Annual Report OLAV THON GROUP

2016 annual report OLAV THON GROUP

2 2016 a n n u a l r e p o r t Contents 04 The Olav Thon Group 2016 Group structure 07 Key figures 08 The Olav Thon Foundation The Olav Thon Foundation 10 This is the Olav Thon Group 12 Thon Eiendom 100% 28 Thon Hotels 32 Financial matters Olav Thon Gruppen AS 34 Other operations

100% 72%

Olav Thon Thon Holding AS Eiendomsselskap ASA

100% 100% 100%

Thon Thon Amfi Eiendomsdrift AS Hotels AS Eiendom AS

Executive management team

olav ole-christian dag morten tron harald arne b. thon hallerud tangevald-jensen thorvaldsen bjerke sperre CEO/President Deputy CEO Executive Vice President Executive Vice President Executive Vice President Executive Vice President and CEO OTE ASA and CEO Thon Hotels Property Finance

3 OLAV THON GROUP Olav Thon Group 2016

250 In 2016, construction started on around 250 flats in three projects in the Oslo area. Thon Eiendom also Book equity increased to NOK 14.6 expanded its rental portfolio billion, while the equity ratio was 28%. by 12 flats and, with almost 1,200 The net asset value is considered flats, is one of the largest rental to be significantly higher. property players in Oslo. NET INVESTMENTS TOTALLED NOK 6.6 BILLION AT THE END OF THE YEAR, CASH RESERVES WERE NOK 7.2 BILLION Thon Eiendom is a market leader within property with 99 shopping centres and around 500 commercial properties in Norway. EIGHT OF THE TEN 1,8 LARGEST The Group's property portfolio billion The Group either owns or manages saw annual rental income increase Profit before tax amounted to eight of the ten largest shopping by 8% to NOK 5.3 billion, while NOK 1.8 billion. centres in Norway. the vacancy rate was 3%.

4 OLAV THON GROUP Olav Thon Group 2016 GEOGRAPHICAL SCOPE SHOPPING CENTRES AND HOTELS

Central/Northern Norway 33 · 15

Sweden 11 · 1 Western Norway 3,4 25 · 15 billion Southern/Eastern Norway 41 · 39 Total operating income in the hotels business area increased by 1% to NOK 3.4 billion. At the end of the year, Thon Hotels had 11,610 rooms in 78 hotels in the market.

Brussels/Rotterdam 6,000 TENANTS Shopping centres Hotels 110 78 · 8 IN OUR SHOPPING CENTRES IN NORWAY

+8 % shopping centres Retail sales for the shopping centre commercial properties portfolio owned by the Group residential properties increased by 8% to NOK 66 billion.

5 OLAV THON GROUP

Thon Hotel Kautokeino

6 OLAV THON GROUP

KEY FIGURES

NOK millions 2016 2015 2014

PROFIT Operating income 10,172 9,383 8,788 Operating profit 2,775 2,668 2,683 Net interest expenses 1,031 1,011 1,058 Profit before tax 1,784 1,667 1,681

FINANCIAL STRENGTH Book equity 14,557 13,382 11,683 Equity ratio 28% 29% 27% Total assets 52,054 46,764 43,213

LIQUIDITY Net cash flow from operations1) 2,606 1,998 2,188 Cash reserves 2) 7,173 6,892 7,783 Amortisation next 12 months 6,928 3,872 6,735 Net interest-bearing debt/Net cash flow from operations 11.3 13.5 11.0 Interest coverage ratio 3) 3.5 3.3 3.2

FINANCING Interest-bearing debt 32,163 28,616 27,224 Share of foreign currency loans 23% 21% 17% Average duration debt (years) 2.7 3.1 3.0 Interest rate at 31 Dec 3.29% 3.63% 3.94% Interest rate hedging (over 1 year) 52% 60% 61%

PROPERTY Net investments 6,578 3,639 5,433 Annual rental income 4) 5,275 4,900 4,560 Vacancy rate 2.9% 2.5% 2.4% Book value of property portfolio 46,684 42,177 38,801 Shopping centre sales 5) 79,190 74,047 68,746

HOTELS 6) Hotel rooms 11,610 11,482 11,054 RevPAR (revenue per available room) 477 476 461 Room rates 837 835 811 Occupancy rate 57% 57% 57%

1) Net cash flow from operating activities – Change in working capital 2) Bank deposits etc. + Undrawn borrowing facilities 3) (Operating profit + Depreciation/write-downs) / Net interest expenses 4) Includes market rents for vacant premises 5) Owned and/or managed shopping centres 6) Thon Hotels

7 OLAV THON GROUP The Olav Thon Foundation The Olav Thon Foundation was established in December 2013. All of the shares in Olav Thon Gruppen AS were transferred from Olav Thon to the foundation upon its establishment. The foundation's purpose is to own and operate Olav Thon Group's business activities. The foundation can also make donations to non-profit causes.

Olav Thon's goal throughout his entire career has been to create value and establish secure jobs. Olav Thon, personally, and Olav Thon Group have increasingly become active contributors to changing society for the better.

LONG-TERM OWNERSHIP OF OLAV THON GROUP The Olav Thon Foundation The job of the foundation's board is, through its management of Olav Thon awarded its first research prizes and research funding Group, to ensure that the Group develops in line with the values, vision and on 5 March 2015 and will ideas on which Olav Thon has based his business career. do so at the same time each year. The awards were presented in a ceremony in The foundation will continue to own all of the shares in Olav Thon Gruppen the University of Oslo's great hall, which was followed AS, which will remain domiciled in Norway. The Group's largest business by a banquet in honour of area will be property management and acquisition. A substantial part of its the winners at Hotel Bristol. operations will take place in Norway. The aim is to grow the business. Priority Other donations to causes are made on a more informal will be given to ensuring that the Group is in an unconditionally strong basis by the foundation over financial position at all times. the course of the year.

SUPPORT FOR NON-PROFIT CAUSES The foundation can provide support within the fields of mathematics/ science and medicine. This may be provided both by awarding prizes to Norwegian and international researchers and through direct support to research projects.

Support may also be provided both for general non-profit causes and for the construction of properties for use for non-profit purposes in Norway.

In addition to this, support may be provided to promote outstanding entrepreneurship in Norway.

8 OLAV THON GRUPPEN The Olav Thon Foundation

9 Olav Thon Group Olav Thon Group is owned by the Olav Thon Foundation and is primarily involved in the property and hotel business.

Thon Hotel Fosnavåg

10 OLAV THON GROUP

Olav Thon Group

In 2016, Olav Thon Group's operating abroad totals 1,730. Thon Hotels is the Olav Thon Group consists of the Thon income amounted to around NOK 10.2 dominant player in the metropolitan areas Hotels and Thon Eiendom divisions. billion and it employed around 3,243 FTEs. of Oslo and Bergen, and primarily focuses Thon Eiendom is a market leader within The Group consist of two divisions: Thon on the business market. In addition property and is involved in residential Eiendom and Thon Hotels. to Thon Hotels' food and beverage properties, commercial properties and shopping centres. At the end of the services, Olav Thon Group operates year, the shopping centre portfolio a number of separate bars and pubs THON EIENDOM consisted of a total of 110 centres, of Thon Eiendom is a market leader in Norway under the Restthon name. These include which 33 are managed for external within property with 99 shopping centres places such as Scotsman and Tostrup owners. 11 of the shopping centres are and around 500 commercial properties. Uteservering in Oslo. located in Sweden. Thon Eiendom also The property division includes the listed includes other operations, the largest of company Olav Thon Eiendomsselskap OTHER OPERATIONS which is the industrial company Unger ASA. At 1 January 2017, annual rental Other operations account for a smaller Fabrikker in Fredrikstad. income amounted to NOK 5.3 billion. Retail proportion of Olav Thon Group's income properties account for the largest segment and result. The largest unit is the industrial of the property portfolio at 67%. company Unger Fabrikker in Fredrikstad.

THE OLAV THON FOUNDATION Thon Eiendom's shopping centre portfolio The Olav Thon Foundation was established consists of: in December 2013. Upon its formation Norway: Olav Thon transferred all of the shares in Total 99 Olav Thon Gruppen AS to the foundation. Wholly/partly owned 68 Managed 31 The purpose of the foundation is to 110 SHOPPING exercise stable, long-term ownership of Sweden: CENTRES Olav Thon Group and its subsidiaries. The Total 11 AT YEAR END Wholly/partly owned 9 foundation can also distribute funds to Managed 2 non-profit causes.

THON HOTELS Thon Hotels is one of Norway's leading hotel chains. At the start of 2017, the chain had 69 hotels in Norway with a total of 500 Thon Eiendom is a market leader around 9,880 rooms. It also has five hotels within property with around 500 and two apartment hotels in Belgium, commercial properties and 110 one hotel in the Netherlands, and one shopping centres hotel in Sweden. The number of rooms

11 OLAV THON GROUP

Thon Eiendom

Olav Thon Group started its commercial operations with a single investment in Karl Johans Gate in 1950. Today, the city block Karl Johans Gate 5-7 is the site of a shopping centre, Arkaden, and a modern office building.

