UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________

Commission file number: 001-37949

Innovative Industrial Properties, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	81-2963381
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)
1389 Center Drive, Suite 200 Park City, UT 84098	(858) 997-3332
(Address of principal executive offices)	(Registrant’s telephone number)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols (s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	IIPR	New York Stock Exchange
Series A Preferred Stock, par value $0.001 per share	IIPR-PA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company  ☐
			Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of August 6, 2020 there were 21,700,428 shares of common stock outstanding.

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

FORM 10-Q – QUARTERLY REPORT

JUNE 30, 2020

TABLE OF CONTENTS

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

2

PART I

ITEM 1. FINANCIAL STATEMENTS

Innovative Industrial Properties, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

	June 30,		December 31,
	2020		2019
Assets
Real estate, at cost:
Land	$	58,467	$	48,652
Buildings and improvements		530,274		382,035
Tenant improvements		226,651		87,344
Total real estate, at cost		815,392		518,031
Less accumulated depreciation		(23,823)		(12,170)
Net real estate held for investment		791,569		505,861
Cash and cash equivalents		50,174		82,244
Restricted cash		11,468		35,072
Short-term investments, net		323,255		119,595
Right of use office lease asset		1,091		1,202
Other assets, net		1,591		1,883
Total assets	$	1,179,148	$	745,857
Liabilities and stockholders’ equity
Exchangeable senior notes, net	$	135,661	$	134,654
Tenant improvements and construction funding payable		22,781		24,968
Accounts payable and accrued expenses		3,235		3,417
Dividends payable		20,108		12,975
Office lease liability		1,149		1,202
Rent received in advance and tenant security deposits		26,243		20,631
Total liabilities		209,177		197,847
Commitments and contingencies (Notes 6 and 11)
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 50,000,000 shares authorized: 9.00% Series A cumulative redeemable preferred stock, $15,000 liquidation preference ($25.00 per share), 600,000 shares issued and outstanding at June 30, 2020 and December 31, 2019		14,009		14,009
Common stock, par value $0.001 per share, 50,000,000 shares authorized: 18,614,561 and 12,637,043 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		19		13
Additional paid-in capital		988,220		553,932
Dividends in excess of earnings		(32,277)		(19,944)
Total stockholders’ equity		969,971		548,010
Total liabilities and stockholders’ equity	$	1,179,148	$	745,857

See the accompanying notes to the condensed consolidated financial statements.

3

Innovative Industrial Properties, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except share and per share amounts)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenues:
Rental (including tenant reimbursements)	$	24,346	$	8,617	$	45,476	$	15,440
Total revenues		24,346		8,617		45,476		15,440
Expenses:
Property expenses		414		337		1,014		584
General and administrative expense		3,010		2,593		6,356		4,511
Depreciation expense		6,746		1,615		11,653		2,833
Total expenses		10,170		4,545		19,023		7,928
Income from operations		14,176		4,072		26,453		7,512
Interest and other income		989		1,172		2,433		2,165
Interest expense		(1,855)		(1,832)		(3,704)		(2,624)
Net income		13,310		3,412		25,182		7,053
Preferred stock dividend		(338)		(338)		(676)		(676)
Net income attributable to common stockholders	$	12,972	$	3,074	$	24,506	$	6,377
Net income attributable to common stockholders per share (Note 8):
Basic	$	0.73	$	0.31	$	1.46	$	0.64
Diluted	$	0.73	$	0.30	$	1.45	$	0.64
Weighted average shares outstanding:
Basic		17,530,721		9,667,079		16,657,509		9,665,933
Diluted		17,644,829		9,807,503		16,771,460		9,802,616

See accompanying notes to the condensed consolidated financial statements.

