What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-08 · 182 added, 136 removed, 294 unchanged (52% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report.

We make statements in this report that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

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the estimated growth in and evolving market dynamics of the regulated cannabis market;

the satisfaction of closing conditions under the Securities Purchase Agreement and the RCF (each as defined below);

anticipated funding sources for our investment in Preferred Stock of IQHQ REIT (each as defined below);

the demand for regulated cannabis cultivation and processing facilities;

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The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report.

In addition, we discussed a number of material risks in our Annual Report on Form 10-K for the year ended December 31, 2024.

In addition, we discussed a number of material risks in our Annual Report on Form 10-K for the year ended December 31, 2024 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025.

Those risks continue to be relevant to our performance and financial condition.

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The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of the Company’s consolidated financial condition, results of operations and cash flows.

MD&A is provided as a supplement to,

and should be read in conjunction with, the Company’s condensed consolidated financial statements and accompanying notes.

MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s consolidated financial statements and accompanying notes.

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

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We are the sole general partner of our Operating Partnership and own, directly or through subsidiaries, 100% of the limited partnership interests in our Operating Partnership.

As of March 31, 2025, we had 21 full-time employees.

As of March 31, 2025, we owned 110 properties comprising 9.0 million square feet (including 666,000 rentable square feet under development/redevelopment) in 19 states.

As of March 31, 2025, we had invested $2.5 billion in the aggregate (consisting of purchase price and funding of draws for construction funding and improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional $27.4 million to fund draws to certain tenants and vendors for improvements at our properties.

Of the $27.4 million committed to fund draws to certain tenants and vendors for improvements at our properties, $9.0 million was incurred but not funded as of March 31, 2025.

Of these 110 properties, we include 107 properties in our operating portfolio, which were 98.4% leased as of March 31, 2025, with a weighted-average remaining lease term of 13.5 years.

We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of March 31, 2025, and together are expected to comprise 491,000 rentable square feet upon completion of development/redevelopment):

As of June 30, 2025, we had 23 full-time employees.

As of June 30, 2025, we owned 108 properties comprising 9.0 million square feet (including 588,000 rentable square feet under development/redevelopment) in 19 states.

As of June 30, 2025, we had invested $2.5 billion in the aggregate (consisting of purchase price and funding of draws for construction and improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional $11.6 million to fund draws to certain tenants and vendors for improvements at our properties.

Of the $11.6 million committed to fund draws to certain tenants and vendors for improvements at our properties, $5.6 million was incurred but not funded as of June 30, 2025.

Of these 108 properties, we include 105 properties in our operating portfolio, which were 98.6% leased as of June 30, 2025, with a weighted-average remaining lease term of 13.1 years.

We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of June 30, 2025, and together are expected to comprise 491,000 rentable square feet upon completion of development/redevelopment):

• 63795 19th Avenue in Palm Springs, California (pre-leased);

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• Leah Avenue in San Marcos, Texas.

As discussed below under the section entitled “ —Factors Impacting Our Operating Results—Conditions in Our Markets ,” market dynamics in the regulated cannabis industry have been extremely challenging.

These challenges include federal, state and local taxation burdens;

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As we have discussed in this and previous filings with the SEC, these challenges have negatively impacted the ability of certain of our tenants to make their lease payments on the properties they lease from us.

As a result, the Company recently announced that it intends to proactively seek to refresh a substantial portion of its tenant base with more financially viable long-term tenants to better position the Company for sustainable growth and improved financial performance.

As part of this strategic effort, the Company declared certain of its tenants in default in March 2025, for failure to pay contractual rent in full, as further described below.

In addition, the Company declared a default with respect to a loan for $16.1 million aggregate principal amount pursuant to a secured promissory note (the “MIH Note”) issued to the Company by the purchaser of four properties previously leased to Medical Investor Holdings, LLC.

The Company, through indirect, wholly owned subsidiaries serving as landlords, previously entered into leases (collectively, the “4Front Leases”) with 4Front Ventures Corp.

and its affiliates (collectively, “4Front”) as tenants for four properties that the Company owns, which represented 5.8% of the Company’s contractual rent as of March 31, 2025.

The Company, through indirect, wholly owned subsidiaries serving as landlords, previously entered into leases (collectively, the “Gold Flora Leases”) with Gold Flora, LLC and its affiliates (collectively, “Gold Flora”) as tenants for three properties that the Company owns, which represented 2.9% of the Company’s contractual rent as of March 31, 2025.

The Company, through indirect, wholly owned subsidiaries serving as landlords, previously entered into leases (collectively, the “TILT Leases”) with TILT Holdings Inc.

and its affiliates (collectively, “TILT”) as tenants for two properties that the Company owns, which represented 2.2% of the Company’s contractual rent as of March 31, 2025.

The Company declared each of the 4Front Leases, the Gold Flora Leases, and the TILT Leases in default in March 2025.

Contractual base rent, property management fees and estimated tax and insurance payments owed as of March 31, 2025, for each of the 4Front Leases, the Gold Flora Leases, and the TILT Leases, totaled $9.0 million, $1.7 million, and $2.4 million, respectively.

The Company is taking action to pursue its rights under such leases aggressively, which may include, but is not limited to, commencing eviction proceedings as the Company deems necessary.

The Company previously provided a loan, in the aggregate principal amount of $16.1 million, pursuant to the MIH Note issued by the purchaser of four of the Company’s properties in California previously leased to affiliates of Medical Investor Holdings, LLC.

In light of these industry conditions and their impact on our existing portfolio, we may from time to time modify or expand our growth strategy to include a broader range of real estate and real estate-related investments, such as joint ventures, debt or mezzanine financing, preferred or joint venture equity interests, or interests in other real estate funds or REITs.

In March 2025, the Company launched a strategic initiative aimed at improving long-term financial performance by seeking to refresh a substantial portion of its tenant base with more financially viable, long-term tenants.

As part of this initiative, the Company declared certain tenants and their affiliates in default for failure to pay contractual rent in full, including 4Front Ventures Corp., Gold Flora, LLC, and TILT Holdings Inc.

