Sick Patient or Post-Mortem? Diagnosing the Canadian Hotel Investment Industry

What Will It Take To Survive?

Sick Patient or Post-Mortem? Diagnosing the Canadian Hotel Investment Industry

What Will It Take To Survive?

Moderator:

Lyle Hall, HLT Advisory Inc.

Panel:

David Larone, Director, PKF Consulting Inc

Betsy MacDonald, Managing Director, HVS

Abid J. Gilani, SVP Treasury, Marriott International

Chuck Henry, President, Hotel Capital Advisers, Inc.

Craig Wright, Senior VP & Chief Economist, RBC Capital Markets - Real Estate Group

Moderator:

Lyle Hall, HLT Advisory Inc.

Panel:

David Larone, Director, PKF Consulting Inc

Betsy MacDonald, Managing Director, HVS

Abid J. Gilani, SVP Treasury, Marriott International

Chuck Henry, President, Hotel Capital Advisers, Inc.

Craig Wright, Senior VP & Chief Economist, RBC Capital Markets - Real Estate Group

Craig WrightCraig WrightSVP & Chief EconomistSVP & Chief Economist

3-month TED Spread*3-month TED Spread*

00

5050

100100

150150

200200

250250

300300

350350

400400

20022002 20032003 20042004 20052005 20062006 20072007 20082008 20092009

Source: Federal Reserve Board Source: Federal Reserve Board

Basis pointsBasis points

*3-month LIBOR rate - 3-month T-bill *3-month LIBOR rate - 3-month T-bill

World GDP GrowthWorld GDP Growth

-1-1

11

33

55

77

99

7373 7575 7777 7979 8181 8383 8585 8787 8989 9191 9393 9595 9797 9999 0101 0303 0505 0707 0909

% change, year-over-year% change, year-over-year

ForecastForecast

Source: International Monetary Fund, RBC Economics ResearchSource: International Monetary Fund, RBC Economics Research

Canadian and U.S. Real GDPCanadian and U.S. Real GDP

-8-8

-6-6

-4-4

-2-2

00

22

44

66

88

1010

0000 0101 0202 0303 0404 0505 0606 0707 0808 0909 1010

Quarter-over-quarter annualized % changeQuarter-over-quarter annualized % change

CanadaCanada U.SU.S

Source: Statistics Canada, Bureau of Economic Analysis, RBC Economics ResearchSource: Statistics Canada, Bureau of Economic Analysis, RBC Economics Research

ForecastForecast

Annual Growth Rates

'07 '08 '09F ’10F

Canada

2.7 0.5 -1.4 2.6

U.S. 2.0 1.1 -2.4 2.2

Unemployment rateUnemployment rate

3

5

7

9

11

13

15

8282 8484 8686 8888 9090 9292 9494 9696 9898 0000 0202 0404 0606 0808 1010

Canada U.S.

%%

Source: Bank of Canada, Bureau of Labor Statistics, RBC Economics Research

U.S. long-term average: 6.0U.S. long-term average: 6.0

Canada long-term average: 8.7Canada long-term average: 8.7

ForecastForecast

Federal Government Budgetary BalanceFederal Government Budgetary Balance

Billions of dollars

-30.0

-8.7

3.05.8

14.3

19.9

8.0 6.69.1

1.5

13.2 13.8

9.6

-1.1

-33.7-29.8

-13.0

-7.3

0.7

95-9695-96 97-9897-98 99-0099-00 01-0201-02 03-0403-04 05-0605-06 07-0807-08 09-1009-10 11-1211-12 13-1413-14

0.00.0

10.010.0

20.020.0

30.0

30.0

-10.0-10.0

-20.0-20.0

-30.0-30.0

-40.0-40.0

Source: Department of Finance, , RBC Economics Research

Federal budget projection

Canadian and U.S. Central Bank Policy Target RatesCanadian and U.S. Central Bank Policy Target Rates

0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10

%

0

1

2

3

4

5

6

7%

BoC overnight rateBoC overnight rate

Fed funds rateFed funds rate

Source: Bank of Canada, Federal Reserve Board, RBC Economics ResearchSource: Bank of Canada, Federal Reserve Board, RBC Economics Research

Forecast

Real GDP GrowthReal GDP Growth

-3-3 -2-2 -1-1 00 11 22 33 44

ALTA.ALTA.

ONT.ONT.

B.C.B.C.

CANADACANADA

NFLD.NFLD.

P.E.I.P.E.I.

N.B.N.B.

QUE.QUE.

N.S.N.S.

MAN.MAN.

SASK.SASK.

20092009

20102010

% change, ranked by 2009 growth% change, ranked by 2009 growth

Source: RBC Economics ResearchSource: RBC Economics Research

Recession: Then and Now(% Change, Peak to Trough)Recession: Then and Now(% Change, Peak to Trough)

1980's1980's 1990's1990's TodayToday

U.S. GDPU.S. GDP -2.7-2.7 -1.3-1.3 -1.8-1.8

Canadian GDPCanadian GDP -4.9-4.9 -1.5-1.5 -0.8-0.8

Housing StartsHousing Starts -19.2-19.2 -18.2-18.2 -35.7-35.7

EmploymentEmployment -5.0-5.0 -3.5-3.5 -1.7-1.7

Unemployment rate Unemployment rate (diff.)(diff.) 5.7ppts5.7ppts 4.6ppts4.6ppts 1.4ppts1.4ppts

The material contained in this report is the property of Royal Bank of Canada and may not be reproduced in any way, in whole or in part, without express authorization of the copyright holder in writing. The statements and statistics contained herein have been prepared by RBC Economics Research based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This publication is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.