CBRE HOTELS CANADA | CBRE CAPITAL MARKETS
CANADIAN HOTEL INVESTMENT TRENDS Q4.2012
IN THIS ISSUE INTRODUCTION
Overall Canadian commercial real estate investment remained buoyant in 2012 with total Introduction transaction volume increasing to over $28 billion versus $23.6 billion in 2011. In the hotel Operating Results sector, volume reached $1.1 billion in 2012, just shy of the $1.2 billion reported in 2011. An estimated 102 hotel transactions occurred in 2012 (104 in 2011) with an average price per room Transaction Report of $100,400 ($107,000 in 2011). Comparatively, US hotel transaction volume was consistent Cap Rate Survey with 2011 levels at approximately $20 billion, with the number of trades at 2,123 (valued at $2.5 million and above) and pricing per room at $123,100. 2012 VS. 2011 TRANSACTION ACTIVITY The outlook for Canadian hotel investment in 2013 is positive as interest rates remain low and sources of debt capital expand. We forecast transaction volume in 2013 will be on par with or Number of Trades: 102 () exceed 2012 levels as owners proceed with strategic dispositions of underperforming or non-core Transaction Volume: $1.1B () assets generally in need of capital investment. These dispositions provide value add and turnaround Price Per Room: $100,400 () opportunities for private, entrepreneurial investors who are able to renovate and reposition assets more cost efficiently. Avg Deal Size: 108 rms / $10.7M Canadian GDP grew by an estimated 1.8% in 2012 while national hotel RevPAR improved 2.6%. The Conference Board of Canada is projecting Canadian GDP to increase 2.3% in 2013 and this INTEREST RATES AND OTHER increased economic momentum will help stimulate stronger RevPAR growth. Resource dominated FINANCIAL INDICATORS markets remain the beneficiary of major capital projects, which in turn is helping to drive the Prime (Canada) 3.00% strongest increases in operating fundamentals across the hotel sector. Prime (U.S.) 3.25% As shown in the attached CBRE Q4 Cap rate survey, hotel capitalization rates have stabilized as 5 Yr Gov. Bond 1.53% growth prospects have slowed from the recovery period of 2009-11 and economic forecasts are 10 Yr Gov. Bond 2.04% tempered from 2013 onwards. LIBOR 3-month 0.30% OPERATING RESULTS S&P/TSX Composite 12,768 Year-end 2012 results from Smith Travel Research report national room demand grew 1.6%, with As of February 2, 2013 ADR and RevPAR increasing 1.6% and 2.6%, respectively. Sourcce: Bloomberg, Bank of Canada, TMX Provincially, Alberta led RevPAR growth at 9.2%, followed by Newfoundland (4.9%) and Saskatchewan CANADIAN HOTEL TEAM CONTACTS (4.0%), reflecting the continued strength of the resource sector in these regions. Markets with the BROKERAGE: strongest room demand growth included Edmonton at 8.0%, and Vancouver South/Surrey and Bill Stone 416.815.2371 Alberta South each increasing 6.7%. Individual Alberta markets dominated RevPAR growth, the Deborah Borotsik 416.815.2347 most robust being Calgary (13.1%) and the Alberta North Area (11.1%). Mark Sparrow 604.662.5192 In Canada’s major markets, the highest occupancy levels were achieved in Regina (73.1%), Luke Scheer 416.815.2313 Saskatoon (72.5%) and Downtown Toronto (72.6%). Banff reported the highest ADR at $178.02, Greg Kwong 403.750.0514 followed by Downtown Vancouver ($164.71) and Downtown Toronto at ($164.08). By segment, resorts showed the strongest RevPAR growth at 6.2%. Results for Banff and Whistler ADVISORY & CONSULTING: were particularly strong given the excellent snow conditions this past winter and strong tourism Brian Flood 416.874.7272 season in the summer. RevPAR improved in most resort markets across the country including in Kimberly Dickey 416.815.2348 Banff (7.6%) and Niagara Falls (5.7%). Lisa Keogh 416.815.2326 Karina Toome 416.847.3243
TORONTO VANCOUVER CALGARY 145 King St. West, Suite 600 1111 West Georgia St., Suite 600 530 8th Ave. SW, Suite 500 Toronto, ON M5H 1J8 Vancouver, BC V6E 4M3 Calgary, AB T2P 3S8 www.cbrehotels.com CANADIAN HOTEL INVESTMENT TRENDS | Q4.2012
Q4 TRANSACTION HIGHLIGHT TRANSACTION REPORT
Geographically, Ontario accounted for just under half of the transaction volume in 2012, followed by Alberta and Quebec with 25% and 12%, respectively. While Ontario and Quebec transaction volume was proportionate to last year, Alberta’s volume has escalated, increasing its market share from 16% to 25% and underscoring its economic momentum. A number of larger-scale transactions occurred in Q4 including the acquisition of the 250-room Saskatoon Inn Hotel & Conference Centre ($37.15 million) by Temple REIT (now Temple Hotels Inc.), the 94% tenant-in-common interest in the 424-room Toronto Airport Marriott ($30.6 million) by Morguard Corporation and 154-room Four Points Toronto Lakeshore ($25.7 million) by Carttera for redevelopment to condominiums.
