Company: IIPR
Filing Date: 2025-02-21
Form Type: S-3ASR
Source: 0001104659-25-016184
Chunk: 66

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-02-21
Form: S-3ASR
Chunk 66
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 the fair market value of the real property on the date that we acquired the mortgage loan, the interest
income will be apportioned between the real property and the other collateral, and our income from the arrangement will qualify for purposes
of the 75% gross income test only to the extent that the interest is allocable to the real property. Even if a mortgage loan is not secured
by real property, or is undersecured, the income that it generates may nonetheless qualify for purposes of the 95% gross income test.
In Revenue Procedure 2014-51, the Service interpreted the “principal amount” of the loan for purposes of that test to be
the face amount of the loan, despite the Code’s requirement that taxpayers treat any market discount (discussed below) as interest
rather than principal. In the case of real estate mortgage loans secured by both real and personal property, if the fair market value
of such personal property does not exceed 15% of the total fair market value of all property securing the loan, then the personal property
securing the loan will be treated as real property for purposes of determining whether the interest income from such loan qualifies for
purposes of the 75% gross income test.

Hedging Transactions. From time to time, we may enter into hedging transactions with respect to one or more of
our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase
such items, and futures and forward contracts. Income and gain from “hedging transactions” will be excluded from gross income
for purposes of both the 75% and 95% gross income tests. A “hedging transaction” means (1) any transaction entered into
in the normal course of our trade or business primarily to manage the risk of interest rate or price changes or currency fluctuations
with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets,
(2) any transaction entered into primarily to manage the risk of currency fluctuations with respect to any item of income or gain
that would be qualifying income under the 75% or 95% gross income test (or any property which generates such income or gain) or (3) any
new transaction entered into to hedge the income or loss from a prior hedging transaction, where the property or indebtedness which was
the subject of the prior hedging transaction was extinguished or disposed of. We are required