Imperial Equities : 2024 – Second Quarter Report

2nd Quarter Report 2024

Three and Six Months Ending March 31, 2024

IMPERIAL EQUITIES INC. SECOND QUARTER REPORT 2024

Table of Contents

President's Report													01
Management's Discussion and Analysis							04
Management's Discussion and Analysis as at May 15, 2024				05
Forward-Looking Information						05
Our Business									06
Financial Performance							11
Summary of Consolidated Quarterly Results			19
Liquidity and Capital Resources			20
Related Party Transactions			21
Planned Expenditures			23
Changes in Accounting Policies and Critical Accounting Estimates		23
Other		24
Non-IFRS Financial Measures		25
Financial Statements			27

IMPERIAL EQUITIES INC. SECOND QUARTER REPORT 2024

01

President's

Report

for the second quarter ending March 31, 2024

IMPERIAL EQUITIES INC. SECOND QUARTER REPORT 2024

02

President's Report

Second Quarter

March 31, 2024

We understand our industry as one that accrues value over time. Our focus is on careful investments, diligent stewardship, and strong relationships with tenants and partners who can rely on the promises we make and product we deliver.

We have never been a Company that focuses on quick wins and have rarely acquired property for a 'quick flip'. Instead, we evaluate each property for what it can add to our Company over time, and overall. These principles govern how we approach our work, including our constant focus on improving what we have. We do this because we want it to continue to perform for us for the long-term and we want our tenants to see us as a key partner in their success, and potentially part of their own growth stories. This focus has remained consistent throughout our 26 years of operations, resulting in steady performance, growth and continued confidence in our ability to sustain for the long term.

Our quarterly reports offer a regular opportunity to check- in on how well we are meeting our goals as a Company. And this Q2, as we report on some strategic divestitures and revaluations, it's important to check whether our decisions are aligned with our stated goals and keep us focused on our overall goal of sustainable growth.

We have always said we will consider opportunities to divest when the time is right, when we have maximized our potential return, or where the potential to do so is no longer evident. As of the end of this Q2, three properties are listed as held for sale with all three transactions scheduled to close subsequent to this Q2. The most significant of these is a property which we originally built for a single tenant in

2008. This property became vacant in 2023, after 15 years of continuous occupancy. This 58,393 square foot single tenant industrial building sits on a total of 7.66 acres and has been maintained in top condition and is designed and best suited for a single occupant. A single occupant did want the property, but as an owner, which is something we were ready to accept. Conditions on this transaction were waived subsequent to this Q2 and closing will take place in early Q3.

The other two properties held for sale at the end of this quarter include a 0.91 acre raw parcel of land in Edmonton with gross proceeds of $820,000, and a 12.9 acre raw parcel of land in Strathcona County, Alberta for gross proceeds of $6,500,000. Holding raw land is desirable for our Company in some conditions, but with no firm plans for development, and increasing property taxes impacting our bottom line, divestiture of these two assets made sense right now. Funds received from these transactions will both reduce outstanding debt and operating costs and will help to fund future growth, allowing us to turn our attention to new opportunities.

All investment or divestiture decisions are made with an eye on market conditions overall. We continue to closely monitor our market area which remains one of strongest industrial markets in the country and gives us confidence in our overall position. As we move into 2024,

IMPERIAL EQUITIES INC. SECOND QUARTER REPORT 2024

03

the industrial market in our primary Greater Edmonton region is performing well, with a continued decline in vacancy rate which dropped to 4.4% in the first quarter of the year, down from 4.7% in Q4, 2023. While the market is tight, it isn't moving at a fast pace, with both slow deal activity and limited inventories reflect more of a holding pattern, then a volatile, fast-moving market. Still with overall trends towards positive absorption, the overall market vacancy, has for the first time, dropped to pre- pandemic levels.

At the end of our Q2, our occupancy rate is reported at 90.3%, with more than half of this attributable to the 58,393 square foot property held for sale. The adjusted occupancy rate, removing the impact of that property, would be 95.2% which is in line with our Company's historic average. We currently have two vacancies, but the most notable is a 43,396 square foot building in Red Deer, Alberta which became vacant during the quarter, and which we are currently presenting to the market for either lease or sale opportunities.

