07 PANDOX B

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K N O W L E D G E | C R E AT I V I T Y | S P E E D | N E T W O R K

P A N D O X’ R E P O R T I N G O F B U S I N E S S O P E R A T I O N S F O R 2 0 0 7

B PANDOX 2007

KNOW

NET

VITYPandox’ active ownership with specialist

expertise within hotels, property and business

development has created a high rate of growth

in cash fl ow and value.

The value of the Company is now 13 times

higher compared to when it was formed in

1995.

Anders Nissen

CEO

PANDOX 2007 C

LEDGE

SPEEDWORK

CREATI

07

The Company

The year in brief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Message from the CEO . . . . . . . . . . . . . . . . . . . . . . . . . 4

Vision, business concept, objectives and strategies . . . . . 8

The Pandox Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Types of agreements . . . . . . . . . . . . . . . . . . . . . . . . . 14

Hotel operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Market overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Human resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

The hotel portfolio

List of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Hotel properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Finances

Financial overview . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Sensitivity analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Evaluation and tax situation . . . . . . . . . . . . . . . . . . . . 40

Defi nitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Ten-year overview . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Quarterly data 2006–2007 . . . . . . . . . . . . . . . . . . . . 44

Contents

Pandox is one of Europe’s leading hotel property companies. The portfolio is of the highest quality,

embracing 44 hotels and 10 hotel operations with 10,200 rooms. The hotels are located in dynamic hotel

markets such as London, Berlin, Montreal, Stockholm, Copenhagen and Brussels. All hotels have strong

natural locations with an average size of 230 rooms.

Read more about Pandox’ business concept and strategy on page 8.

Montreal – new market

SPEED

10

CONTENTS

16

Hotel operations

NETWORK

Financial statements 2007

Report of the Board of Directors . . . . . . . . . . . . . . . . . 46

Income statement and comments . . . . . . . . . . . . . . . . 48

Balance sheet and comments . . . . . . . . . . . . . . . . . . . 50

Changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Cash fl ow statement and comments . . . . . . . . . . . . . . . 53

Accounting principles . . . . . . . . . . . . . . . . . . . . . . . . 54

Notes to the Accounts . . . . . . . . . . . . . . . . . . . . . . . . 56

Proposed disposition of earnings . . . . . . . . . . . . . . . . . 62

Auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Other information

Work of the Board of Directors . . . . . . . . . . . . . . . . . . . 64

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Senior executives and auditors . . . . . . . . . . . . . . . . . . 66

Pandox Upgrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

2007 was yet another excellent year for Pandox with higher revenues and

improved profi tability – and thereby growth in value for the Company’s

shareholders. We have carried out acquisitions for more than SEK 1 billion

during the year and invested a further SEK 275 million in the existing port-

folio. Read more in the Message from the CEO on page 4.

PANDOX B

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Brussels/Antwerp – strong positions

CREATIVITY

22

Human resources

KNOWLEDGE

2 PANDOX 2007

A new record year2007 was a new record year for the hotel industry with

strong demand, improved RevPAR and increased profi t -

ability. Activity within the transaction market continued to

be high and in line with 2006.

Property management revenues and total revenuesPandox’ property revenues amounted to SEK 782.2 M

(634.9), representing real growth of 23.2 percent. For com-

parable units, the increase was 10.2 percent. Operations

grew by 88 percent from SEK 420 to 789 M and actively

contributed to a rise in rental revenues. The Group’s total

revenues amounted to SEK 1,410.7 M (967.5).

The year in brief

Profi tThe pre-tax profi t for 2007, excluding non-recurring items,

amounted to SEK 259.4 M (226.1). Profi t after tax, includ-

ing non-recurring items, was SEK 230.0 M (201.6).

Key fi gures 2007 2006

Management revenues, SEK M 782.2 634.9

Operating net, SEK M 655.9 523.4

Profi t from operations, SEK M 20.6 12.3

Pre-tax profi t1), SEK M 259.4 226.1

Profi t after tax2), SEK M 230.0 201.6

Cash fl ow1), SEK M 389.0 317.6

1) Excluding non-recurring items.2) Including non-recurring items.

Accounting principles

Pandox does not apply IFRS in its accounts and fi nancial state-

ments because as an unlisted company it is not covered by

such requirement. Pandox applies the Swedish Annual Reports

Act and generally accepted accounting principles, as well as

the recommendations of the Swedish Accounting Standards

Board unless otherwise stated.

Cash fl owCash fl ow from current operations, excluding non-recurring

items, amounted to SEK 389.0 M (317.6), representing

growth of 22 percent.

Expansion to North AmericaPandox made its fi rst investment outside Europe in the summer of 2007 through

the acquisition of the well-known InterContinental in Montreal. The acquisition

creates a good foundation for selective expansion in Canada and North America

in general.

Shopping tourism on the agendaFor the tenth consecutive year, Pandox held a

well-attended Hotel Market Day on 20 November

2007. In addition to a review of sector trends and

market developments, the day’s main theme was

the growth in shopping tourism. Experts from

business and commerce, architecture and the

fashion world contributed to illustrating the theme

from different perspectives.

PANDOX 2007 3

• Pandox is one of Europe’s leading hotel property

companies. The Company has specialist know-

ledge and skills within the hotel market, hotel ope-

rations, hotel property management and business

development. Active ownership, with well-develo-

ped and strategic plans for each hotel, enables the

creation of good prerequisites for stable and im-

proved cash fl ows, and thereby growth in value for

the Company’s shareholders.

• Pandox’ strategy is to own one type of asset – hotel

properties. Its focus is strengthened by a prioriti-

sed market segment. Pandox is to own large hotel

properties in Sweden, major locations in Europe,

as well as developing regions in Eastern Europe

and North America.

• The hotel properties should be in central, natural

and strong locations such as city centres, airports

and exhibition centres. The hotels should be in the

upper medium to high price range and focus on

business travellers and tourists.

• The hotels owned by Pandox are operated and

marketed by the most powerful players in the hotel

sector, who with well-known brands and dynamic

independent distribution channels create strong

market positions and thereby stable revenues.

• Revenues are created by fl exible lease agreements

related to the operators’ turnover and results or

through management agreements where Pandox

assigns a third party to manage operations, or al-

ternatively through its own management. Irrespec-

tive of the form of operation, Pandox contributes

via its active ownership to increase total cash fl ow

and reducing risks.

• At the end of the year, the Company’s portfolio con-

tained 44 hotel properties and 10 hotel operations

located in Sweden, Denmark, Belgium, Germany,

Switzerland, the United Kingdom, Canada and the

Bahamas.

About Pandox Pure business concept with focused strategy

Record levels during strong hotel year2007 was a very strong year in the hotel in-

dustry. Growth continued in both New York

and London. Sweden achieved historically

high levels both in prices and occupancy.

Two Swedish acquisitionsPandox acquired two

hotels in Södertälje in

2007 – Best Western

Hotell Skogshöjd and

Quality Hotel Park. Both

hotels have good deve-

lopment potential and

are in need of active

measures.

Strengthened position in Brussels/AntwerpPandox completed a major transaction in Belgium during the year and acquired Holiday

Inn Brussels Airport and the Crowne Plaza Antwerp. Pandox is now one of the largest

players in this market with a total of seven hotels and 1,819 rooms.

4 PANDOX 2007

MESSAGE FROM THE CEO

Have we passed

the peak?

2007 was a new record year for the hotel indus-

try with greater demand, improved RevPAR and

thereby profi tability in the major part of the

largest markets in Europe, Asia and the United

States. The driving force has primarily been ris-

ing average rates achieved in a world with extra-

ordinary market prerequisites. The critical

question now is – have we passed the peak?

If one studies the pattern of the hotel economic

cycle, one can see that New York, which is fi rst in

the cycle, has had growth in RevPAR for close to

fi ve years. Growth in the most recent 30 months has

been primarily composed of price rises. The reve-

nue structure has increased effectiveness and cre-

ated high profi tability in operations – and thereby

value-growth in the hotel properties. The trend at

the end of 2007 was for revenues per available

room to continue to increase.

When analysing London, which normally lies six

months after New York in the hotel economic cycle,

a similar historic pattern can be seen with good

growth since the decline at the beginning of the

new millennium. However, the trend in London is

currently a fall in the rate of growth. Similar pat-

terns can be observed in Paris, Brussels and

Amsterdam – while the two giants, New York and

London, are moving in the opposite direction. One

of the explanations could be that New York has

taken out about 10 percent of its hotel capacity

through hotels being converted into apartments

while Europe has gained capacity.

If one performs another analysis and studies the

hotel market from a macro-perspective, there is

reason to believe that market conditions will deterio-

rate. The global fi nancial instability that started last

year has now spread beyond the United States.

Bank systems have introduced restrictions,

increased requirements for fi nancing, and capital

has subsequently become more expensive. Private

consumption, which is an important driving force, is

expected to weaken.

Other factors that create uncertainty are that

productivity improvements in Euroland have in ge-

neral been low, which should cause alarm for the

central banks. This could imply that the interest

weapon may not be used as effectively to stimulate

growth which was done so successfully in the eco-

nomic downturn experienced at the beginning of

the new millennium. All in all, most sectors are talk-

ing about lower activity levels as 2008 gets started

compared with last year, and is sending out nega-

tive signals that create even more uncertainty. We

risk seeing interaction between several negative

trends simultaneously. Should this happen, there is

risk of a recession.

There is therefore reason to believe that we have

passed the peak. The question is rather how deep

and how long the downturn will be.

Playing fi eld is changing

In view of the above, we will see new business

patterns in the hotel industry, which will create new

prerequisites for hotel companies and investors.

The agreements structure will develop towards

greater risk-sharing between operators and owners.

More lease agreements will be entered into, and

guarantee components will return to the manage-

ment agreements. Liquidity in assets is expected to

remain at a good level, but interest from fi nancial

players and funds will decline from a high level. On

the other hand, interest from industrial players

could increase. Consequently, when the risk

increases, demand for industrial competence and

long-term strategy will increase.

Brands and their value-creation will be evalu-

ated more closely and there is reason to return to

some of the brand strategies that have been created

in recent years. Operational questions will be given

higher priority, and day-to-day management will

again become the most important issue for value-

creation in the hotel industry.

The above will lead to higher yields on both hotel

properties and hotel operations.

In this dynamic situation, Pandox has good pre-

requisites to continue to develop. 2007 was an

excellent year with increased revenues and

improved profi tability. Cash fl ow rose by 22 percent

in real terms and by 14 percent for comparable

units. During the year, we have made acquisitions

PANDOX 2007 5

for SEK 1,063 million, and invested in the existing

portfolio with a further SEK 275 million. The acqui-

sitions have increased the quality and potential for

the Company. The investments have mainly been

cash-fl ow creative such as upgrades, product

development and measures to raise effectiveness of

hotel operations, which in turn create good condi-

tions for stable profi tability developments.

Increased tempo and higher quality

At the end of the year, Pandox’ portfolio contained

44 hotel properties with more than 10,200 rooms as

well as ten hotel operations. The activity level has

increased signifi cantly since the Company returned

to private ownership in 2004. The combination of

committed and industrial owners together with that

it is easier to operate outside the stock exchange,

has improved the expansion prerequisites. Trans-

actions for a total of SEK 4,200 million have been

completed, of which acquisitions represented

SEK 3,100 million. The quality of the portfolio with

regard to revenues, locations, size and standard

has improved. Revenues currently come from eight

countries and are a mixture of international and

domestic markets. Sweden continues to be largest

with 58 percent of revenues, although the major

part of business development is now taking place

internationally. The agreement structure consists

mainly of leases (approximately 70 percent) and

hotels operated either by ourselves or via manage-

ment agreements (approximately 20 percent.) The

portfolio has a multi-brand character and is mar-

keted under a total of eleven brands and a number

of independent distribution channels. The products

belong to the profi table full-service segment. All

have strong locations and good size, which implies

that the operations have suffi cient critical mass to

create the right profi tability conditions. All in all, the

quality of the portfolio is considered to be of the

highest standard and one of the best in Europe.

Five acquisitions were made in 2007 for a total

of SEK 1,063 million. The hotels are located in

Brussels, Antwerp, Montreal, and two in Södertälje.

All of them were in need of active measures at the

time of acquisition and are thereby typical Pandox

purchases. With the addition of Holiday Inn Brus-

sels Airport and Crowne Plaza Antwerp, Pandox

now owns a total of seven hotels with 1,819 rooms

in the region. This implies that the Company is one

of the largest players in one of Europe’s most

dynamic hotel markets. Quality Hotel Park and Best

Western Hotell Skogshöjd, with a combined total of

374 rooms, were taken over in March and

increased Pandox’ presence in the Greater Stock-

holm region. Both hotels are located in central

Södertälje. The town is known for hosting the head

offi ces of Scania and AstraZeneca and being the

birthplace of the tennis legend Björn Borg. The

InterContinental Montreal was acquired in the sum-

mer and is the Company’s fi rst investment in North

America. The hotel has 357 rooms, has well-devel-

oped meeting facilities, as well as a broad food and

beverage concept. The location is strong, adjacent

to the city’s congress hall, Palais de Congrès. The

InterContinental Montreal is a well-known meeting

place and constitutes a good foundation for selec-

tive expansion in North America.

Success in operator activities

Pandox’ current portfolio consists of ten hotels op-

erated by the Company directly or via management

agreements. In total, the hotels contain 3,133

rooms and are located in Sweden, Germany,

Belgium, Canada and the Bahamas. To operate

hotels is a natural part of Pandox’ active ownership.

As a rule, operations are taken-over in conjunction

with the acquisition of an under-performance hotel

or when an operator in an existing hotel does not

achieve the profi tability requirements deemed nor-

mal in the specifi c market. The strategy of having

our own operating expertise has always been an im-

portant part of Pandox, and provides added-value

in several aspects. Flexibility increases when choos-

ing the most profi table strategy at each specifi c situ-

ation, simultaneously expansion prerequisites are

improved. Furthermore, the Company obtains a

current and correct picture of the existing profi tabil-

ity conditions in conjunction with lease negotiations.

In general, the development of operations has

been very good during the year. The Crowne Plaza

Pandox Hotel Market Day

For the tenth consecutive year, Pandox ar-

ranged a sector and market conference, known

in recent years as the Hotel Market Day. It all

started with a capital market day for investors

when the Company was listed on the stock ex-

change. The event has developed over the

years and is now seen as the hotel industry day

in Sweden.

This year’s conference was held on 20

November in Stockholm. Around 200 partici-

pants listened, posed questions and took part

in discussions. The day was opened as usual

with a review of sector trends and market devel-

opments. The main theme was then shopping

tourism. Several experts had been invited,

including the CEO of the Swedish Retail Insti-

tute, Fredrik Bergström, the architect Thomas

Sandell, as well as the fashion reporter and tv

host Sofi Fahrman. In addition, Alain L Thiry,

6 PANDOX 2007

MESSAGE FROM THE CEO

President of EMSi Marketing, was invited from the

United States to talk about the world’s largest shop-

ping destination – Mall of America.

Shopping tourism

Shopping tourism is a strongly growing part of overall

tourism. In ten years, the retail proportion of the total

tourist industry has increased from 20 to 28 percent.

In 2006, the tourist industry in Sweden generated

sales of SEK 215 billion, of which around 60 billion

are estimated to have benefi ted retail trade.

Brussels City Centre, which was acquired in 2003,

has undergone a large development program of EUR

14 million and is now showing, after the fi rst full op-

erational year further to the refurbishment, a magnifi -

cent improvement in results and quality. The hotel’s

CEO, Eric van Dalsum, and his team have signifi -

cantly increased revenues and profi tability and

thereby the value of the property. The hotel has ob-

tained several awards, including Guest Satisfaction

Award, Hotel Renovation Award and Quality Excel-

lence Award.

Hotel Berlin, Berlin with 701 rooms and acquired

in 2006 is currently undergoing a considerable repo-

sitioning program, and results are showing a positive

trend. Another spectacular refurbishment is the

develop ment of Hotel BLOOM! in Brussels. The hotel

is undergoing a complete renewal with a new fl ower

concept, and is expected to be totally open in the

spring of 2008. It is already the “talk of the town”

with considerable media coverage. Two hotel opera-

tions, Radisson SAS Hotel, Östersund and Copenha-

gen Hotel Twentyseven have been leased out during

the year. The latter has been developed from being

an empty property to one of Copenhagen’s leading

lifestyle hotels. Both will be operated by Choice

Hotels Scandinavia under the Clarion brand.

Outlook for 2008

The outlook for 2008 is more uncertain compared

with one year ago. Pandox’ principal scenario is that

the market makes a soft landing with regard to de-

mand with a continued good hotel market in most of

the areas where the Company is committed. RevPAR

trends will be driven by a combination of volume and

price, with greater focus on maintaining occupancy

comparable with 2007. The number of transactions

will fall and the bid processes will change towards a

large proportion of off-market deals. Yields are ex-

pected to increase as a result of more expensive

capital and greater insecurity. The latter could benefi t

Pandox, as we can act from a more long-term aspect

than certain fi nancial players. Overall, Pandox’ reve-

nues and profi ts for 2008 are expected to exceed last

year, due in part to the completion of several devel-

opment projects in the fi rst part of the year.

Stockholm, February 2008

Anders Nissen

Chief Executive Offi cer

PANDOX 2007 7

SPEED & CREATIVITY

The Pandox portfolio conti-

nues with a high activity level.

Ongoing projects in 2007:

Hotel BLOOM!, Brussels, 306 rooms, will be

completed in the spring of 2008. The hotel

has been developed from an old-fashioned

business hotel to a lifestyle hotel, and has

already become the “talk of the town”. Invest-

ment of about SEK 100 million.

InterContinental Hotel, Montreal, 357

rooms, will be given a new design and new

food and beverage concept, thus strengthen-

ing the hotel’s position and obtaining a Euro-

pean boutique atmosphere. Investment of

about SEK 70 million.

Hotel Berlin, Berlin, 701 rooms, will con-

tinue its repositioning with upgrading of meet-

ing rooms, fi tness centre, crew lounge, as

well as an attractive facade and entrance.

Investment of about SEK 75 million.

Holiday Inn Brussels Airport, Brussels, 310

rooms, will be upgraded with new rooms and

the development of new lobby areas and res-

taurant. Investment of about SEK 50 million.

Radisson SAS Hotel, Malmö, 229 rooms, will

soon start a development program covering

facade, entrance, lobby and the improvement

of rooms and conference facilities. Invest-

ment of about SEK 80 million.

Elite Park Avenue Hotel, Gothenburg, 291

rooms, is being developed with 31 new

rooms, spa and fi tness centre. Investment of

about SEK 30 million.

Elite Stora Hotellet, Jönköping, 135 rooms,

will have a new restaurant and upgrading of

rooms and lobby. Investment of about SEK 10

million.

Quality Hotel Park, Södertälje, 149 rooms,

will start an investment of a new food and

beverage concept, design, lobby, more park-

ing lots, as well as the improvement of rooms

and corridors. Investment of about SEK 25

million.

Quality Hotel, Nacka, 162 rooms, will be

developed with more rooms, upgrading of

meeting facilities, as well as the modernisa-

tion of the food and beverage concept. Invest-

ment of about SEK 15–20 million.

Range of products is important

Irrespective of whether shopping is the main

objective of the journey or not, the range of bou-

tiques and the commercial prerequisites are a

part of the experience. It is therefore important

that a city is able to offer an excellent range of

shopping in order to gain a good reputation as

a destination.

The opportunity for the hotels in this trend is

to make the shopper a satisfi ed guest who would

like to return to the destination and the hotel

again. The arrangement of happenings of vari-

ous kinds, such as “after shopping”, and coop-

eration with prominent and trendy brands are

successful and attractive concepts. Hotels must

also have good knowledge of the city’s range of

shopping. It is not just a question of sending

people to the central shopping streets, but also

to be able to provide advice about unusual or

exclusive areas and boutiques.

The hotel industry was well represented at Pandox Hotel

Market Day. Representatives from the different hotel

companies were there as well as international hotel

consultants and industry related organisations.

The fashion editor Sofi Fahrman and the CEO of the

Swedish Retail Institute, Fredrik Bergström, were some

of the interesting speakers.

8 PANDOX 2007

VISION, BUSINESS CONCEPT,

OBJECTIVES AND STRATEGIES

Pandox’ principal task from a shareholder’s perspec-

tive is to create conditions that enable an increase in

the value of the Company through the development

of cash fl ow in the hotel property portfolio, com-

bined with profi table acquisitions and divestments.

The Company’s vision, business concept, objectives

and strategies have been formulated with this phi-

losophy acting as the principal point of departure.

Vision

Pandox’ vision is to be the leading hotel property

company in Europe with regard to specialist exper-

tise in both hotel and property operations and active

ownership.

Business concept

Pandox’ business concept is to actively own, develop

and lease hotel properties based on expertise within

hotel properties, hotel operations and business de-

velopment.

Each hotel property has its own specifi c charac-

teristics. The value is more dependent on the opera-

tion’s (the tenant’s) profi tability than for example

offi ce or industrial premises. Furthermore, a hotel

property in general has one single tenant – the hotel

operator. Cash fl ow is generated in the hotel property.

