Company: IIPR
Filing Date: 2025-02-21
Form Type: S-3ASR
Source: 0001104659-25-016184
Chunk: 94

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-02-21
Form: S-3ASR
Chunk 94
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 stock.

Redemption and Conversion of Preferred Stock

Cash Redemption of Preferred Stock. A redemption of preferred stock will be treated for federal income
tax purposes as a distribution taxable as a dividend (to the extent of our current and accumulated earnings and profits), unless the
redemption satisfies one of the tests set forth in Section 302(b) of the Code and is therefore treated as a sale or exchange
of the redeemed shares. Such a redemption will be treated as a sale or exchange if it (i) is “substantially disproportionate”
with respect to the holder (which will not be the case if only non-voting preferred stock is redeemed), (ii) results in a “complete
termination” of the holder’s equity interest in us, or (iii) is “not essentially equivalent to a dividend”
with respect to the holder, all within the meaning of Section 302(b) of the Code.

In determining whether any of these tests has
been met, shares of our common stock and preferred stock considered to be owned by the holder by reason of certain constructive ownership
rules set forth in the Code, as well as shares of our common stock and preferred stock actually owned by the holder, must generally
be taken into account. If a holder of preferred stock owns (actually and constructively) no shares of our outstanding common stock or
an insubstantial percentage thereof, a redemption of shares of preferred stock of that holder is likely to qualify for sale or exchange
treatment because the redemption would be “not essentially equivalent to a dividend.” However, the determination as to whether
any of the alternative tests of Section 302(b) of the Code will be satisfied with respect to any particular holder of preferred
stock depends upon the facts and circumstances at the time the determination must be made. We urge prospective holders of preferred stock
to consult their own tax advisors to determine such tax treatment.

If a redemption of preferred stock is not treated
as a distribution taxable as a dividend to a particular holder, it will be treated as a taxable sale or exchange by that holder. As a
result, the holder will recognize gain or loss for federal income tax purposes in an amount equal to the difference between (i) the
amount of cash and the fair market value of any property received (less any portion thereof attributable to accumulated and declared
but unpaid dividends, which will be taxable as a dividend to the extent of our current and accumulated earnings and profits) and (ii) the
holder’s adjusted tax basis in the shares of the preferred