What changed in this filing

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Item 9A. Controls and Procedures

2022-02-24 compared with 2021-02-26 · 324 added, 356 removed, 617 unchanged (52% of the section changed)

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and schedule, and our report dated February 25, 2021 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule, and our report dated February 24, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, “Management’s Report on Internal Control over Financial Reporting”.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

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OTHER INFORMATION

On February 23, 2022, JMP Securities LLC delivered notice to the Company terminating the equity distribution agreement with JMP Securities, dated November 6, 2020 (the “JMP Equity Distribution Agreement”), effective as of February 23, 2022.

The JMP Equity Distribution Agreement permitted the Company to offer and sell, from time to time, up to $500,000,000 in aggregate offering price of shares of the Company’s Common Stock through JMP Securities.

As a result of the termination of the JMP Equity Distribution Agreement, no further offers or sales of the Company’s Common Stock will be made through JMP Securities pursuant to the Company’s ATM Program.

The Company’s separate equity distribution agreements with each of BTIG, LLC, Roth Capital Partners, LLC, Compass Point Research & Trading, LLC, Ladenburg Thalmann & Co.

and Piper Sandler & Co., dated as of November 6, 2020, remain in full force and effect.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSEPCTIONS

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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Indenture, dated as of February 21, 2019, among IIP Operating Partnership, LP, as issuer, Innovative Industrial Properties, Inc.

and the subsidiaries of IIP Operating Partnership, LP, as guarantors, and GLAS Trust Company LLC, as trustee, including the Form of Note representing IIP Operating Partnership, LP’s 3.75% Exchangeable Senior Notes due 2024.(5)

Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended.

and the subsidiaries of IIP Operating Partnership, LP, as guarantors, TMI Trust Company, as trustee (as successor-in-interest to GLAS Trust Company LLC), and Securities Transfer Corporation, as registrar (as successor-in-interest to GLAS Trust Company LLC), including the Form of Note representing IIP Operating Partnership, LP’s 3.75% Exchangeable Senior Notes due 2024.(5)

Indenture, dated as of May 25, 2021, among Innovative Industrial Properties, Inc., IIP Operating Partnership, LP, the Subsidiary Guarantors set forth on the signature page thereto, TMI Trust Company, as trustee (as successor-in-interest to GLAS Trust Company LLC), and Securities Transfer Corporation, as registrar (as successor-in-interest to GLAS Trust Company LLC), including the form of 5.50% Senior Note due 2026.(6)

Innovative Industrial Properties, Inc.

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.(7)

Agreement of Limited Partnership of IIP Operating Partnership, LP.(8)

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Form of 2021 Performance Share Unit Award Agreement.(11)

Form of 2022 Performance Share Unit Award Agreement.(12)

Form of Indemnification Agreement between Innovative Industrial Properties, Inc.

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Nonqualified Deferred Compensation Plan.(15)

Lease Agreement, dated as of May 31, 2018, between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc.(13)

First Amendment dated November 13, 2018 to Lease Agreement, dated as of May 31, 2018, between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc.(14)

Second Amendment dated September 24, 2019 to Lease Agreement, dated as of May 31, 2018, between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc.(15)

Third Amendment dated February 24, 2020 to Lease Agreement dated May 31, 2018 between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc.(16)

Fourth Amendment dated December 11, 2020 to Lease Agreement dated May 31, 2018 between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc.(17)

Registration Rights Agreement, dated as of May 25, 2021, among Innovative Industrial Properties, Inc., IIP Operating Partnership, LP, the Subsidiary Guarantors set forth on the signature page thereto and BTIG, LLC, as representative of the initial purchasers.(6)

List of Subsidiaries of Innovative Industrial Properties, Inc.

List of Subsidiary Guarantors.(16)

Consent of BDO USA, LLP.

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(5) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on February 21, 2019.

(6) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on May 25, 2021.

(7) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Annual Report on Form 10-K filed with the SEC on February 26, 2021.

(8) Incorporated by reference to Innovative Industrial Properties, Inc.’s Registration Statement on Form S-11, as amended (File No.

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(11) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on January 15, 2021.

(12) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on January 12, 2022.

(13) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on January 24, 2017.

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(15) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on November 18, 2019.

(13) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on May 31, 2018.

(14) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Annual Report on Form 10-K filed with the SEC on March 14, 2019.

(15) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on September 25, 2019.

(16) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on February 25, 2020.

(17) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on December 14, 2020.

(16) Incorporated by reference to Innovative Industrial Properties, Inc.’s Registration Statement on Form S-3 (File No.

333-262320) filed with the SEC on January 24, 2022.

FORM 10-K SUMMARY

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(a) Financial Statements:

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

San Diego, California ;

PCAOB ID # 243 )

Consolidated Balance Sheets as of December 31, 2021 and 2020

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We have audited the accompanying consolidated balance sheets of Innovative Industrial Properties, Inc.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and schedule (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 24, 2022 expressed an unqualified opinion thereon.

Change in Accounting Method Related to Leases

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases during the year ended December 31, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases .

Basis for Opinion

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Real Estate Acquisitions - Fair Value of Assets Acquired

As described in Note 6 to the consolidated financial statements, the Company’s consolidated real estate property acquisitions totaled approximately $288.0 million for the year ended December 31, 2021.

Certain of the 2020 acquisitions involved significant judgments in estimating the fair values of the assets acquired for which management may obtain assistance from third-party valuation specialists.

We identified the estimation of the fair values of the land acquired for certain of the 2020 property acquisitions as a critical audit matter due to the limited number of recent comparable transactions.

Auditing these acquisitions involved a high degree of auditor judgment and subjectivity in performing procedures and evaluating the reasonableness of the key valuation inputs and assumptions relating to the fair value estimates for land, including the extent of specialized skill or knowledge needed.

Certain of the 2021 property acquisitions involved significant judgments in estimating the allocation of the fair values between the land and buildings acquired for which management obtained assistance from third-party valuation specialists.

We identified the estimation of the allocation of the fair values of the land and buildings acquired for certain of the 2021 property acquisitions as a critical audit matter due to the limited number of recent comparable transactions.

Auditing these acquisitions involved a high degree of auditor judgment and subjectivity in performing procedures and evaluating the reasonableness of the key valuation inputs and assumptions relating to the fair value estimates for land and buildings acquired, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

● Evaluating the reasonableness of the key valuation inputs and assumptions used by the Company as compared to relevant market data.

● Utilizing personnel with specialized knowledge and skill in valuation to assist in the evaluation of the assumptions and methodologies used, including the comparison to available market data, in the preparation of the fair value measurements for certain land acquired.

● Testing the design and operating effectiveness of controls to address key valuation inputs and assumptions within the estimate of fair values of land and buildings acquired.

● Evaluating the reasonableness of the key valuation inputs and assumptions used by the Company in the estimation of the allocation of fair values of land and buildings acquired as compared to relevant market data.

● Utilizing personnel with specialized knowledge and skills in valuation to assist in the evaluation of the inputs and assumptions used in the estimation of the allocation of fair values of land and buildings acquired including the comparison to available market data.

/s/ BDO USA, LLP

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Net real estate held for investment

Construction loan receivable

Cash and cash equivalents

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Right of use office lease asset

In-place lease intangible assets, net

Other assets, net

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Exchangeable Senior Notes, net

Notes due 2026, net

Tenant improvements and construction funding payable

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Dividends payable

Office lease liability

Other liabilities

Rent received in advance and tenant security deposits

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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 December 31, 2020 and 2019

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

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

23,936,928 and 12,637,043 shares issued and outstanding at December 31, 2020 and 2019, respectively

25,612,541 and 23,936,928 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

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General and administrative expense

Depreciation expense

Depreciation and amortization expense

Total expenses

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Interest expense

Loss on induced exchange of Exchangeable Senior Notes

Preferred stock dividends

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Balance, December 31, 2018

Equity component of Exchangeable Senior Notes

Net proceeds from sale of common stock

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Common stock dividend

Net issuance of unvested restricted stock

Issuance of unvested restricted stock, net of forfeitures

Stock based compensation

Balance, December 31, 2019

Equity component of exchangeable senior notes

Exchange of Exchangeable Senior Notes

Net proceeds from sale of common stock

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Common stock dividend

Net issuance of unvested restricted stock

Issuance of unvested restricted stock, net of forfeitures

Stock based compensation

Balance, December 31, 2020

Exchange of exchangeable senior notes

Net proceeds from sale of common stock

Issuance of common stock in conjunction with inducement of Exchangeable Senior Notes, net

Preferred stock dividend

Common stock dividend

Net issuance of unvested restricted stock

Issuance of unvested restricted stock, net of forfeitures

Stock-based compensation

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Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

