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

InnVest Real Estate Investment Trust

November 07, 2008 08:00 ET

InnVest REIT Reports Third Quarter Results

TORONTO, ONTARIO--(Marketwire - Nov. 7, 2008) - InnVest Real Estate Investment Trust (TSX:INN.UN) today announced financial results for the three and nine months ended September 30, 2008.

"We delivered continued growth this quarter highlighted by a same-store revenue per available room ("RevPAR") increase of 2.1%, stable margins and improvements in distributable income and funds from operations per unit," commented Kenny Gibson, InnVest's President and Chief Executive Officer. "InnVest's business strategy since its inception has been to assemble a diversified portfolio; by geography, by customer and by brand. Our diversification, combined with our hotel managers' expertise, helps drive stable operating earnings for the portfolio."



Third Quarter Highlights

- Improved revenue per available room 2.1% on a same hotel basis driven
by a 5.1% increase in average daily rates ("ADR");

- Increased hotel operating income by 31.5% to $64.6 million, an
increase of $15.5 million over 2007. Acquisitions completed in late
2007, including the addition of 11 upscale and first-class hotels
(the "Legacy Portfolio"), contributed the majority of the increase,
with InnVest's Base Portfolio improving 2.3%;

- Maintained hotel operating income margins on a same hotel basis at
36.6%;

- Generated net income from continuing operations of $24.5 million in
2008 compared to $30.0 million in 2007. Excluding the change in
future income taxes, net income from continuing operations was
relatively unchanged at $24.8 million compared to $24.9 million for
the same period in 2007;

- Increased distributable income by 17.2% to $40.6 million.
Distributable income improved over $0.02 per unit to $0.497 per unit
diluted;

- Invested $9.7 million in our hotels to maintain and enhance the
portfolio's competitive position, funded from restricted cash
reserves, capital loan facilities and cash from operations; and

- Sold two hotels for $12.9 million less closing costs, resulting in
accounting gains on sale of $1.3 million.


FINANCIAL HIGHLIGHTS

-------------------------------------------------------------------------
Financial Highlights
-------------------------------------------------------------------------
(In thousands of dollars except average daily rate, revenue per
available room and per unit amounts)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
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2008 2007 +/- 2008 2007 +/-
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Occupancy 72.1% 72.7% (0.6)% 65.2% 64.8% 0.4%
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Average daily
rate ("ADR") $125.86 $110.36 $15.50 $121.08 $103.86 $17.22
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Revenue Per
Available
Room
("RevPAR") $90.77 $80.18 $10.59 $78.94 $67.26 $11.68
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(In thousands
of dollars,
except per
unit amounts)
-------------------------------------------------------------------------
Operating
revenues $193,832 $135,982 $57,850 $516,357 $333,639 $182,718
-------------------------------------------------------------------------
Hotel
operating
income $64,576 $49,099 $15,477 $144,302 $100,677 $43,625
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income
and
comprehensive
income $24,534 $30,209 ($5,675) $24,955 $24,250 $705
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Add/(deduct)
Depreciation,
amortization
and
accretion 22,338 14,086 8,252 65,416 41,942 23,474
Future
income tax
(recovery)
expense 241 (5,068) 5,309 (4,516) 2,022 (6,538)
Non-cash
executive
and trustee
compensation 165 158 7 465 386 79
Write down
(gain on
sale) of
assets held
for sale 300 - 300 2,664 (833) 3,497
Corporate
reorgani-
zation
expense - 43 (43) - 1,514 (1,514)
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Funds from
operations(1) $47,578 $39,428 $8,150 $88,984 $69,281 $19,703
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-------------------------------------------------------------------------
Funds from
operations per
unit(1)
- basic $0.641 $0.592 $0.049 $1.208 $1.168 $0.040
- diluted $0.583 $0.535 $0.048 $1.144 $1.089 $0.055
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Amortization
of deferred
financing
costs 32 - 32 1,373 - 1,373
Non-cash
portion of
interest
expense 676 540 136 2,280 2,017 263
Reserve for
replacement
of furniture,
fixtures and
equipment
and capital
improvements (7,982) (5,551) (2,431) (21,322) (13,630) (7,692)
Convertible
debentures
accretion 288 214 74 863 616 247
Deferred land
lease expense
and retail
lease income,
net 6 8 (2) 22 25 (3)
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Distributable
income(1) $40,598 $34,639 $5,959 $72,200 $58,309 $13,891
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Distributable
income per
unit
- basic $0.547 $0.520 $0.027 $0.980 $0.983 ($0.003)
- diluted $0.497 $0.474 $0.023 $0.931 $0.931 $0.000
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Distributions
per unit $0.2813 $0.2813 - $0.8438 $0.8438 -
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1. Funds from operations and distributable income are measures of
earnings and cash flow that are not required or do 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.


For the three and nine months ended September 30, 2008, the REIT has categorized 131 of its 133 hotels owned for the entire current and comparative period as its "Base Portfolio", with the remaining two hotels being classified as discontinued operations. Twelve hotels acquired in 2007, which include the Legacy Portfolio are categorized as the "2007 Acquisitions". Operating results for three assets acquired or developed were capitalized in accordance with the REIT's accounting policy. All of the 2007 Acquisitions were acquired during the third quarter of 2007 and therefore were not included for the entire comparative period. Specifically, the Legacy Portfolio was acquired on September 18, 2007. As a result, third quarter and year-to-date results in 2007 only include 13 days of comparative operating results for these assets.



Three months ended Nine months ended
September 30, September 30,
Variance to 2007 Variance to 2007
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Occupancy
Ontario 67.6% (2.2 pts) 62.4% (1.1 pts)
Quebec 75.0% (0.3 pts) 66.2% -
Atlantic 79.9% (3.7 pts) 65.8% (2.7 pts)
Western 70.2% (3.2 pts) 63.0% (3.9 pts)
---------------------------------------------------------
Total 71.1% (2.0 pts) 63.7% (1.4 pts)
---------------------------------------------------------
---------------------------------------------------------
ADR
Ontario $112.38 2.2% $109.97 3.1%
Quebec $124.36 11.4% $114.88 8.6%
Atlantic $114.64 2.5% $105.82 4.5%
Western $97.74 6.1% $94.27 8.9%
---------------------------------------------------------
Total $113.80 5.1% $108.70 5.4%
---------------------------------------------------------
---------------------------------------------------------
RevPAR
Ontario $75.96 -1.0% $68.58 1.3%
Quebec $93.33 11.0% $76.09 8.7%
Atlantic $91.62 -2.0% $69.58 0.4%
Western $68.59 1.4% $59.43 2.6%
---------------------------------------------------------
Total $80.87 2.1% $69.29 3.2%
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FINANCIAL REVIEW

Three months ended September 30, 2008

Third quarter hotel revenues increased $57.9 million, or 42.5%, to $193.8 million. The full period inclusion of the 2007 Acquisitions contributed the majority of this increase, generating $54.8 million in incremental hotel revenues as compared to the third quarter of 2007. Revenues for InnVest's Base Portfolio increased 2.4% or $3.0 million.

Overall, a 5.1% increase in ADR as compared to the prior year offset occupancy declines during the period, resulting in Base Portfolio RevPAR growth of 2.1% for the third quarter. These trends are similar to those experienced through the first half of the year as the Trust continues to focus its efforts to drive room rates throughout the portfolio.

Room revenues increased $40.7 million during the quarter to $157.4 million. The Base Portfolio contributed $111.4 million of these revenues with recent acquisitions contributing the balance. The year-over-year increase was primarily driven by the $38.3 million in incremental room revenues from the 2007 Acquisitions given their full period inclusion in the third quarter of 2008. Consistent with the RevPAR performance, InnVest's Base Portfolio saw room revenues improve 2.1% led by continued efforts to drive room rates throughout the portfolio.