4

Innovative Industrial Properties, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

	Three Months Ended June 30, 2020											Three Months Ended June 30, 2019
	Series A		Shares of			Additional		Dividends in		Total		Series A		Shares of			Additional		Dividends in		Total
	Preferred		Common	Common		Paid-In-		Excess of		Stockholders’		Preferred		Common	Common		Paid-In		Excess of		Stockholders’
	Stock		Stock	Stock		Capital		Earnings		Equity		Stock		Stock	Stock		Capital		Earnings		Equity
Balances at beginning of period	$	14,009	17,035,674	$	17	$	870,433	$	(25,480)	$	858,979	$	14,009	9,806,194	$	10	$	265,733	$	(11,376)	$	268,376
Net income		—	—		—		—		13,310		13,310		—	—		—		—		3,412		3,412
Net proceeds from sale of common stock		—	1,577,748		2		116,965		—		116,967		—	—		—		—		—		—
Net issuance of unvested restricted stock		—	1,139		—		—		—		—		—	2,977		—		—		—		—
Preferred stock dividend		—	—		—		—		(338)		(338)		—	—		—		—		(338)		(338)
Common stock dividend		—	—		—		—		(19,769)		(19,769)		—	—		—		—		(5,885)		(5,885)
Stock-based compensation		—	—		—		822		—		822		—	—		—		623		—		623
Balances at end of period	$	14,009	18,614,561	$	19	$	988,220	$	(32,277)	$	969,971	$	14,009	9,809,171	$	10	$	266,356	$	(14,187)	$	266,188

	Six Months Ended June 30, 2020											Six Months Ended June 30, 2019
	Series A		Shares of			Additional		Dividends in		Total		Series A		Shares of			Additional		Dividends in		Total
	Preferred		Common	Common		Paid-In		Excess of		Stockholders’		Preferred		Common	Common		Paid-In		Excess of		Stockholders’
	Stock		Stock	Stock		Capital		Earnings		Equity		Stock		Stock	Stock		Capital		Earnings		Equity
Balances at beginning of period	$	14,009	12,637,043	$	13	$	553,932	$	(19,944)	$	548,010	$	14,009	9,775,800	$	10	$	260,540	$	(10,267)	$	264,292
Net income		—	—		—		—		25,182		25,182		—	—		—		—		7,053		7,053
Equity component of exchangeable senior notes		—	—		—		—		—		—		—	—		—		5,569		—		5,569
Issuance of exchangeable senior notes		—	14		—		1		—		1		—	—		—		—		—		—
Net proceeds from sale of common stock		—	5,988,999		6		434,806		—		434,812		—	—		—		—		—		—
Net issuance of unvested restricted stock		—	(11,495)		—		(2,166)		—		(2,166)		—	33,371		—		(939)		—		(939)
Preferred stock dividend		—	—		—		—		(676)		(676)		—	—		—		—		(676)		(676)
Common stock dividend		—	—		—		—		(36,839)		(36,839)		—	—		—		—		(10,297)		(10,297)
Stock-based compensation		—	—		—		1,647		—		1,647		—	—		—		1,186		—		1,186
Balances at end of period	$	14,009	18,614,561	$	19	$	988,220	$	(32,277)	$	969,971	$	14,009	9,809,171	$	10	$	266,356	$	(14,187)	$	266,188

See accompanying notes to the condensed consolidated financial statements.

5

Innovative Industrial Properties, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	For the Six Months Ended
	June 30,
	2020		2019
Cash flows from operating activities
Net income	$	25,182	$	7,053
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		11,653		2,833
Other non-cash adjustments		97		—
Stock-based compensation		1,647		1,186
Amortization of discounts on short-term investments		(1,910)		(1,843)
Amortization of debt discounts and issuance costs		1,008		692
Changes in assets and liabilities
Other assets, net		3		(77)
Accounts payable and accrued expenses		(182)		1,551
Rent received in advance and tenant security deposits		5,612		3,222
Net cash provided by operating activities		43,110		14,617
Cash flows from investing activities
Purchases of investments in real estate		(138,319)		(62,163)
Reimbursements of tenant improvements and construction funding		(160,579)		(19,878)
Deposits in escrow for acquisitions		(400)		(750)
Purchases of short-term investments		(388,750)		(116,945)
Maturities of short-term investments		187,000		100,500
Net cash used in investing activities		(501,048)		(99,236)
Cash flows from financing activities
Issuance of common stock, net of offering costs		434,812		(74)
Net proceeds from issuance of exchangeable senior notes		—		138,545
Dividends paid to common stockholders		(29,706)		(7,833)
Dividends paid to preferred stockholders		(676)		(676)
Taxes paid related to net share settlement of equity awards		(2,166)		(939)
Net cash provided by financing activities		402,264		129,023
Net increase in cash, cash equivalents and restricted cash		(55,674)		44,404
Cash, cash equivalents and restricted cash, beginning of period		117,316		13,050
Cash, cash equivalents and restricted cash, end of period	$	61,642		57,454
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	2,696	$	—
Supplemental disclosure of non-cash investing and financing activities:
Accrual for reimbursements of tenant improvements and construction funding	$	22,781	$	8,823
Deposits applied for acquisitions		650		—
Accrual for common and preferred stock dividends declared		20,108		6,223
Accrual for stock issuance costs		55		64
Exchange of exchangeable senior notes		1		—

See accompanying notes to the condensed consolidated financial statements.

