A new record for overnight tourist arrivals breaks above levels last seen in 2002 based on a review of Statistics Canada data

Travel by non-residents into Canada achieved a new record in 2017 with 20.9 million cross-border inbound travelers, breaking a record last achieved in 2002. Aided by a relatively inexpensive Canadian dollar and year-long Canada 150 celebrations, as well as other tailwinds such as a generally good global economic backdrop and increased direct flight capacity, nearly 900,000 more inbound travelers stayed overnight than the year prior per Statistics Canada (SC).

A notable rebound in travel trends became apparent in 2015 as the Canadian dollar depreciated about 25% from a few years prior. Enticing foreigners by the relative discount, Canada subsequently recorded three years of rapid growth, bringing in 4.3 million additional overnight visitors since the beginning of 2015, according to SC.

Canadian Tourism Snapshot

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Q1/18

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Inbound International Trips to CanadaOne-or-More Overnight Stays

United States Other CountriesSource: Statistics Canada

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15 years to surpass 2002 peak

A critical theme in the path to surpassing the previous peak has been a growing influence of countries other than the United States increasing visitation to Canada. The share of Other Countries has risen from just 19% of the total overnight arrivals mix in 2002 to 31% in 2017 per SC. The pace in recent years also suggests Other Countries’ arrivals growth will continue to increase in importance. Highlights of the “Road to Recovery” are presented opposite.

Road to RecoveryKey events influencing travel trends

The loonie averages 62 cents US; its weakest on record, incentivizing 20.1 million overnight inbound visitors.

2002

SARS and resulting travel advisories, and other national and global events resulted in 2.5 million less visitors year-over-year.

2003

2009 Passports are now required to travel to/from the United States resulting in a low-point for inbound travel.

2010 Canada was granted Approved Destination Status (ADS) by China in 2009, making it easier for Chinese nationals to visit Canada, kicking off a nearly 17% CAGR in visitors from China between 2010 and 2017.

2014 US overnight travel into Canada registers a low point as a result of several years of the Canadian dollar hovering around parity. In the same year visitors from countries other than the US rose above 5 million for the first time, a 9.4% increase year-over-year, absorbing nearly all the decline from less US travelers.

2017 Other Countries’ portion of the inbound market surpasses 6.5 million, nearly doubling in 15 years and growing at a healthy 5.2% CAGR between 2010 and 2017. Reflecting this reality, seven of Canada’s top ten airports report record passenger volumes for the year.

Travel Stats Source: Statistics Canada

Q1 2018

collierscanda.com/hotels P. 2

-850,000 net overnight visitors

INNvestment Canada

Canadian Tourism Snapshot Continued...Then and Now: the United States Loses ShareThe United States remains a critical component of Canada’s overnight travel market with some 14.3 million overnight visitors in 2017 according to official figures from SC; however, its share has slipped from ~80% of all inbound overnight travelers in the late 1990s/early 2000s to 69% in 2017. On an absolute basis the US accounted for some 16 million overnight travelers in the early 2000s, only to reach a low in 2014 of 11.5 million. The US has posted a 15-year CAGR of -0.3% with 850,000 fewer visitors since 1999 per SC, which can be largely attributed to currency trends and passport restrictions.

The Increasing Importance of ChinaThe region with the most impact for tourism growth in Canada is Asia, and within the region Mainland China is providing the bulk of acceleration fueling overnight visitation gains. Canada was granted Approved Destination Status (ADS) by China in 2009, making it easier for Chinese nationals to visit Canada. Correspondingly and together with the massive rise in domestic prosperity, Mainland China posted a 16.8% CAGR in overnight visitors to Canada between 2010 and 2017, growing from 170,000 before ADS to nearly 700,000 overnight stays as reported by SC.

As a percentage of total Asian travel to Canada each year, China has grown over the long-term from just 5% of the total Asian travel share in 1999 to 31% in 2017, and posting new record share gains each year along the way. The China story has fueled the “Other Countries” component of the overall overnight travel mix into Canada. This important group of travelers is facilitating a renaissance of high-yielding travel and aiding growth in direct air routes between Canada and Mainland China.