The Quebec region continued to achieve the highest room revenue growth, increasing 11.0% as compared to 2007. This growth was driven by hotels in Quebec City which are benefiting from festivities associated with the city's 400th anniversary celebrations. Room revenues at the Hilton Quebec City during the seasonally strong third quarter were up almost 40% as compared to the prior year. The western region realized room revenue growth of 1.4% over the prior year. Continued emphasis on room rate growth in the region, up 6.1% this quarter, was somewhat offset by occupancy declines. Lower crew business from the oil and gas and energy sectors is impacting occupancies in certain markets. Occupancies were also impacted through the completion of extensive renovations at one hotel during the quarter. For the Atlantic and Ontario regions, occupancy declines offset the ADR growth achieved leading to modest year-over-year RevPAR declines.

Non-room revenues for the third quarter totaled $36.5 million, up $17.2 million or 89.1% compared to the prior year. The Base Portfolio contributed $16.0 million of these revenues with recent acquisitions contributing the balance. This growth reflects the incremental non-room revenues generated by the full period inclusion of hotels the REIT acquired in 2007. The majority of the hotels acquired were full-service hotels which typically generate a higher proportion of total revenues from non-room revenues such as food and beverage sales. Ongoing efforts to maximize all ancillary revenue sources contributed to a 4.5% improvement in non-room revenues from the Base Portfolio compared to the prior period, despite the decline in overall occupancies for the period.

Hotel expenses for the three months ended September 30, 2008 increased by $42.4 million when compared to the same period in 2007. This increase reflects $40.4 million in higher expenses incurred from the full period inclusion of the 2007 Acquisitions. Hotel expenses for the Base Portfolio were up 2.5% over the prior year reflecting inflationary cost increases and reflect several steps taken by the Trust to manage costs throughout the portfolio.

Third quarter hotel operating income ("HOI") improved by 31.5% or $15.5 million to $64.6 million. The Base Portfolio contributed $46.7 million of the third quarter HOI. The full period inclusion of the 2007 Acquisitions contributed $14.4 million of the overall HOI increase. The Base Portfolio HOI improved $1.1 million, or 2.3%, reflecting the profitability impact of the modest top-line revenue growth achieved.

Modest top-line revenue growth combined with efforts to contain costs throughout the portfolio enabled the Trust to maintain operating margins for its Base Portfolio at 36.6%. Overall, the REIT's hotel operating income margin declined 2.8 points to 33.3% for the third quarter of 2008 as compared to 2007. The decline is attributable to the impact of the 2007 Acquisitions which generate a larger portion of their business in non-room revenues, which typically yield lower margins.

Other income and expenses for the three months ended September 30, 2008 totaled $39.8 million, up $15.6 million as compared to the prior period in 2007. The third quarter increase is primarily attributable to higher depreciation and amortization of $8.6 million, as well as increased interest expenses of $5.8 million resulting from the full period inclusion of the 2007 Acquisitions. The prior period also included $1.4 million in other income which primarily represented interest income earned on the $270 million of equity and convertible debentures proceeds raised in early August which were held until the closing of the Legacy Portfolio acquisition in mid September.

InnVest's net income from continuing operations for the three months ended September 30, 2008 was $24.5 million or $0.330 per unit basic ($0.320 diluted), compared with $0.450 per unit basic ($0.420 diluted) in the prior year. Excluding the change in future income taxes, net income from continuing operations was relatively unchanged at $24.8 million compared to $24.9 million for the same period in 2007.

Third quarter results included a gain of $1.3 million relating to the sale of two assets previously classified as held for sale. This gain was offset by a writedown of $1.6 million on two remaining assets held for sale.

InnVest earned funds from operations ("FFO") for the three months ended September 30, 2008 of $47.6 million or $0.641 per unit basic ($0.583 diluted) as compared to FFO of $39.4 million or $0.592 basic ($0.535 diluted) for the same period in 2007. The $8.0 million increase is driven by the $15.5 million improvement in hotel operating income for the quarter which was somewhat offset by higher interest expenses of $5.8 million.

Distributable income improved $6.0 million, or 17.2%, to $40.6 million or $0.547 per unit basic ($0.497 diluted) for the three months ended September 30 2008. This compares to distributable income of $34.6 million or $0.520 per unit basic ($0.474 diluted) in the prior year.

Distributions declared during the quarter totaled $20.8 million or $0.28125 per unit.

Nine months ended September 30, 2008

Year-to-date hotel revenues increased by $182.7 million, or 54.8%, to $516.4 million. The full period inclusion of the 2007 Acquisitions contributed the majority of this increase, generating $171.7 million in incremental hotel revenues as compared to the prior period. Revenues for InnVest's Base Portfolio increased 3.4% or $11.0 million as compared to the prior year.

Overall, a 5.4% increase in ADR was offset by a 1.4 point decline in overall occupancy for the Base Portfolio. Year-to-date RevPAR increased 3.2%.

Hotel expenses for the nine months ended September 30, 2008 increased by $139.1 million when compared to the same period in 2007. This reflects $131.9 million in higher expenses incurred following the full period inclusion of the hotels acquired in 2007. Hotel expenses for the Base Portfolio were up 3.2% over the prior year.

Year-to-date HOI improved by 43.3% or $43.6 million to $144.3 million. The full period inclusion of the 2007 Acquisitions contributed $39.8 million of the overall HOI increase. The Base Portfolio improved 3.9% or $3.8 million reflecting the positive contribution from its RevPAR growth combined with diligent cost controls implemented throughout the portfolio.

Top-line revenue growth combined with efforts to contain costs throughout the portfolio enabled the Trust to improve year-to-date operating margins for its Base Portfolio by 0.1 points to 30.3%. Overall for the nine months ended September 30, 2008, the REIT's hotel operating income margin declined 2.3 points to 27.9% as compared to 2007. The decline is attributable to the impact of the 2007 Acquisitions which generate a larger portion of their business in non-room revenues, which typically yield lower margins.

Other income and expenses for the nine months ended September 30, 2008 totaled $121.4 million, up $46.8 million as compared to the prior year. The increase is attributable to higher depreciation and amortization of $26.0 million, as well as increased interest expenses of $20.7 million resulting from the full period inclusion of the 2007 Acquisitions. Year to date corporate and administrative costs declined $1.5 million, primarily realized in the first quarter, in connection with land transfer tax and legal costs associated with the corporate reorganization completed in early 2007. These savings were largely offset by a $1.4 million reduction in other income in 2008 owing to interest earned in 2007 on the interim holding of cash balances from equity and convertible debentures raised in advance of their deployment for the Legacy Portfolio acquisition.

InnVest's net income from continuing operations was $27.4 million or $0.373 per unit basic ($0.372 diluted), compared to $0.405 per unit basic and diluted in the prior year.

Year-to-date earnings include a $3.9 million writedown of the book value of assets held for sale. This writedown was partially offset by a gain of $1.3 million relating to the sale of two assets in the third quarter. Two assets remain classified as held for sale.

InnVest earned FFO for the nine months ended September 30, 2008 of $89.0 million or $1.208 per unit basic ($1.144 diluted) as compared to FFO of $69.3
million or $1.168 basic ($1.089 diluted) for the same period in 2007. The $19.7 million increase is driven by the $43.6 million improvement in hotel operating income for the period which was somewhat offset by higher interest expenses of $20.7 million.

Distributable income improved $13.9 million to $72.2 million or $0.980 per unit basic ($0.931 diluted) for the nine months ended September 30 2008. This compares to distributable income of $58.3 million or $0.983 per unit basic ($0.931 diluted) in the prior year.

Distributions declared year-to-date totaled $62.2 million or $0.8438 per unit.

BALANCE SHEET REVIEW

The REIT's cash position at September 30, 2008 was $26.2 million, of which $3.0 million is restricted under the REIT's Declaration of Trust for the replacement of furniture, fixtures, and equipment and for capital improvements. At September 30, 2008, the REIT's leverage excluding and including convertible debentures was 46.2% and 55.3% respectively.

