COLLIERS INTERNATIONAL HOTELS 2006 CANADIAN HOTEL INVESTMENT REPORT

2006 CANADIAN HOTEL INVESTMENT REPORT

2006 CANADIAN HOTEL INVESTMENT REPORT On the Cover: Photos (from left), Delta Vancouver Suites, Vancouver, BC; Cambridge Suites Hotel Sydney, Sydney, NS; and InterContinental Toronto Bloor Street, Toronto, ON. CANADIAN HOTEL INVESTMENT TRENDS VOLUME PERCENT YEAR ($ MILLIONS) CHANGE TRANSACTION VOLUME EXCLUDING STRATEGIC SALES* 2005 1 $688 100.6% 2004 2 343-10.7 2003 384 107.6 2002 3 185-29.4 2001 262-13.0 2000 301 TOTAL TRANSACTION VOLUME 2005 1 $1,706 373.9% 2004 2 360-23.2 2003 469-13.1 2002 3 540-15.9 2001 642 44.9 2000 443 4.7 1999 423-68.1 1998 1,324 27.4 1997 4 1,039 34.9 1996 770 59.8 1995 482 234.7 1994 144 NUMBER OF PERCENT PRICE PERCENT YEAR TRADES CHANGE PER ROOM CHANGE TRANSACTION ACTIVITY EXCLUDING STRATEGIC SALES* 2005 1 91 85.7% $70,200 9.9% 2004 2 49 0.0 $63,900 4.2 2003 49 14.0 61,300 24.3 2002 3 43 10.3 49,300-24.7 2001 39-18.8 65,500 8.1 2000 48 60,600 TOTAL TRANSACTION ACTIVITY 2005 1 104 108.0% $108,800 62.4% 2004 2 50-2.0 67,000 7.7 2003 51 4.1 62,200-24.0 2002 3 49 16.7 81,800-26.5 2001 42-14.3 111,300 37.6 2000 49 19.5 80,900-7.8 1999 41-76.6 87,700 54.1 1998 175 65.1 56,900 0.2 1997 4 106 41.3 56,800 10.1 1996 75 11.9 51,600 10.7 1995 67 42.6 46,600 56.9 1994 47 29,700 * A trade is considered strategic when at least two of the following conditions exist: a pricing premium is paid; the asset is located in a high barrier to entry market or within the geographic hub of an owner s principal business; or the opportunity allows for the extension of the company s brand/portfolio. 1 Excludes the sale of seven hotels owned by Westmont/Whitehall Partnership to InnVest REIT for $85.3 million. 2 Excludes the sale of nine hotels owned by Westmont/Whitehall Partnership to InnVest REIT for a total of $111 million. 3 Excludes the sale of 114 hotels owned by Westmont/Whitehall Partnership to InnVest REIT for approximately $865 million. 4 Excludes the sale of eleven Canadian Pacific hotels to Legacy Hotels REIT for $835.6 million. Note: This review of hotel transaction activity includes sales in excess of $1 million. Canadian hotel investment soared to unprecedented levels in 2005, reinforcing the sector s resiliency following three consecutive years of declining activity. Although the lodging sector showed signs of recovery in 2004 and there was a strong appetite for hotel investment, owners were not compelled to sell and minimal product was brought to market. The environment became more conducive to deal-making in 2005, supported by strong operating and economic fundamentals, the availability of capital, relatively low interest rates, manageable supply growth, and most significant, an abundance of hotel product for all asset types. 2005 ACTIVITY HITS AN ALL-TIME HIGH Hotel transaction volume in 2005 was recorded at over $1.7 billion, surpassing the prior high of $1.3 billion reported in 1998 by approximately 30%. An estimated 104 hotel trades occurred in 2005, including 13 strategic trades amounting to over $1 billion. This compares to one strategic trade in 2004 when Starwood Hotels and Resorts acquired a 49% interest in the W Montreal for approximately $17 million. When only traditional hotel trades are considered, the remaining $688 million in transaction volume in 2005 was double the volume of 2004. These trades spanned a range of asset types, from limited-service hotels in tertiary markets, such as the 81-room Holiday Inn Express Kamloops ($6.5 million) and the 98-room Travelodge Ingersoll ($2.4 million) to larger, full-service urban assets, including the 135-room Chateau Royal Hotel and Suites, Montreal ($11.0 million) and the 233-room Pacific Palisades Hotel, Vancouver ($41.2 million). Per room pricing grew 62% over 2004, from $67,000 to an estimated $108,800, again surpassing historic thresholds. Even when strategic trades are excluded, the price per room for traditional hotel sales increased 10% during SIGNIFICANT 2005 HIGHLIGHTS: It was a seller s market, with high quality assets generating multiple bids from a broad spectrum of investors. The buyer landscape became more diverse, with opportunity/pension funds and hotel investment companies more active as a result of the availability of institutional grade assets, particularly as an alternative to other, higher priced commercial real estate. While private investors accounted for 20% of transaction volume, they represented about 61% of all hotels sold. Canadian and American buyers were equally active, each representing about 46% of volume. Hotels with over 250 rooms represented 61% of transaction volume, but less than 15% of hotels sold.

