MARKET STUDY WITH OPERATING PROJECTIONS PROPOSED MIXED-USE RESORT DEVELOPMENT, BEACH AREA 2 WASAGA BEACH, ONTARIO

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1 MARKET STUDY WITH OPERATING PROJECTIONS PROPOSED MIXED-USE RESORT DEVELOPMENT, BEACH AREA 2 WASAGA BEACH, ONTARIO Prepared for: Mr. George Vadeboncoeur Chief Administrative Office, Town of Wasaga Beach 30 Lewis Street Wasaga Beach, Ontario L9Z 1A1 April 2014

2 April 15, 2014 Mr. George Vadeboncoeur Chief Administrative Office, Town of Wasaga Beach 30 Lewis Street Wasaga Beach, Ontario L9Z 1A1 Via RE: MARKET STUDY WITH OPERATING PROJECTIONS, PROPOSED MIXED-USE RESORT DEVELOPMENT BEACH 2, WASAGA BEACH, ONTARIO Dear Mr. Vadeboncoeur: In accordance with the terms of our engagement, PKF Consulting has completed the research and analysis relating to the for the proposed mixed-use resort development to be located on the Beach Area 2 site in Wasaga Beach, Ontario. The analysis herein assumes an opening date for the hotel within the development of January 1, The entire study, including all findings and conclusions, pertain to the Wasaga Beach competitive market area and is based on our knowledge and information with respect to current and projected economic data, expected growth in the supply of and demand for hotel accommodation, proposed construction of facilities, which could be deemed to be competitive, and the status of the competitive market as of March 4, Projected operating results herein are based on an evaluation of the present economy of the area, but do not take into account or make provision for the effect of any sharp rise or decline in local, provincial, or national economic conditions. To the extent that wages and other operating expenses may increase over the economic life of the hotel, it is expected that room rates would be adjusted to compensate for the increases. As in all studies of this type, the projected operating results are based on competent and efficient management and presume no significant change in the competitive position of the accommodation industry in the immediate area except as set forth in this report. The estimates are subject to uncertainty and variation Tel Fax [email protected] 8th floor 30 St. Patrick Street Toronto Ontario M5T 3A3 Tel Fax [email protected] Suite West Pender Street Vancouver British Columbia V6C 2V6 is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

3 and we do not represent them as results that will be achieved. They have, however, been conscientiously prepared on the basis of available information and our experience in the industry. As is customary in assignments of this nature, neither our name nor the material submitted may be included in any prospectus, press release, offering, or representation in connection with the sale of securities or participation interests to the public, without our prior written consent. It is a requirement of professional practice that we review the final draft of any prospectus or offering memorandum containing references to this study. In connection with the permitted uses and as an advice to third parties, this report may not be disassembled or rearranged in any manner that would allow for presentation of only a portion of the report. This report has been prepared solely for the use of the Town of Wasaga Beach. We understand that this report will be used to support internal discussions surrounding the potential development of the Beach Area 2 lands. It is also understood that this report will be used in discussions with potential developers for the project. It may not be used for any other purpose. Key findings and conclusions from our analysis are as follows: There is market support for development of an 80-unit branded, select service hotel with an estimated capital cost of $11.3 million before land costs. There will be a funding or investment gap of approximately $3.0 million on the hotel project; a shortfall based on its investment value versus its potential capital cost. Given that there would be additional land available, after the proposed hotel is developed, it is our opinion that the development of mid-tier, medium-density, residential units on the balance of the site would complement the proposed hotel project and could generate acceptable development profits to attract a developer to the project. The objectives of a residential development component as part of the project would be: For the Town to realize fair market value on the sale of the 9.7-acre Beach Area 2 parcel(s); To absorb the hotel development shortfall estimated to be approximately $3.0 million; and; To generate significant development profits in order to attract a developer to the project. Proposed Resort Development Beach 2, Wasaga Beach, Ontario Prepared for: Town of Wasaga Beach April 2014

4 If the Town of Wasaga Beach chooses to take this direction, it would be our recommendation that a third party, residential consultant be engaged to provide an in-depth analysis of the market potential and feasibility of the residential component. Based on past experience with similar mixed-used development projects, it is our recommendation that it would be critical that any agreement with a potential developer includes stipulations that the hotel be developed within Phase 1 of the overall project to ensure this component comes to fruition. In the past, when municipalities have not stipulated this, other more profitable areas of development, such as the residential component discussed above, have been prioritized by the developer with the hotel development eventually be shelved. The following pages outline the findings and projections derived from our analysis. Yours truly, PKF CONSULTING INC. Proposed Resort Development Beach 2, Wasaga Beach, Ontario Prepared for: Town of Wasaga Beach April 2014

5 TABLE OF CONTENTS 1.0 INTRODUCTION SITE EVALUATION AND DEVELOPMENT PROGRAM Introduction Site Description Access and Visibility Surrounding Uses / Proximity to Demand Generators Development Program Conclusion ECONOMIC OVERVIEW Introduction National & Provincial Economic Indicators National & Provincial Travel Forecasts Town of Wasaga Beach Town of Collingwood Conclusion COMPETITIVE ACCOMMODATION MARKET ANALYSIS Introduction Local Competitive Accommodation Market Regional Competitive Accommodation Market Ontario Resort Competitive Market Proposed New Supply Regional Competitive Market Competitive Market Demand Projections SUBJECT PROPERTY OCCUPANCY & AVERAGE DAILY RATE PROJECTIONS Introduction Corporate/Commercial Segment Meeting/Conference Segment Leisure/Tourist Segment Government/Other Segment Subject Hotel Average Daily Rate Projections Summary of Property Projections SUBJECT PROPERTY FINANCIAL OPERATING PROJECTIONS Introduction Departmental Revenue and Expenses Undistributed Operating Expenses Fixed Operating Charges Summary of Operating Projections THE CANADIAN HOTEL INVESTMENT MARKET Introduction Investment Cycles in the Canadian Accommodation Sector Proposed Resort Development Beach Area 2, Wasaga Beach, Ontario April 2014 Prepared for: Town of Wasaga Beach

6 7.3 National Transaction Activity Yields on Transactions Historic Canadian Hotel Investment Trends Implications for Hotel Investment in INVESTMENT IMPLICATIONS PROPOSED MIXED-USE RESORT DEVELOPMENT Introduction Indication of Supportable Value Proposed Hotel Development Implications & Recommendations Proposed Resort Development Beach Area 2, Wasaga Beach, Ontario April 2014 Prepared for: Town of Wasaga Beach

7 1.0 INTRODUCTION In February 2014, was retained by the Town of Wasaga Beach to make recommendations for and to prepare a for a potential resort/hotel development to be located at Beach Area 2 in Wasaga Beach, Ontario. It is our understanding that the Town of Wasaga Beach is interested in assessing the market and economic potential for the development of Beach Area 2 with the objective of ensuring that a hotel is part of the final development program. The development program presented in the following report contemplates an 80-room, upper mid-scale to upscale hotel, as well as a medium density residential development for the site. This study focuses on the hotel component of the development. This report presents the research and analysis with respect to the development of the proposed hotel. The analysis herein has assumed an opening date for the subject hotel of January 1, The report also identifies and presents broad recommendations for the development of complementary uses, specifically medium density residential. The objectives of this assignment have been to: Evaluate the market potential for a proposed hotel development; Recommend a facility program for the proposed hotel; Project the future occupancy, average daily room rate, and operating performance of the proposed hotel over the period of January 1, 2016 to December 31, 2020, allowing for economic conditions as well as supply and demand growth prospects; Prepare an Indication of Supportable Value for the proposed hotel utilizing the Discounted Cash Flow Approach with the application of market driven capitalization rates; Recommend, as necessary, potential complementary developments for the subject site; and; Provide an overview, as required, of the of investment implications for the overall mixed-use development of the subject site. In order to complete our analysis, we have undertaken the following steps: A review of the proposed hotel site to evaluate its suitability for the hotel development; A review of economic conditions affecting the demand for accommodation in the Wasaga Beach, Collingwood and the Ontario Resort market area; A review of tourism demand trends in the market area; Prepared for: Town of Wasaga Beach Page 1

8 A review of the existing accommodation market in Wasaga Beach, Collingwood and the Ontario Resort market, including an assessment of the existing facilities and the market demand segmentation; An estimate of future growth in supply of, and demand for, hotel accommodation in the competitive market area; Preparation of market penetration rates by market segment and average rate that may be achieved by the proposed hotel over the projection period of January 1, 2016 to December 31, 2020, based on the facilities, and market orientation; A projection of the share of demand which can reasonably be captured by the subject proposed hotel, over the projection period January 1, 2016 to December 31, 2020; Average Daily Rate projections for the subject proposed hotel, over the projection period from January 1, 2016 to December 31, 2020; Preparation of a five year pro forma operating statement for the subject proposed hotel for the period from January 1, 2016 to December 31, 2020; Preparation of an Indication of Supportable Value off cash flow utilizing market driven capitalization and discount rates; Review of potential complementary residential development options, in addition to the proposed hotel, for the development site; Recommendation of complementary development facilities; Review of the investment implications for the overall mixed-use development of the subject site; and; and; Documentation of study research, findings and conclusions. The following pages present a summary of our research and analysis as it relates to the proposed mixed-use development. Prepared for: Town of Wasaga Beach Page 2

9 2.0 SITE EVALUATION AND DEVELOPMENT PROGRAM 2.1 Introduction The following discussion provides an overview of the subject site, located at Beach Area 2 in Wasaga Beach, Ontario, including a description of the site, surrounding land uses and proximity to demand generators, the recommended facility program for the proposed subject hotel, and an overview of a potential residential component of the mixed-use development. 2.2 Site Description The development site is located at Beach Area 2, which is located on the north side of Mosley Street between 6 th Street and 3 rd Street in Wasaga Beach, Ontario. The subject site is an irregular shaped parcel of land that is approximately 9.7- acres in size and is currently owned by the Town of Wasaga Beach. Beach Area 2 is not currently improved, save and except a small public washroom and change facility in the north-west corner of the property. The parcel has varying topography with small knolls and hills dispersed throughout the property. The site, currently used as a public park area, is lightly forested with open grass areas. Approximately one acre of the property, located between 4 th Street and 5 th Street, is currently an asphalt public parking lot. The site benefits from beachfront access on Beach 2 of Wasaga Beach, the world s longest (14km) freshwater beach. Exhibit 2-1 presents and aerial view of the development site. The zoning of the site is Tourist Commercial (CT-8), which permits the operation of hotel as well as high-density residential development. It should be noted that, at the time of this report, the Town of Wasaga Beach is reviewing the zoning by-laws for the Beach Area 2 site, pending the results of an environmental study. It is anticipated that new zoning will be approved for the site and that both a hotel and residential development will continue to be permitted uses. Prepared for: Town of Wasaga Beach Page 3

10 2.3 Access and Visibility The subject site has excellent visibility from Mosley Street and 3 rd Street as well as from the intersection of 3 rd Street and Beach Drive. The Town of Wasaga Beach is accessible from most major 400 series Highways including Highways 400, 401 and 404 and the subject site is easily accessible from the primary roadways in Wasaga Beach. Highway 26 is the primary route for traffic travelling both to and from the Collingwood/Blue Mountain Resort area. Visitors traveling north on Highway 26 would turn right onto Mosley Street, and continue to the site, turning left into the site from Mosley Street. Guests traveling north on Highway 400 would take Exit 96B Dunlop Street West and travel west on Dunlop Street to Ferndale Drive. Guests would turn right and travel north on Ferndale Drive, merging with Wilson Drive guest would continue traveling north before turning left onto Highway 26 West. Traveling west on Highway 26, guests would exit onto Country Road 22 and immediately turn left on Country Road 29. Traveling north on Country Road 29, guests would turn left onto Country Road 92 / River Road before turning right onto Main Street in Wasaga Beach. Traveling north on Main Street, guests would turn left onto Mosley Street and drive to the subject site, accessing the property by turning right from Mosley Street, or right onto 3 rd Street then left into the subject site. The site is approximately a 2-hour drive from the City of Toronto to the south and a one-hour drive from the City of Barrie to the east. 2.4 Surrounding Uses / Proximity to Demand Generators The site benefits most from being a beachfront property on Wasaga Beach, a major leisure demand generator. Wasaga Beach is Ontario s longest freshwater beach, and is the main driver of leisure/tourist demand. On weekends and all week throughout the summer months, the Town benefits from a large influx of tourists, especially for its special events and summer recreational activities. Beach Area 1 is adjacent the subject site with a number of seasonal restaurants, bars, and retail stores that support the summer tourist activity in the area. The Blue Mountain/Collingwood area, located approximately 25 kilometers west of Wasaga Beach, has evolved into one of Ontario s few, truly multi-season tourist and vacation areas. Throughout the summer and winter months, the area benefits from a large influx of tourists, especially for its special events, summer and winter recreational activities such as golf, mountain biking, downhill and cross-country skiing. Prepared for: Town of Wasaga Beach Page 4

11 As a predominantly seasonal leisure destination, Wasaga Beach has very little industry and corporate/commercial activity. The Zancor Group has serviced and prepared industrial/ commercial land for development in the Zancor Business Park, located along Hwy 26. The group is marketing the Business Park to light commercial and manufacturing companies. Based on discussions with Economic Development there are currently no companies/employers planned or proposed for the Business Park. 2.5 Development Program Based on current market dynamics as well as our research and analysis, the development program envisioned for the Beach Area 2 site would be a mix-use development, comprised of an 80-room hotel and a medium-density residential component, such as town-home units. The following discussion presents the development program for the hotel, with some preliminary considerations for a potential residential component of the development Hotel Development Program The following report contemplates an 80-room, upper mid-scale or upscale, branded, select service hotel development program for the Beach Area 2 site in Wasaga Beach. Examples of upper mid-scale or upscale brands that could be considered for such a development include, but are not limited to, Best Western Plus, Holiday Inn Express or Hotel Indigo by Intercontinental Hotel Group, Fairfield Inn by Marriot, Hampton Inn or Hilton Garden Inn by Hilton. Branding is recommended in that it will not only enhance the marketability of the project, but will also enhance the potential for project financing. Table 2-1 presents a preliminary facility program for the proposed subject hotel based on the typical prototype programs for hotels of this size and nature. Prepared for: Town of Wasaga Beach Page 5

