What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-06 · 166 added, 82 removed, 366 unchanged (40% of the section changed)

10 unchanged sentences

Net real estate held for investment

Construction loan

Cash and cash equivalents

3 unchanged sentences

Exchangeable senior notes, net

Unsecured senior notes, net

Tenant improvements and construction funding payable

1 unchanged sentence

Dividends payable

Office lease liability

Other liabilities

Rent received in advance and tenant security deposits

3 unchanged sentences

Preferred stock, par value $ 0.001 per share, 50,000,000 shares authorized:

9.00 % Series A cumulative redeemable preferred stock, $ 15,000 liquidation preference ($ 25.00 per share), 600,000 shares issued and outstanding at March 31, 2021 and December 31, 2020

9.00 % Series A cumulative redeemable preferred stock, $ 15,000 liquidation preference ($ 25.00 per share), 600,000 shares issued and outstanding at June 30, 2021 and December 31, 2020

Common stock, par value $ 0.001 per share, 50,000,000 shares authorized:

23,926,317 and 23,936,928 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

23,928,304 and 23,936,928 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

7 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Rental (including tenant reimbursements)

15 unchanged sentences

(In thousands, except share amounts)

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Three Months Ended June 30, 2020

Stockholders’

Balance, December 31, 2020

Stockholders’

Balances at beginning of period

Issuance of unvested restricted stock, net of forfeitures

Net proceeds from sale of common stock

Preferred stock dividend

1 unchanged sentence

Stock-based compensation

Balance, March 31, 2021

Three Months Ended March 31, 2020

Balances at end of period

Six Months Ended June 30, 2021

Six Months Ended June 30, 2020

Stockholders’

Balance, December 31, 2019

Net proceeds from sale of common stock

Stockholders’

Balances at beginning of period

Exchange of exchangeable senior notes

Net proceeds from sale of common stock

Issuance of unvested restricted stock, net of forfeitures

2 unchanged sentences

Stock-based compensation

Balance, March 31, 2020

Balances at end of period

See accompanying notes to the condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

For the Three Months Ended

For the Six Months Ended

Cash flows from operating activities

6 unchanged sentences

Other assets, net

Accounts payable and accrued expenses

Accounts payable, accrued expenses and other liabilities

Rent received in advance and tenant security deposits

3 unchanged sentences

Reimbursements of tenant improvements and construction funding

Draws on construction loan

Deposits in escrow for acquisitions

4 unchanged sentences

Issuance of common stock, net of offering costs

Gross proceeds from issuance of unsecured senior notes

Payment of deferred financing costs from issuance of unsecured senior notes

Dividends paid to common stockholders

1 unchanged sentence

Taxes paid related to net share settlement of equity awards

Net cash (used in) provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

6 unchanged sentences

Accrual for common and preferred stock dividends declared

Accrual for deferred financing costs

Accrual for stock issuance costs

Exchange of exchangeable senior notes

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements

March 31, 2021

June 30, 2021

As used herein, the terms “we”, “us”, “our” or the “Company” refer to Innovative Industrial Properties, Inc., a Maryland corporation, and any of our subsidiaries, including IIP Operating Partnership, LP, a Delaware limited partnership (our “Operating Partnership”).

11 unchanged sentences

Any references to square footage or occupancy percentage, and any amounts derived from these values in these notes to the condensed consolidated financial statements, are outside the scope of our independent registered public accounting firm’s review.

The Company considered the impact of COVID-19 on its assumptions and estimates used and determined that there were no material adverse impacts on the Company's results of operations and financial position at March 31, 2021.

A prolonged outbreak could have a material adverse impact on the financial results and business operations of the Company.

The Company considered the impact of COVID-19 on its assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position at June 30, 2021.

A prolonged outbreak or resurgence of COVID-19 could have a material adverse impact on the financial results and business operations of the Company.

Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included.

37 unchanged sentences

We may adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives.

No impairment losses were recognized during the three months ended March 31, 2021 and 2020.

No impairment losses were recognized during the six months ended June 30, 2021 and 2020.

Revenue Recognition.

3 unchanged sentences

Contractually obligated real estate taxes that are paid directly by the tenant to the tax authorities are not reflected in our condensed consolidated financial statements.

