Argenta Silver Corp. — Audit Report / Information 2024

Apr 30, 2025

R&R Real Estate Investment Trust

Consolidated Financial Statements

(in US dollars)

For the years ended December 31, 2024 and 2023

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R&R Real Estate Investment Trust

Index to Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

	Page
Independent Auditor’s Report	1-4
Consolidated Statements of Financial Position	5
Consolidated Statements of Loss and Comprehensive Loss	6
Consolidated Statements of Changes in Unitholders’ Equity	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial statements	9-29

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Independent Auditor's Report

MNP

To the Unitholders of R&R Real Estate Investment Trust:

Opinion

We have audited the consolidated financial statements of R&R Real Estate Investment Trust (the "REIT"), which comprise the consolidated statements of financial position as at December 31, 2024 and December 31, 2023, and the consolidated statements of loss and comprehensive loss, changes in unitholders' equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of material accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the REIT as at December 31, 2024 and December 31, 2023, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with IFRS® Accounting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the REIT in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Impairment and Reversal of Impairment Assessment

Key Audit Matter Description

The REIT performs testing for impairment and reversal of impairment on an annual basis, or whenever events or change in circumstances indicate that the carrying value of a cash generating unit ("CGU") might exceed its recoverable amount. The Company defines each hotel property to be an individual Cash Generating Unit ("CGU"). Each CGU is assessed by management for triggering events that may indicate events of impairment, or a reversal of impairment, at each reporting date. The assessment is determined by estimating the recoverable amount of each CGU at the reporting date. The recoverable amount of the CGU is the greater of its value in use ("VIU") or its fair value less cost of disposal. For the year ended December 31, 2024, the Company recorded a net impairment of $3.6 million with respect to hotel properties.

MNP S.E.N.C.R.L., s.r.l./LLP

1155, boulevard René-Lévesque Ouest, 23e étage, Montréal (Québec) H3B 2K2

1.888.861.9724 Tél. : 514.861.9724 Téléc. : 514.861.9446

MNP.ca

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The impairment for hotel properties is a key audit matter as estimation of the recoverable amount for each CGU involves a significant degree of management judgement in determining key assumptions, including discount rates, terminal capitalization rates, and future operating cash flows which include average daily rates, occupancy rates, growth rates and projected net operating income. Valuation techniques for real estate can be subjective in nature and involve various assumptions, both external and internal. Management considers both qualitative and quantitative factors when performing the assessment. As such, the assessment of management's estimates involves a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence.

Note 2 of the consolidated financial statements describes the Company's accounting policy for impairment of long-lived assets.

Note 5 of the consolidated financial statements details the Company's disclosure of hotel properties and associated impairments and reversal of impairments and significant assumptions.

Audit Response

We responded to this matter by performing procedures in relation to the impairment and reversal of impairment assessment. Our audit work in relation to this included, but was not restricted to, the following:

• We assessed the reasonableness of management's estimation process through:
• Assessing management's qualifications for determining valuation of hotel properties; and,

• Gaining an understanding of management's valuation process and key assumptions used in the impairment model.

• We evaluated the key assumptions in management's impairment model, including future operating cash flows, average daily rates, expected occupancy rates, discount rates, terminal cap rates, projected growth rates, and projected net operating income.

• We examined management's estimate of the expected future discounted cashflows of each CGU for the next 5 years.

• We examined management's estimate of the fair value less cost of disposal.

• We engaged an independent valuation specialist with specific knowledge and experience in the industry to assist with:

• Verifying that management's fair value methodology is in compliance with the requirements of IFRS 13 Fair Value Measurement; and

• Evaluating the reasonability of the discount rate and capitalization rate used in the impairment analysis based on industry data and other benchmarks.

• We assessed the appropriateness of the disclosures relating to the assumptions used in the impairment assessment in the notes to the consolidated financial statements.

Other Information

Management is responsible for the other information. The other information comprises Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated. We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

MNP

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Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS® Accounting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the REIT's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the REIT or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the REIT's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the REIT's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the REIT's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the REIT to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the REIT as a basis for forming an opinion on the consolidated financial statements. We are responsible for the direction, supervision and review of the audit work performed for the purposes of the group audit. We remain solely responsible for our audit opinion.

MNP

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We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Jo-Ann Lempert.

Montréal, Québec
April 29, 2025

MNP LLP

By FCPA auditor, public accountancy permit no. A122514
MNP

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5

R&R Real Estate Investment Trust
Consolidated Statements of Financial Position
(in US dollars)

	December 31, 2024	December 31, 2023
Assets
Current assets
Cash	$ 14,481,149	$ 10,440,231
Accounts receivable, net of allowance for expected credit losses (Note 8)	419,143	282,190
Income taxes receivable	521,144	790,709
Prepaid expenses	883,884	847,623
Assets held for sale (Note 3)	4,016,765	5,138,039
	20,322,085	17,498,792
Non-current assets
Restricted cash (Note 4)	3,213,161	5,748,739
Deferred income taxes (Note 2)	1,429,650	664,868
Properties, buildings and equipment (Note 5)	76,601,936	86,213,922
	$ 101,566,832	$ 110,126,321
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Notes 13 and 14)	$ 3,234,738	$ 3,143,550
Deferred revenue	176,858	271,683
Current portion of mortgages payable (Note 10)	1,302,063	13,464,218
Liabilities held for sale (Note 3)	6,324,895	6,270,527
Exchangeable units (Notes 6 and 8)	32,361,608	19,456,173
	43,400,162	42,606,151
Non-current liabilities
Lease liability (Note 9)	3,004,215	2,976,880
Mortgages payable (Note 10)	50,563,308	43,675,317
	96,967,685	89,258,348
Unitholders' equity (Note 11)	4,599,147	20,867,973
	$ 101,566,832	$ 110,126,321

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

On behalf of the Board of Trustees

(signed) "Graham Blyth"

(signed) "Geoffrey Morphy"

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R&R Real Estate Investment Trust
Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income
(in US dollars)