Other Growth Markets & Canada’s Near-Term ProspectsIt is worth noting that arrivals from certain other countries have been expanding including India (up 16% year-over-year in 2017), South Korea (15%), Mexico (45%), Brazil (22%) and Australia (11%), but the consistency and propensity of Mainland China dwarf nearly all in long-term growth rates.

Looking forward, Canada should continue to draw record-breaking inbound overnight travelers from many international markets including Mainland China. Positive factors influencing cross-border travel include a weak loonie, relatively low oil prices (that support affordable fuel costs for airlines and cars traveling cross border), direct air capacity growth and aggressive international marketing by national, provincial and local travel and tourism organizations.

United States

-0.3%

International

2.3%

China

13.5%

Inbound Overnight Visitor Compound Annual

Growth Rate (CAGR) between 1999 and 2017

+2.3 million net overnight visitors

+630,000 net overnight visitors

Source: Statistics Canada

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Source: Statistics Canada

4X Rise Since ADS

Q1 2018 INNvestment Canada

YEAR-TO-DATE Q1 2018 CANADIAN HOTEL TRADESTRANSACTIONS OVER $1 MILLION

NAME CITY PROV KEYS DATE PRICE PRICE/KEY CAP RATE (%)

Brooklands Inn Winnipeg MB 26 Jan $2,250,000 $86,500 n/a

Comfort Inn Rouyn-Noranda Rouyn-Noranda QC 77 Jan $4,950,000 $64,300 11.5

Traders Inn Motel (1) Chilliwack BC 34 Jan $1,775,000 n/a n/a

Fireside Inn Hotel and Conference Centre Castlegar BC 59 Feb $1,825,000 $30,900 n/a

Four Points by Sheraton Quebec Resort Quebec City QC 102 Feb $11,200,000 $109,800 n/a

Lakeview Inns & Suites Slave Lake Slave Lake AB 68 Feb $4,525,000 $66,500 n/a

Lakeview Inns & Suites Thompson Thompson MB 60 Feb $1,600,000 $26,700 n/a

The Waddell Hotel Port Hope ON 11 Feb $1,200,000 $109,100 n/a

The Westridge Inn Resort Osoyoos BC 33 Feb $1,900,000 $57,600 n/a

Baymont Inn & Suites Montreal Airport Montreal QC 79 Mar $4,550,000 $57,600 n/a

Best Western North Bay Hotel & Conference Centre (2) North Bay ON 130 Mar n/a n/a n/a

Quality Hotel Harbourview (2) St. John's NF 159 Mar n/a n/a n/a

Quality Hotel Montreal East (2)(3) Anjou QC 157 Mar n/a n/a n/a

Quality Hotel Regina (2) Regina SK 126 Mar n/a n/a n/a

Quality Suites Laval (2) Laval QC 114 Mar n/a n/a n/a

Quality Suites Whitby (2) Whitby ON 104 Mar n/a n/a n/a

Radisson Hotel Kitchener Waterloo (2) Kitchener ON 172 Mar n/a n/a n/a

Travelodge Hotel Calgary International Airport South (2) Calgary AB 203 Mar n/a n/a n/a

Travelodge Hotel Edmonton South (2) Edmonton AB 219 Mar n/a n/a n/a

Travelodge Hotel Sudbury (2) Sudbury ON 140 Mar n/a n/a n/a

collierscanda.com/hotels P. 3

Q.1 Transact ion Highl ightsThe first quarter of 2018 saw sustained investor interest for lodging investments with 37 reported transactions and total deal volume of approximately $350 million across Canada. Ontario was the primary driver of investment activity with 10 deals in the GTA, Ottawa, Kitchener, Sarnia and northern Ontario markets accounting for a 40% share of national activity. Improved operational performance and investor confidence supported increased trading in Western Canada with 18 transactions, primarily in the limited service segment totaling $123 million in volume (35% of total).