This in turn increases demand on competence and

insight of the underlying market of the tenant, which

places considerable demand on specialist skills

within three areas: hotel and hotel operations, hotel

properties and business development. When the

business concept is broken down into its various

components, the Company can choose between the

following operational forms:

• Lease agreement with a partner that handles both

operations and distribution where Pandox’ role is

to contribute to the production of a strategic plan

and continuously evaluate operations via man-

agement group meetings.

• Lease agreement with a partner that only acts as

operator, and that is supplemented by a franchise

agreement with a distributor. Pandox’ role is as

above, but can imply that the Company is more

active in pure operating issues.

• Management agreement with a partner that runs

the operations on behalf of Pandox. The role of

Pandox is to monitor and evaluate operations via

board meetings and to actively participate in de-

velopment issues together with the management

company.

• Pandox manages the hotel operations itself.

Pandox’ role here is to organise the operations

via a local management team and to actively

participate in the development of the hotel.

The fi rst and last alternatives dominate, although all

forms of cooperation are included in Pandox’ busi-

ness concept. The trend is that own operations are

currently increasing most, which is partly attributable

to that the majority of international hotel companies

are no longer entering into lease agreements.

Overall objective

The principal objective is to achieve an optimal re-

turn on investment and growth in value through spe-

cifi c knowledge of hotels, hotel properties, and busi-

ness development.

Financial goal

The goal for the capital structure is that the Group

shall have an equity/assets ratio that fulfi ls internal

and external objectives with regard to fi nancial

strength in order to enable continued expansion.

This goal shall be regularly reviewed in order to

achieve an optimal return on investment for the

shareholders.

Strategies

The following strategies have been defi ned to enable

Pandox to achieve its established goals and objec-

tives.

Pandox’ principal strategy is to own one type of

property – hotel properties.

Portfolio strategy

In order to maximise revenues and cash fl ow,

Pandox concentrates on one prioritised, expansive

market segment.

Pandox’ market segment comprises hotel proper-

ties in Sweden, major cities in Europe, as well as

developing regions in Eastern Europe and North

America. The hotel properties shall be centrally situ-

ated in natural and strong hotel locations such as city

centres, airports and exhibition centres. The hotels

shall be in the medium to high price range, and

focus on business travellers and tourists. Pandox

believes that hotels included in these market seg-

ments have the best chances of success in a growing

hotel economic cycle, while risks are limited in the

event of a downturn. This is due to hotel markets in

large locations being more stable and having better

Leading and profi table Clarion Collection Hotel Twentyseven

PANDOX 2007 9

Clarion Collection Hotel Twentyseven – “the coolest place in Copenhagen”

Clarion Collection Hotel Twentyseven is

located in central Copenhagen, about 200

metres from Rådhusplatsen (Town Hall

Square) and within walking distance to

Tivoli, Ströget and the stock exchange. It is

a lifestyle hotel with 200 rooms, wine bar,

cocktail bar, Absolut Icebar and restaurant.

Pandox acquired the hotel property

– including the right to run the operations –

in the autumn of 2005. The hotel was closed

when purchased and was in considerable

need of refurbishment. The change process

was initiated immediately.

Focus on lifestyle

The hotel has been operated by Pandox

simultaneously as a total refurbishment

program has been carried out to develop

it to one of the leading lifestyle hotels in

Copenhagen. The refurbishment em-

braced all hotel rooms, the lobby, and the

adjacent restaurant and lounge bar. The

entire development program has cost more

than DKK 70 million.

The new concept also includes an Abso-

lut Icebar, which was ready for the inaugura-

tion in April 2007. The bar strengthens the

hotel’s design and lifestyle profi le. Through

this investment, Pandox has achieved its

goal and created one of Copenhagen’s lead-

ing medium priced hotels – “the coolest

place in town” – via a combination of size,

strategic location and attractive design.

When the development program was

complete, Pandox entered into a revenue-

based lease agreement with Choice Hotels

Scandinavia. Choice Hotels now operates

and markets the hotel under the name of

Clarion Collection Hotel Twentyseven.

CREATIVITY

growth potential, because they attract more capital

and people. Strong and strategic locations are

always important in the hotel industry, and the size

of the hotel provides profi tability benefi ts – which in

turn increases Pandox’ potential for improved

return on investment.

Strategy for active ownership

Pandox further develops its focus and expertise in

the chosen market segment through active owner-

ship. Active ownership is adapted to each situation

with regard to both procedures and partnership

strategy, with the aim to add value through higher

cash fl ow or through limiting the risk involved.

Examples of active ownership are set out below.

Acquisitions

Pandox has built up its own expertise in the fi eld of

acquisitions and acquisition methods. This implies

that Pandox analyses, evaluates, negotiates and ex-

ecutes all acquisitions inhouse, and enables a deep

insight into acquisitions and their real potential and

risks, while increasing knowledge of the market.

Choice of partners

Pandox works together with all competitive market

players where joint forms of cooperation can be de-

veloped and applied for the optimisation of total

cash fl ow.

Strategic alliances

Pandox can deepen the cooperation with its priori-

tised partners in order to jointly make acquisitions

and undertake restructuring programs or major in-

vestments.

Agreement structure

Pandox enters into all forms of leases and manage-

ment agreements to create joint incentives and

benefi t the development of total cash fl ow.

Own operations

Pandox has its own expertise for operating hotels.

Experience has shown that there are situations

when this is the most profi table and most effective

way of improving cash fl ow.

Participation in the restructuring process

Pandox plays an active role in the ongoing restruc-

turing of the hotel property market. This implies that

Pandox participates through acquisitions, divest-

ments and choice of partner.

Cash fl ow strategy

Pandox adapts to each individual situation with the

support of the working methodology of the Pandox

Model. Pandox is thus able to actively participate in

the development and implementation of cash fl ow

strategies together with its partners.

Divestments

Pandox cultivates its portfolio in accordance with its

portfolio strategy. The majority of divestments are

managed directly by the Company.

10 PANDOX 2007

In the summer Pandox acquired the well-

known InterContinental Montreal for CAD 49

million, equivalent to about SEK 330 million.

It is the Company’s fi rst investment outside

Europe. The acquisition creates a good foun-

dation for selective expansion in Canada and

North America in general.

The InterContinental Montreal is a full-service hotel

with restaurants, bar, fi tness centre and a large con-

ference and meeting department. The hotel has

357 rooms and the property is composed of 26

fl oors located in Old Montreal close to the fi nancial

district. It is part of the World Trade Centre and has

direct access to Montreal’s Convention Centre –

Palais des Congrès.

Considerable modernisation

Pandox and InterContinental Hotels Group have en-

tered into a management agreement and will closely

cooperate in developing, modernising and opera-

ting the hotel. It needs to be upgraded, and through

an investment program of more than CAD 11 million

– equivalent to SEK 70 million – all hotel rooms will

be refurbished and modernised, a new restaurant

product developed, and the meeting and lobby

areas upgraded.

Montreal is Canada’s second-largest city with

3.6 million inhabitants, representing about 11 per-

cent of the population of Canada. It has a diversi-

fi ed and competitive economy and several interna-

tional and multinational companies have their head

Montreal – new market

SPEED

Expansion to North America

offi ces located in the city. Montreal is also Canada’s

centre for space technology, the pharmaceuticals

industry, IT and biotechnology. The city’s GDP

growth was weak in 2005 and 2006. However,

stronger trends within the industrial and service

sectors are anticipated to provide GDP growth of

between 2.6 percent and 3.0 percent up to 2010.

Major tourist destination

Montreal is one of North America’s largest tourist

destinations. In 2006, the city had 7.6 million visi-

tors, of whom 73 percent were Canadians. The con-

siderable attractivness of the destination creates

strong demand for hotel rooms. The hotel market is

well-developed and most international operators are

10 PANDOX 2007

PANDOX 2007 11

07

represented in the city. Montreal’s hotel market also

benefi ts from the demand being diversifi ed. The ex-

cellent corporate climate generates good demand

from business travellers simultaneously as the city’s

attraction as tourist destination creates demand

from leisure travellers.

From a perspective of international events held

each year in Montreal, it is one of Canada’s – even

North America’s – largest conference and congress

cities. The Palais de Congrès is the largest confe-

rence centre, offering 18,500 m2 of exhibition area,

12,200 m2 meeting area, and can arrange confer-

ences for more than 20,000 delegates.

PANDOX 2007 11

12 PANDOX 2007

THE PANDOX MODEL

Hotel properties have characteristics that are dis-

tinctly different to other types of property, and de-

mand specialist skills and knowledge. Value

growth is complex and is based on revenues and

profi ts being infl uenced by several factors such as

the underlying hotel market, choice of brand

name, price and product segment, type of agree-

ment, and active ownership. Successful results

demand that the hotels be continuously reviewed

and analysed with the help of well-developed

working methodology that provides support to the

decision-making process.

In order to maintain and benefi t from the know-

ledge and experience that the organisation con-

stantly develops, Pandox has produced and deve-

loped business procedures and operating systems.

These are used on a daily basis and the results are

documented. Clear and user-friendly processes im-

prove the quality of analyses and decision-making,

and facilitate the transmission of knowledge while

reducing the risk of losing important experience

and skills when key people leave.

Pandox’ principal procedures consist of the

Pandox Model, Market Survey and Financial

Reporting.

The Pandox Model

Pandox’ working methodology to generate in-

creased cash fl ow with limited risk is known as the

Pandox Model, and is the Company’s most impor-

tant principal operating procedure. The model in-

cludes four different stages, before implementation

and follow-up. Each hotel property is regularly eval-

uated based on the four stages of the Pandox

Model. Similarly, each acquisition and divestment

is preceded by such an evaluation. The four stages

are market analysis, market strategy, profi tability

optimisation, and agreement optimisation (see dia-

gram on the opposite page).

The operating tools described in the following

market survey section are used within the Pandox

Model.

Market survey

The point of departure for a market survey is to as-

sess the market situation and trends within a spe-

cifi c market, based on current and correct market

information. To support this principal procedure,

Pandox employs a market information system, ex-

ternal marketing systems and databases, research

and analyses, as well as the Company’s networks

and media monitoring. Taken together, market sur-

veys provide up-to-date and reliable knowledge of

prevailing market conditions.

Market information system

• Pandox has an IT system that contains informa-

tion about the hotel market in terms of occu-

pancy, average room rates, growth trends, com-

parative past performance fi gures, as well as a

target group analysis. The system covers the

major part of Pandox’ market. The assembled

information is structured by location, geographi-

cal area, as well as price and product segments,

and is updated each month.

• Pandox also has access to external databases

that contain basic information about all hotels in

Pandox’ markets. The Company furthermore

has an agreement with various consultancy

fi rms that constantly monitor and analyse Euro-

pean and American hotel markets in particular.

Networks

Pandox works via external consultants and con-

tacts, either where the competence needs to be

strengthened or to gain access to expertise that is

not available within the Company. This network is

assembled in a database, divided into markets and

functions.

Media monitoring

Articles about hotels published in Sweden and

abroad are registered daily.

Hotel product analysis

The hotel product analysis is a tool used as support

to establish a hotel’s position and standard com-

pared with competitors.

Manuals for lease and management agreements

Our manuals for lease and management agree-

ments form the basis for the various types of hotel

agreements that Pandox uses. They contain clear

allocation of responsibility and checklists to support

ongoing operations. The manuals are also an excel-

lent tool for assessing risk exposure in connection

with acquisitions.

Hotel valuation and investment

This system developed by Pandox assesses the

profi tability of a hotel business, and can conse-

Improved cash fl ow with limited risk

PANDOX 2007 13

Market analysis

A market analysis is performed in or-

der to assess the potential profi tability

of a hotel, and thereby its ability to pay

rent. The local market is identifi ed and

analysed regarding demand, competi-

tion and the current and future offer.

Market strategy

A strategic plan is established for each

hotel property based on the respective

location’s specifi c prerequisites, the

local market and its position in the

hotel economic cycle. When preparing

the strategic plan, the property’s con-

tinued utilisation scope is evaluated

objectively and impartially.

Profi tability optimisation

In view of that a property’s value is

infl uenced by the hotel operations’

profi tability, the operator is naturally

Pandox’ most important partner. In

order to ensure positive developments

within the hotel operations and the

value of the property, the operator

and related activities are continuously

evaluated.

Agreement optimisation

The optimal cash fl ow in each re-

spective hotel property is then divided

among the operator, Pandox and other

parties concerned. Lease agreements

are formulated so that all parties invol-

ved have an incentive to continuously

improve the hotel property’s overall

profi tability.

Possibility to

acquire hotel

property

Action plan

with concrete

measures

Evaluation of

each hotel property

and the hotel

property portfolio

Market analysis Market strategy Profi tability

optimisation

Agreement

optimisation

Divestment in

accordance with the strategy

The Pandox Model

Elite Park Avenue Hotel, Gothenburg

quently establish the value of a hotel property.

The system is used for acquisitions and major

investments.

Financial reporting

Pandox’ focus on increased cash fl ow and the opti-

misation of return on investment in its hotel proper-

ties requires a detailed evaluation of proposed and

implemented measures. Pandox has therefore de-

veloped a system to enable the fi nancial reporting

and follow-up of target variables.

Financial reporting is based on the annual bud-

get prepared for each hotel property, which is fol-

lowed-up on a monthly basis at both hotel and

Group level. Long term forecasts are drawn up for

several years ahead as an integral part of the bud-

get process in conjunction with the strategic plans

prepared according to the Pandox Model. The

ongoing revenue reporting follows changes

observed within the hotel market, and provides

good underlying data for the quarterly forecasts

prepared per hotel property and for the Group.

All in all, this fi nancial system provides current

information and data that enable the continuous

assessment of the portfolio’s potential and risks,

and consequently the active measures that should

be prioritised.

14 PANDOX 2007

Types of agreement – incentive for both parties

AGREEMENT DUE-DATE STRUCTURE

SEK ’000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2012–2011201020092008

RENTAL REVENUES 2007

BROKEN DOWN BY TYPE OF AGREEMENT

Revenue-based leases, 44%

Revenue-based leaseswith guarantee, 30%

Management agreementsown operations, 21%

Fixed leases, other tenants, 4%

Fixed leases, 1%

THE PANDOX MODEL

Specifi c characteristics

Each hotel lease is the result of a comprehensive

market analysis that includes changes in the mar-

ket and competition from different players both in

the short and long-term.

By using various techniques, Pandox can limit

the risk in a declining market and simultaneously

participate in a market that is showing an upward

trend. Should the operator’s liquidity weaken,

Pandox has the expertise and ability to manage

the hotel itself, which indeed has occurred on

several occasions.

Pandox’ agreement structure

Pandox’ agreement structure refl ects its active and

situation adapted ownership. The lease structure is

governed by factors such as anticipated market

trends, local competition, planned investments, as

well as choice of operators and distributors. By

combining various types of agreement, Pandox has

achieved a agreement structure that provides

Pandox with increased cash fl ow in a rising market

while simultaneously offering protection against

downturns in the market through fi xed-fee leases

and rental guarantees.

Types of agreement

Revenue based

Revenue based hotel leases are linked to sales ge-

nerated by the hotel business. This form of lease

provides Pandox with a share of growth in both the

market as a whole and in the market share. To limit

the risk, these leases generally specify a minimum

guaranteed amount of rental revenue (guarantee/

base rent).

Result based

A result based hotel lease implies that the hotel

property owner receives a share of the hotel opera-

tor’s operating net. This type of lease requires that

the hotel property owner understands the opera-

tor’s fi nancial control system. Result based hotel

leases can also specify minimum guaranteed rental

revenue (guarantee/base rent).

Fixed fee hotel lease

Fixed fee hotel leases with an index linked to the

development of the Consumer Price Index (CPI)

are used in mature markets and in well-established

hotel products. A fi xed fee lease limits the risk but

also the potential.

Management agreement

A management agreement can be perceived as a

sort of agent contract. The main characteristic is

that the hotel property owner also owns the hotel

business.

Through a management agreement, an opera-

tor/manager is assigned to operate and manage the

hotel on behalf of the hotel property’s owner –

“manage the manager” – for which a management

fee is paid to the operator/manager.

The value of a hotel property is governed to a considerable degree by the formulation of the hotel agree-

ment. To produce a good agreement that is dynamic for both parties is a complicated process. In addi-

tion to legal expertise, substantial knowledge of conditions within the hotel industry is required, as well

as insight into the priorities of each respective party.

Clarion Hotel Grand, Östersund

PANDOX 2007 15

KNOWLEDGE & NETWORK

During the year, Pandox acquired two

hotels in Södertälje – Best Western Hotell

Skogshöjd and Quality Hotel Park. The

acquisition included both hotel properties

and operations, and entered into force on

1 March 2007 for both hotels.

Södertälje is located about 40 km south of

Stockholm. The town has a well developed

business community with companies such as

AstraZeneca, Scania and Swedish Volkswa-

gen. Södertälje’s hotel market is infl uenced

signifi cantly by these large companies, as

well as by the dynamics of southern Greater

Stockholm including the proximity to Stock-

holm International Fairs.

Maintaining local profi le

Best Western Hotell Skogshöjd is a traditional

hotel in central Södertälje. It has 225 bed-

rooms, well-developed conference and mee-

ting activities with a total of 11 different

rooms, several restaurants, and the newly

built Skogs höjd Spa. Quality Hotel Park has

an excellent location in central Södertälje with

direct access to shopping streets. It has 149

rooms and conference facilities for both large

and small groups.

Both hotels are in need of product devel-

opment. The plan is that Quality Hotel Park

will start a development program during 2008

for approximately SEK 25 million. The new

CEO for both hotels is Anders Hallin, pre-

viously hotel manager of the Pandox Radisson

SAS Hotel Östersund.

Two acquisitions in Södertälje

16 PANDOX 2007

Hotel operations

NETWORK

16 PANDOX 2007

Active ownership

In 2007, Pandox has managed twelve operations

with a total of 3,509 rooms, of which two have been

sold to Choice Hotels, who will operate the Clarion

Collection Hotel Twentyseven and Clarion Hotel

Grand, Östersund from now on.

Further to these changes, Pandox enters 2008

with ten operating companies with 3,133 rooms that

are expected to generate about SEK 970 million in

revenue during the year.

The strategy for Pandox’ own hotel operations is

to build up independent companies, where the

major part of responsibility is delegated to each

respective company’s board of directors and man-

agement team. The operations are monitored,

developed and analysed through regular board

meetings where the companies’ boards also com-

prise external members. Pandox’ most important

tasks are to support the companies’ business pro-

cesses through the appointment of professional

boards and management teams, as well as to assist

with management systems and working methods

being established in order to optimally utilise the

development potential in each respective unit.

HOTEL BERLIN, BERLIN

Both the hotel property and the operations were acquired in the spring of 2006. The hotel is marketed via in-

dependent distribution channels. The strategy is to reposition the hotel towards the more profi table meeting

and events segment and to develop effective and modern forms of operation. The development program is

currently in full progress. Since Pandox took over, new conference and meeting facilities with nine rooms

have been developed. Existing areas have been upgraded. Soft refurbishment has been carried out in all

rooms. The company also now has a new management team and board of directors.

INTERCONTINENTAL MONTREAL

Pandox acquired the hotel property and operations in 2007. The InterContinental Montreal has

357 rooms of international size. It is a full-service product with restaurants, bar, fi tness centre and

a large conference and meeting department. The hotel is located in Old Montreal close to the

fi nancial district. Pandox and InterContinental Hotels have entered into a management agreement

and will closely cooperate in developing, modernising and operating the hotel.

The hotel will undergo major refurbishment in 2008, covering the design and product offer of

rooms and conference facilities. The hotel will also have a new fi tness centre and lounge. The

strategy is to develop a boutique atmosphere with a French touch. The investment is estimated to

amount to about SEK 70 million.

CROWNE PLAZA ANTWERP

Pandox acquired the hotel property and oper-

ation in the spring of 2007. Pandox operates

the hotel under a franchise agreement with

InterContinental Hotels Group. Crowne Plaza

Antwerp has 262 rooms and well developed

conference activities. The location is good with

direct access to Antwerp’s ring-road and proxi-

mity to the city’s historic centre. The hotel

needs to be upgraded and modernised. Stra-

tegic plans for the hotel are currently being

prepared, and the development program is es-

timated to be in progress for two to three years.

PELICAN BAY AT LUCAYA

The hotel is located on Grand Bahama Island and has

186 rooms, of which 96 are junior suites. The hotel is

marketed as a resort hotel via independent distribution

channels. Pandox has an asset management agreement,

which implies that the Company provides the owner,

Sundt AS, with support to the company’s management

and for the development of operations. This has led to the

appointment of a new management team and board of

directors. A new reception area has been created. In ad-

dition, the Sabor restaurant has been further developed

in a previous bar area, thus improving the local profi le of

the hotel. The prerequisites for constructing a multi-

building with meeting capacity, breakfast and banquet

facilities are currently being evaluated.

