INVESTOR PRESENTATION Q4 2019 Investing in Europes Deepest and - - PowerPoint PPT Presentation

Investing in Europe’s Deepest and Strongest Markets

INVESTOR PRESENTATION – Q4 2019

Investor Presentation: Q4 2019

Office

Asset Class

$652M

Valuation (2)

92.1%

Occupancy Rate

7.58%

Distribution Yield (2)

$317.8M

Market Cap (2) (3)

Why Invest in Inovalis REIT ?

Strong Market Fundamentals in REIT’s Key Markets, France and Germany High Occupancy Rate

• n the portfolio with

tenant risk diversification Potential to Accretively Grow NAV through Joint Ventures and Asset Repositioning Inovalis’ High Quality Portfolio Trading at Attractive Valuation Level Attractive Distribution Yield Secured by Low AFFO Payout Ratio

1 2 3 4 5

$34.8M

NOI 2019

1,409,103

Gross Leasable Area (Sq. Ft.)

4.4 years

Weighted Average Lease Term (1)

$10.89

Unit Price (2)

42.4%

Debt-to-book value 2

Note : Key figures as at Dec 31, 2019. The closing EUR/CAD exchange rate as at this date was 1.4565 (1) Represents weighted average lease term for end of lease period. Weighted average lease term including early termination rights equal to 3.9 years. (2) Unit price, distribution yield and market cap have been calculated based on the unit price as at January 24, 2020 (3) Includes units related to the promissory notes

Investor Presentation: Q4 2019

• 1. Investing in the Greater Paris Region and Germany

Sources: BNPParibas Real Estate Research & French customs, Insee (National Institute of Statistics and Economic Studies)

Greater Paris Region Germany

12.1 million

The number of inhabitants, 18% of the French population

€680 billion

The GDP of the Paris region - 31%

• f the GDP of France

52.2 million m²

Of leasable office space

1,010

Population density per km²

87%

The share of employment concentrated in the service sector

1,300

The number of identified areas of economic activity

1,093,800

Companies

1.5%

Harmonized consumer price index. Eurozone average 1.2%

€3,846 billion

German GDP. Share of EU’s GDP around 30%

3.1%

Unemployment rate. Fewer than 2.4 million unemployed

82.8 million

Population

45.3 million

People in employment. Highest figures since reunification

0.6%

GDP growth. EU average 0.3%

€61.5 billion

Investment turnover. over 2018; +

Dusseldorf Cologne Frankurt Hamburg Berlin Munich

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1 2 3 4 7 6 5 8 9 10 11 12 13 14 15 16 17 18 19 20

Investor Presentation: Q4 2019

• Largest economy in the Eurozone
• 4th largest economy and 3rd largest exporter in the world
• HQ for 32 Fortune 500 companies
• Historically low interest rates
• Product diversity matching a broad range of investment criteria
• Low rental price level leaves room for future upside
• Asset liquidity facilitates smooth entry and exit
• Strong investor appetite proves attractiveness of German

property

• Structural stability minimizes external risks
• 2. Investing in the Largest Global Office Markets

Sources: Cushman & Wakefield LLP, C&W for USA GLA, CBRE for Canada GLA, JLL for New York GLA, Organisation Régionale de l’immobilier d’entreprise for France GLA, BulwienGesa AG Statistic for German GLA, and JLL for Greater London GLA.

France Germany

• 2nd largest economy in the Eurozone
• 5th largest economy and 6th largest exporter in the world
• HQ for 31 Fortune 500 companies
• Historically low interest rates
• A diverse tenant base and a healthy level of occupier demand
• A strong investment market
• Limited office supply with potential rental growth
• A world leading high-end retail market
• Logistics hotspot, the place to be for hotels

4149 3444 2120 459 united states germany france canada

572 451 358 177

greater paris region new york metropolitan area greater london toronto

Office Real Estate Inventory (M sq.ft)

GLA (M sq.ft)

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Investor Presentation: Q4 2019

• 3. Real Estate Office Market Q1 2020 - France

Sources: Cushman & Wakefield LLP, C&W for USA GLA, CBRE for Canada GLA, JLL for New York GLA, Organisation Régionale de l’immobilier d’entreprise for France GLA, BulwienGesa AG Statistic for German GLA, and JLL for Greater London GLA.

