2016 Canadian Investment Report

Colliers International

HOTEL

colliershotels.com SPECIALYEAR IN REVIEWFEATURE 20162016 CanadianCanadian HotelHotel InvestmentInvestment ReportReport

HOHTOETLEL

The Canadian hotel real estate market continued its upward trajectory in 2015, finishing its 6th year in the current up-cycle and bringing combined total transaction volume to over $9 billion. It was a year of record-setting volumes; the highest since 2007 and the third highest in history at $2.46 billion in sales. Despite this, there are real concerns in the market given the impact of the recent ‘boom to bust’ in certain parts of the country that are oil and gas dependent, and the potential ripple effect this may have on other parts of the country.

For this year’s special feature, we interviewed a cross-section of hotel participants to gauge their views on investing in 2016 and beyond, and to ascertain predictions on tailwinds and headwinds for the industry in the coming years. What transpired were strategies that resembled a game of chess, whereby each player is carefully formulating their “next move” and looking for patterns as a way to predict future circumstances. At this point in the cycle the fundamentals of the game are being applied to owners’ portfolios, in order to protect and advance their position. Different phases of the game require different skills, and this includes ‘playing for the advantage’ in good times, and establishing moves that can both attack and defend in difficult times - both of which involve advance planning in order to help dictate the game’s course. THE NEXT MOVE The simple reality is that the hotel market is not static – parts of the country are in turmoil particularly within the energy-dependent markets, while a large majority of other markets are thriving. The overwhelming consensus remains that hotels are a very strong asset class, but one in which the durability of the income stream can be unpredictable due to external events. The question becomes how do investors navigate during volatile times and what factors determine their risk threshold and investment perspective when evaluating their next move?

Five broad views observed by some of Canada’s most significant hotel participants today include:

There continues to be good investment opportunities, depending on the buyer and risk profile. Fortunately the hotel market is characterized by a healthy mix of investor types in the current L HOTE landscape that attract a variety of different product given various investment and exit perspectives. Institutional capital is largely focused on urban, full-service assets in core markets for longer- term holds and would place money in key assets if the opportunities were right. While private investors and hotel investment companies are also targeting Canada’s top markets, they are also less risk- averse to investing in smaller markets subject to proper due diligence on timing the market, picking the right product positioning and taking advantage of the current cost of capital. Buyer profiles can be broken down even further, with certain groups focused on in-place yield, versus more opportunistic acquisitions that require repositioning and are therefore valued using different metrics. Generally speaking, as long as cash-on-cash returns are favourable relative to where cap rates and interest rates lie, investors will continue to pursue new acquisitions.

2 Colliers International Hotels 2016 Canadian Hotel Investment Report SPECIALYEAR IN FEATURE REVIEW

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Portfolio diversity matters more than ever from both a Continued operational improvements are on the horizon from geographic market perspective as well as asset class mix. a top-line perspective, but there is more room to improve the This premise has evolved into a golden rule for both small and bottom line. The recent rebound in high-torque markets such larger investors in order to spread risk and exposure over the as and Toronto as well as Alberta Mountain Resorts long-run. The majority of participants cited the benefits of is a great success story from a top-line perspective. Optimism having properties in multiple geographic regions to help offset is abound for further improvements in these key markets given turmoil that can arise in markets/regions dominated by only a economic forecasts as well as currency benefits in the short few core industries. Investing in larger urban markets have to medium term. Another key component to top line growth is obvious advantages of reduced volatility given more diversified owners investing significant capital into older product thereby economies, but on the flipside several smaller markets have allowing for healthy rate gains as well as reduction in supply as seen such tremendous gains in the current cycle that these can conversions of hotels to alternative use continue. The increase often override losses so long as the investor can weather the in top line (particularly rate growth) translates to increased storm. Several groups cited that diversity into other real estate bottom-line flow-through and profitability. However, many asset classes also significantly helps their overall portfolio participants believe there is still more room to increase rates returns, particularly when the economy turns and the hotel and it is particularly crucial given increased operating costs market sees larger declines than other asset types such as that can outpace revenue growth. Owners are continuously office and multi-residential. evaluating their cost structure including key items such as labour, property taxes and other operating expenses in order to Currency trends are going to fare well for the market from both improve profitability. an operational as well as investment perspective. Canada is one of the world’s top destinations and the country Like the game of chess, investors are methodically making their continues to increase its awareness on a global moves to solidify their portfolios to take advantage of upside scale for attracting the individual traveler and mitigate threats. While there are serious concerns with as well as group and tour business. energy-linked markets at the present time, Canadian hotel Significant benefits are accruing investors are generally well capitalized, and for the most from the efforts of Destination Canada, part, geographically diversified. Current sentiment may the government agency responsible for be that of cautious optimism, but positive industry marketing Canadian travel, and with the low characteristics are overshadowing near-term dollar continued positive results in key markets concerns with major hotel real estate owners across the country is anticipated. Cross- optimistic about long-term opportunities and border investors are also increasingly looking at returns. acquisition opportunities, although their investment criteria are largely focused on major market urban projects, which are limited in supply and are met with increased competition from well-capitalized domestic capital sources.

Industry disruptors are top of mind. Fresh off the previous decade-long battle with online travel agencies (OTAs), new innovations such as AirBNB are rapidly transforming the way Special thanks to representatives of the following companies who travelers book their accommodations. While these innovations provided their insights for this feature (in alphabetical order): are providing some benefit to the consumer, it has yet to be determined what impact these alternative distribution channels Area Inc., Canalta Hotels, Easton’s Group of Companies, Genesis will have on traditional hotel performance. Owners of assets in Hospitality Inc., InnVest REIT, Northland Properties Corporation, secondary and tertiary markets for the most part do not see this Oxford Properties Group, Pomeroy Lodging Group, Silver Hotel as a major issue. However, the fundamental challenge is that Group, SilverBirch Hotels & Resorts, Sunray Group of Hotels, this channel is not currently monitored and regulated. Westmont Hospitality Group.

