Clarke : Quarterly Report - June 30, 2023

Management's Discussion & Analysis

Clarke Inc.

June 30, 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 and six months ended June 30, 2023 compared with the three and six months ended June 30, 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 under International Financial Reporting Standards ("IFRS"). 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 and six months ended June 30, 2023, available on SEDAR at www.sedar.com. This MD&A provides an overall discussion and analysis of the Company's performance. The MD&A is prepared as at August 11, 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 share1, 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.

SECOND QUARTER REVIEW AND OUTLOOK1

During the second quarter of 2023, the Company's book value per common share decreased by $0.04, or 0.3%. The change can be attributed primarily to (i) hotel net operating income of $5.6 million or $0.40 per share offset by (ii) deprecation and amortization of $2.6 million or $0.18 per share, and (iii) interest and accretion of $1.9 million or $0.14 per share.

The Company's book value per common share at the end of the quarter was $15.31 while our common share price was $12.93.

Hotel Operations

Hotel operations improved significantly in the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to the continued recovery of the hospitality industry from the COVID-19 pandemic (the "Pandemic"). Hotel revenue in the three and six months ended June 30, 2023 was $15.7 million and $30.7 million, respectively compared to $12.6 million and $22.2 in 2022.

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. Phase two of the Carling Avenue Development is expected to consist of three residential towers with 612 rental units. Phase two will be constructed where the Company's Travelodge® Ottawa West is currently located. We expect to both complete the construction of phase one and break ground on phase two in 2024.

1 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 June 28, 2023, the Company announced that it would fully redeem its $34.9 million, 5.50% Series B Convertible Unsecured Subordinated Debentures due January 1, 2028 (the "Debentures"). The Debentures were subsequently redeemed on July 28, 2023, for a cash outlay of $35.4 million which included $0.5 million of accrued interest. The redemption of the Debentures was financed using funds drawn on a recently secured credit facility obtained from a related party. Refer to the "Liquidity and Capital Resources" section of this MD&A for more information on this credit facility. Subsequent to June 30, 2023, upon redemption, the Company recorded a non-cash loss of approximately $0.8 million, representing the difference between the carrying value and principal amount of the Debentures.

During the second quarter, the Clarke Inc. Master Trust purchased a group buy-out annuity for the members of one of the Company's defined benefit plans.

The Company has $183.4 million of debt as of June 30, 2023 and has access to two secured, revolving credit facilities and one unsecured revolving credit facility with a related party.

BOOK VALUE PER SHARE

The Company's book value per share at June 30, 2023 was $15.31, an increase of $0.03 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.

*All years as of December 31 except for current year as at June 30, 2023.

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