NOVA NET LEASE REIT ANNOUNCES SIGNING OF CLASS A UNIT PURCHASE AGREEMENT WITH BLUEBIRD REAL ESTATE HOLDINGS, LLC, AND SUBSEQUENT WIND-UP OF THE REIT

NOVA NET LEASE REIT ANNOUNCES SIGNING OF CLASS A UNIT PURCHASE AGREEMENT WITH BLUEBIRD REAL ESTATE HOLDINGS, LLC, AND SUBSEQUENT WIND-UP OF THE REIT

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Nova Unitholders are expected to receive US$0.40 to US$0.43 per Unit in cash reflecting a premium of approximately 456% to 498% to the 30-day volume weighted average price per REIT Unit

TORONTO, Nov. 15, 2024 /CNW/ - Nova Net Lease REIT ("Nova" or the "REIT") (CSE: NNL.U) (OTCQB: NNLRF), a real estate investment trust with investments in cannabis-related properties in the U.S., announced today that it has entered into a unit purchase agreement (the "Unit Purchase Agreement") with Bluebird Real Estate Holdings, LLC ("Bluebird"), an affiliate of DRN Holdings LLC, pursuant to which Bluebird will acquire all of the Class A units (the "Class A Units") of Nova Net Lease Operating LLC (the "Operating Partnership") from Verdant Growth Properties Corp., ("Verdant") a wholly owned subsidiary of the REIT (collectively, the "Unit Purchase Transaction"). The Class A Units represent all, or substantially all, of the REIT's assets. Bluebird is purchasing the Class A Units for total gross proceeds of US$3.71 million, which is US$0.50 per Class A Unit.

After providing for liabilities, unpaid transaction costs and administrative costs, the REIT expects to distribute its net assets to the holders (the "Unitholders") of the REIT's outstanding units (the "Liquidating Distribution") and subsequently terminate the REIT in accordance with the REIT's declaration of trust (collectively, the "Transaction"). The Liquidating Distribution, net of costs to terminate the REIT, is estimated to be between $0.40 and $0.43 per REIT unit. The Unit Purchase Transaction is expected to be completed in January 2025, and the Liquidating Distribution and termination of the REIT is expected to be completed within 30-60 days of such date.

Transaction Rationale

The Unit Purchase Transaction and the subsequent termination of the REIT have been carefully considered, and the reasons set out below highlight why the REIT believes they are in the best interests of Unitholders.

• Cannabis Market Conditions and Cost of Capital – The arbitrage opportunity identified at the time of the REIT's IPO between capitalization rates and public company valuations has significantly eroded (the "Arbitrage Opportunity"). When the REIT completed its IPO, two key comparable cannabis REIT companies, Innovative Industrial Properties REIT ("IIPR") and NewLake Capital Partners ("NewLake"), traded at 37.5x FFO (2.7% equity yield) and 26.2x FFO (3.8% equity yield), respectively, according to FactSet. This was identified as a significant spread to cannabis real estate capitalization rates, which were observed to be approximately 10-13% by the REIT's management. As of November 14, 2024, IIPR is trading at 12.5x FFO (8.0% equity yield) and NewLake is trading at 8.4x FFO (11.9% equity yield), according to FactSet. The REIT's cost of capital and resulting liquidity has been significantly impaired on an absolute basis and relative to initial expectations at the time of the IPO.
  
  At the same time, capitalization rates for well-qualified tenants have also compressed. At the time of the IPO, management of the REIT observed such capitalization rates to be in the range of 10-13%. Now, management, the appraisers and other industry experts are observing capitalization rates in the range of 8-11%. These changes in the market conditions and the applicable cost of capital have completely eroded the Arbitrage Opportunity, in the view of the special committee of the Board of the REIT (the "Special Committee"). Consequently, the Special Committee and the board concluded that it was necessary to consider strategic alternatives to the operation of the REIT's business.
  
  
• Lack of Access to Capital – The Special Committee, with the assistance of its financial advisors, through conversations with the board and management, investment banks, and industry experts, understand that the current conditions in the capital markets have resulted in a lack of capital being available to small and micro-cap companies in the cannabis and cannabis adjacent industries. Since the REIT's IPO, real estate and cannabis equity financings are down from their long-term averages approximately 79% and 92%, respectively, in the Canadian public capital markets.¹ The REIT requires additional capital to grow, and it must grow for its underlying business to be viable. The lack of access to capital that the REIT has consistently faced following its IPO has inhibited its growth and rendered the operation of the REIT's business in the status quo to be unviable.
  
  
• Waiting for Markets to Return Not Practically Feasible – Following several discussions with industry experts, major stakeholders, and advisors, the Special Committee concluded that it was not feasible to wait for markets to return to their pre-IPO levels. The strong feedback was that it would take significant time for markets to return and given the cash flow break even operations of the REIT, the opinions expressed further led the Special Committee to explore a plan that saw the sale of the Class A Units and termination of the REIT.
  
