO. Her position implies providing support to the board in hotel management from Griffith University in Australia year has produced a new website for reporting and followof directors and management of the Company, as well as as well as a masters degree in property finance from up. Louise reports to our business area managers andinternal and external communication including the an-the Royal Institute of Technology (KTH) in Stockholm. has worked at Pandox since 2000.nual report and accounts. Jill comes most recently fromJosefin has previously worked for CBRE Hotels in LondonVentelo Sverige AB, and has also worked within group as analyst and operationally for Marriott International.Mikael Planell, Business Area Manager, born in 1960.functions at Pharmacia.She has been with Pandox since August 2006. Mikael Planells area of responsibility covers eleven major hotel projects, including the Hotel Berlin, Berlin and theJonas Pettersson, Controller, born in 1971. Jonas Petters- Josefin Nilsson, Receptionist, born in 1983. Josefin Nils-Copenhagen Hotel 27 where he is also a member of theirson is a graduate in business administration and economics son is responsible for daily office procedures together boards. Mikael has a solid background from the hotelfrom Stockholm University, and has also studied to becomewith the Assistant to the CEO. She has been with Pandox sector with 20 years as hotel manager and area manager,an electrical engineer at the Royal Institute of Technologysince September 2006. including in London and Stockholm. Before joining(KTH) in Stockholm. He has previously worked with Corpo- Pandox in the beginning of 2005, he was manager ofrate Finance at Deloitte & Touche and Nordea Securities, Lars Hggstrm, Business Area Manager and Interna-operating and business development for Accor Hotelsand most recently comes from the position as group control-tional Property Manager, born in 1954. Lars Hggstrm Nordic operations.ler of the industrial company DeLaval. Jonas was recruited is a graduate engineer and has considerable experienceby Pandox as Controller in the autumn of 2005. During hisof the hotel sector, with an emphasis on property related Nils Lindberg, Chief Financial Officer, born in 1947.time with Pandox, Jonas has built up operating systems thatquestions. He was technical manager of Scandic Hotels Nils Lindberg has considerable experience in the eco-have grown considerably in recent years, thus enabling from 1993 to 1998, and property manager of Hotellus nomic and financial area within industry and the bankingoperations to be monitored in a simple and analytical way. International from 1998 to 2000 when Pandox acquiredsector. He has worked as controller and treasurer of Dow the company. Lars has business area responsibility forChemical Nordic Region, as well as bank manager with the international hotels, as well as several major SwedishNordbanken and business manager within Securum Louise Cederproperties. He has furthermore managed the re-brandingFinans. Nils joined Pandox in 1995, and is responsible for of five large Hilton hotels as well as the further develop- economic and financial issues within the Group with a ment of the Crowne Plaza Brussels City Centre, Hilton focus on financial control and reporting, as well as the Brussels City as well as the ongoing refurbishment of the management of the Groups financing. Elite Park Avenue Hotel. Salme Olsson, Property Accountant, born in 1944. Salme Olsson studied economics at Stockholm University. She joined Pandox in 1995 after having previously worked within the Beijer Group and AEG, and now currently works within Pandox finance and accounting department.Ulrika Norrbrink, Property Accountant, born in 1966. Ulrika Norrbrink came to Pandox in March 2006 after having worked previously for Power Hemelektronik AB, Proact IT Sweden AB and Lars Gullstedts Fastigheter AB. Ulrika currently works within Pandox finance and ac- counting department. Anette sterbergAnette sterberg Josefin BergqvistPANDO x 200625 28. 