INNOVATIVE INDUSTRIAL PROPERTIES INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our statements regarding anticipated growth in our funds from operations and anticipated market and regulatory conditions, our strategic direction, demographics, results of operations, plans and objectives are forward-looking statements. Forward-looking statements involve numerous risks and uncertainties, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: rates of default on leases for our assets; our ability to re-lease properties upon tenant defaults or lease terminations for the rent we currently receive, or at all; concentration of our portfolio of assets and limited number of tenants; 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; decreased economic activity due to fluctuations in trade policies, tariffs, and related government actions; inflation dynamics; the impact of pandemics on us, our business, our tenants, or the economy generally; war and other hostilities, including the conflicts in Ukraine and Israel; our business and investment strategy; our projected operating results; actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law; availability of suitable investment opportunities in the regulated cannabis industry; our understanding of our competition and our potential tenants’ alternative financing sources; the expected medical-use or adult-use cannabis legalization in certain states; shifts in public opinion regarding regulated cannabis; the potential impact on us from litigation matters, including rising liability and insurance costs; the additional risks that may be associated with certain of our tenants cultivating, processing and/or dispensing adult-use cannabis in our facilities; the state of the U.S. economy generally or in specific geographic areas; economic trends and economic recoveries; our ability to access equity or debt capital; financing rates for our target assets; our level of indebtedness, which could reduce funds available for other business purposes and reduce our operational flexibility; covenants in our debt instruments, which may limit our flexibility and adversely affect our financial condition; our ability to maintain our investment grade credit rating; changes in the values of our assets; our expected portfolio of assets; our expected investments; interest rate mismatches between our assets and our borrowings used to fund such investments; changes in interest rates and the market value of our assets; the degree to which any interest rate or other hedging strategies may or may not protect us from interest rate volatility; the impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; how and when any forward equity sales may settle; our ability to maintain our qualification as a REIT for U.S. federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940; availability of qualified personnel; and market trends in our industry, interest rates, real estate values, the securities markets or the general economy. 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 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. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Any forward-looking statement made by us speaks only of the date on which we make it. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports. 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 consolidated financial statements and accompanying notes. 27 Table of Contents Overview 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”). We are an internally-managed REIT focused on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated cannabis facilities. We have leased and expect to continue to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, real estate taxes and insurance. We were incorporated in Maryland on June 15, 2016. We conduct our business through a traditional umbrella partnership real estate investment trust, or UPREIT structure, in which our properties are owned by our Operating Partnership, directly or through subsidiaries. We are the sole general partner of our Operating Partnership and own, directly or through subsidiaries, 100% of the limited partnership interests in our Operating Partnership. 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); • Inland Center Drive in San Bernardino, California; and • 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 in recent years. These challenges include federal, state and local taxation burdens; ineffective enforcement policies with respect to the illicit cannabis market; declines in unit pricing for regulated cannabis products; limited access to capital; and inflation and supply chain constraints. 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. 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 28 Table of Contents issued to the Company by the purchaser of four properties in California. The MIH Note is secured by such four properties. 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 Our results of operations are affected by a number of factors and depend on the rental revenues we receive from the properties that we acquire, the timing of lease expirations, general market conditions, the regulatory environment in the regulated cannabis industry, and the competitive environment for real estate assets that support the regulated cannabis industry. Rental Revenues We receive income primarily from rental revenues generated by the properties that we acquire. The amount of rental revenues depends upon a number of factors, including: • our ability to enter into leases with increasing or market value rents for the properties that we acquire; and • 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 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. If one or more of our tenants are unable to renew or otherwise maintain their licenses or other state and local authorizations necessary to continue their cannabis operations, such tenants may default on their lease payments to us. Furthermore, changes in federal law and current favorable state or local laws in the cannabis industry may impair our ability to renew or re-lease properties and the ability of our tenants to fulfill their lease obligations and could materially and adversely affect our ability to maintain or increase rental rates for our properties. 29 Table of Contents Conditions in Our Markets 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 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. 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 States vary significantly in their market dynamics, driven by many factors, including, but not limited to, regulatory frameworks, enforcement policies with respect to illicit, unlicensed cannabis operations, taxation and licensing structures. For example, in California, according to Global Go Analytics, t he illicit market for cannabis remains a much larger portion of overall sales in the state, and state and local authorities have assessed significant taxes on regulated cannabis products, both of which have had the impact of significantly limiting the growth and profitability for operators in the state’s regulated cannabis market. Many states continue to experience significant declines in unit pricing for regulated cannabis products, with that decline more pronounced in certain states than in others, which compresses operating margins for operators. 