2006 CANADIAN HOTEL INVESTMENT REPORT the past year, from $63,900 to $70,200. It is interesting to note that approximately 26% of the hotels sold traded above $15 million in 2005, compared to only 16% in 2004. Also noteworthy is the number of hotels sold in 2005 represented only 59% of those sold in 1998, when a record setting 175 trades occurred. PORTFOLIO DEALS In total there were 23 hotels (over 5,400 rooms) sold as part of larger portfolios, which combined represented 48% ($814 million) of the total market activity. Portfolios consisting of only Canadian hotels included Fortis Properties acquisition of three Greenwood Inns (Edmonton, Calgary and Winnipeg) for $62.6 million, Pomeroy Hotel LP and Manulife Financials acquisition of nine hotels in Alberta and British Columbia for $79.5 million, and the purchase of the Days Inn Victoria Waterway and Quality Inn Downtown Victoria by Gateway Investments for approximately $12.5 million. Additionally, five Westin Hotels (Vancouver, Calgary, Edmonton, Toronto and Ottawa) were acquired as part of the Caesar Park Hotels portfolio by Starwood Capital, with the Canadian assets estimated at $515.6 million. The InterContinental Toronto and Staybridge Suites Markham, with an estimated combined value of $41.7 million, were purchased by Hospitality Properties Trust REIT as part of a larger North American 12-hotel portfolio. Other significant Canadian assets acquired as part of larger portfolios or companies included Le Royal Meridien King Edward Toronto, which was purchased for a reported $62.5 million by Lehman Brothers and Starwood Capital as part of the Le Meridien entity acquisition, and the Wyndham Bristol Place Toronto Airport acquisition by Columbia Sussex as part of the $1.4 billion disposition of Wyndham Hotels by The Blackstone Group. OPERATING PERFORMANCE CONTINUES TO RECOVER Contributing to this tremendous surge in investment activity were strengthening lodging fundamentals for the second consecutive year, following the severe downward pressures reported from 2000 to 2003. According to Pannell Kerr Forster Consulting (PKF), revenue per available room (RevPAR) grew 10.6% in 2004 and is estimated to have increased 4.1% in 2005, fueled by strengthening occupancy levels and to a lesser extent, improved rate performance. Occupancy improved 5.1% in 2004 to 62%, and is estimated to have increased a further 3.2% in 2005, while average room rates grew 4.5% in 2004, reaching $117, and are estimated to have grown by 1.7% in 2005. Coupled with tightened operating budgets, PKF estimates net operating income per available room will increase 30.6% between 2003 and 2005. Although PKF forecasts RevPAR and income per available room to increase approximately 3.9% and 5.3%, respectively in 2006, there are concerns with the falloff of the American traveller. According to Statistics Canada, Americans which once accounted for more than 80% of Canada s total non-domestic traveller visits fell in August 2005 to its lowest monthly level in over 25 years. An appreciating dollar, higher gas prices and continued terrorism fears have kept Americans closer