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

InnVest Real Estate Investment Trust

August 10, 2007 08:00 ET

InnVest REIT Reports Results for the Three and Six Months Ended June 30, 2007

TORONTO, ONTARIO--(Marketwire – Aug. 10, 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 six months ended June 30, 2007.

"Strong performance in the Western and Atlantic regions, allowed InnVest to grow its RevPAR in the second quarter on a same hotel basis, while the contribution from the hotels acquired in 2006 during or after the second quarter allowed InnVest to grow its distributable income," said Mr. Kenneth Gibson, President and Chief Executive Officer of InnVest REIT.


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Three months ended June 30
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2007 2006 +/-
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Occupancy 65.2% 65.8% (0.6)%
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Average daily rate ("ADR") $102.50 $97.03 $5.47
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Revenue Per Available Room ("RevPAR") $66.83 $63.87 $2.96
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Operating revenues $111,467 $97,242 $14,225
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Hotel operating income $34,395 $32,773 $1,622
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Net (loss) income and comprehensive
(loss) income ($113,291) $21,366 ($134,657)
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Add / (deduct)
Depreciation, amortization and
accretion 14,106 11,974 2,132
Future income tax expense (recovery) 122,626 (12,684) 135,310
Non-cash executive and trustee
compensation 140 84 56
(Gain on sale), write down of assets
held for sale (174) 1,000 (1,174)
Corporate reorganization expense - - -
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Funds from operations(1) $23,407 $21,740 $1,667
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Funds from operations per unit(1)
- basic $0.418 $0.432 ($0.014)
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- diluted $0.388 $0.399 ($0.011)
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Amortization of deferred financing costs - 656 (656)
Non-cash portion of interest expense 751 - 751
Reserve for replacement of furniture,
fixtures and equipment and capital
improvements (4,459) (3,887) (572)
Convertible debentures accretion 190 204 (14)
Deferred land lease expense and retail
lease income, net 3 25 (22)
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Distributable income(1) $19,892 $18,738 $1,154
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Distributable income per unit(1)
- basic $0.355 $0.372 ($0.017)
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- diluted $0.335 $0.349 ($0.014)
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Distributions per unit $0.2813 $0.2813 -
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Six months ended June 30
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2007 2006 +/-
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Occupancy 60.6% 60.8% (0.2)%
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Average daily rate ("ADR") $99.72 $94.79 $4.93
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Revenue Per Available Room ("RevPAR") $60.39 $57.66 $2.73
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Operating revenues $201,493 $173,146 $28,347
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Hotel operating income $52,018 $49,352 $2,666
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Net (loss) income and comprehensive
(loss) income ($5,959) $15,805 ($21,764)
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Add / (deduct)
Depreciation, amortization and
accretion 27,856 23,228 4,628
Future income tax expense (recovery) 7,090 (12,906) 19,996
Non-cash executive and trustee
compensation 228 175 53
(Gain on sale), write down of assets
held for sale (833) 1,000 (1,833)
Corporate reorganization expense 1,471 - 1,471
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Funds from operations(1) $29,853 $27,302 $2,551
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Funds from operations per unit(1)
- basic $0.537 $0.543 ($0.006)
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- diluted $0.519 $0.527 ($0.008)
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Amortization of deferred financing costs - 1,229 (1,229)
Non-cash portion of interest expense 1,477 - 1,477
Reserve for replacement of furniture,
fixtures and equipment and capital
improvements (8,079) (6,942) (1,137)
Convertible debentures accretion 402 384 18
Deferred land lease expense and retail
lease income, net 17 50 (33)
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Distributable income(1) $23,670 $22,023 $1,647
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Distributable income per unit(1)
- basic $0.425 $0.438 ($0.013)
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- diluted $0.422 $0.434 ($0.012)
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Distributions per unit $0.5625 $0.5625 -
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(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 in the second
and third quarters of 2006, for which comparative data is not available, are
as follows:

Three months ended June 30 Six months ended June 30
2007 2006 Var % 2007 2006 Var %
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Occupancy
Ontario 63.8% 66.1% (3.5)% 59.8% 61.3% (2.4)%
Quebec 63.7% 66.1% (3.6)% 59.0% 60.5% (2.5)%
Atlantic 67.0% 66.3% 1.1 % 60.3% 59.8% 0.8 %
Western 68.0% 65.6% 3.7 % 63.6% 59.7% 6.5 %
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Total 64.7% 66.0% (2.0)% 60.2% 60.8% (1.0)%
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ADR
Ontario $104.57 $102.62 1.9 % $103.09 $101.19 1.9 %
Quebec $95.67 $93.86 1.9 % $92.85 $90.84 2.2 %
Atlantic $94.30 $90.57 4.1 % $89.83 $86.27 4.1 %
Western $85.50 $78.62 8.8 % $83.37 $76.94 8.4 %
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Total $99.06 $96.44 2.7 % $96.95 $94.45 2.6 %
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RevPAR
Ontario $66.74 $67.81 (1.6)% $61.60 $62.03 (0.7)%
Quebec $60.97 $62.02 (1.7)% $54.77 $55.00 (0.4)%
Atlantic $63.21 $60.01 5.3 % $54.17 $51.58 5.0 %
Western $58.14 $51.54 12.8 % $53.02 $45.93 15.4 %
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Total $64.10 $63.68 0.7 % $58.35 $57.41 1.6 %
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RECENT DEVELOPMENTS

InnVest continued to pursue acquisition opportunities entering into a
contract to purchase three hotels with a total of 349 rooms for a combined
purchase price of $48.3 million plus transaction costs in the first quarter of
2007. The transaction to acquire these new build hotel properties will close
in stages as the construction of each hotel is completed, which is scheduled
during the third quarters of 2007 and in early 2008. 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, 2007, the REIT closed on the Staybridge Suites
in London, Ontario at a cost of $17.0 million plus transaction costs. The REIT
assumed an $8.3 million first mortgage, which bears interest at 6.4% interest
for a term of 10 years, with the balance being funded from cash on hand.

These acquisitions will continue to increase the InnVest's participation
in the mid-scale with food and beverage segment and further launch InnVest
into the extended stay segment with the Staybridge Suites brand.