The properties in Olav Thon Group are managed affords the company a solid market position as by the property division, Thon Eiendom, and Norway's largest shopping centre player. consist of residential properties, shopping centres Including shopping centres managed for other and commercial properties. The Group practises a owners, retail sales amounted to NOK 66.3 billion in strategy of 'Acquire, Develop, Own'. 2016, which represents year-on-year growth of 6%.

THE PROPERTY PORTFOLIO IN 2016 Annual rental income from retail premises Thon Eiendom is Norway's leading property amounted to around NOK 3,540 million at the company and had 99 shopping centres and end of the year, i.e. 67% of the Group's annual around 500 commercial properties in the rental income. portfolio at the year of 2016. Thon Eiendom 99 owned and includes the listed company, Olav Thon The shopping centre properties generate annual managed shopping Eiendomsselskap ASA. rental income of approximately NOK 3,360 million. centres in Norway In addition to the shopping centres, Thon Measured in terms of rental income, the Eiendom owns a number of separate retail, bar property portfolio is distributed as follows: and pub premises, most of which are in the centre • Retail 67% of Oslo. • Offices 14% • Hotels 12% Thon Eiendom again made major investments in • Other 7% shopping centre properties in 2016 by both 1,150 flats for rent and acquiring new centres and upgrading and more than 1,500 Geographically, the property portfolio is expanding existing ones. Åsane Storsenter in residential units sold distributed as follows: Bergen was acquired in the fourth quarter of 2016. in Oslo and Akershus • Oslo area 50% • Other major cities in Norway 20% Sartor Storsenter was completed in 2016. • Other metropolitan areas in Norway 16% Expansions are taking place in several locations: 2 • Abroad 14% Lagunen Storsenter, AMFI Moa, AMFI Kanebogen and Jessheim Storsenter. M SHOPPING CENTRES AND OTHER RETAIL PROPERTIES IN NORWAY SHOPPING CENTRES IN SWEDEN More than At the start of 2017, Thon Eiendom owned stakes In Sweden, the company has acquired more of Torp

200,000sq. m of in 68 shopping centres in Norway. It also manages Handelsområde. Thon Eiendom now has a total of office premises in the 31 shopping centres in Norway for other owners. 11 centres in Sweden, with retail sales of SEK 13.1 centre of Oslo Thon Eiendom's portfolio includes eight of the billion in 2016. ten largest shopping centres in the country, which

12 OLAV THON GROUP

RENTAL INCOME (NOK MILLION)

6.000

5.000

4.000

3.000

2.000

1.000

0 2013 2014 2015 2016 2017

HandelRetail KontorOffices

HotellHotels DiverseOther

RENTAL INCOME DISTRIBUTION

9 %

13 %

43 %

9 %

13 %

Handel Oslo-regionen og storby Handel øvrig by Retail Oslo region and major cities Kontor Oslo-regionen og storby Hotell Oslo-regionen og storby Retail other cities Utland Øvrig Offices Oslo region and major cities

Hotels Oslo region ang major cities

Abroad Other Lehmanns Brygge, Drøbak

« 13 OLAV THON GROUP

HOTEL PROPERTIES At the end of the year, Thon Hotels owned 65 hotel properties. Geographically, around 60% of the hotel rooms are in metropolitan areas in Norway, with a high density in Oslo and Bergen. 17% are located outside the borders of Norway, primarily in Brussels, Belgium. The hotels are mainly leased to the Group's own hotel division, Thon Hotels, on long-term leases.

A major refurbishment project has started in relation to the hotels in Thon Eiendom. Seven extensive refurbishment projects were completed and in 2017 it will be the turn of Thon Hotell Europa in Oslo and Thon Hotel Orion in Bergen, among others.

A new hotel in the centre of Stavanger with 157 rooms opened in June 2016. A new project will also start in Nydalen near Storo Storsenter in Oslo. This hotel is being built with around 320 rooms and large conference facilities, as well as a cinema and a large parking facility. This will make a major contribution to the development of the borough.

OFFICE PROPERTIES Around NOK 740 million, i.e. around 14%, of the Group's rental income comes from offices in centrally located properties, mainly in the Oslo area. Thon Eiendom offers more than 200,000 sq. RETAIL SALES SHOPPING CENTRES m. of office premises in the centre of Oslo, which (NOK MILLIONS) include everything from single 15 sq. m. offices to larger premises of up to 8,000 sq. m.

79.190 RESIDENTIAL PROPERTIES In recent years, Thon Eiendom has built and sold more than 1,500 residential units in Oslo and Akershus. The company always has a current portfolio of attractive residential projects for sale (see project on pages 18-19).

Holiday cabins are for sale in Austlid/Skeikampen. GROUP'S Besides those that are for sale, many exciting RENTAL INCOME projects are under way, including in Strømmen, (NOK MILLIONS) Lillestrøm, Lørenskog, Jessheim, Oslo and Drøbak.

Thon Eiendom also has a substantial portfolio of 5.275 properties for rent in Oslo and is, with its around 1,200 flats, one of the largest players in the Oslo market. In 2016, the rental portfolio was expanded by 12 new flats in Osterhaus Gate 11 in the centre of Oslo.

14 OLAV THON GROUP

Diagonale, Bjørvika, Oslo

Thon Eiendom owned 65 hotel properties at the end of the year. The hotels are mainly leased to Thon Hotels on long- term leases.

15 OLAV THON GROUP

16 OLAV THON GROUP

Thon Eiendom Shopping centres Strømmen Storsenter has put Romerike on the map Strømmen has been an important focus area for Olav

Thon Group for more than 30 years. The first shopping With 200 shops and food outlets, Strømmen Storsenter centre, Strømmen Storsenter, was built here. is Norway's second largest shopping centre. In 1985, Olav Thon opened his first shopping continuous renewal, helped to ensure that the centre in the former premises of Strømmen Staal. brand and logo are well known in large parts of the Today, Strømmen Storsenter is Norway's second country. Thanks to its strong owner, the company largest shopping centre with 200 shops and food is a shining example of how on old industrial outlets in 68,000 sq. m. of shopping space. adventure has arisen in a new framework, and with a greater scope and more jobs than ever before," The shopping centre's success has had a major said Nordea, which was in the jury of the Romerike and positive effect on local urban development Company of the Year. and today it provides jobs for more than 2,000 people from 65 different nations. Strømmen RESIDENTIAL AND COMMERCIAL DEVELOPMENTS Storsenter's culture fund has supported sports and Olav Thon Group has also made major investments culture for children and young people in Romerike in properties around Strømmen Storsenter, since 2007 and has donated more than NOK 1.5 including building more than 600 residential million. units in the residential projects Sagdalen Park, Verkstedalléen, Parkodden, Strømsparken, "Olav Thon's investments have helped revitalise Damhaug and Strømmen Park I and II. Strømmen as a popular location. Other investors have subsequently also invested here and Olav Thon Group also has a number of exciting residential projects have been built around plans for the area around the shopping centre. Strømmen Storsenter," says the centre's general New buildings with 80,000-90,000 sq. m. of space manager, Per Kristian Trøen. are planned, with phased construction over the next 20 years. Olav Thon Group is in talks with the In 2015, Strømmen Storsenter was named both municipality and authorities, and zoning plans are  Shopping Centre of the Year in Norway and currently being considered. Romerike Company of the Year – an award that Strømmen Storsenter emphasises the company's ability to create and "Since the plans were presented, we have was named Norway's Shopping Centre of develop results and jobs, its innovativeness, and its continued to work on the project and have had a the Year 2015 ability to stimulate business. good, positive partnership with the administration and the political community in the municipality," "The company has put Romerike on the map says Ole-Christian Hallerud, the deputy CEO in nationally and, through its development and Olav Thon Group.

17 OLAV THON GROUP

Thon Eiendom Shopping centres Eight of the ten largest shopping centres Olav Thon Group is the dominant shopping centre actor in the Nordic region. In Norway, eight of the ten largest centres are owned or managed by the Group.

#4 AMFI MOA

#6 STORO #2 STORSENTER STRØMMEN STORSENTER

#3 LAGUNEN #10 SKI STORSENTER STORSENTER

#7 KVADRAT #1 SANDVIKA STORSENTER

#5 SØRLANDSSENTERET

18 OLAV THON GROUP

Thon Eiendom Residential property sales Modern homes for all generations

Thon Eiendom has many exciting residential projects, including in Lillestrøm, Lørenskog, Strømmen, Storo and Drøbak. The properties are centrally located and the flats being built will suit all types of people in different phases of life – from young, first-time buyers to elderly people. Thon Eiendom's vision is to create modern homes suitable for all generations.

