InnVest REIT reports results for the three and six months ended June 30, 2007



    TORONTO, Aug. 10 /CNW/ - InnVest Real Estate Investment Trust
(TSX: INN.UN) today announced financial results for the three and six months
ended June 30, 2007.
    "Strong performance in the Western and Atlantic regions, allowed InnVest
to grow its RevPAR in the second quarter on a same hotel basis, while the
contribution from the hotels acquired in 2006 during or after the second
quarter allowed InnVest to grow its distributable income," said Mr. Kenneth
Gibson, President and Chief Executive Officer of InnVest REIT.

    
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                                                  Three months ended June 30
    -------------------------------------------------------------------------
                                                  2007       2006        +/-
    -------------------------------------------------------------------------
    Occupancy                                    65.2%      65.8%     (0.6)%
    -------------------------------------------------------------------------
    Average daily rate ("ADR")                 $102.50     $97.03      $5.47
    -------------------------------------------------------------------------
    Revenue Per Available Room ("RevPAR")       $66.83     $63.87      $2.96
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating revenues                        $111,467    $97,242    $14,225
    -------------------------------------------------------------------------
    Hotel operating income                     $34,395    $32,773     $1,622
    -------------------------------------------------------------------------
    Net (loss) income and comprehensive
     (loss) income                           ($113,291)   $21,366  ($134,657)
    -------------------------------------------------------------------------
    Add / (deduct)
      Depreciation, amortization and
       accretion                                14,106     11,974      2,132
      Future income tax expense (recovery)     122,626    (12,684)   135,310
      Non-cash executive and trustee
       compensation                                140         84         56
      (Gain on sale), write down of assets
       held for sale                              (174)     1,000     (1,174)
      Corporate reorganization expense               -          -          -
    -------------------------------------------------------------------------
    Funds from operations(1)                   $23,407    $21,740     $1,667
    -------------------------------------------------------------------------
    Funds from operations per unit(1)
      - basic                                   $0.418     $0.432    ($0.014)
    -------------------------------------------------------------------------
      - diluted                                 $0.388     $0.399    ($0.011)
    -------------------------------------------------------------------------
    Amortization of deferred financing costs         -        656       (656)
    Non-cash portion of interest expense           751          -        751
    Reserve for replacement of furniture,
     fixtures and equipment and capital
     improvements                               (4,459)    (3,887)      (572)
    Convertible debentures accretion               190        204        (14)
    Deferred land lease expense and retail
     lease income, net                               3         25        (22)
    -------------------------------------------------------------------------
    Distributable income(1)                    $19,892    $18,738     $1,154
    -------------------------------------------------------------------------
    Distributable income per unit(1)
      - basic                                   $0.355     $0.372    ($0.017)
    -------------------------------------------------------------------------
      - diluted                                 $0.335     $0.349    ($0.014)
    -------------------------------------------------------------------------
    Distributions per unit                     $0.2813    $0.2813          -
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                    Six months ended June 30
    -------------------------------------------------------------------------
                                                  2007       2006        +/-
    -------------------------------------------------------------------------
    Occupancy                                    60.6%      60.8%     (0.2)%
    -------------------------------------------------------------------------
    Average daily rate ("ADR")                  $99.72     $94.79      $4.93
    -------------------------------------------------------------------------
    Revenue Per Available Room ("RevPAR")       $60.39     $57.66      $2.73
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating revenues                        $201,493   $173,146    $28,347
    -------------------------------------------------------------------------
    Hotel operating income                     $52,018    $49,352     $2,666
    -------------------------------------------------------------------------
    Net (loss) income and comprehensive
     (loss) income                             ($5,959)   $15,805   ($21,764)
    -------------------------------------------------------------------------
    Add / (deduct)
      Depreciation, amortization and
       accretion                                27,856     23,228      4,628
      Future income tax expense (recovery)       7,090    (12,906)    19,996
      Non-cash executive and trustee
       compensation                                228        175         53
      (Gain on sale), write down of assets
       held for sale                              (833)     1,000     (1,833)
      Corporate reorganization expense           1,471          -      1,471
    -------------------------------------------------------------------------
    Funds from operations(1)                   $29,853    $27,302     $2,551
    -------------------------------------------------------------------------
    Funds from operations per unit(1)
      - basic                                   $0.537     $0.543    ($0.006)
    -------------------------------------------------------------------------
      - diluted                                 $0.519     $0.527    ($0.008)
    -------------------------------------------------------------------------
    Amortization of deferred financing costs         -      1,229     (1,229)
    Non-cash portion of interest expense         1,477          -      1,477
    Reserve for replacement of furniture,
     fixtures and equipment and capital
     improvements                               (8,079)    (6,942)    (1,137)
    Convertible debentures accretion               402        384         18
    Deferred land lease expense and retail
     lease income, net                              17         50        (33)
    -------------------------------------------------------------------------
    Distributable income(1)                    $23,670    $22,023     $1,647
    -------------------------------------------------------------------------
    Distributable income per unit(1)
      - basic                                   $0.425     $0.438    ($0.013)
    -------------------------------------------------------------------------
      - diluted                                 $0.422     $0.434    ($0.012)
    -------------------------------------------------------------------------
    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 does not have a
        prescribed meaning under Canadian generally accepted accounting
        principles, and accordingly, may not be comparable to similar
        measures used by other organizations. Funds from operations and
        distributable income per unit are calculated on a basis consistent
        with earnings per unit.