These tenants , which collectively accounted for approximately 11.4% of the Company’s contractual rent due as of June 30, 2025, owed $13.3 million, $2.8 million and $3.6 million, respectively, in base rent, property management fees, and estimated tax and insurance payments as of such date.

The Company is actively pursuing its rights under these leases, which may include init iating eviction proceedings.

Gold Flora and 4Front Ventures are both currently operating under receivership and 4Front Ventures has filed for bankruptcy protection in Canada.

Therefore, any actions with respect to their leases may involve additional legal processes and delays.

In July 2025, we terminated the lease with an affiliate of Gold Flora for our property located in Palm Springs, California, which represents one of three leases with affiliates of Gold Flora.

Additionally, the Company previously declared a default under a secured promissory note in the aggregate principal amount of $16.1 million (the “MIH Note”).

As a result of the default, the full principal and accrued interest under the MIH Note, wh ich amounted to $17.3 million as of Ju ne 30, 2025, became immediately due and payable.

The MIH Note was

issued to the Company by the purchaser of four properties in California.

The MIH Note is secured by such four properties.

The loan pursuant to the MIH Note requires payments of interest only, monthly, in advance and matures on February 29, 2028.

The Company declared the MIH Note in default in March 2025, due to the borrower’s failure to pay approximately $0.8 million of interest and reimbursement for taxes.

As a result, the principal amount of the MIH Note, plus accrued and unpaid interest, are immediately due and payable.

The Company intends to vigorously pursue its rights under the MIH Note, which may include, but is not limited to foreclosing on its security interest in the four properties securing the MIH Note.

In addition, on March 14, 2025, PharmaCann defaulted on its obligations to pay rent for the month of March under nine of its eleven leases for properties located in New York, Illinois, Pennsylvania, Ohio, and Colorado which represented 9.1% of the Company’s total rental revenues for the quarter ended March 31, 2025.

March rent owed for these nine leases, including base rent, property management fees and estimated tax and insurance payments, totaled $2.7 million.

Monthly base rent of $1.3 million for the remaining two leases, which are for cultivation properties in Michigan and Massachusetts, was previously abated in full effective February 1, 2025, pursuant to the lease amendments the Company entered into with PharmaCann in January 2025.

The Company is in continuing discussions with PharmaCann regarding the leases and expects to enforce its rights under the leases aggressively, which may include, but is not limited to, commencing eviction proceedings as the Company deems necessary.

See Note 6 "Investments in Real Estate" in the notes to our condensed consolidated financial statements for further information regarding our leases with PharmaCann.

The Company is pursuing its rights under the MIH Note, which may include foreclosure on the four properties securing the loan.

The Company previously entered into leases with PharmaCann Inc.

and its affiliates for eleven properties.

Two of such leases, for cultivation facilities in Michigan and Massachusetts, had their monthly base rent of $1.3 million, in the aggregate, fully abated effective February 1, 2025, under lease amendments agreed to by the parties in January 2025.

The Company re-leased the 205,000 square foot Michigan property to Berry Green in April 2025 and is seeking to re-lease the property located in Massachusetts.

As previously disclosed, PharmaCann defaulted on its rent obligations under the remaining nine of these leas es, covering properties in New York, Illinois, Pennsylvania, Ohio and Colorado, with total amounts due of $12.8 million as of June 30, 2025, representing approximately 11.5% of the Company’s contractual rent due as of such date.

The Compan y is in continuing discussions with PharmaCann regarding these leases and expects to enforce its rights under the leases aggressively, which may include, but is not limited to, commencing eviction proceedings as the Company deems necessary.

See Note 6 “Investments in Real Estate” in the notes to our consolidated financial statements for further information regarding our leases with PharmaCann and the MIH Note described above.

Recent Developments

On August 6, 2025, the Company through its Operating Partnership entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with IQHQ, Inc., a Maryland corporation (“IQHQ REIT”).

The Securities Purchase Agreement, together with certain exhibits thereto, set forth the terms under which the Operating Partnership agreed to:

(i) purchase up to $170 million of preferred stock of IQHQ REIT (the “Preferred Stock”) at a price of $1,000 per share, together with corresponding warrants to purchase common equity units of IQHQ Holdings, LP, a Delaware limited partnership, subject to the satisfaction of certain funding milestones of the Preferred Stock;

and (ii) provide a $100 million commitment to the operating partnership of IQHQ REIT as a member of a lender syndicate under an Amended and Restated Credit Agreement (the “RCF”) with an initial term of three years, extendable by an additional 12 months upon payment of an extension fee and satisfaction of certain other conditions.

The Preferred Stock investment is expected to be funded in multiple tranches between the third quarter of 2025 and the second quarter of 2027, subject to extension options exercisable by IQHQ REIT.

The Company expects to fund the RCF with a combination of cash on hand and draws from the Company’s Revolving Credit Facility (as defined below).

The Company expects to fund the Preferred Stock investment with cash on hand, draws from the Company’s Revolving Credit Facility and potential proceeds from future financing activities.

The transactions contemplated by the Securities Purchase Agreement and the RCF are expected to close in the third quarter of 2025, subject to the satisfaction of customary closing conditions and approvals.

Factors Impacting Our Operating Results

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• rent collection, which primarily relates to each of our tenant’s financial condition and ability to make rent payments to us on time.

The properties that we acquire consist of real estate assets that support the regulated cannabis industry.

The properties that we have acquired consist of primarily real estate assets that support the regulated cannabis industry.

Most states where we own properties issue licenses for cannabis operations for a limited period.

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Positive or negative changes in regulatory, economic or other conditions, drought, and natural disasters in the markets where we acquire properties may affect our overall financial performance.

The success of our tenants in operating their businesses and their ability to pay rent continues to be significantly influenced by many challenges including the impact of inflation, interest rates, labor shortages, changes in trade policy, supply chain constraints on their cost of doing business, and the U.S.

The success of our tenants in operating their businesses and their ability to pay rent continues to be significantly influenced by a range of macroeconomic and industry-specific challenges.

These include, but are not limited to, inflationary pressures, elevated interest rates, substantial debt maturities, reduced access to capital, labor market constraints, evolving trade policies, supply chain disruptions and U.S.

consumer financial health.