6

Innovative Industrial Properties, Inc.

Notes to the Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)

1. Organization

As used herein, the terms “we”, “us”, “our” or the “Company” refer to Innovative Industrial Properties, Inc., a Maryland corporation, and any of our subsidiaries, including IIP Operating Partnership, LP, a Delaware limited partnership (our “Operating Partnership”).

We are an internally-managed real estate investment trust (“REIT”) focused on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated state-licensed cannabis facilities. We have acquired and intend to continue to acquire our properties through sale-leaseback transactions and third-party purchases. We have leased and expect to continue to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, taxes and insurance.

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.

2. Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements

Basis of Presentation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements.

This interim financial information should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Any references to square footage or occupancy percentage, and any amounts derived from these values in these notes to condensed consolidated financial statements, are outside the scope of our independent registered public accounting firm’s review.

The Company considered the impact of COVID-19 on its assumptions and estimates used and determined that there were no material adverse impacts on the Company's results of operations and financial position at June 30, 2020. A prolonged outbreak could have a material adverse impact on the financial results and business operations of the Company. See Note 6 for further discussion.

Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. This interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2020.

Federal Income Taxes. We believe that we have operated our business so as to qualify to be taxed as a REIT for U.S. federal income tax purposes. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income, we generally will not be required to pay federal corporate income taxes on such income. The income taxes recorded on our condensed consolidated statements of income represent amounts paid for city and state income and franchise taxes and are included in general and administrative expenses in the accompanying condensed consolidated statements of income.

7

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from these estimates and assumptions.

Reportable Segment. We are engaged in the business of providing real estate for the regulated cannabis industries. Our properties are similar in that they are leased to the state-licensed operators on long-term triple-net basis, consist of improvements that are reusable and have similar economic characteristics. Our chief operating decision maker reviews financial information for our entire consolidated operations when making decisions related to assessing our operating performance. We have aggregated the properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities, including the fact that they are operated using consistent business strategies. The financial information disclosed herein represents all of the financial information related to our one reportable segment.

Acquisition of Real Estate Properties. Our investment in real estate is recorded at historical cost, less accumulated depreciation. Upon acquisition of a property, the tangible and intangible assets acquired and liabilities assumed are initially measured based upon their relative fair values. We estimate the fair value of land by reviewing comparable sales within the same submarket and/or region, the fair value of buildings on an as-if vacant basis and may engage third-party valuation specialists. Acquisition costs are capitalized as incurred. All of our acquisitions to date were recorded as asset acquisitions.

Depreciation. We are required to make subjective assessments as to the estimated useful lives of our depreciable assets. We consider the period of future benefit of the assets to determine the appropriate estimated useful lives. Depreciation of our assets is charged to expense on a straight-line basis over the estimated useful lives. We depreciate each of our buildings and improvements over its estimated remaining useful life, generally not to exceed 40 years. We depreciate tenant improvements at our buildings over the shorter of the estimated useful lives or the terms of the related leases.

We depreciate office equipment and furniture and fixtures over estimated useful lives ranging from three to six years. We depreciate the leasehold improvements at our corporate office over the shorter of the estimated useful lives or the initial lease term.

Provision for Impairment. On a quarterly basis, we review current activities and changes in the business conditions of all of our properties prior to and subsequent to the end of each quarter to determine the existence of any triggering events or impairment indicators requiring an impairment analysis. If triggering events or impairment indicators are identified, we review an estimate of the future undiscounted cash flows for the properties, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration.