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

                       Three months ended June 30   Six months ended June 30
                           2007     2006    Var %     2007     2006    Var %
    -------------------------------------------------------------------------
    Occupancy
      Ontario             63.8%    66.1%   (3.5)%    59.8%    61.3%   (2.4)%
      Quebec              63.7%    66.1%   (3.6)%    59.0%    60.5%   (2.5)%
      Atlantic            67.0%    66.3%    1.1 %    60.3%    59.8%    0.8 %
      Western             68.0%    65.6%    3.7 %    63.6%    59.7%    6.5 %
                       ------------------------------------------------------
      Total               64.7%    66.0%   (2.0)%    60.2%    60.8%   (1.0)%
                       ------------------------------------------------------
                       ------------------------------------------------------

    ADR
      Ontario           $104.57  $102.62    1.9 %  $103.09  $101.19    1.9 %
      Quebec             $95.67   $93.86    1.9 %   $92.85   $90.84    2.2 %
      Atlantic           $94.30   $90.57    4.1 %   $89.83   $86.27    4.1 %
      Western            $85.50   $78.62    8.8 %   $83.37   $76.94    8.4 %
                       ------------------------------------------------------
      Total              $99.06   $96.44    2.7 %   $96.95   $94.45    2.6 %
                       ------------------------------------------------------
                       ------------------------------------------------------
    RevPAR
      Ontario            $66.74   $67.81   (1.6)%   $61.60   $62.03   (0.7)%
      Quebec             $60.97   $62.02   (1.7)%   $54.77   $55.00   (0.4)%
      Atlantic           $63.21   $60.01    5.3 %   $54.17   $51.58    5.0 %
      Western            $58.14   $51.54   12.8 %   $53.02   $45.93   15.4 %
                       ------------------------------------------------------
      Total              $64.10   $63.68    0.7 %   $58.35   $57.41    1.6 %
                       ------------------------------------------------------
                       ------------------------------------------------------
    