Additionally, market dynamics and the regulatory regime in the states where they operate create challenges that may impact our tenants’ businesses and/or decrease future demand for regulated cannabis cultivation and production facilities.

The potential impact of current economic challenges on the Company’s financial condition, results of operations, and cash flows is subject to change and continues to depend on the extent and duration of these risks and uncertainties.

See “—Results of Operations—Comparison of the Three Months Ended March 31, 2025 and 2024—Rental Revenues” for more information.

If these conditions persist or worsen, additional tenants may default on their obligations under our leases with them, and we may be unable to re-lease those properties on favorable terms or at all.

These conditions have already adversely impacted the ability of certain of our tenants to satisfy their lease obligations and, if such conditions persist or deteriorate further, we expect that additional tenants may default under their leases and we may be unable to re-lease those properties on favorable terms or at all.

These tenant-related challenges are currently having a material adverse effect on the Company’s financial condition, results of operations, and cash flows.

See “—Results of Operations—Comparison of the three and six months ended June 30, 2025 and 2024—Rental Revenues” for more information.

The full extent and duration of these challenges remain subject to significant uncertainty.

Market Dynamics in Regulated Cannabis State Programs

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As a result, certain regulated cannabis operators have announced that they are consolidating operations or shuttering certain operations to reduce costs, which if prolonged, could have a material negative impact on operators’ demand for regulated cannabis facilities, including our existing tenants.

Reduced Capital Availability and Significant Debt Maturities for Cannabis Operators

Operators in the regulated cannabis industry are facing a challenging financial environment marked by reduced access to capital and mounting debt obligations.

Over the past several years, capital availability for these operators has declined significantly due to many factors, including heightened financial market volatility, rising interest rates, growing geopolitical risks, and increased risk aversion among institutional investors.

These pressures are compounded by ongoing regulatory uncertainty and the continued federal illegality of cannabis in the United States, which restricts access to traditional financing options, such as bank loans and public equity markets, leaving many reliant on higher-cost alternative financing.

At the same time, a growing number of cannabis companies are approaching the maturity dates of previously issued debt, much of which was incurred during a period of more favorable market conditions.

Many of these debt instruments carry relatively high interest rates and restrictive covenants, which further constrain operational flexibility.

With limited refinancing options available, operators may face challenges meeting upcoming debt obligations, increasing the risk of defaults, asset sales, or operational cutbacks.

These financial pressures, combined with ongoing inflation, compressed margins, and regulatory burdens, pose significant risks to tenant stability and long-term performance in the cannabis sector, potentially impacting our tenant credit quality, lease compliance, and future leasing activity.

Inflation, Tariffs and Supply Chain Disruption

Recent changes in U.S.

trade policy, including the imposition of significant tariffs on imported materials and goods, are expected to increase the costs of key inputs used in cannabis cultivation and production, including equipment, lighting systems, and construction materials.

These added costs are especially impactful to our tenants operating in the regulated cannabis industry, which already faces higher compliance and regulatory burdens compared to other sectors.

In addition, escalating geopolitical tensions and retaliatory trade measures have disrupted global supply chains, which may lead to sourcing challenges, extended lead times, and increased costs for capital projects, including the development and redevelopment of our properties.

These factors may also contribute to cost overruns and delays in commencing operations on certain of our tenants’ projects.

Reduced Capital Availability for Tenants and the Company

In recent years, financial markets have experienced heightened volatility, reflecting increased geopolitical risks and significant tightening of financial conditions.

These factors have contributed to a substantial decline in capital availability for regulated cannabis operators.

Compounding these challenges, recent U.S.

trade policy shifts, including the imposition of tariffs on imports from Canada, Mexico and China, have further strained the industry's financial landscape.

These tariffs are expected to lead to increased costs for essential inputs such as cultivation equipment and packaging, which historically have been predominantly sourced from overseas.

As many regulated cannabis operators face significant debt maturities in the coming years, these compounded financial pressures are expected to pose substantial challenges in refinancing or extending those debt obligations.

The elevated costs resulting from trade policy shifts, coupled with limited access to capital, may hinder operators' ability to secure favorable refinancing terms, potentially impacting their financial stability and operational viability.

trade policy, including the imposition of significant tariffs on imports from Canada, Mexico, China, and other key trading partners, are expected to increase the costs of key inputs used in cannabis cultivation and production, such as equipment, lighting systems, HVAC units, construction materials and specialized packaging.

These added costs are especially impactful to our tenants operating in the regulated cannabis industry, which already faces heightened compliance, regulatory and tax burdens compared to other sectors.

In addition, escalating geopolitical tensions

and retaliatory trade measures have disrupted global supply chains, which may lead to sourcing challenges, longer lead times, and increased costs for capital projects, including the development and redevelopment of our properties.

These factors may result in cost overruns or delays in the development or redevelopment of our properties and may adversely affect the timing and commencement of operations on certain of our tenants’ projects.

However, the ultimate impact remains uncertain, as future changes to tariff policy, including potential adjustments or exemptions, could materially influence cost structures and supply chain decisions across the industry.

Significant Tenants and Concentrations of Risk

As of March 31, 2025, we owned 110 properties located in 19 states leased to 31 tenants (not including five non-cannabis tenants in three properties).

As of June 30, 2025, we owned 108 properties located in 19 states leased to 36 tenants.

Many of our tenants are tenants at multiple properties.

We seek to manage our portfolio-level risk through geographic diversification and by minimizing dependence on any single property or tenant.

At March 31, 2025, 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 at March 31, 2025.

See Note 2 “Concentration of Credit Risk” in the notes to our condensed consolidated financial statements for further information regarding the tenants in our portfolio that represented the largest percentage of our total rental revenues for the three months ended March 31, 2025.

At June 30, 2025, 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 at June 30, 2025.

See Note 2 “Concentration of Credit Risk” in the notes to our consolidated financial statements for further information regarding the tenants in our portfolio that represented the largest percentage of our total rental revenues for the three and six months ended June 30, 2025.

Competitive Environment

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Investments in Real Estate

See Note 6 “Investment in Real Estate” in the notes to the condensed consolidated financial statements for information regarding our investments in real estate activity and property portfolio activity during the three months ended March 31, 2025.