Construction Loan.

In June 2021, we executed a construction loan agreement with a developer, pursuant to which we agreed to lend up to $ 18.5 million for the development of a regulated cannabis cultivation and processing facility in California.

We have an option to purchase the property, and may execute a negotiated lease with an affiliate of the developer or with another third party, if we determine to exercise our purchase option.

The developer is required to complete construction by June 2022, subject to extension in certain circumstances.

Interest on the construction loan is payable at maturity, which is December 25, 2022.

As of June 30, 2021, we had funded $ 6.0 million of the construction loan.

Cash and Cash Equivalents .

We consider all highly-liquid investments with original maturities of three months or less to be cash equivalents.

As of March 31, 2021 and December 31, 2020, $ 109.7 million and $ 98.3 million, respectively, were invested in short-term money market funds, obligations of the U.S.

As of June 30, 2021 and December 31, 2020, $ 146.0 million and $ 98.3 million, respectively, were invested in short-term money market funds, obligations of the U.S.

government and certificates of deposit with an original maturity at the time of purchase of less than or equal to three months.

10 unchanged sentences

Deferred Financing Costs.

The deferred financing costs that are included as a reduction in the net book value of the related liability on our condensed consolidated balance sheets reflect issuance and other costs related to our Exchangeable Senior Notes.

These costs are amortized as non-cash interest expense using the effective interest method over the life of the Exchangeable Senior Notes.

These costs are amortized as non-cash interest expense using the effective interest method over the life of the related obligations.

Stock-Based Compensation.

11 unchanged sentences

We also elected the lessor practical expedient, allowing us to continue to amortize previously capitalized initial direct leasing costs incurred prior to the adoption of Topic 842.

As lessee, we recognized a liability to account for our future obligations related to our corporate office lease, which had a remaining lease term of approximately 4.0 years and 4.3 years as of March 31, 2021 and December 31, 2020, respectively, excluding the extension option that we are not reasonably certain to exercise, and a corresponding right-of-use asset.

As lessee, we recognized a liability to account for our future obligations related to our corporate office lease, which had a remaining lease term of approximately 3.8 years and 4.3 years as of June 30, 2021 and December 31, 2020, respectively, excluding the extension option that we are not reasonably certain to exercise, and a corresponding right-of-use asset.

The lease liability is measured based on the present value of the future lease payments discounted using the estimated incremental borrowing rate of 7.25 %, which is the interest rate that we estimate we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments.

3 unchanged sentences

Subsequently, the right-of-use asset is amortized on a straight-line basis during the lease term.

For the three months ended March 31, 2021 and 2020, we recognized office lease expense of approximately $ 57,000 and $ 58,000 , respectively, which are included in general and administrative expense in our

consolidated statements of income.

For the three months ended March 31, 2021 and 2020, amounts paid and classified as operating activities in our consolidated statements of cash flows for the office lease were approximately $ 59,000 and $ 22,000 , respectively.

For the six months ended June 30, 2021 and 2020, we recognized office lease expense of approximately $ 114,000 and $ 115,000 , respectively, which are included in general and administrative expense in our consolidated statements of income.

For the six months ended June 30, 2021 and 2020, amounts paid and classified as operating activities in our consolidated statements of cash flows for the office lease were approximately $ 117,000 and $ 38,000 , respectively.

As lessor, for each of our real estate transactions involving the leaseback of the related property to the seller or affiliates of the seller, we determine whether these transactions qualify as sale and leaseback transactions under the accounting guidance.

8 unchanged sentences

Property taxes paid directly by the lessee to a third party continue to be excluded from our consolidated financial statements.

In April 2020, in response to the coronavirus pandemic and associated severe economic disruption, we amended leases at certain of our properties to provide for temporary base rent and property management fee deferrals through June 30, 2020.

In April 2020, in response to the coronavirus pandemic and associated severe economic disruption, we amended leases at certain of our properties to provide for drawdowns of part of the security deposits and temporary base rent and property management fee deferrals through June 30, 2020.

