Innovative Industrial Properties, Inc. (NYSE:IIPR) Files An 8-K Entry into a Material Definitive Agreement

Item1.01.Entry into a Material Definitive Agreement.

On May 1, 2017, Innovative Industrial Properties, Inc. (the
Company), through its operating partnership subsidiary, IIP
Operating Partnership, LP, entered into a definitive purchase and
sale agreement (the Purchase Agreement) with PGHI LLC (Seller) to
acquire Seller’s property located at 9220 Alaking Court in
Capitol Heights, Maryland (the Property), where a two-story
medical-use cannabis cultivation facility is currently under
development and is expected to comprise approximately 72,000
square feet upon completion (the Building). Concurrent with the
closing of the acquisition of the Property, the Company expects
to enter into a triple-net lease (the Lease) with tenant Holistic
Industries LLC (Holistic) for the entire Property, the form of
which is attached as an exhibit to the Purchase Agreement.
Holistic is one of 15 applicants in the state of Maryland to have
received provisional approval for the cultivation of medical-use
cannabis by the Maryland Medical Cannabis Commission (the MMCC),
having also received provisional approval from the MMCC for
processing and dispensing. Holistic intends to operate the
Property as a medical-use cannabis cultivation facility.

The initial purchase price for the Property is $8 million (the
Initial Purchase Price). Upon completion of certain development
milestones and the satisfaction of other conditions described in
the Purchase Agreement, the Company has agreed to pay to Seller
up to an additional $3 million (the Additional Purchase Price) as
reimbursement for the additional costs incurred by Seller in the
development of the Building.

Under the Lease, the Company is expected to reimburse Holistic
for up to $4 million in tenant improvements for the Building (the
TI Allowance, and together with the Initial Purchase Price and
the Additional Purchase Price, the Aggregate Consideration),
which Holistic is obligated to complete and request reimbursement
for on or prior to December 31, 2017. The Company’s obligation
to pay the TI Allowance is contingent upon the satisfaction of
certain conditions as described in the Lease, including delivery
of a certificate of occupancy and written confirmation of final
approval from the MMCC for Holistic to commence medical-use
cannabis cultivation operations at the Property. The Company
intends to fund the Aggregate Consideration in cash using a
portion of the remaining proceeds from its initial public
offering completed in December 2016.

The initial Lease term is 16 years, with three options to extend
the term for three additional five-year periods at a base rent
equal to the fair market rent for similar space in the Capitol
Heights, Maryland market. The initial annualized base rent (the
Initial Base Rent) under the Lease is $1,200,000, payable
monthly, which is equal to 15% of the Initial Purchase Price and
which will be abated for the first three months of the Lease
term. The Company also agreed to separately fund a rent reserve
for Holistic equal to $1.9 million for the Aggregate Base Rent
(as defined below) and property management fee expected to be
payable from month four through month twelve, which will be drawn
down each month (starting in month four) to pay such obligations
until depleted, and which will be amortized and paid to the
Company by Holistic in equal monthly payments of $26,259.74,
commencing on month four and continuing through the initial term
of the Lease (the Rent Reserve Amortization Payments). Upon
payment of the Additional Purchase Price, base rent will increase
by an annualized amount equal to 15% of the Additional Purchase
Price, payable monthly (the Additional Base Rent). Upon payment
of the TI Allowance, base rent will increase again by an
annualized amount equal to 15% of the TI Allowance, payable
monthly (the TI Base Rent, and together with the Additional Base
Rent and Initial Base Rent, the Aggregate Base Rent). The
Aggregate Base Rent thereafter (excluding the Rent Reserve
Amortization Payments) shall increase at a rate of 3.25%
annually, starting on the earlier to occur of the first
anniversary of the date of payment of the Additional Purchase
Price and August 31, 2018.

The Lease will also provide that Holistic, as tenant, is
responsible for paying all structural repairs, maintenance
expenses, insurance and taxes related to the Property. Holistic
is also responsible for paying the Company a property management
fee equal to 1.5% of the then-existing Aggregate Base Rent under
the Lease.

Willco Construction Co., Inc. (Willco), an affiliate of Seller,
will enter into a completion guaranty with respect to completion
of the development of the Building. Seller and Willco are also
obligated, at their own cost and expense, to complete certain
improvements to bring the second floor of the Building to a warm
shell condition by January 1, 2019, provided that Seller may
defer such obligation to January 1, 2021, if Holistic has
achieved an annualized EBITDA of at least $9 million for the six
months preceding the delivery of the notice to the Company to
defer such obligation.