Loss on induced exchange of Exchangeable Senior Notes

Other non-cash adjustments

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Amortization of discounts on short-term investments

Amortization of debt discounts and issuance costs

Amortization of debt discount and issuance costs

Changes in assets and liabilities

Other assets, net

Accounts payable and accrued expenses

Accounts payable, accrued expenses and other liabilities

Rent received in advance and tenant security deposits

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Reimbursements of tenant improvements and construction funding

Funding of construction loan and other investments

Deposits in escrow for acquisitions

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Net proceeds from issuance of Exchangeable Senior Notes

Gross proceeds from issuance of Notes due 2026

Payment of deferred financing costs from issuance of Notes due 2026

Payment of inducement and transaction costs relating to inducement of the Exchangeable Senior Notes

Dividends paid to common stockholders

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Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Net (decrease) increase in cash and cash equivalents

Cash, cash equivalents and restricted cash, beginning of year

Cash, cash equivalents and restricted cash, end of year

Supplemental disclosure of cash flow information:

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Supplemental disclosure of non-cash investing and financing activities:

Accrual for reimbursements of tenant improvements and construction funding

Accrual for reimbursements of improvements and construction funding

Deposits applied for acquisitions

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Accrual for stock issuance costs

Exchange of Exchangeable Senior Notes for common stock

Operating lease liability for obtaining right of use asset

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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”).

We are an internally-managed real estate investment trust (“REIT”) focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities.

We have acquired and intend to continue to acquire our properties through sale-leaseback transactions and third-party purchases.

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generally accepted accounting principles.

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 December 31, 2020.

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

See Note 6 for further discussion.

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

Federal Income Taxes.

We have operated our business so as to qualify to be taxed as a REIT for U.S.

We believe that we have operated our business so as to qualify to be taxed as a REIT for U.S.

federal income tax purposes.

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Assuming our dividends equal or exceed our taxable net income, we generally will not be required to pay federal corporate income taxes on such income.

The income taxes recorded on our consolidated statement of operations represent amounts paid for city and state income and franchise taxes and are included in general and administrative expenses in the accompanying consolidated statements of operations.

The income taxes recorded on our consolidated statements of income represent amounts paid for city and state income and franchise taxes and are included in general and administrative expenses in the accompanying consolidated statements of income.

Use of Estimates.

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Reportable Segment .

We are engaged in the business of providing real estate for the regulated cannabis industries.

Our properties are similar in that they are leased to the state-licensed operators on long-term triple-net basis, consist of improvements that are reusable and have similar economic characteristics.

We are engaged in the business of providing real estate for the regulated cannabis industry.

Our properties are similar in that they are leased to the state-licensed operators on a long-term triple-net basis, consist of improvements that are reusable and have similar economic characteristics.

Our chief operating decision makers review financial information for our entire consolidated operations when making decisions related to assessing our operating performance.

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Upon acquisition of a property, the tangible and intangible assets acquired and liabilities assumed are initially measured based upon their relative fair values.

We estimate the fair value of land by reviewing comparable sales within the same submarket and/or region, the fair value of buildings on an as-if vacant basis and may engage third-party valuation specialists.

Acquisition costs are capitalized as incurred since all of our acquisitions to date were recorded as asset acquisitions.

Depreciation.

We consider the period of future benefit of the assets to determine the appropriate estimated useful lives.

Depreciation of our assets is charged to expense on a straight-line basis over the estimated useful lives.

We periodically evaluate whether certain useful lives remain appropriate in accordance with authoritative guidance.

During 2020, we completed a review of the estimated useful life of our buildings and improvements and extended the maximum useful life from 35 years to 40 years based on the condition of the buildings and the extent of the improvements.

This was accounted for as a change in accounting estimate and was made on a prospective basis effective January 1, 2020.

For the year ended December 31, 2020, depreciation expense was lower by approximately $ 1.4 million than it would have been had the useful life of these assets not been extended, with a diluted earnings per share impact of $ 0.08 per share.

We depreciate tenant improvements at our buildings where we are considered the owner over the estimated useful lives of the improvements, not to exceed 40 years .

We estimate the fair value of land by reviewing comparable sales within the same submarket and/or region.

We estimate the fair value of buildings and improvements and tenant improvements as if the property was vacant, taking into consideration current replacement costs and other relevant market rate information and may engage third-party valuation specialists.

Acquisition costs are capitalized as incurred.

All of our acquisitions to date were recorded as asset acquisitions.

In December 2021, we acquired a portfolio of properties that included in-place leases.

The fair value of acquired in-place leases is derived based on our assessment of estimated lost revenue and costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased.

The amounts recorded for acquired in-place leases are reflected as in-place lease intangible assets, net on the balance sheet and are amortized on a straight-line basis as a component of depreciation and amortization expense over the remaining term of the applicable leases.

The fair value of the above-market component of an acquired in-place operating lease is based upon the present value (calculated using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining non-cancellable lease term and (ii) our estimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition measured over the remaining non-cancellable term of the lease.

The amount recorded for one above-market operating lease is included in other assets, net on the balance sheet and is amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable lease.

Cost Capitalization and Depreciation.

We capitalize costs associated with development and redevelopment activities and improvements when we are considered to be the accounting owner of the resulting assets.

The development and redevelopment activities may be funded by us pursuant to the lease.

We are generally considered the accounting owner for such improvements that are attached to or built into the premises, which are required under the lease to be surrendered to us upon the expiration or earlier termination of the lease.

Typically, such improvements include, but are not limited to, ground up development, and enhanced HVAC, plumbing, electrical and other building systems.

Amounts capitalized are depreciated over estimated useful lives determined by management.

We depreciate buildings and improvements and tenant improvements based on our evaluation of the estimated useful life of each specific asset, not to exceed 40 years .

For the years ended December 31, 2021, 2020 and 2019, we recognized depreciation expense of approximately $ 41.7 million, $ 28.0 million and $ 8.6 million, respectively, which are included in depreciation and amortization expense in our consolidated statements of income.

We depreciate office equipment and furniture and fixtures over estimated useful lives ranging from three to six years .

We depreciate the leasehold improvements at our corporate office over the shorter of the estimated useful lives or the initial lease term.

Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable lives requires management to exercise significant judgment.

Project costs that are clearly associated with the acquisition and development or redevelopment of a real estate project, for which we are the accounting owner, are capitalized as a cost of that project.

Expenditures that meet one or more of the following criteria generally qualify for capitalization:

● the expenditure provides benefit in future periods;

● the expenditure extends the useful life of the asset beyond our original estimates

Provision for Impairment.

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The carrying amount of a long-lived asset to be held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

Impairment indicators or triggering events for long-lived assets to be held and used are assessed by project and include significant fluctuations in estimated net operating income, occupancy changes, significant near-term lease expirations, current and historical operating and/or cash flow losses, construction costs, estimated completion dates, rental rates, and other market factors.

dates, rental rates, and other market factors.

We assess the expected undiscounted cash flows based upon numerous factors, including, but not limited to, construction costs, available market information, current and historical operating results, known trends, current market/economic conditions that may affect the property, and our assumptions about the use of the asset, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration.

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Our leases are triple-net leases, an arrangement under which the tenant maintains the property while paying us rent.

We anticipate that all leases will be accounted for as operating leases.

Operating leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term, unless the collectability of lease payments is not probable.

Rental increases based upon changes in the consumer price index are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements.

Contractually obligated reimbursements from tenants for recoverable real estate taxes, insurance and operating expenses are included in rental revenue in the period when such costs are reimbursed by the tenants.

We account for our current leases as operating leases and record revenue for each of our properties on a cash basis due to the uncertain regulatory environment in the United States pertaining to the regulated cannabis industry, the limited operating history of certain tenants and the resulting uncertainty of collectability of lease payments from each tenant over the duration of the lease term.

Contractually obligated reimbursements from tenants for recoverable real estate taxes, insurance and operating expenses are included in rental revenues in the period when such costs are reimbursed by the tenants.

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

We record revenue for each of our properties on a cash basis due to the uncertain regulatory environment in the United States relating to the medical-use cannabis industry and the uncertainty of collectability of lease payments from each tenant due to its limited operating history.

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 December 31, 2021, we had funded approximately $ 12.9 million of the construction loan.

Cash and Cash Equivalents .

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As of December 31, 2021 and 2020, $ 72.0 million and $ 98.3 million, respectively, were invested in short-term money market funds, obligations of the U.S.

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

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

Restricted Cash.

Restricted cash relates to cash held in escrow accounts for the reimbursement of tenant improvements for tenants in accordance with certain lease agreements.

As of December 31, 2020, all of the cash held in the escrow accounts were disbursed in accordance with the lease agreements.