France

• Central Banks have reaffirmed their commitment to

maintain financial liquidity in the midst of a global health crisis and emerging global recession. The ECB announced a new massive QE package of 750 billion euros to buy back private and public debt.

• If the various transactions initiated in H2 2019 are

completed, Q1 will record an excellent investment volume of nearly €7 billion.

• Although the number of transactions has declined

y-o-y), the market performed well thanks to an

• verall increase in average transaction volume, and

particularly major transactions. These consist primarily of transactions > €100 million

• Investors remain interested in high quality or wel-

located assets, and those in areas where demand is clearly high or rising. Investors consider portfolios with a high asset value, but also the security of the tenant in terms of type of business and resilience in periods of upheaval

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CRE investment in France

Investor Presentation: Q4 2019

• 3. Real Estate Office Market Q1 2020 - Germany

Sources: Cushman & Wakefield LLP, C&W for USA GLA, CBRE for Canada GLA, JLL for New York GLA, Organisation Régionale de l’immobilier d’entreprise for France GLA, BulwienGesa AG Statistic for German GLA, and JLL for Greater London GLA.

Germany

• The first quarter of 2020 saw €8.17bn invested in

Germany’s office market. Compared with the first quarter of 2019, this marks an increase of 44%

• 80% of the transaction volume in the first quarter of

2020 was attributable to the Top 7 cities. Berlin proved to be the strongest office investment market with 31% of the overall volume, followed by Frankfurt (20%), Düsseldorf (10%), Munich (9%) and Hamburg (7%)

• The prime yields in the Top 7 markets averaged

2.89%, reflecting a decline of 0.3 %-points compared with the first quarter of 2019

• Portfolio transactions were much more prominent in

the first quarter and took a share of 35%, which was due to a series of large-scale portfolio deals

• Investment momentum could lose some of its
• momentum. Nevertheless, negotiations are

continuing as planned without delay and transactions including large-volume transactions are taking place in all asset classes.

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Investment by origin of capital Q1 2020 57,4 21,6 10,2 7,4 1,1 2,3 Germany Middle East North America Europe Asia Other

in %

Investor Presentation: Q4 2019

• 3. Inflation Rates vs Rents in Europe

Source: BNP real estate research Global Outlook / Eurostat

Europe – Inflation Rates Rising inflation rates in the top European economies provide tailwinds for future office rent growth.

• 0,5%

0,0% 0,5% 1,0% 1,5% 2,0% 2,5% France Germany Spain Portugal Belgium Netherlands Luxembourg

2016 2017 2018

European – Prime Rent €/sq.m/year The European Office Market has thrived in

• 2019. Lack of supply has

pushed rental values even higher with increases registered among all among Europe’s liveliest office markets.

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€880 €540 €315 €460 €600 €200 €300 €400 €500 €600 €700 €800 €900 2014 2015 2016 2017 2018 2019

Paris Frankfurt Madrid Lisbon Brussels Amsterdam Luxembourg

Investor Presentation: Q4 2019

• 4. Property Lending Rates vs Prime Cap Rates

Source: Source: Knight Frank, Newmark Knight Frank, Macrobond. Note: The cost of finance equates to the relevant 10 year swap rate, plus an estimated lending margin compiled by Inovalis in December 2019.