	Year Ended December 31, 2024	Year Ended December 31, 2023
Revenues
Room	$ 31,539,355	$ 33,765,759
Other	688,602	865,156
	32,227,957	34,630,915
Operating costs and expenses
Operating	(12,215,442)	(11,918,332)
Energy	(2,841,165)	(2,796,637)
Property maintenance	(2,796,492)	(2,464,648)
Management and service fees (Note 14)	(3,963,720)	(4,173,071)
Property taxes and insurance	(2,121,936)	(1,980,872)
	(23,938,755)	(23,333,560)
Hotel operating income	8,289,202	11,297,355
Other expenses
Corporate and administrative	(611,435)	(564,328)
Interest expense, net (Notes 9, 10 and 15)	(3,545,749)	(3,683,083)
Depreciation (Note 5)	(4,371,939)	(4,916,264)
Unrealized loss on liabilities presented at fair value (Notes 6 and 8)	(12,905,435)	(1,362,593)
Unrealized foreign exchange loss	(32,547)	(168)
Impairment, net (Notes 3 and 5)	(3,623,708)	(1,232,415)
Gain on disposal of properties, buildings and equipment (Note 5)	602,867	-
	(24,487,946)	(11,758,851)
Loss before income taxes	(16,198,744)	(461,496)
Current income taxes (Note 16)	(18,864)	-
Deferred income taxes (Notes 2 and 16)	764,782	-
	745,918	-
Net loss and comprehensive loss	$ (15,452,826)	$ (461,496)
Loss per unit
Basic	$ (0.388)	$ (0.012)
Diluted	$ -	$ -
Weighted average number of units outstanding
Basic	39,824,167	38,656,820
Diluted	284,895,024	283,727,677

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

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R&R Real Estate Investment Trust
Consolidated Statements of Changes in Unitholders' Equity
(in US dollars)

	Number of units	Amount	Contributed Surplus	Retained earnings	Total
Balance, January 1, 2024	38,702,118	$ 4,585,368	$ 15,852,334	$ 430,271	$ 20,867,973
Units issued (Note 11)	1,255,867	83,943	3,557	-	87,500
Distribution (Note 11)	-	-	-	(903,500)	(903,500)
Net loss and comprehensive loss	-	-	-	(15,452,826)	(15,452,826)
Balance, December 31, 2024	39,957,985	$ 4,669,311	$ 15,855,891	$ (15,926,055)	$ 4,599,147
	Number of units	Amount	Contributed Surplus	Retained Earnings	Total
---	---	---	---	---	---
Balance, January 1, 2023	37,324,318	$ 4,497,484	$ 15,848,793	$ 891,767	$ 21,238,044
Units issued (Note 11)	1,377,800	87,884	3,541	-	91,425
Net loss and comprehensive loss	-	-	-	(461,496)	(461,496)
Balance, December 31, 2023	38,702,118	$ 4,585,368	$ 15,852,334	$ 430,271	$ 20,867,973

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

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R&R Real Estate Investment Trust
Consolidated Statements of Cash Flows
(in US dollars)

| | Year Ended
December 31, 2024 | Year Ended
December 31, 2023 |
| --- | --- | --- |
| Cash provided by (used in) | | |
| Operating activities | | |
| Net loss and comprehensive loss | $ (15,452,826) | $ (461,496) |
| Adjustments for items not involving cash: | | |
| Unrealized foreign exchange loss | 32,547 | 168 |
| Depreciation (Note 5) | 4,371,939 | 4,698,357 |
| Depreciation related to assets held for sale (Note 5) | - | 217,907 |
| Amortization of deferred financing costs (Notes 10 and 15) | 28,222 | 79,583 |
| Amortization of deferred financing costs related to assets held for sale (Note 15) | 101,130 | 50,565 |
| Impairment, net (Note 5) | 2,041,522 | 1,232,415 |
| Impairment related to assets held for sale (Note 3) | 1,582,186 | - |
| Gain on disposal of properties, buildings and equipment (Note 4) | (602,867) | - |
| Securities-based compensation expense | 115,500 | 75,000 |
| Net changes in non-cash working capital (Note 12) | 11,329,202 | 684,745 |
| Net changes in non-cash working capital related to assets held for sale | 7,650 | 20,179 |
| | 3,554,205 | 6,597,423 |
| Investing activities | | |
| Restricted cash (Note 4) | 2,535,578 | (1,534,229) |
| Additions to properties, buildings and equipment (Note 5) | (1,771,635) | (2,886,224) |
| Additions to properties, buildings and equipment related to assets held for sale (Note 5) | (457,934) | (188,775) |
| Net proceeds on disposal of property, building and equipment | 5,573,027 | - |
| | 5,879,036 | (4,609,228) |
| Financing activities | | |
| Repayment of mortgage payable (Note 10) | (11,770,700) | - |
| Proceeds from mortgage payable (Note 10) | 8,500,000 | - |
| Principal repayments on mortgages payable (Note 10) | (1,705,746) | (1,893,186) |
| Principal repayments on mortgages payable related to liabilities held for sale | (57,390) | (5,129) |
| Deferred financing costs | (325,940) | - |
| | (5,359,776) | (1,898,315) |
| Increase in cash during the year | 4,073,465 | 89,880 |
| Effect of exchange rate changes on cash | (32,547) | (168) |
| Cash, beginning of year | 10,440,231 | 10,350,519 |
| Cash, end of year | $ 14,481,149 | $ 10,440,231 |

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

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

1. ORGANIZATION

R&R Real Estate Investment Trust (the "REIT") is the successor to WestCap Investments Corp. (the "Corporation") following the conversion of the Corporation to a real estate investment trust. The Corporation was incorporated under the Business Corporations Act (Ontario) on October 15, 2013 and was classified as a Capital Pool Company ("CPC") as defined by the TSX Venture Exchange Inc. (the "Exchange"). On August 15, 2014, shareholders of the Corporation voted to approve a plan of arrangement (the "Arrangement") providing for the conversion of the Corporation into the REIT. The Arrangement became effective August 25, 2014. Further details of the Arrangement are contained in the information circular dated July 18, 2014 which can be found at www.sedarplus.ca.

The REIT is an unincorporated, open-ended real estate investment trust established pursuant to the Declaration of Trust ("DOT") dated July 16, 2014, and is governed by the laws of the province of Ontario.

Units of the REIT trade on Tier 1 of the Exchange under the symbol RRR.UN.

The head office, principal address and records office of the REIT is located at 5090 Explorer Drive, Suite 500, Mississauga, Ontario, L4W 4T9.

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES

Statement of compliance

These consolidated financial statements for the years ended December 31, 2024 and 2023 have been prepared in accordance with IFRS® Accounting Standards as issued by the International Accounting Standards Board ("IASB").

These consolidated financial statements were authorized for issue by the Board of Trustees of the REIT on April 29, 2025.

Principles of consolidation

The consolidated financial statements include the accounts of the REIT and its subsidiaries. Subsidiaries are all entities over which the REIT has control. Control is achieved when the REIT is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated from the date on which control is transferred to the REIT. They are deconsolidated from the date that control ceases.

Intra-group transactions and balances are eliminated in preparing the consolidated financial statements. The consolidated financial statements reflect the financial position, results of operations and cash flows of the REIT and its subsidiaries.

The REIT consolidates the subsidiaries it controls directly or indirectly.

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED)

Functional and presentation currency

The functional and presentation currency of the REIT and its subsidiaries is United States dollars.

The REIT translates monetary assets and liabilities at the rate of exchange in effect at the reporting date and non-monetary assets and liabilities at historical exchange rates. Revenues and expenses are translated at average rates in the month they occur. Gains and losses on translation are recorded in the consolidated statements of loss and comprehensive loss.