Continuing with its strategy of investing in its hotels, InnVest deployed approximately $9.7 million for capital asset improvements during the third quarter and committed an additional $2.3 million. Year-to-date capital investments totaled $28.3 million.

InnVest has an operating line of $40.0 million to fund short-term changes in working capital. At September 30, 2008, this credit facility was undrawn. In addition, the REIT has access to a loan facility, granted in conjunction with property mortgages, with up to $29.1 million availability remaining to fund 50% to 100% of capital expenditures incurred at individual hotels. At September 30, 2008, the REIT has drawn $7.0 million on this facility.

INCOME TAX DEFERRAL PERCENTAGE

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

RECENT DEVELOPMENTS

The Trust also announced today that the Toronto Stock Exchange ("TSX") has accepted its notice of intention to conduct a normal course issuer bid to enable it to purchase up to 5,924,617 of its 74,410,729 trust units ("Units") outstanding as at October 31, 2008, representing approximately 10% of InnVest's public float of 59,246,173 units, pursuant to TSX rules. The average daily trading volume for the six calendar months prior to the date hereof was 194,197 Units (25% being 48,549 Units).

Purchases under the bid may commence November 11, 2008 and will terminate on November 10, 2009. Purchases will be made at the prevailing market price at the time. Units purchased will be cancelled. InnVest has not purchased any Units on the open market within the past 12 months.

InnVest issues additional Units each month through its distribution reinvestment plan ("DRIP"). Unit repurchases will help to minimize the dilutive effect of those issuances. Furthermore, InnVest believes that the market price of its Units at certain times may be attractive and that the purchase of Units from time to time would be an appropriate use of InnVest's funds. Depending on the price of the Units and other factors, management believes that repurchasing InnVest's Units can provide long-term benefits for investors who continue to hold Units, by increasing their proportionate interest in InnVest.

The Trust also announced today that it has amended its DRIP to eliminate the 3% discount offered to unitholders who elect to participate in the DRIP.

On October 9, 2008, the REIT adopted a Unitholder rights plan (the "Plan"), which will be in effect for a maximum of 180 days, following which it will expire automatically. InnVest did not adopt the Plan in response to any specific take-over proposal, nor has it been made aware of any such proposal. The Plan is intended to ensure that Unitholders receive fair treatment in the event of an unsolicited attempt to gain control of InnVest and, in such event, to ensure Unitholders receive full value and that the Board of Trustees has time to consider alternatives to maximize Unitholder value. The Board believes that the implementation of the Plan is particularly important at the present time given the volatility in the markets and the Board's view that InnVest's Units are currently significantly undervalued.

The rights will only become exercisable upon the occurrence of certain triggering events, including the acquisition by a person or group of persons of 15% or more of the outstanding Units in a transaction not approved by the Board. On October 28, 2008, the Toronto Stock Exchange advised InnVest that it has deferred its consideration of adoption of the Plan based on the fact that the Plan will expire within 180 days of its effective date. In the interim, the Plan remains in full effect in accordance with its terms.

During the third quarter, InnVest sold two hotels. The Travelodge Toronto East (155 rooms) was sold on August 21, 2008 for $6.7 million less closing costs. The Quality Inn Downtown Montreal (96 rooms) was sold on August 26, 2008 for $6.2 million less closing costs. Net proceeds from the sales were used to settle outstanding mortgage debt on these assets of $890 and $2.2 million, respectively. These assets had been classified as held for sale since the fourth quarter of 2007. InnVest has two additional assets classified as held for sale as at September 30, 2008.

On September 15, 2008, InnVest exercised the first five-year extension term on the Master Hotel Management Agreement with Westmont, extending the expiration to July 25, 2017. InnVest's independent trustees approved the extension following a review by third party hospitality consulting firms in Canada.

OUTLOOK

While industry forecaster Pannell Kerr Forster is anticipating positive RevPAR growth for the Canadian lodging industry in 2009, the current global economic uncertainty leads us to a cautious outlook in the near-term.

Volatile global credit and financial conditions have contributed to significant uncertainty in economic activity globally and resulted in significant constraints on access to capital. To date, such economic uncertainties have primarily contributed to softening group bookings in InnVest's larger urban hotels. In anticipation of these trends, the Trust has taken steps to actively manage costs throughout the portfolio to minimize the impact on profitability.

Having successfully refinanced a large part of our portfolio in early 2008, InnVest has no significant debt maturities until July 2010. The Trust's
geographic, customer and brand diversity, which contributes to the resiliency of the portfolio, positions the REIT to manage the potential near-term operating impact of the current economic environment.

FORWARD LOOKING STATEMENTS

Statements contained in this press release that are not historical facts are forward-looking statements which involve risk and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. Among the key factors that could cause such differences are real estate investment risks, hotel industry risks and competition. These and other factors are discussed in InnVest REIT's 2008 annual information form which is available at 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 over 19,250 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 7, 2008 at 11:00 a.m. Eastern time to discuss the performance of InnVest. Investors are invited to access the call by dialing (416) 644-3414 or 1-800-733-7571. 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 7th beginning at 12:00 pm through to 11:59 p.m. on November 14th. To access the recording please call (416) 640-1917 and use the reservation number 21284310.



InnVest Real Estate Investment Trust
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CONSOLIDATED BALANCE SHEETS

September 30, December 31,
(in thousands of dollars) (Unaudited) 2008 2007
-------------------------------------------------------------------------

ASSETS

Current Assets
Cash $ 23,142 $ 22,271
Accounts receivable 34,663 28,677
Prepaid expenses and other assets 14,783 9,487
Assets held for sale (Note 22) 231 301
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72,819 60,736

Restricted cash 3,023 2,995

Hotel properties (Note 3 and Note 4) 1,878,925 1,884,765

Other real estate properties (Note 5) 16,159 16,428

Licence contracts (Note 6) 18,182 19,169

Intangible and deferred assets (Note 7) 45,203 55,101

Assets held for sale (Note 22) 8,076 23,085
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$ 2,042,387 $ 2,062,279
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LIABILITIES

Current Liabilities
Bank indebtedness (Note 8) $ 9,000 $ 223,200
Accounts payable and accrued liabilities 80,789 73,682
Acquisition related liabilities 5,028 17,569
Distributions payable 6,961 6,844
Current portion of long-term debt (Note 9) 10,959 12,725
Liabilities related to assets held for sale
(Note 22) 335 610
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113,072 334,630

Long-term debt (Note 9) 937,359 698,892

Other long-term obligations (Note 10) 7,063 6,692

Convertible debentures (Note 11) 179,480 177,387

Future income tax liability (Note 13) 220,987 225,503

Long-term liabilities related to assets
held for sale (Note 22) 5,295 14,509
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1,463,256 1,457,613

UNITHOLDERS' EQUITY 579,131 604,666
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$ 2,042,387 $ 2,062,279
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The accompanying notes are an integral part of these consolidated
financial statements.