Comparison of the Three Months Ended March 31, 2025 and 2024

See Note 6 “Investment in Real Estate” in the notes to the consolidated financial statements for information regarding our investments in real estate activity and property portfolio activity during the six months ended June 30, 2025.

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

The following table sets forth the results of our operations (in thousands):

For the Three Months Ended

June 30, For the Six Months Ended

2025 2024 2025 2024

Rental (including tenant reimbursements) $ 62,866 $ 79,253 $ 134,563 $ 154,167

Other $ 25 540 $ 50 1,080

Total revenues 62,891 79,793 134,613 — 155,247

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Total expenses 33,993 33,997 71,751 67,418

Gain (loss) on sale of real estate — (3,449) — (3,449)

Income from operations 28,898 42,347 62,862 84,380

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Rental Revenues.

Rental revenues for the three months ended March 31, 2025 decreased by $3.2 million, or 4%, to $71.7 million, compared to $74.9 million for the three months ended March 31, 2024.

The decline was primarily driven by a decrease of $4.4 million on properties leased to PharmaCann due to the tenant's default, a decrease of $1.6 million on properties leased to TILT due to the tenant's default, a decrease of $0.7 million related to one property that the Company took back possession of in September 2024, and a decrease of $0.3 million related to one property sold in May 2024.

This decline was partially offset by an increase of $2.2 million related to new acquisitions and new leases executed on existing properties that commenced since March 31, 2024, and an increase of $1.6 million primarily driven by contractual rent escalations.

For the three months ended March 31, 2025, we applied $5.8 million of security deposits for payment of rent on properties leased to PharmaCann, Gold Flora, TILT and Sozo.

No security deposits were applied for rent during three months ended March 31, 2024.

We have re-leased three properties in which rent commencement is contingent on the tenants obtaining the requisite approvals to operate.

As a result, we do not expect to recognize rental revenue from these properties until such events have occurred.

Rental revenues for the three months ended June 30, 2025 decreased by $16.4 million, or 21%, to $62.9 million, compared to $79.3 million for the three months ended June 30, 2024.

The decrease was primarily driven by tenant defaults totaling $15.3 million related to properties leased to PharmaCann, Gold Flora, TILT and 4Front.

In addition, there was also a decrease of $1.3 million related to properties that have been taken back or sold, a $3.9 million decrease from a one-time disposition-contingent lease termination fee that was collected during the three months ended June 30, 2024 in connection with the sale of a property in California, and a $0.6 million decrease in tenant reimbursement revenue primarily due to tenant defaults.

These decreases were partially offset by a $1.6 million increase from the two properties acquired in 2024 and one property acquired in 2025, a $1.5 million increase from new leases on five existing properties and a $1.6 million increase from annual contractual rent escalations.

For the three months ended June 30, 2025, we applied $18,000 of security deposits for payment of rent on a property leased to Emerald, which was sold in April 2025.

For the three months ended June 30, 2024, we applied $0.6 million security deposits for payment of rent on three properties leased to TILT and Temescal.

Rental revenues for the six months ended June 30, 2025 decreased by $19.6 million, or 13%, to $134.6 million, compared to $154.2 million for the six months ended June 30, 2024.

The decrease was primarily driven by tenant defaults totaling $20.9 million related to properties leased to PharmaCann, Gold Flora, TILT and 4Front.

In addition, there was also a decrease of $2.7 million related to properties that have been taken back or sold, a $3.9 million decrease from a one-time disposition-contingent lease termination fee that was collected during the six months ended June 30, 2024 in connection with the sale of our property in Los Angeles, California, and a $0.6 million decrease in tenant reimbursement revenue primarily due to tenant defaults.

These decreases were partially offset by a $3.1 million increase from the two properties acquired in 2024 and the one property acquired in 2025, a $2.4 million increase from new leases on five existing properties and a $3.0 million increase from annual contractual rent escalations.

For the six months ended June 30, 2025, we applied $5.8 million of security deposits for payment of rent on properties leased to PharmaCann, Gold Flora, TILT, Sozo and Emerald.

For the six months ended June 30, 2024, we applied $0.6 million of security deposits for payment of rent on properties leased to Temescal and TILT.

Other Revenues.

Other revenues for the three months ended March 31, 2025 and 2024 consist of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting.

Other revenues for the three months ended March 31, 2025 decreased by $0.5 million compared to the three months ended March 31, 2024 primarily due to non-collection of rent related to one property leased to 4Front.

Other revenues for the three and six months ended June 30, 2025 and 2024 consisted of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting.

Other revenues for three and six months ended June 30, 2025 decreased by $0.5 million and $1.0 million, respectively, compared to the three and six months ended June 30, 2024, primarily due to non-collection of rent related to one property leased to 4Front.

Property Expenses.

Property expenses for the three months ended March 31, 2025 increased by $0.7 million to $7.4 million, compared to $6.7 million for the three months ended March 31, 2024.

The increase was primarily due to additional investment in existing properties, which resulted in higher property tax that we paid for our properties, as well as higher

property expenses related to properties that we have regained possession of but not yet leased.

Property expenses related to leased properties are generally reimbursable to us by the tenants under the terms of the leases.

Property expenses for the three months ended June 30, 2025 were $6.9 million, reflecting no material change compared to the three months ended June 30, 2024.

The property expenses for six months ended June 30, 2025 increased by $0.6 million to $14.2 million, compared to $13.6 million for the six months ended June 30, 2024.

The increase was primarily due to additional investment in existing properties, which resulted in higher property taxes that we paid for our properties, which was partially offset by a decrease in insurance expense due to lower premiums on the master policy renewed in August 2024.

Property expenses related to leased properties are generally reimbursable to us by tenants under the terms of the leases.

General and Administrative Expense.

General and administrative expense for the three months ended March 31, 2025 decreased by $1.1 million to $8.5 million, compared to $9.6 million for the three months ended March 31, 2024.

The decrease in general and administrative expense was primarily due to lower stock-based compensation expense driven by PSUs granted in 2022 that were forfeited on December 31, 2024 as they did not meet the performance thresholds.

The decrease was partially offset by an increase in legal and payroll expenses during the three months ended March 31, 2025.

