Canadian hotel investors in optimistic frame of mind


A new survey from Colliers International Hotels offers insight into the direction of the Canadian hotel real estate market for the next 12 months. According to the sixth annual Canadian Hotel Investment Sentiment Survey, investors continue to show eagerness to invest in hotel real estate with a cautious yet optimistic frame of mind of the Canadian economy in the coming years.

Some highlights of the survey:

  • Investors continue to report a strong appetite to invest: 44 percent indicated buying as the primary investment strategy for 2016, the second highest buy signal since the survey’s inception in 2010.
  • Almost a quarter of respondents indicated plans to sell assets in 2016 with multiunit owners (7+ hotels) being the most likely to have plans to sell.
  • The majority of investors are forecasting cap rate stability throughout 2016.
  • Investor preference is increasingly weighted to the full-service and limited-service asset classes. Some 42 percent of investors indicated limited-service properties as the most preferred asset class, a 10-point leap year-over-year, followed by full-service assets, which were indicated by 35 percent of respondents, an 8-point increase from 2014.
  • Nearly 40 percent of investors expect fixed interest rates below 4 percent in 2016 compared with 24 percent in 2015.
  • More than a quarter of investors expect to get financing from credit unions, the highest indication since 2010.
  • Central Canada (Ontario & Quebec) is the preferred region for investment in 2016.
  • An increasing percentage of investors are planning to build/buy hotel properties in primary urban markets, growing from 40 percent in 2013 to 54 percent in 2015.
  • Hotel assets in the 101-175 room range have consistently been reported as the ideal property size for acquisitions or new developments and was indicated by 50 percent of respondents in 2015.
  • Fifty-four percent of investors reported the cost of debt has become less expensive over the past 12 months, the highest showing since 2010. Those believing the cost of debt has become more expensive has continually declined in recent years from 36 percent in 2013 to just 7 percent in 2015.
  • Investors have shown a greater preference for longer average hold periods for hotel investments since 2013 with more than 80 percent indicating a hold period of six or more years and 50 percent indicating a hold period of more than 10 years. The most substantial change has been those specifying a hold period of more than 10 years, which has increased by 10 percent since 2013.

Larger Picture

According to Collliers, investors revealed they are more concerned with the fundamentals of the Canadian economy than in recent years with 62 percent indicating they are somewhat concerned or very concerned, compared with 41 percent in 2014 and 47 percent in 2013. This increased level of concern may be a result of the survey being undertaken during the time of the federal election and the depressed energy sector (45 percent of respondents were corporately located in Western Canada, the highest level ever recorded in the survey).

Investors were more optimistic looking into the medium-term with almost 60 percent indicating they have a positive or somewhat positive economic sentiment for Canada over the next 3-5 years compared with 24 percent who had a negative of somewhat negative sentiment. The state of the Canadian economy, availability of credit and overall demand trends remained as the most important macro-economic factors influencing investment decisions.

Portfolio Sales

2015 saw two big deals involving Canadian companies.

Marriott International acquired the Delta Hotels and Resorts brand and management and franchise business from Delta Hotels Limited Partnership, a subsidiary of British Columbia Investment Management Corporation (bcIMC) for C$168 million (approximately $135 million).

At the time of the deal, the Delta brand portfolio offered 38 hotels and resorts with a total of 10,000 rooms in more than 30 cities across Canada. In November, when Marriott announced the first Delta property in the United States (Delta Orlando Lake Buena Vista, Fla., which opened in December), the brand stood at 37 properties.

Then on Dec. 9, AccorHotels announced the signing of an agreement with the Qatar Investment Authority, Kingdom Holding Company of Saudi Arabia and Oxford Properties (an Ontario Municipal Employees Retirement System company) for the acquisition of Toronto-based FRHI Holdings, parent company of the Fairmont, Raffles and Swissôtel brands.

AccorHotels will pay for the acquisition by issuing 46.7 million new Accor shares and a cash payment of $840 million, while The Qatar Investment Authority and Kingdom Holding Company of Saudi Arabia will become major shareholders, with 10.5 percent and 5.8 percent of the share capital, respectively. The deal is expected to close mid-2016.

FRHI has 155 hotels and resorts (of which 40 are under development), and more than 56,000 rooms (of which approximately 13,000 are under development). Its portfolio includes the Fairmont Banff Springs in Alberta (shown) and the Fairmont Le Château Frontenac in Quebec.

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