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

InnVest Real Estate Investment Trust

May 09, 2008 08:00 ET

InnVest REIT Reports First Quarter Results

TORONTO, ONTARIO--(Marketwire - May 9, 2008) - InnVest Real Estate Investment Trust (TSX:INN.UN) today announced financial results for the three months ended March 31, 2008.

"Our portfolio continues to benefit from growth in average daily rate ("ADR"), up 5.1% this quarter. Solid revenue per available room ("RevPAR") increases of approximately 6% in January and 3% in February were offset by occupancy declines in March. Consistent with overall industry results, demand in March was impacted by the combined effect of the spring break and Easter holidays in the first quarter this year. Results in April positively reflect this timing shift with RevPAR up over 10% for the month on a same hotel basis," commented Mr. Kenneth Gibson, President and Chief Executive Officer of InnVest REIT. "Acquisitions completed in 2007 continue to meet our expectations, leading to considerable year-over-year growth with hotel operating income increasing over 33% during the first quarter."



First Quarter Highlights

- Completed $390 million in financings at a weighted average blended
interest rate of 5.6%, including new debt and refinancing of
existing debt. Proceeds were partially used to repay the
$215 million bridge loan incurred as part of the acquisition of the
Legacy Portfolio in 2007;

- Improved average daily rate ("ADR") by 5.1% on a same hotel basis.
Lower occupancies resulting from the timing of Easter in the first
quarter in 2008, resulted in overall revenue per available room
("RevPAR") growth of 1.7%;

- Grew hotel operating income 33.8% to $23.6 million in 2008, an
increase of $6.0 million over 2007;

- Realized a distributable loss of $0.3 million in 2008, compared to
distributable income of $3.8 million in the prior period.
Distributable income per unit on a diluted basis decreased to a loss
of $0.004 compared to distributable income of $0.068 in 2007. Given
the seasonality inherent in the assets, and the timing of the
acquisition, the Legacy Portfolio was dilutive to InnVest's
distributable income per unit by approximately $0.050 per unit
during the first quarter of 2008. This dilution, combined with the
impact of the Easter timing shift, resulted in the year-over-year
decline; and

- Acquired a new-build hotel at a total cost of $17.4 million and
completed the development of a second hotel.

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
-------------------------------------------------------------------------
(In thousands of dollars except average daily rate, revenue per available
room and per unit amounts)
-------------------------------------------------------------------------
Three months ended March 31
-------------------------------------------------------------------------
2008 2007 +/-
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Occupancy 55.9% 55.7% 0.2%
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Average daily rate ("ADR") $112.89 $94.79 $18.10
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Revenue Per Available Room ("RevPAR") $63.04 $52.76 $10.28
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(In thousnads of dollars, except per
unit amounts)
Operating revenues $140,529 $88,358 $52,171
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Hotel operating income $23,574 $17,619 $5,955
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Net (loss) income and comprehensive
(loss) income ($15,073) $107,332 ($122,405)
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Add / (deduct)
Depreciation, amortization and
accretion 21,356 13,750 7,606
Future income tax recovery (3,520) (115,536) 112,016
Non-cash executive and trustee
compensation 155 88 67
Write down (gain on sale) of assets
held for sale 500 (659) 1,159
Corporate reorganization expense - 1,471 (1,471)
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Funds from operations(1) $3,418 $6,446 ($3,028)
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Funds from operations per unit
- basic and diluted $0.047 $0.117 ($0.070)
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Amortization of deferred financing
costs 1,314 726 588
Non-cash portion of interest expense 549 - 549
Reserve for replacement of furniture,
fixtures and equipment and capital
improvements (5,848) (3,620) (2,228)
Convertible debentures accretion 287 212 75
Deferred land lease expense and retail
lease income, net 8 14 (6)
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Distributable (loss) income(1) ($272) $3,778 ($4,050)
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Distributable (loss) income per unit
- basic and diluted ($0.004) $0.068 ($0.072)
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Distributions per unit $0.2813 $0.2813 -
-------------------------------------------------------------------------

(1) Funds from operations and distributable income are measures of
earnings and cash flow that are not required or do not have a
prescribed meaining under Canadian generally accepted accounting
principles, and accordingly, may not be comparable to similar
measures used by other organizations. Funds from operations and
distributable income per unit are calculated on a basis consistent
with earnings per unit.

The key performance measures related to room revenue for the REIT's
portfolio of hotels on a same hotel basis, excluding the hotels that have been
classified as discontinued operations and the hotels acquired after the first
quarter in 2007 and in 2008, for which comparative data is not available, are
as follows:

Occupancy ADR RevPAR

% Variance $ Variance $ Variance

-------------------------------------------------------------------------
Ontario 54.5% (1.7 pts) $106.63 3.5% $58.11 0.4%
Quebec 55.9% (0.6 pts) $101.45 5.7% $56.69 4.6%
Atlantic 51.1% (2.5 pts) $93.09 5.9% $47.61 1.0%
Western 55.3% (3.7 pts) $89.31 10.4% $49.38 3.2%
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Total 54.6% (1.8 pts) $101.71 5.1% $55.48 1.7%
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RECENT DEVELOPMENTS

During the first quarter, InnVest completed $390 million in financings.
Proceeds were used to repay the $215 million bridge loan incurred and to repay
$154.8 million of mortgage debts assumed as part of the acquisition of the
Legacy Portfolio. The weighted average term to maturity is 4.9 years and the
weighted average blended interest rate is 5.6%. InnVest fixed the interest
rates on $370 million of this debt. At the end of the first quarter, InnVest's
total leverage was 57.0% of its gross asset value (47.8% excluding convertible
debentures).
During the first quarter, the Trust acquired the newly built 120-room
Staybridge Suites located in Guelph, Ontario for $17.4 million and completed
the development and opened the 105-room Staybridge Suites located in Oakville,
Ontario. The hotels in Guelph and Oakville were partially financed with a new
10-year mortgage debt of $8.3 million at an interest rate of 5.5% and a
$9.0 million floating rate bridge loan, respectively. The balance was funded
from cash on hand.