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

(in thousands of Three Three Nine Nine
dollars, except Months Months Months Months
per unit Ended Ended Ended Ended
amounts) September September September September
(Unaudited) 30, 2008 30, 2007 30, 2008 30, 2007
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(Restated, (Restated,
Note 22) Note 22)
Total revenues
(reference only)
(Note 20) $ 197,871 $ 139,565 $ 526,125 $ 342,884

Hotel revenues $ 193,832 $ 135,982 $ 516,357 $ 333,639
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Hotel expenses
Operating expenses
(Note 18) 107,348 72,248 309,065 193,237
Property taxes, rent
and insurance 13,971 9,868 41,852 28,309
Management fees
(Note 18) 7,937 4,767 21,138 11,416
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129,256 86,883 372,055 232,962
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Hotel operating income 64,576 49,099 144,302 100,677
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Other (income) and
expenses
Interest on mortgages
and other debt 14,092 8,742 40,141 25,304
Interest on operating
and bridge loans 313 499 3,693 1,028
Convertible debentures
interest and accretion 3,571 2,916 10,692 7,529
Corporate and
administrative
(Note 18) 1,313 1,561 4,182 5,676
Capital tax 40 (10) 141 38
Other business income,
net (Note 21) (1,863) (1,861) (4,113) (4,230)
Other income (20) (1,426) (141) (1,547)
Depreciation and
amortization 22,370 13,767 66,789 40,825
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39,816 24,188 121,384 74,623
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Income before income
tax expense (recovery) 24,760 24,911 22,918 26,054
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Income tax expense
(recovery) (Note 13)
Current - (5) - (5)
Future 241 (5,068) (4,516) 2,022
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241 (5,073) (4,516) 2,017
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Net income from
continuing operations 24,519 29,984 27,434 24,037

Income (loss) from
discontinued
operations (Note 22) 315 225 185 (620)
(Writedown) gain on sale
of asset held for sale
(Note 22) (300) - (2,664) 833
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15 225 (2,479) 213
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Net income and
comprehensive income $ 24,534 $ 30,209 $ 24,955 $ 24,250
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Net income from
continuing operations,
per unit (Note 16)
Basic $ 0.330 $ 0.450 $ 0.373 $ 0.405
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Diluted $ 0.320 $ 0.420 $ 0.372 $ 0.405
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Net income per unit
(Note 16)
Basic $ 0.331 $ 0.454 $ 0.339 $ 0.409
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Diluted $ 0.320 $ 0.423 $ 0.339 $ 0.408
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Net income (loss) from
discontinued
operations, per unit
Basic $ 0.001 $ 0.004 $ (0.034) $ 0.004
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Diluted $ 0.000 $ 0.003 $ (0.034) $ 0.003
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The accompanying notes are an integral part of these consolidated
financial statements.



InnVest Real Estate Investment Trust
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CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY

Net Income
(in thousands of (Loss) and
dollars) Comprehensive Distri-
(Unaudited) Income (Loss) butions Deficit Units in $
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Balance
December 31, 2006 $ 96,701 $ (228,933) $ (132,232) $ 543,363

CHANGES DURING THE
PERIOD
Net income and
comprehensive income 24,250 - 24,250 -
Unit distributions
(Note 17) - (49,186) (49,186) -
Distribution
reinvestment plan
units issued - - - 6,659
Conversion of
debentures - - - 10,605
Issue of new
debentures - - - -
Issue of new units - - - 192,268
Vested executive
compensation - - - 275
Executive and trustee
compensation - - - 87

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Balance September 30,
2007 $ 120,951 $ (278,119) $ (157,168) $ 753,257
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Balance December 31,
2007 $ 137,923 $ (299,691) $ (161,768) $ 757,375
CHANGES DURING THE
PERIOD
Net income and
comprehensive income 24,955 - 24,955 -
Unit distributions
(Note 17) - (62,196) (62,196) -
Distribution
reinvestment plan
units issued - - - 11,241
Vested executive
compensation - - - 151
Executive and trustee
compensation - - - 114
-------------------------------------------------------------------------

Balance September 30,
2008 $ 162,878 $ (361,887) $ (199,009) $ 768,881
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Executive
(in thousands of Trustee Holders'
dollars) Compen- Conversion
(Unaudited) sation Option Total
------------------------------------------------------------

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

CHANGES DURING THE
PERIOD
Net income and
comprehensive income - - 24,250
Unit distributions
(Note 17) - - (49,186)
Distribution
reinvestment plan
units issued - - 6,659
Conversion of
debentures - (519) 10,086
Issue of new
debentures - 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 $ 605,028
------------------------------------------------------------
------------------------------------------------------------

Balance December
31, 2007 $ 417 $ 8,642 $ 604,666
CHANGES DURING THE
PERIOD
Net income and
comprehensive income - - 24,955
Unit distributions
(Note 17) - - (62,196)
Distribution
reinvestment plan
units issued - - 11,241
Vested executive
compensation (151) - -
Executive and trustee
compensation 351 - 465
------------------------------------------------------------

Balance September 30,
2008 $ 617 $ 8,642 $ 579,131
------------------------------------------------------------
------------------------------------------------------------

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



InnVest Real Estate Investment Trust
-------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Three Nine Nine
Months Months Months Months
(in thousands of Ended Ended Ended Ended
dollars, September September September September
(Unaudited) 30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------
(Restated, (Restated,
Note 22) Note 22)
OPERATING ACTIVITIES
Net income from
continuing operations $ 24,519 $ 29,984 $ 27,434 $ 24,037

Add (deduct) items not
affecting operations
Depreciation and
amortization 22,370 13,767 66,789 40,825
Non-cash portion of
interest expense 676 540 2,280 2,017
Future income tax
expense (recovery) 241 (5,068) (4,516) 2,022
Non-cash executive
and trustee
compensation 155 181 465 381
Convertible debentures
accretion 288 214 863 616
Discontinued operations (721) 542 (973) 412
Changes in non-cash
working capital 1,044 3,253 (15,895) (2,087)
-------------------------------------------------------------------------
48,572 43,413 76,447 68,223
-------------------------------------------------------------------------

FINANCING ACTIVITIES
Repayment of long-term
debt (2,262) (1,450) (161,723) (7,304)
Proceeds from
long-term debt 3,878 15,375 393,826 39,823
Issue of convertible
debentures - 66,875 - 66,875
Issue of new units, net - 191,748 - 191,748
Unit distributions (17,193) (15,636) (50,838) (41,962)
Decrease in operating
loan (26,082) - (8,200) (3,300)
Proceeds from bridge
loan - 215,000 8,910 215,000
Repayment of bridge loan - - (215,000) -
Discontinued operations
repayment of debt (3,125) (52) (3,239) (2,385)
-------------------------------------------------------------------------
(44,784) 471,860 (36,264) 458,495
-------------------------------------------------------------------------


INVESTING ACTIVITIES
Capital expenditures
on hotel properties (9,688) (6,712) (28,294) (20,117)
Discontinued operations
capital expenditures - (48) - (150)
Hotel under development
expenditures, net of
related working
capital items 46 (4,333) (6,135) (7,205)
Proceeds from sale of
discontinued assets
(Note 22) 12,900 - 12,900 6,400
Change in other assets (172) 1,361 (449) (634)
Acquisition of hotel
properties and other
real estate
properties (Note 3) (4) (485,790) (17,306) (485,790)
Decrease in restricted
cash (294) (4,456) (28) (330)
-------------------------------------------------------------------------
2,788 (499,978) (39,312) (507,826)
-------------------------------------------------------------------------

Increase in cash during
the period 6,576 15,295 871 18,892
Cash, beginning of
period 16,566 8,128 22,271 4,531
-------------------------------------------------------------------------
Cash, end of period $ 23,142 $ 23,423 $ 23,142 $ 23,423
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplemental disclosure
of cash flow
information:
Cash paid for
interest $ 16,092 $ 9,430 $ 50,589 $ 30,717
Cash paid for income
taxes (including
capital tax) $ 53 $ 41 $ 162 $ 180


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



-------------------------------------------------------------------------
InnVest Real Estate Investment Trust

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008 (all dollar amounts are in thousands, except unit and
per unit amounts) (Unaudited)
-------------------------------------------------------------------------

1. Basis of Presentation

InnVest Real Estate Investment Trust ("InnVest" or the "REIT") is an
unincorporated open-ended real estate investment trust governed by the
laws of Ontario. The REIT began operations on July 26, 2002. The units of
the REIT are traded on the Toronto Stock Exchange under the symbol of
"INN.UN". As at September 30, 2008, the REIT owned 148 Canadian hotels
operated under international brands and has a 50% interest in Choice
Hotels Canada Inc. ("CHC").

