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Property valuation

Pandox rely on both internal valuations and valuations by professional external property appraisers.

Pandox performs internal valuations of its hotel property portfolio and Investment Properties are recognised at fair value in accordance with accounting standard IAS 40. Operating Properties are recognised at cost less depreciation and any impairment. The internal valuations of Operating Properties are reported for disclosure purposes only and are included in EPRA NRV.

The valuation model consists of an accepted and proven cash flow model, where the future cash flows the hotel properties are expected to generate are discounted based on the market’s yield requirements. The valuation is based on the business plan for the hotel concerned, which is updated at least twice a year and takes into consideration, among other things, developments in the underlying operator activities, market developments, the contract situation, operating and maintenance issues and investments aimed at maximizing the hotel property’s cash flow and return in the long term. External valuations of all properties are normally carried out annually by independent property appraisers. The external appraisers complete a more in-depth inspection at least every three years or in conjunction with major changes to the properties. The external valuations provide an important reference point for Pandox’s internal valuations.

At the end of the first quarter of 2021 Pandox valued the hotel properties based on the same method and model used since the IPO in 2015.

Uncertainty about the pandemic’s impact on future cash flow remains high, in part due to uncertainty about vaccination programmes, virus transmission and restrictions imposed by the authorities in response, and in part due to uncertainty about possible lasting effects of Covid-19 on economies and on the hotel markets in the longer term. The pandemic’s effects on valuation yield cannot with reasonable certainty be established yet, mainly because there is insufficient supporting evidence in the hotel property valuation transaction markets.

Parameters that affect the valuations are carefully monitored and as the effects of Covid-19 become clearer, it will be possible for Pandox to estimate valuation yield and future cash flows with greater precision.