Storotunet, Oslo

19 OLAV THON GROUP

Thon Eiendom Residential property sales Exciting residential units for sale

Lehmanns Brygge, Drøbak Lehmanns Brygge is a residential project in Drøbak in which 14 west-facing flats are being built on the seafront. Two three-storey buildings are being built with seven exclusive flats in each building. All of the residential units have a balcony or a terrace and garden, and a garage is being built on a separate plot. The flats are five different sizes – ranging 54 sq. m. two-room flats to 152 sq. m. four-room flats. The project will be completed in 2018.

Engebrets Promenade, Lillestrøm In the middle of Lillestrøm, Thon Eiendom and AF Gruppen 170 are building new flats of a high standard. The flats will be in four buildings of different heights and have both roof terraces and garage cellars with lifts to each floor. Commercial premises have been built at street level. The flats range in size from 35 sq. m. one-room flats to 135 sq. m. four-room flats. Moving in is planned for the fourth quarter of 2017.

20 OLAV THON GROUP

Exciting residential

The courtyard in Wendts Hage will have traffic-free, green units for sale outdoor areas.

Parkodden, Strømmen Wendts Hage, Lørenskog Thon Eiendom's Parkodden residential project consists 51 flats are being built in Wendts Hage. The flats will be in of seven buildings in the municipality of Skedsmo. The two seven-storey buildings. The buildings will have shared tallest building will be five storeys high and business garage cellars and three different lifts that go directly premises for rent at street level. Parkodden is right next up to the residential units. There will be two commercial to Strømmen Storsenter and consists of 166 freehold sections on the ground floor of one of the buildings. The flats. These will range in size from one-room to five-room flats range in size from 41 sq. m. two-room flats to 135 sq. flats and parking spaces will be available in the cellar. The m. four-room flats with 50 sq. m. roof terraces. Wendts project will be completed in the second quarter of 2018. Hage is centrally located, although secluded, in green surroundings in Lørenskog. The project will be completed at the start of 2018.

21 22 OLAV THON GROUP

Thon Eiendom Commercial property New office and commercial buildings

"Storgata 14-18 in Oslo has been a very exciting project to work on," says asset manager Eirik Kildal. "We have faced all the possible challenges one can face within property development, everything from zoning-related factors to technical building problems. The project has actually been running for 10 years. The starting point was a general application for an new office building in Storgata 18, also known as Carlingsgården. Those plans were shelved when Olav Thon bought the neighbouring building Storgata 14 in 2008. We now wanted to develop the properties together and be able to offer large premises to office and commercial tenants. The plans for Storgate 14-18 were well received in the market and after a while we were able to sign leases with the Office of the Auditor General of Norway and Gresvig. The Auditor General leases a total of 13,300 sq. m. in Storgata and Stenersgata. Gresvig leases a total of 3,500 sq. m. In addition to the Auditor General and Gresvig, we have also signed leases with Festmagasinet Standard and Burger King."

"The Office of the Auditor General of Norway moved into our new offices in September and we were soon up and running at full speed. We are very satisfied and our new offices facilitate various forms of work and cooperation well thanks to their combination of cubicles and open workspaces. Their central location is highlighted by everyone," says Director General Berit Mørk of the Office of the Auditor General of Norway.

The new building presents a pleasing curve where Nygata and Storgata meet.

23 OLAV THON GROUP

Thon Eiendom Residential property rental Living city centre

Thon Eiendom has many attractive blocks of flats in the centre of Oslo that have been converted from offices. Their change in use results in more people living in the city centre, creating a more lively city, and offering homes in a market where demand is high.

OSTERHAUS GATE 11 The property was totally renovated and converted from an office building to residential units. It houses a total of 12 modern, three and four-room flats on four storeys. The building's facades were refurbished and there are commercial premises on the ground floor. The building filled up quickly.

KOMMANDØR T.I. ØGRIMS PLASS 7 The property was formerly called Peder Claussøns Gate 4, but was renamed on 1 September 2016. The commercial premises on the ground floor were converted to one and two-room flats. There are a total of fifty flats in the building, which, while located right in the city centre, is shielded from traffic noise. The converted flats were ready for renting in February 2017.

HAUSMANNS GATE 33 Hausmanns gate 33 houses 14 flats consisting of both two-room and three- room flats. Hausmanns gate 33 is an older brick building from the middle of the 1800s and was designed by Jacob Wilhelm Nordan. The property has previously been used as a blacksmith's, a chocolate factory, Thunes Mekaniske Verksted, a marzipan factory, a paint factory, and a soap factory, which was located in the backyard.

TORGGATA 25 The property consists of flats on the 1st, 2nd and 3rd floors. The commercial premises on the 1st floor were rezoned for housing.

24 The east part of Torggata

25 OLAV THON GROUP

Major construction and development projects

Completed 2016

PROJECT PLACE SEGMENT EXPANSION 1) Sartor Storsenter Fjell Shopping centre 5,000 sq. m. Amfi Moa 2) Ålesund Shopping centre 4,700 sq. m. Storgata 14-18 Oslo Office, retail 14,000 sq. m. Klubbgaten 6 Stavanger Hotel 157 rooms

Under construction

PROJECT PLACE COMPLETION SEGMENT EXPANSION1) Amfi Kanebogen Harstad 2017 Shopping centre 10,000 sq. m. Jessheim Storsenter (34%) 3) Ullensaker 2017 Commercial property 18,000 sq. m. Jessheim Storsenter (34%) 3) Ullensaker 2017 Residential 129 flats Engebrets Promenade Lillestrøm 2017 Residential 170 flats Amfi Moa 2) Ålesund 2018 Shopping centre 24,000 sq. m. Diagonale, Bjørvika (50%) Oslo 2018 Office, retail, residential 38,000 sq. m. Parkodden Strømmen 2018 Residential 166 flats Wendts Hage Lørenskog 2018 Residential 51 flats Lehmanns Brygge Drøbak 2018 Residential 14 flats Vitaminveien 11 Oslo 2018/2019 Commercial property, residential, hotel 38,000 sq. m. Lagunen Storsenter (42%) Bergen 2018/2019 Shopping centre 40,000 sq. m.

1. Expansion shows the new rentable space (excl. parking) due to the project. 2. Phased completion, new construction phase started in 2016. 3. The project is linked to that part of Jessheim Storsenter where the Group has a stake of 34%.

26 OLAV THON GROUP

Residential units, commercial properties, shopping centres and hotels – a wide range of projects for the years ahead as well.

NET INVESTMENTS (NOK MILLION)

8.000

7.000

6.000

5.000

4.000

3.000

2.000

1.000

0 2013 2014 2015 2016 2017

27 Thon Hotels' refurbishment project is producing results. Several established themselves in the market in 2016 and the response has been uniformly positive. Existing guests and new guests are delighted with the upgrading of the hotel portfolio that is currently taking place. Thon Hotel Lofoten

28 OLAV THON GROUP

Thon Hotels 2016

The design team consists of Sissel Berdal Haga good food, such as the world's best lunch and Trond Ramsøskar. They have continued designed by the world champion chef, Ørjan the success we experienced with Thon Hotel Johannessen. A selection of Thon hotels offers Rosenkrantz in Oslo and in Bergen. business travellers an evening buffet included in the price. This concept has been very well REFURBISHMENT received by guests and is being developed A significant number of hotels have undergone further. extensive refurbishment in recent years. In 2016, refurbishments were completed in a further GLOBAL HOTEL ALLIANCE seven hotels, and in 2017 refurbishment work will Thon Hotels partners with the GHA, which consists commence at other hotels, including Thon Hotell of 35 hotel chains with more than 550 hotels across Europa and Thon Hotel Orion in Bergen. 76 countries. With its 8.5 million joint loyalty scheme members, the GHA is an important global sales, Nine new hotels will be completed in 2017. By the marketing and distribution platform for Thon Hotels. end of 2017, Olav Thon Group will have invested Among the Nordic hotel chains, we also have a more than NOK 1.3 billion in upgrading hotel close working relationship, focusing on sales and properties and will have one of the country's marketing, with First Hotels and GLO Hotels in absolutely most upgraded hotel portfolios. Finland, which provides the hotel chains with overall Nordic coverage of more than 120 hotels. HOTELS At 31 December 2016, Thon Hotels had 69 hotels in ENVIRONMENTAL RESPONSIBILITY Norway, one in Sweden and one in the Netherlands. Thon Hotels has prioritised environmental work Thon Hotels has carried out Thon Hotels is a major player in Brussels with five since 2007 and has systematically worked to gain extensive refurbishments. hotels and three flat complexes. Thon Hotels has Eco-Lighthouse certification for its hotels. At Striking colours and more than 1,500 rooms in total in Europe's capital. the end of 2016, all of the hotel chain's hotels in wallpapers are recurring details in the hotels. Thon Hotels has a market share of 12.7% in Norway Norway were Eco-Lighthouse certified, as was and is the third largest hotel chain. With a room Thon Hotels's head office. The hotels that have share of 21.3%, Thon Hotels is the dominant player recently been added are already in the process in Oslo. of being certified. In order for a hotel to gain Eco-Lighthouse certification it must fulfil a series of DIGITAL FOCUS requirements and implement measures in a number Thon Hotels is actively working in the digital arena in of areas: order to ensure it can offer guests a digital solution that helps improve their hotel experience and makes • Energy conservation OPERATING INCOME (NOK MILLIONS) staying in a hotel more enjoyable. A huge project • Waste reduction and environmentally friendly involving upgrading WiFi capacity and internet waste management access in all of its hotels has started in order to • Focus on purchasing environmentally friendly 3,397 ensure good access to the internet. products • Focus on measures aimed at improving the GOOD FOOD working environment Thon Hotels has systematically worked on its food • Organic food provision concepts to ensure that its guests can experience

