InnVest REIT reports second quarter results



    - Same-hotel RevPAR increases 5.7% -

    TORONTO, Aug. 8 /CNW/ - InnVest Real Estate Investment Trust (TSX:
INN.UN) today announced financial results for the three and six months ended
June 30, 2008.
    "Acquisitions completed in late 2007, coupled with a 5.7% growth in
revenue per available room ("RevPAR") from our Base Portfolio contributed to
meaningful improvement across all profitability measures this quarter.
Importantly, our base portfolio showed solid margin improvement, up 1.5 points
during the quarter, reflecting the positive contribution of top-line revenue
growth," commented Mr. Kenneth Gibson, President and Chief Executive Officer
of InnVest REIT. "Distributable income improved over 60%, increasing
distributable income per unit by almost 20%, or $0.065 per unit diluted."

    
    Second Quarter Highlights

    -   RevPAR grew 5.7% on a same hotel basis, driven by a 6.0% increase in
        average daily rates ("ADR");

    -   Hotel operating income improved by 65.4% to $56.2 million.
        Acquisitions completed in late 2007, including the addition of 11
        upscale and first-class hotels (the "Legacy Portfolio"), contributed
        the majority of the increase, with InnVest's Base Portfolio
        generating a 10.5% increase;

    -   Hotel operating income margins for the Base Portfolio improved
        1.5 points to 32.6% during the quarter. Overall margins declined
        0.2 points to 30.9% resulting from the acquisition of the Legacy
        Portfolio which generates a larger portion of its business in non-
        room revenues, which typically yield lower margins; and

    -   Distributable income increased over 60% to $31.9 million.
        Distributable income improved by $0.065 per unit to $0.400 per unit
        diluted. The Legacy Portfolio was accretive to InnVest's
        distributable income by approximately $0.02 per unit during the
        second quarter of 2008.


    FINANCIAL HIGHLIGHTS

    -------------------------------------------------------------------------
    Financial Highlights
    -------------------------------------------------------------------------
    (In thousands of dollars except average daily rate, revenue per
    available room and per unit amounts)
    -------------------------------------------------------------------------
                                                Three months ended June 30
    -------------------------------------------------------------------------
                                                2008       2007        +/-
    -------------------------------------------------------------------------
    Occupancy                                    67.5%      65.7%       1.8%
    -------------------------------------------------------------------------
    Average daily rate ("ADR")                 $122.68    $102.80     $19.88
    -------------------------------------------------------------------------
    Revenue Per Available Room ("RevPAR")       $82.84     $67.54     $15.30
    -------------------------------------------------------------------------
    (In thousands of dollars, except per
     unit amounts)
    -------------------------------------------------------------------------
    Operating revenues                        $181,996   $109,299    $72,697
    -------------------------------------------------------------------------
    Hotel operating income                     $56,152    $33,959    $22,193
    -------------------------------------------------------------------------
    Net income (loss) and comprehensive
     income (loss)                             $15,494  ($113,291)  $128,785
    -------------------------------------------------------------------------
    Add/(deduct)
      Depreciation, amortization and
       accretion                                21,722     14,106      7,616
      Future income tax (recovery) expense      (1,237)   122,626   (123,863)
      Non-cash executive and trustee
       compensation                                145        140          5
      Write down (gain on sale) of assets
       held for sale                             1,864       (174)     2,038
      Corporate reorganization expense               -          -          -
    -------------------------------------------------------------------------
    Funds from operations(1)                   $37,988    $23,407    $14,581
    -------------------------------------------------------------------------
    Funds from operations per unit(1)
    - basic                                     $0.516     $0.418     $0.098
    - diluted                                   $0.477     $0.388     $0.089
    -------------------------------------------------------------------------
    Amortization of deferred financing costs        27          -         27
    Non-cash portion of interest expense         1,055        751        304
    Reserve for replacement of furniture,
     fixtures and equipment and capital
     improvements                               (7,492)    (4,459)    (3,033)
    Convertible debentures accretion               288        190         98
    Deferred land lease expense and
     retail lease income, net                        8          3          5
    -------------------------------------------------------------------------
    Distributable income(1)                    $31,874    $19,892    $11,982
    -------------------------------------------------------------------------
    Distributable income per unit
    - basic                                     $0.433     $0.355     $0.078
    - diluted                                   $0.400     $0.335     $0.065
    -------------------------------------------------------------------------
    Distributions per unit                     $0.2813    $0.2813          -
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Financial Highlights
    -------------------------------------------------------------------------
    (In thousands of dollars except average daily rate, revenue per
     available room and per unit amounts)
    -------------------------------------------------------------------------
                                                 Six months ended June 30
    -------------------------------------------------------------------------
                                                2008       2007        +/-
    -------------------------------------------------------------------------
    Occupancy                                    61.7%      61.1%       0.6%
    -------------------------------------------------------------------------
    Average daily rate ("ADR")                 $118.25    $100.03     $18.22
    -------------------------------------------------------------------------
    Revenue Per Available Room ("RevPAR")       $72.94     $61.07     $11.87
    -------------------------------------------------------------------------
    (In thousands of dollars, except per
     unit amounts)
    -------------------------------------------------------------------------
    Operating revenues                        $322,525   $197,657   $124,868
    -------------------------------------------------------------------------
    Hotel operating income                     $79,726    $51,578    $28,148
    -------------------------------------------------------------------------
    Net income (loss) and comprehensive
     income (loss)                                $421    ($5,959)    $6,380
    -------------------------------------------------------------------------
    Add/(deduct)
      Depreciation, amortization and
       accretion                                43,078     27,856     15,222
      Future income tax (recovery) expense      (4,757)     7,090    (11,847)
      Non-cash executive and trustee
       compensation                                300        228         72
      Write down (gain on sale) of assets
       held for sale                             2,364       (833)     3,197
      Corporate reorganization expense               -      1,471     (1,471)
    -------------------------------------------------------------------------
    Funds from operations(1)                   $41,406    $29,853    $11,553
    -------------------------------------------------------------------------
    Funds from operations per unit(1)
    - basic                                     $0.564     $0.537     $0.027
    - diluted                                   $0.558     $0.519     $0.039
    -------------------------------------------------------------------------
    Amortization of deferred financing costs     1,341          -      1,341
    Non-cash portion of interest expense         1,604      1,477        127
    Reserve for replacement of furniture,
     fixtures and equipment and capital
     improvements                              (13,340)    (8,079)    (5,261)
    Convertible debentures accretion               575        402        173
    Deferred land lease expense and
     retail lease income, net                       16         17         (1)
    -------------------------------------------------------------------------
    Distributable income(1)                    $31,602    $23,670     $7,932
    -------------------------------------------------------------------------
    Distributable income per unit
    - basic                                     $0.430     $0.425     $0.005
    - diluted                                   $0.429     $0.422     $0.007
    -------------------------------------------------------------------------
    Distributions per unit                     $0.5625    $0.5625          -
    -------------------------------------------------------------------------

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


    The key performance measures related to room revenue for the REIT's
portfolio of hotels on a same hotel basis (the "Base Portfolio"), excluding
the hotels that have been classified as discontinued operations and the hotels
acquired after the second quarter in 2007 and in 2008 are as follows:

                         Three months ended                 Six months ended
                              June 30, 2008                    June 30, 2008
                           Variance to 2007                 Variance to 2007
    -------------------------------------------------------------------------
    Occupancy
    Ontario        64.9%            0.6 pts         59.7%           (0.6 pts)
    Quebec         67.7%            1.2 pts         61.8%            0.3 pts
    Atlantic       66.1%           (1.8 pts)        58.6%           (2.2 pts)
    Western        63.6%           (4.4 pts)        59.4%           (4.2 pts)
              ---------------------------------------------------------------
    Total          65.5%           (0.2 pts)        60.0%           (1.1 pts)
              ---------------------------------------------------------------
              ---------------------------------------------------------------
    ADR
    Ontario      $110.23               3.9%       $108.59               3.7%
    Quebec       $115.35               7.4%       $109.06               6.7%
    Atlantic     $104.88               6.6%        $99.73               6.3%
    Western       $94.72              10.8%        $92.20              10.6%
              ---------------------------------------------------------------
    Total        $108.94               6.0%       $105.66               5.6%
              ---------------------------------------------------------------
              ---------------------------------------------------------------
    RevPAR
    Ontario       $71.57               4.9%        $64.84               2.8%
    Quebec        $78.07               9.3%        $67.38               7.2%
    Atlantic      $69.27               3.6%        $58.44               2.5%
    Western       $60.21               3.6%        $54.80               3.4%
              ---------------------------------------------------------------
    Total         $71.39               5.7%        $63.44               3.9%
    -------------------------------------------------------------------------
    


    FINANCIAL REVIEW

    Three months ended June 30, 2008

    Second quarter hotel revenues increased by $72.7 million, or 66.5%, to
$182.0 million. Acquisitions since the second quarter of 2007 contributed the
majority of this increase, generating $66.9 million in hotel revenues.
Revenues for InnVest's Base Portfolio increased 5.3% or $5.8 million. Overall,
a 6.0% increase in ADR as compared to the prior year offset a modest occupancy
decline, resulting in Base Portfolio RevPAR growth of 5.7% for the second
quarter. Second quarter performance was aided by particular strength in the
month of April which positively reflected the timing shift of the Easter
holiday period in the first quarter of 2008.
    Room revenues increased $49.4 million during the quarter to
$141.5 million. This increase was primarily driven by the $44.2 million in
revenues from acquisitions. Consistent with the RevPAR performance, InnVest's
Base Portfolio saw room revenues improve 5.7%. Revenue improvement was
experienced in all regions this quarter based on continued efforts to drive
rates throughout the portfolio.
    The Quebec region led growth this quarter driven by performance in Quebec
City which is benefiting from festivities associated with the city's 400th
anniversary celebrations in 2008. Room revenues at the Hilton Quebec City were
up approximately 20% during the second quarter. The Western region continues
to experience strong rate growth with ADR gains of 10.8% this quarter.
    Non-room revenues for the second quarter totaled $40.5 million, up
$23.3 million or 135.1% compared to the prior period, primarily reflecting the
non-room revenues generated by the Legacy Portfolio. The hotels acquired were
full-service hotels which typically generate a higher proportion of total
revenues from non-room revenues such as food and beverage sales. Non-room
revenues from the Base Portfolio were up 3.0% during the quarter, despite the
modest decline in overall occupancies.
    Hotel expenses for the three months ended June 30, 2008 increased by
$50.5 million when compared to the same period in 2007. This increase reflects
$48.3 million in expenses incurred for acquisitions. Hotel expenses for the
Base Portfolio were up 2.9% over the prior year reflecting inflationary cost
increases and higher management fees on the increased revenues.
    Second quarter hotel operating income ("HOI") improved by 65.4% or
$22.2 million to $56.2 million. Acquisitions contributed $18.6 million of the
overall HOI increase. The Base Portfolio's HOI improved $3.6 million, or
10.5%, benefiting from the positive profitability contribution from higher
RevPAR, particularly as it relates to ADR driven growth.
    The REIT's hotel operating income margin declined 0.2 points to 30.9% for
the second quarter of 2008 as compared to 2007. The decline is attributable to
the impact of full-service hotel acquisitions in late 2007 which generate a
larger portion of their business in non-room revenues, which typically yield
lower margins. The Base Portfolio's operating margin increased by 1.5 points
to 32.6%. This improvement reflects the positive margin impact from higher
RevPAR, particularly as it relates to ADR driven growth.
    Other income and expenses for the three months ended June 30, 2008
totaled $40.2 million, up $15.6 million as compared to the prior period in
2007. The second quarter increase is primarily attributable to higher
depreciation and amortization of $8.0 million, as well as increased interest
expenses of $7.3 million resulting from acquisitions in 2007.
    For the three months ended June 30, 2008, the REIT generated a future
income tax recovery of $1.2 million, as compared to a future income tax
expense of $122.6 million in 2007. The prior period's expense related to a
non-cash charge arising from temporary differences between the estimated
accounting and tax basis of the REIT's assets and liabilities expected to
reverse after the implementation date of new income tax legislation related to
Real Estate Investment Trusts.
    Funds from operations for the three months ended June 30, 2008 were
$38.0 million or $0.516 per unit basic ($0.477 diluted) as compared to FFO of
$23.4 million or $0.418 basic ($0.388 diluted) for the same period in 2007.
The $14.6 million increase is driven by the $22.2 million improvement in hotel
operating income for the period which was somewhat offset by higher interest
expenses of $7.3 million.
    Distributable income improved $12.0 million, or 60.2%, to $31.9 million
or $0.433 per unit basic ($0.400 diluted) for the three months ended June 30
2008. This compares to distributable income of $19.9 million or $0.355 per
unit basic ($0.335 diluted) in the prior year. The Legacy Portfolio was
accretive to InnVest's distributable income by approximately $0.02 per unit
during the second quarter of 2008.
    Distributions declared during the quarter totaled $20.7 million or
$0.28125 per unit.

