NOVA NET LEASE REIT ANNOUNCES JOINT VENTURE WITH NEVADA INVESTOR GROUP

/Not for distribution to U.S. newswire services or dissemination in the United States/

TORONTO, Dec. 22, 2023 /CNW/ - Nova Net Lease REIT ("NOVA" or the "REIT") (CSE: NNL.U) (OTCQB: NNLRF), a real estate investment trust focused on delivering attractive financing solutions to quality U.S. Cannabis Operators, today announced that it has, through certain of its subsidiaries, entered into a joint venture ("Joint Venture") with a Nevada real estate investor group ("JV Partner"). The JV Partner is contributing two properties with an aggregate value of approximately US$15.7 million into the Joint Venture.

Highlights

• The Joint Venture acquired a portfolio consisting of two facilities in Nevada comprising a total of 98,500 square feet (the "Acquisition Properties") for an aggregate purchase price of approximately US$15.7 million.
  
  
• The Joint Venture is structured as a limited partnership with Nova acting as the General Partner and receiving a 15% LP interest in the Joint Venture.
  
  
• The JV Partner will receive approximately US$8.9 million of limited partnership units ("JV Partner Units") priced at US$1.25 which are ultimately exchangeable for units of the REIT on a 1:1 basis. The JV Partner Units will receive a fixed 6% annual distribution, with any excess cash flow of the Joint Venture after debt service, Joint Venture expenses, and distributions to the JV Partner Units to be distributed to the REIT's US operating partnership. Cash flow to the REIT is expected to add approximately US$0.03 of proforma AFFO per unit, inclusive of the currently outstanding Class B units in the REIT's US operating subsidiary.
  
  
• The Joint Venture will have a 3-year term.
  
  
• Upon conversion of the JV Partner Units to REIT Units, the Acquisition Properties would increase the size of the REIT from one property to three and proforma total assets from approximately US$12 million to approximately US$28 million.
  
  
• The Joint Venture is expected to be immediately accretive on a proforma basis to the funds from operations ("FFO") and adjusted funds from operations ("AFFO") of the REIT.
  
  
• The tenant of the Acquisition Properties, Deep Roots Harvest, Inc. ("Deep Roots"), is a leading vertically integrated cannabis operator which has served the Nevada market since 2015. The JV Partners own a majority of the equity interest in Deep Roots.

Description of the Acquisition Properties

The Acquisition Properties consist of (i) a mixed-use facility that serves as the headquarters of Deep Roots, and contains cultivation, manufacturing and dispensary operations, and (ii) a standalone retail building that contains dispensary operations. The following table includes key characteristics of the Acquisition Properties.

Location	Facility Size  (Sq Ft)	Year Built	Current Use
Mesquite, NV	88,500	2015	Headquarters, Cultivation, Manufacturing & Dispensary Operations
West Wendover, NV	10,000	2020	Dispensary Operations

Following the Acquisition, the REIT's portfolio including the Acquisition Properties is comprised of three properties in two states, with aggregate square footage of approximately 170,000.

Acquisition Funding

The total acquisition cost of approximately US$16.2 million (including closing costs), will be satisfied by a combination of (i) a mortgage loan registered against the Acquisition Properties of approximately US$5.6 million aggregate principal amount from a federally regulated US bank, (ii) approximately US$1.8 million of a US$2.0 million mortgage on the REIT's existing Kalamazoo property, and approximately US$8.9 million of JV Partner Units at a price of US$1.25 per unit.

Structure of the Joint Venture

The Joint Venture is structured as a limited partnership with the JV Partner receiving an 85% interest and Nova receiving a 15% interest and acting as the General Partner. The JV Partner Units will receive a 6% annual fixed distribution, equal to US$0.075 per unit. Nova is entitled to all excess cash flow of the Joint Venture following debt service, partnership expenses and fixed distributions to the JV Partner Units. The JV Partner Units are issued at a price of $US1.25 and may be exchanged by the JV Partner at any time on a 1:1 basis for Class B units in Nova's US operating partnership, which are economically equivalent to the REIT units. The Joint Venture has a three-year term, at the end of which either party may request a termination of the Joint Venture so long as the JV Partner Units have not been converted to Class B units. The foregoing summary is qualified in its entirety by the terms of the limited partnership agreement governing the Joint Venture, which limited partnership agreement will be available on SEDAR+ no later than January 1, 2024.