« 29 OLAV THON GROUP

The Norwegian hotel market in 2016 The number of overnight stays in the strong growth of no less than 9.5% in 2015, Norwegian hotel market grew by 4.6% while hotel capacity increased by a furt- in 2016. The international market saw the her 5.2% (around 615 rooms). The average strongest growth with no less than 10.2%. occupancy rate fell by 0.5 percentage The weak Norwegian kroner and a restless points to 68.8%, while room rates increased Europe are contributing to last year's growth by 0.8% to NOK 964. RevPAR for the Oslo in international tourists compared to the hotels remained stable, but accommodation year before. turnover increased by 5.5%.

The average occupancy rate increased by THE GROUP'S HOTEL BUSINESS AREA 0.8 percentage points to 53.7%, with growth Thon Hotels is a nationwide hotel chain with in the number of available rooms of 1.0%. around 10,000 rooms in 69 hotels in Norway. The average room rate rose by 0.7% to NOK 55 of the hotels are operated by the Group, 903. while the other 14 are operated by external franchisees. The hotel portfolio generally The key figure RevPAR (revenue per consists of centrally located metropolitan available room) for the Norwegian hotels hotels. thus increased by 2.2% to NOK 492. Source: Data from Statistics Norway, 2016 THON HOTELS NORWAY In 2016, taking into account rooms out of Thon Hotels is a dominant player in the production due to the redecoration/refur- metropolitan regions of Oslo and Bergen. In bishment of hotels, the average occupancy addition to its hotels in Norway, Thon Hotels rate was 59.1%, an increase of 3.3% from ROOM RATE AND REVPAR has around 1,750 rooms outside Norway 2015. The average room rate rose to NOK (NOK) in five hotels and two apartment hotels 872, up 2.3%. RevPAR thus increased by

1.000 in Brussels, one in Rotterdam and one in 5.7% to NOK 516 (487). Sweden. THON HOTELS INTERNATIONAL 800 The Group's turnover in the hotel business The hotels business area in Brussels and area (incl. internal sales) was NOK 3,397 Rotterdam saw an 11% drop in turnover, (3,351) million. The turnover figures also which reflects the general downturn in 600 include operating income from separate Brussels after the terrorist attacks in March bars and pubs totalling NOK 158.1 (147.8) mil- 2016. Taking into account rooms out of lion. Overall, Thon Hotels's operating profit production in connection with the redeco- 400 for 2016 was on a par with the year before. ration/refurbishment of hotels, the average occupancy rate fell from 64.6% to 54.9% in Around 1,200 new rooms were added to 2016. 200 the Norwegian hotel market in 2016, which represents year-on-year capacity growth of BAR AND PUB BUSINESS AREA

0 1.6% compared with 2.6% growth in 2015. The Group owns and operates seven bars 2012 2013 2014 2015 2016 and pubs outside the hotels. The total THE HOTEL MARKET IN THE OSLO AREA turnover from these amounted to NOK 158.1 RomprisRompris RevPAR RevPAR (OSLO AND AKERSHUS) (147.8) million in 2016. Bar and pub opera- The number of overnight stays in the Oslo tions have developed stably in the last few area continued to increase, by 4.6%, after years.

30 OLAV THON GROUP

The Norwegian hotel market in 2016

Thon Hotels has invested heavily in good food and Thon Hotel Lofoten won Twinings of London's award for Norway's best breakfast in autumn 2016.

ROOMS IN NORWAY 9,879

ROOMS ABROAD 1,731

(Source market figures: Statistics Thon Hotel Lofoten Norway 2016/TH data equivalent to source material)

31 OLAV THON GROUP

AMORTISATION (NOK MILLION)

8.000 7.000 Financial matters 6.000

5.000 FINANCIAL STRATEGY The average remaining term of the The Olav Thon Group operates in a credit facilities was 2.7 (3.2) years. 4.000 capital-intensive industry in which one's choice of financial strategy is DEBT PORTFOLIO 3.000 extremely important. One important At the end of the year, the Group had 2.000 element of the Group's financial a total of NOK 38,267 (34,626) million strategy is the goal of maintaining a in loans and undrawn credit facilities. 1.000 solid financial position, characterised Interest-bearing debt amounted by a high equity ratio and substantial to NOK 32,085 (28,586) million and 0 2017 2018 2019 2020 2021 senere cash reserves. undrawn credit facilities NOK 6,182 (6,040) million. 20% (18%) and 3% (4%) Bank loan NOK Bond issues Banklån Obligasjonslån The strategy is intended to help of the total loans were in SEK and EUR, Certificates Other reduce financial risk and ensure respectively. Sertiﬁkatlån Annet financial freedom of action so that investment opportunities can be Of the interest-bearing debt, NOK acted upon quickly. The financial risk 18,853 (18,457) million was financed factors, liquidity, interest rate, currency in the banking market, NOK 12,513 LIQUIDITY RESERVES AND AMORTISATION and credit risks, are described in more (9,373) million in the Norwegian and (NOK MILLION) detail in the Directors' Report. Swedish capital markets, and NOK 10.000 719 (596) million via other lenders. FINANCIAL STRENGTH The split in the capital markets was At the end of the year, book equity NOK 9,886 (7,633) million in the bond 8.000 amounted to NOK 14,557 (13,382) market and NOK 2,627 (1,900) million million, while the book equity ratio in the certificate market. 82% (90%) of was 28% (29%). The net asset value is the capital market debt was raised in 6.000 considered to be significantly higher Norway, while 18% (10%) was raised in than book equity. Sweden.

4.000 LIQUIDITY AMORTISATION At 31 December 2016, the Group had The average interest rate at the end cash reserves of NOK 7,173 (6,892) of the year was 3.29% (3.63%). For 2.000 million. This consisted of short-term loans in NOK the average was 3.78% investments of NOK 991 (852) million (4.02%), while for loans in SEK and EUR and NOK 6,182 (6,040) million in it was 1.50% (2.18%) and 2.27% (2.14%), 0 2012 2013 2014 2015 2016 undrawn credit facilities with the largest respectively. Nordic banks and financial institutions. LiquidityLikviditets rreserveseserver AvAmortisationdrag neste 12 mndnext 12 months

32 OLAV THON GROUP

INTEREST RATES (%)

6 %

4 %

2 %

0 % 2012 2013 2014 2015 2016

Average interest rate NOK SEK EUR Financial matters Gjennomsnittsrente NOK SEK EUR

At 31 December 2016, the average 5-year secured bond issues was INTEREST-BEARING DEBT remaining term of the fixed-rate indicated at 0.90-0.95% (1.35-1.40%), (NOK MILLION)

periods was 4.0 (4.7) years. 48% (40%) while 12-month unsecured certificates 40.000 end in 2017, while 36% (46%) end in 5 were indicated at 0.50-0.55% (0.85- years' time or later. 0.90%).