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

Three months ended March 31, 2008

First quarter hotel revenues increased by $52.2 million, or 59.0%, to
$140.5 million. Acquisitions contributed the majority of this increase,
generating $50.0 million in hotel revenues. Revenues for InnVest's Base
Portfolio increased 2.5% or $2.2 million. The leap year in 2008 contributed
one additional day of operating results for the first quarter of 2008 as
compared to 2007. Lower occupancies were experienced through the majority of
the portfolio in March due to the Easter holiday falling in the first quarter
in 2008 as opposed to the second quarter in 2007. Holiday periods disrupt
demand, most notably at city-centre locations, due to reduced travel in days
leading up to holidays.
Overall, a 5.1% increase in ADR was offset by a 1.8 point decline in
overall occupancy for the Base Portfolio. As a result, first quarter RevPAR
increased modestly by 1.7%. Positive RevPAR growth of approximately 6% in
January and 3% in February were offset by a 4.4 point decline in occupancy for
the month of March due to the Easter holiday timing. By contrast, this timing
shift resulted in improved year-over-year results in April, with RevPAR up
over 10% for the month on a same hotel basis.
Room revenues increased $34.2 million during the quarter to
$107.7 million. This increase was primarily driven by the $32.0 million in
revenues from the assets acquired in 2007. Revenue improvement was realized in
all regions this quarter. Trends were consistent across each of the regions
with ADR growth offsetting occupancy declines.
The Quebec region led growth this quarter driven by performance in Quebec
City, which is benefiting from festivities associated with the city's 400th
anniversary celebrations in 2008. The Western region continues to show growth
with ADR gains of 10.4% this quarter.
Non-room revenues for the first quarter totaled $32.9 million, up
$18.0 million or 121% compared to the prior quarter, reflecting the non-room
revenues generated by the hotels the REIT acquired in 2007. The majority of
the hotels acquired were full-service hotels which typically generate a higher
proportion of total revenues from non-room revenues such as food and beverage
sales. Non-room revenues from the Base Portfolio were essentially unchanged.
Hotel expenses for the three months ended March 31, 2008 increased by
$46.2 million when compared to the same period in 2007. This increase reflects
$43.2 million in expenses incurred in the hotels acquired following the first
quarter of 2007. Hotel expenses for the Base Portfolio were up 4.2% over the
prior period. The inclusion of an additional day as compared to the prior year
resulted in additional costs incurred. The quarter also included approximately
$430 in non recurring expenses incurred relating to pension accruals.
Excluding these impacts, hotel expenses increased approximately 2.5% during
the first quarter.
First quarter hotel operating income ("HOI") improved by 33.8% or
$6.0 million to $23.6 million. The 2007 Acquisitions contributed $6.8 million
of the overall HOI increase, with the Base Portfolio experiencing an HOI
decline of $0.8 million. The Base Portfolio's HOI decline reflects the
profitability impact of modest top-line revenue growth. Costs are largely
fixed at lower occupancy levels, such as the seasonally low first quarter.
The REIT's hotel operating income margin decreased by 3.1 points to 16.8%
for the first quarter of 2008 as compared to 2007. This decline is largely
attributable to the impact of recent acquisitions. These acquisitions generate
a larger portion of their business in non-room categories, which typically
yield lower margins. The Base Portfolio's operating margin decreased by 1.3
points to 18.6%. This decline was attributable to the lower occupancies in
March caused by the Easter holiday travel disruption, and its impact on
profitability given the fixed cost nature of certain costs. Margins for the
Base Portfolio were up one percentage point for January and February of 2008.
Other income and expenses for the three months ended March 31, 2008
totaled $41.4 million, up $15.5 million as compared to the prior period. The
increase is primarily attributable to higher depreciation and amortization of
$9.3 million, as well as increased interest expenses of $7.5 million resulting
from the hotels acquired in 2007. These higher costs were partially offset by
a reduction in corporate and administrative costs of $1.3 million in
connection with land transfer tax and legal costs associated with the
corporate reorganization completed in early 2007.
For the three months ended March 31, 2008, the REIT generated a future
income tax recovery of $3.5 million, as compared to $115.5 million in 2007.
The prior period's recovery related to the corporate reorganization completed
in early 2007, which eliminated certain corporate subsidiaries of InnVest.
Funds from operations for the three months ended March 31, 2008 decreased
$3.0 million to $3.4 million or $0.047 per unit basic and diluted (2007 -
$0.117 per unit basic and diluted).
For the three months ended March 31, 2008, InnVest generated a
distributable loss of $0.3 million or $0.004 per unit basic and diluted. This
compares to a distributable income of $3.8 million or $0.068 per unit basic
and diluted in the prior period. Given the seasonality inherent in the assets,
and the timing of the acquisition, the Legacy Portfolio was dilutive to
InnVest's distributable income per unit diluted by approximately $0.05 per
unit during the first quarter of 2008. However, the acquisition is expected to
be accretive on a full year basis in 2008.

BALANCE SHEET REVIEW

At March 31, 2008, InnVest's cash totaled $20.4 million, of which
$2.9 million is restricted for replacement of furniture, fixture and equipment
and capital improvements. Financial leverage was 47.8% debt to gross asset
value (defined as total assets before accumulated depreciation less future
income tax liabilities included in assets) excluding convertible debentures
and 57.0% including convertible debentures at the end of the period.
Continuing with its strategy of investing in its hotels, InnVest deployed
approximately $5.9 million for capital asset improvements during the first
quarter and committed an additional $2.8 million.
The REIT had unused operating loan availability of $16.2 million at
March 31, 2008. The REIT also has an unused loan facility of $29.1 million
available to fund 50% of capital expenditures incurred.

INCOME TAX DEFERRAL PERCENTAGE

In 2007, 40% of the distributions made during that year were not taxable
to unitholders. For calendar 2008, the REIT estimates that approximately 35%
of unitholder distributions will not be taxable to unitholders.

