Canada marks the millennium with celebrations spanning the country, from the Atlantic coast
to the Pacific islands of British Columbia. In fact, the Millennium Foundation of Canada was the world’s first organization dedicated to creating legacies to mark the year 2000.

Moreover, Canada’s hospitality sector is enjoying a strong run up to the millennium, with solid occupancy rates and a robust domestic economy—a 3.3% annual growth rate—fueling business travel.

With the Canadian dollar hovering about US$0.67 for most of the past two years, Americans and other international travelers have discovered that Canada is a great bargain. Domestic travelers, whose spending power abroad has been significantly diminished, agree.

The result has been healthy occupancy rates in the lodging industry in many major markets across the country. In Toronto, for instance, average annual occupancy has reached a 75%, and tourist and convention spending was more than C$6.4 billion during the past year.

These positive fundamentals have not been lost on the major industry players, who through the driving force of consolidation are beginning to dominate Canada’s hospitality market. During the last year, Canadian Pacific, Westmont Corp., Intrawest and others have made significant moves in their attempts to lead their industry sectors:

Canadian Pacific: In May 1998, Canadian Pacific acquired Delta Hotels, which managed or franchised approximately 10,000 rooms at 34 properties. In the deal, Canadian Pacific Hotels acquired the management company and the Delta brand, as well as leasehold interests in three properties for C$93 million. This was followed in late 1998 with the acquisition of the seven warm weather resorts of Princess Hotels from Lonrho Plc for US$540 million.

Canadian Pacific then entered into an agreement with Fairmont Hotel Management LP, creating a new hotel management company called Fairmont Hotels and Resorts Inc. This new company will manage 69 hotels, including trophy assets such as The Plaza Hotel in New York, The Fairmont in San Francisco, and The Fairmont Copley Plaza in Boston. Canadian Pacific also continues to add prestigious domestic properties to its portfolio. These include a purchase and renovation of Le Manoir Richelieu in June 1999, which recently re-opened, as well as a new Fairmont Vancouver Airport Place, which opened in October 1999.

Based in Toronto, Canadian Pacific is Canada’s largest owner-operator of full service hotels, with approximately 26,000 rooms at 69 properties and 21,500 employees across Canada, the U.S., Mexico, Bermuda, Barbados and Asia.

Westmont Corp.: Industry consolidation continued into the spring of 1999, when UniHost Corp. was acquired by Westmont Corp. At the time, UniHost had the second largest multi-brand hotel operation in Canada and was among the top 10 globally, with a portfolio of 12,000 rooms at 122 properties -- 102 owned and the balance managed. This would be added to Westmont’s existing portfolio of 8,500 rooms at 45 properties across Canada. The group now manages a wide variety of brands, including Comfort, Crowne Plaza, Holiday Inn, Holiday Inn Select, Marriott and Quality.

Westmont Corp. is operated in partnership between the Westmont Hospitality Group, which owns and operates more than 300 hotels in Canada, the U.S. and Europe, and Whitehall Street Real Estate Funds, which is managed by Goldman, Sachs & Co., New York.

Intrawest Corp.: In mid-1999, Vancouver-based Intrawest Corp., the owner of 10 mountain resorts, including Mammoth and Squaw Valley in the U.S. and the Whistler/Blackcomb all-season resort in British Columbia, purchased 50% of Blue Mountain Resorts Ltd., the largest mountain resort in Ontario. In other skiing niche-related news, ClubCorp Resorts, the world’s largest owner and operator of private clubs and golf resorts, sold Mont-Sainte-Anne, a ski resort just north of Quebec City, to Resorts of the Canadian Rockies.

Other major deals would soon follow. In June 1999, Canadian Hotel Income Properties (CHIP), a real estate investment trust (REIT), received an hostile takeover bid from another REIT, Royal Host, which has an asset base of C$300 million, which includes 3,500 rooms at 33 hotels. CHIP, Canada’s first hotel REIT, owns and operates nearly 8,000 rooms at 36 hotels across Canada. Participating with Royal Host in its bid is Westmont Corp., which stands to gain a few more hotels for its new Canadian operations.

Meanwhile, activity also is occurring in other niche sectors of Canada’s hospitality industry. In mid-1998, Canada’s Vinings Franchise Systems and Atlanta-based U.S. Franchise Systems, reached an agreement to bring the Microtel brand concept to Canada. Microtel Inns & Suites is a growing, franchised chain of newly constructed budget and economy hotels.

Continuing this trend to bring quality budget lodging to Canada, Cendant Corp.’s Knights Franchise Systems, Inc. signed its first international master franchise agreement for the development of Knights Inn brand hotels in Canada with AFM Hospitality of Toronto. AFM, which already holds the master franchise for Cendant’s Ramada and Howard Johnson brands in Canada, expects to add more than 100 Knights Inns during the next five years, recently opening its first in Niagara Falls, Ontario. AFM also recently signed a deal with Seattle-based AST Brands LLC to bring the Aston brand to Canada.

Largely attributed to Canadian “snowbirds” escaping the winter for a warm-weather holiday in the U.S. or Caribbean, Canada has long suffered a tourism trade deficit. But with tourism spending growth rate within Canada expected to top 4% annually coupled with a declining rate of growth in tourism spending by Canadians abroad, a trade balance is projected within two to three years.

Indeed, this new strength in the hospitality sector has not been lost on the industry’s major players in Canada, where consolidation is not only the major trend in the industry, but also the driving force behind change as we enter the new millennium.

(Based in Toronto, David Ellis is director of Arthur Andersen’s Canadian Real Estate Advisory Services.) 

©Arthur Andersen