CANADIAN HOTEL INVESTMENT TRENDS - CBRE CANADIAN CAP RATE SURVEY - Q3 2012

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					  CBRE HOTELS CANADA | CBRE CAPITAL MARKETS




  CANADIAN HOTEL INVESTMENT TRENDS                                                                                                            Q3.2012


IN THIS ISSUE                                            INTRODUCTION

                                                                                                               n
                                                        While overall Canadian real estate investment remains robust, hotel investment activity is down w
 Introduction
                                                                                                               o
                                                        year-to-date Q3 over the same period last year, mirroring current US trends. Sales of significant
 Operating Results                                             c                                                                                       r
                                                        commercial property in the US is up year-to-date Q3 totaling over $181 billion versus last year ’s
 Transaction Report                                    $143.5 billion, however the volume of hotel properties sold is down about 19% for the current
                                                                                                                                                        c
                                                        year-to-date period, totaling $12.3 billion. That said, Real Capital Analytics has forecast a much
 Cap Rate Survey
                                                        stronger Q4 with improved financing conditions and the volume of deals done in early October     e
YTD Q3 2012 VS. YTD Q3 2011                                      e                                                                                      m
                                                        and those reported under contract totaling well above $5 billion, which will bring year-end volume
TRANSACTION ACTIVITY                                    to a level comparable to 2011’s $19.3 billion total. Similarly, while Canadian hotel transactiono
                                                                 s                                             d
                                                        volume is down, with the volume of deals currently under contract, we anticipate year-end volumem
Number of Trades: 67 ()                                to range anywhere from last year’s $1.2 billion total up to $2.0 billion.
Change in Transaction Volume: -14% ()
Price Per Room: $115,000 ()
Avg Deal Size: 99 rms / $10.8M
                                                        OPERATING RESULTS

INTEREST RATES AND OTHER                                Data from Smith Travel Research shows national room demand and ADR grew by 1.9% and 1.4%,
FINANCIAL INDICATORS                                    respectively, in the first eight months of 2012 versus the same period in 2011. Provincial RevPAR
                                                        growth leaders included Alberta (9.6%), Newfoundland (5.9%) and Saskatchewan (3.8%), reflecting
Prime (Canada)                                3.00%
                                                        the continued strength of the resource sector in these regions.
Prime (U.S.)                                  3.25%
5 Yr Gov. Bond                                1.39%     The strongest room demand growth was achieved in Vancouver South /Surrey (8.9%), Alberta
10 Yr Gov. Bond                               1.84%     North (8.7%) and Alberta South (8.6%). Of note is that Vancouver South/Surrey also had the
                                                        greatest supply growth (6.3%) indicating a high level of induced/unsatisfied demand.
LIBOR 3-month                                 0.31%
S&P/TSX Composite                            12,300     In Canada’s major markets, Vancouver Downtown and Saskatoon reported the country’s highest
As of October 25, 2012                                  year-to-date occupancy, at 73.7% and 73.0%, respectively. Vancouver Downtown has achieved
Source: Bloomberg, Bank of Canada, TMX
    c
                                                        the highest year-to-date ADR at $167.95, with Calgary following closely behind at $158.52.
                                                        Downtown Toronto and Banff were the only other markets to report ADRs above $150. Calgary
CANADIAN HOTEL TEAM CONTACTS                            reported RevPAR growth of 13.2%, the highest of all markets, with the Alberta North Area not far
BROKERAGE:                                              behind with 12.7% growth.
Bill Stone                               416.815.2371
                                                        By segment, Resorts showed the strongest ADR growth at 3.4%. Results for Banff and Whistler are
Deborah Borotsik                         416.815.2347
                                                        particularly strong due in part to excellent snow conditions this past winter and a strong summer
Mark Sparrow                             604.662.5192
                                                        season. Year-to-date results show strong RevPAR pickup in most resort markets across the country;
Luke Scheer                              416.815.2313
                                                        Whistler (12.0%), Banff (7.7%) and Niagara Falls (5.9%).
Greg Kwong                               403.750.0514

ADVISORY & CONSULTING:
Brian Flood         416.874.7272
Kimberly Dickey     416.815.2348
Lisa Keogh          416.815.2326
                                                        TORONTO                           VANCOUVER                          CALGARY
Karina Toome        416.847.3243
                                                        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 | Q3.2012


