INNvestmentCanada_-_final

8/8/2019 INNvestmentCanada_-_final

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INNvestment CANADAcolliers international hotels

Results o thec h ivm sm sv

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FiG. 2 Q: How many hotels do you currently own in Canada?

4 to 6 4%

1 to 3 4%

7 to 9 8%

10+ 2%

Currently none 8%

FiG. 1 Q: Which region are you based in?

Western Canada 37%

Central Canada 43%

Eastern Canada %

Other North America 7%

EMEA %

Asia Pacic %

Domestic investors comprised 91% o respondents.

FiG. 3

Buy 37%

Hold, renovate/expand 4%

Build 9%

Sell 4%

While not a primary strategy, 53% are considering or planning to sell one more hotel asset(s) in the next 12 months as demonstrated in Figure 6.

Over one-third (37%) o investors primary intention is to buy in the next months.

In a cross-tabulation, results revealed that nearly 80% o private investoown 1 to 3, or currently none, while other real estate and hotel investmecompanies tend to own more.

Q: What is yourprimaryinvestment strategy in the next 2 months?

The Canadian Hotel Investment Sentiment Survey, a rst o its kind, was

designed to capture the sentiment o active investors interested in the

national hotel landscape. Conducted in the Fall o 2 by ColliersInternational Hotels in conjunction with the Ted Rogers School o

Hospitality and Tourism Management at Ryerson University, the survey

is designed to act as an annual benchmark capturing year-over-year

results to identiy shits in investor sentiment. The survey includes

responses rom over domestic and international investors seeking

hotels in Canada.

The survey was timely given rising momentum in the Canadian hotel real

estate market. This is reected in the estimated 7% increase in 2

transaction volume rom the cyclical low o 29 with transaction volume

estimated to have neared $7 million or the year (versus $44 million

in 29). Final transaction gures and analysis will be released in the

Canadian Hotel Investment Report in February 2.

hgg v :

Nearly 8% o investors are optimistic on the perormance o the>

overall Canadian economy in the next three to ve years, although

close to 5% are weary o near-term volatility.

Investors avour hotel assets in the -75 room range in primary>

(city centre) markets.

There is a propensity to> hold, renovate/expand (4%) or buy

(37%) in the next 2 months.

Nearly 2% o respondents currently do not own a hotel in Canada>

but are looking to pursue acquisitions.

The majority o investors (63%) will seek an international brand or>

chain or their hotel assets, with a quarter undecided.

Owners in Western Canada tend to be more longer-term investors>

with 6% holding or more than ten years.

The availability o credit, strength o the Canadian economy and>

demand trends or accommodation are the top three inuencers to

decision makers.


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FiG. 4 Q: What markets are you considering buying or building?

Primary suburban 29%

Primary urban 57%

Secondary/tertiary 2%

Other 2%

86% o investors are considering buying or building in primary urban (majorcity) or primary suburban areas (suburb to a primary city).

FiG. 5 Q: What is your ideal property size and asset class?

Some 83% are seeking lodging investments between 51 and 175 rooms.

Nearly two-thirds o acquisitions would be branded by an internationallyrecognized hotel chain, most avoured by Hilton Worldwide, MarriottInternational, InterContinental Hotels Group and Starwood Hotels and Resortsbrands.

51 to 100 . 26%

250. %

37%Limited service

35%Full service

29%Select service

FiG. 6 Selling intentions

Maybe 3%

No 47%

Yes 22%

72% would sell torecycle capital

Estate planning %

Timing the market 8%

Other 6%

My lender is telling me to 4%

Q: Are you planning to dispose any hotel

assets in the next 2 months?

Q: What are your reasons to sell?

inVestor ProFile

As a backdrop to the survey results,

we begin with a brie overview o

the respondents. Domestic investors

comprised approximately 9% o

participants in the survey with the

majority located in Central andWestern Canada. O the total, 43%

were based in Central Canada

(includes Ontario and Quebec), 37% in Western Canada (west o Ontar

and the remaining portion (%) o domestic investors located in East

Canada (east o Quebec). An additional 9% reported having headquart

outside o Canada, most o which were located in the United States (

gure ).