Comparing the cost of lending to prime Cap Rates in Europe, there is still a noticeable gap especially in established markets such as Berlin, Madrid, Paris, Amsterdam Prime office yields are decreasing throughout Europe. Among the largest office markets, Berlin and Munich, Paris remained the most expensive in Europe, with the prime office yield at 2.60%

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2,6% 2,6% 3,8% 4,2% 4,0% 3,4% 3,6% 1,8% 1,2% 2,3% 3,5% 2,5% 2,0% 2,3% 0,0% 0,5% 1,0% 1,5% 2,0% 2,5% 3,0% 3,5% 4,0% 4,5% Paris Berlin Madrid Lisbon Brussels Amsterdam Luxembourg Prime Cap Rates Lending Rates

Investor Presentation: Q4 2019

• 5. Portfolio Overview

Long lease terms Stable revenue streams High quality tenants Security of cash flow Capital appreciation & AFFO growth Economic trends High asset liquidity Financial flexibility

Berlin Munich Hamburg Bad Homburg Duisburg Cologne Ingolstadt Stuttgart Neu-Isenburg Düsseldorf Frankfurt

Existing Properties

GERMANY Metropolitain Jeûneurs Courbevoie Sabliere Baldi Arcueil Diamants Rueil Malmaison GREATER PARIS REGION

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Investor Presentation: Q4 2019

• 6. New Focus & Strategy

Added Depth to the Executive Team Hiring a Canadian- based CFO in order to improve financial and capital market communications. Start of internalization of finance production with supervision of the CFO in Canada. Consolidation Consolidation of the existing portfolio by extending leases and signing new leases on vacant surfaces to improve weighted average lease term and rental income. Expansion into New Markets Continued interest in French and German markets due to record low rates, market resiliency and managements flair to find good deals. Diversification into new attractive and deep markets with assets that still have a price mismatch. >>

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>> >> Growth Growth dilution through growth of portfolio allowing us to meet market practice in terms of key performance indicators. >> Buying Back majority stake in JV Partnerships Simplifying the structure by buying back or disposing of assets in joint venture and replacing them when possible by 100% owned by the REIT. >>

Investor Presentation: Q4 2019

• 7. What’s New….. (1/3)

11

Acquisition of the JV Partner on Arcueil

Inovalis REIT has completed on December 18th, 2019 the buyout of its Korean JV partner in the Arcueil property, adding the additional 75% interest in the property at a highly accretive capitalization rate of approximately 7.7% and should provide mid-single digit accretion to 2020 and 2021 AFFO per unit estimates. Since July 2015, the REIT owned a 25% minority interest in this property located in southern rim of Paris. Arcueil building is fully let to the Orange Group (mobile division of France Telecom) with the existing lease set to expire in March 2023. The property is a 9-storey building of 334,531 sq. ft total GLA and 253 parkings spots.

Bought deal financing

The REIT has closed in December 2019 a $51,5 million bought deal financing through the emission of 4,835,110 new units at a price of $10,65. This offering includes a full 15% over- allotment option and was completed through a syndicate of underwriters co-led by Desjardins Capital Markets and BMO Capital Markets. Bought deal proceeds have financed the acquisition of 75% of Arcueil property closed in December 2019.

Investor Presentation: Q4 2019

• 7. What’s New….. (2/3)

The 258,673 sq.ft. property was acquired by the REIT for €78 million in April, 2013, upon closing its initial public offering. The sale price of €95 million crystalizes for unitholders the substantial increase in the property’s value, resulting from a market where capitalization rates have continued to compress and expected rental values to improve. Net cash proceeds from the sale following the repayment of property level debt and transaction costs were approximately €46.6 million , which comprises €25.7 million of profit and €20.9 million of equity. The IRR for this investment is in excess of 16% over a period of 6- years. 12

Sale of the Vanves Property Forward Sale of the Rueil Property

The property Convergence, located in in Paris Western periphery, has been disposed on a forward sale basis to a Joint Venture partnership between SEDCO and Inovalis SA. The mezzanine loan of $24,9 million provided by the REIT in 2016 to fund acquisition and redevelopment of the Property will be repaid with IRR in excess of 20% over a period of three and a half years The property is set for delivery in May 2020 to Danone, a French multi-national food products firm, under a 12-year lease for 100% of GLA (260,000 sq.ft)

Investor Presentation: Q4 2019

• 7. What’s New….. (3/3)

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Signature of 2 new long-term leases in Duisburg

The REIT has signed two new leases with Hitachi and Regus on Duisburg property, securing

• ccupancy rate or the next 7 years and stabilized future cash flows.

