Jernigan Capital (JCAP) 10-Q 2018 Q2 Quarterly report

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, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

001-36892

(Commission file number)

JERNIGAN CAPITAL, INC.

(Exact name of registrant as specified in its charter)

Maryland	47-1978772
State or other jurisdiction of incorporation or organization	(I.R.S. Employer Identification No.)

6410 Poplar Avenue, Suite 650
Memphis, Tennessee	38119
(Address of principal executive offices)	(Zip Code)

(901) 567-9510

Registrant’s telephone number, including area code

Indicate by check mark whether the Registrant (1) has filed all reports 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 report(s), 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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post 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   ☐ (Do not check if a smaller reporting company)	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 1, 2018, Jernigan Capital, Inc. had 19,364,795 shares of common stock outstanding.

Table of Contents

PART I.  FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3. Quantitative and Qualitative Disclosures About Market Risk	56
Item 4. Controls and Procedures	57
PART II.  Other information	57
Item 1. Legal Proceedings	57
Item 1A. Risk Factors	57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities	58
Item 3. Defaults Upon Senior Securities	58
Item 4. Mine Safety Disclosures	58
Item 5. Other Information	58
Item 6. Exhibits	58

2

In this quarterly report on Form 10-Q (“report”), unless the context indicates otherwise, references to “Jernigan Capital,” “we,” “the Company,” “our” and “us” refer to the activities of and the assets and liabilities of the business and operations of Jernigan Capital, Inc.; “Operating Company” refers to Jernigan Capital Operating Company, LLC, a Delaware limited liability company; and “our Manager” refers to JCAP Advisors, LLC, a Florida limited liability company.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

JERNIGAN CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	As of
	June 30, 2018		December 31, 2017
	(Unaudited)
Assets:
Cash and cash equivalents	$	43,331	$	46,977
Self-Storage Investment Portfolio:
Development property investments at fair value, of which $60.5 million and $59.9 million of funded principal is pledged as collateral against the Company’s secured revolving credit facility and senior loan participation as of June 30, 2018 and December 31, 2017, respectively		302,245		228,233
Bridge loan investments at fair value, of which $78.6 million of funded principal is pledged as collateral against the Company's secured revolving credit facility as of June 30, 2018		79,581		-
Operating property loans at fair value, of which $6.0 million of funded principal is pledged as collateral against the Company's secured revolving credit facility as of June 30, 2018 and December 31, 2017		5,862		5,938
Self-storage real estate owned, net		59,835		15,355
Investment in and advances to self-storage real estate venture		14,846		13,856
Other loans, at cost		1,361		1,313
Deferred financing costs		1,644		2,004
Prepaid expenses and other assets		975		776
Fixed assets, net		180		182
Total assets	$	509,860	$	314,634
Liabilities:
Senior loan participation	$	-	$	718
Secured revolving credit facility		-		-
Due to Manager		1,887		1,484
Accounts payable, accrued expenses and other liabilities		2,916		1,138
Dividends payable		11,319		5,474
Total liabilities		16,122		8,814
Equity:
7.00% Series A preferred stock, $0.01 par value, 300,000 shares authorized; 110,000 and 40,000 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively, at liquidation preference of $110.0 million and $40.0 million, net of offering costs, respectively		107,168		37,764
7.00% Series B cumulative redeemable perpetual preferred stock, $0.01 par value, 3,750,000 shares authorized; 1,571,734 and no shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively, at liquidation preference of $39.3 million and none, net of offering costs, respectively		37,463		-
Common stock, $0.01 par value, 500,000,000 shares authorized at June 30, 2018 and December 31, 2017; 19,254,141 and 14,429,055 issued and outstanding at June 30, 2018 and December 31, 2017, respectively		192		144
Additional paid-in capital		361,636		276,814
Accumulated deficit		(12,721)		(8,902)
Total equity		493,738		305,820
Total liabilities and equity	$	509,860	$	314,634

See accompanying notes to consolidated financial statements.