Investments .

Investments consist of obligations of the U.S.

government with an original maturity at the time of purchase of greater than three months.

government and certificates of deposit with an original maturity at the time of purchase of greater than three months but less than one year.

Investments are classified as held-to-maturity and stated at amortized cost.

Exchangeable Notes.

The “Debt with Conversion and Other Options” Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification requires the liability and equity components of exchangeable debt instruments that may be settled in cash upon exchange, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonexchangeable debt borrowing rate.

The initial proceeds from the sale of exchangeable notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonexchangeable debt that could have been issued at such time.

The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance.

We measured the estimated fair value of the debt component of our Exchangeable Senior Notes (as defined below) as of the respective issuance dates based on our estimated nonexchangeable debt borrowing rate with the assistance of a third-party valuation specialist as we do not have a history of borrowing arrangements and there is limited empirical data available related to the Company’s industry due to the regulatory uncertainty of the cannabis market in which the Company’s tenants operate.

The liability and equity components of exchangeable debt instruments that may be settled in cash upon exchange, including partial cash settlement, are required to be separately accounted for in a manner that reflects the issuer’s nonexchangeable debt borrowing rate.

The initial proceeds from the sale of our Exchangeable Senior Notes (as defined below) were allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonexchangeable debt that could have been issued at such time.

The equity component represents the excess initial proceeds received over the fair value of the liability component of the Exchangeable Senior Notes as of the date of issuance.

We measured the estimated fair value of the debt component of our Exchangeable Senior Notes as of the respective issuance dates based on our estimated nonexchangeable debt borrowing rate with the assistance of a third-party valuation specialist as we do not have a history of borrowing arrangements and there is limited empirical data available related to the Company’s industry due to the regulatory uncertainty of the cannabis market in which the Company’s tenants operate.

The equity component of our Exchangeable Senior Notes is reflected within additional paid-in capital on our consolidated balance sheets, and the resulting debt discount is amortized over the period during which the Exchangeable Senior Notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense.

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Deferred Financing Costs.

The deferred financing costs that are included as a reduction in the principal amount of the Exchangeable Senior Notes on our 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.

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

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

Stock-Based Compensation.

Stock-based compensation for equity awards is based on the grant date fair value of the equity awards and is recognized over the requisite service period.

If awards are forfeited prior to vesting, we reverse any previously recognized expense related to such awards in the period during which the forfeiture occurs and reclassify any non-forfeitable dividends previously paid on these awards from retained earnings to compensation expense.

Stock-based compensation for equity awards is based on the grant date fair value of the equity awards and is recognized over the requisite service or performance period.

If awards are forfeited prior to vesting, we reverse any previously recognized expense related to such awards in the period during which the forfeiture occurs and reclassify any non-forfeitable dividends and dividend equivalents previously paid on these awards from retained earnings to compensation expense.

Forfeitures are recognized as incurred.

Certain equity awards are subject to vesting based upon the satisfaction of various market conditions.

Forfeiture of share awards with market-based restrictions does not result in a reversal of previously recognized share-based compensation expense.

Lease Accounting.

In February 2016, the FASB issued ASU 2016-02, Leases;

in July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases - Targeted Improvements;

and in December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors.

This group of ASUs is collectively referred to as Topic 842 and was effective for the Company for its consolidated financial statements for the year ended December 31, 2019.

We adopted Topic 842 effective as of January 1, 2019 using the effective date method and elected the package of practical expedients that allows an entity not to reassess upon adoption (i) whether an expired or existing contract contains a lease, (ii) whether a lease classification related to expired or existing lease arrangements, and (iii) whether costs incurred on expired or existing leases qualify as initial direct costs, and as a lessor, the practical expedient not to separate certain non-lease components, such as common area maintenance, from the lease component if the timing and pattern of transfer are the same for the non-lease component and associated lease component, and the lease component would be classified as an operating lease if accounted for separately.

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 has a remaining lease term of approximately 4.3 years and 5.3 years as of December 31, 2020 and 2019, 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.

As lessee, we recognized a liability to account for our future obligations and a corresponding right-of-use asset related to our corporate office lease.

The lease liability was initially measured based on the present value of the future lease payments discounted using the estimated incremental borrowing rate of 7.25 %, which was 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.

In November 2021, we amended the lease to extend the term from April 2025 to January 2027 in connection with an expansion of the leased space which did not commence until February 2022.

As a result of the lease modification on the existing leased space, we re-measured the lease liability based on the present value of the future lease payments (excluding the extension option that we are not reasonably certain to exercise), discounted using the estimated incremental borrowing rate of 5.5 %, which was 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.

Subsequently, the lease liability is accreted by applying a discount rate established at the lease commencement date to the lease liability balance as of the beginning of the period and is reduced by the payments made during the period.

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Our leases continued to be classified as operating leases and we continue to record revenue for each of our properties on a cash basis.

Our tenant reimbursable revenue and property expenses continue to be presented on a gross basis as rental revenue and as property expenses, respectively, on our consolidated statements of income.

reimbursable revenue and property expenses continue to be presented on a gross basis as rental revenue and as property expenses, respectively, on our consolidated statements of income.

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

Internal leasing costs of approximately $ 122,000 capitalized during the year ended December 31, 2019 were written off and included in general and administrative expenses on our consolidated statement of income for the year ended December 31, 2019.

These costs were capitalized in accordance with the lease accounting standards existing prior to January 1, 2019 and did not qualify for capitalization.

The election of the practical expedients available for implementation under the standard permits us to continue to account for our leases that commenced before January 1, 2019 under the previously existing lease accounting guidance for the remainder of their lease terms, and to apply the new lease accounting guidance to leases commencing or modified after January 1, 2019.

As a result, there was no restatement of prior issued financial statements and, similarly, no cumulative effect adjustment to opening equity.

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.

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.

We have elected the practical expedient which allows us to not have to evaluate whether concessions provided in response to coronavirus pandemic are lease modifications.

In 2020, we undertook in-depth discussions with each of our tenants as they navigated the COVID-19 pandemic and associated severe economic disruption.

In light of those discussions, in 2020, we granted temporary base rent and property management fee deferrals to three affected tenants.

In connection with these deferrals, we entered into lease amendments with the three affected tenants to apply a portion of the security deposits that we hold under the leases to pay a portion of the March 2020 rent (for one tenant), pay April 2020 rent in full, defer rent for May and June 2020 in full, and provide for the pro rata repayment of the security deposit and deferred rent over an 18 month time period starting July 1, 2020.

Pursuant to these amendments, a total of approximately $ 940,000 of security deposits were applied to the payment of base rent, property management fees and associated lease penalties for March and April 2020, including approximately $ 185,000 related to the partial payment of the March 2020 base rent and property management fees for one of the tenants;

and a total of approximately $ 1.5 million in rent was deferred for May and June 2020.

As of December 31, 2021, we have not executed deferrals for any other tenants, other than the deferrals for the three tenants discussed above.

The FASB issued additional guidance for companies to account for any COVID-19 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.

We have elected the practical expedient which allows us to not have to evaluate whether concessions provided in response to COVID-19 pandemic are lease modifications.

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.

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.

Lease amendments that are not associated with the COVID-19 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.

If both conditions are present, the lease amendment is accounted for as a new lease that is separate from the original lease.

One of our leases that was entered into prior to 2019 provides the lessee with a purchase option to purchase the leased property at the end of the initial lease term in September 2034, subject to the satisfaction of certain conditions.

The purchase option provision allows the lessee to purchase the leased property at the greatest of (a) the fair value;

(b) the value determined by dividing the then-current base rent by 8 %;

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 December 31, 2020, our gross investment in the property with the purchase option was approximately $ 30.5 million.

At December 31, 2020, the purchase option was not exercisable.

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

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.

Certain of our leases provide the lessee with a right of first refusal or right of first offer in the event we market the leased property for sale.

Recent Accounting Pronouncements .

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, which changes the impairment model for most financial assets and certain other instruments.

For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, which among other updates, clarifies that receivables arising from operating leases are not within the scope of this guidance and should be evaluated in accordance with Topic 842.

For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities.

These standards were effective for the Company on January 1, 2020 and did not have a material impact on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

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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 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.

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.

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.

This will reduce the issue discount and result in less non-cash interest expense in our consolidated financial statements.

Additionally, ASU 2020-06 will result in the reporting of a 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 condensed consolidated financial statements.

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

We adopted ASU 2020-06 on January 1, 2022 and recognized a cumulative-effect adjustment of approximately $ 728,000 to the opening balance of retained earnings relating to the outstanding principal balance of our Exchangeable Senior Notes at the date of adoption.

Concentration of Credit Risk .

