Cannabis REIT Nova Net to liquidate, sell assets for $3.7M
Nova Net Lease REIT (CSE: NNL.U) (OTCQB: NNLRF) plans to sell its cannabis real estate portfolio and wind down operations after struggling with low cash reserves and deteriorating market conditions in the cannabis REIT sector.
The Toronto-based company will sell its operating partnership’s Class A units to Bluebird Real Estate Holdings for $3.71 million, according to a material change report filed with regulators Friday.
The deal comes with substantially all of Nova’s assets, which include cannabis facilities in Michigan and Nevada. The properties are leased to licensed cannabis operators under long-term triple-net lease arrangements.
After the sale’s expected January 2025 closing, Nova plans to distribute between $0.40-$0.43 per unit to shareholders — a roughly 456%-498% premium to recent trading prices — before terminating the REIT, according to Friday’s announcement.
Major cannabis REITs have seen their valuations compress dramatically since the heydays. Innovative Industrial Properties (NYSE: IIPR) now trades at 12.5x FFO compared to 37.5x at the time of Nova’s IPO, while NewLake Capital Partners’ (OCTQX: NLCP) multiple has fallen from 26.2x to 8.4x FFO, according to FactSet data referenced in company filings.
“The arbitrage opportunity identified at the time of the REIT’s IPO between capitalization rates and public company valuations has significantly eroded,” Nova’s special committee stated in explaining the decision.
The REIT had just $75,854 in unrestricted cash as of Sept. 30, down from $281,838 at the end of 2023, according to its latest earnings report. The company implemented cost-cutting measures earlier this year, including reduced executive compensation and suspended distributions.
“Management has identified continued uncertainty” around its cash balance, Nova said in August financial filings, noting its unrestricted funds were below accounts payable levels.
Along with the sale agreement, Nova announced the departure of CEO Tyson Macdonald. CFO Stacy Riffe will take over as chief executive to oversee the wind-down process.
