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2007 Canadian Hotel Transaction Survey

CANADIAN LODGING OUTLOOK
November 2007


The Canadian Lodging Outlook is a joint monthly publication 
of Smith Travel Research and HVS International, 
Vancouver and Toronto, Canada
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By: Vi Thi Dang and Carrie Russell, AACI, - HVS Canada

A new level for hotel investment in Canada was set in 2007. The country was coming off a record year in 2006, but the total investment increased almost 70% in 2007. With 165 hotel sales, representing 28,255 guestrooms, the total value reached over $4.5-billion, which amounts approximately $162,000 per room.  

Two major acquisitions of publicly traded hotel REITs drove the high level of investment. Legacy REIT was purchased by LGY Acquisition LP, a limited partnership formed by InnVest Real Estate Investment Trust, Cadbridge Investors LP (a limited partnership formed by Cadim, a division of the Caisse de dépôt et placement du Québec), and an affiliate of Westmont Hospitality Management.  Legacy REIT had a total investment value of $2.5-billion comprising 25 properties, two of which were in the US. The Canadian portfolio represents roundly $2.0-billion in assets for 23 hotels. The second largest transaction of the year was bcIMC's acquisition of CHIP REIT, which comprised 32 hotels across Canada with a total value of $1.2-billion. These two transactions represent 70% of the activity in 2007.

Another notable transaction in 2007 was the sale of ten properties by the Pomeroy Group to Holloway Lodging REIT. These ten hotels, located in Northern Alberta and British Columbia, comprise six Super 8 Hotels, a Best Western, a Holiday Inn, a Pomeroy Inn, and an independent property. The portfolio sold for $215-million, or $199,300 for each of the 1,079 guestrooms.

Adjusting the transaction volume to exclude the three major portfolio transactions yields an investment volume of $1.1-billion for 2007. This is slightly below the volume for 2006 (adjusted for the portfolio acquisition of the Fairmont Hotels by Oxford Properties). What is notable in 2007 is that the average price per room, excluding the portfolio transactions, was $125,626, which is 45% higher than the comparable figure in 2006 and a record setting average for the country.

On the provincial level, Alberta recorded the largest number of sales with 67 transacted properties totalling $1.3-billion in investment or approximately $163,000 per room. The highest price per room paid in the country was in Fort McMurray, Alberta. The Clearwater Suite Hotel sold for $376,667 per room, or $56,500,000 for the 150-room all-suite property. Winnipeg-based Temple REIT purchased this property at an 8.5% historical cap rate. Following the sale, Atlific Hotels & Resorts took over management of the property.

Looking at the other provinces, Ontario noted 38 transactions yielding over $1.08-billion in sales volume.  Although the number of hotels sold in Ontario in 2007 was similar to the number sold in 2006, the total value almost tripled in 2007. British Columbia had 19 hotel transactions totalling over $569-million or $170,111 per room, roughly 25% lower than last year's record of $707-million or $215,303 per room. In downtown Vancouver, The Bosman's Hotel was sold for $270,000 per room, the highest price per room paid in British Columbia in 2007. The property was purchased primarily for its land value, which equates to roundly $200 per buildable square foot for the downtown site. The hotel will likely be demolished and the site used for the development of high-rise condos. Hotel sales in Quebec climbed up to 16 transactions totalling $804-million, a twofold increase in investment over 2006. Saskatchewan recorded nine hotel sales with a total value of $227-million. This includes the sale of the Delta Regina for $50-million, or $182,482 per room.

In terms of buyers in 2007, the REITs dominated the transaction volume in the first half of the year, when Holloway, Temple, and Lakeview all made major acquisitions, primarily in Alberta. With the slowdown in the oil and gas sector in some regions and the uncertainty over royalties in Alberta, the volume of transactions showed a marked decrease in the second half of the year with a variety of buyers, including the REITs as well as private companies.

In terms of the outlook for transaction volume in 2008, it is unlikely that the country will be able to repeat the success of 2007, as there are no major portfolio transactions on the horizon.  Excluding the portfolio transactions, 75% of the transactions in 2007 occurred in the first half of the year.  The uncertainty in the credit markets and a gap between vendor and purchaser expectations seemed to put a damper on transactions in the second half of the year. Looking at the fundamentals, there still seems to be a ready supply of debt and equity available for transactions, and hotel operating performance is healthy in most parts of the country; therefore, we anticipate continued activity this year, albeit at a more moderate level than in 2006 and 2007.

HVS Canada has not verified all individual hotel sales in this newsletter; however, we collected the information from sources we deemed reliable, and the data is thought to be correct. We cannot warrant its accuracy; it is provided for your convenience only. Use of this information without verification from original sources is at your own risk. A special thanks to Bill Stone, Alam Pirani, and Robin McCluskie of Colliers; Angus Wilkinson of Tyne Hospitality; Greg Kwong and Germain Villeneuve of CBRE; Denis Chevalier, AACI, of the Altus Group; Peter M. Lawrek, AACI, of Crown Appraisals; Terry Kerslake, AACI, of Flynn Mirtle Moran; Mike Turner of Turner Drake & Partners Ltd.; Glenn Balderston of D.R. Coell & Associates Inc.; Todd Oeming of Oeming Commercial Realty Corp.; and Tammy Zielke of Glen Cowan & Associates.

Canadian Hotels Sales 1992-2007

2007 Canadian Hotel Sales









CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
November  2007

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CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
November  2007 YTD

© Smith Travel Research, 2005. Reproduction or quotation in whole or in part without permission is forbidden. *INS - Insufficient Data
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Contact:

Selina Lai
HVS International - Canada
6 Victoria Street
Toronto, ON, M5E 1L4
Canada
Tel:  +1 416 686-2260 ext. 21
Fax:  +1 416 686-2264
Email:  slai@hvs.com

http://www.hvs.com
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Also See: 2006 Canadian Hotel Transaction Survey / Carrie Russell / Canadian Lodging Outlook - November 2006 Year-to-Date
When is it Profitable to Add a Waterslide to Your Hotel? / Tracy Heebner / October 2007
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