39 hotels with strategic locations inSweden, Denmark, Belgium, Germany,Switzerland, the United Kingdom andthe Bahamas. Hotel properti Scandic Plaza Bors 26 PANDO x 2006 29. Hotel Berlin, BerlinCopenhagen Hotel 27 es Copenhagen Hotel 27 PANDO x 2006 27 30. hotel properties Type of number year of constr. Total areaPropertyOperator/Brand nameLocation lease of roomsextension(sqm) StockholmRadisson SAS Arlandia Hotel, ArlandaRezidor/Radisson SAS OgInternational airport 3351979/89 15,260Hilton Stockholm SlussenHilton/HiltonO City centre 288 1989 18,416Scandic Jrva Krog, Stockholm Hilton/Scandic O Stockholm north 2151971/97 11,300Scandic Park, Stockholm Hilton/Scandic O City centre 1981969/88 12,290Quality Hotel, NackaChoice Hotels Scandinavia/QualityOgSickla-Nacka162 1986 10,830Scandic Upplands VsbyHilton/Scandic O Stockholm north 150 19866,955Mr Chip Hotel, KistaKista Hotell ABOgStockholm north 150 19845,517TOTAL STOCKHOLM1,498 80,568 gothenburgScandic Crown, Gothenburg Hilton/Scandic O City centre 338 1988 24,380Elite Park Avenue Hotel, Gothenburg Elite Hotels/Elite OgCity centre 291 1950/74/90 21,998Scandic Mlndal, Gothenburg Hilton/Scandic O City centre 208 2000 11,000TOTAL gOTHEnBuRg 837 57,378 resund regionScandic CopenhagenHilton/Scandic O City centre 4841970/99 31,500Scandic S:t Jrgen, Malm Hilton/Scandic OgCity centre 2651967/95 21,485Radisson SAS Hotel, Malm Rezidor/Radisson SAS OgCity centre 2291971/88 18,969Copenhagen Hotel 27 Pandox IoCity centre 200 1913/55/657,568Scandic Star, LundHilton/Scandic OgCentral 196 1991 15,711Radisson SAS Grand Hotel, Helsingborg Sverigerd AB/Radisson SAS OgCity centre 164 1926/29/968,555Scandic Kramer, Malm Hilton/Scandic O City centre 113 1875/1994 6,913TOTAL RESunD REgIOn 1,651110,701 Regional towns and other locationsScandic Grand, rebro Hilton/Scandic O City centre 219 1985 12,900Scandic Winn, KarlstadHilton/Scandic OgCity centre 1991984/90 10,580Scandic Swania, Trollhttan Hilton/Scandic OgCity centre 196 1918/83/89 10,399Radisson SAS Hotel, stersund Pandox/Radisson SASIoCity centre 177 19788,766First Hotel Grand, BorsVstsvenska Hotellfastigheter AB/First Hotel OgCity centre 1581972/87/90/979,593Scandic Plaza, BorsHilton/Scandic O City centre 135 1988 10,592Elite Stora Hotellet, Jnkping Elite Hotels/Elite OgCity centre 1351860/1930/9511,378Scandic Hallandia, Halmstad Hilton/Scandic O City centre 1301890s/1950/757,617Radisson SAS Plaza Hotel, KarlstadPlaza Hotell & Restaurang i Karlstad AB/Radisson SAS OgCity centre 1311929/915,907Scandic Billingen, Skvde Hilton/Scandic F City centre 1061888/1939/65 7,743TOTAL REgIOnAL TOWnS AnD 1,586 95,475OTHER LOCATIOnS International 2)Hotel Berlin, BerlinPandox loCity centre 701 1958/87/96 41,093Hilton London Docklands Hilton/HiltonO Docklands 365 1991 22,800Crowne Plaza Brussels City Centre Pandox/Crowne PlazaIoCity centre 354 1910 28,095Royal Crown Hotel BrusselsPandox IoCity centre 307 1976 15,530Hilton Brussels CityPandox/HiltonM City centre 2831910/30 13,850Radisson SAS Hotel, Basel Rezidor/Radisson SAS OgCentral 205 1957/63/72 17,800Scandic Grand Place, BrysselHilton/Scandic O City centre 1001900/914,500Scandic Antwerpen Hilton/Scandic O Ring road 204 1974 13,200Hilton Bremen Hilton/HiltonO City centre 235 1991 21,000Hilton Dortmund Hilton/HiltonO Exhibition centre 190 1990 12,500Scandic LbeckHilton/Scandic O Ring road 158 19919,700Pelican Bay Hotel & Resort at Lucaya,Freeport, Grand Bahama Island Sundt GB ManagementAMResort186 7,983 TOTAL InTERnATIOnAL3,288208,051TOTAL PAnDOx 8,860552,1731) Includes hotel, restaurant and conference areas.2) Excluding Copenhagen (included in resund).O = Revenue-based, Og = Revenue-based with guaranteed rent, Or = Revenue and result-based, R = Result-based,F = Fixed, Io = Internal revenue-based, M = Management agreement, AM = Asset management agreement. Pandox operating businesses (hotels operated by Pandox) 28PANDO x 2006 31. PANDOX MARKET SEGMENTSOf which Offices ShopsOther Right of Property Tax assessment hotel1) (sqm)(sqm)(sqm)(sqm) disposal designationvalue (Mkr)15,260 Land leasehold Benstocken 1:5 92.0Stockholm Share of15,7252,097594 Land leasehold verkikaren 31345.0Number of hotels7 total rooms11,300 Land leasehold Tanken 2 57.4Number of rooms 1,50017%10,2902,000Lnnen 30 174.0Property revenue, Mkr 144.4 8,0902,705 35Sicklan 363:2 90.4Operating net, Mkr114.6 6,955Vilunda 6:48 27.6 5,517Land leasehold Knarrarns 7 64.1 73,1374,802 2,629 850.521,800 300 2,280Stampen 5:5 191.0gothenburg Share of21,998Lorensberg 28:4 289.0Number of hotels3total rooms11,000Laken 161.8Number of rooms 8379% 54,798 300 2,280 541.8 Property revenue, Mkr76.5Operating