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

InnVest Real Estate Investment Trust

November 09, 2007 08:00 ET

InnVest REIT reports results for the Three and Nine Months Ended September 30, 2007

TORONTO, ONTARIO--(Marketwire – Nov. 9, 2007) - InnVest Real Estate Investment Trust (TSX:INN.UN)(TSX:INN.DB.A)(TSX:INN.DB.B)(TSX:INN.DB.C) today announced financial results for the three and nine months ended September 30, 2007.

"Strong performance in our hotels located in the Western, Atlantic and Quebec regions allowed InnVest to grow its same hotel RevPAR in the quarter and the contribution from the acquired hotels allowed InnVest to continue to grow its distributable income", said Mr. Kenneth Gibson, President and Chief Executive Officer of InnVest REIT.


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Financial Highlights
-------------------------------------------------------------------------
(In thousands of dollars except average daily rate, revenue
per available room and per unit amounts)
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Three months ended Nine months ended
September 30 September 30
-------------------------------------------------------------------------
2007 2006 +/- 2007 2006 +/-
-------------------------------------------------------------------------
Occupancy 72.7% 73.1% (0.4)% 64.8% 65.6% (0.8)%
-------------------------------------------------------------------------
Average daily
rate ("ADR") $110.36 $103.69 $6.67 $103.86 $97.48 $6.38
-------------------------------------------------------------------------
Revenue Per
Available Room
("RevPAR") $80.18 $75.84 $4.34 $67.26 $63.94 $3.32
-------------------------------------------------------------------------
(In thousnads
of dollars,
except per
unit amounts)
-------------------------------------------------------------------------
Operating
revenues $138,661 $117,119 $21,542 $340,154 $290,265 $49,889
-------------------------------------------------------------------------
Hotel operating
income $49,869 $44,747 $5,122 $101,887 $94,098 $7,789
-------------------------------------------------------------------------
Net income and
comprehensive
income $30,209 $23,536 $6,673 $24,250 $39,341 ($15,091)
-------------------------------------------------------------------------
Add/(deduct)
Depreciation,
amortization
and
accretion 14,086 12,972 1,114 41,942 36,200 5,742
Future income
tax (recovery)
expense (5,068) (1,265) (3,803) 2,022 (14,171) 16,193
Non-cash
executive
and trustee
compensation 158 86 72 386 261 125
(Gain) on
sale, write
down of
assets held
for sale - - - (833) 1,000 (1,833)
Corporate
reorgani-
zation
expense 43 - 43 1,514 - 1,514
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Funds from
operations(1) $39,428 $35,329 $4,099 $69,281 $62,631 $6,650
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Funds from
operations
per unit
- basic $0.592 $0.645 ($0.053) $1.168 $1.210 ($0.042)
-------------------------------------------------------------------------
- diluted $0.535 $0.578 ($0.043) $1.089 $1.118 ($0.029)
-------------------------------------------------------------------------
Amortization
of deferred
financing
costs - 710 (710) - 1,939 (1,939)
Non-cash
portion of
interest
expense 540 - 540 2,017 - 2,017
Reserve for
replacement
of furniture,
fixtures and
equipment and
capital
improvements (5,551) (4,746) (805) (13,630) (11,688) (1,942)
Convertible
debentures
accretion 214 211 3 616 595 21
Deferred land
lease expense
and retail
lease income,
net 8 34 (26) 25 84 (59)
-------------------------------------------------------------------------
Distributable
income(1) $34,639 $31,538 $3,101 $58,309 $53,561 $4,748
Distributable
income per
unit
- basic $0.520 $0.575 ($0.055) $0.983 $1.034 ($0.051)
-------------------------------------------------------------------------
- diluted $0.474 $0.519 ($0.045) $0.931 $0.972 ($0.041)
-------------------------------------------------------------------------
Distributions
per unit $0.2813 $0.2813 - $0.5625 $0.5625 -
-------------------------------------------------------------------------

(1) Funds from operations and distributable income are measures of
earnings and cash flow that are not required or does not have a
prescribed meaning 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 second
quarter in 2006 and in 2007, for which comparative data is not available, are
as follows:

Three months ended Nine months ended
September 30 September 30
2007 2006 Var % 2007 2006 Var %
-------------------------------------------------------------------------
Occupancy
Ontario 69.2% 71.5% (3.2)% 62.9% 64.8% (2.9)%
Québec 74.1% 74.8% (0.9)% 64.1% 65.4% (2.0)%
Atlantic 84.1% 84.9% (0.9)% 68.3% 68.2% 0.1 %
Western 73.4% 75.9% (3.3)% 66.9% 65.2% 2.6 %
-----------------------------------------------------------
Total 72.3% 74.2% (2.6)% 64.3% 65.3% (1.5)%
-----------------------------------------------------------
-----------------------------------------------------------
ADR
Ontario $108.53 $106.73 1.7 % $105.11 $103.22 1.8 %
Québec $101.00 $96.72 4.4 % $96.03 $93.11 3.1 %
Atlantic $109.45 $103.82 5.4 % $97.97 $93.62 4.6 %
Western $92.11 $84.30 9.3 % $86.60 $79.83 8.5 %
-----------------------------------------------------------
Total $104.90 $101.33 3.5 % $99.97 $97.07 3.0 %
-----------------------------------------------------------
-----------------------------------------------------------

RevPAR
Ontario $75.12 $76.36 (1.6)% $66.16 $66.90 (1.1)%
Québec $74.85 $72.37 3.4 % $61.54 $60.85 1.1 %
Atlantic $92.08 $88.11 4.5 % $66.95 $63.89 4.8 %
Western $67.65 $64.01 5.7 % $57.95 $52.02 11.4 %
-----------------------------------------------------------
Total $75.83 $75.15 0.9 % $64.24 $63.41 1.3 %
-----------------------------------------------------------
-----------------------------------------------------------

RECENT DEVELOPMENTS

In September 2007, LGY Acquisition LP ("LGY"), a joint venture of InnVest
and Cadbridge Investors LP, acquired Legacy Real Estate Investment Trust
("Legacy") and in October 2007, ten of the hotels (and the operating assets
relating thereto) previously held by Legacy were transferred to affiliates of
the REIT as part of a reorganization of the affairs of Legacy. An eleventh
hotel is expected to be transferred to an affiliate of the REIT prior to the
end of 2007.

The purchase price of $652 million, plus closing and transaction costs
was partially funded through the issuance of $200 million of equity at a price
of $12.35 per subscription receipt representing the right to receive trust
units of the REIT and $70 million of convertible extendible unsecured
subordinated debentures. The remainder of the purchase price was satisfied
with the assumption of $194 million in mortgage debt secured by the properties
and $215 million of bridge financing from a Canadian chartered bank. InnVest
intends to refinance the existing mortgages and arrange new mortgage financing
on certain of the acquired assets that are currently unencumbered. The bridge
loan will be repaid from the proceeds of these financings.

The subscription receipts were exchanged on a one-for-one basis for units
of InnVest upon completion of LGY's take-over bid for Legacy. The convertible
debentures have a maturity date of August 1, 2014, a coupon of 5.85% per annum
and will pay interest semi-annually in arrears on August 1 and February 1 in
each year commencing on February 1, 2008. The convertible debentures are
convertible into 68.027 units of the REIT per $1,000 principal amount, at any
time, at the option of the holder, representing a conversion price of $14.70
per unit.

The acquired hotels are leading properties in their respective markets
and include a number of historical landmarks. The majority of the acquired
hotels have considerable meeting space, multiple food and beverage facilities
and are located in downtown city centre locations within very close proximity
to a number of demand drivers, including but not limited to shopping and
recreation areas, businesses, restaurants, convention centres, historical
sites and casinos.

