What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-06 compared with 2024-05-09 · 154 added, 107 removed, 487 unchanged (35% of the section changed)

27 unchanged sentences

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

9.00 % Series A cumulative redeemable preferred stock, $ 15,000 liquidation preference ($ 25.00 per share), 600,000 shares issued and outstanding at March 31, 2024 and December 31, 2023

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, 2024 and December 31, 2023

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

28,328,647 and 28,140,891 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

28,331,833 and 28,140,891 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

7 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Rental (including tenant reimbursements)

4 unchanged sentences

Total expenses

Gain (loss) on sale of real estate

Income from operations

10 unchanged sentences

(In thousands, except share amounts)

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Three Months Ended June 30, 2023

Stockholders’

Balances at beginning of period

Issuance of unvested restricted stock, net of forfeitures

Exchange of Exchangeable Senior Notes

Net proceeds from sale of common stock

Preferred stock dividends

2 unchanged sentences

Balances at end of period

Three Months Ended March 31, 2023

Six Months Ended June 30, 2024

Six Months Ended June 30, 2023

Stockholders’

Balances at beginning of period

1 unchanged sentence

Exchange of Exchangeable Senior Notes

Net proceeds from sale of common stock

Preferred stock dividends

6 unchanged sentences

(In thousands)

For the Three Months Ended

For the Six Months Ended

Cash flows from operating activities

2 unchanged sentences

Loss (gain) on exchange of Exchangeable Senior Notes

Loss (gain) on sale of real estate

Other non-cash adjustments

9 unchanged sentences

Purchases of investments in real estate

Proceeds from sale of real estate asset

Funding of draws for improvements and construction

24 unchanged sentences

Notes to the Condensed Consolidated Financial Statements

March 31, 2024

June 30, 2024

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”).

22 unchanged sentences

Actual results may differ materially from these estimates and assumptions.

The most significant estimates and assumptions made include determination of lease accounting and fair value of acquisition of real estate properties.

The most significant estimates and assumptions made include the determination of lease accounting and fair value of acquisition of real estate properties.

Reportable Segment.

15 unchanged sentences

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 revenues over the remaining term of the applicable lease.

Certain acquisitions of real estate did not satisfy the requirements for sale-leaseback accounting and therefore as of both March 31, 2024 and December 31, 2023, acquisitions of $ 20.0 million have been recognized as notes receivable and are included in other assets, net on our condensed consolidated balance sheets.

Certain acquisitions of real estate did not satisfy the requirements for sale-leaseback accounting and therefore as of both June 30, 2024 and December 31, 2023, acquisitions of $ 20.0 million have been recognized as notes receivable and are included in other assets, net on our condensed consolidated balance sheets.

Sale of Real Estate.

11 unchanged sentences

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

For the three months ended March 31, 2024 and 2023, we recognized depreciation expense of $ 16.9 million and $ 16.5 million, respectively.

For the three months ended June 30, 2024 and 2023, we recognized depreciation expense of $ 17.3 million and $ 16.5 million, respectively, and for the six months ended June 30, 2024 and 2023, we recognized depreciation expense of $ 34.2 million and $ 33.0 million, respectively.

Depreciation expense relating to our real estate held for investment is included in depreciation and amortization expense in our condensed consolidated statements of income.

We depreciate office equipment and furniture and fixtures on a straight-line basis over the estimated useful lives ranging from three to seven years .

We depreciate the leasehold improvements at our corporate office on

a straight-line basis over the shorter of the estimated useful lives or the remaining lease term.

We depreciate the leasehold improvements at our

corporate office on a straight-line basis over the shorter of the estimated useful lives or the remaining lease term.

Depreciation expense relating to our corporate assets is included in general and administrative expense in our condensed consolidated statements of income.

16 unchanged sentences

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

No impairment losses were recognized during the three months ended March 31, 2024 and 2023.

No impairment losses were recognized during the six months ended June 30, 2024 and 2023.

Revenue Recognition.

4 unchanged sentences

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.

7 unchanged sentences

In December 2023, we further amended the Construction Loan to extend the loan term to June 30, 2024, with an option for the borrower to extend the loan term to December 31, 2024 upon satisfaction of certain conditions and payment of an extension fee.

As of both March 31, 2024 and December 31, 2023, we had funded $ 22.0 million of the $ 23.0 million total commitment.

The borrower exercised this extension option in June 2024.