It is anticipated that these acquisitions will be funded through cash on
hand, refinancing proceeds and new mortgage financing proceeds.

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 will be effected by LGY Acquisition LP, a newly-formed
limited partnership, owned by InnVest and Cadbridge in which InnVest has an
approximate 26% interest. Upon the successful completion of the acquisition of
100% of Legacy's outstanding units, 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
"Portfolio"). This reorganization is expected to be completed within 30 days
of LGY Acquisition LP acquiring 100% of Legacy's outstanding units and, until
such time, InnVest will remain an approximate 26% owner in LGY Acquisition LP.

The purchase price, including the assumption of existing debt, in respect
of the eleven hotels that InnVest will ultimately acquire, is approximately
$652 million ($178 per room) prior to closing and transaction costs.

Upon the completion of the portfolio acquisition, InnVest's total
portfolio will increase to 147 properties, totaling 19,265 rooms across
Canada.

Description of the Offering

In order to partially fund the $676 million cost of the Portfolio
acquisition (which includes the various transaction and financing costs
required to close the Portfolio acquisition), InnVest has entered into an
agreement to sell to a syndicate of underwriters, on a bought deal basis,
$200 million of subscription receipts 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 will be satisfied with the assumption of
$194 million in mortgage debt secured by the properties and $212 million of
bridge financing from RBC. InnVest intends to refinance the existing mortgages
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.

The subscription receipts are exchangeable on a one-for-one basis for
units of InnVest upon completion of LGY Acquisition LP's take-over bid for
Legacy (but prior to the subsequent reorganization as described above). The
take-over bid is subject to customary conditions, including receipt of
regulatory approvals and the requirement that a minimum of two-thirds of
Legacy's units be tendered into the bid. Fairmont Hotels & Resorts Inc.,
Legacy's largest unitholder representing 20.4% of the outstanding voting
rights, has entered into a lockup agreement with LGY Acquisition LP to tender
its entire ownership interest in Legacy to the take-over bid. The convertible
debentures have an initial maturity date of December 31, 2007 (but can mature
earlier upon the occurrence of certain events) and will be extended to
August 1, 2014 upon completion of LGY Acquisition LP's take-over bid for
Legacy. The convertible debentures have 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 will be convertible
into approximately 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 subscription receipts and convertible debentures will be offered in
all the provinces of Canada by means of a short form prospectus. Closing of
the offering occurred on August 3, 2007.

Description of the Hotels to be Acquired

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 ideally 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 being acquired by InnVest are as follows:

Hotel Location Rooms
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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
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Total 3,672
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In the second quarter, the REIT completed an early extension of
$147.7 million of mortgage debt that was to have matured in July 2008, fixing
the interest rate on $130 million at 5.8% for a blended interest rate of 6.2%
per annum for a period of seven years and maintained floating rate debt of
$17.7 million, which at current rates bears interest at approximately 6.3% per
annum. As part of this early extension, InnVest increased its proceeds by
$25.9 million, which were used to repay the operating loan balance and to fund
acquisitions.

FINANCIAL REVIEW

Three months ended June 30, 2007

Room revenues increased $10.1 million to $94.1 million. The increase in
room revenues primarily reflects a $9.6 million increase in revenues from the
six hotels acquired in 2006 after the end of the first quarter (the "acquired
hotels"). The remaining $542 improvement stems from increases in room revenue
in the REIT's base portfolio.

Non-room revenues increased by $4.1 million, reflecting the non-room
revenues generated by the REIT's acquired hotels not owned for the entire
comparative period.

Hotel expenses for the three months ended June 30, 2007 increased by
$12.6 million or 19.50% when compared to the same period in 2006. This
increase reflects $11.2 million in expenses incurred by the hotels acquired in
2006 after the end of the first quarter, were not owned for the entire
comparative period. The remaining $1.4 million related to the Base Portfolio
represents a 2.3% increase over the same period in 2006.

The net amount of other income and expenses for the three months ended
June 30, 2007 was $25.2 million, $1.9 million or 8.0% more than the same
period in 2006. The main contributors to this increase were a $1.3 million
increase in interest on mortgages and other debt, a $406 decrease in
convertible debentures interest and accretion, a $1.6 million increase in
depreciation, amortization and accretion, a $248 increase in corporate and
administrative expenses, a $456 increase in other business income and a
$387 reduction in capital tax. The increases were mainly related to the hotels
acquired during 2006. The decrease in convertible debentures interest and
accretion was the net result of the conversion of debentures and the
amortization of costs associated with the issuance 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 three months ended June 30, 2007 was
zero because of the elimination of the large corporation tax, an increase of
$197 from the recovery recorded as the result of losses carried back to prior
periods in corporate subsidiaries of InnVest in the same period in 2006.
Further, InnVest experienced a $122.6 million future income tax expense during
the quarter as the result of changes in the income tax legislation related to
Real Estate Investment Trusts.

Funds from operations for the three months ended June 30, 2007 increased
$1.7 million to $23.4 million or $0.418 per unit basic ($0.388 - diluted) from
$21.7 million or $0.432 per unit basic ($0.399 - diluted) in the same period
of 2006.

Distributable income for the three months ended June 30, 2007 was
$19.9 million or $0.355 per unit basic ($0.335 - diluted). This reflects a
$1.2 million improvement over the distributable income experienced for the
same period of the prior year of $18.7 million or $0.372 per unit basic
($0.349 - diluted).

Six months ended June 30, 2007

Room revenues increased $20.1 million to $169.2 million. The increase in
room revenues primarily reflects a $17.8 million increase in revenues from the
seven hotels acquired in 2006 (the "acquired hotels"). The remaining
$2.3 million improvement stems from increases in room revenue in the REIT's
base portfolio.

Non-room revenues increased by $8.3 million, reflecting the non-room
revenues generated by the hotels the REIT acquired in 2006, which were not
owned for the entire comparative period. The majority of the hotels which were
acquired in 2006 generate a higher proportion of total revenues from non-room
revenues such as food and beverage sales.

Hotel expenses for the six months ended June 30, 2007 increased by
$25.7 million or 20.7% when compared to the same period in 2006. This increase
reflects $22.7 million in expenses incurred in the hotels acquired in 2006,
which were not owned for the entire comparative period. The remaining
$3.0 million related to the Base Portfolio represents a 2.5% increase over the
same period in 2006.