Long-lived assets are individually evaluated for impairment when conditions exist that may indicate that the carrying amount of a long-lived asset may not be recoverable. The carrying amount of a long-lived asset to be held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment indicators or triggering events for long-lived assets to be held and used are assessed by project and include significant fluctuations in estimated net operating income, occupancy changes, significant near-term lease expirations, current and historical operating and/or cash flow losses, construction costs, estimated completion dates, rental rates, and other market factors. We assess the expected undiscounted cash flows based upon numerous factors, including, but not limited to, construction costs, available market information, current and historical operating results, known trends, current market/economic conditions that may affect the property, and our assumptions about the use of the asset, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration. Upon determination that an impairment has occurred, a write-down is recognized to reduce the carrying amount to its estimated fair value. We may adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives. No impairment losses were recognized during the six months ended June 30, 2020 and 2019.

8

Revenue Recognition. Our leases are triple-net leases, an arrangement under which the tenant maintains the property while paying us rent. We account for our current leases as operating leases and record revenue for each of our properties on a cash basis due to the uncertain regulatory environment in the United States relating to the regulated cannabis industry and the uncertainty of collectability of lease payments from each tenant due to its limited operating history. Contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses are included in rental revenue in the period when such costs are reimbursed by the tenants. Contractually obligated real estate taxes that are paid directly by the tenant to the tax authorities are not reflected in our condensed consolidated financial statements.

Cash and Cash Equivalents and Restricted Cash. We consider all highly-liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, 2020 and December 31, 2019, $49.1 million and $60.1 million, respectively, were invested in short-term money market funds, obligations of the U.S. government and certificates of deposit with an original maturity at the time of purchase of less than or equal to three months.

Restricted cash relates to cash held in an escrow account for the reimbursement of tenant improvements for tenants in accordance with the lease agreement at two of our properties.

Investments. Investments consist of obligations of the U.S. government and certificates of deposit with an original maturity at the time of purchase of greater than three months. Investments are classified as held-to-maturity and stated at amortized cost.

Exchangeable Notes. The “Debt with Conversion and Other Options” Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification requires the liability and equity components of exchangeable debt instruments that may be settled in cash upon exchange, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonexchangeable debt borrowing rate. The initial proceeds from the sale of exchangeable notes were allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonexchangeable debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. We measured the estimated fair value of the debt component of our Exchangeable Senior Notes (as defined below) as of the respective issuance dates based on our estimated nonexchangeable debt borrowing rate with the assistance of a third-party valuation specialist as we do not have a history of borrowing arrangements and there is limited empirical data available related to the Company’s industry due to the regulatory uncertainty of the cannabis market in which the Company’s tenants operate. The equity component of our Exchangeable Senior Notes is reflected within additional paid-in capital on our condensed consolidated balance sheets, and the resulting debt discount is amortized over the period during which the Exchangeable Senior Notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense. The additional non-cash interest expense attributable to our Exchangeable Senior Notes will increase in subsequent periods through the maturity date as the Exchangeable Senior Notes accrete to the par value over the same period.

Deferred Financing Costs. The deferred financing costs that are included as a reduction in the net book value of the related liability on our condensed consolidated balance sheets reflect issuance and other costs related to our Exchangeable Senior Notes. These costs are amortized as non-cash interest expense using the effective interest method over the life of the Exchangeable Senior Notes.

Stock-Based Compensation. Stock-based compensation for equity awards is based on the grant date fair value of the equity awards and is recognized over the requisite service period. If awards are forfeited prior to vesting, we reverse any previously recognized expense related to such awards in the period during which the forfeiture occurs and reclassify any non-forfeitable dividends and dividend equivalents previously paid on these awards from retained earnings to compensation expense. Forfeitures are recognized as incurred.

9

Lease Accounting. As lessor for each of our real estate transactions involving the leaseback of the related property to the seller or affiliates of the seller, we determine whether these transactions qualify as sale and leaseback transactions under the accounting guidance. For these transactions, we consider various inputs and assumptions including, but not necessarily limited to, lease terms, renewal options, discount rates, and other rights and provisions in the purchase and sale agreement, lease and other documentation to determine whether control has been transferred to the Company or remains with the lessee. A transaction involving a sale leaseback will be treated as a purchase of a real estate property if it is considered to transfer control of the underlying asset from the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control. Otherwise, the lease is treated as an operating lease. These criteria also include estimates and assumptions regarding the fair value of the leased facilities, minimum lease payments, the economic useful life of the facilities, the existence of a purchase option, and certain other terms in the lease agreements. The lease accounting guidance requires accounting for a transaction as a financing in a sale leaseback when the seller-lessee is provided an option to purchase the property from the landlord at the tenant’s option. All of our leases are classified as operating leases. Our tenant reimbursable revenue and property expenses are presented on a gross basis as rental revenue and as property expenses, respectively, on our condensed consolidated statements of income.