30.000 MARKET TRENDS INTEREST RATE DEVELOPMENTS The most significant financial risks The short-term money market interest

are considered to be the Group's rate in Norway (3-month NIBOR) 20.000 access to financing in the banking and fell until June, but had risen to 1.17% capital markets and the price of that (1.13%) at year end. The long-term

financing. Access and prices depend market interest rate (10-year swap) fell 10.000 on factors such as the competition in significantly the first half of the year, the Nordic banking sector and liquidity but had risen to 1.95% (1.86%) at 31

in the Norwegian and Swedish capital December 2016. 0 markets, Norwegian and Swedish 2012 2013 2014 2015 2016

market interest rates, and the Group's In Sweden, the short-term money Bank loan NOK Certificates NOK market interest rate (3-month STIBOR) Banklån NOK Banklån valuta Obligasjonslån NOK creditworthiness expressed by the Bank loan FCY Certificates FCY

offered credit margin. fell throughout 2016 to -0.59% Obligasjonslån Sertiﬁkatlån Sertiﬁkatlån valuta valutaBond issues NOKNOK Other (-0.29%) at year end. The Swedish The competition situation in the Nordic long-term money market interest rate AnnetBond issues FCY banking sector was relatively stable in (10-year swap) fell heavily until August, 2016, with largely unchanged credit but then rose to 1.10% (1.66%) by year margins and willingness to lend. end. INTEREST RATE MATURITY STRUCTURE

The supply of liquidity in the Norwegian The trend for market interest rates and Swedish capital markets steadily in the eurozone was downwards. 36 % improved during the year and in 2016 The short-term market interest rate the Group issued its first certificate in (3-month EURIBOR) fell to 0.32% Sweden. (-0.13%) at the end of the year, while 48 % the long-term market interest rate (10- THE CREDIT MARKET year swap) fell to 0.67% (1.00%). The credit margin indicated for new loans issued by the Group dropped during the year. At year end, the credit 16 % spread in the Norwegian market for < 12 months‹ 12 mnd 1-51-5 years år › 5 år> 5 years

33 OLAV THON GROUP

NORSK PANTELOTTERI AS (60%) The company runs the Pantelotteriet, a lottery that is available via around 2,100 bottle return machines in supermarkets. The money raised from these return deposits goes to the Norwegian Red Cross, which to date has received around NOK 170 million.

TIME PARK AS Time Park is one of Norway's fastest growing parking operators with responsibility for more than 40,000 parking Olav Thon Gruppen Other operations spaces. Its turnover in 2016 was NOK 160 million and 30 FTEs were directly employed in the Focusing on research company. and development Unger Fabrikker AS produces the main ingredients used in products such as washing-up liquid, toilet blocks, washing FOLLO FJERNVARME AS The company's operations powder and shampoo. involve the production, sale and distribution of district Unger is based in Fredrikstad and has 114 The factory was started by Theodore B. heating and cooling. In 2016, the employees. More than 90% of the produ- Unger in 1922 and initially it was just a soap company saw turnover of NOK 43 million and employed 3 FTEs. cts produced in the Norwegian factory are company. Olav Thon Group acquired the exported to the UK, Poland, Hungary and industrial company in 1992. Unger has its own Serbia. sales team and R&D department, automated production and has focused on skills and In 2016, Unger Fabrikker's operating profit organisational development. was more than NOK 93 million and it was named Company of the Year in Fredrikstad. "Our recipe for success is that we depend CONRAD LANGAARD AS on all of the employees in the organisation Conrad Langaard AS sells and "The future looks very bright. Toilet blocks and focus on research and development," distributes various tobacco and washing powder freshen up the world says the managing director of Unger products. In 2016, the company saw turnover of NOK 92 million and and put money into the coffers of this Fabrikker, Jan Ivar Ruud. employed 19 FTEs. company, said the jury.

34 OLAV THON GROUP

DESIGN Amfi Kreativ AS | ILLUSTRATIONS Diagonale: MIR.NO | PRINTER Kraft Digitalprint

35 OLAV THON GRUPPEN

Stenersgata 2 P O box 489 Sentrum | N-0105 Oslo Telephone +47 23 09 00 00 [email protected] |olavthon.no DIRECTORS’ REPORT

DIRECTORS’ REPORT & FINANCIAL STATEMENTS 2016

Key Figures Directors’ Report Income Statement Balance Sheet Cash Flow Analysis Accounting Policies Notes

1 OLAV THON GROUP ANNUAL REPORT 2016

KEY FIGURES

Figures in NOK millions 2016 2015 2014

PROFIT Operating income 10,172 9,383 8,788 Operating profit 2,775 2,668 2,683 Net interest expenses 1,031 1,011 1,058 Profit before tax 1,784 1,667 1,681

FINANCIAL STRENGTH Book equity 14,557 13,382 11,683 Equity ratio 28% 29% 27% Total assets 52,054 46,764 43,213

LIQUIDITY Net cash flow from operations 1) 2,606 1,998 2,188 Cash reserves 2) 7,173 6,892 7,783 Amortisation next 12 months 6,928 3,872 6,735 Net interest-bearing debt/Net cash flow from operations 11.3 13.5 11.0 Interest coverage ratio 3) 3.5 3.3 3.2

HOTELS 6) Hotel rooms 11,610 11,482 11,054 RevPAR (revenue per available room) 477 476 461 Room rates 837 835 811 Occupancy rate 57% 57% 57%

1) Net cash flow from operating activities – Change in working capital 2) Bank deposits, etc. + Undrawn borrowing facilities 3) (Operating profit + Depreciation/write-downs) / Net interest expenses 4) Includes market rents for vacant premises 5) Owned and/or managed shopping centres 6) Thon Hotels

2 DIRECTORS’ REPORT

DIRECTORS’ REPORT 2016

Olav Thon Group posted a solid profit again in 2016 and achieved year-on-year profit growth.

HIGHLIGHTS 2016

OPERATING INCOME Olav Thon Group’s operating income amounted to NOK 10,172 (9,383) million.

PROFIT Profit before tax was NOK 1,784 (1,667) million.

EQUITY Book equity increased to NOK 14,557 (13,382) million, while the equity ratio was 28% (29%). The net asset value is considered to be significantly higher.

PROPERTY PORTFOLIO The property portfolio’s rental income at the end of the year was NOK 5,275 (4,900) million, while the vacancy rate was 3% (2%).

SHOPPING CENTRE SALES Retail sales for the shopping centre portfolio owned by the Group increased by 7% to NOK 66.0 (61.7) billion. At the end of the year, the Group owned 77 shopping centres and managed 33 for other owners.

THON HOTELS At the end of the year, Thon Hotels had 11,610 rooms in 78 hotels in Norway and abroad.

CASH RESERVES The Group’s cash reserves ended the year at NOK 7,173 (6,892) million.

3 OLAV THON GROUP ANNUAL REPORT 2016

PROFIT BEFORE TAX ANNUAL FINANCIAL value is therefore considered to be (NOK MILLIONS) significantly higher than book equity. 2.000 STATEMENTS Olav Thon Group’s consolidated financial statements have been prepared in accordance with OPERATING INCOME AND Norwegian GAAP, and the accounting EXPENSES 1.500 policies have been applied In 2016, the Group’s operating income consistently for all periods presented. increased by 8% to NOK 10,172 (9,383) million. The Board of Directors confirms 1.000 fulfilment of the conditions for a going The growth was due to both higher concern assumption in accordance sales revenue from residential projects with the requirements of the Norwegian and increased rental income. Accounting Act. The 2016 financial 500 statements have been prepared on the Further information about the Group’s basis of this assumption. business areas is provided below.

No events have occurred after the Sales revenue from residential 0 2012 2013 2014 2015 2016 reporting date that would materially projects rose to NOK 627 (251) million. affect the assessment of the Group’s Production costs for the residential OPERATING INCOME 1) units totalled NOK 448 (200) million, (NOK MILLIONS) position and results at 31 December 12.000 2016. which meant that net gains on residential sales were NOK 178 (51) million. 10.000 SUMMARY OF INCOME STATEMENT AND BALANCE Payroll costs amounted to NOK 1,505 8.000 SHEET (1,495) million. Olav Thon Group’s operating income was NOK 10,172 (9,383) million, while Depreciation amounted to NOK 735 6.000 profit before tax amounted to NOK (659) million, while write-downs in the 1,784 (1,667) million. property portfolio amounted to NOK 98 (20) million. 4.000 At the end of the year, the book value of the Group’s assets was NOK 52,054 Other operating expenses amounted to 2.000 (46,764) million. Book equity was NOK NOK 4,267 (3,758) million. The increase 14,557 (13,382) million, while the equity was due to both increased production ratio was 28 % (29%). Interest-bearing costs for residential projects and the 0 2012 2013 2014 2015 2016 debt was NOK 32,163 (28,616) million. Group’s general growth. Other operations Øvrig virksomhet Hotels/restaurants Rental income from the properties The expenses linked to the indicates a gross yield on book values modernisation of the property portfolio PropertyHotell / restaurant 1) incl. internal sales of approximately 12% and the net asset amounted to NOK 716 (767) million. Eiendom 4 DIRECTORS’ REPORT

Total operating expenses amounted CASH FLOW AND LIQUIDITY Profit after calculated tax was NOK 124 to NOK 7,397 (6,715) million, meaning Net cash flow from operations (238) million, and the Board proposes the operating profit amounted to NOK amounted to NOK 2,606 (1,998) million the following allocation of the parent 2,775 (2,668) million. in 2016, while changes in working company’s profit for the year: capital amounted to NOK -60 (-453) million, resulting in net cash flow from Dividend: NOK 100 million FINANCIAL ITEMS operating activities of NOK 2,546 The Group’s net financial expenses (1,544) million. To other equity: NOK 24 million amounted to NOK 991 (1,001) million. Net cash flow from investing activities Allocated net profit: NOK 124 million The Group’s shares and shareholder was NOK -5,389 (-2,871) million, while loans in Rygge Sivile Lufthavn AS (RSL) financing activities generated NOK The parent company`s assets had a were written down by a total of NOK 2,987 (1,054) million. The net effect of book value of NOK 1,219 (1,162) million. 173 million in 2016 due to the company exchange rate fluctuations was Book equity was NOK 861 (838) million, ceasing trading. NOK -17 (36) million. while the equity ratio was 71% (72%)