The net amount of other income and expenses for the six months ended
June 30, 2007 was $51.7 million, $6.2 million or 13.5% more than the same
period in 2006. The main contributors to this increase were a $3.6 million
increase in depreciation, amortization and accretion, a $3.1 million increase
in interest on mortgages, a $1.7 million increase in corporate and
administrative expenses, a $1.0 million increase in other business income, a
$774 reduction in capital tax and a $421 decrease in convertible debentures
interest and accretion. The increases were mainly related to the hotels
acquired during 2006. The corporate and administrative expense increase was
the result of land transfer tax and legal costs associated with a
reorganization of InnVest. The decrease in convertible debentures interest and
accretion was the net result of the conversion of debentures 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 six months ended June 30, 2007 was
zero because of the elimination of the large corporation tax, an increase of
$127 from the recovery recorded as the net result of large corporation tax and
losses carried back to prior periods in corporate subsidiaries of InnVest in
the same period in 2006. Further, InnVest experienced a $7.1 million future
income tax expense during the six-month period as the result of changes in the
income tax legislation related to Real Estate Investment Trusts as compared to
a recovery of $12.9 million in the same period of the prior year resulting
from reductions in the corporate income tax rates.

Funds from operations for the six months ended June 30, 2007 increased
$2.6 million to $29.9 million or $0.537 per unit basic ($0.519 - diluted) from
$27.3 million or $0.543 per unit basic ($0.527 - diluted) in the same period
of 2006. The increase is mainly attributable to increases in hotel operating
income.

Distributable income for the six months ended June 30, 2007 was
$23.7 million or $0.425 per unit basic ($0.422 - diluted). This reflects a
$1.7 million improvement over the distributable income experienced for the
same period of the prior year of $22.0 million or $0.438 per unit basic
($0.434 - diluted).

BALANCE SHEET REVIEW

At June 30, 2007, InnVest's cash totaled $8.7 million, of which $567 is
restricted for replacement of furniture, fixture and equipment and capital
improvements. Financial leverage was 41.0% debt to gross asset value (defined
as total assets before accumulated depreciation less future income tax
liabilities included in assets) excluding convertible debentures and 50.5%
including convertible debentures at the end of the period.

Continuing with its strategy of investing in its hotels, InnVest deployed
approximately $7.6 million for capital asset improvements during the second
quarter and committed an additional $2.6 million.

The REIT had unused operating loan availability of $25 million at
June 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

InnVest experienced significant improvements in RevPAR in its hotel in
the Western and Atlantic regions, which allowed InnVest to grow its RevPAR in
the second quarter on a same hotel basis, while the contribution from the
hotels acquired in 2006 during or after the second quarter allowed InnVest to
grow its funds from operations and distributable income. Further increases are
expected for the remainder of the year as InnVest approaches the highest cash
generating third quarter and benefits from the hotels acquired in the third
quarter of 2006.

The hotels to be acquired through the participation in the acquisition of
Legacy will expand InnVest's presence in Western Canada, which will contribute
to growth in funds from operations and distributable income on an absolute
basis immediately and on a per unit basis annually in the next 12-24 months.
Given that the acquisition is scheduled to close late in the third quarter or
early in the fourth quarter, the contribution on a per unit basis for 2007 is
expected to be dilutive due to the seasonality inherent in the hotel business.

The Canadian hospitality industry is performing as anticipated with
RevPAR growth in all regions and particularly strong growth in western
provinces. PKF Consulting Inc., ("PKF") lodging industry experts continue to
forecast a 4% increase in RevPAR in 2007 due to the growth in demand
continuing to outpace supply. Accordingly, InnVest is expecting growth within
its base portfolio and from its 2006 Acquisitions. InnVest's hotels located in
certain markets, such as Windsor, Oshawa, the GTA and Montréal, have
experienced declines in room revenue in the second quarter. In response,
concentrated sales efforts and additional cost control measures are being
undertaken in these markets. This has been somewhat offset by strong
performance in many other markets of Ontario and Québec where the industry
fundamentals remain strong, further demonstrating the benefit of the
geographic diversity of InnVest's hotel portfolio.

InnVest expects to continue to benefit from the anticipated growth in the
hospitality industry, our ability to manage costs, our ability to capitalize
on acquisition opportunities and re-financing activities completed in the
second quarter.

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 135 hotel properties, with
15,476 guest rooms, operated under internationally recognized franchise brands
such as Comfort Inn®, Holiday Inn® Quality Suites/Inn®, Radisson®,
Travelodge®, Delta®, Hilton Hotel®, Hilton Garden Inn® and Hilton
Homewood Suites®. InnVest's trust units and outstanding convertible
debentures trade on the Toronto Stock Exchange under the symbols INN.UN,
INN.DB.A and INN.DB.B, respectively.

QUARTERLY CONFERENCE CALL

Management will host a conference call on Friday August 10, 2007 at
11:00 a.m. Eastern time to discuss the performance of InnVest. Investors are
invited to access the call by dialing (416)-644-3422 or 1-800-732-1073. 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 August 10th
beginning at 1:00 pm through to 12:59 p.m. on August 17th. To access the
recording please call (416)-640-1917 and use the reservation number 21240935
followed by the number sign.

