Pandox: Preliminary 2000 Earnings

Operations and strategy
Pandox is a pure hotel property company which, through a combination of active ownership and specialist expertise, increases cash flow and thus the value for its owners. Pandox’ main strategy is to own one kind of asset – hotel properties. Pandox strengthens its focus by concentrating on a priority market segment which means that Pandox is to own large hotel properties in Stockholm, Gothenburg, Malmö, Swedish regional and university cities, as well as in capitals and other major cities in northern Europe. The hotel properties should be centrally located in natural and strong locations, such as city centres, airports and convention centres. The hotels should be in the upper medium to high price segments and focus on the business and leisure segment.
As at 31 December 2000, Pandox owned 46 properties with around 8 458 rooms and a total area of 514,844 m2. In line with the internationalisation of the company, the name was changed during the year to Pandox AB. The company was floated on the O-list of the OM Stockholm Stock Exchange on 23 June 1997.

The hotel market 2000
The hotel market in Sweden continued to develop in a positive direction in 2000. The number of overnight stays increased by 2.6 per cent to 15.2 million, representing an occupancy rate of 48 per cent. The occupancy rate in larger hotels in cities prioritised by Pandox recorded a growth which exceeded the average recorded in the country as a whole. In these cities, occupancy rate was 63 per cent.
The majority of Pandox’ other markets also continued to grow. REVPAR grew by five per cent in the German market where Pandox is represented. Of these, Bremen and Lübeck show a good rate of growth, while demand in Dortmund has decreased. Brussels recorded a positive trend in terms of average prices and occupancy rate, resulting in an overall increase of 10 per cent in 2000. Antwerp saw a similar development. Demand in London continued to remain stable with rising average prices. In 2000 REVPAR rose by 3.5 per cent. In Copenhagen demand continued to grow, adjusted for new capacity growth in REVPAR was about 3 per cent.


Acquisition of Hotellus
Pandox’ strategy was evaluated in the autumn of 1999. Subsequently, the Board decided to develop the strategy, including, among other things, the extension of the geographical strategy into northern Europe. A wider geographical area will provide better scope for continued market growth and diversification of risk.

Furthermore, the hotel business cycle provides increased opportunities for profitable acquisitions. In February, Pandox reached an agreement with all shareholders in Hotellus International AB to acquire the company. The acquisition, which was effected on 1 April and consolidated in the second quarter of 2000, included 16 hotel properties, of which eight are outside Sweden.

Through the acquisition of Hotellus, Pandox was provided with a portfolio of well-known hotel properties centrally located in large hotel markets. The acquisition created a major pure hotel property company with well-known brand names and operations in northern Europe. The acquisition was financed by a combination of a new share issue as well as cash. The number of Pandox shares increased by 9,900,000 with the cash payment amounting to SEK 104.1 M.

Revenue and operating net – property operations
In 2000, total property revenues amounted to SEK 497.7 M (SEK 272.0 M). Property costs excluding depreciation amounted to SEK 88.9 M (SEK 54.2 M).

Operating net increased by SEK 191.0 M to SEK 408.8 M (SEK 217.8 M). This increase is attributable to contributions from the Hotellus acquisition, hotel properties acquired in 1999, increased revenues from revenue-based and result-based lease agreements, which is a result of good hotel market, as well as an active work in developing the hotelproperties in the portfolio. Adjusted for sold and acquired hotel properties, operating net amounted to SEK 459.4 (SEK 229.2 M). Adjusted direct yield before administrative costs amounted to 9.6 (9.6) per cent in the period. Adjusted direct yield including property related administrative costs amounted to 9.3 (9.2) per cent.

Revenues and profits – hotel operations
Following the acquisition of Hotellus, Hotel Albert Premier with 288 rooms in the centre of Brussels was added to Pandox’ portfolio. The hotel is operated via a management contract with Scandic, which means that the operator manages the hotel under Pandox’ conduct. The entire operation was consolidated in the second quarter of 2000. Revenues from the operation during the period from April to December 2000 amounted to SEK 28.2 M with profits of SEK 2.7 M. The hotel is currently undergoing major refurbishment, converting the hotel from a tourist hotel into an international business hotel of high standard. The investment program is to be finished during 2001.

