Imperial Equities : 2023 – First Quarter Report

1
st Quarter Report 2023
	Ending December 31, 2022

Table of Contents

President's Report																					01
Management's Discussion and Analysis								03
Responsibility of Management and the Board of Directors					04
Forward-looking Information											04
Additional Non-IFRS Measures										04
Business Overview																05
Strategic Direction																05
Key Performance Drivers												05
Key Performance Indicators										06
Investment Properties												07
Leasing Activities													08
Financing													12
Mortgage Maturities												13
Activity During the Period										14
Performance Results											14
Results of Operations and Cash Flows							15
Changes in Cash Flows										17
Changes in Financial Position									17
Summary of Consolidated Quarterly Results					18
Outstanding Share Data								20
Dividends								20
Related Party Transactions								20
Liquidity, Capital Resources, and Solvency					21
Critical Estimates of the Current Economic Environment and Outlook			22
Risks and Risk Management						22
Planned Expenditures						24
Critical Accounting Estimates and Changes in Accounting Policies			25
Measures not in Accordance with International Financial Reporting Standards			27
Disclosure Controls and Procedures		27
Off-balance Sheet Arrangements		27
Financial Statements		28

IMPERIAL EQUIITES INC. 2023 FIRST QUARTER REPORT

President's Report

1st Quarter

December 31, 2022

Report to Shareholders

Sometimes the best strategies for a new year involve matters of internal reflection rather than massive outbound efforts.

Our first quarter feels a bit like that, with internal growth and investment taking most of our focus. Our success, our profits and our first priority always involve ensuring that what we own is well cared for first. We start with the fundamentals and seek to maximize its worth.

We are long-term investors, focused on the essentials. It's a strategy that works for us. We remain at above 97% occupancy, have sufficient cash flows to internally finance significant property upgrades and still continue to maintain a healthy level of profit while maintaining dividends. In a world with unlimited uncertainty and distraction, we have built a sustainable, profitable business that continues to show its worth.

Our focus on getting the internals right was our goal in this Q1 2023. Major expenses in this Quarter were direct investments in the improvement of our property portfolio, over three properties in particular. In the case of two of our long-held properties, tenant turnover meant that we needed to invest in some upgrades to suit new tenants and to modernize an older asset. In another, we continue to manage a major expansion. In all cases, investments are aligned with secured tenants and assurance of return.

Our investment in two of our buildings was aligned with the situating of new tenants with new long-term leases. Our former "Derrick" site has been transitioned and the building together with the adjacent lands (also owned by Imperial Equities) are now fully occupied by Universal Rail, a national railway service company. We moved quickly after the departure of the previous tenant to remediate the site and building, and to seek out a potential tenant. Universal Rail assumed its occupancy during this Q1 2023.

The other major property we have upgraded and leased is our Core Distribution Building which we acquired almost 20 years ago. The 70,000 square foot single story building was occupied by NAIT since 1987 and this is the first time, we've had to market it. In this Q1, our new tenant, Big Box Outlet Store, began occupying approximately 75% of the building with ongoing discussions about leasing the balance. We have made some significant energy efficiency upgrades to the property, aligned with our growing ESG focus, and we provided a more modern, fresh look for this new distribution/retail focused tenant.

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We have also made significant progress on our Wajax expansion in Fort McMurray. During this Q1, Wajax was able to occupy Phase I, being an 8,000 square foot addition to our existing 25,000 square foot building. Phase II of the project is the construction of a new 25,200 square foot industrial building located adjacent to our existing building. Once completed, the 6-acre site will have 2 buildings totaling 58,200 square feet of class A industrial space. Construction of Phases I & II are being financed to date with existing cash flows, but upon completion, we intend to place new mortgage financing, aligned with an overall lease extension on the property. The completion of this project, scheduled for June 2023, will be a major achievement given significant cost and supply chain pressures - delivering on budget and without significant delays is a major accomplishment.

We are mindful that conventional financing now means contemplating absorbing markedly higher costs. After eight consecutive interest rate increases, the Bank of Canada has suggested it will take a brief pause to assess whether it is achieving its goals against inflation. But there is no indication that we have seen the last of increases, or that any reversal of policy will be possible. From this vantage point, mortgage rates have increased significantly over the last 12 months, and we are now looking at financing costs that are 200 to 400 basis points higher than we've experienced over the past 60 months.

For our Company, interest rate increases represent a significant increase in cost, but our strategy has always been to look first to conventional fixed rate fixed term financing. We continue to enjoy strong relationships with all our financial partners, and while we have to adjust to a higher cost environment, we face no other constraints in terms of access to capital. Still, there is a need to ensure that any financing we do secure is able to absorb the costs without significant impact to our long- term investment returns. All acquisitions are now assessed in this environment.

In addition, significant property tax increases in the Edmonton market further add to our cost structure and make us a little more cautious about investments within our primary market. We hold a significant amount of property in Edmonton and may seek opportunities to divest from select properties in this market, and on an investment focus that is more geographically diverse overall. This consideration, along with ensuring the continued emphasis on strong performance of our existing portfolio, will continue to underpin our overall strategy.

Our other main performance barometer is in ensuring that strong performance and profitability means we are consistent in our dividend strategy. We again issued dividends to shareholders at the increased rate of $0.02 per share now for four consecutive quarters including Q1 2023, issued on January 31, 2023.

Our Company continues to achieve consistent performance and our foundation is secure. Given this, there is lots to consider as we plan our next moves, and I am looking forward to having the chance to engage with our shareholders and partners about our results and our future plans during our AGM on March 16, 2023. This year, we will again be meeting through a virtual, Zoom platform, and I encourage all shareholders to take part.

Sincerely,

Sine Chadi

President & CEO

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MANAGEMENT'S DISCUSSION & ANALYSIS

for the first quarter ending December 31, 2022

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