The accompanying unaudited interim consolidated financial statements are
prepared in accordance with Canadian generally accepted accounting
principles ("GAAP"). The accounting principles used in these financial
statements are consistent with those used in the annual consolidated
financial statements for the year ended December 31, 2007, except as
disclosed in Note 2. These financial statements do not include all the
information and disclosure required by GAAP for annual financial
statements, and should be read in conjunction with the annual
consolidated financial statements for the year ended December 31, 2007.

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

2. Significant Accounting Policies

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

Capital Disclosures

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

Financial Instruments - Disclosures and Presentation

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

Newly Built Hotels Acquired or Developed

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

3. Acquisitions

On February 12, 2008, the REIT purchased the Staybridge Suites Guelph for
$17,423 including transaction costs. The acquisition was funded through
new mortgage debt of $8,300 and cash on hand.

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

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

September 30, December 31,
2008 2007
-------------------------------------------------------------------------
Current assets $ - $ 24,473
Hotel properties 17,423 794,152
Intangible and deferred assets - 47,466
-------------------------------------------------------------------------
17,423 866,091
Assumption of existing long-term debt - (196,674)
Future income tax liability - (127,133)
Current liabilities - (26,882)
Long-term liabilities - (2,493)
-------------------------------------------------------------------------
$ 17,423 $ 512,909
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The consideration paid, including transaction
costs, consists of the following:
Cash $ 9,017 $ 32,127
Bank indebtedness - 212,850
Units issued - 191,748
Debentures issued - 58,615
New mortgage debt 8,289 -
-------------------------------------------------------------------------
17,306 495,340
-------------------------------------------------------------------------
Acquisition related liabilities 117 17,569
-------------------------------------------------------------------------
$ 17,423 $ 512,909
-------------------------------------------------------------------------
-------------------------------------------------------------------------

4. Hotel Properties

September December
30, 2008 31, 2007
Accumulated Net Book Net Book
Cost Depreciation Value Value
-------------------------------------------------------------------------

Land $ 186,457 $ - $ 186,457 $ 182,960
Buildings 1,771,459 172,779 1,598,680 1,612,650
Furniture, fixtures
and equipment 140,932 47,144 93,788 89,155
-------------------------------------------------------------------------
$2,098,848 $ 219,923 $1,878,925 $1,884,765
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Included in Hotel Properties are two newly built hotels acquired and one
hotel developed internally adjacent to a hotel owned by the REIT, with a
combined net book value of $52,852 (December 31, 2007 - $29,828).
Included in this balance is $1,235 (December 31, 2007 - $ nil) of net
operating losses. No depreciation has been recorded for these three
hotels under the REIT's Significant Accounting Policy - Newly Built
Hotels Acquired or Developed (see Note 2). One of the newly built hotels
opened in July 2007, therefore net operating losses are no longer
capitalized and this asset was amortized beginning in the third quarter.


5. Other Real Estate Properties

September December
30, 2008 31, 2007
Accumulated Net Book Net Book
Cost Depreciation Value Value
-------------------------------------------------------------------------

Land $ 1,624 $ - $ 1,624 $ 1,624
Buildings 15,405 907 14,498 14,766
Furniture, fixtures and
equipment 64 27 37 38
-------------------------------------------------------------------------
$ 17,093 $ 934 $ 16,159 $ 16,428
-------------------------------------------------------------------------
-------------------------------------------------------------------------


6. License Contracts

September December
30, 2008 31, 2007
Accumulated Net Book Net Book
Cost Depreciation Value Value
-------------------------------------------------------------------------

Licence contracts $ 26,320 $ 8,138 $ 18,182 $ 19,169
-------------------------------------------------------------------------
-------------------------------------------------------------------------

During the nine months ended September 30, 2008, the license contracts
were amortized by $987.


7. Intangible and Deferred Assets

September December
30, 2008 31, 2007
Accumulated Net Book Net Book
Cost Depreciation Value Value
-------------------------------------------------------------------------

Deferred financing
related to credit
facility $ 2,240 $ 2,209 $ 31 $ 1,314
Intangible assets 61,202 16,030 45,172 53,787
-------------------------------------------------------------------------
$ 63,442 $ 18,239 $ 45,203 $ 55,101
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

During the nine months ended September 30, 2008, the intangible assets
were amortized by $8,270 and the deferred financing related to the credit
facility was amortized by $1,373 for the bridge loans.

8. Bank Indebtedness

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

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

The REIT's bridge loan facility of $215,000, entered into as part of the
closing for the acquisition of the Legacy Portfolio in 2007, was paid in
full in the first quarter of 2008 as part of the refinancing of these
assets (See Note 9). Deferred financing costs related to this bridge loan
were written off as part of depreciation and amortization expense.

September 30, December 31,
2008 2007
-------------------------------------------------------------------------
Operating line $ - $ 8,200
Bridge loan 9,000 -
Legacy Portfolio acquisition bridge loan - 215,000
-------------------------------------------------------------------------
$ 9,000 $ 223,200
-------------------------------------------------------------------------


9. Long-term Debt

September 30, December 31,
2008 2007
-------------------------------------------------------------------------

Mortgages payable $ 955,729 $ 715,699
Less debt issuance costs (7,411) (4,082)
-------------------------------------------------------------------------
Total long-term debt 948,318 711,617
Less current portion (10,959) (12,725)
-------------------------------------------------------------------------
Net long-term debt $ 937,359 $ 698,892
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Substantially all of the REIT's assets have been pledged as security
under debt agreements. At September 30, 2008, long-term debt had a
weighted average interest rate of 5.8% (December 31, 2007 - 6.4%) and a
weighted average effective interest rate of 6.1% (December 31, 2007 -
6.5%). The long-term debt is repayable in average monthly payments of
principal and interest totalling $5,443 (December 31, 2007 - $4,805) per
month, and matures at various dates from June 1, 2009 to March 21, 2018.

Scheduled repayment of long-term debt is as follows:

Scheduled Due on
Repayments Maturity Total
-------------------------------------------------------------------------
2008 (remainder of the year) $ 3,071 $ - $ 3,071
2009 10,580 - 10,580
2010 9,204 189,120 198,324
2011 9,192 314,997 324,189
2012 10,755 - 10,755
2013 and thereafter 22,936 385,874 408,810
-------------------------------------------------------------------------
$ 65,738 $ 889,991 $ 955,729
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The current portion of long-term debt on the balance sheet is based on
the twelve months ending September 30, 2009, whereas the repayment
schedule above reflects the fiscal year.

The estimated fair value of the REIT's long-term debt at September 30,
2008 was approximately $937,071 (December 31, 2007 - $717,463). This
estimate was determined by discounting expected cash flows at the
interest rates currently being offered to the REIT for debt of the same
remaining maturities.

Long-term debt includes $87,141 (December 31, 2007 - $79,777) of
mortgages payable, which are subject to floating interest rates. Annual
interest expense will increase by $871 for every 1% increase in the base
Bankers' Acceptance rate.

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

On February 29, 2008, the REIT received $343,000 of the $350,000 mortgage
financing on 10 of the 11 hotels in the Legacy Portfolio. Existing debt
of $154,765 was paid out and the REIT obtained new debt of $40,000 on two
assets which were previously unencumbered. Transaction costs of $4,509
were incurred for this transaction. InnVest fixed the interest rates on
$370,000, with the remaining $20,000 subject to floating rates. The
weighted average term to maturity is 4.9 years and the weighted average
blended interest rate is 5.6%.

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

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

The REIT has access to a loan facility, granted in conjunction with
property mortgages, of up to $29,054 available to fund 50% to 100% of
capital expenditures incurred at individual hotels. At September 30,
2008, the REIT has drawn $7,046 on this facility (December 31, 2007 -
nil).