12 TABLE 2-1 BEACH AREA 2 - PROPOSED HOTEL DEVELOPMENT WASAGA BEACH, ONTARIO HOTEL FACILITY PROGRAM - PKF ESTIMATES Guestrooms Rooms Sq.Ft./Rm Sq.Ft. Standard King ,325 Standard Queen / Queen ,375 King Suite ,700 Queen / Queen Suite ,325 TOTAL GUESTROOMS ,725 Food & Beverage Rooms Sq.Ft./Rm Sq.Ft. 70 Seat Restaurant , Seat Outdoor Patio (Seasonal) Total Food & Beverage ,000 Meeting/Event Faciities Rooms Sq.Ft./Rm Sq.Ft. Main Meeting Room (150 Seats - Flexible Design) ,250 Breakout Rooms (2 rooms + Boardroom) ,250 Total Meeting/Event Facilities ,500 Recreational/Other Activities Rooms Sq.Ft./Rm Sq.Ft. Fitness Room ,000 Indoor Pool ,600 Lobby/Public Areas/Back of House Lobby/Public Areas/Back of House/Mechanical/Kitchen ,975 TOTAL BUILDING SIZE ,800 Source: has provided these estimates as a discussion point for the proposed hotel development used in our projections. We are not Planners or Architects and as such these estimates should be used as a guideline for discussion only. The proposed hotel development would include a comprehensive offering of amenities for both business and leisure travelers. Hotels of this nature typically feature a variety of guestrooms, including standard one or two bedded rooms, and a mixture of suite configurations. Guestrooms within this tier of hotels typically include amenities such as a desk or work space, high-speed internet and/or wireless internet access, and in-room coffee making facilities. The proposed hotel would have a total of 80 rooms comprised of 58 standard rooms with either a single king bed or queen/queen bed configuration, 15 one-bedroom suites with one king bed, and 7 one-bedroom suites with a queen/queen bed configuration, covering 26,725 sq.ft. Other services incorporated into the development program for the proposed hotel development include an onsite 24-hour grab-and-go kiosk for sundry items, as well as guest laundry services, and a 24-hour business center. In addition to an indoor pool, the hotel s recreation facilities would also include a 1,000 sq. ft. fitness room, large enough to accommodate both hotel guests and a small number of members from the surrounding community. Prepared for: Town of Wasaga Beach Page 6

13 Capitalizing on the world class beach location, the hotel facility program includes a 2,000 sq. ft., 70 seat all day restaurant with a 30 seat beach-side patio that would also be open seasonally. With full kitchen facilities on-site, the hotel would be able to offer a limited amount of in-room dining to its guests as well. The proposed facility program would also include approximately 3,500 sq. ft. of flexible meeting space. The meeting space would be comprised of a main ballroom/banquet room with seating capacity for 150 guests, two breakout rooms with seating capacity for 30 to 50 guests and an executive boardroom. Food and beverage for the meeting and conference space would be serviced in-house with full kitchen facilities on-site. Inclusive of the hotel lobby, public areas, mechanical rooms and back of house support areas, the proposed the hotel facilities would require a total GFA of approximately 46,800 sq.ft., an average of 585 sq.ft./room. While a formal capital budget has not been prepared for the subject development, our experience in the industry and knowledge of comparable new build hotel construction projects would indicate that the capital cost for the proposed upper mid-scale, or upscale, select service, branded, hotel would be in the range of $135,000 to $145,000 per room (excluding land cost) or between of $10.8 and $11.6 million. For the purpose of our analysis we have utilized the approximate cost of $141,000 per room or $11.3 million total. Based on our experience in the industry and knowledge of comparable new build hotel construction projects, the proposed hotel development would require approximately 2.5 acres of the total 9.7-acre subject site. It is recommended that the hotel be developed in the north-eastern quadrant of the property, as identified in Exhibit 2-2, bordering the commercial area of Beach Area 1 and acting as a transition into the proposed residential development on the site. Prepared for: Town of Wasaga Beach Page 7

14 2.5.2 Proposed Residential Development Program The following report contemplates the development of mid-tier, medium-density residential units, such as town-homes, on the balance, approximately 7.2 acres, of the subject site. Assuming a density of 20 to 30 residential units per acre as identified by municipal planning representatives, there is potential for units to be developed on the west-side of the proposed hotel development. has provided these estimates as a discussion point for the proposed mixed-use development used in our projections. We are not Planners or Architects and as such these estimates should be used as a guideline for discussion only, and assumes that all 9.7 acres are fully developable. 2.6 Conclusion In terms of its location, visibility and access, the Beach Area 2 site in Wasaga Beach is considered to be very suitable for a mixed used development, incorporating both residential and hotel accommodation components. The site is considered to be well located within the market for both a hotel development and a residential development and is in reasonable proximity to Collingwood, Barrie and the Greater Toronto Area. The site benefits from its frontage on Wasaga Beach, as well as its proximity to supporting amenities such as restaurants and retail stores, that are open seasonally, within the Beach Area 1 zone. Furthermore, the proximity to surrounding recreational amenities and tourism attractions, such as the Blue Mountain Ski Resort, snowmobile trails, golf courses and the Rec-Plex, also bode well for the prospect of a hotel development on the subject site. However, the absence of local corporate or industrial demand generators may present a challenge in realizing weeknight and shoulder season demand levels. Prepared for: Town of Wasaga Beach Page 8

15 EXHIBIT 2-1 SITE PLAN BEACH AREA 2 Prepared for: Town of Wasaga Beach Page 9

16 EXHIBIT 2-2 RECOMMENDED DEVELOPMENT LAYOUT Prepared for: Town of Wasaga Beach Page 10

17 3.0 ECONOMIC OVERVIEW 3.1 Introduction The market potential of hotel properties are influenced by National, Provincial and local economic conditions. Accordingly, the analysis has included a review of recent economic performance in, the Province of Ontario and for the Town of Wasaga Beach and the Town of Collingwood specifically, in order to assess potential implications for the accommodation market and the subject hotel. 3.2 National & Provincial Economic Indicators After posting Real GDP growth of approximately 2.0% in 2013, is expected to continue to experience modest positive economic growth in 2014 and The challenging global economic performance, and the uncertainty of US economic performance, are some of the factors that continue to moderate growth in and, consequently, in Ontario in the near term. TABLE 3-1 REAL GDP (% CHANGE) CANADA & ONTARIO (f) 2014(f) 2015(f) Real GDP Real GDP Ontario Source: Scotiabank Group, Global Forecast Update, March 26, 2014 The Scotiabank Global Forecast Update released March 26, 2014, projects that the annual gross domestic product (GDP) growth outlook for the Canadian economy for 2014 to be 2.2%. This level of growth is the result of strengthening exports and business investment tempered by more moderate consumer and housing activity. Similarly, Scotiabank has forecasted a 1.5% GDP growth for Ontario in 2013 and a 2.0% increase in Ontario s economic growth has slowed since 2010, when its GDP grew by 3.4%. Both the Province and Country are anticipated to realize growth above 2.0% in TABLE 3-2 EMPLOYMENT GROWTH (% CHANGE) CANADA & ONTARIO (f) 2014 (f) 2015(f) Employment Growth Employment Growth Ontario Source: Scotiabank Group, Global Forecast Update, March 26, 2014 Prepared for: Town of Wasaga Beach Page 11

18 The modest gains in private sector employment, especially in the education and health care sectors, are expected to offset the public sector cuts in the province of Ontario, which has the largest number of public employees in. Scotia Bank is expecting Ontario s employment rate to grow by 0.9% in 2014 and then 1.1% in National employment is expected to grow by 1.0% in 2014 and 1.2% in National & Provincial Travel Forecasts In the Fall of 2013, The Conference Board of released their Travel Market Outlooks for , which project moderate growth for and Ontario across all travel segments. After posting modest growth of 1.3% in 2013, National total overnight visitation is projected to grow by stronger levels of 2.1% in 2014, and 2.7% in 2015, while total overnight visitation to Ontario is projected to increase by 2.0% in 2014 and 2.9% TABLE 3-3 TOTAL OVERNIGHT VISITATION (% CHANGE) CANADA & ONTARIO 2013(f) 2014(f) 2015(f) 2016(f) 2017(f) Ontario Source: Conference Board of Travel Market Outlooks, Fall 2013; Statistics National domestic overnight travel is estimated to grow between 2.2% and 2.7% per annum from 2014 to Domestic overnight visitation is projected to account for million visits, or over 86% of total visitation to by Similarly, in Ontario, domestic travel will account for approximately 85% of overnight travel by 2017, generating more than 46.4 million overnight visits. The domestic market is forecasted to see growth of 2.1% in In 2015, domestic pleasure travel to Ontario is projected to grow 3.5% as the City of Toronto and surrounding municipalities host the PanAm Games. TABLE 3-4 OVERNIGHT VISITATION DOMESTIC ORIGIN (% CHANGE) CANADA & ONTARIO 2013(f) 2014(f) 2015(f) 2016(f) 2017(f) Business Pleasure Ontario Business Pleasure Source: Conference Board of Travel Market Outlooks, Fall 2013; Statistics Prepared for: Town of Wasaga Beach Page 12

19 The U.S. travel to is expected to grow by 1.6% in 2014 with modest improvement in the U.S. economy. Continued moderate growth is expected for the U.S. market between 2014 and 2017 at rates between 1.6% and 2.1%. The U.S. visitation to Ontario is expected to contract slightly in 2013 and then grow at rates that generally mirror the National levels from 2014 to TABLE 3-5 OVERNIGHT VISITATION U.S. ORIGIN (% CHANGE) CANADA & ONTARIO 2013(f) 2014(f) 2015(f) 2016(f) 2017(f) Ontario Source: Conference Board of Travel Market Outlooks, Fall 2013; Statistics The overseas market in is projected to see continued growth of 2.5% in Going forward this segment is expected to post healthy growth of between 3.1% and 3.7% per annum through to Similarly, this market in Ontario is projected to see growth of 2.5% in 2014 and growth of between 3.5% and 3.9% from 2015 to TABLE 3-6 OVERNIGHT VISITATION - OVERSEAS ORIGIN (% CHANGE) CANADA & ONTARIO 2013(f) 2014(f) 2015(f) 2016(f) 2017(f) Ontario Source: Conference Board of Travel Market Outlooks, Fall 2013; Statistics The overseas segment is often touted as a major opportunity market for the tourism and accommodation sectors, particularly countries like China with huge volumes of potential visitors. However, even with solid annual growth, the overseas market is projected to generate less than 5% of the total overnight travel to by 2017, or about 2.2 million overnight visits to Ontario. 3.4 Town of Wasaga Beach The Town of Wasaga Beach, while only incorporated in 1974, has a rich history as one of Ontario s premier summer tourist destinations dating back to the early 1800 s. The area s original settlement was a logging and fishing village settled along the shores of the Nottawasaga River, a main waterway that runs through the Town today. In the early 1900 s the region progressively transformed into a popular tourist destination for the military families at nearby Base Borden, and Toronto residents visiting the area to enjoy the 14 kilometers of white-sand, freshwater beach. Prepared for: Town of Wasaga Beach Page 13

20 Today the Town is part of Simcoe County and has a population of approximately 17,537 people. The area is expected to continue to see strong population growth with the overall population projected to be 27,500 people by 2031 according to the Provincial Growth Plan. The Town of Wasaga Beach is serviced by the main north-south highways of HWY 400 and 27, which direct travelers to the Town of Wasaga Beach via County Road 92 and Highway 26. During the peak summer months, the Town of Wasaga Beach has indicated that traffic congestion problems can occur. The congestion issues are due in part to the increased visitation from cottagers and tourists and the lack of road lanes, as currently the primary access routes within the town proper are two lane highways. The nearest local airport to the Town of Wasaga Beach is the Town of Collingwood Municipal Airport. It is equipped with a 5,000-foot jet runway capable of handling small jets. Additionally, the Town of Wasaga Beach is approximately 125 km drive from by Lester B. Pearson International Airport, which has daily flights to most major national and international destinations Economic Development The Town of Wasaga Beach has an estimated labour force of 7,745 persons with an unemployment rate of 7.7%. The Service sector represents the largest industry by labour force in Wasaga Beach accounting for 29.2% of jobs. The Trades/Transport/Equipment Operators sector accounts for 17.3% and the Business Finance/Administration sector accounts for 13.3% of jobs in the Town of Wasaga Beach. Table 3-7 provides the summary of labour force occupations for the Town of Wasaga Beach. Prepared for: Town of Wasaga Beach Page 14

21 TABLE 3-7 OCCUPATION / LABOUR FORCE STATISTICS WASAGA BEACH, ONTARIO People Employed % Occupations Management % Business; finance and administration 1, % Natural and applied sciences % Health occupations % Education; Law and Social; Community; Government % Art; Culture; Recreation and Sport % Sales and Service 2, % Trades; Transport and Equipment Operators 1, % Natural Resources; Agriculture and Related Production % Manufacturing and Utilities % Other % Total Labour Force 7, % According to Economic Development and Planning officials, the Town of Wasaga Beach continues to see strong residential building growth. Due to its proximity to Toronto, there is demand for cottage or weekend properties and retirement residential located near the Beach. There are currently approximately 15 residential projects under construction representing approximately 2,500 units/lots and an additional 25 projects representing approximately 2,700 units/lots actively progressing through the planning and approval process. Table 3-8 provides the historic building permit values for the Town of Wasaga Beach. TABLE 3-8 PERMITS ISSUED & BUILDING PERMIT VALUES TOWN OF WASAGA BEACH Total Permits Issued Estimated Value of Residential Construction ($) $43,136,000 $60,006,000 $58,104,000 $41,671,000 $68,982,000 Estimated Value of Non- Residential Construction ($) $4,954,000 $2,160,000 $5,277,000 $1,078,000 $1,877,000 Total Construction Value $48,090,000 $62,166,000 $63,381,000 $42,749,000 $70,859,000 Source: Town of Wasaga Beach In 2013, total building permit values in the Town of Wasaga Beach reached $71 million compared to $43 million in 2012, and $63 million in Construction in Wasaga Beach has been primarily residential in recent years with residential development accounting for 97.4% of total construction, or $69 million, in Prepared for: Town of Wasaga Beach Page 15