InnVest Real Estate Investment Trust
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CONSOLIDATED BALANCE SHEETS
June 30, December 31,
(in thousands of dollars) (Unaudited) 2007 2006
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ASSETS

Current Assets
Cash $ 8,128 $ 4,531
Accounts receivable 15,501 13,242
Prepaid expenses and other assets 10,295 5,627
Assets held for sale (Note 19) 24 42
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33,948 23,442

Restricted cash 567 4,693

Hotel properties (Note 3) 1,127,365 1,136,730

Other real estate properties (Note 4) 16,742 16,933

Licence contracts (accumulated
amortization $6,493; December 31,
2006 - $5,835) 19,827 20,485

Other assets (Note 5) 11,889 19,067

Assets held for sale (Note 19) - 5,566
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$ 1,210,338 $ 1,226,916
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LIABILITIES

Current Liabilities
Bank indebtedness (Note 6) $ - $ 3,300
Accounts payable and accrued liabilities 43,268 41,515
Distributions payable 5,275 5,161
Current portion of long-term debt (Note 7) 7,049 11,434
Liabilities related to assets held
for sale (Note 19) 39 139
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55,631 61,549

Long-term debt (Note 7) 511,080 490,998

Other long-term obligations (Note 8) 4,231 4,535

Convertible debentures (Note 9) 112,460 126,339

Future income tax liability (Note 10) 131,849 124,759

Long-term debt related to assets held
for sale (Note 19) - 2,191
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815,251 810,371

UNITHOLDERS' EQUITY 395,087 416,545
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$ 1,210,338 $ 1,226,916
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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 INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)

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

Total revenues
(reference only)
(Note 17) $ 113,872 $ 98,820 $ 205,952 $ 175,596

Hotel revenues $ 111,467 $ 97,242 $ 201,493 $ 173,146
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Hotel expenses
Operating expenses
(Note 15) 63,750 52,454 123,638 100,574
Property taxes, rent
and insurance 9,588 8,733 19,059 17,377
Management fees
(Note 15) 3,734 3,282 6,778 5,843
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77,072 64,469 149,475 123,794
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Hotel operating income 34,395 32,773 52,018 49,352
-------------------------------------------------------------------------

Other (income) and
expenses
Interest on mortgages
and other debt 8,750 7,474 17,554 14,497
Convertible debentures
interest and accretion 2,186 2,592 4,613 5,034
Corporate and admini-
strative (Note 15) 1,548 1,300 4,115 2,373
Capital tax 24 411 48 822
Other business income,
net (Note 18) (1,321) (865) (2,369) (1,351)
Other income (64) (108) (121) (123)
Depreciation,
amortization
and accretion 14,106 12,547 27,856 24,292
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25,229 23,351 51,696 45,544
-------------------------------------------------------------------------

Income before income tax
expense (recovery) 9,166 9,422 322 3,808
-------------------------------------------------------------------------

Income tax expense
(recovery) (Note 10)
Current - (197) - (127)
Future 122,626 (12,684) 7,090 (12,906)
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122,626 (12,881) 7,090 (13,033)
-------------------------------------------------------------------------

Net (loss) income from
continuing operations (113,460) 22,303 (6,768) 16,841

(Loss) income from
discontinued
operations (Note 19) (5) 63 (24) (36)
Gain on sale (writedown)
of assets held for sale
(Note 19) 174 (1,000) 833 (1,000)
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169 (937) 809 (1,036)
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Net (loss) income and
comprehensive (loss)
income $ (113,291) $ 21,366 $ (5,959) $ 15,805
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Net (loss) income from
continuing operations,
per unit (Note 13)
Basic $ (2.026) $ 0.443 $ (0.122) $ 0.335
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Diluted $ (2.026) $ 0.412 $ (0.122) $ 0.335
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Net (loss) income and
comprehensive (loss)
income per unit (Note 13)
Basic $ (2.023) $ 0.424 $ (0.107) $ 0.315
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ (2.023) $ 0.396 $ (0.107) $ 0.314
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net income (loss) from
discontinued operations,
per unit
Basic $ 0.003 $ (0.019) $ 0.015 $ (0.020)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted $ 0.003 $ (0.019) $ 0.015 $ (0.021)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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
(in thousands (Loss) and
of dollars) Comprehensive Distri- Units in
(Unaudited) Income (Loss) butions Deficit $
-------------------------------------------------------------------------

Balance
December 31, 2005 $ 57,033 $ (169,328) $ (112,295) $ 464,164

CHANGES DURING THE PERIOD

Net income and comp-
rehensive income 15,805 - 15,805 -
Unit distributions
(Note 14) - (28,733) (28,733) -
Distribution reinvestment
plan units issued - - - 1,788
Conversion of debentures
(Note 9) - - - 68,988
Redemption of debentures
(Note 9) - - - 4,719
Issue of new debentures
(Note 9) - - - -
Vested executive
compensation - - - 152
Executive and trustee
compensation - - - 53

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

Balance June 30, 2006 $ 72,838 $ (198,061) $ (125,223) $ 539,864
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Balance December 31,
2006 $ 95,629 $ (228,933) $ (133,304) $ 543,363

Change in accounting
policy for financial
instruments (Note 2) 654 - 654 -
-------------------------------------------------------------------------
Balance January 1, 2007 $ 96,283 $ (228,933) $ (132,650) $ 543,363
-------------------------------------------------------------------------

CHANGES DURING THE PERIOD

Net loss and comprehensive
loss (5,959) - (5,959) -
Unit distributions
(Note 14) - (31,373) (31,373) -
Distribution reinvestment
plan units issued - - - 4,934
Conversion of debentures
(Note 9) - - - 10,605
Vested executive comp-
ensation - - - 275
Executive and trustee
compensation - - - 23

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

Balance June 30, 2007 $ 90,324 $ (260,306) $ (169,982) $ 559,200
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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

Balance
December 31, 2005 $ 186 $ 5,588 $ 357,643

CHANGES DURING THE PERIOD

Net income and
comprehensive income - - 15,805
Unit distributions
(Note 14) - - (28,733)
Distribution reinvestment
plan units issued - - 1,788
Conversion of debentures
(Note 9) - (2,556) 66,432
Redemption of debentures
(Note 9) - (172) 4,547
Issue of new debentures
(Note 9) - 3,400 3,400
Vested executive
compensation (152) - -
Executive and trustee
compensation 122 - 175

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

Balance June 30, 2006 $ 156 $ 6,260 $ 421,057
-------------------------------------------------------------
-------------------------------------------------------------

Balance December 31,
2006 $ 278 $ 6,208 $ 416,545

Change in accounting
policy for financial
instruments (Note 2) - - 654
-------------------------------------------------------------
Balance January 1,
2007 $ 278 $ 6,208 $ 417,199
-------------------------------------------------------------

CHANGES DURING THE PERIOD

Net loss and
comprehensive loss - - (5,959)
Unit distributions
(Note 14) - - (31,373)
Distribution reinvest-
ment plan units issued - - 4,934
Conversion of debentures
(Note 9) - (519) 10,086
Vested executive
compensation (275) - -
Executive and trustee
compensation 177 - 200