Colliers International Hotels 3 YEAR IN REVIEW 2016 Canadian Hotel Investment Report

2015 In Review HOTEL 2015: YEAR IN REVIEW POSITIVE DRUMBEAT CONTINUES Canadian hotel transaction volume grew to $2.46 billion in 2015, a 70% year-over-year increase with 147 transactions reported. While this was the third highest volume reported on record and the highest in the current cycle, a number of macro-economic events impacted the markets in 2015 – most notably commodity price declines and a drastically lower Canadian dollar. Heightened interest in the overall transaction market persisted, facilitated by a healthy debt market and 2015 Volume by Segment a wide variety of well capitalized buyer groups, including increased interest by cross-border purchasers. 2015 TRANSACTION HIGHLIGHTS 73%

A new record was set on single asset transactions over the $25 million threshold. There were 17 single assets trading above this level, surpassing the previous record Full-Service Assets of 14 deals in 2014 and illustrative of the appetite for larger urban full-service assets Volume $1.793 billion in the current cycle. YOY Trend # of Trades 60 • Average per room pricing was $114,300 – • Volume in Alberta fell approximately 17% Avg. Price/Rm $134,100 a 23% increase from 2014 – indicative of year-over-year ($271 million versus $328 strong market fundamentals and the quality million in 2014), although average price of assets trading. per room improved to $118,600 versus $93,700 in the year prior. • Full-service transactions dominated deal activity and represented 73% of • Three portfolios transacted totaling 26 13% national transaction volume, up 140% properties and 16% of volume ($404 year-over-year ($1.8 billion versus million versus $118 million in 2014 and $750 million in 2014). $930 million in 2013). Fortis Properties, Focused-Service Assets who sold their portfolio to focus on their • Fewer focused-service properties came core electric and utility gas business, Volume $332 million to market during the year with 19 trades YOY Trend disposed of 22 properties that represented representing 13% of volume ($332 million # of Trades 19 90% of overall portfolio activity. versus $391 million in 2014). Avg. Price/Rm $116,100 • For transactions reporting capitalization • Eastern Canadian transactions represented rates there was a continuing trend in 53% of national volume, in-line with compression year-over-year. Overall historical trends. A handful of trades national cap rates averaged 7.3% for the swayed average price per room in the year, 160 basis points lower than 2014. west which saw a pricing premium, 14% averaging $175,100 per room versus • The distress market was muted at just 1% $87,700 in the east. of trading volume, the lowest reading in the current cycle. • Ontario maintained its position as the most Limited-Service Assets active province, accounting for 39% of Volume $334 million national volume ($967 million versus $505 YOY Trend million in 2014). Transaction activity was # of Trades 68 underpinned by several large trades in the Avg. Price/Rm $61,600

Greater Toronto Area. Source: Colliers International Hotels

4 Colliers International Hotels 2009 2008 2007 $4B 2006

$3B 2005 2004 $2B 2003 2002 $1B 2001 2000 1999 199 8 199 9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1998

AB Institutional BC MB Hotel Investment Company SK Real Estate Company TOT TTL Public Company

Private Investor 0 20 40 60 80 100

Institutional

Hotel Investment Company

Real Estate Company

Public Company

Private Investor

2016 Canadian Hotel Investment Report YEAR IN REVIEW

L E T O H

CANADIAN HOTEL INVESTMENT TRENDS 2015 ended as the highest year on record for traditional transaction volume, Strategic Volume an important measure for core trading activity. Traditional Volume

CHIP REIT & Legacy REIT both took private contributing to $3.2B in transaction volume

5B $5B for the year (70% of the year’s total volume).

4.5B Fairmont Canadian Resort

4B Portfolio sold for $1.7B (58% of the year’s volume).

3.5B

3B $3B Westin Canadian Hotel Portfolio re-sold for $765M (40% of the 2.5B Strategic portion primarily represented by the year’s total volume). sale of the Westin Canadian Hotel Portfolio. 2B

1.5B

1B $1B

500

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total Transaction Volume (including strategic sales) $ Volume $423 $443 $642 $540 $469 $360 $1,706 $2,950 $4,580 $1,072 $414 $717 $1,107 $1,178 $2,023 $1,455 $2,460 (M)

% Change -68.1% 4.7% 44.9% -15.9% -13.1% -23.2% 373.9% 72.9% 55.3% -76.6% -61.4% 73.2% 54.4% 6.4% 71.7% -28.1% 69.1%

# Hotels 41 49 42 49 51 50 104 141 168 92 74 86 99 116 115 127 147

% Change -76.6% 19.5% -14.3% 16.7% 4.1% -2.0% 108.0% 35.6% 19.1% -45.2% -19.6% 16.2% 15.1% 17.2% -0.9% 10.4% 15.7%

$/Room $87,700 $80,900 $111,300 $81,800 $62,200 $67,000 $108,800 $162,000 $154,200 $116,500 $65,500 $83,000 $108,000 $83,600 $133,000 $93,200 $114,300

% Change 54.1% -7.8% 37.6% -26.5% -24.0% 7.7% 62.4% 48.9% -4.8% -24.4% -43.8% 26.7% 30.1% -22.6% 59.1% -29.9% 22.6%

Traditional Transaction Volume (excluding strategic sales) $ Volume $165 $301 $262 $185 $384 $343 $688 $1,092 $986 $571 $414 $498 $786 $1,178 $1,138 $1,210 $1,634 (M)

% Change -87.5% 82.4% -13.0% -29.4% 107.6% -10.7% 100.6% 58.7% -9.7% -42.1% -27.5% 20.3% 57.8% 49.9% -3.4% 6.3% 35.0%

# Hotels 36 48 39 43 49 49 91 131 100 81 74 82 96 116 109 125 142

% Change -79.4% 33.3% -18.8% 10.3% 14.0% 0.0% 85.7% 44.0% -23.7% -19.0% -8.6% 10.8% 17.1% 20.8% -6.0% 14.7% 13.6%

$/Room $49,900 $60,600 $65,500 $49,300 $61,300 $63,900 $70,200 $77,000 $97,000 $84,300 $65,500 $69,000 $87,000 $83,600 $87,500 $82,200 $84,600