The share of the results in associated Consequently, cash increased by companies amounted to NOK -44 (41) NOK 128 (-236) million. BUSINESS AREAS million after the shares in RSL were written down by NOK 73 million. The Group’s cash reserves ended the PROPERTY year at NOK 7,173 (6,892) million and Property business area Financial income amounted to consisted of short-term investments Operating income in the property NOK 231 (92) million. Net exchange of NOK 991 (852) million and undrawn business area amounted to NOK 7,087 gains amounted to NOK 107 (-72) long-term credit facilities of NOK 6,182 (6,248) million (inclusive of internal million. Gains from the sale of shares (6,040) million. sales). The year-on-year increase was amounted to NOK 99 (43) million and due to both increased sales revenue were primarily linked to the sale of the from the Group’s residential projects Group’s shares in Thon Reitan Hotell AS PARENT COMPANY’S and higher rental income. (see page 7). FINANCIAL STATEMENTS AND ALLOCATION OF PROFIT FOR Sales revenue from residential projects Financial expenses amounted to THE YEAR amounted to NOK 627 (251) million. NOK 1,178 (1,134) million and include The accounts of the parent company a NOK 100 million write-down of the Olav Thon Gruppen AS have also The Group’s external rental income shareholder loans to RSL. Interest been prepared in accordance with increased by 9% to NOK 4,247 million, expenses amounted to NOK 1,051 Norwegian GAAP. primarily due to new properties and (1,041) million. The increase was completed property projects. significantly moderated by a lower The parent company’s income consists average interest rate. of net financial income associated with At the end of the year, the property loans and dividends from subsidiaries. portfolio’s annual rental income After deducting operating expenses, amounted to NOK 5,275 (4,900) million profit before tax was NOK 125 (240) and the vacancy rate was 3% (2%). million.

5 OLAV THON GROUP ANNUAL REPORT 2016

ANNUAL RENTAL INCOME The property portfolio is divided increased by 15% in 2016 to NOK 2,750 (NOK MILLIONS) into the following segments (2,400) million. 6.000 (based on rental value): Retail sales increased by 6% to NOK

5.000 • Retail 67% 53.5 billion, while the organic growth • Offices 14% in sales from 2015 was estimated to • Hotels 12% be 3%. 4.000 • Other 7% Sweden

3.000 Geographically, the portfolio is Annual rental income from the Group’s distributed as follows: eight shopping centres increased by 13% to SEK 579 (511) million. 2.000 • Oslo region 50% • Rest of Norway 36% Retail sales in the shopping centres

1.000 • Outside Norway 14% increased by 9% to NOK 12.7 billion.

The leases’ average remaining term is HOTELS 0 2013 2014 2015 2016 2017 approximately 4 years. The hotel business area Operating income in the hotel business Retail Offices Diverse Hotell The shopping centre business area area (inclusive of internal sales) Hotels Miscellaneous At the end of the year, the shopping amounted to NOK 3,397 (3,351) million, Kontor Handel centre portfolio comprised 110 including operating income of NOK SHOPPING CENTRE SALES shopping centres in Norway and 158 (148) million from separate bars and (NOK MILLIONS) Sweden, 33 of which are managed for pubs. 80.000 external owners (including two centres owned by Olav Thon). Operating income in Norway rose, while 70.000 the hotels outside Norway saw slightly The Group enjoys a strong market lower operating income compared with 60.000 position and its portfolio includes eight the year before. of the ten largest shopping centres in 50.000 Norway in terms of retail sales. Thon Hotels Thon Hotels is a hotel chain with 11,610 40.000 Olav Thon Group became the largest rooms in 78 hotels in Norway and 30.000 owner of shopping centre properties in abroad. Sweden in 2016. 20.000 In Norway, Thon Hotels is a nationwide Shopping centres owned by the hotel chain with 9,880 rooms in 69 10.000 Group hotels. 55 of the hotels are operated by the Group, while the other 14 are 0 2012 2013 2014 2015 2016 Norway operated by external franchisees. Wholly and partly owned Annual rental income from the Hel- og deleide Forvaltede Managed Group’s Norwegian shopping centres

6 DIRECTORS’ REPORT

The hotel portfolio primarily consists of OTHER BUSINESS AREAS ROOM RATES AND REVPAR city centre hotels, most of which were These companies reported total operating (NOK MILLIONS) 1.000 constructed or have been refurbished income of NOK 837 (722) million in 2016. in the last few years. Thon Hotels is a The largest company, Unge Fabrikker, significant player in the metropolitan developed extremely well in 2016. 800 regions of Oslo and Bergen. Operating income amounted to NOK 567 (531) million and profit before tax Abroad, Thon Hotels has around 1,730 was NOK 93 (72) million. 600 rooms in five hotels and two apartment hotels in Brussels, one in Rotterdam and one in Sweden. INVESTMENTS 400 The Group’s net investments in 2016 Distributed by geographical segments, amounted to NOK 6,578 (3,639) million Thon Hotels achieved the following key and included property acquisitions, 200 figures in 2016: investments in property projects under construction, and upgrading the 0 Average Occupancy existing property portfolio. 2012 2013 2014 2015 2016 RevPAR room rate rate Room rates RevPAR Thon Hotels Norway 812 57.9% 470 MAJOR PROPERTY SALES Rompris RevPAR (income(Inntekt per per (NOK) (+2,2%) Britannia Hotell, Trondheim (50%) availabletilgjengelige room) rom)

Thon Hotels Brussels 102 55.1% 56 The Group’s share in the hotel with (EURO) (-14,5%) 247 rooms was sold in the first half of NET INVESTMENTS Total Thon Hotels 837 57.5% 477 the year and Thon Hotels’ operating (NOK MILLIONS) (NOK) (+0,2%) agreement for the hotel ended on 1 8.000 July 2016. 7.000 The hotel market in Brussels was heavily MAJOR PROPERTY ACQUISITIONS 6.000 affected by the terrorist attacks in Norway March 2016 and this, combined with a In January, the Group increased its 5.000 stable hotel market in Norway, resulted 50% stake to 100% in a shopping in a slight downturn in results for Thon centre company that owns three 4.000 Hotels in 2016. shopping centres in the Moss region 3.000 and one in Kristiansand. The total annual The bar and pub business area rental income for the shopping centres 2.000 Olav Thon Group owns and operates was NOK 160 million in 2016. seven bars and pubs outside the 1.000 hotels. In 2016, total sales amounted In November, the Group took over the 0 to NOK 158 (148) million. The business Åsane Storsenter shopping centre 2012 2013 2014 2015 2016 area’s results were on a par with last to the north of Bergen city centre. year’s results. Shopping centre, with retail space of approximately 46,000 sq. m., saw

7 OLAV THON GROUP ANNUAL REPORT 2016

retail sales of around NOK 1.4 billion • Remodelling and expanding three 38,267 (34,626) million at the end of the in 2016 and annual rental income of shopping centres in different year and NOK 6,182 (6,040) million of approximately NOK 115 million. locations in Norway will add this amount was undrawn. Sweden 74,000 sq. m. of new retail space Interest-bearing debt therefore 67% of Torp Köpcentrum in Uddevalla in and substantial parking space. amounted to NOK 32,163 (28,616) Sweden. Following the acquisition, the • Construction of a new building million. Group owns the entire shopping centre near Storo Storsenter in Oslo with with its retail space of approximately total space of 50,000 sq. m. The capital markets in Norway and 40,000 sq. m. In 2016, the shopping • Construction of two larger Sweden are becoming steadily more centre saw retail sales of around SEK 1.6 properties in Bjørvika in Oslo important sources of financing and an billion and the annual rental income was (50%) with space of 38,000 sq. m. increasing proportion of the Group’s around SEK 75 million. • Construction of four residential financing is raised in these financial properties in the Oslo region with markets. At year end, the outstanding PROPERTY DEVELOPMENT a total of 480 residential units. certificate and bond debt amounted Property development represents a • Major remodelling and to NOK 12,513 (9,533) million, distributed significant part of Olav Thon Group’s refurbishment projects at several between Norway and Sweden as operations and 2016 was another busy of the Group’s hotels. follows: year. For more information about property Norway: NOK 10,230 (8,430) million Completed property projects: projects please see pages 26-27 of Sweden: SEK 2,400 (900) million Major projects completed during the the Annual Report 2016. year included the following: The proportion of interest-bearing debt raised in the capital markets was • Two shopping centres were FINANCING therefore 39% (33%). upgraded and expanded by a One important element of the Group’s total of 9,700 sq. m. of new financial strategy is the goal of The Group’s debt had an average retail space. maintaining a solid financial position, remaining term of 2.7 (3.1) years at • Office and retail property in the characterised by a high equity ratio and the end of the year. 22% (14%) of the centre of Oslo with space of substantial long-term cash reserves. debt matures in 2017 and it will be 14,000 sq. m. possible to cover most of the need for • An office property in Stavanger The Group’s debt portfolio consists of refinancing with existing cash reserves. was converted into a hotel with long-term credit facilities with Nordic 157 rooms. banks and direct borrowing in the • Several large hotel properties capital markets in Norway and Sweden. ORGANISATION AND were upgraded and refurbished. WORKING ENVIRONMENT Access to financing is regarded as very Olav Thon Group practises equality Major property projects under good and the credit margins in the and has zero tolerance for any form construction/ refurbishment: capital markets showed a downward of discrimination or harassment of trend throughout 2016. The margin employees. At the start of 2017, the following trend in the banking market was stable. projects were under way: All employees are entitled to equal and Total credit facilities amounted to NOK fair treatment regardless of age, ethnic

