Following a lackluster period of hotel investment activity in 2004, transaction sales and activity surged during the first half of 2005. Year to date (YTD) June 2005 transaction volume reached record levels, matching the all-time peak mid-year results of $1 billion in 1998 and exceeded more than five times prior year results of $185 million.

Contributing to this tremendous activity were eight strategic trades, representing 68% of aggregate volume and totaling $692 million. This is the highest number as well as the highest volume of strategic acquisitions ever.

When strategic acquisitions are excluded, transaction activity when comparing price per room, has also improved considerably, increasing 40% over YTD June 2004, from $57,500 to $80,500 per room. While pricing per room is in part, a reflection of the assets that come to market in a given year, the notable increase in 2005 reinforces the strength of the hotel investment market and the continued appetite for product.  A table summarizing mid-year hotel investment activity from 2001 to 2005 follows.
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Institutional investors have emerged as a dominant force this year (made up of opportunity funds, pension funds and real estate companies) representing more than half (55%) of the volume and seven of the trades completed. Historically, this group has not been an active participant in the sector. Anthem Properties, a Canadian real estate company, with a portfolio of office, retail, multi-family and industrial buildings, purchased its first hotel asset - the 233-room Pacific Palisades Hotel Vancouver in June 2005 for $41.2 million ($176,800 per room). Also included in this buyer group is Starwood Capital Group, who along with their institutional partners, acquired five Westin properties across Canada for an estimated $516 million. This is the company�s first acquisition in Canada.

Private investors represented the second most active group so far this year, reflecting 21% of the volume.  With well-capitalized backing and established lender relationships, private investors have maintained a dominant presence with a range of 35% to 43% of volume from 2001 to 2003 and a volume spike to 73% in 2004 (the result of the acquisition of 41 hotel assets worth some $270 million). Over the years private investors have acquired a range of assets from larger urban hotels like the 188-room Holiday Inn Calgary for $17.5 million in June 2004 to the small properties in tertiary markets such as the 92-room Best Western Inn & Suites in Red Deer, Alberta for $6.4 million ($69,600 per room) in February 2005.

After a reported 3% of volume share in 2003 and inactivity in 2004 (a result of poor operating fundamentals and the scarcity of suitable product during these years), REITs have resurfaced as a dominant investor group that is actively seeking hotel product, with $116 million or 11% of total activity for the first six months of 2005. REITs were the most active group in 2001, with 46% ($305 million) of aggregate sales and in 2002 was the second most active group, with 26% ($124 million) of total volume.

Public companies and hotel investment companies each made up 6% of volume YTD June 2005. In the period from 2001 to 2004, public companies investment has ranged from 5% to 11% of total volume share, although in 2003 it spiked to 26%, as groups such as Fortis Properties and CNL Hospitality Properties expanded into new markets. In contrast, public companies have reported fluctuations in activity levels ranging from 2% of volume in 2001, to 24% in 2002. In 2003 and 2004 volume share was 16% and 14% respectively.

A number of noteworthy trades were completed during the first six months of 2005, including:

• Fortis Properties Inc. acquired a three-property portfolio consisting of the 224-room Greenwood Inn Edmonton, 210-room Greenwood Inn Calgary and 213-room Greenwood Inn Winnipeg from True North Properties. The portfolio sold for $62.6 million ($96,800 per room) in January. This brings the company�s hotel assets to fifteen, with representation in six provinces.

• In February, Hospitality Properties Trust (HPT) completed the sale of the 120-room Staybridge Suites Markham for $11.9 million ($99,200 per room) and the 215-room
• InterContinental Toronto Bloor Street for $29.8 million ($138,600 per room). These assets were part of a 13-property North American portfolio valued at some $425 million (USD), and are the first investments by HPT in Canada.

• Caesar Park Hotels and Resorts, Inc. sold its portfolio of Westin properties in March for a combined total of approximately $515.6 million to Starwood Capital Group. These assets were part of a larger North American portfolio. Included in the Canadian portfolio sale were the 510-room Westin Bayshore Vancouver Resort and Marina, 413-room Westin Edmonton, 525-room Westin Calgary, 977-room Westin Harbour Castle Toronto and 487-room Westin Ottawa. The average cap rate for the portfolio sale was estimated at 7.3%.

• Also in March, the 152-room Holiday Inn Select Oakville and Oakville Conference and Banquet Centre was sold to InnVest REIT for $28.5 million. The price per room has not been calculated as the values of the conference centre and additional land have not been identified and are significant. InnVest holds Canada�s largest hotel portfolio together with a 50% interest in Choice Hotels Canada Inc., the largest franchisor of hotels in Canada.

• The 380-room Four Seasons Hotel in Toronto sold for an estimated $115 million ($302,600 per room). Kingdom Hotels International (Prince Al Waleed bin Talal) acquired the property from Maritz, Wolff & Co.  in April. The Prince has several hotel investments, including a share in Toronto-based Four Seasons Hotel Inc., which has managed the Toronto hotel since 1978.

• Canadian Hotel Income Properties (CHIP) REIT purchased the 235-room Coast Terrace Inn � Edmonton South. Highgate Holdings Inc. sold the property for approximately $28.2 million ($120,000 per room) in April.  The Coast Terrace Inn is CHIP REIT�s tenth property in Alberta and its fourth in Edmonton. As stated in a press release issued by CHIP REIT, �We are very pleased with this accretive addition to our portfolio� said Ed Pitoniak, President and CEO of CHIP REIT. �We know the Edmonton market well and are increasing our exposure to take advantage of the strong growth prospects in the region.�

• 43% of trades were over 150 rooms.
• Of the 40 trades reported, sixteen (40%) were located in key Canadian cities such as Vancouver, Edmonton, Calgary and Toronto.
• 58% were full service properties.
• The majority (70%) were branded hotels.
• More than half (63%) were acquired by Canadian based companies.
• Transaction activity was mostly based in Ontario (40%).
• Cap rates ranged from 1.1% to 15.2%. Of those hotels that reported cap rates, about 36% fell between 10% and 12%.