As of both June 30, 2024 and December 31, 2023, we

had funded $ 22.0 million of the $ 23.0 million total commitment.

Interest income on the Construction Loan is recognized on a cash basis.

24 unchanged sentences

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, which ends in January 2027 and contains annual escalations.

We measured the lease liability based on the present value of the future lease payments (excluding the extension option that we are not reasonable certain to exercise), discounted using the estimated incremental borrowing rates of 7.25 % and 5.5 %, which were the interest rates that we estimated we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments at initial commencement in December 2019 and upon an amendment in November 2021, respectively.

We 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 rates of 7.25 % and 5.5 %, which were the interest rates that we estimated we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments at initial commencement in December 2019 and upon an amendment in November 2021, respectively.

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.

2 unchanged sentences

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

In each of the three months ended March 31, 2024 and 2023, we recognized office lease expense of $ 0.1 million, which is included in general and administrative expenses in our condensed consolidated statements of income.

In each of the three months ended March 31, 2024 and 2023, amounts paid and classified as operating activities in our condensed consolidated statements of cash flows for the office lease were $ 0.1 million.

In each of the three and six months ended June 30, 2024 and 2023, we recognized office lease expense of $ 0.1 million and $ 0.2 million, respectively, which is included in general and administrative expenses in our condensed consolidated statements of income.

In each of the six months ended June 30, 2024 and 2023, amounts paid and classified as operating activities in our condensed consolidated statements of cash flows for the office lease were $ 0.2 million.

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.

4 unchanged sentences

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.

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 are classified as operating leases.

3 unchanged sentences

Accordingly, we have not derecognized the underlying assets and all lease payments received, as well as any future lease payments, will be recognized as a deposit liability and will be included in other liabilities on our condensed consolidated balance sheet until certain criteria are met.

As of March 31, 2024, we have received lease payments of $ 1.5 million that have been included in other liabilities on our condensed consolidated balance sheet.

The underlying assets’ land and building and improvements had a gross carrying value of $ 4.1 million and $ 28.9 million, respectively, and accumulated depreciation of $ 2.8 million as of March 31, 2024.

As of June 30, 2024, we have received lease payments of $ 2.9 million that have been included in other liabilities on our condensed consolidated balance sheet.

The underlying assets’ land and building and improvements had a gross carrying value of $ 4.1 million and $ 28.9 million, respectively, and accumulated depreciation of $ 3.0 million as of June 30, 2024.

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.

10 unchanged sentences

Concentration of Credit Risk .

As of March 31, 2024, we owned 108 properties located in 19 states and leased to 30 tenants (excluding three non-cannabis tenants at two of our properties).

As of June 30, 2024, we owned 108 properties located in 19 states and leased to 30 tenants (excluding three non-cannabis tenants at two of our properties).

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

The following table sets forth the five tenants in our portfolio that represented the largest percentage of our total rental revenues for the three months ended March 31, 2024 and 2023, including tenant reimbursements:

The following table sets forth the five tenants in our portfolio that represented the largest percentage of our total rental revenues for the three and six months ended June 30, 2024 and 2023, including tenant reimbursements:

For the Three Months Ended

March 31, 2024

June 30, 2024

Percentage of

1 unchanged sentence

("PharmaCann")

Holistic Industries Inc.

Ascend Wellness Holdings, Inc.

2 unchanged sentences

Curaleaf Holdings, Inc.

Trulieve Cannabis Corp.

For the Six Months Ended

June 30, 2024

Percentage of

For the Three Months Ended

March 31, 2023

June 30, 2023

Percentage of

Trulieve Cannabis Corp.

For the Six Months Ended

June 30, 2023

Percentage of

SH Parent, Inc.

2 unchanged sentences

In each of the tables above, these leases include leases with affiliates of each entity, for which the entity has provided a corporate guaranty.

As of March 31, 2024 and December 31, 2023, our largest property was located in New York and accounted for 5.5 % and 5.4 %, respectively, of our net real estate held for investment.

No other properties accounted for more than 5 % of our net real estate held for investment as of March 31, 2024 and December 31, 2023.

As of June 30, 2024 and December 31, 2023, our largest property was located in New York and accounted for 5.5 % and 5.4 %, respectively, of our net real estate held for investment.

No other properties accounted for more than 5 % of our net real estate held for investment as of June 30, 2024 and December 31, 2023.

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

As of March 31, 2024, we had cash accounts in excess of FDIC insured limits.

