Canada hotel performance sluggish, but transactions up 22 percent so far in 2013
The International Monetary Fund is projecting?continued economic sluggishness?in Canada, and first-quarter performance numbers back up that projection.
Smith Travel Research?s results to June 2013 indicate national hotel occupancy was 60 percent versus 59.6 percent for the same period in 2012. Room demand increased 1.5 percent while supply grew just 0.7 percent. Average daily rate for the first half of the year rose 1.9 percent, pushing revenue-per-available-room growth to 2.8 percent.
The good news in regards to the hotel industry in Canada is that?hotel transaction volume?reached about $794 million year-to-date second quarter, compared to $650 million in the first half of 2012. That total is an increase of 22 percent.
“We’re experiencing a tremendous amount of hotel investment activity, and this will probably be the biggest year on record in terms of single-asset or small-portfolio transactions,” said Bill Stone, an executive vice-president at CBRE. “Unlike 2006 and 2007, where there were the big [merger and acquisition] deals, this is a very, very active year for one-off hotels or small portfolios.”
Key trends in Canadian hotel transactions to Q2 2013 included:
- Of the 55 trades in YTD Q2 2013, 17 exceeded $100,000 per room, the same number as last year.
- There were 24 trades reported over $10 million in the first half of 2013 compared to only 17 in the first half of 2012.
- Average per room pricing for YTD Q2 2013 was down approximately 20% from YTD Q2 2012, although per room pricing in the prior year was influenced by transactions such as the Four Seasons Toronto and Clearwater Suites Timberlea, which traded at $375,000 and $462,100, respectively in Q1.
- More than 50% of total transaction volume in the first half of 2013 occurred in the Greater Toronto Area, including the recent $70.5 million five-property Courtyard and Residence Inn portfolio acquired by Morguard Corp.
- Public companies/REITs continue to actively sell, with trades including Royal Host?s disposition of the Super 8 Sudbury and Travelodge Medicine Hat and InnVest REIT?s previously discussed sale of the Delta Montreal Centre-Ville.
Foreign investors are behind much of the action, according to The Globe and Mail. About 24 per cent of the $794-million that was invested in Canadian hotels during the first six months of this year was foreign money, compared to about 7 percent of the $650 million worth of hotel deals done during the first half of 2012.
“Historically Canadian investors bought Canadian hotels, by and large, and this is one of the first substantive breakout years,” Stone said. “We?ve seen a real spike, in the last eight to 12 weeks specifically, of activity.”
Sylvain Fortier, executive vice-president of the residential and hotel businesses at Ivanho? Cambridge, the real estate arm of the Caisse de d?p?t et placement du Qu?bec, says he thinks the growing foreign interest stems from Canada?s new-found reputation as a relative safe-haven in the wake of the financial crisis because success in the hotel business is highly tied to the local economy.
Overall, Fortier said conditions are conducive to the pickup that is occurring in overall activity, driven by smaller deals.
“Lenders are back in the market, buyers can get higher loan-to-value ratios, rates are extremely low, spreads are becoming smaller,” he said.