% Change -12.3% 21.4% 8.1% -24.7% 24.3% 4.2% 9.9% 9.7% 26.0% -13.1% -22.3% 5.3% 26.1% -3.9% 4.7% -6.1% 2.9%

* 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: Trends are based on hotel transactions of at least $1 million. Source: Colliers International Hotels

Colliers International Hotels 5 YEAR IN REVIEW 2016 Canadian Hotel Investment Report

HOTEL

Diverse Seller Motivations at Play Buyer Interest Leads to Brisk Activity • Institutional sellers continued to shed non-core • Hotel investment companies (“HICs”) were the hotel assets to redeploy capital. Approximately most active buyer group by transaction volume 65% of transaction volume was attributed to and number of rooms with 46 deals totaling $831 institutional owners disposing assets, including million (34% of volume). HICs were the most 2015 Buyer Composition Public Companies, Pension Funds and Real dominant in the full-service segment acquiring % of Volume Estate Companies. The largest sellers were 29 properties for $661 million. Ivanhoe Cambridge (2 transactions; $366.5 • Private investors represented the largest number % million in volume), Fortis Properties (22; $365 9 % of acquisitions with 76 transactions totaling 20 million), and three of Canada’s public lodging % $490 million (20% of volume). This buyer 11 companies, who collectively disposed of seven category was the most active in the limited- assets representing $85 million. service space where there was an abundance • Cross border sellers have been an active part of of opportunities, particularly in secondary and 26% this cycle and represented $383 million or 16% tertiary markets. 34% of sell-side volume in 2015 alone. Approximately • Foreign investors acquired 27 Canadian hotels in 18% of sell-side volume since 2010 has been 2015 representing $515 million (21% of volume). non-Canadian investors representing $1.6 There was significant interest behind the scenes billion of the cycle’s $9.0 billion in activity. The with foreign-based groups actively underwriting majority of this activity was due to US sellers Private Investor | 20% and bidding on prime offerings. The largest motivated by disposing assets in order to focus Real Estate Company | 26% and most notable acquisitions include the on their own domestic growth. 22 property Fortis Canadian Hotel Portfolio Hotel Investment Company | 34% • Asset appreciation in urban areas was a bright which was acquired by a Westmont sponsored Institutional & Other | 11% spot, particularly as it relates to Toronto and partnership backed by American capital as well Public Company | 9% Vancouver where overall real estate values as The Westin Prince Toronto, which sold for Source: Colliers International Hotels have seen rapid growth. $70 million to an investment group based out of Mainland China.

Significant Single-Asset Transactions in 2015 (by volume) # of Price Price / Cap Buyer Property Seller Buyer Keys ($M) Room Rate Origin

The Westin Bayshore (1) Capital Group Global, L.P. Concord Pacific 511 $290.0 $567,500 n/a Canadian

KingSett (60%), InnVest REIT (20%), Hotel (2) Ivanhoe Cambridge 1,363 $186.5 $137,000 n/a Canadian Ivanhoe Cambridge (20%)

Fairmont (3) Ivanhoe Cambridge Larco Investments Ltd. 556 n/a n/a n/a Canadian

Courtyard by Marriott Toronto Groupe Jesta KingSett (66%), InnVest REIT (33%) 575 $99.0 $172,200 n/a Canadian Downtown

The Westin Prince (4) Prince Spa and Resort Operations Ltd. Wufung Construction Group 395 $70.0 $177,200 5.7 Asian

Best Western Primrose Hotel (5) Arsandco Investments Ltd. Knightstone Capital/ HOOP 335 $50.54 n/a n/a Canadian

Delta Lodge at Kananaskis Kananaskis Alpine Resort Inc. Pomeroy Group 412 $42.5 $103,200 n/a Canadian Top Portfolio Transactions in 2015 (by volume)

Fortis Canadian Hotel Portfolio (6) Fortis Properties Corporation Westmont Sponsored Partnership 4,716 $365.0 $87,400 n/a USA

Novotel GTA Portfolio (7) Canada Vrancor Group 585 $32.0 $54,700 n/a Canadian

(1) Property sits on a 6.3 acre site with a marina and surplus development potential. (4) Sale included 3.0 acres of excess land with development potential.

(2) Joint venture with KingSett Capital and InnVest REIT acquiring an 80% interest with (5) Purchased for conversion to 680-bed student residence. Price per room not applicable. Ivanhoe Cambridge retaining a 20% interest. A $50 million renovation program is expected over two years. Pricing reflects an aggregate 100% interest. (6) 22 property portfolio valued at $365.0 million.

(3) Included 19,250 SF of prime high-end retail space at ground level. Pricing details (7) Sold as part of two property portfolio valued at $32 million. Hotel Toronto North confidential. York subject to ground lease. Source: Colliers International Hotels

6 Colliers International Hotels 2016 Canadian Hotel Investment Report YEAR IN REVIEW

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Improving Overall Operating Environment Resilient Debt Market Conditions • Economic conditions helped support increases in the • The GOC ten-year bond reached a fresh low in early 2015 favourable operating environment with national RevPAR up at 1.24% following the Bank of Canada’s (BOC) decision to 3.6% for the year, according to STR. reduce key lending rates to 75 basis points from 1.00% where it was stable from September 2010. The BOC subsequently • Notwithstanding operational declines in energy dependent lowered key lending rates by a further 25 basis points to markets, a large portion of the country benefited from the 0.50% in July 2015 with yields re-testing lows in the 1.25% lower Canadian dollar and increased tourism, mainly urban range by August 2015. centres such as downtown Vancouver, Toronto, Montreal and Ottawa as well as Windsor, Victoria and Niagara Falls. • There is a wide variety of debt sources looking for opportunities in quality assets across the country. A mix of • There was a relatively low level of new hotel supply domestic and international financing sources have emerged with construction of new hotel rooms estimated and are active depending on the asset class and sponsor to have increased 1.0% in 2015, according to STR. attributes. LTVs continue to remain conservative for hotels • Colliers estimates new hotel room supply in Canada’s – in the 55% to 65% range (of the total project cost), with 17 major markets grew by 0.6% in 2015. Markets with some debt sources providing high leverage for turnaround significant changes included Calgary (3.2%), Toronto opportunities at slightly higher costs. North (3.4%) and Edmonton (2.8%) while Ottawa saw a notable reduction in supply (-4.1%).