The FASB has issued additional guidance for companies to account for any coronavirus related rent concessions in the form of FASB staff and board members’ remarks at the April 8, 2020 public meeting and the FASB staff question-and-answer document issued on April 10, 2020.

1 unchanged sentence

This relief is subject to certain conditions being met, including ensuring the total remaining lease payments are substantially the same or less as compared to the original lease payments prior to the concession being granted.

As of June 30, 2021, approximately $ 1.3 million of the deferred rents, property management fees and security deposits have been repaid.

The remaining total balance of approximately $ 1.2 million is scheduled for pro rata monthly payments and to be repaid in full by December 2021.

Lease amendments that are not associated with the coronavirus pandemic are evaluated to determine if the modification grants the lessee an additional right-of-use not included in the original lease and if the lease payments increase commensurate with the standalone price of the additional right-of-use, adjusted for the circumstances of the particular contract.

4 unchanged sentences

and (c) an amount equal to our gross investment in the property (including the purchase price at acquisition and any additional investment in the property made by us during the term of the lease), indexed to inflation.

At March 31, 2021, our gross investment in the property with the purchase option was approximately $ 30.5 million.

At March 31, 2021, the purchase option was not exercisable.

At June 30, 2021, our gross investment in the property with the purchase option was approximately $ 30.5 million.

At June 30, 2021, the purchase option was not exercisable.

Our leases generally contain options to extend the lease terms at the prevailing market rate or at the expiring rental rate at the time of expiration.

5 unchanged sentences

ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and is to be adopted through a cumulative-effect adjustment to the opening balance of retained earnings either at the date of adoption or in the first comparative period presented.

comparative period presented.

Early adoption is permitted but only as of the beginning of the fiscal year.

Upon adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature, will no longer be allocated between debt and equity components.

Upon our adoption, it will reduce the issue discount and will result in less non-cash interest expense in our consolidated financial statements.

Additionally, ASU 2020-06 will result in the reporting of diluted earnings per share, if the effect is dilutive, in our consolidated financial statements, regardless of our settlement intent.

Upon our adoption, it will reduce the issue discount of our Exchangeable Senior Notes and will result in less non-cash interest expense in our consolidated financial statements.

Additionally, ASU 2020-06 will result in the reporting of diluted earnings per share, if the effect is dilutive, in our consolidated financial statements, regardless of our settlement intent for the Exchangeable Senior Notes.

We will be required to adopt ASU 2020-06 on January 1, 2022.

Concentration of Credit Risk .

As of March 31, 2021, we owned 68 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington.

As of June 30, 2021, we owned 72 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington.

The ability of any of our tenants to honor the terms of their leases is dependent upon the economic, regulatory, competition, natural and social factors affecting the community in which that tenant operates.

The following table sets forth the five tenants in our portfolio that represented the largest percentage of our total rental revenues for the three months ended March 31, 2021 and 2020, including tenant reimbursements:

The following table sets forth the five tenants in our portfolio that represented the largest percentage of our total rental revenues for the three months ended June 30, 2021, including tenant reimbursements:

For the Three Months Ended

March 31, 2021

June 30, 2021

Percentage of

PharmaCann Inc.

Ascend Wellness Holdings, LLC (1)

Ascend Wellness Holdings, Inc.

Cresco Labs Inc.

Kings Garden Inc.

The following table sets forth the five tenants in our portfolio that represented the largest percentage of our total rental revenues for the six months ended June 30, 2021, including tenant reimbursements:

For the Six Months Ended

June 30, 2021

Percentage of

PharmaCann Inc.

Ascend Wellness Holdings, Inc.

Cresco Labs Inc.

Curaleaf Holdings, Inc.

Green Thumb Industries, Inc.

The following table sets forth the five tenants in our portfolio that represented the largest percentage of our total rental revenues for the three and six months ended June 30, 2020, including tenant reimbursements:

For the Three Months Ended

March 31, 2020

For the Six Months Ended

June 30, 2020

Percentage of

PharmaCann Inc.

Ascend Wellness Holdings, LLC (1)

Ascend Wellness Holdings, Inc.

Cresco Labs Inc.

Holistic Industries Inc.

Vireo Health, Inc.

