PART I - Financial Information Financial Statements This section presents the unaudited consolidated financial statements for Innovative Industrial Properties, Inc. as of June 30, 2025, including Balance Sheets, Statements of Income, Stockholders' Equity, and Cash Flows, with detailed notes on accounting policies and significant events Consolidated Balance Sheets The Consolidated Balance Sheet as of June 30, 2025, shows a decrease in total assets to $2.31 billion from $2.38 billion at year-end 2024, primarily due to a reduction in cash and cash equivalents, with total liabilities also decreasing to $424.6 million and total stockholders' equity declining to $1.88 billion | Balance Sheet Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total Assets | $2,305,055 | $2,378,047 | | Net real estate held for investment | $2,146,770 | $2,168,782 | | Cash and cash equivalents | $99,666 | $146,245 | | Total Liabilities | $424,649 | $441,987 | | Notes due 2026, net | $289,861 | $297,865 | | Total Stockholders' Equity | $1,880,406 | $1,936,060 | Consolidated Statements of Income For the three months ended June 30, 2025, total revenues decreased to $62.9 million from $79.8 million year-over-year, leading to a significant drop in net income to $26.0 million from $42.0 million, with diluted EPS for the quarter at $0.86, down from $1.44 | Metric (in thousands, except EPS) | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $62,891 | $79,793 | -21.2% | | Net Income | $26,024 | $41,993 | -38.0% | | Diluted EPS | $0.86 | $1.44 | -40.3% | | Metric (in thousands, except EPS) | H1 2025 | H1 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $134,613 | $155,247 | -13.3% | | Net Income | $57,101 | $81,421 | -29.9% | | Diluted EPS | $1.90 | $2.79 | -31.9% | - An impairment loss on real estate of $3.5 million was recognized in the first six months of 2025, with no corresponding loss in 202415 Consolidated Statements of Stockholders' Equity During the six months ended June 30, 2025, stockholders' equity decreased from $1.94 billion to $1.88 billion, driven by net income of $57.1 million offset by $109.9 million in dividends and $20.1 million in common stock repurchases, alongside $13.2 million in preferred stock issuance - The company repurchased 371,538 shares of common stock for $20.1 million in the first six months of 202518 - Total dividends paid to common and preferred stockholders amounted to $109.9 million for the six months ended June 30, 202518 - Net proceeds from the issuance of Series A Preferred Stock were $13.2 million during the first half of 202518 Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash from operating activities decreased to $102.7 million from $135.8 million in the prior year, with investing activities using $22.9 million and financing activities using $126.4 million, resulting in a net decrease in cash and cash equivalents of $46.6 million | Cash Flow Activity (in thousands) | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $102,691 | $135,771 | | Net cash used in investing activities | ($22,912) | ($58,833) | | Net cash used in financing activities | ($126,358) | ($97,802) | | Net decrease in cash | ($46,579) | ($20,864) | Notes to the Consolidated Financial Statements The notes detail the company's accounting policies, operations as a REIT for the regulated cannabis industry, cash-basis revenue recognition, significant tenant concentrations, debt instruments, ongoing litigation, and a subsequent agreement to invest up to $170 million in IQHQ REIT - The company is an internally-managed REIT focused on acquiring and managing specialized industrial properties leased to state-licensed operators for regulated cannabis facilities25 - Due to the uncertain regulatory environment and tenant credit profiles in the cannabis industry, the company recognizes rental revenue on a cash basis46 | Top 5 Tenants by Rental Revenue | Q2 2025 % of Revenue | | :--- | :--- | | Ascend Wellness Holdings, Inc. | 13% | | Green Thumb Industries, Inc. | 10% | | Curaleaf Holdings, Inc. | 9% | | Trulieve Cannabis Corp. | 8% | | The Cannabist Company | 8% | - Subsequent to the quarter end, on August 6, 2025, the company agreed to purchase up to $170 million of preferred stock in IQHQ REIT and provide a $100 million commitment to its revolving credit facility131132 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting significant challenges from tenant defaults which drove a 21% YoY decline in Q2 rental revenue, its strategic initiative to refresh its tenant base, a new investment in IQHQ REIT, and details on liquidity, capital resources, and non-GAAP financial measures Overview As of June 30, 2025, the company owned 108 properties across 19 states, with a 98.6% lease rate on its 105 operating properties, having launched a strategic initiative to improve its tenant base after declaring defaults on several key tenants, and recently agreeing to invest in IQHQ REIT - The company owned 108 properties totaling 9.0 million square feet as of June 30, 2025, with a total investment of $2.5 billion139 - A strategic initiative was launched in March 2025 to refresh the tenant base due to defaults, with tenants in default including 4Front Ventures, Gold Flora, TILT Holdings, and PharmaCann, impacting a significant portion of contractual rent141144 - On August 6, 2025, the company agreed to invest up to $170 million in IQHQ REIT preferred