Compensation expense for the three months ended March 31, 2025 and 2024 included $2.1 million and $4.3 million, respectively, of non-cash stock-based compensation expense.

General and administrative expense for the three months ended June 30, 2025 decreased by $1.1 million to $8.6 million, compared to $9.7 million for the three months ended June 30, 2024.

General and administrative expense for the six months ended June 30, 2025 decreased by $2.1 million to $17.1 million, compared to $19.2 million for the six months ended June 30, 2024.

The decrease in general and administrative expense in both periods was primarily due to lower stock-based compensation expense driven by PSUs granted in 2022 that were forfeited on December 31, 2024 as they did not meet the performance thresholds.

The non-cash stock based compensation for employees and directors for the three and six months ended June 30, 2025 decreased by $1.7 million and $4.0 million, respectively, to $2.7 million and $4.7 million, compared to $4.4 million and $8.7 million for the three and six months ended June 30, 2024.

The decrease was partially offset by an increase in legal, consultant and payroll expenses during the three and six months ended June 30, 2025.

Depreciation and Amortization Expense.

Depreciation and amortization expense for the three months ended March 31, 2025 increased by $1.2 million to $18.4 million, compared to $17.2 million for the three months ended March 31, 2024.

The increase in depreciation and amortization expense was primarily related to depreciation for properties that we acquired in 2024, one property we acquired in February 2025 and the placement into service of construction and improvements at certain of our properties.

Depreciation and amortization expense for the three months ended June 30, 2025 increased by $1.0 million to $18.5 million, compared to $17.5 million for the three months ended June 30, 2024.

Depreciation and amortization expense for the six months ended June 30, 2025 increased by $2.3 million to $36.9 million, compared to $34.6 million for the six months ended June 30, 2024.

The increase in depreciation and amortization expense was primarily related to depreciation on properties that we acquired in 2024, one property we acquired in February 2025 and the placement into service of construction and improvements at certain of our properties.

Impairment Loss on Real Estate.

Impairment loss on real estate for the three months ended March 31, 2025 related to one of our properties located in Palm Springs, California which is under contract to be sold for less than its carrying value.

Impairment loss on real estate of $3.5 million for the six months ended June 30, 2025 is related to one of our properties located in Palm Springs, California which was sold in June 2025.

Loss on Sale of Real Estate.

Amount relates to the sale of property in Los Angeles, California (see Note 6 “Investments in Real Estate” to our consolidated financial statements included in this report for more information).

Interest Income.

Interest income for the three months ended March 31, 2025 decreased by $0.2 million to $1.6 million, compared to $1.8 million for the three months ended March 31, 2024.

The decrease was due to having less interest-bearing investments and lower rates earned on those investments during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, partially offset by additional cash interest received on our construction loan 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 (the “Construction Loan”).

Cash interest received on our Construction Loan was $0.6 million and $20,000 during the three months ended March 31, 2025 and 2024, respectively.

Interest income for the three and six months ended June 30, 2025 decreased by $2.4 million and $2.6 million, respectively, to $1.6 million and $3.2 million, compared to $4.0 million and $5.8 million for the three and six months ended June 30, 2024.

The decrease was partially due to having less interest-bearing investments and lower rates earned on those investments during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024.

The decrease of interest income was also driven by the lower cash interest received on our construction loan 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 (the “Construction Loan”).

Cash interest received on our Construction Loan for the three and six months ended June 30, 2025 were $0.8 million and $1.4 million, respectively, compared to $2.1 million in both the three and six months ended June 30, 2024.

Interest Expense.

Interest expense primarily consists of interest on our Notes due 2026.

Interest expense for the three months ended March 31, 2025 increased by $0.1 million to $4.5 million, compared to $4.4 million for the three months ended March 31, 2024, which was primarily due to an increase in non-cash interest expense related to the Revolving Credit Facility.

Comparison of the Three Months Ended March 31, 2025 and 2024 (in thousands)

Three Months Ended March 31,

Interest expense for the three and six months ended June 30, 2025 increased by $0.1 million and $0.2 million, respectively, to $4.4 million and $8.9 million compare to $4.3 million and $8.7 million for the three and six months ended June 30, 2024.

The increase was primarily due to an increase in non-cash interest expense related to the Revolving Credit Facility and a decrease in the

amount of interest capitalized for both three and six months ended June 30, 2025.

The increase was partially offset by a decrease in interest expense on our Notes due 2026 as we made an early partial repayment in February 2025, reducing the outstanding balance from $300 million to $291.2 million.

Comparison of the Six Months Ended June 30, 2025 and 2024 (in thousands)

Six Months Ended June 30,

2025 2024 Change

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Operating Activities

Cash flows provided by operating activities for the three months ended March 31, 2025 and 2024 were $54.2 million and $71.6 million, respectively.

Cash flows provided by operating activities for the six months ended June 30, 2025 and 2024 were $102.7 million and $135.8 million, respectively.

Cash flows provided by operating activities were generally from contractual rent and tenant reimbursements from our properties, partially offset by our general and administrative expense, interest expense, property expenses in excess of tenant reimbursements and property expenses at properties that were not leased.

The decrease in cash flows provided by operating activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to lower net income and the application of $5.8 million of security deposits for contractual rent related tenant defaults.

Cash flows provided by operating activities for the three months ended March 31, 2024 also included the one-time payment of $4.8 million received in advance from our tenant Holistic Industries, Inc.

related to the sale of our property in Los Angeles, California.

The decrease in cash flows provided by operating activities for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was primarily due to lower net income and the application of $5.8 million of security deposits for contractual rent due to tenant defaults.

Cash flows provided by operating activities for the six months ended June 30, 2024 also included a $3.9 million disposition-contingent lease termination fee that was received concurrently with the sale of our property in Los Angeles, California.

Investing Activities

Cash flows used in investing activities for the three months ended March 31, 2025 was $17.2 million, of which $16.9 million was related to investments in real estate and funding of draws for improvement and construction funding at our properties and $0.3 million was related to net purchases and maturities of short-term investments.

Cash flows used in investing activities for the three months ended March 31, 2024 was $14.4 million, of which $16.5 million was related to funding of draws for improvement and construction funding at our properties and other investments, partially offset by $2.1 million related to net purchases and maturities of short-term investments.