As of June 30, 2024, we had cash accounts in excess of FDIC insured limits.

We have not experienced any losses in such accounts.

As of March 31, 2024, the Company was authorized to issue up to 50,000,000 shares of common stock, par value $ 0.001 per share, and there were 28,328,647 shares of common stock issued and outstanding.

In January 2023, we entered into separate equity distribution agreements with four 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 three months ended March 31, 2024, we sold 123,224 shares of our common stock pursuant to the ATM Program for net proceeds of $ 11.8 million.

No shares of common stock were issued pursuant to the ATM Program during the three months ended March 31, 2023.

During the three months ended March 31, 2024, we issued 28,408 shares of our common stock related to the exchange premium upon exchange by holders of $ 4.3 million of outstanding principal amount of our 3.75 % Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”).

During the three months ended March 31, 2023, we issued 32,200 shares of our common stock upon exchange by holders of $ 2.0 million of outstanding principal amount of our Exchangeable Senior Notes.

As of June 30, 2024, the Company was authorized to issue up to 50,000,000 shares of common stock, par value $ 0.001 per share, and there were 28,331,833 shares of common stock issued and outstanding.

In May 2024, we terminated the previously existing “at-the-market” offering program (the “Prior ATM Program”) and entered into new equity distribution agreements with four sales agents , pursuant to which we may offer and sell from time to time through an “at-the-market” offering program (the “ATM Program”), including on a forward basis, shares of our common stock and 9.00 % Series A Cumulative Redeemable Preferred Stock, $ 0.001 par value per share (the “Series A Preferred Stock”) , up to an aggregate offering price of $ 500.0 million .

As of June 30, 2024, we had not sold any shares of common stock or Series A Preferred Stock under the ATM Program, including on a forward basis.

During the six months ended June 30, 2024, we sold 123,224 shares of our common stock pursuant to the Prior ATM Program for net proceeds of $ 11.8 million.

No shares of common stock were issued pursuant to the Prior ATM Program during the six months ended June 30, 2023.

During the six months ended June 30, 2024, we issued 28,408 shares of our common stock related to the exchange premium upon exchange by holders of $ 4.3 million of outstanding principal amount of our 3.75 % Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”).

During the six months ended June 30, 2023, we issued 32,200 shares of our common stock upon exchange by holders of $ 2.0 million of outstanding principal amount of our Exchangeable Senior Notes.

Preferred Stock

As of March 31, 2024, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $ 0.001 per share, and there were 600,000 shares issued and outstanding of 9.00 % Series A Cumulative Redeemable Preferred Stock, $ 0.001 par value per share (the “Series A Preferred Stock”).

As of June 30, 2024, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $ 0.001 per share, and there were 600,000 shares issued and outstanding of Series A Preferred Stock.

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.

The following table describes the dividends declared by the Company during the three months ended March 31, 2024:

The following table describes the dividends declared by the Company during the six months ended June 30, 2024:

Declaration Date

9 unchanged sentences

April 15, 2024

June 14, 2024

April 1, 2024 to June 30, 2024

July 15, 2024

June 14, 2024

Series A preferred stock

April 15, 2024 to July 14, 2024

July 15, 2024

Investments in Real Estate

The Company made the following acquisition during the six months ended June 30, 2024 (dollars in thousands):

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

(2) The tenant is expected to complete improvements at the property, for which we agreed to provide funding of up to $ 30.0 million.

(3) $ 2.1 million was allocated to land and $ 10.9 million was allocated to building and improvements.

Acquired In-Place Lease Intangible Assets

In-place lease intangible assets and related accumulated amortization as of March 31, 2024 and December 31, 2023 is as follows (in thousands):

March 31, 2024

In-place lease intangible assets and related accumulated amortization as of June 30, 2024 and December 31, 2023 is as follows (in thousands):

June 30, 2024

December 31, 2023

2 unchanged sentences

In-place lease intangible assets, net

Amortization of in-place lease intangible assets classified in depreciation and amortization expense in our condensed consolidated statements of income was $ 0.2 million in each of the three months ended March 31, 2024 and 2023.

