Canadian Hotel Investment Report_2012

2012 Canadian Hotel Investment Report

Colliers International Hotels

www.colliershotels.com

2012 Canadian Hotel Investment Report

Canadian hotel investment report
In 2011 the Canadian hotel real estate market experienced a second year of transaction market improvement, with total dollar volume rising 54% from 2010 and 167% from 2009. The year ended as the fifth highest year for hotel transaction volume, as measured over the past 25 years, with $1.107 billion recorded across the country.
A summary of transaction market highlights are presented below: • Increased demand by investors for strong performing assets led to resilient pricing from previous years, particularly in the full service and select service segments, where high-quality institutional grade product was brought to market. Sales of full service hotels reached $619 million, a 25% increase in volume from 2010. Sales slowed modestly in the second half; partially the result of hesitance in the market given the global economic and political worries that became apparent mid-year. Although only one third of all trades were over the $10 million threshold, over three quarters of the year’s volume was attributed to these deals. Saskatchewan and Manitoba witnessed the largest gains in transaction volume due to product availability combined with solid economic strength. Ontario, British Columbia and Alberta were the most active provinces based on the number of sales. Cross-border sellers accounted for 40% of transaction volume. These sellers were primarily US-based private equity funds that disposed assets to redeploy capital in other opportunistic ventures. Three portfolio deals totaling $302 million in transaction value were completed during the year, the highest year for portfolio transactions since the approximate $500 million in 2008. Lender-driven sales only comprised about $70 million of volume (6% of total volume) in the overall market, down from $86 million (12% of total volume) in 2010.

• • • •

40% of transaction volume was driven by non-Canadian based sellers.

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• •

We begin this year’s Report with a special feature on the historical hotel debt market in Canada. Given the reliance on the availability of debt for the majority of investors, our piece focuses on providing an overview of the variety of financiers that have been active over the years - and some of the dynamics that impacted the market, for better or worse. The balance of the Report provides a complete review of hotel transaction market results from 2011, focusing on buyer/seller composition and pricing metrics. We hope you enjoy the Report and as always, we welcome your feedback.

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2012 Canadian Hotel Investment Report

historiCal perspeCtive of the hotel debt market in Canada
Conditions in the hotel financing market have a direct impact on the liquidity of hotel assets in a given year, with the availability, source and terms of financing all affecting the level of investment activity. Colliers begins the 2012 Canadian Hotel Investment Report with a retrospective review of the hotel debt market in Canada and how it has shaped the investment market over the years.
Given perceived risks associated with the hotel sector, not surprisingly the appetite for hotel lending is considerably smaller than other commercial sectors, with loan programs, guidelines, and pricing varying widely among lenders. Overall, hotels are considered a riskier proposition given their significant operating component requiring specialization, unlike the relatively straightforward nature of other commercial real estate. The ebbs and flows of the macro-economic environment are highly sensitive for hotel operations. Better economic times drive liquidity to the market and in turn create a higher appetite for less traditional hotel lenders. Over the years there have been distinct lending cycles which are tied to market conditions, resulting in a variety of debt players entering the market. In reviewing the last three decades we have witnessed a wide spectrum of lenders enter the hotel space, with the shift in debt sources ultimately impacting not only the level of activity in each period, but the profile of buyers. the 75% to 85% range, which inevitably created severe debtservicing difficulties in the early 1990s, as the economy began to deteriorate. Significant declines in revenue and considerable supply increases created overhang. For example, the Toronto Airport market experienced an approximate 50% increase in supply between 1986 and 1989 - and while this was primarily due to the augmented growth of businesses with corporate, industrial and manufacturing companies seeking to relocate to this area – it proved very difficult to absorb as the recession hit and overleveraged assets were unable to service their debt.

By the time the recession and the effects of the Gulf War took hold in the early 1990s, the highly sensitive and relatively highly levered lodging market was headed for decline, and resulted in a sustained period of receivership and lender-driven sales through the early to mid 1990s. As a result, Canadian Schedule A Banks, Trust Companies and Insurance Companies liquidated their portfolios through debt portfolio sales or individual executions as “owners by default”. Other lender groups were also reluctant to provide financing and the transaction market In the mid to late 1980s, the Canadian hotel industry was in a period of rapid development. International flows of investment was significantly impacted, with most of the transactions sold under receivership and acquired at discounted levels in all-cash capital were particularly robust in this timeframe, against a transactions or through Vender Take Back (“VTB”) mortgages backdrop of tax incentivized deal structures primarily through by reluctant lenders in possession. Limited Partnerships which saw unsophisticated investors enter the hotel investment arena. The market was fuelled The turn of the next up-cycle took hold by late 1994, bringing by a prosperous global economic environment as well as the with it a new group of debt and equity players. Established availability of large hotel assets in major urban and resort and experienced Canadian and US hotel investment companies markets across the country. Roughly $1.3 billion in hotel and private investors purchased distressed assets, in many volume transacted between 1985 and 1989, of which about cases with VTB financing. Growing sophistication in the 45% represented foreign capital. Dominant lenders, comprising industry resulted in knowledgeable management companies Canadian Schedule A Banks, Trust Companies and Insurance that provided turn-around experience who partnered with Companies, were lured to the hotel market by the positive opportunity funds and were met by relationship-based US and economic outlook and potential returns of a growing industry. international lenders that were actively filling the lending void. By virtue of the ease at which investors and developers were By the late 1990s, Real Estate Investment Trusts (“REITs”) able to obtain attractive debt terms, the market became very emerged as acquirers, with the creation of the first hotel competitive and over development ensued. REITs in Canada - CHIP REIT, Legacy REIT and Royal Host in Despite low interest rates, loan-to-values (“LTV”) were high, in 1997/1998, which initially accessed $1.2 billion of equity through
Colliers International Hotels 3

