The Effect on Capitalization Rates and Discount Factors After September 11 / Canadian Lodging Outlook / Dec 2001

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The Effect on Capitalization Rates and
Discount Factors After September 11

CANADIAN LODGING OUTLOOK
October 2001
October 2001 Year-to-Date

The Canadian Lodging Outlook is a joint monthly publication
of Smith Travel Research and HVS International,
Vancouver and Toronto, Canada

By: Elizabeth D. MacDonald, MAI, AACI and Salim Gulamani - HVS International - Canada

HVS International estimated hotel value declines after the September 11th attacks. This decline is estimated based on the Hotel Valuation Index, a measure of trends in hotel values for major markets. The HVI is developed through an income approach using market area data provided by Smith Travel Research and operational and capitalization rate information from HVS International. Overall, hotel values in the US are estimated to have declined by 27%, with 5% of this decline being attributed to the economy prior to September 11th. Canadian properties were not hit as hard. We estimate the decline in
Toronto was 20%, with Montreal and Vancouver declining by 16% and 10%, respectively. On a per room basis, the average loss for Toronto was estimated at $28,800 (Canadian), $17,000 in Montreal, and $15,800 in Vancouver. In comparison, the average loss per room in the US was $21,600 (US). We believe that all the cities in Canada and the US will have their values totally restored, with a positive gain by 2004.

What factors contributed to this decline in hotel value?

The answer lies in two areas. First of all, a decrease in hotel occupancy, average room rates and the resultant RevPAR (revenue per available room) from a slowdown in the economy, which was accelerated by the attacks on September 11th. As a result, hotel management and owners have had to restructure their marketing efforts and re-evaluate their market mixes while maintaining their bottom lines. Several hotels have decreased their costs by reducing staffing levels, holding off on major capital expenditures, and disputing their property assessments. We estimate demand will increase in the second quarter of 2002.

The second factor that has resulted in a decline in hotel values is in the increase in capitalization rates. As of September 11th, capitalization rates are trending upwards. According to Korpacz's Investor Survey, capitalization rates for full-service and luxury hotels are currently 11.4% up 60 to 115 basis points while limited-service hotels are at 12.2% up 35 basis points. In addition, discount rates range from 13.0% for luxury hotels, 13.5% for full-service hotels, and 14.2% for limited-service properties.

**Gain or Loss in Value (Percentage)**
**(9/11/01 Represents Liquidation Value)**
City	2000	9/11/01	2002	2003	2004
Chicago	16%	-53%	36%	25%	16%
New York	15%	-43%	31%	16%	11%
Dallas	13%	-40%	25%	10%	6%
Boston	28%	-36%	26%	11%	10%
Oahu	31%	-34%	28%	16%	8%
San Francisco	27%	-31%	15%	10%	5%
Orlando	4%	-30%	24%	9%	7%
Atlanta	-1%	-29%	31%	12%	6%
Mumbai	-5%	-28%	-6%	8%	N/A
USA	13%	-27%	30%	13%	6%
Denver	10%	-27%	24%	9%	6%
Los Angeles	37%	-23%	24%	10%	7%
Singapore	N/A	-22%	N/A	N/A	N/A
Toronto	3%	-20%	5%	11%	12%
Montreal	7%	-16%	4%	15%	10%
Vancouver	-2%	-10%	4%	8%	8%

**CANADIAN LODGING OUTLOOK**
**HVS INTERNATIONAL - CANADA**
**October 2001** **Year-to-Date**
October 2001 YTD	Number of Rooms	Occupancy Rate % 2001	Occupancy Rate % 2000	Average Room Rate $ 2001	Average Room Rate $ 2000	RevPAR $ 2001	RevPAR $ 2000	Room Supply % Change	Room Demand % Change
Nova Scotia Area	1,285	65.5%	67.7%	$81.24	$80.40	$53.21	$54.43	0.0%	-3.3%
Halifax, NS	2,599	76.0%	75.2%	$119.81	$118.27	$91.06	$88.94	1.1%	2.1%
Montreal, QC	15,070	68.5%	71.8%	$134.91	$129.07	$92.41	$92.67	0.9%	-3.7%
QuebecCity, QC	3,485	69.5%	73.4%	$135.49	$125.91	$94.17	$92.42	1.1%	-4.2%
Quebec Area	3,416	59.4%	57.7%	$87.05	$82.53	$51.71	$47.62	0.0%	3.0%
Toronto Downtown	12,565	70.7%	73.6%	$166.34	$164.82	$117.60	$121.31	0.4%	-3.6%
Toronto North/East	6,188	66.0%	70.9%	$109.40	$109.03	$72.20	$77.30	0.7%	-6.1%
Toronto Airport/West	9,312	71.1%	76.8%	$116.61	$113.96	$82.91	$87.52	3.9%	-3.9%
Ottawa, ON	7,636	70.1%	74.4%	$127.90	$119.39	$89.66	$88.83	-0.8%	-6.6%
Ontario East	5,076	61.6%	64.8%	$96.72	$90.25	$59.58	$58.48	0.8%	-4.1%
Niagara Falls,ON	5,907	60.6%	64.2%	$129.06	$120.72	$78.21	$77.50	4.8%	-1.1%
Ontario Southwest	5,949	59.4%	62.2%	$97.81	$93.90	$58.10	$58.41	0.7%	-4.0%
Ontario North	4,544	62.4%	63.6%	$92.43	$89.94	$57.68	$57.20	0.4%	-1.6%
Ontario Central	6,672	63.6%	63.5%	$93.54	$88.52	$59.49	$56.21	0.5%	0.7%
Winnipeg, MB	3,214	63.5%	67.4%	$92.40	$88.63	$58.67	$59.74	1.2%	-4.7%
Regina/Saskatoon, SK	3,777	63.0%	67.3%	$81.17	$78.64	$51.14	$52.92	3.2%	-3.5%
Calgary, AB	7,490	67.5%	68.2%	$112.54	$115.90	$75.96	$79.04	2.9%	1.8%
Edmonton, AB	4,746	65.6%	63.1%	$92.36	$84.83	$60.59	$53.53	0.4%	4.4%
Alberta Area	5,675	64.3%	64.4%	$85.99	$82.82	$55.29	$53.34	1.9%	1.6%
MountainRegions, AB	2,416	70.1%	77.7%	$222.09	$203.17	$155.69	$157.86	-3.3%	-12.7%
Vancouver, BC	12,099	66.7%	67.0%	$139.67	$141.64	$93.16	$94.90	2.4%	1.9%
British Columbia Area	4,922	55.3%	56.1%	$83.12	$80.15	$45.97	$44.96	1.2%	-0.4%
Victoria, BC	2,912	62.8%	65.4%	$121.23	$119.48	$76.13	$78.14	0.3%	-3.6%
Provinces
Alberta	20,327	66.5%	67.4%	$116.04	$115.63	$77.17	$77.93	1.0%	-0.3%
British Columbia	23,189	62.8%	63.9%	$133.68	$130.86	$83.95	$83.62	1.4%	-0.4%
Manitoba	3,479	63.2%	67.3%	$91.07	$87.70	$57.56	$59.02	1.3%	-4.8%
New Brunswick	2,986	65.3%	69.4%	$91.24	$88.10	$59.58	$61.14	1.0%	-5.0%
Newfoundland	1,521	69.8%	68.6%	$99.71	$95.52	$69.60	$65.53	0.5%	2.2%
Nova Scotia	3,884	72.3%	72.5%	$107.56	$105.10	$77.77	$76.20	0.3%	0.0%
Northwest Territories	INS	INS	INS	INS	INS	INS	INS	INS	INS
Ontario	63,410	66.3%	69.7%	$121.95	$118.37	$80.85	$82.50	1.2%	-3.8%
Prince Edward Island	784	56.1%	56.5%	$96.41	$97.87	$54.09	$55.30	0.0%	-0.7%
Quebec	22,410	67.0%	69.7%	$127.66	$121.73	$85.53	$84.85	0.6%	-3.3%
Saskatchewan	5,216	59.0%	63.0%	$76.24	$74.12	$44.98	$46.70	1.9%	-4.5%
Yukon Territory	384	52.2%	52.4%	$86.08	$84.90	$44.93	$44.49	0.0%	-0.4%
Canada	147,590	62.9%	64.9%	$104.21	$100.39	$65.55	$65.15	1.1%	-2.0%

###

Contact:
Kimberley Tyls
HVS International
4235 Prospect Road
North Vancouver, BC V7N 3L6
(604) 988-9743, ext. 21
[email protected]
www.hvsinternational.com

Also See	So How Bad Was September for Canadian Hotels.. Pretty Bad! / The Canadian Lodging Outlook / September 2001
	Have Hotel Values in Canada Declined Since September 11th? You Bet They Have / The Canadian Lodging Outlook / August 2001
	The Popularity of Boutique Hotels / The Canadian Lodging Outlook / July 2001
	Rising Energy Costs Cause Concern in the Lodging Industry / The Canadian Lodging Outlook / June 2001
	Niagara Falls: With Supply Comes Demand / The Canadian Lodging Outlook / May 2001
	Does Supply Generate Demand? / The Canadian Lodging Outlook / May 2001
	Optimism With a Hint of Caution, As Analysts Predict a Softer Year for the Canadian Hotel Industry / Mar 2001
	Limited-Service Growth in Canada - Where�s it Going? / The Canadian Lodging Outlook / January 2001
	HVS Canada in Review - Year End 2000 / The Canadian Lodging Outlook / March 2001
	Canadian Lodging Outlook / May 2000 Year to Date Statistics / HVS International - Canada / July 2000
	The Rule of Thumb Method...Does It Still Hold Weight? / Elaine Sahlins - HVS / Oct 2000
	What�s Hot and What�s Not in Western Canadian Hotel Markets / Mar 2000

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