3

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenues:
Interest income from investments	$	6,403	$	2,467	$	10,965	$	4,586
Rental and other property-related income from real estate owned		805		105		1,428		168
Other revenues		33		27		64		146
Total revenues		7,241		2,599		12,457		4,900
Costs and expenses:
General and administrative expenses		2,034		1,371		3,852		2,949
Management fees to Manager		1,582		707		2,886		1,337
Property operating expenses of real estate owned		420		43		731		74
Depreciation and amortization of real estate owned		887		38		1,589		62
Other expenses		-		-		290		-
Total costs and expenses		4,923		2,159		9,348		4,422
Operating income		2,318		440		3,109		478
Other income (expense):
Equity in earnings from unconsolidated real estate venture		435		595		985		1,017
Change in fair value of investments		8,623		4,289		12,943		5,682
Interest expense		(638)		(230)		(1,054)		(434)
Other interest income		59		100		168		234
Total other income		8,479		4,754		13,042		6,499
Net income		10,797		5,194		16,151		6,977
Net income attributable to preferred stockholders		(4,580)		(177)		(8,175)		(723)
Net income attributable to common stockholders	$	6,217	$	5,017	$	7,976	$	6,254
Basic earnings per share attributable to common stockholders	$	0.40	$	0.50	$	0.53	$	0.66
Diluted earnings per share attributable to common stockholders	$	0.40	$	0.50	$	0.53	$	0.66
Dividends declared per share of common stock	$	0.35	$	0.35	$	0.70	$	0.70

See accompanying notes to consolidated financial statements.

4

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands, except share data)

	Series A				Series B											Total		Non-
	Preferred Stock				Preferred Stock				Common Stock			Additional		Accumulated		Stockholders'		Controlling		Total
	Shares		Amount		Shares		Amount		Shares	Amount		Paid-In-Capital		Deficit		Equity		Interests		Equity
Balance at December 31, 2016		10,000	$	9,448		-	$	-	8,956,354	$	90	$	162,664	$	(3,840)	$	168,362	$	-	$	168,362
Equity offering costs related to issuance of preferred stock		-		(3)		-		-	-		-		-		-		(3)		-		(3)
Stock dividend paid on preferred stock		-		-		-		-	57,850		1		1,193		-		1,194		-		1,194
Proceeds from issuance of common stock, net of offering costs		-		-		-		-	4,025,000		40		83,895		-		83,935		-		83,935
At-the-market issuance of common stock, net of offering costs		-		-		-		-	1,093,202		10		24,184		-		24,194		-		24,194
Repurchase and retirement of shares of common stock		-		-		-		-	(5,470)		-		(128)		-		(128)		-		(128)
Issuances of stock-based awards		-		-		-		-	111,414		1		(10)		-		(9)		-		(9)
Stock-based compensation		-		-		-		-	-		-		727		-		727		-		727
Dividends declared on preferred stock		-		-		-		-	-		-		-		(723)		(723)		-		(723)
Dividends declared on common stock		-		-		-		-	-		-		-		(8,132)		(8,132)		-		(8,132)
Net income		-		-		-		-	-		-		-		6,977		6,977		-		6,977
Balance at June 30, 2017		10,000	$	9,445		-	$	-	14,238,350	$	142	$	272,525	$	(5,718)	$	276,394	$	-	$	276,394
Balance at December 31, 2017		40,000	$	37,764		-	$	-	14,429,055	$	144	$	276,814	$	(8,902)	$	305,820	$	-	$	305,820
Issuance of preferred stock, net of offering costs		70,000		69,404		1,500,000		35,980	-		-		-		-		105,384		-		105,384
At-the-market issuance of preferred stock, net of offering costs		-		-		71,734		1,483	-		-		-		-		1,483		-		1,483
Proceeds from issuance of common stock, net of offering costs		-		-		-		-	4,600,000		46		81,103		-		81,149		-		81,149
At-the-market issuance of common stock, net of offering costs		-		-		-		-	44,016		-		682		-		682		-		682
Stock dividend paid on preferred stock		-		-		-		-	122,250		1		2,168		-		2,169		-		2,169
Repurchase and retirement of shares of common stock		-		-		-		-	(16,513)		-		(314)		-		(314)		-		(314)
Issuance of stock-based awards		-		-		-		-	75,333		1		(1)		-		-		-		-
Stock-based compensation		-		-		-		-	-		-		1,184		-		1,184		-		1,184
Dividends declared on Series A preferred stock		-		-		-		-	-		-		-		(6,926)		(6,926)		-		(6,926)
Dividends declared on Series B preferred stock		-		-		-		-	-		-		-		(1,249)		(1,249)		-		(1,249)

5

Dividends declared on common stock	-		-	-		-	-		-		-		(11,795)		(11,795)		-		(11,795)
Net income	-		-	-		-	-		-		-		16,151		16,151		-		16,151
Balance at June 30, 2018	110,000	$	107,168	1,571,734	$	37,463	19,254,141	$	192	$	361,636	$	(12,721)	$	493,738	$	-	$	493,738

See accompanying notes to consolidated financial statements.