8 DIRECTORS’ REPORT

origin, disability, skin colour, nationality, operations on the external environment of the UN Global Compact, and political views and religion or other – for example, by following works systematically in the areas of belief. environmentally friendly procedures human rights, working conditions, when carrying out its operations. environment, anti-corruption and social Work is in progress to promote universal responsibility. design of the Group’s general facilities, Environmental work forms an integral so that they can also be used by part of operations in Olav Thon Group This work is followed up through goals persons with impaired functional ability. and environmental initiatives are and measures pursuant to the Global implemented for the benefit of both its Reporting Initiative (GRI) framework and The Board considers the above- operations and the tenants’ use of the is documented in an annual corporate mentioned conditions and general properties. social responsibility report. working environment to be satisfactory. Parts of the property portfolio have For further information about this work At the end of 2016, there were 3,243 been certified under the Eco- please visit our website: www.olavthon.no (3,364) FTEs in Olav Thon Group. The Lighthouse scheme as part of the parent company, Olav Thon Gruppen Group’s targeted work on health, safety CORPORATE GOVERNANCE AS, had no employees at the same and the environment (HSE). Olav Thon Group wants to maintain a point in time. high degree of confidence among Certification entails the implementation lenders, tenants and society otherwise The FTEs were distributed as follows: of environmental measures for waste and therefore strives to ensure it 2,778 in Norway, 337 in Belgium, 18 in reduction, waste management, practises good corporate governance. the Netherlands and 110 in Sweden. purchasing environmentally friendly products, and saving energy. The management of the Group is 50% of the Group’s employees are based on the principles set forth in women and 50% are men. As Olav Thon Group manages a the Norwegian Code of Practice for substantial property portfolio, it has Corporate Governance issued by the The Group’s sick leave rate in 2016 was an influence on the local environment Norwegian Corporate Governance 4.5% (4.8%). in which the properties are situated. Board (NUES). It makes major contributions to the No significant injuries or accidents development of public spaces through were sustained in operations during the refurbishment, maintenance and new OLAV THON GROUP’S RISK period. No deficiencies in other areas construction. FACTORS of employee safety or the working environment have been identified. The operations satisfy the requirements The Group’s risk factors can be divided for limiting pollution of the external into the following main categories: The company’s Board consists of six environment. Please also see the men and one woman. Group’s website: www.olavthon.no. • Market risk • Financial risk • Operational risk ENVIRONMENTAL STATUS CORPORATE SOCIAL The Group’s causes minimal pollution RESPONSIBILITY of the external environment. The Group Olav Thon Group is a member works to minimise the impact of its

9 OLAV THON GROUP ANNUAL REPORT 2016

MARKET RISK The vacancy rate in the Oslo area The risk of a substantially higher The Group’s market risk is related office rental market is showing a slight vacancy rate and a large rental income to developments in the Norwegian downwards trend and rental prices are decline in the property portfolio is property and hotel markets, which in developing stably or rising. considered to be moderate. turn are closely tied to the performance of the Norwegian economy. Market risk in the property business The Norwegian hotel market in 2016 area The Norwegian hotel market was The commercial property market in The risk in the property business area is affected by a four-week, nationwide 2016 primarily related to the fact that lower strike in the spring of 2016, which In spite of continued low growth in the rents and/or increased vacancy in the contributed to the cancellation of travel Norwegian economy, 2016 was a good property portfolio would contribute to and conferences in Norway. year for commercial property. a decline in rental income. In spite of the strike, the Norwegian The transaction market 67% of the rental income comes from hotel market developed positively The total transaction volume in the leading shopping centres and retail and the number of overnight stays Norwegian market for commercial properties in Norway and Sweden. increased by 4% to 22.6 million. property (with a value over NOK 50 Private consumption is expected to rise Measured in terms of total rooms, hotel million) amounted to around NOK 80 moderately in both Norway and Sweden capacity in Norway increased by 3% billion. The decrease in the volume going forward and the framework compared with 2015. of sales from NOK 120 billion in 2015 conditions for the Group’s shopping is significant, but the number of centres and retail properties are The average room rate increased by transactions was almost on a par with therefore considered to be positive. NOK 6 to NOK 903 million, while the 2015. average occupancy rate rose by 0.8 14% of the rental income comes from percentage points to 54.5%. The key Nevertheless, the volume of sales in commercial properties in the Oslo area, figure RevPAR (revenue per available 2016 still ranks among the highest with office properties representing room) increased by 2% to NOK 492. annual sales ever and reflects a very the largest proportion. The properties Change in number Share of total Segment of overnight stays active property market, especially in the are leased to a large number of market in 2016 from 2015 major cities. tenants and the lease contracts have Holiday and 52% +6% a balanced maturity structure in this leisure market Demand for commercial properties as segment as well. investment objects remained high and Individual 35% +2% business contributed to fair value adjustments in 12% of the rental income comes from travellers commercial property in most segments. hotel properties, which are mainly Course and 13% +5% conference leased on long-term leases to Thon market The rental market Hotels, the Group’s hotel chain. The Rental prices in the shopping centres risk of a significant increase in vacancy showed an upward trend in the largest in the hotel property portfolio is The growth seen in Oslo and Akershus centres and a stable development in considered to be very low. Market risk was on a par with the national average the rest of the portfolio. in the hotel market is discussed in later and RevPAR also increased by 2% in sections. these markets.

10 DIRECTORS’ REPORT

The hotel market is divided into the Development of the financial markets CASH RESERVES following main segments: The competition situation in the Nordic (NOK MILLIONS) banking sector was stable in 2016, with 10.000 Market risk in the hotels business area credit margins and the willingness to As a major player in the market, Thon lend unchanged. Hotels is affected by developments in 8.000 the Norwegian hotel market. Demand The supply of liquidity in the Norwegian for hotel rooms is closely linked to the and Swedish capital markets steadily 6.000 general performance of the economy improved during the year and in 2016 and the competitive situation in the the Group issued its first certificate in market. Competition in the market is Sweden. 4.000 also related to the supply of new hotel capacity. Thanks to the increasing Interest rate developments growth in the Norwegian economy, The short-term market interest rate in 2.000 there is reason to expect a positive Norway (3-month NIBOR) fell until June, hotel market in 2017, with a higher but had risen to 1.17% (1.13%) at year number of overnight stays in both the end. The long-term market interest rate 0 holiday and leisure market and the (10-year swap) fell significantly the first 2012 2013 2014 2015 2016 Undrawn borrowing facilities business market. half of the year, but had risen to 1.95% Ubenyttede lånerammer (1.86%) at 31 December 2016. Bank deposits, shares, etc. The risk of a substantially higher Bankinnskudd, aksjer o.l. vacancy rate and a large rental income In Sweden, the short-term market decline in the property portfolio is interest rate (3-month STIBOR) fell considered to be moderate. throughout 2016 to -0.59% (-0.29%) at Eiendomsselskap ASA and Thon Holding year end. AS. FINANCIAL RISK The most significant financial risks are The long-term Swedish market interest The credit margin indicated for new considered to be the Group’s access rate (10-year swap) fell heavily until loans issued by the Group dropped to financing in the banking and capital August, but then rose to 1.10% (1.66%) during the year. At year end, the credit markets and the price of that financing. by year end. spread for Olav Thon Eiendomsselskap’s 5-year secured bond issues was Access to financing depends on both The trend for market interest rates in the developments in the financial markets eurozone was downwards. The short- indicated at 0.90% (1.35%), while and the Group’s creditworthiness. term market interest rate (3-month 12-month unsecured certificates were EURIBOR) fell to -0.32% (-0.13%) at the indicated at 0.50% (0.85%). The price of financing depends on end of the year, while the long-term market interest rates and the specific market interest rate (10-year swap) fell The credit spreads in the capital markets credit margin the Group has to pay. to 0.67% (1.00%). for Thon Holding are normally around 0.03-0.05 percentage points higher The credit margins are in turn linked The credit market than for Olav Thon Eiendomsselskap. to the Group’s creditworthiness and Olav Thon Group’s borrowers in the developments in the credit market. capital market are Olav Thon