 Q3 TRANSACTION HIGHLIGHT                                TRANSACTION REPORT

                                                        Hotel transaction volume YTD September 2012 is down approximately 14% from one
                                                        year ago, at about $733 million. Although the number of deals has decreased by 16%,
                                                        the price per room increased indicating the average deal size is higher than last year.
                                                        Many provinces have reported a decline in transaction volume with the exception of
                                                        Ontario (up 13%), New Brunswick (one transaction this year versus none last year), and
                                                        most significantly Alberta (up 131%, with a 50% increase in per room pricing). With the
                                                        amount of product currently on the market and under contract, we believe year-end 2012
                                                        volume will surpass the $1.2 billion reached in 2011.
HILTON GARDEN INN EDMONTON WEST                         Below is a selection of transactions completed in Q3 2012:
Date: August 2012                                       Q3.2012 - SELECT CANADIAN HOTEL SALES
Address: 17610 Stony Plain Road Northwest,                                                                                                                     Cap
                                                        Name                                      Location   Month    Rms         Price         Price/Room
Edmonton, AB                                                                                                                                                   Rate
Vendor: Platinum Investments
                                                        Comfort Inn Brampton              Brampton, ON        Sep     107      $3,300,000        $30,800        n/a
Purchaser: Temple REIT
Rooms: 160                                              Sawridge Inn and
                                                                                          Slave Lake, AB      Sep     175      $10,500,000       $60,000       13.5
                                                        Conference Centre
Purchase Price: $31.0M ($193,800 per room)
                                                        Drumheller Inn (1)                Drumheller, AB      Aug     100      $3,350,000       $335,000        n/a
The Hilton Garden Inn Edmonton West was developed
by local Edmonton hotel investor Platinum Investments
                                                        Super 8 Toronto East              Scarborough, ON     Aug         50   $2,380,000        $47,600        n/a
Inc. and opened in 2004. The Hotel is well located
in the West End Business District, close to the West    Holiday Inn Express
                                                                                          Saint-Jean-sur-
                                                                                                              Aug         98   $7,300,000        $74,500       10.0
                                                                                          Richelieu, QC
Edmonton Mall, the City’s number one tourist
attraction.                                             Marriott Residence Inn
                                                                                          Montreal, QC        Jul     190      $22,000,000      $115,800       12.7
                                                        Montreal
The Hotel was purchased in August 2012 by Temple
                                                        Super 8 Three Hills               Three Hills, AB     Jul         82   $4,500,000        $54,900        5.0
REIT for $31 million. Temple REIT is planning a $2
million capital expenditure program over the next       (1) Will be converted to a Quality Inn.

year and a half to refurbish guest rooms, the lobby
                                                        The profile of hotel buyers so far in 2012 has shifted from hotel investment companies that
and corridors. Based on 2012/13 forecasted net
                                                        dominated in 2011 to real estate companies/developers. Hotels acquired by non-hotel
income, the total investment in the Hotel of $33
                                                        developers for residential condo purposes led activity in Central Canada representing 60%
million, including capital expenditures, represents
                                                        of transaction volume. Two of the largest transactions included the Four Seasons ($142.5
a capitalization rate of approximately 10.3% before
                                                        million/Q1) and Sutton Place Hotel Toronto ($57 million/Q2) were both acquired for
FF&E reserves.
                                                        conversion to condominiums. In Q3 2012 the only hotel acquired for alternate use was
The acquisition of the Hilton Garden Inn Edmonton       Sam Jakes Inn ($1.8 million).
West was Temple REIT’s fourth deal in 2012 after                                                     Buyer Breakdown
                                                        As in 2011, private investors
the Radisson Hotel Fort McMurray ($25.1 million) in
                                                        represented about a third of
February and the Inn at the Quay in New Westminster,                                                                14%        11%                   a
                                                                                                                                                   Real Estate
                                                        transaction volume (30% in 2011                                                              m
                                                                                                                                                   Companies/Developers
BC ($17.3 million) and Clearwater Suites Timberlea in                                                                                2%
                                                                                                                                                      v
                                                                                                                                                   Private Investors
                                                        versus 26% 2012). REIT activity in
Fort McMurray ($30.5 million), both in May.                                                                                                           T
                                                                                                                                                   REITs
                                                        Western Canada is up, stemming
                                                                                                                                                     t
                                                                                                                                                   Hotel Investment
The Edmonton hotel market continues to report           from Temple REIT. It has been                                                                m
                                                                                                                                                   Companies
                                                                                                                                          26%
positive operating results, with RevPAR up 7.8% YTD     the only active buy-side REIT,                                                               f
                                                                                                                                                   Offshore

August over the prior year period. Further, according   accounting for 29% of Western                         46%
to the Conference Board of Canada, Edmonton is          Canadian transaction volume (and
forecast to achieve the highest GDP growth of major     14% of national volume), however
Canadian markets in 2012, underscoring the strength     Temple REIT does plan to convert
of the market and its appeal to investors.              to a corporation in the near term.
 CANADIAN HOTEL INVESTMENT TRENDS | Q3.2012


 CBRE CANADIAN CAP RATE SURVEY - Q3 2012

           d                                                                     v                                                       e
CBRE’s Canadian Cap Rate Survey is included below. Cap rate estimates are provided by National Investment Team members in respective markets
           r                                                                     d
based on market transactions and/or feedback from investors on their current yield expectations.