6

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	Six months ended June 30,
	2018		2017
Cash flows from operating activities:
Net income	$	16,151	$	6,977
Adjustments to reconcile net income to net cash used in operating activities:
Interest capitalized on outstanding loans		(9,410)		(3,114)
Change in fair market value of investments		(12,943)		(5,682)
Stock-based compensation		1,184		727
Equity in earnings from unconsolidated self-storage real estate venture		(980)		(1,012)
Return on investment from unconsolidated self-storage real estate venture		462		329
Depreciation and amortization		1,624		91
Amortization of deferred financing costs		381		11
Accretion of origination fees		(341)		(299)
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(171)		(369)
Due to Manager		403		19
Accounts payable, accrued expenses, and other liabilities		151		97
Net cash used in operating activities		(3,489)		(2,225)
Cash flows from investing activities:
Purchase of corporate fixed assets		(34)		(19)
Purchase of self-storage real estate owned		(9,087)		(1,270)
Capital additions to self-storage real estate owned		(205)		-
Capital contributions to unconsolidated self-storage real estate venture		(1,653)		(3,172)
Advances to unconsolidated self-storage real estate venture		(11,832)		(27,481)
Repayment of advances to unconsolidated self-storage real estate venture		13,014		22,396
Cash received for developer's equity prior to funding		-		1,254
Funding of investment portfolio:
Origination fees received in cash		1,868		2,680
Development property and bridge loan investments		(170,989)		(78,129)
Funding of other loans		(718)		(8,940)
Repayments of investment portfolio investments		3,257		12,239
Repayments of other loans		534		12,704
Net cash used in investing activities		(175,845)		(67,738)
Cash flows from financing activities:
Cash received from Credit Facility, net of issuance costs		34,433		-
Borrowings on (repayments of) senior loan participations		(732)		1,658
Repayment of Credit Facility		(35,000)		-
Deferred financing costs		-		(12)
Stock repurchase		(314)		(128)
Net proceeds from issuance of common stock		81,831		108,235
Net proceeds from issuance of Series A preferred stock		69,963		-
Net proceeds from issuance of Series B preferred stock		37,463		-
Costs related to the future issuance of preferred stock		-		(3)
Dividends paid on Series A preferred stock		(1,288)		(348)
Dividends paid on Series B preferred stock		(561)		-
Dividends paid on common stock		(10,107)		(6,283)
Net cash provided by financing activities		175,688		103,119
Net change in cash and cash equivalents		(3,646)		33,156
Cash and cash equivalents at the beginning of the period		46,977		67,373
Cash and cash equivalents at the end of the period	$	43,331	$	100,529

See accompanying notes to consolidated financial statements. 

7

JERNIGAN CAPITAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except share and per share data, percentages and as otherwise indicated)

1. ORGANIZATION AND FORMATION OF THE COMPANY

Jernigan Capital, Inc. (together with its consolidated subsidiaries, the “Company”) makes debt and equity investments in newly-constructed and existing self-storage facilities. The Company is a Maryland corporation that was organized on October 1, 2014. The Company closed its initial public offering (the “IPO”) of its common stock, $0.01 par value per share (the “common stock”), on April 1, 2015, and has used proceeds of the IPO and other capital sources primarily to fund real estate loans to private developers, owners and operators of self-storage facilities. The Company is structured as an Umbrella Partnership REIT (“UPREIT”) and conducts its investment activities through its operating company, Jernigan Capital Operating Company, LLC (the “Operating Company”). The Company is externally managed by JCAP Advisors, LLC (the “Manager”).

The Company has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986 (the “Code”), as amended. As a REIT, the Company generally will not be subject to U.S. federal income taxes on REIT taxable income, determined without regard to the deduction for dividends paid and excluded capital gains, to the extent that it annually distributes all of its REIT taxable income to stockholders and complies with various other requirements for qualification as a REIT set forth in the Code.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying interim consolidated financial statements include all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods included therein. Substantially all operations are conducted through the Operating Company, and all significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.