Details of the hotel properties acquired by InnVest are as follows:

Hotel Location Rooms
-------------------------------------------------------------------------
The Fairmont Palliser Calgary, Alberta 405
Sheraton Suites Calgary Eau
Claire Calgary, Alberta 323
The Fairmont Hotel Macdonald Edmonton, Alberta 199
Delta Calgary Airport Calgary, Alberta 296
Delta Winnipeg Hotel Winnipeg, Manitoba 393
Delta Ottawa Hotel and Suites Ottawa, Ontario 328
Delta Centre-Ville Montréal, Québec 711
Delta Beauséjour Moncton, New Brunswick 310
Delta Prince Edward Charlottetown, Prince Edward Island 211
Delta Barrington Halifax, Nova Scotia 200
Delta Halifax Halifax, Nova Scotia 296
-------
Total 3,672
-------

The acquisition of the Legacy Portfolio enabled InnVest to significantly
expand its presence in the up-scale hotel segment in Canada at a price below
replacement cost. The Legacy Portfolio also expands InnVest's presence in
western Canada, which is expected to continue to lead growth across the
country, and further diversifies the REIT's brand association to include the
internationally renowned Sheraton and Fairmont brands.

Also in the quarter, InnVest acquired two new build hotels, the 117 room
Staybridge Suites located in London, Ontario and a 116 room Holiday Inn
Express located in North Bay, Ontario for a combined cost of $31.5 million
plus transaction costs. The REIT assumed first mortgages of $8.3 million and
$7.1 million, which bear interest at 6.4% and 6.0% respectively, each for a
term of 10 years, with the balance being funded from cash on hand.

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

Three months ended September 30, 2007

In the third quarter hotel revenue increased by $21.5 million, with the
majority of the increase due to the hotels acquired in 2006 and 2007. The Base
Portfolio of 133 hotels contributed $693 of the increase. The 2006
Acquisitions include the two Hilton Hotels acquired on September 19, 2006,
while the 2007 acquisitions include the 11 hotels acquired in the Legacy
transaction and the newly built London Staybridge Suites and the North Bay
Holiday Inn Express.

The increase of $15.9 million in room revenues for the three months ended
September 30, 2007 reflects $7.4 million and $7.6 million in revenues from the
hotels acquired in 2006 and 2007 respectively. The balance of $955 improvement
reflects an overall increase in room revenue of 0.9% in the Base Portfolio.
There were increases in the Quebec, Atlantic and Western regions, with the
largest dollar and percentage increase experienced in the Western region.

Non-room revenues increased by $5.6 million, reflecting the non-room
revenues generated by the hotels the REIT acquired in 2006, which were not
owned for the entire comparative period and the 2007 Acquisitions. The
majority of the hotels which were acquired in 2006 and 2007 generate a higher
proportion of total revenues from non-room revenues such as food and beverage
sales.

Hotel expenses for the three months ended September 30, 2007 increased by
$16.4 million or 22.7% when compared to the same period in 2006. This increase
reflects $7.2 million in expenses incurred in the hotels acquired in 2006
after the end of the first quarter that were not owned for the entire
comparative period and $8.0 million in expenses in the hotels acquired in
2007. The remaining $1.2 million related to the Base Portfolio represents a
1.6% increase over the same period in 2006.

The net amount of other income and expenses for the three months ended
September 30, 2007 was $24.7 million, $2.0 million or 8.6% more than the same
period in 2006. The main contributors to this increase were a $1.8 million
increase in interest on mortgages and other debt, a $769 increase in
convertible debentures interest and accretion, a $427 increase in depreciation
and amortization, a $490 increase in corporate and administrative expenses, a
$1.3 million increase in other income and a $337 reduction in capital tax. The
increases were mainly related to the hotels acquired during 2006 and 2007. The
increase in convertible debentures interest and accretion was the result of
the issuance of the Series C - 5.85% Debentures on August 3, 2007. The
reduction in capital tax was the result of the corporate reorganization
completed on January 2, 2007.

Current income tax recovery for the three months ended September 30, 2007
was $5, because of the elimination of the large corporation tax and a decrease
of $54 from the recovery recorded in the same period in 2006. Further, InnVest
recorded a future income tax recovery of $5.1 million to reflect the drawdown
on the future income tax liability in the quarter.

Funds from operations for the three months ended September 30, 2007
increased $4.1 million to $39.4 million or $0.592 per unit basic ($0.535 -
diluted) from $35.3 million or $0.645 per unit basic ($0.578 - diluted) in the
same period of 2006.

Distributable income for the three months ended September 30, 2007 was
$34.6 million or $0.520 per unit basic ($0.474 - diluted). This reflects a
$3.1 million improvement over the distributable income experienced for the
same period of the prior year of $31.5 million or $0.575 per unit basic
($0.519 - diluted).

Nine months ended September 30, 2007

The increase of $36.0 million in room revenues for the nine months ended
September 30, 2007 reflects $25.3 million in revenues from the hotels acquired
in 2006 and $7.6 million in revenues from the hotels acquired in 2007. The
balance of $3.2 million improvement reflects an overall increase in room
revenue of 1.3% in the Base Portfolio. There were increases in the Quebec,
Atlantic and Western regions, with the largest dollar and percentage increase
experienced in the Western region.

Non-room revenues increased by $13.9 million, reflecting the non-room
revenues generated by the hotels the REIT acquired in 2006, which were not
owned for the entire comparative period and the 2007 acquisitions. The
majority of the hotels which were acquired in 2006 and 2007 generate a higher
proportion of total revenues from non-room revenues such as food and beverage
sales.

Hotel expenses for the nine months ended September 30, 2007 increased by
$42.1 million or 21.5% when compared to the same period in 2006. This increase
reflects $30.2 million in expenses incurred in the hotels acquired in 2006,
which were not owned for the entire comparative period and $8.0 million in
expenses incurred in the 2007 Acquisitions. The remaining $3.9 million relates
to the Base Portfolio and represents a 2.1% increase over the same period in
2006.

The net amount of other income and expenses for the nine months ended
September 30, 2007 was $76.4 million, $8.1 million or 11.9% more than the same
period in 2006. The main contributors to this increase were a $4.0 million
increase in depreciation and amortization, a $4.9 million increase in interest
on mortgages and other debt, a $2.2 million increase in corporate and
administrative expenses, a $1.0 million increase in other business income and
a $1.1 million reduction in capital tax and a $348 increase in convertible
debentures interest and accretion. The increases were mainly related to the
hotels acquired during 2006 and 2007, while the corporate and administrative
expense increase was the result of land transfer tax and legal costs
associated with a reorganization of InnVest. The increase in convertible
debentures interest and accretion was the net result of the issuance of the
Series C - 5.85% Debentures on August 3, 2007, the conversion of debentures in
the period and the amortization of costs associated with the issuing of the
debentures because of the use of the effective interest method. The reduction
in capital tax was the result of the corporate reorganization completed on
January 2, 2007.

Current income tax expense for the nine months ended September 30, 2007
was $5, because of the elimination of the large corporation tax and a decrease
of $181 from the recovery recorded in the same period in 2006. Further,
InnVest experienced a $2.0 million future income tax expense during the
nine-month period as the result of changes in the income tax legislation
related to Real Estate Investment Trusts as compared to a recovery of $14.2
million in the same period of the prior year which resulted from reductions in
the corporate income tax rates.

