INNOVATIVE INDUSTRIAL PROPERTIES INC

Previous wording

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. We make statements in this report that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our statements regarding anticipated growth in our funds from operations and anticipated market and regulatory conditions, our strategic direction, demographics, results of operations, plans and objectives are forward-looking statements. Forward-looking statements involve numerous risks and uncertainties, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: rates of default on leases for our assets; our ability to re-lease properties upon tenant defaults or lease terminations for the rent we currently receive, or at all; concentration of our portfolio of assets and limited number of tenants; the estimated growth in and evolving market dynamics of the regulated cannabis market; the demand for regulated cannabis cultivation and processing facilities; decreased economic activity due to fluctuations in trade policies, tariffs, and related government actions; inflation dynamics; the impact of pandemics on us, our business, our tenants, or the economy generally; war and other hostilities, including the conflicts in Ukraine and Israel; our business and investment strategy; our projected operating results; actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law; availability of suitable investment opportunities in the regulated cannabis industry; our understanding of our competition and our potential tenants’ alternative financing sources; the expected medical-use or adult-use cannabis legalization in certain states; shifts in public opinion regarding regulated cannabis; the potential impact on us fr…

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Current wording

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. We make statements in this report that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our statements regarding anticipated growth in our funds from operations and anticipated market and regulatory conditions, our strategic direction, demographics, results of operations, plans and objectives are forward-looking statements. Forward-looking statements involve numerous risks and uncertainties, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: rates of default on leases for our assets; our ability to re-lease properties upon tenant defaults or lease terminations for the rent we currently receive, or at all; concentration of our portfolio of assets and limited number of tenants; the estimated growth in and evolving market dynamics of the regulated cannabis market; the satisfaction of closing conditions under the Securities Purchase Agreement and the RCF (each as defined below); anticipated funding sources for our investment in Preferred Stock of IQHQ REIT (each as defined below); the demand for regulated cannabis cultivation and processing facilities; decreased economic activity due to fluctuations in trade policies, tariffs, and related government actions; inflation dynamics; the impact of pandemics on us, our business, our tenants, or the economy generally; war and other hostilities, including the conflicts in Ukraine and Israel; our business and investment strategy; our projected operating results; actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law; availability of suitable investment opportunities in the regulated cannabis industry; our understanding of our competition and our pot…

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Previous wording

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. In addition, we discussed a number of material risks in our Annual Report on Form 10-K for the year ended December 31, 2024. Those risks continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Any forward-looking statement made by us speaks only of the date on which we make it. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports.

Current wording

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. In addition, we discussed a number of material risks in our Annual Report on Form 10-K for the year ended December 31, 2024 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025. Those risks continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Any forward-looking statement made by us speaks only of the date on which we make it. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports.

Previous wording

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of the Company’s consolidated financial condition, results of operations and cash flows. MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s condensed consolidated financial statements and accompanying notes.

Current wording

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of the Company’s consolidated financial condition, results of operations and cash flows. MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s consolidated financial statements and accompanying notes.

Previous wording

We were incorporated in Maryland on June 15, 2016. We conduct our business through a traditional umbrella partnership real estate investment trust, or UPREIT structure, in which our properties are owned by our Operating Partnership, directly or through subsidiaries. We are the sole general partner of our Operating Partnership and own, directly or through subsidiaries, 100% of the limited partnership interests in our Operating Partnership. As of March 31, 2025, we had 21 full-time employees.

Current wording

We were incorporated in Maryland on June 15, 2016. We conduct our business through a traditional umbrella partnership real estate investment trust, or UPREIT structure, in which our properties are owned by our Operating Partnership, directly or through subsidiaries. We are the sole general partner of our Operating Partnership and own, directly or through subsidiaries, 100% of the limited partnership interests in our Operating Partnership. As of June 30, 2025, we had 23 full-time employees.

Previous wording

As of March 31, 2025, we owned 110 properties comprising 9.0 million square feet (including 666,000 rentable square feet under development/redevelopment) in 19 states. As of March 31, 2025, we had invested $2.5 billion in the aggregate (consisting of purchase price and funding of draws for construction funding and improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional $27.4 million to fund draws to certain tenants and vendors for improvements at our properties. Of the $27.4 million committed to fund draws to certain tenants and vendors for improvements at our properties, $9.0 million was incurred but not funded as of March 31, 2025.

Current wording

As of June 30, 2025, we owned 108 properties comprising 9.0 million square feet (including 588,000 rentable square feet under development/redevelopment) in 19 states. As of June 30, 2025, we had invested $2.5 billion in the aggregate (consisting of purchase price and funding of draws for construction and improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional $11.6 million to fund draws to certain tenants and vendors for improvements at our properties. Of the $11.6 million committed to fund draws to certain tenants and vendors for improvements at our properties, $5.6 million was incurred but not funded as of June 30, 2025.