to home. What is interesting though, is that while fewer Americans are staying in our hotels, they have been active investors in our market, accounting for an aggregate value of approximately $759 million, of which the majority were strategic trades. CAPITALIZATION RATES Capitalization ( cap ) rates for traditional hotel sales generally trended within the 9.5% to 12.0% range in 2005. Examples included the sale of the 81-room Holiday Inn Express Kamloops, the 235-room Coast Terrace Inn Edmonton South and the 149-room Cambridge Suites Hotel Sydney with reported cap rates of 9.7%, 11.0% and 11.5%, respectively. The portfolio acquired by Pomeroy Hotel LP and Manulife Financial is another good example as six of the nine hotels within this portfolio traded at cap rates between 9.5% and 12.1%. Strategic and urban assets continued to trade at sub-10% levels in 2005, demonstrated by the sale of the 215-room InterContinental Toronto, 380-room Four Seasons Hotel Toronto and the 313-room Crowne Plaza Hotel Georgia, with cap rates of 1.1%, 6.0% and 2.8%, respectively. There are signs however that cap rates for traditional trades have bottomed and are likely to inch upwards in the next two years in correlation to an anticipated rise in the cost of capital and continued supply growth. BUYER PROFILES Regardless of the hotel or market, a variety of buyers were acquiring assets in 2005 to achieve strong financial returns, NATIONAL LODGING TRENDS 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005F 2006P Occupancy (%) 65.4 66.8 67.0 65.9 64.9 62.1 61.9 58.7 62.0 64.0 65.0 ADR ($) 88.35 93.59 98.77 105.76 111.21 114.13 115.63 112.17 117.00 119.0 122.0 RevPAR ($) 57.78 62.52 66.18 69.70 72.18 70.87 71.57 65.84 73.00 76.00 79.00 Source: PKF Consulting

2006 CANADIAN HOTEL INVESTMENT REPORT TOP FIVE SINGLE-ASSET TRANSACTIONS 2005 (BY VOLUME) PROPERTY BUYER BUYER ORIGIN PRICE ($ MILLIONS) Four Seasons Hotel Toronto Kingdom Hotels International Saudi $115.0 Holiday Inn on King - Toronto 1 King Street Enterprises (Westmont Hospitality Group) Canadian 107.0 Le Royal Meridien King Edward - Toronto 2 Lehman Brothers and Starwood Capital American 62.5 Crowne Plaza Hotel Georgia - Vancouver 3 Goodman Real Estate Inc. and Delta Land Developments Ltd. American 61.4 Casino Nova Scotia Hotel - Halifax Westerkirk Harbourfront Limited (Westerkirk Capital Inc.) Canadian 52.0 1 Purchase price includes a 205,550 SF office building, retail component and parkade. 2 Sale price is estimated. Hotel was part of the Le Meridien entity acquisition. 3 Purchase price includes an adjacent parkade with significant development potential. ranging from the mid to high-teens for institutional investors to the low to mid-20s for the private, entrepreneurial groups. Opportunity/pension funds, including Manulife Financial, Starwood Capital and the Public Sector Pension Investment Board, and hotel investment companies, such as Westmont Hospitality Group, Kingdom Hotels International and Pomeroy Hotel LP, led investment with 38% and 25% of the transaction volume, respectively. Hotel REITs (Hospitality Properties Trust, InnVest, Lakeview