Funds from operations for the nine months ended September 30, 2007
increased $6.7 million to $69.3 million or $1.168 per unit basic ($1.089 -
diluted) from $62.6 million or $1.210 per unit basic ($1.118 - diluted) in the
same period of 2006.

Distributable income for the nine months ended September 30, 2007 was
$58.3 million or $0.983 per unit basic ($0.931 - diluted). This reflects a
$4.7 million improvement over the distributable income experienced for the
same period of the prior year of $53.6 million or $1.034 per unit basic
($0.972 - diluted).

BALANCE SHEET REVIEW

At September 30, 2007, InnVest's cash totaled $28.4 million, of which
$5.0 million is restricted for replacement of furniture, fixture and equipment
and capital improvements. Financial leverage was 46.9% debt to gross asset
value (defined as total assets before accumulated depreciation less future
income tax liabilities included in assets) excluding convertible debentures
and 56.3% including convertible debentures at the end of the period.

Continuing with its strategy of investing in its hotels, InnVest deployed
approximately $6.8 million for capital asset improvements during the third
quarter and committed an additional $10 million.

The REIT had unused operating loan availability of $25 million at
September 30, 2007 and eight hotel properties that remain unencumbered that
the REIT estimates could generate approximately $45 million in mortgage
proceeds. The REIT also has an unused acquisition facility of $40 million
available to acquire hotel properties and an unused loan facility of
$29.1 million available to fund 50% of capital expenditures incurred.

INCOME TAX DEFERRAL PERCENTAGE

In 2006, 40.5% of the distributions made during that year were not
taxable to unitholders. For calendar 2007, the REIT estimates that
approximately 40% of unitholder distributions will not be taxable to
unitholders.

OUTLOOK

Supply and demand conditions in the hotel industry continue to be
favourable. While varying by market, PKF Consulting Inc. ("PKF"), lodging
industry experts, forecasts Canadian RevPAR growth of 3% in 2008 following
anticipated growth of approximately 4% in 2007.

InnVest's geographic, customer, and brand diversity ideally positions it
to continue to benefit from the anticipated growth in the Canadian hospitality
industry. While InnVest is expecting RevPAR growth in its overall portfolio,
there are certain markets, most notably Windsor, Oshawa and the GTA, 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 further expands the REIT's
geographic diversity, notably within Western Canada which is experiencing the
strongest growth in the country. The acquisition also enhances InnVest's
presence in the upscale segment of the lodging industry which is forecast to
lead RevPAR growth in 2008. Given that the Legacy acquisition closed late in
the third quarter, the contribution on a per unit basis in 2007 is expected to
be dilutive due to the seasonality inherent in the business. However, this
acquisition is expected to be accretive in 2008.

Forecasted RevPAR growth, our ability to capitalize on our recent
acquisitions and our ability to manage costs will drive InnVest's performance
in 2008.

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 2006
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 148 hotel properties, with
19,381 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 November 9, 2007 at
11:00 a.m. Eastern time to discuss the performance of InnVest. Investors are
invited to access the call by dialing (416)-644-3418 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
November 9th beginning at 1:00 pm through to 11:59 p.m. on November 16th. To
access the recording please call (416)-640-1917 and use the reservation number
21249980 followed by the number sign.

InnVest Real Estate Investment Trust

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars) (Unaudited) September 30, December 31,
2007 2006
-------------------------------------------------------------------------
(Restated, Note 2)
ASSETS

Current Assets
Cash $ 23,423 $ 4,531
Accounts receivable 35,079 13,661
Prepaid expenses and other assets 16,005 5,627
Assets held for sale (Note 19) - 42
-------------------------------------------------------------------------
74,507 23,861

Restricted cash 5,023 4,693

Hotel properties (Note 3 and Note 4) 1,936,945 1,136,830

Other real estate properties (Note 5) 16,651 16,933

Licence contracts (accumulated amortization
$6,822; December 31, 2006 - $5,835) 19,498 20,485

Other assets (Note 6) 41,210 19,721

Assets held for sale (Note 19) - 5,566
-------------------------------------------------------------------------

$ 2,093,834 $ 1,228,089
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES

Current Liabilities
Bank indebtedness (Note 7) $215,000 $ 3,300
Accounts payable and accrued liabilities 75,427 40,977
Acquisition related liabilities 21,172 957
Distributions payable 5,726 5,161
Current portion of long-term debt (Note 8) 12,796 11,434
Liabilities related to assets held for
sale (Note 19) - 139
-------------------------------------------------------------------------
330,121 61,968

Long-term debt (Note 8) 716,021 490,998

Other long-term obligations (Note 9) 6,672 4,480

Convertible debentures (Note 10) 176,830 126,339

Future income tax liability (Note 11) 259,425 124,759

Long-term debt related to assets held for
sale (Note 19) - 2,191
-------------------------------------------------------------------------
1,489,069 810,735


UNITHOLDERS' EQUITY 604,765 417,354
-------------------------------------------------------------------------

$ 2,093,834 $ 1,228,089
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated
financial statements.



InnVest Real Estate Investment Trust

CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME

Three Three Nine Nine
Months Months Months Months
(in thousands of dollars, Ended Ended Ended Ended
except per unit amounts) September September September September
(Unaudited) 30, 2007 30, 2006 30, 2007 30, 2006
-------------------------------------------------------------------------
(Restated) (Restated)
(Note 19) (Note 19)

Total revenues
(reference only)
(Note 17) $ 141,426 $ 119,963 $ 347,378 $ 295,559

Hotel revenues $ 138,661 $ 117,119 $ 340,154 $ 290,265
-------------------------------------------------------------------------

Hotel expenses
Operating expenses
(Note 15) 73,771 59,704 197,409 160,278
Property taxes, rent
and insurance 10,163 8,747 29,222 26,124
Management fees (Note 15) 4,858 3,921 11,636 9,765
-------------------------------------------------------------------------
88,792 72,372 238,267 196,167
-------------------------------------------------------------------------

Hotel operating income 49,869 44,747 101,887 94,098
-------------------------------------------------------------------------

Other (income) and expenses
Interest on mortgages
and other debt 9,467 7,619 27,021 22,116
Convertible debentures
interest and accretion 2,916 2,147 7,529 7,181
Corporate and
administrative (Note 15) 1,561 1,071 5,676 3,444
Capital tax (10) 327 38 1,149
Other business income,
net (Note 18) (1,861) (1,904) (4,230) (3,255)
Other income (1,426) (152) (1,547) (275)
Depreciation and
amortization 14,086 13,659 41,942 37,950
-------------------------------------------------------------------------
24,733 22,767 76,429 68,310
-------------------------------------------------------------------------

Income before income tax
expense (recovery) 25,136 21,980 25,458 25,788
-------------------------------------------------------------------------

Income tax expense
(recovery) (Note 11)
Current (5) (59) (5) (186)
Future (5,068) (1,265) 2,022 (14,171)
-------------------------------------------------------------------------
(5,073) (1,324) 2,017 (14,357)
-------------------------------------------------------------------------

Net income from continuing
operations 30,209 23,304 23,441 40,145

Income (loss) from
discontinued operations
(Note 19) - 232 (24) 196
Gain on sale (writedown)
of assets held for
sale (Note 19) - - 833 (1,000)
-------------------------------------------------------------------------
- 232 809 (804)
-------------------------------------------------------------------------

Net income and
comprehensive income $ 30,209 $ 23,536 $ 24,250 $ 39,341
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net income from continuing
operations, per unit
(Note 13)
Basic $ 0.454 $ 0.425 $ 0.395 $ 0.775
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ 0.423 $ 0.395 $ 0.395 $ 0.763
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net income and comprehensive
income per unit (Note 13)
Basic $ 0.454 $ 0.429 $ 0.409 $ 0.760
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ 0.423 $ 0.398 $ 0.408 $ 0.750
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net income (loss) from
discontinued operations,
per unit
Basic $ - $ 0.004 $ 0.014 $ (0.015)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ - $ 0.003 $ 0.013 $ (0.013)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated
financial statements.



