Inovalis Real Estate Investment Trust Announces Financial Results for Q4 2024

TORONTO–(BUSINESS WIRE)–Inovalis Real Estate Investment Trust (the “REIT”) (TSX: INO.UN) today reported financial results for the quarter ended December 31, 2024. The audited Consolidated Financial Statements and Management’s Discussion and Analysis (“MD&A”) for Q4 2024 are available on the REIT’s website at www.inovalisreit.com and at www.sedarplus.ca¹. 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, CEO and President of the REIT, commented “Our REIT is undergoing a transformative phase, and we remain committed to strengthening our portfolio and unlocking long-term value. Through strategic divestments and reinvestments, we are ensuring financial resilience and adaptability in this evolving landscape.”

HIGHLIGHTS

Net Rental Income

For the portfolio that includes assets owned entirely by the REIT (“IP Portfolio”), Net Rental Income (“NRI”) for Q4 2024 slightly increased to $4,732 (€3,193), compared to $4,084 (€2,798) NRI for Q4 2023 due to the net decrease in non-recoverable costs on the Arcueil and Baldi properties.

For the year ended December 31, 2024, the IP Portfolio NRI was $13,775 (€9,295), compared to $23,216 for the year 2023, the decrease being mostly attributable to vacancies in the Arcueil, Bad Homburg and Métropolitain properties and the depletion of the $2,316 Arcueil indemnity.

In Q4 2024, Net Rental Income, adjusted for IFRIC 211 for the portfolio that includes the REIT’s proportionate share in joint ventures (“Total Portfolio”), was $5,833 (€3,935), compared to $5,201 (€3,563) for Q4 2023, an increase due to the same reasons described above with respect to the IP Portfolio.

Leasing Operations

As of December 31, 2024, the occupancy rate of the REIT’s IP Portfolio was 47.7% and the occupancy rate of the REIT’s Total Portfolio was 59.3%. Strategic vacancies were created to prepare properties for redevelopment or disposition, as outlined in the Asset Recycling Plan (Arcueil, Sablière and Baldi). In addition, the main tenant of the Bad Homburg property vacated the premises in January 2024.

The Duisburg property has been repositioned into a multi tenant property with strong tenants, reducing its risk profile. Daimler’s break options on Stuttgart were waived and the facility agreement was extended until February 2026. The occupancy rate of the Total Portfolio excluding properties in the Asset Recycling Plan is 81.8%. An increase in interest from prospective tenants emerged in the second half of 2024 leading to lease agreements and positive discussions for early 2025.

To strengthen leasing efforts, particularly with on-field brokers, management is selectively considering tenant improvements to attract tenants and maximize rental income.

Asset Recycling Plan

Subsequent to the year end, on March 28, 2025, the REIT signed a binding agreement of purchase and sale of the Sablière property. This contract reaffirms the buyer’s unconditional commitment to the acquisition, supplements the non-refundable deposit and establishes a revised timeline for the final closing and payment, set for April 30, 2025. A $2,680 indemnity (equivalent to 10% of the sale price) is now in place in the unlikely event that the buyer does not proceed. While this scenario is not expected, the indemnity provides the REIT with financial flexibility to find an alternative buyer for this prime, nearly vacant property with high redevelopment potential, in downtown Paris.

An exchange contract confirming the sale of 87.5% of the Arcueil property for €37.5 million ($56.5 million) was announced in January 2025 with closing expected in the second half of 2026. The long closing is required to satisfy the administrative, building permit and financing conditions. The remaining 12.5% of the Arcueil office property is being marketed for a new office tenant.

The Baldi property (Fair Value $25,912) is also being marketed for sale as part of the REIT’s Asset Recycling Plan. The timing and price of the Baldi disposition will vary depending on whether the sale is subject to current building permit condition.

Upon the sale of these properties, the REIT will consider the best use of the proceeds including the options to pay down debt, invest capital to support leasing or redevelopment opportunities.

Joint Venture (“JV”) Arrangement Wind Up

Management has paused its previously announced commitment to wind up the current joint ventures due to the strategic prioritization of available funds to drive longer-term Unitholder value.