Variable Interest Entities

The Company invests in entities that may qualify as variable interest entities (“VIEs”). A VIE is a legal entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. Management bases the qualitative analysis on its review of the design of the entity, its organizational structure including allocation of decision-making authority and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. Management reassesses the initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party that, along with its affiliates and agents, has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. Management determines whether the Company is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; and consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the Company’s business activities and the other interests. Management reassesses the determination of whether the Company is the primary beneficiary of a VIE each reporting period.

Equity Investments

Investments in real estate ventures and entities over which the Company exercises significant influence but not control are accounted for using the equity method. In accordance with Accounting Standards Codification (“ASC”) 825, Financial Instruments (“ASC 825-10”), issued by the Financial Accounting Standards Board (“FASB”), the Company has elected the fair value option of accounting for its development property investments and bridge loan investments, which would otherwise be required to be accounted for under the equity method. The Company also holds an investment in a self-storage real estate venture that is accounted for under the equity method of accounting.

8

Investments and Election of Fair Value Option of Accounting for Certain Investments

The Company has elected the fair value option of accounting for all of its investment portfolio loan and equity investments, including those that are required under GAAP to be accounted for under the equity method, in order to provide stockholders and others who rely on the Company’s financial statements with a more complete and accurate understanding of the Company’s economic performance including its revenues and value inherent in the Company’s equity participation in development projects. Changes in the fair value of these investments are recorded in change in fair value of investments within other income. Interest income is reported in interest income from investments in the Consolidated Statements of Operations and is not included in the change in fair value of investments within other income. All direct loan costs are charged to expense as incurred.

Each loan investment, including those recorded at cost and presented on the Consolidated Balance Sheets as other loans, is evaluated for impairment on a periodic basis. For loans carried at fair value, indicators of impairment are reflected in measurement of the loan. For loans that are carried at cost, the Company estimates an allowance for loan loss at each reporting date. In evaluating loan impairment, the Company also periodically evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower on a loan by loan basis. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the property. In addition, the Company considers the overall economic environment, real estate sector and geographic sub-market in which the borrower operates. A loan will be considered impaired when, based on current information and events, it is probable that the loan will not be collected according to the contractual terms of the loan agreement. Factors to be considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. At June 30, 2018 and December 31, 2017, there were no loans that were deemed to be impaired loans. Additionally, for loans recorded at cost, the Company determined that no allowance for loan loss was necessary at June 30, 2018 and December 31, 2017.

Fair Value Measurement

The Company carries certain financial instruments at fair value because it has elected to apply the fair value option on an instrument by instrument basis under ASC 825-10. The Company’s financial instruments consist of cash, development property investments and bridge loan investments (which are generally structured as first mortgages and a 49.9% Profits Interest in the project), operating property loans (loans secured by operating properties), the investment in self-storage real estate venture, other loans, receivables, the secured revolving Credit Facility (as defined below), senior loan participation, and payables.

The following table presents the financial instruments measured at fair value on a recurring basis at June 30, 2018:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	302,245	$	-	$	-	$	302,245
Bridge loan investments (1)		79,581		-		-		79,581
Operating property loans		5,862		-		-		5,862
Total investments	$	387,688	$	-	$	-	$	387,688

 The Company closed its first bridge loan investment on March 2, 2018.

The following table presents the financial instruments measured at fair value on a recurring basis at December 31, 2017:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	228,233	$	-	$	-	$	228,233
Operating property loans		5,938		-		-		5,938
Total investments	$	234,171	$	-	$	-	$	234,171

Estimating fair value requires the use of judgment. The types of judgments involved depend upon the availability of observable market information. Management’s judgments include determining the appropriate valuation model to use, estimating unobservable inputs and applying valuation adjustments. See Note 4, Fair Value of Financial Instruments, for additional disclosure on the valuation methodology and significant assumptions, as well as the election of the fair value option for certain financial instruments.

Self-Storage Real Estate Owned

Land is carried at historical cost. Building and improvements are carried at historical cost less accumulated depreciation and impairment losses. The cost primarily reflects the funded principal balance of the loan to the Company, net of unamortized origination fees, unrealized appreciation recognized as of the acquisition date, and the cash consideration paid and assumed liabilities, if applicable, to acquire the

9

developer’s equity interest and portion of Profits Interest. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. The costs of building and improvements are generally depreciated using the straight-line method based on a useful life of 40 years.

