Company: IIPR
Filing Date: 2025-02-26
Form Type: 424B5
Source: 0001104659-25-017454
Chunk: 123

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-02-26
Form: 424B5
Chunk 123
---
 purposes of either the 75% or 95% gross income test. Thus, if such rent attributable to personal property, plus any other income
that is non-qualifying income for purposes of the 95% gross income test, during a taxable year exceeds 5% of our gross income during
the year, we would lose our REIT qualification. Further, the rent from a particular property does not qualify as “rents from real
property” if (i) the rent is considered based on the income or profits of the tenant, (ii) the tenant either
is a related party tenant or fails to qualify for the exceptions to the related party tenant rule for qualifying taxable REIT subsidiaries
or (iii) we furnish non-customary services to the tenants of the property, or manage or operate the property, other than through
a qualifying independent contractor or a taxable REIT subsidiary.

In addition to the rent, the tenants may be required
to pay certain additional charges. To the extent that such additional charges represent reimbursements of amounts that we are obligated
to pay to third parties such charges generally will qualify as “rents from real property.” To the extent such additional
charges represent penalties for nonpayment or late payment of such amounts, such charges should qualify as “rents from real property.”
However, to the extent that late charges do not qualify as “rents from real property,” they instead may be treated as interest
that qualifies for the 95% gross income test.

Prohibited Transactions. A REIT will incur a 100% tax on the net income derived from any sale or other disposition
of property, other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or
business. Any such income will be excluded from the application of the 75% and 95% gross income tests. Whether a REIT holds an asset
“primarily for sale to customers in the ordinary course of a trade or business” depends on the facts and circumstances in
effect from time to time, including those related to a particular asset. Although we do not presently intend to hold assets primarily
for sale to customers in the ordinary course of a trade or business, no assurance, however, can be given that the Service will not successfully
assert a contrary position, in which case we would be subject to the prohibited transaction tax on the sale of those assets. A safe harbor
to the characterization of the sale of property by a REIT as a prohibited transaction