2012 Canadian Hotel Investment Report

debt Capital: a look at the ebbs and flows
1994 - 1999 1985 - 1989 1990 - 1993 2000 - 2004 2005 - 2007 2008 - 2011
Total Transaction Volume

4.0b

3.0b

2.0b

1.0b

0

the public markets. These public vehicles were generally restricted to 50% debt by their trust indentures and were able to source this from a variety of lenders given their conservative structure. For the most part, traditional hotel transactions were being financed at 55% to 65% LTV with qualified sponsors and management teams. US and international lenders continued to be the dominant lender for hotels for a wide variety of single asset sales in primary markets across the country. The Canadian lodging industry slowed by mid-1998 when the capital markets collapsed and there was speculation of a North American economic recession. Commercial Mortgage Backed Securities (“CMBS”) first started lending in Canada in late 1998, and soon became a dominant lender, with the likes of Merrill Lynch and CSFB/ Column Financial bringing much needed liquidity to the hotel sector with LTVs in the 60% range. Limited and costly debt and equity financing slowed hotel transactions in 1999 and 2000 as Canadian public companies could not raise equity in the public markets. In addition, the cost of capital increased due to a larger spread in Canadian bonds with commercial lending rates, and lenders retreated by limiting LTVs to 50% to 55%.
4 Colliers International Hotels

Entering the new millennium, relationship lending played a larger role as debt financing continued to be limited with LTV ratios in the 50% to 60% range. Due to unpredictable and somewhat volatile cash flows during this period, CMBS lenders were more constrained as their underwriting criteria were largely based on consistent cash flow. Beginning in 2002, US lenders such as Capmark (formerly GMAC) and GE Franchise Finance (“GE”) brought liquidity to the market with a focus on top tier branded hotels and new developments providing higher leverage up to 70%. Liquidity during this period was also provided by larger U.S. and European lenders who financed urban institutional quality single assets or portfolios for sponsors with strong covenants. By 2005 the hotel investment market showed increased momentum, fueled by portfolio transactions that in the three years ended 2007 comprised 70% of the total volume. Entities such as REITs and pension funds were able to acquire on an all-cash basis, providing a significant competitive advantage in the market. GE’s book for hotels reached a staggering $1.1 billion, with approximately 40% being new-build hotels as they offered creative structures for development financing. CMBS lenders were also active, with Merrill Lynch originating $550 million worth of loans from 1998 to 2007.

2012 Canadian Hotel Investment Report

Schedule A Banks, Trust Companies, Insurance Companies 1985-1989 • Unprecedented growth in Canada’s hotel industry was due in part to readily available financing and attractive tax incentives primarily through limited partnerships. • These financiers never returned as active hotel lenders after this period.

VTBs, By Default 1990-1993 • Boom turned to bust as the market was slammed with lender-driven sales. • Lenders were reluctant to provide financing, but in many cases had no option.

US-Based, International, CMBS 1994-1999 • American and International relationship lenders fund professional turn-around management and ownership groups. • Period of resiliency and growth marked by growing average deal size and a low Canadian dollar that was attractive to foreign capital. • First of Canada’s three REITs were formed in 1997.

CMBS, Private Institutional, US-Based 2000-2004 • CMBS lenders provide a liquid source of financing. • Yield-driven private institutional lenders fill the void.

CMBS, Public Equity, US-Based, Private Institutional 2005-2007 • Pension funds enter the market acquiring large portfolios primarily in all-cash transactions. • CMBS lenders remain as a logical financing source for many, as seemingly unlimited amounts of capital are available. • Private institutional sources also prevailed as a debt capital source.

Credit Unions, Regional Banks, Private Institutional 2008-2011 • Deteriorating levels of interest from lenders occurred throughout 2008 as the Global Financial Crisis set in. • Credit Unions and Regional Banks provided the vast majority of hotel financing in 2009 and 2010 with Private Institutional funds fully active by 2011.

The up-cycle continued until mid-2008 when the rapid deterioration of the global credit markets took hold. Consequently, only balance sheet lenders were able to provide financing at even more conservative underwriting levels, dropping LTVs to 50% to 55%. Private institutional sources of capital such as ROI Capital, as well as quasi government lenders (Business Development Bank of Canada and ATB Financial) and local credit unions, were major debt providers. In the latter part of 2010 and 2011, we saw diverse competitors vie for financing opportunities with improved pricing and terms. • • Credit Unions and regional banks lent on a variety of asset types in both primary and secondary markets. We saw significant single asset and portfolio transactions being financed by credit unions in club deals with other lenders. There was a continued increase in financing by private institutional sources and government sponsored lenders. GE’s commitment to the market remained strong, with exposure in primary, secondary and tertiary markets. Unlike the US where domestic banks are large participants, Canadian Schedule A banks never returned as active lenders to the lodging industry.

As we enter 2012, the market is optimistic that financing will continue to improve. US and international lenders should return to the market and are seeking good quality urban assets as entry points back into Canada, relying on the debt yield metric as a central part of their underwriting. The debt market remains favourable with a variety of lenders looking for opportunities, with a focus on quality sponsorship, good asset quality and strong markets.

A Case for Debt Yield Lenders, mainly in the US, are focusing on a new threshold for lending – the Debt Yield. This measures NOI as a percentage of the loan amount, and is emerging as the main tool because it is viewed as the most direct method for calculating risk. Minimum debt yields are set by each lender (typically 10-12%), which in turn sets a formula for the maximum to lend on a given property. This particular measure is useful because there is no cap rate or LTV argument. When the value is subjective, a debt yield policy is an objective calculation. Canadian mortgage lenders will likely adopt this metric, particularly where a market downturn has clouded property valuations.