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 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 30 Table of Contents 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 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 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 We face competition from a diverse mix of market participants, including but not limited to, other companies with similar business models, independent investors, hedge funds, lenders and other real estate investors, as well as potential tenants (cannabis operators themselves), all of whom may compete with us in our efforts to acquire real estate zoned for regulated cannabis operations. Competition from others may diminish our opportunities to acquire a desired property on favorable terms or at all. In addition, this competition may put pressure on us to reduce the rental rates below those that we expect to charge for the properties that we acquire, which would adversely affect our financial results. Operating Expenses Our operating expenses include general and administrative expenses, including personnel costs, stock-based compensation, and legal, accounting and other expenses related to corporate governance, public reporting and compliance with the various provisions of U.S. securities laws. Our operating expenses also include costs that we incur for properties that are not leased (or are leased but tenant’s rent obligations, including for payment of operating expenses, have not yet commenced), including taxes, insurance, maintenance, security, utilities and other property-specific costs. We generally structure our leases so that the tenant is responsible for taxes, maintenance, insurance and structural repairs with respect to the premises throughout the lease term. Increases or decreases in such operating expenses will impact our overall financial performance. Our Qualification as a REIT We have been organized and operate our business so as to qualify to be taxed as a REIT for U.S. federal income tax purposes. Shares of our common stock and Series A Preferred Stock are subject to restrictions on ownership and transfer that are intended, among other purposes, to assist us in qualifying and maintaining our qualification as a REIT. In order for us to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), the relevant sections of our charter provide that, subject to certain exceptions, no person or entity may own, or be deemed to own, by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of our outstanding shares of stock or Series A Preferred Stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of our outstanding common stock or any class or series of our outstanding preferred stock. Results of Operations Investments in Real Estate 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. 31 Table of Contents 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 June 30, 2025 2024 2025 2024 Revenues: 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 Expenses: Property expenses 6,867 6,863 14,246 13,572 General and administrative expense 8,626 9,661 17,087 19,223 Depreciation and amortization expense 18,500 17,473 36,891 34,623 Impairment loss on real estate — — 3,527 — 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 Interest income 1,570 3,966 3,183 5,750 Interest expense (4,444) (4,320) (8,944) (8,709) Net income 26,024 41,993 57,101 81,421 Preferred stock dividends (878) (338) (1,659) (676) Net income attributable to common stockholders $ 25,146 $ 41,655 $ 55,442 $ 80,745 Revenues Rental Revenues. 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. 32 Table of Contents 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 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. Expenses Property Expenses. 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 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 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 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 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 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 33 Table of Contents 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. Cash Flows Comparison of the Six Months Ended June 30, 2025 and 2024 (in thousands) Six Months Ended June 30, 2025 2024 Change Net cash provided by (used in) operating activities $ 102,691 $ 135,771 $ (33,080) Net cash provided by (used in) investing activities (22,912) (58,833) 35,921 Net cash provided by (used in) financing activities (126,358) (97,802) (28,556) Ending cash and cash equivalents 99,666 120,835 (21,169) Operating Activities 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 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 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 $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. 34 Table of Contents Liquidity and Capital Resources Sources and Uses of Cash Liquidity is a measure of our ability to meet potential cash requirements. We derive substantially all of our revenues from the leasing of our properties and collecting rental income, which includes operating expense reimbursements, based on contractual arrangements with our tenants. This source of revenue represents our primary source of liquidity to fund the acquisition of additional properties, the development and redevelopment of existing properties, dividends to our stockholders, obligations under our Notes due 2026, repayment of borrowings and interest payments under our Revolving Credit Facility, general and administrative expenses, property development and redevelopment activities, property operating expenses and other expenses incurred related to managing our existing portfolio and investing in additional properties. Because substantially all of our leases are triple net, our tenants are generally responsible for the maintenance, insurance and property taxes associated with the properties they lease from us. 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 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. We expect to incur some property-level operating costs from time to time in periods during which properties that become vacant are being remarketed or re-positioned. In addition, we may recognize an expense for certain property costs, such as insurance premiums and real estate taxes billed in arrears, if we believe the tenant is likely to vacate the property before making payment on those obligations or may be unable to pay such costs in a timely manner. Property costs are generally not significant to our operations, but the amount of property costs can vary quarter to quarter based on the number of property vacancies and whether we have any underperforming properties. We may advance certain property costs on behalf of our tenants but expect that the majority of these costs will be reimbursed by the tenant and do not anticipate that they will be significant to our operations. 