22 3.4.2 Tourism The Town of Wasaga Beach attracts approximately 1.16 million visitors annually according to the Town of Wasaga Beach Economic Development Department. The primary driver of visitation demand is Wasaga Beach itself, the world's longest freshwater beach. In the summer months The Beach is bustling with tourism activity as a popular beach volleyball and sunbathing destination. There are six public beach areas numbered from 1 to 6; the higher the number, the smaller and less crowded the area. Pedestrians along Beach Area 1 and 2 benefit from a boardwalk running along the beach. The boardwalk along Beach Area 1 has been developed with a number of seasonal restaurants, bars and retail stores. Also located in the Town of Wasaga Beach are Wasaga Beach Provincial Park and the Blueberry Plains trail system, which offers 30km of trails through the dunes area. Eco-tourism is a growing market as tourists continue to explore the non-attraction based activities in the area. Peak season activities include golf, biking/hiking, fishing and boating. The Town s waterfront location makes it accessible to marine traffic. There are four public launch facilities in the Town of Wasaga Beach. Two of these facilities, Sturgeon Point Marina and Wasaga Marine provide docking facilities. Wasaga Beach also provides a number of winter activities. In the winter, there are miles of fresh groomed trails for snowmobiling in the region. Cross country skiers enjoy access to local trails, while downhill skiers have central access to Blue Mountain, Horseshoe Valley and Snow Valley ski resorts all located within 35 kilometers of Wasaga Beach. The Town of Wasaga Beach is also home to Nancy Island Museum, this museum displays the original hull of the Schooner HMS Nancy, which was sunk by the British Commander in the Nottawasaga River in Open in the summer, the museum offers daily regular tours, special events and evening programs that take place around a campfire. The Town of Wasaga Beach hosts a number of well attended annual special events catered to both the local resident population, and tourists alike. Most notable major events take place in the summer and fall months, though events like Sledfest, an annual snowmobile festival, have strong support from the community and are expected to grow in the future. Table 3-9 summarizes the major annual events in Wasaga Beach. Prepared for: Town of Wasaga Beach Page 16

23 TABLE 3-9 MAJOR EVENT LISTING WASAGA BEACH, ONTARIO Event Month Estimated Attendance Sledfest Jan 1,500 Snowman Mania - Family Day Weekend Feb 10,000 Easter Eggstravaganza Mar/Apr 3,000 Wasaga Beach Fest Jun 3,500 Day Celebrations Jul 3,000 Not-So-Pro Volleyball Tournament Jul 3,500 Underground Series Jul 4,500 Wasaga Under Seige A War of 1812 Experience Aug 2,000 Corvette Weekend Aug 1,500 Multi-Sports Triathalon and Marathon Sep 1,000 Wasaga Beach Blues Sep 6,000 Funderland Dec 2,500 TOTAL 42,000 Source: Town of Wasaga Beach Tourist accommodations within the Town of Wasaga Beach include motels, cottages, B&B s and many seasonal trailer parks and campgrounds. 3.5 Town of Collingwood The Town of Collingwood is located approximately 20 kilometers west of the Town of Wasaga Beach and is approximately 160 kilometers north of the Greater Toronto Area. According to the 2011 Census, Collingwood has an estimated population of 19,241 residents, representing an 11.3% increase from the 2006 Census. In the winter, the Town provides the largest concentration of downhill ski facilities (5 areas) with the some of the highest verticals in the province. There is a growing base of spring/fall shoulder season recreational activities such as golf, sailing, mountain biking, hiking and fishing. Collingwood s proximity to southern Ontario s large and affluent year round markets (as well as winter markets in southern Michigan, Ohio and as far away as Chicago), have helped the Collingwood area evolve into one of Ontario s few, truly multi-season tourist and vacation areas. The largest single tourist draw to the Collingwood area is Blue Mountain, which sells over 750,000 lift tickets each year. At 720 vertical feet and 2.5 miles long, Blue Mountain is Ontario s largest mountain resort. With 36 runs, 4 terrain parks, 3 half-pipes, a snow-tubing park and 15 ski lifts the facility attracts a significant volume of visitors to the area. The resort is also a regional meeting/conference destination and is increasingly becoming a summer leisure destination for mountain biking, golf and hiking. With further development planned for the Prepared for: Town of Wasaga Beach Page 17

24 resort and increased promotion by Intrawest, Blue Mountain is expected to continue to see an increase in visitation in the coming years. There are also a number of golf courses in Collingwood, including the nationally ranked Monterra Golf Course at Blue Mountain Resorts, Georgian Bay Golf Club and Batteaux Creek Golf Club, located 6 kms south of Collingwood. These courses help to position Collingwood as a golf course destination within Southern Ontario and increase overall visitor volumes in the summer months. In addition to the leisure market, a number of resorts in the Collingwood area also cater to the meetings/convention market. Blue Mountain offers over 37,500 sq.ft of meeting space at the resort. One of the other significant attractions in the Town is the Scenic Caves, which underwent a major redevelopment and now includes a Nordic Ski Centre, treetop trails, Ontario s longest suspension footbridge, eco-adventure tours and 20 kilometres of trails. Major festivals include the Collingwood Jazz and Blues Festival, Collingwood Music Festival, Collingwood Elvis Festival and Dragon Boat Festival. 3.6 Conclusion Overall, Town of Wasaga Beach and the Town of Collingwood have strong tourism presence with attractions including, Wasaga Beach, Blue Mountain Resorts, the Scenic Caves and Nancy Island. The Town of Collingwood draws meeting/conference business to the area year round which helps to support the community. Both Wasaga Beach and Collingwood struggle with a lack of local corporate or industrial business. Residential developments have been the most obvious signs of growth in recent years as visitors increase the demand for summer cottages and retirement residential facilities. The Town of Wasaga Beach expects the community to continue with moderate positive growth in the short to medium term. Prepared for: Town of Wasaga Beach Page 18

25 4.0 COMPETITIVE ACCOMMODATION MARKET ANALYSIS 4.1 Introduction The proposed hotel is to be located on Beach Area 2 in Wasaga Beach would compete within three competitive accommodation markets; the local Wasaga Beach accommodation market; the regional accommodation market, which includes supply in both Wasaga Beach and Collingwood; and on a broader scale within the Ontario Resort accommodation market, which includes a mix of resorts in various locations across the province. 4.2 Local Competitive Accommodation Market The local Wasaga Beach accommodation market is comprised of approximately 22 motels, 42 cottage courts and a number of independent bed and breakfasts. In total there are currently 126 licensed Tourist Establishment properties in Wasaga Beach, comprising a total of 1,109 units. The majority of these establishments are open only seasonally, during peak summer months. Additionally, the greater part of the existing accommodation supply in Wasaga Beach is considered to be tired and does not satisfy the needs of transient guests, especially for corporate demand and meeting/conference groups or sports teams. As such, only 6 year-round establishments have been included within the local competitive market. These properties have been included due to proximity of location, number of annual operating days, the commonality of room night demand generators, and similar services, facilities and amenities. Table 4-1 summarizes the properties that comprise the local competitive accommodation market. TABLE 4-1 LOCAL COMPETITIVE ACCOMMODATION MARKET WASAGA BEACH, ONTARIO Hotel Rooms Hotel Rooms Saga Resort 21 Mermaid Motel & Cottage Court 15 Luau Resort 25 WuWu's Cabins 22 J&J Motel 12 Knightsbridge Inn 14 TOTAL 109 Source: Discussions with local stakeholders indicated that local accommodation establishments generally experience strong demand in the peak summer months of June through September, particularly on weekends, with occupancies in the 65 90% range. Peak season demand is primarily driven by tourists visiting the beach or attending the many festivals and events in the area. In contrast, the general consensus is that off-season demand is extremely limited, particularly on weekdays, due to the lack of tourism and corporate demand generators during the winter months, with occupancies in the 10 25% range. Average daily rates within the Prepared for: Town of Wasaga Beach Page 19

26 local market are generally in the $75 - $195 range during the peak season, and in the $40 - $85 range in the off season. The existing local accommodation product is, for the most part, small owner operated cottage courts, bed and breakfasts, and exterior access motels. As previously noted, the majority of the product is tired and does not satisfy the needs of transient guests, especially for corporate demand, meeting/conference groups and sports teams. A new build, select service, branded property with a beachfront location would be superior to the existing product in the Wasaga Beach market. 4.3 Regional Competitive Accommodation Market The proposed subject hotel development would compete regionally with the Wasaga Beach properties discussed in Section 4.2, as well as with properties also located in Collingwood. This combined regional market is considered to be the primary competitive market for the proposed hotel. The regional Wasaga Beach/Collingwood competitive accommodation market is comprised of 7 traditional hotels and approximately 16 motels and independent accommodations which provide a total of 1,647 guest rooms as of December These properties have been included due to proximity of location, the commonality of room night demand generators, and similar services, facilities and amenities. Table 4-2 summarizes the properties that comprise the regional competitive accommodation market. TABLE 4-2 REGIONAL COMPETITIVE ACCOMMODATION MARKET WASAGA BEACH/COLLINGWOOD Hotel Rooms Hotel Rooms Days Inn & Suites Collingwood 76 Holiday Inn Express Collingwood 74 Mountain Springs Resort 144 Westin Trillium House 222 Blue Mountain Resorts* 612 Cranberry Resort 78 Blue Mountain Inn 103 Collingwood Motel Supply 229 Saga Resort 21 Mermaid Motel & Cottage Court 15 Luau Resort 25 WuWu's Cabins 22 J&J Motel 12 Knightsbridge Inn 14 TOTAL 1,647 * Includes Mosaic at Blue, Seasons at Blue, Weider Lodge and the Grand Georgian Source: The competitive market historic occupancy and average daily rate information for the period is summarized in Table 4-3. The detailed information has been provided in Exhibit 4-1. Prepared for: Town of Wasaga Beach Page 20

27 TABLE 4-3 HISTORIC MARKET PERFORMANCE WASAGA BEACH/COLLINGWOOD Rooms 1,647 1,647 1,647 1,647 1,647 Available Room Nights 601, , , , ,155 Occupied Room Nights 258, , , , ,368 Occupancy 43.0% 43.7% 42.3% 43.5% 44.3% Average Daily Rate $ $ $ $ $ RevPar $64.68 $67.31 $66.57 $70.07 $72.45 Source: As summarized, over the historic period occupancy in the regional Wasaga Beach/Collingwood accommodation market has been in the mid 40% range. The market occupancy declined in 2011 to 42.3%, following a similar trend to the other regions in Ontario that year, and due in part to a less than ideal start to the winter ski season for the regional market. Since then, the market has experienced year over year demand growth improving occupancy to 44.3% in The market Average Daily Rate has seen relatively consistent growth over the historic period from $ in 2009 to $ in 2013 for a total of 8.6% over the 5 year period or an annual compounded rate of 2.1% Regional Market Mix by Segment Demand for hotel accommodation within the competitive regional Wasaga Beach/Collingwood accommodation market consists of four broad demand segments: the Corporate/Commercial segment; the Leisure/Tourist segment; the Meeting/Conference segment; and Government/Other segment. On the basis of PKF market research, estimated market segmentation for the regional competitive market in 2013 is presented in Table 4-4. TABLE 4-4 MARKET SEGMENTATION WASAGA BEACH/COLLINGWOOD COMPETITIVE MARKET Segment Occupied Room Percentage of Nights Demand Corporate/Commercial 12, % Meeting/Conference 85, % Leisure/Tourist 154, % Government/Other 13, % TOTAL 266, % Source: PKF Consulting Prepared for: Town of Wasaga Beach Page 21

28 The Corporate/Commercial market segment consists of rooms demand, which is generated by, and specifically related to, business and corporate activity. Within this market, both individual and volume (or preferred) corporate accounts are included. The Meeting/Conference market segment consists of rooms demand generated for the purpose of attending meetings and/or conferences internally within area hotels, which offer public assembly facilities. Conference delegates who may be attending a meeting or conference elsewhere in the vicinity may also generate demand. The Leisure/Tourist market segment consists of rooms demand generated by independent tourists, group tours, and a variety of sports teams/events throughout the year. It includes individuals and families visiting as tourists, the VFR market (visiting friends or relatives). This market also consists of demand generated by groups whose primary purpose is of a leisure or transient nature and not related to corporate business. The Government/Other market segment consists of demand generated by crew contracts, government officials, travel agents, hotel employees, and to a lesser extent, smaller specialty markets. Demand in this segment is typically represented by sources, which are highly rate sensitive and are normally provided with significantly discounted room rates. The regional Wasaga Beach/Collingwood market is largely a year-round Leisure destination, with a strong Meeting/ Conference base generated by the Collingwood hotels. There is little in the way of demand generated by Corporate segment which is a result of the absence of industry and major corporate/commercial employers in the area. 4.4 Ontario Resort Competitive Market The proposed hotel would also compete on a broader scale with the overall Ontario Resort Market, in particular within the Leisure and Meeting/Conference segments. The Ontario Resort competitive accommodation market includes Resort and Inn properties located across Ontario and is comprised of 33 traditional resorts and independent inns which provide a total of 3,623 guest rooms as of December These properties have been included due to the nature of their locations as destination resorts, the commonality of room night demand generators, and similar services, facilities and amenities. Table 4-5 summarizes the properties that comprise the Ontario Resort competitive accommodation market. Prepared for: Town of Wasaga Beach Page 22

29 TABLE 4-5 REGIONAL COMPETITIVE ACCOMMODATION MARKET WASAGA BEACH/COLLINGWOOD Hotel Rooms Hotel Rooms Deerhurst Resort 403 Millcroft Inn 52 The Briars 88 Old Mill Inn 60 Westin Trillium 222 Pillar & Post 123 Taboo 61 Benmiller Inn 60 Blue Mountain 784 Idlewyld Inn*** 23 Horseshoe Valley Resort 102 Ste. Anne's Country Inn & Spa 27 Talisman 87 Inn at Christie's Mill 42 White Oaks 220 Queen's Landing 142 Sherwood Resort 49 Moffat Inn 24 Rocky Crest Resort 65 Langdon Hall 52 Pinestone Resort 103 Touchstone Resort 33 Nottawasaga 269 Balance of Inns 103 Hockley Valley 104 Elora Mill Inn* 32 J W Marriott, The Rosseau 220 Delta Grandview** 129 Prince of Wales 110 TOTAL 3,623 *Closed in 2011 ** Closed in 2012 ***Closed in 2013 and is anticipated to re-open in 2014 Source: The Ontario Resort competitive market historic occupancy and average daily rate information for the period is summarized in Table 4-6. The detailed information has been provided in Exhibit 4-2. TABLE 4-6 HISTORIC MARKET PERFORMANCE ONTARIO RESORTS Rooms 3,789 3,785 3,759 3,629 3,623 Available Room Nights 1,382,916 1,381,456 1,371,966 1,324,585 1,322,395 Occupied Room Nights 626, , , , ,276 Occupancy 45.3% 48.3% 48.8% 50.9% 50.3% Average Daily Rate $ $ $ $ $ RevPar $82.06 $90.91 $93.57 $99.44 $99.52 Source: As summarized, over the historic period occupancy in the Ontario Resort accommodation market has been in the mid 40% to 50% range. The market occupancy increased steadily from 45.3% in 2009 to 50.9% in 2012, before declining to 50.3% in It should be noted that over the historic period there has been a reduction in supply with the closure of four rooms at The Briars in 2010, the closure of the Elora Inn in Prepared for: Town of Wasaga Beach Page 23