As of December 31, 2020, we owned 66 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Virginia, and Washington.

As of December 31, 2021, we owned 103 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, 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 its lease is dependent upon the economic, regulatory, competition, natural and social factors affecting the community in which that tenant operates.

Three of our tenants, PharmaCann Inc.

(“PharmaCann”) (at five of our properties), Ascend Wellness Holdings, LLC (“Ascend”) (at three of our properties), and Cresco Labs, LLC (“Cresco”) (at five of our properties), represented approximately 18 %, 10 %, and 10 %, respectively, of our rental revenues (including tenant reimbursements) for the year ended December 31, 2020.

Two of our tenants, PharmaCann Inc.

(“PharmaCann”) (at five of our properties) and SH Parent Inc.

(“Parallel”) (at four of our properties), represented approximately 12 % and 10 %, respectively, of our rental revenue (including tenant reimbursements) for the year ended December 31, 2021.

Three of our tenants, PharmaCann (at five of our properties), Ascend Wellness Holdings, Inc.

(“Ascend”) (at three of our properties), and Cresco Labs Inc.

(“Cresco”) (at five of our properties), represented approximately 18 %, 10 %, and 10 %, respectively, of our rental revenues (including tenant reimbursements) for the year ended December 31, 2020.

Two of our tenants, PharmaCann (at five of our properties) and Ascend (at two of our properties), represented approximately 26 % and 12 %, respectively, of our rental revenues (including tenant reimbursements) for the year ended December 31, 2019.

Four of our tenants, PharmaCann (at two of our properties), Holistic Industries, Inc.

(“Holistic”) (at one property), Vireo Health, Inc.

(“Vireo”) (at three properties), and The Pharm, LLC (“The Pharm”) (at one property), represented approximately 38 %, 18 %, 16 % and 16 %, respectively, of our rental revenues (including tenant reimbursements) for the year ended December 31, 2018.

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

At December 31, 2019, one of our properties in New York accounted for 6 % of our net real estate held for investment.

At December 31, 2021 and 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 .

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As of December 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 25,612,541 shares of common stock issued and outstanding.

In January 2020, we issued 3,412,969 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 445,170 shares, resulting in net proceeds of approximately $ 239.6 million.

In May 2020, we issued 1,550,648 shares of common stock, including the exercise in full of the underwriter’s option to purchase an additional 202,259 shares, resulting in net proceeds of approximately $ 114.9 million.

In July 2020, we issued 3,085,867 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 402,504 shares, resulting in net proceeds of approximately $ 248.2 million.

In September 2019, we entered into equity distribution agreements with three sales agents, pursuant to which we were able to offer and sell from time to time through an “at-the-market” offering program (the “Prior ATM Program”) up to $ 250.0 million in shares of our common stock.

During the year ended December 31, 2020, we sold 1,499,382 shares of our common stock for net proceeds of approximately $ 138.4 million under the Prior ATM Program.

In November 2020, we terminated the Prior ATM Program and entered into new equity distribution agreements with six sales agents, pursuant to which we may offer and sell from time to time through an “at-the-market” offering program (the “New ATM Program”) up to $ 500.0 million in shares of our common stock.

During the year ended December 31, 2020, we sold 1,762,500 shares of our common stock for net proceeds of approximately $ 262.9 million under the New ATM Program.

Preferred Stock

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January 14, 2022

All dividends declared during the years ended December 31, 2020, 2019 and 2018 were characterized as ordinary income for federal income tax purposes, except for $ 1.02 of the common stock dividend with a record date of December 31, 2020, which is allocable to 2021 and for which the tax treatment has not been finalized.

$ 0.49 of the common stock dividend with a record date of December 31, 2019 was allocated to 2020, approximately $ 0.15 of the common stock dividend with a record date of December 31, 2018 was allocated to 2019 and all of the common stock dividend with a record date of December 29, 2017 were allocated to 2018.

Investments in Real Estate

The Company acquired the following properties during the year ended December 31, 2020 (dollars in thousands):

Green Leaf VA

January 15, 2020

January 24, 2020

The Company made the following acquisitions during the year ended December 31, 2021 (dollars in thousands):

January 22, 2021

LivWell CO Retail Portfolio

March 6, 2020

Parallel FL Wimauma

King's Garden CA

February 5, 2021

March 10, 2021

Massachusetts

April 2, 2020

GPI MI Davis Hwy

April 16, 2021

Kings Garden CA

June 10, 2020

Massachusetts

June 30, 2020

July 13, 2020

Columbia Care NJ Portfolio

July 16, 2020

August 3, 2021

August 13, 2021

September 17, 2021

Parallel FL Lakeland

September 24, 2021

Kings Garden CA

November 16, 2020

Gold Flora CA

October 15, 2021

December 9, 2021

Massachusetts

CO/PA/ND Portfolio

December 14, 2021

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

(2) We agreed to provide reimbursement to the tenant for development at the property of up to approximately $ 8.0 million, all of which we incurred and funded as of December 31, 2020.

(3) The tenant is expected to complete redevelopment of the property for which we initially agreed to provide reimbursement of up to approximately $ 1.9 million.

In June 2020, we amended the lease, which increased the tenant improvement allowance by $ 1.0 million to a total of approximately $ 2.9 million.

Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $ 13.5 million.

As of December 31, 2020, we incurred approximately $ 561,000 of the redevelopment costs, of which none was funded.

(4) The tenant is expected to complete redevelopment of the property for which we initially agreed to provide reimbursement of up to $ 4.3 million.

In October 2020, we amended this lease to increase the tenant improvement allowance by $ 25.0 million to a total of $ 29.3 million.

As of December 31, 2020, we incurred approximately $ 7.6 million of the redevelopment costs, of which we funded approximately $ 6.7 million.

(5) The portfolio consists of two retail properties, with one property closing on February 19, 2020 and one property closing on February 21, 2020.

The tenant is expected to complete tenant improvements at one of the properties, for which we agreed to provide reimbursement of up to $ 850,000 .

As of December 31, 2020, we incurred and funded approximately $ 49,000 of the redevelopment costs.

(6) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $ 41.0 million.

As of December 31, 2020, we incurred approximately $ 29.9 million of the redevelopment costs, of which we funded approximately $ 26.8 million.

(7) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $ 8.2 million.

As of December 31, 2020, we incurred approximately $ 4.3 million of the redevelopment costs, of which we funded approximately $ 3.3 million.

(8) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to approximately $ 22.3 million.

As of December 31, 2020, we incurred approximately $ 8.7 million of the redevelopment costs, of which we funded approximately $ 7.0 million.

(9) The tenant is expected to complete redevelopment of the property for which we initially agreed to provide reimbursement of up to $ 11.0 million.

In June 2020, we amended the lease, which increased the tenant improvement allowance by $ 16.0 million to a total of $ 27.0 million.

As of December 31, 2020, we incurred approximately $ 10.2 million of the redevelopment costs, of which we funded approximately $ 5.5 million.

(10) The tenant is expected to complete redevelopment of the property for which we initially agreed to provide reimbursement of up to approximately $ 6.4 million.

In December 2020, we amended the lease, which increased tenant improvement allowance by $ 4.0 million to a total of approximately $ 10.4 million.

As of December 31, 2020, we incurred approximately $ 7.3 million of the redevelopment costs, of which we funded approximately $ 6.1 million.

(11) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $ 21.0 million.

As of December 31, 2020, we incurred approximately $ 3.1 million of the redevelopment costs, of which we funded approximately $ 1.2 million.

(12) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $ 29.5 million.

As of December 31, 2020, we incurred approximately $ 20.9 million of the redevelopment costs, of which we funded approximately $ 13.4 million.

(13) Portfolio consists of two properties.

The tenant is expected to complete redevelopment of one of the properties for which we agreed to provide reimbursement of up to $ 1.6 million.

As of December 31, 2020, we incurred approximately $ 1.1 million of the redevelopment costs, of which we funded approximately $ 648,000 .

(14) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $ 18.8 million.

As of December 31, 2020, we incurred approximately $ 4.4 million of the redevelopment costs, of which we funded approximately $ 1.7 million.

(15) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to approximately $ 36.9 million.

As of December 31, 2020, we incurred approximately $ 2.7 million of the redevelopment costs, of which we funded approximately $ 2.2 million.

(16) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $ 25.0 million.

As of December 31, 2020, we had not incurred any of the redevelopment costs.

(17) Approximately $ 27.0 million was allocated to land and approximately $ 214.2 million was allocated to buildings and improvements.

Lease Amendments

In January 2020, we amended our lease with GPI which, among other things, canceled the remaining tenant improvement allowance of approximately $ 15.2 million and adjusted the corresponding base rent.

