Mr. Stephane Amine reports

INOVALIS REAL ESTATE INVESTMENT TRUST ANNOUNCES FINANCIAL RESULTS FOR Q1 2024

Inovalis Real Estate Investment Trust has released its financial results for the quarter ended March 31, 2024. The unaudited consolidated financial statements and management's discussion and analysis (MD&A) for Q1 2024 are available on the REIT's website and on SEDAR+.

All amounts, except rental rates, square footage and per-unit amounts, are presented in thousands of Canadian dollars or euros, or as otherwise stated.

Stephane Amine, chief executive officer and president of the REIT, commented: "Despite the headwinds facing the global office property sector, we are keeping perspective, balancing short-term challenges with the pursuit of asset recycling and value creation. This requires a combination of agility, foresight and resilience to navigate uncertainties and seize opportunities for long-term success."

Highlights

Net rental income

For the portfolio that includes assets owned entirely by the REIT (IP portfolio), net rental income (net operating income (NOI)) for the three months ended March 31, 2024 (Q1 2024), decreased significantly to $912 (623 euros) compared with $3,962 (2,703 euros) for the three months ended March 31, 2023 (Q1 2023). This aligned with expectations given the vacancy of the Arcueil property since July 1, 2023, and the departure of the main tenant from the Bad Homburg property in January, 2024.

In Q1 2024, net rental income, adjusted for IFRIC 212, for the portfolio that includes the REIT's proportionate share in joint ventures (total portfolio), was $6,458 (4,473 euros), compared with $8,322 (5,678 euros) for Q1 2023, a decrease due to the same reasons described above with respect to the IP portfolio.

Leasing operations

As at March 31, 2024, occupancy of the REIT's IP portfolio was 50.2 per cent and occupancy of the REIT's total portfolio was 59.8 per cent. The greatest contributors to the decrease in occupancy are the assets included in the asset recycling plan (Arcueil, Sabliere and Baldi), as well as the Bad Homburg property, following the departure of the main tenant in January, 2024. The occupancy rate of the total portfolio, excluding properties in the asset recycling plan, would be 82.4 per cent.

Steady interest from prospective tenants throughout 2023 and Q1 2024, for both long- and short-term leases, reaffirms confidence in the REIT's Parisian, German and Spanish portfolio. To bolster leasing efforts, notably with on-field brokers, management is selectively undertaking tenant improvements to attract tenants and maximize rent.

Asset recycling plan

Management is advancing plans for the sale of the Sabliere and Arcueil properties, negotiating terms of offers received in Q1 2024. Management engaged with a redeveloper on an exclusive basis for a year on the Arcueil property and now Arcueil City Hall has validated the redevelopment project. The conditional Arcueil offer and pricing have been confirmed, leading to a reduction in the fair value adjustment of $14,321. The sale is subject to approval of a building permit application, which could be finalized with a sale commitment in Q2 2024 and an exchange contract in Q4 2025.

On Sabliere, the assessment of an offer to acquire the property is continuing and could lead to a sale in Q4 2024.

The Arcueil (fair value of $72,340), Sabliere (fair value of $27,493) and Baldi properties (fair value of $27,162) are being marketed for sale as part of the REIT's previously announced asset recycling plan. These are mature assets and management believes that it is the optimal time to extract value. Upon the sale of these properties, management and the board will consider the best uses of the new capital, including the options to pay down debt, make capital investments to support leasing, invest in redevelopment opportunities and make opportunistic acquisitions.

Joint venture (JV) arrangement wind-up

Management is executing on its previously announced commitment to wind up the current joint ventures in accordance with their respective agreements. Marketing agreements were signed in January, 2024, for each of the Stuttgart and Duisburg properties, and the properties are being actively marketed. JV arrangement maturities for the Kosching and Neu Isenburg properties were extended for one year, aligned with the financing expiry term. The JV arrangement for Delizy does not expire until 2029.

Capital market considerations

Since Q2 2023, there has been significant downward pressure on net asset values due to volatile economic conditions driven by high inflation and energy costs in the European zone. Unitholders equity as at March 31, 2024, was $232,671 (159,222 euros), which implies a book value per unit at that date of $7.14 per unit or $6.97 per unit on a fully diluted basis, using the weighted average number of units for the period.

The REIT has addressed the volatile risks in the current capital markets by implementing short-term leasing initiatives for properties in the REIT's asset recycling plan, maintaining a conservative debt-to-gross-book-value ratio, currently 46.4 per cent.

Funds from operations (FFO) and adjusted funds from operations (AFFO)

In Q1 2024, due to the vacancy and increased finance costs, the REIT reported FFO and AFFO per unit of three cents and two cents, respectively, in line with management's forecast.

Financing activity

The REIT is financed almost exclusively with asset-level, non-recourse financing with an average term to maturity of 2.7 years for the total portfolio (3.0 years for the IP portfolio).

In Q1 2024, the Neu-Isenburg and Kosching mortgage loans were extended and refinanced for one year until Q1 2025. This strategy to obtain such mortgage extensions is intended to facilitate the eventual exit from the joint venture ownership of these properties, while seeking improved financing terms in Q1 2025.

For the quarter ended March 31, 2023, the weighted average interest rate across the total portfolio was 4.29 per cent, compared with 2.75 per cent as at Dec. 31, 2023. This increase reflects the higher interest rate on most of the REIT's mortgage loan, now bearing interest at a floating rate indexed on EURIBOR, as well as the current penalty interest of the Trio mortgage loan (8.6 per cent annually). As at March 31, 2024, 28 per cent of the REIT's debt for the total portfolio was at fixed interest rates, mostly on short term loans or within properties being marketed for sale.

In its last economic bulletin, published in March, 2024, the European Central Bank (ECB) announced that key lending rates remained unchanged and inflation has declined further. ECB staff have revised their growth projection for 2024 to 0.6 per cent, with economic activity expected to remain subdued in the near term. Thereafter, the ECB expects the economy to grow at the rates of 1.5 per cent in 2025 and 1.6 per cent in 2026, supported initially by consumption and later also by investment. With this outlook, management will continue to seek 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 REIT'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.

The Spanish property, Delgado, is pursuing LEED Platinum certification that is expected in Q3 2024.

On the German portfolio, offers for a green electricity procurement policy are to be received in 2024, in addition to the implementation of smart water-saving equipment.

FFO and AFFO calculation

A reconciliation of FFO and AFFO for the three-month periods ended March 31, 2024, and March 31, 2023, based on proportionate consolidation figures, including REIT's interest in joint ventures, is provided in an attached table.

Overview -- GAAP (generally accepted accounting principles) and non-GAAP

The REIT has identified specific key performance indicators to measure the progress of its long-term objectives. These are set out in an attached table.

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 via CanCorpEurope, an authorized alternative investment fund (AIF) by the CSSF in Luxemburg, and is managed by Inovalis S.A.

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