30 2011, and the transition of the Delta Grandview to an independent, fractional ownership resort in The Idlewyld Inn also closed in late 2013 under new ownership, but is expected to re-open in the spring of 2014 after undergoing an extensive renovation. The changes in supply accounted for a decrease in available guest rooms of 0.7% in 2011, 3.5% in 2012 and 0.2% in Without the closure of these collective 166 rooms market occupancy would have been 48.5% in 2011, 48.7% in 2012 and 48.1% in The market Average Daily Rate has seen relatively consistent growth over the historic period from $ in 2009 to $ in 2013 for a total of 9.2% over the 5 year period or an annual compounded rate of 2.2% Ontario Resort Market Mix by Segment Demand for hotel accommodation within the competitive Ontario Resort accommodation market consists of four broad demand segments: the Corporate/Commercial segment; the Leisure/Tourist segment; the Meeting/Conference segment; and Government/Other segment. On the basis of PKF market research, estimated market segmentation for the regional competitive market in 2013 is presented in Table 4-7. TABLE 4-7 MARKET SEGMENTATION ONTARIO RESORT COMPETITIVE MARKET Segment Occupied Room Percentage of Nights Demand Corporate/Commercial 16, % Meeting/Conference 290, % Leisure/Tourist 349, % Government/Other 8, % TOTAL 665, % Source: PKF Consulting Similar to the regional Wasaga Beach/Collingwood market, the Ontario Resort market is largely driven by the Leisure segment, with a strong Meeting/ Conference base. There is little in the way of demand generated by Corporate or Government/Other segments segment which is a result of primarily the locational characteristics of these properties. 4.5 Proposed New Supply Regional Competitive Market Over the historic period the competitive market supply has remained relatively constant with no new properties entering the local or regional markets over this time period. Prepared for: Town of Wasaga Beach Page 24

31 Based on discussions with representatives of the Town of Wasaga Beach, it is understood that the Wasaga River Docks Suites, a mixed-use development, located on Mosley Street at 11 th Street, is currently progressing through the planning approval process. The majority of the building that will become the hotel within the proposed Wasaga River Docks Suites development was constructed as part of previous development project that failed to reach completion over the past few years. As the construction of the property is for the most part complete, our projections anticipate this new hotel to come on line by the summer of Based on discussions with representatives from the Town, it is understood that the Wasaga River Docks Suites would be an independent mid-scale limited service hotel. The opening of the proposed 25-room Wasaga River Docks Suites, estimated to be mid-2014 represents a 0.7% increase in supply in the regional market in 2014, and a 0.8% increase in With the exception of the Wasaga River Docks Suites development, no additional new supply has been projected to enter the competitive market over the projection period. The subject hotel, with 80 rooms, has been projected to open on January 1, 2016, representing a 4.8% increase in supply in the competitive market in that year. Exhibit 4-3 reflects the projected supply changes in the competitive accommodation market over the projection period. 4.6 Competitive Market Demand Projections Regional Wasaga Beach/Collingwood Market The demand projections prepared for the primary regional Wasaga Beach/Collingwood competitive market are based on the current market dynamics and anticipated changes in demand throughout the projection period. Exhibit 4-4 provides the projected demand and average daily rate levels for the competitive accommodation market over the 2016 to 2020 period. The following table summarizes these projections. TABLE 4-8 MARKET OCCUPANCY & AVERAGE DAILY RATE PROJECTIONS WASAGA BEACH/COLLINGWOOD COMPETITIVE MARKET Available Room Nights 610, , , , , , ,480 Occupied Room Nights 267, , , , , , ,279 Occupancy 43.9% 44.7% 44.3% 44.8% 45.1% 45.5% 45.9% Average Daily Rate (ADR) $ $ $ $ $ $ $ Source: Prepared for: Town of Wasaga Beach Page 25

32 The demand in the competitive market is projected to grow at a rate of 0.6% in 2014 and 1.8% in The increased demand growth projected for 2015 is primarily induced demand as a result of the Wasaga River Docks Suites entering the local market. In 2016, when the proposed subject hotel enters the market, it is projected to grow by 3.8%, with an additional 1.1% demand growth projected in This demand growth will be largely supply induced demand as a result of the proposed hotel entering the market. In 2019 and 2020 the market is projected to experience stabilized demand growth of 0.8% per annum. The projections for supply induced demand growth over the 2016 to 2017 period are based on the following assumptions; Corporate/Commercial demand growth and Government/Other demand growth will be the result of new demand entering or re-entering the market because of the availability of branded overnight accommodation in Wasaga Beach. Meeting/ Conference occupied room night demand will enter the market because of the availability of professional meeting space for small to mid-sized groups and the availability of branded overnight accommodation in Wasaga Beach. Additionally, based on the location and proposed facilities for the hotel, Meeting/Conference occupied room night demand in the form of wedding groups will also enter the market because of the availability of quality banquet facilities and overnight accommodation; Leisure demand growth will be the result of new demand entering or re-entering the market because of the availability of branded overnight accommodation in Wasaga Beach. The new product will relieve some of the capacity constraints in the area, especially during tournaments, large festivals and events and during the busy summer period. Although the proposed hotel will generate some additional demand for the competitive market, the market is projected to see relatively stable growth and will continue to perform in the mid 40% occupancy range over the projection period. While the competitive market experienced 1.6% growth in average daily rate in 2013, the 2010 to 2012 period saw growth rates in the 2.1% to 2.4% range. From 2014 to 2020 the average daily rate is projected to increase by 2.5% per annum. A 2.5% growth rate is indicative of a market that is growing in a moderate, but positive manner, and generally reflects the current and anticipated rate of inflation Ontario Resort Market The demand projections prepared for the Ontario Resort competitive market are based on the current market dynamics and anticipated changes in demand throughout the projection period. Exhibit 4-5 provides the projected demand and average daily rate levels for the competitive Ontario Resort accommodation market over the 2016 to 2020 period. The following table summarizes these projections. Prepared for: Town of Wasaga Beach Page 26

33 TABLE 4-9 MARKET OCCUPANCY & AVERAGE DAILY RATE PROJECTIONS ONTARIO RESORT COMPETITIVE MARKET Available Room Nights 1,322,395 1,324,585 1,353,785 1,353,785 1,353,785 1,353,785 1,353,785 Occupied Room Nights 671, , , , , , ,334 Occupancy 50.8% 51.2% 50.6% 51.1% 51.6% 52.1% 52.6% Average Daily Rate $ $ $ $ $ $ $ Source: The Ontario Resort market is projected to see relatively stable growth of 1.0% throughout the projection period and will continue to perform in the low 50% occupancy range over the projection period. Average daily rate for the Ontario Resort market is projected to increase by 2.5% per annum from 2014 to A 2.5% growth rate is indicative of a market that is growing in a moderate, but positive manner, and generally reflects the current and anticipated rate of inflation, and is in line with the Ontario Resort market s compounded growth rate of 2.2% from 2009 to Seasonality of Demand Occupied room night demand for both the regional Wasaga Beach/Collingwood market and the Ontario Resort market is highly seasonal in nature. The regional Wasaga Beach/Collingwood market achieves higher occupancies in Q1 due to demand generated by the Blue Mountain ski area. Table 4-10 summarizes the seasonality of demand for each market. TABLE 4-10 SEASONALITY OF DEMAND ONTARIO RESORT & WASAGA BEACH/COLLINGWOOD MARKETS Occupancy % Q1 Q2 Q3 Q4 Regional Wasaga Beach/Collingwood Market 54% 42% 72% 41% Ontario Resort Market 40% 46% 70% 45% Source: Prepared for: Town of Wasaga Beach Page 27

34 AVERAGE DAILY RATE ($) OCCUPANCY (%) PKF Consulting EXHIBIT 4-1 WASAGA BEACH / COLLINGWOOD MARKET HISTORIC MARKET PERFORMANCE TOTAL COMPETITIVE MARKET Rooms 1,647 1,647 1,647 1,647 1,647 Annual Occupancy 43.0% 43.7% 42.3% 43.5% 44.3% Average Daily Rate $ $ $ $ $ RevPar $64.68 $67.31 $66.57 $70.07 $72.45 Available Room Nights 601, , , , ,155 Occupied Room Nights 258, , , , ,368 Room Revenue $38,880,217 $40,461,029 $40,021,730 $42,123,791 $43,554,765 MARKET GROWTH Available Rooms na 0.0% 0.0% 0.0% 0.0% Occupied Room Nights na 1.7% -3.1% 2.9% 1.8% Average Daily Rate na 2.4% 2.1% 2.3% 1.6% Compounded Annual Growth Rate (CAGR) Total Growth Market Segmentation Total Competitive Market % Available Rooms 0.0% 0.0% Corporate 12, % Occupied Room Nights 0.8% 3.1% Meeting/Conference 85, % Average Daily Rate 2.1% 8.6% Leisure 154, % RevPar 2.9% 12.0% Gov't/Other 13, % $ $ $ $ $ $ $80.00 $60.00 $40.00 HISTORIC MARKET PERFORMANCE (ANNUAL) YEARS Total Market 266, % COMPETITIVE MARKET Days Inn & Suites Collingwood Holiday Inn Express Collingwood 90.0% 60.0% 30.0% 0.0% Mountain Springs Resort & Conference Centre Westin Trillium House Blue Mountain Resort Cranberry Resort Blue Mountain Inn Collingwood Motel Supply Saga Resort Luau Resort J&J Motel Mermaid Motel & Cottage Court WuWu's Cabins Knightsbridge Inn Average Daily Rate RevPar Annual Occupancy Source: Prepared for: Town of Wasaga Beach Page 28

35 AVERAGE DAILY RATE ($) OCCUPANCY (%) PKF Consulting EXHIBIT 4-2 ONTARIO RESORTS MARKET HISTORIC MARKET PERFORMANCE Year to Date 0 TOTAL COMPETITIVE MARKET Rooms 3,789 3,785 3,759 3,629 3, Annual Occupancy 45.3% 48.3% 48.8% 50.9% 50.3% 0.0% 0.0% Average Daily Rate $ $ $ $ $ $0.00 $0.00 RevPar $82.06 $90.91 $93.57 $99.44 $99.52 $0.00 $0.00 Available Room Nights 1,382,916 1,381,456 1,371,966 1,324,585 1,322, Occupied Room Nights 626, , , , , Room Revenue $113,479,867 $125,593,410 $128,369,055 $131,711,768 $131,610,029 $0 $0 MARKET GROWTH Available Rooms na -0.1% -0.7% -3.5% -0.2% na 0.0% Occupied Room Nights na 6.6% 0.4% 0.5% -1.2% na 0.0% Average Daily Rate na 3.9% 1.9% 2.1% 1.2% na 0.0% Compounded Annual Growth Rate (CAGR) Total Growth Market Segmentation Total Competitive Market % Available Rooms -1.1% -4.4% Corporate 16, % Occupied Room Nights 1.5% 6.2% Meeting/Conference 290, % Average Daily Rate 2.2% 9.2% Leisure 349, % RevPar 4.9% 21.3% Gov't/Other 8, % $ $ $ $ $ $ $80.00 $60.00 $40.00 Source: HISTORIC MARKET PERFORMANCE (ANNUAL) YEARS Average Daily Rate RevPar Annual Occupancy Total Market 665, % COMPETITIVE MARKET Deerhurst Resort Millcroft Inn The Briars Old Mill Inn 90.0% 60.0% 30.0% 0.0% Westin Trillium Pillar & Post Taboo Benmiller Inn Blue Mountain Idlewyld Inn Horseshoe Valley ResortSte. Anne's Country Inn & Spa Talisman Inn at Christie's Mill Delta Grandview Queen's Landing Sherwood Resort Moffat Inn Rocky Crest Resort Langdon Hall Pinestone Resort Elora Mill Inn Nottawasaga Balance of Inns Hockley Valley J W Marriott, The Rosseau White Oaks Touchstone Resort Prince of Wales Prepared for: Town of Wasaga Beach Page 29

36 EXHIBIT 4-3 WASAGA BEACH / COLLINGWOOD MARKET SUPPLY PROJECTIONS SUPPLY ADDITIONS Existing Supply 1,647 New Projects Rooms Probability Impact Timing BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT % WASAGA RIVER DOCKS SUITES - estimated opening July 1, % BALANCE OF WASAGA RIVER DOCKS SUITES % Subtotal Total Supply 1,752 SUPPLY PROJECTIONS Existing Supply 1,647 1,647 1,647 1,647 1,647 1,647 1,647 1,647 New Projects BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT WASAGA RIVER DOCKS SUITES - estimated opening July 1, BALANCE OF WASAGA RIVER DOCKS SUITES Subtotal Total Supply 1,647 1,659 1,672 1,752 1,752 1,752 1,752 1,752 Change na % Change na 0.7% 0.8% 4.8% 0.0% 0.0% 0.0% 0.0% Source: Prepared for: Town of Wasaga Beach Page 30

37 EXHIBIT 4-4 WASAGA BEACH / COLLINGWOOD MARKET ACCOMMODATION MARKET PROJECTIONS Demand Projections Corporate occupied room nights 13,061 13,322 13,588 13,724 13,796 13,869 13,942 demand growth 0.5% 2.0% 2.0% 1.0% 0.5% 0.5% 0.5% Meeting/Conference occupied room nights 85,616 86,900 90,376 90,828 91,282 91,739 92,197 demand growth 0.5% 1.5% 4.0% 0.5% 0.5% 0.5% 0.5% Leisure occupied room nights 155, , , , , , ,875 demand growth 0.6% 2.0% 4.0% 1.5% 1.0% 1.0% 1.0% Gov't/Other occupied room nights 13,378 13,646 13,919 14,053 14,123 14,194 14,265 demand growth 0.5% 2.0% 2.0% 1.0% 0.5% 0.5% 0.5% Market Projections Total Demand occupied room nights 267, , , , , , ,279 demand growth 0.6% 1.8% 3.8% 1.1% 0.8% 0.8% 0.8% Total Supply available room nights 610, , , , , , ,480 supply growth 1.5% 0.0% 4.8% 0.0% 0.0% 0.0% 0.0% Market Occupancy 43.9% 44.7% 44.3% 44.8% 45.1% 45.5% 45.9% Market Average Daily Rate $ $ $ $ $ $ $ Market RevPar $73.56 $76.78 $77.97 $80.83 $83.51 $86.28 $89.14 rate growth 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Source: Prepared for: Town of Wasaga Beach Page 31

