INNOVATIVE INDUSTRIAL PROPERTIES INC 10-Q

ITEM 1. FINANCIAL STATEMENTS Innovative Industrial Properties, Inc. Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, December 31, Assets ​ 2022 ​ 2021 Real estate, at cost: ​ ​ ​ ​ ​ ​ Land ​ $ 136,123 ​ $ 122,386 Buildings and improvements ​ 1,220,821 ​ 979,417 Tenant improvements ​ 699,856 ​ 620,301 Construction in progress ​ 68,909 ​ — Total real estate, at cost ​ 2,125,709 ​ 1,722,104 Less accumulated depreciation ​ ( 109,100 ) ​ ( 81,938 ) Net real estate held for investment ​ 2,016,609 ​ 1,640,166 Construction loan receivable ​ ​ 17,698 ​ ​ 12,916 Cash and cash equivalents ​ 45,432 ​ 81,096 Restricted cash ​ ​ 530 ​ ​ 5,323 Investments ​ 309,442 ​ 324,889 Right of use office lease asset ​ ​ 1,921 ​ ​ 1,068 In-place lease intangible assets, net ​ ​ 9,535 ​ ​ 9,148 Other assets, net ​ 24,515 ​ 9,996 Total assets ​ $ 2,425,682 ​ $ 2,084,602 Liabilities and stockholders’ equity ​ ​ ​ ​ ​ ​ Exchangeable Senior Notes, net ​ $ 6,374 ​ $ 32,232 Notes due 2026, net ​ ​ 294,478 ​ ​ 293,860 Tenant improvements and construction funding payable ​ ​ 31,210 ​ ​ 46,274 Accounts payable and accrued expenses ​ 6,428 ​ 7,718 Dividends payable ​ 49,439 ​ 38,847 Rent received in advance and tenant security deposits ​ 59,899 ​ 52,805 Other liabilities ​ 2,082 ​ 1,167 Total liabilities ​ 449,910 ​ 472,903 Commitments and contingencies (Notes 6 and 11) ​ ​ Stockholders’ equity: ​ ​ 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 June 30, 2022 and December 31, 2021 ​ 14,009 ​ 14,009 Common stock, par value $ 0.001 per share, 50,000,000 shares authorized: 27,973,429 and 25,612,541 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively ​ 28 ​ 26 Additional paid-in capital ​ 2,056,568 ​ 1,672,882 Dividends in excess of earnings ​ ( 94,833 ) ​ ( 75,218 ) Total stockholders’ equity ​ 1,975,772 ​ 1,611,699 Total liabilities and stockholders’ equity ​ $ 2,425,682 ​ $ 2,084,602 ​ See the accompanying notes to the condensed consolidated financial statements. ​ ​ 3 Table of Contents Innovative Industrial Properties, Inc. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended For the Six Months Ended ​ ​ June 30, ​ June 30, ​ ​ 2022 2021 2022 2021 Revenues: ​ ​ ​ ​ ​ ​ ​ ​ Rental (including tenant reimbursements) ​ $ 69,995 ​ $ 48,867 ​ $ 134,109 ​ $ 91,752 ​ Other ​ 516 ​ — ​ 906 ​ — ​ Total revenues ​ 70,511 ​ 48,867 ​ 135,015 ​ 91,752 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property expenses ​ 2,427 ​ 482 ​ 4,409 ​ 1,252 ​ General and administrative expense ​ 8,707 ​ 5,604 ​ 17,484 ​ 11,204 ​ Depreciation and amortization expense ​ 15,233 ​ 9,841 ​ 29,101 ​ 18,680 ​ Total expenses ​ 26,367 ​ 15,927 ​ 50,994 ​ 31,136 ​ Income from operations ​ 44,144 ​ 32,940 ​ 84,021 ​ 60,616 ​ Interest and other income ​ 581 ​ 91 ​ 638 ​ 215 ​ Interest expense ​ ​ ( 4,504 ) ​ ​ ( 3,692 ) ​ ​ ( 9,270 ) ​ ​ ( 5,565 ) ​ Loss on exchange of Exchangeable Senior Notes ​ ( 7 ) ​ — ​ ( 125 ) ​ — ​ Net income ​ 40,214 ​ 29,339 ​ 75,264 ​ 55,266 ​ Preferred stock dividends ​ ( 338 ) ​ ( 338 ) ​ ( 676 ) ​ ( 676 ) ​ Net income attributable to common stockholders ​ $ 39,876 ​ $ 29,001 ​ $ 74,588 ​ $ 54,590 ​ Net income attributable to common stockholders per share (Note 8): ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 1.42 ​ $ 1.21 ​ $ 2.77 ​ $ 2.27 ​ Diluted ​ $ 1.42 ​ $ 1.17 ​ $ 2.75 ​ $ 2.22 ​ Weighted-average shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 27,850,561 ​ 23,889,761 ​ 26,741,568 ​ 23,889,580 ​ Diluted ​ 28,036,690 ​ 26,168,682 ​ 27,159,774 ​ 26,166,494 ​ ​ See accompanying notes to the condensed consolidated financial statements. ​ ​ 4 Table of Contents Innovative Industrial Properties, Inc. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands, except share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2022 ​ ​ Three Months Ended June 30, 2021 ​ ​ Series A ​ Shares of ​ ​ ​ ​ Additional ​ Dividends in ​ Total ​ ​ Series A ​ Shares of ​ ​ ​ ​ Additional ​ Dividends in ​ Total ​ ​ Preferred ​ Common ​ Common ​ Paid-In- ​ Excess of ​ Stockholders’ ​ ​ Preferred ​ Common ​ Common ​ Paid-In ​ Excess of ​ Stockholders’ ​ Stock Stock Stock Capital Earnings Equity ​ Stock Stock Stock Capital Earnings Equity Balances at beginning of period ​ $ 14,009 26,107,769 ​ $ 26 ​ $ 1,718,234 ​ $ ( 85,608 ) ​ $ 1,646,661 ​ ​ $ 14,009 ​ 23,926,317 ​ $ 24 ​ $ 1,557,776 ​ $ ( 54,191 ) ​ $ 1,517,618 Net income ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 40,214 ​ ​ 40,214 ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 29,339 ​ ​ 29,339 Issuance of unvested restricted stock, net of forfeitures ​ ​ — ​ 2,811 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ — ​ 1,987 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Exchange of Exchangeable Senior Notes ​ ​ — ​ 47,059 ​ ​ — ​ ​ 3,014 ​ ​ — ​ ​ 3,014 ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net proceeds from sale of common stock ​ ​ — ​ 1,815,790 ​ ​ 2 ​ ​ 330,883 ​ ​ — ​ ​ 330,885 ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Preferred stock dividend ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 338 ) ​ ​ ( 338 ) ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 338 ) ​ ​ ( 338 ) Common stock dividend ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 49,101 ) ​ ​ ( 49,101 ) ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 33,584 ) ​ ​ ( 33,584 ) Stock-based compensation ​ ​ — ​ — ​ ​ — ​ ​ 4,437 ​ ​ — ​ ​ 4,437 ​ ​ ​ — ​ — ​ ​ — ​ ​ 2,132 ​ ​ — ​ ​ 2,132 Balances at end of period ​ $ 14,009 27,973,429 ​ $ 28 ​ $ 2,056,568 ​ $ ( 94,833 ) ​ $ 1,975,772 ​ ​ $ 14,009 ​ 23,928,304 ​ $ 24 ​ $ 1,559,908 ​ $ ( 58,774 ) ​ $ 1,515,167 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2022 ​ ​ Six Months Ended June 30, 2021 ​ ​ Series A ​ Shares of ​ ​ ​ ​ Additional ​ Dividends in ​ Total ​ ​ Series A ​ Shares of ​ ​ ​ ​ Additional ​ Dividends in ​ Total ​ ​ Preferred ​ Common ​ Common ​ Paid-In ​ Excess of ​ Stockholders’ ​ ​ Preferred ​ Common ​ Common ​ Paid-In ​ Excess of ​ Stockholders’ ​ Stock Stock Stock Capital Earnings Equity ​ Stock Stock Stock Capital Earnings Equity Balances at beginning of period ​ $ 14,009 ​ 25,612,541 ​ $ 26 ​ $ 1,672,882 ​ $ ( 75,218 ) ​ $ 1,611,699 ​ ​ $ 14,009 ​ 23,936,928 ​ $ 24 ​ $ 1,559,059 ​ $ ( 48,120 ) ​ $ 1,524,972 Adjustment to opening balance upon adoption of ASU 2020-06 (Note 2) ​ ​ — ​ — ​ ​ — ​ ​ ( 1,340 ) ​ ​ 728 ​ ​ ( 612 ) ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net income ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 75,264 ​ ​ 75,264 ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 55,266 ​ ​ 55,266 Issuance of unvested restricted stock, net of forfeitures ​ ​ — ​ 15,174 ​ ​ — ​ ​ ( 2,441 ) ​ ​ — ​ ​ ( 2,441 ) ​ ​ ​ — ​ ( 8,624 ) ​ ​ — ​ ​ ( 3,384 ) ​ ​ — ​ ​ ( 3,384 ) Exchange of Exchangeable Senior Notes ​ ​ — ​ 412,901 ​ ​ — ​ ​ 26,665 ​ ​ — ​ ​ 26,665 ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net proceeds from sale of common stock ​ ​ — ​ 1,932,813 ​ ​ 2 ​ ​ 351,986 ​ ​ — ​ ​ 351,988 ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Preferred stock dividend ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 676 ) ​ ​ ( 676 ) ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 676 ) ​ ​ ( 676 ) Common stock dividend ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 94,931 ) ​ ​ ( 94,931 ) ​ ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 65,244 ) ​ ​ ( 65,244 ) Stock-based compensation ​ ​ — ​ — ​ ​ — ​ ​ 8,816 ​ ​ — ​ ​ 8,816 ​ ​ ​ — ​ — ​ ​ — ​ ​ 4,233 ​ ​ — ​ ​ 4,233 Balances at end of period ​ $ 14,009 27,973,429 ​ $ 28 ​ $ 2,056,568 ​ $ ( 94,833 ) ​ $ 1,975,772 ​ ​ $ 14,009 ​ 23,928,304 ​ $ 24 ​ $ 1,559,908 ​ $ ( 58,774 ) ​ $ 1,515,167 ​ See accompanying notes to the condensed consolidated financial