QUALITY HOTEL PARK

The hotel property and operation were acquired

in the spring of 2007. The hotel is operated by

Pandox under a franchise agreement with Choice

Hotels. It has an excellent location in the centre

of Södertälje with direct access to the shopping

district. The hotel – with 149 rooms and confer-

ence capacity for both large and small groups –

will be refurbished and developed in 2008.

PANDOX 2007 17

07

PANDOX 2007 17

CROWNE PLAZA BRUSSELS CITY CENTRE

The operation and hotel property were acquired at

the end of 2003 and represent one of the leading

business and city meeting hotels in Brussels. The

hotel is operated under a franchise agreement with

Crowne Plaza, which is one of the brand names of

the InterContinental Hotels Group. Distribution takes

place via one of the world’s most powerful channels –

Holidex. The hotel has recently undergone an up-

grading and modernisation program at a cost of EUR

13 million, and has won several prestigious awards.

HOTEL BLOOM!

The operation and hotel property were

acquired in the autumn of 2005. The hotel is

marketed through independent distribution

channels, and is in the fi nal phase of being

repositioned to a living and dynamic lifestyle

hotel where each room is decorated by a

young artist under the theme of fl owers. The

restructuring is estimated to cost about EUR

13.5 million and will be completed in the

spring of 2008.

Hotel Location Rooms Hotel Manager

Hotel Berlin, Berlin Berlin 701 Cornelia Kausch

InterContinental Montreal Montreal 357 Gilles Hervieux

Crowne Plaza Brussels City Centre Brussels 354 Eric van Dalsum

Holiday Inn Brussels Airport Brussels 310 Charles Boelen

Hotel BLOOM! Brussels 306 Aldert Schaaphok, acting

Hilton Brussels City Brussels 283 Noël de Munck

Crowne Plaza Antwerp Antwerp 262 Lucien Corthals

Best Western Hotell Skogshöjd Södertälje 225 Anders Hallin

Clarion Collection Hotel Twentyseven* Copenhagen 200 Christopher Alm

Pelican Bay at Lucaya** Bahamas 186 Magnus Alnebeck

Clarion Hotel Grand, Östersund* Östersund 176 Bibbi Högbom

Quality Hotel Park Södertälje 149 Anders Hallin

Total 3,509

*Operations were sold in 2007 to Choice Hotels.

** Asset management agreement. The hotel is owned by

Sundt AS.

BEST WESTERN HOTELL SKOGSHÖJD

The hotel property and operation were acquired in

the spring of 2007. The hotel is operated by Pandox

with a membership in Best Western. Skogshöjd is a

traditional hotel in central Södertälje with 225 bed-

rooms, well developed conference and meeting fa-

cilities with a total of 11 rooms, several restaurants,

and a newly built spa. An analysis of the hotel is cur-

rently in progress prior to the forthcoming develop-

ment and refurbishment.

HILTON BRUSSELS CITY

The hotel property and operation were included in the acquisition of Hotellus International AB in

2000. A comprehensive investment program was completed in 2002 – and transformed the Hilton

Brussels City from a tourist hotel to an international hotel with high standard and good profi tability.

The hotel is located in central Brussels at Place Rogier and has 283 rooms, restaurant, bar, fi tness

centre and conference facilities. It is operated through a management agreement with Hilton.

HOLIDAY INN BRUSSELS AIRPORT

Pandox acquired the hotel property and operation in

the spring of 2007. Holiday Inn Brussels Airport is a

full-service hotel with 310 rooms. It has a strategic lo-

cation close to Brussels’ international airport in a busi-

ness area with high growth of new offi ce buildings.

The hotel is operated under a franchise agreement

with InterContinental Hotels Group. The product

needs to be upgraded and modernised. The new

management has produced a new strategic plan that

has been immediately implemented, and which is es-

timated to take two years to complete.

18 PANDOX 2007

MARKET OVERVIEW

2007 was a very strong year in the hotel industry.

Occupancy was stable at high levels and average

rates experienced excellent growth. The sector is

benefi ting from good global conditions, but is

simultaneously threatened by them. There is a risk

that anxiety surrounding mortgage loans in the

United States will slow down economic growth and

have subsequent effects in Europe. In general, eco-

nomic development is more diffi cult to appraise

than it has been for a long time.

In the United States, occupancy closed at 63 percent

which is in line with last year. Demand has increased

slightly, but because the number of available rooms

increased by the same amount, the change in occu-

pancy is minimal. The average rate closed at USD

104, representing a rise of 6 percent compared with

2006. With regard to price segments, the luxury and

medium price segments achieved the highest growth

during the year. The trend is the same in all seg-

ments, with occupancy in line with last year while

growth in prices drove RevPAR upwards. In New

York, occupancy increased slightly while prices in-

creased by a signifi cant 12 percent during the year.

Occupancy closed at 84 percent and the average

rate at USD 270.

After three consecutive years of growth, the Euro-

pean market continues to perform well with growth in

most of the region’s major cities. Good economic con-

ditions have led to greater demand from both the

leisure and business segments. In London, demand

has started to reach upper limits. Over a period of two

years, occupancy has been more than 80 percent

almost every month. It is a strong market with consid-

erable underlying demand. Occupancy closed at

83 percent for 2007, representing a slight increase of

almost 1 percent compared with last year. Average

rates rose strongly during the same period by about

10 percent. RevPAR closed at GBP 110, representing

a rise of more than 10 percent against 2006.

New York and London move in different directions

New York and London are two markets that usually

follow each other’s trends. However, we have re-

cently seen that the two markets are instead moving

in individual directions. In New York, the rate of

growth is still rising while growth is slowing in

London. London lost momentum after the terrorist

attacks in 2005. Right in the middle of a recovery pe-

riod where New York grew strongly, London suffered

a setback and has not been able to regain the lost

ground even if growth has been good. Compared

with previous top levels seen at the beginning of the

millennium, New York is close to 35 percent over

while London is about 16 percent over.

The Football World Cup in Germany in 2006

was mainly positive for the market also in 2007.

The German cities that hosted matches during the

World Cup had diffi culty maintaining prices in 2007,

although occupancy from increased business and

leisure travel in certain cities has been able to

balance the situation. Munich closed 2007 with an

occupancy of 73 percent, representing a rise of about

4 percent, and increased the average rate by more

than 3 percent. Berlin closed at 71 percent in occu-

pancy, and through the increase succeeded in bal-

ancing the fall in prices of about 2 percent. RevPAR

in Berlin closed at EUR 63 for the full-year 2007,

representing an improvement of 3 percent. Certain

cities, such as Dortmund for example, have however

been able to maintain the high levels.

The favourable economic climate has also bene-

fi ted France and Spain. Madrid and Barcelona were

the principal driving forces behind the growth in

Spain. In Madrid, growth is favoured by a new airport

and the city’s greater signifi cance as a conference

centre. In Barcelona, the rise in average rates was

stronger. In Paris, the 3 and 4-star hotels were mainly

behind the growth. Occupancy in Paris closed at 78

percent, representing an increase of close to 4 per-

cent against last year. Growth in prices saw the highest

rise with approximately 6 percent to EUR 216.

In Brussels and Antwerp, prices were behind

RevPAR in 2007. Occupancy in Brussels was in line

with last year while average rates rose by 9 percent.

In Antwerp, occupancy declined by almost 1 percent

while average rates increased by 15 percent.

RevPAR improved in Brussels by 11 percent and in

Antwerp by 14 percent.

Scandinavia at high levels

Copenhagen, like London, has experienced high

occupancy for a relatively long period of time and has

now reached the limit in demand – which reduces the

growth conditions for occupancy. International guest

nights seem to have stagnated and growth is now

Growth in prices beats occupancy

PANDOX 2007 19

Trends in the hotel market were strong in

2007. Occupancy was at historically high lev-

els in many markets. Prices continued to rise

from already high levels. At the same time,

interest rates have increased slightly in some

markets, and certain macro-economic indica-

tors point towards lower growth.

Activity within the transaction market contin-

ued to be high and in line with 2006. Despite

higher interest rates, good demand has created

competition, which in turn muffl ed the interest

effect. In the fi rst half-year 2007, the price per

room rose by about 2 percent to EUR 177,000.

Private equity sells

The new situation with higher interest rates

and low initial direct return has also affected

who invests in the market. The proportion of

transactions made by HNWI (High Net Worth

Individuals) was four times greater in 2007

than the previous year. This type of purchaser

has a long-term ownership perspective and

considerable interest in prestige hotels. On the

other hand, private equity companies signifi -

cantly reduced their acquisitions of hotel prop-

erties. These companies have instead sold

many hotel properties. Hotel companies were

also active on the sales side last year.

Greater transparency in several European

markets has led to more cross-border transac-

tions. Many investors from the United King-

dom are looking for acquisitions in continental

Europe. In the UK, interest rates are higher

and direct return lower – particularly in large

cities such as London. The potential for good

acquisitions has thereby decreased. Via a geo-

graphical diversifi cation, purchasers simulta-

neously see that risk-spreading and dynamics

have im proved. Because the markets are at

different stages of the economic cycle, the

geographic spread also dampens the volatility

in the port folio.

Germany, France and Italy have been inte-

resting markets in the last two years. In 2007,

these countries’ proportion of the total transac-

tion value increased by close to 20 percent.

Lease agreements still interesting

The proportion of lease agreements was as

high in 2007 as the previous year. The conti-

nued interest for lease agreements could be

explained by the growing proportion of institu-

tional investors. They stand for half of all trans-

actions that involve lease agreements.

Transactions with management agree-

ments have increased and are currently the

most common form of agreement. It is most

common in portfolio acquisitions.

Continued strong transaction market

dependent on domestic demand. The city has re-

cently gained a considerable amount of new capac-

ity, which also restrains occupancy growth. However,

the city has been strengthened by a rise in growth of

leisure travellers and an improved conference mar-

ket. Occupancy in 2007 was 71 percent in Copen-

hagen and the average rate was DKK 845, repre-

senting a decline of close to 4 percent and a rise of

8 percent respectively compared with last year.

In Sweden, the market is at historically high

le-vels both for prices and occupancy. Both para-

meters have a stable rate of growth where prices are

increasing by about 5 percent on an annual basis

and occupancy by around 1 percent.

In Stockholm, demand has started to fall back in

certain markets – particularly in the high price seg-

ment in the city centre. In conjunction with price

increase and re-segmenting where central hotels

choose more and more high paying guests instead of

volume-strong groups at a lower price, the low price

segments are being pushed out of the centre of

Stockholm. Four-star city hotels lost approximately

3 percent in occupancy in 2007 while prices rose by

a signifi cant 10 percent. Trends in both parameters

are moving in completely different directions. Prices

are seeing an increase in the rate of growth while

occupancy is declining. Occupancy closed at 77 per-

cent while the average rate was SEK 1,270 for 2007.

Hotels in northern Stockholm are showing similar

patterns but at lower levels. Occupancy was in line

with 2006 while prices were behind the increase in

RevPAR of close to 9 percent for the year.

Neighbouring markets such as Uppsala and

Arlanda achieved growth in both occupancy and

prices even if the rise in occupancy in Uppsala

was at a higher level. RevPAR for both locations

in creas ed respectively by 17 and 9 percent for the

year. Södertälje has also increased in both average

rate and occupancy, and RevPAR rose by close to

10 percent in 2007.

Gothenburg is also at historically high levels, and

occupancy closed at 71 percent for the city centre’s

four-star hotels – representing an increase of about

1 percent against last year. Growth in prices has

been slightly stronger and closed with a rise of 3

percent. Mölndal showed the same pattern during

the year, although it achieved higher price growth

than Gothenburg. RevPAR in Mölndal improved by

about 7 percent, compared with 4 percent in the

centre of Gothenburg.

Malmö has experienced very strong growth, due

primarily to increasing average rates. Despite histor-

ically high levels, occupancy also increased for the

full-year 2007 and closed at 68 percent. Malmö has

developed well as a city and region in recent years,

and this can be seen in the hotel market. The ave-

rage rate closed at SEK 831, compared with SEK

777 last year. RevPAR increased in the municipality

of Malmö by 12 percent. The high price segment in

the city centre showed the same pattern as the

municipality as a whole.

All market fi gures for Sweden are rolling 12-months, December

2006 to November 2007. Other countries and cities are for the

calendar year 2007.

Scandic Hallandia, Halmstad

20 PANDOX 2007

Strong positions in Brussels/Antwerp

Pandox acquired another two hotels in the Brussels/Antwerp area in 2007. Pandox thereby becomes one of

the largest players in this market with a total of seven hotels and 1,819 rooms. The portfolio contains four

hotels operated by the Company, two hotels with lease agreements, and one with a management agreement.

Brussels/Antwerp

CREATIVITY

20 PANDOX 2007

Five hotels in Brussels

Further to Pandox’ acquisition of Holiday Inn

Brussels Airport in the spring of 2007, the Company

now owns fi ve hotels in Brussels. Scandic Grand

Place is an effective medium class hotel with 100

rooms, located adjacent to the well-known Grand

Place in central Brussels. Both of Pandox’ business

hotels, Crowne Plaza Brussels City Centre and Hilton

Brussels City with 354 and 283 rooms respectively,

are located with direct access to Place Rogier –

which has been developed into a strong business

district. And the Company’s fi fth hotel in the area –

Hotel BLOOM! is just a few hundred metres away.

Hotel BLOOM! is owned and operated by Pan-

dox through independent distribution channels.

The strategy is to develop Brussels’ best lifestyle

hotel. Each room is hand-painted by students from

various art schools in Europe that are members of

ELIA (European League of Institutes of the Arts).

The inspiration for the wall paintings are the stu-

dents’ own interpretations of the word “Bloom”,

thus making all rooms individual and personal. The

hotel is unique and has received considerable

attention in the press, both locally and in trade mag-

azines such as Elle Déco and Sleeper.

International hub

Brussels has approximately one million inhabitants.

The city has both a strategic and central location in

Europe with the same distance to Paris, London and

Frankfurt. That Brussels is the seat of the European

Union has played an important role in the develop-

ment of the city and the whole of Belgium. Brussels

is well-known as a political and administrative cen-

tre, but also as a hub for international institutions

such as NATO and Benelux. An increasing number

of international companies and organisations are

also establishing their head offi ces in the city.

Brussels’ international signifi cance and strong

Crowne Plaza Brussels City Centre

PANDOX 2007 21

07

PANDOX 2007 21

infrastructure make it a sought-after meeting, con-

ference and congress location, which gives a large

number of guest nights to the hotels every year. The

city’s attractiveness is further strengthened via the

new meeting centre – Square Brussels – which will

open in September 2009.

Good infrastructure

Pandox owns Scandic Antwerp since 2000. Just

like the newly acquired Crowne Plaza Antwerp, it is

located by the ring-road that surrounds Antwerp.

The hotels have 204 and 262 rooms respectively.

Antwerp is Belgium’s second largest city with

half a million inhabitants. The city has good

infrastructure for both road and rail connections.

Amsterdam, Rotterdam and The Hague are within

two hours by car, and both Brussels and Paris can

be reached by high-speed trains. After Rotterdam,

Antwerp also has Europe’s second largest freight

port.

Since the 17th century, Antwerp has played an

important role in the diamond industry and is cur-

rently the world’s diamond trading centre. Antwerp

is also home to international companies such as

DAF Trucks, Procter & Gamble and Amoco.

New acquisitions in 2007: Holiday Inn Brussels Airport and Crowne Plaza Antwerp

Pandox completed another two major tran-

sactions in Belgium in 2007 and acquired

the hotel properties Holiday Inn Brussels

Airport and Crowne Plaza Antwerp, includ-

ing their respective operations. The acquisi-

tions amounted to the equivalent of half a

billion Swedish kronor and entered into

force at the end of June 2007.

Holiday Inn Brussels Airport is a full-service

hotel with 310 rooms at a strategic location

close to Brussels’ international airport and in a

business area with high growth of new offi ce

space. With 262 rooms and well-developed

conference activities, the Crowne Plaza

Antwerp has a good hotel location with direct

access to Antwerp’s ring-road and close to the

city’s historical centre.

Pandox’ principal strategy is to operate the

hotels under the current franchise agreement

with InterContinental Hotels Group. The hotels

need upgrading and modernising, and

Pandox will closely cooperate with the local

management teams to immediately prepare

strategic plans for the operations and com-

mence active measures. The development

programs are estimated to take two to three

years and imply investments equivalent to

approximately SEK 80 million.

Hotel BLOOM!

22 PANDOX 2007

1. Aldert Schaaphok, Director Operations, based in Belgium,

born in 1959. Aldert Schaaphok has considerable experi-

ence of operations and concept development, including as

manager of full-service hotels in the Netherlands, Belgium

and Germany. Before joining Pandox, he was Regional Di-

rector Operations and Vice President Operations for Dorint

Hotels & Resorts AG. Aldert has been consultant to Pandox

since January 2004, and is now responsible for the Compa-

ny’s operations in Belgium and Montreal. He is also board

member of Hotel Berlin, Berlin.

2. Anders Nissen, Chief Executive Offi cer, born in 1957.

Anders Nissen has a strong background from the hotel

industry and hotel property sector with more than 25 years’

experience. He started his career as hotel manager and then

held leading positions within the group management team of

the hotel operator Reso. In the beginning of 1993, Anders

became CEO of Securum Hotel & Turism AB, where he led

the process of structuring Securum’s hotel activities. Anders

Nissen was a key player behind the initiative to form Pandox,

and has been CEO since the Company was started in 1995.

3. Anette Österberg, Acquisition and Investment Analyst,

born in 1975. Anette Österberg is a graduate in business

administration from the European Business School in

London. She has also studied property valuation at the

Royal Institute of Technology (KTH) in Stockholm. Upon

completion of her studies, Anette worked with Corporate

Finance at Deloitte & Touche. She was recruited by Pandox

in the spring of 2003 as analyst, and works with acquisi-

tions, market analysis, market communication and deci-

sion-making support for the business area managers.

4. Ann-Sophie Forsmark, Property Accountant, born in

1971. Ann-Sophie Forsmark is a graduate economist from

the IHM Business School. She joined Pandox in 1999 after

having previously been employed by Riddarstaden AB,

Marco Polo and Fritidsresor. Ann-Sophie works within

Pandox’ fi nance and accounting department.

5. Erik Hvesser, born in 1969. Erik Hvesser is an econom-

ics graduate of the School of Economics & Business

Administration in Oslo. He came to Pandox in the autumn

of 2006 from the position as asset manager with Norgani

ASA. Erik has 15 years’ operating experience within the

hotel industry as hotel manager, business area manager,

business controller, as well as various senior positions

within Hilton/Scandic’s Swedish management team.

He is currently responsible for the major part of Pandox’

Swedish hotel property portfolio.

6. Folke Holmqvist, Property Manager Sweden, born in

1943. Folke Holmqvist is a construction engineer with 25

years’ experience of the building sector and fi ve years as

CEO of a hotel company. He became property manager of

Securum Hotel & Turism AB in 1993 and took part in the

formation of Pandox. Folke has been project manager for

several major refurbishment programs, and as Property

Manager for the Swedish properties works closely with the

three business area managers.

7. Jill Jansson, Assistant to the CEO, born in 1952. Jill

Jansson joined Pandox in September 2005 as Assistant to

the CEO. Her position implies providing support to the

board of directors and management of the Company, as

well as internal and external communication including the

annual report. Jill comes most recently from Ventelo

Sverige AB, and has also worked within group functions at

Pharmacia.

8. Jonas Törner, Controller, born in 1971. Jonas Törner is a

graduate in business administration and economics from

Stockholm University, and has also studied to become an

electrical engineer at the Royal Institute of Technology

(KTH) in Stockholm. He has previously worked with Cor-

porate Finance at Deloitte & Touche and Nordea Securi-

ties, and most recently comes from the position as group

controller of the industrial company DeLaval. Jonas was

recruited by Pandox as Controller in the autumn of 2005.

During his time with Pandox, Jonas has built up operating

systems that have grown considerably in recent years,

thus enabling operations to be monitored in a simple and

analytical way.

HUMAN RESOURCES | KNOWLEDGE

44 hotels

+ 10,200 rooms

+ 655,000 m2

+ SEK 782.2 m Property revenues

+ SEK 655.9 m Operating net

+ SEK 230.0 m Profi t after tax

17 employees

2.

16.

5.

1.

4. 15.

PANDOX 2007 23

9. Josefi n Bergqvist, Acquisition and Investment Analyst,

born in 1974. Josefi n Bergqvist holds a master’s degree in

hotel management from Griffi th University in Australia as

well as a master’s degree in property fi nance from the

Royal Institute of Technology (KTH) in Stockholm. Josefi n

has previously worked for CBRE Hotels in London as ana-

lyst and operationally for Marriott International. She has

been with Pandox since August 2006 and is board mem-

ber of a number of the Company’s international operational

activities.

10. Josefi n Nilsson, Receptionist, born in 1983. Josefi n

Nilsson is responsible for daily offi ce procedures together

with the Assistant to the CEO. She has been with Pandox

since September 2006.

11. Lars Häggström, Vice-President Asset Management

and Business Area Manager, born in 1954. Lars Hägg ström

is a graduate engineer and has considerable experience

of the hotel sector, with an emphasis on property-related

issues. He was technical manager of Scandic Hotels from

1993 to 1998, and property manager of Hotellus Interna-

tional from 1998 to 2000 when Pandox acquired the com-

pany. Lars has recently been appointed VP of Pandox with

responsibility for all hotel properties and development proj-

ects, in addition to a number of the Company’s interna-

tional hotels.