38 Demand Projections Corporate occupied room nights 16,744 16,828 16,912 16,996 17,081 17,167 17,253 demand growth 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% Meeting/Conference occupied room nights 293, , , , , , ,051 demand growth 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Leisure occupied room nights 353, , , , , , ,914 demand growth 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Gov't/Other occupied room nights 8,847 8,891 8,936 8,980 9,025 9,071 9,116 demand growth 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% Market Projections Total Demand occupied room nights 671, , , , , , ,334 demand growth 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Total Supply available room nights 1,322,395 1,324,585 1,353,785 1,353,785 1,353,785 1,353,785 1,353,785 supply growth 0.0% 0.2% 2.2% 0.0% 0.0% 0.0% 0.0% Market Occupancy 50.8% 51.2% 50.6% 51.1% 51.6% 52.1% 52.6% Market Average Daily Rate $ $ $ $ $ $ $ Market RevPar $ $ $ $ $ $ $ rate growth 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Source: EXHIBIT 4-5 ONTARIO RESORTS MARKET ACCOMMODATION MARKET PROJECTIONS PKF Consulting Prepared for: Town of Wasaga Beach Page 32

39 5.0 SUBJECT PROPERTY OCCUPANCY & AVERAGE DAILY RATE PROJECTIONS 5.1 Introduction Our analysis of the subject property projections examines future occupancy and market penetration levels for the proposed hotel based on numerous factors including, economic influences and the actual and projected supply/demand relationship in the competitive markets. In projecting occupancy performance of the proposed hotel over the projection period, the concept of fair market share has been utilized. This concept states that a property will attract rooms demand in the same proportion as its share of rooms supply. The basic assumption is that all things are equal however; different properties achieve different levels of market penetration based on various competitive factors including location, product and facilities, customer preferences, pricing and marketing strategies. Market penetrations in excess of 100.0% indicate that a hotel possesses competitive advantages relative to the market as whole, competitive weaknesses are reflected in penetrations of less than 100.0%. In the following paragraphs, the projected competitive position of the subject hotel is assessed for each major market segment, relative to both the regional Wasaga Beach/Collingwood market and the broader Ontario Resort market, to arrive at overall market penetration and occupancy estimates. Exhibit 5-1A summarizes the projected market position of the property over the projection period within the regional Wasaga Beach/Collingwood market. Exhibit 5-1B summarizes the projected market position of the property over the projection period within the broader Ontario Resort market. 5.2 Corporate/Commercial Segment The Corporate/Commercial market segment consists of rooms demand, which is generated by, and specifically related to, business and corporate activity. Within this market, both individual and volume (or preferred) corporate accounts are included. The proposed subject hotel is projected to capture approximately 693 occupied room nights within the Corporate/Commercial segment in its stabilized year, 2018, representing 4.0% of the hotel s total demand. The majority of these occupied room nights within the Corporate/Commercial segment will be captured over the Sunday through Thursday period throughout the year. As the proposed hotel would be the only branded hotel in Wasaga Beach, it could reasonably attract a substantial share of the existing corporate business. Additionally, a portion of occupied room nights within this segment would be induced demand, or demand that Prepared for: Town of Wasaga Beach Page 33

40 has historically chosen to stay in markets such as Barrie due to a lack of adequate, branded product in Wasaga Beach and is as such could be re-captured by the subject hotel Regional Wasaga Beach/Collingwood Market Performance Corporate/Commercial Segment Relative to the regional Wasaga Beach/Collingwood market, the subject hotel is projected to penetrate the Corporate/Commercial segment at 110.0% of its fair market share of demand in its stabilized year, TABLE 5-1 SUBJECT PROPERTY MARKET PENETRATION CORPORATE/COMMERCIAL SEGMENT REGIONAL WASAGA BEACH/COLLINGWOOD MARKET Occupied Room Nights Ratio to Total Demand 4.1% 4.0% 4.0% 4.0% 4.0% Penetration Rate 105.0% 107.5% 110.0% 109.4% 108.9% Source: Ontario Resort Market Performance Corporate / Commercial Segment Relative to the Ontario Resort market, the subject hotel is projected to penetrate the Corporate/Commercial segment at 188.1% of its fair market share of demand in its stabilized year, TABLE 5-2 SUBJECT PROPERTY MARKET PENETRATION CORPORATE/COMMERCIAL SEGMENT ONTARIO RESORT MARKET Occupied Room Nights Ratio to Total Demand 4.1% 4.0% 4.0% 4.0% 4.0% Penetration Rate 178.6% 183.8% 188.1% 187.1% 186.2% Source: 5.3 Meeting/Conference Segment The Meeting/Conference market segment consists of rooms demand generated for the purpose of attending meetings and/or conferences internally within area hotels, which offer public assembly facilities. Conference delegates who may be attending a meeting or conference elsewhere in the vicinity may also generate demand. Prepared for: Town of Wasaga Beach Page 34

41 The proposed hotel is projected to capture approximately 5,189 occupied room nights within the Meeting/Conference segment in its stabilized year, 2018, representing 29.8% of the hotel s total demand. Based on the facility program discussed in Section 2, the projections for the subject hotel have assumed that the hotel will have one large banquet room (approximately 150 seats) and two smaller breakout rooms (approximately seats per room) and an executive boardroom, for meetings and events. The proposed hotel will compete with the full service properties in Collingwood, as well as within the broader Ontario Resort market, for small to mid-sized meetings/events. The subject hotel will have a world class, beach location within a 2-hour drive of the GTA and Pearson International Airport and as such will attract demand from the regional, provincial and national markets. The overall positioning of the hotel within this segment is that of a unique destination meeting/event experience with the majority of delegates being from out of town and requiring overnight accommodation. Additionally, based on the beachfront location of the subject hotel, it is anticipated to be a popular wedding venue in the spring, summer and fall seasons. Projections in this segment make the following assumptions: The proposed hotel will capture approximately 60 Corporate/Social meetings and events to be held during the 52 week calendar year, about one event per week over this period. These events will attract an average of attendees. Approximately 85% of the attendees will stay at least one night. These events will generate approximately 3,400 occupied room nights annually. The proposed hotel will capture approximately 45 weddings to be held over the course of a year, primarily on weekends. These events will attract approximately attendees. Approximately 25-50% of attendees will require overnight accommodation for at least one night, with peak season events having a greater out of town attendee mix. These events will generate about 1750 occupied room nights annually Regional Wasaga Beach/Collingwood Market Performance Meeting/Conference Segment Relative to the regional Wasaga Beach/Collingwood market, the subject hotel is projected to penetrate the Meeting/Conference segment at 124.5% of its fair market share of demand in its stabilized year, TABLE 5-3 SUBJECT PROPERTY MARKET PENETRATION MEETING/CONFERENCE SEGMENT REGIONAL WASAGA BEACH/COLLINGWOOD MARKET Occupied Room Nights 4,766 4,977 5,189 5,189 5,189 Ratio to Total Demand 29.7% 29.9% 29.8% 29.8% 29.8% Penetration Rate 115.5% 120.0% 124.5% 123.8% 123.2% Source: Prepared for: Town of Wasaga Beach Page 35

42 5.3.2 Ontario Resort Market Performance Meeting/Conference Segment Relative to the Ontario Resort market, the subject hotel is projected to penetrate the Meeting/Conference segment at 78.9% of its fair market share of demand in its stabilized year, The proposed hotel will penetrate below its fair share of demand throughout the projection period as the hotel, and the community of Wasaga Beach, work towards becoming an established meeting and conference destination. TABLE 5-4 SUBJECT PROPERTY MARKET PENETRATION MEETING/CONFERENCE SEGMENT ONTARIO RESORT MARKET Occupied Room Nights 4,766 4,977 5,189 5,189 5,189 Ratio to Total Demand 29.7% 29.9% 29.8% 29.8% 29.8% Penetration Rate 73.9% 76.4% 78.9% 78.1% 77.3% Source: 5.4 Leisure/Tourist Segment The Leisure/Tourist market segment consists of rooms demand generated by independent tourists, group tours, and a variety of sports teams/events throughout the year. It includes individuals and families visiting as tourists, the VFR market (visiting friends or relatives). This market also consists of demand generated by groups whose primary purpose is of a leisure or transient nature and not related to corporate business. The proposed subject hotel is projected to capture approximately 10,938 occupied room nights within the Leisure/Tourist segment in its stabilized year, 2018, representing 62.9% of the hotel s total demand. The majority of these occupied room nights will be captured over the Friday and Saturday period in the off peak season and all week the summer period. As the proposed hotel would be the only branded hotel in Wasaga Beach, it could reasonably attract a substantial share of the existing leisure business. Additionally, a portion of occupied room nights within this segment would be induced demand, or demand that has historically chosen to stay in markets such as Collingwood due to a lack of adequate, branded product in Wasaga Beach and could be re-captured by the subject hotel. Occupied room night demand within the Leisure/Tourist segment will be generated from a variety of sources including, sports tournaments, cultural events and festivals, and pleasure travel to Wasaga Beach and Collingwood. The subject hotel will benefit from the superior, world class beachfront location, particularly in the peak summer months. Prepared for: Town of Wasaga Beach Page 36

43 5.4.1 Regional Wasaga Beach/Collingwood Market Performance Leisure/Tourist Segment Relative to the regional Wasaga Beach/Collingwood market, the subject hotel is projected to penetrate the Leisure/Tourist segment at 139.0% of its fair market share of demand in its stabilized year, TABLE 5-5 SUBJECT PROPERTY MARKET PENETRATION LEISURE/TOURIST SEGMENT REGIONAL WASAGA BEACH/COLLINGWOOD MARKET Occupied Room Nights 10,112 10,458 10,938 10,938 10,938 Ratio to Total Demand 62.9% 62.7% 62.9% 62.9% 62.9% Penetration Rate 134.0% 136.5% 139.0% 139.9% 138.6% Source: Ontario Resort Market Performance Leisure/Tourist Segment Relative to the Ontario Resort market, the subject hotel is projected to penetrate the Leisure/Tourist segment at 138.0% of its fair market share of demand in its stabilized year, TABLE 5-6 SUBJECT PROPERTY MARKET PENETRATION MEETING/CONFERENCE SEGMENT ONTARIO RESORT MARKET Occupied Room Nights 10,112 10,458 10,938 10,938 10,938 Ratio to Total Demand 62.9% 62.7% 62.9% 62.9% 62.9% Penetration Rate 130.1% 133.2% 138.0% 136.6% 135.3% Source: 5.5 Government/Other Segment The Government/Other market segment consists of demand generated by crew contracts, government officials, travel agents, hotel employees, and to a lesser extent, smaller specialty markets. Demand in this segment is typically represented by sources, which are highly rate sensitive and are normally provided with significantly discounted room rates. The proposed subject hotel is projected to capture approximately 580 occupied room nights within the Government/Other segment in its stabilized year, 2018, representing 3.3% of the hotel s total demand. The majority of these occupied room nights within the Government/Other segment will be captured over the Sunday through Thursday period throughout the year. Demand within this segment is primarily driven by crew Prepared for: Town of Wasaga Beach Page 37

44 business within the local competitive market, with a substantial amount of residential development and ongoing infrastructure improvement projects in the region. Additionally, a portion of occupied room nights within this segment would be induced demand, or demand that has historically chosen to stay in markets such as Barrie due to a lack of adequate, branded product in Wasaga Beach and is as such could be re-captured by the subject hotel. The subject will also induce some Other demand into the market from sources such as third party providers (i.e. Expedia) Regional Wasaga Beach/Collingwood Market Performance Government/Other Segment Relative to the regional Wasaga Beach/Collingwood market, the subject hotel is projected to penetrate the Government/Other segment at 90.0% of its fair market share of demand in its stabilized year, The proposed hotel will penetrate this segment below its fair share of demand due to the location specific nature of this demand, with the majority of demand generators for this segment focused on the Collingwood market. TABLE 5-7 SUBJECT PROPERTY MARKET PENETRATION GOVERNMENT/OTHER SEGMENT REGIONAL WASAGA BEACH/COLLINGWOOD MARKET Occupied Room Nights Ratio to Total Demand 3.4% 3.4% 3.3% 3.3% 3.3% Penetration Rate 85.0% 87.5% 90.0% 89.6% 89.1% Source: Ontario Resort Market Performance Government/Other Segment Relative to the Ontario Resort market, the subject hotel is projected to penetrate the Government/Other segment at 298.2% of its fair market share of demand in its stabilized year, TABLE 5-8 SUBJECT PROPERTY MARKET PENETRATION GOVERNMENT/OTHER SEGMENT ONTARIO RESORT MARKET Occupied Room Nights Ratio to Total Demand 3.4% 3.4% 3.3% 3.3% 3.3% Penetration Rate 280.3% 289.9% 298.2% 296.7% 295.2% Source: Prepared for: Town of Wasaga Beach Page 38

45 5.6 Subject Hotel Average Daily Rate Projections In terms of Average Daily Rate (ADR), the ADR for the proposed subject hotel is projected to be $140.87, a penetration of 80.0% against the regional Wasaga Beach/Collingwood market in its opening year, The subject hotel is projected to have an ADR below the market ADR, but at a slight premium to the select service hotels in Collingwood (i.e. Days Inn and Holiday Inn Express) based on the proposed hotel s superior, beachfront location. TABLE 5-9 SUBJECT PROPERTY PENETRATION AVERAGE DAILY RATE Market Average Daily Rate $ $ $ $ $ Subject Average Daily Rate $ $ $ $ $ Subject Rate Penetration 80.0% 80.0% 80.0% 80.0% 80.0% Source: Although the subject hotel will be a new build, branded asset, the hotel will not be able to charge similar rates to those being achieved by the full service properties in Collingwood (i.e. The Westin or the Blue Mountain Resorts) since it will not have comparable amenities and services. 5.7 Summary of Property Projections The following table summarizes the proposed subject hotel projections over in relation to the competitive regional Wasaga Beach/Collingwood market. TABLE 5-10 PROPOSE HOTEL DEVELOPMENT SUBJECT HOTEL PROJECTIONS Market Occupancy 44.3% 44.8% 45.1% 45.5% 45.9% Subject Occupancy 55.0% 57.1% 59.6% 59.6% 59.6% Market Average Daily Rate $ $ $ $ $ Subject Average Daily Rate $ $ $ $ $ Market RevPar $77.97 $80.83 $83.51 $86.28 $89.14 Subject RevPar $77.53 $82.43 $88.20 $90.38 $92.65 Source: At a stabilized occupancy of 59.6% in 2018, the proposed hotel is projected to outperform the competitive market with a penetration of 132.0%,14.5 points above the market in occupancy. The proposed hotel is projected to achieve a RevPar penetration of 105.6%, a level that is comparable to the Select Service hotels in the competitive market. Prepared for: Town of Wasaga Beach Page 39