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

Balance June 30, 2007 $ 180 $ 5,689 $ 395,087
-------------------------------------------------------------
-------------------------------------------------------------

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



InnVest Real Estate Investment Trust

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
(in thousands of dollars) June 30, June 30, June 30, June 30,
(Unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
(Restated) (Restated)
(Note 19) (Note 19)
OPERATING ACTIVITIES

Net (loss) income
from continuing
operations $ (113,460) $ 22,303 $ (6,768) $ 16,841
Add (deduct) items not
affecting operations
Depreciation, amort-
ization and accretion 14,106 12,547 27,856 24,292
Non-cash portion of
interest expense 751 - 1,477 -
Future income tax
expense (recovery) 122,626 (12,684) 7,090 (12,906)
Non-cash executive
and trustee
compensation 112 84 200 175
Convertible debentures
accretion 190 204 402 384
Discontinued operations (336) 159 (107) 102
Changes in non-cash
working capital (683) (4,026) (4,749) (1,267)
-------------------------------------------------------------------------
23,306 18,587 25,401 27,621
-------------------------------------------------------------------------

FINANCING ACTIVITIES

Repayment of long-term
debt (3,597) (2,133) (5,996) (4,279)
Proceeds from long-term
debt 25,924 13,500 25,924 13,500
Issue of convertible
debentures - 75,000 - 75,000
Unit distributions (12,990) (13,447) (26,326) (26,306)
Decrease in bank
indebtedness (22,000) (16,300) (3,300) (7,100)
Discontinued operations
repayment of debt (1,171) (16) (2,191) (34)
Debt issue costs (1,311) (2,946) (1,311) (3,415)
Changes in non-cash working
capital related to fin-
ancing activities (165) 258 (165) 365
-------------------------------------------------------------------------
(15,310) 53,916 (13,365) 47,731
-------------------------------------------------------------------------

INVESTING ACTIVITIES

Capital expenditures on
hotel properties (7,567 (6,600) (13,507) (11,324)
Discontinued operations
capital expenditures - (23) - (27)
Hotel under development
expenditures (1,978) - (2,872) -
Sale of assets held for
sale, net of costs
(Note 19) 4,300 - 6,400 -
Other assets (1,584) 647 (1,995) (176)
Acquisition of hotel
properties and other
real estate properties - (59,537) - (62,811)
Changes in restricted
cash 1,806 1,536 4,126 3,209
Collection of vendor-take-
back mortgage - - - 200
Changes in non-cash
working capital related
to investing activities (164) 3,172 (591) 2,789
-------------------------------------------------------------------------
(5,187) (60,805) (8,439) (68,140)
-------------------------------------------------------------------------

Increase in cash during
the period 2,809 11,698 3,597 7,212
Cash, beginning of period 5,319 1,407 4,531 5,893
-------------------------------------------------------------------------
Cash, end of period $ 8,128 $ 13,105 $ 8,128 $ 13,105
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplemental disclosure
of cash flow
information:
Cash paid for interest $ 12,491 $ 11,576 $ 21,287 $ 18,755
Cash paid for income
taxes (including capital
tax) $ 70 $ 85 $ 139 $ 510

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



InnVest Real Estate Investment Trust

-------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 under the symbol of
"INN.UN". As at June 30, 2007, the REIT owned 135 Canadian hotels with
15,476 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:

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, if
any, have not been restated. For the period ended June 30, 2007, there is
no difference between the REIT's Consolidated Statement of Net Income
(Loss) and its Statement of Comprehensive Income (Loss).

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, if any, 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 six months ended June 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 fair value of zero.

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 (loss) and other comprehensive income (loss),
distributions and total deficit.

3. Hotel Properties

June 30, December 31,
Accumulated 2007 Net 2006 Net
Cost Depreciation Book Value Book Value
-------------------------------------------------------------------------
Land $ 94,834 $ - $ 94,834 $ 94,623
Buildings 1,091,420 115,126 976,294 987,415
Furniture, fixtures
and equipment 122,483 69,460 53,023 54,350
-------------------------------------------------------------------------
$ 1,308,737 $ 184,586 $ 1,124,151 $ 1,136,388
Hotel under
development 3,214 - 3,214 342
-------------------------------------------------------------------------
$ 1,311,951 $ 184,586 $ 1,127,365 $ 1,136,730
-------------------------------------------------------------------------
-------------------------------------------------------------------------

4. Other Real Estate Properties

June 30, December 31,
Accumulated 2007 Net 2006 Net
Cost Depreciation Book Value Book Value
-------------------------------------------------------------------------
Land $ 1,675 $ - $ 1,675 $ 1,675
Buildings 15,447 426 15,021 15,220
Furniture, fixtures
and equipment 59 13 46 38
-------------------------------------------------------------------------
$ 17,181 $ 439 $ 16,742 $ 16,933
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

5. Other Assets

June 30, December 31,
Accumulated 2007 Net 2006 Net
Cost Depreciation Book Value Book Value
-------------------------------------------------------------------------
Deferred financing
(Note 2) $ - $ - $ - $ 7,938
Other assets 15,395 3,506 11,889 11,129
-------------------------------------------------------------------------
$ 15,395 $ 3,506 $ 11,889 $ 19,067
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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.

6. 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
June 30, 2007, the REIT had drawn $ nil on this facility (December 31,
2006 - $3,300).

7. Long-term Debt

June 30, December 31,
2007 2006
-------------------------------------------------------------------------

Mortgages payable $ 522,359 $ 502,432
Less debt issuance costs, net (4,230) -
-------------------------------------------------------------------------
Total long-term debt 518,129 502,432
Less current portion (7,049) (11,434)
-------------------------------------------------------------------------
Net long-term debt $ 511,080 $ 490,998
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Substantially all of the REIT's assets have been pledged as security
under various debt agreements. At June 30, 2007, long-term debt had a
weighted average interest rate of 6.0% (December 31, 2006 - 6.5%) and a
weighted average effective interest rate of 6.2%. The long-term debt is
repayable in average monthly payments of principal and interest totalling
$3,249 (December 31, 2006 - $3,495) per month, and matures at various
dates from April 28, 2007 to September 1, 2015.