12. Louise Ceder, Property Support, born in 1970. Louise

Ceder works with property support and during the last year

has produced a new website for reporting and follow up.

Louise reports to our business area managers and has

worked at Pandox since 2000.

13. Marie Sivertzen, Property Accountant, born in 1957.

Marie Sivertzen came to Pandox in October 2007 after hav-

ing most recently worked for Pfi zer AB via Manpower. She

has also worked for Investor AB for 15 years and Ponsus

Pharma AB. Marie now works within Pandox’ fi nance and

accounting department.

14. Mikael Planell, Business Area Manager, born in 1960.

Mikael Planell’s area of responsibility covers several of

Pandox’ large hotels, including the Hotel Berlin, Berlin. He

was behind the development of the Clarion Collection Hotel

Twentyseven, which is now leased to Choice Hotels. Mikael

has a solid background from the hotel industry with 20

years as hotel manager and area manager, including in

London and Stockholm. Before joining Pandox in 2005, he

was manager of operating and business development for

Accor Hotels’ Nordic operations.

15. Liia Nõu, Vice-President and CFO, born in 1965. Liia

Nõu joined Pandox in 2007 and is responsible for fi nance

and accounting within the Group. Her principal activities

are fi nancial control and reporting and the Group’s fi nanc-

ing of acquisitions. Liia holds a degree in economics and

business administration from the Stockholm School of Eco-

nomics and comes most recently from GE Money Bank AB

where she was Nordic CFO. She has also been CFO of

Song Networks, Tele2, Icon Medialab in addition to working

for Kuwait Petroleum and American Express.

16. Nils Lindberg, Senior Advisor, born in 1947. Nils Lind-

berg has a long career within Pandox and has previously

been responsible for accounting and fi nance issues. Since

last year, he has chosen himself to go over to an advisory ca-

pacity within the Group. Nils has previously been controller

and treasurer for Dow Chemical Nordic Region as well as

bank manager at Nordbanken. Nils joined Pandox in 1995.

17. Ulrika Norrbrink, Property Accountant, born in 1966.

Ulrika Norrbrink came to Pandox in March 2006 after hav-

ing worked previously for Power Hemelektronik AB, Proact

IT Sweden AB and Lars Gullstedts Fastigheter AB. Ulrika

currently works within Pandox’ fi nance and accounting de-

partment.

18. Enzo, Corporate dog.

Salme Olsson, Property Accountant, born in 1944. Salme

Olsson entered retirement during the year. We at Pandox

thank her for her excellent work and pleasant memories.

10.

7. 17.

8.

6. 13. 9.

3.11.

14. 12.

18.

24 PANDOX 2007

Business development Sweden

CREATIVITY

Hotel Scandic St Jörgen in Malmö has been

part of Pandox since the Company was

founded in 1995. The hotel has a strong loca-

tion next to one of Malmö’s most attractive

shopping streets, and with its 283 rooms it is

the city’s largest hotel.

The hotel was opened in 1967 and has since be-

come one of the city’s leading hotels. An investment

program of around SEK 60 million was completed in

2007, thus strengthening the hotel’s position in the

local market and where ineffective restaurant areas

have been converted to profi table shopping and

business activities. The development program also

included the creation of new conference facilities,

implying that the Scandic St Jörgen has now been

developed into one of Malmö’s leading meeting and

conference hotels. The lobby and public areas have

been modernised, and an offer of contemporary

food and drinks has been created. The Scandic St

Jörgen is today one of Malmö’s most attractive pro-

perties with a well-developed shopping, hotel and

meeting profi le.

New investment in Malmö

24 PANDOX 2007

PANDOX 2007 25

07

The Scandic Hallandia is located in Storgatan

in central Halmstad and now has 154 rooms

further to an extension program.

The hotel was fi rst built in the 19th century and has

been converted several times over the years. Pandox

acquired the hotel property in 1999, at the time with

130 rooms in need of development.

Halmstad is a relatively stable hotel market and

has over the past ten years had occupancy of around

50 percent. The Scandic Hallandia holds a strong

position and performs well over the market in both

price and occupancy.

Joint development

The strong underlying demand has led to the hotel

being fully occupied several days per year. Both the

property owner and tenant therefore saw potential in

increasing the number of rooms. When the lease was

renegotiated in 2005, the partners therefore agreed a

development program for the hotel.

The agreement included a major investment with

the creation of 24 new rooms. Logistics changes were

also made in the property in order to improve opera-

tional conditions for Scandic. By modifying the dispo-

sition of the areas, new rooms could be created

within the existing property. The kitchen, restaurant

and bar were moved while most of the meeting

capacity was concentrated to one location in the

building. The result is a hotel that can meet demand,

but also a more effective and operationally friendly

property.

Expansion in Halmstad

PANDOX 2007 25

26 PANDOX 2007

HOTEL PROPER

26 PANDOX 2007

PANDOX 2007 27

44 hotels with strategic locations in

Sweden, Denmark, Belgium, Germany,

Switzerland, the United Kingdom, the

Bahamas and Canada.

TIES

PANDOX 2007 27

28 PANDOX 2007

HOTEL PROPERTIES

Property Operator/Brand nameType of lease Location

Numberof rooms

Year of constr.extension

Total area (sqm)

Stockholm Radisson SAS Arlandia Hotel, Arlanda Rezidor/Radisson SAS Og International airport 335 1979/89 15,260

Hilton Stockholm Slussen Hilton O City centre 288 1989 18,416

Best Western Hotell Skogshöjd, Södertälje Pandox/Best Western Fr Södertälje/Central 225 1972/81/87 14,115

Scandic Järva Krog, Stockholm Scandic O Stockholm north 215 1971/97 11,300

Scandic Park, Stockholm Scandic O City centre 198 1969/88 12,290

Quality Hotel, Nacka Choice Hotels Scandinavia/Quality Og Sickla-Nacka 162 1986 10,830

Mr Chip Hotel, Kista Kista Hotell AB Og Stockholm north 150 1984 5,517

Quality Hotel Park, Södertälje Pandox/Choice Hotels Scandinavia Fr Södertälje/City centre 149 1890s/1984 10,292

Scandic Upplands Väsby Scandic O Stockholm north 150 1986 6,955

TOTAL STOCKHOLM 1,872 104,975

GothenburgScandic Crown, Gothenburg Scandic O City centre 338 1988 24,380

Elite Park Avenue Hotel, Gothenburg Elite Hotels Og City centre 291 1950/74/90 21,998

Scandic Mölndal, Gothenburg Scandic O City centre 208 2000 11,000

TOTAL GOTHENBURG 837 57,378

ÖresundScandic Copenhagen Scandic O City centre 484 1970/99 31,500

Scandic St Jörgen, Malmö Scandic Og City centre 283 1967/95 21,485

Radisson SAS Hotel, Malmö Rezidor/Radisson SAS Og City centre 229 1971/88 18,969

Clarion Collection Hotel Twentyseven Choice Hotels Scandinavia/Clarion Og City centre 200 1913/55/65 7,568

Scandic Star, Lund Scandic Og Central 196 1991 15,711

Clarion Hotel Grand, Helsingborg Choice Hotels Scandinavia Og City centre 164 1926/29/96 8,555

Scandic Kramer, Malmö Scandic O City centre 113 1875/1994 6,913

TOTAL ÖRESUND 1,669 110,701

Regional towns and other locationsScandic Grand, Örebro Scandic O City centre 219 1985 12,900

Scandic Winn, Karlstad Scandic Og City centre 199 1984/90 10,580

Scandic Swania, Trollhättan Scandic Og City centre 196 1918/83/89 10,399

Clarion Hotel Grand, Östersund Choice Hotels Scandinavia/Clarion Og City centre 176 1978 8,766

First Hotel Grand, Borås Västsvenska Hotellfastigheter AB/First Hotels Og City centre 158 1972/87/90/97 9,593

Scandic Plaza, Borås Scandic O City centre 135 1988 10,592

Elite Stora Hotellet, Jönköping Elite Hotels Og City centre 135 1860/1930/95 11,378

Clarion Hotel Plaza, Karlstad Plaza Hotell & Restaurang i Karlstad AB/Choice Og City centre 131 1929/91 5,907

Scandic Hallandia, Halmstad Scandic O City centre 154 1890s/1950/75/2007 7,617

Scandic Billingen, Skövde Scandic F City centre 106 1888/1939/65 7,743

TOTAL REGIONAL TOWNS AND OTHER LOCATIONS 1,609 95,475

International2)

Crowne Plaza Brussels City Centre Pandox/Crowne Plaza Fr City centre 354 1910 28,095

Holiday Inn Brussels Airport Pandox/InterContiental Fr Airport 310 1971 21,072

Hotel BLOOM!, Brussels Pandox Io City centre 306 1976 23,445

Hilton Brussels City Pandox/Hilton M City centre 283 1910/30 13,850

Scandic Grand Place, Brussels Scandic O City centre 100 1900/91 4,500

Crowne Plaza Antwerp Pandox/InterContinental Fr Central 262 1971 18,340

Scandic Antwerp Scandic O Ring road 204 1974 13,200

Hotel Berlin, Berlin Pandox Io City centre 701 1958/87/96 41,093

Hilton Bremen Hilton O City centre 235 1991 21,000

Hilton Dortmund Hilton O Exhibition centre 190 1990 12,500

Scandic Lübeck Scandic O Ring road 158 1991 9,700

Hilton London Docklands Hilton O Docklands 365 1991 22,800

InterContinental Montreal Pandox/InterContinental M Central 357 1991 31,091

Radisson SAS Hotel, Basel Rezidor/Radisson SAS Og Central 205 1957/63/72 17,800

Pelican Bay at Lucaya, Grand Bahama Island Sundt GB Management AM Resort 186 7,983

TOTAL INTERNATIONAL 4,216 286,469

TOTAL PANDOX 10,203 654,998

1) Includes hotel, restaurant and conference areas. 2) Excluding Copenhagen (included in Öresund).

O = Revenue-based, Og = Revenue-based with guaranteed rent, Or = Revenue and result-based, R = Result-based, F = Fixed, Io = Internal revenue-based, M = Management agreement, Fr = Franchise, AM = Asset management agreement.

Pandox’ hotel operations (hotels operated by Pandox)

PANDOX 2007 29

Of which hotel1) (sqm)

Offi ces(sqm)

Shops(sqm)

Other(sqm)

Right ofdisposal

Propertydesignation

Tax assessment value (SEK M)

15,260 – – – Land leasehold Benstocken 1:5 132.7

15,725 2,097 – 594 Land leasehold Överkikaren 31 365.9

14,115 – – – Yxan 8 46.2

11,300 – – – Land leasehold Tanken 2 77.6

10,290 – – 2,000 Lönnen 30 213.0

8,090 2,705 – 35 Sicklaön 363:2 84.8

5,517 Land leasehold Knarrarnäs 7 50.2

10,110 182 – – Herkules 13 35.6

6,955 – – – Vilunda 6:48 34.6

97,362 4,984 – 2,629 1,040.6

21,800 – 300 2,280 Stampen 5:5 170.0

21,998 – – – Lorensberg 28:4 208.0

11,000 – – – Laken 1 55.2

54,798 – 300 2,280 433.2

25,200 – – 6,300 99943-2 –

14,655 – 4,230 2,600 S:t Jörgen 11 222.0

18,969 Carolus 33 123.0

7,568 169 Vester Kvarter København –

15,711 – – – Porfyren 2 102.4

7,325 – 1,230 – Högvakten 8 59.4

6,373 – 540 – Gripen 1 73.8

95,801 – 6,000 8,900 580.6

10,900 – – 2,000 Land leasehold Mältaren 1 50.6

10,580 – – – Negern 2 49.0

10,399 – – – Svan 7 48.5

8,766 – – – Borgens 6 33.8

9,365 – – 228 Land leasehold Prometeus 3 31.9

7,961 2,631 Balder 6 62.8

9,379 – 899 1,100 Alhambra 1 60.6

5,907 – – – Höken 1 39.6

6,813 360 427 17 Erik Dahlberg 14 & 15 44.8

6,844 – – 899 Fjolner 7 27.6

86,914 2,991 1,326 4,244 449.2

28,095 – – – –

21,072

23,445

13,850 – – – Saint-Josseten-Noode (1div) 032 –

4,500 – – – –

16,780 1,560 Land leasehold

13,200 – – – 24th div, Borgerhout 1st div, Ar –

41,093

15,100 – – 5,900 Grundbuch Altstadt IV, Blatt 60 –

11,300 – – 1,200 Grundbuch Dortmund, Blatt 897 –

8,800 – – 900 Grundbuch Lübeck, Blatt 54545 –

21,500 – – 1,300 HM Land Registry: SGL465779 –

31,091

17,000 800

7,983

274,809 1,560 – 10,100 –

609,684 9,535 7,626 28,153 2,503.6

Proportion of total

number of rooms

18%

PANDOX’ MARKET SEGMENT

Stockholm

Number of hotels 9

Number of rooms 1,872

Property revenues, SEK M 177.1

Operating net, SEK M 136.1

Gothenburg

Number of hotels 3

Number of rooms 837

Property revenues, SEK M 79.2

Operating net, SEK M 72.0

Öresund

Number of hotels 7

Number of rooms 1,669

Property revenues, SEK M 160.5

Operating net, SEK M 131.2

Regional cities and other locations

Number of hotels 10

Number of rooms 1,609

Property revenues, SEK M 106.8

Operating net, SEK M 91.2

International

Number of hotels 15

Number of rooms 4,216

Management revenues, SEK M 258.6

Operating net, SEK M 225.4

Hotel operations

Number of hotels 10

Number of rooms 3,133

Operating revenues, SEK M 788.8

Operating profi t, SEK M 180.9

Proportion of total

number of rooms

31%

Proportion of total

number of rooms

16%

Proportion of total

number of rooms

8%

Proportion of total

number of rooms

42%

Proportion of total

number of rooms

16%

30 PANDOX 2007

Scandic Crown, Gothenburg Number of rooms: 338 Operator: Scandic

Scandic Upplands Väsby Number of rooms: 150 Operator: Scandic

Mr Chip Hotel, Kista Number of rooms: 150 Operator: Kista Hotell AB

Quality Hotel Nacka Number of rooms: 162 Operator: Choice Hotels Scandinavia/Quality

Radisson SAS Arlandia Hotel Number of rooms: 335 Operator: Rezidor/Radisson SAS

Scandic Järva Krog Number of rooms: 215 Operator: Scandic

Hilton Stockholm Slussen Number of rooms: 288 Operator: Hilton

Scandic Park, Stockholm Number of rooms: 198 Operator: Scandic

HOTEL PROPERTIES

Best Western Hotell Skogshöjd, Södertälje Number of rooms: 225 Operator: Pandox/Best Western

Quality Hotel Park, Södertälje Number of rooms: 149 Operator: Pandox/Choice Hotels Scandinavia

ST

OC

KH

OL

M

ST

OC

KH

OL

MG

OT

HE

NB

UR

G

PANDOX 2007 31

Elite Park Avenue Hotel, Gothenburg Number of rooms: 291 Operator: Elite Hotels

Clarion Collection Hotel Twentyseven Number of rooms: 200 Operator: Choice Hotels Scandinavia/Clarion Collection

Scandic Copenhagen Number of rooms: 484 Operator: Scandic

Scandic Mölndal Number of rooms: 208 Operator: Scandic

Scandic Kramer Number of rooms: 113 Operator: Scandic

Scandic St Jörgen Number of rooms: 283 Operator: Scandic

Radisson SAS Hotel Malmö Number of rooms: 229 Operator: Rezidor/Radisson SAS

Clarion Hotel Grand Helsingborg Number of rooms: 164 Operator: Choice Hotels Scandinavia

Scandic Grand Örebro Number of rooms: 219 Operator: Scandic

Scandic Star Lund Number of rooms: 196 Operator: Scandic

GO

TH

EN

BU

RG

ÖR

ES

UN

D

ÖR

ES

UN

DR

EG

ION

AL C

ITIE

S AN

D

OT

HE

R L

OC

AT

ION

S

32 PANDOX 2007

Scandic Billingen, Skövde Number of rooms: 106 Operator: Scandic

Clarion Hotel Plaza Karlstad Number of rooms: 131 Operator: Plaza Hotell & Restaurang i Karlstad AB/Choice

Crowne Plaza Brussels City Centre Number of rooms: 354 Operator: Pandox/Crowne Plaza

First Hotel Grand Borås Number of rooms: 158 Operator: Västsvenska Hotellfastigheter AB/First Hotels

Scandic Plaza Borås Number of rooms: 135 Operator: Scandic

Elite Stora Hotellet Jönköping Number of rooms: 135 Operator: Elite Hotels

Scandic Hallandia Halmstad Number of rooms: 154 Operator: Scandic

Clarion Hotel Grand, Östersund Number of rooms: 176 Operator: Choice Hotels Scandinavia

HOTEL PROPERTIES

Scandic Winn Karlstad Number of rooms: 199 Operator: Scandic

Scandic Swania Trollhättan Number of rooms: 196 Operator: Scandic

RE

GIO

NA

L CIT

IES A

ND O

TH

ER L

OC

AT

ION

S

RE

GIO

NA

L CIT

IES A

ND O

TH

ER L

OC

AT

ION

SIN

TE

RN

AT

ION

AL

PANDOX 2007 33

Hilton Brussels City Number of rooms: 283 Operator: Pandox/Hilton

Hotel BLOOM!, Brussels Number of rooms: 306 Operator: Pandox

Hilton Dortmund Number of rooms: 190 Operator: Hilton

Scandic Grand Place Brussels Number of rooms: 100 Operator: Scandic

Scandic Antwerp Number of rooms: 204 Operator: Scandic

Hilton Bremen Number of rooms: 235 Operator: Hilton

Scandic Lübeck Number of rooms: 158 Operator: Scandic

Holiday Inn Brussels Airport Number of rooms: 310 Operator: Pandox/Holiday Inn

Crowne Plaza Antwerp Number of rooms: 262 Operator: Pandox/Crowne Plaza

Hotel Berlin, Berlin Number of rooms: 701 Operator: Pandox

INT

ER

NA

TIO

NA

L

INT

ER

NA

TIO

NA

L

34 PANDOX 2007

HOTEL PROPERTIESFINANCES

Hilton London Docklands Number of rooms: 365 Operator: Hilton

InterContinental Montreal Number of rooms: 357 Operator: Pandox/InterContinental Hotels

Radisson SAS Hotel Basle Number of rooms: 205 Operator: Rezidor/Radisson SAS

Pelican Bay at Lucaya, Grand Bahama Island Number of rooms: 186 Operator: Sundt GB Management

INT

ER

NA

TIO

NA

L

PANDOX 2007 35

Financial overview . . . . . . . . . . . . . . . . . . . 36

Sensitivity analysis . . . . . . . . . . . . . . . . . . 38

Evaluation and tax situation . . . . . . . . . . . . 40

Defi nitions . . . . . . . . . . . . . . . . . . . . . . . . 41

Ten-year overview . . . . . . . . . . . . . . . . . . . 42

Quarterly data 2006–2007. . . . . . . . . . . . . 44

Financial statements 2007. . . . . . . . . . . . . 45

Report of the Board of Directors. . . . . . . . . . 46

Income statement and comments . . . . . . . . 48

Balance sheet and comments . . . . . . . . . . . 50

Changes in equity . . . . . . . . . . . . . . . . . . . 52

Cash fl ow statement and comments . . . . . . . 53

Accounting principles . . . . . . . . . . . . . . . . 54

Notes to the Accounts . . . . . . . . . . . . . . . . 56

Proposed disposition of earnings . . . . . . . . . 62

Auditor’s report . . . . . . . . . . . . . . . . . . . . . 63

Scandic Hallandia, Halmstad

36 PANDOX 2007

Well-weighted risk profi le

Financial policy

The basic objective of Pandox’ fi nancial operations

is to achieve the lowest possible fi nancing costs

while simultaneously limiting the risks related to

interest rates, foreign currencies and borrowings.

The interest rate risk is the risk that changes in

interest rate levels which could negatively affect the

Group’s results. Currency risk is the risk that the

Group’s balance sheet and income statement

which could be negatively affected by changes in

the value of the Swedish krona. Finally, the borrow-

ing risk is the risk that external fi nancing may be-

come more diffi cult to fi nd.

Interest rate risk/interest rate strategy

Pandox’ basic objective is that interest rate expo-

sure shall be adapted so that increased costs as a

result of reasonable changes in interest rates shall

be compensated by higher revenue. The interest

rate risk must therefore be limited through con-

tracting periods of varying lengths with the aim of

creating an optimal due date structure and fi xed

interest periods. The long term objective is that the

average fi xed interest period be matched with the

average point in time when rental revenues, based

on underlying leases, are estimated to be affected

by a change in interest rates.