(1) Includes leases with affiliates of the entity, for which the entity has provided a corporate guaranty.

As of March 31, 2021 and December 31, 2020, none of our properties individually represented more than 5 % of our net real estate held for investment.

As of June 30, 2021 and December 31, 2020, none of our properties individually represented more than 5 % of our net real estate held for investment.

We have deposited cash with a financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 .

As of March 31, 2021, we had cash accounts in excess of FDIC insured limits.

As of June 30, 2021, we had cash accounts in excess of FDIC insured limits.

We have not experienced any losses in such accounts.

As of March 31, 2021, the Company was authorized to issue up to 50,000,000 shares of common stock, par value $ 0.001 per share, and there were 23,926,317 shares of common stock issued and outstanding.

As of June 30, 2021, the Company was authorized to issue up to 50,000,000 shares of common stock, par value $ 0.001 per share, and there were 23,928,304 shares of common stock issued and outstanding.

Preferred Stock

As of March 31, 2021, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $ 0.001 per share, and there were issued and outstanding 600,000 shares of 9.00 % Series A Cumulative Redeemable Preferred Stock, $ 0.001 par value per share (the “Series A Preferred Stock”).

As of June 30, 2021, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $ 0.001 per share, and there were issued and outstanding 600,000 shares of 9.00 % Series A Cumulative Redeemable Preferred Stock, $ 0.001 par value per share (the “Series A Preferred Stock”).

Generally, the Company is not permitted to redeem the Series A Preferred Stock prior to October 19, 2022, except in limited circumstances relating to the Company’s ability to qualify as a REIT and in certain other circumstances related to a change of control/delisting (as defined in the articles supplementary for the Series A Preferred Stock).

1 unchanged sentence

Holders of the Series A Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances.

The following table describes the dividends declared by the Company during the three months ended March 31, 2021:

The following table describes the dividends declared by the Company during the six months ended June 30, 2021:

Declaration Date

9 unchanged sentences

April 15, 2021

June 15, 2021

April 1, 2021 to June 30, 2021

July 15, 2021

June 15, 2021

Series A preferred stock

April 15, 2021 to July 14, 2021

July 15, 2021

Investments in Real Estate

The Company acquired the following properties during the three months ended March 31, 2021 (dollars in thousands):

The Company acquired the following properties during the six months ended June 30, 2021 (dollars in thousands):

January 22, 2021

2 unchanged sentences

March 10, 2021

GPI MI Davis Hwy

April 16, 2021

Massachusetts

(1) Includes expected rentable square feet at completion of construction of certain properties.

4 unchanged sentences

(4) The tenant is expected to construct three buildings at the property, for which we agreed to provide reimbursement of up to $ 24.0 million.

(5) The tenant is expected to complete tenant improvements at the property, for which we agreed to provide reimbursement of up to approximately $ 14.4 million.

(6) The tenant is expected to complete tenant improvements at the property, for which we agreed to provide reimbursement of up to $ 26.0 million.

(7) The tenant is expected to complete tenant improvements at the property, for which we agreed to provide reimbursement of up to approximately $ 5.7 million.

(8) The tenant is expected to complete tenant improvements at the property, for which we agreed to provide reimbursement of up to $ 15.0 million.

(9) Approximately $ 16.0 million was allocated to land and approximately $ 83.3 million was allocated to building and construction in progress.

The properties acquired during the three months ended March 31, 2021 generated approximately $ 911,000 of rental revenues (including tenant reimbursements) and approximately $ 743,000 of net operating income after deducting property and depreciation expenses, during that period.

The properties acquired during the three months ended March 31, 2020 generated approximately $ 766,000 of rental revenues (including tenant reimbursements) and approximately $ 460,000 of net operating income after deducting property and depreciation expenses, during that period.

The properties acquired during the three and six months ended June 30, 2021 generated approximately $ 1.8 million and $ 4.8 million of rental revenues (including tenant reimbursements), respectively, and approximately $ 1.5 million and $ 4.0 million of net operating income, respectively, after deducting property and depreciation expenses, during that period.