Previous wording

Of these 110 properties, we include 107 properties in our operating portfolio, which were 98.4% leased as of March 31, 2025, with a weighted-average remaining lease term of 13.5 years. We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of March 31, 2025, and together are expected to comprise 491,000 rentable square feet upon completion of development/redevelopment):

Current wording

Of these 108 properties, we include 105 properties in our operating portfolio, which were 98.6% leased as of June 30, 2025, with a weighted-average remaining lease term of 13.1 years. We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of June 30, 2025, and together are expected to comprise 491,000 rentable square feet upon completion of development/redevelopment):

Previous wording

As discussed below under the section entitled “—Factors Impacting Our Operating Results—Conditions in Our Markets,” market dynamics in the regulated cannabis industry have been extremely challenging. These challenges include federal, state and local taxation burdens; ineffective enforcement policies with respect to the illicit cannabis market; declines in unit pricing for regulated cannabis products; limited access to capital; and inflation and supply chain constraints. As we have discussed in this and previous filings with the SEC, these challenges have negatively impacted the ability of certain of our tenants to make their lease payments on the properties they lease from us. As a result, the Company recently announced that it intends to proactively seek to refresh a substantial portion of its tenant base with more financially viable long-term tenants to better position the Company for sustainable growth and improved financial performance.

Current wording

As discussed below under the section entitled “—Factors Impacting Our Operating Results—Conditions in Our Markets,” market dynamics in the regulated cannabis industry have been extremely challenging in recent years. These challenges include federal, state and local taxation burdens; ineffective enforcement policies with respect to the illicit cannabis market; declines in unit pricing for regulated cannabis products; limited access to capital; and inflation and supply chain constraints. As we have discussed in this and previous filings with the SEC, these challenges have negatively impacted the ability of certain of our tenants to make their lease payments on the properties they lease from us. In light of these industry conditions and their impact on our existing portfolio, we may from time to time modify or expand our growth strategy to include a broader range of real estate and real estate-related investments, such as joint ventures, debt or mezzanine financing, preferred or joint venture equity interests, or interests in other real estate funds or REITs.

Previous wording

The Company previously provided a loan, in the aggregate principal amount of $16.1 million, pursuant to the MIH Note issued by the purchaser of four of the Company’s properties in California previously leased to affiliates of Medical Investor Holdings, LLC. The MIH Note is secured by such four properties. The loan pursuant to the MIH Note requires payments of interest only, monthly, in advance and matures on February 29, 2028. The Company declared the MIH Note in default in March 2025, due to the borrower’s failure to pay approximately $0.8 million of interest and reimbursement for taxes. As a result, the principal amount of the MIH Note, plus accrued and unpaid interest, are immediately due and payable. The Company intends to vigorously pursue its rights under the MIH Note, which may include, but is not limited to foreclosing on its security interest in the four properties securing the MIH Note.

Current wording

Additionally, the Company previously declared a default under a secured promissory note in the aggregate principal amount of $16.1 million (the “MIH Note”). As a result of the default, the full principal and accrued interest under the MIH Note, which amounted to $17.3 million as of June 30, 2025, became immediately due and payable. The MIH Note was issued to the Company by the purchaser of four properties in California. The MIH Note is secured by such four properties. The Company is pursuing its rights under the MIH Note, which may include foreclosure on the four properties securing the loan.

Previous wording

In addition, on March 14, 2025, PharmaCann defaulted on its obligations to pay rent for the month of March under nine of its eleven leases for properties located in New York, Illinois, Pennsylvania, Ohio, and Colorado which represented 9.1% of the Company’s total rental revenues for the quarter ended March 31, 2025. March rent owed for these nine leases, including base rent, property management fees and estimated tax and insurance payments, totaled $2.7 million. Monthly base rent of $1.3 million for the remaining two leases, which are for cultivation properties in Michigan and Massachusetts, was previously abated in full effective February 1, 2025, pursuant to the lease amendments the Company entered into with PharmaCann in January 2025. The Company is in continuing discussions with PharmaCann regarding the leases and expects to enforce its rights under the leases aggressively, which may include, but is not limited to, commencing eviction proceedings as the Company deems necessary. See Note 6 "Investments in Real Estate" in the notes to our condensed consolidated financial statements for further information regarding our leases with PharmaCann.