InnVest Real Estate Investment Trust

CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY

Accumulated
Net Income
and Comp- Distri- Units
(in thousands of dollars) rehensive
(Unaudited) Income butions Deficit in $
-------------------------------------------------------------------------
Balance December 31, 2005 $ 57,033 $(169,328) $(112,295) $ 464,164

CHANGES DURING THE PERIOD

Net income and comprehensive
income 39,341 - 39,341 -
Unit distributions (Note 14) - (44,150) (44,150) -
Distribution reinvestment
plan units issued - - - 2,742
Conversion of debentures
(Note 10) - - - 68,988
Redemption of debentures
(Note 10) - - - 4,719
Issue of new debentures
(Note 10) - - - -
Vested executive
compensation - - - 152
Executive and trustee
compensation - - - 81

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

Balance September 30, 2006 $ 96,374 $(213,478) $(117,104) $ 540,846
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Balance December 31, 2006 $ 95,629 $(228,778) $(133,149) $ 543,363

Change in accounting policy
for financial instruments
(Note 2) 654 - 654 -
-------------------------------------------------------------------------
Restated balance
December 31, 2006 $ 96,283 $(228,778) $(132,495) $ 543,363
-------------------------------------------------------------------------

CHANGES DURING THE PERIOD

Net income and comprehensive
income 24,250 - 24,250 -
Unit distributions (Note 14) - (49,186) (49,186) -
Distribution reinvestment
plan units issued - - - 6,659
Conversion of debentures
(Note 10) - - - 10,605
Issue of new debentures
(Note 10) - - - -
Issue of new units - - - 192,268
Vested executive
compensation - - - 275
Executive and trustee
compensation - - - 87

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

Balance September 30, 2007 $ 120,533 $(277,964) $(157,431) $ 753,257
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Executive Holders'
and Trustee Conversion
Compensation Option Total
--------------------------------------------------------------
Balance December 31, 2005 $ 186 $ 5,588 $ 357,643

CHANGES DURING THE PERIOD

Net income and comprehensive
income - - 39,341
Unit distributions (Note 14) - - (44,150)
Distribution reinvestment
plan units issued - - 2,742
Conversion of debentures
(Note 10) - (2,556) 66,432
Redemption of debentures
(Note 10) - (172) 4,547
Issue of new debentures
(Note 10) - 3,400 3,400
Vested executive
compensation (152) - -
Executive and trustee
compensation 183 - 264

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

Balance September 30, 2006 $ 217 $ 6,260 $ 430,219
--------------------------------------------------------------

Balance December 31, 2006 $ 278 $ 6,208 $ 416,700

Change in accounting policy
for financial instruments
(Note 2) - - 654
--------------------------------------------------------------
Restated balance
December 31, 2006 $ 278 $ 6,208 $ 417,354
--------------------------------------------------------------

CHANGES DURING THE PERIOD

Net income and comprehensive
income - - 24,250
Unit distributions (Note 14) - - (49,186)
Distribution reinvestment
plan units issued - - 6,659
Conversion of debentures
(Note 10) - (519) 10,086
Issue of new debentures
(Note 10) - 2,953 2,953
Issue of new units - - 192,268
Vested executive
compensation (275) - -
Executive and trustee
compensation 294 - 381
--------------------------------------------------------------

Balance September 30, 2007 $ 297 $ 8,642 $ 604,765
--------------------------------------------------------------
--------------------------------------------------------------

The accompanying notes are an integral part of these consolidated
financial statements.



CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
(in thousands September September September September
of dollars) (Unaudited) 30, 2007 30, 2006 30, 2007 30, 2006
-------------------------------------------------------------------------

OPERATING ACTIVITIES
Net income from continuing
operations $ 30,209 $ 23,304 $ 23,441 $ 40,145
Add (deduct) items not
affecting operations
Depreciation,
amortization and
accretion 14,086 13,659 41,942 37,950
Non-cash portion of
interest expense 540 - 2,017 -
Future income tax
expense (recovery) (5,068) (1,265) 2,022 (14,171)
Non-cash executive and
trustee compensation 181 89 381 264
Convertible debentures
accretion 214 211 616 594
Discontinued operations (2) 306 (109) 408
Changes in non-cash
working capital 2,067 156 (2,682) (1,107)
-------------------------------------------------------------------------
42,227 36,460 67,628 64,083
-------------------------------------------------------------------------

FINANCING ACTIVITIES
Repayment of long-term
debt (1,502) (2,184) (7,498) (6,476)
Proceeds from long-term
debt 15,400 49,800 41,324 63,300
Issue of convertible
debentures 70,000 - 70,000 75,000
Issue of new units (net) 191,748 - 191,748 -
Unit distributions (15,636) (14,459) (41,962) (40,765)
Increase (decrease) in
bank indebtedness 215,000 - 211,700 (7,100)
Discontinued operations
repayment of debt - (11) (2,191) (32)
Debt issue costs (3,315) (568) (4,626) (3,983)
Changes in non-cash
working capital related to
financing activities 500 16 335 381
-------------------------------------------------------------------------
472,195 32,594 458,830 80,325
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Capital expenditures on
hotel properties (6,760) (8,021) (20,267) (19,346)
Discontinued operations
capital expenditures - - - (26)
Hotel under development
expenditures (4,073) - (6,945) -
Sale of discontinued assets,
net of costs (Note 19) - - 6,400 -
Other assets 1,361 (84) (634) (260)
Acquisition of hotel
properties and other
real estate properties (505,674) (65,035) (505,674) (127,845)
Changes in restricted
cash (4,456) (5,725) (330) (2,516)
Collection of
vendor-take-back mortgage - - - 200
Changes in non-cash
working capital related
to investing activities 20,475 (660) 19,884 2,126
-------------------------------------------------------------------------
(499,127) (79,525) (507,566) (147,667)
-------------------------------------------------------------------------

Increase (decrease) in
cash during the period 15,295 (10,471) 18,892 (3,259)
Cash, beginning of period 8,128 13,105 4,531 5,893
-------------------------------------------------------------------------
Cash, end of period $ 23,423 $ 2,634 $ 23,423 $ 2,634
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplemental disclosure of
cash flow information:
Cash paid for interest 9,430 $ 7,655 $ 30,717 $ 26,410
Cash paid for income taxes
(including capital tax) 41 $ 318 $ 180 $ 828

The accompanying notes are an integral part of these consolidated
financial statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 (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 ("TSX") under the
symbol of "INN.UN". As at September 30, 2007, the REIT owned 148 Canadian
hotels with 19,381 guest rooms 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, 2006, 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.

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 the year.

2. Changes in 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, 2006, except as follows:

Principles of consolidation

The consolidated financial statements include the accounts of the REIT
and its subsidiaries and the proportionate share of the assets,
liabilities, revenues and expenses of joint ventures, including the
REIT's 50% interest in CHC and the REIT's 26% interest in Legacy Hotels
Real Estate Investment Trust, described in note 3.