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2012 Canadian Hotel Investment Report

transaCtion analYsis
The transaction market continued its upward trend with over $1.1 billion in volume during the year, making it the fifth strongest year since we began tracking hotel transactions in 1985, and the highest since the all-time record of $4.6 billion in 2007.
• In all, 99 hotels sold across the country as measured by non-arms length transactions that occurred over the $1 million threshold. There were three strategic transactions worth over $300 million, or about 27% of overall activity (see table on page 7). When strategic acquisitions are excluded, traditional transaction volume totaled $786 million, a year-over-year increase of 58%. • Overall strength in the marketplace was further demonstrated by muted distressed sales, which in 2011 comprised only 6% of total volume, down from 12% of activity in 2010. In comparison, distressed sales in the US were estimated at 28% of total volume in 2011, down from 42% in 2010, according to Real Capital Analytics. • Total price per room came in at $108,000, a strong 30% improvement over 2010 and 65% above 2009. Traditional price per room registered at $87,000, 26% above 2010 and 33% above 2009. • The 96 traditional trades were the largest number of hotels sold in a given year since 2007, and represent an increase over the 10-year average of 80 hotels that sold. The improved sentiment in the market can be attributed to a variety of factors, namely improved access to debt and the relatively high-quality product that was available for sale and met by willing purchasers. Cross-border sellers also aided the increase in activity in the market, bringing rarely offered high-quality product to market, incentivized by the high Canadian dollar and their desire to recycle capital for reinvestment. • Volume in the first half comprised 54% of the year’s total activity, and this was largely completed in the second quarter with $441 million over 31 deals closed. With the third

Transaction Volume by Quarter

$ 159M

$ 441M

$ 273M

$ 234M

22

31

25

Q1

Q2

Q3

Q4

Transaction Volume Number of Hotels

2011 Transaction Analysis by Market Segment
Volume ($ millions)
Full Service Select Service Limited Service Total $619 $188 $300 $1,107

21

number of hotels
21 10 68 99

PriCe Per room ($)
$139,000 $133,000 $66,000 $108,000

AVerAGe DeAl siZe AVerAGe number AVerAGe CAP rAte ($ millions) of keys
$29.5 $18.8 $4.4 $11.2 222 141 61 103 7.1 8.2 10.0 8.9

The majority of trades (69%) were limited service, although comprised just 27% of the year’s total transaction volume.

The average size of a full service hotel trade increased 26% year-over-year, up from $23.5 million in 2010 and 270% from the $8.0 million for full service hotels in 2009.

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2012 Canadian Hotel Investment Report

Top Hotel Transactions - 2011 (By Volume)
PriCe Per room ($)

ProPerty

buyer

PriCe ($)

buyer oriGin

CAP rAte (%)

sinGle assets
InterContinental Toronto Centre 1 * Delta Vancouver Airport Courtyard & Residence Inn by Marriott Montreal Stonebridge Hotel Fort McMurray Courtyard by Marriott Edmonton Downtown Deerhurst Resort Huntsville 2 Hilton Suites Winnipeg Airport Holiday Inn Calgary Airport Best Western Village Park Inn Calgary Holiday Inn Yorkdale Toronto Oxford Properties Inspire Group Artery Group & Urgo Hotels Shelbra International MIG Real Estate Skyline Investments Fortis Properties Corporation 905753 Alberta Ltd. Calgary Hotels Ltd. Easton's Group of Companies n/a $55,000,000 $39,000,000 $27,500,000 n/a $26,000,000 $25,000,000 $23,500,000 $23,000,000 $22,850,000 n/a $132,900 $118,500 $203,700 n/a n/a $156,300 $140,000 $144,700 $61,800 Canadian Canadian American Canadian American Canadian Canadian Canadian Canadian Canadian n/a 4.5 8.2 11.5 n/a n/a 9.1 10.0 n/a 8.9

portfolio deals
# of rms
Sutton Place Hotel Portfolio 3 * Toronto-Area Marriott Select Service Portfolio 4 Country Inn & Suites Portfolio 5
1

# of hotels
2 4 3

Northland Properties Group Genesis Hospitality Airline Hotels & Resorts

$197,500,000 n/a n/a

$226,000 n/a n/a

874 495 229

Sold as part of a larger transaction, including a 13-storey class “A” 265,000 SF office tower and an interest in the Metro Toronto Convention Centre complex. Situated on 800 acres and includes significant development potential. Price per room not applicable. Two property portfolio including hotels in Vancouver and Edmonton. The Vancouver property includes 397 guest rooms and 164 strata units branded as La Grande Residences. 4 Includes properties in Mississauga, Vaughan and Hamilton. Sale price confidential. 5 Includes properties in Winnipeg, Saskatoon and Regina. Sale price confidential.
2 3

* Strategic transaction - see definition on page 11.

quarter adding a further $273 million to the year’s total, fourth quarter performance came in somewhat weaker than expected with $234 million. The high velocity of transactions in the first half of 2011 slowed dramatically in the summer, largely a result of deficit concerns in the United States, the European debt crisis and greater global economic fears. • Three portfolio transactions were completed in 2011, including the Sutton Place Hotels in Vancouver and Edmonton, four Marriott select service hotels in the Toronto area and three limited service Country Inn & Suites in the Prairie Provinces. All were acquired by Canadian hotel investment companies, signifying the overall dominance and competition of domestic capital sources. • The average hotel trade was $11.2 million, shy of the 10-year average of approximately

$13.0 million. The full service segment led performance with average pricing at approximately $30 million per deal, about triple the overall average. This compares to select service ($18.8 million) and limited service ($4.4 million). Again, all categories strengthened from 2010 levels.