While the majority o investors (4%) own one to three hotels, 2%

investors own ten or more hotels and 8% currently own none (gure

On average, 6% o private investors own one to three hotel assets, w

about one-third o hotel investment companies own three to six propert

and or the most part, institutional investors own ten or more propert

With regards to investors with existing hotels, 42% indicated owning a

o market segments (including limited service, select service, ull serv

and luxury hotels), while the next largest response was the ull serv

category at 24%.

inVestMent intentions

Amongst those surveyed, 4% selected hold, renovate or expand as th

primaryinvestment intention in the next 2 months while 37% o responde

selected buy (gure 3). The survey urther revealed the propensity

investors to acquire (or build) in primary urban markets at 57%, ollow

by primary suburban at 29% (gure 4). Central Canada is the most sou

ater region by investors with approximately 37% planning to purs

investments in this region in the next 2 months. Western Canada was n

with 26% o respondents. Specically, top markets o interest to acq

or build include Calgary, Toronto Airport/West and Vancouver Downto

at roughly % each, and to a lesser degree, Toronto Downtown, Vancou

Airport, Toronto North/East and Ottawa, amongst others. The survey a

revealed an optimal room range or hotel investments to be between

75 rooms or most investors (57%). In addition, over 37% o investors

looking to ocus on limited service type assets in uture acquisitions a

35% on ull service assets, with the remaining 29% on select service,

latter being an asset class that has grown in popularity in recent ye

(gure 5).

While Figure 3 indicates the weak selling intent to ones primary investm

strategy, some 53% o investors are either considering or planning to one or more hotel asset(s) in the next 2 months. The balance o sur

respondents are not planning to sell. Key reasons to sell include redeploy

capital to other uses (72%), with % estate planning and 8% having tim

their exit. (gure 6).

The majority o investors (4%) indicated their average hold period to

more than years, while 32% selected six to ten years, and 26% selec

two to ve years (gure 7). In a cross tabulation it was discovered 59%

Western Canadian investors hold their hotel properties or more than

years as compared to only 8% rom that region who hold their investme

cmp s

Private investor 42%

Hotel investment company 24%

Real estate company %

Other %

Private equity 7%REIT 6%

P. 2 | colliers international hotels

Innvestmet Canada | Canadian hotel investor sentiment survey


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FiG. 7 Q: What is your average hold period?

2 to 5 years 26%

10 years 4%

FiG. 8 Q: What are your most important investment parameters?

Cash on cash analysis 22%

Capitalization rate 27%

Equity yield analysis 7%

% o replacement cost %

Discounted cash ow analysis %

An additional 13% chose other responses including multiple o total grosroom revenue (7%) and terminal capitalization rate (6%).

FiG. 9 Capitalization rates

Decrease 2%

Increase 36%

Stay the same 43%

Q: What are your expectations or capitalization

rates in the next 2 months?

limited-service

select-serviceull-service

Under 5% 5 - 7% 7 - 9% 9 - 11% 11 - 13% Over 13%

PRIMARY URBAN MARKETSAverage capitalization rates per market segment

PRIMARY SUBURBAN MARKETSAverage capitalization rates per market segment

limited-serviceselect-service

ull-service

Under 5% 5 - 7% 7 - 9% 9 - 11% 11 - 13% Over 13%

41% o respondents indicated an average hold period o more than ten years.

or under ve years. Central Canadian investors had a relatively even

spread between the three hold-categories o under ve years, six to ten

years and more than ten years.

A summary o undamental investment criteria showed the overall

capitalization rate was the primary valuation methodology or 27% o

respondents (gure 8). Other actors such as cash on cash analysis (22%)

and equity yield analysis (7%), as well as discounted cash ow analysisand percentage o replacement cost were top investment criteria.

caPitaliZation rates

Some 43% o those surveyed expect capitalization rates to stay the same

in the next 2 months, while 36% expect an increase and 2% expect a

decrease. The majority o cap rate requirements were in the range o 9%

to %. Respondents also indicated average cap rate requirements or

primary urban ull service hotels were lower as compared to their

counterparts, primary urban select service and primary urban limited

service (gure 9). The most requently selected range o current cap rates

or primary urban ull-service assets was 7% to 9%. The range increased

to 9% to % or primary urban select-service assets and primary urbanlimited-service assets. There was an even spread or primary suburban

select-service assets; an equal number o investors selected cap rates o

9% to % and % to 3%, a slightly wider range as compared to other

markets.

FinancinG enVironMent

In regards to the current nancing environment, the survey summarized

nancing sources as well as interest rates and terms (gure ). There

seems to be a divide between investors who believe cost o debt has

become more expensive in the last 2 months (38%) versus those who

believe it has become less expensive (37%); the remainder eeling there

has been no change at all (25%). Debt coverage expectations or nancinghotel investments or the majority o respondents (5%) reected a debt

coverage ratio (ratio o cash available or debt servicing) range o .26 to

.4. A surprising number responded with ratios o . to .25 (7%),

which is low or current economic conditions. Loan-to-Value (the ratio o

asset to total debt value) expectations were mainly in the range o 55% to

64%, with 55% o respondents indicating as such. Some 3% indicated

ratio expectations above this range while 28% responded below.