Comprehensive Income

Effective January 1, 2007, the REIT adopted the new Canadian Institute of
Chartered Accountants ("CICA") recommendations under Section 1530 -
Comprehensive Income, wherein comprehensive income includes net earnings
and other comprehensive income ("OCI"), which represents changes in the
unitholders' equity during a period arising from transactions and other
events with non-owner sources. The standard requires prospective
application and; accordingly, comparative amounts for prior periods have
not been restated. For the period ended September 30, 2007, there is no
difference between the REIT's Consolidated Statement of Net Income and
its Statement of Comprehensive Income.

Inventory

Inventory, comprised of operating supplies including food and beverage,
is valued at the lower of cost, determined on a first-in, first-out
basis, and replacement cost. Inventory is included in the 'Prepaid
expenses and other assets' in the current asset section of the balance
sheet.

Financial Instruments - Recognition and Measurement

Effective January 1, 2007, the REIT adopted several new CICA
recommendations related to accounting for Financial Instruments,
including Section 3855 - Financial Instruments, Recognition and
Measurement. All financial instruments are required to be measured at
fair value on initial recognition, except for certain related party
transactions. Measurement in subsequent periods depends on whether the
financial instrument has been classified as held-for-trading, available-
for-sale, held-to-maturity, loans and receivables, or other liabilities.
This standard requires a prospective application and, accordingly,
comparative amounts for prior periods have not been restated.

As a result of implementing Section 3855, the REIT has recorded the
interest expense for both the mortgage debt and convertible debentures
using the effective interest method ("EIM"). Transaction costs that are
directly attributable to the issue of financial instruments classified as
other than "held-for-trading" are included in the initial carrying value
of such instruments and amortized using the EIM; therefore, the deferred
financing costs which were related to these instruments were reclassified
to the appropriate debt on the balance sheet. The amortization of these
costs is included in interest expense in the financial statements in a
manner that yields a constant rate of interest over the life of the
respective financial instrument, for the three and nine months ended
September 30, 2007. An adjustment has been made to the opening cumulative
net income in the amount of $654 to reflect the application of the EIM.

In accordance with Section 3855, the REIT conducted a search for embedded
derivatives in all contractual arrangements dated subsequent to
October 31, 2002 and identified certain embedded features that required
separate presentation; however, all embedded features were determined to
have a negligible fair value.

With the introduction of the new standards relating to financial
instruments, Section 3251 - Equity was applied effective January 1, 2007.
Section 3251 establishes standards for the presentation of equity and
changes in equity during the reporting period. Equity is presented as
accumulated net income and other comprehensive income, distributions and
total deficit.

3. Asset Acquisitions

During the first quarter of 2007, the REIT entered into a contract to
purchase three hotels with a total of 349 rooms for a combined purchase
price of $48,300 plus transaction costs. The transaction to acquire these
new build hotel properties will close in stages as the construction of
each hotel is completed. The hotels include a 117 room Staybridge Suites
located in London, Ontario, a 116 room Holiday Inn Express located in
North Bay, Ontario and a 116 room Staybridge Suites located in Guelph,
Ontario. On July 20 and September 13, 2007, the REIT completed the
purchases of the Staybridge Suites London and the Holiday Inn Express
North Bay ("New-build Acquisitions"), respectively. These transactions
were funded through cash on hand. The Staybridge Suites Guelph is
scheduled to open in the first quarter of 2008.

On July 12, 2007, InnVest, in partnership with Cadbridge Investors LP
("Cadbridge"), a joint venture entity between affiliates of Cadim, a
division of the Caisse de Dépôt et Placement du Québec and an affiliate
of InnVest's hotel manager, announced a take-over bid for all of the
outstanding units of Legacy Hotels Real Estate Investment Trust
("Legacy") at a price of $12.60 per unit. The take-over bid was effected
by LGY Acquisition LP ("LGY"), a newly-formed limited partnership, owned
by InnVest (through a wholly-owned limited partnership) and Cadbridge in
which InnVest has an approximate 26% interest with joint control over
LGY. On September 18, 2007, the take-over of the acquisition of 100% of
Legacy's outstanding units was successfully completed. InnVest and
Cadbridge will reorganize Legacy's assets such that InnVest will become
the owner 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").
This reorganization was completed on October 31, 2007, except for the
Delta Calgary Airport which is expected to be completed by December 31,
2007. With the completion of the reorganization, InnVest will no longer
have an interest in, or exercise joint control over, LGY.

New-build Legacy
Acquisitions Portfolio Total
-------------------------------------------------------------------------
Cash $ - $ 8,146 $ 8,146
Current assets - 21,147 21,147
Hotel properties 32,180 779,115 811,295
Other assets 357 31,330 31,687
-------------------------------------------------------------------------
32,537 839,738 872,275
Assumption of existing long-term debt - (196,674) (196,674)
Future income tax liability - (133,164) (133,164)
Current liabilities - (26,125) (26,125)
Long-term liabilities - (2,493) (2,493)
-------------------------------------------------------------------------
$ 32,537 $ 481,282 $ 513,819
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The consideration paid consists
of the following:
Cash $ 32,537 $ - $ 32,537
Bank indebtedness - 215,000 215,000
Units issued - 191,748 191,748
Debentures issued - 66,685 66,685
Acquisition payables - 7,849 7,849
-------------------------------------------------------------------------
$ 32,537 $ 481,282 $ 513,819
-------------------------------------------------------------------------
-------------------------------------------------------------------------

As at September 30, 2007, the REIT is continuing to evaluate the fair
value of the net assets acquired, and based on this ongoing evaluation,
the purchase price allocation may be adjusted in future periods.

4. Hotel Properties

September December
30, 2007 31, 2006
Accumulated Net Book Net Book
Cost Depreciation Value Value
-------------------------------------------------------------------------

Land $ 176,031 $ - $ 176,031 $ 94,623
Buildings 1,794,904 123,852 1,671,052 987,515
Furniture, fixtures
and equipment 109,639 27,063 82,576 54,350
-------------------------------------------------------------------------
2,080,574 150,915 1,929,659 1,136,488
Hotel under develop-
ment 7,286 - 7,286 342
-------------------------------------------------------------------------
$ 2,087,860 $ 150,915 $ 1,936,945 $ 1,136,830
-------------------------------------------------------------------------
-------------------------------------------------------------------------

5. Other Real Estate Properties

September December
30, 2007 31, 2006
Accumulated Net Book Net Book
Cost Depreciation Value Value
-------------------------------------------------------------------------


Land $ 1,675 $ - $ 1,675 $ 1,675
Buildings 15,455 522 14,933 15,220
Furniture, fixtures
and equipment 59 16 43 38
-------------------------------------------------------------------------
$ 17,189 $ 538 $ 16,651 $ 16,933
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Other real estate includes office and retail properties and a retirement
residence which were acquired during the year ended December 31, 2006.

6. Other Assets

September December
30, 2007 31, 2006
Accumulated Net Book Net Book
Cost Depreciation Value Value
-------------------------------------------------------------------------
Deferred financing
(Note 2) $ - $ - $ - $ 8,592
Other assets 45,722 4,512 41,210 11,129
-------------------------------------------------------------------------
$ 45,722 $ 4,512 $ 41,210 $ 19,721
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In accordance with the new CICA recommendations related to accounting for
Financial Instruments, including Section 3855 - Financial Instruments and
Measurement, the unamortized balance of deferred financing costs was
reallocated as a reduction to long-term debt effective January 1, 2007.

Other assets include franchise fee costs, 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.

7. Bank Indebtedness

The REIT has a $25,000 operating loan facility that bears interest at
Canadian bank prime plus 0.5% or Canadian Bankers' Acceptance rate plus
1.5%. It is secured by nine properties and is payable on demand. At
September 30, 2007, the REIT had drawn $ nil on this facility
(December 31, 2006 - $3,300).

