InnVest Real Estate Investment Trust
TSX : INN.UN
TSX : INN.DB.A
TSX : INN.DB.B

InnVest Real Estate Investment Trust

May 08, 2009 08:00 ET

InnVest REIT reports first quarter results

TORONTO, ONTARIO--(Marketwire - May 8, 2009) - InnVest Real Estate Investment Trust ("InnVest", the "REIT" or the "Trust") (TSX: INN.UN) today announced financial results for the three months ended March 31, 2009.

"The lodging industry continues to experience a slowdown in demand, reflecting broader economic trends and their impact on discretionary spending for travel. Diligent cost controls coupled with efforts to drive room rates throughout the portfolio helped mitigate the impact of reduced occupancies across the portfolio," commented Kenneth Gibson, InnVest's President and Chief Executive Officer. "Looking ahead, we expect 2009 to continue to be a difficult year for the hospitality sector. Our objectives through this period are to solidify our balance sheet liquidity and effectively manage our assets."

First Quarter Highlights

- ADR growth of 0.8% was offset by a 3.6 point decline in occupancy driven by the deteriorating economic environment and its impact on discretionary travel demand. As a result, RevPAR on a same-hotel basis declined 5.5%. These results outperformed the RevPAR achieved across the Canadian lodging industry during the quarter;

- Overall, hotel revenues declined 6.1%, or $8.2 million, to $127.7 million. The revenue shortfall was somewhat offset by a 3.1% reduction in hotel expenses. Overall, HOI declined $4.8 million to $18.4 million;

- The REIT generated a first quarter net loss of $15.4 million, relatively unchanged from the prior period;

- The Trust maintained a prudent payout ratio of 87.5% on a trailing twelve month basis. Distributable loss and funds from operations both declined in the first quarter of 2009 as compared to 2008 reflecting the impact of lower revenues; and

- Following the end of the first quarter of 2009, the Trust divested one hotel, previously classified as held for sale, for gross proceeds of $4.1 million.

The first quarter is traditionally InnVest's lowest earnings period. Given the seasonality of the portfolio, the first quarter is not indicative of earnings for the full year. Revenues are typically higher in the second and third quarters due to leisure travel trends as compared to the first and fourth quarters.



FINANCIAL HIGHLIGHTS
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(In thousands of dollars except average daily rate, revenue per
available room and per unit amounts)
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Three months ended March 31
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2009 2008 +/-
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Occupancy 52.6% 56.2% (3.6)%
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Average daily rate ("ADR") $114.09 $113.29 $0.80
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Revenue Per Available Room ("RevPAR") $59.98 $63.64 ($3.66)
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Hotel revenues $127,701 $135,940 ($8,239)
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Hotel operating income $18,416 $23,169 ($4,753)
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Net loss and comprehensive loss ($15,420) ($15,073) ($347)
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Add/(deduct)
Depreciation and amortization 22,712 21,356 1,356
Future income tax recovery (6,931) (3,520) (3,411)
Non-cash executive and trustee
compensation 86 155 (69)
Writedown of assets held for sale - 500 (500)
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Funds from operations(1)(2) $447 $3,418 ($2,971)
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Funds from operations per unit(2)
- basic $0.006 $0.047 ($0.041)
- diluted $0.006 $0.047 ($0.041)
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Amortization of deferred financing
costs 17 1,314 (1,297)
Non-cash portion of mortgage
interest expense 424 258 166
Reserve for replacement of furniture,
fixtures and equipment and capital
improvements (5,427) (5,848) 421
Non-cash portion of convertible
debentures interest and accretion 784 578 206
Deferred land lease expense and
retail lease income, net 2 8 (6)
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Distributable loss(2) ($3,753) ($272) ($3,481)
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Distributable loss per unit(3)
- basic ($0.050) ($0.004) ($0.046)
- diluted ($0.050) ($0.004) ($0.046)
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Distributions per unit(4) $0.1875 $0.28125 ($0.0938)
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(1) For purposes of the calculation of funds from operations,
amortization of deferred financing is excluded from depreciation
and amortization.

(2) Hotel operating income, funds from operations and distributable
income are non-GAAP measures of earnings and cash flow commonly used
by industry analysts. Non-GAAP financial measures do not have a
standardized meaning and are unlikely to be comparable to similar
measures used by other organizations.

(3) Distributable income per unit has been calculated on a basis
consistent with that prescribed by GAAP for calculating earnings per
unit.

(4) Distributions per unit include cash distributions and distributions
arising from the Distribution Reinvestment Plan.


The operating statistics relating to room revenues are on a same-hotel basis and exclude the hotels that have been classified as discontinued operations and hotels that have not been included in operating results for the full periods presented.



For the three months ended March 31, 2009

Occupancy ADR RevPAR
% Variance $ Variance $ Variance
to 2008 to 2008 to 2008

Ontario 51.1% (4.1 pts) $109.84 0.2% $56.11 (7.4%)
Quebec 52.2% (2.8 pts) $105.75 0.8% $55.21 (4.3%)
Atlantic 49.1% (4.4 pts) $104.47 1.3% $51.33 (7.0%)
Western 59.2% (2.3 pts) $137.03 1.0% $81.08 (2.9%)
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Total 52.6% (3.6 pts) $114.19 0.8% $60.11 (5.5%)


FINANCIAL REVIEW (In thousands of dollars, except per unit amounts, unless otherwise stated)

Three months ended March 31, 2009

For the three months ended March 31, 2009, hotel revenues decreased by $8.2 million, or 6.1%, to $127.7 million. First quarter results were impacted by the deteriorating economic environment and its impact on discretionary travel demand. For the three months ended March 31, 2009, a 0.8% increase in ADR was offset by a 3.6 point decline in overall occupancy. The trend of ADR growth offsetting occupancy declines is consistent with trends experienced through late 2008. Overall, first quarter RevPAR decreased 5.5%. RevPAR trends were generally consistent across all service categories and brands. Notably, RevPAR from the 2007 full-service portfolio additions outperformed the RevPAR achieved across the balance of the portfolio.

Consistent with RevPAR performance achieved during the quarter, overall room revenues for the three months ended March 31, 2009 decreased $5.8 million, or 5.6%, to $98.1 million. Each region experienced modest ADR growth which offset declines in occupancies. The overall declines in occupancy are more broadly related to economic conditions beyond the control of the Trust. As was experienced in 2008, Ontario continues to show the weakest performance given its particular reliance on the manufacturing industry.

For the three months ended March 31, 2009, non-room revenues totalled $29.6 million, down $2.4 million or 7.6% compared to the prior year. Non-room revenues are directly impacted by overall occupancy. Lower occupancy results in the reduced use of ancillary services offered at the hotel.

In periods of declining occupancies, the Trust is focused on managing all costs to minimize the overall impact on profitability. It should be noted that savings opportunities are restricted during lower occupancy periods such as the first quarter, particularly in smaller limited service hotels, given the minimal infrastructure in place. Many property level expenses, including property taxes, leasehold payments and insurance, are relatively fixed and do not necessarily change in accordance with overall demand levels.

Hotel expenses for the three months ended March 31, 2009 declined $3.5 million or 3.1% when compared to 2008. The decrease reflects reduced occupancies as well as active steps taken by the Trust to manage costs throughout the portfolio in light of the softer economic environment. Some of these initiatives, implemented in 2008, include hiring freezes and salary freezes throughout most of the portfolio and at the Trust's corporate offices, as well as seeking to maximize value from vendors through pricing concessions. These initiatives should continue to benefit future periods.

Given the overall decline in revenues, hotel operating income margins for the three months ended March 31, 2009, declined to 14.4% as compared to 17.0% in 2008. First quarter margins are not representative of annual margins achieved for the portfolio given the seasonality of earnings. The first quarter is historically the weakest earnings period for the Trust.