                            Vancouver                   Calgaryy                  Edmonton                   Winnipeg                    Toronto                    Ottawa                    Montreal                    Halifax

HOTEL
Downtown
                           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% 
Full-Service
Suburban
Limited-Service
              e            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

“AA”                       4.50-5.00%             5.25-5.75%  5.50-6.00%                                     N/A               5.00-5.25%               5.25-5.75%               5.00-5.50%                       N/A

“A”                        4.75-5.25%             5.75-6.25%  5.75-6.25%                              6.25-6.75%              5.25-5.75%               5.75-6.25%               5.50-6.00%                6.00-6.50% 

“B”                        4.75-5.25%               6.50-7.00%                6.50-7.00%                7.00-7.50%              6.00-6.50%               6.50-7.25%               6.00-7.00%               7.00-7.50% 

SUBURBAN OFFICE

“A”                      6.00-6.50%                5.75-6.25%              6.25-6.75%  7.00-7.50%                            6.00-6.75%               6.25-7.25%               6.25-7.00%               7.00-7.50% 

“B”                      6.50-7.00%                6.50-7.00%                6.75-7.25%              7.75-8.25%               7.00-7.75%               7.50-8.00%               7.25-8.25%                7.50-8.00% 

INDUSTRIAL

“A”                      5.50-6.00%               5.75-6.25%               5.75-6.25%                6.50-7.50%                5.75-6.25%              6.00-6.25%               6.25-6.75%                6.75-7.25% 

“B”                      6.00-6.50%                6.25-6.75%                6.25-6.75%                7.00-8.00%              6.50-7.25%               7.00-7.50%               7.50-8.75%                7.25-7.75% 

RETAIL

Regional                 5.25-5.75%               5.00-5.50%                5.00-5.50%              6.00-6.50%               5.00-5.75%               5.50-6.25%                5.50-6.25%                5.75-6.25% 

Power                    5.75-6.25%               5.50-6.00%                5.50-6.00%              6.50-7.00%               5.50-6.50%               6.00-6.75%                5.75-6.50%                6.25-6.75% 

Neighbourhood            6.00-6.50%               5.75-6.25%                5.75-6.25%              7.00-7.50%               5.50-6.50%               6.50-7.25%               7.25-8.25%                6.50-7.25% 

Strip                    5.50-6.00%                 6.00-6.50%             5.75-6.25%  7.00-7.75%  5.75-6.75%                                         6.25-7.25%               6.00-6.75%                6.50-7.50% 
Strip
(Non Anchored)
            d            6.00-6.50%                 6.50-7.00%               6.50-7.00%              7.75-8.50%  6.50-7.50%                            7.25-7.75%               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%               5.00-5.25%               4.75-5.75%              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%               5.50-6.00%               5.75-6.00%              5.75-6.25% 

Low Rise A               4.00-4.50%                4.00-4.50%              4.75-5.25%  5.50-6.50%                            3.50-4.25%               5.00-5.75%               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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DOCUMENT INFO
Description: CANADIAN HOTEL INVESTMENT TRENDS - CBRE CANADIAN CAP RATE SURVEY - Q3 2012. While overall Canadian Real Estate Investment remains robust, hotel investment activity is down year-to-date Q3 over the same period last year, mirroring current US trends.Sales of significant commercial property in the US is up year-to-date Q3 total in over $181 billion versus last year’s $143.5 billion, however the volume of hotel properties sold is down about 19% for the current year-to-date period,totaling $12.3 billion. That said, Real Capital Analytic shas forecast a much stronger Q4 with improved financing conditions and the volume of deals done in early October and those report under contract totaling well above $5 billion, which will bring year-end volume to a level comparable to 2011’s $19.3 billion total. Similarly, while Canadian hotel transaction volume is down, with the volume of deals currently under contract, we anticipate year-end volume to range anywhere from last year’s $1.2 billion total up to $2.0 billion.