Significant accounting judgments, estimates and assumptions

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amount of expenses during the period. Actual results may differ materially from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

The estimates and judgments used in determining the recorded amount for assets, liabilities and equity in the consolidated financial statements include the following:

i. Business combinations

Business combinations are accounted for using the acquisition method. The consideration for an acquisition is measured at the aggregate of the fair values of assets transferred, liabilities incurred or assumed. The identifiable assets, liabilities and contingent liabilities acquired are recognized at their fair values at the acquisition date. The REIT obtains third-party valuations to support management's determination of the fair value of properties, buildings and equipment. IFRS 3, Business Combinations ("IFRS 3"), requires management to determine whether a hotel acquisition meets the definition of a business combination. Judgment is involved in determining if the acquiree constitutes a business and whether the REIT obtained control over the acquiree. IFRS 3 also requires management to determine whether a hotel acquisition is one of common control. Judgment is involved in determining if the acquiree is controlled by the same group of individuals before and after the acquisition.

ii. Impairment of long-lived assets

Management reviews long-lived assets on a quarterly basis for impairment triggers to determine if events or changes in circumstances exist that would indicate that the carrying amount of an asset may not be recoverable over time. Impairment assessments are conducted at the level of a cash generating unit ("CGU"), with an individual hotel representing a CGU.

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED)

Significant accounting judgments, estimates and assumptions (continued)

ii. Impairment of long-lived assets (continued)

If the carrying value exceeds the estimated recoverable amount, the asset is written-down to its recoverable amount. The recoverable amount is the greater of (i) fair value less costs of disposal and (ii) value-in-use. Value-in-use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairments are reversed if there has been an improvement in the condition that caused the impairment which would result in the recoverable amount exceeding the carrying value.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment had been recognized.

Impairment testing of hotel properties requires management to assess the property's ability to recover its book value through the normal course of operations and evaluate the value-in-use of the property. Significant assumptions are used in the assessment of fair value and impairment including estimates of future operating cash flows, the time period over which they will occur, an appropriate discount rate, appropriate growth rates (revenues and costs) and changes in market valuation parameters. Management considers various factors in its assessment including the historical performance of hotel properties, expected trends in each specific market including new or expected new hotel supply as well as local and macroeconomic conditions.

Financial instruments

i. Classification and measurement

Financial assets are classified and measured based on three categories: amortized cost, fair value through other comprehensive income ("FVOCI"), and fair value through profit and loss ("FVTPL"). Financial liabilities are classified and measured on two categories: amortized cost or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition, unless the REIT identifies changes in its business model in managing financial assets and would reassess the classification of financial assets.

All financial liabilities are measured subsequently at amortized cost using the effective interest method or at FVTPL.

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED)

Financial instruments (continued)

i. Classification and measurement (continued)

The REIT has classified its financial instruments as follows:

Financial instrument	Classification under IFRS 9
Cash	Amortized cost
Restricted cash	Amortized cost
Accounts receivable	Amortized cost
Accounts payable and accrued liabilities	Amortized cost
Exchangeable units	Fair value
Lease and other liabilities	Amortized cost
Mortgages payable	Amortized cost

The REIT determines the fair value measurement based on the following hierarchy:

• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
• Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
• Level 3 – Inputs that are not based on observable market data.

ii. Impairment

An allowance for expected credit losses (“ECL”) is recognized at each reporting date for all financial assets measured at amortized cost or those measured at fair value through other comprehensive loss, except for investments in equity instruments. The ECL model requires considerable judgment, including consideration of how changes in economic factors affect ECLs, which are determined on a probability-weighted basis.

Impairment losses, if incurred, would be recorded as expenses in the consolidated statements of loss and comprehensive loss with the carrying amount of the financial assets or group of financial assets reduced through the use of impairment allowance accounts. In periods subsequent to the impairment where the impairment loss has decreased, and such decrease can be related objectively to conditions and changes in factors occurring after the impairment was initially recognized, the previously recognized impairment loss would be reversed through the consolidated statements of loss and comprehensive loss.

The impairment reversal would be limited to the lesser of the decrease in impairment or the extent that the carrying amount of the financial assets at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized, after the reversal.

12

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED)

Fair value measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Management uses valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. This involves developing estimates and assumptions consistent with how market participants would price the instrument. Management bases its assumptions on observable data as far as possible but this is not always available. In that case management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date.

Cash and cash equivalents

The REIT considers all liquid investments with original terms to maturity of three months or less when acquired to be cash equivalents. Cash consists of cash on hand and cash held in bank accounts.

Restricted cash

Restricted cash consists of cash reserves on deposit with lenders primarily in respect of future capital expenditures, cash collateral, property taxes and insurance premiums.

Accounts receivable

Accounts receivable are measured at cost less any allowance for expected credit loss. The allowance for expected credit loss reflects expected credit losses and is based on management's assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is deterioration in a major customer's creditworthiness or if actual and expected defaults are higher than the historical experience, management's estimates of the recoverability of amounts due to the REIT could be adversely affected.

Prepaid expenses

Prepaid expenses consist of payments made for goods and services to be received in the near future, are initially recorded as assets, and are expensed over the period of benefit.

Properties, buildings and equipment

Properties, buildings and equipment, consisting of land and land improvements, buildings and improvements, furniture, fixtures and equipment, and right-of-use land lease are stated at cost less accumulated depreciation. Hotel properties are reviewed periodically for impairment as described above under the section "Impairment of long-lived assets".

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED)

Depreciation

Depreciation is provided on a straight-line basis over the estimated useful life:

Land improvements	15 years
Buildings and improvements	5 to 39 years
Furniture, fixtures, and equipment	3 to 10 years
Right-of-use land lease	Lease term

Borrowing costs

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least twelve months after the period end date. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset, or assets that take a substantial period of time to prepare for their intended use or sale are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in the consolidated statements of loss and comprehensive loss in the period in which they are incurred.

Assets held for sale

Assets held for sale are presented in current assets at the lower of their carrying amount and fair value less the costs to sell. Assets are not depreciated from the time when they are classified as "held for sale". The liabilities related to these assets are reclassified to current liabilities once the assets are classified as held for sale. A held-for-sale asset is a non-current asset that is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable. For the sale to be highly probable management must be committed to a plan to sell the asset and an active effort to locate a buyer and complete the plan must have been initiated. Further, the asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to be consummated within one year from the date of classification as held-for-sale.

Unit equity

The REIT is an open-ended real estate investment trust, and units of the REIT are redeemable (puttable) at the option of the REIT's unitholders. IAS 32 requires puttable instruments to be accounted for as financial liabilities, except where certain conditions as detailed in IAS 32 are met. This exemption is known as the Puttable Instrument Exemption.