The properties acquired during the three and six months ended June 30, 2020 generated approximately $ 1.9 million and $ 5.5 million of rental revenue (including tenant reimbursements), respectively, and approximately $ 1.6 million and $ 4.1 million of net operating income, respectively, after deducting property and depreciation expenses, during that period.

New Lease and Lease Amendments

4 unchanged sentences

at one of our New York properties, increasing the tenant improvement allowance under the lease by $ 2.5 million to a total of approximately $ 33.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

Including all of our properties, during the three months ended March 31, 2021, we capitalized costs of approximately $ 93.7 million and funded approximately $ 64.2 million relating to tenant improvements and construction activities at our properties.

Future contractual minimum rent (including base rent, supplemental base rent (for one of our properties in New York) and property management fees) under the operating leases as of March 31, 2021 for future periods is summarized as follows (in thousands):

In April 2021, we amended our lease with a subsidiary of Jushi Holdings, Inc.

at one of our Pennsylvania properties, increasing the tenant improvement allowance under the lease by $ 30.0 million to a total of approximately $ 40.0 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

With this additional tenant improvement allowance, the tenant is expected to expand the facility by approximately 40,000 square feet and complete the buildout of the existing 89,000 square foot building.

In June 2021, we amended our lease with a subsidiary of Parallel at one of our Florida properties, increasing the tenant improvement allowance under the lease by $ 8.0 million to a total of $ 16.2 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In June 2021, we amended our lease with a subsidiary of Harvest Health & Recreation Inc.

at one of our Florida properties, increasing the tenant improvement allowance under the lease by $ 7.1 million to a total of approximately $ 17.9 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

Including all of our properties, during the six months ended June 30, 2021, we capitalized costs of approximately $ 176.2 million and funded approximately $ 152.1 million relating to tenant improvements and construction activities at our properties.

Future contractual minimum rent (including base rent, supplemental base rent (for one of our properties in New York) and property management fees) under the operating leases as of June 30, 2021 for future periods is summarized as follows (in thousands):

Contractual Minimum Rent

2021 (nine months ending December 31)

2021 (six months ending December 31)

Exchangeable Senior Notes

As of March 31, 2021, our Operating Partnership had outstanding approximately $ 143.75 million principal amount of 3.75 % Exchangeable Senior Notes due 2024 (the "Exchangeable Senior Notes").

As of June 30, 2021, our Operating Partnership had outstanding approximately $ 143.75 million principal amount of 3.75 % Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”).

The Exchangeable Senior Notes are senior unsecured obligations of our Operating Partnership, are fully and unconditionally guaranteed by us and our Operating Partnership’s subsidiaries and are exchangeable for cash, shares of our common stock, or a combination of cash and shares of our common stock, at our Operating Partnership’s option, at any time prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date.

The exchange rate for the Exchangeable Senior Notes at March 31, 2021 was 15.10243 shares of our common stock per $ 1,000 principal amount of Notes and the exchange price at March 31, 2021 was approximately $ 66.215 per share of our common stock.

The exchange rate for the Exchangeable Senior Notes at June 30, 2021 was 15.18404 shares of our common stock per $ 1,000 principal amount of Notes and the exchange price at June 30, 2021 was approximately $ 65.859 per share of our common stock.

The exchange rate and exchange price are subject to adjustment in certain circumstances.

1 unchanged sentence

Our Operating Partnership will not have the right to redeem the Exchangeable Senior Notes prior to maturity, but may be required to repurchase the Exchangeable Senior Notes from holders under certain circumstances.

Upon our issuance of the Exchangeable Senior Notes in February 2019, we recorded an approximately $ 5.8 million discount based on the implied value of the exchange option and an assumed effective interest rate of 4.65 %, as well as approximately $ 5.2 million of initial issuance costs, of which approximately $ 5.0 million and $ 200,000 were allocated to the liability and equity components, respectively, based on their relative fair values.

Upon issuance of the Exchangeable Senior Notes in February 2019, we recorded an approximately $ 5.8 million discount based on the implied value of the exchange option and an assumed effective interest rate of 4.65 %, as well as approximately $ 5.2 million of initial issuance costs, of which approximately $ 5.0 million and $ 200,000 were allocated to the liability and equity components, respectively, based on their relative fair values.