10. Other Long-term Obligations

September 30, December 31,
2008 2007
-------------------------------------------------------------------------
Capital leases $ 1,767 $ 1,767
Other lease obligations 404 360
-------------------------------------------------------------------------
2,171 2,127
Less current portion (165) (165)
-------------------------------------------------------------------------
Total lease obligations 2,006 1,962
Pension liability 3,576 3,294
Asset retirement obligation 1,481 1,436
-------------------------------------------------------------------------
Total other long-term obligations $ 7,063 $ 6,692
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Defined Benefit Pension Plans

The defined benefit pension plans were assumed pursuant to the
acquisition of certain hotels in 2006 and the Legacy Portfolio in the
third quarter of 2007. The most recent actuarial valuation with respect
to the funding of the REIT's pension plans was prepared on September 30,
2008. The pension plan assets as at September 30, 2008 consist of the
following:

Non-Union
Non- September December
Management Management 30, 2008 31, 2007
Pension Pension Total Total
Benefit Benefit Benefit Benefit
Plans Plans Plans Plans
-------------------------------------------------------------------------

Accrued benefit obligation $ 5,983 $ 1,369 $ 7,352 $ 6,908
Fair value of plan assets 2,353 1,207 3,560 3,614
-------------------------------------------------------------------------
Funded status - plan deficit 3,630 162 3,792 3,294
Unamortized net actuarial
(loss) gain (406) 190 (216) 249
-------------------------------------------------------------------------

Accrued employee future
benefit liability $ 3,224 $ 352 $ 3,576 $ 3,543
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The pension expense for the three and nine months ended September 30,
2008 is $193 and $617, respectively.


11. Convertible Debentures

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

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


Holders'
Face Amount Conversion Transaction September
Debenture Outstanding Option Accretion Costs 30, 2008
-------------------------------------------------------------------------
Series A $ 45,764 $ (2,289) $ 1,331 $ (586) $ 44,220
Series B 75,000 (3,400) 1,122 (2,248) 70,474
Series C 70,000 (2,953) 474 (2,735) 64,786
-------------------------------------------------------------------------
$ 190,764 $ (8,642) $ 2,927 $ (5,569) $ 179,480
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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


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

The fair value of the REIT's convertible debentures at September 30, 2008
is $167,569 (December 31, 2007 - $180,917).

12. Capital Management

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

At September 30, 2008, InnVest's primary contractual obligations
consisted of long-term mortgage obligations and convertible debentures.
InnVest is not permitted to exceed certain financial leverage amounts
under the terms of the Declaration of Trust. The REIT is permitted to
hold indebtedness excluding convertible debentures up to a level of 50%
of gross asset value. Further, the REIT is permitted to have indebtedness
and convertible debentures up to a level of 60% of gross asset value. The
Declaration of Trust also governs that individual property mortgages, or
mortgages on a pool of properties, cannot exceed 75% of the value of the
underlying property. InnVest calculates indebtedness in accordance with
GAAP excluding non-interest bearing indebtedness, trade accounts payable,
and any future income tax liability. InnVest calculates gross asset value
as the total book value of assets on the REIT's balance sheet, plus the
accumulated depreciation and amortization, less future income tax
liabilities.

At September 30, 2008, the REIT's leverage excluding and including
convertible debentures was 46.2% and 55.3% respectively, calculated as
follows:

September 30, 2008 December 31, 2007
-------------------------------------------------------------------------
Total assets per
Balance Sheet $ 2,042,387 $ 2,062,279

Accumulated
depreciation and
amortization 257,698 192,973
Future income tax
liability (220,987) (225,503)
Future income tax
liability not
included in assets 18,974 23,909
-------------------------------------------------------------------------
Gross Asset Value $ 2,098,072 $ 2,053,658
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Book value of
mortgages and other
indebtedness(1) $ 970,081 46.2% $953,067 46.4%
Convertible
debentures(2) 190,764 9.1% 190,764 9.3%
-------------------------------------------------------------------------
$ 1,160,845 55.3% $ 1,143,831 55.7%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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


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

(a) Direct and indirect investments in real property on which hotels are
situated and the hotel business conducted thereon, primarily in
Canada, and in entities whose activities consist primarily of
franchising hotels;
(b) Temporary investments held in cash, deposits with a Canadian
Chartered bank or trust company, short term government debt
securities or in money market instruments of, or guaranteed by, a
Schedule 1 Canadian bank, short term commercial paper, notes, bonds
of other debt securities of a Canadian entity having a rating of at
least R-1 (Mid) by Dominion Bond Rating Service or A-1 (Mid) by
Standard & Poor's Corporation maturing prior to one year from the
date of issue; and
(c) Investments in mortgages or mortgage bonds, where the related
security is a first mortgage on income producing real property which
otherwise complies with (a) above and is subject to certain leverage
limits and debt service coverage. The aggregate value of such
investments shall not exceed 20% of the unitholders' equity;

The REIT is in compliance with these guidelines.

The REIT is also subject to certain restrictions on the issuance of
equity as discussed in Note 13. The REIT can issue on a non-cumulative
basis a total of approximately $143 million in equity annually in each of
2008 through 2010 and maintain its relief from taxation to the end of
2010.

As outlined in the Declaration of Trust, the REIT is required to
distribute monthly to unitholders not less than one-twelfth of eighty
percent (80%) of distributable income of the REIT for the calendar year
(see Note 17).

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

(a) Trailing twelve months consolidated earnings before interest, taxes,
depreciation and amortization ("EBITDA") to consolidated interest
expense of not less than 2.0 times (actual being 2.6 times at
September 30, 2008 and 2.8 times at December 31, 2007);
(b) Trailing twelve months consolidated EBITDA to consolidated debt
service of not less than 1.5 times (actual being 2.3 times at
September 30, 2008 and 2.3 times at December 31, 2007); and
(c) Unitholders' Equity of not less than $300,000 (actual being $579,131
at September 30, 2008 and $604,666 at December 31, 2007).


13. Income Taxes and Future Income Tax Liability

InnVest currently qualifies as a Mutual Fund Trust for income tax
purposes. As required by its Declaration of Trust, InnVest intends to
distribute all taxable income to its unitholders and to deduct these
distributions for income tax purposes (Note 17).

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

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

14. Financial Instruments

Risk Management

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

Interest Rate Risk

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

The REIT's floating rate debt balance is monitored by Management to
minimize the REIT's exposure to interest rate fluctuations. As at
September 30, 2008 the REIT's floating rate debt balance of $87,141
(December 31, 2007 - $79,777) is approximately 9.1% of total long-term
debt.

Credit Risk

Credit risks relate to the possibility that hotel guests, either
individual or corporate, do not pay the amounts owed to the REIT. The
REIT mitigates this risk by limiting its exposure to customers allowed to
pay by invoice after check out ("direct bill"). Accounts receivable as at
September 30, 2008 is $34,663 (December 31, 2007 - $28,677). InnVest
reviews accounts receivable and the allowance for doubtful accounts is
adjusted for any balances which are determined by management to be
uncollectable. This provision adjustment is expensed in the hotel
operating income. The allowance as at September 30, 2008 is $547
(December 31, 2007 - $670) or 1.6% (December 31, 2007 - 2.3%) of total
receivables. The amount included in hotel expenses for the nine months
ended September 30, 2008 is $42 (nine months ended September 30, 2007 -
$111).

Liquidity Risk

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

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

Fair Values

The fair values of the REIT's financial assets and liabilities,
representing net working capital, approximate their recorded values at
September 30, 2008 and December 31, 2007 due to their short-term nature.

The fair value of the REIT's long-term debt is less than the carrying
value by approximately $18,658 at September 30, 2008 (December 31, 2007 -
fair value exceeded carrying value by approximately $1,764) due to
changes in interest rates since the dates on which the individual
mortgages were received. The fair value of long-term debt has been
estimated based on the current market rates for mortgages with similar
terms and conditions.