    Six months ended June 30, 2008

    For the six months ended June 30, 2008, hotel revenues increased by
$124.9 million, or 63.2%, to $322.5 million. Acquisitions contributed the
majority of this increase, generating $116.9 million in hotel revenues.
Revenues for InnVest's Base Portfolio increased 4.0% or $8.0 million as
compared to the prior year. The Base Portfolio's strength in the second
quarter offset lower occupancies in the first quarter resulting from the
Easter holiday shift to the first quarter in 2008.
    Overall, a 5.6% increase in ADR was offset by a 1.1 point decline in
overall occupancy for the Base Portfolio. Year-to-date RevPAR, which
eliminates the Easter holiday timing shift, increased 3.9%.
    Hotel expenses for the six months ended June 30, 2008 increased by
$96.7 million when compared to the same period in 2007. This increase reflects
$91.5 million in expenses incurred from hotels acquired following the second
quarter of 2007. Hotel expenses for the Base Portfolio were up 3.5% over the
prior year.
    Year-to-date hotel operating income ("HOI") improved by 54.6% or
$28.1 million to $79.7 million. Acquisitions contributed $25.4 million of the
overall HOI increase. The Base Portfolio improved 5.4% or $2.8 million
reflecting the positive contribution from its RevPAR growth.
    For the six months ended June 30, 2008, the REIT's hotel operating income
margin declined 1.4 points to 24.7% as compared to 2007. The decline is
attributable to the impact of the 2007 Acquisitions which generate a larger
portion of their business in non-room revenues, which typically yield lower
margins. The Base Portfolio's operating margin was up 0.3 points year-to-date
in 2008. Lower year-over-year margins experienced in the first quarter
relating to the timing of the Easter holidays were offset by higher margins
achieved in the second quarter.
    Other income and expenses for the six months ended June 30, 2008 totaled
$81.6 million, up $31.1 million as compared to the prior year. The increase is
primarily attributable to higher depreciation and amortization of
$17.4 million, as well as increased interest expenses of $14.8 million
resulting from acquisitions. These higher costs were partially offset by a
reduction in corporate and administrative costs of $1.2 million, primarily
realized in the first quarter, in connection with land transfer tax and legal
costs associated with the corporate reorganization completed in early 2007.
    InnVest earned FFO for the six months ended June 30, 2008 of
$41.4 million or $0.564 per unit basic ($0.558 diluted) as compared to FFO of
$29.9 million or $0.537 basic ($0.519 diluted) for the same period in 2007.
The $11.5 million increase is driven by the $28.1 million improvement in hotel
operating income for the period which was somewhat offset by higher interest
expenses of $14.8 million. Consistent with overall earnings, strength in the
second quarter offset lower year-over-year results in the first quarter.
    Distributable income improved $7.9 million to $31.6 million or $0.430 per
unit basic ($0.429 diluted) for the six months ended June 30 2008. This
compares to distributable income of $23.7 million or $0.425 per unit basic
($0.422 diluted) in the prior year. Given the seasonality inherent in the
assets, particularly as it relates to the fourth and first quarters, and the
timing of the acquisition, the Legacy Portfolio was dilutive to InnVest's
distributable income per unit by approximately $0.03 per unit during the first
half of 2008.

    BALANCE SHEET REVIEW

    The REIT's cash position at June 30, 2008 was $19.3 million, of which
$2.7 million is restricted under the REIT's Declaration of Trust for the
replacement of furniture, fixtures, and equipment and for capital
improvements. At June 30, 2008, the REIT's leverage was 47.4% debt to gross
asset value (defined as total assets before accumulated depreciation less
future income tax liabilities included in assets) excluding convertible
debentures and 56.5% including convertible debentures at the end of the
period.
    Continuing with its strategy of investing in its hotels, InnVest deployed
approximately $12.7 million for capital asset improvements during the second
quarter and committed an additional $6.3 million.
    The REIT had unused operating loan availability of $13.9 million at
June 30, 2008. The REIT also has an unused loan facility of $33.2 million
available to fund 50% to 100% of capital expenditures incurred at individual
hotels. At June 30, 2008, the REIT has drawn $2.9 million on this facility.

    INCOME TAX DEFERRAL PERCENTAGE

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

    OUTLOOK

    The fundamentals in the hotel industry have been favourable as
highlighted by the REIT's year-to-date performance. However, uncertainties in
the North American economy have led to softening in InnVest's group bookings
in its larger urban hotels.
    In light of this, the Trust is taking several steps including reviewing
its business mix and making adjustments as necessary, and where possible. In
addition, plans to manage costs have been implemented across the portfolio.
InnVest's geographic, customer and brand diversity, which contribute to the
resiliency of its hotel portfolio, ideally positions the REIT to manage any
near-term operating impact.
    The third quarter is typically the Trust's seasonally strongest period of
earnings. Weakness during this period could have a significant impact on
earnings achieved for the Trust. The expiration of labour contracts in
Montreal and Quebec City in the third quarter could have a negative impact on
the Trust's operating results.
    Having addressed all near term financing requirements and with no
significant debt maturities until 2010, InnVest is focused on optimizing the
performance of its hotel portfolio.


    FORWARD-LOOKING STATEMENTS

    Statements contained in this press release that are not historical facts
are forward-looking statements which involve risk and uncertainties which
could cause actual results to differ materially from those expressed in the
forward-looking statements. Among the key factors that could cause such
differences are real estate investment risks, hotel industry risks and
competition. These and other factors are discussed in InnVest REIT's 2007
annual information form which is available at http://www.sedar.com. InnVest
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise, unless required to do so by applicable securities law.

    TRUST PROFILE

    InnVest REIT holds Canada's largest hotel portfolio together with an
interest in Choice Hotels Canada Inc. the largest franchisor of hotels in
Canada. The hotel portfolio currently comprises 150 hotel properties, with
19,606 guest rooms, operated under internationally recognized franchise brands
such as Comfort Inn(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 August 8, 2008 at
11:00 a.m. Eastern time to discuss the performance of InnVest. Investors are
invited to access the call by dialing (416) 644-3426 or 1-800-589-8577. You
will be required to identify yourself and the organization on whose behalf you
are participating. A recording of this call will be made available August 8th
beginning at 12:00 pm through to 11:59 p.m. on August 15th. To access the
recording please call (416) 640-1917 and use the reservation number 21277975.


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

    CONSOLIDATED BALANCE SHEETS

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

    ASSETS

    Current Assets
      Cash                                          $    16,566  $    22,271
      Accounts receivable                                31,531       28,677
      Prepaid expenses and other assets                  17,077        9,487
      Assets held for sale (Note 22)                        417          301
    -------------------------------------------------------------------------
                                                         65,591       60,736

    Restricted cash                                       2,729        2,995

    Hotel properties (Note 3 and Note 4)              1,888,936    1,884,765

    Other real estate properties (Note 5)                16,254       16,428

    Licence contracts (Note 6)                           18,511       19,169

    Intangible and deferred assets (Note 7)              48,066       55,101

    Assets held for sale (Note 22)                       20,720       23,085
    -------------------------------------------------------------------------

                                                    $ 2,060,807  $ 2,062,279
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    Current Liabilities
      Bank indebtedness (Note 8)                    $    35,082  $   223,200
      Accounts payable and accrued liabilities           78,592       73,682
      Acquisition related liabilities                     6,273       17,569
      Distributions payable                               6,924        6,844
      Current portion of long-term debt (Note 9)          9,798       12,725
      Liabilities related to assets held for sale
       (Note 22)                                            829          610
    -------------------------------------------------------------------------
                                                        137,498      334,630

    Long-term debt (Note 9)                             930,932      698,892

    Other long-term obligations (Note 10)                 6,994        6,692

    Convertible debentures (Note 11)                    178,796      177,387

    Future income tax liability (Note 13)               220,746      225,503

    Long-term liabilities related to assets
     held for sale (Note 22)                             14,169       14,509
    -------------------------------------------------------------------------
                                                      1,489,135    1,457,613

    UNITHOLDERS' EQUITY                                 571,672      604,666
    -------------------------------------------------------------------------

                                                    $ 2,060,807  $ 2,062,279
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

    CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME
    (LOSS)

                                   Three       Three         Six         Six
    (in thousands of              Months      Months      Months      Months
     dollars, except per           Ended       Ended       Ended       Ended
     unit amounts)               June 30,    June 30,    June 30,    June 30,
     (Unaudited)                    2008        2007        2008        2007
    -------------------------------------------------------------------------
                                           (Restated,              (Restated,
                                             Note 22)                Note 22)

    Total revenues
    (reference only)
     (Note 20)                $  185,064  $  112,348  $  328,254  $  203,319

    Hotel revenues            $  181,996  $  109,299  $  322,525  $  197,657
    -------------------------------------------------------------------------

    Hotel expenses
      Operating expenses
       (Note 18)                 104,769      62,403     201,717     120,989
      Property taxes, rent
       and insurance              13,518       9,276      27,881      18,441
      Management fees (Note 18)    7,557       3,661      13,201       6,649
    -------------------------------------------------------------------------
                                 125,844      75,340     242,799     146,079
    -------------------------------------------------------------------------

    Hotel operating income        56,152      33,959      79,726      51,578
    -------------------------------------------------------------------------

    Other (income) and
     expenses
      Interest on mortgages
       and other debt             13,961       8,289      26,049      16,562
      Interest on operating
       and bridge loans              533         235       3,380         529
      Convertible debentures
       interest and accretion      3,561       2,186       7,121       4,613
      Corporate and
       administrative (Note 18)    1,643       1,548       2,869       4,115
      Capital tax                     62          24         101          48
      Other business income,
       net (Note 21)              (1,257)     (1,321)     (2,250)     (2,369)
      Other income                   (49)        (64)       (121)       (121)
      Depreciation and
       amortization               21,749      13,706      44,419      27,058
    -------------------------------------------------------------------------
                                  40,203      24,603      81,568      50,435
    -------------------------------------------------------------------------

    Income (loss) before income
     tax (recovery) expense       15,949       9,356      (1,842)      1,143

    Future income tax (recovery)
     expense (Note 13)            (1,237)    122,626      (4,757)      7,090
    -------------------------------------------------------------------------

    Net income (loss) from
     continuing operations        17,186    (113,270)      2,915      (5,947)

    Income (loss) from
     discontinued operations
     (Note 22)                       172        (195)       (130)       (845)
    (Writedown) gain on sale
     of asset held for sale
     (Note 22)                    (1,864)        174      (2,364)        833
    -------------------------------------------------------------------------
                                  (1,692)        (21)     (2,494)        (12)
    -------------------------------------------------------------------------

    Net income (loss) and
     comprehensive income
     (loss)                   $   15,494  $ (113,291) $      421  $   (5,959)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss) from
     continuing operations,
     per unit (Note 16)
      Basic                   $    0.233  $   (2.023) $    0.040  $   (0.107)
      Diluted                 $    0.233  $   (2.023) $    0.040  $   (0.107)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss)
    per unit (Note 16)
      Basic                   $    0.210  $   (2.023) $    0.006  $   (0.107)
      Diluted                 $    0.210  $   (2.023) $    0.006  $   (0.107)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net loss from discontinued
     operations, per unit
      Basic                   $   (0.023) $        -  $   (0.034) $        -
      Diluted                 $   (0.023) $        -  $   (0.034) $        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

    CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY

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

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

    CHANGES DURING THE PERIOD
    Net loss and
     comprehensive loss           (5,959)          -      (5,959)          -
    Unit distributions
     (Note 17)                         -     (31,373)    (31,373)          -
    Distribution reinvestment
     plan units issued                 -           -           -       4,934
    Conversion of debentures
     (Note 11)                         -           -           -      10,605
    Vested executive
     compensation                      -           -           -         275
    Executive and trustee
     compensation                      -           -           -          23

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

    Balance June 30, 2007     $   90,742  $ (260,306) $ (169,564) $  559,200
    -------------------------------------------------------------------------

    Balance December 31,
     2007                     $  137,923  $ (299,691) $ (161,768) $  757,375

    CHANGES DURING THE PERIOD
    Net income and
     comprehensive income            421           -         421           -
    Unit distributions
     (Note 17)                         -     (41,351)    (41,351)          -
    Distribution reinvestment
     plan units issued                 -           -           -       7,626
    Vested executive
     compensation                      -           -           -         151
    Executive and trustee
     compensation                      -           -           -          76

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

    Balance June 30, 2008     $  138,344  $ (341,042) $ (202,698) $  765,228
    -------------------------------------------------------------------------


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

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

    CHANGES DURING THE PERIOD
    Net loss and
     comprehensive loss                -           -      (5,959)
    Unit distributions
     (Note 17)                         -           -     (31,373)
    Distribution reinvestment
     plan units issued                 -           -       4,934
    Conversion of debentures
     (Note 11)                         -        (519)     10,086
    Vested executive
     compensation                   (275)          -           -
    Executive and trustee
     compensation                    177           -         200

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

    Balance June 30, 2007     $      180  $    5,689  $  395,505
    -------------------------------------------------------------

    Balance December 31,
     2007                     $      417  $    8,642  $  604,666

    CHANGES DURING THE PERIOD
    Net income and
     comprehensive income              -           -         421
    Unit distributions
     (Note 17)                         -           -     (41,351)
    Distribution reinvestment
     plan units issued                 -           -       7,626
    Vested executive
     compensation                   (151)          -           -
    Executive and trustee
     compensation                    234           -         310

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

    Balance June 30, 2008     $      500  $    8,642  $  571,672
    -------------------------------------------------------------

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



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

    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   Three       Three         Six         Six
    (in thousands of              Months      Months      Months      Months
     dollars, except per           Ended       Ended       Ended       Ended
     unit amounts)               June 30,    June 30,    June 30,    June 30,
     (Unaudited)                    2008        2007        2008        2007
    -------------------------------------------------------------------------
                                           (Restated,              (Restated,
                                             Note 22)                Note 22)
    OPERATING ACTIVITIES
    Net income (loss) from
     continuing operations    $   17,186  $ (113,270) $    2,915  $   (5,947)
    Add (deduct) items not
     affecting operations
      Depreciation and
       amortization               21,749      13,706      44,419      27,058
      Non-cash portion of
       interest expense            1,055         751       1,604       1,477
      Future income
       tax (recovery) expense     (1,237)    122,626      (4,757)      7,090
      Non-cash executive and
       trustee compensation          155         112         310         200
      Convertible debentures
       accretion                     288         190         575         402
      Discontinued operations        (73)       (126)       (252)       (130)
      Changes in non-cash
       working capital           (12,191)       (847)    (17,868)     (5,340)
    -------------------------------------------------------------------------
                                  26,932      23,142      26,946      24,810
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Repayment of long-term debt   (2,189)     (3,522)   (159,461)     (5,846)
    Proceeds from
     long-term debt                2,462      24,448     389,948      24,448
    Unit distributions           (16,942)    (12,990)    (33,645)    (26,326)
    Increase (decrease) in
     operating loan                2,282     (22,000)     17,882      (3,300)
    Proceeds from bridge loan          3           -       8,910           -
    Repayment of bridge loan           -           -    (215,000)          -
    Discontinued operations
     repayment of debt               (57)     (1,246)       (114)     (2,341)
    -------------------------------------------------------------------------
                                 (14,441)    (15,310)      8,520     (13,365)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Capital expenditures on
     hotel properties            (12,687)     (7,525)    (18,606)    (13,405)
    Discontinued operations
     capital expenditures              -         (42)          -        (102)
    Hotel under development
     expenditures, net              (959)     (1,978)     (5,252)     (2,872)
    Proceeds from sale of
     discontinued assets, net
     of costs (Note 22)                -       4,300           -       6,400
    Change in intangible and
     deferred assets                 154      (1,584)       (277)     (1,995)
    Acquisition of hotel
     properties (Note 3)            (127)          -     (17,302)          -
    Decrease in restricted cash      195       1,806         266       4,126
    -------------------------------------------------------------------------
                                 (13,424)     (5,023)    (41,171)     (7,848)
    -------------------------------------------------------------------------

    (Decrease) increase in cash
     during the period              (933)      2,809      (5,705)      3,597
    Cash, beginning of period     17,499       5,319      22,271       4,531
    -------------------------------------------------------------------------
    Cash, end of period       $   16,566  $    8,128  $   16,566  $    8,128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental disclosure
     of cash flow information:
    Cash paid for interest    $   19,674  $   12,491  $   34,497  $   21,287
    Cash paid for income taxes
     (including capital tax)  $       41  $       70  $      109  $      139

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



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

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

    1.  Basis of Presentation

    InnVest Real Estate Investment Trust ("InnVest" or the "REIT") is an
    unincorporated open-ended real estate investment trust governed by the
    laws of Ontario. The REIT began operations on July 26, 2002. The units of
    the REIT are traded on the Toronto Stock Exchange under the symbol of
    "INN.UN". As at June 30, 2008, the REIT owned 150 Canadian hotels
    operated under international brands and has a 50% interest in Choice
    Hotels Canada Inc. ("CHC").

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

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

    2.  Significant Accounting Policies

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

    Capital Disclosures

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

    Financial Instruments - Disclosures and Presentation

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

    Newly Built Hotels Acquired or Developed

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

    3.  Acquisitions

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

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

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

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

    The consideration paid, including transaction
     costs, consists of the following:

    Cash                                            $     9,013  $    32,127
    Bank indebtedness                                         -      212,850
    Units issued                                              -      191,748
    Debentures issued                                         -       58,615
    New mortgage debt                                     8,289            -
    -------------------------------------------------------------------------
                                                         17,302      495,340
    -------------------------------------------------------------------------
    Acquisition related liabilities                         121       17,569
    -------------------------------------------------------------------------
                                                    $    17,423  $   512,909
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at June 30, 2008, the REIT is continuing to evaluate the fair value of
    the net assets acquired in 2008, and based on this ongoing evaluation,
    the purchase price allocation may be adjusted in future periods.

    4.  Hotel Properties

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

    Land                  $   185,980  $         -  $   185,980  $   182,960
    Buildings               1,768,579      159,516    1,609,063    1,612,650
    Furniture, fixtures
     and equipment            135,419       41,526       93,893       89,155
    -------------------------------------------------------------------------
                          $ 2,089,978  $   201,042  $ 1,888,936  $ 1,884,765
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Included in Hotel Properties are two newly built hotels acquired and one
    hotel developed internally adjacent to a hotel owned by the REIT, with a
    combined net book value of $52,738 (December 31, 2007 - $29,828).
    Included in this balance is $1,047 (December 31, 2007 - $ nil) of net
    operating losses. No depreciation has been recorded for these three
    hotels.

    5.  Other Real Estate Properties

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

    Land                  $     1,624  $         -  $     1,624  $     1,624
    Buildings                  15,403          809       14,594       14,766
    Furniture, fixtures
     and equipment                 60           24           36           38
    -------------------------------------------------------------------------
                          $    17,087  $       833  $    16,254  $    16,428
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6.  License Contracts

                                                        June 30, December 31,
                                        Accumulated    2008 Net     2007 Net
                                 Cost  Amortization  Book Value   Book Value
    -------------------------------------------------------------------------

    Licence contracts     $    26,320  $     7,809  $    18,511  $    19,169
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the six months ended June 30, 2008, the license contracts were
    amortized by $658.


    7.  Intangible and Deferred Assets

                                                        June 30, December 31,
                                        Accumulated    2008 Net     2007 Net
                                 Cost  Amortization  Book Value   Book Value
    -------------------------------------------------------------------------

    Deferred financing
     related to credit
     facility             $     2,240  $     2,177  $        63  $     1,314
    Intangible assets          61,029       13,026       48,003       53,787
    -------------------------------------------------------------------------
                          $    63,269  $    15,203  $    48,066  $    55,101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    During the six months ended June 30, 2008, the intangible assets were
    amortized by $5,265 and the deferred financing related to the credit
    facility was amortized by $1,341 for the bridge loans.

    8.  Bank Indebtedness

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

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

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

                                                        June 30, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Operating line                                  $    26,082  $     8,200
    Bridge loan                                           9,000            -
    Legacy Portfolio acquisition bridge loan                  -      215,000
    -------------------------------------------------------------------------
                                                    $    35,082  $   223,200
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  Long-term Debt

                                                        June 30, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    Mortgages payable                               $   948,305  $   715,699
    Less debt issuance costs                             (7,575)      (4,082)
    -------------------------------------------------------------------------
    Total long-term debt                                940,730      711,617
    Less current portion                                 (9,798)     (12,725)
    -------------------------------------------------------------------------
    Net long-term debt                              $   930,932  $   698,892
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Substantially all of the REIT's assets have been pledged as security
    under debt agreements. At June 30, 2008, long-term debt had a weighted
    average interest rate of 5.8% (December 31, 2007 - 6.4%) and a weighted
    average effective interest rate of 6.0% (December 31, 2007 - 6.5%). The
    long-term debt is repayable in average monthly payments of principal and
    interest totalling $5,394 (December 31, 2007 - $4,805) per month, and
    matures at various dates from June 1, 2009 to March 21, 2018.

    Scheduled repayment of long-term debt is as follows:

                                         Scheduled       Due on
                                        Repayments     Maturity        Total
    -------------------------------------------------------------------------

    2008 (remainder of the year)       $     5,080  $         -  $     5,080
    2009                                     9,764            -        9,764
    2010                                     9,058      182,350      191,408
    2011                                     9,372      268,000      277,372
    2012                                    12,548       45,912       58,460
    2013 and thereafter                     22,875      383,346      406,221
    -------------------------------------------------------------------------
                                       $    68,697  $   879,608  $   948,305
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    The estimated fair value of the REIT's long-term debt at June 30, 2008
    was approximately $944,957 (December 31, 2007 - $717,463). This estimate
    was determined by discounting expected cash flows at the interest rates
    currently being offered to the REIT for debt of the same remaining
    maturities.

    Long-term debt includes $77,539 (December 31, 2007 - $79,777) of
    mortgages payable, which are subject to floating interest rates. Annual
    interest expense will increase by $775 for every 1% increase in the base
    Bankers' Acceptance rate.

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

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

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

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

    10. Other Long-term Obligations

                                                        June 30, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    Capital leases                                  $     1,767  $     1,767
    Other lease obligations                                 390          360
    -------------------------------------------------------------------------
                                                          2,157        2,127
    Less current portion                                   (165)        (165)
    -------------------------------------------------------------------------
    Total lease obligations                               1,992        1,962
    Pension liability                                     3,545        3,294
    Asset retirement obligation                           1,457        1,436
    -------------------------------------------------------------------------
    Total other long-term obligations               $     6,994  $     6,692
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Defined Benefit Pension Plans

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

                                              Non-
                                        Union Non-
                           Management   Management      June 30, December 31,
                              Pension      Pension   2008 Total   2007 Total
                              Benefit      Benefit      Benefit      Benefit
                                Plans        Plans        Plans        Plans
    -------------------------------------------------------------------------
    Accrued benefit
     obligation           $     5,841  $     1,352  $     7,193  $     6,908
    Fair value of plan
     assets                     2,540        1,325        3,865        3,614
    -------------------------------------------------------------------------
    Funded status - plan
     deficit                    3,301           27        3,328        3,294
    Unamortized net
     actuarial (loss) gain       (123)         340          217          249
    -------------------------------------------------------------------------

    Accrued employee
     future benefit
     liability            $     3,178  $       367  $     3,545  $     3,543
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    11. Convertible Debentures

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

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


                                    Holders'
                     Face Amount Conversion            Transaction   June 30,
    Debenture        Outstanding     Option  Accretion       Costs      2008
    -------------------------------------------------------------------------
    Series A           $  45,764  $  (2,289) $   1,263  $    (838) $  43,900
    Series B              75,000     (3,400)     1,004     (2,323)    70,281
    Series C              70,000     (2,953)       372     (2,804)    64,615
    -------------------------------------------------------------------------
                       $ 190,764  $  (8,642) $   2,639  $  (5,965) $ 178,796
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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


                                    Holders'
                     Face Amount Conversion            Transaction  December
    Debenture        Outstanding     Option  Accretion       Costs  30, 2007
    -------------------------------------------------------------------------
    Series A           $  45,764  $  (2,289) $   1,127  $  (1,356) $  43,246
    Series B              75,000     (3,400)       768     (2,497)    69,871
    Series C              70,000     (2,953)       169     (2,946)    64,270
    -------------------------------------------------------------------------
                       $ 190,764  $  (8,642) $   2,064  $  (6,799) $ 177,387
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The fair value of the REIT's convertible debentures at June 30, 2008 is
    $178,325 (December 31, 2007 - $180,917).

    12. Capital Management

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

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

    At June 30, 2008, the REIT's leverage excluding and including convertible
    debentures was 47.4% and 56.5% respectively, calculated as follows:

                                     June 30, 2008         December 31, 2007
    -------------------------------------------------------------------------
    Total assets per
     Balance Sheet                     $ 2,060,807               $ 2,062,279

    Accumulated depreciation
     and amortization                      239,739                   192,973
    Future income tax
     liability                            (220,746)                 (225,503)
    Future income tax
     liability not included
     in assets                              23,536                    23,909
    -------------------------------------------------------------------------
    Gross Asset Value                  $ 2,103,336               $ 2,053,658
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Book value of
     mortgages and other
     indebtedness(1)      $   997,441        47.4%  $   953,067        46.4%
    Convertible
     debentures(2)            190,764         9.1%      190,764         9.3%
    -------------------------------------------------------------------------
                          $ 1,188,205        56.5%  $ 1,143,831        55.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


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

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

    The REIT is in compliance with these guidelines.

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

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

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

    (a) Trailing twelve months consolidated earnings before interest, taxes,
        depreciation and amortization ("EBITDA") to consolidated interest
        expense of not less than 2.0 times (actual being 2.6 times at
        June 30, 2008 and 2.8 times at December 31 ,2007);
    (b) Trailing twelve months consolidated EBITDA to consolidated debt
        service of not less than 1.5 times (actual being 2.3 times at
        June 30, 2008 and 2.3 times at December 31 ,2007); and
    (c) Unitholders' Equity of not less than $300,000 (actual being $571,672
        at June 30, 2008 and $604,666 at December 31, 2007.

    13. Income Taxes and Future Income Tax Liability

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

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

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

    14. Financial Instruments

    Risk Management

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

    Interest Rate Risk

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

    The REIT's floating rate debt balance is monitored by Management to
    minimize the REIT's exposure to interest rate fluctuations. As at
    June 30, 2008 the REIT's floating rate debt balance of $77,539
    (December 31, 2007 - $79,777) is approximately 8% of total long-term
    debt.

    Credit Risk

    Credit risks relate to the possibility that hotel guests, either
    individual or corporate, do not pay the amounts owed to the REIT. The
    REIT mitigates this risk by limiting its exposure to customers allowed to
    pay by invoice after check out ("direct bill"). Accounts receivable as at
    June 30, 2008 is $31,531 (December 31, 2007 - $28,677). InnVest reviews
    accounts receivable and the allowance for doubtful accounts is adjusted
    for any balances which are determined by management to be uncollectable.
    This provision adjustment is expensed in the hotel operating income. The
    allowance as at June 30, 2008 is $597 (December 31, 2007 - $670) or 1.9%
    (December 31, 2007 - 2.3%) of total receivables. The amount included in
    hotel expenses for the six months ended June 30, 2008 is $3 (six months
    ended June 30, 2007 - $15).

    Liquidity Risk

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

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

    Fair Values

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

    The fair value of the REIT's long-term debt is less than the carrying
    value by approximately $5,813 at June 30, 2008 (December 31, 2007 - fair
    value exceeded carrying value by approximately $1,764) due to changes in
    interest rates since the dates on which the individual mortgages were
    received. The fair value of long-term debt has been estimated based on
    the current market rates for mortgages with similar terms and conditions.

    The fair value of the REIT's convertible debentures is less than the
    carrying value by approximately $471 at June 30, 2008 (December 31, 2007
    - fair value exceeded carrying value by approximately $3,530). The fair
    value of convertible debentures has been estimated based on the market
    rates for convertible debentures as at June 30, 2008 and December 31,
    2007.

    Letters of Credit

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

    15. Unitholders' Equity

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

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


                                                          Units       Amount
    -------------------------------------------------------------------------
    Balance at December 31, 2007                     73,000,694  $   757,375
    Units issued under distribution reinvestment plan   824,893        7,626
    Units issued for vested executive compensation       16,033          151
    Units issued under trustee compensation plan          7,550           76
    -------------------------------------------------------------------------
    Balance at June 30, 2008                         73,849,170  $   765,228
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Trustee Compensation Plan

    The members of the Board of Trustees receive 50% of their annual retainer
    in units (based on the then current market price of the units). The REIT
    has set aside 100,000 units in reserve for this purpose. The balance in
    this reserve account at June 30, 2008 is 31,869 units. Under the Trustee
    Compensation Plan, 7,550 units were issued during the six months ended
    June 30, 2008 (six months ended June 30, 2007 - 1,650 units).

    Executive Compensation Plan

    The senior executives participate in the executive compensation plan
    under which units are granted by the Board of Trustees from time to time.
    The REIT has reserved a maximum of 1,000,000 units for issuance under the
    plan. The balance in this reserve account at June 30, 2008 is 825,146
    units. A unit granted through the plan entitles the holder to receive, on
    the vesting date, the then current fair market value of the unit plus the
    value of the cash distributions that would have been paid on the unit if
    it had been issued on the date of grant assuming the reinvestment of the
    distribution into REIT units. The payment will be satisfied through the
    issuance of units.

    The following table summarizes the status of the executive compensation
    plan at June 30, 2008, excluding granted units which have fully vested:

                                                          Units
                                          Unvested  Accumulated
                                         Executive   from Dist-        Total
                                             units    ributions        Units
    -------------------------------------------------------------------------
    January 1, 2005 - granted               13,118        4,626       17,744
    January 1, 2006 - granted               12,968        3,496       16,464
    January 1, 2007 - granted               15,000        2,421       17,421
    January 1, 2008 - granted               20,455        1,253       21,708
    January 1, 2008 - units vested          (6,559)      (2,049)      (8,608)
    -------------------------------------------------------------------------
                                            54,982        9,747       64,729
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    Distribution Reinvestment Plan ("DRIP")

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

    16. Per Unit Information

                                Three Months Ended        Three Months Ended
                                     June 30, 2008             June 30, 2007
    -------------------------------------------------------------------------
                                          Weighted                  Weighted
                                     Average Units             Average Units
    -------------------------------------------------------------------------
                                                          (Restated, Note 22)
    Net income (loss)
     from continuing
     operations - basic   $    17,186   73,647,417  $  (113,270)  56,002,020
    Dilutive effect
     of executive
     compensation plan              -       63,826            -            -
    -------------------------------------------------------------------------
    Net income (loss)
     from continuing
     operations - diluted $    17,186   73,711,243  $  (113,270)  56,002,020
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                  Six Months Ended          Six Months Ended
                                     June 30, 2008             June 30, 2007
    -------------------------------------------------------------------------
                                          Weighted                  Weighted
                                     Average Units             Average Units
    -------------------------------------------------------------------------
                                                          (Restated, Note 22)
    Net income (loss)
     from continuing
     operations - basic   $     2,915   73,440,150  $    (5,947)  55,631,950
    Dilutive effect
     of executive
     compensation plan              -       62,888            -       52,769
    -------------------------------------------------------------------------
    Net income (loss) -
     diluted              $     2,915   73,503,038  $    (5,947)  55,684,719
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                Three Months Ended        Three Months Ended
                                     June 30, 2008             June 30, 2007
    -------------------------------------------------------------------------
                                          Weighted                  Weighted
                                     Average Units             Average Units
    -------------------------------------------------------------------------
    Net income (loss)     $    15,494   73,647,417  $  (113,291)  56,002,020
    Dilutive effect of
     executive
     compensation plan              -       63,826            -            -
    -------------------------------------------------------------------------
    Net income (loss)     $    15,494   73,711,243  $  (113,291)  56,002,020
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                  Six Months Ended          Six Months Ended
                                     June 30, 2008             June 30, 2007
    -------------------------------------------------------------------------
                                          Weighted                  Weighted
                                     Average Units             Average Units
    -------------------------------------------------------------------------
    Net income (loss)     $       421   73,440,150  $    (5,959)  55,631,950
    Dilutive effect of
     executive
     compensation plan              -       62,888            -       52,769
    -------------------------------------------------------------------------
    Net income (loss)     $        421  73,503,038  $    (5,959)  55,684,719
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The impact of the convertible debentures has been excluded from the
    June 30, 2008 per unit calculations as the impact of the conversions
    would not be dilutive.

    17. Distributions to Unitholders

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

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

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

                                                          Three        Three
                                                         Months       Months
                                                          Ended        Ended
                                                        June 30,     June 30,
                                                           2008         2007
    -------------------------------------------------------------------------
    Net income (loss)                               $    15,494  $  (113,291)
    -------------------------------------------------------------------------
    Add (deduct)
      Depreciation and amortization                      21,749       14,106
      Future income tax recovery                         (1,237)     122,626
      Non-cash portion of interest expense                1,055          751
      Reserve for replacement of furniture, fixtures
       and equipment and capital improvements            (7,492)      (4,459)
      Writedown (gain on) assets held for sale            1,864         (174)
      Convertible debenture accretion                       288          190
      Non-cash executive and trustee compensation           145          140
      Deferred land lease expense and retail
       lease income, net                                      8            3
    -------------------------------------------------------------------------
                                                         16,380      133,183
    -------------------------------------------------------------------------
    Distributable income                                 31,874       19,892
    Distributions
      Required under the Declaration of Trust            25,499       15,914
      Discretionary                                      (4,766)        (121)
    -------------------------------------------------------------------------
    Distributions paid or payable                        20,733       15,793
    -------------------------------------------------------------------------
    Distributions less than distributable income    $    11,141  $     4,099
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                     Six Months   Six Months
                                                          Ended        Ended
                                                        June 30,     June 30,
                                                           2008         2007
    -------------------------------------------------------------------------
    Net income (loss)                               $       421  $    (5,959)
    -------------------------------------------------------------------------
    Add (deduct)
      Depreciation and amortization                      44,419       27,856
      Future income tax (recovery) expense               (4,757)       7,090
      Non-cash portion of interest expense                1,604        1,477
      Reserve for replacement of furniture, fixtures
       and equipment and capital improvements           (13,340)      (8,079)
      Writedown (gain on) assets held for sale            2,364         (833)
      Convertible debenture accretion                       575          402
      Corporate reorganization costs                          -        1,471
      Non-cash executive and trustee compensation           300          228
      Deferred land lease expense and retail
       lease income, net                                     16           17
    -------------------------------------------------------------------------
                                                         31,181       29,629
    -------------------------------------------------------------------------
    Distributable income                                 31,602       23,670
    Distributions
      Required under the Declaration of Trust            25,282       18,936
      Discretionary                                      16,069       12,437
    -------------------------------------------------------------------------
    Distributions paid or payable                        41,351       31,373
    -------------------------------------------------------------------------
    Distributions in excess of distributable
     income                                         $     9,749  $     7,703
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    18. Management Agreements

    Westmont Hospitality Canada Limited

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

    The Agreements have an initial term of 10 years with two successive
    five-year renewal terms, subject to the consent of Westmont and approval
    of the REIT. The Agreements will expire July 25, 2012. The Agreements
    provide for the payment of an annual management fee to Westmont in an
    amount equal to 3.375% of gross revenues during the term of the
    Agreements, including renewal periods. In addition, Westmont may receive
    an annual incentive fee if the REIT achieves distributable income
    (see Note 17) in excess of $1.25 per unit. No management incentive fees
    were paid during the periods presented. Accounting fees are calculated
    based on a fixed charge per room which increases by the Consumer Price
    Index change annually.

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

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

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

                                                          Three        Three
                                                         Months       Months
                                                          Ended        Ended
                                                        June 30,     June 30,
                                                           2008         2007
    -------------------------------------------------------------------------
    Fees from continuing operations:
      Management fees                               $     3,413  $     3,174
      Asset management fees (included in hotel
       operating expenses)                                  583           79
      Accounting services (included in hotel
       operating expenses)                                  586          553
      Administrative services (included in
       corporate and administrative expenses)               111          107
      Project management and general contractor services
       (capitalized to hotel properties)                    236          235
    Fees from discontinued operations                        93          178
    -------------------------------------------------------------------------
                                                    $     5,022  $     4,326
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                     Six Months   Six Months
                                                          Ended        Ended
                                                        June 30,     June 30,
                                                           2008         2007
    -------------------------------------------------------------------------
    Fees from continuing operations:
      Management fees                               $     6,137  $     5,798
      Asset management fees (included in hotel
       operating expenses)                                1,233          157
      Accounting services (included in hotel
       operating expenses)                                1,168        1,105
      Administrative services (included in
       corporate and administrative expenses)               206          212
      Project management and general contractor services
       (capitalized to hotel properties)                    347          393
    Fees from discontinued operations                       173          279
    -------------------------------------------------------------------------
                                                    $     9,264  $     7,944
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In addition, salaries of REIT employees paid by Westmont and reimbursed
    by the REIT were $98 (June 30, 2007 - $126). Included in accounts payable
    and accrued liabilities are amounts owed to Westmont at June 30, 2008
    totalling $1,671 (December 31, 2007 - $1,480).

    Other Management Agreements

    The REIT entered into management agreements with Hilton Canada Co.
    ("Hilton") to manage the two Hilton hotels acquired in 2006. The
    agreements provide for the payment of an annual management fee to Hilton
    in an amount equal to 2.5% until September 30, 2008 and then 3.0% of
    gross revenues during the balance of the term of the agreements. The
    agreements mature on December 31, 2026. For the six months ended June 30,
    2008, total management fees paid to Hilton were $484 (June 30, 2007 -
    $337).

    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 six months ended June 30, 2008, total
    management fees paid to Delta were $266 (June 30, 2007 - $357).

    With the acquisition of the Legacy Portfolio in September 2007, InnVest
    assumed the existing hotel management agreements with Fairmont Hotel and
    Resorts ("Fairmont") or Delta for each of the Legacy Portfolio hotels.
    The agreements provide for the payment of a base management fee and an
    incentive management fee to either Fairmont or Delta. Legacy was also
    subject to a portfolio incentive fee on 11 of its 25 hotels, of which six
    are now owned or leased by InnVest. The base management fee is equal to
    3% of total revenues from the hotel for nine of the hotels and 2% of
    total revenues for the remaining two hotels. The agreements mature from
    December 31, 2010 to December 31, 2047. The incentive fees are calculated
    based on net operating income from hotel operations plus amortization
    less the capital replacement reserve, in excess of a threshold. For the
    six months ended June 30, 2008, total management fees paid for the Legacy
    Portfolio were $5,135.

    19. Segmented Financial Information

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

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

    Three Months Ended
     June 30, 2008
    Hotel revenues     $  46,980  $  67,070  $  40,822  $  27,124  $ 181,996
    Hotel expenses        31,394     47,250     27,860     19,340    125,844
    -------------------------------------------------------------------------
    Hotel operating
     income            $  15,586  $  19,820  $  12,962  $   7,784  $  56,152
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Three Months Ended
     June 30, 2007
    Hotel revenues     $  10,874  $  58,329  $  28,114  $  11,982  $ 109,299
    Hotel expenses         6,821     40,786     19,962      7,771     75,340
    -------------------------------------------------------------------------
    Hotel operating
     income            $   4,053  $  17,543  $   8,152  $   4,211  $  33,959
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Six Months Ended
     June 30, 2008
    Hotel revenues     $  85,590  $ 122,066  $  69,720  $  45,149  $ 322,525
    Hotel expenses        60,716     92,055     54,055     35,973    242,799
    -------------------------------------------------------------------------
    Hotel operating
     income            $  24,874  $  30,011  $  15,665  $   9,176  $  79,726
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Six Months Ended
     June 30, 2007
    Hotel revenues     $  19,859  $ 108,091  $  49,446  $  20,261  $ 197,657
    Hotel expenses        13,111     80,161     38,183     14,624    146,079
    -------------------------------------------------------------------------
    Hotel operating
     income            $   6,748  $  27,930  $  11,263  $   5,637  $  51,578
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures
     on hotel properties
    Three Months Ended
     June 30, 2008     $   2,750  $   3,130  $   4,823  $   1,984  $  12,687
    Three months ended
     June 30, 2007     $   1,374  $   3,651  $   2,062  $     438  $   7,525
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures
     on hotel properties
    Six Months Ended
     June 30, 2008     $   3,163  $   5,037  $   6,209  $   4,197  $  18,606
    Six months ended
     June 30, 2007     $   1,747  $   7,729  $   2,939  $     990  $  13,405
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Hotel properties
    As at June 30,
     2008              $ 517,655  $ 703,475  $ 424,449  $ 243,357  $1,888,936
    As at December 31,
     2007              $ 525,322  $ 690,284  $ 430,570  $ 238,589  $1,884,765
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    20. Total Revenues

                                Three        Three          Six          Six
                               Months       Months       Months       Months
                                ended        Ended        ended        Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------

    Hotel revenues        $   181,996  $   109,299  $   322,525  $   197,657
    Other business income
     (Note 21)                  3,068        3,049        5,729        5,662
    -------------------------------------------------------------------------
                          $   185,064  $   112,348  $   328,254  $   203,319
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    21. Other Business Income

                                                            Three      Three
                                                           Months     Months
                                                Retire-     Ended      Ended
                       Franchise    Retail/       ment    June 30,   June 30,
                        Business     Office  Residence       2008       2007
    -------------------------------------------------------------------------

    Revenues           $   2,162  $     636  $     270  $   3,068  $   3,049
    Expenses               1,334        304        173      1,811      1,728
    -------------------------------------------------------------------------
    Other business
     income, net       $     828  $     332  $      97  $   1,257  $   1,321
    -------------------------------------------------------------------------

                                                              Six        Six
                                                           Months     Months
                                                Retire-     Ended      Ended
                       Franchise    Retail/       ment    June 30,   June 30,
                        Business     Office  Residence       2008       2007
    -------------------------------------------------------------------------

    Revenues           $   3,891  $   1,299  $     539  $   5,729  $   5,662
    Expenses               2,543        584        352      3,479      3,293
    -------------------------------------------------------------------------
    Other business
     income, net       $   1,348  $     715  $     187  $   2,250  $   2,369
    -------------------------------------------------------------------------

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

    22. Assets Held for Sale and Discontinued Operations

    On March 30, 2007, the REIT sold a hotel held for sale in Atlantic Canada
    for $2,350 less closing costs of $250, and recorded a gain of $659. On
    April 10, 2007, an Ontario asset held for sale was sold for $4,650 less
    closing costs of $350, and the REIT recorded a gain of $174. The debt
    owing of $1,010 and $1,181 respectively was paid out of the proceeds.
    Both these hotels had been reclassified to assets held for sale in 2006.

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

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

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

                                Three        Three          Six          Six
                               Months       Months       Months       Months
                                Ended        Ended        Ended        Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
                                         (Restated)                (Restated)
    Hotel revenues        $     2,154  $     2,189  $     3,872  $     4,298
    -------------------------------------------------------------------------
    Hotel expenses
      Operating expenses        1,388        1,371        2,827        3,032
      Property taxes, rent
       and insurance              313          312          620          667
      Management fees              73           74          131          145
    -------------------------------------------------------------------------
                                1,774        1,757        3,578        3,844
    -------------------------------------------------------------------------
    Hotel operating income        380          432          294          454
    -------------------------------------------------------------------------
    Interest on mortgages         208          227          424          501
    Depreciation and
     amortization                   -          400            -          798
    -------------------------------------------------------------------------
                                  208          627          424        1,299
    -------------------------------------------------------------------------
    Income (loss) from
     discontinued operations      172         (195)        (130)        (845)

    Gain on sale of assets
     held for sale                  -          174            -          833
    Write down of assets
     held for sale             (1,864)           -       (2,364)           -
    -------------------------------------------------------------------------
                               (1,864)         174       (2,364)         833
    -------------------------------------------------------------------------
    Net loss from
     discontinued
     operations           $    (1,692) $       (21) $    (2,494) $       (12)
    -------------------------------------------------------------------------

    23. Comparative Information

    Certain prior period amounts have been restated 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 Corporate
Secretary, Tel: (905) 206-7100, Fax: (905) 206-7114, Website:
www.innvestreit.com

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InnVest Real Estate Investment Trust

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