Current wording

The Company previously entered into leases with PharmaCann Inc. and its affiliates for eleven properties. Two of such leases, for cultivation facilities in Michigan and Massachusetts, had their monthly base rent of $1.3 million, in the aggregate, fully abated effective February 1, 2025, under lease amendments agreed to by the parties in January 2025. The Company re-leased the 205,000 square foot Michigan property to Berry Green in April 2025 and is seeking to re-lease the property located in Massachusetts. As previously disclosed, PharmaCann defaulted on its rent obligations under the remaining nine of these leases, covering properties in New York, Illinois, Pennsylvania, Ohio and Colorado, with total amounts due of $12.8 million as of June 30, 2025, representing approximately 11.5% of the Company’s contractual rent due as of such date. The Company is in continuing discussions with PharmaCann regarding these leases and expects to enforce its rights under the leases aggressively, which may include, but is not limited to, commencing eviction proceedings as the Company deems necessary. See Note 6 “Investments in Real Estate” in the notes to our consolidated financial statements for further information regarding our leases with PharmaCann and the MIH Note described above.

Previous wording

The properties that we acquire consist of real estate assets that support the regulated cannabis industry. Most states where we own properties issue licenses for cannabis operations for a limited period. If one or more of our tenants are unable to renew or otherwise maintain their licenses or other state and local authorizations necessary to continue their cannabis operations, such tenants may default on their lease payments to us. Furthermore, changes in federal law and current favorable state or local laws in the cannabis industry may impair our ability to renew or re-lease properties and the ability of our tenants to fulfill their lease obligations and could materially and adversely affect our ability to maintain or increase rental rates for our properties.

Current wording

The properties that we have acquired consist of primarily real estate assets that support the regulated cannabis industry. Most states where we own properties issue licenses for cannabis operations for a limited period. If one or more of our tenants are unable to renew or otherwise maintain their licenses or other state and local authorizations necessary to continue their cannabis operations, such tenants may default on their lease payments to us. Furthermore, changes in federal law and current favorable state or local laws in the cannabis industry may impair our ability to renew or re-lease properties and the ability of our tenants to fulfill their lease obligations and could materially and adversely affect our ability to maintain or increase rental rates for our properties.

Previous wording

The success of our tenants in operating their businesses and their ability to pay rent continues to be significantly influenced by many challenges including the impact of inflation, interest rates, labor shortages, changes in trade policy, supply chain constraints on their cost of doing business, and the U.S. consumer financial health. Additionally, market dynamics and the regulatory regime in the states where they operate create challenges that may impact our tenants’ businesses and/or decrease future demand for regulated cannabis cultivation and production facilities. The potential impact of current economic challenges on the Company’s financial condition, results of operations, and cash flows is subject to change and continues to depend on the extent and duration of these risks and uncertainties. See “—Results of Operations—Comparison of the Three Months Ended March 31, 2025 and 2024—Rental Revenues” for more information. If these conditions persist or worsen, additional tenants may default on their obligations under our leases with them, and we may be unable to re-lease those properties on favorable terms or at all.

Current wording

The success of our tenants in operating their businesses and their ability to pay rent continues to be significantly influenced by a range of macroeconomic and industry-specific challenges. These include, but are not limited to, inflationary pressures, elevated interest rates, substantial debt maturities, reduced access to capital, labor market constraints, evolving trade policies, supply chain disruptions and U.S. consumer financial health. Additionally, market dynamics and the regulatory regime in the states where they operate create challenges that may impact our tenants’ businesses and/or decrease future demand for regulated cannabis cultivation and production facilities. These conditions have already adversely impacted the ability of certain of our tenants to satisfy their lease obligations and, if such conditions persist or deteriorate further, we expect that additional tenants may default under their leases and we may be unable to re-lease those properties on favorable terms or at all. These tenant-related challenges are currently having a material adverse effect on the Company’s financial condition, results of operations, and cash flows. See “—Results of Operations—Comparison of the three and six months ended June 30, 2025 and 2024—Rental Revenues” for more information. The full extent and duration of these challenges remain subject to significant uncertainty.

Previous wording

Recent changes in U.S. trade policy, including the imposition of significant tariffs on imported materials and goods, are expected to increase the costs of key inputs used in cannabis cultivation and production, including equipment, lighting systems, and construction materials. These added costs are especially impactful to our tenants operating in the regulated cannabis industry, which already faces higher compliance and regulatory burdens compared to other sectors. In addition, escalating geopolitical tensions and retaliatory trade measures have disrupted global supply chains, which may lead to sourcing challenges, extended lead times, and increased costs for capital projects, including the development and redevelopment of our properties. These factors may also contribute to cost overruns and delays in commencing operations on certain of our tenants’ projects.