The fair value of the REIT's convertible debentures is less than the
carrying value by approximately $11,911 at September 30, 2008
(December 31, 2007 - fair value exceeded carrying value by approximately
$3,530). The fair value of convertible debentures has been estimated
based on the market rates for convertible debentures as at September 30,
2008 and December 31, 2007.

Letters of Credit

As at September 30, 2008 the REIT has letters of credit totaling $3,718
(December 31, 2007 - $3,378) held on behalf of security deposits for
various utility companies and liquor licenses, and additional security
for the pension liabilities.

15. Unitholders' Equity

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

Units Amount
-------------------------------------------------------------------------
Balance at December 31, 2006 55,045,351 $ 543,363
Units issued 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 plan 20,139 275
Units issued under trustee compensation plan 6,519 87
-------------------------------------------------------------------------
Balance at September 30, 2007 72,610,235 $ 753,257
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Units Amount
-------------------------------------------------------------------------
Balance at December 31, 2007 73,000,694 $ 757,375
Units issued under distribution
reinvestment plan 1,221,048 11,241
Units issued for vested executive
compensation plan 16,033 151
Units issued under trustee compensation plan 11,464 114
-------------------------------------------------------------------------
Balance at September 30, 2008 74,249,239 $ 768,881
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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, 2008 is 27,955 units. Under the
Trustee Compensation Plan, 11,464 units were issued during the nine
months ended September 30, 2008 (nine months ended September 30, 2007 -
6,519 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, 2008 is
823,200 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, 2008, excluding granted units which have fully
vested:

Units
Unvested Accumulated
Executive from Distri- Total
units butions Units
-------------------------------------------------------------------------
January 1, 2005 - granted 13,118 4,900 18,018
January 1, 2006 - granted 12,968 3,991 16,959
January 1, 2007 - granted 15,000 2,945 17,945
January 1, 2008 - granted 20,455 1,906 22,361
January 1, 2008 - units vested (6,559) (2,049) (8,608)
-------------------------------------------------------------------------
54,982 11,693 66,675
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In March 2008, the Board of Trustees approved the granting of
20,455 units effective as of January 1, 2008. These units vest equally on
the third and fourth anniversaries of the effective date of grant.

Distribution Reinvestment Plan ("DRIP")

The REIT has a DRIP whereby eligible Canadian unitholders may elect to
have their distributions of income from the REIT automatically reinvested
in additional units. Unitholders who so elect will receive a further
bonus distribution of units equal in value to 3% of each distribution
that was reinvested.

16. Per Unit Information

Three Months Ended Three Months Ended
September 30, 2008 September 30, 2007
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net income from
continuing
operations - basic $ 24,519 74,222,761 $ 29,984 66,566,306
All convertible
debentures interest
and accretion 3,571 13,456,582 2,917 11,696,747
Dilutive effect of
executive
compensation plan - 65,743 - 54,489
-------------------------------------------------------------------------
Net income from
continuing
operations - diluted $ 28,090 87,745,086 $ 32,901 78,317,542
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Nine Months Ended Nine Months Ended
September 30, 2008 September 30, 2007
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net income from
continuing
operations - basic $ 27,434 73,644,529 $ 24,037 59,316,788
Dilutive effect of
executive
compensation plan - 63,846 - 53,349
-------------------------------------------------------------------------
Net income from
continuing
operations - diluted $ 27,434 73,708,375 $ 24,037 59,370,137
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Three Months Ended Three Months Ended
September 30, 2008 September 30, 2007
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net income $ 24,534 74,222,761 $ 30,209 66,566,306
All convertible
debentures interest
and accretion 3,571 13,456,582 2,917 11,696,747
Dilutive effect of
executive
compensation plan - 65,743 - 54,489
-------------------------------------------------------------------------
Net income $ 28,105 87,745,086 $ 33,126 78,317,542
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Nine Months Ended Nine Months Ended
September 30, 2008 September 30, 2007
-------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
-------------------------------------------------------------------------
Net income $ 24,955 73,644,529 $ 24,250 59,316,788
Dilutive effect of
executive
compensation plan - 63,846 - 53,349
-------------------------------------------------------------------------
Net income $ 24,955 73,708,375 $ 24,250 59,370,137
-------------------------------------------------------------------------
-------------------------------------------------------------------------

All of the convertible debentures have been included in the three months
ended September 30, 2008 and the three months ended September 30, 2007
per unit calculations above, but have been excluded in the nine months
ended September 30, 2008 and the nine months 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.

17. Distributions to Unitholders

Distributions to unitholders are computed based on distributable income
as defined by the Declaration of Trust (Note 12).

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 entities. 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.
However given the seasonality of operations the REIT typically
distributes less than 80% of its distributable income during the second
and third quarters.

Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------
Net income $ 24,534 $ 30,209 $ 24,955 $ 24,250
-------------------------------------------------------------------------

Add (deduct)
Depreciation and
amortization 22,370 14,086 66,789 41,942
Future income tax
expense (recovery) 241 (5,068) (4,516) 2,022
Non-cash portion of
interest expense 676 540 2,280 2,017
Reserve for replacement
of furniture, fixtures
and equipment and
capital improvements (7,982) (5,551) (21,322) (13,630)
Writedown (gain on)
assets held for sale 300 - 2,664 (833)
Convertible debenture
accretion 288 214 863 616
Non-cash executive and
trustee compensation 165 158 465 386
Deferred land lease
expense and retail
lease income, net 6 8 22 25
Corporate
reorganization costs - 43 - 1,514
-------------------------------------------------------------------------
16,064 4,430 47,245 34,059
-------------------------------------------------------------------------
Distributable income 40,598 34,639 72,200 58,309
Distributions
Required under the
Declaration of Trust 32,478 27,711 57,760 46,647
Discretionary (11,633) (9,898) 4,436 2,539
-------------------------------------------------------------------------
Distributions paid
or payable 20,845 17,813 62,196 49,186
-------------------------------------------------------------------------

Distributions less than
distributable income $ (19,753) $ (16,826) $ (10,004) $ (9,123)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


18. Management Agreements

Westmont Hospitality Canada Limited

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

The Agreements have an initial term of 10 years with two successive
five-year renewal terms, subject to the consent of Westmont and approval
of the REIT. On September 15, 2008, the REIT exercised the first
five-year extension term on the Agreements, extending the expiration to
July 25, 2017. The REIT's independent trustees approved the extension
following a review by third party hospitality consulting firms in Canada.
The Agreements provide for the payment of an annual management fee to
Westmont in an amount equal to 3.375% of gross revenues during the term
of the Agreements, including renewal periods. In addition, Westmont may
receive an annual incentive fee if the REIT achieves distributable income
(see Note 17) in excess of $1.25 per unit. No management incentive fees
were paid during the periods presented. Accounting fees are calculated
based on a fixed charge per room which increases by the Consumer Price
Index change annually.

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

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

During the three and nine months ended September 30, 2008 and 2007, the
fees charged to the REIT pursuant to the Agreements were as follows:

Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------
Fees from continuing
operations:
Management fees $ 3,790 $ 3,715 $ 9,927 $ 9,513
Asset management
fees (included in
hotel operating
expenses) 504 78 1,737 235
Accounting services
(included in hotel
operating expenses) 586 559 1,754 1,664
Administrative services
(included in
corporate and
administrative
expenses) 130 113 336 325
Project management
and general
contractor services
(capitalized to
hotel properties) 152 142 499 535
Fees from discontinued
operations 235 112 408 391
-------------------------------------------------------------------------
$ 5,397 $ 4,719 $ 14,661 $ 12,663
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In addition, salaries of REIT employees paid by Westmont and reimbursed
by the REIT were $132 (September 30, 2007 - $159). Included in accounts
payable and accrued liabilities are amounts owed to Westmont at
September 30, 2008 totalling $1,812 (December 31, 2007 - $1,137).