Currency risk/currency risk strategy

Pandox is exposed to currency risks due to certain

of the Group’s assets being denominated in foreign

currencies. Pandox’ policy is to hedge the majority

part of its exposure by raising loans in the local

currency of each respective country and by hedg-

ing with appropriate currency hedging instruments.

Methodology and systems

Pandox has developed and implemented systems

and procedures to enable the continuous monito-

ring and reporting of interest rate risk trends.

Financing strategy

In order to gain fl exibility and administrative bene-

fi ts, Pandox has centralised when possible all

borrowing in the Parent Company. The objective is

to work with long-term framework agreements that

provide scope for borrowing with varying maturities

and fi xed margins. Derivative instruments such as

swaps are preferably used for the extension of fi xed

interest rate periods.

Capital structure

The objective for the Group’s capital structure is

that the equity/asset ratio long term should meet in-

ternal and external fi nancial strength requirements

in order to enable continued expansion.

Financing

As of 31 December 2007, the Pandox Group’s inte-

rest bearing liabilities amounted to SEK 5,516.8 M

(4,398.5). The loan portfolio had an average fi xed

interest rate period of 1.8 years (2.9) and the aver-

age rate of interest on loans amounted to 4.9 per-

cent (4.3). The fi nancing of hotel properties is

raised in each respective local currency in accord-

ance with the fi nancial policy. At the same point in

FINANCIAL OVERVIEW

Pelican Bay at Lucaya, Grand Bahama Island

PANDOX 2007 37

INTEREST STRUCTURE1), SEK M

Year due SEK DKK EUR GBP CHF CAD Total Share, % Interest, %2)

2008 1,653.0 157.0 1,374.7 206.4 51.2 242.3 3,684.6 66.8 5.2

2009 125.0 – – – – – 125.0 2.3 4.6

2010 250.0 – – – – – 250.0 4.5 4.8

2011 125.0 – 30.1 – – – 155.1 2.8 5.1

2012 325.0 – – – 51.3 – 376.3 6.8 4.0

2013 and later 175.0 127.1 521.1 – 102.6 – 925.8 16.8 4.0

Total 2,653.0 284.1 1,925.9 206.4 205.1 242.3 5,516.8 100.0 4.9

Share, % 48 5 35 4 4 4 100

Average interest rate, % 4.9 3.8 4.9 7.4 2.9 5.4 4.9

Average interest rate period, years 1.7 3.7 1.8 0.2 4.5 0.1 1.8

1) Converted to SEK. 2) Average interest rate in percent.

time, the Pandox Group’s liquid funds amounted

to SEK 272.8 M (174.1). In addition, there was an

unutilised credit facility of SEK 400.5 M.

Equity capital

The Pandox Group’s equity capital as per the bal-

ance sheet at 31 December 2007 amounted to SEK

2,407.7 M of which SEK 1,260.3 M was restricted

equity and SEK 1,147.4 M unrestricted equity.

The Pandox Group’s cash fl ow before changes

in working capital, investments and non-recurring

revenue amounted in 2007 to SEK 389.0 M (317.6).

Working capital

Pandox receives rental revenue in advance and

pays most of its operating costs and interest ex-

pense in arrears while hotel operations normally

receive revenues in arrears. Altogether the Group

normally has a relatively small working capital to

fi nance.

38 PANDOX 2007

Clarion Hotel Grand Helsingborg

Factors that affect Pandox

Pandox’ operations and profi tability are affected

by a number of factors, of which the most impor-

tant are described below.

The hotel market

The development of Pandox’ earnings and the

value of its hotel properties are dependent upon

trends within the hotel market, which in turn

closely follow general economic developments.

Business travel and conference activities nor-

mally increase during periods of high economic

activity, while there is a corresponding decrease

during periods of low economic activity. There is

thus a strong connection between economic trends

(GDP) and trends within the hotel market. Develop-

ments of GDP can be closely monitored, whereas

factors that infl uence local hotel markets are signif-

icantly more complex. The most important infl uen-

tial factors are local economic conditions, the pro-

portion of new hotel capacity in the market, how

well developed a market is concerning brand

names and segments, currency fl uctuations,

as well as extraordinary events.

New capacity

New capacity introduced to the market implies an

increased risk for local players. Depending upon

existing demand, additional hotel rooms through

the construction of a new hotel can lead to a rapid

negative infl uence on occupancy rates and aver-

age prices. To deal with this risk, Pandox has devel-

oped an information system that continually moni-

tors planned new constructions within its market

areas, and thus enabling Pandox to be prepared

and proactive.

Agreement structure

Pandox has a large proportion of variable leases,

which represented 95 percent of total rental reve-

nue in 2007.

About 30 percent of variable leases contained a

guaranteed rent, meaning that only 65 percent of

rental revenues were fully variable downwards.

A change in the occupancy rate and the average

room revenue consequently affects Pandox very

differently, depending on the direction of change.

The choice of agreement is based on optimal

distribution of cash fl ow between Pandox and the

operator so that both parties are motivated to con-

tinuously increase the hotel property’s overall pro-

fi tability. Factors that may infl uence risks associ-

ated with variable leases are the hotel property’s

location, market segment and brand name/opera-

tor. Pandox’ strategy is to operate in a selected

market segment, which in combination with its

hotels market expertise and systems, limits

Pandox’ agreement risk.

Partners

Pandox’ agreement structure, with a large propor-

tion of variable leases, means that the Company is

more dependent on the individual tenant/opera-

tor’s business than other property companies. The

Company’s strategy to actively cooperate with the

market’s most competitive and powerful operators

with well established brand names, reduces both

the related operative and fi nancial risks. Pandox’

largest tenants in terms of revenue are Scandic,

Hilton, Radisson SAS, Elite Hotels, InterContinental

Hotels Group, Choice Hotels and First Hotels,

which together accounted for 89 percent of all

rental revenue in 2007.

Leasing level

The leasing level as of 31 December was 99.7 per-

cent. Vacant space amounting to 1,840 m2 con-

sisted entirely of store and offi ce premises.

If for any reason a hotel operator should choose

to terminate its lease agreement, Pandox may

either select a new suitable operator as tenant or

operate the hotel under its own management.

SENSITIVITY ANALYSIS

PANDOX 2007 39

EARNINGS IMPACT 2007

SEK M

Change in rental revenue

Occupancy rate +5 percentage points +53.0

Occupancy rate –5 percentage points –52.4

Average room rate SEK +50 +39.8

Average room rate SEK –50 –39.4

Other commercial premises +/–5 %1) +/–1.4

Change in other variables

Interest expense during the year +/–1 percentage point +/–36.8

Average interest expense +/–1 percentage point1) +/–55.2

Exchange rate fl uctuation +/–5 % +/–5.8

Operating and maintenance costs +/–5 % +/–5.6

1) The fi gures in the table are standardised so that the effects of changes in rental revenue and interest rates are immediate,

although such changes do not have full impact in reality until leases and loan agreements are renegotiated.

With Pandox’ specialist expertise in the hotel sec-

tor, the risk of vacant hotel space is seen as being

extremely low.

For other commercial space, which represents

approximately 6.9 percent of total space in the

Company’s properties, Pandox is exposed to the

same fl uctuations in supply and demand for

premises experienced by other property owners.

Changed risk potential

Historically, the hotel industry and hotel property

sector have always been associated with high risk.

The market has however changed signifi cantly in

recent years. Owners have become more profes-

sional with restructured companies and focused

strategies, with a greater holistic view and special-

ised expertise. Reports from public companies have

substantially improved information about the trans-

parency of the market. The proportion of estab-

lished strong brand names with effi cient operations

has increased. For streamlined companies with

own expertise in hotel operations, hotel properties

and business development, and who are active

owners, the potential risk is considerably lower than

it has been in historic terms.

Decisions by public authorities

The hotel market can be affected by decisions

made by public authorities. Two examples of such

decisions are changes in taxation related to claims

for travel expenses or rules concerning value added

tax both in general and for the hotel and restaurant

industry in particular.

Property tax

Property tax on Pandox’ Swedish properties

amounts to 1.0 percent of the tax assessment

value. Changes in the tax rate or in the tax assess-

ment value, which are adjusted annually, affect

Pandox’ earnings. However, an increase only has a

limited impact on the Company’s earnings because

many lease agreements are formulated so that the

property tax be passed on to the tenant. Property

tax on properties outside Sweden is generally less

than one per cent of the book value. About 48 per-

cent of the property tax was debited to tenants in

2007, which means that the net effect on Pandox’

earnings amounted to SEK 26 M.

Site leasehold rents

As of 31 December 2007, Pandox held seven prop-

erties via site leasehold rights. Rents on these prop-

erties are currently calculated in such a manner

that a municipality that normally owns the land re-

ceives what is deemed to be a reasonable real rate

of interest on the estimated market value of the land

in question. Site leasehold rents generally run for

periods of 10 to 20 years.

Interest rates

Interest expense is Pandox’ largest single cost item.

Continuous fl uctuations in interest rates will there-

fore have an impact on Pandox’ earnings. In order

to limit its fi nancial risk, the Company’s average

fi xed interest period is 1.8 years. The full effect of a

change in interest rates is accordingly not felt by

Pandox for several years.

Currency risk

Pandox’ policy is to hedge the major part of its cur-

rency exposure, including shareholders’ equity, by

fi nancing properties in local currencies and by hed-

ging through means of appropriate currency

instruments. Transaction exposure is limited as

revenue and costs are usually in the same currency.

Sensitivity analysis

The table below illustrates how Pandox’ earnings

are affected by changes in certain key factors.

40 PANDOX 2007

VÄRDERING OCH SKATTER

Hotel property portfolio value

VALUATION AND TAX SITUATION

The valuation of hotel properties with their speci-

fi c characteristics demands extensive knowledge

and expertise of the hotel market and hotel

operations.

Cash fl ow valuation

Pandox continuously evaluates all of its hotel pro-

perties in accordance with a valuation model based

on the properties’ cash fl ow, and which is adapted

to the characteristics specifi c to the hotel industry.

The cash fl ow calculation is built up from under-

neath, with the property operator’s income state-

ment as the point of departure. This in turn is based

on assumptions as to how the underlying hotel mar-

ket will develop in terms of occupancy and average

rates, as well as how each specifi c operator’s

respec tive key ratios and fi gures develop in this

market. The operator company’s results and fore-

casts, together with the formulation of the agree-

ment, provide underlying data to estimate revenues,

which subsequently constitute the basis of the cash

fl ow calculation. The value calculated is the present

value of the next ten years’ cash fl ow, with a supple-

ment for the present value of the hotel properties’

residual value after ten years.

The valuation model is based on the following

assumptions:

• Changes in rental revenue during the calculation

period are based on the formulation of individual

agreements and on underlying factors.

• Infl ation is assumed to amount to an average of

2.0 percent annually during the calculation period.

• Operating costs are assumed to increase in line

with infl ation.

• The rate of interest used in the calculation is

based on the real interest rate plus a risk

premium based on location, lease, and form

of ownership.

An internal valuation of Pandox’ 43 hotel properties

in accordance with this method resulted in a total

value as of December 2007 that substantially

exceeds the book value. In accordance with the

Swedish Financial Accounting Standards Council’s

recommendation No 17, each individual property’s

recovery value was reconciled with its book value,

further to which it was noted that no write downs

were necessary.

The Company’s tax situation

The Pandox Group’s property holdings are re-

ported for accounting purposes as fi xed assets.

The consolidated book value as of 31 Decem-

ber 2007 amounted to SEK 7,803.7 M exclud-

ing equipment, of which the consolidated sur-

plus values amounted to SEK 1,631.6 M.

Accounting of deferred tax

Pandox applies the Swedish Financial Account-

ing Standards Council’s recommendation (RR 9)

on income tax. In short, this recommendation

implies that both deferred tax liabilities and tax

claims are to be included in the fi nancial state-

ments and that any changes will affect the in-

come statement as deferred tax.

Pandox’ consolidated balance sheet as of 31

December 2007 includes a deferred tax liability

in the net amount of SEK 229.2 M corresponding

to the difference between a deferred tax liability

of SEK 352.5 M and a deferred tax claim of SEK

123.3 M. The deferred tax liability refers mainly

to the estimated deferred tax based on the diffe-

rence between the properties’ consolidated book

value and the fi scal residual value of each respec-

tive legal unit. The difference in value has arisen

as an effect of surplus value upon acquisitions of

property in companies, known as pure intrinsic

acquisitions, as well as fi scal depreciation that

exceeds book depreciation. Tax deduction for

annual depreciation of properties has normally

Crowne Plaza Brussels City Centre

PANDOX 2007 41

DEFINITIONER

Defi nitions of key data

Property related key fi gures

Direct yield 1

Adjusted operating net as a percentage of the book

value of properties and hotel equipment at the end

of the year. The book value of hotel equipment is

included in the dominator in view of that the equip-

ment rental is included in the numerator.

Direct yield 2

Adjusted operating net including property related

administration as a percentage of the book value of

the properties.

Operating net

Hotel property revenue less operating and main-

tenance costs, property tax, ground rent and other

property costs.

Property related administration

The portion of total administration costs that is

directly related to the management and develop-

ment of a property. Other administration costs

include central administration and costs for main-

taining the Company’s market listing.

Adjusted operating net

Operating net adjusted for properties sold and

purchased during the year.

Total property revenue

The sum of rental revenue and other property

revenue.

Financial key fi gures

Return on equity

Profi t after net fi nancial items and paid tax as a

percentage of average equity.

Return on total assets

Profi t after net fi nancial items, plus fi nancial costs

as a percentage of average total assets.

Interest coverage ratio

Profi t after net fi nancial items, less one-off items,

plus interest costs as a percentage of interest costs.

Equity/asset ratio

Equity at the end of the year as a percentage of total

assets.

Hotel market related key fi gures

Occupied rooms

Number of sold room nights during a given period

of time – normally one year.

Available rooms

Available room capacity during a given period

of time – normally one year.

Occupancy rate

Number of occupied rooms as a percentage of

the number of available rooms.

Average room rate

Total revenue from sold rooms divided by the

number of occupied rooms.

RevPAR (Revenue Per Available Room)

Total revenue from sold rooms divided by the

number of available rooms.

Market penetration

The performance of an individual hotel in relation to

the average of the market.

GOP (Gross Operating Profi t)

Net profi t in hotel operator companies before

depreciation, rent, net fi nancial items and taxes.

DEFINITIONS

been made at the rate of 3 to 5 percent of a prop-

erty’s acquisition cost. As a result, the amount of

fi scal depreciation exceeds that of book deprecia-

tion, and the difference between the book value

and the fi scal value of a property increases year on

year. The deferred tax liability generated by asset

acquisitions before 2004 has been calculated

using the present value method based on the

shortest period of ownership estimated for each

property, and corresponds to an average tax rate

of approximately 10 percent. This is based on the

Swedish Financial Accounting Standards Council’s

regulation for assessing deferred tax upon pure

intrinsic acquisitions, where the tax effect is taken

into consideration when calculating the acquisition

price. The deferred tax relating to the difference

between book depreciation and fi scal depreciation

is calculated based on the applicable tax rate.

The deferred tax claim pertains mainly to defi -

cit deductions and the fi scal surplus value regard-

ing limited partnerships. At the end of 2007, there

were remaining defi cit deductions totalling SEK

272 M in the Swedish companies. The valuation of

deferred tax claims is based on their potential utili-

sation against future taxable profi ts, and is calcu-

lated according to the applicable tax rate. Conse-

quently, no defi cit deductions in non-Swedish

companies were reported at the end of 2007.

42 PANDOX 2007

Condensed consolidated income statement

SEK M 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Property operations

Rental revenue 218.5 254.0 476.3 551.1 536.2 535.1 562.7 548.8 605.0 747.5

Other property revenue 16.1 18.0 21.4 24.0 26.0 26.5 30.2 25.2 29.9 34.7

Total property revenue4) 234.6 272.0 497.7 575.1 562.2 561.6 592.9 574.0 634.9 782.2

Operating and maintenance costs –47.8 –54.2 –88.9 –96.7 –93.2 –100.1 –118.7 –103.8 –111.5 –126.3

Operating net 186.8 217.8 408.8 478.4 469.0 461.5 474.2 470.2 523.4 655.9

Depreciation1), 2) –36.0 –40.3 –45.8 –56.2 –63.2 –64.3 –70.3 –78.2 –91.3 –129.3

Income from property operations 150.8 177.5 363.0 422.2 405.8 397.2 403.9 392.0 432.1 526.6

Hotel operations

Operating revenue 18.5 – 28.2 39.7 60.1 81.3 216.8 250.2 420.0 788.8

Operating costs1) –18.7 – –25.5 –39.3 –58.2 –75.7 –204.4 –239.4 –407.7 –768.2

Operating income hotel operations4) –0.2 – 2.7 0.4 1.9 5.6 12.4 10.8 12.3 20.6

Gross income 150.6 177.5 365.7 422.6 407.7 402.8 416.3 402.8 444.4 547.2

Administrative costs1) –19.2 –21.6 –31.8 –33.9 –34.5 –35.5 –39.3 –42.5 –51.9 –55.4

Non-recurring revenue/expense 1.4 5.3 1.9 8.6 28.8 7.4 – 444.4 39.9 3.4

Operating income 132.8 161.2 335.8 397.3 402.0 374.7 377.0 804.7 432.4 495.2

Non-recurring fi nancial charges – – – – – – –56.1 – – –

Net fi nancial items for current operations –71.3 –77.5 –150.7 –178.1 –171.0 –159.2 –148.4 –137.4 –166.4 –232.4

Income after fi nancial items 61.5 83.7 185.1 219.2 231.0 215.5 172.5 667.3 266.0 262.8

Deferred tax3) – – –27.0 –28.3 –44.2 –50.3 –47.6 36.8 –33.0 –23.5

Tax – –0.3 –1.4 –0.2 –0.1 11.4 –0.2 –15.8 –31.4 –9.3

Income/loss for the year 61.5 83.4 156.7 190.7 186.7 176.6 124.7 688.3 201.6 230.0

1) The depreciation rate on properties is 1.0 percent as of 2000 and amounted in 2007 to 129.3. Depreciation in administration and hotel operations amounted in 2007 to SEK 0.3 M respectively SEK

0.0 M (in 2006 to respectively SEK 0.2 M and SEK 0.0 M; in 2005 to SEK 0.3 M and SEK 0.0 M; in 2004 to SEK 0.3 M and 0.0 M; in 2003 to SEK 0.5 M and SEK 0.0 M; in 2002 to SEK 0.4 M and

SEK 0.0 M; in 2001 to SEK 0.5 M and SEK 0.0 M; in 2000 to SEK 0.6 M and SEK 0.0 M; in 1999 to SEK 0.7 M and SEK 0.0 M and in 1998 to SEK 0.5 M and SEK 0.2 M).2) A depreciation rate of 1.0 in 1999 would have amounted to SEK 29.4 M (in 1998 to SEK 26.5 M). 3) As of 2001, Pandox applies the Swedish Accounting Standards Council’s recommendation on income tax (RR:9). Comparative fi gures for 2000 have been restated to take this into account.4) The 2004 fi gure has been adjusted regarding rental revenue within hotel operations of SEK 3.7 M.

TEN-YEAR OVERVIEW

PANDOX 2007 43

Condensed consolidated balance sheet

SEK M, as of 31 December 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Assets

Properties including hotel equipment 2,085.2 2,393.7 4,784.5 5,036.8 4,961.4 5,276.7 5,262.8 5,477.5 6,907.5 8,223.8

Other fi xed assets 16.5 14.5 13.0 5.4 6.9 7.2 6.9 113.7 172.8 139.0

Current assets 14.6 17.9 61.9 37.1 29.5 34.6 58.6 201.7 174.4 223.1

Cash and bank 82.9 3.9 16.4 86.7 213.2 137.5 58.0 236.4 174.1 272.8

Total assets 2,199.2 2,430.0 4,875.8 5,166.0 5,211.0 5,456.0 5,386.3 6,029.3 7,428.8 8,858.7

Equity and liabilities

Shareholders’ equity 830.1 883.6 1,670.8 1,772.1 1,853.9 1,919.2 1,923.0 2,307.7 2,272.3 2,407.7

Deferred tax liability – – 8.8 37.0 83.5 135.9 184.3 208.5 279.7 352.5

Interest bearing liabilities 1,281.8 1,463.6 2,934.7 3,178.5 3,070.6 3,211.9 3,080.4 3,165.3 4,398.5 5,516.8

Non-interest bearing liabilities 87.3 82.8 261.5 178.4 203.0 189.0 198.5 347.8 478.3 581.7

Total equity and liabilities 2,199.2 2,430.0 4,875.8 5,166.0 5,211.0 5,456.0 5,386.3 6,029.3 7,428.8 8,858.7

Key data

Property related key data

Book value of properties including hotel equipment, SEK M 2,085.2 2,393.7 4,784.5 5,036.8 4,961.4 5,276.7 5,262.8 5,477.5 6,907.5 8,223.8

Total property revenue, SEK M 234.6 272.0 497.7 575.1 562.2 561.6 592.9 574.0 634.9 782.2

Operating net, SEK M 186.8 217.8 408.8 478.4 469.0 461.5 474.2 470.2 523.4 655.9

Adjusted operating net, SEK M 1) 194.6 229.2 459.4 484.3 472.7 464.1 474.2 433.3 561.0 706.4

Direct yield 1, % 2) 9.3 9.6 9.6 9.6 9.5 9.3 9.1 8.5 8.1 8.6

Direct yield 2, % 8.9 9.2 9.3 9.3 9.2 9.0 8.8 8.2 7.9 8.4

Financial key data

Interest coverage ratio, multiple 1.8 2.0 2.2 2.2 2.3 2.3 2.6 2.63) 2.4 2.1

Return on total assets, % 6.6 7.0 8.1 8.0 7.8 7.1 7.0 14.2 5.9 6.1

Return on equity, % 7.6 9.7 11.6 11.0 12.6 12.0 12.0 30.8 10.4 11.0

Equity/assets ratio, % 37.7 36.4 34.6 34.3 35.6 35.2 35.7 38.3 30.6 27.2

Cash fl ow from current operations, SEK M 96.8 119.1 228.2 267.2 265.8 272.4 298.9 301.4 317.6 389.0

Investments excluding acquisitions, SEK M 22.6 28.6 101.3 149.1 67.3 60.8 70.5 165.1 282.6 274.9

Property acquisitions, SEK M 260.0 331.0 2,340.3 141.9 – 370.7 – 661.3 1,327.8 1,063.4

1) Further to the sale of twelve hotel properties in 2005.2) Direct yield based on the book-value of the hotel properties adjusted for the two acquired properties, which were not charged any internal rent in 2005.3) Excluding non-recurring income due to the sale of hotel properties.

44 PANDOX 2007

Quarterly data 2006–2007

CONDENSED INCOME STATEMENTS

2006 2007

SEK M Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Total property revenue 134.3 154.8 161.8 184.0 165.0 189.5 204.6 223.1

Operating net 110.3 129.3 134.0 149.7 135.5 160.7 174.2 185.5

Income from property operations 89.2 109.0 109.0 124.8 105.9 129.9 140.4 150.4

Income from hotel operations –4.1 7.9 4.9 3.6 –2.7 9.9 1.2 12.2

Operating income 83.5 114.2 120.6 114.0 91.0 125.3 127.5 151.4

Net fi nancial items –34.4 –37.2 –46.7 –48.1 –49.3 –52.5 –64.2 –66.4

Income after fi nancial items 49.1 77.0 73.9 65.9 41.7 72.8 63.3 85.0

Income after tax 38.5 64.7 56.4 42.0 32.6 56.8 50.0 90.6

CONDENSED CONSOLIDATED BALANCE SHEETS

2006 2007

SEK M 31 Mar 30 Jun 30 Sep 31 Dec 31 Mar 30 Jun 30 Sep 31 Dec

Assets

Properties including hotel equipment 5,499.5 6,438.7 6,924.2 6,907.5 7,260.0 7,793.7 8,141.0 8,223.8

Other fi xed assets 113.8 126.5 148.0 172.8 152.9 152.5 152.6 139.0

Current assets 190.5 162.6 175.0 174.4 161.9 213.7 221.4 223.1

Cash and bank 266.2 226.4 186.5 174.1 229.8 229.2 258.2 272.8

Total assets 6,070.0 6,954.2 7,433.7 7,428.8 7,804.6 8,389.1 8,773.2 8,858.7

Equity and liabilities

Shareholders’ equity 2,345.0 2,273.8 2,331.1 2,272.3 2,317.8 2,369.7 2,268.7 2,407.7

Deferred tax liability 218.9 235.0 263.3 279.7 315.6 367.3 369.7 352.5

Interest bearing liabilities 3,148.3 4,084.0 4,450.1 4,398.5 4,631.8 5,102.1 5,562.4 5,516.8

Non-interest bearing liabilities 357.8 361.4 389.2 478.3 539.4 550.0 572.3 581.7

Total equity and liabilities 6,070.0 6,954.2 7,433.7 7,428.8 7,804.6 8,389.1 8,773.2 8,858.7

PROPERTY RELATED KEY DATA

2006 2007

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Direct yield 1, % 8.0 8.1 7.9 8.1 7.7 8.7 8.7 9.1

FINANCIAL KEY DATA

2006 2007

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Interest coverage ratio, multiple 2.4 2.8 2.3 2.4 1.8 2.4 2.0 2.3

Return on total assets, % 5.5 6.1 5.5 5.9 4.9 6.4 5.9 6.9

Return on equity, % 6.6 10.1 12.0 10.4 7.2 12.3 11.0 13.4

Equity / assets ratio, % 38.6 32.7 31.4 30.6 29.7 28.2 25.9 27.2

Cash fl ow from current operations, SEK M 62.2 87.0 77.9 90.3 71.3 104.6 97.1 116.0

Investments excluding acquisitions, SEK M 63.0 65.6 85.4 68.6 79.7 73.2 93.4 28.6

Property acquisitions, SEK M – 916.4 411.4 – 210.7 332.3 520.4 –

QUARTERLY DATA

PANDOX 2007 45

Property revenues and total revenuesPandox’ property revenues for 2007 amounted to SEK 782.2 M

(634.9), which for comparable units represented an increase

of 10.2 percent against last year. The Group’s total revenue

amounted to SEK 1,410.7 M (967.5).

Acquisitions during the yearFive hotel properties were acquired during the year.

In March, the hotel properties and operations of Quality Hotel

Park and Best Western Hotell Skogshöjd in Södertälje with a total

of 374 rooms were acquired. In June, Crowne Plaza Antwerp

and Holiday Inn Brussels Airport with 262 and 310 rooms

respectively were acquired including the hotels’ operations.

In July, InterContinental Montreal with 357 rooms was acquired.

A management agreement was signed with Inter Continental

Hotels Group regarding the operation of the hotel. Total acquisi-

tion cost for the fi ve hotels amounted to SEK 1.0 billion.

Profi tsThe pre-tax profi t for 2007, excluding non-recurring items,

amounted to SEK 259.4 M (226.1). Profi t after tax, including

non-recurring items, amounted to SEK 230.0 M (201.6).

Cash fl owCash fl ow from ongoing operations, excluding non-recurring

items, amounted to SEK 389.0 M (317.6).

Financial statements 2007

46 PANDOX 2007

Report of the Board of Directors

The Board of Directors and Chief Executive

Offi cer of Pandox AB, Swedish corporate regis-

tration number 556030-7885, hereby submit

the annual report and con solidated accounts of

the Company for the fi nancial year 2007.

Operations and strategy

Pandox is one of Europe’s leading hotel property

companies. The Company has built up specialist

expertise within the key areas of hotel markets,

hotel operations, hotel properties and business

development. Active ownership, with well devel-

oped strategic plans for each hotel, enables the

creation of good prerequisites for stable and im-

proved cash fl ows, and thereby growth in value

for the shareholders.

Pandox’ strategy is to own one type of pro-

perty – hotel properties. Its focus is strengthe-

ned by a prioritised market segment.

Pandox is to own large hotel properties in

Sweden, major locations in Europe, as well as

developing regions in Eastern Europe as well as

North America.

The hotels should be in central, natural and

strong locations such as city centres, airports

and exhibition centres. The hotels should be in

the upper medium to high price range and focus

on the business and leisure segments.The hotels

owned by Pandox are operated and marketed by

the most powerful players in the hotel market,

who with well known brands and dynamic inde-

pendent distribution channels create strong

market positions and thereby stable revenues.

Revenues are created by fl exible agreements

related to the operator’s turnover and results or

through management agreements where Pan-

dox assigns a third party to manage operations,

or alternatively through its own management.

Irrespective of the form of operation, Pandox

contributes via its active ownership to increasing

total cash fl ows and reducing risks.

At the end of the year, the Company’s portfo-

lio contained 44 hotel properties and ten hotel

operations of which one asset management

assignment. Pandox owns and develops assets

in Sweden, Denmark, Belgium, Germany,

Switzerland, the United Kingdom, Canada and

the Bahamas.

Accounting principles

Pandox does not apply IFRS. As an unlisted

company, Pandox is not subject to the IFRS

accounting requirements. Pandox applies the

stipulations of the Swedish Annual Accounts Act

and generally accepted accounting principles,

as well as the recommendations of the Swedish

Accounting Standards Board unless otherwise

stated.

Ownership situation

Pandox is since the beginning of 2004 owned by

the Norwegian companies Eiendomsspar AS

and Sundt AS through their wholly owned

Swedish company APES Holding AB.

USA

The American economy has slowed, and 2007

showed the lowest growth of GDP in fi ve years.

Anxiety in the fi nancial markets led to banks in-

troducing restrictions, which could risk deepe-

ning the slow-down. Continued reductions in

interest rates along with fi nancial support

packages are expected to help the economy.

Occupancy for 2007 was in line with last year

(63 percent) while average rates increased by

6 percent. In New York, prices rose by 12 per-

cent and occupancy was just over last year’s

levels.

Good growth in Europe

Europe experienced broad economic growth, al-

beit at a slowing pace. The hotel market in 2007

was primarily driven by rising average rates. Up

to the end of December, Europe had increased

by about 7 percent in RevPAR compared with

last year. In London, rising prices continued to

fuel growth and RevPAR had increased by about

10 percent by December compared with the

same period last year. Growth is however slowing

in London. The market in Brussels developed

considerably better than last year with a rise in

RevPAR of 9 percent. In Berlin, a certain recov-

ery could be seen from the increased supply that

characterised the market in recent years. Occu-

pancy increased by 5 percent while average

rates declined by 2 percent – due partly to an

adjustment from last year’s Football World Cup.

From a profi tability viewpoint, 2007 was an

historically strong year for the Swedish hotel

industry. Growth for the country as a whole was

8.9 percent, with the major cities showing the

best trends. Stockholm’s hotel market continued

at a high activity level with a rise in prices being

the primary growth engine. Occupancy has how-

ever started to decline, especially in the centre of

the city. Overall, RevPAR increased for Greater

Stockholm by an excellent 11 percent compared

with the same period last year.

The Gothenburg market grew by roughly

4 percent for the year, due principally to higher

average rates. In Malmö, the market continued

to show good demand and, like Gothenburg,

with growth primarily in prices. RevPAR

increased by more than 12 percent compared

with last year.

Pandox portfolio developed well

Pandox’ hotels in Stockholm experienced good

trends and performed in line with the market.

Scandic Upplands-Väsby and Scandic Järva

Krog were in line with market growth levels,

while Quality Hotel Nacka gained market shares

during the year.

Elite Park Avenue Hotel and Scandic Mölndal

in Gothenburg developed well in 2007, while

Scandic Crown had less capacity due to refur-

bishment work, thus leading to slower growth

compared with the market.

The strong trends of the Scandic St Jörgen in

Malmö held to the end of the year with above all

good rate developments and conference sales.

Scandic Copenhagen performed well in a

market with declining occupancy. The develop-

ment program, where the hotel has been given a

new and better conference product, has resulted

in a rise in revenues. The operation of Copenha-

gen Hotel 27 was transferred on 1 July to Choice,

who will operate the hotel under Clarion Collec-

tion Hotel Twentyseven. Revenues developed as

planned. Hilton Bremen performed well and

gained market shares. Scandic Lübeck strength-

ened its position and performed signifi cantly bet-

ter compared with last year. Hotel Berlin, Berlin

increased RevPAR by more than 10 percent

between the years, and gained market shares

despite the hotel undergoing refurbishment

work. Occupancy rose while average rates still

need to improve.

Hilton London Docklands performed well in

its geographic sub-market, which grew primarily

in price. New competition in the vicinity has put

pressure on RevPAR.

Pandox’ geographic sub-market in Brussels

(Place Rogier) increased by 9 percent during

the year. Crowne Plaza developed well and is

currently leader in RevPAR in the area. Hilton

Brussels City also experienced a strong 2007

FINANCIAL STATEMENTS

PANDOX 2007 47

with good effectiveness improvements. Pandox’

hotel in Antwerp and Scandic Grand Place

developed in line with the market, as did Radis-

son SAS Hotel in Basle which will start a major

refurbishment project in the beginning of 2008.

Revenues and operating net – property

operations

Property management revenues for the year

amounted to SEK 782.2 M (634.9). For compa-

rable units, the portfolio grew by +10.2 percent.

This increase is due to a good underlying hotel

economic climate in all of Pandox’ sub-markets,

new agreements with better conditions, and that

last year’s three major refurbishment projects

are now running with higher capacity. Property

costs excluding depreciation amounted to SEK

126.3 M (111.5). The increase is mainly due to

the addition of new acquisitions.

The operating net rose by SEK 132.5 M to

SEK 655.9 M (523.4), and for comparable units

the operating net improved by SEK 60.9 M.

Direct yield was 8.6 percent (8.1).

Revenues and income – hotel operations

Revenues from hotel operations come from

hotels managed directly by Pandox or via man-

agement agreements. There were eleven such

operations in 2007 (nine in the beginning of

2008) as well as one asset management assign-

ment. Total revenues from hotel operations

amounted to SEK 788.8 M (420.0) and the profi t

amounted to SEK 20.6 M (12.3). Pro forma reve-

nues on a full-year basis were approximately

SEK 950 M. Extensive refurbishment work has

been carried out at Hotel BLOOM! and Clarion

Collection Hotel Twentyseven during the year,

which reduced capacity in hotel operations.

Income

The Group’s profi t for 2007 before tax, excluding

non-recurring items, amounted to SEK 259.4 M

(226.1). For comparable units, the profi t in-

creased by about SEK 24 M. Profi t after tax, in-

cluding non-recurring items, amounted to SEK

230.0 M (201.6).

Financing and cash fl ow

Net fi nancial items relating to current operations

for the period January–December 2007

amounted to SEK –232.4 M (–166.4). The

Group’s interest-bearing liabilities amounted as

of 31 December 2007 to SEK 5,516.8 M

(4,398.5). The loan portfolio has a spread due-

date structure with an average fi xed-interest pe-

riod of 1.8 years. The average interest rate on

loans at 31 December was 4.9 percent. Financ-

ing of Swedish properties has been made in

Swedish kronor (SEK), while properties outside

Sweden have essentially been fi nanced in each

respective local currency. Available liquid funds,

including unutilised credit facilities totalling SEK

400.5 M, amounted to SEK 673.3 M (675.5).

Cash fl ow before changes in working capital and

investments, excluding non-recurring items and

tax, amounted to SEK 389.0 M (317.6).

Investments

The Pandox Group’s investments, excluding ac-

quisitions, amounted to SEK 274.9 M (282.6).

Major development programs during the year

were the completion of Clarion Collection Hotel

Twentyseven in Copenhagen, the refurbishment

of Hotel BLOOM! in Brussels, Hotel Berlin, Ber-

lin, as well as Scandic St Jörgen and Scandic

Hallandia located respectively in Malmö and

Halmstad.

The book value of hotel properties, including

furniture, fi xtures and equipment, amounted to

SEK 8,223.8 M (6,907.5). The market value of

the hotel properties signifi cantly exceeds their

book value.

The hotel properties Best Western Hotell

Skogshöjd and Quality Hotel Park in Södertälje,

with a total of 374 rooms, were acquired in

March. Crowne Plaza Antwerp with 262 rooms,

Holiday Inn Brussels Airport with 310 rooms,

and InterContinental Montreal with 357 rooms

were acquired during the summer at a total

acquisition cost of SEK 1,063 M.

Taxes

The Swedish Tax Agency has in a reassessment

notice dated October 2007, decided to increase

the assessed income of a number of Pandox’s

subsidiaries by in total SEK 430 M (correspond-

ing tax effect of SEK 120.4 M) as a consequence

of the sale of real estate through non-Swedish

subsidiaries carried out in 2005. The decision

has been appealed to the county administrative

court. The case has been put on hold awaiting

the Supreme Administrative Court’s judgement

in another (non-Pandox related) case. The Com-

pany is of the opinion that all transactions and

claims have been made in accordance with ap-

plicable laws.

Personnel

Central administration counted 16 employees as

at 31 December 2007. Figures concerning aver-

age number of employees, as well as salaries

and other remuneration are set out in Note 15.

The work of the Board of Directors

during 2007

The Board of Directors of Pandox has been com-

posed of six members since the Annual General

Meeting of Shareholders held in 2007. During

the year, the Board has held one statutory con-

stituent meeting and four ordinary meetings in

accordance with the established annual agenda.

The meetings have reviewed and discussed ex-

ternal and internal reporting of operating results

and the Company’s fi nancial position as well as

various business matters. Other important items

that are regularly studied and reviewed each

year are marketing, strategy, fi nance, and

budget issues.

Parent Company

Property activities in the Group’s property-

owning companies are administered by staff em-

ployed by the Parent Company, Pandox AB. The

cost of these services has been invoiced to the

Group’s subsidiaries. Invoicing in 2007 amounted

to SEK 46.6 M (38.2). The loss for the year

amounted to SEK –13.1 M (–8.3).

Outlook for 2008

The outlook for 2008 is more uncertain com-

pared with one year ago. Pandox’ principal sce-

nario is that the market makes a soft landing with

regard to demand with a continued good hotel

market in most of the areas where the Company

is committed. RevPAR trends will be driven by a

combination of volume and price, with greater

focus on maintaining occupancy comparable

with 2007. The proportion of transactions will fall

and the bid processes will change towards a

greater share of off-market deals. Yields are ex-

pected to increase as a result of more expensive

capital and greater insecurity. The latter could

benefi t Pandox, because the Company is able to

act from a more long-term perspective than cer-

tain fi nancial players. Overall, Pandox’ revenues

and profi ts for 2008 are expected to exceed last

year, due in part to the completion of several de-

velopment projects in the fi rst part of the year.

48 PANDOX 2007

Income statement

Group Parent Company

SEK M 2007 2006 2007 2006

Property operations

Rental revenue note 2, 3 747.5 605.0 – –

Other property revenue 34.7 29.9 – –

Total property revenue 782.2 634.9 – –

Property costs –126.3 –111.5 – –

Operating net 655.9 523.4 – –

Depreciation as per plan note 4 –129,3 –91.3 – –

Income from property operations 526.6 432.1 – –

Hotel operations

Operating revenue 788.8 420.0 – –

Operating costs –768,2 –407.7 – –

Operating income from hotel operations note 2, 15 20.6 12.3 – –

Gross income 547.2 444.4 – –

Administrative costs note 4, 14, 15 –55.4 –51.9 –50.1 –48.5

Other revenue – – 46.6 38.2

Operating income 491.8 392.5 –3.5 –10.3

Interest income note 6 10.0 4.2 174.3 116.0

Interest expense –236.3 –167.8 –182.3 –146.4

Dividend from shares in subsidiaries – – – 1.5

Other fi nancial income and costs –6.1 –2.8 –13.0 9.2

Extraordinary income note 5 3.4 39.9 – 18.5

Net fi nancial items –229.0 –126.5 –21.0 –1.2

Shareholders’ contribution – – 0.3 –

Income before tax 262.8 266.0 –24.2 –11.5

Tax note 7 –9.3 –31.4 11.1 3.2

Deferred tax note 7 –23.5 –33.0 – –

INCOME FOR THE YEAR 230.0 201.6 –13.1 –8.3

Specifi cation of external revenue

Revenue from property operations 782.2 634.9 – –

Of which internal rentals –160.3 –87.4 – –

Revenue from hotel operations 788.8 420.0 – –

Total external revenue 1,410.7 967.5 – –

FINANCIAL STATEMENTS

PANDOX 2007 49

Comments on the income statement

Rental revenue

Rental revenue pertains to hotel premises,

hotel furniture and equipment, and other com-

mercial premises. Rental revenue for 2007

increased in relation to the previous year and

amounted to SEK 747.5 M (605.0).

Other property revenue

Other property revenue is primarily comprised

of costs debited for heat, electricity and property

tax.

BREAKDOWN OF OTHER PROPERTY REVENUE

SEK M 2007 2006

Payment for operating costs 10.6 9.9

Invoicing of property tax 24.1 20.0

Total 34.7 29.9

Property costs

Operating costs

Operating costs are costs that directly pertain

to the operation of the properties, such as heat,

water, electricity, and maintenance. Costs are

reported gross, meaning that the portion of

costs debited to tenants is reported as revenue

under the heading Other Property Revenue,

and that total costs are reported among costs in

their full amount.

Maintenance costs

Maintenance costs are costs incurred to main-

tain the standards of buildings and equipment.

Pandox’ leases are in most cases structured

so that the tenants – the hotel operators – are

responsible for the greater part of interior main-

tenance of the properties.

Ground rent

A total of seven properties owned by Pandox

are held under site leasehold rights. The condi-

tions and maturities in all cases are based on

prevailing market terms.

Property tax

Pandox’ Swedish hotel properties are liable to

property tax at the rate of 1 percent of the tax

assessment value. Properties located outside

Sweden are subject to varying percentages and

underlying basis.

Other costs

These costs include costs of legal counsel on

leasing matters, insurance premiums, and

costs of leasing external premises.

BREAKDOWN OF PROPERTY COSTS

SEK M 2007 2006

Operating costs 20.6 20.7

Maintenance costs 39.4 35.7

Ground rents 9.7 6.3

Property tax 49.9 44.1

Other costs 6.7 4.7

Total 126.3 111.5

Operating net

The operating net for 2007 amounted to

SEK 655.9 M, representing an increase of

SEK 132.5 M. Adjusted direct yield, excluding

administrative costs, amounted to 8.6 percent

(8.1).

Hotel operations

For accounting purposes, the hotel operations

conducted by Pandox are charged with inter-

nal rent. The internal rent is linked to the oper-

ator’s revenue and based on what are deemed

to be market conditions. The internal rent is

debited to hotel operations and credited to

revenue in property management. In 2007,

fi ve hotel properties including hotel operations

were acquired; Best Western Hotell Skogshöjd

and Quality Hotel Park in Södertälje, Crowne

Plaza Antwerp, Holiday Inn Brussels Airport

and InterContinental Montreal. In July an

agreement was made with Choice Hotels

Scandinavia regarding takeover of the hotel

operations in Copenhagen Hotel 27. With that,

ten hotel operations are included in Pandox

port folio at the end of 2007 of which eight were

directly operated by Pandox and two through

management agreements.

Administrative costs

Administrative costs relate to central adminis-

tration, as well as foreign hotel property ad-

ministration. All central administrative staff is

based at the Stockholm offi ce. The remunera-

tion of staff and auditors is set out in Notes 14

and 15.

50 PANDOX 2007

Balance sheet

Group Parent Company

SEK M 2007 2006 2007 2006

ASSETS

Fixed assets

Tangible fi xed assets

Properties note 8 7,803.8 6,631.8 – –

Equipment note 9 420.8 276.5 0.8 0.9

8,224.6 6,908.3 0.8 0.9

Financial fi xed assets

Shares and participations in subsidiaries note 10 – – 3,293.5 2,668.9

Amounts due by Group companies – – 2,915.4 2,566.0

Other long-term receivables 14.9 35.1 13.2 12.5

14.9 35.1 6,222.1 5,247.4

Deferred taxes recoverable 123.3 120.7 – –

Total fi xed assets 8,362.8 7,064.1 6,222.9 5,248.3

Current assets

Inventories 5.6 2.2 – –

Accounts receivables 73.3 62.9 – –

Tax receivables 0.2 4.2 – –

Other receivables 113.5 86.1 1.5 1.6

Prepaid costs and accrued revenue 30.5 19.1 3.3 2.8

Other shares and participations – 16.1 – –

Cash and bank 272.8 174.1 75.4 52.0

Total current assets 495.9 364.7 80.2 56.4

TOTAL ASSETS 8,858.7 7,428.8 6,303.1 5,304.7

Comments on the balance sheet

Properties and equipment

Five hotel properties were acquired in 2007.

Depreciation of properties amounted to SEK

89.0 M (62.7), and the year’s investments to

SEK 219.7 M (219.2). The book value of equip-

ment, including hotel furniture and fi xtures

amounted to SEK 420.8 M (276.5). Deprecia-

tion amounted to SEK 40.6 M (28.8) and in-

vestments to SEK 55.4 M (63.4).

The greater part of the book value of furni-

ture, fi xtures and equipment, representing SEK

420.8 M, pertains to that used by hotel opera-

tors. In certain cases, these items are included

as an unspecifi ed portion of rent, and in other

cases as a separate rental charge. When these

items are included in rental revenues, Pandox

includes their value in the property value used

to calculate direct yield from the properties.

At the end of the year, the book value of the

properties, including hotel furniture, fi xtures

and equipment, amounted to SEK 8,223.8 M.

Other items consist of administration equip-

ment with a book value of SEK 0.8 M.

Other long-term receivables

Pertain to a long-term promissory note and to

a pledged deposit.

Inventories

Relate to stocks of consumables in the hotel

operations.

Trade accounts receivable

Pandox’ accounts receivable normally consists

of rental receivables and trade receivables in

hotel operations. Since rent is generally paid

quarterly and monthly in advance, amounts

outstanding at year-end mainly comprise ac-

crued revenue-based rents.

Other receivables

Short-term receivables such as those pertaining

to costs that are to be debited to external parties.

Prepaid costs and accrued revenue

This item is comprised mainly of prepaid costs

for the following year, such as insurance pre-

miums and rents.

FINANCIAL STATEMENTS

PANDOX 2007 51

Group Parent Company

SEK M 2007 2006 2007 2006

EQUITY AND LIABILITIES

Equity

Restricted equity

Share capital 373.5 373.5 373.5 373.5

Restricted reserves 886.8 840.3 830.0 830.0

1,260.3 1,213.8 1,203.5 1,203.5

Unrestricted equity

Unrestricted reserves 917.4 856.9 394.4 523.6

Profi t for the year 230.0 201.6 –13 .1 –8.3

1,147.4 1,058.5 381.3 515.3

Total shareholders’ equity 2,407.7 2,272.3 1,584.8 1,718.8

Untaxed reserves

Tax allocation reserve 2004 – – – 0.3

– – – 0.3

Liabilities

Liabilities to credit institutions note 11 5,516.8 4,398.5 3,894.3 2,963.3

Trade accounts payable 103.7 88.1 16.4 15.6

Liabilities to Group companies – – 767.8 578.8

Deferred tax liability note 7 352.5 279.7 – –

Tax liabilities 7.0 3.9 – –

Other liabilities 269.3 234.8 3.2 2.3

Accrued expenses and prepaid revenue note 12 201.7 151.5 36.6 25.6

Total liabilities 6,451.0 5,156.5 4,718.3 3,585.6

TOTAL EQUITY AND LIABILITIES 8,858.7 7,428.8 6,303.1 5,304.7

Pledged assets note 13 4,470.3 4,099.9 12.2 12.2

Contingent liabilities note 13 1.3 – 1,548.6 1,344.2

Cash and bank deposits

The liquidity of the Pandox Group is primarily

managed by the Parent Company through a

central bank account structure where liquidity

is assembled in a joint interest-bearing transac-

tion account. Surplus liquidity can also be in-

vested as a fi xed term bank deposit. In addi-

tion, Pandox has unutilised credit facilities for a

total of SEK 400.5 M.

Restricted reserves Parent Company

Opening balance adjusted for non exercised

options.

Liabilities to credit institutions

As at 31 December 2007, Pandox’ total interest-

bearing liabilities amounted to SEK 5,516.8 M,

spread over eight lenders and six currencies.

Because fi nancing is arranged mainly through

long-term credit agreements, the majority of

the debt is considered as long-term. As regards

fi xed interest rates, debt amounting to SEK

3,684.6 M carries a fi xed interest rate for a pe-

riod of less than one year. Further details are

set out in the Financial Overview section on

page 37.

Deferred tax liability

In 2007 the deferred tax items are accounted

for on a gross basis. Further details are set out

in the Pandox’ Tax Situation section on page 40.

Accrued expenses and prepaid income

The amount pertains essentially to accrued

interest expense and prepaid rent.

Pledged assets

This item refers mainly to property mortgages

pledged to credit institutions as collateral for

loans.

Contingent liabilities

The Parent Company’s contingent liabilities

refer mainly to guarantees to banks with regard

to subsidiaries’ debts.

52 PANDOX 2007

Changes in equity

SEK M Share capitalRestricted

reservesUnrestricted

reservesProfi t

for the year Total

Group 2006

Opening balance 373.5 848.5 397.4 688.3 2,307.7

Appropriation of profi ts – 0.7 687.6 –688.3 0.0

Dividend – – –137.0 – –137.0

Group contribution – – –82.8 – –82.8

Translation differences including tax effect – –8.9 –8.3 – –17.2

Profi t for the year – – – 201.6 201.6

373.5 840.3 856.9 201.6 2,272.3

SEK M Share capitalRestricted

reservesUnrestricted

reservesProfi t

for the year Total

Group 2007

Opening balance 373.5 840.3 856.9 201.6 2,272.3

Appropriation of profi ts – –0.2 201.8 –201.6 0.0

Dividend – – –149.4 – –149.4

Group contribution – – –2.9 – –2.9

Translation differences including tax effect – 46.7 11.0 – 57.7

Profi t for the year – – – 230.0 230.0

373.5 886.8 917.4 230.0 2,407.7

SEK M Share capitalRestricted

reservesUnrestricted

reservesProfi t

for the year Total

Parent Company 2006

Opening balance 373.5 830.0 64.6 609.6 1,877.7

Appropriation of profi ts – – 609.6 –609.6 0.0

Dividend – – –137.0 – –137.0

Group contribution – – –13.6 – –13.6

Profi t for the year – – – –8.3 –8.3

373.5 830.0 523.6 –8.3 1,718.8

SEK M Share capitalRestricted

reservesUnrestricted

reservesProfi t

for the year Total

Parent Company 2007

Opening balance 373.5 830.0 523.6 –8.3 1,718.8

Appropriation of profi ts – – –8.3 8.3 0.0

Dividend – – –149.4 – –149.4

Group contribution – – 28.5 – 28.5

Profi t for the year – – – –13.1 –13.1

373.5 830.0 394.4 –13.1 1,584.8

Translation differences include a tax effect of SEK 5.4 M (10.0) regarding currency hedging of non-Swedish operations. The number of shares as at 31 December 2007

amounted to 24,900,000 with one vote per share and a nominal value of SEK 15 per share.

FINANCIAL STATEMENTS

PANDOX 2007 53

Cash fl ow statement

Group Parent Company

SEK M 2007 2006 2007 2006

Current operations

Profi t/loss before fi nancial items 491.8 392.5 –3.5 –10.3

Depreciation 129.6 91.5 0.3 0.2

Extraordinary income 3.4 39.9 – 18.5

Interest income 10.0 4.2 174.3 116.0

Interest expense and other fi nancial costs –242.4 –148.1 –195.3 –137.2

Tax paid –5.0 0.8 0.0 0.0

Cash fl ow from current operations before change in working capital and investments 387.4 380.8 –24.2 –12.8

Change in working capital

Increase/decrease (±) in operating receivables 21.5 –58.0 –0.5 1.6

Increase/decrease (±) in operating liabilities 96.3 34.6 241.5 –386.9

Total change in working capital 117.8 –23.4 241.0 –385.3

Cash fl ow from current operations after change in working capital and investments 505.2 357.4 216.8 –398.1

Investment operations

Investment shares and participations – – –624.6 –186.3

Investments in properties and equipment –275.1 –282.5 –0.2 –0.6

Acquisition of properties and equipment –1,063.4 –1,327.7 – –

Sale of fi xed assets – 0.5 – 0.1

Total investments –1,338.5 –1,609.7 –624.8 –186.8

Cash fl ow after investments –833.3 –1,252.3 –408.0 –584.9

Financing operations

Change in fi nancial fi xed assets 16.1 31.6 –350.1 17.8

Change in interest-bearing loans 1,062.7 1,298.1 930.9 603.7

Dividend –149.4 –137.0 –149.4 –124.0

Cash fl ow from fi nancing operation 929.4 1,192.7 431.4 497.5

Change in liquid funds 96.1 –59.6 23.4 –87.4

Liquid funds at the beginning of the year 174.1 236.4 52.0 139.4

Exchange rate difference in liquid assets 2.6 –2.7 – –

Liquid funds at the end of the year 272.8 174.1 75.4 52.0

Change in liquid funds 96.1 –59.6 23.4 –87.4

Adjusted for extraordinary income of SEK 3.4 M the cash fl ow from current operations amounts to SEK 389.0 M (317,6).

Cash fl ow per share rose to SEK 15.62 (12.76).

Comments on the cash fl ow statement

54 PANDOX 2007

Accounting principles

The annual report and accounts have been

prepared in accordance with the Swedish

Annual Accounts Act and generally accepted

accounting principles, as well as taking into

account the recommendations of the Swedish

Accounting Standards Board if not stated

otherwise. Pandox’ accounting and evaluation

principles are in general unchanged compared

with last year.

Consolidated accounts

The consolidated accounts for the Group in-

clude all subsidiaries as at fi nancial year-end.

The Swedish Financial Accounting Stan-

dards Council’s recommendation RR 1:00 has

been applied in the preparation of the fi nancial

statements. The consolidated accounts have

been prepared in accordance with the pur-

chase method, whereby assets and liabilities

have been taken over at market value in accord-

ance with an acquisition analysis. The differ-

ence between acquisition value and acquired

shareholders’ equity has been added to land

and buildings as surplus value. Surplus value

is amortised in accordance with the same prin-

ciple used for properties. Estimated deferred

tax liability with respect to Group surplus

value and estimated deferred tax recoverable

are reported net as a deferred tax liability in

the balance sheet.

Tax

Pandox applies the Swedish Financial Ac-

counting Standards Council’s recommenda-

tion RR 9 regarding income tax. Briefl y, the

recommendation implies that both deferred

tax liabilities and tax recoverable shall be in-

cluded in the fi nancial statements, and that

any changes shall affect the income statement

as deferred tax. The deferred tax relating to

the difference in book depreciation and fi scal

depreciation shall be calculated using the

prevailing tax rate.

Acquisitions before 2004 are based on

the deferred tax liability relating to the asset

acquisition and shall however be based on the

acquisition price and be calculated from each

respective property’s shortest estimated period

of ownership, resulting in an average tax rate of

approximately 10 percent.

The deferred tax recoverable pertaining to

estimated tax recoverable related to defi cit

deductions in the Company are valued based

on the estimated potential utilisation against

future taxable profi ts, and are calculated based

on the prevailing tax rate.

Property operations

The Group’s properties are reported in the

balance sheet as fi xed assets in view of the

purpose of the holdings being the long-term

ownership, management and development of

the properties.

Hotel operations

The hotel operations conducted by Pandox are

charged with internal rent for accounting pur-

poses. The internal rent is linked to the operat-

ing companies’ revenue and based on what are

deemed to be market conditions. The internal

rent is expensed to hotel operations, and car-

ried as revenue in property operations.

Tangible fi xed assets

When new construction and additions are

carried out, all direct costs including project

costs are capitalised. In the case of refurbish-

ments, direct costs related to the improvement

of properties compared with their original con-

dition are capitalised.

Costs of repairing a property to its original

condition are not capitalised. An exception to

this principle involves the costs of measures

taken further to neglected maintenance estab-

lished at the time of an acquisition, and where

the acquisition price is adjusted accordingly.

FINANCIAL STATEMENTS

PANDOX 2007 55

Costs of tenant-related modifi cations that

imply that the rent may be increased are capi-

talised and depreciated over the remaining

period of the lease.

Depreciation according to plan is calculated

on the acquisition value at the following per-

centages:

%

Buildings 1.0

Building fi xtures 4 – 6.7

Land improvements 3.5

Equipment 6.7–33

Pandox changed the depreciation rate for

buildings from 1.5 percent to 1 percent with

effect from 2000.

Depreciation according to plan is calculated

on the acquisition value and a residual value of

SEK 0.

Write-down of fi xed assets

The Group’s properties are continuously valued

in accordance with an internal cash fl ow

model, which also fulfi ls the requirement to

calculate the utilisation value in accordance

with RR:17 whereby the recoverable value,

which is the greater of the net sales value and

the utilisation value, is compared with the

property’s book value in order to assess the

need for a possible write-down.

Leasing

Pandox reports all leasing contracts as opera-

tional. Leasing contracts entered into concern

private cars and offi ce machines. They are not

signifi cant in size and do not therefore infl u-

ence an assessment of the Group’s results and

fi nancial position.

Revenue

Management revenue pertains to rental reve-

nue as well as re-debited operating costs and

property tax. Revenue and costs related to the

operations of hotel operators are reported sepa-

rately in the consolidated income statement.

Rental revenue is spread over a period of time

in accordance with the terms of each lease.

This implies that rent paid in advance is re-

ported as prepaid rental revenue.

Shares and participations

Shares and participations in subsidiaries and

subsidiaries of subsidiaries have been stated at

acquisition value with the exception of holdings

that may have been written down to their esti-

mated actual value.

Financial instruments

Interest swaps are used to change underlying

fi nancial liabilities’ interest-due structure.

Revenue and costs related to interest swaps

are reported net as interest costs, and are

spread over the duration of each contract.

International subsidiaries

International subsidiaries are stated as per the

current rate method, which implies that the

income statement is restated at the average

exchange rate of the period, and the balance

sheet at the exchange rate prevailing on the

closing day. The exchange rate difference that

arises as a result of this method is recorded

directly against the Group’s equity. Any compa-

nies acquired during the year are included in

the Group at an amount relating to the period

following such acquisition.

Receivables and liabilities expressed in

foreign currencies

Receivables and liabilities expressed in foreign

currencies are restated at the rate of exchange

prevailing on balance sheet date. Any differ-

ences that may arise are either credited or

debited to income. When loans or forward con-

tracts are entered into to hedge investments in

international subsidiaries, any exchange rate

differences that may arise are offset in the

Group by an amount corresponding to the dif-

ferences arising from the recalculation of the

net assets of international subsidiaries.

Other receivables and liabilities

Receivables have been stated in the amounts

expected to be received. Other assets and lia-

bilities have been stated at nominal values.

56 PANDOX 2007

Notes to the accounts

NOTE 1 – SEGMENT REPORTING

Primary segment

Pandox’ primary segment is comprised of two operating branches – property operations and hotel operations. Information in accordance with segment reporting is presented

in the consolidated income statement and balance sheet.

Secondary segment

Year 2007 Stockholm Gothenburg Öresund Rest of Sweden International Adjustment Total

Property revenue 177.1 79.2 160.5 106.8 258.6 –160.3 621.9

Property costs –41.0 –7.2 –29.3 –15.6 –33.2 –126.3

Operating net 136.1 72.0 131.2 91.2 225.4 –160.3 495.6

Book value of properties 1,328.5 755.6 1,491.4 825.2 3,823.1 8,223.8

Investments 9.2 10.0 85.2 48.1 122.4 274.9

Operating revenue – hotel operations 80.4 19.4 45.0 644.0 788.8

Operating costs – hotel operations –76.4 –25.7 –37.9 –628.2 160.3 –607.9

Operating profi t – hotel operations 4.0 –6.3 7.1 15.8 160.3 180.9

Year 2006 Stockholm Gothenburg Öresund Rest of Sweden International Adjustment Total

Property revenue 144.4 76.5 125.4 92.5 196.1 –87.4 547.5

Property costs –29.8 –8.9 –28.6 –15.7 –28.5 –111.5

Operating net 114.6 67.6 96.8 76.8 167.6 –87.4 436.0

Book value of properties 1,130.6 757.8 1,417.3 786.2 2,815.6 6,907.5

Investments 8.2 24.2 112.6 42.3 95.3 282.6

Operating revenue – hotel operations 17.8 42.2 360.0 420.0

Operating costs – hotel operations –23.0 –36.2 –348.5 87.4 –320.3

Operating profi t – hotel operations –5.2 6.0 11.5 87.4 99.7

1) Pertains to adjustment of internal rental.

NOTE 2 – RENTAL REVENUE

Revenues from hotel operations pertain to business, of which two are operated under management agreements with Hilton and InterContinental respectively, as well as the

eight hotels operated by Pandox. Rent and remuneration for other property costs which were paid by these hotel operator companies to the property company are reported

gross, i.e. they have not been eliminated in the income statement. This is done to provide a more accurate picture of the operating net generated by the property company

and the operating income of the hotel operating company. The elimination of these items would imply that the total management revenue and the operating company’s oper-

ating costs would be reduced by SEK 160.3 M for the year 2007 (87.4).

NOTE 3 – GEOGRAPHICAL DISTRIBUTION OF RENTAL REVENUE

% 2007 2006

Sweden 58 60

Denmark 8 8

United Kingdom 6 7

Germany 13 12

Belgium 12 10

Switzerland 2 3

Canada 1 3

Total 100 100

FINANCIAL STATEMENTS

PANDOX 2007 57

NOTE 4 – DEPRECIATION ACCORDING TO PLAN

Group Parent Company

SEK M 2007 2006 2007 2006

Buildings –87.5 –61.9 – –

Land improvements –1.5 –0.8 – –

Equipment –40.6 –28.8 –0.3 –0.2

Total depreciation –129.6 –91.5 –0.3 – 0.2

Depreciation amounts to a total of SEK 129.6 M of which SEK 129.3 M (91.3) refers to property operations and SEK 0.3 M (0.2) to administration.

NOTE 5 – NON-RECURRING REVENUE/COSTS

Non-recurring revenue of SEK 3.4 M in 2007 refers to compensation for transfer of a rental agreement to a new legal entity. Non-recurring revenue of SEK 39.9 M in 2006 of

which 28.9 refers to a capital gain generated by the sale of hotel properties and operations, SEK 10.3 M refers to a capital gain by the sale of shares and SEK 0.7 M refers to

other one-off items.

NOTE 6 – INTEREST REVENUE PARENT COMPANY

The interest revenue of the Parent Company is divided into SEK 171.3 M from Group companies and SEK 3.0 M from other companies.

