Company: IIPR
Filing Date: 2025-11-04
Form Type: 10-Q
Source: 0001677576-25-000005
Chunk: 13

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-11-04
Form: 10-Q
Item: Part I, Item 4
Chunk 13
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 the sale or refinancing of properties difficult or impracticable, changes in building, environmental and other laws, energy and supply shortages, various uninsured or uninsurable risks and other unforeseen occurrences.

In addition, if we fail to meet our separate funding obligations under the Securities Purchase Agreement with respect to the purchase of IQHQ Preferred Stock, the interest rate payable to us under the IQHQ Credit Facility may be reduced by up to 3.0% per annum. This would negatively affect our investment returns even absent a borrower default. Accordingly, this investment exposes us to borrower credit risk, structural subordination, potential collateral impairment, and other uncertainties that could adversely affect our return on investment and financial condition.

Our investment through the IQHQ Credit Facility likely will not qualify as a “real estate asset” for our REIT asset test requirement that 75% of the value of our total assets be represented by real estate assets, cash, cash items and government securities. If the investment doesn't qualify as a "real estate asset", any related interest income will not qualify as “good income” for our REIT income test that requires that we derive directly or indirectly at least 75% of our gross income, excluding gross income from prohibited transactions, from investments relating to real property or mortgages on real property, including “rents from real property.”  While we presently believe we have adequate other qualifying real estate assets and income to meet these REIT asset and income test requirements, no assurances can be provided that these tests will be met in the future.   If we fail the REIT asset test in any calendar quarter or we fail a REIT income test in any calendar year, and cannot avail ourselves of certain relief provisions, we would cease to qualify as a REIT.

Our investment in IQHQ Preferred Stock subjects us to risks inherent in private company real estate investments and preferred equity instruments. 

Through IIP Life Science, a wholly owned subsidiary of our Operating Partnership, we purchased the initial $5.0 million tranche of IQHQ Preferred Stock pursuant to the Securities Purchase Agreement. Subject to the exercise of certain rights by existing investors and other conditions, we may purchase up to an additional $165.0 million of IQHQ Preferred Stock in multiple tranches commencing in the third quarter of 2025 through the second quarter of 2027, subject to extension options by IQHQ REIT. While this investment is structured to provide both cash and PIK dividends, it remains subject to a number of significant risks.

Investments in preferred equity securities of private