46 5.7.1 Seasonality Analysis & Implications One of the challenges of operating a hotel in the Wasaga Beach/ Collingwood market is the seasonality of the demand. Based on the projections above, the subject hotel will face similar seasonal occupancy challenges that the current operators are facing. Table 5-11 provides a summary of the seasonality of demand and the weekday vs. weekend impact of business on the proposed subject hotel based on the projections presented in Exhibit 5-1A, for the property s stabilized year of operation at a 59.6% annual occupancy. TABLE 5-11 PROPOSED HOTEL DEVELOPMENT SEASONAL CAPACITY ANALYSIS Winter Spring Summer Fall (Jan Mar) (Apr-June) (July-Sept) (Oct-Dec) Period Occupancy 46% 60% 87% 45% Sun- Fri-Sat Sun- Fri-Sat Sun- Fri-Sat Sun- Fri-Sat Thurs Thurs Thurs Thurs Period Occupancy 36% 69% 51% 81% 87% 90% 33% 75% Source: Given the nature and beachfront location of the proposed hotel in Wasaga Beach and its proximity to the Blue Mountain/Collingwood area, the proposed hotel will likely achieve strong occupancy in the summer season all week, as a result of strong leisure demand. The hotel will likely face capacity situations in the summer with the occupancy running in the 85-95% range all week long. Year round, the proposed hotel should achieve solid occupancy levels on the weekends (Friday and Saturday) as a result of social events, sports tournament and year round sporting activities in the area. Induced Meeting/Conference demand will support the year round base business levels for the hotel. However, the absence of industry and major corporate/commercial employers and limited demand drivers, especially over the Sunday to Thursday period will result in low occupancy levels during the week lowering the overall occupancy for the period. Prepared for: Town of Wasaga Beach Page 40

47 EXHIBIT 5-1A BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT WASAGA BEACH / COLLINGWOOD MARKET PROJECT PROJECTIONS SUPPLY BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT Total Supply 1,752 1,752 1,752 1,752 1,752 Fair Share of Supply 4.6% 4.6% 4.6% 4.6% 4.6% DEMAND PROJECTIONS Corporate occupied room nights 13,588 13,724 13,796 13,869 13,942 fair share of demand penetration rate 105.0% 107.5% 110.0% 109.4% 108.9% total demand captured ratio to total demand 4.1% 4.0% 4.0% 4.0% 4.0% Meeting/Conference occupied room nights 90,376 90,828 91,282 91,739 92,197 fair share of demand 4,127 4,147 4,168 4,189 4,210 penetration rate 115.5% 120.0% 124.5% 123.8% 123.2% total demand captured 4,766 4,977 5,189 5,186 5,187 ratio to total demand 29.7% 29.9% 29.8% 29.8% 29.8% Leisure occupied room nights 165, , , , ,875 fair share of demand 7,546 7,662 7,738 7,816 7,894 penetration rate 134.0% 136.5% 139.0% 139.9% 138.6% total demand captured 10,112 10,458 10,938 10,938 10,938 ratio to total demand 62.9% 62.7% 62.9% 62.9% 62.9% Gov't/Other occupied room nights 13,919 14,053 14,123 14,194 14,265 fair share of demand penetration rate 85.0% 87.5% 90.0% 89.6% 89.1% total demand captured ratio to total demand 3.4% 3.4% 3.3% 3.3% 3.3% Total Demand occupied room nights 283, , , , ,279 total demand captured 16,070 16,670 17,401 17,397 17,398 market occupancy 44.3% 44.8% 45.1% 45.5% 45.9% market penetration 124.3% 127.5% 132.0% 130.9% 129.9% Project Occupancy 55.0% 57.1% 59.6% 59.6% 59.6% RATE PROJECTIONS Market Average Daily Rate $ $ $ $ $ % Growth 2.5% 2.5% 2.5% 2.5% 2.5% Rate Penetration Subject 80.0% 80.0% 80.0% 80.0% 80.0% Project Average Daily Rate $ $ $ $ $ Market RevPar $77.97 $80.83 $83.51 $86.28 $89.14 Subject RevPar Penetration 99.4% 102.0% 105.6% 104.8% 103.9% Subject RevPar $ $ $ $ $ Source: Prepared for: Town of Wasaga Beach Page 41

48 EXHIBIT 5-1B BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT ONTARIO RESORTS MARKET PROJECT PROJECTIONS SUPPLY BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT Total Supply 3,709 3,709 3,709 3,709 3,709 Fair Share of Supply 2.2% 2.2% 2.2% 2.2% 2.2% DEMAND PROJECTIONS Corporate occupied room nights 16,912 16,996 17,081 17,167 17,253 fair share of demand penetration rate 178.6% 183.8% 188.1% 187.1% 186.2% total demand captured ratio to total demand 4.1% 4.0% 4.0% 4.0% 4.0% Meeting/Conference occupied room nights 298, , , , ,051 fair share of demand 6,447 6,512 6,577 6,643 6,709 penetration rate 73.9% 76.4% 78.9% 78.1% 77.3% total demand captured 4,766 4,977 5,189 5,189 5,189 ratio to total demand 29.7% 29.9% 29.8% 29.8% 29.8% Leisure occupied room nights 360, , , , ,914 fair share of demand 7,771 7,849 7,927 8,007 8,087 penetration rate 130.1% 133.2% 138.0% 136.6% 135.3% total demand captured 10,112 10,458 10,938 10,938 10,938 ratio to total demand 62.9% 62.7% 62.9% 62.9% 62.9% Gov't/Other occupied room nights 8,936 8,980 9,025 9,071 9,116 fair share of demand penetration rate 280.3% 289.9% 298.2% 296.7% 295.2% total demand captured ratio to total demand 3.4% 3.4% 3.3% 3.3% 3.3% Total Demand occupied room nights 685, , , , ,334 total demand captured 16,070 16,670 17,401 17,401 17,401 market occupancy 50.6% 51.1% 51.6% 52.1% 52.6% market penetration 108.8% 111.7% 115.5% 114.4% 113.3% Project Occupancy 55.0% 57.1% 59.6% 59.6% 59.6% RATE PROJECTIONS Market Average Daily Rate $ $ $ $ $ % Growth 2.5% 2.5% 2.5% 2.5% 2.5% Rate Penetration Subject 66.1% 66.1% 66.1% 66.1% 66.1% Project Average Daily Rate $ $ $ $ $ Market RevPar $ $ $ $ $ Subject RevPar Penetration 71.9% 73.9% 76.4% 75.6% 74.9% Subject RevPar $ $ $ $ $ Source: Prepared for: Town of Wasaga Beach Page 42

49 6.0 SUBJECT PROPERTY FINANCIAL OPERATING PROJECTIONS 6.1 Introduction Based upon the preceding discussion of projected occupancies and average daily rates, a five-year projection of annual operating results has been prepared for the proposed 80-room hotel development to be located at Beach Area 2 in Wasaga Beach, Ontario. The pro forma assumptions are based primarily on PKF s in-house database, which provides insight into the operating performance of other directly competitive and comparably branded hotels. The comparative hotels have been selected based on their size, facility program and market mix. PKF s database of financial statements includes over 650 properties across the country. In projecting the subject hotel s operating results, we have reviewed the historical operating information of a sample of select service and resort properties across Ontario, in order to establish an industry standard for a product that is comparable to the proposed hotel. In addition, the historical operating information for a sample of properties in southern Ontario and the surrounding area were contemplated in order to address regional operating concerns. Fundamental to the projected operating results is the assumption that the hotel would be competently and efficiently managed. It is important to note that the projections do not take into account any efficiencies or additional operating costs which may result from the operations of the residential components of the proposed mixed-use development. The projections reflect the proposed hotel as a stand-alone operation. Inflation The average annual inflation rate in the past several years has been at 2.5% or less, and for the purpose of this analysis, inflation has been projected at 2.5% as an average throughout the five year forecast period. However, inflation has not been used in all revenue and expense categories as the sole basis of annual increases. The impact of increased/decreased occupancies or sales volumes is also reflected in revenue and expense projections. Prepared for: Town of Wasaga Beach Page 43

50 Account Classification The Uniform System of Accounts for Hotels, recommended by the American Hotel and Lodging Association and in general use throughout the hotel industry in, has been used to classify income and expenses in this report. In conformity with this system, only direct operating expenses are charged to operating departments of the hotel. The general overhead items, which are applicable to operations as a whole, are classified as undistributed and include administrative and general expenses, marketing, property operations and maintenance, and energy costs. The pro forma projected operating results for the proposed hotel are presented in Exhibit 6-1. The following paragraphs summarize the projected financial operating performance for the proposed subject development by department, the details of which are provided in Exhibits 6-2A-C. 6.2 Departmental Revenue and Expenses Rooms Revenue and Expenses (Exhibit 6-2A) Rooms revenue for the proposed 80-room hotel is based on the projected occupancy levels and the average daily room rates as discussed in Section 5.0 of this report. Labour and benefits expenses are based on average wage rates for similar positions in the Simcoe County area inflated to 2016 dollars, and take into consideration industry norms for productivity of similar hotels. Labour and benefits expenses are forecasted to be $24.48 per occupied room night in the first year of operation. Other Rooms departmental expenses have been based on industry averages of comparable style hotels within Ontario. These expenses include Travel Agent Commissions of 2.0% of Rooms revenue, and $10.00 per occupied room for Laundry, Linen, and Other Guest Supplies expenses. Total rooms departmental expenses are forecasted to be $37.30 (26.5% of Rooms revenue) in the first year of operations. These expenses are projected to improve to 25.8% or $40.06 per occupied room night by the fifth year of operations (2020), as a result of increased average room rates and occupancy levels over the three-year ramp-up period. The expenses have been increased on a 60% variable, 40% fixed basis with inflation over the projection period. Prepared for: Town of Wasaga Beach Page 44

51 6.2.2 Food and Beverage Department Revenue and Expenses (Exhibit 6-2B) As discussed in Section 2.0, the subject hotel will have approximately 3,500 sq. ft. of meeting space, as well as a 70-seat restaurant, with a 30-seat seasonal patio, serving breakfast, lunch and dinner daily. The hotel will also provide a limited amount of in-room dining to its guests. Revenue and expense estimates in this department are based on industry standards and properties with similar facilities in Ontario generally. In its first year of operation the hotel s restaurant is projected to generate revenue of $810,018 or $49.65 per occupied room night. The main 70-seat, indoor, restaurant is projected to generate revenue of approximately $735,000 or $45.04 per occupied room night, while the seasonal 30-seat outdoor patio is projected to generate an additional $75,000 in revenue or $4.61 per occupied room night. Banqueting revenue, including food & beverage revenue and meeting room rentals, is projected to be $16.25 per occupied room night. Room service revenue is projected to be $1.00 per occupied room night, resulting in a total food & beverage revenue of $66.90 per occupied room night. Food and Beverage expenses, including cost of goods sold, payroll and benefits and other operating expenses, are projected to be 82.1% of revenues, or $54.91 per occupied room night. F&B expenses are projected to increase by inflation on a 70% fixed and 30% variable basis over the projection period Other Operated Departments Revenue and Expenses (Exhibit 6-2C) This department includes the operation of various ancillary services including: telecommunications, guest laundry, gift shop/grab-and-go, and internet and in-room movies, it also includes some potential revenue from Health Club revenue generated through the sale of local memberships. Revenue and expense estimates in this department are based on industry standards and select service properties in Ontario generally. In the first year of operation, the hotel is projected to realize total revenue for Other Operated Departments of $1.33 per occupied room night and $0.79 per occupied room night in expenses. The revenues and expenses have been increased by 2.5% per annum on an 80% fixed and 20% variable basis over the projection period Other Income Net (Exhibit 6-2C) Other Income Net is comprised of other sources of revenue including; net revenue from foreign exchange, interest income, commissions and other miscellaneous income. These sources are projected to generate Prepared for: Town of Wasaga Beach Page 45

52 $2.00 in net revenue per occupied room night in the first year of operations. Revenues from Other Income are projected to increase with inflation on an 80% fixed and 20% variable basis over the projection period Undistributed Operating Expenses Administration and General (Exhibit 6-2D) This category includes the salaries and wages of administrative staff, credit card commissions, cash overages and shortages, bad debt expense, data processing, executive office expenses, general insurance, professional fees, security, IT, and travel. Expenses in this department have been projected at $3,376 per available room for the first year of operation. Expenses have been increased on an 80% fixed and 20% variable basis, with inflation, over the projection period Sales and Marketing (Exhibit 6-2D) In order to achieve the market penetration at the projected room rates, the property must work to develop a strong presence in the market area and a good relationship with key clients. This category includes a budget for salaries, and general sales and marketing expenses such as promotions and advertising campaigns. These expenses are based primarily on industry averages for comparable type and size of hotel operations. Additionally, a Franchise Fee of 5.0% and Other Brand Fees of 4.0% of Rooms revenue are included in this category and are based on the industry standards and our knowledge of typical franchise agreements for branded hotels. Sales and Marketing expenses (inclusive of Franchise Fees) have been projected at $3,986 per available room, or 9.3% of gross revenues, in the first year of operations. Expenses have been increased on a 90% fixed and 10% variable basis, with inflation, over the projection period Property Operations and Maintenance (Exhibit 6-2D) This expense line consists of salaries, wages and employee benefits for maintenance personnel, normal building maintenance, electrical and mechanical equipment, and grounds maintenance, operating supplies, maintenance contracts, furniture cleaning and repair, waste removal and uniforms. Prepared for: Town of Wasaga Beach Page 46

53 Based on industry norms for hotels of comparable size and type in Ontario, these expenses are projected to be $1,300 per available room for the first year of operation. Expenses have been increased on a 90% fixed and 10% variable basis, with inflation, over the projection period Energy (Exhibit 6-2D) Energy expenses, related to the heat, light and power of the hotel, have been projected at $1,500 per available room in the first year of operation. Energy expenses have been based on results achieved by hotels, of similar size and style, located in the Barrie and Simcoe County area. Expenses have been increased on a 90% fixed and 10% variable basis, with inflation, over the projection period. 6.4 Fixed Operating Charges Property Taxes and Insurance (Exhibit 6-2D) Property Taxes have been estimated at $2,000 per available room in the first year of operation based on the results of hotels, of similar size and style. Property taxes have been inflated at 2.5% throughout the period. Insurance expenses have been estimated at $120 per available room in the first year of operation, which has been based on the results of hotels, of similar size and style. Insurance expense has been increased by inflation annually over the projection period Management Fees (Exhibit 6-2D) The projections take into account a management fee of 3.0% of gross revenues. This management fee reflects industry standards and typical underwriting criteria Reserve For Asset Replacement (Exhibit 6-2D) A reserve for asset replacement has been included to account for the replacement of furnishings and fixtures, as required, to maintain the quality of product offered by the hotel. These expenses represent 4.0% of gross revenues. They have been projected to be approximately $753,793 or $9,422 per available room over the entire projection period. This amount is likely insufficient to completely renovate the guestrooms at the end of the five year period but, will likely be sufficient to cover soft good replacements at that time. Prepared for: Town of Wasaga Beach Page 47