STATION PARK ALL-SUITE HOTEL Below is a selection of transactions completed in Q4 2012: Date: October 2012 Q4.2012 - SELECT CANADIAN HOTEL SALES Cap Address: 242 Pall Mall Street, London, ON Name Location Month Rms Price Price/Room Rate Vendor: The Decade Group Purchaser: Fortis Properties Comfort Inn Windsor Windsor, ON Oct-12 80 $3,400,000 $42,500 5.0 Rooms: 126 Purchase Price: $12.65M ($100,400 per room) Opus Hotel Montreal (1) Montreal, QC Oct-12 138 $10,000,000 $72,500 N/A
Cap Rate: 8.0% Holiday Inn Express Stellarton, NS Nov-12 125 $7,899,999 $70,200 12.0 Stellarton (2) Station Park All Suite Hotel is located in the heart Saskatoon Inn Hotel & of London’s downtown business, entertainment and Saskatoon, SK Nov-12 250 $37,150,000 $148,600 10.2 Conference Centre shopping district. The 126-room hotel was developed Toronto Airport Marriott by The Decade Group in the 1990s as part of a hotel/ Toronto, ON Nov-12 424 $30,600,000 $76,000 Confidential Hotel (3) retail/office development, and includes 1,800 SF of meeting space and a fitness centre. Super 8 Edson Edson, AB Dec-12 63 $6,400,000 $101,600 11.7
The Hotel had been owned and operated by the (1) Receivership. Re-opened as Hotel 10. (2) Purchase price of $7.9 million reflects a 90% interest in the Hotel. Price per room has been calculated on a pro-rated developer and its investors until its purchase by Fortis 100% basis. Properties in October 2012. With the addition of the (3) Purchase price of $30.6 million reflects a 94.8% tenant-in-common interest in the Hotel. Price per room has been calculated on a pro-rated 100% basis. Station Park All-Suite Hotel to their portfolio, Fortis Properties now owns and operates 23 hotels across CBRE Hotels anticipates 2013 activity will again be dominated by private investors and Canada. hotel investment companies, a shift from 2012 where real estate companies/developers dominated and REIT activity was strong, particularly in Western Canada. A breakdown of Fortis Properties will undertake a $1.5 million buyers by transaction volume in 2012 is provided below. capital investment plan over the next two years to further enhance the property and ultimately the 2012 Buyer Breakdown guest experience. The Hotel was a solid market performer and became a strategic expansion of Fortis’ established presence in Southwestern Ontario with REIT 15% 15% 2% hotels in Kitchener, Cambridge, Sarnia and Windsor. 1% Real Estate Company/Developer
The London market has under performed in recent Public Company years as a result of many new hotels opening near Private Investor the Highway 401 and Wellington Road interchange 22% and regional downsizing of the auto sector. However, Offshore Investor while RevPAR is down year over year by 4.9%, RevPAR 41% Institution has increased month over month in November and 4% December by 6.8% and 3.2%. Hotel Investment Company CANADIAN HOTEL INVESTMENT TRENDS | Q4.2012
CBRE CANADIAN CAP RATE SURVEY - Q4 2012
CBRE’s Canaddian Cap Rate Survey is included below. Cap rate estimates are provvided by National Investment Team members in respective markeets based on marrket transactions and/or feedback from investors on their current yieldd expectations.