Cash flows used in investing activities for the six months ended June 30, 2025 was $22.9 million, of which $24.4 million was related to investments in real estate and funding of draws for improvement and construction funding at our properties, $0.3 million was related to net purchases and maturities of short-term investments, partially offset by $1.8 million in proceeds related to the sale of our Palm Springs, California property.

Cash flows used in investing activities for the six months ended June 30, 2024 were $58.8 million, of which $50.0 million was related to investments in real estate and funding of draws for improvement and construction funding at our properties, $17.9 million was related to net purchases and maturities of short-term investments, and was partially offset by $9.1 million in proceeds related to the sale of our Los Angeles, California property.

Financing Activities

Net cash used in financing activities of $55.3 million during the three months ended March 31, 2025 was the result of dividend payments of $54.8 million to common and preferred stockholders, partial principal payment on the Notes due 2026 of $8.7 million, $0.7 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees, and $0.3 million related to repurchase of common stock, partially offset by $9.2 million in net proceeds from the issuance of our Series A Preferred Stock pursuant to our ATM Program.

Net cash used in financing activities of $45.4 million during the three months ended March 31, 2024 was primarily due to $11.8 million in net proceeds from the issuance of our common stock, offset by dividend payments of $51.8 million to common and preferred stockholders, principal payment on the Exchangeable Senior Notes of $4.4 million, and $1.0 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees and payment of deferred financing costs.

Net cash used in financing activities of $126.4 million during the six months ended June 30, 2025 was due to dividend payments of $110.1 million to common and preferred stockholders, partial principal payment on the Notes due 2026 of $8.7 million, $0.7 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees, and $20.1 million related to repurchase of common stock, partially offset by $13.2 million in net proceeds from the issuance of our Series A Preferred Stock pursuant to our ATM Program.

Net cash used in financing activities of $97.8 million during the six months ended June 30, 2024 was the result of $11.8 million in net proceeds from the issuance of our common stock, offset by dividend payments of $104.1 million to common and preferred stockholders, principal payment on the Exchangeable Senior Notes of $4.4 million, and $1.0 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees and payment of deferred financing costs.

Liquidity and Capital Resources

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If a tenant defaults on one of our leases or the lease term expires with no tenant renewal, we would incur property costs not paid by the tenant during the time it takes to re-lease or sell the property.

As of March 31, 2025, we owned 110 properties.

As of June 30, 2025, we owned 108 properties.

Of these properties, the 105 properties in our operating portfolio were 98.6% leased, with a weighted-average remaining lease term of 13.1 years.

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In addition, for properties that are not leased and are under development or redevelopment, we may make significant additional investments in these properties in order to get them ready for their intended use and to re-lease them.

For the three months ended March 31, 2025, property expenses included $0.7 million of non-reimbursed expenses related to operating properties that were not leased.

To the extent additional resources are needed, we expect to fund our investment activity generally through equity or debt issuances either in the public or private markets along with draws on our Revolving Credit Facility.

Where possible, we also may issue limited partnership interests in our Operating Partnership to acquire properties from existing owners seeking a tax-deferred transaction.

For the three and six months ended June 30, 2025, property expenses included $0.7 million and $1.4 million, respectively, of non-reimbursed expenses related to operating properties that were not leased.

The Preferred Stock investment is expected to be funded in multiple tranches between the third quarter of 2025 and the second quarter of 2027, subject to extension options exercisable by IQHQ REIT.

We expect to fund the RCF with a combination of cash on hand and draws on our Revolving Credit Facility.

We expect to fund the Preferred Stock investment with cash on hand, draws on our Revolving Credit Facility and potential proceeds from future financing activities.

In May 2021, we received an investment grade rating from a ratings agency.

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The terms of the Notes due 2026 are governed by an indenture, which requires compliance with various financial covenants including limits on the amount of total leverage and secured debt maintained by the Operating Partnership and which require the Operating Partnership to maintain minimum levels of debt service coverage.

Management believes that it was in compliance with those covenants as of March 31, 2025.

Management believes that it was in compliance with those covenants as of June 30, 2025.

In addition, 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 February 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, in accordance with terms of the indenture for the Exchangeable Senior Notes.

In February 2025, we filed a new shelf registration statement to replace our prior shelf registration statement, which terminated on January 24, 2025, which may permit us, from time to time, to offer and sell common stock, preferred stock, debt, warrants and other securities to the extent necessary or advisable to meet our liquidity needs.

Following the filing of the new registration statement, we filed with the SEC a prospectus supplement that continues our at-the-market” offering program (“ATM Program”), pursuant to which we may offer and sell from time to time, 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.

During the three months ended March 31, 2025 , we sold 385,147 shares of our Series A Preferred Stock for net proceeds of $9.2 million.

As of March 31, 2025, shares of the Company’s common stock and Series A Preferred Stock having an aggregate offerin g price of up to approximately $480.3 million remain available for of fer and sale pursuant to the ATM Program.

$0.001 par value per share (the “Series A Preferred Stock”), up to an aggregate offering price of $500.0 million.

During the six months ended June 30, 2025, we sold 558,981 shares of our Series A Preferred Stock for net proceeds of $13.2 million.

As of June 30, 2025, shares of the Company’s common stock and Series A Preferred Stock having an aggregate offering price of up to $476.1 million remain available for offer and sale pu rsuant to the ATM Program.

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.

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The Loan Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default.

There were no amounts outstanding under the Loan Agreement as of March 31, 2025.

We expect to meet our liquidity needs through cash and investments on hand, cash flows from operations, draws on our Revolving Credit Facility and cash flow from sources discussed above.

We believe that our liquidity and sources of capital are adequate to satisfy our cash requirements.

There were no amounts outstanding under the Loan Agreement as of June 30, 2025.

We expect to meet our liquidity needs through cash and investments on hand, cash flows from operations, draws on our Revolving Credit Facility and our ability to issue additional debt and equity securities under our ATM Program or otherwise.

At June 30, 2025, the outstanding principal balance on our Notes due 2026 was $291.2 million and we plan to refinance these notes prior to maturity in May 2026.

We believe that our liquidity and these sources of capital will be adequate to satisfy our cash requirements over the next 12-month period.

We cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet our liquidity needs.

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In the long term, we may also voluntarily repurchase our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or otherwise.

In March of 2025, our Board of Directors authorized the purchase of up to $100.0 million in shares of our common stock.

The timing, volume and nature of the repurchases will be at the discretion of management based on its evaluation of the capital needs of the Company, market conditions, applicable legal requirements and other factors.

There is no guarantee as to the number of shares that will be repurchased.

Repurchases under the share repurchase plan are expected to be funded from existing cash balances and proceeds from the sale of the Company’s Series A Preferred Stock under its ATM Program.

During the three months ended June 30, 2025, 366,952 shares were repurchased under the share repurchase plan.

The repurchase plan expires on March 17, 2026, and may be extended, suspended, modified or discontinued at any time at the Company’s discretion.

In recent years, financial markets have been volatile in general.

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The Company is required to pay dividends to its stockholders at least equal to 90% of its taxable income in order to qualify and maintain its qualification as a REIT.

As a result of this distribution requirement, our Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent

companies are not REITs can.

As a result of this distribution requirement, our Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can.

Our ability to continue to pay dividends is dependent upon our ability to continue to generate cash flows, service any debt obligations we have, including our Notes due 2026, and make accretive new investments.

The following table describes the dividends declared by the Company during the three months ended March 31, 2025:

Date Security Class Amount

Share Period Covered Dividend

Paid Date Dividend Amount

The following table describes the dividends declared by the Company during the six months ended June 30, 2025:

Declaration Date Security Class Amount

Per Share Record Date Dividend

Paid Date Dividend

(In thousands)

March 14, 2025 Common stock $ 1.90 January 1, 2025 to March 31, 2025 April 15, 2025 $ 54,463

March 14, 2025 Series A preferred stock $ 0.5625 January 15, 2025 to April 14, 2025 April 15, 2025 $ 781

March 14, 2025 Common stock $ 1.90 March 31, 2025 April 15, 2025 $ 54,463

March 14, 2025 Series A preferred stock $ 0.5625 March 31, 2025 April 15, 2025 $ 781

June 13, 2025 Common stock $ 1.90 June 30, 2025 July 15, 2025 $ 53,783

June 13, 2025 Series A preferred stock $ 0.5625 June 30, 2025 July 15, 2025 $ 878

Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2025 (in thousands):

The following table summarizes our contractual obligations as of June 30, 2025 (in thousands):

by Year Notes due 2026 Interest Office Rent Total

2025 (nine months ended December 31)

2025 (six months ended December 31) $ — $ 8,009 $ 263 $ 8,272

2026 291,215 6,451 543 298,209

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Total $ 291,215 $ 14,460 $ 851 $ 306,526

Additionally, as of March 31, 2025, we had (1) $26.2 million outstanding in 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;

(2) $1.2 million outstanding in commitments related to contracts with vendors for improvements at our properties, which are expected to be incurred by June 30, 2025;

Additionally, as of June 30, 2025, we had (1) $11.6 million outstanding in 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;

and (2) $0.2 million outstanding in commitments to fund the Construction Loan.

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NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, depreciation, amortization and impairment related to real estate properties, and after adjustments for unconsolidated partnerships and joint ventures.

The Company also excludes the disposition-contingent lease termination fee relating to the sale of our property in Los Angeles, California in May 2024.

Management believes that net income, as defined by GAAP, is the most appropriate earnings measurement.

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However, real estate values instead have historically risen or fallen with market conditions.

We believe that by excluding the effect of depreciation, FFO and FFO per share can

facilitate comparisons of operating performance between periods.

We believe that by excluding the effect of depreciation, FFO and FFO per share can facilitate comparisons of operating performance between periods.

We report FFO and FFO per share because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs and because FFO per share is consistently reported, discussed, and compared by research analysts in their notes and publications about REITs.

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Normalized FFO is used by management in evaluating the performance of our core business operations.

Items included in calculating FFO that may be excluded in calculating Normalized FFO include certain transaction-related gains, losses, income or expense or other non-core amounts as they occur.

Items included in calculating FFO that may be excluded in calculating

Normalized FFO include certain transaction-related gains, losses, income or expense or other non-core amounts as they occur.

Management believes that adjusted funds from operations (“AFFO”) and AFFO per share are also appropriate supplemental measures of a REIT’s operating performance.

We calculate AFFO by adjusting Normalized FFO for certain cash and non-cash items.

For the three months ended March 31, 2024 , FFO (diluted), Normalized FFO and AFFO, and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock as if the Exchangeable Senior Notes were exchanged at the beginning of the respective reporting period.

For the six months ended June 30, 2024 , FFO (diluted), Normalized FFO and AFFO, and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock as if the Exchangeable Senior Notes were exchanged at the beginning of the respective reporting period.

The Exchangeable Senior Notes matured in February 2024.

For the three months ended March 31, 2024, the performance share units (“PSUs”) granted to certain employees were not included in dilutive securities as the performance thresholds for vesting of the PSUs were not met as measured as of March 31, 2024.

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

The PSUs expired on December 31, 2024.

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FFO, Normalized FFO and AFFO should be considered only as supplements to net income computed in accordance with GAAP as measures of operations.

The table below is a reconciliation of net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the three months ended March 31, 2025 and 2024 (in thousands, except share and per share amounts):

The table below is a reconciliation of net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the three and six months ended June 30, 2025 and 2024 (in thousands, except share and per share amounts):

For the Three Months Ended

June 30, For the Six Months Ended

2025 2024 2025 2024

Net income attributable to common stockholders $ 25,146 $ 41,655 $ 55,442 $ 80,745

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Impairment loss on real estate — — 3,527 —

Disposition-contingent lease termination fee, net of loss on sale of real estate (1)

— (451) — (451)

FFO attributable to common stockholders (basic) 43,646 58,677 95,860 114,917

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Normalized FFO attributable to common stockholders (diluted) 44,059 58,841 96,647 115,255

Interest income on seller-financed note (1)

Income on seller-financed notes (2)

1,164 403 1,317 806

Deferred lease payments received on sales-type leases (3)

5 1,462 25 2,918

Stock-based compensation 2,672 4,371 4,750 8,686

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Restricted stock and RSUs 393,601 300,582 353,261 289,736

PSUs — 20,713 — 20,713

Dilutive effect of Exchangeable Senior Notes — — — 19,040

Weighted average common shares outstanding – diluted 28,317,693 28,572,138 28,452,111 28,527,419

(1) Amount reflects the non-refundable interest received on the seller-financed note issued to us by the buyer in connection with our disposition of a portfolio of four properties in southern California previously leased to affiliates of Medical Investor Holdings, which is recognized as a deposit liability and is included in other liabilities in our condensed consolidated balance sheet as of March 31, 2025, as the transaction did not qualify for recognition as a completed sale.

