Pandox AB (publ): Interim Report - six months ending June 30, 2001

Total property revenue for the first six months of 2001 amounted to SEK 284.3 M (216.3). The operating net rose by SEK 62.3 M to SEK 237.0 M (174.7). This increase is mainly attributable to the acquisition of Hotellus, a good hotel market and a high level of valueadding activities in the hotel property portfolio. For comparable units the increase was 5 percent.

The adjusted direct yield for the period was 9.7% (9.4).
Net financial expense for the period amounted to SEK -89.7 (-62.6).
Corporate group income, after tax, exclusive of nonrecurring revenue, for the period improved by SEK 24 M and amounted to SEK 89.9 M (65.9).

The Swedish Financial Accounting Standards Council's recommendation on income tax (RR:9) is applied. In brief, the recommendation means that both deferred tax claims and deferred tax liabilities are incorporated into the accounts and that any changes in these items in the period will affect the income statement. All comparative figures in the income statement and balance sheet have been adjusted in accordance with the new accounting principle.

During the period the hotel properties Mr. Chip in Stockholm-Kista and Hotell Högvakten in Helsingborg have been acquired for a total cost of SEK 142 M and with a direct yield of 9 per cent. The hotel properties Sten Stensson Sten in Eslöv and Scandic Karlshamn have been sold with a capital gain of SEK 8.6 M.
- "Pandox income and cash flow continue to improve. The hotel market in Pandox chosen market segment has continued to grow in RevPAR during the first six months of 2001", says Anders Nissen, Chief Executive Officer, Pandox AB.

Outlook for 2001
Pandox believes that its focused strategy, the high quality of the portfolio and the chosen market segment will remain an excellent base from which the company can be developed. The downturn in demand, as a consequence of the downturn in the economy, will be distributed unevenly depending on town or city, hotel location and standard and brand name. Pandox market segment is nevertheless expected to show continued good demand. Pandox income after the first six months is well in line with the earlier forecast for 2001, which means that the forecast of an income, after tax and exclusive of nonrecurring revenue, of SEK 180 M is maintained. The tax that burdens the income consists mainly of deferred tax as the company has substantial loss deductions.

For further information:
Anders Nissen, Chief Executive Officer, Pandox, +46-8-506 205 50, +46 70 846 02 02
Nils Lindberg, Chief Financial Officer, Pandox, +46-8-506 205 53

Encl: Complete interim report.
Pandox AB (publ.)

Interim report
January to June 2001


Continued positive growth

- Income after tax during the period January to June 2001, excluding nonrecurring revenue, totalled SEK 89.9 M (65.9), corresponding to earnings per share of SEK 3.61 (3.31).

- Cash flow from operating activities increased to SEK 129.8 M (99.9), which corresponds to SEK 5.21 (5.00) per share.

- Two hotel properties were acquired for a total of SEK 142 M with a direct yield of 9 per cent while two other hotel properties were divested for a total of SEK 33 M with a capital gain of SEK 8.6 M.

