InnVest REIT reports results for the three and nine months ended September 30, 2007



    TORONTO, Nov. 9 /CNW/ - InnVest Real Estate Investment Trust
(TSX: INN.UN) today announced financial results for the three and nine months
ended September 30, 2007.
    "Strong performance in our hotels located in the Western, Atlantic and
Quebec regions allowed InnVest to grow its same hotel RevPAR in the quarter
and the contribution from the acquired hotels allowed InnVest to continue to
grow its distributable income", said Mr. Kenneth Gibson, President and Chief
Executive Officer of InnVest REIT.

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

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

    The key performance measures related to room revenue for the REIT's
portfolio of hotels on a same hotel basis, excluding the hotels that have been
classified as discontinued operations and the hotels acquired after the second
quarter in 2006 and in 2007, for which comparative data is not available, are
as follows:

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

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


    RECENT DEVELOPMENTS

    In September 2007, LGY Acquisition LP ("LGY"), a joint venture of InnVest
and Cadbridge Investors LP, acquired Legacy Real Estate Investment Trust
("Legacy") and in October 2007, ten of the hotels (and the operating assets
relating thereto) previously held by Legacy were transferred to affiliates of
the REIT as part of a reorganization of the affairs of Legacy. An eleventh
hotel is expected to be transferred to an affiliate of the REIT prior to the
end of 2007.
    The purchase price of $652 million, plus closing and transaction costs
was partially funded through the issuance of $200 million of equity at a price
of $12.35 per subscription receipt representing the right to receive trust
units of the REIT and $70 million of convertible extendible unsecured
subordinated debentures. The remainder of the purchase price was satisfied
with the assumption of $194 million in mortgage debt secured by the properties
and $215 million of bridge financing from a Canadian chartered bank. InnVest
intends to refinance the existing mortgages and arrange new mortgage financing
on certain of the acquired assets that are currently unencumbered. The bridge
loan will be repaid from the proceeds of these financings.
    The subscription receipts were exchanged on a one-for-one basis for units
of InnVest upon completion of LGY's take-over bid for Legacy. The convertible
debentures have a maturity date of August 1, 2014, a coupon of 5.85% per annum
and will pay interest semi-annually in arrears on August 1 and February 1 in
each year commencing on February 1, 2008. The convertible debentures are
convertible into 68.027 units of the REIT per $1,000 principal amount, at any
time, at the option of the holder, representing a conversion price of $14.70
per unit.
    The acquired hotels are leading properties in their respective markets
and include a number of historical landmarks. The majority of the acquired
hotels have considerable meeting space, multiple food and beverage facilities
and are located in downtown city centre locations within very close proximity
to a number of demand drivers, including but not limited to shopping and
recreation areas, businesses, restaurants, convention centres, historical
sites and casinos.

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

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

    The acquisition of the Legacy Portfolio enabled InnVest to significantly
expand its presence in the up-scale hotel segment in Canada at a price below
replacement cost. The Legacy Portfolio also expands InnVest's presence in
western Canada, which is expected to continue to lead growth across the
country, and further diversifies the REIT's brand association to include the
internationally renowned Sheraton and Fairmont brands.
    Also in the quarter, InnVest acquired two new build hotels, the 117 room
Staybridge Suites located in London, Ontario and a 116 room Holiday Inn
Express located in North Bay, Ontario for a combined cost of $31.5 million
plus transaction costs. The REIT assumed first mortgages of $8.3 million and
$7.1 million, which bear interest at 6.4% and 6.0% respectively, each for a
term of 10 years, with the balance being funded from cash on hand.