Capitalization Rates
Transactions that reported cap rates averaged 8.9% nationally, in line with our forecast. Full service properties were roughly 180 basis points lower than the overall total and 110 basis points higher for limited service hotels. Cap rates continued their broad compression downward, lower than the 10% to 12% band experienced in the overall traditional hotel market in 2008-2009 and 10% to 13% range that was seen between 2005 and 2007.

Cap Rates Trends for Hotels
2012F 2010 - 2011 2008 - 2009 2005 - 2007 2003 - 2004
8% - 9% 8% - 9% 10% - 12% 10% - 13% 12% - 14%

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2012 Canadian Hotel Investment Report

Transaction Volume and Price Per Room by Province
Number of Hotels $350M $300M $250M $200M $150M $100M $50M $ Volume
No. 18 No. 17 No. 5 No. 4 No. 42 No. 9 No. 2

Price Per Room $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000

$388 Million

British Columbia
$ Price Per Room $ Transaction Volume

Alberta

Saskatchewan

Manitoba

Ontario

Quebec

Nova Scotia

Regional Analysis
Regional transaction volume was relatively balanced for the year. For the first time since 2008, volume in the west came in higher than the east, registering at 55% of total transaction activity. The most active provinces were Ontario (78% of the east’s volume, 35% of the national total), British Columbia (51% of the west’s volume, 28% of the national total) and Alberta (32%, 18%). Activity in Saskatchewan jumped 510% from last year and Manitoba saw a 135% increase, largely reflective of product availability and solid economic strength in these markets, resulting in significant investor interest. Quebec was the only province to experience a decline in transaction activity, down 14% year-over-year. For the first time since 2008, Nova Scotia saw two hotels trade. There were no transactions reported in other eastern provinces.

investors were the most active in terms of the number of completed transactions, they were dwarfed by institutional and hotel investment companies who averaged deal sizes over $25 million. Only 8% of total transaction volume was completed by real estate companies for redevelopment to alternate uses in 2011, compared to 17% and 14% in 2010 and 2009, respectively.

Economic and Financing Environment
The economic picture in Canada was strong and stable throughout the year, notwithstanding the choppy indicators impacting the US and global markets. By the summer, almost four years after the last recession began, worries about a sovereign debt crisis in Europe and political deficit concerns in the US caused consumer and business confidence to drop. Global equity indices declined in response and large investors of all types, including real estate owners, took a wait-andsee approach to their acquisition and disposition strategies. In an attempt to stabilize markets, many central bankers committed to continued low interest rate environments over the medium-term with the US, for instance, pledging a stable 1.0% overnight rate until at least 2013. This assisted investor sentiment by late year and financing continued to

Buyer Profile
Buyer groups included hotel investment companies (representing 45% of the total transaction market); private investors (29%), institutional (15%), real estate companies (8%) and REITs (3%) comprised the balance of the buyers. REITs were largely inactive as they were net sellers, divesting just under $100 million in assets. While private

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2012 Canadian Hotel Investment Report

become more accessible vis-à-vis 2009 and 2010. Yields on Government of Canada 5-year bonds trended downwards throughout the year, averaging between 2.0% and 2.5% in the first half, retreating to 1.25% by the end of the year. As a result, the cost of financing was relatively attractive, particularly for those with relationships and a proven track record.

US rubber-tire travellers at home, in addition to lacklustre provincial economic performance. Ontario (1.5%) and Saskatchewan (1.3%) were both flat. The balance of provinces experienced low growth, not exceeding 1.0%. National supply levels grew at approximately 1.5% on an annualized basis in 2011 and based on our data this figure will grow modestly in 2012 and 2013, but is not anticipated to surpass 2.0% per annum. Overall supply growth has been contained given difficulty in obtaining construction financing. Low barrier to entry airport markets, which witnessed rapid supply growth over the past few years, including Vancouver Airport/Richmond, Toronto Airport and Montreal Airport were at or near zero annualized supply growth in 2011, and these markets are expected to see minimal supply growth over the short term. Edmonton, Regina/Saskatoon and Toronto North/East saw the most growth at 4.1%, 3.3% and 3.2%, respectively, in 2011.

The strongest provinces for RevPAR growth were Newfoundland (6.1%), Alberta (5.5%) and Quebec (4.2%).

Operating Environment & Supply Growth
Overall, hotel owners contended with a flat operating environment in 2011. Data provided by STR and HVS reported that average daily rates declined nationally by 0.6% for the year with occupancies increasing 1.7%, resulting in year-over-year RevPAR growth of 1.1%. The strongest provinces for RevPAR growth were Newfoundland (6.1%), Alberta (5.5%) and Quebec (4.2%). British Columbia saw a 5.8% decline due to the year-over-year comparison from the Winter Olympics. New Brunswick (-1.1%) also experienced a decline as rising fuel costs and a strong Canadian dollar kept traditional

2012 Industry Forecast
• Similar to 2011, we anticipate hotel investment companies and private investors to be the most active players. Given the significant capital accumulated by private equity funds, we could see an emergence of this buyer group if large urban assets become available. Overall cap rates will remain in the range of 7% to 9%, supported by the low interest rate environment. The recycling of hotel assets to alternate uses will likely continue, particularly in large urban markets as older assets become obsolete. Developments such as residential condominiums continue to be favoured by developers, particularly in primary markets such as Vancouver, Calgary, Toronto, Ottawa and Montreal. • Lender-driven sales are not expected to increase and should again comprise a small percentage of the overall market. A continued low interest rate environment will bode well for borrowers and improving industry performance will provide confidence to the lending community.