OUTLOOK

The fundamentals in the hotel industry continue to be favourable, despite
concerns over the US economy and the potential spill over into Canada. While
varying by market, PKF Consulting Inc. ("PKF"), lodging industry experts,
forecasts continued Canadian RevPAR growth in 2008 following solid growth in
2007. InnVest's geographic, customer and brand diversity ideally positions it
to continue to benefit from the favourable conditions in the hospitality
industry.
While InnVest is expecting RevPAR growth in its overall portfolio, there
are certain markets in Ontario and Quebec that will continue to be more
negatively impacted by the strength of the Canadian dollar. The decline in US
visitation is expected to continue, but is being offset by strengthening
domestic and international corporate and group travel.
The acquisition of the Legacy Portfolio in the fall of 2007 further
expanded the REIT's geographic diversity in Western Canada, which continues to
experience the strongest growth in the country. The acquisition also enhanced
InnVest's presence in the upscale segment of the lodging industry. While
dilutive in the first quarter of 2008 due to the seasonality inherent in the
hotel business, the Legacy acquisition is expected to be accretive on an
annual basis in 2008.
The REIT's outlook for 2008 continues to be in line with expectations at
the beginning of the year. The benefit of a full year of operations from the
acquisitions completed in 2007 and forecasted RevPAR growth are expected to
contribute to improved performance for the Trust in 2008. Having addressed all
near term financing requirements, and with no significant debt maturities
until 2010, InnVest is focused on optimizing the performance of its hotel
portfolio.

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 2007
annual information form which is available at http://www.sedar.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 REIT 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 150 hotel properties, with
19,606 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 9, 2008 at
11:00 a.m. Eastern time to discuss the performance of InnVest. Investors are
invited to access the call by dialing (416) 644-3419 or 1-800-731-5319. 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 9th
beginning at 12:00 pm through to 11:59 p.m. on May 16th. To access the
recording please call (416) 640-1917 and use the reservation number 21269646.

InnVest Real Estate Investment Trust
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CONSOLIDATED BALANCE SHEETS

March 31, December 31,
(in thousands of dollars) (Unaudited) 2008 2007
-------------------------------------------------------------------------

ASSETS

Current Assets
Cash $ 17,499 $ 22,271
Accounts receivable 24,456 28,677
Prepaid expenses and other assets 11,493 9,487
Assets held for sale (Note 22) 427 301
-------------------------------------------------------------------------
53,875 60,736

Restricted cash 2,924 2,995

Hotel properties (Note 3 and Note 4) 1,893,865 1,884,765

Other real estate properties (Note 5) 16,353 16,428

Licence contracts (Note 6) 18,840 19,169

Intangible and deferred assets (Note 7) 51,274 55,101

Assets held for sale (Note 22) 22,585 23,085
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$2,059,716 $2,062,279
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-------------------------------------------------------------------------

LIABILITIES

Current Liabilities
Bank indebtedness (Note 8) $ 32,800 $ 223,200
Accounts payable and accrued liabilities 78,190 73,682
Acquisition related liabilities 7,247 17,569
Distributions payable 6,886 6,844
Current portion of long-term debt (Note 9) 10,494 12,725
Liabilities related to assets held for
sale (Note 22) 859 610
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136,476 334,630

Long-term debt (Note 9) 929,088 698,892

Other long-term obligations (Note 10) 6,976 6,692

Convertible debentures (Note 11) 177,964 177,387

Future income tax liability (Note 13) 221,983 225,503

Long-term liabilities related to assets
held for sale (Note 22) 14,226 14,509
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1,486,713 1,457,613

UNITHOLDERS' EQUITY 573,003 604,666
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$2,059,716 $2,062,279
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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) INCOME AND COMPREHENSIVE (LOSS)
INCOME

Three Three
Months Ended Months Ended
(in thousands of dollars, except per unit March 31, March 31,
amounts) (Unaudited) 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Restated,
Note 22)


Total revenues (reference only) (Note 20) $ 143,190 $ 90,971

Hotel revenues $ 140,529 $ 88,358
-------------------------------------------------------------------------

Hotel expenses
Operating expenses (Note 18) 96,948 58,586
Property taxes, rent and insurance 14,363 9,165
Management fees (Note 18) 5,644 2,988
-------------------------------------------------------------------------
116,955 70,739
-------------------------------------------------------------------------

Hotel operating income 23,574 17,619
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Other (income) and expenses
Interest on mortgages and other debt 12,088 8,273
Interest on operating and bridge loans 2,847 294
Convertible debentures interest and accretion 3,560 2,427
Corporate and administrative (Note 18) 1,226 2,567
Capital tax 39 24
Other business income, net (Note 21) (993) (1,048)
Other income (72) (57)
Depreciation and amortization 22,670 13,352
-------------------------------------------------------------------------
41,365 25,832
-------------------------------------------------------------------------

Loss before income tax recovery (17,791) (8,213)

Future income tax recovery (3,520) (115,536)
-------------------------------------------------------------------------

Net (loss) income from continuing operations (14,271) 107,323

Loss from discontinued operations (Note 22) (302) (650)
(Writedown on assets held for sale) gain on
sale of assets held for sale (Note 22) (500) 659
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(802) 9
-------------------------------------------------------------------------

Net (loss) income and comprehensive (loss)
income $ (15,073) $ 107,332
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-------------------------------------------------------------------------


Net (loss) income from continuing operations,
per unit (Note 16)
Basic $ (0.195) $ 1.942
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ (0.195) $ 1.696
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net (loss) income per unit (Note 16)
Basic $ (0.206) $ 1.943
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ (0.206) $ 1.696
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net (loss) income from discontinued
operations, per unit
Basic $ (0.011) $ 0.001
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ (0.011) $ 0.000
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 Distrib-
dollars) (Unaudited) Income (Loss) utions Deficit Units in $
-------------------------------------------------------------------------

Balance December 31, 2006 $ 96,701 $ (228,933) $ (132,232) $ 543,363

CHANGES DURING THE PERIOD
Net income and
comprehensive income 107,332 - 107,332 -
Unit distributions
(Note 17) - (15,580) (15,580) -
Distribution reinvestment
plan units issued - - - 2,191
Conversion of debentures
(Note 11) - - - 4,908
Vested executive
compensation - - - 275
Executive and trustee
compensation - - - 27