54 6.5 Summary of Operating Projections Table 6-1 summarizes the projected revenues, expenses and net operating results for the proposed 80-room hotel development to be located at Beach Area 2 in Wasaga Beach, over its first five years of operation. TABLE 6-1 PROPOSED HOTEL DEVELOPMENT WASAGA BEACH SUMMARY OF OPERATING PROJECTIONS December December December December December Subject Occupancy 55.0% 57.1% 59.6% 59.6% 59.6% Subject ADR $ $ $ $ $ Total Revenue $3,444,198 $3,634,647 $3,825,424 $3,921,204 $4,019,360 Total Expenses $2,741,113 $2,849,179 $2,957,830 $3,031,830 $3,107,672 Adjusted Net Operating Income $703,085 $785,468 $867,594 $889,374 $911,688 Percentage of Revenue 20.4% 21.6% 22.7% 22.7% 22.7% Source: Prepared for: Town of Wasaga Beach Page 48

55 EXHIBIT 6-1 BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT WASAGA BEACH, ONTARIO PROJECTED OPERATING RESULTS December December December December December Rooms Available Rooms 29,200 29,200 29,200 29,200 29,200 Occupied Rooms 16,316 16,921 17,488 17,489 17,490 Occupancy Rate 55.9% 57.9% 59.9% 59.9% 59.9% Average Daily Rate $ $ $ $ $ RevPar $78.71 $83.67 $88.64 $90.86 $93.13 REVENUE Rooms $2,298, % $2,443, % $2,588, % $2,653, % $2,719, % Food and Beverage $1,091, % $1,135, % $1,179, % $1,208, % $1,239, % Other Operated Departments $21, % $22, % $23, % $23, % $24, % Rentals and Other Income $32, % $33, % $34, % $35, % $36, % Total Revenue $3,444, % $3,634, % $3,825, % $3,921, % $4,019, % DEPARTMENTAL EXPENSES Rooms $608, % $637, % $666, % $683, % $700, % Food and Beverage $895, % $928, % $961, % $985, % $1,010, % Other Operated Departments $12, % $13, % $13, % $14, % $14, % Total Departmental Expenses $1,517, % $1,579, % $1,641, % $1,682, % $1,725, % TOTAL DEPARTMENTAL INCOME $1,926, % $2,055, % $2,183, % $2,238, % $2,294, % UNDISTRIBUTED OPERATING EXPENSES Administration and General $270, % $278, % $287, % $294, % $302, % Sales and Marketing 1 $318, % $331, % $345, % $353, % $362, % Property Operation and Maintenance $104, % $106, % $110, % $112, % $115, % Utilities $120, % $123, % $126, % $130, % $133, % Total Undistributed Expenses $812, % $841, % $869, % $891, % $914, % GROSS OPERATING PROFIT $1,113, % $1,213, % $1,313, % $1,346, % $1,380, % Management Fees $103, % $109, % $114, % $117, % $120, % INCOME BEFORE FIXED CHARGES $1,010, % $1,104, % $1,198, % $1,228, % $1,259, % FIXED CHARGES Property Taxes $160, % $164, % $168, % $172, % $176, % Insurance $9, % $9, % $10, % $10, % $10, % Total Fixed Charges $169, % $173, % $178, % $182, % $187, % NET OPERATING INCOME $840, % $930, % $1,020, % $1,046, % $1,072, % Reserve for Asset Replacement $137, % $145, % $153, % $156, % $160, % ADJUSTED NET OPERATING INCOME $703, % $785, % $867, % $889, % $911, % Source: 1 Includes Franchise Fees (where applicable) Prepared for: Town of Wasaga Beach Page 49

56 EXHIBIT 6-2A BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT ROOMS DEPARTMENTAL EXPENSES YEAR ONE 2016 ROOMS 80 OCCUPANCY (%) 55.9% AVERAGE DAILY RATE ($) $ TOTAL OCCUPIED ROOM NIGHTS 16,316 TOTAL ROOM REVENUES ($) $2,298,446 MANAGEMENT/SUPERVISORY STAFF MANAGER (STAFF/SALARY) 1.0 $40,000 HOUSEKEEPING SUPERVISION(STAFF/SALARY) 0.5 $35,000 TOTAL MGT/SUPERVISORY 1.5 $57,500 HOUSEKEEPING ROOMS PER SHIFT 14.0 HOURLY RATE (ENTER IN FIRST YEAR DOLLARS) $12.00 COST OF HOUSEKEEPERS - YEAR ONE $111,883 LAUNDRY / OTHER STAFFING SHIFTS PER DAY 1.5 HOURLY RATE (ENTER IN FIRST YEAR DOLLARS) $12.00 COST OF HOUSEKEEPERS - YEAR ONE $52,560 FRONT DESK SHIFTS PER DAY 2.0 HOURLY RATE (ENTER IN FIRST YEAR DOLLARS) $12.50 COST OF FRONT DESK STAFF $73,000 NIGHT AUDIT SHIFTS PER DAY 1.0 HOURLY RATE (ENTER IN FIRST YEAR DOLLARS) $13.00 COST OF FRONT DESK STAFF $37,960 TOTAL ROOMS DEPT LABOUR COST ROOMS DEPT LABOUR COST $332,903 ADD PAYROLL COSTS & BENEFITS 20.0% $66,581 TOTAL ROOMS DEPT PAYROLL & BENEFITS $399,483 OTHER ROOMS DEPT EXPENSES T.A. COMMISSIONS (% OF ROOM REV) 2.0% $45,969 LAUNDRY/LINEN/GUEST SUPPLIES ($ORN) $10.00 $163,162 TOTAL ROOMS OTHER EXPENSES $209,131 TOTAL ROOMS DEPARTMENT EXPENSES $608,614 TOTAL EXPENSES % of Revenue $ORN LABOUR 17.4% $24.48 OTHER 9.1% $12.82 TOTAL 26.5% $37.30 Source: Prepared for: Town of Wasaga Beach Page 50

57 EXHIBIT 6-2B BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT FOOD AND BEVERAGE DEPARTMENTAL PROJECTIONS SEATS SQ.FT. $/SEAT $/SQ.FT. $ORN REVENUES HOTEL RESTAURANTS/LOUNGES Main Restaurant 70 1,400 $10,498 $525 $45.04 $734,882 Outside Patio (Seasonal) $2,505 $125 $4.61 $75,136 TOTAL HOTEL RESTAURANTS/LOUNGES 100 2,000 $8,100 $405 $49.65 $810,018 BANQUETING F&B REVENUE 233 3,500 $979 $65 $14.00 $228,427 MEETING ROOM RENTALS $157 $10 $2.25 $36,711 TOTAL BANQUETING REVENUE $1,136 $76 $16.25 $265,138 ROOM SERVICE/OTHER $1.00 $16,316 TOTAL FOOD & BEVERAGE REVENUE 333 5,500 $3,274 $198 $66.90 $1,091,472 COSTS OF GOODS SOLD % $ORN EXPENSES HOTEL RESTAURANTS/LOUNGES 32.0% $15.89 $259,206 BANQUETING 25.0% $4.06 $66,285 ROOM SERVICE/OTHER 28.0% $0.28 $4,569 TOTAL COSTS OF GOODS SOLD 30.2% $20.23 $330,059 PAYROLL & BENEFITS % $ORN EXPENSES MANAGEMENT 3.2% # of Mgmt Staff 0.5 $2.15 $35,000 HOTEL RESTAURANTS/LOUNGES 20.0% $9.93 $162,004 BANQUETING 16.0% $2.60 $42,422 ROOM SERVICE/OTHER 18.0% $0.18 $2,937 KITCHEN 11.0% $7.36 $120,062 BENEFITS 20.0% $4.44 $72,485 TOTAL PAYROLL & BENEFITS 39.8% $26.66 $434,909 GENERAL OPERATING EXPENSES 12.0% $8.03 $130,977 TOTAL OPERATING EXPENSES 82.1% $54.91 $895,945 NET DEPARTMENTAL PROFIT 17.9% $11.98 $195,527 Source: Prepared for: Town of Wasaga Beach Page 51

58 $ORN TOTAL Departmental OTHER OPERATED DEPARTMENTS (YEAR 1) Revenue Expense Revenue Expense Telecommunications $0.14 $0.26 $2,284 $4, % Health Club $0.61 $0.11 $9,900 $1, % Guest Laundry $0.10 $0.08 $1,632 $1, % Retail Store $0.25 $0.15 $4,079 $2, % Movie Rentals $0.23 $0.19 $3,753 $3, % Total Other Operated Departments $1.33 $0.79 $21,648 $12, % RENTALS AND OTHER INCOME (YEAR 1) Revenue Expense Revenue Expense Source: EXHIBIT 6-2C BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT OTHER OPERATED DEPARTMENTS / RENTALS AND OTHER INCOME $ORN TOTAL Departmental Ratio Ratio Other Income Net $2.00 $0.00 $32,632 $0 0.0% Total Rentals and Other Income $2.00 $0.00 $32,632 $0 0.0% Prepared for: Town of Wasaga Beach Page 52

59 EXHIBIT 6-2D BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT UNDISTRIBUTED EXPENSES ADMINISTRATIVE & GENERAL Year One 2016 PAYROLL COSTS TOTAL PER ROOM $1,250 $100,000 BENEFITS 20.0% $20,000 TOTAL PAYROLL COSTS $1,500 $120,000 OTHER A&G EXPENSES CREDIT CARD COMMISSIONS (% OF GROSS REV) 2.5% $86,105 OTHER A&G COSTS ($ PER AVAIL ROOM) $800 $64,000 TOTAL 'OTHER A&G' COSTS $1,876 $150,105 TOTAL ADMINISTRATIVE & GENERAL $3,376 $270,105 % OF GROSS REVENUE 7.8% SALES & MARKETING Year One 2016 PAYROLL COSTS TOTAL PER ROOM $500 $40,000 BENEFITS 20.0% $8,000 TOTAL PAYROLL COSTS $48,000 OTHER MARKETING EXPENSES FRANCHISE ROYALTY FEE(% OF ROOMS REV) 5.0% $114,922 OTHER BRAND FEES (% OF ROOMS REV) 4.0% $91,938 GENERAL ($ PER AVAIL. RM.) $800 $64,000 TOTAL 'OTHER MARKETING COSTS $270,860 TOTAL SALES & MARKETING $3,986 $318,860 % OF GROSS REVENUE 9.3% PROPERTY OPERATION & MAINTENANCE Year One 2016 PAYROLL COSTS TOTAL PER ROOM $250 $20,000 BENEFITS 20.0% $4,000 TOTAL PAYROLL COSTS $24,000 TOTAL OTHER MAINTENANCE COSTS $1,000 $80,000 TOTAL PROPERTY OPERATION & MAINTENANCE $1,300 $104,000 % OF GROSS REVENUE 3.0% UTILITIES Year One 2016 TOTAL UTILITIES $1,500 $120,000 % OF GROSS REVENUE 3.5% OTHER EXPENSES Year One 2016 PROPERTY AND OTHER TAXES($ PER AVAIL. RM.) $2,000 $160,000 INSURANCE($ PER AVAIL. RM.) $120 $9,600 MANAGEMENT FEE(% OF GROSS REV) 3.0% $103,326 RESERVE FOR ASSET REPLACEMENT (% OF GROSS REV) 4.0% $137,768 Source: Prepared for: Town of Wasaga Beach Page 53

60 7.0 THE CANADIAN HOTEL INVESTMENT MARKET 7.1 Introduction In the following section we provide an overview of the historic business activity within the Canadian hotel investment market to support the subsequent discussion surrounding the investment implications for the proposed resort/hotel development in Section 8 of this report. The level of investment interest and the nature of investment activity in the Canadian Hotel industry is influenced by a number of factors including but not limited to: The national and global economies The top line and bottom line performance of the hotel industry itself The availability and cost of financing Investment risk and return expectations As we examine historic and future hotel investment trends each of these factors must be considered. 7.2 Investment Cycles in the Canadian Accommodation Sector The accommodation industry is cyclical and vulnerable to economic and travel fluctuations. The Canadian Accommodation Sector has really experienced five distinct investment cycles over the last 20 years. The Early 1990s The Latter Part of the 1990s The Period The Period The 2008/2009 Downturn and the start of Recovery Prepared for: Town of Wasaga Beach Page 54

61 i) The Early 1990s This was a period of significant erosion in industry top line and bottom line performance resulting in the most difficult period in hotel industry ownership and investment in recent history. This was influenced by significant supply growth during the preceding years which, combined with a pro-longed period of economic downturn, resulted in reductions in both leisure and business travel. The hotel industry reacted by decreasing rates, which only further impacted top-line revenues and profits. There were a significant number of bank foreclosures during this period. The impacts were felt the greatest in Central. ii) The Latter Part of the 1990s After enduring the impacts of the downturn in the early part of the decade, the industry began a slow recovery in terms of demand levels, price increases and profit levels. There was minimal new supply developed during this period as hotel investment was focused on acquisitions of existing properties at well below replacement costs. As industry profits improved, the investment interest in the sector increased, and we saw the emergence of Public Companies and Real Estate Investment Trusts which targeted this sector. Industry profits reached their highest levels ever up to that time in 2000, and the number of new development projects was on the increase. Over 10,000 new hotel rooms entered the market in 2000, the strongest development year on record. Financing and investment were more readily available, and the strongest level of performance and investment was evident in Central. iii) The Period After industry performance had recovered and reached a new peak in 2000, the industry was then severely impacted, first by the impacts of 9/11 in 2001 and then by the impacts of SARS in Performance tumbled, but development and investment interest remained high, especially in Central, despite a slowing economy and eroding profit levels. There was also a regional shift in industry performance over this period. Profits in properties in Central continued to erode, while profits levels for hotels in Western, driven by the resource driven economy, continued to improve. Prepared for: Town of Wasaga Beach Page 55