In April 2020, in response to the coronavirus pandemic and associated severe economic disruption, we amended leases at certain of our properties to provide for temporary base rent and property management fee deferrals through June 30, 2020. The FASB has issued additional guidance for companies to account for any coronavirus related rent concessions in the form of FASB staff and board members’ remarks at the April 8, 2020 public meeting and the FASB staff question-and-answer document issued on April 10, 2020. We have elected the practical expedient which allows us to not have to evaluate whether concessions provided in response to the coronavirus pandemic are lease modifications. This relief is subject to certain conditions being met, including ensuring the total remaining lease payments are substantially the same or less as compared to the original lease payments prior to the concession being granted.

One of our leases that was entered into prior to 2019 provides the lessee with a purchase option to purchase the leased property at the end of the initial lease term in September 2034, subject to the satisfaction of certain conditions. The purchase option provision allows the lessee to purchase the leased property at the greatest of (a) the fair value; (b) the value determined by dividing the then-current base rent by 8%; and (c) an amount equal to our gross investment in the property (including the purchase price at acquisition and any additional investment in the property made by us during the term of the lease), indexed to inflation. At June 30, 2020, our gross investment in the property with the purchase option was approximately $30.5 million. At June 30, 2020, the purchase option was not exercisable.

Our leases generally contain options to extend the lease terms at the prevailing market rate or at the expiring rental rate at the time of expiration. Certain of our leases provide the lessee with a right of first refusal or right of first offer in the event we market the leased property for sale.

Recent Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, which among other updates, clarifies that receivables arising from operating leases are not within the scope of this guidance and should be evaluated in accordance with Topic 842. For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. These standards were effective for the Company on January 1, 2020 and did not have a material impact on our condensed consolidated financial statements.

Concentration of Credit Risk. As of June 30, 2020, we owned 58 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New York, North Dakota, Ohio, Pennsylvania and Virginia. The ability of any of our tenants to honor the terms of their leases is dependent upon the economic, regulatory, competition, natural and social factors affecting the community in which that tenant operates.

10

The following table sets forth the tenants in our portfolio that represented the largest percentage of our total rental revenue for each period presented, including tenant reimbursements:

	For the Three Months Ended			For the Six Months Ended
	June 30, 2020			June 30, 2020
		Percentage of			Percentage of
	Number of	Rental		Number of	Rental
	Leases	Revenue		Leases	Revenue
PharmaCann Inc.(1)	5	21	%	5	22	%
Ascend Wellness Holdings, LLC(1)	3	12	%	3	11	%
Cresco Labs Inc.(1)	5	9	%	5	8	%
Vireo Health, Inc.(1)	4	6	%	4	6	%
SH Parent, Inc. (Parallel) (1)	1	6	%	1	4	%

	For the Three Months Ended			For the Six Months Ended
	June 30, 2019			June 30, 2019
		Percentage of			Percentage of
	Number of	Rental		Number of	Rental
	Leases	Revenue		Leases	Revenue
PharmaCann Inc.(1)	3	28	%	3	29	%
Holistic Industries Inc.(1)	2	13	%	2	15	%
Vireo Health, Inc.(1)	4	10	%	4	11	%
Ascend Wellness Holdings, LLC(1)	1	10	%	1	11	%
Kings Garden Inc. (1)	5	10	%	5	5	%
The Pharm, LLC	1	8	%	1	9	%
Green Peak Industries, LLC	1	7	%	1	7	%

(1)     Includes leases with affiliates of the entity, for which the entity has provided a corporate guaranty.

At June 30, 2020, we had a property in each of Florida, Michigan, and Pennsylvania that individually accounted for approximately 5% of our net real estate held for investment. At December 31, 2019, one of our properties in New York accounted for approximately 6% of our net real estate held for investment.

We have deposited cash with a financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2020, we had cash accounts in excess of FDIC insured limits. We have not experienced any losses in such accounts.