Willco and Seller will be obligated to repurchase the Property
from the Company at the Company’s election, at an internal rate
of return of approximately 20% on the Aggregate Consideration
paid by the Company, if certain conditions are not met as
described in the Purchase Agreement, including if Holistic is
unable to obtain all required state and local governmental
approvals to operate the Property as a medical-use cannabis
cultivation facility, or if such approvals are revoked or
suspended and not reinstated within 12 months following the
Company’s payment of the TI Allowance.

to the Lease, Holistic is required to deliver to the Company an
initial security deposit of $1.1 million in cash upon execution
of the Lease. On or before the first anniversary of the
commencement of the Lease, Richard Cohen, a principal of
Holistic, shall be obligated to, at Mr. Cohen’s option, 1)
execute a limited guaranty with respect to Holistic’s
obligations under the Lease for an amount of up to $3 million,
the form of which is attached as an exhibit to the Lease; 2)
provide a $3 million letter of credit for Holistic’s obligations
under the Lease; or 3) cause the required security deposit under
the Lease to be increased to $3 million, plus three months of
Aggregate Base Rent. If Mr. Cohen elects (1) or (2) from the
immediately preceding sentence, the security deposit will be
reduced to three months of Aggregate Base Rent.

In addition, any entity affiliated with Holistic and operating in
the cannabis industry in the state of Maryland, including any
entity formed during the term of the Lease, shall enter into a
full guaranty with respect to Holistic’s obligations under the
Lease, the form of which is attached as an exhibit to the Lease.

Under the Lease, Holistic has a right of first offer with respect
to the purchase of the Property, and has an option to purchase
the Property at the end of the initial term of the Lease on the
terms described in the Lease.

The Company’s purchase of the Property is subject to the
Company’s ongoing diligence and the satisfaction of closing
conditions as described in the Purchase Agreement. There can be
no assurance that the Company will consummate the acquisition of
the Property on the terms described herein, or at all.

The foregoing description of the Purchase Agreement is not
complete and is subject to, and qualified in its entirety by, the
full text of the Purchase Agreement, which is filed as an exhibit
to this report and incorporated herein by reference. The Purchase
Agreement contains representations and warranties made by the
parties as of specific dates and solely for their benefit. The
representations and warranties reflect negotiations between the
parties and are not intended as statements of fact to be relied
upon by the Companys stockholders or any other person or entity
other than the parties to the Purchase Agreement and, in certain
cases, represent allocation decisions among the parties and may
be subject to important qualifications and limitations agreed to
by the parties in connection with the negotiation of the Purchase
Agreement (which disclosures are not reflected in the Purchase
Agreement itself, may not be true as of any date other than the
date made, or may apply standards of materiality in a way that is
different from what may be viewed as material by stockholders).
Accordingly, the representations and warranties may not describe
the actual state of affairs at the date they were made or at any
other time, and stockholders should not rely on them as
statements of fact. Moreover, information concerning the subject
matter of the representations and warranties may change after the
date of the Purchase Agreement.

Item7.01 RegulationFD Disclosure.

On May 4, 2017, the Company issued a press release regarding the
execution of the Purchase Agreement for the Property. A copy of
the press release is attached hereto as Exhibit99.1. The
information contained in Item 7.01 of this report, including
Exhibit99.1, is being furnished and shall not be deemed filed for
purposes of Section18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liabilities of that section.
Such information shall not be incorporated by reference into any
filing of the Company, whether made before or after the date
hereof, regardless of any general incorporation language in such
filing.

Item9.01 Financial Statements and Exhibits.

Forward-Looking Statements

This report contains statements that the Company believes to be
forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. All statements other than historical facts, including,
without limitation, statements regarding the development,
acquisition and lease of the Property, are forward looking
statements. When used in this press release, words such as the
Company expects, intends, plans, estimates, anticipates, believes
or should or the negative thereof or similar terminology are
generally intended to identify forward-looking statements. Such
forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those
expressed in, or implied by, such statements. Investors should
not place undue reliance upon forward-looking statements.

About Innovative Industrial Properties, Inc. (NYSE:IIPR)

Innovative Industrial Properties, Inc. is focused on the acquisition, ownership and management of specialized industrial properties leased to state-licensed operators for their regulated medical-use cannabis facilities. The Company intends to acquire its properties through sale-leaseback transactions and third-party purchases. It is focused on leasing its 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 maintenance, taxes and insurance. The Company intends to conduct business in an umbrella partnership real estate investment trust (UPREIT), structure through its operating partnership. The Company’s real estate investments will consist of primarily properties suitable for cultivation and production of medical-use cannabis.

Innovative Industrial Properties, Inc. (NYSE:IIPR) Recent Trading Information

Innovative Industrial Properties, Inc. (NYSE:IIPR) closed its last trading session up +0.24 at 17.15 with 21,623 shares trading hands.