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 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 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. 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. We sought to obtain an investment grade rating to facilitate access to the investment grade unsecured debt market as part of our overall strategy to maximize our financial flexibility and manage our overall cost of capital. In May 2021, our Operating Partnership issued $300.0 million aggregate principal amount of Notes due 2026. The Notes due 2026 are the Operating Partnership’s general unsecured and unsubordinated obligations, and rank equally in right of payment with all of the Operating Partnership’s future senior unsecured indebtedness. 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 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 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, 35 Table of Contents $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. The Loan Agreement matures on October 23, 2026, and was most recently amended in November 2024 to increase aggregate commitments for secured revolving loans to $87.5 million (the “Revolving Credit Facility”) . The Loan Agreement also allows the Operating Partnership, subject to the satisfaction of certain conditions, to request additional revolving incremental loan commitments up to a specified amount. 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 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. Our investment guidelines also provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion. 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. If sustained, this could have a material adverse effect on our business, financial condition and results of operations, including our ability to continue to make acquisitions of new properties and fund investments for improvements at existing properties, and refinance our existing indebtedness. Dividends 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. 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 six months ended June 30, 2025: Declaration Date Security Class Amount Per Share Record Date Dividend Paid Date Dividend Amount (In thousands) 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 36 Table of Contents Contractual Obligations The following table summarizes our contractual obligations as of June 30, 2025 (in thousands): Payments Due by Year Notes due 2026 Interest Office Rent Total 2025 (six months ended December 31) $ — $ 8,009 $ 263 $ 8,272 2026 291,215 6,451 543 298,209 2027 — — 45 45 2028 — — — — 2029 — — — — Total $ 291,215 $ 14,460 $ 851 $ 306,526 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. The commitments discussed in this paragraph are excluded from the table of contractual obligations above, as improvement allowances 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, there is no explicit time frame for incurring the obligations related to our contracts with vendors, and Construction Loan funding generally may be requested by the borrower from time to time, subject to satisfaction of certain conditions. Non-GAAP Financial Information In addition to the required GAAP presentations, we use certain non-GAAP performance measures as we believe these measures improve the understanding of our operational results. We continually evaluate the usefulness, relevance, limitations, and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public and thus such reported measures could change. Funds from Operations, Normalized Funds from Operations and Adjusted Funds from Operations Funds from operations (“FFO”) and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”). 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. However, management believes FFO and FFO per share to be supplemental measures of a REIT’s performance because they provide an understanding of the operating performance of our properties without giving effect to certain significant non-cash items, primarily depreciation expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. 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 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. For these reasons, management has deemed it appropriate to disclose and discuss FFO and FFO per share. We compute normalized funds from operations (“Normalized FFO”) by adjusting FFO, as defined by NAREIT, to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and/or not related to our core real estate operations. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Normalized FFO and Normalized FFO per share provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of other companies, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis. 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 37 Table of Contents 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 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 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. Our computation of FFO, Normalized FFO, and AFFO may differ from the methodology for calculating FFO, Normalized FFO and AFFO utilized by other equity REITs and, accordingly, may not be comparable to such REITs. Further, FFO and AFFO do not represent cash flow available for management’s discretionary use. FFO, Normalized FFO and AFFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. FFO, Normalized FFO and AFFO should be considered only as supplements to net income computed in accordance with GAAP as measures of operations. 38 Table of Contents 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 June 30, 2025 2024 2025 2024 Net income attributable to common stockholders $ 25,146 $ 41,655 $ 55,442 $ 80,745 Real estate depreciation and amortization 18,500 17,473 36,891 34,623 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 Cash and non-cash interest expense on Exchangeable Senior Notes — — — 28 FFO attributable to common stockholders (diluted) 43,646 58,677 95,860 114,945 Litigation-related expense 413 164 819 310 Loss (gain) on partial repayment of Notes due 2026 — — (32) — Normalized FFO attributable to common stockholders (diluted) 44,059 58,841 96,647 115,255 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 Non-cash interest expense 476 401 946 789 Above-market lease amortization 23 23 46 46 AFFO attributable to common stockholders (diluted) $ 48,399 $ 65,501 $ 103,731 $ 128,500 FFO per common share – diluted $ 1.54 $ 2.06 $ 3.37 $ 4.03 Normalized FFO per common share – diluted $ 1.56 $ 2.06 $ 3.40 $ 4.04 AFFO per common share – diluted $ 1.71 $ 2.29 $ 3.65 $ 4.50 Weighted average common shares outstanding – basic 27,924,092 28,250,843 28,098,850 28,197,930 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 $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 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. 