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 from long-term assets as a reduction to long-term debt
effective January 1, 2007.

Scheduled repayment of long-term debt is as follows:
2007 (remainder of the year) $ 3,712
2008 6,961
2009 8,055
2010 149,316
2011 53,809
2012 and thereafter 300,506
-------------------------------------------------------------------------
$ 522,359
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

The estimated fair value of the REIT's long-term debt at June 30, 2007
was approximately $516,658 (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 $69,080 (December 31, 2006 - $68,305) of
mortgages payable which are subject to floating interest rates. Interest
expense will increase by $691 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 6.17%
per annum for a period of seven years, and maintained floating rate debt
of $17,665 which, at current rates, bears interest at approximately 6.3%
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.

8. Other Long-term Obligations

June 30, December 31,
2007 2006
-------------------------------------------------------------------------
Capital lease $ 1,858 $ 1,861
Other lease obligations 329 299
-------------------------------------------------------------------------
2,187 2,160
Less current portion (included in accounts
payable and accrued liabilities) (223) (207)
-------------------------------------------------------------------------
Total long-term obligations 1,964 1,953
-------------------------------------------------------------------------
Pension liability 869 1,212
Asset retirement obligation 1,398 1,370
-------------------------------------------------------------------------
Total other long-term obligations $ 4,231 $ 4,535
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Defined Benefit Pension Plan

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

Non-
Union Non-
Management Management June 30, December 31,
Pension Pension 2007 Total 2006 Total
Benefit Benefit Benefit Benefit
Plans Plans Plans Plans
-------------------------------------------------------------------------
Accrued benefit
obligation $ 2,513 $ 1,623 $ 4,136 $ 3,873
Fair value of plan
assets 1,960 1,307 3,267 2,661
-------------------------------------------------------------------------
Funded status - plan
deficit 553 316 869 1,212
Unamortized net
actuarial gain 215 173 388 167
-------------------------------------------------------------------------

Accrued employee
future benefit
liability $ 768 $ 489 $ 1,257 $ 1,379
-------------------------------------------------------------------------
-------------------------------------------------------------------------


9. 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% 7.07% $ 57,500 $ (11,736)
Series B May 31, 2013 6.00% 6.79% 75,000 -
-------------------------------------------------------------------------
$ 132,500 $ (11,736)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Holders'
Face Amount Conversion Deferred June 30,
Debenture Outstanding Option Accretion Financing 2007
--------------------------------------------------------------------
Series A $ 45,764 $ (2,289) $ 1,036 $ (1,546) $ 42,965
Series B 75,000 (3,400) 543 (2,648) 69,495
--------------------------------------------------------------------
$ 120,764 $ (5,689) $ 1,579 $ (4,194) $ 112,460
--------------------------------------------------------------------
--------------------------------------------------------------------


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

10. 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 existing trusts that
qualify for the real estate investment trust ("Qualifying REIT")
exception included in the legislation. There are certain circumstances
where an existing trust may lose its relief 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 and has recognized a future income tax liability, in the second
quarter, of $122,626 mainly resulting from temporary differences on hotel
properties and licence contracts which are expected to reverse subsequent
to January 1, 2011. For the six months ended June 30, 2007, InnVest's
future income tax liability has increased by $7,090 mainly due to the
difference between the reduction of the future income tax liability
regarding the reorganization completed on January 2, 2007, and the
increase in the future income tax liability related to the enactment of
the Bill. As well, 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.

11. Commitments

During the first quarter of 2007, InnVest 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 which is scheduled during the third quarter. The
hotels include a 117 room Staybridge Suites located in London, Ontario, a
116 room Staybridge Suites located in Guelph, Ontario and a 116 room
Holiday Inn Express located in North Bay, Ontario. (See note 21)

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 150,366 1,788
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 4,178 53
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance at June 30, 2006 54,770,644 $ 539,864
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Units Amount
-------------------------------------------------------------------------
Balance at December 31, 2006 55,045,351 543,363
Units issued on conversion of debentures 830,800 10,605
Units issued under distribution reinvestment
plan 367,118 4,934
Units issued for vested executive compensation 20,139 275
Units issued under trustee compensation plan 1,650 23
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance at June 30, 2007 56,265,058 $ 559,200
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 June 30, 2007 is 52,428 units. Under the Trustee
Compensation Plan, 1,650 units were issued during the six months ended
June 30, 2007 (June 30, 2006 - 4,178 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 June 30, 2007 is 852,067
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 June 30, 2007, excluding granted units which have fully vested:

Units
Unvested Accumulated
Executive from Dist- Total
units ributions Units
-------------------------------------------------------------------------
January 1, 2004 - granted 10,218 3,632 13,850
January 1, 2005 - granted 13,118 3,268 16,386
January 1, 2006 - granted 12,968 1,797 14,765
January 1, 2007 - granted 15,000 624 15,624
January 1, 2007 - units vested (5,109) (1,675) (6,784)
-------------------------------------------------------------------------
46,195 7,646 53,841
-------------------------------------------------------------------------

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
June 30, 2007 June 30, 2006
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net (loss) income
from continuing
operations-basic $ (113,460) 56,002,020 $ 22,303 50,370,723
Convertible debentures - - 2,592 10,023,052
Dilutive effect of
executive
compensation plan - - - 53,814
-------------------------------------------------------------------------
Net (loss) income
from continuing
operations-diluted $ (113,460) 56,002,020 $ 24,895 60,447,589
-------------------------------------------------------------------------

Six Six
Months Ended Months Ended
June 30, 2007 June 30, 2006
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net (loss) income
from continuing
operations-basic $ (6,768) 55,631,950 $ 16,841 50,236,267
Dilutive effect of
executive
compensation plan - 52,769 - 53,209
-------------------------------------------------------------------------
Net (loss) income
from continuing
operations-diluted $ (6,768) 55,684,719 $ 16,841 50,289,476
-------------------------------------------------------------------------