    RECENT DEVELOPMENTS

    InnVest continued to pursue acquisition opportunities entering into a
contract to purchase three hotels with a total of 349 rooms for a combined
purchase price of $48.3 million plus transaction costs in the first quarter of
2007. The transaction to acquire these new build hotel properties will close
in stages as the construction of each hotel is completed, which is scheduled
during the third quarters of 2007 and in early 2008. The hotels include a
117 room Staybridge Suites located in London, Ontario, a 116 room Holiday Inn
Express located in North Bay, Ontario and a 116 room Staybridge Suites located
in Guelph, Ontario. On July 20, 2007, the REIT closed on the Staybridge Suites
in London, Ontario at a cost of $17.0 million plus transaction costs. The REIT
assumed an $8.3 million first mortgage, which bears interest at 6.4% interest
for a term of 10 years, with the balance being funded from cash on hand.
    These acquisitions will continue to increase the InnVest's participation
in the mid-scale with food and beverage segment and further launch InnVest
into the extended stay segment with the Staybridge Suites brand.
    It is anticipated that these acquisitions will be funded through cash on
hand, refinancing proceeds and new mortgage financing proceeds.
    On July 12, 2007 InnVest, in partnership with Cadbridge Investors LP
("Cadbridge"), a joint venture entity between affiliates of Cadim, a division
of the Caisse de Dépôt et Placement du Québec and an affiliate of InnVest's
hotel manager, announced a take-over bid for all of the outstanding units of
Legacy Hotels Real Estate Investment Trust ("Legacy") at a price of $12.60 per
unit. The take-over bid will be effected by LGY Acquisition LP, a newly-formed
limited partnership, owned by InnVest and Cadbridge in which InnVest has an
approximate 26% interest. Upon the successful completion of the acquisition of
100% of Legacy's outstanding units, InnVest and Cadbridge will reorganize
Legacy's assets such that InnVest will become the owner of the following
eleven first class hotels: The Fairmont Palliser, Sheraton Suites Calgary Eau
Claire, Delta Calgary Airport, Fairmont Hotel Macdonald, Delta Winnipeg Hotel,
Delta Ottawa Hotel and Suites, Delta Centre-Ville, Delta Beauséjour, Delta
Prince Edward, Delta Barrington and the Delta Halifax (collectively the
"Portfolio"). This reorganization is expected to be completed within 30 days
of LGY Acquisition LP acquiring 100% of Legacy's outstanding units and, until
such time, InnVest will remain an approximate 26% owner in LGY Acquisition LP.
    The purchase price, including the assumption of existing debt, in respect
of the eleven hotels that InnVest will ultimately acquire, is approximately
$652 million ($178 per room) prior to closing and transaction costs.
    Upon the completion of the portfolio acquisition, InnVest's total
portfolio will increase to 147 properties, totaling 19,265 rooms across
Canada.

    Description of the Offering

    In order to partially fund the $676 million cost of the Portfolio
acquisition (which includes the various transaction and financing costs
required to close the Portfolio acquisition), InnVest has entered into an
agreement to sell to a syndicate of underwriters, on a bought deal basis,
$200 million of subscription receipts at a price of $12.35 per subscription
receipt representing the right to receive trust units of the REIT and
$70 million of convertible extendible unsecured subordinated debentures. The
remainder of the purchase price will be satisfied with the assumption of
$194 million in mortgage debt secured by the properties and $212 million of
bridge financing from RBC. InnVest intends to refinance the existing mortgages
and arrange new mortgage financing on five of the acquired assets that are
currently unencumbered. The bridge loan will be repaid from the proceeds of
these financings.
    The subscription receipts are exchangeable on a one-for-one basis for
units of InnVest upon completion of LGY Acquisition LP's take-over bid for
Legacy (but prior to the subsequent reorganization as described above). The
take-over bid is subject to customary conditions, including receipt of
regulatory approvals and the requirement that a minimum of two-thirds of
Legacy's units be tendered into the bid. Fairmont Hotels & Resorts Inc.,
Legacy's largest unitholder representing 20.4% of the outstanding voting
rights, has entered into a lockup agreement with LGY Acquisition LP to tender
its entire ownership interest in Legacy to the take-over bid. The convertible
debentures have an initial maturity date of December 31, 2007 (but can mature
earlier upon the occurrence of certain events) and will be extended to
August 1, 2014 upon completion of LGY Acquisition LP's take-over bid for
Legacy. The convertible debentures have a coupon of 5.85% per annum and will
pay interest semi-annually in arrears on August 1 and February 1 in each year
commencing on February 1, 2008. The convertible debentures will be convertible
into approximately 68.027 units of the REIT per $1,000 principal amount, at
any time, at the option of the holder, representing a conversion price of
$14.70 per unit.
    The subscription receipts and convertible debentures will be offered in
all the provinces of Canada by means of a short form prospectus. Closing of
the offering occurred on August 3, 2007.

