In the early 90's, the economy was in recession and the
performance of the hotel industry was at a very low level.
Hotel values were well below replacement cost and attractive
financing was available from secured creditors. The low
values combined with the prospect for improved earnings
made lodging investment attractive to both Canadian and
U.S. investment sources. In addition, the lending community
liked the new balance sheets of the restructured businesses
and the conservative values. Good quality deals were relatively
obvious, requiring little in-depth analysis.
During the mid 90's, demand for hotel rooms continued
to grow and with almost no supply additions, occupancy
and revenue per available room (REVPAR) grew strongly.
By 1997, the industry had recovered to the point that bottom
lines were the best ever. Throughout 1997 and the first
half of 1998, the public capital markets endorsed the industry,
allowing the creation of three Canadian hotel real estate
investment trust's (REIT's) with a market capitalization
of $1.0 billion. By the second half of 1998, the stock
markets in North America turned south and the flow of funds
for the REIT's had dried up. However, a significant portion
of available hotel assets had been acquired and acquisition
prices had increased considerably. The need for more detailed
analysis and underwriting due diligence had intensified.
Since 1998, the volume of hotel transactions has slowed
to a trickle. The amount of debt financing available has
weakened and terms have become more restrictive. Loan to
value ratios have also declined, thereby reducing returns
on prospective acquisitions. This in turn has increased
the required yields from a purchaser's perspective. In
many markets across the country, new supply has contributed
to a softening in occupancy and REVPAR growth has slowed.
Each new opportunity to build or acquire hotel assets is
being looked at much more closely. It is no longer possible
to simply look at recent earnings to determine the value
of a lodging property.
Investors acquire or develop properties to gain the benefit
of future earnings. The current market and financing environment
requires greater insight into the dynamics that may have
an impact on a particular property. The investor/ lender
and/ or their advisors require the ability to analyse in
detail the local market and operating conditions affecting
the competitive properties. To be able to undertake such
an engagement, an advisor requires considerable experience
in evaluating operations and market conditions and in the
provision of third party opinions.
Pannell Kerr Forster has been providing sound advice to
hotel owners, investors and lenders in Canada for over
30 years. It is our objective to help our clients make
good business decisions, and we are able to achieve this
goal through the extensive experience of our professional
staff, our ongoing relationship with the industry, and
our time-tested and proven consulting approach. Please
call us to find out more about the ways in which we can
help you make good decisions.
Beth Walters, Director (Vancouver)
Pannell Kerr Forster
If you would be interested in discussing
our services in relation to the market position, performance
or value enhancement of your assets, please contact any
one of our Canadian Directors at your convenience.
| David Larone, Director, Toronto |
Beth Walters, Director, Vancouver |
| Brian Stanford, Director, Toronto |
|
| Fran Hohol, Principal, Toronto |
|