  
• Attractive Value Relative to Market Price – The consideration the Unitholders are projected to receive in connection with the Transaction represents a premium of approximately 344% to 378% to the closing price of the REIT units on the CSE on November 14, 2024, the last trading day immediately prior to the announcement of the Unit Purchase Agreement, and a premium of approximately 456% to 498% to the 30-day VWAP of the REIT units on the CSE for the period ended November 14, 2024.

Transaction Details

Pursuant to the Unit Purchase Transaction, Bluebird will acquire all of the Class A Units of the Operating Partnership from Verdant for a purchase price of US$0.50 per Class A Unit and total proceeds of approximately US$3.71 million. The purchase price of US$0.50 per Class A Unit represents a premium of approximately 595% to the 30-day volume weighted average price per REIT unit ended November 14, 2024.

Following the closing of the Unit Purchase Transaction, the REIT expects to make the Liquidating Distribution to Unitholders within 30 to 60 days. Following the Liquidating Distribution, all REIT Units will be cancelled, and the REIT will be terminated in accordance with the declaration of trust.

To be approved and subject to a quorum being met, the Transaction resolution must receive the affirmative vote of (i) two-thirds of the votes cast on the Transaction resolution by the Unitholders present in person or represented by proxy at a meeting of shareholders, and (ii) a simple majority of the votes cast on the Transaction resolution by the Unitholders excluding votes cast by interested unitholders, determined in accordance with Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions. The Unit Purchase Transaction is subject to other customary conditions. The Unit Purchase Transaction is not subject to a financing condition but does require lender consent.

The Unit Purchase Agreement provides for, among other things, customary representations and warranties, and board support. The completion of the Unit Purchase Transaction depends on a limited number of conditions being satisfied or waived, including, among others: (i) the Transaction resolution being approved by the Unitholders; and (ii) the required consents being received, including consent by the lender.

The Unit Purchase Agreement will be available on the SEDAR+ website at www.sedarplus.ca within 10 days following the date of this press release. Copies of the REIT's management information circular and certain related documents will be sent to Unitholders and filed with Canadian securities regulators and will also be available on the SEDAR+ website at www.sedarplus.ca. 

In conjunction with the signing of the Unit Purchase Agreement, the Board of Directors released, without cause, Tyson Macdonald as CEO, and named its CFO, Stacy Riffe, as CEO to complete the Transaction and wind down all activities of the REIT. The Board of Directors thanks Mr. Macdonald for his time as CEO and appreciates his efforts leading up to the signing of the Unit Purchase Agreement.

Nova Net Lease REIT Board of Trustees Recommendation and Fairness Opinion

The REIT's board of trustees, after consultation with its financial and legal advisors, and on the unanimous recommendation of the Special Committee, has unanimously resolved to approve the Transaction and unanimously recommends that Unitholders vote for the Transaction.

Evans & Evans provided a fairness opinions to the Special Committee that, based upon and subject to the assumptions and limitations described in their respective opinions, the consideration to be received by Unitholders pursuant to the Transaction is fair, from a financial point of view, to Unitholders.

Advisors

Goodmans LLP and Hodgson Russ LLP are acting as legal counsel to Nova.

Evans & Evans has provided a fairness opinion to the Special Committee of Nova's board of trustees.

About Nova

Nova Net Lease REIT is a cross-border real estate investment trust which has investments in cannabis-related properties located in the United States through its operating partnership.

About Bluebird

Bluebird is a private real estate company based in Nevada.

Forward-Looking Information

Certain statements contained in this press release constitute forward-looking information within the meaning of applicable securities laws. Forward-looking information may relate to the REIT's future outlook and anticipated events or results and may include statements regarding the financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the REIT. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for the REIT or the real estate industry are forward-looking statements. In some cases, forward-looking information can be identified by such terms such as "may", "might", "will", "could", "should", "would", "occur", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue", "likely", "schedule", or the negative thereof or other similar expressions concerning matters that are not historical facts. Some of the specific forward-looking statements in this press release include, but are not limited to, statements with respect to the expected completion of the Transaction, the anticipated benefits to the Unitholders, including the estimated amount of the Liquidating Distribution, and the conditions required with respect thereto. There can be no assurance that the Transaction will be completed, or that it will be completed on the terms and conditions contemplated in this press release. The Transaction could be modified or terminated in accordance with its terms.

The REIT has based these forward-looking statements on factors and assumptions about future events and financial trends that it believes may affect its financial condition, financial performance, business strategy and financial needs, including, that the Unit Purchase Agreement will not be amended; and all conditions precedent to completing the Unit Purchase Transaction will be met.

Although the forward-looking statements contained in this press release are based upon assumptions that senior officers of the REIT believe 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. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond the REIT's control, that may cause the REIT's or the industry's actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, those identified in the REIT's materials filed under the REIT's profile at www.sedarplus.ca from time to time and the risk that the conditions to the Unit Purchase Transaction will be satisfied.

The forward-looking statements made in this press release relate only to events or information as of the date hereof. Except as required by applicable Canadian law, the REIT undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

SOURCE Nova Net Lease REIT