Company: IIPR
Filing Date: 2025-11-04
Form Type: 10-Q
Source: 0001677576-25-000005
Chunk: 23

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-11-04
Form: 10-Q
Item: Part II, Item 1A
Chunk 23
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 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 real estate companies, such as IQHQ REIT, are inherently illiquid and subordinate to all debt obligations of the issuer. While preferred equity may confer certain negotiated rights, such as consent or approval rights over specified actions and redemption provisions, such rights are generally more limited in scope than the legal remedies and enforcement mechanisms available to secured lenders. In the event of a default, liquidation, or restructuring, our ability to recover invested capital may be limited, delayed, or entirely impaired, particularly where IQHQ REIT’s obligations to senior creditors remain unsatisfied. These structural and contractual limitations may adversely affect the value of our investment and our ability to realize expected returns.

Furthermore, the payment of dividends on the IQHQ Preferred Stock is not guaranteed and is subject to the financial condition and performance of IQHQ REIT. If IQHQ REIT fails to generate sufficient cash flows, experiences project delays, faces cost overruns, or encounters disruptions in the life science real estate market, it may be unable to meet its dividend or redemption obligations. These risks are heightened given the capital-intensive nature of life science development projects and the sector’s exposure to shifting demand, tenant concentration, and regulatory risk. In addition,