The Company expects that the majority of future self-storage facility acquisitions will be considered asset acquisitions, however the Company will evaluate each acquisition using Accounting Standards Update (“ASU”) 2017-01 - Business Combinations(Topic 805): Clarifying the Definition of a Business to determine whether accounting for a business combination or asset acquisition applies.

When facilities are acquired, the cost is allocated to the tangible and intangible assets acquired and liabilities assumed based on relative fair values. Allocations to the individual assets and liabilities are based upon their relative fair values as estimated by management.

In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities. The Company allocates a portion of the cost to an intangible asset attributable to the value of in-place leases. This intangible asset is amortized to expense over the expected remaining term of the respective leases, which is generally one year. Substantially all of the leases in place at acquired facilities are at market rates, as the majority of the leases are month-to-month contracts. Accordingly, to date, no portion of the basis for an acquired property has been allocated to above- or below-market lease intangibles. To date, no intangible asset has been recorded for the value of customer relationships, because the Company does not have any concentrations of significant customers and the average customer turnover is fairly frequent.

The Company evaluates long-lived assets for impairment when events and circumstances, such as declines in occupancy and operating results, indicate that there may be an impairment. The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the facility’s basis is recoverable. If an asset’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value. The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset. There were no impairment losses recognized in accordance with these procedures during the three and six months ended June 30, 2018 and 2017.

Cash and Cash Equivalents

Cash, investments in money market accounts and certificates of deposit with original maturities of three months or less are considered to be cash equivalents. The Company places its cash and cash equivalents primarily with three financial institutions, and the balance at each financial institution exceeds the Federal Deposit Insurance Corporation insurance limit of $250,000 per institution.

Other Loans

The Company’s other loans balance primarily includes principal balances for certain revolving loan agreements and short-term mortgage loans made by the Company in situations where it was determined that making such loans would benefit the Company’s primary business. As of June 30, 2018, the Company had executed eight revolving loan agreements with an aggregate outstanding principal amount of $1.0 million. Seven of the agreements are with individuals who are owners of limited liability companies, one is with a limited liability company, and all are personally guaranteed. Seven of these borrowers are either directly or indirectly owners of certain of the Company’s development property investments. The revolving loans are typically unsecured but cross-defaulted against development loans. One of the revolving loans is guaranteed by a part owner of one of the Company’s development loan investments, and this guaranty is secured by a pledge of the owner’s membership interest in one of the Company’s development loan investments. The loans bear interest at 6.9 - 7.0% per annum and are due in full in three years. At December 31, 2017, the Company had executed nine revolving loan agreements with an aggregate outstanding principal amount of $1.0 million.

These loans are accounted for under the cost method, and fair value approximates cost at June 30, 2018 and December 31, 2017. None of these loans are in non-accrual status as of June 30, 2018 and December 31, 2017. The Company determined that no allowance for loan loss was necessary at June 30, 2018 and December 31, 2017.

Fixed Assets

Fixed assets are recorded at cost and consist of furniture, office and computer equipment, and software. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets, which range from three to seven years. Fixed assets are generally purchased by the Manager and the cost reimbursed by the Company. Maintenance and repair costs are charged to expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation are eliminated from the respective accounts and any resulting gain or loss is included in income.

Revenue Recognition

Interest income is recognized as earned on a simple interest basis and is reported in interest income from investments in the Consolidated Statements of Operations. Accrual of interest will be discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful. The Company will recognize income on impaired loans when they are placed into non-accrual status on a cash basis when the loans are both current and the

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collateral on the loan is sufficient to cover the outstanding obligation to the Company. If these factors do not exist, the Company will not recognize income on such loans. Accrued interest generally is reversed when a loan is placed on non-accrual status. 

The Company’s loan origination fees are accreted into interest income over the term of the investment using the effective yield method.

The operations of the self-storage real estate owned are managed by a third-party self-storage management company. All rental leases are operating leases, and rental income is recognized in accordance with the terms of the leases, which generally are month to month.

Debt Issuance Costs

Costs related to the issuance of a debt instrument are deferred and amortized as interest expense over the estimated life of the related debt instrument using the straight-line method, which approximates the effective interest method. If a debt instrument is repurchased prior to its original maturity date, the Company evaluates both the unamortized balance of debt issuance costs as well as any new debt issuance costs, including third party fees, to determine if the costs should be written off to interest expense or, if significant, included in “loss on modification or extinguishment of debt” in the Consolidated Statements of Operations. Debt issuance costs related to the sale of senior participations are presented in the Consolidated Balance Sheets as a deduction from the carrying amount of the principal balance. Debt issuance costs related to the revolving Credit Facility are presented in the Consolidated Balance Sheets as Deferred Costs.

