Alaris Equity Partners Income Trust : Q1 2024

Unaudited Condensed Consolidated Interim

Financial Statements of

ALARIS EQUITY PARTNERS INCOME TRUST

For the three months ended March 31, 2024 and 2023

Alaris Equity Partners Income Trust

Condensed consolidated interim statements of financial position (unaudited)

			31-Mar
$ thousands	Note	2024
Assets
Cash		$ 13,462
Accounts receivable and prepayments	7	2,014
Corporate Investments	3, 6	1,056,114
Property, equipment and other		1,283
Deferred income taxes		528
Total Assets		$ 1,073,401
Liabilities
Accounts payable and accrued liabilities	5	$ 7,873
Distributions payable	4	15,469
Income tax payable		240
Senior unsecured debenture		63,241
Other liabilities	5	1,162
Total Liabilities		$ 87,985
Equity
Unitholders' capital	4	$ 760,891
Retained earnings		224,525
Total Equity		$ 985,416
Total Liabilities and Equity			$ 1,073,401
Commitments and contingencies	8
Subsequent events	8, 9

Alaris Equity Partners Income Trust

Condensed consolidated interim statements of financial position

		31-Dec
$ thousands	Note	2023
Assets
Cash		$ 15,184
Derivative contracts		1,012
Accounts receivable and prepayments		2,972
Income taxes receivable		29,104
Current Assets		$ 48,272
Property and equipment		327
Other long-term assets		33,537
Investments	3	1,392,758
Non-current assets		$ 1,426,622
Total Assets		$ 1,474,894
Liabilities
Accounts payable and accrued liabilities		$ 10,668
Distributions payable	4	15,469
Derivative contracts		341
Office Lease		208
Convertible debenture		97,709
Current Liabilities		$ 124,395
Deferred income taxes		82,301
Loans and borrowings		242,359
Senior unsecured debenture		63,112
Other long-term liabilities		1,904
Non-current liabilities		$ 389,676
Total Liabilities		$ 514,071
Equity
Unitholders' capital	4	$ 760,891
Translation reserve		33,711
Retained earnings		166,221
Total Equity		$ 960,823
Total Liabilities and Equity		$ 1,474,894

Alaris Equity Partners Income Trust

Condensed consolidated interim statements of comprehensive income (unaudited)

$ thousands except per unit amounts	Note	Three months ended
March 31, 2024
Revenue and operating income
Net gain on Corporate Investments	3	$ 15,935
Management and advisory fees	7	3,772
Interest and dividend income from Acquisition Entities	7	10,607
Total revenue and operating income			$ 30,314
General and administrative		4,110
Unit-based compensation	5	2,481
Depreciation and amortization		126
Total operating expenses			$ 6,717
Earnings from operations			$ 23,597
Finance costs		1,145
Foreign exchange gain	3	(20,779)
Gain on derecognition of previously consolidated entities	3	(30,260)
Earnings before taxes			$ 73,491
Current income tax expense		246
Deferred income tax expense		(528)
Total income tax expense			$ (282)
Earnings and comprehensive income			$ 73,773
Earnings per unit
Basic		$ 1.62
Diluted		$ 1.52
Weighted average units outstanding
Basic	4	45,498
Diluted	4	50,061

Alaris Equity Partners Income Trust

Condensed consolidated interim statements of comprehensive income (unaudited)

$ thousands except per unit amounts	Note	Three months ended
March 31, 2023
Revenues, including realized foreign exchange gain		$ 36,688
Net realized gain from investments		12,500
Net unrealized gain / (loss) on investments at fair value		(11,678)
Total revenue and other operating income						$ 37,510
General and administrative		16,960
Transaction diligence costs		1,351
Unit-based compensation		1,779
Depreciation and amortization		56
Total operating expenses					$ 20,146
Earnings from operations						$ 17,364
Finance costs		6,517
Net unrealized (gain) / loss on derivative contracts		381
Foreign exchange loss		215
Earnings before taxes				$ 10,251
Current income tax expense		2,228
Deferred income tax expense		2,470
Total income tax expense				$ 4,698
Earnings				$ 5,553
Other comprehensive income
Foreign currency translation differences		480
Total comprehensive income			$ 6,033
Earnings per unit
Basic		$ 0.12
Diluted		$ 0.12
Weighted average units outstanding
Basic		45,308
Diluted		45,791