As of December 31, 2020, our total investment in the property was approximately $ 15.8 million.

In January 2020, we amended our lease with a subsidiary of Vireo at one of our Pennsylvania properties, making available an additional $ 4.5 million in funding for tenant improvements at the property.

In April 2020, we amended the lease to decrease the funding for tenant improvements at the property by $ 300,000 .

In August 2020, Vireo transferred its ownership interest in the subsidiary tenant at the property to Jushi Holdings Inc., and we amended the lease to increase the funding for tenant improvements at the property by $ 2.0 million.

As a result, the total tenant improvement allowance for the property is approximately $ 10.0 million, and assuming full payment of the allowance, our total investment in the property will be $ 15.8 million.

As of December 31, 2020, we incurred approximately $ 8.7 million of the redevelopment costs, of which we funded approximately $ 7.6 million.

In January 2020, we amended our lease with a subsidiary of The Pharm at one of our Arizona properties, making available an additional $ 2.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $ 5.0 million.

As of December 31, 2020, we incurred and funded the full amount of the redevelopment costs, making our total investment in the property $ 20.0 million.

In January 2020, we amended our lease with the tenant of our Sacramento, California property, making available an additional approximately $ 1.3 million in funding for tenant improvements at the property, and making the total tenant improvement allowance approximately $ 6.0 million.

As of December 31, 2020, we incurred and funded the full amount of the redevelopment costs, making our total investment in the property approximately $ 12.7 million.

In February 2020, we amended our lease with a subsidiary of Maitri Medicinals, LLC (“Maitri”) at one of our Pennsylvania properties, making available an additional $ 6.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $ 16.0 million.

As of December 31, 2020, we incurred $ 16.0 million of the redevelopment costs, of which we funded approximately $ 15.2 million.

In February 2020, we amended our lease and development agreement with a subsidiary of PharmaCann at one of our Massachusetts properties, making available an additional $ 4.0 million in construction funding at the property, with the total construction funding being $ 27.5 million.

We also canceled the optional commitment to provide construction funding of $ 4.0 million for PharmaCann at one of our Pennsylvania properties.

As of December 31, 2020, we incurred and funded the full amount of the construction funding, making our total investment in the Massachusetts property was $ 30.5 million.

In March 2020, we amended our lease with a subsidiary of Holistic at our Maryland property, making available a $ 5.5 million tenant improvement allowance at the property.

Assuming full payment of the funding, our total investment in the property will be $ 22.4 million.

As of December 31, 2020, we incurred $ 5.5 million of the redevelopment costs, of which we funded approximately $ 4.8 million.

In April 2020, we amended our leases with two subsidiaries of Vireo for one of our properties in New York and our property in Minnesota, making available an additional approximately $ 1.4 million in funding for tenant improvements at the properties in the aggregate, and making the total tenant improvement allowances approximately $ 10.1 million in the aggregate.

Assuming full payment of the funding, our total investment in the property in New York will be approximately $ 6.8 million and our total investment in the property in Minnesota will be approximately $ 9.7 million.

As of December 31, 2020, we incurred approximately $ 10.1 million of the tenant improvement allowances in the aggregate, of which we funded approximately $ 10.0 million.

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

Each of the tenants remained responsible for the payment of all other costs under the applicable lease during the deferral period.

● We amended each of our leases with GPI in Michigan to apply a part of GPI’s security deposit at each property for payment of the April 2020 base rent and property management fee, defer the base rent and property management fee for May and June 2020, and amortize the replenishment of the security deposit and payment of the base rent and property management fee deferral over an 18 month period commencing on July 1, 2020.

● We amended our lease with Maitri in Pennsylvania to apply a part of Maitri’s security deposit for payment of the April 2020 base rent and property management fee, defer the base rent and property management fee for May and June 2020, and amortize the replenishment of the security deposit and the base rent and property management fee deferral over an 18 month period commencing on July 1, 2020.

● We amended each of our leases with affiliates of Medical Investor Holdings LLC (“Vertical”) in southern California to apply a part of Vertical’s security deposit at each property for a partial payment of the March 2020 base rent and property management fee and payment in full of the April 2020 base rent and property management fee, defer the base rent and property management fee for May and June 2020, and amortize the replenishment of the security deposit and payment of the base rent and property management fee deferral over an 18 month period commencing on July 1, 2020.

Pursuant to these amendments, (1) a total of approximately $ 940,000 of security deposits were applied to the payment of base rent, property management fees and associated lease penalties for March and April 2020, including approximately $ 185,000 related to the partial payment of base rent and property management fees by Vertical for March 2020;

(2) a total of approximately $ 743,000 in base rent and property management fees were deferred for May 2020;

(3) a total of approximately $ 781,000 in base rent and property management fees were deferred for June 2020;

and (4) a total of approximately $ 52,000 per month in replenishment of security deposits and approximately $ 85,000 per month in repayments of base rent and property management fee deferrals are required to be paid each month over an 18 month period commencing on July 1, 2020.

Vertical made partial payments of contractual rent due for November and December 2020 and approximately $ 424,000 of security deposits were applied to the payment of rent and associated lease penalties.

In June 2020, we amended our lease and development agreement with a subsidiary of PharmaCann at one of our Illinois properties, making available an additional $ 3.0 million in construction funding at the property, and making the total available construction funding $ 10.0 million.

As of December 31, 2020, we incurred approximately $ 9.5 million of the redevelopment costs, of which we funded approximately $ 9.4 million.

In June 2020, we amended our lease with a subsidiary of Green Leaf Medical, LLC at one of our Pennsylvania properties, making available $ 30.0 million in funding for tenant improvements at the property.

Assuming full payment of the tenant improvement allowance, our total investment in the property will be $ 43.0 million.

As of December 31, 2020, we incurred approximately $ 828,000 of the redevelopment costs, of which we funded approximately $ 592,000 .

In August 2020, we amended our lease with a subsidiary of GR Companies, Inc.

(“Grassroots”) at one of our Pennsylvania properties, making available an additional approximately $ 1.5 million in funding for tenant improvements at the property, and making the total tenant improvement allowance approximately $ 12.4 million.

Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $ 26.6 million.

As of December 31, 2020, we incurred approximately $ 12.0 million of the redevelopment costs, of which we funded approximately $ 11.5 million.

Grassroots was acquired by Curaleaf Holdings, Inc.

In August 2020, we amended our lease with a subsidiary of Grassroots at one of our Illinois properties, making available an additional $ 844,000 in funding for tenant improvements at the property, and making the total tenant improvement allowance at the property approximately $ 18.6 million.

Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $ 29.1 million.

As of December 31, 2020, we incurred approximately $ 13.9 million of the redevelopment costs, of which we funded approximately $ 12.8 million.

In August 2020, we amended our lease with a subsidiary of Ascend at one of our Illinois properties, making available an additional $ 18.0 million in funding for tenant improvements at the property, and making the total tenant

improvement allowance at the property $ 32.0 million.

Assuming full payment of the additional funding, our total investment in the property will be $ 51.0 million.

As of December 31, 2020, we incurred approximately $ 25.1 million of the redevelopment costs, of which we funded approximately $ 22.9 million.

In October 2020, we amended our lease with a subsidiary of GTI at one of our Ohio properties, making available an additional $ 25.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $ 29.3 million.

Assuming full payment of the tenant improvement allowance, our total investment in the property will be $ 32.2 million.

As of December 31, 2020, we incurred approximately $ 7.6 million of the redevelopment costs, of which we funded approximately $ 6.7 million.

In October 2020, we amended our lease with GPI at one of our Michigan retail properties, making available an additional $ 525,000 in funding for tenant improvements at the property, and making the total tenant improvement allowance approximately $ 1.8 million.

Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $ 3.4 million.

As of December 31, 2020, we incurred approximately $ 1.8 million of the redevelopment costs, of which we funded approximately $ 1.7 million.

In November 2020, we amended our lease and development agreement with PharmaCann at one of our Pennsylvania properties, making available an additional $ 2.0 million in construction funding at the property, and making the total construction funding approximately $ 27.1 million.

Assuming full payment of the construction funding, our total investment in the property will be $ 28.0 million.

As of December 31, 2020, we incurred approximately $ 26.4 million of the redevelopment costs, of which we funded approximately $ 24.8 million.

In December 2020, we amended our lease and entered into a development agreement with PharmaCann at one of our New York properties, making available $ 31.0 million in construction funding at the property.

Assuming full payment of the construction funding, our total investment in the property will be $ 61.0 million.

As of December 31, 2020, we incurred approximately $ 70,000 of the construction costs, of which none was funded.

In December 2020, we amended our lease with Holistic at one of our Pennsylvania properties, making available an additional $ 4.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance approximately $ 10.4 million.

Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $ 19.3 million.

As of December 31, 2020, we incurred approximately $ 7.3 million of the redevelopment costs, of which we funded approximately $ 6.1 million.

In December 2020, we amended our lease with Holistic at one of our Massachusetts properties, making available an additional $ 3.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $ 5.0 million.

Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $ 17.8 million.

As of December 31, 2020, we incurred approximately $ 2.1 million of the redevelopment costs, of which we funded $ 2.0 million.

Including all of our properties, during the year ended December 31, 2020, we capitalized costs of approximately $ 301.0 million and funded approximately $ 289.5 million relating to tenant improvements and construction activities at our properties.

The properties acquired during 2020 generated approximately $ 27.2 million of rental revenue (including tenant reimbursements) and approximately $ 20.7 million of net operating income after deducting property and depreciation expenses for the year ended December 31, 2020.

The properties acquired during 2019 generated approximately $ 16.3 million of rental revenue (including tenant reimbursements) and approximately $ 12.5 million net operating income after deducting property and depreciation expenses for the year ended December 31, 2019.

Future contractual minimum rent (including base rent, supplemental base rent (with respect to our lease with PharmaCann at one of our New York properties) and property management fees) under the operating leases as of December 31, 2020 for future periods is summarized as follows (in thousands):

(2) Trulieve acquired Harvest in 2021.

The tenant is expected to complete improvements at the property, for which we agreed to provide reimbursement of up to approximately $ 10.8 million.

In June 2021, we amended the lease, which increased the improvement allowance by $ 7.1 million to a total of approximately $ 17.9 million, which also resulted in a corresponding adjustment to base rent for the lease at the property.

(3) The purchase price related to the acquisition of additional land adjacent to one of our existing properties.

In connection with the acquisition, we entered into a lease amendment for the existing property, which provided an improvement allowance that resulted in a corresponding adjustment to the base rent for the lease at the property.

The tenant is expected to complete construction of two new buildings at the property comprising approximately 180,000 square feet in the aggregate, for which we agreed to provide reimbursement of up to approximately $ 51.4 million.

(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 improvements at the property, for which we agreed to provide reimbursement of up to approximately $ 14.5 million.

In September 2021, we amended the lease, which increased the improvement allowance by $ 15.0 million to a total of approximately $ 29.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

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

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

In November 2021, we amended the lease, which increased the improvement allowance by $ 8.7 million to total of $ 23.7 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

(9) The tenant is expected to construct a 250,000 square foot industrial facility, for which we agreed to provide reimbursement of up to approximately $ 43.8 million.

The purchase price excludes approximately $ 3.2 million attributable to a portion of the property that is not part of any of the planned construction and which did not satisfy the requirements for sale-leaseback accounting;

therefore, this portion of the property is recognized as a notes receivable and is included in other assets, net on our consolidated balance sheet.

(10) Trulieve acquired Harvest in 2021.

The tenant is expected to complete improvements at the property, for which we agreed to provide reimbursement of up to $ 12.9 million.

(11) The tenant is expected to construct an 83,000 square foot industrial facility, for which we agreed to provide reimbursement of up to approximately $ 26.7 million.

(12) The amounts related to the acquisition of additional land adjacent to an existing property and a lease amendment which provided an allowance to fund construction of a new building and resulted in a corresponding adjustment to the base rent for the lease at the property.

The tenant is expected to construct approximately 324,000 square feet of industrial space, for which we agreed to provide reimbursement of up to approximately $ 46.1 million.

(13) The tenant is expected to complete improvements at the property, for which we agreed to provide reimbursement of up to $ 9.0 million.

(14) We acquired the central utility plant facilities from the tenant at the property, which increased the total rentable square feet at the property to 205,000 square feet, provided reimbursements to the tenant for certain other improvements made at the property, and amended the lease to increase the improvement allowance for future improvements by $ 550,000 , all of which resulted in a corresponding adjustment to the base rent for the property.

(15) We acquired a portfolio of 27 properties leased to multiple tenants with 24 properties located in Colorado, two properties located in North Dakota, and one property located in Pennsylvania .

The tenants at three of the properties are expected to complete improvements at the properties for which we are obligated to provide reimbursement of up to a total of approximately $ 1.1 million.

(16) Approximately $ 46.7 million was allocated to land, approximately $ 231.0 million was allocated to building and improvements, approximately $ 9.1 million was allocated to in-place leases and approximately $ 1.1 million was allocated to one above-market lease.

(17) Excludes an additional approximately 110,000 rentable square feet relating to expansions at properties acquired prior to 2021.

Acquired In-Place Lease Intangible Assets

In-place lease intangible assets and related accumulated amortization as of December 31, 2021 is as follows (in thousands):

At December 31, 2021

In-place lease intangible assets

Accumulated amortization

In-place lease intangible assets, net

Amortization of in-place lease intangible assets classified in depreciation and amortization expense in our consolidated statements of income was approximately $ 33,000 for the year ended December 31, 2021.

The weighted-average amortization period of the value of acquired in-place leases was approximately 11.7 years, and the estimated annual amortization of the value of the acquired in-place leases as of December 31, 2021 is as follows (in thousands):

Above-Market Lease

At December 31, 2021, we had one above-market lease acquired on December 14, 2021 with an initial value of approximately $ 1.1 million and an amortization period of approximately 11.5 years.

New Lease and Lease Amendments

In January 2021, we executed a new lease at our Los Angeles, California property with a subsidiary of Holistic Industries Inc.

(“Holistic”), pursuant to which we agreed to make available up to $ 11.0 million in funding for future improvements at the property.

In February 2021, we amended our lease with a subsidiary of LivWell Holdings, Inc.

at one of our Michigan properties, increasing the improvement allowance under the lease by approximately $ 6.9 million to a total of approximately $ 29.9 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In February 2021, we amended our lease with PharmaCann Inc.

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

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

at one of our Pennsylvania properties, increasing the 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 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 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 August 2021, we amended our lease with Holistic at one of our Maryland properties, increasing the improvement allowance under the lease by $ 8.0 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In September 2021, we amended our lease with a subsidiary of Ascend Wellness Holdings, Inc.

at one of our Illinois properties, increasing the improvement allowance under the lease by $ 20.0 million to a total of $ 52.0 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 year ended December 31, 2021, we capitalized costs of approximately $ 384.1 million and funded approximately $ 374.5 million relating to improvements and construction activities at our properties.

The properties acquired during the year ended December 31, 2021 generated approximately $ 19.2 million of rental revenue (including tenant reimbursements) and approximately $ 15.5 million of net operating income after deducting property and depreciation expenses, during that period.

The properties acquired during the year ended December 31, 2020 generated approximately $ 27.2 million of rental revenue (including tenant reimbursements) and approximately $ 20.7 million net operating income after deducting property and depreciation expenses, during that period.

Future contractual minimum rent (including base rent and property management fees) under the operating leases as of December 31, 2021 for future periods is summarized as follows (in thousands):

Contractual Minimum Rent

Exchangeable Senior Notes

In February 2019, our Operating Partnership issued $ 143.75 million of 3.75 % Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”) in a private offering, including the exercise in full of the initial purchasers’ option to purchase additional Exchangeable Senior Notes.

As of December 31, 2021 and 2020, our Operating Partnership had outstanding approximately $ 33.4 million and $ 143.7 million, respectively, 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 December 31, 2020 was 15.01810 shares of our common stock per $ 1,000 principal amount of Exchangeable Senior Notes and the exchange price at December 31, 2020 was approximately $ 66.59 per share of our common stock.

The exchange rate for the Exchangeable Senior Notes at December 31, 2021 was 15.32648 shares of our common stock per $1,000 principal amount of the Exchangeable Senior Notes and the exchange price at December 31, 2021 was approximately $ 65.25 per share of our common stock.

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

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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, 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.

At December 31, 2021, the if-exchanged value of the Exchangeable Senior Notes exceeded the principal amount by approximately $ 101.1 million.

In connection with the 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 as well as the debt discount, are being amortized using the effective interest method and recognized as non-cash interest expense over the expected term of the Exchangeable Senior Notes.

In December 2021, our Operating Partnership entered into separate privately-negotiated exchange agreements with certain holders of the Exchangeable Senior Notes, pursuant to which the Operating Partnership delivered and paid an aggregate of (a) 1,684,237 shares of the Company’s common stock and (b) approximately $ 2.3 million in cash (consisting of approximately $ 1.2 million in accrued interest and approximately $ 1.1 million in inducement), collectively, in exchange for approximately $ 110.4 million principal amount of the Exchangeable Senior Notes (the “Exchange Transactions”).