statements. ​ ​ 5 Table of Contents Innovative Industrial Properties, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended ​ ​ ​ June 30, ​ ​ 2022 2021 Cash flows from operating activities ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 75,264 ​ $ 55,266 ​ Adjustments to reconcile net income to net cash provided by operating activities ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 29,101 ​ 18,680 ​ Loss on exchange of Exchangeable Senior Notes ​ ​ 125 ​ ​ — ​ Other non-cash adjustments ​ ​ 127 ​ ​ 47 ​ Stock-based compensation ​ 8,816 ​ 4,233 ​ Amortization of discounts on short-term investments ​ ( 513 ) ​ ( 199 ) ​ Amortization of debt discount and issuance costs ​ 689 ​ 1,174 ​ Changes in assets and liabilities ​ ​ ​ ​ ​ ​ ​ Other assets, net ​ 2,568 ​ 220 ​ Accounts payable, accrued expenses and other liabilities ​ ( 1,290 ) ​ 2,278 ​ Rent received in advance and tenant security deposits ​ 7,094 ​ 7,693 ​ Net cash provided by operating activities ​ 121,981 ​ 89,392 ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities ​ ​ ​ ​ ​ ​ ​ Purchases of investments in real estate ​ ( 129,562 ) ​ ( 99,073 ) ​ Funding of draws for tenant improvements and construction ​ ( 291,408 ) ​ ( 152,052 ) ​ Funding of construction loan and other investments ​ ​ ( 21,360 ) ​ ​ ( 6,000 ) ​ Deposits in escrow for acquisitions ​ ( 600 ) ​ ( 150 ) ​ Purchases of short-term investments ​ ( 219,040 ) ​ ( 439,878 ) ​ Maturities of short-term investments ​ 235,000 ​ 410,000 ​ Net cash used in investing activities ​ ( 426,970 ) ​ ( 287,153 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities ​ ​ ​ ​ ​ ​ ​ Issuance of common stock, net of offering costs ​ 351,988 ​ — ​ Gross proceeds from issuance of Notes due 2026 ​ — ​ 300,000 ​ Payment of deferred financing costs from issuance of Notes due 2026 ​ ​ — ​ ​ ( 6,484 ) ​ Dividends paid to common stockholders ​ ( 84,339 ) ​ ( 61,387 ) ​ Dividends paid to preferred stockholders ​ ( 676 ) ​ ( 676 ) ​ Taxes paid related to net share settlement of equity awards ​ ( 2,441 ) ​ ( 3,384 ) ​ Net cash provided by financing activities ​ 264,532 ​ 228,069 ​ Net (decrease) increase in cash, cash equivalents and restricted cash ​ ( 40,457 ) ​ 30,308 ​ Cash, cash equivalents and restricted cash, beginning of period ​ 86,419 ​ 126,006 ​ Cash, cash equivalents and restricted cash, end of period ​ $ 45,962 ​ $ 156,314 ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ ​ Cash paid during the period for interest ​ $ 8,876 ​ $ 2,696 ​ Supplemental disclosure of non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ Accrual for draws for tenant improvements and construction funding ​ $ 31,210 ​ $ 60,670 ​ Deposits applied for acquisitions ​ ​ 25 ​ ​ 200 ​ Accrual for common and preferred stock dividends declared ​ 49,439 ​ 33,922 ​ Accrual for deferred financing costs ​ ​ — ​ ​ 196 ​ Exchange of Exchangeable Senior Notes for common stock ​ ​ 26,665 ​ ​ — ​ Operating lease liability for obtaining right of use asset ​ ​ 1,017 ​ ​ — ​ ​ See accompanying notes to the condensed consolidated financial statements. 6 Table of Contents ​ Innovative Industrial Properties, Inc. Notes to the Condensed Consolidated Financial Statements June 30, 2022 (Unaudited) 1. Organization 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 cannabis facilities. We have acquired and intend to continue to acquire our properties through sale-leaseback transactions and third-party purchases. We have leased and expect to continue to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, real estate taxes and insurance. We were incorporated in Maryland on June 15, 2016. We conduct our business through a traditional umbrella partnership real estate investment trust, or UPREIT structure, in which our properties are owned by our Operating Partnership, directly or through subsidiaries. We are the sole general partner of our Operating Partnership and own, directly or through subsidiaries, 100 % of the limited partnership interests in our Operating Partnership. ​ ​ 2. Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements Basis of Presentation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. This interim financial information should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Any references to square footage or occupancy percentage, and any amounts derived from these values in these notes to the condensed consolidated financial statements, are outside the scope of our independent registered public accounting firm’s review. Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. This interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2022. Variable Interest Entities. From time to time, the Company may acquire properties utilizing a reverse like-kind exchange under Section 1031 of the Internal Revenue Code (“Reverse 1031 Exchange”) in order to defer taxable gains on the subsequent sale of real estate properties. During the six months ended June 30, 2022, the Company acquired four properties for a total purchase price of approximately $ 82.3 million, excluding transaction costs, as part of Reverse 1031 Exchanges. The acquired properties are in the possession of limited liability companies whose legal equity interests are owned by a qualified intermediary engaged to execute the Reverse 1031 Exchanges until the Reverse 1031 Exchanges are completed or terminated. The limited liability companies were deemed to be variable interest entities (“VIEs”) for which the Company is deemed to be the primary beneficiary as the Company has the ability to direct the activities of the entity that most significantly impact its economic performance and the Company has all of the risks and rewards of ownership. As such, the VIEs, including the acquired properties, are included in the Company’s condensed consolidated financial statements as a consolidated VIE until legal title is transferred to the Company upon the completion of the Reverse 1031 Exchanges. There were four consolidated VIEs on the Company’s condensed consolidated financial statements as of June 30, 2022. Federal Income Taxes. 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. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. 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 condensed consolidated statements of income 7 Table of Contents represent amounts paid for city and state income and franchise taxes and are included in general and administrative expenses in the accompanying the condensed consolidated statements of income. Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from these estimates and assumptions. Reportable Segment. 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 maker reviews financial information for our entire consolidated operations when making decisions related to assessing our operating performance. We have aggregated the properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities, including the fact that they are operated using consistent business strategies. The financial information disclosed herein represents all of the financial information related to our one reportable segment. Acquisition of Real Estate Properties. Our investment in real estate is recorded at historical cost, less accumulated depreciation. 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. 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. 