On the cost side, our current spending requirements on property maintenance have slowed somewhat with the completion of some major projects in 2023 and has reduced this quarter as expected, resulting in a reduction in non-recoverable expenses. Still, the weighted average of interest rates on our mortgages has continue to grow quarter over quarter and has now reached a rate of 4.04% overall, up from 3.73% at September 30, 2023, or $231,121 more in financing costs over this same period last year. Mortgage renewals during the period showed increases of 1.63% over their prior interest rates, which shows that despite indications of some interest rate stability, we have not yet fully absorbed the cost increases expected with mortgage renewals.

We also continue to adjust our overall valuations to reflect fair market value on an ongoing basis. Adjustments were made related to the two parcels of land held for sale to bring the fair value in line with the offers to purchase. For the property that was vacated during this Q2, we've acknowledged new market conditions which would lead us to anticipate lower operating revenue in the future, resulting in an additional valuation adjustment.

In Q2, Company adjusted valuations resulted in a valuation loss of our investment properties recorded in the period. This valuation loss and the reclassification of investment properties now held for sale have resulted in a reduction

in the overall fair value of investment properties from $243,582,506 at Q1, 2024 to $232,472,343 in Q2, 2024.

Our diligence in making these adaptations on an ongoing basis adds to our confidence that our overall position fairly reflects the value of our Company. We benefit from our understanding of the market, which ensures we maintain fair costs, defer no maintenance and are market competitive with our lease rates. This allows us to offer elements of predictability in an environment where there are too many inflationary factors, from interest rates to rapidly increasing property taxes, facing both our company and our tenants.

Our position is one of strength and stability. Performance is consistent and strong, and there was no interruption to our dividend which continues to be paid at a rate of $0.02 per share on a quarterly basis.

And it is on this basis that we are looking forward at opportunities to improve the assets we have, including through investments in energy efficiency and lower emission upgrades, including on some of our older assets. We are assessing investment opportunities across all market areas and remain particularly bullish on opportunities which we are considering in both Northwest Alberta and Northeast British Columbia, as well as potential new investments to build on our agricultural holdings. Our position is one of optimism as we scan the market and assess new growth.

I am pleased the decisions we made over the last Quarter which will reduce some costs as well as manage potential risks. They improve our overall position, and better position us to manage growth as well as be ready to seize on new investments in the coming 12 to 18 months.

Our second quarter is also when we have our annual meeting of shareholders, and I was pleased to have the chance to engage with our shareholders in March, 2024. The opportunity to hear feedback, share ideas and reflect on our journey is always valued by myself and our Board. Your feedback is welcome all throughout the year. Please don't hesitate to reach out.

Sincerely,

Sine Chadi

President & CEO

IMPERIAL EQUITIES INC. SECOND QUARTER REPORT 2024

04

MD

& A

Management's

Discussion & Analysis

for the second quarter ending March 31, 2024

IMPERIAL EQUITIES INC. SECOND QUARTER REPORT 2024	05

Imperial Equities Inc. MD&A

as at May 15, 2024

The following Management's Discussion and Analysis ("MD&A") is intended to provide readers with an explanation of the performance of Imperial Equities Inc. ("Imperial" or "Imperial Equities" or the "Company") and its subsidiaries. This MD&A should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three and six months ended March 31, 2024, and the related notes, as well as the audited consolidated financial statements and MD&A for the years ended September 30, 2023, and 2022.

Unless otherwise noted, all amounts in this MD&A are reported in Canadian dollars, which is the Company's presentation and functional currency. The information contained in this MD&A, including forward-looking statements, is based on information available to management as at May 15, 2024, except as otherwise noted.

Throughout the MD&A, Management will use measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar calculations presented by other issuers. These measures include operating expense recoveries, funds available for property improvements and growth, debt, debt to asset ratios, and unencumbered properties. A description of these measures and their limitations are discussed under "Non- IFRS financial Measures".