Alaris Equity Partners Income Trust

Condensed consolidated interim statement of changes in equity (unaudited)

For the three months ended March 31, 2024

			Units		Unitholders'	Translation	Retained	Total
$ thousands, except for number of units (000's)	Notes		Outstanding		Capital	Reserve	Earnings	Equity
Balance at December 31, 2023		45,498	$ 760,891	$ 33,711	$ 166,221	$ 960,823
Reclassification of translation reserve	3			-	(33,711)	-	(33,711)
Earnings for the period		-	-	-	73,773	73,773
Transactions with unitholders, recognized directly in equity
Distributions to unitholders	4	-	$ -	$ -	$ (15,469)	$ (15,469)
Total transactions with Unitholders		-		$ -	$ -	$ (15,469)	$ (15,469)
Balance at March 31, 2024			45,498		$ 760,891	$ -	$ 224,525	$ 985,416

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Alaris Equity Partners Income Trust

Condensed consolidated interim statement of changes in equity (unaudited)

For the three months ended March 31, 2023

			Units					Unitholders'	Translation	Retained	Total
$ thousands, except for number of units (000's)	Notes		Outstanding					Capital	Reserve	Earnings	Equity
Balance at January 1, 2023		45,281	$ 757,220	$ 51,391	$ 89,644	$ 898,255
Earnings for the period		-	-	-	5,553	5,553
Other comprehensive income
Foreign currency translation differences		-	-	480	-	480
Total comprehensive income for the period		-		$ -	$ 480	$ 5,553	$ 6,033
Transactions with unitholders, recognized directly in equity
Distributions to unitholders	4	-	$ -	$ -	$ (15,463)	$ (15,463)
Units issued under RTU plan	4	198	3,375	-	-	3,375
Total transactions with Unitholders			198			$ 3,375	$ -	$ (15,463)	$ (12,088)
Balance at March 31, 2023			45,479		$ 760,595	$ 51,871	$ 79,734	$ 892,200

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Alaris Equity Partners Income Trust

Condensed consolidated interim statements of cash flows (unaudited)

$ thousands	Notes	Three months ended
March 31, 2024
Cash flows from operating activities
Earnings for the period				$ 73,773
Adjustments for:
Finance costs				1,145
Deferred income tax expense				(528)
Depreciation and amortization				126
Gain on derecognition of previously consolidated entities	3			(30,260)
Net gain on Corporate Investments	3			(15,935)
Unrealized foreign exchange gain				(20,779)
Unit-based compensation	5			2,481
Repayment of loans receivable from Acquisition Entities				24,332
Net investment in Acquisition Entities	7			(12,940)
Cash from operations, prior to changes in working capital				$ 21,415
Changes in working capital Note1 :
Accounts receivable and prepayments				(3,797)
Income tax receivable / payable				240
Accounts payable, accrued liabilities				6,443
Cash generated from operating activities				$ 24,301
Cash interest paid				(2,032)
Net cash from operating activities				$ 22,269
Cash flows from financing activities
Distributions paid	4			(15,469)
Office lease payments				(36)
Net cash used in financing activities				$ (15,505)
Net increase in cash				$ 6,764
Decrease in cash due to the derecognition of previously consolidated
entities	3			$ (8,435)
Impact of foreign exchange on cash balances				(51)
Cash, Beginning of period				15,184
Cash, End of period				$ 13,462
Cash taxes paid / (received)		$	-

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Alaris Equity Partners Income Trust

Condensed consolidated interim statements of cash flows (unaudited)