Hotel and Canadian Hotel Income Properties) and real estate companies (Anthem Properties and Goodman Real Estate & Delta Land Development Ltd.) represented 7% and 6%, respectively, with public companies (Fortis Properties) accounting for 4% of the market. Private investors represented only 20% of total transaction volume in 2005, which is a sharp contrast to the prior year when this group dominated the market with 72% of the transaction volume. However, private buyers accounted for 61% of all hotels sold in 2005. The changing buyer profile underlies the strong interest in the hotel investment market for all product types and demonstrates the willingness within the lending community to work with all industry players. INCREMENTAL SUPPLY GROWTH FOCUSED IN SMALLER MARKETS After guarded macro supply growth from 2002 to 2004 at an average rate of about 1.2% each year, room supply in 2005 grew approximately 1.5%, with the opening of MARKETS WITH STRONGEST SUPPLY GROWTH MARKET % GROWTH 2004-2005 Toronto Airport/West 3.9% Victoria 2.8 Vancouver Airport 2.5 Halifax/Dartmouth 2.4 Toronto Downtown 2.0 approximately 5,800 new rooms. The majority of new development occurred in secondary and tertiary markets, with only 37% of new hotels built in the seventeen major urban markets reviewed in the Colliers Hotel Value Index, compared to 59% in 2004. An additional 6,800 rooms are slated to open in 2006, a 1.8% increase from 2005. Markets with the strongest supply growth in 2005 included the Toronto Airport/West, Victoria, Vancouver Airport, Halifax/ Dartmouth, and Downtown Toronto. Further expansion in 2006 is expected to bring more activity back into the major markets (over 50% of new rooms built), particularly the Montreal Airport, Niagara Falls, Halifax/Dartmouth and Vancouver Airport markets. HOTEL VALUES CONTINUE TO GROW The Colliers Hotel Value Index monitors the annual rate of change in hotel values based on industry trends, cost of capital and investor return expectations. The most significant value growth in 2005 occurred in Downtown Toronto (+18.7%), Toronto Airport/West (+16.1%) and Vancouver Downtown (+14.2%). Continued value growth in all the major urban markets reviewed is expected in 2006, with Toronto Downtown, Toronto Airport/West and Calgary leading with the strongest increases at 19.1%, 17.3% and 16.2%, respectively. 2006 FORECAST The financing market for hotels remained healthy throughout 2005 and in fact, is at one of its strongest points in the past fifteen years, with rising loan to value ratios and increased flexibility in structuring. In addition to Canadian lenders, U.S. and European lenders increased their participation in the Canadian market. Although the pace of activity in 2005 may not be sustainable, we believe hotel investment will remain strong throughout 2006 as the lodging sector continues to attract equity and lodging fundamentals strengthen. MARKET % GROWTH 2005-2006F Montreal Airport 9.8% Niagara Falls 7.7 Halifax/Dartmouth 6.3 Vancouver Airport 6.0 Toronto Airport/West 4.1

COLLIERS HOTEL VALUE INDEX MARKET AREA 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E 2006F Base Year 1992=100 Average per Room Value Index (1992=100) CPI Index 1 % change 1.5 1.9 0.2 2.2 1.6 1.6 1.0 1.7 2.7 2.5 2.2 2.8 1.8 2.3 2.0 Canadian National Average 100.0 108.7 128.3 145.7 167.4 182.6 204.3 202.3 205.5 199.4 196.0 183.4 193.3 214.4 240.1 % change 8.7 18.0 13.6 14.9 9.1 11.9-1.0 1.6-3.0-1.7-6.4 5.4 11.0 12.0 Victoria 100.0 101.7 108.6 124.1 141.4 160.3 169.9 160.3 149.4 136.1 140.5 141.6 148.0 159.5 172.9 % change 1.7 6.8 14.3 13.9 13.4 6.0-5.7-6.8-8.9 3.2 0.8 4.5 7.8 8.4 Vancouver Downtown 100.0 108.0 113.8 133.3 156.3 170.1 170.1 162.1 155.1 144.7 147.0 149.9 161.6 184.6 212.5 % change 8.0 5.4 17.1 17.3 8.8 0.0-4.7-4.3-6.7 1.6 2.0 7.8 14.2 15.1 Vancouver Airport 100.0 100.0 111.9 135.6 161.0 178.0 147.5 110.2 90.9 83.4 80.6 78.2 81.0 87.0 94.5 % change 0.0 11.9 21.2 18.7 10.6-17.1-25.3-17.5-8.2-3.4-3.0 3.6 7.4 8.6 Whistler 100.0 100.0 104.2 106.9 120.8 141.7 127.8 131.9 140.2 143.6 148.1 149.7 153.8 164.2 177.7 % change 0.0 4.2 2.6 13.0 17.3-9.8 3.2 6.3 2.4 3.1 1.1 2.7 6.8 8.2 Calgary 100.0 105.7 113.2 122.6 149.1 171.7 186.8 177.4 173.0 167.6 169.7 168.0 176.9 201.7 234.3 % change 5.7 7.1 8.3 21.6 15.2 8.8-5.0-2.5-3.1 1.3-1.0 5.3 14.0 16.2 Edmonton 100.0 102.3 107.0 109.3 116.3 125.6 139.5 139.5 140.9 145.5 151.7 147.1 152.0 165.5 181.3 % change 2.3 4.6 2.1 6.4 8.0 11.1 0.0 1.0 3.3 4.2-3.0 3.3 8.9 9.5 Alberta Mountain Resorts 100.0 104.2 100.0 116.9 138.0 166.2 177.5 177.5 183.2 188.0 197.5 197.5 201.5 220.0 243.7 % change 4.2-4.0 16.9 18.0 20.4 6.8 0.0 3.2 2.6 5.1 0.0 2.0 9.2 10.8 Regina Saskatoon 100.0 100.0 100.0 124.0 132.0 144.0 160.0 152.0 152.0 149.3 149.1 154.2 156.8 166.5 178.3 % change 0.0 0.0 24.0 6.5 9.1 11.1-5.0 0.0-1.8-0.1 3.4 1.7 6.2 7.1 Winnipeg 100.0 96.3 100.0 122.2 129.6 137.0 155.6 155.6 141.3 133.7 127.0 122.2 123.9 128.6 134.3 % change -3.7 3.8 22.2 6.1 5.7 13.6 0.0-9.2-5.4-5.0-3.8 1.4 3.8 4.4 Toronto North Parklands 100.0 116.1 145.2 167.7 200.0 222.6 254.8 261.3 279.3 254.7 223.1 183.8 199.5 225.8 258.1 % change 16.1 25.1 15.5 19.3 11.3 14.5 2.6 6.9-8.8-12.4-17.6 8.5 13.2 14.3 Toronto Downtown 100.0 119.5 161.0 178.0 212.2 256.1 312.2 322.0 325.9 312.2 305.3 274.8 309.4 367.2 437.4 % change 19.5 34.7 10.6 19.2 20.7 21.9 3.1 1.2-4.2-2.2-10.0 12.6 18.7 19.1 Toronto Airport West 100.0 110.8 145.9 173.0 202.7 243.2 286.5 291.9 300.7 255.0 221.6 181.7 196.6 228.3 267.8 % change 10.8 31.7 18.6 17.2 20.0 17.8 1.9 3.0-15.2-13.1-18.0 8.2 16.1 17.3 Niagara Falls 100.0 105.6 111.1 122.2 133.3 152.8 180.6 194.4 199.5 198.5 202.7 168.8 189.3 214.8 245.3 % change 5.6 5.2 10.0 9.1 14.6 18.2 7.6 2.6-0.5 2.1-16.7 12.1 13.5 14.2 Ottawa 100.0 94.9 138.5 143.6 151.3 169.2 187.2 189.7 207.5 210.8 197.8 198.0 202.2 219.7 242.8 % change -5.1 45.9 3.7 5.4 11.8 10.6 1.3 9.4 1.6-6.2 0.1 2.1 8.7 10.5 Montreal Downtown 100.0 96.2 107.7 130.8 165.4 207.7 269.2 276.9 295.5 307.9 324.2 328.1 345.5 392.8 450.2 % change -3.8 12.0 21.4 26.5 25.6 29.6 2.9 6.7 4.2 5.3 1.2 5.3 13.7 14.6 Montreal Airport 100.0 91.7 104.2 116.7 145.8 187.5 229.2 229.2 248.2 261.6 266.3 266.8 275.1 293.8 310.6 % change -8.3 13.6 12.0 24.9 28.6 22.2 0.0 8.3 5.4 1.8 0.2 3.1 6.8 5.7 Halifax Dartmouth 100.0 128.6 150.0 164.3 171.4 182.1 196.4 192.9 197.5 198.3 201.7 208.0 212.5 225.1 239.7 % change 28.6 16.6 9.5 4.3 6.2 7.9-1.8 2.4 0.4 1.7 3.1 2.2 5.9 6.5 2005E=Estimate; 2006F=Forecast. The Hotel Value Index measures the rate of change in hotel values on a year over year basis. Rates of change are influenced by investor yield expectations, market performance, changes to supply and the overall economic health of the market. 1 Source: Conference Board of Canada

Colliers International Hotels is a hotel investment advisory services group with offices in the Americas, Europe and Asia Pacific. CANADA UNITED STATES EUROPE ASIA PACIFIC TORONTO SAN FRANCISCO LONDON SYDNEY Bill Stone Alam Pirani Deborah Borotsik Robin McLuskie One Queen Street East Suite 2200 Toronto, Ontario M5C 2Z2 Phone: 416-777-2200 Fax: 416-777-9232 Bob Eaton Mark McDermott Henry Bose, Jr. Darryl Law Jean Lesure 50 California Street 19th Floor San Francisco, CA 94111 Phone: 415-788-3102 Fax: 415-433-7844 John Sheppard Paul Bartrop Colin Hall Robert Stapleton 9 Marylbone Lane London, England W1U 1HL Phone: 44-207-344-6666 Fax: 44-207-344-6633 Robert McIntosh George Nicholas Michael Thomson 225 George Street Sydney, Australia NSW 2000 Phone: 612-9257-0222 Fax: 612-9257-0275 HONG KONG VANCOUVER Tom Andrews 200 Granville Street 16th Floor Vancouver, British Columbia V6C 2R6 Phone: 604-681-4111 Fax: 604-661-0849 IRVINE Bob Kaplan One Park Plaza Suite 900 Irvine, CA 92614 Phone: 949-724-5593 Fax: 949-724-5600 SEATTLE Chris Burdett Andy Layton 601 Union Street Suite 5300 Seattle, WA 98101-4045 Phone: 206-223-0866 Fax: 206-223-1427 David Faulkner Antonio Wu 4907 Central Plaza 18 Harbour Road Wanchai, Hong Kong Phone: 852-2828-9888 Fax: 852-2828-9899 SINGAPORE Rachel Wee 50 Raffles Place #18-01 Singapore Land Tower 048623, Singapore Phone: 65-6223-2323 Fax: 65-6222-4901 MEXICO CANCUN Juan Jose Gallardo Centro Empresarial Cancun, Torre Sur, despacho G7 Blvd. Kukulkán km 12.5, Zona Hotelera Cancun, Quintana Roo, Mexico 77500 Phone/Fax: 52-998-883-3887 TOKYO Alec Menikoff Halifax Building 8F 16-26 Roppongi 3-Chome Minato-ku, Tokyo 106-0032, Japan Phone: 81-3-5563-2111 Fax: 81-3-5563-2100 Leaders in Commercial Real Estate Since 1898 Offering clients a full range of real estate services in over 251 markets worldwide: COMMERCIAL BROKERAGE SERVICES ASSET SERVICES CORPORATE & FINANCIAL SERVICES ADDITIONAL RESOURCES Build-to-suit services Hotel investment advisory services Industrial leasing and sales Land sales Office leasing and sales Retail leasing and sales Valuation Realty tax consulting Consulting and advisory services Project management Design build consulting Lease audit Corporate real estate consulting Facilities management Tenant representation and consulting Market research Internet access at www.colliers.com Access to global real estate markets through Colliers International partners worldwide AUSTRALIA BELGIUM CANADA FRANCE GERMANY HONG KONG HUNGARY INDONESIA ITALY JAPAN MALAYSIA MEXICO NEW ZEALAND POLAND SINGAPORE SCOTLAND SPAIN TAIWAN THAILAND TURKEY UNITED KINGDOM UNITED STATES