    Description of the Hotels to be Acquired

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

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

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

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

    FINANCIAL REVIEW

    Three months ended June 30, 2007

    Room revenues increased $10.1 million to $94.1 million. The increase in
room revenues primarily reflects a $9.6 million increase in revenues from the
six hotels acquired in 2006 after the end of the first quarter (the "acquired
hotels"). The remaining $542 improvement stems from increases in room revenue
in the REIT's base portfolio.
    Non-room revenues increased by $4.1 million, reflecting the non-room
revenues generated by the REIT's acquired hotels not owned for the entire
comparative period.
    Hotel expenses for the three months ended June 30, 2007 increased by
$12.6 million or 19.50% when compared to the same period in 2006. This
increase reflects $11.2 million in expenses incurred by the hotels acquired in
2006 after the end of the first quarter, were not owned for the entire
comparative period. The remaining $1.4 million related to the Base Portfolio
represents a 2.3% increase over the same period in 2006.
    The net amount of other income and expenses for the three months ended
June 30, 2007 was $25.2 million, $1.9 million or 8.0% more than the same
period in 2006. The main contributors to this increase were a $1.3 million
increase in interest on mortgages and other debt, a $406 decrease in
convertible debentures interest and accretion, a $1.6 million increase in
depreciation, amortization and accretion, a $248 increase in corporate and
administrative expenses, a $456 increase in other business income and a
$387 reduction in capital tax. The increases were mainly related to the hotels
acquired during 2006. The decrease in convertible debentures interest and
accretion was the net result of the conversion of debentures and the
amortization of costs associated with the issuance of the debentures because
of the use of the effective interest method. The reduction in capital tax was
the result of the corporate reorganization completed on January 2, 2007.
    Current income tax expense for the three months ended June 30, 2007 was
zero because of the elimination of the large corporation tax, an increase of
$197 from the recovery recorded as the result of losses carried back to prior
periods in corporate subsidiaries of InnVest in the same period in 2006.
Further, InnVest experienced a $122.6 million future income tax expense during
the quarter as the result of changes in the income tax legislation related to
Real Estate Investment Trusts.
    Funds from operations for the three months ended June 30, 2007 increased
$1.7 million to $23.4 million or $0.418 per unit basic ($0.388 - diluted) from
$21.7 million or $0.432 per unit basic ($0.399 - diluted) in the same period
of 2006.
    Distributable income for the three months ended June 30, 2007 was
$19.9 million or $0.355 per unit basic ($0.335 - diluted). This reflects a
$1.2 million improvement over the distributable income experienced for the
same period of the prior year of $18.7 million or $0.372 per unit basic
($0.349 - diluted).

    Six months ended June 30, 2007

    Room revenues increased $20.1 million to $169.2 million. The increase in
room revenues primarily reflects a $17.8 million increase in revenues from the
seven hotels acquired in 2006 (the "acquired hotels"). The remaining
$2.3 million improvement stems from increases in room revenue in the REIT's
base portfolio.
    Non-room revenues increased by $8.3 million, reflecting the non-room
revenues generated by the hotels the REIT acquired in 2006, which were not
owned for the entire comparative period. The majority of the hotels which were
acquired in 2006 generate a higher proportion of total revenues from non-room
revenues such as food and beverage sales.
    Hotel expenses for the six months ended June 30, 2007 increased by
$25.7 million or 20.7% when compared to the same period in 2006. This increase
reflects $22.7 million in expenses incurred in the hotels acquired in 2006,
which were not owned for the entire comparative period. The remaining
$3.0 million related to the Base Portfolio represents a 2.5% increase over the
same period in 2006.
    The net amount of other income and expenses for the six months ended
June 30, 2007 was $51.7 million, $6.2 million or 13.5% more than the same
period in 2006. The main contributors to this increase were a $3.6 million
increase in depreciation, amortization and accretion, a $3.1 million increase
in interest on mortgages, a $1.7 million increase in corporate and
administrative expenses, a $1.0 million increase in other business income, a
$774 reduction in capital tax and a $421 decrease in convertible debentures
interest and accretion. The increases were mainly related to the hotels
acquired during 2006. The corporate and administrative expense increase was
the result of land transfer tax and legal costs associated with a
reorganization of InnVest. The decrease in convertible debentures interest and
accretion was the net result of the conversion of debentures and the
amortization of costs associated with the issuing of the debentures because of
the use of the effective interest method. The reduction in capital tax was the
result of the corporate reorganization completed on January 2, 2007.
    Current income tax expense for the six months ended June 30, 2007 was
zero because of the elimination of the large corporation tax, an increase of
$127 from the recovery recorded as the net result of large corporation tax and
losses carried back to prior periods in corporate subsidiaries of InnVest in
the same period in 2006. Further, InnVest experienced a $7.1 million future
income tax expense during the six-month period as the result of changes in the
income tax legislation related to Real Estate Investment Trusts as compared to
a recovery of $12.9 million in the same period of the prior year resulting
from reductions in the corporate income tax rates.
    Funds from operations for the six months ended June 30, 2007 increased
$2.6 million to $29.9 million or $0.537 per unit basic ($0.519 - diluted) from
$27.3 million or $0.543 per unit basic ($0.527 - diluted) in the same period
of 2006. The increase is mainly attributable to increases in hotel operating
income.
    Distributable income for the six months ended June 30, 2007 was
$23.7 million or $0.425 per unit basic ($0.422 - diluted). This reflects a
$1.7 million improvement over the distributable income experienced for the
same period of the prior year of $22.0 million or $0.438 per unit basic
($0.434 - diluted).

