Building Magazine


Colliers International Hotels reports a record first quarter for hotel properties

The sale of hotel properties in the first quarter of 2013 is estimated to have totaled $410 million, rising seven per cent year-over-year. This momentum provides a good basis for continued growth in 2013 after a record-breaking 2012, which was a peak year for traditional volume at $1.2 billion for the year.

The quarter saw 10 trades above the $10 million threshold, which helped elevate the average price per room metric to $124,000, up from $96,700 in Q.1 2012 – an increase of 28 per cent. The largest transaction for the quarter was the $140 million ($233,300 per room) sale of the Hilton Toronto. Single-asset purchases were rounded out by the Metropolitan Toronto at $39.7 million ($93,000 per room), Parkside Victoria Resort and Spa, which sold under receivership for $23 million (price per room not applicable), Coast Vancouver Airport at $15 million ($112,800 per room), Best Western Plus Abercorn Inn at $14.25 million ($144,000 per room) and Travelodge Edmonton West at $13 million ($59,100 per room). One portfolio transaction occurred during the quarter with three properties in Nova Scotia selling to Temple Hotels Inc. for $87.5 million ($159,700 per room).

Q.1 transaction market highlights include:

•           Topped Q.1/’12 as the new highest first quarter for volume on record

•           $410 million in transaction volume (vs. $384 million last year)

•           25 sales in Q.1/’13 (vs. 24 last year)

•           Largest transaction was the $140 million sale of the Hilton Toronto

•           Atlantic Provinces had four transactions totaling nearly $100 million in Q.1 – eclipsing the amount sold throughout entire 2012 by ten-to-one

2013 Forecast – Five Themes to Consider

Taking Q.1 sales into account, 2013 is shaping up to be another banner year for hotel transaction volume. Pipeline activity, which includes assets under contract, currently being marketed and those that are expected to be marketed for sale suggests transaction volume should easily surpass 2012’s $1.2 billion absent any exogenous shocks to the overall economy.

1 – Improved Investor Sentiment

Colliers’ sees volume outstripping 2012’s full-year $1.2 billion as the market continues to improve and the buyer universe expands and diversifies (see #2 below). Their look at the transaction pipeline shows a strong Q.2 with $300-$350 million in firm transactions scheduled to close throughout the quarter. Barring any major event(s) in the broader economy, they anticipate a further $500 million to transact in the second half of the year, similar to last year’s levels when $508 million sold in the second and third quarters of the year. Colliers has not factored in the potential for one or more strategic transactions, which could occur in the form of single asset acquisitions or portfolio take-downs.

2 – Balanced Buyer Pool

The mix of buyers in the market is well diversified with each investor category being well represented, a trend seen continuing throughout the year. In 2011 Colliers witnessed strong in-flows of capital by hotel investment companies (45 per cent of the year’s total), who tactfully acquired a good mix of select- and full-service assets off the market lows brought on by the Financial Crisis. In 2012, real estate companies dominated principally due to strong activity in the first half of the year (43 per cent of the year’s total) driven by the now faded strength in the residential sector. REITs/C-Corps also snapped back to the buy-side after three years of net-selling, rising from 2-3 per cent of activity between 2009-2011 — to 16 per cent in 2012. For 2013 expect a strong showing of a broad mix of groups, including private investors, hotel investment companies, REITs/C-Corps and real estate companies.

3 – Increased Activity in Atlantic Canada

In the first three months of 2013, nearly $100 million transacted in Atlantic Canada — outstripping full-year 2012 by 10-to-one. Colliers anticipates further activity in the region this year, although the pace is expected to slow given Q.1 was bolstered by Temple Hotels Inc.’s $87.5 million purchase in Nova Scotia. Interestingly the five year period between 2008-2012 only saw a cumulative $66.9 million in product transacting in the Atlantic provinces with the largest being the 2008 sale of the Fairmont Newfoundland, which has since been rebranded as a Sheraton.

4 – Major Market Headlines

Downtown urban full-service hotels will continue to make headlines in 2013, as witnessed in Q.1 with the sale of the 600-room Hilton Toronto and 427-room Metropolitan Toronto. Full-service hotels have traditionally supported 40 per cent-60 per cent of annualized volume totals in the past. Given the propensity of such hotels to be located in urban centres, the focus on downtown markets is seen as continuing through 2013. There are also a variety of portfolios in/around major urban markets that should transact throughout the year.

5 – Single Asset Purchases

In 2012 portfolio sales represented a relatively minor component of the transaction environment at just 5 per cent of volume. Colliers anticipates this year’s portfolio activity will increase, but will not represent a dominant portion of the overall market. Single asset purchases will represent the lion’s share of volume, both by the number of deals and by total volume.

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