net, Mkr 67.6 25,2006,30099943-2 14,6554,2302,600S:t Jrgen 11 120.018,969 Carolus 32N/A 7,568 169 Vester Kvarter Kbenhavn13615,711Porfyren 2 77.4resundShare of 7,3251,230Hgvakten 1+755.6Number of hotels7total rooms 6,373 540 Gripen 1 47.8Number of rooms 1,65119% 95,801 6,0008,900 300.8 Property revenue, Mkr 125.4Operating net, Mkr 96.8 10,9002,000 Land leasehold Mltaren 1 40.610,580Negern 2 38.610,399Svan 7 46.6 8,766 Tenant-owner Borgens 333.8 9,365228 Land leasehold Prometeus 336.8Regional towns and Share of 7,9612,631Balder 6 62.4other locationstotal roomsNumber of hotels 10 9,379 899 1,100Alhambra 1 44.6 18%Number of rooms 1,586 6,813360 42717Erik Dahlberg 14 & 1535.7Property revenue, Mkr92.5 5,907Hken 128.6Operating net, Mkr 76.8 6,844899Fjolner 721.286,9142,991 1,3264,244 388.9 InternationalShare of41,093Number of hotels 12total rooms21,5001,300HM Land Registry: SGL465779 Number of rooms 3,28828,095Property revenue, Mkr 196.1 37%15,530Operating net, Mkr167.613,850Saint-Josseten-Noode (1div) 032 17,000800 4,50013,20024th div, Borgerhout 1st div, Ar15,1005,900Grundbuch Altstadt IV, Blatt 60 11,3001,200Grundbuch Dortmund, Blatt 897 Operations 8,800900Grundbuch Lbeck, Blatt 54545 Number of hotels 7Share of 7,983Number of rooms2,208total roomsOperating revenue, Mkr 420.0197,951 10,100Operating income, Mkr 99.7 25%508,6017,793 7,626 28,153 2,082.0 PANDO x 20062 32. hotel properties Radisson SAS Arlandia Hotel Scandic upplands Vsby no. of rooms: 335 Operator: Rezidor/Radisson SASno. of rooms: 150 Operator: Hilton/Scandic Scandic Jrva KrogMr Chip Hotel, Kista no. of rooms: 215 Operator: Hilton/Scandicno. of rooms: 150 Operator: Kista Hotell AB Hilton Stockholm SlussenScandic Crown, gothenburg no. of rooms: 288 Operator: Hilton/Hilton no. of rooms: 338 Operator: Hilton/Scandic Scandic Park, Stockholm Elite Park Avenue Hotel, gothenburg no. of rooms: 198 Operator: Hilton/Scandicno. of rooms: 291 Operator: Elite Hotels/Elite Quality Hotel nacka Scandic Mlndal no. of rooms: 162 Operator: Choice Hotels Scandinavia/Quality no. of rooms: 208 Operator: Hilton/Scandic 30 PANDO x 2006 33. Scandic Copenhagen Radisson SAS grand Hotel Helsingborg no. of rooms: 484 Operator: Hilton/Scandic no. of rooms: 164 Operator: Sverigerd AB/Radisson SAS Copenhagen Hotel 27Scandic Kramer no. of rooms: 200 Operator: Pandox no. of rooms: 113 Operator: Hilton/Scandic Scandic S:t Jrgen Scandic grand rebro no. of rooms: 265 Operator: Hilton/Scandic no. of rooms: 219 Operator: Hilton/Scandic Radisson SAS Hotel Malm Scandic Winn Karlstad no. of rooms: 229 Operator: Rezidor/Radisson SAS no. of rooms: 199 Operator: Hilton/Scandic Scandic Star LundScandic Swania Trollhttan no. of rooms: 196 Operator: Hilton/Scandic no. of rooms: 196 Operator: Hilton/ScandicPANDO x 2006 31 34. hotel properties Radisson SAS Hotel stersund Radisson SAS Plaza Hotel Karlstad no. of rooms: 177 Operator: Pandox /Radisson SAS no. of rooms: 131 Operator: Plaza Hotell & Restaurang i Karlstad AB/Radisson SAS First Hotel grand BorsScandic Billingen no. of rooms: 158 Operator: Vstsvenska Hotellfastigheter AB/First Hotel no. of rooms: 106 Operator: Hilton/Scandic Scandic Plaza BorsHotel Berlin, Berlin no. of rooms: 135 Operator: Hilton/Scandic no. of rooms: 701 Operator: Pandox Elite Stora Hotellet Jnkping Hilton London Docklands no. of rooms: 135 Operator: Elite Hotels/Elite no. of rooms: 365 Operator: Hilton/Hilton Scandia Hallandia Halmstad Crowne Plaza Brussels City Centre no. of rooms: 130 Operator: Hilton/Scandic no. of rooms: 354 Operator: Pandox/Crowne Plaza 32 PANDO x 2006 35. Royal Crown Hotel Brussels Hilton Bremen no. of rooms: 307 Operator: Pandox no. of rooms: 235 Operator: Hilton/Hilton Hilton Brussels City Hilton Dortmund no. of rooms: 283 Operator: Pandox/Hiltonno. of rooms: 190 Operator: Hilton/Hilton Radisson SAS Hotel Basel Scandic Lbeck no. of rooms: 205 Operator: Rezidor/Radisson SAS no. of rooms: 158 Operator: Hilton/Scandic Scandic grand Place BrysselPelican Bay Hotel & Resort at Lucaya, Freeport no. of rooms: 100 Operator: Hilton/Scandic no. of rooms: 186 Operator: Sundt GB Management Scandic Antwerpen no. of rooms: 204 Operator: Hilton/ScandicPANDO x 2006 33 36. Scandic Copenhagen 34 PANDO x 2006 37. Financials Financial overview................... 36 Sensitivity analysis.................. 