    BALANCE SHEET REVIEW

    At June 30, 2007, InnVest's cash totaled $8.7 million, of which $567 is
restricted for replacement of furniture, fixture and equipment and capital
improvements. Financial leverage was 41.0% debt to gross asset value (defined
as total assets before accumulated depreciation less future income tax
liabilities included in assets) excluding convertible debentures and 50.5%
including convertible debentures at the end of the period.
    Continuing with its strategy of investing in its hotels, InnVest deployed
approximately $7.6 million for capital asset improvements during the second
quarter and committed an additional $2.6 million.
    The REIT had unused operating loan availability of $25 million at
June 30, 2007 and eight hotel properties that remain unencumbered that the
REIT estimates could generate approximately $45 million in mortgage proceeds.
The REIT also has an unused acquisition facility of $40 million available to
acquire hotel properties and an unused loan facility of $29.1 million
available to fund 50% of capital expenditures incurred.

    INCOME TAX DEFERRAL PERCENTAGE

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

    OUTLOOK

    InnVest experienced significant improvements in RevPAR in its hotel in
the Western and Atlantic regions, which allowed InnVest to grow its RevPAR in
the second quarter on a same hotel basis, while the contribution from the
hotels acquired in 2006 during or after the second quarter allowed InnVest to
grow its funds from operations and distributable income. Further increases are
expected for the remainder of the year as InnVest approaches the highest cash
generating third quarter and benefits from the hotels acquired in the third
quarter of 2006.
    The hotels to be acquired through the participation in the acquisition of
Legacy will expand InnVest's presence in Western Canada, which will contribute
to growth in funds from operations and distributable income on an absolute
basis immediately and on a per unit basis annually in the next 12-24 months.
Given that the acquisition is scheduled to close late in the third quarter or
early in the fourth quarter, the contribution on a per unit basis for 2007 is
expected to be dilutive due to the seasonality inherent in the hotel business.
    The Canadian hospitality industry is performing as anticipated with
RevPAR growth in all regions and particularly strong growth in western
provinces. PKF Consulting Inc., ("PKF") lodging industry experts continue to
forecast a 4% increase in RevPAR in 2007 due to the growth in demand
continuing to outpace supply. Accordingly, InnVest is expecting growth within
its base portfolio and from its 2006 Acquisitions. InnVest's hotels located in
certain markets, such as Windsor, Oshawa, the GTA and Montréal, have
experienced declines in room revenue in the second quarter. In response,
concentrated sales efforts and additional cost control measures are being
undertaken in these markets. This has been somewhat offset by strong
performance in many other markets of Ontario and Québec where the industry
fundamentals remain strong, further demonstrating the benefit of the
geographic diversity of InnVest's hotel portfolio.
    InnVest expects to continue to benefit from the anticipated growth in the
hospitality industry, our ability to manage costs, our ability to capitalize
on acquisition opportunities and re-financing activities completed in the
second quarter.