The weighted-average remaining amortization period of the acquired in-place leases was 9.5 years, and the estimated annual amortization of the value of the acquired in-place leases as of March 31, 2024 is as follows (in thousands):

2024 (nine months ending December 31)

The weighted-average remaining amortization period of the acquired in-place leases was 9.2 years, and the estimated annual amortization of the value of the acquired in-place leases as of June 30, 2024 is as follows (in thousands):

2024 (six months ending December 31)

Above-Market Lease

The above-market lease and related accumulated amortization included in other assets, net on our condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 is as follows (in thousands):

March 31, 2024

The above-market lease and related accumulated amortization included in other assets, net on our condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023 is as follows (in thousands):

June 30, 2024

December 31, 2023

3 unchanged sentences

The above-market lease is amortized on a straight-line basis as a reduction to rental revenues over the remaining lease term of 9.0 years.

In each of the three months ended March 31, 2024 and 2023, the amortization of the above-market lease was $ 23,000 .

In each of the three and six months ended June 30, 2024 and 2023, the amortization of the above-market lease was $ 23,000 and $ 46,000 , respectively.

Lease Amendments

2 unchanged sentences

The Illinois property, which is under development, has experienced significant delays in construction, primarily relating to completion of required utilities enhancements, which has resulted in an extended delay of the estimated completion of the project.

As a result, we amended the Illinois lease to reduce base rent owing for the nine months ending September 30, 2024, defer the payback of the security deposit applicable to the lease (with

the security deposit being subject to future pro-rata monthly payback), and increase the base rent for the remainder of the term commencing November 1, 2024.

As a result, we amended the Illinois lease to reduce base rent owing for the nine months ending September 30, 2024, defer the payback of the security deposit applicable to the lease (with the security deposit being subject to future pro-rata monthly payback), and increase the base rent for the remainder of the term commencing November 1, 2024.

In February 2024, we amended our lease and development agreement with PharmaCann at one of our New York properties, increasing the construction funding commitment by $ 16.0 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

We also amended the lease to extend the term.

In April 2024, we amended our lease with a subsidiary of Battle Green Holdings LLC at one of our Ohio properties to provide an additional improvement allowance of $ 4.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In April 2024, we amended the lease with a subsidiary of 4Front at one of our Illinois properties to provide an additional improvement allowance of $ 1.6 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property and increased the annual base rent escalations for the remainder of the lease term.

In January 2024, we executed a new lease with a tenant at one of our retail properties in Michigan.

In March 2024, we executed a new lease for the entire property located at 63795 19th Avenue in Palm Springs, California, with the commencement date under the lease conditioned upon, among other things, the tenant’s receipt of approvals to conduct cannabis operations by the requisite state and local authorities .

In March 2024, we executed a new long-term lease with a subsidiary of Gold Flora Corporation (“Gold Flora”) at our property located at 63795 19th Avenue in Palm Springs, California (the “19 th Ave.

In April 2024, we executed a new long-term lease with Lume Cannabis Co.

at our property located at 10070 Harvest Park in Dimondale, Michigan.

In May 2024, we executed a new long-term lease with a subsidiary of Gold Flora at our property located at 19533 McLane Street in Palm Springs, California (the “McLane Lease”).

The commencement date under each of the 19 th Ave.

Lease and McLane Lease is conditioned upon, among other things, the tenant’s receipt of approvals to conduct cannabis operations by the requisite state and local authorities.

Capitalized Costs

During the three months ended March 31, 2024, we capitalized costs of $ 17.5 million and funded $ 16.5 million relating to improvements and construction activities at our properties.

Property Disposition

During the six months ended June 30, 2024, we capitalized costs of $ 34.5 million and funded $ 37.0 million relating to improvements and construction activities at our properties.

Property Dispositions

In May 2024, we sold our leased property in Los Angeles, California for $ 9.1 million (excluding closing costs) to a third-party buyer.

Concurrently with the sale, pursuant to a separate agreement previously executed between us and the tenant, the tenant paid us a lease termination fee of $ 3.9 million and paid for the closing and other costs incurred by us in connection with the sale of the property.

In connection with this sale, during the three months ended June 30, 2024, we recognized a disposition-contingent lease termination fee of $ 3.9 million, which is included in rental revenue (including tenant reimbursements) on our condensed consolidated statements of income, and a loss on sale of real estate of $ 3.4 million.

In March 2023, we sold the portfolio of four properties in California previously leased to affiliates of Medical Investor Holdings, LLC (“Vertical”) for $ 16.2 million (excluding transaction costs) and provided a secured loan for $ 16.1 million to the buyer of the properties.

4 unchanged sentences

All consideration received, as well as any future payments, from the buyer will be recognized as a deposit liability and will be included in other liabilities on our condensed consolidated balance sheet until such time the criteria for recognition as a sale have been met.