Other income and expenses for the three months ended March 31, 2009 totalled $40.0 million, down $418 as compared to 2008. For the three months ended March 31, 2009, the REIT generated a future income tax recovery of $6.9 million, as compared to $3.5 million in 2008. In addition to ongoing operations and capital expenditures, the future income tax recovery realized in the first quarter of 2009 reflects the provincial SIFT tax rate change which was enacted in March 2009 along with the impact of the reclassification of certain assets as held for sale.

InnVest realized a net loss from continuing operations of $14.6 million or a loss of $0.196 per unit basic and diluted. These results were modestly lower than the loss of $0.187 per unit basic and diluted in the prior year. The lower HOI was offset by a higher future income tax recovery and lower interest costs.

During the first quarter of 2009, InnVest reclassified five hotels as discontinued operations. As at March 31, 2009, six assets were held for sale. For the first quarter of 2009, discontinued operations generated net losses of $799 compared to $876 in the prior period. The prior year also includes a $500 writedown of the book value of assets held for sale.

InnVest's net loss for the first quarter totaled $15.4 million, or a loss of $0.207 per unit basic and diluted, relatively unchanged from the prior year.

For the three months ended March 31, 2008, InnVest generated FFO of $447 ($0.006 per unit) compared to $3.4 million in the prior period ($0.047 per unit). A distributable loss of $3.8 million (loss of $0.050 per unit) compared to a loss of $272 in the prior year (loss of $0.004 per unit). The decline is primarily attributable to the $4.8 million reduction in HOI during the quarter.

Distributions declared during the quarter totaled $14.0 million or $0.1875 per unit, compared to $20.6 million or $0.28125 per unit in the prior period, reflecting the reduced level of monthly distributions to $0.0625 per unit beginning in November 2008. InnVest's payout ratio for the twelve month period ended March 31, 2009 was 87.5%.

BALANCE SHEET REVIEW

At March 31, 2009, the REIT has cash on hand totaling $12.9 million, of which $2.5 million is restricted under the REIT's Declaration of Trust for the replacement of furniture, fixtures, and equipment and for capital improvements.

InnVest has an operating line of $40.0 million to fund short-term changes in working capital. At March 31, 2009, $20.2 million was drawn on the credit facility. This operating line expires in August 2009. Management anticipates that the facility will be renewed in the normal course of business.

A $9.0 million bridge loan was scheduled to expire in March 2009. Following the end of the quarter, management successfully finalized an extension for $7.0 million of the bridge through August 2009, bringing the maturity in line with the REIT's operating line with the same lender. The $2.0 million difference was repaid in April 2009.

During the first quarter of 2009, InnVest successfully extended two mortgages totalling $13.5 million which were originally scheduled to mature in February 2010. One mortgage of $6.9 million was extended to September 30, 2012, while the second mortgage of $6.6 million was extended to December 31, 2012 at a weighted average interest rate of approximately 6.8% compared to the previous rate of 6.2%.

At March 31, 2009, the Trust's leverage excluding and including convertible debentures was 47.7% and 57.0%, respectively. At March 31, 2009, InnVest has mortgages payable of $945.4 million with a weighted average term of 3.5 years and a weighted average effective interest rate of 5.7%. Currently, approximately 9.7% of the Trust's mortgage debt is at floating rate.

In addition, InnVest has access to a loan facility, granted in conjunction with property mortgages, for up to $36.1 million to fund 50% to 100% of capital expenditures incurred at individual hotels. At March 31, 2009, the Trust has drawn $12.2 million on this facility to fund certain capital investments, unchanged from December 31, 2008. The remaining capacity under this facility approximates $23.9 million. In April 2009, an additional $6.9 million was funded under this facility.

Capital expenditures for the three months ended March 31, 2009 totalled $6.0 million compared to the Trust's FF&E reserve of $5.4 million during the period. Given the seasonality of hotel operations, revenues are not earned evenly through the year. Conversely, capital expenditures are typically scheduled during lower occupancy periods to avoid guest displacement. However, in light of the current operating environment, non-essential capital investments during the first quarter of 2009 have been limited in order to meet the Trust's desire to conserve liquidity. The Trust expects its capital investment to be largely funded through its FF&E reserve for the year 2009.

INCOME TAX DEFERRAL PERCENTAGE

For 2009, the REIT estimates that the non-taxable portion of the distributions made to unitholders during the year will be approximately 40% (2008 - 44%).

RECENT DEVELOPMENTS

During the first quarter, InnVest classified five assets as held for sale. The Trust recognized a non-cash impairment charge of $29.6 million during the fourth quarter of 2008 based on the anticipated fair value of these assets. The hotel properties are primarily in tertiary markets impacted by the manufacturing sector decline and which have also been particularly impacted by new supply in recent years. In aggregate, six assets were classified as discontinued operations as at March 31, 2009.

During the first quarter of 2009, the Trust purchased and cancelled 211,500 trust units under the normal course issuer bid ("NCIB") at an aggregate cost of $689 (average cost of $3.26 per unit). Subsequent to March 31, 2009, InnVest purchased and cancelled an additional 70,000 units at an aggregate cost of $245 (average cost of $3.49 per unit). In aggregate since implementing the NCIB, the REIT has acquired 560,000 units at an aggregate cost of $1.9 million (average cost of $3.34 per unit).

On October 9, 2008, the REIT adopted a unitholder rights plan, which expired on April 9, 2009. On April 14, 2009, the REIT's unitholders approved the adoption of the second amended and restated unitholder rights plan, which will be in effect for a period of up to three years. InnVest did not adopt either of the plans in response to any specific take-over proposal, nor has it been made aware of any such proposal. The unitholder rights plan is intended to ensure that unitholders receive fair treatment in the event of an unsolicited attempt to gain control of InnVest and, in such event, to ensure unitholders receive full value and that the Board of Trustees has time to consider alternatives to maximize unitholder value. The rights will only become exercisable upon the occurrence of certain triggering events, including the acquisition by a person or group of persons of 20% or more of the outstanding units in a transaction not approved by InnVest's board of Trustees.

Following the end of the first quarter of 2009, InnVest completed the divestiture of one hotel which had been identified as held for sale since the end of 2007. The transaction was completed for gross proceeds of $4.1 million less closing costs.

OUTLOOK

While credit markets appear to be stabilizing, significant uncertainty remains which leads us to maintain a cautious outlook in the near term.

Building on our efforts in 2008, we have adapted our strategy to position the REIT to address the current environment with particular attention to our balance sheet and liquidity. Our priority in 2009 will be to continue to be proactive in our capital management initiatives including efforts to address debt maturities. We are continually seeking opportunities to recycle our capital efficiently and have actively expanded our sales efforts with respect to certain underperforming assets. Having developed and implemented contingency plans throughout the portfolio, we continue to manage our portfolio aggressively to maximize the performance of each hotel.

Historically, the lodging industry performance has been highly correlated with the economy given the largely discretionary nature of leisure and business travel. While Canada cannot escape the impact of the volatile global trends, it remains fundamentally stronger than many other countries, including the U.S., as evidenced by national RevPAR performance over the last several months.

Despite the near term operating environment, with new supply effectively constrained by the credit markets, InnVest is positioned for a stronger recovery when demand trends improve. InnVest's current portfolio is diversified by geography, customer and brand. This diversity, combined with our partnership with experienced hotel operators, contributes to the resiliency of the portfolio and positions the REIT to effectively manage through the current economic environment.

FORWARD LOOKING STATEMENTS

Statements contained in this press release that are not historical facts are forward-looking statements which involve risk and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. Among the key factors that could cause such differences are real estate investment risks, hotel industry risks and competition. These and other factors are discussed in InnVest REIT's 2008 annual information form which is available at www.sedar.com or www.innvestreit.com. InnVest disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable securities law.

