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Inovalis Real Estate Investment Trust (REIT) posted a slight rise in net rental income (NRI) for the third quarter, supported by exchange rate gains and the addition of a new tenant at its Duisburg property. However, adjusted funds from operations (AFFO) remained negative due to higher capital expenditure and tenant improvement costs. The trust continues to face lower occupancy because of strategic vacancies, with plans focused on debt reduction, asset monetisation, and the completion of the Arcueil property sale in the second half of 2026.
Inovalis Real Estate Investment Trust reported that its total rental revenue for the third quarter reached CAD 4.38 million, while net income stood at CAD 189,000. Funds from operations (FFO) were CAD 603,000, whereas adjusted funds from operations (AFFO) remained negative at CAD 863,000, reflecting ongoing expenses related to property upgrades and tenant improvements. Advertisement
The trust attributed the moderate increase in net rental income to foreign exchange rate movements, which positively influenced its euro-denominated revenues. Within its income-producing (IP) portfolio, NRI rose to USD 3.701 million (approximately EUR 2.367 million), compared with USD 3.518 million (EUR 2.379 million) in the same quarter last year. The improvement was mainly due to currency fluctuations, while the underlying rental income remained largely stable.
The Total Portfolio, which includes the REIT's share in joint ventures, reported an NRI adjusted for IFRIC 21 of USD 5.101 million (EUR 3.263 million), higher than USD 4.131 million (EUR 2.794 million) a year earlier. The increase was driven by a new tenant who began occupying space at the Duisburg property in late 2024, along with the favourable exchange rate impact.
Occupancy levels continued to reflect the company's strategic approach. The IP portfolio recorded an occupancy rate of 46.4%, and the Total Portfolio reached 58.6%. The trust explained that these lower rates were partly due to maintaining planned vacancies in assets such as Arcueil and Baldi, in line with its asset recycling strategy. Excluding the assets held for disposal, the adjusted occupancy rate across the Total Portfolio stood at 80.2%, indicating a stronger operational performance among retained assets.
Inovalis expects a new lease agreement for its Gaia property to commence in the second quarter of 2026. The lease, involving an investment-grade tenant, is expected to strengthen the trust's recurring income. Meanwhile, the sale of the Arcueil property remains on track for closure in the second half of 2026. Management reiterated that its current focus remains on monetising assets, improving liquidity, and reducing leverage across its European portfolio.
As of the end of the quarter, unitholders equity stood at USD 190.6 million (EUR 116.7 million), with a book value per unit of USD 5.74 (USD 5.68 on a fully diluted basis). The debt-to-gross-book-value ratio was 51.5% for the IP portfolio and 59.6% for the Total Portfolio, reflecting a stable leverage position amid a changing market environment.
The weighted average interest rate on total portfolio debt was 3.46%, while it stood at 3.54% for the IP portfolio. The average term to maturity was two years for the Total Portfolio and 2.3 years for the IP portfolio. Around 68% of total portfolio debt remains at variable interest rates, primarily linked to short-term borrowings on assets earmarked for sale.
The trust continues to hold a geographically diverse portfolio, focusing mainly on office properties across France, Germany, and Spain. Through its parent company, Inovalis S.A., the REIT has pursued asset repositioning and selective disposals to strengthen its portfolio quality. Previous initiatives have included achieving environmental certifications such as LEED Platinum in Spain and completing refinancing transactions to maintain operational flexibility.
Analyst coverage of the REIT remains limited, with one analyst maintaining a hold rating on the stock, consistent with the broader hold sentiment across the commercial REITs peer group. Wall Street's median 12-month price target for Inovalis REIT is CAD 0.85, about 10.6% above its November 11 closing price of CAD 0.76.
Source Reuters
5th Jun, 2025
25th May, 2023
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