The REIT entered into a $215,000 bridge loan facility as part of the
financing for the acquisition of the Legacy Portfolio. It is secured by
five properties, is due June 13, 2008 and bears interest at Canadian
Bankers' Acceptance rate plus 2.75%.

InnVest intends to refinance the existing mortgages on the Legacy
Portfolio and arrange new mortgage financing on five of the acquired
assets that are currently unencumbered. The bridge loan will be repaid
from the proceeds of these financings.

8. Long-term Debt

September December
30, 2007 31, 2006
-------------------------------------------------------------------------
Mortgages payable $ 732,907 $ 502,432
Less debt issuance costs, net (4,090) -
-------------------------------------------------------------------------
Total long-term debt 728,817 502,432
Less current portion (12,796) (11,434)
-------------------------------------------------------------------------
Net long-term debt $ 716,021 $ 490,998
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Substantially all of the REIT's assets have been pledged as security
under various debt agreements. At September 30, 2007, long-term debt had
a weighted average interest rate of 6.4% (December 31, 2006 - 6.5%) and a
weighted average effective interest rate of 6.6%. The long-term debt is
repayable in average monthly payments of principal and interest totalling
$4,902 (December 31, 2006 - $3,495) per month, and matures at various
dates from June 1, 2009 to September 11, 2017.

Scheduled repayment of long-term debt is as follows:
2007 (remainder of the year) $ 3,510
2008 12,710
2009 54,946
2010 227,402
2011 56,616
2012 and thereafter 377,723
-------------------------------------------------------------------------
$ 732,907
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The current portion of long-term debt on the balance sheet is based on
the year ending September 30, 2008, whereas the repayment schedule above
reflects the fiscal year.

The estimated fair value of the REIT's long-term debt at September 30,
2007 was approximately $729,294 (December 31, 2006 - $507,243). 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 $94,074 (December 31, 2006 - $68,305) of
mortgages payable which are subject to floating interest rates. Interest
expense will increase by $941 for every 1% increase in the base Bankers'
Acceptance rate.

In the second quarter, the REIT completed an early extension of $147,665
of mortgage debt that was to have matured on July 26, 2008, fixing the
interest rate on $130,000 at 5.8% for a blended interest rate of 6.1% per
annum for a period of seven years, and maintained floating rate debt of
$17,665 which, at current rates, bears interest at approximately 6.7% per
annum. As part of this early extension, the REIT increased its fixed-rate
proceeds by $25,924 which was used to repay the operating loan balance
and to fund potential acquisitions.

During the quarter, the REIT raised new debt on the Staybridge Suites
London of $8,300 at an interest rate of 6.4% for a ten year term and
$7,100 of new debt on the Holiday Inn Express North Bay at an interest
rate of 6.0% for a ten year term.

9. Other Long-term Obligations

September December
30, 2007 31, 2006
-------------------------------------------------------------------------

Capital lease $ 1,861 $ 1,861
Other lease obligations 342 299
-------------------------------------------------------------------------
2,203 2,160
Less current portion (included in accounts payable
and accrued liabilities) (230) (207)
-------------------------------------------------------------------------
Total long-term obligations 1,973 1,953
-------------------------------------------------------------------------
Pension liability 2,935 1,212
Asset retirement obligation 1,764 1,315
-------------------------------------------------------------------------
Total other long-term obligations $ 6,672 $ 4,480
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Defined Benefit Pension Plan

Defined benefit pension plans were assumed pursuant to the acquisition of
certain hotels in 2006 and the Legacy Portfolio in the third quarter
2007. The most recent actuarial valuation with respect to the funding of
the REIT's pension plans was prepared on September 30, 2007. The pension
plan assets and liabilities as at September 30, 2007 consist of the
following:

Non-Union
Non- September December
Management Management 30, 2007 31, 2006
Pension Pension Total Total
Benefit Benefit Benefit Benefit
Plans Plans Plans Plans
-------------------------------------------------------------------------
Accrued benefit obligation $ 5,631 $ 1,681 $ 7,312 $ 3,873
Fair value of plan assets 3,001 1,376 4,377 2,661
-------------------------------------------------------------------------
Funded status - plan deficit 2,630 305 2,935 1,212
Unamortized net actuarial
gain 163 172 335 167
-------------------------------------------------------------------------

Accrued employee future
benefit liability $ 2,793 $ 477 $ 3,270 $ 1,379
-------------------------------------------------------------------------
-------------------------------------------------------------------------

10. Convertible Debentures

The details of the two 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' Unamortized
Face Amount Conversion Financing September
Debenture Outstanding Option Accretion Costs 30, 2007
-------------------------------------------------------------------------
Series A $ 45,764 $ (2,289) $ 1,074 $ (1,483) $ 43,066
Series B 75,000 (3,400) 651 (2,549) 69,702
Series C 70,000 (2,953) 68 (3,053) 64,062
-------------------------------------------------------------------------
$ 190,764 $ (8,642) $ 1,793 $ (7,085) $ 176,830
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Original Converted
Interest Face to Trust Face Amount
Debenture Maturity Date Rate Amount Units Outstanding
-------------------------------------------------------------------------

Series A April 15, 2011 6.25% $ 57,500 $ (1,351) $ 56,149

Series B May 31, 2013 6.00% 75,000 - 75,000
-------------------------------------------------------------------------
$ 132,500 $ (1,351) $ 131,149
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Holders'
Conversion December
Debenture Option Accretion 31, 2006
-----------------------------------------------

Series A $(2,808 $ 1,096 $ 54,437

Series B (3,400) 302 71,902
-----------------------------------------------
$(6,208) $ 1,398 $ 126,339
-----------------------------------------------
-----------------------------------------------

Series C Debentures

On August 3, 2007, the REIT announced the closing on a bought deal basis
of $70,000, 5.85% convertible unsecured subordinated debentures
("Series C - 5.85% Debentures"). These debentures are convertible into
trust units at a strike price of $14.70, bear interest at 5.85% per annum
payable semi-annually on February 1 and August 1 of each year and will
mature August 1, 2014. The trust units to be issued upon conversion of
the Series C - 5.85% Debentures are 4,761,905. Each $1 principal amount
is convertible at the option of the holder into 68 units. The Series C -
5.85% Debentures are not redeemable prior to August 1, 2010. On or after
August 1, 2010 and prior to August 1, 2012, the Series C - 5.85%
Debentures may be redeemed by the REIT, in whole or in part, on not more
than 60 days and on not less than 30 days prior notice, at a redemption
price equal to the principal amount thereof plus accrued and unpaid
interest, provided that the volume-weighted average trading price of the
units on the TSX for the 20 consecutive trading days ending on the fifth
trading day preceding the date on which the notice of the redemption
exceeds 125% of the conversion price. On or after August 1, 2012 and
prior to August 1, 2014, the Series C - 5.85% Debentures may be redeemed
by the REIT at any time at a redemption price equal to the principal
amount thereof plus accrued and unpaid interest.

The holder conversion option was valued separately from the convertible
debentures at $2,953. The holder conversion option is being accreted over
the term of the Series C - 5.85% Debentures. There were no conversions of
Series C debentures during the year.

11. Income Taxes and Future Income Tax Liability

Future income taxes are the result of temporary differences between tax
bases of assets and liabilities and their carrying amounts for accounting
purposes. Such temporary differences are then measured using
substantively enacted tax rates that will be in effect when these
differences are expected to reverse.

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.

