Company: IIPR
Filing Date: 2025-02-26
Form Type: 424B5
Source: 0001104659-25-017454
Chunk: 121

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-02-26
Form: 424B5
Chunk 121
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 income test, but will be qualifying income for purposes of the 95% gross income test. The portion of the interest
income that will not be qualifying income for purposes of the 75% gross income test will be equal to the portion of the principal amount
of the loan that is not secured by real property — that is, the amount by which the loan balance exceeds the applicable value of
the real estate that secures the loan.

Interest on debt secured by mortgages on real
property or on interests in real property, including, for this purpose, prepayment penalties, loan assumption fees and late payment
charges that are not compensation for services, generally is qualifying income for purposes of the 75% gross income test. Under the applicable
Treasury Regulation (referred to as the “interest apportionment regulation”), if we receive interest income with respect
to a mortgage loan that is secured by both real property and other property, and the highest principal amount of the loan outstanding
during a taxable year exceeds 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