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Balance March 31, 2007 $ 204,033 $ (244,513) $ (40,480) $ 550,764
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 17) - (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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Executive Holders'
(in thousands of and Trustee Conversion
dollars) (Unaudited) Compensation Option Total
-------------------------------------------------------------

Balance December 31, 2006 $ 278 $ 6,208 $ 417,617

CHANGES DURING THE PERIOD
Net income and
comprehensive income - - 107,332
Unit distributions
(Note 17) - - (15,580)
Distribution reinvestment
plan units issued - - 2,191
Conversion of debentures
(Note 11) - (240) 4,668
Vested executive
compensation (275) - -
Executive and trustee
compensation 61 - 88

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

Balance March 31, 2007 $ 64 $ 5,968 $ 516,316
-------------------------------------------------------------

Balance December 31, 2007 $ 417 $ 8,642 $ 604,666
CHANGES DURING THE PERIOD
Net loss and
comprehensive loss - - (15,073)
Unit distributions
(Note 17) - - (20,618)
Distribution reinvestment
plan units issued - - 3,873
Vested executive
compensation (151) - -
Executive and trustee
compensation 117 - 155

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

Balance March 31, 2008 $ 383 $ 8,642 $ 573,003
-------------------------------------------------------------
-------------------------------------------------------------

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 Three
Months Ended Months Ended
March 31, March 31,
(in thousands of dollars) (Unaudited) 2008 2007
-------------------------------------------------------------------------
(Restated,
Note 22)

OPERATING ACTIVITIES
Net (loss) income from continuing operations $ (14,271) $ 107,323
Add (deduct) items not affecting operations
Depreciation and amortization 22,670 13,352
Non-cash portion of interest expense 549 726
Future income tax recovery (3,520) (115,536)
Non-cash executive and trustee compensation 155 88
Convertible debentures accretion 287 212
Discontinued operations (179) (642)
Changes in non-cash working capital (6,152) (4,493)
-------------------------------------------------------------------------
(461) 1,030
-------------------------------------------------------------------------

FINANCING ACTIVITIES
Repayment of long-term debt (157,272) (2,324)
Proceeds from long-term debt 387,486 -
Unit distributions (16,703) (13,336)
Increase in operating loan 15,600 18,700
Proceeds from bridge loan 8,907 -
Repayment of bridge loan (215,000) -
Discontinued operations repayment of debt (57) (1,095)
-------------------------------------------------------------------------
22,961 1,945
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Capital expenditures on hotel properties (5,919) (5,880)
Discontinued operations capital expenditures - (60)
Hotel under development expenditures (3,818) (894)
Proceeds from sale of discontinued assets, net
of costs (Note 22) - 2,100
Additions to other assets (431) (411)
Acquisition of hotel property (Note 3) (17,175) -
Decrease in restricted cash 71 2,320
-------------------------------------------------------------------------
(27,272) (2,825)
-------------------------------------------------------------------------

(Decrease) increase in cash during the period (4,772) 150
Cash, beginning of period 22,271 4,531
-------------------------------------------------------------------------
Cash, end of period $ 17,499 $ 4,681
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplemental disclosure of cash flow
information:
Cash paid for interest $ 14,823 $ 8,796
Cash paid for income taxes (including capital
tax) $ 68 $ 69

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, 2008 (all dollar amounts are in thousands, except unit and per
unit amounts) (Unaudited)
-------------------------------------------------------------------------

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, 2008, the REIT owned 150 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, 2007, 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, 2007.

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. Significant Accounting Policies

The accounting policies followed in preparation of these financial
statements are consistent with those as set out in the audited financial
statements for the year ended December 31, 2007, except as follows:

Capital Disclosures

Effective January 1, 2008, the REIT adopted the Canadian Institute of
Chartered Accountants ("CICA") Section 1535 - Capital Disclosures on a
retroactive basis with restatement. This standard specifies the
disclosure of (i) an entity's objectives, policies and processes for
managing capital; (ii) quantitative data about what the entity regards as
capital; (iii) whether the entity has complied with any capital
requirements; and (iv) if it has not complied, the consequences of such
non-compliance (see Note 12).

Financial Instruments - Disclosures and Presentation

Effective January 1, 2008, the REIT adopted two new CICA accounting
standards: Section 3862 - Financial Instruments - Disclosures and Section
3863 - Financial Instruments - Presentation. These new sections replace
Section 3861 - Financial Instruments - Disclosure and Presentation. These
standards have been applied on a retroactive basis with restatement.
These standards revise and enhance disclosure requirements, and carry
forward, unchanged, existing presentation requirements. These new
sections place increased emphasis on disclosure about the nature and
extent of risks arising from financial instruments and how the entity
manages those risks (see Note 14).

Newly Built Hotels Acquired or Developed

As a result of increased acquisitions of newly built hotel properties,
the REIT has retroactively implemented a new accounting policy with
respect to costs capitalized to development properties. Capitalized costs
include interest on hotel specific debt, property taxes, general and
administrative expenses incurred directly in connection with the
acquisition and development of hotel properties, and net operations until
the earlier of hotel operating income break-even or one year (see Note
4).

3. Acquisitions

On February 12, 2008, the REIT purchased the Staybridge Suites Guelph for
$17,360 plus transaction costs. The acquisition was funded through new
debt proceeds of $8,300 and cash on hand.

During the year ended December 31, 2007, InnVest became the owner of
nine, and the lessee of two, of the following eleven first class hotels:
The Fairmont Palliser, Sheraton Suites Calgary Eau Claire, Delta Calgary
Airport, Fairmont Hotel Macdonald, Delta Winnipeg Hotel, Delta Ottawa
Hotel and Suites, Delta Centre-Ville, Delta Beauséjour, Delta Prince
Edward, Delta Barrington and the Delta Halifax (collectively, the "Legacy
Portfolio"). The REIT also completed the purchases of the Staybridge
Suites London and the Holiday Inn Express North Bay in 2007.