Canadian 10-Year Bond Yields

Bond yields trended in the 1.96% to 3.66% range between 2010 and most of 2011 as the Loonie generally ranged around parity.

3.75 In a flight to safety, investors pushed yields to fresh lows of 1.72% by late 2012. BOC lowers key interest rates 50 bps 3.25 in 2015, which along with equity market jitters sends yields to multi-year lows. 2.75

2.25 10-Year Bond Yield % Bond 10-Year 1.75

1.25

0.75 2010 2011 2012 2013 2014 2015 2016

Source: Bank of Canada “LTVs continue to remain conservative for hotels - in the 55% to 65% range”.

Colliers International Hotels 7 YEAR IN REVIEW 2016 Canadian Hotel Investment Report

HOTEL

The Weak Canadian Dollar a Boon for the Hotel Industry Why is Now a • The Canadian dollar declined by 28% against the US greenback between Q1 2013 and the end of 2015 creating a large incentive for both international visitation and Great Time to Canadians opting to travel domestically. Invest in Canada? • Inbound travel into Canada spiked in 2015 with 27.6 million visitors arriving in Canada, up 7.8% year-over-year. Similarly, the increased cost of buying US dollars is causing Download Colliers Canada’s infographic Canadians to reduce trips to the US, which were down 10.0% year-over-year. illustrating factors affecting foreign demand for investment into Canada and how Canada stacks • The low Loonie has begun to attract interest from foreign investors who are looking to up on the global scale at bit.ly/1VHhyjp enter the real estate market while there is a cost advantage.

Impact of the Weakening Canadian Dollar on Tourism Trends

Inbound International Trips To Canada 15.0% 1 CAD to USD 10.0% $0.95 $1.10 5.0%

$1.05 0.0% $1.00 -5.0% $0.95 Monthly YOY % Change YOY Monthly -10.0% $0.90 $0.85 -15.0%

$0.80 Outbound Trips by Canadians to the United States $0.75 5.0%

CAD - USD Exchange Rate Exchange CAD - USD $0.70 $0.65 0.0% 2010 2011 2012 2013 2014 2015 2016 -5.0%

-10.0%

Monthly YOY % Change YOY Monthly -15.0%

Source: Bank of Canada Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun 1Jul Aug Sept Oct Nov Dec 2014 2015 Source: Statistics Canada: International Travel Bulletin Transaction Volume by Region

Location # of Hotels # of Rooms Volume ($M) % Volume $/Room West 56 6,274 $1,153 47% $175,100 Alberta 19 2,319 $271 11% $118,600 British Columbia 25 2,720 $759 31% $269,400 Manitoba 9 638 $54 2% $87,800 Saskatchewan 2 498 $61 3% $122,400 Yukon 1 99 $8 0% $82,800 East 91 14,127 $1,306 53% $87,700 Ontario 62 9,564 $967 39% $94,500 Quebec 17 2,211 $173 7% $77,400 Nova Scotia 5 805 $43 2% $53,900 New Brunswick 2 340 $18 1% $52,000 Newfoundland 5 1,207 $106 4% $87,400 Total 148 20,527 $2,460 100% $114,200

Note: Price per room adjusted to exclude transactions where the metric is not applicable. Source: Colliers International Hotels

8 Colliers International Hotels 2016 Canadian Hotel Investment Report YEARYEAR ININ REVIEWREVIEW

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Major City Transaction Volume Heat Map Metro Vancouver $611.9M Edmonton Prior Year: $193.6M $45.7M Prior Year: $63.5M

Halifax $22.5M Prior Year: $34.8M Victoria Montreal $51.9M $117.3M Calgary Prior Year: $48.0M Prior Year: $82.3M $99.9M Prior Year: $88.3M Greater Toronto $708.8M Ottawa Prior Year: $273.5M $0M Prior Year: $68.7M

Regional Trends • Transaction volume was weighted fairly equally between

Eastern and Western Canada with Ontario (39%), British Columbia (31%) and Alberta (11%) being the most active provinces for investment by percentage of deal volume. • • Western Canada led the country in price per room metrics Capitalization Rates averaging $175,100 compared with $87,700 in Eastern Canada, a 100% premium for the West. However, Western • In 2015 cap rates edged lower, led by the full-service Canada accounted for only 31% of rooms sold and price per segment, which averaged 6.0%-8.0%, focused-service room was swayed by a number of large deals. Activity in averaged 7.0%-9.5% and limited service hotels averaged Western Canada was a much more regionalized story with 8.5%-11%. Alberta seeing a 21% decline in transaction volume year- • Cap rates in the lodging sector have been trending over-year while British Columbia was up 117%. downward through the current cycle, typically in the 7%-9% • The Greater Toronto Area (“GTA”) continued to be the range compared with 10%-12% in 2008/2009. most active market for investment with deal volume of $709 million, up almost 160% from 2014. Other Cap Rate Range Trends for the Canadian Hotel Market major markets that saw strong transaction activity 14% included Metro Vancouver ($612 million; 216% growth), Montreal ($117 million; 43% growth), Calgary ($100 million; 13% 13% growth) and Victoria ($52M; 8% growth). 12% 11% • Several notable Canadian consolidations occurred in 10% 2015 including Marriott’s acquisition of the franchise and management rights of and Resorts, Waramaug 9% Hospitality/Superior Lodging’s acquisition of master 8% license rights for Canada, Morguard’s increased 7% ownership stake in Temple Hotel Inc. and the completion 6% of Fortis Properties’ exit from the real estate sector with a ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 f ‘16 Westmont sponsored partnership acquiring their 22 hotels. Source: Colliers International Hotels

Colliers International Hotels 9 YEAR IN REVIEW 2016 Canadian Hotel Investment Report