Other Management Agreements

The REIT entered into management agreements with Hilton Canada Co.
("Hilton") to manage the two Hilton hotels acquired in 2006. The
agreements provide for the payment of an annual management fee to Hilton
in an amount equal to 2.5% until September 30, 2008 and then 3.0% of
gross revenues during the balance of the term of the agreements. The
agreements mature on December 31, 2026. For the nine months ended
September 30, 2008, total management fees paid to Hilton were $858
(September 30, 2007 - $595).

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 months ended September 30, 2008,
total management fees paid to Delta were $382 (September 30, 2007 -
$475).

With the acquisition of the Legacy Portfolio in September 2007, InnVest
assumed the existing hotel management agreements with Fairmont Hotel and
Resorts ("Fairmont") or Delta for each of the Legacy Portfolio hotels.
The agreements provide for the payment of a base management fee and an
incentive management fee to either Fairmont or Delta. Legacy was also
subject to a portfolio incentive fee on 11 of its 25 hotels, of which six
are now owned or leased by InnVest. The base management fee is equal to
3% of total revenues from the hotel for nine of the hotels and 2% of
total revenues for the remaining two hotels. The agreements mature from
December 31, 2010 to December 31, 2047. The incentive fees are calculated
based on net operating income from hotel operations plus amortization
less the capital replacement reserve, in excess of a threshold. For the
nine months ended September 30, 2008, total management fees paid for the
Legacy Portfolio were $8,338 (for the 13 day period from September 18 to
September 30, 2007 - $598).

19. Segmented Financial Information

The REIT operates hotel properties throughout Canada. Information related
to these properties by geographic segment is presented below. The REIT
primarily evaluates operating performance based on hotel operating
income. All key financing, investing and capital allocation decisions are
centrally managed. The comparatives have been restated to exclude
discontinued operations and assets held for sale at September 30, 2008.

Western Ontario Quebec Atlantic Total
-------------------------------------------------------------------------
Three Months Ended
September 30,
2008
Hotel revenues $ 47,006 $ 69,784 $ 45,010 $ 32,032 $ 193,832
Hotel expenses 31,259 48,340 29,016 20,641 129,256
-------------------------------------------------------------------------
Hotel operating
income $ 15,747 $ 21,444 $ 15,994 $ 11,391 $ 64,576
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three Months Ended
September 30,
2007
Hotel revenues $ 18,086 $ 65,692 $ 33,625 $ 18,579 $ 135,982
Hotel expenses 10,700 44,022 21,651 10,510 86,883
-------------------------------------------------------------------------
Hotel operating
income $ 7,386 $ 21,670 $ 11,974 $ 8,069 $ 49,099
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine Months Ended
September 30,
2008
Hotel revenues $ 132,596 $ 191,850 $ 114,730 $ 77,181 $ 516,357
Hotel expenses 91,975 140,394 83,071 56,615 372,055
-------------------------------------------------------------------------
Hotel operating
income $ 40,621 $ 51,456 $ 31,659 $ 20,566 $ 144,302
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine Months Ended
September 30,
2007
Hotel revenues $ 37,945 $ 173,783 $ 83,071 $ 38,840 $ 333,639
Hotel expenses 23,809 124,184 59,836 25,133 232,962
-------------------------------------------------------------------------
Hotel operating
income $ 14,136 $ 49,599 $ 23,235 $ 13,707 $ 100,677
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital
expenditures on
hotel properties
Three Months Ended
September 30,
2008 $ 2,207 $ 3,651 $ 2,342 $ 1,488 $ 9,688
Three months ended
September 30,
2007 $ 636 $ 4,525 $ 1,020 $ 531 $ 6,712
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital expenditures
on hotel properties
Nine Months Ended
September 30,
2008 $ 5,370 $ 8,687 $ 8,552 $ 5,685 $ 28,294
Nine months ended
September 30,
2007 $ 2,383 $ 12,225 $ 3,989 $ 1,520 $ 20,117
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Hotel properties
September 30,
2008 $ 513,753 $ 699,913 $ 428,381 $ 236,878 $1,878,925
December 31, 2007 $ 525,322 $ 690,284 $ 430,570 $ 238,589 $1,884,765
-------------------------------------------------------------------------
-------------------------------------------------------------------------


20. Total Revenues

Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------

Hotel revenues $ 193,832 $ 135,982 $ 516,357 $ 333,639
Other business income
(Note 21) 4,039 3,583 9,768 9,245
-------------------------------------------------------------------------
$ 197,871 $ 139,565 $ 526,125 $ 342,884
-------------------------------------------------------------------------
-------------------------------------------------------------------------


21. Other Business Income

Three Three
Months Months
Ended Ended
Franchise Retail/ Retirement September September
Business Office Residence 30, 2008 30, 2007
-------------------------------------------------------------------------

Revenues $ 3,119 $ 644 $ 276 $ 4,039 $ 3,583
Expenses 1,732 284 160 2,176 1,722
-------------------------------------------------------------------------
Other business
income, net $ 1,387 $ 360 $ 116 $ 1,863 $ 1,861
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Nine Nine
Months Months
Ended Ended
Franchise Retail/ Retirement September September
Business Office Residence 30, 2008 30, 2007
-------------------------------------------------------------------------

Revenues $ 7,010 $ 1,943 $ 815 $ 9,768 $ 9,245
Expenses 4,275 868 512 5,655 5,015
-------------------------------------------------------------------------
Other business
income, net $ 2,735 $ 1,075 $ 303 $ 4,113 $ 4,230
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Other business income includes Franchise Business Income, which is
InnVest's 50% share of CHC's operations, and the income from the other
real estate properties acquired in 2006.

22. Assets Held for Sale and Discontinued Operations

On March 30, 2007, the REIT sold a hotel held for sale in Atlantic Canada
for $2,350 less closing costs of $250, and recorded a gain of $659. On
April 10, 2007, an Ontario asset 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.
Both these hotels had been reclassified to assets held for sale in 2006.

In addition to the operations of these hotels, the results of
discontinued operations are comprised of three Ontario hotel properties
and one Quebec hotel property reclassified as assets held for sale on
December 18, 2007.

During August 2008 the REIT sold two hotel properties reclassified to
assets held for sale on December 18, 2007. One of the Ontario hotel
properties was sold on August 21, 2008 for $6,700 less closing costs of
$421 resulting in a gain of $622. The Quebec hotel property was sold on
August 26, 2008 for $6,200 less closing costs of $469 resulting in a gain
of $638. The debt owing of $890 and $2,174 respectively was paid out of
the proceeds.

These discontinued operations are summarized below. The comparative
amounts in the consolidated statements of net income and comprehensive
income have been restated to reflect that these assets were held for sale
during the comparative period.

Discontinued operations for the three and nine months ended September 30,
2008 and 2007 are as follows:

Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------

Hotel revenues $ 1,817 $ 2,679 $ 5,689 $ 6,977
-------------------------------------------------------------------------

Hotel expenses
Operating expenses 1,223 1,525 4,050 4,557
Property taxes, rent
and insurance 222 295 842 962
Management fees 61 90 192 235
-------------------------------------------------------------------------
1,506 1,910 5,084 5,754
-------------------------------------------------------------------------
Hotel operating income 311 769 605 1,223
-------------------------------------------------------------------------
Interest on mortgages (4) 225 420 726
Depreciation and
amortization - 319 - 1,117
-------------------------------------------------------------------------
(4) 544 420 1,843
-------------------------------------------------------------------------
Income (loss) from
discontinued operations 315 225 185 (620)

Gain on sale of assets
held for sale 1,260 - 1,260 833
Write down of assets
held for sale (1,560) - (3,924) -
-------------------------------------------------------------------------
(300) - (2,664) 833
-------------------------------------------------------------------------

Net income (loss)
from discontinued
operations $ 15 $ 225 $ (2,479) $ 213
-------------------------------------------------------------------------
-------------------------------------------------------------------------

23. Comparative Information

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

%SEDAR: 00018005E


Contact Information

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

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