TRUST PROFILE

InnVest holds Canada's largest hotel portfolio together with an interest in Choice Hotels Canada Inc. the largest franchisor of hotels in Canada. The hotel portfolio currently comprises 146 hotel properties, with over 19,000 guest rooms, operated under internationally recognized franchise brands such as Comfort Inn®, Holiday Inn® Quality Suites/Inn®, Radisson®, Delta®, Travelodge®, Hilton Hotel®, Staybridge Suites®, Fairmont Hotels®, Sheraton Suites® and Best Western®. InnVest's trust units and outstanding convertible debentures trade on the Toronto Stock Exchange under the symbols INN.UN, INN.DB.A, INN.DB.B and INN.DB.C, respectively.

QUARTERLY CONFERENCE CALL

Management will host a conference call on Friday May 8, 2009 at 11:00 a.m. Eastern time to discuss the performance of InnVest. Investors are invited to access the call by dialing (416) 644-3423 or 1-800-731-5774. You will be required to identify yourself and the organization on whose behalf you are participating. A recording of this call will be made available May 8th beginning at 1:00 pm through to 11:59 p.m. on May 15th. To access the recording please call (416) 640-1917 and use the reservation number 21303354 followed by the number sign.



InnVest Real Estate Investment Trust
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CONSOLIDATED BALANCE SHEETS
March 31, December 31,
(in thousands of dollars) (unaudited) 2009 2008
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(Restated,
Note 21)

ASSETS
Current Assets
Cash $ 10,470 $ 18,143
Accounts receivable 23,902 27,319
Prepaid expenses and other assets 12,090 8,861
Assets held for sale (Note 21) 818 610
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47,280 54,933
Restricted cash 2,472 3,013
Hotel properties (Note 3) 1,779,908 1,792,828
Other real estate properties (Note 4) 15,987 16,078
Licence contracts (Note 5) 17,524 17,853
Intangible and deferred assets (Note 6) 39,988 42,165
Assets held for sale (Note 21) 49,741 50,234
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$ 1,952,900 $ 1,977,104
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LIABILITIES
Current Liabilities
Bank indebtedness (Note 7) $ 29,200 $ 9,000
Accounts payable and accrued liabilities 68,386 71,876
Acquisition related liabilities 2,332 2,561
Distributions payable 4,652 4,651
Current portion of long-term debt (Note 8) 11,215 10,763
Liabilities related to assets held
for sale (Note 21) 1,052 1,157
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116,837 100,008
Long-term debt (Note 8) 927,559 930,317
Other long-term obligations (Note 9) 7,199 7,139
Convertible debentures (Note 10) 180,929 180,170
Future income tax liability (Note 12) 204,046 210,977
Long-term liabilities related to assets
held for sale (Note 21) 9,899 12,763
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1,446,469 1,441,374
UNITHOLDERS' EQUITY 506,431 535,730
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$ 1,952,900 $ 1,977,104
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The accompanying notes are an integral part of these consolidated
financial statements.


InnVest Real Estate Investment Trust
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CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS

Three Months Three Months
Ended Ended
(in thousands of dollars, except March 31, March 31,
per unit amounts) (unaudited) 2009 2008
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(Restated,
Note 21)
Total revenues (reference only) (Note 19) $ 130,430 $ 138,601
Hotel revenues $ 127,701 $ 135,940

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Hotel expenses
Operating expenses (Note 17) 90,835 93,826
Property taxes, rent and insurance 13,394 13,456
Management fees (Note 17) 5,056 5,489
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109,285 112,771
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Hotel operating income 18,416 23,169
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Other (income) and expenses
Interest on mortgages and other debt 13,505 11,789
Interest on operating and bridge loans 167 2,847
Convertible debentures interest and
accretion 3,604 3,560
Corporate and administrative (Note 17) 1,359 1,226
Capital tax 51 39
Other business income, net (Note 20) (912) (993)
Other income (5) (72)
Depreciation and amortization 22,199 21,990
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39,968 40,386
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Loss before income tax recovery (21,552) (17,217)
Future income tax recovery (Note 12) (6,931) (3,520)
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Loss from continuing operations (14,621) (13,697)
Loss from discontinued operations (Note 21) (799) (876)
Writedown of asset held for sale (Note 21) - (500)
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(799) (1,376)
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Net loss and comprehensive loss $ (15,420) $ (15,073)
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Loss from continuing operations,
per unit (Note 15)
Basic and diluted $ (0.196) $ (0.187)
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Net loss per unit (Note 15)
Basic and diluted $ (0.207) $ (0.206)
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Loss from discontinued operations,
per unit
Basic and diluted $ (0.011) $ (0.019)
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The accompanying notes are an integral part of these consolidated
financial statements.


InnVest Real Estate Investment Trust
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CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
Net Income
(Loss) and
(in thousands of Comprehensive Distri- Units
dollars) (unaudited) Income (Loss) butions Deficit in $
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Balance December 31, 2007 $ 137,923 $(299,691) $(161,768) $ 757,375
CHANGES DURING THE PERIOD
Net loss and comprehensive
loss (15,073) - (15,073) -
Unit distributions (Note 16) - (20,618) (20,618) -
Distribution reinvestment
plan units issued - - - 3,873
Vested executive compensation - - - 151
Executive and trustee
compensation - - - 38
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Balance March 31, 2008 $ 122,850 $(320,309) $(197,459) $ 761,437
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Balance December 31, 2008 $ 134,546 $(378,164) $(243,618) $ 768,034
CHANGES DURING THE PERIOD
Net loss and comprehensive
loss (15,420) - (15,420) -
Unit distributions (Note 16) - (13,956) (13,956) -
Distribution reinvestment
plan units issued - - - 660
Buy back and cancellation
of units - - - (2,180)
Conversion of debentures - - - 20
Vested executive compensation - - - 170
Executive and trustee
compensation - - - 38
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Balance March 31, 2009 $ 119,126 $(392,120) $(272,994) $ 766,742
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Executive Holders'
(in thousands of Contributed Compen- Conversion
dollars) (unaudited) Surplus sation Option Total
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Balance December 31, 2007 $ - $ 417 $ 8,642 $ 604,666
CHANGES DURING THE PERIOD
Net loss and comprehensive
loss - - - (15,073)
Unit distributions (Note 16) - - - (20,618)
Distribution reinvestment
plan units issued - - - 3,873
Vested executive compensation - (151) - -
Executive and trustee
compensation - 117 - 155
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Balance March 31, 2008 $ - $ 383 $ 8,642 $ 573,003
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Balance December 31, 2008 $ 1,938 $ 734 $ 8,642 $ 535,730
CHANGES DURING THE PERIOD
Net loss and comprehensive
loss - - - (15,420)
Unit distributions (Note 16) - - - (13,956)
Distribution reinvestment
plan units issued - - - 660
Buy back and cancellation
of units 1,491 - - (689)
Conversion of debentures - - - 20
Vested executive compensation - (170) - -
Executive and trustee
compensation - 48 - 86
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Balance March 31, 2009 $ 3,429 $ 612 $ 8,642 $ 506,431
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The accompanying notes are an integral part of these consolidated
financial statements.



