Company: IIPR
Filing Date: 2025-05-08
Form Type: 10-Q
Source: 0001628280-25-023920
Chunk: 70

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-05-08
Form: 10-Q
Item: Part I, Item 1
Chunk 70
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 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 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. 

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 March 31, 2025, we had $291