What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2025-02-21 compared with 2024-02-27 · 261 added, 265 removed, 915 unchanged (37% of the section changed)

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Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on that evaluation, our principal executive officer and principal financial officer concluded that our internal controls, as of December 31, 2023, were effective.

Based on that evaluation, our principal executive officer and principal financial officer concluded that our internal controls over financial reporting, as of December 31, 2024, were effective.

BDO USA, P.C.

has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, which appears in this Annual Report on Form 10-K.

Remediation of Material Weakness

We previously determined that we did not design and maintain effective internal control over financial reporting related to management’s review and approval of requests for funding disbursements for improvements at the Company’s properties.

In response, we immediately commenced measures to remediate the identified material weakness.

We have provided additional training to personnel regarding policies and procedures around construction projects and the necessary approvals of requests for funding disbursements in connection with qualifying property improvements at our properties.

Our remediation efforts also included (1) enhancing the design of existing procedures and controls over the review and approval of funding requests for improvements;

(2) providing additional training and developing tools to implement and monitor our policies and procedures;

and (3) supplementing existing resources with the engagement of third-party construction consultants.

Management believes that significant progress has been made in enhancing internal controls as of December 31, 2023 and has concluded that the enhanced controls are operating effectively.

The material weakness described in Part II, Item 9A, “Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2022 has been fully remediated.

Changes in Internal Control Over Financial Reporting

Other than remediation of the material weakness as discussed above, there have been no changes in our system of internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our system of internal control over financial reporting during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

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Pursuant to instruction G(3) to Form 10-K, information concerning compliance with Section 16(a) of the Exchange Act concerning our directors and executive officers set forth under the heading entitled “General Section 16(a) Beneficial Ownership Reporting Compliance” will be included in the Proxy Statement to be filed relating to Innovative Industrial Properties, Inc.’s 2025 Annual Meeting of Stockholders and is incorporated herein by reference.

Information About our Executive Officers and Directors

Our executive officers as of February 21, 2025, along with their positions and offices held with the Company, are as follows:

Executive Chairman and Director

Paul Smithers

President, Chief Executive Officer and Director

Chief Financial Officer and Treasurer

In addition to Messrs.

Gold and Smithers, our directors as of February 21, 2025, and their principal occupations or current employment are as follows:

Gary Kreitzer

Retired Executive Vice President and General Counsel;

Co-Founder of three publicly traded REITs

Retired Executive Vice President and Corporate Banking Chief Risk Officer MUFG Union Bank, N.A., Member of the Board of Directors of Banc of California, Inc.

and Hunter Industries, Inc.

Scott Shoemaker

Practicing orthopedic surgeon for Kaiser Permanente

David Stecher

Managing Director at CapAcquity LLC

Code of Ethics and Code of Conduct

We have adopted a written Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

Our Code of Business Conduct and Ethics is posted on our website (www.innovativeindustrialproperties.com).

We do not incorporate the information on our website into this Annual Report on Form 10-K and you should not consider any such information that can be accessed through our website as part of this Annual Report.

We intend to disclose any amendments to certain provisions of our Code of Business Conduct and Ethics, or any waivers of those provisions, as required by the listing rules of the New York Stock Exchange, the rules and regulations of the SEC and applicable law on our website promptly following the date of such amendment or waiver.

EXECUTIVE COMPENSATION

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Description of Exhibit

Form of Equity Distribution Agreement, dated as of January 20, 2023, between Innovative Industrial Properties, Inc., IIP Operating Partnership, LP and each sales agent.(1)

Second Articles of Amendment and Restatement of Innovative Industrial Properties, Inc.

(including Articles Supplementary Classifying Innovative Industrial Properties, Inc.’s 9.00% Series A Cumulative Redeemable Preferred Stock).(1)

Articles Supplementary to the Second Articles of Amendment and Restatement of Innovative Industrial Properties, Inc.

(including Articles Supplementary Classifying Innovative Industrial Properties, Inc.’s 9.00% Series A Cumulative Redeemable Preferred Stock).(2)

Third Amended and Restated Bylaws of Innovative Industrial Properties, Inc.(3)

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

Innovative Industrial Properties, Inc.

Insider Trading Compliance Program.

List of Subsidiaries of Innovative Industrial Properties, Inc.

List of Subsidiary Guarantors.(17)

Consent of Independent Registered Public Accounting Firm.

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+ Indicates management contract or compensatory plan.

(1) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on January 23, 2023.

(2) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 6, 2020.

(1) Incorporated by reference to Innovative Industrial Properties, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 6, 2020.

(2) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on May 24, 2024.

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

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

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

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

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(16) Incorporated by reference to Innovative Industrial Properties, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 3, 2023.

(17) Incorporated by reference to Innovative Industrial Properties, Inc.’s Annual Report on Form 10-K filed with the SEC on February 27, 2024.

FORM 10-K SUMMARY

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Consolidated Statements of Income for the years ended December 31, 2024, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021

Consolidated Statemen ts of Stockholders’ Equity for the years ended December 31, 2024, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended D ecember 31, 2024, 2023 and 2022

Notes to Consolidated Financial Statements

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Real Estate Acquisitions - Fair Value of Assets Acquired

As described in Notes 2 and 6 to the consolidated financial statements, the Company’s consolidated real estate property acquisitions totaled approximately $35.2 million for the year ended December 31, 2023.

The two 2023 property acquisitions involved significant judgments in estimating the fair values used in the allocation between the land and buildings and improvements acquired.

As described in Note 6 to the consolidated financial statements, the Company completed two real estate property acquisitions, which totaled approximately $18.6 million during the year ended December 31, 2024.

As described in Note 2 to the consolidated financial statements, the assets acquired are initially measured based upon their relative fair values.

The Company may engage third-party valuation specialists to assist in the estimation of the fair value of land by reviewing comparable sales within the same submarket and/or region, and the estimation of the fair value of buildings and

improvements as if the property was vacant utilizing a direct capitalization approach and a current replacement costs approach and takes into consideration other relevant market data.

We identified the estimation of the fair values used in the allocation of the land and buildings and improvements acquired for the two 2024 property acquisitions as a critical audit matter.

The principal considerations for our determination included significant judgments used to evaluate certain assumptions used in the fair values of land and buildings and improvements acquired, including the comparable sales of land, current replacement cost of the buildings and improvements, and certain other assumptions for the two real estate asset acquisitions.

The principal considerations for our determination included significant judgments used to evaluate certain assumptions used in the fair values of land and buildings and improvements acquired, including the comparable sales of land, and current replacement cost of the buildings and improvements for the two real estate asset acquisitions.