For the nine months ended September 30, 2007, InnVest's future income tax
liability has increased by $134,666 which is explained as follows:


Effects of the reorganization in the first quarter $ (115,431)
Effects of the enactment of the Bill in the second quarter 122,626
Effects of on-going operations and capital expenditures (5,173)
-------------------------------------------------------------------------
Future income tax expense for the nine months ended
September 30, 2007 2,022
Tax benefit of unit issuance costs recorded in unitholders'
equity (520)
Effects of the Legacy transaction 133,164
-------------------------------------------------------------------------
$ 134,666
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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.

12. 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.

Units Amount
-------------------------------------------------------------------------
Balance as at December 31, 2005 47,961,163 $ 464,164
Units issued under distribution reinvestment
plan 227,295 2,742
Units issued on conversion of debentures 6,250,412 68,988
Units issued on redemption of debentures 392,307 4,719
Units issued for vested executive compensation 12,218 152
Units issued under trustee compensation plan 6,107 81
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance at September 30, 2006 54,849,502 $ 540,846
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Units Amount
-------------------------------------------------------------------------
Balance at December 31, 2006 55,045,351 543,363
Units issued for acquisition of Legacy Portfolio 16,195,000 192,268
Units issued on conversion of debentures 830,800 10,605
Units issued under distribution reinvestment plan 512,426 6,659
Units issued for vested executive compensation 20,139 275
Units issued under trustee compensation plan 6,519 87
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance at September 30, 2007 72,610,235 $ 753,257
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 September 30, 2007 is 54,559 units. Under the
Trustee Compensation Plan, 6,519 units were issued during the nine months
ended September 30, 2007 (September 30, 2006 - 6,107 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 September 30, 2007 is
850,785 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 September 30, 2007, excluding granted units which have fully
vested:

Unvested Units Accumulated Total
Executive units from Distributions Units
-------------------------------------------------------------------------
January 1, 2004 - granted 10,218 3,800 14,018
January 1, 2005 - granted 13,118 3,658 16,776
January 1, 2006 - granted 12,968 2,149 15,117
January 1, 2007 - granted 15,000 996 15,996
January 1, 2007 - units vested (5,109) (1,675) (6,784)
-------------------------------------------------------------------------
46,195 8,928 55,123
-------------------------------------------------------------------------
-------------------------------------------------------------------------


On March 30, 2007, the Board of Trustees approved the granting of 15,000
units effective as of January 1, 2007. 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.

13. Per Unit Information

Three Three
Months Ended Months Ended
September 30, September 30,
2007 2006
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------

Net income and
comprehensive income
- basic $ 30,209 66,566,306 $ 23,536 54,811,022
Convertible debentures
interest and accretion 2,917 11,696,747 2,148 9,608,757
Dilutive effect of
executive compensation
plan - 54,489 - 55,033
-------------------------------------------------------------------------
Net income and
comprehensive income
- diluted $ 33,126 78,317,542 $ 25,684 64,474,812
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Three Three
Months Ended Months Ended
September 30, September 30,
2007 2006
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------

Net income from
continuing operations
- basic $ 23,441 59,316,788 $ 40,145 51,777,943
Convertible debentures
interest and accretion - - $ 4,848 7,105,464
Dilutive effect of
executive compensation
plan - 53,349 - 53,824
-------------------------------------------------------------------------
Net income from
continuing operations
- diluted $ 23,441 59,370,137 $ 44,993 58,937,231
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Three Three
Months Ended Months Ended
September 30, September 30,
2007 2006
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net income and
comprehensive income
- basic $ 30,209 66,566,306 $ 23,536 54,811,022
Convertible debentures
interest and accretion 2,917 11,696,747 2,148 9,608,757
Dilutive effect of
executive compensation
plan - 54,489 - 55,033
-------------------------------------------------------------------------
Net income and
comprehensive income
- diluted $ 33,126 78,317,542 $ 25,684 64,474,812
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Three Three
Months Ended Months Ended
September 30, September 30,
2007 2006
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net income and
comprehensive income
- basic $ 24,250 59,316,788 $ 39,341 51,777,943
Convertible debentures
interest and accretion - - 4,848 7,105,464
Dilutive effect of
executive compensation
plan - 53,349 - 53,824
-------------------------------------------------------------------------
Net income and
comprehensive income
- diluted $ 24,250 59,370,137 $ 44,189 58,937,231
-------------------------------------------------------------------------
-------------------------------------------------------------------------

All of the convertible debentures have been included in the three months
ended September 30, 2007 and the three and nine months ended
September 30, 2006 per unit calculations above, but have been excluded in
the nine month ended September 30, 2007 calculations because the impact
of the conversions would not be dilutive. The dilutive effect of the
executive compensation plan has been included in all of the calculations.

14. 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 Months Three Months
Ended Ended
September 30, September 30,
2007 2006
-------------------------------------------------------------------------
Net income and comprehensive income $ 30,209 $ 23,536
-------------------------------------------------------------------------
Add (deduct)
Depreciation, amortization and accretion 14,086 13,682
Non-cash portion of interest expense 540 -
Future income tax recovery (5,068) (1,265)
Reserve for replacement of furniture, fixtures
and equipment and capital improvements (5,551) (4,746)
Corporate reorganization costs 43 -
Convertible debentures accretion 214 211
Non-cash executive and trustee compensation 158 86
Deferred land lease expense and retail lease
income, net 8 34
-------------------------------------------------------------------------
4,430 8,002
-------------------------------------------------------------------------
Distributable income 34,639 31,538
Distributions
Required under the Declaration of Trust 27,711 25,230
Timing adjustment (9,898) (9,813)
-------------------------------------------------------------------------
Distributions paid 17,813 15,417
-------------------------------------------------------------------------
Distributions less than distributable income $ (16,826) $ (16,121)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Nine Months Nine Months
Ended Ended
September 30, September 30,
2007 2006
-------------------------------------------------------------------------
Net income and comprehensive income $ 24,250 $ 39,341
-------------------------------------------------------------------------
Add (deduct)
Depreciation, amortization and accretion 41,942 38,139
Non-cash portion of interest expense 2,017 -
Future income tax expense (recovery) 2,022 (14,171)
Reserve for replacement of furniture, fixtures
and equipment and capital improvements (13,630) (11,688)
Convertible debentures accretion 616 595
Corporate reorganization costs 1,514 -
Non-cash executive and trustee compensation 386 261
Deferred land lease expense and retail lease
income, net 25 84
(Gain on sale) writedown of assets held for sale (833) 1,000
-------------------------------------------------------------------------
34,059 14,220
-------------------------------------------------------------------------
Distributable income 58,309 53,561
-------------------------------------------------------------------------
Distributions
Required under the Declaration of Trust 46,647 42,849
Discretionary 2,539 1,301
-------------------------------------------------------------------------
Distributions paid 49,186 44,150
Distributions less than distributable income $ (9,123) $ (9,411)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

15. 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 manages all but four 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
(Note 14) 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 and nine months ended September 30, 2007 and 2006, the
fees charged to the REIT pursuant to the Agreements were as follows:

Three Months Three Months
Ended Ended
September 30, September 30,
2007 2006
-------------------------------------------------------------------------
Fees from continuing operations:
Management fees $ 3,795 $ 3,754
Asset management fees (included in hotel
operating expenses) 78 -
Accounting services (included in hotel
operating expenses) 579 575
Administrative services (included in
corporate and administrative expenses) 113 144
Project management and general contractor
services
(capitalized to hotel properties) 143 125
Fees from discontinued operations - 35
-------------------------------------------------------------------------
$ 4,708 $ 4,633
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Nine Months Nine Months
Ended Ended
September 30, September 30,
2007 2006
-------------------------------------------------------------------------
Fees from continuing operations:
Management fees $ 9,733 $ 9,570
Asset management fees (included in hotel
operating expenses) 235 -
Accounting services (included in hotel
operating expenses) 1,724 1,708
Administrative services (included in
corporate and administrative expenses) 325 419
Project management and general contractor
services
(capitalized to hotel properties) 539 419
Fees from discontinued operations 107 87
-------------------------------------------------------------------------
$ 12,663 $ 12,203
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In addition, salaries of REIT employees paid by Westmont and reimbursed
by the REIT were $159 (September 30, 2006 - $157). Included in accounts
payable and accrued liabilities are amounts outstanding at September 30,
2007 totalling $1,510 (December 31, 2006 - $1,479).