Three Three
Months Ended Months Ended
June 30, 2007 June 30, 2006
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net (loss) income and
comprehensive (loss)
income - basic $ (113,291) 56,002,020 $ 21,366 50,370,723
Convertible
debentures - - 2,592 10,023,052
Dilutive effect of
executive
compensation plan - - - 53,814
-------------------------------------------------------------------------
Net (loss) income and
comprehensive (loss)
income - diluted $ (113,291) 56,002,020 $ 23,958 60,447,589
-------------------------------------------------------------------------

Six Six
Months Ended Months Ended
June 30, 2007 June 30, 2006
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net income (loss) and
comprehensive income
(loss) - basic $ (5,959) 55,631,950 $ 15,805 50,236,267
Dilutive effect of
executive
compensation plan - 52,769 - 53,209
-------------------------------------------------------------------------
Net income (loss) and
comprehensive income
(loss) - diluted $ (5,959) 55,684,719 $ 15,805 50,289,476
-------------------------------------------------------------------------

All of the convertible debentures have been included in the three months
ended June 30, 2006 per unit calculations above, but have been excluded
in the other calculations because the impact of the conversions would not
be dilutive and the dilutive effect of the executive compensation plan
has been excluded in some of the calculations as the impact of the
conversions would not be dilutive.

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
June 30, June 30,
2007 2006
-------------------------------------------------------------------------
Net (loss) income and comprehensive (loss)
income $ (113,291) $ 21,366
-------------------------------------------------------------------------
Add (deduct)
Depreciation, amortization and accretion 14,106 12,630
Non-cash portion of interest expense 751 -
Future income tax expense (recovery) 122,626 (12,684)
Reserve for replacement of furniture, fixtures
and equipment and capital improvements (4,459) (3,887)
Convertible debentures accretion 190 204
Non-cash executive and trustee compensation 140 84
Deferred land lease expense and retail lease
income, net 3 25
Gain on sale (writedown) of asset held for sale (174) 1,000
-------------------------------------------------------------------------
133,183 (2,628)
-------------------------------------------------------------------------
Distributable income 19,892 18,738
-------------------------------------------------------------------------
Distributions
Required under the Declaration of Trust 15,914 14,990
Timing adjustment (121) (126)
-------------------------------------------------------------------------
Distributions paid 15,793 14,864
-------------------------------------------------------------------------
Distributions less than distributable income $ (4,099) $ (3,874)
-------------------------------------------------------------------------


Six Months Six Months
Ended Ended
June 30, June 30,
2007 2006
-------------------------------------------------------------------------
Net (loss) income and comprehensive (loss)
income $ (5,959) $ 15,805
-------------------------------------------------------------------------
Add (deduct)
Depreciation, amortization and accretion 27,856 24,457
Non-cash portion of interest expense 1,477 -
Future income tax expense (recovery) 7,090 (12,906)
Reserve for replacement of furniture, fixtures
and equipment and capital improvements (8,079) (6,942)
Convertible debentures accretion 402 384
Corporate reorganization costs 1,471 -
Non-cash executive and trustee compensation 228 175
Deferred land lease expense and retail lease
income, net 17 50
Gain on sale (writedown) of assets held for sale (833) 1,000
-------------------------------------------------------------------------
29,629 6,218
-------------------------------------------------------------------------
Distributable income 23,670 22,023
-------------------------------------------------------------------------
Distributions
Required under the Declaration of Trust 18,936 17,618
Discretionary 12,437 11,115
-------------------------------------------------------------------------
Distributions paid 31,373 28,733
-------------------------------------------------------------------------
Distributions in excess of distributable income $ 7,703 $ 6,710
-------------------------------------------------------------------------

15. Management Agreements

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
total management fees paid to other parties for the three and six months
ended June 30, 2007 are $408 and $694 respectively (three and six months
ended June 30, 2006 - $63).

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 six months ended June 30, 2007 and 2006, the fees
charged to the REIT pursuant to the Agreements were as follows:

Three Months Three Months
Ended Ended
June 30, June 30,
2007 2006
-------------------------------------------------------------------------
Fees from continuing operations:
Management fees $ 3,247 $ 3,219
Asset management fees (included in hotel
operating expenses) 79 -
Accounting services (included in hotel
operating expenses) 569 563
Administrative services (included in
corporate and administrative expenses) 93 136
Project management and general contractor services
(capitalized to hotel properties) 236 151
Fees from discontinued operations 102 30
-------------------------------------------------------------------------
$ 4,326 $ 4,099
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Six Months Six Months
Ended Ended
June 30, June 30,
2007 2006
-------------------------------------------------------------------------
Fees from continuing operations:
Management fees $ 5,927 $ 5,780
Asset management fees (included in hotel
operating expenses) 157 -
Accounting services (included in hotel
operating expenses) 1,145 1,123
Administrative services (included in corporate
and administrative expenses) 212 275
Project management and general contractor services
(capitalized to hotel properties) 396 294
Fees from discontinued operations 107 52
-------------------------------------------------------------------------
$ 7,944 $ 7,524
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In addition, salaries of REIT employees paid by Westmont and reimbursed
by the REIT were $126 (June 30, 2006 - $123). Included in accounts
payable and accrued liabilities are amounts outstanding at June 30, 2007
totalling $1,871 (December 31, 2006 - $1,076).