Current wording

Recent changes in U.S. trade policy, including the imposition of significant tariffs on imports from Canada, Mexico, China, and other key trading partners, are expected to increase the costs of key inputs used in cannabis cultivation and production, such as equipment, lighting systems, HVAC units, construction materials and specialized packaging. These added costs are especially impactful to our tenants operating in the regulated cannabis industry, which already faces heightened compliance, regulatory and tax burdens compared to other sectors. In addition, escalating geopolitical tensions and retaliatory trade measures have disrupted global supply chains, which may lead to sourcing challenges, longer lead times, and increased costs for capital projects, including the development and redevelopment of our properties. These factors may result in cost overruns or delays in the development or redevelopment of our properties and may adversely affect the timing and commencement of operations on certain of our tenants’ projects. However, the ultimate impact remains uncertain, as future changes to tariff policy, including potential adjustments or exemptions, could materially influence cost structures and supply chain decisions across the industry.

Previous wording

As of March 31, 2025, we owned 110 properties located in 19 states leased to 31 tenants (not including five non-cannabis tenants in three properties). Many of our tenants are tenants at multiple properties. We seek to manage our portfolio-level risk through geographic diversification and by minimizing dependence on any single property or tenant. At March 31, 2025, our largest property was located in New York and accounted for 5.5% of our net real estate held for investment. No other properties accounted for more than 5% of our net real estate held for investment at March 31, 2025. See Note 2 “Concentration of Credit Risk” in the notes to our condensed consolidated financial statements for further information regarding the tenants in our portfolio that represented the largest percentage of our total rental revenues for the three months ended March 31, 2025.

Current wording

As of June 30, 2025, we owned 108 properties located in 19 states leased to 36 tenants. Many of our tenants are tenants at multiple properties. We seek to manage our portfolio-level risk through geographic diversification and by minimizing dependence on any single property or tenant. At June 30, 2025, our largest property was located in New York and accounted for 5.5% of our net real estate held for investment. No other properties accounted for more than 5% of our net real estate held for investment at June 30, 2025. See Note 2 “Concentration of Credit Risk” in the notes to our consolidated financial statements for further information regarding the tenants in our portfolio that represented the largest percentage of our total rental revenues for the three and six months ended June 30, 2025.

Previous wording

See Note 6 “Investment in Real Estate” in the notes to the condensed consolidated financial statements for information regarding our investments in real estate activity and property portfolio activity during the three months ended March 31, 2025.

Current wording

See Note 6 “Investment in Real Estate” in the notes to the consolidated financial statements for information regarding our investments in real estate activity and property portfolio activity during the six months ended June 30, 2025.

Previous wording

For the three months ended March 31, 2025, we applied $5.8 million of security deposits for payment of rent on properties leased to PharmaCann, Gold Flora, TILT and Sozo. No security deposits were applied for rent during three months ended March 31, 2024.

Current wording

For the six months ended June 30, 2025, we applied $5.8 million of security deposits for payment of rent on properties leased to PharmaCann, Gold Flora, TILT, Sozo and Emerald. For the six months ended June 30, 2024, we applied $0.6 million of security deposits for payment of rent on properties leased to Temescal and TILT.

Previous wording

Other Revenues. Other revenues for the three months ended March 31, 2025 and 2024 consist of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting. Other revenues for the three months ended March 31, 2025 decreased by $0.5 million compared to the three months ended March 31, 2024 primarily due to non-collection of rent related to one property leased to 4Front.

Current wording

Other Revenues. Other revenues for the three and six months ended June 30, 2025 and 2024 consisted of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting. Other revenues for three and six months ended June 30, 2025 decreased by $0.5 million and $1.0 million, respectively, compared to the three and six months ended June 30, 2024, primarily due to non-collection of rent related to one property leased to 4Front.

Previous wording

Property Expenses. Property expenses for the three months ended March 31, 2025 increased by $0.7 million to $7.4 million, compared to $6.7 million for the three months ended March 31, 2024. The increase was primarily due to additional investment in existing properties, which resulted in higher property tax that we paid for our properties, as well as higher property expenses related to properties that we have regained possession of but not yet leased. Property expenses related to leased properties are generally reimbursable to us by the tenants under the terms of the leases.

Current wording

Property Expenses. Property expenses for the three months ended June 30, 2025 were $6.9 million, reflecting no material change compared to the three months ended June 30, 2024. The property expenses for six months ended June 30, 2025 increased by $0.6 million to $14.2 million, compared to $13.6 million for the six months ended June 30, 2024. The increase was primarily due to additional investment in existing properties, which resulted in higher property taxes that we paid for our properties, which was partially offset by a decrease in insurance expense due to lower premiums on the master policy renewed in August 2024. Property expenses related to leased properties are generally reimbursable to us by tenants under the terms of the leases.