Imperial Equities Inc. trades on the TSX Venture Exchange under the symbol "IEI". Additional information on the Company may be obtained by visiting www.sedarplus.ca. The Company's Board of Directors, at the recommendation of the Audit Committee have reviewed and approved this interim MD&A and the accompanying unaudited interim condensed consolidated financial statements.

Forward-Looking Information

Some of the information that the Company provides in this document is forward-looking and therefore could change over time to reflect changes in the environment in which the Company operates and competes. This forward-looking information reflects the Company's intentions, plans, expectations, and beliefs, and is based on management's experience and assessment of historical and future trends, and the application of key assumptions relating to future events and circumstances.

Forward-looking statements may involve but are not limited to, comments with respect to our initiatives for 2024 and beyond, future leasing, acquisition and financing plans and objectives, targets, expectations of the real estate, financing and economic environments, our financial condition or the results or outlook for our operations. By their nature, forward looking statements are subject to numerous risks

and uncertainties including those discussed under Risks and Risk Management in the MD&A for the year ended September 30, 2023. Readers are cautioned that the assumptions used in the preparation of forward-looking information, although considered reasonable at the time of preparation, may prove to be imprecise, and as such, undue reliance should not be placed on forward- looking statements.

Actual results, performance or achievements could differ materially from those expressed in or implied by these forward-looking statements. Except as may be required by law, the Company does not undertake to update any forward-looking statement, whether written or oral, made by the Company or on its behalf.

IMPERIAL EQUITIES INC. SECOND QUARTER REPORT 2024	06

Our Business

Based in Edmonton, Alberta, Imperial Equities is a publicly traded company that invests in and manages industrial, agricultural, and commercial properties in its targeted markets throughout Western Canada. Since operations started in 1998, the Company has continuously increased revenues, and the fair value of its portfolio of investment properties through growth via acquisitions, the construction of build-to-suit projects, proactive maintenance of its properties, and responsive property management to build strong relationships with long-term tenants.

There have been no significant changes to the Company's overall business during the three and six months ended March 31, 2024.

Management and the Board monitor specific key performance indicators in four critical areas of the business: investment properties, leasing activities, property operations and financing, and the overall performance of the Company in governance, and environmental social and governance (ESG) impact. These key areas remain consistent with those discussed in the MD&A for the year ended September 30, 2023.

Our Investment Properties

Investment Properties

March 31, 2024

September 30, 2023*

Total number of investment properties**	37	40
Total investment properties held for sale	3	-
Raw land properties held for future development**	6	8
Raw land properties under lease with tenants	4	4
Gross leasable area*** (GLA) in square feet	1,117,832	1,117,832

*The prior period figures have been updated to conform to the presentation in the current period. ** Excluding investment properties classified as held for sale.

**Gross leaseable area is the square footage of space in the Company's investment properties that is leased or available to be leased to tenants.

There have been no changes to the number or type of investment properties held by the Company at March 31, 2024 compared to the year ended September 30, 2023.

At March 31, 2024, the Company had three investment properties classified as held for sale. These consist of the investment property that was classified as held for sale at Q1 2024, as well as two raw land properties where sales agreements were entered into during Q2 2024.

The investment property classified as held for sale at December 31, 2023, which consists of land and building, had conditions waived and closed subsequent to March 31, 2024 for gross proceeds of $13,790,000. The purchaser assumed the outstanding mortgage of $9,483,143 on the property. An initial deposit received on the sale of $150,000 is included in receivables and contract liabilities in the statement of financial position at March 31, 2024.

IMPERIAL EQUITIES INC. SECOND QUARTER REPORT 2024	07

One of the raw land properties that was reclassified as held for sale at March 31, 2024 consists of 0.91 Acres of land in Edmonton, Alberta. The property had conditions waived during the quarter and the sale closed subsequent to period end for gross proceeds of $820,000. Deposits of $50,000 received on the sale are included in cash and contract liabilities in the statement of financial position at March 31, 2024.