38 Valuation and tax situation............. 40 Definitions........................ 41 Ten-year overview................... 42 Quarterly data 20052006............ 44Financial statements 2006............ 45 Report of the Board of Directors......... 46 Income statement and comments........ 48 Balance sheet and comments........... 50 Changes in equity................... 52 Cash flow statement and comments....... 53 Accounting principles................ 54 Notes to the accounts................ 56 Proposed disposition of earnings......... 62 Auditors report..................... 63PANDO x 200635 38. financial overview Well weighted risk profile Elite Stora Hotellet Jnkping Financial policy terest periods. The long term objective is that the rowing in the Parent Company. The objective is to The basic objective of Pandox financial operationsaverage fixed interest period be matched with the work with long-term framework agreements that is to achieve the lowest possible financing costsaverage point in time when rental revenues, based provide scope for borrowing with varying maturities while simultaneously limiting the risks related to on underlying leases, are estimated to be affectedand fixed margins. Derivative instruments such as interest rates, foreign currencies and borrowings. by a change in interest rates.swaps are preferably used for the extension of fixed The interest rate risk is the risk that changes in interest rate periods. interest rate levels could negatively affect the Currency risk/currency risk strategy Groups results. Currency risk is the risk that thePandox is exposed to currency risks due to certainCapital structure Groups balance sheet and income statement of the Groups assets being denominated in foreignThe objective for the Groups capital structure is could be negatively affected by changes in the currencies. Pandox policy is to hedge the majority that the equity/asset ratio long term should meet in- value of the Swedish krona. Finally, the borrowing part of its exposure by raising loans in the localternal and external financial strenght requirements risk is the risk that external financing may becomecurrency of each respective country and by hedg-in order to enable continued expansion. more difficult to find.ing with appropriate currency hedging instruments.Financing Interest rate risk/interest rate strategyMethodology and systems As of 31 December 2006, the Pandox Groups inte- Pandox basic objective is that interest rate expo-Pandox has developed and implemented systemsrest bearing liabilities amounted to SEK 4,398.5 M sure shall be adapted so that increased costs as a and procedures to enable the continuous monitor-(3,165.3). The loan portfolio had an average fixed result of reasonable changes in interest rates shall ing and reporting of interest rate risk trends. interest rate period of 2.9 years (3.8) and the aver- be compensated by higher revenue. The interest age rate of interest on loans amounted to 4.3 per- rate risk must therefore be limited through con- Financing strategycent (4.1). The financing of hotel properties is tracting periods of varying lengths with the aim ofIn order to gain flexibility and administrative bene- raised in each respective local currency in accord- creating an optimal due date structure and fixed in- fits, Pandox has centralised when possible all bor- ance with the financial policy. At the same point in36PANDO x 2006 39. time, the Pandox Groups liquid funds amounted to Equity capitalWorking capital SEK 174.1 M (236.4). In addition, there was an un-The Pandox Groups equity capital as per the bal- Pandox receives rental revenue in advance and utilised overdraft facility of SEK 25 M (100) and un- ance sheet at 31 December 2006 amounted to SEKpays most of its operating costs and interest ex- utilised credit facilities of SEK 476 M.2,272.3 M of which SEK 1,213.8 M was restricted pense in arrears, meaning that the Group does not equity and SEK 1,058.5 M unrestricted equity. normally have to finance any working capital. The Pandox Groups cash flow before changes in working capital, investments and non-recurring revenue amounted in 2006 to SEK 317.6 M (301.4).InTEREST STRuCTuRE1), SEK Myear dueSEKDKKEuRgBPCHFTotal Share,%Interest,%2) 2007 1,094.3933.1220.2 50.7 2,298.3 52.34.2 2008 100.0162.7262.7 6.04.8 2009 