62 iv) The Period This was a period where real estate investment as a whole was high. Interest rates were favourable, financing was readily available and investment return expectations were low. The level of transaction activity was unprecedented and the level of new development was strong. Many non-hotel investors entered the sector which despite higher risks, offered the prospect of better returns than other forms of real estate were offering at the time. Industry profits, specifically in Western surpassed 2000 levels. However, values being paid for assets reached and in some cases surpassed replacement costs. Despite continued industry improvement over this period, profit levels in Central still remained below 2000 levels. v) The 2008/2009 Downturn and the Start of Recovery While the impacts of the most recent economic downturn on the Canadian hotel sector were significant, they were not as dramatic as those of the downturn in early 1990s. Further as lenders were more conservative in their lending and financing structures, the number of bank foreclosures during this period was also much lower. Initially the lending community literally abandoned the hotel sector, however as the sector began to show improvement in 2010, they began to come back and continued to do so in 2011, 2012, and vi) The Industry Outlook for 2014 and Beyond Going forward the expectations are for positive and modest growth in the Canadian Accommodation sector. After a 13% improvement in 2010, industry profits in 2011 realized a 7% decline with minimal occupancy growth and no improvement in ADR. In 2012, with growth achieved in both occupancy and ADR, ANOI levels increased by over 6%, making up for some of 2011 s 7% decrease, but still remaining below 2010 levels. PKF is forecasting a one point increase in occupancy, and only a 2.0% increase in ADR, industry profitability in 2013 increased by just 2.5%, reaching ANOI levels of $9,300 per room. Industry profits are expected to improve by a further 34% over the period. Prepared for: Town of Wasaga Beach Page 56

63 7.3 National Transaction Activity The table below summarizes the level of hotel transaction activity across for the 14-year period from 2000 to As noted, in the late 1990s hotel transaction activity in was, for the most part, driven by the emergence of s three initial hotel Real Estate Investment Trusts ( REITs ). Over the 1997 and 1998 period alone, 293 hotels transacted at a total of $3.2 billion, the highest levels in history to that point. With 375 transactions at $8.7 billion, those levels were well surpassed over the period. This peaked at 150 transactions and $4.4 billion in In 2008 and 2009, the impacts of the struggling economy and the limited debt financing market were reflected in the volume of hotel transaction activity, with total transaction volume for 2008 down to $912 million. The continued weak economic performance in and abroad and the continuance of the global credit crunch limited the volume of hotel transaction in HISTORIC NATIONAL TRANSACTION OVERVIEW Transactions Total Volume ($ Millions) $ $ $ $ $ $1, $2, $4, $ $ $ $1, $1, $2,023 Source: Colliers INNvestment Report; CBRE Hotel Investment Trends, While the number of transactions for the year was comparable to 2008, these were much smaller deals and as a result, sales volumes decreased to $392 million. In 2009, the bulk of transaction activity involved limited service assets, located in secondary and tertiary markets, which traded well below $100,000 per room. There was some recovery in transaction activity in 2010, with a total of 86 hotel transactions, at $717 million. While this level of activity was far below the peak periods of and , it was well above the 1999 through 2004 period which averaged about 50 trades per year at a value of $400 million to $650 million annually. In 2011, national hotel transaction activity increased further. There were 99 transactions recorded with a total dollar volume of $1.1 billion. The dollar volume was up 53% over Of note however, there were three significant transactions in 2011 which accounted for much of this growth. This included the portfolio sale of the Sutton Place Vancouver and Edmonton properties, the sale of the Intercontinental Toronto, and the portfolio Prepared for: Town of Wasaga Beach Page 57

64 sale of four Concord assets in the GTA. These three transactions alone represented over one-third of the sales volumes in In 2012, there were 17 more transactions than in 2011, however overall sales volumes were only up $50 million over the previous year. It is important to note that the four largest transactions, the Four Seasons Toronto at $142 million, the Sutton Place Toronto at $57 million, the 5 Calgary Downtown Suites at $57 million and the Hotel de la Montagne at $39 million all sold for alternative uses. These four transactions accounted for approximately one quarter of the total transaction dollar volume nationally for the year. To the end of 2013, total transaction volumes were up at approximately $845 million over 2012, despite only one more transaction taking place. However, this transaction volume is being skewed heavily by the sale of the 5 property, Westin Hotel Portfolio which sold for $765 million in September. This sale is the largest portfolio transaction recorded since Transaction volumes for 2013 have also been influenced by significant sales which took place throughout the year including the sale of the Hilton Toronto for $140.0 million and the Temple/Centennial Atlantic Portfolio (3 properties) for $87.5 million, as well as the $70.5 million five-property Courtyard and Residence Inn portfolio acquired by Morguard Corporation and the sale of the Fairmont Chateau Laurier for $120.0 million. 7.4 Yields on Transactions When discussing historic transaction activity many industry analysts discuss the capitalization rates at which these properties sold. We prefer to utilize the term yield, as these capitalization rates are derived by relating the sales price of the asset to historic cash flow, and are not directly related to an investor s expectation of return. Prepared for: Town of Wasaga Beach Page 58

65 In 2008 the average reported yield for all transactions was 9.0%, which was at its lowest level in the last 12 years. In 2009, average reported yields across all transactions increased to 10.2%. In 2010 the average reported yields decreased significantly to 7.8%. However, of note about 15.0% of the hotels which transacted in 2010 were purchased for alternative uses at extremely low yields. The average reported yield for transactions exclusive of those assets purchased for conversion to alternative uses was about 9.0%. Through the end of 2011, the average yield had increased to 8.8% from 7.8% (unadjusted) in In 2012, there continued to be a significant number of transactions completed at lower yields, with purchasers either acquiring assets for alternative uses or anticipating significant upside through improved performance post renovation/re-positioning or conversion to an alternate use. The average reported yield for transactions inclusive of those assets purchased for conversion to alternative uses was about 9.2% in 2012 up from 9.0% in In 2013, there were fewer transactions that occurred with the intention of conversion for alternate uses and the average yield decreased slightly to 8.7%. 7.5 Historic Canadian Hotel Investment Trends As shown below, the Overall Capitalization Rate (OCR) or yields reported on transactions is measured against the trailing twelve months earnings. Based on our historic knowledge of investment trends in and the U.S., we have generally seen a 25 to a 50 basis point spread between the Overall Capitalization Rate (OCR) based on the trailing twelve months and the Overall Capitalization Rate (OCR) based on the next twelve months earnings and a further 25 to a 50 basis point spread relative to the Terminal Capitalization Rate. The spread between the Terminal Capitalization Rate and the Discount Rate in has been in the range of 200 to 300 basis points. This resulted in the following investment return rates for hotels in over the period. Prepared for: Town of Wasaga Beach Page 59

66 HISTORIC CAPITALIZATION RATES CANADA Hotel Investment Criteria Overall Capitalization Rate (trailing 12 months) 1 9.0% 8.8% 9.5% 8.7% Overall Capitalization Rate (next 12 months/going in) 2 9.5% 9.5% 10.0% 9.0% Terminal Capitalization Rate % 10.0% 10.5% 9.5% Discount Rate % 12.0% 12.5% 11.5% Source: OCR as reported for all transactions. Adjusted to exclude assets acquired for alternative uses. 2. Trailing 12 months OCR plus an implied 50 basis point premium. 3. Next 12 months OCR plus an implied 50 basis point premium. 4. Terminal Cap Rate plus an implied basis point premium 7.6 Implications for Hotel Investment in 2014 The industry lost ground in 2011, with industry profitability down 7.0% to $8,400 per available room; recovering by almost 8.0% in 2012, with a further 3.0% increase forecasted for Over the last 10 years, there has been a shift in industry performance from the east to the west, and this is not expected to shift back over the 2012 and 2016 period. However, our forecasts for the next five years reflect a growth and recovery stage for the industry, leading to a new peak in industry profitability by Due to the relatively lower starting point, growth on a percentage basis will be stronger in Central, however on an absolute dollars basis growth will be stronger in Western. These factors combined with greater access to financing, lower cost of capital and increased investor interest have put some downward pressure on cap rates, but with strong variances based on market and asset specific factors. The Outlook for 2014 for capitalization rates and return expectations reflect some modest compression from 2012 and 2013 levels OUTLOOK FOR CAPITALIZATION RATES IN CANADA Hotel Investment Criteria P Overall Capitalization Rate (trailing 12 months) 9.5% 8.7% 8.0%-9.0% Overall Capitalization Rate (next 12 months) 10.0% 9.0% 8.5%-9.5% Terminal Capitalization Rate 10.5% 9.5% 9.0%-10.0% Discount Rate 12.5% 11.0% 11.0%-12.0% Source: As noted, asset and market specific factors have been considered in the application of these general criteria in this valuation process. Prepared for: Town of Wasaga Beach Page 60

67 8.0 INVESTMENT IMPLICATIONS PROPOSED MIXED-USE RESORT DEVELOPMENT 8.1 Introduction The following discussion outlines the investment implications for the proposed mixed-use resort development to be located at Beach Area 2 in Wasaga Beach, Ontario. An Indication of Supportable Value off Cash Flow has been prepared for the proposed hotel development utilizing the Discounted Cash Flow Approach. Additionally, recommendations have been prepared for the development of medium-density residential units on the 7.2 acres of land remaining after the development of the proposed hotel. 8.2 Indication of Supportable Value Proposed Hotel Development The preceding assumptions and projections presented in Section 6.0 provide the basis for the preparation of an Indication of Supportable Value for the proposed hotel utilizing the Discounted Cashflow approach, applying market driven capitalization and discount rates. Section 7.0, presented a synopsis of capitalization rates from Canadian hotel sales in recent years, which identified Overall Capitalization rates against trailing twelve month earnings in the range of 8.0%-9.0%. Based on our experience in the industry and knowledge of similar new build hotel developments, an Overall Capitalization Rate within the 8.0% to 10.0% range would be considered reasonable for the proposed hotel operating as an upscale or upper mid-scale, select service, branded asset. As such, based upon the discussion of capitalization rates presented in Section 7.0, and on our knowledge and understanding of current return expectations and the type of asset, we would conclude on an overall capitalization rate (OCR) of 9.5% for the subject proposed hotel development. However, with respect to the above hotel Capitalization Rates, it should be noted that these rates were developed on the basis of historical (trailing earnings) and are not necessarily reflective of return objectives on anticipated future earnings. Therefore, in selecting a Terminal Capitalization Rate to be applied to a projection of future earnings, it is necessary to account for risk not included in historically derived rates. Typically a Terminal Capitalization Rate to be applied to a set of projections would include an additive to account for the perception of risk as compared to proven historical earnings. We believe that a Terminal Capitalization Rate of 10.0% is reasonable for the subject hotel, 50 basis points above the rate that we concluded for the Overall Capitalization Rate. Prepared for: Town of Wasaga Beach Page 61

68 The other parameter required for the Discounted Cash Flow Analysis is the discount rate. The discount rate reflects the overall rate of return expected by the investor, weighing the relative risk of the investment in relation to other investment vehicles and the perceived risk of each component in the operation of the facility. At the present time we believe that the spread between the overall or going in capitalization rate would be in the range of 1.5% to 3.0%. This is based upon our discussions with Canadian purchasers and other appraisers. We have utilized a discount rate of 12.0%. As shown in Exhibit 8-1, the Supportable Value off Cashflow after applying a 10.0% Terminal Capitalization Rate and 12.0% Discount Rate is $8,256,480, or $103,206 per room. This Indication of Value should not be construed as Market Value. EXHIBIT 8-1 BEACH AREA 2 PROPOSED HOTEL DEVELOPMENT ESTIMATE OF VALUE CALCULATION - DISCOUNTED CASH FLOW ROOMS 80 INFLATION 2.5% DISCOUNT RATE 12.0% TERMINAL CAPITALIZATION RATE 10.0% NET PRESENT VALUE ANALYSIS Discount Net Present Implied Year Year Cash Flow 12% Value Yield $703, $627, % $785, $626, % $867, $617, % $889, $565, % $911, $517, % Cashflow Value $4,157,209 Discounted $2,953,990 Residual Value $9,344,799 Discounted $5,302,490 Source: Estimate of Value $8,256,480 Per Room $103,206 VALUE PER ROOM SENSITIVITY MATRIX 11.0% 11.5% 12.0% 12.5% 13.0% 9.0% $114,926 $112,720 $110,571 $108,475 $106, % $110,872 $108,757 $106,694 $104,684 $102, % $107,223 $105,189 $103,206 $101,272 $99, % $103,922 $101,962 $100,050 $98,185 $96, % $100,922 $99,027 $97,180 $95,379 $93,623 Prepared for: Town of Wasaga Beach Page 62

69 8.3 Implications & Recommendations As discussed in Section 2.5.1, the hotel development cost is estimated to be approximately $11.3 million (excluding land). The Supportable Value off Cashflow of $8.3 million leaves a minimum funding gap of approximately $3.0 million on the hotel development. However, this funding gap is likely more significant since Lenders will typically lend up to 60% of the lower of the value or the construction cost. In this case, assuming a 60% loan to value (LTV), a Lender would be prepared to lend approximately $5.0 million against the hotel development, requiring approximately $6.3 million in equity to be contributed by the developer. In order for the proposed hotel development to attract a developer, the equity requirement would need to be mitigated by other sources of revenue to meet return expectations on the project as a whole for the developer. Given that there would be approximately 7.2 acres of land available, after the proposed hotel is developed, it is our opinion that the development of mid-tier, medium-density, residential units on the balance of the site would complement the proposed hotel project and could generate acceptable development profits to attract a developer to the project. The objectives of a residential development component as part of the project would be: For the Town to realize fair market value on the sale of the 9.7-acre Beach Area 2 parcel(s); To absorb the hotel development shortfall estimated to be approximately $3.0 million; and; To generate significant development profits in order to attract a developer to the project. It is our understanding that, the permitted density for residential development on the Beach Area 2 site could reasonably be between 20 and 30 units per acre. With this in mind and assuming that all 7.2 acres of land remaining are fully developable, it is reasonable to assume that approximately units of mediumdensity residential could be developed. While does not specialize in residential development, nor are we architects or planners, it is our opinion that the development of mid-tier, medium-density, residential units as part of the Beach Area 2 development would complement the proposed hotel project and could potentially generate acceptable development profits to attract a developer to the project. Prepared for: Town of Wasaga Beach Page 63

70 If the Town of Wasaga Beach chooses to take this direction, it would be our recommendation that a third party, residential consultant be engaged to provide an in-depth analysis of the market potential and feasibility of the residential component. Based on past experience with similar mixed-used development projects, it is our recommendation that it would be critical that any agreement with a potential developer includes stipulations that the hotel be developed within Phase 1 of the overall project to ensure this component comes to fruition. In the past, when municipalities have not stipulated this, other more profitable areas of development, such as the residential component discussed above, have been prioritized by the developer with the hotel development eventually be shelved. Prepared for: Town of Wasaga Beach Page 64