As of March 31, 2024, we have received interest payments of $ 1.9 million.

In addition, as we have not met all of the held-for-sale criteria, land and building and improvements with a gross carrying value of $ 3.4 million and $ 13.9 million, respectively, and accumulated depreciation of $ 1.7 million as of March 31, 2024, remain on the condensed consolidated balance sheet, and the buildings and improvements continue to be depreciated.

As of June 30, 2024, we have received interest payments of $ 2.1 million.

In addition, as we have not met all of the held-for-sale criteria, land and building and improvements with a gross carrying value of $ 3.4 million and $ 13.9 million, respectively, and accumulated depreciation of $ 1.8 million as of June 30, 2024, remain on the condensed consolidated balance sheet, and the buildings and improvements continue to be depreciated.

Future Contractual Minimum Rent

Future contractual minimum rent (including base rent and property management fees) to be received on our leases as of March 31, 2024 for future periods is summarized as follows (in thousands):

Future contractual minimum rent (including base rent and property management fees) to be received on our leases as of June 30, 2024 for future periods is summarized as follows (in thousands):

Contractual Minimum Rent

2024 (nine months ending December 31)

2024 (six months ending December 31)

Future contractual minimum rent includes payments to be received on two sales-type leases, which will be recognized as a deposit liability and will be included in other liabilities on our condensed consolidated balance sheet until certain criteria are met (see Note 2 “Lease Accounting” for further details).

Exchangeable Senior Notes

During the three months ended March 31, 2024, we issued 28,408 shares of our common stock and paid $ 4.3 million in cash upon exchange by holders of $ 4.3 million principal amount of Exchangeable Senior Notes and paid off the remaining $ 0.1 million principal amount at maturity in February 2024, in accordance with terms of the indenture for the Exchangeable Senior Notes.

During the three months ended March 31, 2023, we issued 32,200 shares of our common stock upon exchanges by holders of $ 2.0 million of outstanding principal amount of our Exchangeable Senior Notes.

For the three months ended March 31, 2023, we recognized a gain on the exchange totaling $ 22,000 , 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 net non-cash increase to our additional paid-in capital account of $ 2.0 million for the three months ended March 31, 2023.

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

For the Three Months Ended March 31,

During the six months ended June 30, 2024, we issued 28,408 shares of our common stock and paid $ 4.3 million in cash upon exchange by holders of $ 4.3 million principal amount of Exchangeable Senior Notes and paid off the remaining $ 0.1 million principal amount at maturity in February 2024, in accordance with terms of the indenture for the Exchangeable Senior Notes.

During the six months ended June 30, 2023, we issued 32,200 shares of our common stock upon exchanges by holders of $ 2.0 million of outstanding principal amount of our Exchangeable Senior Notes.

For the six months ended June 30, 2023, we recognized a gain on the exchange totaling $ 22,000 , 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 net non-cash increase to our additional paid-in capital account of $ 2.0 million for the six months ended June 30, 2023.

The following table details our interest expense related to the Exchangeable Senior Notes which matured in February 2024 (in thousands):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Amortization of issuance cost

2 unchanged sentences

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

March 31, 2024

June 30, 2024

December 31, 2023

12 unchanged sentences

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

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Amortization of issuance cost

2 unchanged sentences

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

March 31, 2024

June 30, 2024

December 31, 2023

6 unchanged sentences

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 March 31, 2024.

Accrued interest payable for the Notes due 2026 as of March 31, 2024 and December 31, 2023 was $ 6.2 million and $ 2.1 million, respectively, and is included in accounts payable and accrued expenses on our condensed consolidated balance sheets.

Management believes that it was in compliance with those covenants as of June 30, 2024.

Accrued interest payable for the Notes due 2026 as of both June 30, 2024 and December 31, 2023 was $ 2.1 million, respectively, and is included in accounts payable and accrued expenses on our condensed consolidated balance sheets.

Revolving Credit Facility

In October 2023, our Operating Partnership entered into a loan and security agreement (the “Loan Agreement”) with a federally regulated commercial bank, as lender and as agent for lenders that become party thereto from time to time, which matures on October 23, 2026.

The Loan Agreement was amended in February 2024 to provide $ 45.0 million in aggregate commitments for secured revolving loans (the “Revolving Credit Facility”), the availability of which is based on a borrowing base consisting of real properties owned by subsidiaries (the “Subsidiary Guarantors”) of the Operating Partnership that satisfy eligibility criteria set forth in the Loan Agreement.