InnVest Real Estate Investment Trust
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Three Months
Ended Ended
March 31, March 31,
(in thousands of dollars) (unaudited) 2009 2008
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(Restated,
Note 21)
OPERATING ACTIVITIES
Loss from continuing operations $ (14,621) $ (13,697)
Add (deduct) items not affecting operations
Depreciation and amortization 22,199 21,990
Non-cash portion of interest expense 914 549
Future income tax recovery (6,931) (3,520)
Non-cash executive and trustee compensation 86 155
Convertible debentures accretion 290 287
Discontinued operations (560) (73)
Changes in non-cash working capital (3,562) (6,152)
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(2,185) (461)
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FINANCING ACTIVITIES
Repayment of long-term debt (2,653) (157,228)
Proceeds from long-term debt - 387,486
Units repurchased pursuant to normal
course issuer bid (Note 14) (689) -
Unit distributions (13,295) (16,703)
Increase in operating loan 20,200 15,600
Proceeds from bridge loan - 8,907
Repayment of bridge loan - (215,000)
Discontinued operations repayment of debt (2,886) (101)
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677 22,961
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INVESTING ACTIVITIES
Capital expenditures on hotel properties (5,937) (5,843)
Discontinued operations capital expenditures (31) (76)
Hotel under development expenditures (82) (3,818)
Change in intangible and deferred assets (656) (431)
Acquisition of hotel property - (17,175)
Decrease in restricted cash 541 71
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(6,165) (27,272)
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Decrease in cash during the period (7,673) (4,772)
Cash, beginning of period 18,143 22,271
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Cash, end of period $ 10,470 $ 17,499
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Supplemental disclosure of cash flow
information:
Cash paid for interest $ 15,686 $ 14,823
Cash paid for income taxes
(including capital tax) $ 76 $ 68
The accompanying notes are an integral part of these consolidated
financial statements.
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InnVest Real Estate Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 (all dollar amounts are in thousands, except unit and
per unit amounts) (unaudited)
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1. Basis of Presentation

InnVest Real Estate Investment Trust ("InnVest" or the "REIT") is an
unincorporated open-ended real estate investment trust governed by the
laws of Ontario. The REIT began operations on July 26, 2002. The units of
the REIT are traded on the Toronto Stock Exchange under the symbol of
"INN.UN". As at March 31, 2009, the REIT owned 147 Canadian hotels
operated under international brands and has a 50% interest in Choice
Hotels Canada Inc. ("CHC").

The accompanying unaudited interim consolidated financial statements are
prepared in accordance with Canadian generally accepted accounting
principles ("GAAP"). The accounting principles used in these financial
statements are consistent with those used in the annual consolidated
financial statements for the year ended December 31, 2008, except as
disclosed in Note 2. These financial statements do not include all the
information and disclosure required by GAAP for annual financial
statements, and should be read in conjunction with the annual
consolidated financial statements for the year ended December 31, 2008.

Revenues earned from hotel operations fluctuate throughout the year, with
the third quarter being the highest due to the increased level of leisure
travel in the summer months, and the first quarter being the lowest as
leisure travel tends to be lower at that time of year.

2. Change in Significant Accounting Policies
Goodwill and intangible assets

Effective January 1, 2009, the REIT adopted the Canadian Institute of
Chartered Accountants ("CICA") Section 3064 - Goodwill and Intangible
Assets. The standard was applied retrospectively. This new standard has
no material impact to the REIT.

3. Hotel Properties

March 31, December 31,
2009 2008
Accumulated Net Book Net Book
Cost Depreciation Value Value
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(Restated,
Note 21)
Land $ 184,248 $ - $ 184,248 $ 184,248
Buildings 1,691,837 185,741 1,506,096 1,517,708

Furniture, fixtures
and equipment 145,979 56,415 89,564 90,872
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$ 2,022,064 $ 242,156 $ 1,779,908 $ 1,792,828
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As at March 31, 2009, the two hotels accounted for as development
properties with a combined net book value of $35,302 (December 31, 2008 -
$35,352) no longer meet the criteria under the REIT's accounting policy
for newly built hotels acquired or developed and as such are now
considered operating hotel properties subject to depreciation.

Capitalized net operating losses for the three months ended March 31,
2009 were $82 (December 31, 2008 - $ 838). These losses include mortgage
interest capitalized of $87 (year ended December 31, 2008 - $1,009).

4. Other Real Estate Properties
Other real estate properties include office and retail properties and a
retirement residence.

March 31, December 31,
2009 2008

Accumulated Net Book Net Book
Cost Depreciation Value Value
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Land $ 1,624 $ - $ 1,624 $ 1,624
Buildings 15,425 1,102 $ 14,323 14,412
Furniture, fixtures
and equipment 73 33 $ 40 42
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$ 17,122 $ 1,135 $ 15,987 $ 16,078
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5. Licence Contracts

March 31, December 31,
2009 2008
Accumulated Net Book Net Book
Cost Amortization Value Value
-------------------------------------------------------------------------
Licence contracts $ 26,320 $ 8,796 $ 17,524 $ 17,853
-------------------------------------------------------------------------
-------------------------------------------------------------------------

During the three months ended March 31, 2009, the licence contracts were
amortized by $329 (March 31, 2008 - $329).

6. Intangible and Deferred Assets

March 31, December 31,
2009 2008
Accumulated Net Book Net Book
Cost Amortization Value Value
-------------------------------------------------------------------------

(Restated,
Note 21)
Customer

relationships $ 48,794 $ 17,226 $ 31,568 $ 33,918
Tenant relationships 2,595 1,446 $ 1,149 1,270
Franchise rights 2,375 1,107 $ 1,268 716
Lease origination costs 6,256 707 $ 5,549 5,741
Other 1,046 592 $ 454 503
-------------------------------------------------------------------------
Total intangible assets 61,066 21,078 39,988 42,148
Deferred financing
costs related to
bridge loan - - - 17
-------------------------------------------------------------------------
$ 61,066 $ 21,078 $ 39,988 $ 42,165
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the three months ended March 31, 2009, the intangible assets were
amortized by $2,810 (March 31, 2008 - $2,470) and the deferred financing
costs related to the bridge loans were amortized by $17 (March 31, 2008 -
$1,314).

7. Bank Indebtedness

The REIT has a $40,000 operating line that bears interest at the Canadian
bank prime rate plus 0.5%. It is secured by 14 properties and is due
August 1, 2009.

Proceeds of $9,000 from a bridge loan were received on March 19 2008, for
365 days, whereby the REIT provided an additional unencumbered hotel as
security. This loan was extended to August 1, 2009 during the quarter,
which included a pay-down of $2,000, made on April 7, 2009. The extension
bears interest at Canadian Bankers' Acceptance rate plus 3.5% and
requires interest payments only.

There is a risk that bank lenders will not refinance the bank credit
facility on terms and conditions acceptable to the REIT or on any terms
at all.

March 31, December 31,
2009 2008
-------------------------------------------------------------------------
Operating line $ 20,200 $ -
Bridge loan 9,000 9,000
-------------------------------------------------------------------------
$ 29,200 $ 9,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------

8. Long-term Debt

March 31, December 31,
2009 2008
-------------------------------------------------------------------------
(Restated,
Note 21)
Mortgages payable $ 945,395 $ 948,064
Less debt issuance costs (6,621) (6,984)
-------------------------------------------------------------------------
Total long-term debt 938,774 941,080
Less current portion (11,215) (10,763)
-------------------------------------------------------------------------
Net long-term debt $ 927,559 $ 930,317
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Substantially all of the REIT's assets have been pledged as security
under debt agreements. At March 31, 2009, long-term debt had a weighted
average interest rate of 5.6% (December 31, 2008 - 5.7%) and a weighted
average effective interest rate of 5.7% (December 31, 2008 - 5.8%). The
long-term debt is repayable in average monthly payments of principal and
interest totalling $5,235 (December 31, 2008 - $5,483) per month, and
matures at various dates from July 25, 2010 to March 21, 2018.

Scheduled repayment of long-term debt is as follows:

Scheduled Due on
Repayments Maturity Total
-------------------------------------------------------------------------

2009 (remainder of the year) $ 8,449 $ - $ 8,449
2010 9,492 169,748 179,240
2011 9,593 318,858 328,451
2012 11,012 12,387 23,399
2013 11,355 - 11,355
2014 and thereafter 10,613 383,888 394,501
-------------------------------------------------------------------------
$ 60,514 $ 884,881 $ 945,395
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The current portion of long-term debt on the balance sheet is based on
the twelve months ending March 31, 2010, whereas the repayment schedule
above reflects the fiscal year.