Capital Market Considerations

For the past twelve months, net asset values for the REITs Total Portfolio have been significantly pressured, primarily due to geopolitical tensions, high inflation, high interest rates and energy costs. The decrease in net asset values largely impacted Unitholders’ equity that was $182,038 (€122,239) at December 31, 2024. The book value per Unit at December 31, 2024 was $5.58/Unit and $5.43/Unit on a fully-diluted basis, using the weighted average number of units of the REIT (the “Units”) for the period. The closing price of a Unit on the TSX at December 31, 2024 was $0.98/Unit.

The REIT has addressed the volatile risks in the current capital markets by selling certain properties, implementing short term leasing initiatives for properties in the REIT’s Asset Recycling Plan, maintaining a manageable debt-to-gross-book value ratio, currently 52.3% of the IP Portfolio (59.8% on the Total Portfolio).

Funds From Operations and Adjusted Funds From Operations

FFO per Unit of $0.02 and AFFO¹ per Unit of $0.01 were reported for Q4 2024, in line with our projection given the occupancy rate and increased cost of debt. Refer to the “Financing Activity” section below for details of the impact of finance costs on FFO and AFFO. The full year 2024 FFO per Unit was $0.04.

Financing Activity

The REIT is financed almost exclusively with asset-level, non-recourse financing with an average term to maturity of 2.6 years for the Total Portfolio (2.8 years for the IP Portfolio), considering short-term extensions granted in Q4 2024 on the three jointly held properties, Stuttgart, Kosching and Neu-Isenburg, on similar terms and maturing on March 31, 2026.

For the three-month period ended December 31, 2024, the weighted average interest rate across the Total Portfolio was 4.17% compared to 2.75% as at December 31, 2023. This increase is due to the higher interest rate on most of the REIT’s mortgage loans, now bearing interest at a floating rate indexed on EURIBOR, reflecting the rise in interest overall in the market. As at December 31, 2024, 72% of the REIT’s debt for the Total Portfolio were exposed to interest rate fluctuations, mostly on short term loans and within properties being marketed for sale.

Subsequent to the year-end, on March 19, 2025, HCOB, the senior lender for the Trio property, , confirmed a 6-month extension of the financing and agreed on the timing for the €5,500 ($8,191) loan repayment scheduled for the week of April 7, 2025. This satisfies a waiver condition for a second mortgage held by HCOB on the Bad Homburg property.

The Trio loan repayment will be funded by a €5,600 ($8,340) mezzanine loan on the Bad Homburg property, scheduled to be in place in early April 2025 with a drawdown to take place no later than April 11, 2025. The 18-month mezzanine loan will bear annual interest at 12% (6% paid quarterly and 6% at maturity). Management’s objective is to eventually refinance this loan with a conventional financing, depending on progress in the leasing strategy.

Special Non-Cash Distribution

The REIT declared a special non-cash distribution of $0.225 per Unit on December 31, 2024. The distribution totaling $7,471 was made to distribute to Unitholders, the taxable income realized by the REIT from transactions completed during the year. The distribution was paid in Units to Unitholders of record as at December 31, 2024. This transaction had no impact on the REIT’s equity, as the new Units were immediately consolidated, resulting in the same number of Units outstanding as prior to the distribution.

Environmental, Social and Governance (ESG)

Integration of ESG objectives and strategies into the REIT’s business reflects the growing importance of these factors among many of our key stakeholders. The REIT is working to improve its long-term environmental performance, and also to invest in “human capital” for the implementation and monitoring of all ESG initiatives.

The Spanish property Delgado obtained the LEED Platinum certification in December 2024, reflecting management and tenants’ efforts to improve the quality of this building.

In the German portfolio, the REIT concluded a green electricity procurement policy in 2024, in addition to the implementation of smart water-saving equipment and individual energy measurements tools.

FORWARD-LOOKING INFORMATION

Certain statements contained, or contained in documents incorporated by reference, may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to the REIT’s future outlook and anticipated events or results and may include statements regarding the future financial position, business strategy, budgets, occupancy rates, rental rates, productivity, projected costs, capital investments, development and development opportunities, financial results, taxes, plans and objectives of or involving the REIT. Particularly, statements regarding the REIT’s future results, performance, achievements, prospects, costs, opportunities, and financial outlook, including those relating to acquisition and capital investment strategies and the real estate industry generally, are forward-looking statements. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or the negative thereof, or other similar expressions concerning matters that are not historical facts. Forward-looking statements are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities.

Although management believes that the expectations reflected in the forward-looking information are reasonable, no assurance can be given that these expectations will prove to be correct, and since forward-looking information inherently involves risks and uncertainties, undue reliance should not be placed on such information.

Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such forward-looking statements. The estimates and assumptions, which may prove to be incorrect, include, but are not limited to, the various assumptions set forth in this press release as well as the following:

The REIT cautions that this list of assumptions is not exhaustive. Although the forward-looking statements contained in this MD&A are based upon assumptions that management believes are reasonable based on information currently available to management, there can be no assurance that actual results will be consistent with these forward-looking statements.

When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties. Forward-looking statements should not be read as guarantees of future performance or results and will not necessarily be accurate indications of whether or not, or the times at or by which, such performance or results will be achieved. A number of factors could cause actual results to differ, possibly materially, from the results discussed in the forward-looking statements, including, but not limited to:

• the REIT’s ability to execute its asset recycling plan, growth and capital deployment strategies;
• the impact of changing conditions in the European office market;
• the marketability and value of the REIT’s portfolio;
• changes in the attitudes, financial condition and demand in the REIT’s demographic markets;
• the political environment in the REIT’s demographic markets;
• fluctuation in interest rates and volatility in financial markets;
• the geopolitical conflict around the world on the REIT’s business, operations and financial results;
• general economic conditions, including any continuation or intensification of the current economic conditions;
• developments and changes in applicable laws and regulations; and
• such other factors discussed under ‘‘Risk and Uncertainties’’ in the MD&A.

If any risks or uncertainties with respect to the above materialize, or if the opinions, estimates or assumptions underlying the forward-looking statements prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking statements. The opinions, estimates or assumptions referred to above and described in greater detail under ‘‘Risks and Uncertainties’’ in the MD&A should be considered carefully by readers. Although management has attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other risk factors not presently known or that management believes are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking statements.

Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Certain statements included in press release may be considered a ‘‘financial outlook’’ for purposes of applicable Canadian securities laws, and as such, the financial outlook may not be appropriate for purposes other than this press release. All forward-looking statements are based only on information currently available to the REIT and are made as of the date of this press release. Except as expressly required by applicable Canadian securities law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All forward-looking statements in this press release are qualified by these cautionary statements.

Non-GAAP Financial Measures and Other Measures

There are financial measures included in this MD&A that do not have a standardized meaning under IFRS. These measures include Funds from Operations, Adjusted Funds from Operations, and other measures presented on a proportionate share basis. These measures have been derived from the REIT’s financial statements and applied on a consistent basis as appropriate. Management includes these measures as they represent key performance indicators to management, and it believes certain investors use these measures as a means of assessing relative financial performance. These measures, as computed by the REIT, may differ from similar computations as reported by other entities and, accordingly, may not be comparable to other such entities. These measures should not be considered in isolation or used in substitute for other measures of performance prepared in accordance with IFRS.

USE OF OPERATING METRICS

The REIT uses certain operating metrics to monitor and measure the operational performance of its portfolio. Operating metrics in this press release include GLA, committed occupancy, Weighted Average Lease Term and average term to maturity. Certain of these operating metrics, may constitute supplementary financial measures as defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure. These supplementary measures are not derived from directly comparable measures contained in the REIT’s financial statements but may be used by management and disclosed on a periodic basis to depict the historical or future expected financial performance, financial position or cash flow of the REIT.

“Adjusted Funds From Operations” or “AFFO” is a meaningful supplemental measure that can be used to determine the REIT’s ability to service debt, fund expansion capital expenditures, fund property development, and provide distributions to Unitholders after considering costs associated with sustaining operating earnings.

AFFO calculations are reconciled to net income, which is the most directly comparable IFRS measure. AFFO should not be construed as an alternative to net income or cash flow generated from operating activities, determined in accordance with IFRS.

AFFO is defined as FFO subject to certain adjustments, including adjustments for: (i) the non-cash effect of straight-line rents, (ii) the cash effect of the rental guarantee received, (iii) amortization of fair value adjustment on assumed debt, (iv) capital expenditures, excluding those funded by a dedicated cash reserve or capex financing, and (v) amortization of transaction costs on mortgage loans.

“Adjusted Funds From Operations / Unit” or “AFFO / Unit” is AFFO divided by the issued and outstanding Units, plus Exchangeable Securities (fully diluted basis).

“AFFO Payout Ratio” is the value of declared distributions on Units and Exchangeable Securities, divided by AFFO.

“Average term to maturity” refers to the average number of years remaining in the lease term.

“Book value per Unit” refers to the REIT’s total equity divided by the Weighted Average number of Units and Exchangeable Securities (on a fully diluted basis).

“Debt-service covenant ratio calculation” or “DSCR“ refers to the rental income divided by the debt service, including interest and amortization.

“Debt-to-Gross-Book Value” refers to the REIT’s apportioned amount of indebtedness respectively in the IP Portfolio and the Total Portfolio. Indebtedness on an IP and Total Portfolio basis is calculated as the sum of (i) lease liabilities, (ii) mortgage loans, (iii) other long-term liabilities, and (iv) deferred tax liabilities. Indebtedness does not include certain liabilities as is the case for the Exchangeable Securities and at the joint venture level for the contribution from the REIT and its partners.

“Exchangeable Securities” means the exchangeable securities issued by CanCorpEurope, in the form of interest bearing notes, non-interest bearing notes and variable share capital.

“Fully diluted basis” refers to a nominal value divided by the issued and outstanding Units, plus Exchangeable Securities.

“Funds From Operations” or “FFO” follows the definition prescribed by the Real Estate Property Association of Canada publication on Funds From Operations & Adjusted Funds From Operations, dated January 2023 with one exception.

Management considers FFO to be a meaningful supplemental measure that can be used to determine the REIT’s ability to service debt, fund capital expenditures, and provide distributions to Unitholders.

As an exception, considering the significant amount of cash held in Euros in Canada and the volatility of the Canadian dollar against the Euro, the unrealized gain (loss) recognized for the three and twelve months ended December 31, 2024, and 2023, have been excluded from the FFO calculation. Finally, non-recurring administrative expenses relating to items that are not reasonably likely to occur within two years prior to, or following the disclosure, have also been excluded from FFO.

FFO is reconciled to net income, which is the most directly comparable IFRS measure. FFO should not be construed as an alternative to net income or cash flow generated from operating activities, determined in accordance with IFRS.

FFO for the REIT is defined as net income in accordance with IFRS, subject to certain adjustments including adjustments for: (i) acquisition, eviction and disposal costs (if any), (ii) net change in fair value of investment properties, (iii) net change in fair value of derivative financial instruments at fair value through profit and loss, (iv) net changes in fair value of Exchangeable Securities, (v) finance costs related to distribution on Exchangeable Securities, (vi) adjustment for property taxes accounted for under IFRIC 21 (if any), (vii) loss on exercise of lease option (if any), (viii) adjustment for foreign exchange gains or losses on monetary items not forming part of an investment in a foreign operation (if any), (ix) gain or loss on disposal of investment properties or an interest in a subsidiary (if any), (x) finance income earned from loans to joint ventures (if any), (xi) loss on extinguishment of loans (if any), (xii) deferred taxes, (xiii) non-controlling interest, (xiv) goodwill / bargain purchase gains upon acquisition, and (xv) income taxes on sale of investment properties and provision for tax reassessment.

Exchangeable Securities are recorded as liabilities. Exchangeable Securities are recorded at fair value through profit and loss in accordance with IFRS. However, both are considered as equity for the purposes of calculating FFO and AFFO, as they are economically equivalent to the REIT’s Units, with the same features and distribution rights, that are economically equivalent to the distribution received by Unitholders.

“Funds From Operations / Unit” or “FFO / Unit” is FFO divided by the issued and outstanding Units, plus Exchangeable Securities (fully diluted basis).

“Gross book value” refers to the total consolidated assets for the IP Portfolio and Total Portfolio.

“Interest Coverage Ratio” or “ICR” covenant refers to a financial metric used to assess a REIT’s ability to meet its interest obligations on outstanding debt. It indicates how many times the operating profit can cover the REIT’s interest expenses over a given period.

“Investments in Joint Ventures” refers to the REIT’s proportionate share of the financial position and results of operation of its investment in joint ventures, which are accounted for using the equity method under IFRS in the consolidated financial statements, are presented below using the proportionate consolidation method at the REIT’s ownership percentage of the related investment.

Contacts

For further information, please contact:

Stephane Amine, President and Chief Executive Officer

Inovalis Real Estate Investment Trust

Tel: +33 1 5643 3315

[email protected]

Khalil Hankach, Chief Financial Officer

Inovalis Real Estate Investment Trust

Tel: +33 1 5643 3313

[email protected]

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