3. Common Stock

As of June 30, 2020, the Company was authorized to issue up to 50,000,000 shares of common stock, par value $0.001 per share, and there were 18,614,561 shares of common stock issued and outstanding.

In January 2020, we issued 3,412,969 shares of common stock, including the exercise in full of the underwriters' option to purchase an additional 445,170 shares, resulting in net proceeds of approximately $239.6 million.

In May 2020, we issued 1,550,648 shares of common stock, including the exercise in full of the underwriter’s option to purchase an additional 202,259 shares, resulting in net proceeds of approximately $114.9 million.

Subsequent to June 30, 2020, in July 2020, we issued 3,085,867 shares of common stock, including the exercise in full of the underwriters' option to purchase an additional 402,504 shares, resulting in gross proceeds of approximately $258.7 million.

In September 2019, we entered into equity distribution agreements with three sales agents, pursuant to which we may offer and sell from time to time through an “at-the-market” offering program, or ATM Program, up to $250.0 million in shares of our common stock. During the three months ended June 30, 2020, we sold 27,100 shares of our common stock for net proceeds of approximately $2.1 million under the ATM Program, which includes the payment of approximately $42,000 to one sales agent as commission for such sales. During the six months ended June 30, 2020, we sold 1,025,382 shares of our common stock for net proceeds of approximately $80.3 million under the ATM Program, which includes the payment of approximately $1.6 million to one sales agent as commission for such sales.

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4. Preferred Stock

As of June 30, 2020, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $0.001 per share, and there were issued and outstanding 600,000 shares of 9.00% Series A Cumulative Redeemable Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”). Generally, the Company is not permitted to redeem the Series A Preferred Stock prior to October 19, 2022, except in limited circumstances relating to the Company’s ability to qualify as a REIT and in certain other circumstances related to a change of control/delisting (as defined in the articles supplementary for the Series A Preferred Stock). On or after October 19, 2022, the Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends on such Series A Preferred Stock up to, but excluding the redemption date. Holders of the Series A Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances.

5. Dividends

The following table describes the dividends declared by the Company during the six months ended June 30, 2020:

		Amount
		Per			Dividend
Declaration Date	Security Class	Share		Period Covered	Paid Date	Dividend Amount
						(In thousands)
March 13, 2020	Common Stock	$	1.00	January 1, 2020 to March 31, 2020	April 15, 2020	$	17,070
March 13, 2020	Series A preferred stock	$	0.5625	January 15, 2020 to April 14, 2020	April 15, 2020	$	338
June 15, 2020	Common Stock	$	1.06	April 1, 2020 to June 30, 2020	July 15, 2020	$	19,770
June 15, 2020	Series A preferred stock	$	0.5625	April 15, 2020 to July 14, 2020	July 15, 2020	$	338

6. Investments in Real Estate

Acquisitions

The Company acquired the following properties during the six months ended June 30, 2020 (dollars in thousands):

			Rentable
			Square	Purchase		Transaction
Property	Market	Closing Date	Feet (1)	Price		Costs		Total
Green Leaf VA	Virginia	January 15, 2020	82,000	$	11,740		73		11,813	(2)
Cresco OH	Ohio	January 24, 2020	50,000		10,600		12		10,612	(3)
GTI OH	Ohio	January 31, 2020	21,000		2,900		27		2,927	(4)
LivWell CO - Retail Portfolio	Colorado	Various	8,000		3,300		27		3,327	(5)
GTI IL	Illinois	March 6, 2020	231,000		9,000		23		9,023	(6)
Parallel FL	Florida	March 11, 2020	373,000		35,300		26		35,326	(7)
Ascend MA	Massachusetts	April 2, 2020	199,000		26,750		20		26,770	(8)
Cresco MI	Michigan	April 22, 2020	115,000		5,000		16		5,016	(9)
Kings Garden CA	California	May 12, 2020	70,000		17,500		9		17,509
Holistic PA	Pennsylvania	June 10, 2020	108,000		8,870		12		8,882	(10)
Cresco MA	Massachusetts	June 30, 2020	118,000		7,750		14		7,764	(11)
Total			1,375,000	$	138,710	$	259	$	138,969	(12)

(1) Includes expected rentable square feet at completion of construction of certain properties.

