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.
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 © 2012 CBRE Limited. This disclaimer shall apply to CBRE Limited, Brokerage, and to all other divisions of the Corporation (“CBRE”). The information set out herein (the “Information”) has not been verified by CBRE, and CBRE does not represent, warrant or guarantee the accuracy, correctness and completeness of the Information. CBRE does not accept or assume any responsibility or liability, direct or consequential, for the Information or the recipient’s reliance upon the Information. The recipient of the Information should take such steps as the recipient may deem necessary to verify the Information prior to placing any reliance upon the Information. The Information may change and any property described in the Information may be withdrawn from the market at any time without notice or obligation to the recipient from CBRE.
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