The purchase price allocations associated with these acquisitions is
summarized as follows:

March 31, December 31,
2008 2007
Total Total
-------------------------------------------------------------------------
Current assets $ - $ 24,473
Hotel properties 17,360 794,152
Other assets - 47,466
-------------------------------------------------------------------------
17,360 866,091
Assumption of existing long-term debt - (196,674)
Future income tax liability - (127,133)
Current liabilities - (26,882)
Long-term liabilities - (2,493)
-------------------------------------------------------------------------
$ 17,360 $ 512,909
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The consideration paid, including transaction costs, consists of the
following:
Cash $ 8,875 $ 32,127
Bank indebtedness - 212,850
Units issued - 191,748
Debentures issued - 58,615
New mortgage debt 8,300 -
-------------------------------------------------------------------------
17,175 495,340
-------------------------------------------------------------------------
Acquisition related liabilities 185 17,569
-------------------------------------------------------------------------
$ 17,360 $ 512,909
-------------------------------------------------------------------------
-------------------------------------------------------------------------

As at March 31, 2008, the REIT is continuing to evaluate the fair value
of the net assets acquired in 2007, and based on this ongoing evaluation,
the purchase price allocation may be adjusted in future periods.

4. Hotel Properties

March 31, December 31,
2008 2007
Accumulated Net Book Net Book
Cost Depreciation Value Value
-------------------------------------------------------------------------
Land $ 186,068 $ - $ 186,068 $ 182,960
Buildings 1,764,260 146,142 1,618,118 1,612,650
Furniture, fixtures
and equipment 126,092 36,413 89,679 89,155
-------------------------------------------------------------------------
$ 2,076,420 $ 182,555 $ 1,893,865 $ 1,884,765
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Included in Hotel Properties are two newly built hotels acquired and one
hotel developed internally adjacent to an existing owned hotel, with a
combined net book value of $51,815 (December 31, 2007 - $29,828). Included in
this balance is $475 of net operating losses. No amortization has been taken
on these three hotels.

5. Other Real Estate Properties

March 31, December 31,
2008 2007
Accumulated Net Book Net Book
Cost Depreciation Value Value
-------------------------------------------------------------------------

Land $ 1,624 $ 1,624 $ 1,624
Buildings 15,403 712 14,691 14,766
Furniture, fixtures
and equipment 60 22 38 38
-------------------------------------------------------------------------
$ 17,087 $ 734 $ 16,353 $ 16,428
-------------------------------------------------------------------------
-------------------------------------------------------------------------

6. License Contracts

March 31, December 31,
2008 2007
Accumulated Net Book Net Book
Cost Amortization Value Value
-------------------------------------------------------------------------

Licence contracts $ 26,320 $ 7,480 $ 18,840 $ 19,169
-------------------------------------------------------------------------
-------------------------------------------------------------------------

During the three months ended March 31, 2008, the license contracts were
amortized by $329.

7. Intangible and Deferred Assets

March 31, December 31,
2008 2007
Accumulated Net Book Net Book
Cost Amortization Value Value
-------------------------------------------------------------------------

Deferred financing
related to credit
facility $ 2,243 $ 2,150 $ 93 $ 1,314
Intangible assets 61,411 10,230 $ 51,181 53,787
-------------------------------------------------------------------------
$ 63,654 $ 12,380 $ 51,274 $ 55,101
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Intangible assets include customer and tenant relationships, lease
origination costs, above and below market leases, and franchise rights
recognized upon acquisition of new hotel properties and other real estate
properties.

During the three months ended March 31, 2008, the intangible assets were
amortized by $2,470 and the deferred financing related to the credit
facility was amortized by $1,314 as the bridge loan was paid in full when
new financing was completed on February 29, 2008 (see Note 9).

8. Bank Indebtedness

In the first quarter of 2008, the REIT provided five unencumbered
properties as security to increase its operating line from $25,000 to
$40,000. The operating line bears interest at Canadian bank prime plus
0.5% or Canadian Bankers' Acceptance rate plus 1.5%. With the addition of
the five properties, the operating line is now secured by 14 properties
and is payable on demand.

A bridge loan was funded on March 19, 2008 for $9,000, whereby the REIT
provided an additional unencumbered hotel as security. The bridge loan
bears interest at Canadian Bankers' Acceptance rate plus 2.0%, is for a
term of one year, and requires interest payments only.

The REIT's bridge loan facility of $215,000, entered into as part of the
closing for the acquisition of the Legacy Portfolio, was paid in full as
part of the refinancing of these assets (See Note 9).

March 31, December 31,
2008 2007
-------------------------------------------------------------------------
Operating line $ 23,800 $ 8,200
Bridge loan 9,000 -
Legacy Portfolio acquisition bridge loan - 215,000
-------------------------------------------------------------------------
$ 32,800 $ 223,200
-------------------------------------------------------------------------

9. Long-term Debt

March 31, December 31,
2008 2007
-------------------------------------------------------------------------

Mortgages payable $ 947,220 $ 715,699
Less debt issuance costs (7,638) (4,082)
-------------------------------------------------------------------------
Total long-term debt 939,582 711,617
Less current portion (10,494) (12,725)
-------------------------------------------------------------------------
Net long-term debt $ 929,088 $ 698,892
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Substantially all of the REIT's assets have been pledged as security
under debt agreements. At March 31, 2008, long-term debt had a weighted
average interest rate of 5.8% (December 31, 2007 - 6.4%) and a weighted
average effective interest rate of 6.1% (December 31, 2007 - 6.5%). The
long-term debt is repayable in average monthly payments of principal and
interest totalling $5,551 (December 31, 2007 - $4,805) per month, and
matures at various dates from June 1, 2009 to March 21, 2018.

Scheduled repayment of long-term debt is as follows:

2008 (remainder of the year) $ 7,903
2009 10,690
2010 188,676
2011 278,302
2012 60,190
2013 and thereafter 401,459
-------------------------------------------------------------------------
$ 947,220
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The current portion of long-term debt on the balance sheet is based on
the twelve months ending March 31, 2009, whereas the repayment schedule
above reflects the fiscal year.