Auditing these elements involved a high degree of auditor judgment and subjectivity due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

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

● Utilizing personnel with specialized knowledge and skills in valuation to assist in the evaluation of the reasonableness of the comparable sales of land, the current replacement cost of the buildings and improvements, and certain other assumptions used in the estimation of the allocation of fair values of land and buildings and improvements acquired, including the comparison of these assumptions to market data.

● Utilizing personnel with specialized knowledge and skills in valuation to assist in the evaluation of the fair values used in the allocation of land and buildings and improvements acquired, including the comparable sales of land, and current replacement cost of the buildings and improvements taking into consideration the comparison of these assumptions to market data.

/s/ BDO USA, P.C.

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

9.00 % Series A cumulative redeemable preferred stock, $ 15,000 liquidation preference ($ 25.00 per share), 600,000 shares issued and outstanding at December 31, 2023 and December 31, 2022

9.00 % Series A cumulative redeemable preferred stock, liquidation preference of $ 25.00 per share, 1,002,673 and 600,000 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively

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

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Total expenses

Gain on sale of real estate

Gain (loss) on sale of real estate

Income from operations

Interest and other income

Interest income

Interest expense

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Preferred Stock

Balance, December 31, 2021

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

Adjustment to opening balance upon adoption of ASU 2020-06 (Note 2)

Exchange of Exchangeable Senior Notes

Net proceeds from sale of common stock

Preferred stock dividend

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Balance, December 31, 2022

Adjustment to opening balance upon adoption of ASU 2020-06 (Note 2)

Exchange of Exchangeable Senior Notes

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Exchange of Exchangeable Senior Notes

Net proceeds from sale of preferred stock

Net proceeds from sale of common stock

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Loss (gain) on exchange of Exchangeable Senior Notes

Gain on sale of real estate

Loss (gain) on sale of real estate

Other non-cash adjustments

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Issuance of common stock, net of offering costs

Gross proceeds from issuance of Notes due 2026

Issuance of preferred stock, net of offering costs

Principal payment on Exchangeable Senior Notes

Payment of deferred financing costs

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

Dividends paid to common stockholders

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Supplemental disclosure of non-cash investing and financing activities:

Accrual for current-year additions to real estate

Accrual for current-period additions to real estate

Deposits applied for acquisitions

Accrual for common and preferred stock dividends declared

Reclassification from other assets to real estate held for investment

Exchange of Exchangeable Senior Notes for common stock

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generally accepted accounting principles.

Reclassification .

We have combined $ 705.3 million of “Tenant improvements” as of December 31, 2022, which represented building improvements in which we are considered to be the accounting owner, with “Building and improvements” in our consolidated balance sheets to conform to the current period presentation as of December 31, 2023.

There was no change to “Total real estate, at cost”.

Federal Income Taxes.

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Actual results may differ materially from these estimates and assumptions.

The most significant estimates and assumptions made include determination of lease accounting, fair value of acquisition of real estate properties and valuation of stock-based compensation.

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

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

The financial information disclosed herein represents all of the financial information related to our one reportable segment.

We have aggregated our 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.

Our chief operating decision maker (“CODM”) reviews financial information for our entire consolidated operations when making decisions related to assessing our operating performance.

See Note 12 “Segment Information” for additional information.

Acquisition of Real Estate Properties.

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The amount recorded for one above-market operating lease is included in other assets, net on the consolidated balance sheets and is amortized on a straight-line basis as a reduction of rental income 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 December 31, 2023 and 2022, acquisitions of approximately $ 20.0 million and approximately $ 20.1 million, respectively, have been recognized as notes receivable and are included in other assets, net on our consolidated balance sheets.

Certain acquisitions of real estate did not satisfy the requirements for sale-leaseback accounting and therefore as of December 31, 2024 and 2023, acquisitions of $ 16.8 million and $ 20.0 million, respectively, have been recognized as notes receivable and are included in other assets, net on our consolidated balance sheets.

During the year ended December 31, 2024, a $ 3.2 million acquisition of real estate which previously did not satisfy the requirements for sale-leaseback accounting was reclassified to real estate held for investment as the requirements for sale-leaseback accounting were satisfied.

Sale of Real Estate.

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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 years ended December 31, 2023, 2022 and 2021, we recognized depreciation expense of approximately $ 66.3 million, $ 60.5 million and $ 41.7 million, respectively, which are included in depreciation and amortization expense in our 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 .

For the years ended December 31, 2024, 2023 and 2022, we recognized depreciation expense of $ 69.9 million, $ 66.3 million and $ 60.5 million, respectively, which are included in depreciation and amortization expense in our 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.

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Costs capitalized to construction in progress related to redevelopment properties are transferred to buildings and improvements at historical cost of the properties as the redevelopment project or phases of projects are placed in service.

During the year ended December 31, 2023, we reclassified the net carrying value of the buildings and improvements totaling approximately $ 56.8 million to construction in progress relating to two existing properties that were placed into redevelopment.

Provision for Impairment.

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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.

We recognize revenue for each of the leases at our properties that are classified as operating leases 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.

We evaluate a number of factors in our initial and ongoing assessments of collectability of lease payments for each tenant on a lease-by-lease basis, including evaluations of each tenant’s financial performance, liquidity and overall credit profile, availability and terms of capital for each tenant needed to conduct operations or refinance existing obligations, utilization rates by property and lease duration.

We also consider current market conditions, impact of federal, state and local taxation and regulatory burdens and reasonable and supportable forecasts of future economic conditions.

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

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

For the year ended December 31, 2023, rental revenue recognized included the application of approximately $ 3.1 million of security deposits for rent with two tenants who were in default under their respective lease agreements and approximately $ 5.7 million of security deposits for rent with three tenants in connection with lease amendments.

For the years ended December 31, 2024, 2023 and 2022, rental revenue included the application of $ 7.7 million, $ 8.7 million and $ 2.7 million of security deposits for contractual rent with certain tenants.

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 executed a construction loan agreement with a developer, pursuant to which we agreed to lend up to $ 23.0 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.

In February 2023, we amended the construction loan to provide for, among other things:

(1) the additional capital commitment of the borrower into the project of $ 1.0 million;

(2) our agreement to fund an additional $ 4.5 million into the project;

(3) an increase in the interest rate effective April 1, 2023;

(4) an extension of the loan term to December 31, 2023;

and (5) the provision of additional collateral from the borrower for the loan.

Interest on the loan continued to accrue through March 31, 2023, with monthly payments of interest contractually required commencing April 1, 2023.

In December 2023, we further amended to 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 December 31, 2023 and 2022, we had funded approximately $ 22.0 million and $ 18.0 million, respectively, of the construction loan.

In February 2023, we amended the construction loan to provide for, among other things, an extension of the loan term to December 31, 2023.