The estimated fair value of the REIT's long-term debt at March 31, 2009
was approximately $913,219 (December 31, 2008 - $933,784). This estimate
was determined by discounting expected cash flows at the interest rates
currently being offered to the REIT for debt of the same remaining
maturities.

Long-term debt includes $91,937 (December 31, 2008 - $92,129) of
mortgages payable, which are subject to floating interest rates. Annual
interest expense will increase by $919 for every 1% increase in the base
Bankers' Acceptance rate.

Interest expense on mortgages and other debt, interest on operating and
bridge loans, as well as convertible debentures interest are considered
operating items in the statement of cash flows.

The REIT has access to a loan facility, granted in conjunction with
property mortgages, of up to $23,904 available to fund 50% to 100% of
capital expenditures incurred at individual hotels. During the quarter
ended March 31, 2009, the REIT has drawn $ nil on this facility

(December 31, 2008 - $12,196). Subsequent to March 31, 2009, the REIT
drew an additional $6,888 from this facility, in the ordinary course of
business.

9. Other Long-term Obligations

March 31, December 31,
2009 2008
-------------------------------------------------------------------------
(Restated,
Note 21)
Capital leases $ 1,662 $ 1,662
Other lease obligations 685 658
-------------------------------------------------------------------------
2,347 2,320
Less current portion (195) (195)
-------------------------------------------------------------------------
Total lease obligations 2,152 2,125
Pension liability 3,539 3,522
Asset retirement obligation 1,508 1,492
-------------------------------------------------------------------------

Total other long-term obligations $ 7,199 $ 7,139
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Defined Benefit Pension Plans

The defined benefit pension plans were assumed pursuant to the
acquisition of certain hotels in 2006 and 2007. The most recent actuarial
valuation with respect to the funding of the REIT's pension plans was
prepared on March 31, 2009.

The pension plan assets as at March 31, 2009 consist of the following:

Non-Union
Non- March 31, December 31,
Management Management 2009 2008
Pension Pension Total Total
Benefit Benefit Benefit Benefit
Plans Plans Plans Plans
-------------------------------------------------------------------------
Accrued benefit
obligation $ 4,598 $ 1,034 $ 5,632 $ 5,513
Fair value of plan
assets 2,197 944 3,141 3,263
-------------------------------------------------------------------------
Funded status
- plan deficit 2,401 90 2,491 2,250
Unamortized net
actuarial gain 786 262 1,048 1,272
-------------------------------------------------------------------------

Accrued employee
future benefit
liability $ 3,187 $ 352 $ 3,539 $ 3,522
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The pension expense for the three months ended March 31, 2009 is $98
(March 31, 2008 - $337).

10. Convertible Debentures

The details of the three series of convertible debentures are outlined in
the tables below:

Effective Original Converted
Interest Interest Face to Trust
Debenture Maturity Date Rate Rate Amount Units
-------------------------------------------------------------------------
Series A April 15, 2011 6.25% 7.73% $ 57,500 $ (11,736)
Series B May 31, 2013 6.00% 7.53% 75,000 (20)
Series C August 1, 2014 5.85% 7.42% 70,000 -
-------------------------------------------------------------------------
$ 202,500 $ (11,756)

-------------------------------------------------------------------------
-------------------------------------------------------------------------

Face Holders'
Amount Conversion Transaction March 31,
Debenture Outstanding Option Accretion Costs 2009
-------------------------------------------------------------------------
Series A $ 45,764 $ (2,289) $ 1,467 $ (56) $ 44,886
Series B 74,980 (3,400) 1,361 (2,058) 70,883
Series C 70,000 (2,953) 678 (2,565) 65,160
-------------------------------------------------------------------------
$ 190,744 $ (8,642) $ 3,506 $ (4,679) $ 180,929
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Effective Original Converted
Interest Interest Face to Trust
Debenture Maturity Date Rate Rate Amount Units
-------------------------------------------------------------------------
Series A April 15, 2011 6.25% 7.73% $ 57,500 $ (11,736)
Series B May 31, 2013 6.00% 7.53% 75,000 -
Series C August 1, 2014 5.85% 7.42% 70,000 -
-------------------------------------------------------------------------
$ 202,500 $ (11,736)

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Face Holders'
Amount Conversion Transaction December
Debenture Outstanding Option Accretion Costs 31, 2008
-------------------------------------------------------------------------
Series A $ 45,764 $ (2,289) $ 1,398 $ (333) $ 44,540
Series B 75,000 (3,400) 1,241 (2,173) 70,668
Series C 70,000 (2,953) 577 (2,662) 64,962
-------------------------------------------------------------------------
$ 190,764 $ (8,642) $ 3,216 $ (5,168) $ 180,170
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The fair value of the REIT's convertible debentures based on their
trading prices on the Toronto Stock Exchange at March 31, 2009 is
$102,745 (December 31, 2008 - $102,108).

11. Capital Management

The REIT manages its capital, which is defined as the aggregate of
unitholders' equity and debt, under the terms of the Declaration of
Trust. The REIT's capital management objectives are (i) to ensure
compliance with debt and investment restrictions outlined in its
Declaration of Trust as well as external existing debt covenants, (ii) to
allow for the implementation of its acquisition strategy and hotel
property refurbishment program, and (iii) to build long-term unitholder
value. Issuances of equity and debt are approved by the Board of Trustees
(the "Board") through their review and approval of the REIT's strategic
plan and annual budget plan, along with changes to the approved plans
periodically throughout each year.

At March 31, 2009, InnVest's primary contractual obligations consisted of
long-term mortgage obligations and convertible debentures. InnVest is not
permitted to exceed certain financial leverage amounts under the terms of
the Declaration of Trust. The REIT is permitted to hold indebtedness
excluding convertible debentures up to a level of 50% of gross asset
value. Further, the REIT is permitted to have indebtedness and
convertible debentures up to a level of 60% of gross asset value. The
Declaration of Trust also governs that individual property mortgages, or
mortgages on a pool of properties, cannot exceed 75% of the fair value of
the underlying property. InnVest calculates indebtedness in accordance
with GAAP excluding non-interest bearing indebtedness, trade accounts
payable, and any future income tax liability. InnVest calculates gross
asset value as the total book value of assets on the REIT's balance
sheet, plus accumulated depreciation and amortization, less future income
tax liabilities.

At March 31, 2009, the REIT's leverage excluding and including
convertible debentures was 47.7% and 57.0% respectively, calculated as
follows:

March 31, December 31,
2009 2008
-------------------------------------------------------------------------
Total assets per consolidated
balance sheet $ 1,952,900 $ 1,977,104
Accumulated depreciation and
amortization 295,696 269,331
Future income tax liability (204,046) (210,977)
Future income tax liability not
included in assets 18,695 18,834
-------------------------------------------------------------------------
Gross asset value $ 2,063,245 $ 2,054,292
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Book value of mortgages
and other
indebtedness(1) $ 984,494 47.7% $ 970,071 47.2%
Convertible
debentures(2) 190,744 9.3% 190,764 9.3%
-------------------------------------------------------------------------
$ 1,175,238 57.0% $ 1,160,835 56.5%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Adjusted to eliminate financing issuance costs and include long-term
debt related to assets held for sale.

(2) Adjusted to face value.

The REIT's Declaration of Trust also includes guidelines that limit
capital expended to, among other items, the following:

(a) Direct and indirect investments in real property on which hotels are
situated and the hotel business conducted thereon, primarily in
Canada, and in entities whose activities consist primarily of
franchising hotels;

(b) Temporary investments held in cash, deposits with a Canadian
Chartered bank or trust company, short term government debt
securities or in money market instruments of, or guaranteed by, a
Schedule 1 Canadian bank, short term commercial paper, notes, bonds
of other debt securities of a Canadian entity having a rating of at
least R-1 (Mid) by Dominion Bond Rating Service or A-1 (Mid) by
Standard & Poor's Corporation maturing prior to one year from the
date of issue; and

(c) Investments in mortgages or mortgage bonds, where the related
security is a first mortgage on income producing real property which
otherwise complies with (a) above and is subject to certain leverage
limits and debt service coverage. The aggregate value of such
investments shall not exceed 20% of the unitholders' equity.