HOTEL

2015 HOTEL VALUE INDEX The Colliers Hotel Value Index monitors the annual • Downtown Vancouver (+21.2%), downtown Toronto rate of change in hotel values, based on the operating (+14.2%), the Alberta Mountain Region (+12.1%) performance of a market and industry trends, as well and Niagara Falls (+9.0%) saw the most significant as the return expectations of investors. growth in hotel values in 2015. Edmonton, Calgary and Regina/ saw the largest declines of • The value of Canadian hotel real estate continued -8.3%, -6.0% and -4.4%, respectively. its upswing and while this trend is expected to • Colliers estimates hotel values will continue to rise carry forward, it will continue to be a regionalized in 2016, increasing by a projected 7.6% as growth story with energy-dependent markets facing in several markets will offset declines in pockets of further declines while a majority of other markets western Canada. The strongest markets nationally will see modest to strong growth. are expected to be downtown Vancouver (+18.1%), • Derived from the 17 major markets Colliers downtown Toronto (+16.1%), the Alberta Mountain tracks, national hotel values rose by 6.8% in 2015 Region (+13.5%) and downtown Montreal (+9.2%) following a 6.0% increase in 2014. while Edmonton (-12.1%) and Calgary (-9.1%) are anticipated to see the largest declines.

10 year annual % change vs. Canadian average

2014 6.0% 2014 4.5% 2014 8.6%

2015 6.8% 2015 6.2% 2015 21.2% ictoria ancouver ancouver Canada V V 2016F 7.6% 10Y 2016F 6.5% 10Y Downtown 2016F 18.1% 10Y

2014 3.5% 2014 3.8% 2014 8.9%

2015 7.8% 2015 6.2% 2015 -6.0% histler algary Airport ancouver ancouver C W V 2016F 7.1% 10Y 2016F 6.4% 10Y 2016F -9.1% 10Y

2014 5.4% 2014 6.6% 2014 3.2%

2015 -8.3% 2015 12.1% 2015 -4.4% egina/ Resorts R lberta Mt. dmonton Saskatoon A E 2016F -12.1% 10Y 2016F 13.5% 10Y 2016F-2.0% 10Y

2014 1.9% 2014 5.1% 2014 9.0%

2015 2.2% 2015 6.2% 2015 14.2% oronto oronto innipeg T Downtown Parklands W 2016F 3.2% 10Y North/ oronto 2016F 7.1% 10Y 2016F 16.1% 10Y T

2014 4.9% 2014 4.5% 2014 6.0%

2015 7.3% 2015 9.0% 2015 7.5% ttawa West O iagara Falls iagara N oronto Airport oronto 2016F 9.6% 10Y 2016F 8.8% 10Y 2016F 7.6% 10Y T

2014 8.4% 2014 4.2% 2014 4.8%

2015 8.8% 2015 5.5% 2015 6.0% Airport Halifax/ Montreal Montreal Montreal Dartmouth Downtown 2016F 9.2% 10Y 2016F 6.1% 10Y 2016F 6.8% 10Y

10 Colliers International Hotels 2016 Canadian Hotel Investment Report YEAR2016 OUTLOOKIN REVIEW

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2016 OUTLOOK Colliers International Hotels’ top predictions on the Canadian hotel real estate market in 2016:

Continued Momentum in Transaction Activity Following several high-water mark years, overall transaction volume in 2016 should be in-line with average volume seen in the current cycle, still indicative of healthy market fundamentals.

Foreign Groups to Aggressively Bid on Hospitality Assets Depending on product availability, Canada will continue to pique the interest of foreign investors attracted to the country’s stability, with the exchange rate being a significant advantage in boosting purchasing power for many global currencies.

Dynamic Debt Markets There is a growing availability of debt capital across the board fueled in part by new financing entrants eager to place funds in the hospitality asset class. In addition to growth in providers, record low bond yields will continue to support the transaction environment.

All Eyes on Energy Dependent Markets Weak oil, metal and other commodity prices are widely anticipated to continue throughout 2016 and into 2017. An increase in distress driven sales may materialize in certain markets, particularly secondary and tertiary markets that are heavily reliant on commodity extraction.

Continuation of Industry Consolidation Big headline mergers and industry consolidation news were abound in 2015 and will continue in 2016. With large consolidations of parent companies, this will no doubt lead to increased competition and a run to secure market share. However, the impact will be predominantly on a more global scale vs domestically.

Continued Improvement in Operating Performance Domestic tourism is poised for continued strong growth and generally has a positive impact on operating performance. Major markets, border cities, and other seasonal and resort markets should greatly benefit from currency trends.

AirBNB Impacts Major Market Lodging Demand The popularity of AirBNB and other hotel-alternative services could begin to impact lodging demand in major markets globally. The conversation on these services as a threat to the traditional lodging industry will rise.

Colliers International Hotels 11 YEAR IN REVIEW 2016 Canadian Hotel Investment Report

