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 accumulated depreciation and any accumulated impairment losses. For Operating Properties, internal valuations are reported for information purposes only, which are included in EPRA NAV.
The valuation model consists of an accepted and proven cash flow model, where the future cash flows that the hotel properties are expected to generate are discounted with 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, development of the underlying operator activities, market developments, 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 are an important reference point for Pandox's internal valuations.
At the end of the fourth quarter of 2020, 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 flows remains high. Partly due to uncertainty about vaccination programs, the spread of infection and related governmental restrictions. Partly due to uncertainty about the possible lasting effects of COVID-19 on the economy in general and on the hotel market in the longer term. The pandemic’s effects on yield requirements cannot yet be determined with reasonable certainty due to the evidence in the transaction market and for valuation of hotel properties being insufficient.
Parameters that affect the valuations are closely monitored and as the effects of COVID-19 clear, Pandox will be able to estimate yield requirements and future cash flows with greater precision.