Interest on the loan accrued through March 31, 2023, with monthly payments of interest commencing April 1, 2023.

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.

The borrower exercised this extension option in June 2024.

In November 2024, we further amended the construction loan to extend the

loan term to June 30, 2025 upon satisfaction of certain conditions and payment of an extension fee.

As of December 31, 2024 and 2023, we had funded $ 22.8 million and $ 22.0 million, respectively, of the construction loan.

Interest income on the construction loan is recognized on a cash basis.

Cash and Cash Equivalents .

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

We consider all highly-liquid investments with original maturities of 90 days or less to be cash equivalents, which is comprised of 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 90 days.

Restricted Cash.

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Investments consist of short-term 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.

government and certificates of deposit with an original maturity at the time of purchase of greater than 90 days.

Investments in obligations of the U.S.

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

Investments in certificates of deposit are classified as held-to-maturity and stated at cost.

Exchangeable Notes.

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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.

The Exchangeable Senior Notes matured in February 2024.

Deferred Financing Costs.

The deferred financing costs relating to our Exchangeable Senior Notes and Notes due 2026 are included as a reduction in the net book value of the related liability on our consolidated balance sheets reflect.

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

Deferred financing costs relating to our Revolving Credit Facility are included in other assets, net on our consolidated balance sheets.

These costs are being amortized on a straight-line basis and recognized as non-cash interest expense over the term of the Revolving Credit Facility.

These costs are being amortized on a straight-line basis and recognized as non-cash interest expense over the remaining term of the Revolving Credit Facility.

Stock-Based Compensation.

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We also elected the short-term lease exception for lessees for leases that are less than 12 months.

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 contains annual escalations.

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 lease space and measured the lease liability 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.

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 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.

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

For the years ended December 31, 2023, 2022 and 2021, we recognized office lease expense of approximately $ 486,000 , $ 466,000 and $ 231,000 , respectively, which are included in general and administrative expense in our consolidated statements of income.

For the years ended December 31, 2023, 2022 and 2021, amounts paid and classified as operating activities in our consolidated statements of cash flows for the office lease were approximately $ 496,000 , $ 402,000 and $ 234,000 , respectively.

For each of the years ended December 31, 2024, 2023 and 2022, we recognized office lease expense of $ 0.5 million, which are included in general and administrative expense in our consolidated statements of income.

For the years ended December 31, 2024, 2023 and 2022, amounts paid and classified as operating activities in our consolidated statements of cash flows for the office lease were $ 0.5 million, $ 0.5 million and $ 0.4 million, respectively.

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

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

In January 2024, the lease modifications for two of our leases to extend the initial term of each lease changed the lease classification from operating lease to sales-type lease that did not satisfy all the criteria for recognition as a completed sale.

Accordingly, we continue to recognize the underlying assets within net real estate held for investment 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 consolidated balance sheets until certain criteria are met.

As of December 31, 2024, we have received lease payments of $ 4.9 million that have been included in other liabilities on our consolidated balance sheets.

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 $ 3.5 million as of December 31, 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.

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Improvements to Reportable Segment Disclosures .

The amendments in ASU 2023-07 improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, measures

of segment profit and loss, and disclosures of how the chief operating decision maker uses the reported measure(s) of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources.

The amendments are effective for all public entities that are required to report segment information for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024.

The amendments in ASU 2023-07 improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, measures of segment profit and loss, and disclosures of how the CODM uses the reported measure(s) of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources .

The ASU also requires a public entity that has a single reportable segment to provide all the disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 280.

We adopted ASU 2023-07 for the year ending December 31, 2024 which resulted in incremental disclosures relating to reportable segment within the footnotes to our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses.

The amendments in ASU 2024-03 require entities to provide enhanced disclosures related to certain expense categories included in income statement captions.

Under ASU 2024-03, entities are required to disaggregate, in a tabular format, expense captions presented on the face of the income statement — excluding earnings or losses from equity method investments — if they include any of the following expense categories:

purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depreciation, depletion, and amortization recognized as part of oil and gas-producing activities (or other amounts of depletion expense).

For any remaining items within each relevant expense caption, entities must provide a qualitative description of the nature of those expenses.

ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The amendments should be applied retrospectively to all prior periods presented.

The Company is currently evaluating the potential impact that this standard will have on its consolidated financial statements and related disclosures .

We expect to adopt this ASU on January 1, 2027.

While the adoption is not expected to have an impact on our consolidated financial statements, it is expected to result in incremental disclosures within the footnotes to our consolidated financial statements.

Concentration of Credit Risk .

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("Green Thumb")

SH Parent, Inc.

("Parallel") (1)

Holistic Industries, Inc.

Curaleaf Holdings, Inc.

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Percentage of

Trulieve Cannabis Corp.

SH Parents, Inc.

("Parallel") (1)

For the Year Ended

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Percentage of

Cresco Labs Inc.

Kings Garden (2)

(1) Commencing in November 2022, Parallel defaulted on its obligations to pay rent at one of our Pennsylvania properties, and we regained possession of that property in October 2023.

In February 2023, Parallel defaulted on its obligations to pay rent at one of our Texas properties, and we regained possession of that property in March 2023.

See Note 11 “Commitments and Contingencies — Litigation” for more information.

(2) In July 2022, Kings Garden defaulted on its obligations to pay rent at all of the properties it leases with us, and pursuant to a confidential, conditional settlement agreement executed on September 11, 2022 between us and Kings Garden, we

terminated the leases for two properties and regained possession of those properties, which continued to be in development or redevelopment as of December 31, 2023.

Kings Garden paid the stipulated rent during its period of occupancy for the remaining four properties through September 20, 2023, and we regained possession of those properties in September 2023.

See Note 11 “Commitments and Contingencies — Litigation” for more information.

Trulieve Cannabis Corp.

(1) We regained possession of two properties previously leased to Parallel in Texas and Pennsylvania in 2023.

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

As of December 31, 2024, our largest property was located in New York and accounted for 5.5 % 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 December 31, 2024.

As of December 31, 2022, 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 December 31, 2023, our largest property was located in New York and accounted for 5.4 % 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 December 31, 2023.

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

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

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As of December 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 28,331,833 shares of common stock issued and outstanding.

In January 2023, we 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 “Prior ATM Program”) up to $ 500.0 million in shares of our common stock.

In May 2024, we terminated 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 .

See Note 4 “Preferred Stock” for information regarding the sale of Series A Preferred Stock under the ATM Program.

During the years ended December 31, 2024, 2023 and 2022, we sold 123,224 shares, 101,061 shares and 117,023 shares of our common stock pursuant to the Prior ATM Program for net proceeds of $ 11.8 million, $ 9.6 million and $ 21.1 million, respectively.