Previous wording

General and Administrative Expense. General and administrative expense for the three months ended March 31, 2025 decreased by $1.1 million to $8.5 million, compared to $9.6 million for the three months ended March 31, 2024. The decrease in general and administrative expense was primarily due to lower stock-based compensation expense driven by PSUs granted in 2022 that were forfeited on December 31, 2024 as they did not meet the performance thresholds. The decrease was partially offset by an increase in legal and payroll expenses during the three months ended March 31, 2025. Compensation expense for the three months ended March 31, 2025 and 2024 included $2.1 million and $4.3 million, respectively, of non-cash stock-based compensation expense.

Current wording

General and Administrative Expense. General and administrative expense for the three months ended June 30, 2025 decreased by $1.1 million to $8.6 million, compared to $9.7 million for the three months ended June 30, 2024. General and administrative expense for the six months ended June 30, 2025 decreased by $2.1 million to $17.1 million, compared to $19.2 million for the six months ended June 30, 2024. The decrease in general and administrative expense in both periods was primarily due to lower stock-based compensation expense driven by PSUs granted in 2022 that were forfeited on December 31, 2024 as they did not meet the performance thresholds. The non-cash stock based compensation for employees and directors for the three and six months ended June 30, 2025 decreased by $1.7 million and $4.0 million, respectively, to $2.7 million and $4.7 million, compared to $4.4 million and $8.7 million for the three and six months ended June 30, 2024. The decrease was partially offset by an increase in legal, consultant and payroll expenses during the three and six months ended June 30, 2025.

Previous wording

Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended March 31, 2025 increased by $1.2 million to $18.4 million, compared to $17.2 million for the three months ended March 31, 2024. The increase in depreciation and amortization expense was primarily related to depreciation for properties that we acquired in 2024, one property we acquired in February 2025 and the placement into service of construction and improvements at certain of our properties.

Current wording

Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended June 30, 2025 increased by $1.0 million to $18.5 million, compared to $17.5 million for the three months ended June 30, 2024. Depreciation and amortization expense for the six months ended June 30, 2025 increased by $2.3 million to $36.9 million, compared to $34.6 million for the six months ended June 30, 2024. The increase in depreciation and amortization expense was primarily related to depreciation on properties that we acquired in 2024, one property we acquired in February 2025 and the placement into service of construction and improvements at certain of our properties.

Previous wording

Impairment Loss on Real Estate. Impairment loss on real estate for the three months ended March 31, 2025 related to one of our properties located in Palm Springs, California which is under contract to be sold for less than its carrying value.

Current wording

Impairment Loss on Real Estate. Impairment loss on real estate of $3.5 million for the six months ended June 30, 2025 is related to one of our properties located in Palm Springs, California which was sold in June 2025.

Previous wording

Interest Income. Interest income for the three months ended March 31, 2025 decreased by $0.2 million to $1.6 million, compared to $1.8 million for the three months ended March 31, 2024. The decrease was due to having less interest-bearing investments and lower rates earned on those investments during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, partially offset by additional cash interest received on our construction loan pursuant to which we agreed to lend up to $23.0 million, for the development of a regulated cannabis cultivation and processing facility in California (the “Construction Loan”). Cash interest received on our Construction Loan was $0.6 million and $20,000 during the three months ended March 31, 2025 and 2024, respectively.

Current wording

Interest Income. Interest income for the three and six months ended June 30, 2025 decreased by $2.4 million and $2.6 million, respectively, to $1.6 million and $3.2 million, compared to $4.0 million and $5.8 million for the three and six months ended June 30, 2024. The decrease was partially due to having less interest-bearing investments and lower rates earned on those investments during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024. The decrease of interest income was also driven by the lower cash interest received on our construction loan pursuant to which we agreed to lend up to $23.0 million, for the development of a regulated cannabis cultivation and processing facility in California (the “Construction Loan”). Cash interest received on our Construction Loan for the three and six months ended June 30, 2025 were $0.8 million and $1.4 million, respectively, compared to $2.1 million in both the three and six months ended June 30, 2024.

Previous wording

Interest Expense. Interest expense primarily consists of interest on our Notes due 2026. Interest expense for the three months ended March 31, 2025 increased by $0.1 million to $4.5 million, compared to $4.4 million for the three months ended March 31, 2024, which was primarily due to an increase in non-cash interest expense related to the Revolving Credit Facility.