Fixed interest rate expectations primarily ell in the ranges between 5%

and 7%. Specically, 35% o respondents indicated an expected rate range

o 5% to 6%, and 29% indicated a range between 6% to 7%. Banks

continue to be regarded as a primary source o nancing with 4% o

respondents selecting it to nance new acquisitions (gure ). The othersignicant sources were ound to be credit unions at 2%, and seller

nancing at 5%. Subsequently, 46% o respondents indicated a current

loan term expectation to be between ve to six years, while 38% selected

between three to our years. Roughly % had loan term expectations o

more than six years.

When asked how access to debt will change in the next 2 months, some

39% believe there will be no change, 37% believe access will become

easier and the remainder believe it will become more dicult in the next

year (gure ).




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FiG. 10 Financing environment

Less expensive 37%

More expensive 38%

No change 25%

Q: How has the cost o debt changed in the past 2

months?

Q: What are your current expectations or debt

service coverage ratios or hotel investments?

1.11 to 1.25 7%

1.00 to 1.10 2%

1.26 to 1.40 5%

>1.40 5%

Unsure 5%

Q: What are your current expectations o Loan-to-Value or hotel investments?

50% to 54% 2%

70% %

Unsure 4%

Q: What are your current expectations or xed interest rates or hotel

investments?

4% to 5% 5%

7% 7%

Unsure 6%

Q: Who do you expect to provide primary nancing or your

acquisition or new development?

Credit union 2%

Bank 4%

Seller 5%

Pension und %

Other 8%

Insurance company 4%

Q: What are your current expectations or loan term or hotel investments?

5 to 6 years 46%

3 to 4 years 38%

>6 years %

Unsure 5%

Q: Overall, how do you think access to debt will change in the

next 2 months?

Become easier 37%

No change 39%

Become more difcult 24%




5/5www..m/mm

W f :

AucklandCosta Rica

Hong KongLondon

Mexico City

Moscow

Oslo

SingaporeShanghai

SydneyTokyo

United States

Warsaw

Accelerating success

P. 5 | www..m

colliers international hotels

CANADA

t

One Queen Street East, Suite 22

Toronto, ON M5C 2Z2

Vv

2 Granville Street, Suite 9

Vancouver, BC V6C 2R6

alaM Pirani

+ 46 643 [email protected]

toM andreWs

+ 64 66 846

[email protected]

robin Mluskie+ 46 643 3456

[email protected]

russell beaudry

+ 46 643 [email protected]

aMy kWan

+ 46 643 3497

[email protected]

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INTERNATIONAL

Note: Percentages may not equal 100% due to rounding.

A special thank you to Proessor Richard Wade and ourth year students Aliya Bhatia,

Antonio Gasbarrini, Andrew Higgs and Sanja Kajic o the Ted Rogers School o Hospitality

and Tourism Management at Ryerson University.

colliers international

48 oces in

6 countries on

6 continents

Canada: 39Asia Pacic: 94

EMEA: 95

United States: 35Latin America: 7

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FiG. 12 Economic outlook

Somewhat concerned 46%

Very concerned 4%

Neutral 29%

Not concerned 7%

Really not concerned 4%

60% are pessimistic (somewhat or very concerned) about Canadas economic perormance today, althoughnearly 98% o respondents have a positive outlook on economic perormance in the next three to fveyears.

Q: What is your long term (three to ve year)

economic view?

Q: Are you concerned about the undamentalso the Canadian economy?

Somewhat positive 46%

Positive 3%

Average 2%

Somewhat negative 2%

FiG. 11 Q: What actors are most inuential on your investment decisions?

Slowing Canadian economy 2%

Availability o credit 25%

Anticipated demand 2%

Slowing U.S. economy 9%

Exchange rate 5%

Labour markets 5%

Other 3%

outlook

Since the onset o the global crisis, various actors have afected buyers and sellers in their short- and

long-term investment strategies. Survey respondents were asked to identiy three actors that are most

inuential on their investment decisions. The top responses were availability o credit, slowing Canadian

economy and anticipated accommodation demand at 25%, 2% and 2%, respectively (gure ). Another

top response was a slowing US economy, indicating continued Canadian reliance on the US.

As reected in gure 2, most investors (46% o those surveyed) are somewhat concerned about the

Canadian economy, and 4% have indicated they are very concerned with the economy. 29% o investors

eel neutral and approximately % are not concerned. However, when asked about economic sentiment

or Canada in the next three to ve years, over 75% o respondents indicated a positive or somewhat

positive economic sentiment. Only a handul o respondents (2%) concluded a somewhat negative

outlook or Canada over the next three to ve years.


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INNvestmentCanada_-_final