Vancouver Calgaryy Edmonton Winnipeg Toronto Ottawa Montreal Halifax
HOTEL
Downtown Full-Service 6.50-7.50% 6.50-7.50% 7.00-8.00% 8.00-9.00% 6.75-7.75% 7.50-8.50% 7.75-8.75% 8.75-9.75% Suburban Limited-Servicee 7.50-8.50% 8.50-9.50% 9.00-9.50% 9.50-10.50% 8.50-9.50% 8.75-9.25% 9.50-10.50% 9.50-10.50% DOWNTOWN OFFICE
“A A” 4.50-5.00% 5.00-5.50% 5.50-6.00% N/A 4.75-5.25% 5.00-5.75% 5.00-5.50% N/A
“A” 4.75-5.25% 5.50-6.00% 5.75-6.25% 6.25-6.75% 5.25-5.75% 5.25-6.00% 5.50-6.00% 6.00-6.50%
“B” 4.75-5.25% 6.25-6.75% 6.50-7.00% 7.00-7.50% 6.00-6.50% 6.25-7.00% 6.00-6.75% 7.00-7.50%
SUBURBAN OFFICE
“A” 5.75-6.25% 5.75-6.25% 6.25-6.75% 7.00-7.50% 5.75-6.50% 6.25-7.25% 6.25-7.00% 7.00-7.50%
“B” 6.00-6.50% 6.25-6.75% 6.75-7.25% 7.50-8.00% 6.75-7.25% 7.25-7.75% 7.25-8.25% 7.50-8.00%
INDUSTRIAL
“A” 5.50-6.00% 5.50-6.00% 5.50-6.00% 6.50-7.00% 5.75-6.25% 6.00-6.25% 6.25-6.75% 6.75-7.25%
“B” 5.50-6.25% 6.25-6.75% 6.25-6.75% 7.50-8.00% 6.25-7.25% 7.00-7.50% 7.50-8.75% 7.25-7.75%
RETAIL
Regional 5.00-5.50% 5.00-5.50% 5.00-5.50% 6.00-6.50% 4.75-5.50% 5.25-6.25% 5.50-6.25% 5.50-6.00%
Power 5.50-6.00% 5.50-6.00% 5.50-6.00% 6.50-7.00% 5.50-6.50% 5.75-6.50% 5.75-6.50% 6.00-6.50%
Neighbourhood 5.50-6.00% 5.75-6.25% 5.75-6.25% 7.00-7.50% 5.50-6.50% 6.25-7.00% 7.00-8.00% 6.25-6.75%
Strip 5.50-6.00% 6.00-6.50% 5.50-6.00% 7.00-7.75% 5.50-6.50% 6.25-7.25% 5.75-6.50% 6.50-7.50%
Strip (Non Anchoredd) 5.75-6.25% 6.50-7.00% 6.50-7.00% 7.50-8.50% 6.50-7.50% 7.00-7.50% 7.50-8.25% 7.50-8.00% APARTMENT
High Rise A 3.50-4.00% 4.00-4.50% 4.50-5.00% N/A 3.50-4.25% 4.25-5.00% 4.75-5.50% 5.25-5.75%
High Rise B 4.25-4.75% 4.50-5.00% 5.00-5.50% 5.25-6.00% 4.25-4.50% 5.25-5.75% 5.50-6.00% 5.75-6.25%
Low Rise A 3.75-4.25% 4.00-4.50% 4.75-5.25% 5.50-6.50% 3.50-4.25% 4.25-5.25% 6.00-6.50% 5.50-6.00%
Low Rise B 4.50-5.00% 4.50-5.00% 5.50-6.00% 5.75-6.00% 4.50-5.25% 5.50-6.25% 6.50-7.00% 6.00-6.50%
NOTES ON SURVEY AA Downtown Office: The Downtown’s best office Regional: Enclosed Malls, are the top performers in sales store; supplies a wide range of apparel and soft goods. buildings, typically newer, larger than 800,000 SF PSF, has strong anchors and high percentage of National Can range from 150,000 SF–350,000 SF. with larger floor plates, attract larger, top quality Tenants in CRU space. Typically >500,000 SF and has a tenants with 5 and 10 year leases. department store as one of the anchors. Strip (Anchored): Open-air centre anchored by either food or drug. Class A Suburban Office & Industrial: Best of Power Centres: Open-air retail centre comprised of larger, class product, recently completed to a high-standard, brand name tenants. Tend to be in a node with other anchor Strip (Non-Anchored): Open-air centre typically not leases to better quality tenants on 5 and 10 year tenants. Limited CRU space and typically larger than 400,000 anchored by either food or drug. leases, typically newer construction. SF or in a node of that size. Hotel: Rates indicated are based on normalized results Class B Suburban Office & Industrial: Older Community/Neighbourhood: Enclosed Centre that serves after deduction of management fees and reserves for product, mostly 5 year leases, typically previously a community and is generally anchored by some combination replacement. owned. of a junior department store, supermarket, drug or sport
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