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•

•

•

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Sizing up the Shift in the Buyer Universe
The movement in the transaction market since the lows of 2009 has resulted in a shuffle in the profile of buyers. Hotel investment companies and institutional investors emerged as the dominant buyer groups, while traditional private sources, REITs and real estate companies shifted from year-to-year.

Hotel investment companies and institutional investors took advantage of higherquality cash flowing assets in 2011, participating in competitive bid processes in order to win deals in an effort to expand their portfolios.

Volume: $1.1 billion
3% 15% 8%

2011

A trend in previous years was the activity by real estate companies buying hotel assets that reached the end of their useful life. This theme slowed in 2011.

45%

29%

Private investors grew their average deal size to $5.0 million in 2011, about 15% higher than in 2009. Despite trading the largest share by number of properties, other well capitalized buyers dwarfed private investor capital in 2011 by volume.

Volume: $717 million
13%
Rings indicate the relative size of the transaction market for the given year.

2010

17%

Volume: $414 million

2009

Hotel Investment Companies

34%

2%

11% 13%

34%
Private Investors Real Estate Companies REITs
60% 14%

2%

Institutional & Other

Like 2011 and 2009, REITs took a backseat on acquisitions and instead focused on improving their liquidity by selling assets and focusing on existing operations.

2012 Canadian Hotel Investment Report

Canadian Hotel Investment Trends
Volume ($ millions) PerCent ChAnGe number of hotels PerCent ChAnGe PriCe Per room ($) PerCent ChAnGe

yeAr

total transaCtion volUme
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 $1,107 717 414 1,072 4,580 2,950 1,706 360 469 540 642 54.3% 73.3 -61.4 -76.6 55.3 72.9 373.9 -23.2 -13.1 -15.9 99 86 74 92 168 141 104 50 51 49 42 15.1% 16.2 -19.6 -45.2 19.1 35.6 108 -2 4.1 16.7 $108,000 83,000 65,500 116,500 154,200 162,000 108,800 67,000 62,200 81,800 111,300 30.1% 26.7 -43.8 -24.4 -4.8 48.9 62.4 7.7 -24 -26.5 -

transaCtion volUme eXClUdinG strateGiC sales*
2011 2010 2009 2008 2007 2006 2005 2004 $786 498 414 571 986 1,092 688 343 58.0% 20.2 -27.5 -42.1 -9.7 58.7 100.6 96 82 74 81 100 131 91 49 17.1% 10.8 -8.6 -19 -23.7 44 85.7 $87,000 $69,000 65,500 84,300 97,000 77,000 70,200 63,900 26.1% 5.3 -22.3 -13.1 26 9.7 9.9 -

* Strategic transactions typically involve at least two of the following conditions: 1) a pricing premium is paid; 2) the asset is located in a high barrier to entry market or within a geographic hub of an owner’s principal business; or 3) the opportunity allows for an extension of the company’s brand or portfolio. Note: Transaction volume is comprised of hotel transactions of at least $1 million, and excludes non-arms length transactions. Source: Colliers International Hotels

Colliers hotel valUe indeX
The Colliers Hotel Value Index monitors the annual rate of change in hotel values, based on the operating performance of a market and industry trends, as well as the return expectations of investors.
The value of hotel real estate grew an estimated 4.8% in 2011, following the 3.0% growth seen in 2010. While all markets experienced positive results in 2011, the most notable markets for rising values included downtown urban markets such as Vancouver Downtown (8.8%), Toronto Downtown (8.3%) and Montreal Downtown (7.0%), with Regina/Saskatoon (6.0%), Winnipeg (5.6%) and Ottawa (5.4%) also showing strong growth. Continued improvements in the overall economy and industry performance as well as fluid debt
11 Colliers International Hotels

The Index illustrates the volatility in hotel values due to shifts in supply For 2012, the value index demonstrates strength and demand, top-line operating performance in markets such as Ottawa (6.7%), Halifax/ and investor attitudes.

markets are expected to continue the upward increase in overall values by 4.4% in 2012.

Dartmouth (6.2%), Toronto Downtown (5.7%) and Calgary (5.4%), as these strong local economies offer relatively balanced supply and demand trends, which form the basis to which our Hotel Value Index is derived. Weaker results are forecasted in Niagara Falls (1.3%), Vancouver Airport (1.8%) and Whistler (2.3%), primarily impacted by sluggish demand prospects.

2012 Canadian Hotel Investment Report

Colliers Hotel Value Index 2002-2012F
MARkET AREA 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

Base Year 1992=100 CPI Index1 Annual % Change Canadian National Avg. % Change Victoria % Change Vancouver Downtown % Change Vancouver Airport % Change Whistler % Change Calgary % Change Edmonton % Change Alberta Mountain Resorts % Change Regina/Saskatoon % Change Winnipeg % Change Toronto North/East % Change Toronto Downtown % Change Toronto Airport West % Change Niagara Falls % Change Ottawa % Change Montréal Downtown % Change Montréal Airport % Change Halifax/Dartmouth % Change
Footnotes:
The Hotel Value Index measures the rate of change in hotel values on a year over year basis. Rates of change are influenced by investor yield expectations, market performance, changes to supply and the overall economic health of the market. 2011E = Estimate 2012F = Forecast 1 CPI Index: Conference Board of Canada Source: Colliers International Hotels

2.2% 196.0 -1.7% 140.5 3.2% 147.0 1.6% 80.6 -3.4% 148.1 3.1% 169.7 1.3% 151.7 4.2% 197.5 5.1% 149.1 -0.1% 127.0 -5.0% 223.1 -12.4% 305.3 -2.2% 221.6 -13.1% 202.7 2.1% 197.8 -6.2% 324.2 5.3% 266.3 1.8% 201.7 1.7%