Pandox' revenue, income and cash flow continue to grow. Revenue rose by SEK 68 M, compared to the same period last year. Income after financial items, excluding nonrecurring revenue, saw an increase of SEK 22 M while cash flow was up to SEK 130 M.
The improved figures were mainly attributable to the acquisition of the Hotellus portfolio on 1 April 2000. But also the growth in the existing hotel property portfolio through Pandox' active ownership has been positive and it reached 5 per cent, adjusted for nonrecurring items.
Pandox is one of northern Europe's leading hotel property companies and has been listed on the O-list on the OM Stockholm Stock Exchange since 1997. Pandox' strategy is to own pure hotel properties in a selected, profitable and growing market segment, i.e. large and centrally located hotels in Stockholm, Gothenburg, Malmö, Swedish regional and university towns and cities as well as capital cities and other major cities in northern Europe. At present, Pandox owns 46 hotel properties, comprising 8,450 rooms. Around 75 per cent of revenue is generated from strong international hotel markets, such as Stockholm, Gothenburg, the Öresund region, Brussels and London. Just over 95 per cent of the hotels are situated in strong hotel locations and 98 per cent are operated by well-known brand names, including Scandic, Radisson SAS and Holiday Inn. The lease structure, which consists of around 85 per cent turnover-based leases, means that Pandox is linked to the underlying hotel market. At present, the most crucial question for the hotel- and hotel property market is how the current economic downturn will affect demand. Overall, the growth in RevPAR (Revenue per available room) for Pandox' market, i.e. northern Europe, has been slowing down. There are, however, considerable differences depending on the city, location, size, standard and which brand name operates the hotel.
Stockholm and Gothenburg continue to show strong growth and here the improvement is attributable to an increase in the average price. City hotels and the hotel market of northern Stockholm saw the most positive development. The Öresund region continues to improve both in terms of average price and volume. The hotel market in Swedish regional and university towns and cities is stable, with Uppsala, Helsingborg and Luleå seeing the most positive development at present.
The German hotel markets in which Pandox is represented recorded a growth in volume at the same level as in 2000 with the average price up by around one per cent. Demand in Brussels and Antwerp continues to increase, despite the fact that the European Football Cup was held in Belgium last year. Total RevPAR in these cities rose by between 2 and 3 per cent. The high level of growth in London's hotel market could not be sustained. The market felt the effects of a slowdown in the US economy, fewer tourists travelling to Europe due to the foot and mouth outbreak as well as additional capacity which contributed to a general deterioration of the occupancy rate and average price.
As there are several different patterns of demand, it can be concluded that the need for accurate and reliable market information as well as experience in analysing and using this information have risen. In general, a downturn in the hotel industry can provide opportunities to acquire properties and Pandox can exploit this situation selectively through its specialist knowledge of business development.
In the first half of 2001 two hotel properties were acquired, namely Mr. Chip in Kista, Stockholm and Hotell Högvakten in Helsingborg. Mr. Chip is in a strong location in the centre of Kista and is included in the hotel market of northern Stockholm. The hotel has 150 rooms and belongs to the upper medium price segment. The hotel property was taken over on 7 June 2001 and acquired with a direct yield of just over 9 per cent. Hotell Högvakten is situated in the centre of Helsingborg, adjacent to the Radisson SAS Grand Hotel. This hotel property was acquired on 1 June 2001 with a direct yield of around 9 per cent. Total acquisition costs amounted to SEK 142 M, which increased earnings by SEK 0.10 and cash flow by SEK 0.16 per Pandox share. Together with the divestment of two hotel properties in the first half of 2001, Pandox has carried out four transactions so far this year. The divestments resulted in capital gains of SEK 8.6 M.
Activity levels continued to be high in the current portfolio, with the creation of cooperation projects with operators, such as cash flow boosting investments and maintenance programs. The largest investments currently taking place in the portfolio is in Hotel Albert Premier in Brussels and Radisson SAS Arlandia Hotel. Hotel Albert Premier is being converted from a tourist hotel into a high-class hotel with an international standard while Radisson SAS Arlandia Hotel is being upgraded to become the most complete full-service hotel at Arlanda International Airport. Both investments are going according to plan and are expected to boost lease revenue and income by the autumn.
In the spring, Hilton Group plc made public the acquisition of Scandic Hotels AB, which could alter the revenue structure of Pandox with regards to brand names. At present, Hilton and Pandox are evaluating the commercial effects of changing brand names for the hotel properties in question.

Revenue and operating net - property operations
Property revenue in the first half of 2001 totalled SEK 284.3 M (216.3), an increase of SEK 68.0 M. Operating net increased by SEK 62.3 M to SEK 237.0 M (174.7). The increase was attributable to contributions from the acquisition of Hotellus, positive contributions from hotel properties acquired in 2000, increased rental revenue due to a positive hotel market and active development efforts targeted at the current portfolio. For comparable units, the growth in the existing portfolio was 5 per cent during the period. Adjusted direct yield for the period before administrative costs amounted to 9.7 per cent (9.4). Adjusted direct yield including property-related administrative costs amounted to 9.4 per cent (9.1).