The estimated fair value of the REIT's long-term debt at March 31, 2008
was approximately $950,851 (December 31, 2007 - $717,463). 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 $74,702 (December 31, 2007 - $79,777) of
mortgages payable, which are subject to floating interest rates. Interest
expense will increase by $747 for every 1% increase in the base Bankers'
Acceptance rate.

As part of the Staybridge Suites Guelph acquisition (see Note 3), the
REIT obtained $8,300 new debt bearing an interest rate of 5.5% for a
ten-year term. The issuance costs associated with the debt amounted to
$11.

On February 29, 2008, the REIT secured an additional $350,000 of mortgage
financing on 10 of the 11 hotels in the Legacy Portfolio. Existing debt
of $154,765 was paid out and the REIT obtained new debt of $40,000 on two
assets which were previously unencumbered. Transaction costs of $3,803
were incurred for this transaction. InnVest fixed the interest rates on
$370,000, with the remaining $20,000 subject to floating rates. The
weighted average term to maturity is 4.9 years and the weighted average
blended interest rate is 5.6%.

A portion of the proceeds from the February 29, 2008 refinancing
transaction were used to repay the balance of the $215,000 bridge loan
facility entered into for the acquisition of the Legacy Portfolio in
2007, which had a maturity date of June 13, 2008.

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.

10. Other Long-term Obligations

March 31, December 31,
2008 2007
-------------------------------------------------------------------------

Capital leases $ 1,767 $ 1,767
Other lease obligations 375 360
-------------------------------------------------------------------------
2,142 2,127
Less current portion (165) (165)
-------------------------------------------------------------------------
Total lease obligations 1,977 1,962
-------------------------------------------------------------------------
Pension liability 3,552 3,294
Asset retirement obligation 1,447 1,436
-------------------------------------------------------------------------
Total other long-term obligations $ 6,976 $ 6,692
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Defined Benefit Pension Plans

The defined benefit pension plans were assumed pursuant to the
acquisition of certain hotels in 2006 and the Legacy Portfolio in the
third quarter of 2007. The most recent actuarial valuation with respect
to the funding of the REIT's pension plans was prepared on March 31,
2008. The pension plan assets as at March 31, 2008 consist of the
following:

Non-Union
Non- March 31, December 31,
Management Management 2008 2007
Pension Pension Total Total
Benefit Benefit Benefit Benefit
Plans Plans Plans Plans
-------------------------------------------------------------------------
Accrued benefit
obligation $ 5,726 $ 1,327 $ 7,053 $ 6,908
Fair value of plan
assets 2,466 1,265 3,731 3,614
-------------------------------------------------------------------------
Funded status - plan
deficit 3,260 62 3,322 3,294
Unamortized net
actuarial (loss) gain (122) 352 230 249
-------------------------------------------------------------------------

Accrued employee
future benefit
liability $ 3,138 $ 414 $ 3,552 $ 3,543
-------------------------------------------------------------------------
-------------------------------------------------------------------------

11. 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 -
Series C August 1, 2014 5.85% 7.42% 70,000 -
-------------------------------------------------------------------------
$ 202,500 $ (11,736)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Holders'
Face Amount Conversion Transaction March 31,
Debenture Outstanding Option Accretion Costs 2008
-------------------------------------------------------------------------
Series A $ 45,764 $ (2,289) $ 1,195 $ (1,128) $ 43,542
Series B 75,000 (3,400) 886 (2,458) 70,028
Series C 70,000 (2,953) 270 (2,923) 64,394
-------------------------------------------------------------------------
$ 190,764 $ (8,642) $ 2,351 $ (6,509) $ 177,964
-------------------------------------------------------------------------
-------------------------------------------------------------------------



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)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Holders'
Face Amount Conversion Transaction March 31,
Debenture Outstanding Option Accretion Costs 2007
-------------------------------------------------------------------------
Series A $ 45,764 $ (2,289) $ 1,127 $ (1,356) $ 43,246
Series B 75,000 (3,400) 768 (2,497) 69,871
Series C 70,000 (2,953) 169 (2,946) 64,270
-------------------------------------------------------------------------
$ 190,764 $ (8,642) $ 2,064 $ (6,799) $ 177,387
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The fair value of the REIT's convertible debentures at March 31, 2008 is
$178,518 (December 31, 2007 - $180,917).

12. 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 to ensure compliance
with debt and investment restrictions outlined in its Declaration of
Trust as well as external existing debt covenants, allow for the
implementation of its acquisition strategy and hotel property
refurbishment program and finally build long-term unitholder value. The
issuance 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, 2008, 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 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 the
accumulated depreciation and amortization, less future income tax
liabilities.

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 if 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 13. The REIT can issue on a non-cumulative
basis a total of approximately $143 million in equity annually in each of
2008 through 2010 and maintain its relief from taxation to the end of
2010.

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 17).

The REIT maintains an operating line of $40 million 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, 2008 and 2.8 times at December 31 ,2007);
(b) Trailing twelve months consolidated EBITDA to consolidated debt
service of not less than 1.5 times (actual being 2.1 times at
March 31, 2008 and 2.3 times at December 31 ,2007); and
(c) Unitholders' Equity of not less than $300,000 (actual being
$573,003 at March 31, 2008 and $604,666 at December 31, 2007.

At March 31, 2008, the REIT's leverage excluding and including
convertible debentures was 47.8% and 57.0% respectively, calculated as
follows:

March 31, December 31,
2008 2007
-------------------------------------------------------------------------
Total assets per Balance Sheet $ 2,059,716 $ 2,062,279

Accumulated depreciation and
amortization 216,430 192,973
Future income tax liability (221,983) (225,503)
Future income tax liability not
included in assets 23,536 23,909
-------------------------------------------------------------------------
Gross Asset Value $ 2,077,699 $ 2,053,658
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Book value of mortgages
and other
indebtedness(1) $ 994,131 47.8% $ 953,067 46.4%
Convertible
debentures(2) 190,764 9.2% 190,764 9.3%
-------------------------------------------------------------------------
$ 1,184,895 57.0% $ 1,143,831 55.7%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

13. Income Taxes and Future Income Tax Liability

InnVest currently qualifies as a Mutual Fund Trust for income tax
purposes. As required by its Declaration of Trust, InnVest intends to
distribute all taxable income to its unitholders and to deduct these
distributions for income tax purposes.