125.0125.0 2.84.6 2010 250.0250.0 5.74.8 2011 125.0 32.3157.3 3.65.1 2012 and later 500.0121.4531.8152.0 1,305.2 29.74.1 Total2,194.3284.11,497.2220.2 202.7 4,398.5100.0 4.3 Share, %506 3455100 Average interest rate, % 4.33.94.2 6.1 2.6 4.3 Average interest rate period, years2.64.63.2 0.2 5.3 2.9 1) Converted to SEK. 2) Average interest rate in percent. PANDO x 200637 40. sensitivity analysis Factors that affect Pandox Pandox operations and profitability are affectedexisting demand, additional hotel rooms through market segment, which in combination with its by a number of factors, of which the most impor the construction of a new hotel can lead to a rapid hotels market expertise and systems, limits tant are described below.negative influence on occupancy rates and aver- Pandox lease risk.age prices. To deal with this risk, Pandox has devel- The hotel market oped an information system that continually moni- Partners The development of Pandox earnings and thetors planned new constructions within its marketPandox lease structure, with a large proportion of value of its hotel properties are dependent upon areas, and thus enabling Pandox to be preparedvariable leases, means that the Company is more trends within the hotel market, which in turnand proactive.dependent on the individual tenant/operators closely follow general economic developments.business than other property companies. TheBusiness travel and conference activities nor-Lease structure Companys strategy to actively cooperate with the mally increase during periods of high economic Pandox has a large proportion of variable (revenuemarkets most competitive and powerful operators activity, while there is a corresponding decreaseand result based) leases, which represented 94with well established brand names, reduces both during periods of low economic activity. There ispercent of total rental revenue in 2006.the related operative and financial risks. Pandox thus a strong connection between economic trends About 32 percent of variable leases contained a largest tenants in terms of revenue are Scandic, (GDP) and trends within the hotel market. Develop- guaranteed rent, meaning that only 62 percent ofHilton, Radisson SAS, Elite Hotels, Crowne Plaza, ments of GDP can be closely monitored, whereas rental revenues were fully variable downwards.Choice Hotels and First Hotels, which together factors that influence local hotel markets are signif- A change in the occupancy rate and the averageaccounted for more than 91 percent of all rental icantly more complex. The most important influen-room revenue consequently affects Pandox very revenue in 2006. tial factors are local economic conditions, the pro- differently, depending on the direction of change. portion of new hotel capacity in the market, how The choice of lease agreement is based on opti- Leasing level well developed a market is concerning brandmal distribution of cash flow between Pandox andThe leasing level as of 31 December was 99 per- names and segments, currency fluctuations, asthe operator so that both parties are motivated tocent. Vacant space amounting to 3,333 m2 con- well as extraordinary events.continuously increase the hotel propertys overallsisted entirely of store and office premises.profitability. Factors that may influence risks asso- If for any reason a hotel operator should choose new capacity ciated with variable leases are the hotel propertysto terminate its lease agreement, Pandox may New capacity introduced to the market implies an location, market segment and brand name/opera-either select a new suitable operator as tenant or increased risk for local players. Depending upon tor. Pandox strategy is to operate in a selected operate the hotel under its own management. Crowne Plaza Brussels City Centre 38PANDO x 2006 41. With Pandox specialist expertise in the hotel sec- Decisions by public authorities a municipality that normally owns the land receives tor, the risk of vacant hotel space is seen as beingThe hotel market can be affected by decisions what is deemed to be a reasonable real rate of extremely low.made by public authorities. Two examples of suchinterest on the estimated market value of the land For other commercial space, which representsdecisions are changes in taxation related to claims in question. Site leasehold rents genera