HOTEL

2015 CANADIAN HOTEL TRANSACTIONS

Name City Province Rooms Date Price $/Room Cap Rate (%) Travelodge Drumheller Drumheller AB 49 Jan $3,500,000 $71,000 7.1 Bear Hill Lodge Jasper AB 39 Mar $4,825,000 $123,700 9.8 Plus Westwood Inn Edmonton AB 172 Mar $26,100,000 $151,700 11.5 Express & Suites Spruce Grove Spruce Grove AB 130 Mar $20,450,000 $157,300 9.9 Mountain Country Bed and Breakfast (1) Banff AB 9 May $1,160,000 n/a n/a Airdrie Airdrie AB 49 Jun $6,220,000 $126,900 n/a Crossfield Country Inn Crossfield AB 22 Jul $1,470,000 $66,800 n/a Travelodge Calgary South Calgary AB 61 Jul $5,300,000 $86,900 n/a Delta Lodge at Kananaskis (2) Kananaskis AB 412 Sep $42,500,000 $103,200 n/a Rundle Mountain Lodge (3) Canmore AB 61 Sep $3,100,000 n/a n/a Best Western Plus Sun Country (4) Medicine Hat AB 122 Oct n/a n/a n/a Holiday Inn Conference Centre Edmonton South (4) Edmonton AB 224 Oct n/a n/a n/a and Suites Medicine Hat (4) Medicine Hat AB 93 Oct n/a n/a n/a Holiday Inn Lethbridge (4) Lethbridge AB 119 Oct n/a n/a n/a Lethbridge Lodge Hotel and Conference Centre (5) Lethbridge AB 190 Oct n/a n/a n/a Plaza Calgary Airport Hotel and Conference Centre (4) Calgary AB 210 Oct n/a n/a n/a Calgary Northwest Calgary AB 72 Nov $7,200,000 $100,000 n/a Super 8 Strathmore Strathmore AB 37 Nov $4,300,000 $116,216 n/a International Hotel Calgary (5) Calgary AB 248 Dec n/a n/a n/a Alberta - 19 Trades 2,319 $271,001,437 Viva Suites Vancouver (6) Vancouver BC 18 Jan n/a n/a n/a Seabreeze Inn Salt Spring Island BC 28 Feb $2,450,000 $87,500 n/a The Fairmont Hotel Vancouver (7)* Vancouver BC 556 Feb n/a n/a n/a The Westin Grand Vancouver (8) Vancouver BC 207 Feb n/a n/a n/a Pacific Sands Resort Tofino BC 77 Mar n/a n/a n/a Metro Inn Victoria BC 34 Apr $2,480,000 $72,900 n/a Empress Hotel (9) Vancouver BC 76 Apr $7,700,000 n/a n/a The Steveston Hotel (1) Richmond BC 24 Apr $6,700,000 n/a n/a Canadas Best Value Inn Langley Langley BC 46 May $2,850,000 $62,000 n/a Days Inn Cranbrook Cranbrook BC 90 May $2,725,000 $30,300 9.7 Merritt Merritt BC 20 May $1,550,000 $77,500 9.7 Ramada Victoria (10) Victoria BC 92 May $8,480,000 $92,200 n/a Abigail’s Hotel Victoria BC 23 Jun $5,075,000 $220,650 n/a Comfort Inn & Suites Salmon Arm Salmon Arm BC 114 Jun $10,000,000 $87,700 8.5 English Inn (11) Victoria BC 15 Jun $6,150,000 n/a n/a Cedar Hill Bed & Breakfast (1) North Vancouver BC 5 Jul $1,300,000 n/a n/a Ramada Harrison Hot Springs Harrison Hot Springs BC 88 Aug $7,091,550 $80,600 n/a Quality Inn Downtown Inner Harbour (12) Victoria BC 63 Aug $8,200,000 $130,200 7.1 Edgewater Lodge (3) Whistler BC 16 Sep $16,000,000 n/a n/a Aerie Resort (13) Malahat BC 35 Oct $5,760,000 n/a n/a City Centre Inn Prince George BC 53 Oct $2,550,000 $48,100 n/a Harbour Towers Hotel & Suites (5) Victoria BC 196 Oct n/a n/a n/a Holiday Inn Express Kelowna & Conference Centre (4) Kelowna BC 190 Oct n/a n/a n/a Best Western Plus Downtown Vancouver (6) Vancouver BC 143 Nov $38,500,000 n/a 5.5 The Westin Bayshore (14)* Vancouver BC 511 Nov $290,000,000 $567,500 n/a British Columbia - 25 Trades 2,720 $758,668,351 Ile Des Chenes Hotel (15) Ile Des Chenes MB 10 Jan $1,750,000 n/a 17.0 Vivian Motor Hotel Neepawa MB 12 Apr $1,925,000 $160,400 n/a The Headingly Hotel Headingly MB 10 May $1,750,000 $175,000 n/a Altona Hotel Altona MB 40 Jun $3,000,000 $75,000 n/a St. Regis Hotel (3) MB 106 Jun $4,000,000 n/a n/a Super 8 Portage La Prairie Portage La Prairie MB 58 Jul $4,000,000 $69,000 n/a Osborne Village Motor Inn (11) Winnipeg MB 30 Aug $5,500,000 n/a n/a Best Western Plus Winnipeg Airport (4) Winnipeg MB 213 Oct n/a n/a n/a Hilton Suites Winnipeg Airport (4) Winnipeg MB 159 Oct n/a n/a n/a Manitoba - 9 Trades 638 $54,439,368 Super 8 Moncton-Dieppe Moncton NB 86 Feb $4,975,000 $57,800 n/a Delta Brunswick (16) Saint John NB 254 May n/a n/a n/a New Brunswick - 2 Trades 340 $17,675,000 Delta St. John's Hotel and Conference Centre (4) St. John's NF 403 Oct n/a n/a n/a Greenwood Inn and Suites Corner Brook (4) Corner Brook NF 102 Oct n/a n/a n/a Holiday Inn St. John's-Government Centre (4) St. John's NF 252 Oct n/a n/a n/a Mount Peyton Hotel (4) Grand Falls-Windsor NF 149 Oct n/a n/a n/a Sheraton (4) St. John's NF 301 Oct n/a n/a n/a Newfoundland - 5 Trades 1,207 $105,496,887 Quality Inn & Suites Bayer's Lake Halifax NS 113 Feb $7,050,000 $62,400 n/a Days Inn Sydney (17) Sydney NS 167 Sep $2,100,000 $12,600 n/a Halifax (4) Halifax NS 177 Oct n/a n/a n/a Holiday Inn Sydney-Waterfront (4) Sydney NS 152 Oct n/a n/a n/a

