PKF Consulting recently completed a survey of Investors and Lenders in the Canadian hotel industry, to better understand their criteria for investment and their approach to lending to the accommodation sector. The survey has captured investor and lending attitudes over the three most recent hotel investment cycles as follows:
- 2000 through 2004 – strong performance, impact of 9/11, SARS, and recovery;
- 2005 through 2008 – industry peak;
- 2009 and 2010 – economic and industry downturn.
The Hotel Investor Survey solicited input from existing and potential investors in the hotel community throughout Canada including: institutional investors, private investors, owners/operators, developers and real estate companies. The survey addressed the profile of the hotel investors, the level of hotel development and acquisitions, capital re-investment in existing assets, financing sources and structure, government grants and subsidies, the approach to valuing hotel assets and the Investment Communities outlook on investment for 2011.
The Hotel Lender Survey solicited input on hotel lending in Canada from a sample of chartered banks, finance companies, government lending agencies and private funding sources. The areas addressed by the survey included the a profile of hotel lenders, the volume of loans to the hotel sector, factors or restrictions on lending to the sector, as well the approach to financing hotels.
Hotel Investment 2000-2010
As of 2010 year end, there were an estimated 3,860 hotel properties operating on a year round basis, with 30 or more rooms offering a total of 367,800 guest rooms in Canada.
Over the 11 year period of 2000-2010, total capital investment in Canada’s accommodation sector is estimated to have reached $25.7 Billion through the combination of construction of properties, upgrades and re-investment in existing assets as well through the acquisition of existing hotel properties.
Over this period hotel acquisitions represented approximately 51% of total investment at $13.2 Billion, while the construction of new hotel properties represented 26% or $6.7 Billion and 23% or $5.8 Billion was represented by re-investment capital in existing assets.
Source: PKF Hotel Investor Survey, 2010/2011
2011 Hotel Investment Outlook
The Investors surveyed were asked to assess where they think capitalization rates are headed in 2011. There does not appear to be a consensus on where Investor return expectations or capitalization rates are headed in 2011. Almost half of the Investors believe that there will be no change relative to 2010 capitalization rates. Of the balance, more investors see downward pressure (lower return expectations) as opposed to upward pressure (higher return expectations).
Regardless, the outlook for industry improvement is positive. After an almost 30% decline in industry profits in 2009, the industry realized a 7% improvement in 2010. PKF’s Outlook for bottom line improvement in 2011 is a further 6%, with industry profits expected to improve by 6%-8% annually over the 2012-2015 period.
Complimentary copies of this survey report have been provided to all respondents. If you responded and have not received a copy, please contact Jessica Portelance at (416) 360-5000 ext. 11 or jessicaportelance@pkfcanada.com.
If you did not participate in the survey and are interested in obtaining a copy, the publication can be purchased for $500.00 + HST.