The REIT paid Westmont an Acquisition Fee of $6,518 as part of the
acquisition of the Legacy Portfolio.

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% of gross revenues during the term of the
agreements. The agreements mature on December 31, 2026. For the nine-
month period ended September 30, 2007, total management fees paid to
Hilton were $595 (September 30, 2006 - $38).

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 nine-month period ended September 30,
2007, total management fees paid to Delta were $475 (September 30, 2006 -
$157).

With the acquisition of the Legacy Portfolio, 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 an annual management fee to
Fairmont or Delta in an amount 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. For the 13 day period from September 18, 2007 to September 30,
2007, total management fees paid for the Legacy Portfolio were $598.

16. 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.


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

Three months ended
September 30, 2007
Hotel revenues $ 18,086 $ 67,638 $ 34,358 $ 18,579 $ 138,661
Hotel expenses 10,703 45,465 22,124 10,500 88,792
-------------------------------------------------------------------------
Hotel operating
income $ 7,383 $ 22,173 $ 12,234 $ 8,079 $ 49,869
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three months ended
September 30, 2006
Hotel revenues $ 12,140 $ 67,539 $ 24,247 $ 13,193 $ 117,119
Hotel expenses 6,852 44,037 14,769 6,714 72,372
-------------------------------------------------------------------------
Hotel operating
income $ 5,288 $ 23,502 $ 9,478 $ 6,479 $ 44,747
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine months ended
September 30, 2007
Hotel revenues $ 37,945 $ 178,697 $ 84,672 $ 38,840 $ 340,154
Hotel expenses 23,814 128,276 61,044 25,133 238,267
-------------------------------------------------------------------------
Hotel operating
income $ 14,131 $ 50,421 $ 23,628 $ 13,707 $ 101,887
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine months ended
September 30, 2006
Hotel revenues $ 29,612 $ 177,489 $ 54,629 $ 28,535 $ 290,265
Hotel expenses 18,603 124,195 35,886 17,483 196,167
-------------------------------------------------------------------------
Hotel operating
income $ 11,009 $ 53,294 $ 18,743 $ 11,052 $ 94,098
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital expenditures
Three months ended
September 30, 2007 $ 636 $ 4,573 $ 1,020 $ 531 $ 6,760
Three months ended
September 30, 2006 $ 373 $ 6,400 $ 688 $ 560 $ 8,021
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital expenditures
Nine months ended
September 30, 2007 $ 2,383 $ 12,375 $ 3,989 $ 1,520 $ 20,267
Nine months ended
September 30, 2006 $ 926 $ 14,791 $ 2,129 $ 1,500 $ 19,346
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Hotel properties
September 30, 2007 $ 514,051 $ 711,468 $ 446,978 $ 264,448 $ 1,936,945
December 31, 2006 $ 73,270 $ 681,326 $ 266,167 $ 116,067 $ 1,136,830
-------------------------------------------------------------------------
-------------------------------------------------------------------------

17. Total Revenues

Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
-------------------------------------------------------------------------

Hotel revenues $ 138,661 $ 117,119 $ 340,154 $ 290,265

Other business revenues
(Note 18) 2,765 2,844 7,224 5,294

-------------------------------------------------------------------------
$ 141,426 $ 119,963 $ 347,378 $ 295,559
-------------------------------------------------------------------------
-------------------------------------------------------------------------

18. Other Business Income
Three Three
Months Months
Ended Ended
Franchise Retail/ Retirement September September
Business Office Residence 30, 2007 30, 2006
-------------------------------------------------------------------------

Revenues $ 1,925 $ 565 $ 275 $ 2,765 $ 2,844

Expenses 602 138 164 904 940
-------------------------------------------------------------------------
Other business
income, net $ 1,323 $ 427 $ 111 $ 1,861 $ 1,904
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three Three
Months Months
Ended Ended
Franchise Retail/ Retirement September September
Business Office Residence 30, 2007 30, 2006
-------------------------------------------------------------------------

Revenues $ 4,363 $ 2,049 $ 812 $ 7,224 $ 5,294

Expenses 1,649 843 502 2,994 2,039
-------------------------------------------------------------------------
Other business
income, net $ 2,714 $ 1,206 $ 310 $ 4,230 $ 3,255
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Other business income includes Franchise Business Income, which is
InnVest's 50% share of Choice Canada's operations and the income from the
other real estate properties acquired with the Québec Deltas during the
year ended December 31, 2006.

19. Assets Held for Sale and Discontinued Operations

On April 18, 2006, the REIT reclassified one Ontario hotel property to
assets held for sale. At September 30, 2006, the REIT reclassified a
second hotel property, in Atlantic Canada, to assets held for sale.

On March 30, 2007, the REIT sold the hotel held for sale in Atlantic
Canada for $2,350 less closing costs of $250, and recorded a gain of
$659. On April 10, 2007, the Ontario hotel property held for sale was
sold for $4,650 less closing costs of $350, and the REIT recorded a gain
of $174. The debt owing of $1,010 and $1,181, respectively, was paid out
of the proceeds. The operations for these two hotels are included as
discontinued operations as summarized below.

Discontinued operations for the three and six months ended September 30,
2007 and 2006 are as follows:
Three Three
Months Months
Ended Ended
September September
30, 2007 30, 2006
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Hotel revenues $ - $ 815
-------------------------------------------------------------------------
Hotel expenses
Operating expenses - 445
Property taxes, rent and insurance - 47
Management fees - 28
-------------------------------------------------------------------------
- 520
-------------------------------------------------------------------------
Hotel operating income - 295
-------------------------------------------------------------------------
Interest on mortgages - 40
Depreciation and amortization - 23
-------------------------------------------------------------------------
- 63
-------------------------------------------------------------------------
(Loss) income from discontinued operations - 232
Writedown of assets held for sale - -
-------------------------------------------------------------------------
Net income (loss) from discontinued operations $ - $ 232
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine Nine
Months Months
Ended Ended
September September
30, 2007 30, 2006
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Hotel revenues $ 462 $ 1,916
-------------------------------------------------------------------------
Hotel expenses
Operating expenses 383 1,207
Property taxes, rent and insurance 49 146
Management fees 16 65
-------------------------------------------------------------------------
448 1,418
-------------------------------------------------------------------------
Hotel operating income 14 498
-------------------------------------------------------------------------
Interest on mortgages 38 113
Depreciation and amortization - 189
-------------------------------------------------------------------------
38 302
-------------------------------------------------------------------------
Loss from discontinued operations (24) 196
Gain on sale (writedown) of assets held for sale 833 (1,000)
-------------------------------------------------------------------------
Net income (loss) from discontinued operations $ 809 $ (804)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

20. Comparative Information

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


Contact Information

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

    or

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