The Loan Agreement was most recently amended in May 2024 to provide $ 50.0 million in aggregate commitments for secured revolving loans (the “Revolving Credit Facility”), the availability of which is based on a borrowing base consisting of real properties owned by subsidiaries (the “Subsidiary Guarantors”) of the Operating Partnership that satisfy eligibility criteria set forth in the Loan Agreement.

The obligations of the Operating Partnership under the Loan Agreement are guaranteed by the Company and the Subsidiary Guarantors, and are secured by (i) operating accounts of the Operating Partnership into which lease payments under the real property included in the borrowing base are paid, (ii) the equity interest of the Subsidiary Guarantors, (iii) the real estate included in the borrowing base and the leases and rents thereunder, and (iv) all personal property of the Subsidiary Guarantors.

3 unchanged sentences

The Loan Agreement also allows the Operating Partnership, subject to the satisfaction of certain conditions, to request additional revolving loan commitments up to a specified amount.

There were no amounts outstanding under the Revolving Credit Facility as of March 31, 2024.

There were no amounts outstanding under the Revolving Credit Facility as of June 30, 2024.

In connection with the Revolving Credit Facility, we recorded $ 0.7 million of issuance costs, which are being amortized on a straight-line basis and recognized as non-cash interest expense over the term of the Revolving Credit Facility.

For the three months ended March 31, 2024, we recognized $ 55,000 of non-cash interest expense related to the Revolving Credit Facility.

The following table summarizes the principal payments on our outstanding indebtedness as of March 31, 2024 (in thousands):

2024 (nine months ending December 31)

For the three and six months ended June 30, 2024, we recognized $ 68,000 and $ 0.1 million, respectively, of non-cash interest expense related to the Revolving Credit Facility.

The following table summarizes the principal payments on our outstanding indebtedness as of June 30, 2024 (in thousands):

2024 (six months ending December 31)

Net Income Per Share

4 unchanged sentences

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

Through March 31, 2024, all of the Company’s participating securities received dividends or dividend equivalents at an equal dividend rate per share or unit.

As a result, distributions to participating securities for the three months ended March 31, 2024 and 2023 have been included in net income attributable to common stockholders to calculate net income per basic and diluted share.

The 38,079 and 102,210 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the three months ended March 31, 2024 and 2023, respectively, and were included in the computation of diluted earnings per share.

For the three months ended March 31, 2024 and 2023, the performance share units (“PSUs”) granted to certain employees were no t included in dilutive securities as the performance thresholds for vesting of the PSUs were not met as measured as of the respective dates (see Note 10 for further discussion of PSUs).

Through June 30, 2024, 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, 2024 and 2023 have been included in net income attributable to common stockholders to calculate net income per basic and diluted share.

The 19,040 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the six months ended June 30, 2024 and were included in the computation of diluted earnings per share.

The 74,260 and 87,437 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, 2023, respectively, and were included in the computation of diluted earnings per share.

For the three and six months ended June 30, 2024, 20,713 shares issuable upon vesting of the performance share units (“PSUs”) granted to certain employees were included in dilutive securities as the performance thresholds for vesting of the PSUs were met as measured as of June 30, 2024.

For the three and six months ended June 30, 2023, the PSUs granted to certain employees were not included in dilutive securities as the performance thresholds for vesting of the PSUs were not met as measured as of June 30, 2023 (see Note 10 “Common Stock Incentive Plan” 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

Preferred stock dividends

14 unchanged sentences

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

The following table presents the carrying value and approximate fair value of financial instruments at March 31, 2024 and December 31, 2023 (in thousands):

At March 31, 2024

The following table presents the carrying value and approximate fair value of financial instruments at June 30, 2024 and December 31, 2023 (in thousands):

At June 30, 2024

At December 31, 2023

6 unchanged sentences

Construction Loan (4)

(1) At March 31, 2024, investments consisting of short-term certificates of deposit with an original maturity at the time of purchase of greater than 90 days and less than one year are classified as held-to-maturity and stated at cost, which approximates fair value.

Notes receivable (5)

(1) At June 30, 2024, investments consisting of short-term certificates of deposit with an original maturity at the time of purchase of greater than 90 days and less than one year are classified as held-to-maturity and stated at cost, which approximates fair value, and investments consisting of short-term obligations of the U.S.

government with an original maturity at the time of purchase of greater than 90 days and less than one year are classified as held-to-maturity, stated at amortized cost and valued using Level 1 inputs.

At December 31, 2023, investments consisting of short-term obligations of the U.S.

3 unchanged sentences

(3) 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.

The Exchangeable Senior Notes matured in February 2024.

(4) The Construction Loan receivable is categorized as Level 3 and was valued using a yield analysis, which is typically performed for non-credit impaired loans.

1 unchanged sentence

In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the loan relative to risk of the company and the specific loan.

At each of March 31, 2024 and December 31, 2023, the expected market yield used to determine fair value was 16.25 % .

At each of June 30, 2024 and December 31, 2023, the expected market yield used to determine fair value was 16.25 % .

Changes in market yields may change the fair value of the Construction Loan.

2 unchanged sentences

Additionally, the fair value of the Construction Loan may differ significantly from the value that would have been used had a readily available market existed for such loan and may differ materially from the value that the Company may ultimately realize.

(5) Notes receivable relate to certain acquisitions of real estate which did not satisfy the requirements for sale-leaseback accounting (see Note 2 “Acquisition of Real Estate Properties” to our condensed consolidated financial statements for more information).

The notes receivable are categorized as Level 3 and were also valued using a yield analysis.

At June 30, 2024 and December 31, 2023, the weighted average expected market yields used to determine fair values were 19.9 % and 16.9 % , respectively.

The carrying amounts of cash equivalents, accounts payable, accrued expenses and other liabilities approximate their fair values.

5 unchanged sentences

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

A summary of the restricted stock activity under the 2016 Plan and related information for the three months ended March 31, 2024 is included in the table below:

A summary of the restricted stock activity under the 2016 Plan and related information for the six months ended June 30, 2024 is included in the table below:

Grant Date Fair

2 unchanged sentences

Balance at March 31, 2024

Balance at June 30, 2024

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

The remaining unrecognized compensation cost of $ 7.1 million for restricted stock awards is expected to be recognized over a weighted-average amortization period of 2.1 years as of March 31, 2024.

The fair value of restricted stock that vested during the three months ended March 31, 2024 was $ 2.1 million.

The following table summarizes our RSU activity for the three months ended March 31, 2024.

The remaining unrecognized compensation cost of $ 6.3 million for restricted stock awards is expected to be recognized over a weighted-average amortization period of 1.9 years as of June 30, 2024.

The fair value of restricted stock that vested during the six months ended June 30, 2024 was $ 2.6 million.

The following table summarizes our RSU activity for the six months ended June 30, 2024.

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

5 unchanged sentences

Balance at March 31, 2024

The remaining unrecognized compensation cost of $ 10.8 million for RSU awards is expected to be recognized over an amortization period of 2.2 years as of March 31, 2024.

Balance at June 30, 2024

The remaining unrecognized compensation cost of $ 9.6 million for RSU awards is expected to be recognized over an amortization period of 2.0 years as of June 30, 2024.

In January 2021 and 2022, we issued 70,795 and 102,641 “target” PSUs, respectively, to a select group of officers, which vest and are settled in shares of common stock based on the Company’s total stockholder return over a performance period beginning on the applicable grant date and ending on December 31, 2023 and 2024, respectively.

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 months ended March 31, 2024 and 2023, we recognized stock-based compensation expense of $ 1.7 million and $ 2.7 million, respectively, relating to PSU awards.

As of March 31, 2024, the remaining unrecognized compensation cost of $ 5.0 million relating to PSU awards is expected to be recognized over the remaining performance period of 0.8 years.

For the three months ended June 30, 2024 and 2023, we recognized stock-based compensation expense of $ 1.7 million and $ 2.7 million, respectively, relating to PSU awards.

For the six months ended June 30, 2024 and 2023, we recognized stock-based compensation expense of $ 3.3 million and $ 5.3 million, respectively, relating to PSU awards.

As of June 30, 2024, the remaining unrecognized compensation cost of $ 3.3 million relating to PSU awards is expected to be recognized over the remaining performance period of 0.5 years.

The PSUs granted in January 2021 were forfeited in their entirety on December 31, 2023 pursuant to the terms of the agreements, as the PSUs failed to meet the performance threshold for vesting.

As measured as of March 31, 2024, the performance threshold for the vesting of the PSUs granted in January 2022 also was not met.