Issuance costs allocated to the liability component are being amortized using the effective interest method and recognized as non-cash interest expense over the expected term of the Exchangeable Senior Notes.

The following table details our interest expense related to the Exchangeable Senior Notes (in thousands):

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Amortization of debt discount

2 unchanged sentences

The following table details the carrying value of our Exchangeable Senior Notes on our condensed consolidated balance sheets (in thousands):

March 31, 2021

June 30, 2021

December 31, 2020

1 unchanged sentence

Unamortized discount

Unamortized issuance costs

Unamortized issuance cost

Carrying value

Accrued interest payable for the Exchangeable Senior Notes as of March 31, 2021 and December 31, 2020 was approximately $ 225,000 and $ 1.6 million, respectively, and is included in accounts payable and accrued expenses on our condensed consolidated balance sheets.

Accrued interest payable for the Exchangeable Senior Notes as of June 30, 2021 and December 31, 2020 was approximately $ 1.6 million for both periods, and is included in accounts payable and accrued expenses on our condensed consolidated balance sheets.

Unsecured Senior Notes

On May 25, 2021, our Operating Partnership issued $ 300.0 million aggregate principal amount of its Unsecured Senior Notes due 2026 (the “Unsecured Senior Notes”).

The Unsecured Senior Notes are senior unsecured obligations of our Operating Partnership, are fully and unconditionally guaranteed by us and our Operating Partnership’s subsidiaries and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured indebtedness, including the Exchangeable Senior Notes.

However, the Unsecured Senior Notes are effectively subordinated to any of the Company’s, the Operating Partnership’s and the Operating Partnership’s subsidiaries’ future secured indebtedness to the extent of the value of the assets securing such indebtedness.

Interest at a rate of 5.50 % per year is payable on May 15 and November 15 of each year, beginning on November 15, 2021, until the stated maturity date of May 25, 2026.

The terms of the Unsecured Senior Notes are governed by an indenture, dated May 25, 2021, among the Operating Partnership, as issuer, the Company and the Operating Partnership’s subsidiaries, as guarantors, and GLAS Trust Company LLC, as trustee.

Upon issuance of the Unsecured Senior Notes, we recorded approximately $ 6.7 million of initial issuance costs, which are being amortized using the effective interest method and recognized as non-cash interest expense over the term of the Unsecured Senior Notes.

The following table details our interest expense related to the Unsecured Senior Notes (in thousands):

For the Three and Six Months

Ended June 30, 2021

Amortization of issuance cost

Total interest expense

The following table details the carrying value of our Unsecured Senior Notes on our condensed consolidated balance sheet (in thousands):

June 30, 2021

Principal amount

Unamortized issuance cost

Carrying value

The Operating Partnership may redeem some or all of the notes at its option at any time at the applicable redemption price.

If the notes are redeemed prior to February 25, 2026, the redemption price will be equal to 100 % of the principal amount of the notes being redeemed, plus a make-whole premium and accrued and unpaid interest thereon to, but excluding, the applicable redemption date.

If the notes are redeemed on or after February 25, 2026, the redemption price will be equal to 100 % of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but excluding, the applicable redemption date.

The terms of the indenture for the Unsecured Senior Notes require compliance with various financial covenants, including minimum level of debt service coverage and limits on the amount of total leverage and secured debt maintained by the Operating Partnership.

Management believes that it was in compliance with those covenants as of June 30, 2021.

On May 25, 2021, the Company, the Operating Partnership and the subsidiaries of the Operating Partnership entered into a registration rights agreement with the representative of the initial purchasers of the Unsecured Senior Notes, pursuant to which the Company, the Operating Partnership and the subsidiaries of the Operating Partnership agreed to use commercially reasonable efforts to file with the Securities and Exchange Commission within 60 days , and cause to become effective within 180 days , a registration statement registering exchange notes with nearly identical terms to the Unsecured Senior Notes, and to cause an exchange offer to be consummated within 60 days after the registration statement is declared effective.

In addition, in some circumstances, the Company, the Operating Partnership and the subsidiaries of the Operating Partnership agreed to file a shelf registration statement providing for the sale of all of the Unsecured Senior Notes by the holders thereof.