(2) The tenant is expected to complete development of the property for which we have agreed to provide reimbursement of up to approximately $8.0 million. As of June 30, 2020, we incurred and funded the entire $8.0 million.

(3) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to approximately $1.9 million. In June, we amended the lease, which increased the tenant improvement allowance by $1.0 million to a total of approximately $2.9 million. Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $13.5 million. As of June 30, 2020, we incurred approximately $106,000 of the redevelopment costs, of which none was funded.

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(4) The tenant is expected to complete redevelopment of the property for which we have agreed to provide reimbursement of up to $4.3 million. As of June 30, 2020, we incurred approximately $4.1 million of the redevelopment costs, of which we funded approximately $3.7 million.

(5) The portfolio consists of two retail properties, with one property closing on February 19, 2020 and one property closing on February 21, 2020. The tenant is expected to complete tenant improvements at one of the properties, for which we agreed to provide reimbursement of up to $850,000. As of June 30, 2020, we incurred and funded approximately $49,000 of the redevelopment costs.

(6) The tenant is expected to complete redevelopment of the property for which we have agreed to provide reimbursement of up to $41.0 million. As of June 30, 2020, we incurred approximately $14.8 million of the redevelopment costs, of which we funded approximately $13.5 million.

(7) The tenant is expected to complete redevelopment of the property for which we have agreed to provide reimbursement of up to $8.2 million. As of June 30, 2020, we incurred approximately $1.1 million of the redevelopment costs, of which none was funded.

(8) The tenant is expected to complete redevelopment of the property, for which we have agreed to provide reimbursement of up to approximately $22.3 million. As of June 30, 2020, we incurred approximately $2.3 million of the redevelopment costs, of which we funded approximately $1.4 million.

(9) The tenant is expected to complete redevelopment of the property, for which we originally agreed to provide reimbursement of up to $11.0 million. In June, we amended the lease, which increased the tenant improvement allowance by $16.0 million to a total of $27.0 million. As of June 30, 2020, we incurred approximately $53,000 of the redevelopment costs, of which none was funded.

(10) The tenant is expected to complete redevelopment of the property, for which we have agreed to provide reimbursement of up to approximately $6.4 million. As of June 30, 2020, we incurred approximately $2.4 million of the redevelopment costs, of which none was funded.

(11) The tenant is expected to complete redevelopment of the property, for which we have agreed to provide reimbursement of up to $21.0 million. As of June 30, 2020, we incurred none of the redevelopment costs.

(12) Approximately $9.8 million was allocated to land and approximately $129.1 million was allocated to buildings and improvements.

The properties acquired during the three and six months ended June 30, 2020 generated approximately $1.9 million and $5.5 million of rental revenue (including tenant reimbursements), respectively, and approximately $1.6 million and $4.1 million of net operating income, respectively, after deducting property and depreciation expenses. The properties acquired during the three and six months ended June 30, 2019 generated approximately $1.2 million and $2.2 million of rental revenue (including tenant reimbursements), respectively, and approximately $862,000 and $1.6 million of net operating income, respectively, after deducting property and depreciation expenses.

Lease Amendments

In January 2020, we amended our lease with Green Peak Industries, LLC (“GPI”) which, among other things, canceled the remaining tenant improvement allowance of approximately $15.2 million and adjusted the corresponding base rent. As of June 30, 2020, our total investment in the property was approximately $15.8 million.

In January 2020, we amended our lease with a subsidiary of Vireo Health, Inc. ("Vireo") at one of our Pennsylvania properties, making available an additional $4.5 million in funding for tenant improvements at the property. In April 2020, we amended the lease to decrease the funding for tenant improvements at the property by $300,000; as a result, the total tenant improvement allowance for the property is approximately $8.0 million, and assuming full payment of the allowance, our total investment in the property will be $13.8 million. As of June 30, 2020, we incurred approximately $7.4 million of the redevelopment costs, of which approximately $7.3 million was funded.

In January 2020, we amended our lease with a subsidiary of The Pharm, LLC at one of our Arizona properties, making available an additional $2.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $5.0 million. As of June 30, 2020, we funded the full amount of the redevelopment costs, making our total investment in the property $20.0 million.

