Company: IIPR
Filing Date: 2025-02-21
Form Type: S-3ASR
Source: 0001104659-25-016184
Chunk: 69

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-02-21
Form: S-3ASR
Chunk 69
---
 such additional charges represent reimbursements of amounts that we are obligated
to pay to third parties such charges generally will qualify as “rents from real property.” To the extent such additional
charges represent penalties for nonpayment or late payment of such amounts, such charges should qualify as “rents from real property.”
However, to the extent that late charges do not qualify as “rents from real property,” they instead may be treated as interest
that qualifies for the 95% gross income test.

Prohibited Transactions. A REIT will incur a 100% tax on the net income derived from any sale or other disposition
of property, other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or
business. Any such income will be excluded from the application of the 75% and 95% gross income tests. Whether a REIT holds an asset
“primarily for sale to customers in the ordinary course of a trade or business” depends on the facts and circumstances in
effect from time to time, including those related to a particular asset. Although we do not presently intend to hold assets primarily
for sale to customers in the ordinary course of a trade or business, no assurance, however, can be given that the Service will not successfully
assert a contrary position, in which case we would be subject to the prohibited transaction tax on the sale of those assets. A safe harbor
to the characterization of the sale of property by a REIT as a prohibited transaction and the resulting imposition of the 100% prohibited
transactions tax is available, however, if the following requirements are met:

<div align='center'>39</div>

| · | either (1) during the year in question, the REIT                                                                                   
 did not make more than seven property sales other than sales of foreclosure property or sales to which Section 1033 of the Code    
 applies, (2) the aggregate adjusted bases of all such properties sold by the REIT during the year did not exceed 10% of the        
 aggregate bases of all of the assets of the REIT at the beginning of the year, (3) the aggregate fair market value of all such     
 properties sold by the REIT during the year did not exceed 10% of the aggregate fair market value of all of the assets of the REIT 
 at the beginning of the year or (4) either, (a) the REIT satisfies the requirements of clause (2) applied by substituting          
 “20%”