Revenue and income - hotel operations
Revenue from hotel operations is wholly attributable to Hotel Albert Premier, which has 287 rooms and is situated in the centre of Brussels. The hotel is operated through a management agreement with Scandic, which means that the operator is operating the hotel under the supervision of Pandox. Revenue from hotel operation activities in the period from January to June 2001 amounted to SEK 17.8 M and carried a loss of SEK 0.5 M. The loss occurred due to the extensive refurbishment and development work currently undertaken at the hotel. At year-end, income is expected to be according to plan. The investment is expected to be finalised in 2001.

Income
Operating income for the period amounted to SEK 201.0 M, an increase of SEK 57.8 M to the previous year. Financial net was SEK-89.7 M (-62.6) and income before tax was SEK 111.3 M (80.6). The improvement is mainly attributable to the acquisition of Hotellus, the fast rate at which the portfolio is improved, as well as revenue-boosting investments. Income was also improved by nonrecurring revenue items of SEK 8.6 M, pertaining to capital gains from the divestment of two hotel properties. Due to loss deductions, no tax liabilities occurred. Calculated deferred tax for the period amounted to SEK -12.7 M (-14.5) resulting in income after tax of SEK 98.5 M (65.9).

Financing and cash flow
Financial net for the period amounted to SEK -89.7 M (-62.6). The Group's interest-bearing liabilities as at 30 June 2001 amounted to SEK 3,246.8 M (2,959.6). The loan portfolio has a distributed due-date structure with an average fixed-interest rate period of 2.3 years. The average interest rate on loans was 5.72 per cent with 65 per cent of property assets pledged. Available liquid funds, including the unutilised part of an overdraft facility of SEK 100 M (50), amounted to SEK 118.0 M (109). Cash flow from operating activities before changes in working capital and investments was for the period SEK 129.8 M (99.9).

Investments and divestments
Pandox Group's investments amounted to SEK 88.7 M during the period. Investments mainly concerned product improvements in a number of hotel properties. The most comprehensive investments were made in Radisson SAS Arlandia and Hotel Albert Premier in Brussels. During the period, the hotel properties Sten Stensson Sten in Eslöv and Scandic Karlshamn were divested with a total capital gain of SEK 8.6 M. The divestments are in line with Pandox' strategy to concentrate its ownership on prioritised cities. The Group acquired two hotel properties during the period, namely Mr. Chip in Stockholm-Kista and Högvakten in Helsingborg. Total acquisition costs amounted to SEK 142 M, resulting in a direct yield of 9 per cent. The book value of the hotel properties including hotel equipment was SEK 4,984.1 M (4,589.0).

Incentive program
During the period, the personnel at Pandox have acquired altogether 177,000 buy-options in Pandox AB within the framework of the incentive program that was decided on at the shareholders meeting in 2001. The ending date for the buy-options is 2005.

Outlook
Pandox believes that its focused strategy, the high quality of the portfolio and the chosen market segment will remain an excellent base from which the company can be developed. The downturn in demand, as a consequence of the downturn in the economy, will be distributed unevenly depending on town or city, hotel location and standard and brand name. Pandox market segment is nevertheless expected to show continued good demand. Pandox income after the first six months is well in line with the earlier forecast for 2001, which means that the forecast of an income, after tax and exclusive of nonrecurring revenue, of SEK 180 M is maintained. The tax that burdens the income consists mainly of deferred tax as the company has substantial loss deductions.

Financial calendar

Interim report January - September
22 October, 2001
Year-end report 2001 12 February, 2002
Annual General Meeting 21 March, 2002

The full Interim Report including tables is available to download from the enclosed link.