Clarke : Quarterly Report - March 31, 2023

Halifax, Canada

Quarterly Report March 31, 2023 and 2022

Management's Discussion & Analysis

Clarke Inc.

March 31, 2023 and 2022

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MANAGEMENT'S DISCUSSION & ANALYSIS

Management's Discussion & Analysis ("MD&A") presents management's view of the financial position and performance of Clarke Inc. ("Clarke" or the "Company") for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The following information is derived from the Company's unaudited interim condensed consolidated financial statements which are prepared in accordance with IAS 34, Interim Financial Reporting. This interim MD&A should be read in conjunction with the information disclosed within the interim condensed consolidated financial statements and notes thereto for the three months ended March 31, 2023, available on SEDAR at www.sedar.com. This MD&A provides an overall discussion and analysis of the Company's performance and operations. The MD&A is prepared as at May 12, 2023 (unless otherwise stated). All dollar amounts are shown in millions of Canadian dollars except for per common share amounts or unless otherwise indicated.

OVERVIEW & STRATEGY

Clarke was incorporated on December 9, 1997 pursuant to the Canada Business Corporations Act and its head office is located at 145 Hobsons Lake Drive, Halifax, Nova Scotia.

The Company is an investment and real estate company with holdings in a diversified group of businesses and across real estate sectors. The Company operates primarily in Canada. The Company continually evaluates the acquisition, retention, and disposition of its holdings and changes in its asset mix should be expected. Our objective is to maximize shareholder value. While not the perfect metric, we believe that Clarke's book value per share, together with the dividends paid to shareholders, is an appropriate measure of our success in maximizing shareholder value over time.

We attempt to maximize shareholder value by allocating capital to investments that we believe will generate high returns and reallocating capital over time as needed. In doing this, Clarke's goal is to identify investments that are either undervalued or are underperforming and may be in need of positive change. These investments may be real estate, companies, securities or other assets. Clarke has a diverse and significant portfolio of direct real estate holdings across the hospitality, commercial, industrial, and residential sectors. We do not believe in limiting ourselves to specific types of investments. Clarke generally invests in industries that have hard assets, in particular, hospitality and real estate businesses.

FIRST QUARTER REVIEW AND OUTLOOK1

During the first quarter of 2023, the Company's book value per common share increased by $0.07, or 0.5%. The increase can primarily be ascribed to (i) hotel net operating income of $4.4 million, or $0.31 per share, (ii) after-tax remeasurement gains on the Company's pension surplus of $2.8 million, or $0.20 per share, offset by (iii) depreciation and amortization of $2.3 million, or $0.16 per share, (iv) interest and accretion of $1.9 million, or $0.14 per share, and (v) losses in our non-hospitality operating businesses and corporate overhead of $2.0 million, or $0.14 per share.

The Company's book value per common share at the end of the quarter was $15.35, while the common share price was $12.50.

Hotel Operations

Hotel revenues improved significantly over the first quarter of 2022, primarily due to the general recovery we experienced throughout 2022 in our markets from the COVID-19 pandemic (the "Pandemic"). Hotel revenue in the three months ended March 31, 2023 was $15.0 million compared to $9.6 million in the same period in 2022 - an increase of $5.4 million, or 56%.

Real Estate and Corporate

Construction continues on the first phase of the redevelopment of our excess land on Carling Avenue in Ottawa, ON (the "Carling Avenue Development"). While the first phase of construction is underway, pre-construction activities are also ongoing for its second phase. The two phases will consist of a multi-building residential apartment complex including ground-floor retail space. Phase one of the Carling Avenue Development consists of two residential towers with 404 rental units. While construction financing was secured in the fourth quarter of 2022, the project had been self-financed to date with cash on hand and the Company's existing credit facilities. The Company made its first draw on its construction loan for the Carling Avenue Development subsequent to March 31, 2023 (see the "Liquidity and Capital Resources" section below).

• This MD&A refers to "book value per share" and "net operating income". These are non-IFRS measures and ratios. Refer to the "Cautionary Statement Regarding Use of Non-IFRS Accounting Measures and Ratios" section of this MD&A for more information.

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On April 30, 2023, the interest rate on the Company's convertible debentures was reduced from 6.25% to 5.50%. The amendment to the interest rate was approved at a special meeting of the holders of the debentures held on September 20, 2021.

The Company has $170.4 million of debt as of March 31, 2023 and has access to two secured, revolving credit facilities.

BOOK VALUE PER SHARE

The Company's book value per share at March 31, 2023 was $15.35, an increase of $0.07 per common share since December 31, 2022. The following graph illustrates Clarke's book value per share, share price and cumulative dividends paid over the past ten years.

$15.00									15.28	15.35
$14.00						15.06		14.48
$13.00					12.50	12.44			12.48	12.50
$12.00	12.57	12.21		10.45	12.21			10.32
$11.00
10.00	9.86	11.61				11.20
$10.00		9.36	10.71
$9.00							8.68	8.68	8.68	8.68
$8.00
$7.00
$6.00				5.10	5.10	5.10	6.68
$5.00
$4.00			3.10
$3.00
$2.00		0.90
$1.00	0.50
$0.00
	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023

Book Value per Share				Cumulative Dividend		Clarke Share Price

*All years as of December 31 except for current quarter as at March 31, 2023.

RESULTS OF OPERATIONS

Highlights of the interim condensed consolidated financial statements for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 are as follows:

(in millions, except per share amounts)	Three months ended	Three months ended
	March 31, 2023	March 31, 2022
	$	$
Hotel revenue	15.0	9.6
Provision of services revenue	0.3	0.2
Investment and other income*	0.2	0.4
Net loss	(1.7)	(1.4)
Comprehensive income	1.0	5.7
Basic loss per share ("EPS")	(0.12)	(0.10)
Diluted EPS	(0.12)	(0.10)
Total assets	422.9	397.2
Total liabilities	207.1	184.0
Long-term financial liabilities	124.6	127.3
Book value per share	15.35	14.91

• Investment and other income includes unrealized and realized gains and losses on assets and liabilities, interest income, pension recovery/expense and foreign exchange gains and losses.

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