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

    Three months ended September 30, 2007

    In the third quarter hotel revenue increased by $21.5 million, with the
majority of the increase due to the hotels acquired in 2006 and 2007. The Base
Portfolio of 133 hotels contributed $693 of the increase. The 2006
Acquisitions include the two Hilton Hotels acquired on September 19, 2006,
while the 2007 acquisitions include the 11 hotels acquired in the Legacy
transaction and the newly built London Staybridge Suites and the North Bay
Holiday Inn Express.
    The increase of $15.9 million in room revenues for the three months ended
September 30, 2007 reflects $7.4 million and $7.6 million in revenues from the
hotels acquired in 2006 and 2007 respectively. The balance of $955 improvement
reflects an overall increase in room revenue of 0.9% in the Base Portfolio.
There were increases in the Quebec, Atlantic and Western regions, with the
largest dollar and percentage increase experienced in the Western region.
    Non-room revenues increased by $5.6 million, reflecting the non-room
revenues generated by the hotels the REIT acquired in 2006, which were not
owned for the entire comparative period and the 2007 Acquisitions. The
majority of the hotels which were acquired in 2006 and 2007 generate a higher
proportion of total revenues from non-room revenues such as food and beverage
sales.
    Hotel expenses for the three months ended September 30, 2007 increased by
$16.4 million or 22.7% when compared to the same period in 2006. This increase
reflects $7.2 million in expenses incurred in the hotels acquired in 2006
after the end of the first quarter that were not owned for the entire
comparative period and $8.0 million in expenses in the hotels acquired in
2007. The remaining $1.2 million related to the Base Portfolio represents a
1.6% increase over the same period in 2006.
    The net amount of other income and expenses for the three months ended
September 30, 2007 was $24.7 million, $2.0 million or 8.6% more than the same
period in 2006. The main contributors to this increase were a $1.8 million
increase in interest on mortgages and other debt, a $769 increase in
convertible debentures interest and accretion, a $427 increase in depreciation
and amortization, a $490 increase in corporate and administrative expenses, a
$1.3 million increase in other income and a $337 reduction in capital tax. The
increases were mainly related to the hotels acquired during 2006 and 2007. The
increase in convertible debentures interest and accretion was the result of
the issuance of the Series C - 5.85% Debentures on August 3, 2007. The
reduction in capital tax was the result of the corporate reorganization
completed on January 2, 2007.
    Current income tax recovery for the three months ended September 30, 2007
was $5, because of the elimination of the large corporation tax and a decrease
of $54 from the recovery recorded in the same period in 2006. Further, InnVest
recorded a future income tax recovery of $5.1 million to reflect the drawdown
on the future income tax liability in the quarter.
    Funds from operations for the three months ended September 30, 2007
increased $4.1 million to $39.4 million or $0.592 per unit basic ($0.535 -
diluted) from $35.3 million or $0.645 per unit basic ($0.578 - diluted) in the
same period of 2006.
    Distributable income for the three months ended September 30, 2007 was
$34.6 million or $0.520 per unit basic ($0.474 - diluted). This reflects a
$3.1 million improvement over the distributable income experienced for the
same period of the prior year of $31.5 million or $0.575 per unit basic
($0.519 - diluted).

    Nine months ended September 30, 2007

    The increase of $36.0 million in room revenues for the nine months ended
September 30, 2007 reflects $25.3 million in revenues from the hotels acquired
in 2006 and $7.6 million in revenues from the hotels acquired in 2007. The
balance of $3.2 million improvement reflects an overall increase in room
revenue of 1.3% in the Base Portfolio. There were increases in the Quebec,
Atlantic and Western regions, with the largest dollar and percentage increase
experienced in the Western region.
    Non-room revenues increased by $13.9 million, reflecting the non-room
revenues generated by the hotels the REIT acquired in 2006, which were not
owned for the entire comparative period and the 2007 acquisitions. The
majority of the hotels which were acquired in 2006 and 2007 generate a higher
proportion of total revenues from non-room revenues such as food and beverage
sales.
    Hotel expenses for the nine months ended September 30, 2007 increased by
$42.1 million or 21.5% when compared to the same period in 2006. This increase
reflects $30.2 million in expenses incurred in the hotels acquired in 2006,
which were not owned for the entire comparative period and $8.0 million in
expenses incurred in the 2007 Acquisitions. The remaining $3.9 million relates
to the Base Portfolio and represents a 2.1% increase over the same period in
2006.
    The net amount of other income and expenses for the nine months ended
September 30, 2007 was $76.4 million, $8.1 million or 11.9% more than the same
period in 2006. The main contributors to this increase were a $4.0 million
increase in depreciation and amortization, a $4.9 million increase in interest
on mortgages and other debt, a $2.2 million increase in corporate and
administrative expenses, a $1.0 million increase in other business income and
a $1.1 million reduction in capital tax and a $348 increase in convertible
debentures interest and accretion. The increases were mainly related to the
hotels acquired during 2006 and 2007, while the corporate and administrative
expense increase was the result of land transfer tax and legal costs
associated with a reorganization of InnVest. The increase in convertible
debentures interest and accretion was the net result of the issuance of the
Series C - 5.85% Debentures on August 3, 2007, the conversion of debentures in
the period and the amortization of costs associated with the issuing of the
debentures because of the use of the effective interest method. The reduction
in capital tax was the result of the corporate reorganization completed on
January 2, 2007.
    Current income tax expense for the nine months ended September 30, 2007
was $5, because of the elimination of the large corporation tax and a decrease
of $181 from the recovery recorded in the same period in 2006. Further,
InnVest experienced a $2.0 million future income tax expense during the
nine-month period as the result of changes in the income tax legislation
related to Real Estate Investment Trusts as compared to a recovery of $14.2
million in the same period of the prior year which resulted from reductions in
the corporate income tax rates.
    Funds from operations for the nine months ended September 30, 2007
increased $6.7 million to $69.3 million or $1.168 per unit basic ($1.089 -
diluted) from $62.6 million or $1.210 per unit basic ($1.118 - diluted) in the
same period of 2006.
    Distributable income for the nine months ended September 30, 2007 was
$58.3 million or $0.983 per unit basic ($0.931 - diluted). This reflects a
$4.7 million improvement over the distributable income experienced for the
same period of the prior year of $53.6 million or $1.034 per unit basic
($0.972 - diluted).

    BALANCE SHEET REVIEW

    At September 30, 2007, InnVest's cash totaled $28.4 million, of which
$5.0 million is restricted for replacement of furniture, fixture and equipment
and capital improvements. Financial leverage was 46.9% debt to gross asset
value (defined as total assets before accumulated depreciation less future
income tax liabilities included in assets) excluding convertible debentures
and 56.3% including convertible debentures at the end of the period.
    Continuing with its strategy of investing in its hotels, InnVest deployed
approximately $6.8 million for capital asset improvements during the third
quarter and committed an additional $10 million.
    The REIT had unused operating loan availability of $25 million at
September 30, 2007 and eight hotel properties that remain unencumbered that
the REIT estimates could generate approximately $45 million in mortgage
proceeds. The REIT also has an unused acquisition facility of $40 million
available to acquire hotel properties and an unused loan facility of
$29.1 million available to fund 50% of capital expenditures incurred.

    INCOME TAX DEFERRAL PERCENTAGE

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

    OUTLOOK

    Supply and demand conditions in the hotel industry continue to be
favourable. While varying by market, PKF Consulting Inc. ("PKF"), lodging
industry experts, forecasts Canadian RevPAR growth of 3% in 2008 following
anticipated growth of approximately 4% in 2007.
    InnVest's geographic, customer, and brand diversity ideally positions it
to continue to benefit from the anticipated growth in the Canadian hospitality
industry. While InnVest is expecting RevPAR growth in its overall portfolio,
there are certain markets, most notably Windsor, Oshawa and the GTA, that will
continue to be more negatively impacted by the strength of the Canadian
dollar. The decline in US visitation is expected to continue but is being
offset by strengthening domestic and international corporate and group travel.
    The acquisition of the Legacy Portfolio further expands the REIT's
geographic diversity, notably within Western Canada which is experiencing the
strongest growth in the country. The acquisition also enhances InnVest's
presence in the upscale segment of the lodging industry which is forecast to
lead RevPAR growth in 2008. Given that the Legacy acquisition closed late in
the third quarter, the contribution on a per unit basis in 2007 is expected to
be dilutive due to the seasonality inherent in the business. However, this
acquisition is expected to be accretive in 2008.
    Forecasted RevPAR growth, our ability to capitalize on our recent
acquisitions and our ability to manage costs will drive InnVest's performance
in 2008.

    FORWARD-LOOKING STATEMENTS

    Statements contained in this press release that are not historical facts
are forward-looking statements which involve risk and uncertainties which
could cause actual results to differ materially from those expressed in the
forward-looking statements. Among the key factors that could cause such
differences are real estate investment risks, hotel industry risks and
competition. These and other factors are discussed in InnVest REIT's 2006
annual information form which is available at http://www.sedar.com. InnVest
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise, unless required to do so by applicable securities law.

    TRUST PROFILE

    InnVest REIT holds Canada's largest hotel portfolio together with an
interest in Choice Hotels Canada Inc. the largest franchisor of hotels in
Canada. The hotel portfolio currently comprises 148 hotel properties, with
19,381 guest rooms, operated under internationally recognized franchise brands
such as Comfort Inn(R), Holiday Inn(R) Quality Suites/Inn(R), Radisson(R),
Delta(R), Travelodge(R), Hilton Hotel(R), Staybridge Suites(R), Fairmont
Hotels(R), Sheraton Suites(R) and Best Western(R). InnVest's trust units and
outstanding convertible debentures trade on the Toronto Stock Exchange under
the symbols INN.UN, INN.DB.A, INN.DB.B and INN.DB.C, respectively.

    QUARTERLY CONFERENCE CALL

    Management will host a conference call on Friday November 9, 2007 at
11:00 a.m. Eastern time to discuss the performance of InnVest. Investors are
invited to access the call by dialing (416)-644-3418 or 1-800-731-5319. You
will be required to identify yourself and the organization on whose behalf you
are participating. A recording of this call will be made available
November 9th beginning at 1:00 pm through to 11:59 p.m. on November 16th. To
access the recording please call (416)-640-1917 and use the reservation number
21249980 followed by the number sign.

    
    InnVest Real Estate Investment Trust

    CONSOLIDATED BALANCE SHEETS

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

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

    Restricted cash                                  5,023             4,693

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

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

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

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

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

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

    LIABILITIES

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

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

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

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

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

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


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

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

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



    InnVest Real Estate Investment Trust

    CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



    InnVest Real Estate Investment Trust

    CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY

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

    CHANGES DURING THE PERIOD

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

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

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

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

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

    CHANGES DURING THE PERIOD

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

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

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


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

    CHANGES DURING THE PERIOD

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

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

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

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

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

    CHANGES DURING THE PERIOD

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

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

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



    CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

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

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

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

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

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



    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    September 30, 2007 (all dollar amounts are in thousands, except unit and
    per unit amounts) (Unaudited)

    1.  Basis of Presentation

    InnVest Real Estate Investment Trust ("InnVest" or the "REIT") is an
    unincorporated open-ended real estate investment trust governed by the
    laws of Ontario. The REIT began operations on July 26, 2002. The units of
    the REIT are traded on the Toronto Stock Exchange ("TSX") under the
    symbol of "INN.UN". As at September 30, 2007, the REIT owned 148 Canadian
    hotels with 19,381 guest rooms operated under international brands and
    has a 50% interest in Choice Hotels Canada Inc. ("CHC").

    The accompanying unaudited interim consolidated financial statements are
    prepared in accordance with Canadian generally accepted accounting
    principles ("GAAP"). The accounting principles used in these financial
    statements are consistent with those used in the annual consolidated
    financial statements for the year ended December 31, 2006, except as
    disclosed in Note 2. These financial statements do not include all the
    information and disclosure required by GAAP for annual financial
    statements, and should be read in conjunction with the annual
    consolidated financial statements.

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

    2.  Changes in Accounting Policies

    The accounting policies followed in preparation of these financial
    statements are consistent with those as set out in the audited financial
    statements for the year ended December 31, 2006, except as follows:

    Principles of consolidation

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

    Comprehensive Income

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

    Inventory

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

    Financial Instruments - Recognition and Measurement

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

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

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

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

    3.  Asset Acquisitions

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

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

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

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

    4.  Hotel Properties

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

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

    5.  Other Real Estate Properties

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


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

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

    6.  Other Assets

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

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

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

    7.  Bank Indebtedness

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

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

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

    8.  Long-term Debt

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

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

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

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

    The estimated fair value of the REIT's long-term debt at September 30,
    2007 was approximately $729,294 (December 31, 2006 - $507,243). This
    estimate was determined by discounting expected cash flows at the
    interest rates currently being offered to the REIT for debt of the same
    remaining maturities.

    Long-term debt includes $94,074 (December 31, 2006 - $68,305) of
    mortgages payable which are subject to floating interest rates. Interest
    expense will increase by $941 for every 1% increase in the base Bankers'
    Acceptance rate.

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

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

    9.  Other Long-term Obligations

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

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

    Defined Benefit Pension Plan

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

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

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

    10. Convertible Debentures

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

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

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



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

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

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

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

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

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

    Series C Debentures

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

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

    11. Income Taxes and Future Income Tax Liability

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

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

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

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


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

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

    12. Unitholders' Equity

    The REIT is authorized to issue an unlimited number of units, each of
    which represents an equal undivided beneficial interest in any
    distributions from the REIT. All units are of the same class with equal
    rights and privileges.

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

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

    Trustee Compensation Plan

    The members of the Board of Trustees receive 50% of their annual retainer
    in units (based on the then current market price of the units). The REIT
    has set aside 100,000 units in reserve for this purpose. The balance in
    this reserve account at September 30, 2007 is 54,559 units. Under the
    Trustee Compensation Plan, 6,519 units were issued during the nine months
    ended September 30, 2007 (September 30, 2006 - 6,107 units).

    Executive Compensation Plan

    The senior executives participate in the executive compensation plan
    under which units are granted by the Board of Trustees from time to time.
    The REIT has reserved a maximum of 1,000,000 units for issuance under the
    plan. The balance in this reserve account at September 30, 2007 is
    850,785 units. A unit granted through the plan entitles the holder to
    receive, on the vesting date, the then current fair market value of the
    unit plus the value of the cash distributions that would have been paid
    on the unit if it had been issued on the date of grant assuming the
    reinvestment of the distribution into REIT units. The payment will be
    satisfied through the issuance of units.

    The following table summarizes the status of the executive compensation
    plan at September 30, 2007, excluding granted units which have fully
    vested:

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


    On March 30, 2007, the Board of Trustees approved the granting of 15,000
    units effective as of January 1, 2007. These units vest equally on the
    third and fourth anniversaries of the effective date of grant.

    Distribution Reinvestment Plan ("DRIP")

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

    13. Per Unit Information

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

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


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

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


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


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

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

    14. Distributions to Unitholders

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

    Distributable income is a measure of cash flow that is not defined under
    Canadian GAAP and, accordingly, may not be comparable to similar measures
    used by other issuers. Distributable income per unit has been calculated
    on a basis consistent with that prescribed by Canadian GAAP for
    calculating earnings per unit.

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

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


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

    15. Management Agreements

    Westmont Hospitality Canada Limited

    On July 26, 2002, the REIT entered into a Management Agreement for hotel
    management and accounting services and an Administrative Services
    Agreement (the "Agreements") with Westmont Hospitality Canada Limited
    ("Westmont"). Westmont manages all but four of the REIT's hotels.

    The Agreements have an initial term of 10 years with two successive five-
    year renewal terms, subject to the consent of Westmont and approval of
    the REIT. The Agreements will expire July 25, 2012. The Agreements
    provide for the payment of an annual management fee to Westmont in an
    amount equal to 3.375% of gross revenues during the term of the
    Agreements, including renewal periods. In addition, Westmont may receive
    an annual incentive fee if the REIT achieves distributable income
    (Note 14) in excess of $1.25 per unit. No management incentive fees were
    paid during the periods presented. Accounting fees are calculated based
    on a fixed charge per room which increases by the Consumer Price Index
    change annually.

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

    During the three and nine months ended September 30, 2007 and 2006, the
    fees charged to the REIT pursuant to the Agreements were as follows:

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


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

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

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

    Other Management Agreements

    The REIT entered into management agreements with Hilton Canada Co.
    ("Hilton") to manage the two Hilton hotels acquired in 2006. The
    agreements provide for the payment of an annual management fee to Hilton
    in an amount equal to 2% of gross revenues during the term of the
    agreements. The agreements mature on December 31, 2026. For the nine-
    month period ended September 30, 2007, total management fees paid to
    Hilton were $595 (September 30, 2006 - $38).

    The REIT assumed the hotel management agreements with Delta Hotels
    Limited ("Delta"), dated January 1, 2003 when two Delta hotels were
    purchased in 2006. The agreements provide for the payment of an annual
    management fee to Delta in an amount equal to 3% of total revenues from
    the hotel, plus 0.5% of total revenues from the hotel if the hotel's
    annual gross operating profit is greater-than the budgeted gross
    operating profit. The agreements mature on December 31, 2015, with two
    ten-year extension options. For the nine-month period ended September 30,
    2007, total management fees paid to Delta were $475 (September 30, 2006 -
    $157).

    With the acquisition of the Legacy Portfolio, InnVest assumed the
    existing hotel management agreements with Fairmont Hotel and Resorts
    ("Fairmont") or Delta for each of the Legacy Portfolio hotels. The
    agreements provide for the payment of an annual management fee to
    Fairmont or Delta in an amount equal to 3% of total revenues from the
    hotel for nine of the hotels and 2% of total revenues for the remaining
    two hotels. The agreements mature from December 31, 2010 to December 31,
    2047. For the 13 day period from September 18, 2007 to September 30,
    2007, total management fees paid for the Legacy Portfolio were $598.

    16. Segmented Financial Information

    The REIT operates hotel properties throughout Canada. Information related
    to these properties by geographic segment is presented below. The REIT
    primarily evaluates operating performance based on hotel operating
    income. All key financing, investing and capital allocation decisions are
    centrally managed.


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

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

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

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

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

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

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

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

    17. Total Revenues

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

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

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

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

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

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

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

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

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

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

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

    19. Assets Held for Sale and Discontinued Operations

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

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

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

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

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

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

    20.  Comparative Information

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

    %SEDAR: 00018005E




For further information:

For further information: Kenneth D. Gibson, President and Chief
Executive Officer, Tamara L. Lawson, Chief Financial Officer and Secretary,
Tel: (905) 206-7100, Fax: (905) 206-7114, Website: www.innvestreit.com

Organization Profile

InnVest Real Estate Investment Trust

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