Profits
Group net income rose by SEK 100.3 M compared with the previous year and profits amounted to SEK 183.7 M (SEK 83,4 M). The improvement was mainly achieved through the Hotellus acquisition, a high rate of increase in the value of the portfolio and income-boosting investments. Profits were further boosted by SEK 19.1 M following a change in the depreciation ratio for buildings from 1.5 to 1 per cent. Profits also included a nonrecurring payment of SEK 1.9 M as reimbursement of SPP funds.


Financing and cash flow
In 2000 financial net amounted to SEK -150.7 M (SEK -77.5 M). The Group’s interest-bearing liabilities amounted to SEK 2,934.7 M (SEK 1,463.6 M) as at 31 December 2000. The loan portfolio has a distributed due date structure with an average fixed-interest-rate period of 2.2 years. The average interest rate on loans was 5.6 per cent at the end of the year. Financing of the Swedish portfolio was made in Swedish kronor while the foreign portfolio was financed by the local currencies. The properties’ mortgaging ratio was 62 per cent.
Available liquid funds, including unutilised overdraft facilities of SEK 100 M, amounted to SEK 116.4 M (SEK 53.9 M). Cash flow before changes in working capital and investments amounted to SEK 228.2 M (SEK 119.1 M).

Investments and divestments
The Group’s investments, excluding acquisition of hotel properties, amounted to SEK 101.3 M in 2000. The majority of investments concerned product development in a number of hotel properties. The acquisitions of Hotellus included hotel properties with a book value of SEK 2,232.1 M. In November Pandox acquired the remaining 50 per cent in Scandic Star Hotel in Sollentuna for SEK 98.8 M. At the end of 2000, the Good Morning Hotel in Boden with 52 rooms was sold, resulting in a small capital gain of SEK 47,000. The book value of all hotel properties, inclusive of hotel equipment, stood at SEK 4,784.5 (SEK 2,393.7M).

Forecast for 2001
Indications of a slowdown in the US economy and its effects on Europe and Europe’s hotel market could result in a lower growth. The prioritised cities in Pandox largest market, Sweden, will continue to have a favourable development. Pandox income and cash flow is expected to continue to grow.

Property-related administration

The portion of total administration costs that is related directly to management and development of a property. Other administration costs pertain to central administration and costs of maintaining the company’s stock exchange listing.

Adjusted operating net
Operating net adjusted to reflect sales and purchases of properties during the year.

Total property revenue
The sum of rental revenue and other property revenue.

Financial

Return on equity
Income after net financial items and paid tax as a percentage of average equity capital. The average equity capital in 1997 has been adjusted to reflect the issue of new shares.

Return on total capital
Income after net financial items plus financial expense as a percentage of average total assets.

Return on equity
Income after net financial items and paid tax as a percentage of average equity capital.

P/E ratio
Share price divided by net earnings per share.

P/CE ratio
Share price divided by cash flow per share.

Interest-coverage ratio
Income after net financial items plus financial expense as a percentage of financial expense.

Equity/Assets ratio
Equity capital at year-end as a percentage of total assets.

Dividend ratio
Share of profits after tax paid as dividend.
Hotel market-related

Room occupancy
Number of overnight stays sold during a given period, normally one year.

Occupancy rate
Number of rooms occupied divided by the number of available rooms.

Average room price
Total revenue from overnight stays sold divided by number of rooms occupied.

REVPAR (Average revenue per available room)
Total revenue from rooms sold divided by number of available rooms.

Market penetration
The occupancy rate of an individual hotel in relation to the average for the market.

GOP
Net profit in a hotel operating company before depreciation, rent, net financial items and taxes.


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