14

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED)

Unit equity (continued)

The units of the REIT meet the Puttable Instrument Exemption criteria and, accordingly, are classified and presented as equity in the consolidated statements of financial position. In addition to the REIT units, exchangeable units were issued. These units do not qualify for the Puttable Instrument Exemption, and are classified as liabilities in the consolidated statements of financial position. They are re-measured at each reporting date at their fair value and are included in 'Unrealized loss on liabilities presented at fair value' in the consolidated statements of loss and comprehensive loss.

Long-term incentive plan

The REIT has adopted a long-term incentive plan which provides for the grant of deferred units ("DU" or "Deferred Units") and restricted units ("RU" or "Restricted Units") of the REIT to directors, employees, trustees and consultants of the REIT and its subsidiaries. The DUs and RUs are considered to be financial liabilities in the consolidated statements of financial position because there is a contractual obligation for the REIT to deliver Units upon settlement of the RUs and DUs. As a result of this obligation, the RUs and DUs are exchangeable into a liability as the Units are a liability by definition in accordance with IAS 32 and the Puttable Instrument Exemption does not apply to IFRS 2 – Share-Based Payment ("IFRS 2"). In accordance with IAS 32, the long-term incentive plan is presented as a liability and is measured at fair value in the consolidated statements of financial position in accordance with IFRS 9 Financial Instruments. Fair market value is determined with reference to observable market price of the REIT's Units.

The compensation expense relating to the long-term incentive plan is recognized over the vesting period based on the fair value of the Units at the end of each reporting period. Once vested, the liability is remeasured at the end of each reporting period and at the date of settlement, with any fair value adjustment recognized in the consolidated statements of loss and comprehensive loss for the period.

Treasury units

Units that are reacquired (treasury units) are recognized at cost and deducted from equity. No gain or loss is recognized in loss and comprehensive loss on the purchase, sale, issue or cancellation of the Units. Any difference between the carrying amount and the consideration, if reissued, is recognized in share premium.

Revenue recognition

The REIT's performance obligation is to provide accommodation and other goods and services to guests. Room revenue is recognized on a daily basis based on an agreed upon daily rate after the guest has stayed at the hotel for a day, used its lodging facility and received related lodging services and amenities. Customer incentive discounts and cash rebates or refunds are also recognized as a reduction of revenue as incurred during the guest's stay. Other revenue primarily consists of parking income, in-room movie commissions, in-room safe commissions and vending income. Other revenue is recognized when the related services have been received by the guest, with discounts and cash rebates or refunds recognized as a reduction of revenue as incurred during the guest's stay. Management believes the credit risk with respect to trade receivables is limited because the significant majority of revenue is settled through cash receipts and credit card transactions, which are typically reimbursed within two to five days.

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED)

Current and deferred income taxes

The REIT currently qualifies as a “mutual fund trust” under the Income Tax Act (Canada). The REIT expects to distribute or designate all of its taxable income to unitholders and is entitled to deduct such distributions for income tax purposes. Accordingly, except for the REIT’s subsidiaries, no provision for income taxes payable is required.

The legislation relating to the federal income taxation of a Specified Investment Flow Through (“SIFT”) trust or partnership was enacted on September 22, 2007. Under the SIFT rules, certain distributions from a SIFT will not be deductible in computing the SIFT’s taxable income and the SIFT will be subject to tax on such distributions at a rate that is substantially equivalent to the general tax rate applicable to Canadian corporations. However, distributions paid by a SIFT as a return of capital should generally not be subject to tax. Under the SIFT rules, the taxation regime will not apply to a real estate investment trust that meets prescribed conditions relating to the nature of its assets and revenue. The REIT has reviewed the SIFT rules and has assessed their interpretation and application to the REIT’s assets and revenue.

While there are uncertainties in the interpretation and application of the SIFT rules, the REIT believes that it is not subject to the SIFT rules as it does not meet the definition of a SIFT trust and accordingly, no net current income tax expense or deferred income tax expense has been recorded in the consolidated statements of loss and comprehensive loss in respect of the REIT, except as described below.

Some of the subsidiaries are corporations. For these entities, the REIT follows the asset and liability method of accounting for income taxes. Income tax is recognized within net loss in the statements of comprehensive loss except to the extent it relates to items recognized in other comprehensive loss or equity, in which case the income tax is also recognized in equity. Current tax assets and liabilities are recognized at the amount expected to be paid or received from tax authorities using rates enacted or substantively enacted at the date of the statements of financial position.

Deferred tax assets and liabilities are recognized at the tax rates enacted or substantively enacted at the date of the statements of financial position for the years that an asset is expected to be realized or a liability is expected to be settled.

Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be generated and available for the asset to be utilized against. During the year, the REIT recognized deferred tax of $764,782 (December 31, 2023 – $nil).

Loss per unit

Basic loss per unit is calculated by dividing net loss and comprehensive loss for the period attributable to unit holders of the REIT by the weighted average number of units outstanding during the period. The weighted average number of units outstanding during the period takes into account the weighted average effect of changes in treasury units’ transactions during the period. The diluted weighted average number of units is calculated by applying the treasury method. The treasury method assumes that any proceeds on exercise of options and warrants are used to purchase units at the average market price during the period. Diluted loss per unit excludes the impact of the exercise of unit options and warrants if the exercise would be anti-dilutive.

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED)

Provisions

Provisions are recognized in the consolidated statements of financial position when the REIT has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic benefits will be required and a reliable estimate of the amount payable can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability.

Leases

In accordance with IFRS 16, the REIT assesses at inception of a contract whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The REIT recognizes a right-of-use asset and a lease liability at the lease commencement date.

At inception of a contract, the REIT assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The REIT recognizes a right-of-use asset and a lease liability at the lease commencement date.

Where a lease has two or more separate lease components, the REIT has accounted for each lease component within the contract as a lease separately from non-lease components of the contract. The non-lease components are accounted for by applying other applicable standards.

The right-of-use asset is initially measured at cost which comprises of the lease liability, lease payments made at or before the commencement date, initial indirect costs and asset retirement obligations, less any lease incentives. The right-of-use asset is subsequently measured at cost less accumulated depreciation and impairment losses, adjusted for any re-measurement of the lease liability. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the REIT is reasonably certain to exercise that option.

The lease liability is initially measured at the present value of the future lease payments discounted using the interest rate implicit in the lease or if that rate cannot be readily determined, the REIT's incremental borrowing rate. Generally, the REIT uses its incremental borrowing rate as the discount rate. Subsequently, the lease liability is measured at amortized cost using the effective interest method. It is re-measured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the REIT's estimate of the amount expected to be payable under a residual value guarantee, or if the REIT changes its assessment of whether it will exercise a purchase, extension or termination option.