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.

During the year ended December 31, 2022, we sold 117,023 shares of our common stock pursuant to an “at-the-market” offering program (the “Prior ATM Program”) for net proceeds of approximately $ 21.1 million.

In January 2023, we terminated 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”) up to $ 500.0 million in shares of our common stock.

During the year ended December 31, 2023, we sold 101,061 shares of our common stock under the ATM Program for net proceeds of approximately $ 9.6 million.

During the year ended December 31, 2022, we issued 413,166 shares of our common stock upon exchange by holders of approximately $ 26.9 million of outstanding principal amount of our Exchangeable Senior Notes.

During the year ended December 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.

During the year ended December 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 Exchangeable Senior Notes.

Preferred Stock

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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.

During the year ended December 31, 2024, we sold 402,673 shares of our Series A Preferred Stock pursuant to the ATM Program for net proceeds of $ 9.6 million.

The following table describes the dividends declared by the Company during the years ended December 31, 2024, 2023 and 2022:

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The Company made the following acquisitions during the year ended December 31, 2024 (dollars in thousands):

Susquehanna Street

February 15, 2023

Boltonfield Street

March 3, 2023

108 Western Maryland Parkway

October 2, 2024

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

(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) Approximately $ 2.6 million was allocated to land and approximately $ 32.6 million was allocated to building and improvements.

(3) $ 2.8 million was allocated to land and $ 15.9 million was allocated to building and improvements.

Acquired In-Place Lease Intangible Assets

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In-place lease intangible assets, net

Amortization of in-place lease intangible assets classified in depreciation and amortization expense in our consolidated statements of income was approximately $ 860,000 , $ 841,000 and $ 33,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

The remaining weighted-average amortization period of the value of acquired in-place leases was approximately 9.6 years, and the estimated annual amortization of the value of the acquired in-place leases as of December 31, 2023 is as follows (in thousands):

Amortization of in-place lease intangible assets classified in depreciation and amortization expense in our consolidated statements of income was $ 0.9 million, $ 0.9 million and $ 0.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The remaining weighted-average amortization period of the value of acquired in-place leases was 8.8 years, and the estimated annual amortization of the value of the acquired in-place leases as of December 31, 2024 is as follows (in thousands):

Above-Market Lease

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Above-market lease, net

The above-market lease is amortized on a straight-line basis as a reduction to rental revenues over the remaining lease term of approximately 9.3 years.

For the years ended December 31, 2023, 2022 and 2021, the amortization of the above-market lease was approximately $ 92,000 , $ 91,000 and $ 4,000 , respectively.

As of December 31, 2023, the amortization for each of the next five years is approximately $ 92,000 and approximately $ 407,000 thereafter.

Additional Improvement Allowances

In February 2023, we amended our lease with a subsidiary of Ascend at one of our New Jersey properties, increasing the improvement allowance under the lease by $ 15.0 million to a total of approximately $ 19.6 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

We also amended each of our leases with Ascend to include cross-default provisions applicable to each lease.

In February 2023, we amended our lease and development agreement with PharmaCann at one of our New York properties, increasing the construction funding by $ 15.0 million to a total of approximately $ 93.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

We also amended each of our leases with PharmaCann to include cross-default provisions applicable to each lease.

In February 2023, we amended our lease with a subsidiary of Goodness Growth Holdings Inc.

(“Goodness Growth”) at one of our New York properties, increasing the improvement allowance under the lease by $ 4.0 million to a total of approximately $ 53.4 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

We also amended each of our leases with Goodness Growth to include cross-default provisions applicable to each lease.

In October 2023, we amended our lease with a subsidiary of Goodness Growth at one of our New York properties, increasing the improvement allowance under the lease by $ 14.0 million to a total of approximately $ 67.4 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In connection with the lease amendment, the tenant prepaid rent for the three month period commencing on November 1, 2023 and ending January 31, 2024.

The above-market lease is amortized on a straight-line basis as a reduction to rental revenues over the remaining lease term of 8.5 years.

For all three years ended December 31, 2024, 2023 and 2022, the amortization of the above-market lease was $ 0.1 million.

As of December 31, 2024, the amortization for each of the next five years is $ 0.1 million and $ 0.3 million thereafter.

Lease Amendments

In January 2023 , we entered into lease amendments with Holistic Industries Inc.

at our properties located in California, Maryland, Massachusetts, Michigan and Pennsylvania, which (1) included cross-default provisions applicable to each lease;

(2) extended the term of each lease;

and (3) provided that 100 % of the base rent shall be applied from the security deposits held by us for (a) the nine months ending September 30, 2023 with respect to the Michigan property and (b) the eight months ending September 30, 2023 with respect to the California property, with pro rata monthly payback of the security deposits over the twelve-month period starting January 2024.

In January 2023, we executed a lease amendment with Calyx Peak, Inc.

at our Missouri property, which (1) extended the term of the lease;

and (2) provided for 100 % base rent deferral through March 31, 2023, with pro rata monthly payback of the deferred rent over the twelve-month period starting April 2023.

In March 2023, we executed a lease amendment with Temescal Wellness of Massachusetts, LLC at our Massachusetts property, which (1) provided for temporary reduced base rent from April 2023 through January 2024 to be partially paid through application of security deposits, with pro rata payback of those security deposits over twelve months starting in February 2024;

(2) extended the lease term;

and (3) increased base rent for the remainder of the term of the lease.

In July 2023, we amended our lease with a subsidiary of 4Front Ventures Corp.

(“4Front”) at one of our Illinois properties, pursuant to which, among other things, we agreed to apply a portion of the security deposit that we hold under the lease to pay one-half of the monthly installments of base rent due from the tenant, commencing on August 1, 2023 and continuing through November 30, 2023, which the tenant is then required to repay over a 12 -month period commencing on January 1, 2024.

In June 2023, we executed a new long-term lease with a tenant at our property located at 68860 Perez Road in Cathedral City, California that was previously leased to Kings Garden, which is under construction as of December 31, 2023.

In December 2023, we executed a new lease with a tenant at our property located at 9410 Davis Highway in Dimondale, Michigan that was previously leased to Green Peak, which is under construction as of December 31, 2023.

In January 2024, we entered into lease amendments with subsidiaries of 4Front Ventures Corp.

(“4Front”) at the four properties we lease to them in Illinois, Massachusetts and Washington, extending the term of each lease.

We amended the Illinois lease to reduce base rent through 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 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

Including all of our properties, during the year ended December 31, 2023, we capitalized costs of approximately $ 130.7 million and funded approximately $ 150.1 million relating to improvements and construction activities at our properties.

Including all of our properties, during the year ended December 31, 2024, we capitalized costs of $ 63.7 million relating to improvements and construction activities at our properties.