The REIT is in compliance with these guidelines.

The REIT is also subject to certain restrictions on the issuance of
equity as discussed in Note 12. The REIT can issue on a cumulative basis
a total of approximately $143,000 in equity annually in each of 2009 and
2010 and maintain its relief from taxation to the end of 2010. The REIT
issued $888 in equity during the three months ended March 31, 2009
(March 31, 2008 - $4,063).

As outlined in the Declaration of Trust, the REIT is required to
distribute monthly to unitholders not less than one-twelfth of eighty
percent (80%) of distributable income of the REIT for the calendar year
(see Note 16).

The REIT maintains an operating line of $40,000 with a Canadian Chartered
bank with the following covenants in addition to the leverage limits
under the Declaration of Trust:

(a) Trailing twelve months consolidated earnings before interest, taxes,
depreciation and amortization ("EBITDA") to consolidated interest
expense of not less than 2.0 times (actual being 2.6 times at
March 31, 2009 and 2.7 times at December 31, 2008, respectively);

(b) Trailing twelve months consolidated EBITDA to consolidated debt
service of not less than 1.5 times (actual being 2.3 times at
March 31, 2009 and 2.3 times at December 31, 2008); and

(c) Unitholders' Equity of not less than $300,000 (actual being $506,431
at March 31, 2009 and $535,730 at December 31, 2008, respectively).

12. Income Taxes and Future Income Tax Liability

The REIT currently qualifies as a Mutual Fund Trust for income tax
purposes. As required by its Declaration of Trust, the REIT intends to
distribute all taxable income to its unitholders and to deduct these
distributions for income tax purposes (see Note 16).

In June 2007, a Bill was enacted for the taxation of publicly traded
trusts, including income trusts (the "Bill"). The Bill applies to
publicly traded trusts which existed prior to November 1, 2006 starting
with taxation years ending in 2011, except for those trusts that qualify
for the real estate investment trust ("Qualifying REIT") exception
included in the legislation. An existing trust may lose its relief from
taxation in the interim periods to 2011 where it undergoes "undue
expansion". Pursuant to the legislation, a REIT which carries on Canadian
hotel operations (including through subsidiaries) will not be a
Qualifying REIT. As a result, the REIT will be subject to tax starting

January 1, 2011.

The Bill may adversely affect the level of cash distribution to
unitholders commencing in 2011 if the REIT does not become a Qualifying
REIT by then. Management is reviewing whether it is feasible to
reorganize the REIT so that non-qualifying operations and assets are
transferred under a plan of arrangement to a taxable entity that is held
by the REIT unitholders, and that the REIT hotels, which continue to be
owned by the REIT, are leased by it to the taxable entity. It is not
possible at this preliminary juncture to provide any assurances that any
such reorganization or a similar reorganization can or will be
implemented before 2011, or that any such reorganization, if implemented,
would not result in material costs or other adverse consequences to the
REIT and its unitholders.

13. Financial Instruments

Risk Management

In the normal course of business, the REIT is exposed to a number of
risks that can affect its operating performance. These risks, and the
actions taken to manage them, are as follows:

Interest Rate Risk

The time period over which management is spreading debt maturities
implies an average term to maturity of approximately five years. This
strategy reduces the REIT's exposure to re-pricing risk resulting from
short-term interest rate fluctuations in any one year. Management is of
the view that such a strategy will provide the most effective interest
rate risk management for debt.

The REIT's floating rate debt balance is monitored by Management to
minimize the REIT's exposure to interest rate fluctuations. As at
March 31, 2009, the REIT's floating rate debt balance of $91,937
(December 31, 2008 - $92,129) is approximately 9.7% of total long-term
debt.

Credit Risk

Credit risk relates to the possibility that hotel guests, either
individual or corporate, do not pay the amounts owed to the REIT. The
REIT mitigates this risk by limiting its exposure to customers allowed to
pay by invoice after check out ("direct bill"). Accounts receivable as at
March 31, 2009 is $23,902 (December 31, 2008 - $27,319). InnVest reviews
accounts receivable and the allowance for doubtful accounts is adjusted
for any balances which are determined by management to be uncollectable.

This provision adjustment is expensed in the hotel operating income. The
allowance as at March 31, 2009 is $623 or 2.6% (December 31, 2008 - $805
or 2.9%) of total receivables. The amount credited in the operating
income for the three months ended March 31, 2009 is $100, due to amounts
provided for, which were subsequently collected (March 31, 2008 - $49).

Liquidity Risk

Liquidity risk arises from the possibility of not having sufficient debt
and equity capital available to the REIT to fund its growth and capital
maintenance programs and refinance its obligations as they arise.

There is a risk that lenders will not refinance maturing debt on terms
and conditions acceptable to the REIT or on any terms at all.

Management's strategy mitigates the REIT's exposure to an excessive
amount of debt maturing in any one year. There is also a risk that bank
lenders will not refinance the operating credit facility on terms and

conditions acceptable to the REIT or on any terms at all.

Three months
ending Contractual
Remainder March 31, Cash
of 2009 2010 2011 flows(1)
-------------------------------------------------------------------------
Mortgage payable
- principal $ 8,449 $ 179,240 $ 269,899 $ 457,588
Mortgage payable
- interest(2) 41,187 50,229 9,665 101,081
Convertible debentures
- interest 9,408 11,455 2,047 22,910
Bank loans - principal 9,000 - - 9,000
Bank loans - interest 94 - - 94
-------------------------------------------------------------------------
Total $ 68,138 $ 240,924 $ 281,611 $ 590,673
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Contractual cash flows include principal and interest payments for
the next 24 months ignore extensions options available to the REIT.

(2) Interest amounts for floating rate debt is based on interest rates
prevailing at March 31, 2009

Fair Values

The fair values of the REIT's financial assets and liabilities,
representing net working capital, approximate their recorded values at
March 31, 2009 and December 31, 2008 due to their short-term nature.
The fair value of the REIT's long-term debt is less than the carrying
value by approximately $32,176 at March 31, 2009 (December 31, 2008 -
$24,476) due to changes in interest rates since the dates on which the
individual mortgages were arranged. The fair value of long-term debt has
been estimated based on the current market rates for mortgages with
similar terms and conditions.

The fair value of the REIT's convertible debentures is less than the
carrying value by approximately $78,184 at March 31, 2009 (December 31,
2008 - $78,062). The fair value of convertible debentures has been
estimated based on the market rates for convertible debentures, as at

March 31, 2009 and December 31, 2008.

Letters of Credit

As at March 31, 2009, the REIT has letters of credit totalling $3,693

(December 31, 2008 - $3,693) held on behalf of security deposits for

various utility companies and liquor licences, and additional security

for the pension liabilities.

14. Unitholders' Equity

The REIT is authorized to issue an unlimited number of units, each of
which represents an equal undivided beneficial interest in any
distributions from the REIT. All units are of the same class with equal
rights and privileges. Per the Declaration of Trust, units cannot be
issued from treasury unless the trustees consider it not to be dilutive
to ensuing annual distributions of distributable income to existing
unitholders.