The most significant effect of the new standard is the recognition of the initial present value of unavoidable future lease payments as right-of-use assets and lease liabilities on the consolidated statement of financial position, including those for most leases that would be currently accounted for as operating leases. Leases with durations of 12 months or less and leases for low-value assets may be exempted. The REIT did not take any exemptions, and has a land lease with a discount rate of $5.45\%$ (Note 9).

17

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED)

Material accounting policy information

(a) International Accounting Standards 1 ("IAS 1") – Presentation of Financial Statements

In January 2020 and October 2022, the IASB issued amendments to IAS 1 – Classification of Liabilities as Current or Non-Current to specify the requirements for the classification of liabilities as either current or non-current. The amendments clarified the following:

*Right to defer settlement – that if an entity's right to defer settlement is subject to compliance with future covenants, the entity has a right to defer settlement of the liability regardless of compliance with such covenants at the end of the reporting period.

*Expected deferrals – that the classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer the settlement of the liability for at least twelve months following the reporting period even if settlement occurs prior to the authorization of the issuance of the financial statements.

*Settlement by way of own instruments – that settlement by way of an entity's own equity instruments is considered settlement for classification purposes with the exception of a conversion option that itself is classified as an equity instrument.

The amendment also provided for additional disclosures surrounding non-current liabilities for which a right to defer settlement is subject to compliance with future covenants within twelve months. The amendment was adopted as of January 1, 2024 and applied retrospectively and thus $32,361,608 and $19,456,173 of exchangeable units have been re-classified on the consolidated statements of financial position as at December 31, 2024 and 2023 retrospectively from non current to current.

3. ASSETS HELD FOR SALE

The REIT classified one property to assets held for sale during the prior year, and another property during the current quarter on the consolidated statements of financial position. All assets and liabilities relating to these properties were classified to current assets and current liabilities and outlined in the table below:

	December 31, 2024	December 31, 2023
Prepaid expenses	$ 16,765	$ 13,787
Property, building and equipment	4,000,000	5,124,252
Current assets held for sale	$ 4,016,765	$ 5,138,039
Accounts payable and accrued liabilities	$ 37,234	$ 16,238
Deferred revenue	6,603	16,971
Mortgages payable	6,281,058	6,237,318
Current liabilities held for sale	$ 6,324,895	$ 6,270,527

Assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Once the property, building and equipment have been classified as held for sale, depreciation ceases.

The operation of this property is not presented as a discontinued operation on the consolidated statements of loss and comprehensive loss as it does not represent a separate major line of business.

During the year ended December 31, 2024, the REIT reported an impairment of $1,582,186 (December 31, 2023 - $nil).

18

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R&R Real Estate Investment Trust

Notes to Consolidated Financial Statements

December 31, 2024 (US dollars)

4. RESTRICTED CASH

	December 31, 2024	December 31, 2023
Furniture, fixture and equipment reserve ("FF&E Reserves")	$ 1,814,330	$ 1,788,821
Property tax and insurance reserve	486,789	513,405
Other reserves	912,042	3,446,513
Total	$ 3,213,161	$ 5,748,739

Certain related mortgages require the REIT to deposit reserves for FF&E Reserves, property taxes, insurance and cash management. These amounts are released to the REIT as the expenditures are incurred or paid directly to the service provider.

5. PROPERTIES, BUILDINGS AND EQUIPMENT

	Land and improvements	Buildings and improvements	Furniture, fixtures and equipment	Right-of-use - land lease	Total
Cost
Opening balance at January 1, 2024	$ 18,200,613	$ 76,115,499	$ 11,639,590	$ 3,665,307	$ 109,621,009
Additions	91,959	981,222	698,454	-	1,771,635
Impairment	(274,604)	(1,569,906)	(197,012)	-	(2,041,522)
Disposal	(1,177,508)	(4,282,871)	(774,803)	-	(6,235,182)
Closing balance at December 31, 2024	16,840,460	71,243,944	11,366,229	3,665,307	103,115,940
Accumulated depreciation
Opening balance at January 1, 2024	666,203	13,300,687	9,101,020	339,177	23,407,087
Depreciation	186,553	2,467,463	1,633,175	84,748	4,371,939
Disposal	(91,828)	(633,829)	(539,365)	-	(1,265,022)
Closing balance	760,928	15,134,321	10,194,830	423,925	26,514,004
Carrying value at December 31, 2024	$ 16,079,532	$ 56,109,623	$ 1,171,399	$ 3,241,382	$ 76,601,936
	Land and improvements	Buildings and improvements	Furniture, fixtures and equipment	Right-of-use - land lease	Total
Cost
Opening balance at January 1, 2023	$ 19,261,867	$ 80,128,662	$ 11,903,288	$ 3,665,307	$ 114,959,124
Additions	156,442	1,586,315	1,332,242	-	3,074,999
Impairment	(221,879)	(866,093)	(144,443)	-	(1,232,415)
Held for sale (Note 3)	(995,817)	(4,733,385)	(1,451,497)	-	(7,180,699)
Closing balance at December 31, 2023	18,200,613	76,115,499	11,639,590	3,665,307	109,621,009
Accumulated depreciation
Opening balance at January 1, 2023	545,118	11,461,063	8,264,718	275,615	20,546,514
Depreciation	121,085	2,733,229	1,998,388	63,562	4,916,264
Held for sale (Note 3)	-	(893,605)	(1,162,086)	-	(2,055,691)
Closing balance	666,203	13,300,687	9,101,020	339,177	23,407,087
Carrying value at December 31, 2023	$ 17,534,410	$ 62,814,812	$ 2,538,570	$ 3,326,130	$ 86,213,922

The carrying amounts of the REIT's CGUs are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the CGU's recoverable amount is estimated. As at December 31, 2024, the recoverable amount for CGUs with an indicator of impairment was estimated based on updated cash flow projections based on known information, or reasonably could have been known. The cash flows were management's best projections based on current and anticipated market conditions covering the 5-year forecast period.

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

5. PROPERTIES, BUILDINGS AND EQUIPMENT (CONTINUED)

During the year ended December 31, 2024, the REIT reported further impairment on three properties of $2,041,522 (December 31, 2023 – impairment reversal on one property of $100,288, further impairment on two properties of $1,332,703 for a net impairment of $1,232,415). The impairment losses were reversed only to the extent that carrying amount did not exceed the amount that would have been determined net of depreciation, if no impairment had been recognized. The REIT estimated their recoverable amount as the value-in-use ("VIU") using a five year discounted cash flow analysis, and compared it to their carrying amount for each property to determine if an impairment charge or reversal was required (higher of VIU and fair value less costs of disposal ("FVLCD") compared to carrying amount). Significant assumptions used in the estimated value-in-use calculations included discount rates ranging from 8.0% to 12.0% (2023 – 10.0% to 12.0%), cap rates from 1.0% to 10.5% (2023 – 8.0% to 10.5%) and revenue growth rates from -5.1% to 11.9% (2023 – -4.0% to 3.3%).

If all other assumptions were held constant,

a) A 1% increase in the discount rate would increase the impairment by $496,726 (2023 – increase $471,349);
b) A 1% decrease in the discount rate would decrease the impairment by $522,872 (2023 – decrease $118,576);
c) A 1% increase in the cap rate would increase the impairment by $nil (2023 – increase $489,023); and
d) A 1% decrease in the cap rate would have decreased the impairment by $nil (2023 – decrease $118,576).

6. EXCHANGEABLE UNITS

Pursuant to the acquisition of a Red Roof Inn located in Maryland ("BWI") which was completed on August 25, 2014, 51,408,895 Class B LP units of USLP were issued to satisfy $8,480,000 of the $8,500,000 purchase price to Red Roof Inns, Inc. ("Red Roof"). Red Roof and the REIT do not act at arm's length, and are under common control.

On August 25, 2014, the 10,100,000 shares of the Corporation held by Westpac Industrial Properties Ltd. ("Westpac") were converted to exchangeable units of the REIT. These exchangeable units were converted to REIT units on August 10, 2016.

On October 3, 2017, 58,035,650 Class B LP units were issued as part of the consideration for the acquisition of the 2017 Acquisition Properties.

On August 1, 2018, 72,031,112 Class B LP units were issued as part of the consideration for the acquisition of the 2018 Acquisition Properties.

On September 25, 2019, 63,595,200 Class B LP units were issued as part of the consideration for the acquisition of the 2019 Acquisition Properties.

The Class B LP units are exchangeable, on a one-for-one basis, for REIT units at the option of the holder, and have economic and voting rights equivalent, in all material respects, to REIT units.

20

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

6. EXCHANGEABLE UNITS (CONTINUED)

	Exchangeable units		Amount
December 31, 2022	245,070,857	$	18,093,580
Unrealized loss	-		1,362,593
December 31, 2023	245,070,857		19,456,173
Unrealized loss	-		12,905,435
December 31, 2024	245,070,857	$	32,361,608

The unrealized loss of $12,905,435 for the year ended December 31, 2024 (2023 – $1,362,593 unrealized loss) was included in 'Unrealized loss on liabilities presented at fair value in the consolidated statements of loss and comprehensive loss.

7. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Capital management

The REIT manages its capital, which is defined as the aggregate of unitholders' equity and debt, under the terms of the DOT. The REIT's capital management objectives are to ensure compliance with debt and investment restrictions outlined in its DOT.

The REIT is not permitted to exceed certain financial leverage amounts under the terms of the DOT. The REIT is permitted to hold indebtedness up to a level of 75% of gross book value. Indebtedness is computed as of the last day of each financial period excluding any indebtedness under trade accounts payables, security deposits, distributions payable to unitholders and accrued liabilities arising in the ordinary course of business, and exchangeable units. Management's policy is not to exceed this leverage limit at any time during the year.

The REIT's indebtedness is comprised of mortgages payable and a capital lease obligation. As at December 31, 2024 total indebtedness to gross book value was 43.7% (December 31, 2023 – 46.4%).

The DOT also includes guidelines that limit capital expended to, among other items, the following:

(a) Direct and indirect investments in lodging facilities and other hospitality related properties, including without limitation vacant land, located outside of Canada;
(b) Not hold property that would be taxable Canadian property for purposes of the Income Tax Act (Canada);
(c) Not hold any non-portfolio property as defined in the Income Tax Act (Canada);
(d) Temporary investments held in cash, deposits with a Canadian chartered bank or trust company, short-term government debt securities or in money market instruments maturing within a year;
(e) Not invest in rights to or interest in mineral or other natural resources, including oil or gas, except as incidental to an investment in real property;
(f) Not invest in raw land for development except for existing properties or the development of new properties. The aggregate value of such investments shall not exceed 15% of the gross book value of the REIT calculated at the time of such investment;
(g) Investments in mortgages or mortgage bonds, where the related security is a first mortgage on income producing real property which otherwise complies with (a) above and is subject to certain leverage limits and debt service coverage. The aggregate value of such investments shall not exceed 15% of the gross book value of the REIT calculated at the time of such investment; and

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

7. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Capital management (continued)

(h) Invest in properties under development including raw land for development, development financing, mortgage financing and mezzanine financing, provided that the aggregate value of such investments shall not exceed 20% of the gross book value of the REIT.

The REIT was in compliance with these guidelines as at December 31, 2024.

8. FINANCIAL INSTRUMENTS

Risk management

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

(a) Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The REIT does not have cash equivalents and is therefore not exposed to the risk of changes in the fair value of the cash equivalents from interest rate fluctuations. Substantially all of the REIT's term loans as at December 31, 2024 have fixed interest rates.

(b) Credit risk

Credit risk relates to the possibility that hotel guests, either individual or corporate, do not pay the amounts owed to the REIT. The REIT mitigates this risk by limiting its exposure to customers allowed to pay by invoice after check out ("direct bill"). The REIT reviews accounts receivable regularly and the allowance for expected credit losses is adjusted for any balances which are determined by management to be uncollectable. This provision adjustment is expensed in operating expenses.

The following summarizes accounts receivable related balances:

	December 31, 2024	December 31, 2023
Accounts receivable, net	$ 419,143	$ 282,190
Allowance for expected credit losses	$ 35,548	$ 7,399
Accounts receivable greater than 90 days not provided for	$ 41,965	-
Allowance for doubtful accounts to total receivables	8.5%	2.6%
	Year Ended December 31, 2024	Year Ended December 31, 2023
Bad debts expense	235,582	190,947

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

8. FINANCIAL INSTRUMENTS (CONTINUED)

Risk management (continued)

(c) Liquidity risk

Liquidity risk is the risk that the REIT will not have the financial resources required to meet its financial obligations as they become due. The REIT manages this risk by ensuring it has sufficient cash on hand to meet obligations as they become due by forecasting cash flows from operations, cash required for investing activities and cash from financing activities. As at December 31, 2024, the REIT had cash of $14,481,149 (December 31, 2023 – $10,440,231), restricted cash of $3,213,161 (December 31, 2023 – $5,748,739) and current liabilities of $43,400,162 (December 31, 2023 – $42,606,151) which includes liabilities held for sale of $6,324,895 (December 31, 2023 – $6,270,527) (Note 3) and exchangeable units of $32,361,608 (December 31, 2023 – $19,456,173) which are not settled by cash.

(d) Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The REIT had $1,121,703 (December 31, 2023 – $328,033) Canadian dollars deposited with major Canadian banking institutions at December 31, 2024.

The REIT does not enter into arrangements to hedge its foreign exchange risk. A 1% change in the Canadian dollar exchange rate would not have a significant impact on the consolidated statements of loss and comprehensive loss.