11 OLAV THON GROUP ANNUAL REPORT 2016

The Group’s financial risk and the proportion of fixed-rate linked to the risk of losses as a result of The Group’s financial risk can be agreements longer than 1 year was the failure of tenants to pay the agreed divided into: 52% (58%). rent or hotel customers to pay their obligations. • Liquidity risk The Group’s interest- bearing debt • Interest rate and currency risk amounts to NOK 32,163 (28,616) million • Credit risk and is distributed by currency as The properties are leased to a large follows: number of tenants in different sectors Liquidity risk and the Group’s routines for following Liquidity risk is linked to the Group’s • NOK 77%, with an average interest up trade receivables are considered to ability to discharge its payment and rate of 3.78% (4.02%) be good. other debt obligations as they fall due. • SEK 20%, with an average interest The risk is mitigated by having rate of 1.5% (2.18%) Operational risk substantial available cash reserves, • EUR 3%, with an average interest The Group’s operational risk is a moderate loan to value ratio, long- rate of 2.27% (2.14%) primarily associated with the failure term loan agreements and different of employees and operational financing sources and markets. It is estimated that a change of 1 management systems to function as percentage point in short-term interest expected. The Group’s cash reserves ended the rates would result in a change in the year at NOK 7,173 (6,892) million. average interest rate of approximately Management is organised so that 0.5 percentage points in the space of the risk arising from the activities and The debt portfolio had an average 3-6 months. It is estimated that such an absence of an individual is relatively remaining term of 2.7 (3.1) years at the increase in interest rates would increase low, and the Group’s management end of the year. 22% (14%) of debt annual finance expenses by around systems are considered to be robust. is due within 1 year and the need for NOK 150 million. refinancing in the coming year will As a quality assurance measure, mainly be covered by existing cash Olav Thon Group is exposed to the Group’s auditor also conducts reserves. financial risk related to exchange systematic risk assessments of various rate movements in its countries of aspects of the Group’s operations and Interest rate and currency risk operation. Because the consolidated management. Interest rate risk is associated with annual financial statements are changes in the Group’s cash flow, prepared in NOK, both the results and earnings and equity as a result of the equity in the foreign subsidiaries changes in the short-term and long- are affected by NOK/local currency OUTLOOK term interest rate markets. exchange rate. Growth in the Norwegian economy remains low, but higher growth is The risk is managed partly by having a The Group reduces its currency risk expected in 2017. The fall in oil prices is large proportion of long-term fixed- through foreign currency borrowing contributing to relatively weak growth rate agreements. and currency hedging agreements. prospects for the next few years and Norges Bank is indicating that interest At the end of the year, the Group’s Credit risk rates will be kept low for a long time. average interest rate was 3.29% (3.63%) The Group’s credit risk is primarily

12 DIRECTORS’ REPORT

With growth in private consumption in holiday, leisure market and the Norway expected to rise moderately, business market. the framework conditions for the Group’s shopping centres are The Group’s solid market position considered positive. and financial position is expected to contribute to a satisfactory financial The vacancy rate in the Oslo area performance in the period ahead. office market is now showing a slight downwards trend and rental prices are developing positively in most areas of the city. A low level of new construction and high demand for office premises are expected to contribute to a continued positive office market. Thanks to the increasing growth in the Norwegian economy, there is reason to expect a positive outlook for the hotel market in 2017, with growth in both the

Oslo, 26 April 2017

Olav Thon Chairman of the Board

Tron Harald Bjerke Sissel Berdal Haga Ole-Christian Hallerud Board member Board member Board member

Lars Løseth Dag Tangevald-Jensen Øystein Trøseid Board member Deputy Chairman/CEO Board member

13 OLAV THON GROUP ANNUAL REPORT 2016

INCOME STATEMENT

PARENT COMPANY GROUP Figures in NOK millions Note 2016 2015 2016 2015

Rental income 0 0 4,247 3,913 Room revenue 0 0 1,833 1,826 Sale of goods 0 0 1,843 1,758 Other operating income 2,5 0 0 2,249 1,887 Operating income 0 0 10,172 9,383

Cost of goods 0 0 -792 -782 Payroll costs 3 -1 0 -1,505 -1,495 Ordinary depreciation 7 0 0 -735 -659 Write-downs 7 0 0 -98 -20 Other operating expenses 3,4,5 -1 -1 -4,267 -3,758 Operating expenses -2 -1 -7,397 -6,715

Operating profit -2 -1 2,775 2,668

Share of profits of associated companies 0 0 -44 41 Financial income 6 130 244 231 92 Financial expenses 6 -3 -3 -1,178 -1,134 Net financial items 127 241 -991 -1,001

Profit before tax 125 240 1,784 1,667

Taxes 15 -1 -2 -366 -272

Profit for the year 124 238 1,418 1,395

Attributable to: Shareholders of the parent company 17 1,164 1,158 Non-controlling interests 17 255 237

14 FINANCIAL STATEMENTS

BALANCE SHEET AT 31 DEC

PARENT COMPANY GROUP Figures in NOK millions Note 2016 2015 2016 2015

ASSETS Intangible assets 7 0 0 51 38 Deferred tax asset 15 0 0 0 97 Fixed assets 7 0 0 47,582 42,993 Investments in subsidiaries 1 366 366 0 0 Other financial assets 8 0 0 574 711 Total non-current assets 366 366 48,207 43,839

Inventories 9 0 0 670 379 Trade and other receivables 5,10,14 854 796 2,248 1,746 Investments 11 0 0 24 24 Bank deposits and cash 0 0 905 777 Total current assets 854 796 3,847 2,925

Total assets 1,219 1,162 52,054 46,764

EQUITY AND LIABILITIES Share capital 16,17 410 410 410 410 Other paid-in capital 86 86 0 0 Other equity 17 366 342 12,167 11,086 Non-controlling interests 17 0 0 1,980 1,886 Total equity 861 838 14,557 13,382

Deferred tax 15 0 0 1,980 1,768 Other liabilities 0 0 1 2 Non-current liabilities 12,18 0 30 28,830 26,139 Current liabilities 13,14,15 358 294 6,685 5,473 Total liabilities 358 324 37,497 33,382

Total equity and liabilities 1,219 1,162 52,054 46,764

Oslo, 26 April 2017

Olav Thon Chairman of the Board

Tron Harald Bjerke Sissel Berdal Haga Ole-Christian Hallerud Board member Board member Board member

Lars Løseth Dag Tangevald-Jensen Øystein Trøseid Board member Deputy Chairman/CEO Board member

15 OLAV THON GROUP ANNUAL REPORT 2016

CASH FLOW ANALYSIS

PARENT COMPANY GROUP Figures in NOK millions 2016 2015 2016 2015

CASH FLOW FROM OPERATING ACTIVITIES Profit before tax 125 240 1,784 1,667 Income tax paid -2 -2 -177 -282 Share of results of associated companies 0 0 44 -41 Change in pension funds 0 0 -1 10 Losses/(- gains) on sale of non-current assets 0 0 122 -35 Ordinary depreciation 0 0 730 659 Write-downs 0 0 104 20 Changes in inventories 0 0 -292 -150 Changes in trade receivables 0 0 -100 -466 Changes in trade payables 0 0 123 58 Changes in other accruals -43 -125 209 104 Net cash flow from operating activities (A) 80 113 2,546 1,544

CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets and intangible assets 0 0 -2,711 -1,441 Net payments on acquisition of subsidiaries and joint ventures 0 0 -2,847 -1,605 Sale of fixed assets and intangible assets 0 0 15 24 Net proceeds from acquisition of subsidiaries and joint ventures 0 0 140 46 Net cash flow from other investments 0 0 14 105 Net cash flow from investing activities (B) 0 0 -5,389 -2,871

CASH FLOW FROM FINANCING ACTIVITIES New interest-bearing debt 0 0 16,279 10,425 Repayment of interest-bearing debt -30 -50 -12,994 -9,533 Dividends paid -50 -50 -117 -118 Net effect of other changes in equity 0 -13 -180 280 Net cash flow from financing activities (C) -80 -113 2,987 1,054

Net effects of exchange rate changes (D) 0 0 -17 36

Net change in cash flow (A+B+C+D) 0 0 128 -236

Bank deposits and cash at 1 Jan 0 0 777 1 013

Bank deposits and cash at 31 Dec 0 0 905 777

Undrawn overdrafts and other credit facilities 0 0 6,471 6,347

16 OLAV THON GRUPPEN Stenersgata 2, Postboks 489, Sentrum N-0105 Oslo | Tel: +47 23 08 00 00 | [email protected] |olavthon.no