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Property valuation

Pandox performs valuations of the hotel properties, with investment properties recognised at fair value. Pandox updates its internal valuations of all investment properties every quarter. It is Pandox’s internal valuation that
forms the basis of the valuations of the investment properties

Operating properties are recognised at cost less depreciation and any impairment. Pandox also performs internal valuations of operating properties every quarter. These are reported for information purposes and are included in the EPRA NRV calculations.

The valuation model is a proven cash flow model in which the value of each individual hotel property comprises the present value of the future cash flows that the property is expected to generate. The model calculates the present value of the investment property’s net operating income – rent payments received minus payments made in respect of operation, maintenance, property tax, insurance and site leasehold rent – over a forecast period of 10 years, taking into account annual inflation less outstanding approved investments over the same period. The residual value at the end of year 10 is the present value of net operating income over the remaining economic life. A market valuation yield is used for discounting.

Pandox’s loan terms usually require an external valuation to be performed annually as a basis for certain covenants in the loan. It is Pandox’s lenders who decide, or in certain cases participate in decisions on, which external appraiser to retain, which hotel properties to appraise and when to do it. For financial reporting the external valuations provide an important reference point for
Pandox’s internal valuations, to the extent that differences compared with internal valuations are analysed to challenge the internal valuation.