Fair value

The fair values of the REIT's current financial assets and current financial liabilities approximate their recorded values at December 31, 2024 and December 31, 2023 due to their short-term nature. As at December 31, 2024 and December 31, 2023, the carrying value of other loans, excluding debt financing costs, approximated their fair value. The fair value of loans and borrowings was estimated based on discounted cash flows using discount rates that reflect current market conditions for instruments with similar terms and risks.

The fair value hierarchy of financial liabilities measured at fair value on the statements of financial position is as follows:

	December 31, 2024				December 31, 2023
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Financial Liabilities:
Exchangeable units (Note 6)	$ 32,361,608	$ -	$ -	$ 32,361,608	$ 19,456,173	$ -	$ -	$ 19,456,173
Total financial liabilities	$ 32,361,608	$ -	$ -	$ 32,361,608	$ 19,456,173	$ -	$ -	$ 19,456,173

There were no transfers between Level 1 and Level 2 fair value measurements during the period and year presented and no transfer into and out of Level 3. There were no financial instruments measured at Level 3 at any of the dates presented.

The unrealized loss of $12,905,435 for the year ended December 31, 2024 (2023 – $1,362,593 unrealized loss) was included in 'Unrealized loss on liabilities presented at fair value in the consolidated statements of loss and comprehensive loss.

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

9. LEASE LIABILITY

In September 2019, in connection with the acquisition of the 2019 Acquisition Properties, the REIT, through a subsidiary, assumed the land lease mortgage of $2,825,244 on one of the eight properties at a fixed rate of 5.45%. The land lease is payable in annual payments of $125,492 and increases over the term until maturity in December 2062.

The present value of the contractual payments at December 31, 2024 is $3,004,215 (December 31, 2023 – $2,976,880). The contractual payments to maturity on the land lease are as follows:

2025	$ 136,014
2026	140,264
2027	140,264
2028	153,015
2029	153,015
Thereafter	7,762,140
	$ 8,484,712

10. MORTGAGES PAYABLE

	December 31, 2024	December 31, 2023
Mortgages payable	$ 52,431,793	$ 57,408,239
Unamortized portion of deferred financing costs	(566,422)	(268,704)
	51,865,371	57,139,535
Current portion	(1,302,063)	(13,464,218)
	$ 50,563,308	$ 43,675,317

Substantially all of the REIT's assets have been pledged as security under various loan agreements. At December 31, 2024, the REIT's loans had a weighted average interest rate of 5.41% (December 31, 2023 – 4.81%), and a weighted average effective interest rate of 5.40% (December 31, 2023 – 4.94%).

In March 2017, the REIT, through a subsidiary, completed financing of the 2014 Acquisition Property, for $5,500,000 at a fixed interest rate of 5.45% for a 10-year term with a US financial institution. The mortgage is repayable in monthly payments of principal and interest totaling $33,611 until maturity in April 2027. At December 31, 2024, the effective interest rate was 5.97% (December 31, 2023 – 5.97%).

In August 2018, in connection with the acquisition of the 2018 Acquisition Properties, the REIT, through a subsidiary, assumed the mortgage of $20,500,000 at a fixed rate of 5.26%. The mortgage is repayable in monthly payments of interest until July 2020 and monthly payments of principal and interest totaling $122,906 on the remaining term of 10 years with a US financial institution. At December 31, 2024, the effective interest rate was 5.31% (December 31, 2023 – 5.31%).

In December 2018, the REIT, through a subsidiary, completed mortgage financing to replace the 2017 vendor takeback mortgage on two of the 2017 Acquisition Properties for $6,100,000 at a fixed rate of 5.14% with a US financial institution. The mortgage is repayable in monthly payments of principal and interest totaling $36,159 until maturity in December 2028. At December 31, 2024, the effective interest rate was 5.22% (December 31, 2023 – 5.22%).

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

10. MORTGAGES PAYABLE (CONTINUED)

In September 2019, in connection with the acquisition of the 2019 Acquisition Properties, the REIT, through subsidiaries, obtained mortgage loans of $37,180,000, which included $3,200,000 of proceeds for capital expenditures at a fixed rate of 4.34% with a US financial institution. The mortgage is repayable in monthly payments of principal and interest totaling $106,558 until maturity in October 2024 for four of the 2019 Acquisition Properties and $96,739 until maturity in October 2029 for the remaining four. In October 2024, the REIT, through a subsidiary, completed mortgage financing to replace the mortgage on one of the 2019 Acquisition Properties for $8,500,000 at a fixed rate of 6.40% with a US financial institution. The mortgage is interest only and is payable monthly until maturity in October 2029. At December 31, 2024, the effective interest rate was 4.46% (December 31, 2023 – 4.46%) for the mortgage maturing in October 2029, and the effective interest rate was 7.13% for the new mortgage maturing in October 2029.

In January 2021, the REIT, through a subsidiary, completed mortgage financing to replace the mortgage on two of the 2017 Acquisition Properties for $6,450,000 at the New York prime rate + 3.25% or 11.00% (December 31, 2023 – 11.75%). The mortgage is interest only for the first 6 months, and subsequently is repayable in monthly payments of principal and interest until maturity in January 2026. At December 31, 2024, the effective interest rate was 10.18% (December 31, 2023 – 10.19%).

Principal repayments to maturity on the mortgages are as follows:

2025	$ 1,302,062
2026	1,368,534
2027	5,488,882
2028	17,780,728
2029	22,090,681
Thereafter	4,400,906
	$ 52,431,793

11. UNITHOLDERS' EQUITY

The REIT is authorized to issue an unlimited number of REIT units and Special Voting Units. Each REIT unit entitles the holder to a single vote at any meeting of unitholders and entitles the holder to receive a pro-rata share of all distributions, and in the event of termination or winding-up of the REIT, in the net assets of the REIT remaining after satisfaction of all liabilities. The REIT units are redeemable at any time at the demand of the holders to receive a price per REIT unit as determined by the REIT's DOT. Among other conditions for redemption, the total amount payable by the REIT in respect of units surrendered for redemption shall not exceed $50,000 in any one calendar month.

The DOT provides for the issuance of Special Voting Units which have no economic entitlement in the REIT or in the distribution of assets of the REIT, but are used to provide voting rights proportionate to the votes of the units to holders of securities exchangeable into units, including Class B LP units.

On January 13, 2023, the REIT issued 802,680 REIT units at $0.07 ($0.10 Canadian dollars) to Trustees for $60,000 ($80,268 Canadian dollars) as payment for their 2022 annual retainers.

On January 13, 2023, the REIT issued 575,120 vested DU's at $0.05 ($0.07 Canadian dollars) to an officer for $27,884 ($37,383 Canadian dollars). The REIT recognized a contributed surplus of $3,541.