(2) Amount reflects the non-refundable lease payments received on two sales-type leases which are recognized as a deposit liability starting on January 1, 2024, and is included in other liabilities in our condensed consolidated balance sheet as of March 31, 2025, as the transaction did not qualify for recognition as a completed sale (see Note 2 “Lease Accounting” to our condensed consolidated financial statements included in this report for more information).

(1) Amount reflects the $3.9 million disposition-contingent lease termination fee received concurrently with the sale of our property in Los Angeles, California, net of the loss on sale of real estate of $3.4 million.

(2) Amount reflects the non-refundable cash payments received pursuant to two seller-financed notes issued to us by the buyers in connection with our disposition of certain properties which are recognized as a deposit liability and is included in other liabilities in our consolidated balance sheet as of June 30, 2025, as the transactions did not qualify for recognition as completed sales.

(3) Amount reflects the non-refundable lease payments received on two sales-type leases which are recognized as a deposit liability starting on January 1, 2024, and is included in other liabilities in our consolidated balance sheet as of June 30, 2025, as the transaction did not qualify for recognition as a completed sale (see Note 2 “Lease Accounting” to our consolidated financial statements included in this report for more information).

Prior to the lease modifications on January 1, 2024, which extended the initial lease terms, the leases were classified as operating leases and the lease payments received were recognized as rental revenue and therefore, included in net income attributable to common stockholders.

Critical Accounting Estimates

Our condensed consolidated financial statements have been prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Our consolidated financial statements have been prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ materially from those estimates and assumptions.

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The following critical accounting estimates discussion reflects what we believe are the most significant estimates and assumptions used in the preparation of our consolidated financial statements.

This discussion of our critical accounting estimates is intended to supplement the description of our accounting policies in the footnotes to our condensed consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates and assumptions.

For further discussion of our significant accounting policies, see Note 2 “Summary of Significant Accounting Policies and Procedures and Recent

Accounting Pronouncements” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2024 and to our condensed consolidated financial statements included in this report.

This discussion of our critical accounting estimates is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates and assumptions.

For further discussion of our significant accounting policies, see Note 2 “Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2024 and to our consolidated financial statements included in this report.

Lease Accounting

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The determination of lease classification requires the calculation of the rate implicit in the lease, which is driven by significant estimates relating to the unguaranteed residual value of the assets at the end of the non-cancelable lease term.

A decrease of 5% in the estimated unguaranteed residual value of our properties would not change the lease classification of any new leases or leases that were modified during the three months ended March 31, 2025.

Acquisition of Rental Property, Depreciation and Impairment

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For example, we are required to use judgment and make a number of assumptions, including those related to projected growth in rental rates and operating expenses, anticipated trends and market/economic conditions.

The use of different assumptions can affect the amount of consideration allocated to the acquired depreciable/amortizable asset, which in turn can impact our net income due to the recognition of the related depreciation/amortization expense in our condensed consolidated statements of income.

We depreciate buildings and improvements where we are considered the owner for accounting purposes based on our evaluation of the estimated useful life of each specific asset, not to exceed 40 years.

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For each property where such an indicator occurred, we completed an impairment evaluation.

During the three months ended March 31, 2025, real estate assets related to one of our properties in Palm Springs, California were determined to be impaired.

In April 2025, we marketed the property for sale and have executed a purchase and sale agreement with a prospective buyer in which the estimated net proceeds from sale is less than the carrying value of the property.

As a result, we recognized an impairment loss on real estate of $3.5 million during the three months ended March 31, 2025 to reduce its carrying value to the estimated fair value.

For all other operating properties that were evaluated, we determined that the undiscounted cash flows over the holding period were in excess of carrying value and, therefore, we did not record any impairment losses for these properties for the three months ended March 31, 2025.

Significant adverse changes in the critical accounting estimates used in the impairment evaluation are required for the undiscounted cash flows over the holding period to be less than the carrying value of these properties as of March 31, 2025.

During the three months ended March 2025, we recognized an impairment loss on real estate of $3.5 million related to one of our properties in Palm Springs, California which was under contract for sale.

We completed the sale of the property in June 2025 for net proceeds of $1.8 million and no gain or loss was recognized on the sale as the property was impaired and recognized at fair value less selling costs as of March 31, 2025.

Impact of Real Estate and Credit Markets

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Interest Rate Risk

As of March 31, 2025, we had $291.2 million principal amount of Notes due 2026 outstanding at a fixed interest rate of 5.50%, and therefore, if interest rates decline, our required payments may exceed those based on current market rates.

As of June 30, 2025, we had $291.2 million principal amount of Notes due 2026 outstanding at a fixed interest rate of 5.50%, and therefore, if interest rates decline, our required payments may exceed those based on current market rates.

It is possible that a property we acquire in the future would be subject to a mortgage, which we may assume.

In recent years, the commercial real estate market generally has experienced significant disruptions from, among other things, significant increases in interest rates and changing tenant preferences for space.

In recent years, the commercial real estate market generally has experienced significant disruptions from, among other things, significant

increases in interest rates and changing tenant preferences for space.

Our Revolving Credit Facility bears interest at a variable rate based on the greater of the prime rate and an applicable margin and a stipulated interest rate;

therefore, if interest rates increase, our required payments on any amounts outstanding on our Revolving Credit Facility may also increase.

As of March 31, 2025, we had no outstanding borrowings on our Revolving Credit Facility.

As of June 30, 2025, we had no outstanding borrowings on our Revolving Credit Facility.

Impact of Inflation

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis