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

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-11-04
Form: 10-Q
Item: Part II, Item 1A
Chunk 25
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 valuations of equity interests in private REITs may be difficult to assess and inherently uncertain due to the absence of active trading markets.  Private REITs are also subject to general real estate risks, including those related to tenant defaults, financing availability, property-level performance, and market conditions.

Investments in the equity of private REITs, such as our investment in IQHQ Preferred Stock, inherently involve limited liquidity, which may restrict our ability to exit such positions in a timely or cost-effective manner. If we are required to liquidate an investment in a private REIT under adverse market conditions or before an optimal exit opportunity arises, we may be forced to do so at a discount or suffer a loss.

In addition, we may be exposed to indirect risks through our proportionate share of the REIT’s management practices, leverage, and compliance with REIT qualification requirements under the Internal Revenue Code. A failure by a private REIT to maintain its REIT status could result in adverse tax consequences that could reduce the value of our investment and our returns.   Failure of a private REIT to maintain its REIT status would likely cause our investment to cease to be a qualifying “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.

Because private REITs may not distribute consistent or predictable cash flows, our ability to rely on these investments for income generation could be limited. Additionally, income received from private REITs may consist of dividends, capital gains, or return of capital, each of which may be taxed differently and, in the case of dividends, may not qualify for favorable tax treatment applicable to qualified dividends.

Accordingly, while investments in private REITs and similar entities may offer opportunities for portfolio diversification and enhanced returns, they also introduce structural, operational, tax, and liquidity risks that could adversely affect our financial condition, results of operations, or ability to make distributions to our shareholders.

Some of our investments in real estate-related equity securities may become distressed, which could result in a high risk of loss, increased volatility, and limited liquidity.

Although our investment strategy generally focuses on non-distressed real estate-related assets, certain of our equity investments, such as our investment in IQHQ Preferred Stock, may be adversely affected by changing market conditions or negative developments impacting the issuer. The life sciences sector, in particular, has experienced financial stress in recent years, including limited access to capital, rising financing costs, broad