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

11. UNITHOLDERS' EQUITY (CONTINUED)

On February 9, 2024, the REIT issued 897,800 REIT units at $0.07 ($0.09 Canadian dollars) to Trustees for $60,000 ($80,804 Canadian dollars) as payment for their 2023 annual retainers.

On February 9, 2024, the REIT issued 358,067 vested DU's at $0.07 ($0.09 Canadian dollars) to an officer for $23,943 ($32,220 Canadian dollars). The REIT recognized a contributed surplus of $3,557.

The trustees, directors and officers of the REIT beneficially own, directly or indirectly, or have control over 235,675,014 (December 31, 2023 – 264,227,964) or 82.7% (December 31, 2023 – 93.1%) of the issued and outstanding units and exchangeable units of the REIT.

On December 31, 2024, the REIT declared a distribution of $903,500.

12. SUPPLEMENTARY CASH FLOW INFORMATION

	Year Ended December 31, 2024	Year Ended December 31, 2023
Accounts receivable	$ (136,953)	$ (31,641)
Income taxes receivable	269,565	(211,780)
Prepaid expenses	(36,261)	(220,417)
Accounts payable and accrued liabilities	(812,977)	(55,915)
Deferred revenue	(94,825)	(158,095)
Deferred income taxes	(764,782)	-
Exchangeable units	12,905,435	1,362,593
Changes in non-cash working capital	$ 11,329,202	$ 684,745

13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31, 2024	December 31, 2023
Accounts payable and accrued liabilities	$ 2,573,909	$ 2,531,493
Due to related parties (Note 14)	660,829	612,057
Total	$ 3,234,738	$ 3,143,550

14. RELATED PARTY DISCLOSURES

BWI and the 2019 Acquisition Properties have a property management agreement for hotel management, accounting and other services with R-West Management, LLC and the 2017 and 2018 Acquisition Properties have a similar agreement with a subsidiary of R-West Management, LLC, collectively "the Manager".

BWI and the 2017, 2018 and 2019 Acquisition Properties, collectively (the "Hotels") have a franchise agreement with Red Roof Franchising, LLC (the "Franchisor") which allows them to carry on business as a Red Roof Inn branded hotel.

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

14. RELATED PARTY DISCLOSURES (CONTINUED)

The Manager and the Franchisor are owned by the same company that owns Red Roof, which in turn operates the Hotels. A trustee has a direct or indirect controlling interest in Westpac, Red Roof, the Manager and the Franchisor and as such have a material interest in the agreements.

Services provided by the Manager include preparation of annual operating and capital budgets and marketing plans, accounting and financial reporting, supervision of sales and marketing, internal audit, human resource management, purchasing, management and supervision of construction and technical services, information technology, supervision of property repairs and maintenance, supervision of compliance with material contracts relating to the leasing, yield management and quality control.

The Manager is entitled to hotel management fees equal to 3.5% of revenues, fees based on a percentage of the cost of purchasing certain goods and supplies and certain construction costs and capital expenditures, fees for accounting and revenue management services, reasonable out-of-pocket costs and expenses and project management and general contractor service fees related to hotel renovations managed by the Manager. In addition, the Manager is entitled to an incentive fee up to 1.75% of the gross hotel revenue each year. Fees incurred to the Manager for the year ended December 31, 2024 totaled $1,587,082 (2023 – $1,689,936). Included in accounts payable and accrued liabilities was $352,640 owing at December 31, 2024 (December 31, 2023 – $410,409).

The Hotels also participate in various Red Roof agreements for vending, guest laundry, management, television programming and supplies. In the event Red Roof terminates these contracts without cause, there could be significant financial obligations due to the provider of these goods and services.

In accordance with the franchise agreements, the Hotels pay the Franchisor fees that increase over the term: royalty fees up to 3.5% of room revenue, a marketing fee up to 2.5% of room revenue and a reservations fee up to 1.5% of room revenue. In addition, the Hotels pay the Franchisor fees for information technology, revenue management and training services. Fees incurred to the Franchisor for the year ended December 31, 2024 totaled $2,376,638 (2023 – $2,483,135). Included in accounts payable and accrued liabilities was $308,189 owing at December 31, 2024 (December 31, 2023 – $201,648).

15. INTEREST EXPENSE, NET

	Year Ended December 31, 2024	Year Ended December 31, 2023
Interest expense	$ 3,675,073	$ 3,740,104
Interest income	(258,676)	(187,169)
Amortization of deferred financing costs (Note 10)	129,352	130,148
Total	$ 3,545,749	$ 3,683,083

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R&R Real Estate Investment Trust

Notes to Consolidated Financial Statements

December 31, 2024 (US dollars)

16. INCOME TAXES

During the year, the REIT recorded an income tax expense of $18,864 (December 31, 2023 – $nil). The REIT also recorded a deferred income tax recovery of $764,782 (December 31, 2023 – $nil). The overall income tax recovery is $745,918 (December 31, 2023 – $nil).

As of December 31, 2024, R&R LP has US federal NOL carryforwards of $582,559. These NOL can be carried forward indefinitely. However, utilization of these carryforwards is limited to 80% of the pre-NOL taxable income in any one year.

	NOL		Expire In
2020	$	526,082	Indefinitely
2021		56,477	Indefinitely
	$	582,559

As of December 31, 2024, the REIT has accumulated NOL for Canadian tax purposes of $3,403,709 (December 31, 2023 – $3,859,905), which will expire as follows,

	NOL	Expire In
2017	$ 679,968	2037
2018	499,094	2038
2019	1,434,389	2039
2020	189,683	2040
2021	61,579	2041
2022	330,596	2042
2023	208,400	2043
	$ 3,403,709

The changes in the deferred tax asset is as follows:

Balance, Beginning of Year	$ 664,868
Tax recovery recognized during the year	764,782
Balance, End of Year	$ 1,429,650

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R&R Real Estate Investment Trust
Notes to Consolidated Financial Statements
December 31, 2024 (US dollars)

16. INCOME TAXES (CONTINUED)

The significant components of the deferred tax assets are as follows:

Depreciable assets	$	827,635
Intangible assets		238,123
Interest		223,148
Right-of-use asset		(18,424)
Net Operating Losses - Carryforward Federal		157,291
Allowance for doubtful accounts/bad debts		1,877
	$	1,429,650

17. CONTINGENCIES

From time to time, in connection with its operations, the REIT and its subsidiaries are named as defendant in actions for damages and costs allegedly sustained by the plaintiffs. The REIT and its subsidiaries intend to vigorously defend such lawsuits. While it is not possible to estimate the outcome of the various proceedings at this time, such actions have generally been resolved with minimal damages or expense in excess of amounts covered by insurance. Settlements of claims and litigation matters, in excess of those provided, will be accounted for as current year transactions.

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