Property Dispositions

In November 2022, we sold one of our Pennsylvania properties that was leased to a subsidiary of Maitri Holdings, LLC for $ 23.5 million, excluding transaction costs, and recognized a gain on sale of the property of approximately $ 3.6 million.

In November 2022, we sold one of our Pennsylvania properties that was leased to a subsidiary Maitri Holdings, LLC for $ 23.5 million, excluding transaction costs, and recognized a gain on sale of the property of approximately $ 3.6 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.

The loan matures on February 29, 2028 with two options to extend the maturity for twelve months , conditional in each instance on the payment of an extension fee and at least $ 500,000 of the principal balance.

The loan matures on February 29, 2028 with two options to extend the maturity for twelve months , conditional in each instance on the payment of an extension fee and at least $ 0.5 million of the principal balance.

The loan is interest only and payments are payable monthly in advance.

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Accordingly, we have not derecognized the assets transferred on our consolidated balance sheets.

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 consolidated balance sheet until such time the criteria for recognition as a sale have been met.

As of December 31, 2023, we received interest payments of approximately $ 1.3 million.

In addition, as we have not met all of the held-for-sale criteria, land and building and improvements with gross carrying values of approximately $ 3.4 million and approximately $ 13.9 million, respectively, and accumulated depreciation of approximately $ 1.6 million as of December 31, 2023, remain on the consolidated balance sheet, and the buildings and improvements continue to be depreciated.

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 consolidated balance sheets until such time the criteria for recognition as a sale have been met.

As of December 31, 2024, we received interest payments of $ 2.4 million.

In addition, as we have not met all of the held-for-sale criteria, land and building and improvements with gross carrying values of $ 3.4 million and approximately $ 13.9 million, respectively, and accumulated depreciation of $ 2.0 million as of December 31, 2024, remain on the consolidated balance sheets, and the buildings and improvements continue to be depreciated.

In May 2024, we sold a 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 year ended December 31, 2024, we recognized a disposition-contingent lease termination fee of $ 3.9 million, which is included in rental revenue (including tenant reimbursements) on our consolidated statements of income, and a loss on sale of real estate of $ 3.4 million.

Future Contractual Minimum Rent

Future contractual minimum rent (including base rent and property management fees) under the operating leases as of December 31, 2023 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 December 31, 2024 for future periods is summarized as follows (in thousands):

Contractual Minimum Rent

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

Exchangeable Senior Notes

As of December 31, 2023 and 2022, our Operating Partnership had outstanding approximately $ 4.4 million and $ 6.4 million, respectively, principal amount of 3.75 % Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”).

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

The exchange rate for the Exchangeable Senior Notes at December 31, 2023 was 17.30699 shares of our common stock per $ 1,000 principal amount of the Exchangeable Senior Notes and the exchange price at December 31, 2023 was approximately $ 57.78 per share of our common stock.

At December 31, 2023, there were 76,774 shares potentially issuable upon conversion of the Exchangeable Senior Notes.

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

The Exchangeable Senior Notes will pay interest semiannually at a rate of 3.75 % per annum and will mature on February 21, 2024, unless earlier exchanged or repurchased in accordance with their

The effective interest rate including amortization of issuance costs is 4.53 %.

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 December 31, 2023, the if-exchanged value of the Exchangeable Senior Notes exceeded the principal amount by approximately $ 3.3 million.

See Note 12 “Subsequent Events” for more information.

As of December 31, 2023, our Operating Partnership had outstanding $ 4.4 million of principal amount of 3.75 % Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”).

The Exchangeable Senior Notes were senior unsecured obligations of our Operating Partnership, were fully and unconditionally guaranteed by us and our Operating Partnership’s subsidiaries and were 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 Exchangeable Senior Notes paid interest semiannually at a rate of 3.75 % per annum and matured on February 21, 2024.

The effective interest rate including amortization of issuance costs was 4.53 %.

During the year ended December 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 year ended December 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 year ended December 31, 2023, we recognized a gain on the exchange totaling approximately $ 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 approximately $ 2.0 million for the year ended December 31, 2023.

During the year ended December 31, 2022, we issued 413,166 shares of our common stock upon exchanges by holders of approximately $ 26.9 million of outstanding principal amount of our Exchangeable Senior Notes.

For the year ended December 31, 2022, we recognized a loss on the exchange totaling approximately $ 125,000 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 non-cash increase to our additional paid-in capital account of approximately $ 26.7 million for the year ended December 31, 2022.

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

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

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

For the year ended December 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 year ended December 31, 2023.

During the year ended December 31, 2022, we issued 413,166 shares of our common stock upon exchanges by holders of $ 26.9 million of outstanding principal amount of our Exchangeable Senior Notes.

For the year ended December 31, 2022, we recognized a loss on the exchange totaling approximately $ 0.1 million 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 $ 26.7 million for the year ended December 31, 2022.

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

For the Year Ended December 31,

Amortization of debt discount

Amortization of issuance cost

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Carrying value

Accrued interest payable for the Exchangeable Senior Notes was approximately $ 49,000 and $ 70,000 as of December 31, 2023 and 2022, respectively, and is included in accounts payable and accrued expenses on our consolidated balance sheets.

Accrued interest payable for the Exchangeable Senior Notes was $ 49,000 as of December 31, 2023 and is included in accounts payable and accrued expenses on our consolidated balance sheets.

Notes due 2026

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

The Notes due 2026 are senior unsecured obligations of our Operating Partnership, are fully and unconditionally guaranteed by us and our Operating Partnership’s subsidiaries and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured indebtedness, including the Exchangeable Senior Notes.

The Notes due 2026 are senior unsecured obligations of our Operating Partnership, are fully and unconditionally guaranteed by us 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 which matured in February 2024.

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.

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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.

In connection with the issuance of the Notes due 2026, we recorded $ 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 effective interest rate including amortization of issuance costs is 6.03 %.

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Management believes that it was in compliance with those covenants as of December 31, 2024.

Accrued interest payable for the Notes due 2026 as of December 31, 2023 and 2022 was approximately $ 2.1 million and is included in accounts payable and accrued expenses on our consolidated balance sheets.

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

Revolving Credit Facility

On October 23, 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.

The Loan Agreement matures on October 23, 2026, and provides $ 30.0 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.

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 provided $ 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.

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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 December 31, 2023.

In connection with the Revolving Credit Facility, we recorded approximately $ 561,000 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 year ended December 31, 2023, we recognized approximately $ 41,000 of non-cash interest expense related to the Revolving Credit Facility.

In November 2024, our Operating Partnership entered into an amendment to the Loan Agreement, pursuant to which the aggregate commitments under the Revolving Credit Facility were increased from $ 50.0 million to $ 87.5 million.