The REIT initiated the discussions with Hitachi in June 2019 on a potential lease extension and has reached an agreement in December 2019 for a firm 7-year lease. The tenant requested to vacate the last floor of the building which was also let to REGUS for a firm 10- years lease starting 2020. Duisburg property represents 109,105 sq.ft of GLA, 8% of REIT’s portfolio.

Introducing Michael Missaghie as new Trustee

Michael Missaghie is President of Arch Corporation and Portfolio Manger at Anson Advisors Inc, responsible for management of the Arch Anson Tactical Real Estate Fund. He has been involved with the REIT since inception and will bring deep real estate and capital markets expertise to the Board of Trustees helping as the REIT executes its growth and value creation strategy.

Investor Presentation: Q4 2019

• 8. Portfolio Highlights – Focus on France

METROPOLITAIN Property

Located in Arcueil in the inner southern suburbs of Paris. Built in 1969 as a turnkey project for France Telecom with an H layout, the building was the first and original building

• f

the “Orange Village” comprising six buildings in Arcueil. It is comprised of nine upper levels and two basement levels.

› JV partner Samsung bought out in December 2019 › Highly accretive property, now fully-owned by the REIT › A strategic building for Orange in the Vache Noir complex, within 6 other Orange building (Campus) › Fully air-conditioned asset after Capex

Located in the central business district of

• Paris. The building is elevated on a basement, a

ground floor and seven upper floors. The property benefits from two entrances located at rue Saint Denis and rue Greneta.

› In 2013, purchase of unsecured cash flow property (WALT below 3 years) › Purchase of a secured cashflow with strong-quality tenant › Negotiation with all tenants and reletting of vacant spaces › Latest rentals at €508/sqm when average building rent is €401/ sqm › Value increase from €46.2M (Q1 2016) to €66 M (Q4 2019) › In 2019, extension of lease with current tenant for 3,8 years, giving time to study restructuring

• pportunities.

› Building is let at 80% occupancy › Considering the ideal location, multiple redevelopment possibilities can attract investors

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JEUNEURS Property

Located in the central business district of Paris, the Property is a seven-story office building with underground parkings. The building is fully let to CNAM, a higher education education establishment

• perated

and guaranteed by the French government.

ARCUEIL Property

Investor Presentation: Q4 2019

• 8. Portfolio Highlights – Focus on Germany

ARROW Property DUISBURG Property

With a view on Frankfurt skyline, the Property

• ffers more than 10,000 sq.m of office space,

terraces and storage area. The stunning architecture of the building offers high quality construction materials and is build to the latest standards. The REIT will be seeking to establish a majority holding position in the JV partner.

› Discussions are currently held for the buyback of this Property, on a share-deal basis.

The Property is located in Neu-Isenburg, a key mid-sized city in the greater Frankfurt area and located less than 10km from downtown

• Frankfurt. The Property is a Class A office

building constructed in 2013. The greater Frankfurt area is a leading financial hub within Germany, and is expected to experience continued growth. This property is an eight-storey office building built in 2008 developing a total office space of 20,200 sq.m. Located in Duisburg inner harbor, a thought after location with strong demand. The office real estate market in Duisburg has been showing some positive trends (decrease in vacancy and compressing yields). The asset is currently fully let Hitachi & Mitsubishi Alliance and Regus.

› JV with Gulf investors allowing us to buy in the Frankfurt area › Extension of current lease and new tenant attracted in the building on the top floor for a firm period of 10 years. › Expected certification to add value in both rent and asset value

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› JV with Kuwaiti investors › Asset bought in 2015 and located Bad Homburg, in the growing Frankfurt area.

Bad Homburg

Investor Presentation: Q4 2019

• 9. Property Overview: Key Data Presented in 000s (2/2)

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(1) 1.4565 CAD/EUR closing foreign exchange rate as at December 31, 2019 (2) 1.4852 CAD/EUR average foreign exchange rate for the year-to-date as at December 31, 2019 (3) Including IFRS adjustments (Early payment of option, letting fees and IFRIC 21)

Total Total Total Total Total 100% Owned JVs France Germany France / Germany Acquisition Price (REIT Ownership)

(CAD)

424,457 144,840 368,783 200,514 569,297 REIT Ownership Valuation as at December 31, 2019 (1) (3)

(CAD)

478,700 173,313 430,134 221,879 652,013 % Increase in value since acquisition

%

13% 20% 17% 11% 15% % of REIT's Portfolio Value

%

73% 27% 66% 34% 100% Mortgage balance (Excluding amortized costs) (1)

(CAD)

257,732 81,627 223,795 115,564 339,358 LTV

(%)

54% 47% 52% 52% 52% Gross Leasable Area (GLA)

sq.ft

917,836 480,868 795,966 602,739 1,398,704 Contribution to GLA

(%)

66% 34% 57% 43% 100% 12-month NOI as at December 31, 2019 (2)

(CAD)

25,009 9,293 23,092 11,210 34,302 Projected NOI Annualized Basis (2)

(CAD)

26,011 9,293 23,092 12,212 35,304 Contribution to NOI based on annualized basis

(%)

74% 26% 65% 35% 100% Projected Yield (Annualized NOI(2)/Acq. Price(1))

(%)

6.1% 6.7% 6.3% 6.3% 6% # of tenants 35 35 46 24 70 Weighted Occupancy rate

(%)

89.5% 97.1% 87.4% 96.2% 92.1% WALT (end of lease)

(Years)

4.2 5.2 3.9 5.4 4.5 Next break

(Years)

3.5 4.9 3.0 5.2 4.0 Portfolio Overview - As at December 31, 2019

Investor Presentation: Q4 2019

• 10. Highlight on Joint-Venture Investments

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Company Name Asset Main tenant Last asset valuation (EUR) Debt (EUR) as at end 2019 Equity invested (EUR) REIT share JVA terms Cancorp Duisburg Duisburg Hitachi 63,500,000 17,842,125 9,960,000 50% Signature date : July 3, 2014 Initial Maturity : June 30, 2019 Extended maturity : June 30, 2020 Walpur IV Bad Homburg Fresenius 23,300,000 8,083,575 3,580,000 50% Signature date : April 8, 2015 Initial Maturity : March 31, 2019 Extended maturity : June 30, 2020 TFI CC Suttgart Stuttgart Daimler AG 48,600,000 17,914,950 8,850,000 50% Signature date : June 9, 2017 Maturity : May 30, 2023 Délizy Pantin Diamants Solabia / Inapa 27,700,000 11,164,982 5,925,333 50% Signature date : August 29, 2017 Maturity : September 30, 2022 TFI CC Isenburg Isenburg Arrow Arrows 38,500,000 16,604,100 8,860,000 50% Signature date : December 27, 2017 Maturity : December 31, 2023 TFI CC Kösching Kösching Ingolstadt TKI Automotive (Audi subsidiary) 28,200,000 10,017,079 5,860,000 50% Signature date : May 3, 2018 Maturity : December 31, 2023

Investor Presentation: Q4 2019

• 11. Market Metrics and Return Performance

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Summary Capitalization(1) Market Metrics

Investor Presentation: Q4 2019

• 12. Comparable valuation

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Compelling Investment Opportunity Given Attractive Valuation Implied distribution yield of 7.6% represents a ~620 bps spread relative to the 10-year GCAN