Units Amount
-------------------------------------------------------------------------
Balance at December 31, 2007 73,000,694 $ 757,375
Units issued under distribution
reinvestment plan 427,230 3,873
Units issued for vested executive
compensation plan 16,033 151
Units issued under trustee compensation plan 3,711 38
-------------------------------------------------------------------------
Balance at March 31, 2008 73,447,668 $ 761,437
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance at December 31, 2008 74,412,317 $ 768,034
Units issued under distribution
reinvestment plan 202,067 660
Units repurchased pursuant to normal

course issuer bid (211,500) (2,180)
Units issued on conversion of debentures 1,342 20
Units issued for vested executive
compensation plan 19,052 170
Units issued under trustee compensation plan 11,060 38
-------------------------------------------------------------------------
Balance at March 31, 2009 74,434,338 $ 766,742
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Pursuant to the REIT's normal course issuance bid (the "Bid"), the REIT
purchased and cancelled 211,500 units (December 31, 2008 - 278,500 units)
at an average price of $3.26 per unit (December 31, 2008 - $3.36 per

unit). The REIT recognized $1,491 of contributed surplus (December 31,
2008 - $1,938) upon the cancellation of these units. Purchases under the
Bid commenced on November 11, 2008 and will terminate on November 10,
2009.

Trustee Compensation Plan

The members of the Board of Trustees receive 50% of their annual retainer
in units (based on the then current market price of the units). The REIT
has set aside 100,000 units in reserve for this purpose. The balance in
this reserve account at March 31, 2009 is 12,608 units. Under the Trustee
Compensation Plan, 11,060 units were issued during the three months ended

March 31, 2009 (three months ended March 31, 2008 - 3,711 units).

Executive Compensation Plan

The senior executives participate in the executive compensation plan
under which units are granted by the Board of Trustees from time to time.
The REIT has reserved a maximum of 1,000,000 units for issuance under the
plan. The balance in this reserve account at March 31, 2009 is 788,902
units. A unit granted through the plan entitles the holder to receive, on
the vesting date, the then current fair market value of the unit plus the
value of the cash distributions that would have been paid on the unit if
it had been issued on the date of grant assuming the reinvestment of the
distribution into REIT units. The payment will be satisfied through the
issuance of units.

The following table summarizes the status of the executive compensation
plan at March 31, 2009, excluding granted units which have fully vested:

Units
Unvested Accumulated
Executive from
units Distributions Total Units
-------------------------------------------------------------------------
January 1, 2006 - granted 12,968 5,613 18,581
January 1, 2007 - granted 15,000 5,213 20,213
January 1, 2008 - granted 20,455 4,731 25,186
January 1, 2009 - granted 25,500 1,472 26,972
Units vested 2009 (6,484) (2,546) (9,030)
-------------------------------------------------------------------------
67,439 14,483 81,922
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In March 2009, the Board of Trustees approved the granting of 25,500
units effective as of January 1, 2009. These units vest equally on the
third and fourth anniversaries of the effective date of grant.
Distribution Reinvestment Plan ("DRIP")

The REIT has a DRIP whereby eligible Canadian unitholders may elect to
have their distributions of income from the REIT automatically reinvested
in additional units.

15. Per Unit Information

Three Months Ended Three Months Ended
March 31, 2009 March 31, 2008
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
(Restated,
Note 21)
Loss from continuing
operations - basic $ (14,621) 74,439,594 $ (13,697) 73,234,488
Dilutive effect of
executive
compensation plan - 79,679 - 61,950
-------------------------------------------------------------------------
Loss from continuing
operations - diluted $ (14,621) 74,519,273 $ (13,697) 73,296,438
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three Months Ended Three Months Ended
March 31, 2009 March 31, 2008
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net loss - basic $ (15,420) 74,439,594 $ (15,073) 73,234,488
Dilutive effect of
executive
compensation plan - 79,679 - 61,950
-------------------------------------------------------------------------
Net loss - diluted $ (15,420) 74,519,273 $ (15,073) 73,296,438
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The impact of the convertible debentures has been excluded from the per
unit calculations above because the impact of the conversions would not
be dilutive.

16. Distributions to Unitholders

Distributions to unitholders are computed based on distributable income
as defined by the Declaration of Trust.

Distributable income is a measure of cash flow that is not defined under
Canadian GAAP and, accordingly, may not be comparable to similar measures
used by other issuers.

Distributable income is defined as net income in accordance with Canadian
GAAP, subject to certain adjustments as set out in the Declaration of
Trust, including adding back depreciation and amortization, amortization
of fair value debt adjustment and future income tax (recovery) expense,
excluding any gains or losses on the disposition of real property and
future income taxes, deducting the amount calculated, at 4% to 5% of
hotel revenues, for the reserve for the replacement of furniture,
fixtures and equipment and capital improvements, the accretion on
convertible debentures that is included in the computation of net income,
and making any other adjustments determined by the trustees of the REIT
in their discretion. As outlined in the Declaration of Trust, the REIT is
required to distribute monthly to unitholders not less than one-twelfth
of eighty percent (80%) of distributable income of the REIT for the
calendar year.

First quarter distributions are typically funded through cash on hand and
the bank operating line given the seasonality of earnings through the
year in contrast to fixed costs.

Three Months Three Months
Ended Ended
March 31, March 31,
2009 2008
-------------------------------------------------------------------------
Net loss $ (15,420) $ (15,073)
-------------------------------------------------------------------------
Add (deduct)
Depreciation and amortization 22,729 22,670
Future income tax recovery (6,931) (3,520)
Non-cash portion of mortgage interest
expense 424 258
Non-cash portion of convertible debentures
interest and accretion 784 578
Reserve for replacement of furniture,
fixtures and equipment and capital
improvements (5,427) (5,848)
Writedown of assets held for sale - 500
Non-cash executive and trustee compensation 86 155
Deferred land lease expense and retail
lease income, net 2 8
-------------------------------------------------------------------------
11,667 14,801
-------------------------------------------------------------------------
Distributable loss (3,753) (272)
Distributions
Required under the Declaration of Trust - -
Discretionary 13,956 20,618
-------------------------------------------------------------------------
Distributions paid or payable 13,956 20,618
-------------------------------------------------------------------------
Distributions in excess of
distributable loss $ 17,709 $ 20,890
-------------------------------------------------------------------------
-------------------------------------------------------------------------

17. Management Agreements

Westmont Hospitality Canada Limited

On July 26, 2002, the REIT entered into a Management Agreement for hotel
management and accounting services and an Administrative Services
Agreement (the "Agreements") with Westmont Hospitality Canada Limited
("Westmont"). Westmont is considered a related party to the REIT as a
result of its ability to exercise significant influence through the
Agreements. Westmont manages all but fifteen of the REIT's hotels.

The Agreements have an initial term of ten years with two successive

five-year renewal terms, subject to the consent of Westmont and approval
of the REIT. On September 15, 2008, the REIT exercised the first five-
year extension term on the Agreements, extending the expiration to
July 25, 2017. The REIT's independent trustees approved the extension
following a review by third party hospitality consulting firms based in
Canada. The Agreements provide for the payment of an annual management
fee to Westmont in an amount equal to 3.375% of gross revenues during the
term of the Agreements, including renewal periods. In addition, Westmont
may receive an annual incentive fee if the REIT achieves distributable
income in excess of $1.25 per unit. No management incentive fees were
paid during the periods presented.

Accounting fees are calculated based on a fixed charge per room which
increases by the Consumer Price Index change annually. For assets sold
which are managed by Westmont, the REIT pays a termination fee equal to
the fees paid based on trailing twelve months revenues. No termination
fees were paid in the three months ended March 31, 2009 and 2008.

In addition to the base management fee and incentive fee, Westmont is
entitled to fees based on a percentage of the cost of purchasing certain
goods and supplies and certain construction costs and capital
expenditures, fees for accounting services, reasonable out-of-pocket
costs and expenses (other than general and administrative expenses or
overhead costs except as otherwise provided in the Administrative
Services Agreement) and project management and general contractor service
fees related to hotel renovations managed by Westmont.

