Mr. David Giraud reports

INOVALIS REAL ESTATE INVESTMENT TRUST ANNOUNCES FINANCIAL RESULTS FOR THE FIRST QUARTER OF 2023

Inovalis Real Estate Investment Trust today released strong financial results for the quarter ended March 31, 2023. The consolidated financial statements and management's discussion and analysis (MD&A) for Q1 2023 and the quarters ending March 31, 2023, and 2022 are available on the REIT's website and on SEDAR. All amounts are presented in thousands of Canadian dollars or euros, except rental rates, square footage, per-unit amounts or as otherwise stated.

President Stephane Amine commented, "As Inovalis REIT marks its 10th anniversary as a TSX-listed entity, we are proud of real estate investments that we have identified, acquired, developed, sold and managed, particularly throughout the last three-year period of unprecedented adverse circumstances."

Highlights

Net rental income

For the portfolio that includes assets owned entirely by the REIT (IP portfolio), net rental income (NOI) for the three months ended March 31, 2023 (Q1 2023), increased significantly to $3,962 (2,730 euros) compared with $1,873 (1,318 euros) for the three months ended March 31, 2022 (Q1 2022). The increase in NOI came from the full year contribution of the new property acquisitions, Gaia and Delgado, in the amount of $1,237 (853 euros) that were completed at the end of March, 2022, as well as from the lease renewals in the Metropolitain property, fully effective starting Q2 2022 for $215 (148 euros) and the disposition of Veronese property that were negatively weighting on Q1 2022 NOI for $555 (383 euros).

In Q1 2023, net rental income, adjusted for IFRIC 212 for the portfolio that includes the REIT's proportionate share in joint ventures (total portfolio), was $8,322 (5,734 euros), compared with $6,353 (4,471 euros) for Q1 2022, an increase due to the same reasons described above with respect to the IP portfolio.

The asset recycling program continues, beginning with the sale of Jeuneurs (November, 2021), followed by the sale of Courbevoie (December, 2022) and the redevelopment-driven lease terminations in the Baldi and Sabliere properties throughout 2021 and 2022.

Leasing operations

All of the REIT's lease contracts in France, Germany and Spain have rental indexation that offset the impact of inflation. Rent is increased annually to reflect the rising cost of living which protects returns to unitholders. The rent indexation applied in Q1 on some leases was approximatively 6 per cent.

Management signed several short-term leases in Q1 2023 on the Baldi and Sabliere properties, to help maintain the NOI before their redevelopment or disposition. For the total portfolio, management signed two major lease contracts as a result of long-term negotiations that were initiated in 2022.

These are:

• A 10-year firm lease, effective July, 2023, on 13 per cent on the Duisburg property, as a replacement of the previous tenant who left in January, 2023;
• A five-year extension of a Neu Isenburg tenant lease on 75 per cent of their previous office space.

As at March 31, 2023, occupancy for the REIT's IP portfolio was 84.2 per cent and the total portfolio was 86.1 per cent. Seven of the properties are at, or close to, 100-per-cent occupancy, and excluding two properties in the asset recycling plan (Baldi and Sabliere), the occupancy rate would be 89.4 per cent. The portfolio of assets held in joint ventures had 91.3-per-cent occupancy at March 31, 2023. Gaia's occupancy rate of 86 per cent understates the effective 100-per-cent rental revenue stream due to the three-year rental guarantee on the vacant premises that the REIT received in advance at acquisition and which, for accounting purposes, was treated as a reduction in the acquisition price and not as rental income. The 14-per-cent vacancy has an impact of 1.1 per cent on total portfolio occupancy.

Steady interest from prospective tenants throughout 2022 underscores confidence in the company's Parisian, German and Spanish portfolio. To bolster leasing efforts, management will selectively complete capital expenditure improvements on vacant areas to attract tenants and maximize rent.

Capital market considerations

The REIT has delivered returns to unitholders on the basis of:

• Investment diversification via exposure to selected European markets with a deeply experienced local asset manager;
• Compelling risk/return ratio for commercial real estate, compared with 10-year government bonds;
• Lower borrowing costs in the European community compared with Canada, despite interest rate increases by the European Central Bank (ECB);
• A euro-currency backed hedge on distributions paid in Canadian dollars, covering distributions for the next two years.

Unitholders' equity on March 31, 2023, was $288,307 (196,716 euros), which implies a book value per unit at that date of $8.80/unit or $8.66/unit on a fully-diluted basis, using the weighted average number of units for the period.

Funds from operations and adjusted funds from operations

With one modification, the REIT uses non-GAAP (generally accepted accounting principles) ratios such as funds from operations (FFO) per unit and adjusted funds from operations (AFFO) per unit as defined by the Real Estate Property Association of Canada publication on Funds From Operations & Adjusted Funds From Operations, dated January, 2022. Due to the volatility of the Canadian dollar against the euro, the REIT adjusts FFO by excluding the unrealized gain or loss on the REIT's cash euros which are domiciled in Canadian financial institutions.

In Q1 2023, the REIT reported FFO and AFFO per unit of 14 cents each, compared with nine cents and 10 cents respectively for Q1 2022 due to higher net rental income and finance income. The FFO payout ratio was 75.8 per cent, in line with the company's internal forecast but increased by finance income from Courbevoie and Metropolitain swap contracts termination.

Financing activity

The REIT is financed almost exclusively with asset-level, non-recourse financing with an average term to maturity of 3.3 years for the total portfolio (3.8 years on the IP portfolio).

As at March 31, 2023, the weighted average interest rate was 2.51 per cent across the IP portfolio and 2.46 per cent on the total portfolio, Q1 2023 including the additional interest cost of unhedged contracts on Sabliere, Arcueil and Delizy properties. Management will assess the best hedging options on theses contracts, considering redevelopment plans and hedging pricing opportunities.

To refinance mortgage loans that are maturing in 2023 (Stuttgart, Neu-Isenburg, Walpur) and early 2024 (Kosching), and to mitigate risk in the properties, management is negotiating new senior debt.

Despite increases to the ECB key lending rates, management is confident that the REIT will continue to access financing opportunities through its banking networks in Europe leveraging the quality of its properties, lease terms and high calibre tenants.

Environmental, social and governance (ESG)

Integrating ESG objectives and strategies into the REIT's business reflects the growing importance these factors play with many of the company's key stakeholders. Investors recognize the risks associated with changing regulatory requirements, tenants are including sustainability considerations in their leasing decisions, and employees want to work for responsible and socially focused organizations. The REIT is working to improve its long-term environmental performance, and also investing in "human capital" for the implementation and monitoring of all ESG initiatives. A portfolio-wide ESG independent audit of all assets is continuing with the view to formalizing ESG priorities and identify clear and measurable ESG practices and disclosures. Aside from energy procurement policies, the next measures to be undertaken on the German portfolio of asset are implementation/upgrade of water-saving equipment starting in Q3 2023.

About Inovalis Real Estate Investment Trust

Inovalis is a real estate investment trust listed on the Toronto Stock Exchange in Canada. It was founded in 2013 by Inovalis, and invests in office properties in primary markets of France, Germany and Spain. It holds 13 assets. Inovalis acquires (indirectly) real estate properties through CanCorpEurope, an authorized alternative investment fund (AIF) by the CSSF in Luxemburg and managed by Inovalis SA.

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