2.8% 183.4 -6.4% 141.6 0.8% 149.9 2.0% 78.2 -3.0% 149.7 1.1% 168.0 -1.0% 147.1 -3.0% 197.5 0.0% 154.2 3.4% 122.2 -3.8% 183.8 -17.6% 274.8 -10.0% 181.7 -18.0% 168.8 -16.7% 198.0 0.1% 328.1 1.2% 266.8 0.2% 208.0 3.1%

1.8% 193.3 5.4% 148.0 4.5% 161.6 7.8% 81.0 3.6% 153.8 2.7% 176.9 5.3% 152.0 3.3% 201.5 2.0% 156.8 1.7% 123.9 1.4% 199.5 8.5% 309.4 12.6% 196.6 8.2% 189.3 12.1% 202.2 2.1% 345.5 5.3% 275.1 3.1% 212.5 2.2%

2.2% 214.4 11.0% 159.5 7.8% 184.6 14.2% 87.0 7.4% 164.2 6.8% 201.7 14.0% 165.5 8.9% 220.0 9.2% 166.5 6.2% 128.6 3.8% 225.8 13.2% 367.2 18.7% 228.3 16.1% 214.8 13.5% 219.7 8.7% 392.8 13.7% 293.8 6.8% 225.1 5.9%

2.0% 240.8 12.3% 172.9 8.4% 218.2 18.2% 95.2 9.4% 177.7 8.2% 234.3 16.2% 186.9 12.9% 247.0 12.3% 178.3 7.1% 134.3 4.4% 258.1 14.3% 437.4 19.1% 267.8 17.3% 245.3 14.2% 242.8 10.5% 450.2 14.6% 307.0 4.5% 239.7 6.5%

2.1% 271.4 12.7% 188.9 9.2% 263.3 20.7% 104.8 10.1% 191.9 8.0% 274.2 17.0% 209.3 12.0% 284.6 15.2% 193.3 8.4% 141.7 5.5% 289.0 12.0% 536.2 22.6% 316.0 18.0% 280.4 14.3% 267.1 10.0% 504.2 12.0% 319.3 4.0% 249.3 4.0%

2.4% 267.7 -1.4% 178.7 -5.4% 268.3 1.9% 105.8 1.0% 184.2 -4.0% 282.7 3.1% 213.1 1.8% 277.8 -2.4% 205.3 6.2% 146.3 3.3% 282.1 -2.4% 530.9 -1.0% 310.6 -1.7% 274.0 -2.3% 270.8 1.4% 477.0 -5.4% 293.1 -8.2% 249.8 0.2%

0.3% 248.1 -7.3% 156.7 -12.3% 246.3 -8.2% 98.2 -7.2% 166.9 -9.4% 259.2 -8.3% 198.4 -6.9% 252.5 -9.1% 212.5 3.5% 148.7 1.6% 257.0 -8.9% 476.7 -10.2% 264.9 -14.7% 254.5 -7.1% 265.4 -2.0% 450.2 -5.6% 267.6 -8.7% 242.5 -2.9%

2.2% 255.6 3.0% 159.8 2.0% 255.7 3.8% 100.1 1.9% 167.2 0.2% 261.3 0.8% 204.7 3.2% 250.0 -1.0% 224.0 5.4% 154.6 4.0% 263.2 2.4% 506.8 6.3% 276.8 4.5% 256.8 0.9% 274.7 3.5% 473.7 5.2% 271.4 1.4% 245.2 1.1%

2.8% 267.8 4.8% 164.9 3.2% 278.2 8.8% 102.8 2.7% 167.8 0.3% 273.1 4.5% 211.5 3.3% 254.2 1.7% 237.4 6.0% 163.3 5.6% 273.2 3.8% 548.8 8.3% 284.6 2.8% 261.2 1.7% 290.1 5.4% 506.8 7.0% 283.0 4.3% 252.6 3.0%

2.0% 281.2 4.4% 171.4 3.9% 293.0 5.3% 104.6 1.8% 174.3 2.3% 287.8 5.4% 218.3 3.2% 263.9 3.5% 247.1 4.1% 170.1 4.2% 280.5 2.7% 580.1 5.7% 306.3 4.0% 264.6 1.3% 309.5 6.7% 533.2 5.2% 296.6 4.8% 268.2 6.2%

Colliers International Hotels

12

2012 Canadian Hotel Investment Report

2011 Canadian Hotel Transactions
nAme loCAtion rooms DAte PriCe ($) PriCe/ room ($)
$65,300 $27,000 $97,300 $39,600 $93,800 $51,700 $43,800 $47,900 $19,200 n/a n/a $68,100 $74,300 $63,000 $32,800 $31,500 $56,500 $203,700 $73,200 $82,400 $42,600 $83,300 $126,800 $61,200 $43,200 n/a $51,000 $74,600 n/a $58,100 $27,200 $57,300 $133,900 n/a n/a $61,100 n/a $88,500 $78,100 n/a $68,800 $93,000 $118,500 $132,900 $23,500 $22,500 $118,500 $122,400 $50,400 n/a $53,000 $108,200 $291,700 $65,500 $47,800 $26,300

CAP rAte (%)
n/a 3.5 9.6 n/a n/a n/a n/a n/a n/a n/a 2.5 n/a 9.0 n/a n/a n/a n/a 11.5 8.5 4.0 n/a 8.5 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 9.0 n/a n/a n/a n/a n/a 8.4 n/a n/a 7.2 8.2 4.5 n/a n/a 6.2 8.4 n/a 16.0 n/a 4.7 5.6 n/a n/a n/a