Also, for certain hotels owned by InnVest and not managed by Westmont,
Westmont is entitled to an asset management fee based on a fixed
percentage of the purchase price of the hotel or a fixed percentage of
hotel operating income, after the reserve for replacement of furniture,
fixtures and equipment and capital improvements, subject to an annual
minimum fee.

During the three months ended March 31, 2009 and 2008, the fees charged
to the REIT pursuant to the Agreements were as follows:

March 31, March 31,
2009 2008
-------------------------------------------------------------------------
(Restated,
Fees from continuing operations: Note 21)
Management fees $ 2,407 $ 2,558
Asset management fees (included in
management fee expense) 505 650
Accounting services (included in hotel
operating expenses) 557 532
Administrative services (included in

corporate and administrative expenses) 117 95
Project management and general contractor
services (capitalized to hotel properties) 210 109
Fees from discontinued operations 192 338
-------------------------------------------------------------------------
$ 3,988 $ 4,282
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In addition, salaries of REIT employees paid by Westmont and reimbursed
by the REIT were $108 (March 31, 2008 - $36). Included in accounts
payable and accrued liabilities are amounts owed to Westmont at March 31,
2009 totalling $1,324 (December 31, 2008 - $1,484).

Other Management Agreements

The REIT entered into management agreements with Hilton Canada Co.
("Hilton") to manage the two Hilton hotels acquired in 2006. The
agreements provide for the payment of an annual management fee to Hilton
in an amount equal to 2.5% until December 31, 2008 and then 3.0% of gross
revenues during the balance of the term of the agreements. The agreements
mature on December 31, 2026. For the three months ended March 31, 2009,
total management fees paid to Hilton were $212 (March 31, 2008 - $196).

The REIT assumed the hotel management agreements with Delta Hotels
Limited ("Delta"), dated January 1, 2003 when two Delta hotels were
purchased in 2006. The agreements provide for the payment of an annual
management fee to Delta in an amount equal to 3% of total revenues from
the hotel, plus 0.5% of total revenues from the hotel if the hotel's
annual gross operating profit is greater than the budgeted gross
operating profit. The agreements mature on December 31, 2015, with two
ten-year extension options. For the three months ended March 31, 2009,
total management fees paid to Delta were $118 (March 31, 2008 - $125).

With the acquisition of the Legacy Portfolio in September 2007, InnVest
assumed the existing hotel management agreements with Fairmont Hotels and
Resorts ("Fairmont") or Delta for each of the Legacy Portfolio hotels.

The agreements provide for the payment of a base management fee and an
incentive management fee to either Fairmont or Delta. The REIT also
assumed a portfolio incentive fee in which 11 of the 25 hotels of Legacy
Hotels Real Estate Investment Trust participated, of which six are now
owned or leased by InnVest. The base management fee is equal to 3% of
total hotel revenues for nine of the hotels and 2% of total hotel
revenues for the remaining two hotels. The agreements mature from
December 31, 2010 to December 31, 2047. The incentive management fees and
portfolio incentive fees are calculated based on net operating income
from hotel operations plus amortization less the capital replacement
reserve, in excess of a threshold. For the three months ended March 31,
2009, total management fees paid for the Legacy Portfolio were $1,829
(March 31, 2008 - $1,975).

18. Segmented Financial Information

The REIT operates hotel properties throughout Canada. Information related
to these properties by geographic segment is presented below. The REIT
primarily evaluates operating performance based on hotel operating
income. All key financing, investing and capital allocation decisions are
centrally managed. The comparatives have been restated to exclude
discontinued operations and assets held for sale at March 31, 2009.

Western Ontario Quebec Atlantic Total
-------------------------------------------------------------------------

Three months ended
March 31, 2009
Hotel revenues $ 36,525 $ 48,046 $ 26,487 $ 16,643 $ 127,701
Hotel expenses 28,228 40,699 24,285 16,073 109,285
-------------------------------------------------------------------------
Hotel operating
income $ 8,297 $ 7,347 $ 2,202 $ 570 $ 18,416
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three months ended
March 31, 2008
(Restated,
Note 21)
Hotel revenues $ 38,610 $ 51,368 $ 27,937 $ 18,025 $ 135,940
Hotel expenses 29,323 41,465 25,350 16,633 112,771
-------------------------------------------------------------------------
Hotel operating
income $ 9,287 $ 9,903 $ 2,587 $ 1,392 $ 23,169
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital
expenditures on
hotel properties,
Three months
ended:
March 31, 2009 $ 1,708 $ 2,165 $ 1,558 $ 506 $ 5,937
March 31, 2008
(Restated,
Note 21) $ 413 $ 1,866 $ 1,351 $ 2,213 $ 5,843
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Hotel properties
March 31, 2009 $ 507,389 $ 634,455 $ 395,285 $ 242,779 $1,779,908
December 31, 2008
(Restated,
Note 21) $ 512,032 $ 637,791 $ 406,931 $ 236,074 $1,792,828
-------------------------------------------------------------------------
-------------------------------------------------------------------------

19. Total Revenues

Three Months Three Months
Ended Ended
March 31, March 31,
2009 2008
-------------------------------------------------------------------------

(Restated,
Note 21)
Hotel revenues $ 127,701 $ 135,940
Other business income (Note 20) 2,729 2,661
-------------------------------------------------------------------------
$ 130,430 $ 138,601
-------------------------------------------------------------------------
-------------------------------------------------------------------------

20. Other Business Income

Three Three
Months Months
Ended Ended
Franchise Retail/ Retirement March 31, March 31,
Business Office Residence 2009 2008
-------------------------------------------------------------------------
Revenues $ 1,793 $ 660 $ 276 $ 2,729 $ 2,661
Expenses 1,300 332 185 1,817 1,668
-------------------------------------------------------------------------
Other
business
income, net $ 493 $ 328 $ 91 $ 912 $ 993
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Other business income includes franchise business income, which is
InnVest's 50% share of CHC's operations, and the income from the other
real estate properties.

21. Assets Held for Sale and Discontinued Operations
Five hotel properties, four in Ontario and one in Quebec were
reclassified as assets held for sale during the three months ended
March 31, 2009. These five hotels are included in the discontinued
operations for the three months ended March 31, 2009 and the three months
ended March 31, 2008 have been restated to reflect these operations as
discontinued operations.

Three Ontario hotel properties and one Quebec hotel property were
reclassified as assets held for sale on December 18, 2007 and are
included in the discontinued operations for the three months ended
March 31, 2008. All but one Ontario hotel were sold during the year ended

December 31, 2008. Subsequent to March 31, 2009, the REIT sold an Ontario
hotel property that was held for sale for $4,100.

Discontinued operations for the three months ended March 31, 2009 and
2008 are as follows:

2009 2008
-------------------------------------------------------------------------
(Restated)
Hotel revenues $ 4,351 $ 6,307
-------------------------------------------------------------------------

Hotel expenses
Operating expenses 3,288 4,562
Property taxes, rent and insurance 1,009 1,214
Management fees 147 213
-------------------------------------------------------------------------
4,444 5,989
-------------------------------------------------------------------------
Hotel operating (loss) income (93) 318
-------------------------------------------------------------------------

Interest on mortgages 176 514
Depreciation and amortization 530 680
-------------------------------------------------------------------------
706 1,194
-------------------------------------------------------------------------
Loss from discontinued operations (799) (876)
Writedown of assets held for sale - 500
-------------------------------------------------------------------------
Net loss from discontinued operations $ (799) $ (1,376)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Contact Information

  • InnVest Real Estate Investment Trust
    Kenneth D. Gibson
    President and Chief Executive Officer
    (905) 206-7100
    Fax: (905) 206-7114

    InnVest Real Estate Investment Trust
    Tamara L. Lawson
    Chief Financial Officer and Corporate Secretary
    (905) 206-7100
    Fax: (905) 206-7114
    Website: www.innvestreit.com