Accrued interest payable for the Unsecured Senior Notes as of June 30, 2021 was approximately $ 1.7 million, and is included in accounts payable and accrued expenses on our condensed consolidated balance sheets.

Net Income Per Share

4 unchanged sentences

Earnings per basic share represents the summation of the distributed and undistributed earnings per share class divided by the total number of shares.

Through March 31, 2021, all of the Company’s participating securities received dividends or dividend equivalents at an equal dividend rate per share or unit.

As a result, distributions to participating securities for the three months ended March 31, 2021 and 2020 have been included in net income attributable to common stockholders to calculate net income per basic and diluted share.

The 2,170,959 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the three months ended March 31, 2021 and were included in the computation of diluted earnings per share.

The 2,117,422 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were anti-dilutive for the three months ended March 31, 2020 and were excluded from the computation of diluted earnings per share.

Performance share units (“PSUs”) granted to certain employees during the three months ended March 31, 2021 were not included in dilutive securities as of March 31, 2021 as the performance thresholds for vesting of any performance share units were not met (see Note 10 for further discussion of the PSUs).

Computations of net income per basic and diluted share (in thousands, except share data) were as follows:

Through June 30, 2021, all of the Company’s participating securities received dividends or dividend equivalents at an equal dividend rate per share or unit.

As a result, distributions to participating securities for the three and six months ended June 30, 2021 and 2020 have been included in net income attributable to common stockholders to calculate net income per basic and diluted share.

The 2,182,691 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the three and six months ended June 30, 2021, respectively, and were included in the computation of diluted earnings per share.

The 2,134,451 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were anti-dilutive for the three and six months ended June 30, 2020, respectively, and were excluded from the computation of diluted earnings per share.

Performance share units (“PSUs”) granted to certain employees during the six months ended June 30, 2021 were not included in dilutive securities as of June 30, 2021 as the performance thresholds for vesting of any performance share units were not met (see Note 10 for further discussion of the PSUs).

Computations of net income per basic and diluted share (in thousands, except share and per share data) were as follows:

For the Three Months Ended

For the Six Months Ended

Preferred stock dividends

14 unchanged sentences

Level 3—Unobservable inputs that are supported by little or no market activities, therefore requiring an entity to develop its own assumptions.

The following table presents the carrying value in the condensed consolidated financial statements and approximate fair value of financial instruments at March 31, 2021 and December 31, 2020:

At March 31, 2021

The following table presents the carrying value in the condensed consolidated financial statements and approximate fair value of financial instruments at June 30, 2021 and December 31, 2020 (in thousands):

At June 30, 2021

At December 31, 2020

3 unchanged sentences

Exchangeable Senior Notes (2)

Unsecured Senior Notes (2)

(1) Short-term investments consisting of obligations of the U.S.

government with an original maturity at the time of purchase of greater than three months are classified as held-to-maturity and valued using Level 1 inputs.

(2) The fair value is determined based upon Level 2 inputs as the Exchangeable Senior Notes were trading in the private market.

As of March 31, 2021 and December 31, 2020, cash equivalent instruments consisted of $ 109.7 million and $ 98.3 million, respectively, in short-term money market funds that were measured using the net asset value per share that have not been classified using the fair value hierarchy.

(2) The fair value is determined based upon Level 2 inputs as the Exchangeable Senior Notes and Unsecured Senior Notes were trading in the private market.

As of June 30, 2021 and December 31, 2020, cash equivalent instruments consisted of $ 146.0 million and $ 98.3 million, respectively, in short-term money market funds that were measured using the net asset value per share that have not been classified using the fair value hierarchy.

The fund invests primarily in short-term U.S.

10 unchanged sentences

The 2016 Plan automatically terminates on the date which is ten years following the effective date of the 2016 Plan.

A summary of the restricted stock activity under the 2016 Plan and related information for the three months ended March 31, 2021 is included in the table below:

A summary of the restricted stock activity under the 2016 Plan and related information for the six months ended June 30, 2021 is included in the table below:

Grant Date Fair

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Balance at March 31, 2021

Balance at June 30, 2021

(1) Shares that were forfeited to cover the employees’ tax withholding obligation upon vesting .

