1. Why has Pandox chosen a mixed business model involving both property ownership and hotel operation?

The ongoing consolidation and changed business models in the hotel market have led to a change in the risk profile between hotel owners and hotel operators. Pandox’s response is a proactive strategy in which the Company takes the position in the value chain that benefits Pandox and its shareholders the most in each individual case. Based on its many years of experience of hotel development and hotel operation, if the conditions are not in place for a profitable lease relationship in properties that the Company owns, Pandox can choose to operate the hotel business itself. This may be done either through a franchise agreement with a well-known brand or through a separate brand in independent distribution channels. This allows Pandox to ensure the value and development potential of the hotel property, which minimises risk. The goal is to create the right conditions in order to enter into new long-term leases providing good profitability. A good example of a successful takeover, repositioning and subsequent letting is Urban House Copenhagen, for which Pandox entered into a lease with MEININGER in November 2016.

2. What is driving growth in the hotel market?

In simple terms, growth in the hotel market is a function of general economic growth which increases demand from both the business and the leisure segments. In addition, there is a strong long-term positive trend in the global travel market as a result of the addition of new travellers from countries with a rapidly growing middle class, such as China. In 2015, 140 million Chinese people travelled internationally, which can be compared to around 10 million in 2000. However, the majority of the travel in Pandox's markets is regional and national by nature, and is also affected by other factors such as events and conferences. Changes in exchange rates can also have a relatively significant effect on demand in the short term, particularly within the leisure segment.

3. What type of lease agreement does Pandox have with its tenants?

Pandox's hotel lease agreements are linked to the hotel's sales and generally involve a minimum guaranteed rent level. This makes it possible to achieve increased revenue in an improved market and have downside protection in a weaker market. The lease agreements have long terms and Pandox's weighted average unexpired lease term (WAULT) at year-end was 13.9 years.

4. How does Pandox manage risk in the hotel market?

Pandox works systematically to identify and evaluate the main business risks in the hotel market based on its substantial expertise and good management systems. Through a focused and consistent strategy which focuses on one type of asset, good diversification geographically in terms of brands and by customer segment, and a high quality hotel property portfolio Pandox is laying the foundations for a good risk-adjusted return over time.

5. How are online travel agencies affecting Pandox?

The hotel market has always paid for distribution through intermediaries. In the past, for example, a significant percentage of business and group travel was booked through traditional travel agents who received various  types of volume discounts. The emergence of online travel agencies is thus not in itself a paradigm shift. What is new, however, is the force with which these players are driving demand and the opportunities that are created for independent hotel brands. To take advantage of these opportunities Pandox has built up in-house expertise in digital distribution in the form of the Revenue Management Centre (RMC), which serves all hotels that Pandox operates.