stock and provide a $100 million commitment to its credit facility, signaling a potential expansion of its investment strategy145 Results of Operations Q2 2025 rental revenues fell 21% year-over-year to $62.9 million, primarily due to $15.3 million in tenant defaults and a $3.9 million one-time fee received in Q2 2024, leading to a significant drop in net income exacerbated by a $3.5 million impairment charge in H1 2025 - Q2 2025 rental revenue decreased by $16.4 million (21%) YoY, primarily driven by $15.3 million in tenant defaults163 - General and administrative expenses for Q2 2025 decreased by $1.1 million YoY, mainly due to lower non-cash stock-based compensation expense after performance share units (PSUs) were forfeited169 - Interest income decreased by $2.4 million in Q2 2025 compared to Q2 2024, due to less interest-bearing investments and lower cash interest received on a construction loan172 Liquidity and Capital Resources The company's primary liquidity source is rental income, with $291.2 million in Notes due 2026 planned for refinancing, and capital resources including cash on hand, an undrawn $87.5 million revolving credit facility, and an ATM program with $476.1 million remaining capacity, expected to be adequate for the next 12 months - The company has $291.2 million in principal outstanding on its 5.50% Senior Notes, which mature in May 2026 and are planned to be refinanced189 - The company has an at-the-market (ATM) offering program with $476.1 million of remaining capacity for common and preferred stock sales as of June 30, 2025187 - A $100.0 million common stock repurchase program was authorized in March 2025, expiring in March 2026, with 366,952 shares repurchased during Q2 2025190 Non-GAAP Financial Information This section provides reconciliations for non-GAAP metrics including Funds from Operations (FFO), Normalized FFO, and Adjusted Funds from Operations (AFFO), with Q2 2025 AFFO per diluted share decreasing to $1.71 from $2.29 in Q2 2024 | Per Diluted Share | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | FFO | $1.54 | $2.06 | -25.2% | | Normalized FFO | $1.56 | $2.06 | -24.3% | | AFFO | $1.71 | $2.29 | -25.3% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with its $291.2 million in Notes due 2026 having a fixed interest rate of 5.50%, while the Revolving Credit Facility carries a variable rate but had no outstanding borrowings as of June 30, 2025 - The company's outstanding debt consists of fixed-rate Notes due 2026, mitigating risk from rising interest rates on that instrument224 - The Revolving Credit Facility carries a variable interest rate, exposing the company to risk if drawn upon, but it was undrawn as of the reporting date221224 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting occurring during the quarter - Management concluded that disclosure controls and procedures were effective as of June 30, 2025226 - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls227 PART II - Other Information Legal Proceedings The company is involved in several federal securities class action lawsuits and shareholder derivative actions alleging false or misleading statements, which it intends to vigorously defend without accruing liabilities due to unpredictable outcomes - The company is a defendant in multiple federal securities class action lawsuits and shareholder derivative actions116119123 - The company intends to defend all lawsuits vigorously and cannot predict their probable outcomes; therefore, no related liabilities have been accrued122127 Risk Factors There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K, though current macroeconomic conditions and cannabis industry-specific challenges have heightened many previously disclosed risks, particularly those related to tenant defaults and cash flow generation - No material changes have been made to the risk factors previously disclosed in the Annual Report on Form 10-K230231 - Macroeconomic and industry-specific challenges have heightened existing risks, such as those related to tenant defaults and the ability to service debt and pay dividends231 Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered equity securities during the six months ended June 30, 2025, but repurchased 366,952 shares of common stock for approximately $19.8 million under its publicly announced share repurchase plan during the three-month period | Period | Total Shares Purchased | Weighted Avg. Price Paid | Value of Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | April 2025 | 366,952 | $53.98 | $79,904,000 | | May 2025 | — | — | — | | June 2025 | — | — | — | | Total Q2 2025 | 366,952 | $53.98 | $79,904,000 | Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None234 Mine Safety Disclosures This item is not applicable to the company - Not applicable235 Other Information During the six months ended June 30, 2025, no director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading agreement - No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading plan during the first six months of 2025236 Exhibits This section lists the exhibits filed with the quarterly report, including officer certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL data files - The report includes CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and Inline XBRL filings as required237
Innovative Industrial Properties(IIPR) - 2025 Q2 - Quarterly Report