The issuance of the shares pursuant to the Exchange Transactions resulted in a non-cash increase to our additional paid-in capital account of approximately $ 109.0 million, primarily driven by the fair value of the shares issued, partially offset by the amount allocated to the repurchase of the exchange option.

Following the closing of the Exchange Transactions, approximately $ 33.4 million in aggregate principal amount of the Exchangeable Senior Notes remain outstanding with terms unchanged.

In connection with the Exchange Transactions, we recognized a loss on induced exchange of Exchangeable Senior Notes of approximately $ 3.7 million.

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

Year Ended December 31,

Amortization of debt discount

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Total interest expense

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

December 31, 2020

December 31, 2019

The following table details the carrying value of our Exchangeable Senior Notes (in thousands):

At December 31, 2021

At December 31, 2020

Principal amount

Unamortized discount

Unamortized issuance costs

Unamortized issuance cost

Carrying value

Accrued interest payable for the Exchangeable Senior Notes was approximately $ 1.6 million as of both December 31, 2020 and 2019, and is included in accounts payable and accrued expenses on our consolidated balance sheets.

Accrued interest payable for the Exchangeable Senior Notes was approximately $ 365,000 and $ 1.6 million as of December 31, 2021 and 2020, respectively, and is included in accounts payable and accrued expenses on our consolidated balance sheets.

Notes due 2026

On May 25, 2021, our Operating Partnership issued $ 300.0 million aggregate principal amount of its 5.50 % Senior Notes due 2026 (the “Notes due 2026”).

The Notes due 2026 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 Notes due 2026 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 Notes due 2026 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, TMI Trust Company, as trustee (as successor-in-interest to GLAS Trust Company LLC), and Securities Transfer Corporation, as registrar (as successor-in-interest to GLAS Trust Company LLC).

The terms of the indenture provide that if the debt rating on the Notes due 2026 is downgraded or withdrawn entirely, interest on the Notes due 2026 will increase to a range of 6.0 % to 6.5 % based on such debt rating.

In connection with the issuance of the Notes due 2026, we recorded approximately $ 6.8 million of issuance costs, which are being amortized using the effective interest method and recognized as non-cash interest expense over the term of the Notes due 2026.

The following table details our interest expense related to the Notes due 2026 (in thousands):

December 31, 2021

Amortization of issuance cost

Total interest expense

The following table details the carrying value of our Notes due 2026 (in thousands):

At December 31, 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 Notes due 2026 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 December 31, 2021.

On October 19, 2021, in accordance with the registration rights agreement entered into among the Company, the Operating Partnership, the subsidiaries of the Operating Partnership and the initial purchasers of the Notes due 2026, the Operating Partnership completed its exchange offer to exchange all of the outstanding Notes due 2026 for an equal principal amount of a new issuance of 5.50 % Senior Notes due 2026 pursuant to an effective registration statement on Form S-4 filed with the Securities and Exchange Commission.

A total of $ 300.0 million aggregate principal amount of the original Notes due 2026, representing 100 % of the outstanding principal amount of the original Notes due 2026, was validly tendered and received prior to the expiration of the exchange offer.

The terms of the new Notes due 2026 are substantially identical to the original Notes due 2026, except for transfer restrictions and registration rights relating to the original Notes due 2026.

Accrued interest payable for the Notes due 2026 as of December 31, 2021 was approximately $ 2.1 million, and is included in accounts payable and accrued expenses on our condensed consolidated balance sheets.

The following table summarizes the principal payments on our outstanding indebtedness as of December 31, 2021 (in thousands):

Net Income Per Share

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As a result, distributions to participating securities have been included in net income attributable to common stockholders to calculate net income per basic and diluted share.

We have considered the dilutive effect of the 2,158,837 and 2,100,307 potentially issuable shares necessary to settle the Exchangeable Senior Notes on the if exchanged method basis for the years ended December 31, 2020 and 2019, respectively, and as this effect was anti-dilutive, these shares necessary to settle the Exchangeable Senior Notes were excluded from diluted earnings per share.

The 2,180,550 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the year ended December 31, 2021, and were included in the computation of diluted earnings per share.

The 2,158,837 and 2,100,307 potentially issuable shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were anti-dilutive for the years ended December 31, 2020 and 2019, respectively, and were excluded from the computation of diluted earnings per share.

For the year ended December 31, 2021, 81,414 shares issuable upon vesting of performance share units (“PSUs”) granted to certain employees in January 2021 were included in dilutive securities, as the performance thresholds for vesting of these PSUs were met as measured as of December 31, 2021 (see Note 10 for further discussion of the PSUs).

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

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Distribution to participating securities

Net income attributable to common stockholders used to compute net income per share

Net income attributable to common stockholders used to compute net income per share - basic

Dilutive effect of Exchangeable Senior Notes

Net income attributable to common stockholders used to compute net income per share - diluted

Weighted-average common shares outstanding:

Restricted stock and RSUs

Dilutive effect of Exchangeable Senior Notes

Net income attributable to common stockholders per share:

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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.

Accounting guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Accounting guidance also establishes a fair value

hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair value:

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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 consolidated financial statements and approximate fair value of financial instruments at December 31, 2020 and 2019:

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

At December 31, 2021

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Exchangeable Senior Notes (2)

Notes due 2026 (2)

(1) 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 December 31, 2020.

(2) The fair value is determined based upon Level 2 inputs as the Exchangeable Senior Notes and Notes due 2026 were trading in the private market.

As of December 31, 2021 and 2020, cash equivalent instruments consisted of approximately $ 72.0 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.

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The carrying amounts of financial instruments such as cash equivalents invested in certificates of deposit, obligations of the U.S.

government with an original maturity at the time of purchase of less than or equal to three months, accounts payable, accrued expenses and other liabilities approximate their relative fair values due to the short-term maturities and market rates of interest of these instruments.

government with an original maturity at the time of purchase of less than or equal to three months, construction loan receivable, accounts payable, accrued expenses and other liabilities approximate their relative fair values due to the short-term maturities and market rates of interest of these instruments.

Common Stock Incentive Plan

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Under the terms of the 2016 Plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units and other awards, will be no more than 1,000,000 shares.

Any equity awards that lapse, expire, terminate, are canceled or are forfeited (including forfeitures in connection with satisfaction of tax withholding obligations of the recipient) are recredited to the 2016 Plan’s reserve for future issuance.

The 2016 Plan has a term of ten years until December 5, 2026.

Any equity awards that lapse, expire, terminate, are canceled or are forfeited (including forfeitures in connection with satisfaction of tax withholding obligations of the recipient) are re-credited to the 2016 Plan’s reserve for future issuance.

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 years ended December 31, 2021, 2020 and 2019 is included in the table below:

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The fair value of restricted stock that vested in 2021, 2020 and 2019 was approximately $ 8.8 million, $ 6.0 million and $ 3.2 million, respectively.

A summary of the RSU activity under the 2016 Plan and related information for the year ended December 31, 2020 is included in the table below.

There was no RSU activity for the years ended December 31, 2019 and 2018.

RSUs have the same economic rights as shares of restricted stock under the 2016 Plan:

The following table summarizes our RSU activity for the years ended December 31, 2021 and 2020.

There was no RSU activity for the year ended December 31, 2019.

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

Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”), which allows a select group of management and our non-employee directors to defer receiving certain of their cash and equity-based compensation.

RSUs are subject to vesting conditions of the Deferred Compensation Plan and have the same economic rights as shares of restricted stock under the 2016 Plan:

Average Grant Date

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Balance at December 31, 2020

Balance at December 31, 2021

The remaining unrecognized compensation cost of approximately $ 3.7 million for RSU awards is expected to be recognized over an amortization period of approximately 1.7 years as of December 31, 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.

At the end of the Performance Period, a recipient of PSUs may receive as few as zero Award Shares or as many as 150 % of the number of target PSUs in Award Shares, plus deemed dividends.

PSUs will also be reduced as necessary so the total value at the vesting date does not exceed 800 % of the grant date PSU price, and if the Company’s absolute total stockholder return during the Performance Period is negative, the payout of Award Shares is capped at the target number of PSUs, notwithstanding the Company’s outperformance of comparator groups.

No dividends are paid to the recipient during the Performance Period.

At the end of the Performance Period, if the Company’s total stockholder return is such that the recipient earns Award Shares, the recipient will receive additional

shares of common stock relating to dividends deemed to have been paid and reinvested on the Award Shares.

The recipient of the Award Shares may not sell, transfer or otherwise dispose of the Award Shares for a one-year period following the vesting date of the Award Shares.

The grant date fair value of the PSUs granted in January 2021 was $ 12.0 million.