    FORWARD LOOKING STATEMENTS

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

    TRUST PROFILE

    InnVest REIT holds Canada's largest hotel portfolio together with an
interest in Choice Hotels Canada Inc. the largest franchisor of hotels in
Canada. The hotel portfolio currently comprises 135 hotel properties, with
15,476 guest rooms, operated under internationally recognized franchise brands
such as Comfort Inn(R), Holiday Inn(R) Quality Suites/Inn(R), Radisson(R),
Travelodge(R), Delta(R), Hilton Hotel(R), Hilton Garden Inn(R) and Hilton
Homewood Suites(R). InnVest's trust units and outstanding convertible
debentures trade on the Toronto Stock Exchange under the symbols INN.UN,
INN.DB.A and INN.DB.B, respectively.

    QUARTERLY CONFERENCE CALL

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

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

    CONSOLIDATED BALANCE SHEETS
                                                        June 30, December 31,
    (in thousands of dollars) (Unaudited)                  2007         2006
    -------------------------------------------------------------------------

    ASSETS

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

    Restricted cash                                         567        4,693

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

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

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

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

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

                                                    $ 1,210,338  $ 1,226,916
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

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

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

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

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

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

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

    UNITHOLDERS' EQUITY                                 395,087      416,545
    -------------------------------------------------------------------------

                                                    $ 1,210,338  $ 1,226,916
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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)                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                           (Restated)              (Restated)
                                            (Note 19)               (Note 19)

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

    Hotel revenues            $  111,467  $   97,242  $  201,493  $  173,146
    -------------------------------------------------------------------------

    Hotel expenses
      Operating expenses
       (Note 15)                  63,750      52,454     123,638     100,574
      Property taxes, rent
       and insurance               9,588       8,733      19,059      17,377
      Management fees
       (Note 15)                   3,734       3,282       6,778       5,843
    -------------------------------------------------------------------------
                                  77,072      64,469     149,475     123,794
    -------------------------------------------------------------------------

    Hotel operating income        34,395      32,773      52,018      49,352
    -------------------------------------------------------------------------

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

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

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

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

    (Loss) income from
     discontinued
     operations (Note 19)             (5)         63         (24)        (36)
    Gain on sale (writedown)
     of assets held for sale
     (Note 19)                       174      (1,000)        833      (1,000)
    -------------------------------------------------------------------------
                                     169        (937)        809      (1,036)
    -------------------------------------------------------------------------

    Net (loss) income and
     comprehensive (loss)
     income                   $ (113,291) $   21,366  $   (5,959) $   15,805
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net (loss) income from
     continuing operations,
     per unit  (Note 13)
      Basic                   $   (2.026) $    0.443  $   (0.122) $    0.335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Diluted                 $   (2.026) $    0.412  $   (0.122) $    0.335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net (loss) income and
     comprehensive (loss)
     income per unit (Note 13)
      Basic                   $   (2.023) $    0.424  $   (0.107) $    0.315
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Diluted                 $   (2.023) $    0.396  $   (0.107) $    0.314
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

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


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

    CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY

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

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

    CHANGES DURING THE PERIOD

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

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

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

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

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

    CHANGES DURING THE PERIOD

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

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

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


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

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

    CHANGES DURING THE PERIOD

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

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

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

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

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

    CHANGES DURING THE PERIOD

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

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

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

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



    InnVest Real Estate Investment Trust

        CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

    FINANCING ACTIVITIES

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

    INVESTING ACTIVITIES

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

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

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

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



    InnVest Real Estate Investment Trust

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

    1.  Basis of Presentation

    InnVest Real Estate Investment Trust ("InnVest" or the "REIT") is an
    unincorporated open-ended real estate investment trust governed by the
    laws of Ontario. The REIT began operations on July 26, 2002. The units of
    the REIT are traded on the Toronto Stock Exchange under the symbol of
    "INN.UN". As at June 30, 2007, the REIT owned 135 Canadian hotels with
    15,476 guest rooms operated under international brands and has a 50%
    interest in Choice Hotels Canada Inc. ("CHC").

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

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

    2.  Changes in Accounting Policies

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

    Comprehensive Income

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

    Financial Instruments - Recognition and Measurement

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

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

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

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

    3.  Hotel Properties

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

    4.  Other Real Estate Properties

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

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

    5.  Other Assets

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

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

    6.  Bank Indebtedness

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

    7.  Long-term Debt

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

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

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

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

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

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

    The estimated fair value of the REIT's long-term debt at June 30, 2007
    was approximately $516,658 (December 31, 2006 - $507,243). This estimate
    was determined by discounting expected cash flows at the interest rates
    currently being offered to the REIT for debt of the same remaining
    maturities.