Howard Johnson Express Inn HV Hidden Valley ∆ Econo Lodge Inn & Suites Holiday Inn Pointe Claire 1 Howard Johnson Express Inn Winnipeg West 2 Lotus Motel Motel White House ∆ Traveller's Inn Victoria Avenue Inn ∆ Courtyard by Marriott Edmonton Downtown Deerhurst Resort 3 Hotel Port-Royal Kamloops Towne Lodge Lake Simcoe Motel Lloydminster Motor Inn 4 Ramada Inn London ∆ River Garden Inn 5 Stonebridge Hotel Fort McMurray Super 8 Langley Aldergrove 6 Tally Ho Motor Hotel ∆ The Inn at Manitou ∆ 7 Travelodge Nanaimo Best Western of Olds Holiday Inn Express & Suites Squamish (now Sandman Inn) ∆ Le Manoir d'Youville Lonsdale Quay Hotel Niagara Family Inn & Restaurant ∆ Travelodge Kamloops City Centre Anchorage Motel 8 Athabasca Lodge Motel Benmiller Inn & Spa ∆ Delta Toronto East Jasper House Bungalows 9 Navigator Inn 10 Nova Inn Iqaluit (Hotel Arctic) 11 Parkview Motel Perth Manor Boutique Hotel 12 Royal Inn Spruce Grove Traveller's Inn Downtown ∆ Beach Grove Motel 13 Best Western Tumbler Ridge Comfort Inn Vancouver Airport Courtyard & Residence Inn by Marriott Montreal Airport Delta Vancouver Airport 14 Hill Island Resort Hôtel Val-des-Neiges Radisson Suite Hotel Halifax Ramada Inn & Suites Pitt Meadows Shamrock Motel Stock Exchange Hotel ∆ Sunset Inn The Sutton Place Hotel Edmonton* 15 The Sutton Place Hotel Vancouver* 15 Days Inn Chilliwack 16 Idlewyld Inn Knight's Inn Lundys Lane

Calgary, AB Huntsville, ON Edmonton, AB Pointe-Claire, QC Winnipeg, MB Cobourg, ON Beauport, QC Victoria, BC Niagara Falls, ON Edmonton, AB Huntsville, ON Limoilou, QC Kamloops, BC Simcoe County, ON Lloydminster, AB London, ON Stratford, ON Fort McMurray, AB Langley, BC Victoria, BC McKellar, ON Nanaimo, BC Olds, AB Squamish, BC Châteauguay, QC North Vancouver, BC Niagara Falls, ON Kamloops, BC Niagara-on-the-Lake, ON Athabasca, AB Goderich, ON Toronto, ON Jasper, AB Iqaluit, NWT Iqaluit, NWT Guelph, ON Perth, ON Spruce Grove, AB Victoria, BC Ladner (Delta), BC Tumbler Ridge, BC Richmond, BC Montreal, QC Richmond, BC Lansdowne, ON Mont-Sainte-Anne, QC Halifax, NS Pitt Meadows, BC Midland, ON Winnipeg, MB North Bay, ON Edmonton, AB Vancouver, BC Chilliwack, BC London, ON Niagara Falls, ON

48 94 37 308 48 24 32 48 66 177 400 47 202 20 64 124 115 135 41 51 34 78 41 95 117 70 36 67 22 32 57 371 56 45 75 36 6 48 81 15 102 129 329 414 51 111 104 78 24 14 26 313 561 29 23 93

Jan Jan Feb Feb Feb Feb Feb Feb Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Apr Apr Apr Apr Apr Apr May May May May May May May May May May May Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jul Jul Jul

$3,136,200 $2,500,000 $3,600,000 $12,200,000 $4,500,000 $1,241,000 $1,400,000 $2,300,000 $1,265,000 n/a $26,000,000 $3,200,000 $15,000,000 $1,260,000 $2,100,000 $3,900,000 $6,500,000 $27,500,000 $3,000,000 $4,200,000 $1,450,000 $6,500,000 $5,200,000 $5,810,000 $5,050,000 n/a $1,835,000 $5,000,000 $4,507,000 $1,860,000 $1,550,000 $21,275,000 $7,500,000 $3,800,000 $17,000,000 $2,200,000 $1,350,000 $4,250,000 $6,325,000 $1,350,000 $7,015,000 $12,000,000 $39,000,000 $55,000,000 $1,199,000 $2,500,000 $12,324,000 $9,550,000 $1,210,000 $2,200,000 $1,377,000 $33,875,000 $163,625,000 $1,900,000 $1,100,000 $2,450,000

13

Colliers International Hotels

2012 Canadian Hotel Investment Report

nAme

loCAtion

rooms

DAte

PriCe ($)

PriCe/ room ($)
$99,600 n/a $50,800 $21,800 $49,100 n/a n/a n/a $140,000 $18,600 n/a n/a $57,100 $158,000 $63,800 $17,900 $116,700 n/a $48,900 $65,800 $140,000 $70,200 $88,600 $84,700 $144,700 n/a n/a n/a n/a $46,600 $156,300 $66,300 $46,200 $50,600 $97,000 $122,700 $25,300 $106,300 $86,400 $50,000 $33,750 $61,800 $136,900

CAP rAte (%)
12.9 n/a 16.2 n/a n/a n/a n/a n/a 10.0 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 11.3 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 9.1 4.3 7.3 n/a 7.0 10.7 n/a n/a n/a n/a n/a 8.9 10.0