Offering and Registration Costs

Offering and registration costs represent underwriting discounts and commissions, professional fees, fees paid to various regulatory agencies, and other costs incurred in connection with the registration and sale of the Company’s securities. Offering and registration costs incurred in connection with the Company’s common stock offerings are reflected as a reduction of additional paid-in capital.

On July 27, 2016, the Company entered into a Purchase Agreement (as defined in Note 8, Stockholders’ Equity) which required the Company to issue and sell a minimum of $50.0 million of Series A Preferred Stock by July 27, 2018. As of June 30, 2018, the Company has issued and sold $110.0 million in shares of of Series A Preferred Stock. On July 25, 2018, the Purchase Agreement was amended to allow the Company to issue the remaining portion of the Series A Preferred Stock on or before September 30, 2018 (See Note 11, Subsequent Events). The Company incurred $2.8 million of preferred stock offering costs in conjunction with the execution of the Purchase Agreement. Such costs are presented as deferred costs on the Consolidated Balance Sheets until such time as Series A Preferred Stock is issued. A pro rata portion of such deferred costs, based upon the ratio of the amount issued to the $50.0 million minimum issuance of Series A Preferred Stock, was reclassified to cumulative preferred stock upon each issuance of the Series A Preferred Stock. Of the $2.8 million of offering costs incurred, none and $0.6 million is in deferred costs on the Consolidated Balance Sheets at June 30, 2018 and December 31, 2017, respectively, and $2.8 million and $2.2 million has reduced the cumulative preferred stock balance on the Consolidated Balance Sheets at June 30, 2018 and December 31, 2017, respectively.

Income Taxes

The Company has elected to be taxed as a REIT and to comply with the related provisions of the Code. Accordingly, the Company will generally not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and share ownership tests are met. To qualify as a REIT, the Company must annually distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements.

Earnings per Share (“EPS”)

Basic EPS includes only the weighted average number of common shares outstanding during the period. Diluted EPS includes the weighted average number of common shares and the dilutive effect of restricted stock, accrued stock dividends, and redeemable Operating Company units when such instruments are dilutive.

All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are treated as participating in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted EPS must be applied.

Comprehensive Income

For the three and six months ended June 30, 2018 and 2017, comprehensive income equaled net income; therefore, separate Consolidated Statements of Comprehensive Income are not included in the accompanying interim consolidated financial statements.

Segment Reporting

The Company does not evaluate performance on a relationship specific or transactional basis and does not distinguish its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the Company believes it has a single operating segment for reporting purposes in accordance with GAAP.

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Recent Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update creates a single accounting model for all share-based payments. As a result of this update, the existing employee guidance will apply to nonemployee share-based transactions, with the cost of nonemployee awards continuing to be recorded as if the grantor had paid cash for the goods or services. The equity-classified share-based payment awards issued to nonemployees will now be measured on the grant date, instead of the previous requirement to re-measure the awards through the performance completion date. This ASU is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. As allowed, the Company has elected to early adopt the amendments in ASU 2018-07 effective April 1, 2018. As required by the ASU, the Company has established a grant date fair value of $18.10 based on the market value of the award as of April 1, 2018 for all nonemployee awards that have not vested as of April 1, 2018. The cumulative-effect adjustment to retained earnings as of January 1, 2018 was immaterial to the financial statements as a whole. As such, the Company recorded this adjustment through its consolidated statements of operations for the three months ended June 30, 2018.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which provides guidance on whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Specifically, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set of assets is not a business. Additionally, ASU 2017-01 also provides other guidance providing a more robust framework to use in determining whether a set of assets and activities is a business. Upon adoption of the new guidance, the Company expects that the majority of future self-storage facility acquisitions will now be considered asset acquisitions. This guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The Company adopted ASU 2017-01 for new acquisitions beginning on July 1, 2017. The costs related to the acquisitions of self-storage facilities that qualify as asset acquisitions will be capitalized as part of the purchase.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance on the classification of certain cash receipts and payments in the statement of cash flows (defined in the ASU as “cash flow issues”), including distributions received from equity method investees. This guidance is effective for public business entities for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption being allowed. The Company has elected to early adopt effective October 1, 2017 on a retrospective basis as required. The Company has concluded that the new accounting guidance does not impact its current classification of distributions received from equity method investees as an operating activity in its Consolidated Statements of Cash Flows. The Company further considered its components of cash flows under the cash flow issue “Separately Identifiable Cash Flow and Applicable of the Predominance Principle,” which addresses certain cash receipts and cash payments that may have aspects of more than one class of cash flows. In the absence of specific GAAP guidance, the Company evaluated its cash flows from origination fees received in cash, which have been historically presented as operating cash flows, on the basis of the nature of the underlying cash flows. The Company concluded that the origination fees are related to the origination of loans and the funding of our investment portfolio for which the associated cash flows are presented as investing activities. As a result, $2.7 million of origination fees received in cash for the six months ended June 30, 2017, have been retrospectively presented as an investment activity in the Consolidated Statements of Cash Flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. This guidance is effective for public business entities for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption being allowed as of the fiscal years beginning after December 15, 2018. The Company is currently assessing the impact this new accounting guidance will have on its consolidated financial statements; however, the Company does not expect the new accounting guidance to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is the final standard on accounting for leases. The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short term leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. The Company does have rental income from month-to-month self-storage leases within the scope of ASU 2016-02. The Company does not have material amounts of rental or lease expense. The amendments in ASU 2016-02 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact this new accounting guidance will have on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2017. This ASU outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. Several ASUs expanding and clarifying the initial guidance issued in ASU 2014-09 have been released