Accounting Treatment

Due to the structure of the transaction, Nova will account for the Joint Venture under the equity accounting method. On a proforma basis, assuming full conversion of all JV Partner units, Nova would have approximately $28 million of assets in the portfolio, approximately $3.5 million of IFRS rental income and AFFO per unit of approximately US$0.025.

Management Commentary

"We are delighted to bring on Deep Roots as a tenant and their investors as partners as we look to build scale and momentum for Nova," said Tyson Macdonald, CEO of Nova. "Deep Roots has built a strong single state business in the cannabis industry, delivering almost 10 years of consistently profitable operations, making them the ideal tenant for Nova. We appreciate the commitment from their investor group in choosing to invest in Nova's strategy for continued growth. The conversion price under the terms of the limited partnership reflects our new partners' appreciation for the strong underlying value per unit as well as the significant upside potential of Nova."

The addition of the Deep Roots portfolio adds to the initial asset contributed to the Nova platform, a 70,000 square ft vertically integrated operation in Kalamazoo, MI, tenanted by Cloud Cannabis and contributed by investors in Cloud. Mr. Macdonald added, "Cloud Cannabis continues to be a strong tenant with one of the strongest operations in the Michigan market."

"We have been operating in a challenging capital markets environment, which has increased the difficulty among all market participants to effectively raise capital," said Mr. Macdonald. "In spite of those challenges, we are excited to close this transaction setting the stage for further growth." Added Potter Polk, CIO of Nova, "With a robust pipeline we are working to build a unique portfolio tenanted by some of the strongest current operators in the industry."

Keith Capurro, one of the principal investors of the JV Partner and CEO of Deep Roots concluded, "After a thorough process of examining how to best maximize the value of our real estate holdings, we believe that Nova's strategy for growth presents the best opportunity for tax-efficient long-term growth. We have confidence in the management team's ability to execute and are excited to be coming on as a partner."

Forward-Looking Statements

This press release contains statements that include forward-looking information within the meaning of Canadian securities laws. These forward-looking statements reflect the current expectations of the REIT regarding future events, including statements concerning the ability of the REIT to achieve its stated investment objectives, the success of the Joint Venture, expected future cash flow from it, any actions undertaken in connection with the termination of the Joint Venture, any future acquisitions and the future success of the platform. In some cases, forward-looking statements can be identified by terms such as "may", "will", "could", "occur", "expect", "anticipate", "believe", "intend", "estimate", "target", "project", "predict", "forecast", "continue", or the negative thereof or other similar expressions concerning matters that are not historical facts.

These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any result expressed or implied by such forward-looking statements, including the risk factors set forth in the REIT's final Prospectus dated December 22, 2021, under the heading "Risk Factors".

Although forward-looking statements contained in this press release are based upon what management of NOVA believes are reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. NOVA undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

Non-IFRS Measures

FFO and AFFO are not measures defined under IFRS as prescribed by the International Accounting Standards Board, do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to profit/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. FFO and AFFO as computed by the REIT are unlikely to be comparable to similar measures as reported by other trusts or companies in similar or different industries.

FFO assumes that the value of real estate investments does not decrease on a systematic basis over time and it adjusts for items included in net income and comprehensive income that do not necessarily provide the best indicator of operating performance, such as gains or losses on the sale of assets, provisions for impairment (and impairment reversals) of assets as well as changes in the fair value of certain equity-based financial instruments classified as financial liabilities. FFO is used by industry analysts and investors in the determination of the REIT's valuation, its ability to fund distributions and investors' investment return requirements. As a result, management believes FFO is a useful supplemental measure of its operating performance for investors.

AFFO is calculated as FFO subject to certain adjustments. AFFO is an important measure for management as a guideline through which operating and financial decisions are made and is an integral part of the investment decision for investors and potential investors.

For a reconciliation of FFO and AFFO to the most directly comparable measures calculated in accordance with IFRS, see the REIT's management's discussion and analysis for the three months ended September 30, 2023, which can be found under the REIT's profile on www.sedar.com.

About Nova Net Lease REIT

Nova Net Lease REIT is a real estate investment trust focused on increasing unitholder value through the acquisition and ownership of cannabis related properties in the United States.

SOURCE Nova Net Lease REIT

Tyson Macdonald, Chief Executive Officer, Nova Net Lease REIT, Tel: [phone]; Stacy Riffe, Chief Financial Officer, Nova Net Lease REIT, Tel: [phone]; Potter Polk, Chief Investment Officer, Nova Net Lease REIT, Tel: [phone]