12 Colliers International Hotels 2016 Canadian Hotel Investment Report YEAR IN REVIEW

L E T O H

2015 CANADIAN HOTEL TRANSACTIONS

Name City Province Rooms Date Price $/Room Cap Rate (%) Holiday Inn Halifax Harbourview Dartmouth NS 196 Nov $5,500,000 $28,100 n/a Nova Scotia - 5 Trades 805 $43,405,987 Best Western Plus Cambridge Cambridge ON 106 Jan $6,500,000 $61,300 5.4 Comfort Hotel Airport North Toronto ON 175 Jan $8,125,000 $46,400 n/a Glengate Hotel Niagara Falls ON 60 Jan $2,000,000 $33,300 n/a Killarney Mountain Lodge (1) Killarney ON 46 Jan $2,375,000 n/a n/a Ramada Trenton Hotel Trenton ON 109 Jan $4,000,000 $36,700 n/a Best Western Primrose Hotel (6) Toronto ON 335 Feb $50,540,000 n/a n/a Henry's Motel (1) Toronto ON 12 Feb $1,220,000 n/a n/a Radisson Hotel Toronto East (5) Toronto ON 240 Feb n/a n/a n/a Rawley Resort (18) Port Severn ON 19 Feb $3,800,000 n/a n/a The Banks Hotel (17) London ON 60 Feb $1,825,000 $30,400 n/a The Fairmont Royal York Hotel (19)* Toronto ON 1,363 Feb $186,500,000 $137,000 n/a Travelodge Toronto Airport Toronto ON 283 Feb $13,000,000 $45,900 2.6 Comfort Inn North Bay Airport (20) North Bay ON 60 Mar $4,700,000 $78,300 14.2 Comfort Inn North Bay Lakeshore (20) North Bay ON 81 Mar $2,400,000 $29,600 11.5 Delta Meadowvale Hotel and Conference Centre Toronto ON 374 Mar $40,000,000 $107,000 n/a Fairfield Inn & Suites Guelph Guelph ON 88 Mar $9,725,000 $110,500 n/a Knights Inn Toronto Toronto ON 51 Mar $4,500,000 $88,200 n/a Quality Inn & Suites Mississauga Toronto ON 128 Mar $8,400,000 $65,600 n/a Radisson Suite Hotel Toronto Airport Toronto ON 216 Mar $12,250,000 $56,700 n/a The Diplomat Inn Niagara Falls ON 47 Apr $2,485,000 $52,900 n/a A1 Motel Niagara Falls ON 29 May $1,040,000 $35,900 n/a Comfort Inn Barrie Barrie ON 58 May $3,210,000 $55,300 8.0 Hampton Inn by Hilton London London ON 92 May $10,700,000 $116,300 7.5 Quality Hotel Hamilton/Stoney Creek Hamilton ON 136 May $8,700,000 $64,000 5.0 Quality Inn & Suites Brantford Brantford ON 95 May $4,400,000 $26,300 n/a Quality Inn Arnprior Arnprior ON 50 May $4,050,000 $81,000 8.5 The Westin Bristol Place Toronto Airport Toronto ON 288 May $22,000,000 $76,400 n/a Woodycrest Motel (1) Whitby ON 21 May $2,550,000 n/a n/a Charles Inn (1) Niagara-on-the-Lake ON 12 Jun $3,400,000 n/a n/a Quality Inn Peterborough Peterborough ON 117 Jun $5,500,000 $47,000 n/a Travelodge Hotel Windsor Downtown Windsor ON 160 Jun $4,150,000 $25,900 4.7 Comfort Inn & Suites Barrie Barrie ON 88 Jul $5,350,000 $60,800 n/a Cosmopolitan Hotel Toronto (21) Toronto ON 29 Jul $12,950,000 n/a n/a Days Hotel & Conference Centre Toronto Don Valley Toronto ON 290 Jul $21,500,000 $74,100 n/a Old Mill Inn & Spa (22) Toronto ON 57 Jul $20,764,999 n/a n/a Toronto Downtown* Toronto ON 575 Aug $99,000,000 $172,200 n/a Niagara-on-the-Lake Niagara-on-the-Lake ON 118 Aug $14,980,000 $126,900 8.0 Pinestone Resort & Conference Centre Haliburton ON 102 Aug $7,500,000 $73,500 n/a The Westin Prince Toronto (23)* Toronto ON 395 Aug $70,000,000 $177,200 5.7 Comfort Inn Sarnia Sarnia ON 100 Sep $3,950,000 $39,500 n/a Hotel Novotel Toronto Mississauga Centre (24) Mississauga ON 325 Sep $14,000,000 $43,100 n/a Hotel Novotel Toronto North York (24) Toronto ON 260 Sep $18,000,000 $69,200 n/a The Glenerin Inn (25) Mississauga ON 39 Sep $4,850,181 $124,400 n/a ABC Motel (3) Windsor ON 57 Oct $1,600,000 n/a n/a Best Western Plus Mariposa Inn & Conference Centre (22) Orillia ON 82 Oct $6,925,000 n/a n/a Best Western Plus Woodstock Inn & Suites Woodstock ON 62 Oct $5,300,000 $85,500 n/a Delta Markham (26) Markham ON 204 Oct $28,000,000 $126,800 n/a Holiday Inn & Suites Windsor (4) Windsor ON 214 Oct n/a n/a n/a Holiday Inn Cambridge (4) Cambridge ON 143 Oct n/a n/a n/a Holiday Inn Kitchener-Waterloo & Conference Centre (4) Kitchener ON 184 Oct n/a n/a n/a Holiday Inn Peterborough-Waterfront (4) Peterborough ON 153 Oct n/a n/a n/a Holiday Inn Sarnia Hotel & Conference Centre (4) Sarnia ON 216 Oct n/a n/a n/a Park Inn by Radisson Toronto Airport West (27) Mississauga ON 100 Oct $18,250,000 n/a n/a Station Park All Suite Hotel (4) London ON 126 Oct n/a n/a n/a Super 8 Kingston Kingston ON 42 Oct $2,875,000 $68,500 n/a Best Western Plus Brampton Brampton ON 136 Nov $9,500,000 $69,900 n/a Emerald Isle Motel (1) Toronto ON 58 Dec $13,000,000 n/a n/a First Canada Inn Kingston Kingston ON 80 Dec $4,844,407 $60,600 n/a Holiday Inn Express & Suites Huntsville Huntsville ON 87 Dec $9,500,000 $109,200 n/a Holiday Inn Toronto-Mississauga (28) Mississauga ON 151 Dec $15,250,000 $88,100 n/a Mary-am Hotel North York Toronto ON 25 Dec $2,932,000 $117,300 n/a Waterloo Inn & Conference Centre (3) Waterloo ON 155 Dec $17,000,000 n/a n/a Ontario - 62 Trades 9,564 $966,667,353 Comfort Inn Trois-Rivières Trois-Rivieres QC 80 Jan $3,050,000 $38,100 n/a Quality Inn & Suites Levis Levis QC 96 Jan $11,800,000 $122,900 n/a Hilton Garden Inn Montreal Airport Montreal QC 159 Feb $15,000,000 $94,300 n/a Hilton Montreal Bonaventure (29) Montreal QC 395 Feb n/a n/a n/a