Current wording

Interest Expense. Interest expense primarily consists of interest on our Notes due 2026. Interest expense for the three and six months ended June 30, 2025 increased by $0.1 million and $0.2 million, respectively, to $4.4 million and $8.9 million compare to $4.3 million and $8.7 million for the three and six months ended June 30, 2024. The increase was primarily due to an increase in non-cash interest expense related to the Revolving Credit Facility and a decrease in the amount of interest capitalized for both three and six months ended June 30, 2025. The increase was partially offset by a decrease in interest expense on our Notes due 2026 as we made an early partial repayment in February 2025, reducing the outstanding balance from $300 million to $291.2 million.

Previous wording

Comparison of the Three Months Ended March 31, 2025 and 2024 (in thousands)

Current wording

Comparison of the Six Months Ended June 30, 2025 and 2024 (in thousands)

Previous wording

Cash flows provided by operating activities for the three months ended March 31, 2025 and 2024 were $54.2 million and $71.6 million, respectively. Cash flows provided by operating activities were generally from contractual rent and tenant reimbursements from our properties, partially offset by our general and administrative expense, interest expense, property expenses in excess of tenant reimbursements and property expenses at properties that were not leased. The decrease in cash flows provided by operating activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to lower net income and the application of $5.8 million of security deposits for contractual rent related tenant defaults. Cash flows provided by operating activities for the three months ended March 31, 2024 also included the one-time payment of $4.8 million received in advance from our tenant Holistic Industries, Inc. related to the sale of our property in Los Angeles, California.

Current wording

Cash flows provided by operating activities for the six months ended June 30, 2025 and 2024 were $102.7 million and $135.8 million, respectively. Cash flows provided by operating activities were generally from contractual rent and tenant reimbursements from our properties, partially offset by our general and administrative expense, interest expense, property expenses in excess of tenant reimbursements and property expenses at properties that were not leased. The decrease in cash flows provided by operating activities for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was primarily due to lower net income and the application of $5.8 million of security deposits for contractual rent due to tenant defaults. Cash flows provided by operating activities for the six months ended June 30, 2024 also included a $3.9 million disposition-contingent lease termination fee that was received concurrently with the sale of our property in Los Angeles, California.

Previous wording

Cash flows used in investing activities for the three months ended March 31, 2025 was $17.2 million, of which $16.9 million was related to investments in real estate and funding of draws for improvement and construction funding at our properties and $0.3 million was related to net purchases and maturities of short-term investments. Cash flows used in investing activities for the three months ended March 31, 2024 was $14.4 million, of which $16.5 million was related to funding of draws for improvement and construction funding at our properties and other investments, partially offset by $2.1 million related to net purchases and maturities of short-term investments.

Current wording

Cash flows used in investing activities for the six months ended June 30, 2025 was $22.9 million, of which $24.4 million was related to investments in real estate and funding of draws for improvement and construction funding at our properties, $0.3 million was related to net purchases and maturities of short-term investments, partially offset by $1.8 million in proceeds related to the sale of our Palm Springs, California property. Cash flows used in investing activities for the six months ended June 30, 2024 were $58.8 million, of which $50.0 million was related to investments in real estate and funding of draws for improvement and construction funding at our properties, $17.9 million was related to net purchases and maturities of short-term investments, and was partially offset by $9.1 million in proceeds related to the sale of our Los Angeles, California property.

Previous wording

Net cash used in financing activities of $55.3 million during the three months ended March 31, 2025 was the result of dividend payments of $54.8 million to common and preferred stockholders, partial principal payment on the Notes due 2026 of $8.7 million, $0.7 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees, and $0.3 million related to repurchase of common stock, partially offset by $9.2 million in net proceeds from the issuance of our Series A Preferred Stock pursuant to our ATM Program.

Current wording

Net cash used in financing activities of $126.4 million during the six months ended June 30, 2025 was due to dividend payments of $110.1 million to common and preferred stockholders, partial principal payment on the Notes due 2026 of $8.7 million, $0.7 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees, and $20.1 million related to repurchase of common stock, partially offset by $13.2 million in net proceeds from the issuance of our Series A Preferred Stock pursuant to our ATM Program.

Previous wording

Net cash used in financing activities of $45.4 million during the three months ended March 31, 2024 was primarily due to $11.8 million in net proceeds from the issuance of our common stock, offset by dividend payments of $51.8 million to common and preferred stockholders, principal payment on the Exchangeable Senior Notes of $4.4 million, and $1.0 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees and payment of deferred financing costs.

Current wording

Net cash used in financing activities of $97.8 million during the six months ended June 30, 2024 was the result of $11.8 million in net proceeds from the issuance of our common stock, offset by dividend payments of $104.1 million to common and preferred stockholders, principal payment on the Exchangeable Senior Notes of $4.4 million, and $1.0 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees and payment of deferred financing costs.

Previous wording

As of March 31, 2025, we owned 110 properties. Of these properties, the 107 properties in our operating portfolio were 98.4% leased, with a weighted-average remaining lease term of 13.5 years.