There were no amounts outstanding under the Revolving Credit Facility as of December 31, 2024 and 2023.

In connection with the Revolving Credit Facility, we recorded $ 0.8 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 year ended December 31, 2024 and 2023, we recognized $ 0.3 million and $ 41,000 of non-cash interest expense related to the Revolving Credit Facility.

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

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The 9,468 shares, 81,169 shares and 202,076 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the years ended December 31, 2024, 2023 and 2022, respectively, and were included in the computation of diluted earnings per share.

For the years ended December 31, 2023 and 2022, the performance share units (“PSUs”) granted to certain employees were not included in dilutive securities as the performance thresholds for the vesting of the PSUs were not

met as measured as of the respective dates.

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

For the years ended December 31, 2024, 2023 and 2022, the performance share units (“PSUs”) granted to certain employees were not included in dilutive securities as the performance thresholds for the vesting of the PSUs were not met as measured as of the respective dates.

(see Note 10 for further discussion of the PSUs).

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

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Construction loan (4)

(1) Investments consisting of short-term obligations of the U.S.

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

At December 31, 2023, the unrecognized gain was approximately $ 78,000 .

(2) Investments as cash equivalents consisting of obligations of the U.S.

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

Notes receivable (5)

(1) At December 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, stated at cost and valued using Level 2 inputs.

At December 31, 2023, 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, the unrecognized gain was $ 78,000 .

(2) Investments included in cash and cash equivalents consisting of obligations of the U.S.

government with an original maturity at the time of purchase of less than or equal to 90 days are classified as held-to-maturity and valued using Level 1 inputs.

(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.

Th 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.

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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 December 31, 2023 and 2022, the expected market yields used to determine fair value were 16.25 % and 25 % , respectively.

At both December 31, 2024 and 2023, the expected market yields used to determine fair value was 16.25 % .

Changes in market yields may change the fair value of the construction loan.

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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 consolidated financial statements for more information).

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

At December 31, 2024 and 2023, the weighted average expected market yields used to determine fair values were 20.6 % and 17.2 % , respectively.

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

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

The remaining unrecognized compensation cost of approximately $ 4.3 million for restricted stock awards is expected to be recognized over a weighted-average amortization period of approximately 1.6 years as of December 31, 2023.

The fair value of restricted stock that vested in 2023, 2022 and 2021 was approximately $ 1.7 million, $ 6.9 million and $ 8.8 million, respectively.

The remaining unrecognized compensation cost of $ 4.1 million for restricted stock awards is expected to be recognized over a weighted-average amortization period of 1.7 years as of December 31, 2024.

The fair value of restricted stock that vested in 2024, 2023 and 2022 was $ 2.6 million, $ 1.7 million and $ 6.9 million, respectively.

The following table summarizes our RSU activity for the years ended December 31, 2024, 2023 and 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.

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:

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Balance at December 31, 2024

The remaining unrecognized compensation cost of approximately $ 5.9 million for RSU awards is expected to be recognized over an amortization period of approximately 1.7 years as of December 31, 2023.

The remaining unrecognized compensation cost of $ 6.5 million for RSU awards is expected to be recognized over an amortization period of 1.7 years as of December 31, 2024.

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

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 Period is negative, the payout of Award Shares is capped at the target number of PSUs, notwithstanding the Company’s outperformance of comparator groups.

No dividends are paid to the recipient during the 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 value of the PSUs granted in January 2021 and January 2022 was $ 12.0 million and $ 20.0 million, respectively.

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

2021 PSU Award

2022 PSU Award

Fair Value Assumptions

Valuation date

January 6, 2021

January 7, 2022

Fair value per share on valuation date

Expected term

Expected price volatility

Risk-free interest rate

Discount for post vesting restriction

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

For the years ended December 31, 2023, 2022 and 2021, we recognized stock-based compensation expense of approximately $ 10.7 million, $ 10.7 million and $ 4.0 million respectively, relating to the PSU awards.

As of December 31, 2023, the remaining unrecognized compensation cost of approximately $ 6.7 million relating to the PSUs granted in January 2022 is expected to be recognized over the remaining Performance Period of 1.0 year.

As measured as of December 31, 2023, the performance thresholds for the vesting of the PSUs were not met for any of the applicable awards, and the PSUs granted in January 2021 were forfeited in their entirety pursuant to the terms of the agreements.

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 year ended December 31, 2024, 2023 and 2022, we recognized stock-based compensation expense of $ 6.7 million, $ 10.7 million and $ 10.7 million, respectively, relating to PSU awards.

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.

The PSUs granted in January 2022 were forfeited in their entirety on December 31, 2024 pursuant to the terms of the agreements, as the PSUs failed to meet the performance threshold for vesting.

Commitments and Contingencies

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Improvement Allowances.

As of December 31, 2023, we had approximately $ 18.7 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 December 31, 2024, we had $ 37.1 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.

Construction Commitments.

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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.

Class Action Lawsuit

Class Action Lawsuits

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.

Mallozzi, individually and on behalf of others similarly situated v.

Innovative Industrial Properties, Inc., Paul Smithers, Catherine Hastings and Andy Bui, Case No.

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on February 1, 2024, plaintiff responded with their opposition to defendants’ motion to dismiss the Second Amended Class Action Complaint;

Defendants’ reply in support of the motion to dismiss is due March 1, 2024.

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

On September 25, 2024, the court granted defendants’ motion to dismiss the Second Amended Class Action Complaint with prejudice.

On September 30, 2024, plaintiff filed a notice of appeal of the court’s dismissal of the Second Amended Class Action Complaint with prejudice.

On December 9, 2024, plaintiff filed their opening appellate brief with the United States Court of Appeals for the Third Circuit.

On January 23, 2025, defendants filed their appellate brief.

On January 17, 2025, a second federal securities class action lawsuit was filed against the Company and certain of its officers.

The case was named Alain Giraudon, individually and on behalf of others similarly situated v.

Innovative Industrial Properties, Inc., Alan D.

Gold, Paul E.

Smithers, David Smith and Ben Regin, Case No.

1:25-cv-00182-RDB, and was filed in the U.S.

District Court for the District of Maryland.

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 Exchange Act, SEC Rule 10b-5, and Section 20(a) of the Exchange Act.

According to the filed complaint, the plaintiff 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 February 27, 2024 and December 19, 2024.

It is possible that similar lawsuits may yet be filed in the same or other courts that name the same or additional defendants.

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

Derivative Action Lawsuit

Derivative Action Lawsuits

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.

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.

Paul Smithers, Catherine Hastings, Andy Bui, Alan Gold, Gary Kreitzer, Mary Curran, Scott Shoemaker, David Stecher, and Innovative Industrial Properties, Inc., Case Number 24-C-22-003312, 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.

