UPDATED: G2S2 Capital, a major investor in the struggling Ravelin Properties REIT (formerly Slate Office REIT), has acquired almost $600 million (all figures Canadian unless otherwise stated) of the real estate investment trust’s $1.09 billion debt.

Ravelin Properties REIT (RPR-UN-T) and its predecessor Slate Office REIT have been dealing with a series of serious financial problems over the past couple of years as a downturn in some segments of the office sector, combined with higher borrowing rates and other pressures, have put a severe strain on its finances.

In Ravelin’s year-end 2024 financial report, the trust reported $1.09 billion of total debt against assets of $1.23 billion. Its loan-to-value ratio at the end of Q4 2024 was 89.4 per cent.

In the latest announcements, Ravelin and G2S2 report that G2S2 has acquired $233,047,602.23 and US$43,700,000 of debt from the Bank of Montreal and secured lenders involved in its Second Amended and Restated Credit Agreement- a credit agreement that had been finalized in November. 

It also states a series of bilateral loan agreements with the Royal Bank of Canada, valued at $295,471,630.31, were acquired by G2S2 in a transaction which closed March 31. 

'Significant step' in Ravelin's survival plan

"This is a significant step in progressing the REIT's recapitalization plan," Shant Poladian, Ravelin’s CEO, said in the announcement. "We welcome the support of G2S2, which is also a significant unitholder of the REIT, and look forward to working together on managing the REIT's debt as we move forward with our strategic direction."

G2S2 is a Halifax-based investor founded by George Armoyan and controlled by he and Simé Armoyan. George Armoyan is also the chair of Ravelin after taking on that role late in 2024.

The sale of the credit agreement and the loans portfolio required the consent of the REIT under the agreements governing the loans. In connection with providing consent, an independent committee of Ravelin trustees obtained a six-month forbearance from G2S2 to allow the REIT additional time to negotiate the terms of a recapitalization plan.

Ravelin owns and operates a portfolio of 46 properties, mainly office and commercial buildings, comprising approximately 6.6 million square feet of leasable space.

The transaction comes on the heels of the REIT's internalization of management and the addition of several highly qualified independent trustees. These moves were prompted largely by G2S2 leading a group of investors which launched a public campaign complaining of what they considered years of financial underperformance by the trust.

G2S2's 'countercyclical strategy'

"Over the past several months, we have worked closely with the REIT's lenders to facilitate a restructuring of the REIT's secured debt. Ultimately, it is our view that the best path forward was for G2S2 to step in as a secured lender while the assets are stabilized, at least for the time being," George Armoyan said in G2S2's announcement Tuesday morning. "Now we can focus on working along with the internalized management team to restore value to the REIT's assets and create value for all stakeholders."

"We are happy with the progress made by Shant Poladian and his team," Armoyan added. "Although there is still much work to be done, we are beginning to see improvement across the portfolio, which is encouraging."

The former Slate Office REIT was rebranded as Ravelin Properties REIT at the end of 2024, the same time as Poladian was named CEO of the REIT.

Previously a part of the Slate Asset Management group of entities, Ravelin has also seen significant changes to its board of directors in recent months. Armoyan was appointed to the board last fall and is now its chair, while brothers Blair and Brady Welch - two of the founding members of Slate Office REIT and the leadership of its parent Slate - resigned in October.

For G2S2, the transaction marks a significant increase in its private credit portfolio. Together with a series of commercial real estate acquisitions recently made by its wholly-owned subsidiaries, Armco Alberta and Armco Quebec, Armoyan said G2S2 is committed to a "counter-cyclical strategy".

"We have been investing in real estate for over 40 years, and we have seen many cycles come and go. Right now, there are some incredible opportunities in many North American markets, if you know where to look. While others are sellers, we are buyers," Armoyan said in the release.

"We intend to keep expanding and growing our team in order to take advantage of this environment."

Declining asset values impact debt ratio

The moves come after a very difficult 2024 for Ravelin. During the year, Ravelin divested a total of eight properties for gross proceeds of $114.1 million, but net proceeds of just $5.9 million. During that same period, it was able to reduce debt to the $1.09 billion figure from $1.179 billion at the end of 2023.

However, the REIT was hit with significant asset value writedowns, which caused its debt ratio to spike. During 2024, the REIT’s asset value declined by $438 million.

Over the past three years, its asset values have declined by $662 million.

The REIT’s year-end 2024 Management Discussion and Analysis, which accompanied its financial report, contained a stark analysis of the impact of these pressures. It noted Ravelin management had been working on a recapitalization plan for the REIT, but that its future remained uncertain.

“During the year ended December 31, 2024, the REIT’s financial condition has continued to deteriorate. The REIT now requires additional funding in the near term and amendments to its existing indebtedness in order to continue as a going concern.”

The decline in property values and in the sale market for many commercial real estate properties has also squeezed its ability to lower debt.

“The REIT's disposition activities under the Portfolio Realignment Plan have had limited success in raising excess proceeds to repay debt and improve liquidity. Accordingly, the REIT is suspending its Portfolio Realignment Plan, which has resulted in a significant reduction of assets classified as held-for-sale,” its MD&A document states.