Current wording

As of June 30, 2025, we owned 108 properties. Of these properties, the 105 properties in our operating portfolio were 98.6% leased, with a weighted-average remaining lease term of 13.1 years.

Previous wording

We expect to incur some property-level operating costs from time to time in periods during which properties that become vacant are being remarketed or re-positioned. In addition, we may recognize an expense for certain property costs, such as insurance premiums and real estate taxes billed in arrears, if we believe the tenant is likely to vacate the property before making payment on those obligations or may be unable to pay such costs in a timely manner. Property costs are generally not significant to our operations, but the amount of property costs can vary quarter to quarter based on the number of property vacancies and whether we have any underperforming properties. We may advance certain property costs on behalf of our tenants but expect that the majority of these costs will be reimbursed by the tenant and do not anticipate that they will be significant to our operations. In addition, for properties that are not leased and are under development or redevelopment, we may make significant additional investments in these properties in order to get them ready for their intended use and to re-lease them. For the three months ended March 31, 2025, property expenses included $0.7 million of non-reimbursed expenses related to operating properties that were not leased.

Current wording

We expect to incur some property-level operating costs from time to time in periods during which properties that become vacant are being remarketed or re-positioned. In addition, we may recognize an expense for certain property costs, such as insurance premiums and real estate taxes billed in arrears, if we believe the tenant is likely to vacate the property before making payment on those obligations or may be unable to pay such costs in a timely manner. Property costs are generally not significant to our operations, but the amount of property costs can vary quarter to quarter based on the number of property vacancies and whether we have any underperforming properties. We may advance certain property costs on behalf of our tenants but expect that the majority of these costs will be reimbursed by the tenant and do not anticipate that they will be significant to our operations. In addition, for properties that are not leased and are under development or redevelopment, we may make significant additional investments in these properties in order to get them ready for their intended use and to re-lease them. For the three and six months ended June 30, 2025, property expenses included $0.7 million and $1.4 million, respectively, of non-reimbursed expenses related to operating properties that were not leased.

Previous wording

Following the filing of the new registration statement, we filed with the SEC a prospectus supplement that continues our at-the-market” offering program (“ATM Program”), pursuant to which we may offer and sell from time to time, including on a forward basis, shares of our common stock and 9.00% Series A Cumulative Redeemable Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”), up to an aggregate offering price of $500.0 million. During thethree months ended March 31, 2025, we sold 385,147 shares of our Series A Preferred Stock for net proceeds of $9.2 million. As of March 31, 2025, shares of the Company’s common stock and Series A Preferred Stock having an aggregate offering price of up to approximately $480.3 million remain available for offer and sale pursuant to the ATM Program.

Current wording

$0.001 par value per share (the “Series A Preferred Stock”), up to an aggregate offering price of $500.0 million. During the six months ended June 30, 2025, we sold 558,981 shares of our Series A Preferred Stock for net proceeds of $13.2 million. As of June 30, 2025, shares of the Company’s common stock and Series A Preferred Stock having an aggregate offering price of up to $476.1 million remain available for offer and sale pursuant to the ATM Program.

Previous wording

We expect to meet our liquidity needs through cash and investments on hand, cash flows from operations, draws on our Revolving Credit Facility and cash flow from sources discussed above. We believe that our liquidity and sources of capital are adequate to satisfy our cash requirements. We cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet our liquidity needs. Our investment guidelines also provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion.

Current wording

We expect to meet our liquidity needs through cash and investments on hand, cash flows from operations, draws on our Revolving Credit Facility and our ability to issue additional debt and equity securities under our ATM Program or otherwise. At June 30, 2025, the outstanding principal balance on our Notes due 2026 was $291.2 million and we plan to refinance these notes prior to maturity in May 2026. We believe that our liquidity and these sources of capital will be adequate to satisfy our cash requirements over the next 12-month period. We cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet our liquidity needs. Our investment guidelines also provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion.

Previous wording

In the long term, we may also voluntarily repurchase our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or otherwise.

Current wording

In the long term, we may also voluntarily repurchase our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or otherwise. In March of 2025, our Board of Directors authorized the purchase of up to $100.0 million in shares of our common stock. The timing, volume and nature of the repurchases will be at the discretion of management based on its evaluation of the capital needs of the Company, market conditions, applicable legal requirements and other factors. There is no guarantee as to the number of shares that will be repurchased. Repurchases under the share repurchase plan are expected to be funded from existing cash balances and proceeds from the sale of the Company’s Series A Preferred Stock under its ATM Program. During the three months ended June 30, 2025, 366,952 shares were repurchased under the share repurchase plan. The repurchase plan expires on March 17, 2026, and may be extended, suspended, modified or discontinued at any time at the Company’s discretion.