$ thousands	Notes	Three months ended
March 31, 2023
Cash flows from operating activities
Earnings for the period		$ 5,553
Adjustments for:
Finance costs		6,517
Deferred income tax expense		2,470
Depreciation and amortization		56
Net realized gain from investments		(12,500)
Net unrealized (gain) / loss of investments at fair value		11,678
Unrealized (gain) / loss on derivative contracts		381
Unrealized foreign exchange loss		221
Transaction diligence costs		1,351
Unit-based compensation		1,779
Cash from operations, prior to changes in working capital						$ 17,506
Changes in working capital:
Accounts receivable and prepayments		(784)
Income tax receivable / payable		7,292
Other long-term assets		(990)
Accounts payable, accrued liabilities		6,491
Cash generated from operating activities					$ 29,515
Cash interest paid		(3,774)
Net cash from operating activities					$ 25,741
Cash flows from investing activities
Transaction diligence costs		(1,351)
Proceeds from partner redemptions		28,930
Net cash from / (used in) investing activities				$ 27,579
Cash flows from financing activities
Repayment of loans and borrowings		$ (73,197)
Distributions paid	4	(15,395)
Office lease payments		(35)
Net cash from / (used in) financing activities				$ (88,627)
Net increase / (decrease) in cash		$ (35,307)
Impact of foreign exchange on cash balances		52
Cash, Beginning of period		60,193
Cash, End of period			$ 24,938
Cash taxes paid / (received)		$ (5,132)

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Alaris Equity Partners Income Trust

Notes to condensed consolidated interim financial statements

(Expressed in thousands of Canadian dollars unless otherwise noted, except per unit amounts)

1. Reporting entity:

Alaris Equity Partners Income Trust is an entity domiciled in Calgary, Alberta, Canada. The condensed consolidated interim financial statements as at and for the three months ended March 31, 2024, are composed of Alaris Equity Partners Income Trust and its consolidated subsidiary, Alaris Equity Services Corp. ("Service Co") (together referred to as the "Trust"). Service Co. is an entity domiciled in Canada and was a dormant subsidiary, Alaris Strategic Opportunities Inc., the Trust purchased from Alaris Equity Partners Inc, ("AEP", formerly known as Alaris Royalty Corp.). This subsidiary was subsequently renamed Alaris Equity Services Corp. and certain assets and activities of AEP relating to the provision of investment management services were transferred to Service Co.

Throughout the notes to the condensed consolidated interim financial statements, investments and investing activity of Alaris' capital primarily relate to its preferred equity, common equity and special purpose vehicle ("SPV") strategies. These Partner investments are held directly or indirectly through wholly owned subsidiaries of the Trust, which are referred to as Acquisition Entities. While there are a number of Acquisition Entities, substantially all of these companies consist of direct or indirect subsidiaries of AEP, Alaris Equity Partners USA Inc. ("Alaris USA") or Salaris USA Royalty Inc. ("Salaris"). These three companies, which are the significant Acquisition Entities, are the Acquisition Entities for substantially all of Alaris' investments. AEP is a Canadian corporation, Alaris USA and Salaris are both Delaware corporations.

Throughout these statements, the term "Alaris" encompasses Alaris Equity Partners Income Trust and all of its wholly-owned subsidiaries, both the Trust and the Acquisition Entities.

2. Basis of preparation and material accounting policies:

1. Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 and do not include all of the disclosures required for full annual financial statements and should be read in conjunction with the 2023 consolidated annual financial statements and the changes in presentation effective January 1, 2024 as disclosed in Note 2(b). Related changes to accounting policies due to the change in presentation are disclosed in Note 2(e).

These condensed consolidated interim financial statements were approved by the Board of Trustees on May 9, 2024.

(b) Basis of preparation and consolidation

In January 2024, the Trust concluded that it met the definition of an investment entity, as defined by IFRS 10, Consolidated Financial Statements ("IFRS 10"). This change in status resulted from the change in how the Trust commits to its investor(s) that its business purpose is to invest funds solely to earn returns from capital appreciation, investment income or both. Over time Alaris' investment strategy has evolved and now focuses not only on the cash pay returns received from the distributions on preferred investments but also the combined exit return driven by both the preferred exit premium and common capital appreciation. This conclusion will be reassessed on a continuous basis.

As a result of this change in status, the assets and liabilities of the Trust's subsidiaries that are themselves investment entities or intermediate holding companies have been derecognized from the Trust's consolidated statement of financial position. The Trust's investments in these subsidiaries have been recognized as Corporate Investments totaling $650.5 million as at January 1, 2024 net of a gain on the Trust's deconsolidation of its Investment Entity subsidiaries $30.3 million (see Note 3). Included in this gain, is the reclassification the translation reserve into earnings, reflecting the foreign currency translation differences of certain subsidiaries. The Corporate Investments are subsequently measured at fair value through profit (loss) ("FVTPL"). The change in investment entity status has been accounted for prospectively from January 1, 2024 in accordance with IFRS 10.

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