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, InnVest 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 InnVest does not become a Qualifying
REIT by then. Management is reviewing whether it is feasible to
reorganize InnVest so that non-qualifying operations and assets are
transferred under a plan of arrangement to a taxable entity that is held
by InnVest unitholders, and that the InnVest 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
InnVest and its unitholders.

14. 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 the 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, 2008 the REIT's floating rate of debt balance of $74,834
(December 31, 2007 - $79,777) is approximately 8% of total long-term
debt.

Credit Risk

Credit risks relate 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
direct bill. The accounts receivable as at March 31, 2008 is $24,456
(December 31, 2007 - $28,677). InnVest reviews the accounts receivables
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, 2008 is $567 (December 31, 2007 - $670) or 2.3% (December 31,
2007 - 2.3%) of total receivables. The amount credited in the operating
income for the three months ended March 31, 2008 is $49, due to amounts
provided for which were subsequently collected. (Three months ended
March 31, 2007 - $48 expensed).

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 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.

Fair Values

The fair values of the REIT's financial assets and liabilities,
representing net working capital, approximate their recorded values at
March 31, 2008 and December 31, 2007 due to their short-term nature.

The fair value of the REIT's long-term debt exceeds the carrying value by
approximately $3,631 at March 31, 2008 (December 31, 2007 - fair value
exceeded carrying value by approximately $5,846) due to changes in
interest rates since the dates on which the individual mortgages were
received. 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 exceeds the carrying
value by approximately $554 at March 31, 2008 (December 31, 2007 - fair
value exceeded carrying value by approximately $3,530). The fair value of
convertible debentures has been estimated based on the market rates for
convertible debentures as at March 31, 2008 and December 31, 2007.

Letters of Credit

As at March 31, 2008 the REIT has letters of credit totaling $3,408
(December 31, 2007 - $3,378) held on behalf of security deposits for
various utility companies and liquor licences, and additional security
for the pension liabilities.

15. 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, 2006 55,045,351 $ 543,363
Units issued on conversion of debentures 384,720 4,908
Units issued under distribution reinvestment
plan 160,050 2,191
Units issued for vested executive compensation 20,139 275
Units issued under trustee compensation plan 1,650 27
-------------------------------------------------------------------------
Balance at March 31, 2007 55,611,910 $ 550,764
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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 16,033 151
Units issued under trustee compensation plan 3,711 38
-------------------------------------------------------------------------
Balance at March 31, 2008 73,447,668 $ 761,437
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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, 2008 is 35,708 units. Under the Trustee
Compensation Plan, 3,711 units were issued during the three months ended
March 31, 2008 (Three months ended March 31, 2007 - 1,650 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, 2008 is 827,015
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, 2008, excluding granted units which have fully vested:

Units
Unvested Accumulated
Executive from Total
units Distributions Units
-------------------------------------------------------------------------
January 1, 2005 - granted 13,118 4,362 17,480
January 1, 2006 - granted 12,968 3,021 15,989
January 1, 2007 - granted 15,000 1,918 16,918
January 1, 2008 - granted 20,455 626 21,081
January 1, 2008 - units vested (6,559) (2,049) (8,608)
-------------------------------------------------------------------------
54,982 7,878 62,860
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In March 2008, the Board of Trustees approved the granting of 20,455
units effective as of January 1, 2008. 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. Unitholders who so elect will receive a further
bonus distribution of units equal in value to 3% of each distribution
that was reinvested.

16. Per Unit Information

Three Months Three Months
Ended ended
March 31, March 31,
2008 2007
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
(Restated,
Note 22)
Net (loss) income
from continuing
operations - basic $ (14,271) 73,234,488 $ 107,323 55,253,435
Convertible
debentures - - 2,427 9,409,094
Dilutive effect of
executive compensation
plan - 61,950 - 52,234
-------------------------------------------------------------------------
Net income from
continuing operations
- diluted $ (14,271) 73,296,438 $ 109,750 64,714,763
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Three Months Three Months
Ended Ended
March 31, March 31,
2008 2007
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
(Restated,
Note 22)
Net (loss) income
- basic $ (15,073) 73,234,488 $ 107,332 55,253,435
Convertible debentures - - 2,427 9,409,094
Dilutive effect of
executive compensation
plan - 61,950 - 52,234
-------------------------------------------------------------------------
Net income - diluted $ (15,073) 73,296,438 $ 109,759 64,714,763
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The impact of the convertible debentures has been excluded from the
March 31, 2008 per unit calculations above as the impact of the
conversions would not be dilutive.

17. 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 per unit has been calculated
on a basis consistent with that prescribed by Canadian GAAP for
calculating earnings per unit.

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% 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.

Three Three
Months Months
Ended Ended
March 31, March 31,
2008 2007
-------------------------------------------------------------------------
Net (loss) income $ (15,073) $ 107,332
-------------------------------------------------------------------------

Add (deduct)
Depreciation and amortization 22,670 13,750
Future income tax recovery (3,520) (115,536)
Non-cash portion of interest expense 549 726
Reserve for replacement of furniture, fixtures
and equipment and capital improvements (5,848) (3,620)
Convertible debenture accretion 287 212
Corporate reorganization costs - 1,471
Non-cash executive and trustee compensation 155 88
Deferred land lease expense and retail lease
income, net 8 14
Writedown (gain on) asset held for sale 500 (659)
-------------------------------------------------------------------------
14,801 (103,554)
-------------------------------------------------------------------------
Distributable (loss) income (272) 3,778
Distributions
Required under the Declaration of Trust - 3,022
Discretionary 20,618 12,558
-------------------------------------------------------------------------
Distributions paid or payable 20,618 15,580
-------------------------------------------------------------------------
Distributions in excess of distributable
income $ (20,890) $ (11,802)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

18. 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 Management 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 10 years with two successive five-
year renewal terms, subject to the consent of Westmont and approval of
the REIT. The Agreements will expire July 25, 2012. 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 (see
Note 17) 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.