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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.

This derivative action relates to the same allegations as those made in the Mallozzi class action, detailed above.

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 was granted on September 17, 2024.

This derivative action also relates to the same allegations as those made in the Mallozzi class action, detailed above.

On February 12, 2025, a derivative action lawsuit was filed against the Company and certain of its officers and directors.

The case was named Joshua Steffens, derivatively on behalf of Innovative Industrial Properties, Inc.

Alan Gold, Paul Smithers, David Smith, Ben Regin, Gary Kreitzer, Gary Stecher, Scott Shoemaker, Mary Allis Curran, and Innovative Industrial Properties, Inc., Case Number 1:25-cv-00456-ABA, and was filed in the United States District Court for the District of Maryland.

The lawsuit asserts putative derivative claims for violations of the Exchange Act, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, and

contribution against the directors and certain officers of the Company.

The plaintiffs are seeking an undetermined amount of damages, interest, an accounting and constructive trust, punitive damages, and attorneys’ fees and costs.

This derivative action relates to the same allegations as those made in the Giraudon class action, detailed above.

On February 13, 2025, a derivative action lawsuit was filed against the Company and certain of its officers and directors.

The case was named Joshua Albers, derivatively on behalf of Innovative Industrial Properties, Inc.

Alan Gold, Paul Smithers, David Smith, Ben Regin, Gary Kreitzer, Gary Stecher, Scott Shoemaker, Mary Allis Curran, and Innovative Industrial Properties, Inc., Case Number 1:25-cv-00469-BAH, and was filed in the United States District Court for the District of Maryland.

The plaintiffs are seeking an undetermined amount of damages, interest, reform, punitive damages, and attorneys’ fees and costs.

This derivative action also relates to the same allegations as those made in the Giraudon class action, detailed above.

The Company intends to vigorously defend each of these lawsuits.

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

Kings Garden Lawsuit

On July 25, 2022, IIP-CA 2 LP filed a lawsuit against Kings Garden, a former tenant at six properties.

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.

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 two projects 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)) (“RICO Act”).

On September 11, 2022, the parties to the lawsuit entered into a confidential, conditional settlement agreement pertaining to matters related to the lawsuit.

Pursuant to the conditional settlement agreement, as of December 31, 2023, the Company has received a total of approximately $ 19.8 million in partial settlement payments from Kings Garden, which has been accounted for as a reduction to net real estate held for investment on our consolidated balance sheets.

During the year ended December 31, 2023, we received approximately $ 4.4 million in additional payments from Kings Garden (reflected in the total amount above).

On February 14, 2023, Kings Garden filed an Arbitration Demand related to the interpretation of the confidential, conditional settlement agreement between the parties that concerns certain terms governing the assignment of one of the Kings Garden leases.

On August 4, 2023, the Company accepted an offer of judgment extended by Kings Garden under California Code of Civil Procedure Section 998, pursuant to which Kings Garden (i) vacated the remaining four properties it previously occupied in September 2023, paying the stipulated rent during its period of occupancy through September 20, 2023, and (ii) agreed to pay the Company damages and attorneys’ fees totaling approximately $ 6.0 million, including interest on the then-outstanding amount, on a fully amortizing schedule of approximately $ 193,000 per month over a three-year period.

The offer of judgment included a mutual release.

During November and December 2023, we received an aggregate of approximately $ 386,000 from Kings Garden pursuant to the terms of the offer of judgement, which is primarily reported as rental revenues for the year ended December 31, 2023.

On August 16, 2023, we filed suit against Orr Builders, the general contractor for certain amounts on one construction project undertaken by Kings Garden, and filed a first amended complaint on January 24, 2024, named IIP-CA 2 LP v.

Orr Builders and Does 1-20 , asserting claims for fraud, negligent misrepresentation, negligence, breach of contract, breach of covenant of good faith and fair dealing, violation of California unfair competition law, money had and received, and unjust enrichment.

Enviro Air Lawsuit

On January 29, 2024, we filed suit against Enviro Air Systems Inc., Haik Akiopyan and Desert Construction Services, LLC, regarding certain amounts for one construction project undertaken by Kings Garden, named IIP-CA 2 LP vs.

Enviro Air Systems Inc., Haik Akopyan and Desert Construction Services, LLC , asserting claims for fraud, negligent misrepresentation, conspiracy, violation of California unfair competition law, money had and received, unjust enrichment, conversion, theft by false pretenses and violations of the RICO Act.

Parallel Pennsylvania Litigation

On February 6, 2023, IIP-PA 8 LLC, as landlord and an indirect subsidiary of the Company, filed a lawsuit against Goodblend Pennsylvania LLC, as tenant, and Parallel, as guarantor, in the Court of Common Pleas of Allegheny County, Pennsylvania, regarding the lease and related guaranty for one of the Company’s properties located in Pennsylvania.

On October 25, 2023, a consent order was executed by the Court which awarded possession of the property to IIP-PA 8 LLC on October 31, 2023 and damages in favor of IIP-PA 8 LLC in the amount of approximately $ 15.5 million.

2023, IIP-PA 8 LLC received approximately $ 1.7 million from Goodblend Pennsylvania LLC as a partial payment of the judgment, which is reported as rental revenues for the year ended December 31, 2023.

Parallel Texas Litigation

On February 11, 2023, a subsidiary of Parallel defaulted on its obligations to pay rent under the lease at one of our properties in Texas that is under development.

On February 23, 2023, IIP-TX 1 LLC, as landlord and an indirect subsidiary of the Company, filed a lawsuit against Surterra San Marcos, LLC, as tenant, in the Justice Court of Hays County, Texas, regarding the lease, asserting claim for possession.

In March 2023, a judgment for possession was entered in favor of IIP-TX 1 LLC, as well as monthly rental amounts due, and we regained possession of the property.

On March 13, 2023, IIP-TX 1 LLC filed a subsequent lawsuit against Surterra San Marcos, LLC, Parallel and Sunstream Opportunities LP (“SAF Entity 1”) in the District Court of Hays County, Texas, regarding the same lease, asserting claims against Surterra San Marcos, LLC, Parallel and SAF Entity 1 for breach of contract, tortious interference with contract, unjust enrichment, fraud and fraudulent inducement, intentional failure to disclose and misrepresentations and conversion, and also requested the granting of a temporary injunction and the appointment of a receiver over the license(s) pertaining to the property’s operations as a regulated cannabis facility.

The parties exchanged initial disclosures in September 2023, and are in the discovery phase.