The remaining unrecognized compensation cost of approximately $ 2.8 million for restricted stock awards is expected to be recognized over a weighted-average amortization period of approximately 2.0 years as of March 31, 2021.

The fair value of restricted stock that vested during the three months ended March 31, 2021 was approximately $ 8.6 million.

The following table summarizes our RSU activity for the three months ended March 31, 2021.

The remaining unrecognized compensation cost of approximately $ 2.6 million for restricted stock awards is expected to be recognized over a weighted-average amortization period of approximately 1.6 years as of June 30, 2021.

The fair value of restricted stock that vested during the six months ended June 30, 2021 was approximately $ 8.8 million.

The following table summarizes our RSU activity for the six months ended June 30, 2021.

RSUs are issued as part of the Innovative Industrial Properties, Inc.

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Balance at March 31, 2021

The remaining unrecognized compensation cost of approximately $ 5.3 million for RSU awards is expected to be recognized over an amortization period of approximately 2.5 years as of March 31, 2021.

Balance at June 30, 2021

The remaining unrecognized compensation cost of approximately $ 5.0 million for RSU awards is expected to be recognized over an amortization period of approximately 2.1 years as of June 30, 2021.

In January 2021, we issued 70,795 “target” PSUs to a select group of officers, which vest and are settled in shares of common stock (“Award Shares”) based on the Company’s total stockholder return over a period commencing on January 11, 2021 and ending on December 31, 2023 (the “Performance Period”) relative to two different comparator groups of companies.

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Stock-based compensation for market-based PSU awards is based on the grant date fair value of the equity awards and is recognized over the Performance Period.

For the three months ended March 31, 2021, we recognized stock-based compensation expense of $ 1.0 million relating to the PSU awards.

As of March 31, 2021, the remaining unrecognized compensation cost of approximately $ 11.0 million relating to PSU awards is expected to be recognized over the remaining Performance Period of approximately 2.8 years.

For the three and six months ended June 30, 2021, we recognized stock-based compensation expense of $ 1.0 million and $ 2.0 million, respectively, relating to the PSU awards.

As of June 30, 2021, the remaining unrecognized compensation cost of approximately $ 10.0 million relating to PSU awards is expected to be recognized over the remaining Performance Period of approximately 2.5 years.

Commitments and Contingencies

Office Lease .

The future contractual lease payments for our office lease and the reconciliation to the office lease liability reflected in our condensed consolidated balance sheets as of March 31, 2021 is presented in the table below (in thousands):

2021 (nine months ending December 31)

The future contractual lease payments for our office lease and the reconciliation to the office lease liability reflected in our condensed consolidated balance sheets as of June 30, 2021 is presented in the table below (in thousands):

2021 (six months ending December 31)

Total future contractual lease payments

2 unchanged sentences

Tenant Improvement Allowances .

As of March 31, 2021, we had approximately $ 263.9 million of commitments related to tenant improvement allowances, which generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease.

As of June 30, 2021, we had approximately $ 287.2 million of commitments related to tenant improvement allowances, which generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease.

Construction Loan.

As of June 30 2021, we had $ 12.5 million of commitments related to our construction loan for the development of a regulated cannabis cultivation and processing facility in California.

The developer is required to complete construction by June 2022, subject to extension in certain circumstances.

Environmental Matters.

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Subsequent Events

Subsequent to March 31, 2021, we acquired a 175,000 square foot industrial property in Michigan for approximately $ 15.6 million and executed a lease with Green Peak Industries, LLC (“Skymint”) for the entire property.

Skymint is expected to complete tenant improvements at the property, for which we agreed to provide reimbursement of up to approximately $ 14.4 million.

Lease Amendments Providing for Additional Tenant Improvement Allowances

In April 2021, we amended our lease with a subsidiary of Jushi Holdings, Inc.

Subsequent to June 30, 2021, we acquired a property in Illinois for $ 6.5 million and executed a lease with a subsidiary of 4Front Ventures Corp.

(“4Front”) for the entire property.

4Front is expected to construct approximately 250,000 square feet of industrial space at the property, for which we agreed to provide reimbursement of up to approximately $ 43.8 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements