Inovalis Real Estate Investment Trust announces second quarter results with higher than forecasted FFO and AFFO per unit

/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES/

TORONTO, Aug. 14, 2013 /CNW/ - Inovalis Real Estate Investment Trust (the "REIT") (TSX: INO.UN) today reported its quarterly financial results for the period ended June 30, 2013.

HIGHLIGHTS

The units of Inovalis REIT were successfully listed on the Toronto Stock Exchange on April 10, 2013. Highlights of the REIT's initial quarter of operations include:

• Listing on the Toronto Stock Exchange on April 10, 2013 under the ticker "INO.UN" with an initial public offering of units for gross proceeds of $105,000,000
• Exercise of over-allotment option on May 10, 2013 by the underwriters of the initial public offering resulting in additional gross proceeds of $8,700,000
• The proceeds of the offering were used to acquire four properties totalling 529,267 sq.ft of office space in France and in Germany on April 12 and 16, 2013
• Underlying properties are 95.8% let under long-term leases (weighted average lease term of 8.1 years) to high quality tenants (81% of the gross rental income comes from French public agencies or is guaranteed by top-tier international banks)
• Funds from Operations (FFO) for the period of $2.0 million, $0.2 million higher than the forecasted $1.8 million and Adjusted Funds From Operations (AFFO) for the period of $2.4 million, $0.2 million higher than the forecasted $2.2 million (both FFO and AFFO on a pro-rated basis)
• Debt-to-book value of only 48.1% and strong interest coverage ratio of 3.9 x

"I am very pleased to announce our first quarterly financial report with FFO and AFFO figures ahead of our initial forecasts. The French and German real estate office markets, due to their maturity, depth and the recovery phase they have now entered in, are offering outstanding investment opportunities for which Inovalis REIT is ideally positioned" said Stéphane Amine, Chairman of the Board of Inovalis REIT.

OPERATING AND FINANCIAL SUMMARY

(in thousands of CAD$ unless otherwise expressed and except for per Unit amounts)		For the period from April 16, 2013 to June 30, 2013		Financial forecast (pro-rated) ^(1)
Operational information
Number of properties		4
Gross leasable area		529,267 sq.ft
Occupancy rate (end of period) ^(2)		95.8%
In-place rent per sq.ft per year		34
Operating results
Rental income		3,484		3,396
Net rental income		3,457		3,313
Income (loss) and comprehensive income (loss)		7,728		8,001
Funds from Operations (FFO) ^(3) (4)		1,958		1,759
Adjusted Funds from Operations (AFFO) ^(3) (4)		2,434		2,179
FFO per Unit ^(3) (4) (5)		0.16		0.15
AFFO per Unit ^(3) (4) (5)		0.19		0.18
Distributions
Declared distributions ^(6)		2,328
Distribution paid and payable in cash on Units and Exchangeable Securities ^(6)		2,328
Distribution per Unit ^(5)		0.19
AFFO payout ratio ^(3)		95.6%
Financing
Debt-to-book value ^(7)		48.1%
Weighted average interest rate ^(8)		1.46%
Weighted average term to maturity of principal repayments of finance leases		4.8 years
Interest coverage ratio ^(9)		3.9 x

(1)	Financial forecast - refers to the financial forecast for the three-month period ended June 30, 2013 included in our prospectus dated March 28, 2013, which has been pro-rated to reflect our ownership starting on April 16, 2013
(2)	Does not take into account the impact of the vendor leases. Taking into account the vendor leases (as described below under Occupancy), occupancy rate is 100.0%
(3)	FFO and AFFO are key measures of performance used by real estate companies. However, they are not defined under IFRS, do not have standard meanings and may not be comparable with other industries or issuers
(4)	FFO is net income adjusted for acquisition costs, negative goodwill, valuation gain from investment properties, net change in fair value of financial instruments and change in fair value of exchangeable securities.
	AFFO is FFO adjusted for amortization of fair value on assumed debt, non cash part of asset management fees paid in exchangeable securities and capex net of cash subsidy
(5)	FFO per unit is based on 12,538,762 units. AFFO per unit is based on 12,556,250 units. Explanation for the number of units used in the calculations can be found in the Equity subsection of the Presentation of our Capital section of our financial statements
(6)	Distributions of $2,328 pertain to the period starting on the date of the REIT's initial public offering (April 10, 2013) and ending on June 30, 2013. This covers therefore a longer period than the financial statements period that starts on April 16, 2013 and ends on June 30, 2013. Distributions for the period starting on April 16, 2013 and ending on June 30, 2013 pro-rated would be $2,157

Occupancy
The portfolio of properties has an occupancy rate of 95.8% as of June 30, 2013. Taking into account the leases put in place by the vendors of the leasehold interests on the vacant areas on the Vanves property (for a three-year period from acquisition date) and on the Dubonnet property (for a one-year period from the acquisition date), the occupancy rate on the portfolio is 100.0%. No tenant has announced any lease termination during the period.

In-place rents
The portfolio is on the average let at a $34 per sq.ft per year, i.e. at an average 6.9% discount to market rent of $37 per sq.ft per year (according to independent valuers).

Net income
Net income for the period reached $7.7 million. Acquisition costs of $3.4 million are largely offset by the negative goodwill of $9.7 million

Funds from operations
FFO for the period amounted to $0.16 per unit, ahead of initial forecasted FFO of $0.15 per unit.

Adjusted funds from operations
AFFO for the period amounted to $0.19 per unit, ahead of initial forecasted AFFO of $0.18 per unit. AFFO payout ratio for the period was 95.6%.

CAPITAL HIGHLIGHTS

Equity
On June 30, 2013, the REIT had 11,370,000 units outstanding. At the June 30, 2013 closing price of $9.52 per unit, the REIT's market capitalization was $108.2 million.

Financing
The REIT secured financing on the four leasehold properties with an average all-in interest rate of 1.46% and an average weighted maturity of 4.8 years. The REIT has a strong interest coverage ratio of 3.9 x.

APPOINTMENT OF CFO

On August 13, 2013, Antoine Tronquoy was appointed Chief Financial Officer of Inovalis REIT. Mr. Tronquoy has 10 years of experience in real estate financing in Europe and in Canada. Prior to joining Inovalis, Mr. Tronquoy spent 3 years at Otéra Capital, the real estate debt affiliate of Caisse de dépôt et placement du Québec. Before that, he spent 7 years in the real estate structured finance group of Morgan Stanley in Europe.

DRIP

Inovalis has implemented a Distribution Reinvestment Plan ("DRIP") starting from the July distribution. By participating in the Plan, Unitholders will have cash distributions from Inovalis REIT reinvested in additional units as and when cash distributions are made with a "bonus" distribution of units equal to 3% of the amount of the cash distribution reinvested pursuant to the Plan.

DISCLAIMER

Information appearing in this news release is a select summary of resuts. The financial statements and managements's discussion and analysis for the REIT are available at www.inovalisreit.com and on SEDAR at www.sedar.com.

ABOUT INOVALIS REAL ESTATE INVESTMENT TRUST

Inovalis Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT acquires and owns office properties primarily located in France and Germany but also opportunistically in other European countries where assets meet the REIT's investment criteria. The REIT currently owns an interest in four off ice properties in France and Germany, comprising 529,267 square feet (49,170 square metres) of gross leasable area.

SOURCE: Inovalis Real Estate Investment Trust

David Giraud, Chief Executive Officer  
Inovalis Real Estate Investment Trust
Tel: [phone]
[email protected]     

Antoine Tronquoy, Chief Financial Officer
Inovalis Real Estate Investment Trust
Tel: [phone]
[email protected]