    Long-term debt includes $69,080 (December 31, 2006 - $68,305) of
    mortgages payable which are subject to floating interest rates. Interest
    expense will increase by $691 for every 1% increase in the base Bankers'
    Acceptance rate.

    In the second quarter, the REIT completed an early extension of $147,665
    of mortgage debt that was to have matured on July 26, 2008, fixing the
    interest rate on $130,000 at 5.8% for a blended interest rate of 6.17%
    per annum for a period of seven years, and maintained floating rate debt
    of $17,665 which, at current rates, bears interest at approximately 6.3%
    per annum. As part of this early extension, the REIT increased its fixed-
    rate proceeds by $25,924 which was used to repay the operating loan
    balance and to fund potential acquisitions.

    8.  Other Long-term Obligations

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


    Defined Benefit Pension Plan

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

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

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


    9.  Convertible Debentures

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

                                             Effective  Original   Converted
                                   Interest   Interest      Face    to Trust
    Debenture      Maturity Date       Rate       Rate    Amount       Units
    -------------------------------------------------------------------------
    Series A      April 15, 2011      6.25%      7.07%  $  57,500  $ (11,736)
    Series B        May 31, 2013      6.00%      6.79%     75,000          -
    -------------------------------------------------------------------------
                                                        $ 132,500  $ (11,736)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


                                            Original  Converted
                                Interest       Face   to Trust  Face Amount
    Debenture    Maturity Date      Rate      Amount      Units  Outstanding
    -------------------------------------------------------------------------
    Series A    April 15, 2011     6.25%   $  57,500  $  (1,351)   $  56,149
    Series B      May 31, 2013     6.00%      75,000          -       75,000
    -------------------------------------------------------------------------
                                           $ 132,500  $  (1,351)   $ 131,149
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                  Holders'
               Conversion              December
    Debenture      Option  Accretion   31, 2006
    --------------------------------------------
    Series A    $  (2,808) $   1,096  $  54,437
    Series B       (3,400)       302     71,902
    --------------------------------------------
                $  (6,208) $   1,398  $ 126,339
    --------------------------------------------
    --------------------------------------------

    10. Income Taxes and Future Income Tax Liability

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

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

    In June 2007, a Bill was enacted for the taxation of publicly traded
    trusts, including income trusts (the "Bill"). The Bill applies to
    publicly traded trusts which existed prior to November 1, 2006 starting
    with taxation years ending in 2011, except for those existing trusts that
    qualify for the real estate investment trust ("Qualifying REIT")
    exception included in the legislation. There are certain circumstances
    where an existing trust may lose its relief in the interim periods to
    2011 where it undergoes "undue expansion".

    Pursuant to the legislation, a REIT which carries on Canadian hotel
    operations (including through subsidiaries) will not be a Qualifying
    REIT. As a result, InnVest will be subject to tax starting January 1,
    2011 and has recognized a future income tax liability, in the second
    quarter, of $122,626 mainly resulting from temporary differences on hotel
    properties and licence contracts which are expected to reverse subsequent
    to January 1, 2011. For the six months ended June 30, 2007, InnVest's
    future income tax liability has increased by $7,090 mainly due to the
    difference between the reduction of the future income tax liability
    regarding the reorganization completed on January 2, 2007, and the
    increase in the future income tax liability related to the enactment of
    the Bill. As well, the Bill may adversely affect the level of cash
    distribution to unitholders commencing in 2011 if InnVest does not become
    a Qualifying REIT by then.