The other raw land property reclassified as held for sale at March 31, 2024 consists of 12.9 Acres of land in Strathcona County, Alberta. This property had conditions waived during the quarter, and the sale is expected to close in Q3 2024 for total gross proceeds of $6,500,000. An initial deposit of $100,000 is included in cash and contract liabilities at March 31, 2024. An additional deposit of $500,000 was received subsequent to period end. The remaining balance of the purchase price of $5,900,000 will be financed through a vendor-take-back loan bearing interest at 5% with a term of 3 years, and with the outstanding principal due in full at the end of the term.

The funds received from these sales will be used to reduce outstanding debt balances, fund operational expenditures, and for future growth.

During the three months ended March 31, 2024, the Company discontinued the purchase of the land that was under a purchase agreement at September 30, 2023. The purchase was discontinued due to delays in the timeline for the related potential build- to-suit project. The Company continues to engage with the tenant on the build-to-suit project. The deposit of $100,000 that was included in prepaids and deposits at September 30, 2023 was refunded, as conditions on the purchase were not waived by the Company.

Our Leasing Activities

By Gross Leasable Area ("GLA") in square feet

Six months ended March 31, 2024

Year ended September 30, 2023

Lease retention	21,127	70,679
New tenant leases	-	100,901
GLA of leases expiring within twelve months	53,495	118,018
Space available for lease*	50,515	65,512
Average lease term to maturity in years	4.68	4.49
Building occupancy	90.3%	94.1%

*Space available for lease has been reduced by the square footage of investment property held for sale.

During the quarter, the Company renewed one lease with an existing tenant for a five-year term.

Subsequent to quarter end, the Company signed a lease renewal for a one-year term with a tenant on 12,124ft2 of space which is included in the GLA of leases expiring within twelve months noted above.

The Company's tenant base continues to be consistent with prior periods, with National or Multi-National tenants leasing 79% of the Company's gross leaseable area and making up 87% of the total annual minimum rent received by the Company at March 31, 2024.

IMPERIAL EQUITIES INC. SECOND QUARTER REPORT 2024	08

Lease Expiries and Vacant Space

At March 31, 2024, the occupancy rate for the Company's properties was 90.3% (September 30, 2023 - 94.1%). The occupancy rate at March 31, 2024 includes the impact of the vacant investment property that was classified as held for sale at March 31, 2024. Adjusting the occupancy rate to remove the square footage of investment property held for sale, where the sale was completed subsequent to the end of the quarter, results in an occupancy rate of 95.2%, which is consistent with historical occupancy rates for the Company.

At March 31, 2024, the Company had the following space available for lease:

• 7,119 ft2 of space available in a 70,660 ft2 building in which the remaining space is occupied by a single tenant.
• A 43,396 ft2 single tenant building where the building was vacated by the tenant in February 2024.

At September 30, 2023, the Company had the following space available for lease:

• 7,119 ft2 of space available in a 70,660 ft2 building in which the remaining space is occupied by a single tenant.
• The 58,393 ft2 single tenant building which was included in investment properties classified as held for sale during Q1 and Q2 2024, and where the sale was completed subsequent to Q2 2024.

GLA of leases expiring in the next twelve months

At March 31, 2024, there are three leases that are expiring within the next 12 months with a combined total of 53,495 ft2 gross leaseable area. Subsequent to period end, one lease for 12,124 ft2 was renewed for an additional one-year term. Management anticipates renewing the remaining leases that are expiring during the coming year based on preliminary conversations with tenants, and past renewal history.

Lease Rates

Average annual lease rates (by City) per square foot

March 31, 2024

At September 30, 2023

Edmonton, Alberta	$	11.09	$	11.03
Red Deer, Alberta*	$	17.89	$	22.43
Fort Saskatchewan, Alberta*	$	42.15	$	42.15
Fort McMurray, Alberta	$	39.80	$	34.34
Leduc, Alberta	$	17.27	$	17.66
Hanna, Alberta	$	19.95	$	19.75
Nisku, Alberta	$	13.39	$	13.39
Vegreville, Alberta	$	7.18	$	7.18
Fort St. John, British Columbia	$	14.75	$	14.75

* Leases include a large land component which impacts the average rate per square foot.