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
June 30, 2007
Hotel revenues $ 10,874 $ 59,968 $ 28,643 $ 11,982 $ 111,467
Hotel expenses 6,821 41,913 20,574 7,764 77,072
-------------------------------------------------------------------------
Hotel operating
income $ 4,053 $ 18,055 $ 8,069 $ 4,218 $ 34,395
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three Months Ended
June 30, 2006
Hotel revenues $ 9,795 $ 60,677 $ 17,839 $ 8,931 $ 97,242
Hotel expenses 6,109 41,288 11,448 5,624 64,469
-------------------------------------------------------------------------
Hotel operating
income $ 3,686 $ 19,389 $ 6,391 $ 3,307 $ 32,773
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Six Months Ended
June 30, 2007
Hotel revenues $ 19,859 $ 111,059 $ 50,314 $ 20,261 $ 201,493
Hotel expenses 13,111 82,811 38,920 14,633 149,475
-------------------------------------------------------------------------
Hotel operating
income $ 6,748 $ 28,248 $ 11,394 $ 5,628 $ 52,018
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Six Months Ended
June 30, 2006
Hotel revenues $ 17,472 $ 109,950 $ 30,383 $ 15,341 $ 173,146
Hotel expenses 11,751 80,176 21,099 10,768 123,794
-------------------------------------------------------------------------
Hotel operating
income $ 5,721 $ 29,774 $ 9,284 $ 4,573 $ 49,352
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital expenditures
Three Months Ended
June 30, 2007 $ 1,374 $ 3,689 $ 2,066 $ 438 $ 7,567
Three Months Ended
June 30, 2006 $ 267 $ 4,731 $ 1,083 $ 519 $ 6,600
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital expenditures
Six Months Ended
June 30, 2007 $ 1,747 $ 7,801 $ 2,969 $ 990 $ 13,507
Six Months Ended
June 30, 2006 $ 552 $ 8,392 $ 1,441 $ 939 $ 11,324
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Hotel properties
June 30, 2007 $ 72,898 $ 676,296 $ 263,807 $ 114,364 $1,127,365
December 31, 2006 $ 73,233 $ 681,290 $ 266,140 $ 116,067 $1,136,730
-------------------------------------------------------------------------
-------------------------------------------------------------------------

17. Total Revenues

Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
-------------------------------------------------------------------------
Hotel revenues $ 111,467 $ 97,242 $ 201,493 $ 173,146
Other business
revenues (Note 18) 2,405 1,578 4,459 2,450
-------------------------------------------------------------------------
$ 113,872 $ 98,820 $ 205,952 $ 175,596
-------------------------------------------------------------------------
-------------------------------------------------------------------------

18. Other Business Income

Three Months Three Months
Ended Ended
Franchise Retail/ Retirement June 30, June 30,
Business Office Residence 2007 2006
-------------------------------------------------------------------------
Revenues $ 1,376 $ 760 $ 269 $ 2,405 $ 1,578

Expenses 566 359 159 1,084 713
-------------------------------------------------------------------------
Other
business
income,
net $ 810 $ 401 $ 110 $ 1,321 $ 865
-------------------------------------------------------------------------

Six Months Six Months
Ended Ended
Franchise Retail/ Retirement June 30, June 30,
Business Office Residence 2007 2006
-------------------------------------------------------------------------
Revenues $ 2,438 $ 1,484 $ 537 $ 4,459 $ 2,450

Expenses 1,047 705 338 2,090 1,099
-------------------------------------------------------------------------
Other
business
income,
net $ 1,391 $ 779 $ 199 $ 2,369 $ 1,351
-------------------------------------------------------------------------

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 June 30, 2007
and 2006 are as follows:

Three Months Three Months
Ended Ended
June 30, June 30,
2007 2006
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Hotel revenues $ 21 $ 639
-------------------------------------------------------------------------
Hotel expenses
Operating expenses 25 385
Property taxes, rent and insurance - 48
Management fees 1 22
-------------------------------------------------------------------------
26 455
-------------------------------------------------------------------------
Hotel operating income (5) 184
-------------------------------------------------------------------------
Interest on mortgages - 38
Depreciation and amortization - 83
-------------------------------------------------------------------------
- 121
-------------------------------------------------------------------------
(Loss) income from discontinued operations (5) 63
Gain on sale (writedown) of assets held for sale 174 (1,000)
-------------------------------------------------------------------------
Net income (loss) from discontinued operations $ 169 $ (937)
-------------------------------------------------------------------------


Six Months Six Months
Ended Ended
June 30, June 30,
2007 2006
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Hotel revenues $ 462 $ 1,100
-------------------------------------------------------------------------
Hotel expenses
Operating expenses 383 762
Property taxes, rent and insurance 49 99
Management fees 16 37
-------------------------------------------------------------------------
448 898
-------------------------------------------------------------------------
Hotel operating income 14 202
-------------------------------------------------------------------------
Interest on mortgages 38 73
Depreciation and amortization - 165
-------------------------------------------------------------------------
38 238
-------------------------------------------------------------------------
Loss from discontinued operations (24) (36)
Gain on sale (writedown) of assets held for sale 833 (1,000)
-------------------------------------------------------------------------
Net income (loss) from discontinued operations $ 809 $ (1,036)
-------------------------------------------------------------------------

20. Comparative Information

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

21. Subsequent Events

London Staybridge Acquisition

Subsequent to June 30, 2007, the REIT completed the purchase of the 117
room Staybridge Suites in London, Ontario for $16,965 plus closing costs.
The REIT assumed the existing debt of $8,300 at an interest rate of 6.4%
for a ten year term. The balance was funded through cash on hand.

Take-over Bid and Offering

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 will be
effected by LGY Acquisition LP, a newly-formed limited partnership, owned
by InnVest and Cadbridge in which InnVest has an approximate 26%
interest. Upon the successful completion of the acquisition of 100% of
Legacy's outstanding units, 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 "Portfolio"). This reorganization is expected to be
completed within 30 days of LGY Acquisition LP acquiring 100% of Legacy's
outstanding units and, until such time, InnVest will remain an
approximate 26% owner in LGY Acquisition LP.

The purchase price, including the assumption of existing debt, in respect
of the eleven hotels that InnVest will ultimately acquire, is
approximately $651,825 ($178 per room) prior to closing and transaction
costs.

Upon the completion of the Portfolio acquisition, InnVest's total
portfolio will increase to 147 properties, totalling 19,265 rooms across
Canada.

In order to partially fund the $675,364 cost of the Portfolio acquisition
(which includes the various transaction and financing costs required to
close), InnVest has entered into an agreement to sell to a syndicate of
underwriters, on a bought deal basis, $200,008 of subscription receipts
at a price of $12.35 per subscription receipt representing the right to
receive trust units of the REIT and $70,000 of convertible extendible
unsecured subordinated debentures. The remainder of the purchase price
will be satisfied with the assumption of $194,332 in mortgage debt
secured by the properties and $211,720 of bridge financing from a
Canadian chartered bank. InnVest intends to refinance the existing
mortgages 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.

After taking into consideration the equity issue and convertible
debenture raised for this Legacy transaction, the REIT will not lose its
relief in the interim periods to 2011, as it did not undergo an "undue
expansion", for income tax purposes (Note 10).


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