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

    11. Commitments

    During the first quarter of 2007, InnVest entered into a contract to
    purchase three hotels with a total of 349 rooms for a combined purchase
    price of $48,300 plus transaction costs. The transaction to acquire these
    new build hotel properties will close in stages as the construction of
    each hotel is completed which is scheduled during the third quarter. The
    hotels include a 117 room Staybridge Suites located in London, Ontario, a
    116 room Staybridge Suites located in Guelph, Ontario and a 116 room
    Holiday Inn Express located in North Bay, Ontario. (See note 21)

    12. Unitholders' Equity

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

                                                          Units       Amount
    -------------------------------------------------------------------------
    Balance as at December 31, 2005                  47,961,163  $   464,164
    Units issued under distribution reinvestment
     plan                                               150,366        1,788
    Units issued on conversion of debentures          6,250,412       68,988
    Units issued on redemption of debentures            392,307        4,719
    Units issued for vested executive compensation       12,218          152
    Units issued under trustee compensation plan          4,178           53
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Balance at June 30, 2006                         54,770,644  $   539,864
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    Trustee Compensation Plan

    The members of the Board of Trustees receive 50% of their annual retainer
    in units (based on the then current market price of the units). The REIT
    has set aside 100,000 units in reserve for this purpose. The balance in
    this reserve account at June 30, 2007 is 52,428 units. Under the Trustee
    Compensation Plan, 1,650 units were issued during the six months ended
    June 30, 2007 (June 30, 2006 - 4,178 units).

    Executive Compensation Plan

    The senior executives participate in the executive compensation plan
    under which units are granted by the Board of Trustees from time to time.
    The REIT has reserved a maximum of 1,000,000 units for issuance under the
    plan. The balance in this reserve account at June 30, 2007 is 852,067
    units. A unit granted through the plan entitles the holder to receive, on
    the vesting date, the then current fair market value of the unit plus the
    value of the cash distributions that would have been paid on the unit if
    it had been issued on the date of grant assuming the reinvestment of the
    distribution into REIT units. The payment will be satisfied through the
    issuance of units.

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

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

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

    Distribution Reinvestment Plan ("DRIP")

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

    13. Per Unit Information

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

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


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

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

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

    14. Distributions to Unitholders

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

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

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


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


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

    15. Management Agreements

    On July 26, 2002, the REIT entered into a Management Agreement for hotel
    management and accounting services and an Administrative Services
    Agreement (the "Agreements") with Westmont Hospitality Canada Limited
    ("Westmont"). Westmont manages all but four of the REIT's hotels. The
    total management fees paid to other parties for the three and six months
    ended June 30, 2007 are $408 and $694 respectively (three and six months
    ended June 30, 2006 - $63).

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

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

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

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

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

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

    16. Segmented Financial Information

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

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

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

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

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

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

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

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

    17. Total Revenues

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

    18. Other Business Income

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

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

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

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

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

    19. Assets Held for Sale and Discontinued Operations

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

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

    Discontinued operations for the three and six months ended June 30, 2007
    and 2006 are as follows:

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

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


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

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

    20. Comparative Information

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

    21. Subsequent Events

    London Staybridge Acquisition

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

    Take-over Bid and Offering

    On July 12, 2007 InnVest, in partnership with Cadbridge Investors LP
    ("Cadbridge"), a joint venture entity between affiliates of Cadim, a
    division of the Caisse de Dépôt et Placement du Québec and an affiliate
    of InnVest's hotel manager, announced a take-over bid for all of the
    outstanding units of Legacy Hotels Real Estate Investment Trust
    ("Legacy") at a price of $12.60 per unit. The take-over bid will be
    effected by LGY Acquisition LP, a newly-formed limited partnership, owned
    by InnVest and Cadbridge in which InnVest has an approximate 26%
    interest. Upon the successful completion of the acquisition of 100% of
    Legacy's outstanding units, InnVest and Cadbridge will reorganize
    Legacy's assets such that InnVest will become the owner of the following
    eleven first class hotels: The Fairmont Palliser, Sheraton Suites Calgary
    Eau Claire, Delta Calgary Airport, Fairmont Hotel Macdonald, Delta
    Winnipeg Hotel, Delta Ottawa Hotel and Suites, Delta Centre-Ville, Delta
    Beauséjour, Delta Prince Edward, Delta Barrington and the Delta Halifax
    (collectively the "Portfolio"). This reorganization is expected to be
    completed within 30 days of LGY Acquisition LP acquiring 100% of Legacy's
    outstanding units and, until such time, InnVest will remain an
    approximate 26% owner in LGY Acquisition LP.

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

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

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

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

    %SEDAR: 00018005E




For further information:

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

Organization Profile

InnVest Real Estate Investment Trust

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