Green Peak Michigan Litigation

On February 22, 2023, IIP-MI 1 LLC filed a lawsuit against Green Peak and Tropics LP (“SAF Entity 2”) in the Circuit Court of Eaton County, Michigan, regarding a lease for one of the Company’s properties located in Michigan, asserting claims against Green Peak for breach of contract, unjust enrichment, and innocent misrepresentation, against SAF Entity 2 for tortious interference with contract, and against both Green Peak and SAF Entity 2 for civil conspiracy (the “Circuit Court Action”).

On March 3, 2023, a receiver was appointed over substantially all of Green Peak’s assets in the Circuit Court of Ingham County, Michigan (the “Receivership Case”), pursuant to which the Company subsequently re-gained possession of one of the Company’s cultivation and processing properties, which is under redevelopment as December 31, 2023, and three retail properties.

As a result of the Receivership Case, the claims asserted against Green Peak in the Circuit Court Action were stayed by order of the court and the claims against SAF Entity 2 were suspended by agreement of the parties pending the outcome of the Receivership Case.

On October 3, 2023, the court approved the sale of substantially all of Green Peak’s remaining assets in receivership to an affiliate of Green Peak’s senior secured lender.

The receiver informed the Company that it intends to vacate the remaining operational cannabis cultivation and processing facility occupied by the receiver by February 29, 2024.

The leases for the remaining three retail properties are expected to be assumed by the purchaser in connection with the closing of the sale.

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 consolidated financial statements.

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

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

Segment Information

We operate in one reportable segment of acquiring, developing/redeveloping and leasing real estate to tenants on a long-term triple-net basis.

All of our revenues are generated in the United States and the CODM manages the business activities on a consolidated basis.

The CODM is our President and Chief Executive Officer.

The CODM assesses performance for the segment and decides how to allocate resources based on net income, which is reported on the consolidated statements of income.

The CODM uses net income to evaluate return on investments and determine whether to reinvest profits or to pay dividends.

The evaluation is also used to establish management’s compensation.

The revenues, expenses (including stock-based compensation) and net income for the reportable segment are the same as those presented on the consolidated financial statements.

The measure of segment assets is reported on the consolidated balance sheets as total consolidated assets.

Subsequent Events

Exchange of Remaining Outstanding Principal Amount Exchangeable Senior Notes

Subsequent to year-end, we issued 28,408 shares of our common stock and paid approximately $ 4.3 million in cash upon exchange by holders of approximately $ 4.3 million principal amount of Exchangeable Senior Notes and paid off the remaining $ 100,000 principal amount at maturity, in accordance with terms of the indenture for the Exchangeable Senior Notes.

Lease Amendments

In January 2024, we entered into lease amendments with subsidiaries of 4Front Ventures Corp.

(“4Front”) at the four properties we lease to them in Illinois, Massachusetts and Washington, extending the term of each lease.

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 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 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 January 2024, we executed a new lease with a tenant at one of our retail properties in Michigan that was previously leased to Green Peak.

Amendment to Loan Agreement to Increase Commitments Under Revolving Credit Facility

In February 2024, our Operating Partnership entered into an amendment to the Loan Agreement, pursuant to which the aggregate commitments under the Revolving Credit Facility were increased from $ 30.0 million to $ 45.0 million.

In January 2025, we entered into lease amendments with PharmaCann with respect to nine of its leases for properties located in New York, Illinois, Pennsylvania, Ohio, and Colorado.

Those lease amendments reduced cumulative total base rent from $ 2.8 million per month to $ 2.6 million per month, with cash rent payments commencing February 1, 2025, and provided for pro-rata replenishment of security deposits over thirty-six months commencing February 1, 2027.

We also entered into lease amendments with PharmaCann with respect to two of its leases for cultivation properties in Michigan and Massachusetts.

Those amendments provide that monthly base rent of $ 1.3 million for these two properties will be abated in full effective February 1, 2025 and, if the properties have not been transitioned to new tenant(s) by August 1, 2025, we will regain full control over the properties.

We applied security deposits held by us pursuant to all of the PharmaCann leases for the payment in full of all defaulted rent for December 2024 and January 2025 and certain penalties.

If PharmaCann is not able to refinance its existing senior secured credit facility maturing

June 30, 2025, all modifications to our leases with PharmaCann described above will immediately be null and void and the leases will revert to the terms in effect as of January 1, 2025.

On January 17, 2025, a federal securities class action lawsuit was filed against us and certain of our officers.

On February 12, 2025 and February 13, 2025, derivative actions were filed against us and certain of our officers and directors.

See Note 11 “Commitments and Contingencies” for a description of these actions.

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

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West Greenhouse Drive

Perez Road (5)

64125 19th Avenue

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Ben Bostic Road

33rd Street & 36th Avenue

East Mazon Avenue

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560 Western Maryland Parkway

108 Western Maryland Parkway

Hopping Brook Road

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South 17th Street

Esperanza Street

Industrial/Retail

US 50 Business and Baxter Road

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(3) These four properties were sold in March 2023 but the transaction did not qualify for recognition as a completed sale under GAAP.

As such, the properties remain on the consolidated balance sheet.

As such, the properties remain on the consolidated balance sheets.

Refer to Note 6 “Investments in Real Estate” for more information.

(4) As of December 31, 2023, we were evaluating alternative non-cannabis uses for the property, due in part to changes in the zoning of the property that no longer allow for regulated cannabis cultivation and processing.

(4) As of December 31, 2024, we are evaluating alternative non-cannabis uses for the properties, due in part to changes in the zoning of the properties that no longer allow for regulated cannabis cultivation and processing.

(5) As of December 31, 2024, these properties were vacant and excluded from our operating portfolio.

(6) As of December 31, 2024, these properties were leased to non-cannabis tenants.

(7) Building and improvements balance includes Construction in progress.

As of December 31, 2023, the aggregate gross cost of the properties included above for federal income tax purposes was approximately $ 2.4 billion, which excludes the four properties that were sold in March 2023 that did not qualify for recognition as a completed sale under GAAP but is recognized as a sale for tax purposes.

As of December 31, 2024, the aggregate gross cost of the properties included above for federal income tax purposes was $ 2.5 billion, which excludes the four properties that were sold in March 2023 that did not qualify for recognition as a completed sale under GAAP but is recognized as a sale for tax purposes.

A reconciliation of historical cost and related accumulated depreciation is as follows (in thousands):

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Balance at beginning of year

Depreciation expense, net

Depreciation expense

Sale of real estate investments

Balance at end of year

(1) During the year ended December 31, 2024, a $ 3.2 million acquisition of real estate which previously did not satisfy the requirements for sale-leaseback accounting was reclassified to real estate held for investment as the requirements for sale-leaseback accounting were satisfied.

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

What changed 10-K

Item 9A. Controls and Procedures