Motel 6 Estevan Super 8 Regina Travellers Inn Baymont Inn & Suites by the Falls ∆ Best Western White House Inn Country Inn & Suites by Carlson Regina 17 Country Inn & Suites by Carlson Saskatoon 17 Country Inn & Suites by Carlson Winnipeg 17 Holiday Inn Calgary Airport Hotel L'Urbania Quebec Howard Johnson Toronto Yorkville 18 The Rosseau, a JW Marriott Resort & Spa ∆ 19 Tulip Inn Best Western Premier Freeport Inn & Suites 20 Hotel Clarion Gatineau Indigo Inn Inn on Somerset InterContinental Toronto Centre* 21 Monterey Inn Resort Super 8 Medicine Hat The Oasis Hotel ∆ 22 Travelodge Trenton Aerie Resort ∆ 23 Best Western Plus Governor's Inn Best Western Village Park Inn Courtyard Hamilton 24 Courtyard Mississauga Airport Corporate Centre West 24 Residence Inn Mississauga Airport Corporate Centre West 24 Residence Inn Toronto Vaughan 24 Garden City Inn & Suites Hilton Suites Winnipeg Airport Holiday Inn Express Halifax-Bedford Michael's Inn Niagara Falls 25 Palace Motel 26 Super 8 Barrie 27 Super 8 Vermillion Thriftlodge Lethbridge Hotel Clarendon The Grange Hotel Code's Mill Inn & Spa ∆ Elephant Lake Lodge Holiday Inn Yorkdale Regina Wingate Inn

Estevan, SK Regina, SK Camrose, AB Niagara Falls, ON Brockville, ON Regina, SK Saskatoon, SK Winnipeg, MB Calgary, AB Trois-Rivières, QC Toronto, ON Minnett, ON Woodstock, ON Calgary, AB Gatineau, QC Cornwall, ON Ottawa, ON Toronto, ON Ottawa, ON Medicine Hat, AB Surrey, BC Quinte West, ON Malahat, BC Kincardine, ON Calgary, AB Hamilton, ON Mississauga, ON Mississauga, ON Vaughan, ON St. Catharines, ON Winnipeg, MB Halifax, NS Niagara Falls, ON Grimsby, ON Barrie, ON Vermillion, AB Lethbridge, AB Quebec City, QC Toronto, ON Perth, ON Haliburton, ON Toronto, ON Regina, SK

68 61 40 59 57 77 76 76 168 102 71 132 21 97 116 67 12 586 88 70 40 43 35 59 159 136 94 133 132 52 160 98 130 24 82 66 91 143 77 58 32 370 118

Jul Jul Jul Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Sep Sep Sep Sep Sep Sep Sep Sep Sep Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Nov Nov Dec Dec Dec Dec
21

$6,775,000 n/a $2,030,000 $1,285,000 $2,800,000 n/a n/a n/a $23,500,000 $1,900,000 $12,250,000 n/a $1,199,900 $15,500,000 $7,400,000 $1,200,000 $1,400,000 n/a $4,300,000 $4,604,000 $5,600,000 $3,020,000 $3,100,000 $5,000,000 $23,000,000 n/a n/a n/a n/a $2,425,000 $25,000,000 $6,500,000 $6,000,000 $1,215,000 $7,950,000 $8,100,000 $2,300,000 $15,200,000 $6,650,000 $2,900,000 $1,080,000 $22,850,000 $16,150,000

Footnotes:
Includes excess land for future development. Share sale. Situated on 800 acres and includes significant development potential. Price per room not applicable. 4 Includes a tavern, lounge and video lottery operations. 5 The purchaser plans to convert the property to a retirement residence. 6 50% interest transferred. The Hotel has 81 rooms. 7 The property closed operations in April 2010. Includes approximately 70 acres of land. Property sold under receivership. 8 Includes two houses and a 10,000 SF vacant restaurant. The new owner plans to redevelop the property. 9 Purchase of leasehold interest. 10 Purchased to eventually redevelop the site into alternate uses. Part of a larger property transaction valued at $71 million, which included other commercial and residential uses.
1 2 3

Part of a larger property transaction valued at $71 million, which included other commercial and residential uses. Includes food and beverage and banquet operations and owner’s residence. Price per room not applicable. 13 Purchased for redevelopment to alternate use. 14 Share Sale. 15 Part of a two property portfolio. Vancouver includes 397 guest rooms and 164 strata units branded as La Grande Residences. 16 Purchased for redevelopment to alternate use. 17 Part of a three property portfolio transaction. 18 Purchased for redevelopment to alternate use. Price per room not applicable. 19 Sold under receivership. The property purchased includes 60% of the resort’s condominium units, 13,800 SF of meeting space, food and beverage outlets and associated lands, which may be developed in the future. 20 New build with no operating history.
11 12

Sold as part of a larger transaction, including a 13-storey class “A” 265,000 SF office tower and an interest in the Metro Toronto Convention Centre complex. 22 Purchased for redevelopment to alternate use. The property was vacant at the time of sale. 23 The property was closed at the time of sale. 24 Part of a four property portfolio transaction. 25 Purchased for redevelopment to alternate use. 26 The purchaser intends to convert the property to a retirement residence. 27 Includes a 7,300 SF freestanding leased restaurant. Distress sale sold under power of sale or receivership. * Strategic sale.
∆

Source: Colliers International Hotels

Colliers International Hotels

14

Colliers International Hotels
One Queen Street East Suite 2200 Toronto, ON M5C 2Z2 TEL +1 416 777 2200 FAX +1 416 777 9232 www.colliershotels.com Alam Pirani +1 416 643 3414 [email protected] Prathmesh Mehta +1 416 643 3791 [email protected] Tom Andrews +1 604 661 0846 [email protected] Hamir Bansal +1 604 661 0850 [email protected] Robin McLuskie +1 416 643 3456 [email protected] Russell Beaudry +1 416 643 3761 [email protected] 200 Granville Street Suite 1900 Vancouver, BC V6C 2R6 TEL +1 604 681 4111 FAX +1 604 661 0849

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