In January 2020, we amended our lease with the tenant of our Sacramento, California property, making available an additional approximately $1.3 million in funding for tenant improvements at the property, and making the total tenant improvement allowance approximately $6.0 million. As of June 30, 2020, we funded the full amount of the redevelopment costs, and our total investment in the property was approximately $12.7 million.

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In February 2020, we amended our lease with a subsidiary of Maitri Medicinals, LLC ("Maitri") at one of our Pennsylvania properties, making available an additional $6.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $16.0 million. Assuming full payment of the additional funding, our total investment in the property will be approximately $22.3 million. As of June 30, 2020, we incurred approximately $11.9 million of the redevelopment costs, of which approximately $11.2 million was funded.

In February 2020, we amended our lease and development agreement with a subsidiary of PharmaCann at one of our Massachusetts properties, making available an additional $4.0 million in construction funding at the property. Assuming full payment of the additional construction funding, our total construction funding will be $27.5 million and our total investment in the property will be $30.5 million. We also canceled the optional commitment to provide construction funding of $4.0 million for PharmaCann at one of our Pennsylvania properties. As of June 30, 2020, we incurred $27.5 million of the construction funding at the Massachusetts property, of which approximately $27.4 million was funded.

In March 2020, we amended our lease with a subsidiary of Holistic Industries Inc. at our Maryland property, making available a $5.5 million tenant improvement allowance at the property. Assuming full payment of the funding, our total investment in the property will be $22.4 million. As of June 30, 2020, we incurred approximately $3.9 million of the redevelopment costs, of which approximately $2.2 million was funded.

In April 2020, we amended our leases with two subsidiaries of Vireo for one of our properties in New York and our property in Minnesota, making available an additional approximately $1.4 million in funding for tenant improvements at the properties in the aggregate, and making the total tenant improvement allowances approximately $10.1 million in the aggregate. Assuming full payment of the funding, our total investment in the property in New York will be approximately $6.8 million and our total investment in the property in Minnesota will be approximately $9.7 million. As of June 30, 2020, we incurred approximately $10.1 million of the tenant improvement allowances, of which approximately $9.7 million was funded.

In response to the coronavirus pandemic and associated severe economic disruption, in April 2020, we amended leases at certain of our properties to provide for temporary base rent and property management fee deferrals through June 30, 2020. Each of the tenants remained responsible for the payment of all other costs under the applicable lease during the deferral period.

● We amended each of our leases with GPI in Michigan to apply a part of GPI's security deposit at each property for payment of the April 2020 base rent and property management fee, defer the base rent and property management fee for May and June 2020, and amortize the replenishment of the security deposit and payment of the base rent and property management fee deferral over an 18 month period commencing on July 1, 2020.

● We amended our lease with Maitri in Pennsylvania to apply a part of Maitri's security deposit for payment of the April 2020 base rent and property management fee, defer the base rent and property management fee for May and June 2020, and amortize the replenishment of the security deposit and the base rent and property management fee deferral over an 18 month period commencing on July 1, 2020.

● We amended each of our leases with affiliates of Medical Investor Holdings LLC ("Vertical") in southern California to apply a part of Vertical's security deposit at each property for a partial payment of the March 2020 base rent and property management fee and payment in full of the April 2020 base rent and property management fee, defer the base rent and property management fee for May and June 2020, and amortize the replenishment of the security deposit and payment of the base rent and property management fee deferral over an 18 month period commencing on July 1, 2020.

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Pursuant to these amendments, (1) a total of approximately $940,000 of security deposits was applied to the payment of base rent, property management fees and associated lease penalties for March and April 2020, including approximately $185,000 related to the partial payment of base rent and property management fees by Vertical for March 2020; (2) a total of approximately $743,000 in base rent and property management fees was deferred for May 2020; (3) a total of approximately $781,000 in base rent and property management fees was deferred for June 2020; and (4) a total of approximately $52,000 per month in replenishment of security deposits and approximately $85,000 per month in repayments of base rent and property management fee deferrals are required to be paid each month over an 18 month period commencing on July 1, 2020.

In June 2020, we amended our lease and development agreement with a subsidiary of PharmaCann at one of our Illinois properties, making available an additional $3.0 million in construction funding at the property. Assuming full payment of the additional construction funding, our total construction funding will be $10.0 million and our total investment in the property will be $28.0 million. As of June 30, 2020, we incurred approximately $