In addition to the base management fee and incentive fee, Westmont is
entitled to reasonable 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.

During the three months ended March 31, 2008 and 2007, the fees charged
to the REIT pursuant to the Agreements were as follows:

March 31, March 31,
2008 2007
-------------------------------------------------------------------------
Fees from continuing operations: (Restated,
Note 22)
Management fees $ 2,713 $ 2,624
Asset management fees (included in hotel
operating expenses) 650 78
Accounting services (included in hotel
operating expenses) 565 552
Administrative services (included in corporate
and administrative expenses) 95 105
Project management and general contractor
services (capitalized to hotel properties) 111 158
Fees from discontinued operations 148 100
-------------------------------------------------------------------------
$ 4,282 $ 3,617
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In addition, salaries of REIT employees paid by Westmont and reimbursed
by the REIT were $36 (March 31, 2007 - $35). Included in accounts payable
and accrued liabilities are amounts outstanding at March 31, 2008
totalling $1,923 (December 31, 2007 - $1,137).

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, subject to an annual minimum fee.

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 September 30, 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, 2008, total management fees paid to Hilton were $196 (March 31,
2007 - $133).

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, 2008,
total management fees paid to Delta were $125 (March 31, 2007 - $151).

With the acquisition of the Legacy Portfolio in September 2007, InnVest
assumed the existing hotel management agreements with Fairmont Hotel 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. Legacy was also
subject to a portfolio incentive fee on 11 of its 25 hotels, of which six
are now owned or leased by InnVest. The base management fee is equal to
3% of total revenues from the hotel for nine of the hotels and 2% of
total revenues for the remaining two hotels. The agreements mature from
December 31, 2010 to December 31, 2047. The 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, 2008, total management fees paid for the
Legacy Portfolio were $1,975.

19. 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 for discontinued
operations and assets held for sale at March 31, 2008.

Western Ontario Quebec Atlantic Total
-------------------------------------------------------------------------
Three Months
Ended March 31,
2008
Hotel
revenues $ 38,610 $ 54,995 $ 28,899 $ 18,025 $ 140,529
Hotel
expenses 29,323 44,804 26,195 16,633 116,955
-------------------------------------------------------------------------
Hotel
operating
income $ 9,287 $ 10,191 $ 2,704 $ 1,392 $ 23,574
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three Months
Ended March 31,
2007
Hotel
revenues $ 8,985 $ 49,763 $ 21,332 $ 8,278 $ 88,358
Hotel
expenses 6,289 39,380 18,218 6,852 70,739
-------------------------------------------------------------------------
Hotel
operating
income $ 2,696 $ 10,383 $ 3,114 $ 1,426 $ 17,619
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital
expenditures
on hotel
properties
Three Months
ended
March 31,
2008 $ 413 $ 1,907 $ 1,386 $ 2,213 $ 5,919
Three months
ended
March 31,
2007 $ 373 $ 4,079 $ 877 $ 551 $ 5,880
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Hotel
properties
March 31,
2008 $ 520,294 $ 706,698 $ 423,073 $ 243,800 $1,893,865
December 31,
2007 $ 525,322 $ 690,284 $ 430,570 $ 238,589 $1,884,765
-------------------------------------------------------------------------
-------------------------------------------------------------------------

20. Total Revenues

Three Three
Months Months
ended Ended
March 31, March 31,
2008 2007
-------------------------------------------------------------------------
(Restated,
Note 22)
Hotel revenues $ 140,529 $ 88,358

Other business revenues (Note 21) 2,661 2,613
-------------------------------------------------------------------------
$ 143,190 $ 90,971
-------------------------------------------------------------------------
-------------------------------------------------------------------------

21. Other Business Income

Three Three
Months Months
Ended Ended
Franchise Retail/ Retirement March 31, March 31,
Business Office Residence 2008 2007
-------------------------------------------------------------------------

Revenues $ 1,729 $ 663 $ 269 $ 2,661 $ 2,613

Expenses 1,209 280 179 1,668 1,565
-------------------------------------------------------------------------
Other business
income, net $ 520 $ 383 $ 90 $ 993 $ 1,048
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 acquired in 2006.

22. Assets Held for Sale and Discontinued Operations

On March 30, 2007, the REIT sold a hotel held for sale in Atlantic Canada
for $2,350 less closing costs of $250, and recorded a gain of $659. The
debt owing of $1,010 was paid out of the proceeds. In addition to the
operations of this hotel, the results of discontinued operations are
comprised of properties previously recognized as assets held for sale
including an Ontario hotel property reclassified to asset held for sale
on April 18, 2006 and three Ontario hotel properties and one Quebec hotel
property reclassified on December 18, 2007. These discontinued operations
are summarized below. The comparative amounts in the statements of net
(loss) income have been restated to reflect that these assets were held
for sale during the comparative period.

Discontinued operations for the three months ended March 31, 2008 and
2007 are as follows:

2008 2007
-------------------------------------------------------------------------
(Restated)
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Hotel revenues $ 1,718 $ 2,109
-------------------------------------------------------------------------

Hotel expenses
Operating expenses 1,439 1,661
Property taxes, rent and insurance 307 355
Management fees 58 71
-------------------------------------------------------------------------
1,804 2,087
-------------------------------------------------------------------------
Hotel operating (loss) income (86) 22
-------------------------------------------------------------------------
Interest on mortgages 216 274
Depreciation and amortization - 398
-------------------------------------------------------------------------
216 672
-------------------------------------------------------------------------
Loss from discontinued operations (302) (650)

Gain on sale of assets held for sale - (659)
Write down of assets held for sale 500 -
-------------------------------------------------------------------------
500 (659)
-------------------------------------------------------------------------

Net (loss) income from discontinued operations $ (802) $ 9
-------------------------------------------------------------------------
-------------------------------------------------------------------------

23. Comparative Information

Certain prior period amounts have been reclassified to conform to the
current period presentation.

%SEDAR: 00018005E

Contact Information

  • Kenneth D. Gibson
    President and Chief Executive Officer
    (905) 206-7100
    Fax: (905) 206-7114

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