• InnVest Hotels, Canada’s largest hotel owner completed the sale of the 12-property Diversified Canadian Hotel Portfolio to a joint venture between Manji’s Holdings Ltd. & Palm Holdings.

• Gateway Casinos divested two hotel properties as part of the Gateway Casinos & Entertainment Metro Vancouver Portfolio in a sale-leaseback transaction valued at $500 million to U.S. based Mesirow Financial.

• The sale of the 218-key Extended Stay Ottawa Downtown for $48 million was the largest single asset trade of the first quarter. The hotel was acquired by Ottawa-based Paramount Properties for conversion to rental apartments.

Following near record trading activity last year, the transaction outlook for 2018 remains bright with a number of deals in the market and under contract which should support full-year transaction volume in the range of $2.0 - $2.5 billion.

YTD Q1 AVERAGE PRICE PER KEY Source: Colliers International Hotels

$80,600

+7.3%YoY

NEW Q1 NATIONAL REVPAR RECORD ($84.25)Source: STR

YTD Q1 ROOM NIGHT DEMAND GROWTH

+3.1%

Source: STR

collierscanda.com/hotels P. 3

Q1 2018 INNvestment Canada

YEAR-TO-DATE Q1 2018 CANADIAN HOTEL TRADESTRANSACTIONS OVER $1 MILLION

NAME CITY PROV KEYS DATE PRICE PRICE/KEY CAP RATE (%)

Travelodge North Bay Airport (2) North Bay ON 100 Mar n/a n/a n/a

Travelodge Ottawa East (2) Ottawa ON 128 Mar n/a n/a n/a

Casey's Inn Lac du Bonnet MB 27 Mar $1,249,000 $46,300 n/a

Coast Hotel & Convention Centre Langley City (4) Langley BC 77 Mar n/a n/a n/a

Delta Hotels Burnaby Conference Centre (4) Burnaby BC 196 Mar n/a n/a n/a

Connaught Motor Inn Prince George BC 98 Mar $3,250,000 $33,200 n/a

Days Inn Toronto East Beaches (5) Toronto ON 50 Mar $10,643,000 n/a n/a

Delta Hotels by Marriott Quebec (3)(6) Quebec City QC 377 Mar n/a n/a n/a

Extended Stay Canada Ottawa - Downtown (1) Ottawa ON 218 Mar $48,000,000 n/a n/a

Holiday Inn Sarnia Hotel & Conference Centre (7) Sarnia ON 216 Mar n/a n/a n/a

Holiday Inn St. John's Conference Centre (7) St. John's NF 252 Mar n/a n/a n/a

Jamie's Rainforest Inn (6) Tofino BC 38 Mar n/a n/a n/a

Lakeview Summerside Resort Summerside PEI 80 Mar $3,625,000 $45,300 n/a

Podollan Inn Salmon Arm Salmon Arm BC 71 Mar $7,200,000 $101,400 n/aRamada Plaza Calgary Airport Hotel and Conference Centre (6) Calgary AB 210 Mar n/a n/a n/a

Super 8 Taber Taber AB 48 Mar $2,390,000 $49,800 8.0The Lakeview Inn Lac du Bonnet MB 15 Mar $1,561,000 $104,100 n/a

Footnotes:(1) Acquired for conversion to alternate use. Price per room not applicable.

(2) Part of 12 property portfolio. Sale details confidential.

(3) Leasehold interest.

(4) Acquired as part of the Gateway Casinos & Entertainment Metro Vancouver Portfolio in a sale-leaseback transaction valued at $500 million. Hotel value allocations not available.

(5) Acquired for redevelopment. Price per room not applicable.

(6) Sale details confidential.

(7) Part of two property Ontario and Newfoundland portfolio. Sale details confidential.

Note: Trends are based on hotel transactions of at least $1 million. Source: Colliers International Hotels

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