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 sheet as of March 31, 2024 is presented in the table below (in thousands):

2024 (nine months ending December 31)

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 sheet as of June 30, 2024 is presented in the table below (in thousands):

2024 (six months ending December 31)

Total future contractual lease payments

2 unchanged sentences

Improvement Allowances .

As of March 31, 2024, we had $ 24.1 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.

As of June 30, 2024, we had $ 52.2 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 Commitments.

As of March 31, 2024, we had $ 6.8 million of commitments related to contracts with vendors for improvements at our properties.

As of June 30, 2024, we had $ 2.5 million of commitments related to contracts with vendors for improvements at our properties.

Construction Loan.

As of March 31, 2024, we had $ 1.0 million of commitments related to our construction loan for the development of a regulated cannabis cultivation and processing facility in California.

As of June 30, 2024, we had $ 1.0 million of commitments related to our Construction Loan for the development of a regulated cannabis cultivation and processing facility in California.

Environmental Matters.

21 unchanged sentences

and on March 1, 2024, defendants replied to plaintiff’s response.

It is possible that similar lawsuits may yet

be filed in the same or other courts that name the same or additional defendants.

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.

14 unchanged sentences

The case was named Ross Weintraub, derivatively on behalf of Innovative Industrial Properties, Inc.

Alan Gold, Paul Smithers, Catherine Hastings, Ben Regin, Andy Bui, Tracie Hager, Gary Kreitzer, David Stecher, Scott Shoemaker, Mary Curran, and Innovative Industrial Properties, Inc., Case Number 1:23-cv-00737-GLR, and filed in the United States District Court for the District of Maryland.

Alan Gold, Paul Smithers, Catherine Hastings, Ben Regin, Andy Bui, Tracie Hager, Gary

Kreitzer, David Stecher, Scott Shoemaker, Mary Curran, and Innovative Industrial Properties, Inc., Case Number 1:23-cv-00737-GLR, and filed in the United States District Court for the District of Maryland.

The lawsuit asserts putative derivative claims for breach of fiduciary duty and violations of Section 14(a) of the Exchange Act, and seeks an undetermined amount of damages, equitable relief, and attorneys’ fees and costs.

9 unchanged sentences

1:23-cv-00737-GLR and 1:23-cv-01513-GLR with case number 1:23-cv-00737-GLR as the lead case, and kept the stay in place.

The consolidated case remains stayed as Case Number 24-C-22-003312.

On May 9, 2024, a fifth derivative action lawsuit was filed against the Company and certain of its officers and directors.

The case was named Gary A Gedig, derivatively on behalf of Innovative Industrial Properties, Inc.

Paul Smithers, Catherine Hastings, Ben Regin, Andy Bui, Tracy Hager, Alan Gold, Gary A.

Kreitzer, Mary Curran, Scott Shoemaker, M.D., and David Stecher, and Innovative Industrial Properties, Inc., Civil No.

C-24-CV-24-000130, and filed in the Circuit Court for Baltimore City, Maryland.

Plaintiff and Defendants in this action filed a Joint Stipulation to Stay the Proceedings, which is pending review by the court.

The Company intends to vigorously defend each of these lawsuits.

However, at this time, the Company cannot predict the probable outcome of these actions, and, accordingly, no amounts have been accrued in the Company’s condensed consolidated financial statements.

The consolidated case remains stayed as Case Number 24-C-22-003312.

We may, from time to time, be a party to other legal proceedings, which arise in the ordinary course of our business.

2 unchanged sentences

Subsequent Events

In April 2024, we executed a new long-term lease with Lume Cannabis Co.

at our property located at 10070 Harvest Park in Dimondale, Michigan.

In May 2024, we executed a new long-term lease at our property located at 19533 McLane Street in Palm Springs, California.

The commencement date under each of these leases is conditioned upon, among other things, the tenant’s receipt of approvals to conduct cannabis operations by the requisite state and local authorities.

Lease Amendments

Property Sale and Lease Termination

In May 2024, we sold our leased property in Los Angeles, California for $ 9.1 million (excluding closing costs) to a third-party buyer.

Concurrently with the sale, pursuant to a separate agreement previously executed between us and the tenant, the tenant paid us a lease termination fee of $ 3.9 million, and paid for the closing and other costs incurred by us in connection with the sale of the property.

Excluding our reimbursement for those closing and other costs, we received total consideration of $ 13.0 million in connection with the sale of the property and termination of the existing lease.

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the condensed consolidated financial statements.

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

What changed 10-Q

Item 1. Financial Statements