NOTE 7 – DEFERRED TAX AND ACTUAL TAX

Group Parent Company

SEK M 2007 2006 2007 2006

Deferred tax expense for the year

Deferred tax expense relating to temporary differences –18.1 –43.0 – –

Deferred tax expense relating to other provisions –5.4 10.0 – –

Deferred tax reported in the income statement –23.5 –33.0 – –

Actual tax in the income statement –9.3 –31.4 11.1 3.2

Difference between reported tax and nominal tax rate of 28%

Reported profi t before tax 262.9 266.0 –24.2 –11.5

Tax as per applicable tax rate of 28% –73.6 –74.5 6.8 3.2

Tax effect due to nontaxable income 0.1 0.1 0.0 0.4

Tax effect of nondeductible costs and other tax adjustments 30.6 0.1 4.3 –0.4

Tax effect relating to foreign operations 10.1 9.9 – –

Reported tax expense –32.8 –64.4 11.1 3.2

Deferred tax recoverable

Defi cit deductions 76.3 76.3 – –

Other deferred tax recoverable 47.0 44.4 – –

Total deferred tax recoverable 123.3 120.7 – –

Deferred tax liabilities

Differences between book value and fi scal value of properties 352.5 279.7 – –

Total deferred tax liabilities 352.5 279.7 – –

Total deferred tax liabilities/recoverable net –229.2 –159.0 – –

58 PANDOX 2007

NOTE 8 – LAND AND BUILDINGS

Group

SEK M 2007 2006

Opening acquisition value 7,331.8 5,959.6

Reclassifi ed as equipment –90.7 –53.9

Acquisition of properties 1,035.0 1,298.9

Investments 219.7 219.2

Sales – –

Translation differences – balance sheet 105.7 –92.0

Closing accumulated acquisition value 8,601.5 7,331.8

Opening depreciation –700.0 –635.4

Acquired accumulated depreciation – –11.7

Sales – –

Depreciation for the year –89.0 –62.7

Translation differences – balance sheet –8.7 9.8

Closing accumulated depreciation –797.7 –700.0

Closing residual value 7,803.8 6,631.8

Tax assessment value of Swedish properties 2,470.4 2,073.5

Of which land 722.6 765.9

NOTE 9 – EQUIPMENT

Group Parent Company

SEK M 2007 2006 2007 2006

Opening acquisition value 412.7 262.2 3.2 2.6

Reclassifi ed from land and buildings 90.7 53.9 – –

Acquisition of equipment 28.4 44.8 – –

Investments 55.4 63.4 0.2 0.6

Sales/disposals – –1.4 – –

Translation differences – balance sheet 14.7 –10.2 – –

Closing accumulated acquisition value 601.9 412.7 3.4 3.2

Opening depreciation –136.2 –108.3 –2.3 –2.1

Sales/disposals – 0.9 – –

Acquired accumulated depreciation – –4.2 – –

Depreciation for the year –40.6 –28.8 –0.3 –0.2

Translation differences – balance sheet –4.3 4.2 – –

Closing accumulated depreciation –181.1 –136.2 –2.6 –2.3

Closing residual value 420.8 276.5 0.8 0.9

FINANCIAL STATEMENTS

PANDOX 2007 59

NOTE 10 – SHARES AND PARTICIPATIONS IN SUBSIDIARIES

Corp. Reg. No. Registered offi ceNumber

of shares Par value Percentowned Book value

Parent Company

Hotab Förvaltnings AB 556475-5592 Stockholm 1,000 100 100 285.1

Pandox Förvaltning AB 556097-0815 Stockholm 550 100 100 304.7

Hotab 6 AB 556473-6352 Stockholm 1,000 100 100 0.1

Fastighets AB Grand Hotel i Helsingborg 556473-6329 Stockholm 1,000 100 100 15.9

Pandox Fastighets AB 556473-6261 Stockholm 1,000 100 100 0.1

Fastighets AB Mora Hotell 556475-9370 Stockholm 1,000 100 75 5.7

Fastighets AB Stora Hotellet i Jönköping 556469-4064 Stockholm 1,000 100 100 30.1

Pandox Belgien AB 556495-0078 Stockholm 1,000 100 100 0.2

Pandox Hotel Management AB 556469-9782 Stockholm 1,000 100 100 0.1

Malmö Favorit Hotell AB 556475-9446 Stockholm 1,000 100 100 0.1

Pandox Luxemburg AB 556515-9216 Stockholm 10,000 100 100 68.3

Fastighets AB Porpur 556349-8327 Stockholm 10,000 100 100 0.1

Pandox i Halmstad AB 556549-8978 Stockholm 1,000 100 100 8.7

Pandox i Borås AB 556528-0160 Stockholm 1,000 100 100 45.3

Grand i Borås Fastighets AB 556030-7083 Stockholm 6,506 100 100 10.0

Hotell Värmdövägen 84 AB 556286-4826 Stockholm 1,000 100 100 4.3

Hotellus International AB 556030-2506 Stockholm 7,480,000 100 100 970.2

KB Lorensberg 49:2 916833-3269 Gothenburg – – 100 0.0

Pandox i Östersund AB 556466-1352 Stockholm 1,000 100 100 2.7

Ademrac Holding 1 AB 556683-3371 Stockholm 10,093 100 100 219.4

Ademrac Holding 2 AB 556683-3363 Stockholm 10,010 100 100 219.6

Ademrac AB 556426-2748 Stockholm 1,790,042 100 6.6 3.4

Le Nouveau Palace SA 446188 Brussels 3,000 – 100 291.4

Convention Hotel International AG 270.3.001.168-3 Basle 14,000 – 100 6.2

Hotellus Denmark A/S 28970927 Copenhagen 5,000 – 100 75.9

Hotel Bloom SA 0476.704.322 Brussels 68,808 – 100 65.9

Pandox Belgium SA 0890.427.732 Brussels 100,000 – 100 471.6

Pandox i Malmö AB 556704-3723 Stockholm 100,000 100 100 142.0

Ypsilon Hotell AB 556481-4134 Stockholm 100,000 100 100 46.3

Pandox i Ryssland AB 556706-8316 Stockholm 100,000 100 100 0.1

Total Pandox AB 3,293.5

Corp. Reg. No.

Registered offi ce

Group

Arlanda Flyghotell KB 916500-8021 Stockholm

Fastighetsbolaget Utkiken KB 916611-7755 Stockholm

Fastighets AB Hotell Kramer 556473-6402 Stockholm

Hotellus Östersund AB 556367-3697 Stockholm

Hotellus Nordic AB 556554-6594 Stockholm

Hotellus Järva Krog AB 556351-7365 Stockholm

Hotellus Mölndal AB 556554-6636 Stockholm

Bioeffect AB 556244-5030 Stockholm

Vestervold KB 916631-9534 Stockholm

Förvaltningsbolaget Hotel Grand i Örebro KB 969622-8197 Stockholm

Skogshöjd Handels & Fastighets AB 556066-0432 Stockholm

Hotell Skogshöjd AB 556065-6109 Södertälje

Park-Statt Hotell i Södertälje AB 556465-5529 Södertälje

KB Sjöstjärnan Fastighetsförvaltning 916850-4554 Gothenburg

Corp. Reg. No.

Registered offi ce

Hotellus Belgium NV – Belgium

Grand Hotel Brussels NV – Belgium

Town Hotel SA – Belgium

Holcro NV – Belgium

Hotellus Suomi OY – Finland

Hotellus Nord OY – Finland

Euro Lifi m BV – Netherlands

Hotellus Europe BV – Netherlands

Pandox Holland BV – Netherlands

Hotellus Luxemburg Sarl – Luxemburg

Hotellus Deutschland GmbH – Germany

Atlantis mbH – Germany

Pandox Berlin GmbH – Germany

Hotellus Canada Holdings Inc – Canada

60 PANDOX 2007

NOTE 11 – LIABILITIES TO CREDIT INSTITUTIONS

Group Parent Company

SEK M 2007 2006 2007 2006

Liabilities that fall due within one year following balance sheet date 338.2 308.5 335.0 204.1

Liabilities that fall due between one and four years following balance sheet date 1,271.5 844.5 993.0 576.2

Liabilities that fall due fi ve or more years following balance sheet date 3,907.1 3,245.5 2,566.3 2,183.0

Total 5,516.8 4,398.5 3,894.3 2,963.3

NOTE 12 – ACCRUED EXPENSES AND PREPAID REVENUE

Group Parent Company

SEK M 2007 2006 2007 2006

Prepaid rents 50.9 57.0 – –

Accrued interest expenses 30.0 19.0 18.2 15.6

Property tax 5.1 2.0 – –

Other 115.7 73.5 18.4 10.0

Total 201.7 151.5 36.6 25.6

NOTE 13 – PLEDGED ASSETS AND CONTINGENT LIABILITIES

Group Parent Company

SEK M 2007 2006 2007 2006

Pledged assets for loans from credit institutions

Property mortgages 4,433.0 4,051.3 – –

Pledged deposit 37.3 48.6 12.2 12.2

Contingent liabilities 1.3 – 1,548.6 1,344.2

NOTE 14 – AUDIT FEES AND REMUNERATION

Group Parent Company

SEK M 2007 2006 2007 2006

KPMG

Audit assignments 2.9 2.0 0.7 0.6

Other assignments 0.4 0.3 – –

SET Revisionsbyrå

Audit assignments 0.1 0.1 0.1 0.1

Other

Other assignments 0.2 0.1 – 0.1

Total 3.6 2.5 0.8 0.8

FINANCIAL STATEMENTS

PANDOX 2007 61

NOTE 15 – PERSONNEL

Group Parent Company

2007 2006 2007 2006

Average number of employees

Men 379 213 7 8

Women 392 226 9 6

Total 771 439 16 14

Of whom employed in Sweden 120 56 16 14

Of whom employed in Belgium 331 256 – –

Of whom employed in Germany 205 110 – –

Of whom employed in Denmark 14 17 – –

Of whom employed in Canada 101 – – –

Wages, salaries and other remuneration, SEK M

Board of Directors and CEO

Wages, salaries and other remuneration 5.6 5.2 5.6 5.2

Social security costs 1.3 1.9 1.3 1.9

Pension costs 0.8 0.8 0.8 0.8

Total 7.7 7.9 7.7 7.9

Other employees

Wages, salaries and other remuneration 217.1 126.5 15.4 13.0

Social security costs 53.1 25.5 3.4 2.8

Pension costs 6.5 4.5 2.0 2.4

Total 276.7 156.5 20.8 18.2

Wages, salaries and other remuneration per country, SEK M

Sweden

Board of Directors and CEO 7.7 7.9 7.7 7.9

Other employees 64.2 32.8 20.8 18.2

Belgium other employees 116.9 88.4 – –

Germany other employees 50.4 25.9 – –

Denmark other employees 9.6 9.4 – –

Canada other employees 35.6 – – –

Total 284.4 164.4 28.5 26.1

Personnel employed in Belgium relate to the operator activities of the Crowne Plaza Brussels City Centre, the Holiday Inn Brussels Airport (6 months), the Crowne Plaza

Antwerp (6 months), the Hilton Brussels City, and the Hotel BLOOM!. Personnel employed in Denmark refers to Clarion Collection Hotel Twentyseven (6 months), in

Germany to Hotel Berlin, Berlin and in Canada to InterContinental Montreal 6 months).

The remuneration of the Members of the Board is established by the Annual General Meeting of Shareholders. The remuneration of the Chief Executive Offi cer (CEO) is

composed of a basic salary, a bonus, a company car, and a retirement pension scheme. The age of retirement of the CEO is 65 years, with the possibility of retiring at the age

of 60. In the case of termination, the CEO shall be given a period of notice of 24 months by the Company, with a deduction clause. Upon resignation by the CEO, a period of

notice of 6 months shall apply.

No reporting of sickness absence will be done in accordance with the exemption rule contained in prevailing legislation that states that statistics shall not be given if the

number of employees in the group does not exceed ten people or if the information could be identifi ed with one particular individual. The term “group” concerns both

gender and age categories.

62 PANDOX 2007

Proposed disposition of earnings

The following profi ts are at the disposition of the forthcoming Annual General Meeting of Shareholders:

Balance brought forward SEK 394,389,345

Profi t for the year SEK –13,084,414

SEK 381,304,931

The Board of Directors and Chief Executive Offi cer propose that the accumulated profi ts be appropriated as follows:

Dividend to the shareholders,

SEK 6.50 per share SEK 161,850,000

Amount to be carried forward SEK 219,454,931

SEK 381,304,931

The Board of Directors believes that the proposed dividend is justifi able when taking into consideration the character, scope and risks placed by

business operations on the amount of shareholders’ equity and the Company’s consolidation needs, liquidity and fi nancial position in general.

Stockholm, 11 February 2008

Christian Ringnes

Chairman

Leiv Askvig Olaf Gauslå

Bengt Kjell Björn-Åke Wilsenius Mats Wäppling

Anders Nissen

Chief Executive Offi cer

Our audit report pertaining to this annual report and consolidated

fi nancial statements was submitted on 12 February 2008.

Per Gustafsson Willard Möller

Authorised Public Accountant Authorised Public Accountant

FINANCIAL STATEMENTS

PANDOX 2007 63

Auditors’ Report

To the Annual General Meeting of Shareholders of PANDOX AB,

Swedish corporate registration number 556030-7885.

We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the

board of directors and the chief executive offi cer of PANDOX AB for the year 2007. These accounts and the administra-

tion of the company are the responsibility of the board of directors and the chief executive offi cer. Our responsibility is

to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards

require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consoli-

dated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the

amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their

application by the board of directors and the chief executive offi cer and signifi cant estimates made by the board of direc-

tors and the chief executive offi cer when preparing the annual accounts and consolidated accounts, as well as evaluating

the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion

concerning discharge from liability, we examined signifi cant decisions, actions taken and circumstances of the company

in order to be able to determine the liability, if any, to the company of any board member or the chief executive offi cer.

We also examined whether any board member or the chief executive offi cer has, in any other way, acted in contravention

of the Swedish Companies Act, the Swedish Annual Accounts Act or the Articles of Association. We believe that our audit

provides a reasonable basis for our opinion set out below.

The annual accounts and the consolidated accounts have been prepared in accordance with the Swedish Annual

Accounts Act and thereby give a true and fair view of the company’s and the group’s fi nancial position and results of

operations in accordance with generally accepted accounting principles in Sweden.

We recommend to the general meeting of shareholders that the income statements and balance sheets of the parent

company and the group be adopted, that the profi t of the parent company be dealt with in accordance with the proposal

in the directors’ report and that the members of the board of directors and the chief executive offi cer be discharged from

liability for the fi nancial year.

Stockholm, 12 February 2008

Per Gustafsson Willard Möller

Authorised Public Accountant Authorised Public Accountant

64 PANDOX 2007

Work of the Board of Directors

Expertise and experience of the following areas

are important in an international hotel property

company such as Pandox:

• Hotel operations and the hotel market

• Financing

• Property and the real estate sector

• Business development

• Brand name strategies

• Development of international companies.

The Board of Directors of Pandox, which is compo-

sed of six members, has broad experience and

knowledge of these areas.

Work procedures

The Board of Directors has adopted work procedu-

res and directives for the Chief Executive Offi cer

and has provided management instructions on

reporting. Every year, Pandox’ Board of Directors

establishes and documents the objectives and stra-

tegy of the Company. The Board has also adopted a

fi nance policy, an approval policy and guidelines

for decision making, as well as a par ticular strategy

regarding acquisitions.

The Board of Directors of Pandox holds fi ve

ordinary meetings each year. In addition to the

ordinary meetings, the Board held two extraordi-

nary meetings during the year to discuss certain

business issues.

The Board meetings follow an established

annual agenda. The meetings review and discuss

the external and internal reporting of operating

results and the Company’s fi nancial position, as

well as various business matters. Other important

items that are regularly studied and reviewed are

marketing, strategy, and budget issues. Board

material is sent to the members approximately one

week in advance. The Company’s auditors attend

at least one meeting each year to present a report

of their audit and their review of the Company’s

internal control systems.

In addition to their ongoing audit, the

Company’s auditors were also commissioned by

the Board to carry out special reviews of major

lease agreements during the year. According to this

assignment, all agreements shall be inspected

during a three year period according to a rolling

timetable.

Crowne Plaza Brussels City Centre

PANDOX CORPORATE GOVERNANCE

PANDOX 2007 65

Board members

The Board of Directors of Pandox is composed and dimensioned so as to enable the establishment and implementation of the

Company’s goals and strategy, to actively and effectively support the management team in the further development of the Company,

and to monitor and control operations.

CHRISTIAN RINGNES, CHAIRMAN

b. 1954

CEO of Eiendomsspar AS.

Member of the Board of Pandox since 2004.

Chairman of NSV-Invest AS, Sundt AS and

Mini Bottle Gallery AS.

Board member of Schibsted ASA, Norsk Scania AS,

Thor Energy Corporation AS and Nationaltheatret.

LEIV ASKVIG

b. 1957

CEO of Sundt AS.

Member of the Board of Pandox since 2004.

Other appointments:

Chairman of Imarex NOS ASA and Fjellkraft AS.

OLAF GAUSLÅ

b. 1961

CFO of Eiendomsspar AS.

Member of the Board of Pandox since 2004.

BENGT KJELL

b. 1954

Executive Vice President, Head of Investments,

Industrivärden AB.

Member of the Board of Pandox since 1996.

Other appointments:

Chairman of Kungsleden AB and Indutrade AB.

Board member of Helsingborgs Dagblad AB,

Isaberg Rapid AB, Munters AB and Höganäs AB.

BJÖRN-ÅKE WILSENIUS

b. 1944

Member of the Board of Pandox since 2004.

Other appointments:

Chairman of BDB Bankernas Depå AB.

Board member of Bergen Energi AB and Finansiell

ID-teknik BID AB.

MATS WÄPPLING

b. 1956

CEO of SWECO AB.

Member of the Board of Pandox since 2003.

Other appointments:

Board member of SWECO AB and Castellum AB.

66 PANDOX 2007

Senior executives

The management team is responsible for the Company’s current operations and reports to the Board of Directors. Management

prepares and implements strategies and action plans, and ensures that set targets are met. Other important areas of responsibility

include overall planning, personnel development and an ongoing dialogue with the capital market.

Auditors

The task of the auditors is to examine the Company’s accounts, administration and fi nancial information. The audit results in an audit report

where the auditors give an opinion as to whether the annual accounts and fi nancial statements have been prepared in accordance with the

Swedish Annual Accounts Act and generally accepted accounting principles.

Per Gustafsson

b. 1959

Authorised Public Accountant

KPMG

Willard Möller

b. 1943

Authorised Public Accountant

SET Revisionsbyrå AB

ANDERS NISSEN

b. 1957

Chief Executive Offi cer

Employed since 1995

LIIA NÕU

b. 1965

Chief Financial Offi cer

Employed since 2007

PANDOX CORPORATE GOVERNANCE

A newsletter about the hotel industry

When Pandox was formed in 1995, the publi-

cation of a newsletter was started in order to

present the Company to the capital market

prior to being listed on the stock exchange.

The newsletter was later replaced by the pu-

blic reports. Despite Pandox no longer being

listed on the Stockholm Stock Exchange, the

Company continues to maintain the fl ow of

information to people interested in the hotel

sector and the hotel property market, which

is why Pandox Upgrade is regularly issued.

Three newsletters were published in 2007

with topics such as market trends and cur-

rent Swedish and international hotel market

questions.

You are most welcome to become a sub-

scriber. Pandox Upgrade is free of charge

and may be ordered from Pandox either by

telephone at +46 (0)8 506 205 50 or via

pandox@pandox.se

PA N D O X

Strong year for hotels, with double-digit growth

NO

. 1 •

20

07

Sustainability – a lasting trend Sustainability – a lasting trend

MARKET INFORMATION FROM PANDOX ONE OF THE LEADING HOTEL PROPERTY COMPANIES IN EUROPE

Upgrade_nr1_eng.indd 1 07-04-10 11.17.56

PA N D O X

MARKET INFORMATION FROM PANDOX ONE OF THE LEADING HOTEL PROPERTY COMPANIES IN EUROPE

Demographic changes challenge the industry

NO

. 2 •

20

07

London – highest occupancy in Europe

Upgrade_nr2_eng.indd 1 07-09-13 11.10.10

PA N D O X

MARKET INFORMATION FROM PANDOX ONE OF THE LEADING PURE HOTEL PROPERTY COMPANIES IN EUROPE

Feeling at home– Lifestyle hotels extend a welcome

London showing strong growth

No. 3

• 2

00

6

PA N D O X

Rate increases push up RevPAR

PA N D O X

MARKET INFORMATION FROM PANDOX ONE OF THE LEADING HOTEL PROPERTY COMPANIES IN EUROPE

Niche hotels a clear success

NO

. 3 •

20

07

Upgrade_nr3_eng.indd 1 07-11-14 11.41.54

PANDOX UPGRADE

PANDOX 2007 67

68 PANDOX 2007

Production: Pandox/n3prenör. Photo: Ulf Blomberg, Shutterstock. Printed by: Jernström Offset, Stockholm, Sweden 2008.

Crowne Plaza Brussels City Centre

PANDOX 2007 III

Pandox AB, P O Box 5364, SE-102 49 Stockholm, Sweden

Tel: +46-8-506 205 50 • Fax: +46-8-506 205 70 • www.pandox.se • e-mail: pandox@pandox.se

Corporate registration number: 556030-7885