Canadian Comparables Price ($) Market Cap ($mln) Distribution Yield Price / 2020E AFFO Payout Ratio(1) AFFO Yield(1) Debt / GBV(2) Premium/ (Discount ) to NAV Implie d Cap Rate FFO AFFO Allied Prop. REIT $55.22 $6,816 3.0% 23.2x 26.9x 80.4% 3.7% 28.6% 17.0% 3.9% H&R REIT $21.85 $6,634 6.3% 12.2x 14.6x 91.9% 6.9% 44.6% (14.8%) 7.3% Cominar REIT $14.66 $2,674 4.9% 12.7x 16.7x 81.8% 6.0% 54.8% (3.4%) 6.0% Dream Office $32.73 $2,183 3.1% 19.9x 26.7x 81.5% 3.8% 41.9% 13.1% 4.4% Artis REIT $12.08 $1,680 4.5% 8.8x 11.6x 51.9% 8.6% 52.9% (15.4%) 6.8% Slate Office $5.91 $433 6.8% 8.2x 9.6x 65.2% 10.4% 60.1% (22.4%) 7.1% Total Average 4.8% 14.2x 17.7x 75.4% 6.6% 47.1% (4.3%) 5.9% Average (Excluding High/Low) 4.7% 13.4x 17.4x 77.2% 6.3% 48.5% (5.1%) 6.0% Inovalis REIT $10.89 $370 7.6% 14.0x 15.0x 113.6% 6.7% 45.4% 0.8% 5.7%

(1) Based on 2020E consensus estimates (2) Debt component includes convertible debentures and leases Source: FactSet and street research as of January 24, 2020 Note: FFO and AFFO are based on select street consensus estimates

Investor Presentation: Q4 2019

Disclaimer and Contact

Sources: BNPParibas Real Estate Research

Certain statements in this presentation may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Inovalis Real Estate Investment Trust (“Inovalis REIT” or the “REIT”), or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking

• statements. When used in this presentation, such statements use such words as “may”, “would”, “could”, “will”, “intend”, “expect”, “believe”, “plan”,

"anticipate", "estimate" and other similar terminology. These statements reflect the REIT's current expectations regarding future events and operating performance and speak only as of the date of this presentation. Forward-looking statements involve significant risks and uncertainties, which include, but are not limited to the factors discussed under “Forward-Looking Statements” and “Risk Factors” in the Final Long Form Prospectus of the REIT dated March 28, 2013, in our Final Short Form Prospectus dated October 30, 2014 and in our Annual Report dated March 23, 2016 and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be

• achieved. Although the forward-looking statements contained in this presentation are based upon what management of the REIT believes are

reasonable assumptions, the REIT cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this presentation and are expressly qualified in their entirety by this cautionary statement. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to the factors discussed in the REIT’s public filings available under the REIT’s profile at http://www.sedar.com. Subject to applicable securities laws, the REIT assumes no obligation to update or revise them to reflect new events or circumstances. This presentation is confidential and for internal use

• nly. Under no circumstances are the contents to be communicated, reproduced or distributed to the public or the press. Securities legislation in all

provinces of Canada prohibits such distribution of information. This presentation should be read in conjunction with the Final Long Form Prospectus dated March 28, 2013, our Final Short Form Prospectus dated October 30, 2014 and our Annual Report dated March 23, 2016. The information contained herein, while obtained from sources that we believe to be reliable, is not guaranteed as to its accuracy or completeness. Information contained herein may be amended. This presentation is for information purposes only and does not constitute an offer to sell or a solicitation to buy the securities referred to herein.

Corporate Office

INOVALIS SA 52 rue de Bassano, 75008 Paris, France T +33 1 56 43 33 23

Toronto Office

INOVALIS Real Estate Investment Trust 151 Yonge Street, 11th Floor. Toronto Ontario, M5C, Canada T +1 647 775 8431 F +33 1 56 43 33 24

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