39 Table of Contents We continually evaluate the estimates and assumptions we use to prepare our consolidated financial statements. Our critical accounting estimates are defined as accounting estimates or assumptions made in accordance with GAAP, which involve a significant level of estimation uncertainty or subjectivity and have had or are reasonably likely to have a material impact on our financial condition or results of operations. 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 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 We account for our leases under Accounting Standards Codification 842, Leases , which requires significant estimates and judgments by management in its application. Upon lease inception or lease modification, we assess the lease classification of both the land and building components of the property. 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 six months ended June 30, 2025. Acquisition of Rental Property, Depreciation and Impairment All of our acquisitions of rental properties to date were accounted for as asset acquisitions and not business combinations because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings, and related intangible assets). The accounting model for asset acquisitions requires that the acquisition consideration (including acquisition costs) be allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. We exercise judgment to determine key assumptions used in each valuation technique (cost, income, and sales approach). 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 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. Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable lives requires management to exercise significant judgment. The determination of whether we are or the tenant is the owner of improvements for accounting purposes is subject to significant judgment. In making that determination, we consider numerous factors and perform a detailed evaluation of each individual lease. No one factor is determinative in reaching a conclusion. The factors we evaluate include but are not limited to the following: • whether the lease agreement requires landlord approval of how the improvement allowance is spent prior to installation of the improvements; • whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the improvement allowance was spent on prior to payment by the landlord for such improvements; • whether the improvements are unique to the tenant or reusable by other tenants; • whether the tenant is permitted to alter or remove the improvements without the consent of the landlord or without compensating the landlord for any lost utility or diminution in fair value; and • whether the ownership of the improvements remains with the landlord or remains with the tenant at the end of the lease term. 40 Table of Contents When we conclude that we are the owner of improvements for accounting purposes using the factors discussed above, we record the cost to construct the improvements as our capital asset. We evaluate our real estate assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a given asset may not be recoverable. We evaluate our real estate assets for impairment on a property-by-property basis. Indicators we use to determine whether an impairment evaluation is necessary include: • deterioration in rental rates for a specific property; • deterioration of a given rental submarket; • significant change in strategy or use of a specific property or any other event that could result in a decreased holding period, including classifying a property as held for sale, or significant development delay; • evidence of material physical damage to the property; and • default by a significant tenant when any of the other indicators above are present. When we evaluate for potential impairment our real estate assets to be held and used, we first evaluate whether there are any indicators of impairment. If any impairment indicators are present for a specific real estate asset, we then perform an undiscounted cash flow analysis and compare the net carrying amount of the real estate asset to the real estate asset’s estimated undiscounted future cash flow over the anticipated holding period. If the estimated undiscounted future cash flow is less than the net carrying amount of the real estate asset, we perform an impairment loss calculation to determine if the fair value of the real estate asset is less than the net carrying value of the real estate asset. Our impairment loss calculation compares the net carrying amount of the real estate asset to the real estate asset’s estimated fair value, which may be based on estimated discounted future cash flow calculations or third-party valuations or appraisals. We recognize an impairment loss if the amount of the asset’s net carrying amount exceeds the asset’s estimated fair value. If we recognize an impairment loss, the estimated fair value of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis would be depreciated (amortized) over the remaining useful life of that asset. If a real estate asset is designated as real estate held for sale, it is carried at the lower of the net carrying value or estimated fair value less costs to sell, and depreciation ceases. Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flow and property fair values, including determining our estimated holding period. We are also required to make a number of assumptions relating to future economic and market events and prospective operating trends. For each property where such an indicator occurred, we completed an impairment evaluation. 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. 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 six months ended June 30, 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 June 30, 2025. Impact of Real Estate and Credit Markets In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, the U.S. credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and U.S. credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly. 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. Interest Rate Risk 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 41 Table of Contents 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 June 30, 2025, we had no outstanding borrowings on our Revolving Credit Facility. Impact of Inflation The U.S. economy has experienced a period of increased inflation in recent years. We enter into leases that generally provide for fixed increases in rent. During times when inflation is greater than the fixed increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation. Seasonality Our business has not been, and we do not expect our business in the future to be, subject to material seasonal fluctuations.