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 our condensed consolidated balance sheets 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 our condensed consolidated balance sheets and is amortized on a straight-line basis as a reduction of rental revenue over the remaining term of the applicable lease. Cost Capitalization and Depreciation. We capitalize costs associated with development and redevelopment activities and tenant 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 three months ended June 30, 2022 and 2021, we recognized depreciation expense of approximately $ 15.0 million and $ 9.8 million, respectively, which is included in depreciation and amortization expense in our condensed consolidated statements of income. For the six months ended June 30, 2022 and 2021, we recognized depreciation expense of approximately $ 28.7 million and $ 18.7 million, respectively, which are included in depreciation and amortization expense in our condensed consolidated statements of income. We depreciate office equipment and furniture and fixtures over estimated useful lives ranging from three to seven years . We depreciate the leasehold improvements at our corporate office over the shorter of the estimated useful lives or the remaining 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; and 8 Table of Contents ● the expenditure extends the useful life of the asset beyond our original estimates. Provision for Impairment. On a quarterly basis, we review current activities and changes in the business conditions of all of our properties prior to and subsequent to the end of each quarter to determine the existence of any triggering events or impairment indicators requiring an impairment analysis. If triggering events or impairment indicators are identified, we review an estimate of the future undiscounted cash flows for the properties, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration. Long-lived assets are individually evaluated for impairment when conditions exist that may indicate that the carrying amount of a long-lived asset may not be recoverable. 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. 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. Upon determination that an impairment has occurred, a write-down is recognized to reduce the carrying amount to its estimated fair value. We may adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives. No impairment losses were recognized during the six months ended June 30, 2022 and 2021. Revenue Recognition. Our leases are triple-net leases, an arrangement under which the tenant maintains the property while paying us rent. 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 condensed consolidated financial statements. Construction Loan. In June 2021, we executed a construction loan agreement with a developer, pursuant to which we agreed to lend up to $ 18.5 million for the development of a regulated cannabis cultivation and processing facility in California. We have an option to purchase the property, and may execute a negotiated lease with an affiliate of the developer or with another third party, if we determine to exercise our purchase option. The developer is required to complete construction by December 1, 2022, subject to extension in certain circumstances. Interest on the construction loan is payable at maturity, which is December 25, 2022. As of June 30, 2022, we had funded approximately $ 17.7 million of the construction loan. ​ Cash and Cash Equivalents . We consider all highly-liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, 2022 and December 31, 2021, approximately $ 32.6 million and $ 72.0 million, respectively, were invested in short-term money market funds, obligations of the U.S. government and certificates of deposit with an original maturity at the time of purchase of less than or equal to three months. Restricted Cash . Restricted cash relates to cash held in escrow accounts for future draws for improvements for tenants in accordance with certain lease agreements. Investments. Investments consist of obligations of the U.S. government and certificates of deposit with an original maturity at the time of purchase of greater than three months. Investments are classified as held-to-maturity and stated at amortized cost. Exchangeable Notes. 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 date of issuance 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 was reflected within additional paid- 9 Table of Contents in capital on our condensed consolidated balance sheets, and the resulting debt discount was 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. In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models, and convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature, will no longer be allocated between debt and equity components. 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. 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 and derecognized approximately $ 1.3 million of the remaining equity component relating to the outstanding principal balance of our Exchangeable Senior Notes at the date of adoption. Deferred Financing Costs. The deferred financing costs that are included as a reduction in the net book value of the related liability on our condensed consolidated balance sheets reflect issuance and other costs related to our 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 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. 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 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 amendment, we re-measured the lease liability relating to the existing leased space and measured the lease liability relating to the expansion space based on the present value of the respective 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. The right-of-use asset is measured based on the corresponding lease liability. We did not incur any initial direct leasing costs and any other consideration exchanged with the landlord prior to the commencement of the lease. Subsequently, the right-of-use asset is amortized on a straight-line basis during the lease term. For the three months ended June 30, 2022 and 2021, we recognized office lease expense of approximately $ 122,000 and $ 57,000 , respectively, which are included in general and administrative expense in our condensed consolidated statements of income. For the six months ended June 30, 2022 and 2021, we recognized office lease expense of approximately $ 223,000 and $ 114,000 , respectively, which are included in general and administrative expense in our condensed consolidated statements of income. For the six months ended June 30, 2022 and 2021, amounts paid and classified as operating activities in our condensed consolidated statements of cash flows for the office lease were approximately $ 161,000 and $ 117,000 , respectively. 10 Table of Contents As lessor, for each of our real estate transactions involving the leaseback of the related property to the seller or affiliates of the seller, we determine whether these transactions qualify as sale and leaseback transactions under the accounting guidance. For these transactions, we consider various inputs and assumptions including, but not necessarily limited to, lease terms, renewal options, discount rates, and other rights and provisions in the purchase and sale agreement, lease and other documentation to determine whether control has been transferred to the Company or remains with the lessee. A transaction involving a sale leaseback will be treated as a purchase of a real estate property if it is considered to transfer control of the underlying asset from the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control and will be classified as a sales-type lease if control of the underlying asset is transferred to the lessee. Otherwise, the lease is treated as an operating lease. These criteria also include estimates and assumptions regarding the fair value of the leased facilities, minimum lease payments, the economic useful life of the facilities, the existence of a purchase option, and certain other terms in the lease agreements. The lease accounting guidance requires accounting for a transaction as a financing in a sale leaseback when the seller-lessee is provided an option to purchase the property from the landlord at the tenant’s option. Substantially all of 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 condensed consolidated statements of income. Property taxes paid directly by the lessee to a third party continue to be excluded from our condensed consolidated financial statements. Lease amendments 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. 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. Concentration of Credit Risk . As of June 30, 2022, we owned 110 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 their leases is dependent upon the economic, regulatory, competition, natural and social factors affecting the community in which that tenant operates. The following table sets forth the five tenants in our portfolio that represented the largest percentage of our total rental revenues for the three and six months ended June 30, 2022 and 2021, including tenant reimbursements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Six Months Ended ​ ​ June 30, 2022 ​ June 30, 2022 ​ ​ ​ ​ ​ Percentage of ​ ​ ​ Percentage of ​ ​ Number of Rental Number of Rental ​ Leases Revenue Leases Revenue ​ PharmaCann Inc. ("PharmaCann") 11 ​ 13 % 11 ​ 14 % SH Parent, Inc. ("Parallel") ​ 4 ​ 10 % 4 ​ 10 % Ascend Wellness Holdings, Inc. ("Ascend") 4 ​ 10 % 4 ​ 9 % Kings Garden Inc. ​ 6 ​ 8 % 6 ​ 8 % Trulieve Cannabis Corp. ("Trulieve") 6 ​ 6 % 6 ​ 7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ ​ June 30, 2021 ​ ​ ​ Percentage of ​ Number of Rental ​ Leases Revenue PharmaCann 5 ​ 13 % Parallel 4 ​ 10 % Ascend ​ 3 ​ 9 % Cresco Labs Inc. ​ 5 ​ 8 % Kings Garden Inc. 5 ​ 7 % ​ 11 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended ​ ​ June 30, 2021 ​ ​ ​ ​ ​ Percentage of ​ ​ Number of Rental ​ Leases Revenue ​ PharmaCann 5 ​ 13 % Ascend ​ 3 ​ 9 % Parallel 4 ​ 8 % Cresco Labs Inc. ​ 5 ​ 8 % Curaleaf Holdings, Inc. 4 ​ 7 % ​ In each of the tables above, these leases include leases with affiliates of each entity, for which the entity has provided a corporate guaranty. On July 13, 2022, Kings Garden defaulted on its obligations to pay rent at all of the properties it leases with us. See Note 12 “Subsequent Events” to our condensed consolidated financial statements included in this report for more information. As of June 30, 2022 and December 31, 2021, none of our properties individually represented more than 5 % of our net real estate held for investment. We have deposited cash with a financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 . As of June 30, 2022, we had cash accounts in excess of FDIC insured limits. We have not experienced any losses in such accounts. ​ 3. Common Stock As of June 30, 2022, the Company was authorized to issue up to 50,000,000 shares of common stock, par value $ 0.001 per share, and there were 27,973,429 shares of common stock issued and outstanding. ​ In April 2022, we issued 1,815,790 shares of common stock in an underwritten public offering, including the exercise in full of the underwriters’ option to purchase an additional 236,842 shares, resulting in net proceeds of approximately $ 330.9 million. ​ We are party to equity distribution agreements with certain sales agents, pursuant to which we may offer and sell from time to time through an “at-the-market” offering program (the “ATM Program”) up to $ 500.0 million in shares of our common stock. During the six months ended June 30, 2022, we sold 117,023 shares of our common stock for net proceeds of approximately $ 21.1 million under the ATM Program, which includes the payment of approximately $ 434,000 to one sales agent as commission for such sales. ​ During the three and six months ended June 30, 2022, we issued 47,059 and 412,901 shares, respectively, of our common stock upon exchange by holders of approximately $ 3.1 million and $ 26.9 million, respectively, of outstanding principal amount of our Exchangeable Senior Notes. ​ 4. Preferred Stock As of June 30, 2022, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $ 0.001 per share, and there were issued and outstanding 600,000 shares of 9.00 % Series A Cumulative Redeemable Preferred Stock, $ 0.001 par value per share (the “Series A Preferred Stock”). Generally, the Company is not permitted to redeem the Series A Preferred Stock prior to October 19, 2022, except in limited circumstances relating to the Company’s ability to qualify as a REIT and in certain other circumstances related to a change of control/delisting (as defined in the articles supplementary for the Series A Preferred Stock). On or after October 19, 2022, the Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $ 25.00 per share, plus all accrued and unpaid dividends on such Series A Preferred Stock up to, but excluding the redemption date. Holders of the Series A Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances. ​ ​ 12 Table of Contents 5. Dividends The following table describes the dividends declared by the Company during the six months ended June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount ​ Dividend Dividend Declaration Date ​ Security Class ​ Per Share ​ Period Covered ​ Paid Date ​ Amount ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) March 14, 2022 ​ Common stock ​ $ 1.75 ​ January 1, 2022 to March 31, 2022 ​ April 14, 2022 ​ $ 45,830 March 14, 2022 ​ Series A preferred stock ​ $ 0.5625 ​ January 15, 2022 to April 14, 2022 ​ April 14, 2022 ​ $ 338 June 15, 2022 ​ Common stock ​ $ 1.75 ​ March 1, 2022 to June 30, 2022 ​ July 15, 2022 ​ $ 49,101 June 15, 2022 ​ Series A preferred stock ​ $ 0.5625 ​ April 15, 2022 to July 14, 2022 ​ July 15, 2022 ​ $ 338 ​ ​ 6. Investments in Real Estate Acquisitions The Company acquired the following properties during the six months ended June 30, 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Rentable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Square ​ Purchase ​ Transaction ​ ​ ​ ​ Property Market Closing Date Feet (1) Price Costs Total ​ 4Front MA Massachusetts ​ ​ January 28, 2022 ​ 57,000 ​ $ 16,000 ​ $ 20 ​ $ 16,020 (2) Ascend NJ New Jersey ​ ​ February 10, 2022 ​ 114,000 ​ 35,400 ​ 8 ​ 35,408 (3) Verano PA Pennsylvania ​ ​ March 23, 2022 ​ 3,000 ​ 2,750 ​ 68 ​ 2,818 ​ Kings Garden CA ​ California ​ ​ March 25, 2022 ​ ​ 23,000 ​ ​ 8,158 ​ ​ 11 ​ ​ 8,169 (4) MCP MD ​ Maryland ​ ​ April 13, 2022 ​ ​ 84,000 ​ ​ 25,000 ​ ​ 290 ​ ​ 25,290 (5) Harvest AZ ​ Arizona ​ ​ April 27, 2022 ​ ​ 17,000 ​ ​ 5,238 ​ ​ 11 ​ ​ 5,249 (5) TILT MA ​ Massachusetts ​ ​ May 16, 2022 ​ ​ 104,000 ​ ​ 40,000 ​ ​ 32 ​ ​ 40,032 (5) Texas Original TX ​ Texas ​ ​ June 14, 2022 ​ ​ 85,000 ​ ​ 12,040 ​ ​ 23 ​ ​ 12,063 (5)(6) Total ​ ​ ​ ​ ​ ​ 487,000 ​ $ 144,586 ​ $ 463 ​ $ 145,049 (7) ​ (1) Includes expected rentable square feet at completion of construction of certain properties. (2) The acquisition of the property did not satisfy the requirements for sale-leaseback accounting and therefore, the transaction is recognized as a note receivable and is included in other assets, net on our condensed consolidated balance sheet. (3) The tenant is expected to complete improvements at the property, for which we agreed to provide funding of up to $ 4.6 million. (4) The purchase price includes $ 1.8 million holdback held in an escrow account, which is subject to distribution to the seller upon seller’s completion of certain improvements at the property. As of June 30, 2022, we have distributed approximately $ 1.4 million of the holdback. The remaining approximately $ 400,000 is included in restricted cash on our condensed consolidated balance sheet. (5) The acquisitions of the MCP MD, Harvest AZ, TILT MA and Texas Original TX properties were made through consolidated VIEs utilizing Reverse 1031 Exchanges that were entered into at the time each of the properties was acquired. See Note 2 “Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements – Variable Interest Entities” for more information regarding the Company’s Reverse 1031 Exchanges and consolidation of VIEs. (6) The tenant is expected to complete improvements at the property, for which we agreed to provide funding of up to approximately $ 10.0 million. The purchase price includes approximately $ 908,000 attributable to the property which did not satisfy the requirements for sale-leaseback accounting; therefore, this amount is recognized as a note receivable and is included in other assets, net on our condensed consolidated balance sheet. (7) Approximately $ 16.9 million was included in other assets; $ 1.8 million was included in restricted cash; approximately $ 10.5 million was allocated to land; approximately $ 115.1 million was allocated to building and improvements; and approximately $ 798,000 was allocated to in-place leases. ​ The properties acquired during the three and six months ended June 30, 2022 generated approximately $ 1.3 million and $ 3.0 million of rental revenues (including tenant reimbursements), respectively, and approximately $ 954,000 and $ 2.2 million of net operating income after deducting property and depreciation expenses, respectively. The properties acquired during the three and six months ended June 30, 2021 generated approximately $ 1.8 million and $ 4.8 million of rental revenue (including tenant reimbursements), respectively, and approximately $ 1.5 million and $ 4.0 million of net operating income after deducting property and depreciation expenses, respectively. During the three and six months ended June 30, 2022, the acquisition of the properties which did not satisfy the requirements for sale-leaseback accounting generated approximately $ 516,000 and $ 906,000 of interest revenue, respectively, which is included in other revenue on our condensed consolidated statements of income. 13 Table of Contents 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. Acquired In-Place Lease Intangible Assets In-place lease intangible assets and related accumulated amortization as of June 30, 2022 and December 31, 2021 is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 In-place lease intangible assets ​ $ 9,979 ​ $ 9,181 Accumulated amortization ( 444 ) ​ ( 33 ) In-place lease intangible assets, net ​ $ 9,535 ​ $ 9,148 ​ Amortization of in-place lease intangible assets classified in depreciation and amortization expense in our condensed consolidated statements of income was approximately $ 213,000 and $ 411,000 for the three and six months ended June 30, 2022, respectively. The remaining weighted-average amortization period of the value of acquired in-place leases was approximately 11.2 years, and the estimated annual amortization of the value of the acquired in-place leases as of June 30, 2022 is as follows (in thousands): ​ ​ ​ ​ ​ Year Amount 2022 (six months ending December 31) ​ $ 430 2023 ​ 860 2024 ​ 860 2025 ​ 860 2026 ​ 860 Thereafter ​ 5,665 Total ​ $ 9,535 ​ Above-Market Lease The above-market lease and related accumulated amortization included in other assets, net on our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 Above-market lease ​ $ 1,054 ​ $ 1,054 Accumulated amortization ( 50 ) ​ ( 4 ) Above-market lease, net ​ $ 1,004 ​ $ 1,050 ​ The above-market lease is amortized on a straight-line basis as a reduction to rental revenue over the remaining lease term of approximately 10.9 years. For the three and six months ended June 30, 2022, the amortization of the above-market lease was approximately $ 23,000 and $ 46,000 , respectively. Lease Amendments In February 2022, we amended our lease with Green Peak Industries, Inc. at one of our Michigan properties, increasing the improvement allowance under the lease by $ 18.0 million to a total of approximately $ 47.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property. In March 2022, we amended our lease with Holistic Industries Inc. at one of our Michigan properties, increasing the improvement allowance under the lease by $ 3.5 million to a total of $ 22.3 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property. In March 2022, we amended our lease with a subsidiary of Ascend at one of our Michigan properties, increasing the improvement allowance under the lease by $ 4.4 million to a total of $ 19.4 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property. 14 Table of Contents In March 2022, we amended our lease with a subsidiary of Ascend at one of our Massachusetts properties, increasing the improvement allowance under the lease by $ 14.9 million to a total of approximately $ 37.2 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property. In April 2022, we amended our lease and development agreement with PharmaCann at one of our New York properties, increasing the construction fund by $ 45.0 million to a total of approximately $ 78.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property. In June 2022, we amended our lease with a subsidiary of Curaleaf Holdings, Inc. (“Curaleaf”) at one of our Illinois properties, increasing the improvement allowance under the lease by approximately $ 10.9 million to a total of $ 29.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property. In June 2022, we amended our lease with Sozo Health, Inc. at one of our Michigan properties, increasing the improvement allowance by approximately $ 1.2 million to a total of approximately $ 7.0 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property. In June 2022, we amended our lease with a subsidiary of Curaleaf at one of our Pennsylvania properties, increasing the improvement allowance by $ 35.0 million to a total of approximately $ 47.4 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property. In June 2022, we amended our lease with a subsidiary of Green Thumb Industries Inc. at one of our Pennsylvania properties, increasing the improvement allowance by $ 55.0 million to a total $ 74.3 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property. Including all of our properties, during the six months ended June 30, 2022, we capitalized costs of approximately $ 276.3 million and funded approximately $ 291.4 million relating to improvements and construction activities at our properties. Future contractual minimum rent (including base rent and property management fees) under the operating leases as of June 30, 2022 for future periods is summarized as follows (in thousands): ​ ​ ​ ​ ​ Year Contractual Minimum Rent 2022 (six months ending December 31) ​ $ 148,023 2023 ​ 307,933 2024 ​ 316,846 2025 ​ 326,222 2026 ​ 335,909 Thereafter ​ 4,810,212 Total ​ $ 6,245,145 ​ 7. Debt Exchangeable Senior Notes As of June 30, 2022, our Operating Partnership had outstanding approximately $ 6.5 million principal amount of 3.75 % Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”). The Exchangeable Senior Notes are senior unsecured obligations of our Operating Partnership, are fully and unconditionally guaranteed by us and our Operating Partnership’s subsidiaries and are exchangeable for cash, shares of our common stock, or a combination of cash and shares of our common stock, at our Operating Partnership’s option, at any time prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date. The exchange rate for the Exchangeable Senior Notes at June 30, 2022 was 15.62234 shares of our common stock per $ 1,000 principal amount of Notes and the exchange price at June 30, 2022 was approximately $ 64.01 per share of our common stock. The exchange rate and exchange price are subject to adjustment in certain circumstances. The Exchangeable Senior Notes will pay interest semiannually on March 15 and September 15 of each year at a rate of 3.75 % per annum and will mature on February 21, 2024, unless earlier exchanged or repurchased in accordance with their terms. 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. At June 30, 2022, the if-exchanged value of the Exchangeable Senior Notes exceeded the principal amount by approximately $ 4.6 million. 15 Table of Contents During the three and six months ended June 30, 2022, we issued 47,059 and 412,901 shares, respectively, of our common stock upon exchanges by holders of approximately $ 3.1 million and $ 26.9 million, respectively, of outstanding principal amount of our Exchangeable Senior Notes and recognized a loss on the exchanges totaling approximately $ 7,000 and $ 125,000 for the three and six months ended June 30, 2022, respectively, resulting from the difference between the fair value and carrying value of the debt as of the date of the exchange. The issuance of the shares pursuant to the exchanges resulted in a non-cash increase to our additional paid-in capital account of approximately $ 3.0 million and $ 26.7 million for the three and six months ended June 30, 2022, respectively. The following table details our interest expense related to the Exchangeable Senior Notes (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended June 30, ​ For the Six Months Ended June 30, ​ 2022 2021 2022 2021 Cash coupon $ 55 $ 1,348 $ 331 $ 2,696 Amortization of debt discount ​ — ​ 284 ​ — ​ 566 Amortization of issuance cost ​ 13 ​ 247 ​ 71 ​ 490 Total interest expense $ 68 $ 1,879 $ 402 $ 3,752 ​ The following table details the carrying value of our Exchangeable Senior Notes (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 Principal amount $ 6,453 $ 33,373 Unamortized discount — ​ ( 612 ) Unamortized issuance cost ( 79 ) ​ ( 529 ) Carrying value $ 6,374 $ 32,232 ​ Accrued interest payable for the Exchangeable Senior Notes as of June 30, 2022 and December 31, 2021 was approximately $ 71,000 and $ 365,000 , respectively, and is included in accounts payable and accrued expenses on our condensed 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended June 30, ​ For the Six Months Ended June 30, ​ 2022 ​ 2021 2022 ​ 2021 Cash coupon ​ $ 4,125 ​ $ 1,695 ​ $ 8,250 ​ $ 1,695 Amortization of issuance cost ​ 311 ​ ​ 118 ​ ​ 618 ​ ​ 118 Total interest expense ​ $ 4,436 ​ $ 1,813 ​ $ 8,868 ​ $ 1,813 ​ 16 Table of Contents The following table details the carrying value of our Notes due 2026 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 Principal amount $ 300,000 $ 300,000 Unamortized issuance cost ( 5,522 ) ​ ( 6,140 ) Carrying value $ 294,478 $ 293,860 ​ The Operating Partnership may redeem some or all of the Notes due 2026 at its option at any time at the applicable redemption price. If the Notes due 2026 are redeemed prior to February 25, 2026, the redemption price will be equal to 100 % of the principal amount of the Notes due 2026 being redeemed, plus a make-whole premium and accrued and unpaid interest thereon to, but excluding, the applicable redemption date. If the Notes due 2026 are redeemed on or after February 25, 2026, the redemption price will be equal to 100 % of the principal amount of the Notes due 2026 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 June 30, 2022. Accrued interest payable for the Notes due 2026 as of June 30, 2022 and 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 June 30, 2022 (in thousands): ​ ​ ​ ​ Payments Due ​ ​ by Year Amount 2022 (six months ended December 31) ​ $ — 2023 ​ ​ — 2024 ​ ​ 6,453 2025 ​ ​ — 2026 ​ ​ 300,000 Thereafter ​ ​ — Total ​ $ 306,453 ​ ​ ​ 8. Net Income Per Share Grants of restricted stock and restricted stock units (“RSUs”) of the Company in share-based payment transactions are considered participating securities prior to vesting and, therefore, are considered in computing basic earnings per share under the two-class method. The two-class method is an earnings allocation method for calculating earnings per share when a company’s capital structure includes either two or more classes of common stock or common stock and participating securities. Earnings per basic share under the two-class method is calculated based on dividends declared on common shares and other participating securities (“distributed earnings”) and the rights of participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends accruing during the period. The undistributed earnings are allocated to all outstanding common shares and participating securities based on the relative percentage of each security to the total number of outstanding participating securities. Earnings per basic share represents the summation of the distributed and undistributed earnings per share class divided by the total number of shares. Through June 30, 2022, all of the Company’s participating securities received dividends or dividend equivalents at an equal dividend rate per share or unit. As a result, distributions to participating securities for the three and six months ended June 30, 2022 and 2021 have been included in net income attributable to common stockholders to calculate net income per basic and diluted share. The 103,742 and 304,348 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the three and six months ended June 30, 2022, respectively, and were included in the computation of diluted earnings per share. The 2,182,691 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the three and six months ended June 30, 2021, and were included in the computation of diluted earnings per share. 17 Table of Contents For the three and six months ended June 30, 2022 and 2021, as the performance thresholds for vesting of the performance share units (“PSUs”) were not met as measured as of the respective dates, they were excluded from the calculation of weighted average common shares outstanding – diluted for all periods presented (see Note 10 for further discussion of PSUs). Computations of net income per basic and diluted share (in thousands, except share and per share data) were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2022 2021 2022 2021 Net income ​ $ 40,214 ​ $ 29,339 ​ $ 75,264 ​ $ 55,266 ​ Preferred stock dividends ​ ( 338 ) ​ ( 338 ) ​ ​ ( 676 ) ​ ​ ( 676 ) ​ Distribution to participating securities ​ ( 207 ) ​ ( 137 ) ​ ​ ( 409 ) ​ ​ ( 263 ) ​ Net income attributable to common stockholders used to compute net income per share - basic ​ ​ 39,669 ​ ​ 28,864 ​ ​ 74,179 ​ ​ 54,327 ​ Dilutive effect of Exchangeable Senior Notes ​ ​ 68 ​ ​ 1,879 ​ ​ 402 ​ ​ 3,752 ​ Net income attributable to common stockholders used to compute net income per share - diluted ​ $ 39,737 ​ $ 30,743 ​ $ 74,581 ​ $ 58,079 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 27,850,561 ​ 23,889,761 ​ ​ 26,741,568 ​ ​ 23,889,580 ​ Restricted stock and RSUs ​ ​ 82,387 ​ ​ 96,230 ​ ​ 113,858 ​ ​ 94,223 ​ PSUs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Dilutive effect of Exchangeable Senior Notes ​ ​ 103,742 ​ ​ 2,182,691 ​ ​ 304,348 ​ ​ 2,182,691 ​ Diluted ​ 28,036,690 ​ 26,168,682 ​ ​ 27,159,774 ​ ​ 26,166,494 ​ Net income attributable to common stockholders per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 1.42 ​ $ 1.21 ​ $ 2.77 ​ $ 2.27 ​ Diluted ​ $ 1.42 ​ $ 1.17 ​ $ 2.75 ​ $ 2.22 ​ ​ ​ 9. Fair Value of Financial Instruments 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. The standard describes three levels of inputs that may be used to measure fair value: Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2—Includes other inputs that are directly or indirectly observable in the marketplace. 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 and approximate fair value of financial instruments at June 30, 2022 and December 31, 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At June 30, 2022 ​ At December 31, 2021 ​ ​ ​ ​ ​ ​ Carrying Value Fair Value Carrying Value Fair Value Investments (1) ​ $ 309,442 ​ $ 308,489 ​ $ 324,889 ​ $ 324,772 Exchangeable Senior Notes (2) ​ $ 6,374 ​ $ 10,877 ​ $ 32,232 ​ $ 134,270 Notes due 2026 (2) ​ $ 294,478 ​ $ 272,379 ​ $ 293,860 ​ $ 318,486 (1) Short-term investments consisting of obligations of the U.S. government with an original maturity at the time of purchase of greater than three months are classified as held-to-maturity and valued using Level 1 inputs. (2) The fair value is determined based upon Level 2 inputs as the Exchangeable Senior Notes and Notes due 2026 were trading in the private market. As of June 30, 2022 and December 31, 2021, cash equivalent instruments consisted of $ 32.6 million and $ 72.0 million, respectively, in short-term money market funds that were measured using the net asset value per share that have not been classified 18 Table of Contents using the fair value hierarchy. The fund invests primarily in short-term U.S. Treasury and government securities. Short-term investments consisting of certificate of deposits and obligations of the U.S. government are stated at amortized cost, which approximates their relative fair values due to the short-term maturities and market rates of interest of these instruments. 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, construction loan receivable, accounts payable, accrued expenses and other liabilities approximate their fair values due to the short-term maturities and market rates of interest of these instruments. 10. Common Stock Incentive Plan Our board of directors adopted our 2016 Omnibus Incentive Plan (the “2016 Plan”) to enable us to motivate, attract and retain the services of directors, employees and consultants considered essential to our long-term success. The 2016 Plan offers our directors, employees and consultants an opportunity to own our stock or rights that will reflect our growth, development and financial success. 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 withholdings 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 six months ended June 30, 2022 is included in the table below: ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ Unvested ​ Average ​ ​ Restricted ​ Grant Date Fair ​ ​ Stock ​ Value Balance at December 31, 2021 37,767 ​ $ 92.49 Granted 21,645 ​ $ 215.69 Vested ( 16,064 ) ​ $ 80.47 Forfeited (1) ( 9,282 ) ​ $ 56.94 Balance at March 31, 2022 34,066 ​ $ 186.12 Granted ​ 2,811 ​ $ 128.11 Vested ​ ( 1,987 ) ​ $ 181.27 Balance at June 30, 2022 ​ 34,890 ​ $ 181.72 (1) Shares that were forfeited to cover the employees’ tax withholding obligation upon vesting . The remaining unrecognized compensation cost of approximately $ 5.1 million for restricted stock awards is expected to be recognized over a weighted-average amortization period of approximately 2.2 years as of June 30, 2022. The fair value of restricted stock that vested during the six months ended June 30, 2022 was approximately $ 6.9 million. The following table summarizes our RSU activity for the six months ended June 30, 2022. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ Restricted ​ Grant Date Fair ​ ​ Stock Units ​ Value Balance at December 31, 2021 ​ 60,326 ​ $ 120.24 Granted ​ 20,853 ​ $ 215.84 Balance at March 31, 2022 ​ 81,179 ​ $ 144.79 Granted ​ 2,498 ​ $ 128.11 Balance at June 30, 2022 ​ 83,677 ​ $ 144.30 ​ The remaining unrecognized compensation cost of approximately $ 6.5 million for RSU awards is expected to be recognized over an amortization period of approximately 2.1 years as of June 30, 2022. 19 Table of Contents 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 (“2021 PSU 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 “2021 PSU Performance Period”) relative to two different comparator groups of companies. In January 2022, we issued 102,641 “target” PSUs to a select group of officers, which vest and are settled in shares of common stock (referred to herein together with the 2021 PSU Award Shares as the “Award Shares”) based on the Company’s total stockholder return over a period commencing on January 11, 2022 and ending on December 31, 2024 (referred to herein together with the 2021 PSU Performance Period as the “Performance Periods”) relative to two different comparator groups of companies. ​ At the end of the applicable Performance Periods, 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 applicable Performance Periods 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 applicable Performance Periods. At the end of the applicable Performance Periods, 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 values of the PSUs granted in January 2021 and January 2022 were $ 12.0 million and $ 20.0 million, respectively. The fair values were calculated using a Monte Carlo simulation pricing model based on the following assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 PSU Award ​ 2022 PSU Award ​ Fair Value Assumptions ​ Fair Value Assumptions Valuation date January 6, 2021 ​ ​ January 7, 2022 ​ Fair value per share on valuation date ​ $ 169.51 ​ ​ ​ $ 194.86 ​ Expected term ​ 3 years ​ ​ ​ 3 years ​ Expected price volatility 57.64 % ​ ​ 55.99 % ​ Risk-free interest rate ​ 0.20 % ​ ​ ​ 1.17 % ​ Discount for post vesting restriction 12.44 % ​ ​ 12.22 % ​ ​ The expected share price volatility was based on the historical volatility of our shares of common stock over a period of approximately the applicable Performance Periods. 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 applicable 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 applicable Performance Period. For the three and six months ended June 30, 2022, we recognized stock-based compensation expense of approximately $ 2.7 million and $ 5.3 million, respectively, relating to PSU awards. For the three and six months ended June 30, 2021, we recognized stock-based compensation expense of approximately $ 1.0 million and $ 2.0 million, respectively, relating to PSU awards. As of June 30, 2022, the remaining unrecognized compensation cost of approximately $ 22.7 million relating to PSU awards is expected to be recognized over the remaining Performance Period of approximately 2.3 years. 20 Table of Contents 11. Commitments and Contingencies Office Lease . The future contractual lease payments for our office lease and the reconciliation to the office lease liability reflected in other liabilities in our condensed consolidated balance sheets as of June 30, 2022 is presented in the table below (in thousands): ​ ​ ​ ​ ​ Year Amount 2022 (six months ending December 31) ​ $ 241 2023 ​ 496 2024 ​ 511 2025 ​ 526 2026 ​ 543 Thereafter ​ 45 Total future contractual lease payments ​ 2,362 Effect of discounting ​ ( 305 ) Office lease liability ​ $ 2,057 ​ Improvement Allowances . As of June 30, 2022, we had approximately $ 194.4 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 June 30, 2022, we had approximately $ 802,000 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 December 1, 2022, subject to extension in certain circumstances. Environmental Matters. We follow the policy of monitoring our properties, both targeted acquisition and existing properties, for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liabilities that would have a material adverse effect on our financial condition, results of operations and cash flow, or that we believe would require disclosure or the recording of a loss contingency. Litigation . Class Action Lawsuit On April 25, 2022, a federal securities class action lawsuit was filed against the Company and certain of its officers. The case was named Michael V. Malozzi, individually and on behalf of others similarly situated v. Innovative Industrial Properties, Inc., Paul Smithers, Catherine Hastings and Andy Bui, Case No. 2-22-cv-02359, and was filed in the U.S. District Court for the District of New Jersey. The lawsuit was purportedly brought on behalf of purchasers of our common stock and alleges that we and certain of our officers made false or misleading statements regarding our business in violation of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), SEC Rule 10b-5, and Section 20(a) of the Exchange Act. According to the filed complaint, the p laintiff is seeking an undetermined amount of damages, interest, attorneys’ fees and costs and other relief on behalf of the putative classes of all persons who acquired shares of the Company’s common stock between May 7, 2020 and April 13, 2022. It is possible that similar lawsuits may yet be filed in the same or other courts that name the same or additional defendants. We intend to defend the lawsuit vigorously. However, at this time, we cannot predict the probable outcome of this action, and, accordingly, no amounts have been accrued in the Company’s condensed consolidated financial statements. Derivative Action Lawsuit On July 26, 2022, a derivative action lawsuit was filed against the Company and certain of its officers and directors. The case was named John Rice, derivatively on behalf of Innovative Industrial Properties, Inc. v. Paul Smithers, Catherine Hastings, Andy Bui, Alan Gold, Gary Kreitzer, Mary Curran, Scott Shoemaker, David Stecher, and Innovative Industrial Properties, Inc., and was filed in the Circuit Court for Baltimore City, Maryland. The lawsuit asserts putative derivative claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets against the directors and certain officers of the Company. The plaintiffs are seeking declaratory relief, direction to reform and improve corporate governance and internal procedures, and an undetermined amount of damages, restitution, interest, and attorneys’ fees and costs. The Company intends to vigorously defend this lawsuit. However, at this time, the Company cannot predict the probable outcome of this action, and, accordingly, no amounts have been accrued in the Company’s condensed consolidated financial statements. 21 Table of Contents Kings Garden Lawsuit On July 13, 2022, one of our tenants, Kings Garden Inc. (“Kings Garden”), defaulted on its obligations to pay base rent and property management fees for the month of July under each of its six leases with our indirect, wholly owned subsidiary, IIP-CA 2 LP, and defaulted on its obligations to reimburse us for certain insurance premiums at the properties incurred by us that are payable by Kings Garden as operating expenses under such leases. Kings Garden’s monetary default under its leases with us was approximately $ 2.2 million in the aggregate, consisting of approximately $ 1.8 million of base rent and property management fees for the month of July and approximately $ 382,000 of insurance premiums, but excluding applicable late charges and default interest. We applied a portion of the security deposits under the leases, totaling approximately $ 2.3 million, as payment for these amounts, as well as applicable late charges and default interest through July 13, 2022. Of the six properties leased to Kings Garden, four were operational, with an expansion project at one of those properties, and the other two properties were in development or redevelopment as of June 30, 2022. On July 25, 2022, IIP-CA 2 LP filed a lawsuit against Kings Garden. The case was named IIP-CA 2 LP, a Delaware limited partnership v. Kings Garden Inc., a Nevada corporation, CK Endeavors, Inc., a California corporation, and JM Endeavors, Inc., a California corporation , and was filed in the Superior Court of the State of California. The lawsuit asserts claims for breach of contract, declaratory relief, and injunctive relief. On August 2, 2022, the case was amended to be named IIP-CA 2 LP, a Delaware limited partnership v. Kings Garden Inc., a Nevada corporation, CK Endeavors, Inc., a California corporation, JM Endeavors, Inc., a California corporation, Michael King, an individual, Gary LaSalle, an individual, Charles Kieley, an individual, and Laurie Kibby, an individual , and to include claims relating to construction at the expansion project and the property that was under redevelopment as of June 30, 2022 for breach of implied covenant of good faith and fair dealing, fraud, negligent misrepresentation, conversion, theft by false pretenses, money had and received, and violations of the Racketeer Influenced and Corrupt Organization Act (18 U.S.C. Section 1962(c)). We are seeking monetary damages, interest, attorneys’ fees, and declaratory and injunctive relief. Although there is at least a reasonable possibility that a loss may have been incurred in connection with the default by Kings Garden and the related construction projects, as of June 30, 2022, we are unable to make such an estimate. We may, from time to time, be a party to other legal proceedings, which arise in the ordinary course of our business. Although the results of these proceedings, claims, inquiries, and investigations cannot be predicted with certainty, we do not believe that the final outcome of these matters is reasonably likely to have a material adverse effect on our business, financial condition, or results of operations. Regardless of final outcomes, however, any such proceedings, claims, inquiries, and investigations may nonetheless impose a significant burden on management and employees and may come with significant defense costs or unfavorable preliminary and interim rulings. 12. Subsequent Events Tenant Default We previously entered into leases (collectively, the “Kings Garden Leases”) with Kings Garden, as tenant, for six properties located in southern California. On July 13, 2022, Kings Garden defaulted on its obligations to pay base rent and property management fees for the month of July under each of the Kings Garden Leases, and defaulted on its obligations to reimburse us for certain insurance premiums at the properties incurred by us that are payable by Kings Garden as operating expenses under the Kings Garden Leases. Kings Garden’s monetary default under all of the Kings Garden Leases was approximately $ 2.2 million in the aggregate, consisting of approximately $ 1.8 million of base rent and property management fees for the month of July and approximately $ 382,000 of insurance premiums, but excluding applicable late charges and default interest. We applied a portion of the security deposits under the Kings Garden Leases, totaling approximately $ 2.3 million, as payment for these amounts, as well as applicable late charges and default interest through July 13, 2022. As of August 4, 2022, we had not received any additional payments from Kings Garden under any of the Kings Garden Leases, and have approximately $ 373,000 remaining of security deposits under the Kings Garden Leases. Tenant Rent Abatement On July 1, 2022, we amended our lease with Calyx Peak, Inc. at our Missouri property, abating the base rent for the period from July 1, 2022 through December 31, 2022. As of August 4, 2022, the property was under construction and not yet operational, and construction has been delayed in part due to delays in procurement of construction materials. On July 29, 2022, we amended our lease with Green Peak Industries, Inc. at one of our Michigan properties, abating the base rent and property management fee for the period from August 1, 2022 through October 31, 2022. As of August 4, 2022, the property was 22 Table of Contents under construction and not yet operational, and construction has been delayed in part due to delays in procurement of construction materials. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 23 Table of Contents ​