Colliers International Hotels 13 YEAR IN REVIEW 2016 Canadian Hotel Investment Report

HOTEL

2015 CANADIAN HOTEL TRANSACTIONS

Name City Province Rooms Date Price $/Room Cap Rate (%) Hotel Le St-James (5) Montreal QC 61 May n/a n/a n/a Ramada Plaza Le Manoir Du Casino Gatineau QC 174 May $17,000,000 $97,700 n/a TRYP by Wyndham Quebec Hotel Pur QC 242 May $12,950,000 $53,500 8.1 Auberge Bonaparte (1) Montreal QC 30 Jun $8,050,000 n/a n/a Days Inn Trois-Rivières Trois-Rivieres QC 74 Jul $3,600,000 $48,600 n/a Quality Inn & Suites P.E. Trudeau Airport Montreal QC 108 Jul $5,000,000 $46,300 n/a Hotel Manoir de la Terrasse Quebec City QC 33 Aug $1,800,000 $54,500 n/a Hotel Motel Bonaparte Quebec City QC 54 Aug $4,000,000 $74,100 n/a Hotel Maritime Plaza (3) Montreal QC 214 Sep $15,300,000 n/a n/a Days Inn Montreal Downtown Montreal QC 123 Oct $10,800,000 $87,800 n/a Quality Hotel Dorval Aéroport (17) Montreal QC 159 Oct $2,900,000 $18,200 n/a Monte Cristo Hotel and Suites Ancienne-Lorette QC 50 Nov $3,600,000 $72,000 n/a Delta Trois-Rivières Hotel and Conference Centre (30) Trois-Rivieres QC 159 Dec $10,000,000 n/a n/a Quebec - 17 Trades 2,211 $173,350,000 Hotel Saskatchewan (31) Regina SK 224 Sep $37,000,000 $165,200 n/a Delta Regina (4) Regina SK 274 Oct n/a n/a n/a Saskatchewan - 2 Trades 498 $60,948,755 Ramada Whitehorse Whitehorse YK 99 Feb $8,200,000 $82,800 11.5 Yukon - 1 Trade 99 $8,200,000

Footnotes: 19. Joint venture with KingSett Capital and InnVest REIT acquiring an 80% interest with Ivanhoe 1. Price per room not applicable. Cambridge retaining a 20% interest. Pricing reflects an aggregate 100% interest. 2. Leasehold interest. 20. Sold as part of two property portfolio valued at $7.1 million. 3. Purchased for redevelopment to alternate use. Price per room not applicable. 21. Sale included 29 units of hotel’s 50 units as well as common areas. 4. Part of a 22 property portfolio valued at $365.0 million. 22. Sale included adjacent parcel with development potential. Price per room not applicable. 5. Sale details confidential. 23. Sale included 3.0 acres of excess land with development potential. 6. Converted to student residences. Price per room not applicable. 24. Sold as part of two property portfolio valued at $32 million. Hotel Novotel Toronto North York 7. Includes 19,250 SF of prime high-end retail space at ground level. Sales details are subject to ground lease. confidential. 25. Sold as part of two property portfolio with adjacent retirement residence. Sale price equal to 8. Sale of a majority of the hotel’s 207 strata units. value allocated to the hotel. 9. Non-traditional hotel. Price per room not applicable. 26. Sale included 2.14 acres of excess land valued at $2.14 million. Price per room based on net 10. Property included sale of on-site liquor store. value of hotel. Hotel subsequently converted to an independent property. 11. Sale included excess land. Price per room not applicable. 27. Power of sale. Price per room not applicable due to attached 13,000 SF conference centre 12. Partial leasehold interest. with significant income. 13. Property closed since 2009. New ownership is renovating the property as part of the 28. Sale included adjacent 3.9 acre development site valued at $1.95 million. Price per room Vancouver Island Motorsport Resort. Price per room not applicable. based on net value of hotel. 14. Property sits on a 6.3 acre site with a marina and surplus development potential. 29. Hotel subsequently converted to an independent property. Pricing details are confidential. 15. Sale includes a liquor store with significant income. Price per room not applicable. 30. Sale included the hotel as well as a 102-unit retirement residence and 27,200 SF of leasable 16. Hotel part of $430 million commercial real estate portfolio. Price allocation undisclosed. retail space. Price per room not applicable. 17. Distressed sale. 31. New ownership repositioned the hotel to an by Marriott. 18. Property included a full service marina. Price per room not applicable. * 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 Source: Colliers International Hotels company’s brand or portfolio.

14 Colliers International Hotels

YEAR IN REVIEW 2016 Canadian Hotel Investment Report

HOTEL COLLIERS INTERNATIONAL HOTELS

Alam Pirani Tom Andrews Robin McLuskie +1 416 643 3414 +1 604 661 0846 +1 416 643 3456 [email protected] [email protected] [email protected]

Jessi Carrier Russell Beaudry Hamir Bansal +1 514 764 8172 +1 416 643 3761 +1 604 661 0850 [email protected] [email protected] [email protected]

Tiffany Chow Fraser Macdonald +1 416 643 3497 +1 416 607 4322 [email protected] [email protected]

TORONTO VANCOUVER MONTREAL CALGARY One Queen Street East 200 Granville Street 1800 Avenue McGill College 900 Royal Bank Building Suite 2200 Suite 1900 Suite 2900 335 - 8th Avenue SW Toronto, Ontario Vancouver, British Columbia Montréal, Québec Calgary, Alberta TEL +1 416 777 2200 T: +1 604 681 4111 T: +1 514 866 1900 T: +1 403 266 5544

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Copyright © 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 16 Colliers International Hotels