Previous wording

The following table describes the dividends declared by the Company during the three months ended March 31, 2025:

Current wording

The following table describes the dividends declared by the Company during the six months ended June 30, 2025:

Previous wording

Additionally, as of March 31, 2025, we had (1) $26.2 million outstanding in commitments related to improvement allowances, which generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease; (2) $1.2 million outstanding in commitments related to contracts with vendors for improvements at our properties, which are expected to be incurred by June 30, 2025; and (3) $0.2 million outstanding in commitments to fund the Construction Loan. The commitments discussed in this paragraph are excluded from the table of contractual obligations above, as improvement allowances generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease, there is no explicit time frame for incurring the obligations related to our contracts with vendors, and Construction Loan funding generally may be requested by the borrower from time to time, subject to satisfaction of certain conditions.

Current wording

Additionally, as of June 30, 2025, we had (1) $11.6 million outstanding in commitments related to improvement allowances, which generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease; and (2) $0.2 million outstanding in commitments to fund the Construction Loan. The commitments discussed in this paragraph are excluded from the table of contractual obligations above, as improvement allowances generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease, there is no explicit time frame for incurring the obligations related to our contracts with vendors, and Construction Loan funding generally may be requested by the borrower from time to time, subject to satisfaction of certain conditions.

Previous wording

Funds from operations (“FFO”) and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, depreciation, amortization and impairment related to real estate properties, and after adjustments for unconsolidated partnerships and joint ventures.

Current wording

Funds from operations (“FFO”) and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, depreciation, amortization and impairment related to real estate properties, and after adjustments for unconsolidated partnerships and joint ventures. The Company also excludes the disposition-contingent lease termination fee relating to the sale of our property in Los Angeles, California in May 2024.

Previous wording

We compute normalized funds from operations (“Normalized FFO”) by adjusting FFO, as defined by NAREIT, to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and/or not related to our core real estate operations. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Normalized FFO and Normalized FFO per share provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of other companies, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis. Normalized FFO is used by management in evaluating the performance of our core business operations. Items included in calculating FFO that may be excluded in calculating Normalized FFO include certain transaction-related gains, losses, income or expense or other non-core amounts as they occur.

Current wording

We compute normalized funds from operations (“Normalized FFO”) by adjusting FFO, as defined by NAREIT, to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and/or not related to our core real estate operations. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Normalized FFO and Normalized FFO per share provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of other companies, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis. Normalized FFO is used by management in evaluating the performance of our core business operations. Items included in calculating FFO that may be excluded in calculating

Previous wording

For thethree months ended March 31, 2024, FFO (diluted), Normalized FFO and AFFO, and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock as if the Exchangeable Senior Notes were exchanged at the beginning of the respective reporting period. The Exchangeable Senior Notes matured in February 2024.

Current wording

For thesix months ended June 30, 2024, FFO (diluted), Normalized FFO and AFFO, and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock as if the Exchangeable Senior Notes were exchanged at the beginning of the respective reporting period. The Exchangeable Senior Notes matured in February 2024.

Previous wording

For the three months ended March 31, 2024, the performance share units (“PSUs”) granted to certain employees were not included in dilutive securities as the performance thresholds for vesting of the PSUs were not met as measured as of March 31, 2024. The PSUs expired on December 31, 2024.

Current wording

For the three and six months ended June 30, 2024, the performance share units (“PSUs”) granted to certain employees were included in dilutive securities to the extent the performance thresholds for vesting of the PSUs were met as measured as of June 30, 2024. The PSUs expired on December 31, 2024.

Previous wording

The table below is a reconciliation of net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the three months ended March 31, 2025 and 2024 (in thousands, except share and per share amounts):

Current wording

The table below is a reconciliation of net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the three and six months ended June 30, 2025 and 2024 (in thousands, except share and per share amounts):

Previous wording

(1)Amount reflects the non-refundable interest received on the seller-financed note issued to us by the buyer in connection with our disposition of a portfolio of four properties in southern California previously leased to affiliates of Medical Investor Holdings, which is recognized as a deposit liability and is included in other liabilities in our condensed consolidated balance sheet as of March 31, 2025, as the transaction did not qualify for recognition as a completed sale.

Current wording

(2)Amount reflects the non-refundable cash payments received pursuant to two seller-financed notes issued to us by the buyers in connection with our disposition of certain properties which are recognized as a deposit liability and is included in other liabilities in our consolidated balance sheet as of June 30, 2025, as the transactions did not qualify for recognition as completed sales.