The fair value was calculated using a Monte Carlo simulation pricing model based on the following assumptions:

Fair Value Assumptions

Valuation date

January 6, 2021

Fair value per share on valuation date

Expected term

Expected price volatility

Risk-free interest rate

Discount for post vesting restriction

The expected share price volatility was based on the historical volatility of our shares of common stock over a period of approximately the Performance Period.

The risk-free interest rate was based on the zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the valuation date.

The discount for the post vesting restriction was estimated using the Finnerty model.

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 year ended December 31, 2021, we recognized stock-based compensation expense of $ 4.0 million relating to the PSU awards.

As of December 31, 2021, the remaining unrecognized compensation cost of approximately $ 8.0 million relating to PSU awards is expected to be recognized over the remaining Performance Period of approximately 2.0 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 consolidated balance sheet as of December 31, 2020 is presented in the table below (in thousands):

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

Total future contractual lease payments

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Office lease liability

Tenant Improvement Allowances.

As of December 31, 2020, we had approximately $ 250.7 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 Funding.

As of December 31, 2020, we had approximately $ 624,000 of commitments relating to construction funding for the development of a property in Pennsylvania, which we funded in full in February 2021.

Improvement Allowances.

As of December 31, 2021, we had approximately $ 269.8 million of commitments related to 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 December 31, 2021, we had $ 5.6 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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In November 2019, we adopted the Innovative Industrial Properties, Inc.

Nonqualified Deferred Compensation Plan (the “Plan”), which allows a select group of management and our non-employee directors to defer receipt of their compensation, including up to 80 % of base salary, 100 % of bonus, 100 % of

director fees and 100 % of restricted equity awards.

Nonqualified Deferred Compensation Plan (the “Plan”), which allows a select group of management and non-employee directors to defer receipt of their compensation, including up to 80 % of base salary, 100 % of bonus, 100 % of director fees and 100 % of restricted equity awards.

The Plan assets are held in a rabbi trust which is consolidated and included in the consolidated financial statements.

Related Party Transactions

Private Airplane Reimbursement .

Alan Gold, our executive chairman, utilizes a private airplane from time to time exclusively for company business travel purposes, which airplane is owned by an entity controlled by Mr.

We reimburse Mr.

Gold for the company-related use of the airplane by Mr.

Gold and our other executives, including out-of-pocket operating costs, on terms we believe are comparable to those we could secure from an independent third party.

As approved by our audit committee, for the years ended December 31, 2020, 2019 and 2018, we paid approximately $ 309,000 , $ 308,000 and $ 202,000 , respectively, to Mr.

Gold on account of such expenses.

Subsequent Events

Subsequent to December 31, 2020, the Company acquired the following properties, including commitments to fund tenant improvements and construction, and made the following additional funds available to tenants for improvements at the Company’s existing properties (dollars in thousands):

January 7, 2021

Subsequent to December 31, 2021, we acquired the following properties, including commitments to fund improvements and construction, and made the following additional funds available to tenants for improvements at our existing properties (dollars in thousands):

Massachusetts

January 28, 2022

Kings Garden CA

February 4, 2022

February 10, 2022

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

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

(2) Excludes transaction costs.

(3) The amount relates to the tenant improvement allowance provided in connection with a new lease executed at one of our California properties located in Los Angeles, the prior tenant of which was under receivership.

Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $ 24.0 million.

As of February 24, 2021 , we had no t funded any of the tenant improvement allowance.

(4) The tenant is expected to complete tenant improvements at the property, for which we agreed to provide reimbursement of up to approximately $ 10.8 million.

As of February 24, 2021 , we had no t funded any of the tenant improvement allowance.

(5) The amounts relate to the acquisition of additional land adjacent to an existing property and a lease amendment which provided a tenant improvement allowance and resulted in a corresponding adjustment to base rent for lease at the property.

The tenant is expected to complete construction of two new buildings on the property comprising approximately 180,000 square feet in the aggregate, for which we agreed to provide reimbursement of up to approximately $ 51.4 million.

As of February 24, 2021, we had no t funded any of the tenant improvement allowance.

(6) The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of our Michigan properties by approximately $ 6.9 million to a total of approximately $ 29.9 million, and also resulted in a corresponding adjustment to the base rent for the lease at the property.

As of February 24, 2021, we had funded approximately $ 29.8 million of the tenant improvement allowance.

Rent Collections Update (as of February 24 , 2021)

We collected 100 % of contractual rent due for the three months ended December 31, 2020 and 100 % of contractual rent due for the months of January and February 2021 across our total portfolio, other than:

● The tenant at our Los Angeles, California property that was in receivership until we signed a new lease with Holistic for the entire property on January 7, 2021;

● Vertical, the tenant at certain properties in southern California, which made partial payments of contractual rent due during these time periods.

The properties that Vertical occupies represented less than one percent of our total gross assets at December 31, 2020.

We have not provided deferrals of any rent obligations to any tenant since July 1, 2020.

Quarterly Financial Information (unaudited)

The Company’s selected quarterly information for the years ended December 31, 2020 and 2019 (in thousands, except share and per share data) was as follows.

Three Months Ended (1)

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

Rental (including tenant reimbursements)

Total revenues

Property expenses

General and administrative expense

Depreciation expense

Total expenses

Income from operations

Interest and other income

Interest expense

Preferred stock dividends

Net income attributable to common stockholders

Net income attributable to common stockholders per share:

Weighted-average shares outstanding:

Three Months Ended (1)

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

Rental (including tenant reimbursements)

Total revenues

Property expenses

General and administrative expense

Depreciation expense

Total expenses

Income from operations

Interest and other income

Interest expense

Preferred stock dividends

Net income attributable to common stockholders

Net income attributable to common stockholders per share:

Weighted-average shares outstanding:

(1) The sum of quarterly financial data may vary from the annual data due to rounding.

(2) For the three months ended December 31, 2020, net income attributable to common stockholders per diluted share included 2,158,837 potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period.

This adjustment applied only for the three months ended December 31, 2020.

The Exchangeable Senior Notes were anti-dilutive for purposes of calculating net income attributable to common stockholders per diluted share for all other periods presented.

(3) The amount relates to a lease amendment which increased the improvement allowance under a lease at one of our Michigan properties by $ 18.0 million to a total of approximately $ 47.5 million, and also resulted in a corresponding adjustment to base rent for the lease at the property.

(4) The tenant is expected to complete improvements at the property, for which we agreed to provide reimbursement of up to $ 4.6 million.

In addition, we acquired additional land adjacent to one of our existing properties in Pennsylvania on February 2, 2022.

In connection with the acquisition, we amended the lease for the existing property to incorporate this land into the leased area and reduced the existing improvement allowance under the lease by an amount equal to the purchase price for the land, which was approximately $ 3.3 million.

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

10 unchanged sentences

Various (1)(11)

2019/2020/2021

Vertical CA Portfolio

Gold Flora CA

Columbia Care CO

1967/1978/2018

LivWell CO Retail Portfolio

Trulieve FL Portfolio

Various (4)(11)

Parallel FL Portfolio

Cresco IL Portfolio

Various (5)(8)

PharmaCann IL

6 unchanged sentences

Massachusetts

Green Peak MI

Various (7)(11)

Emerald Growth MI

1940/2020/2021

Green Peak MI Retail Portfolio

1930/1972/2021

2015/2017/2019

Columbia Care NJ Portfolio

Various (7)(8)

PharmaCann NY

PharmaCann OH

Green Leaf PA

1954/1986/2020

Columbia Care PA

PharmaCann PA

Green Leaf VA

(1) Portfolio consists of six properties constructed and renovated between 1980 and 2019.

CO/PA/ND Portfolio

Columbia Care VA

(1) Portfolio consists of eight properties constructed and renovated between 1969 and 2019.

(2) Portfolio consists of four properties constructed and renovated between 1964 and 2020.

1 unchanged sentence

(4) Portfolio consists of two properties constructed in 1981 and 2019.

Both properties were renovated in 2020.

One of the properties was renovated in 2020.

(5) Portfolio consists of two properties originally constructed in 1982 and 2014.

Both properties were renovated and expanded in 2020 and 2021.

(6) Portfolio consists of two properties constructed in 2015 and 2016.

Both properties were renovated in 2019.

(7) Portfolio consists of two properties constructed in 1999 and 2018.

(8) Portfolio consists of six properties constructed and renovated between 1957 and 2019.

1 unchanged sentence

Both properties were renovated in 2020.

(10) Portfolio consists of 27 properties with 24 properties located in Colorado, two properties located in North Dakota, and one property located in Pennsylvania, which were constructed and renovated between 1870 and 2020.

(11) As of December 31, 2021, all or a portion of the property was under active development or redevelopment.

11 unchanged sentences

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-K

Item 9A. Controls and Procedures