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since May 2014. The Company adopted the ASU effective January 1, 2018. The Company has evaluated all applicable contracts and revenue streams and has concluded that the adoption does not have an effect on its consolidated financial statements, primarily due to the new guidance not applying to revenue associated with loans or derived from lease contracts. 

Consolidated Statements of Cash Flows - Supplemental Disclosures

The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows:

	Six months ended June 30,
	2018		2017
Supplemental disclosure of cash flow information:
Interest paid	$	743	$	433
Supplemental disclosure of non-cash investing and financing activities:
Stock dividend paid on preferred stock	$	2,169	$	1,194
Dividends declared, but not paid, on preferred stock		4,580		177
Dividends declared, but not paid, on common stock		6,739		4,983
Reclassification of self-storage real estate owned		35,281		6,066
Assumed liabilities with acquisition of self-storage real estate owned		1,258		-
Other loans paid off with issuance of development property investments		117		1,410
Reclassification of deferred costs to cumulative preferred stock		559		-

3. SELF-STORAGE INVESTMENT PORTFOLIO

The Company’s self-storage investments at June 30, 2018 consisted of the following:

Investments reported at fair value

 Development Property Investments - The Company had 48 investments totaling an aggregate committed principal amount of approximately $566.1 million to finance the ground-up construction of, or conversion of existing buildings into self-storage facilities. Each development property investment is generally funded as the developer constructs the project and is typically comprised of a first mortgage and a 49.9% Profits Interest to the Company. The loans are secured by first priority mortgages or deeds of trust on the projects and, in certain cases, first priority security interests in the membership interests of the owners of the projects. Loans comprising development property investments are non-recourse with customary carve-outs and subject to completion guaranties, are interest-only with a fixed interest rate of typically 6.9% per annum and typically have a term of 72 months.

Also included in development property investments as of June 30, 2018 was one construction loan with a committed principal amount of approximately $17.7 million and an initial term of 18 months that was extended during the first quarter of 2017 and in 2018. This construction loan is interest-only at a fixed interest rate of 6.9% per annum, has no equity participation and is secured by a first priority mortgage on the project. The self-storage facility under construction is subject to a purchase and sale agreement between the developer and a third-party purchaser pursuant to which the financed project is anticipated to be sold and the loan repaid on or about the time a certificate of occupancy is issued for the financed self-storage facility, which is expected in the third quarter of 2018.

 Bridge Loan Investments - The Company had five bridge loan investments with an aggregate committed principal amount of approximately $83.3 million. Three bridge loans amounting to an aggregate committed principal amount of $47.1 million are secured by first priority mortgages on self-storage properties with an aggregate of over 203,000 net rentable square feet that were completed and began lease up in 2016, which loans bear interest at an annual rate of 6.9%, payable monthly. The Company has a 49.9% Profits Interest in these three properties. Two bridge loans aggregating a committed principal amount of $36.2 million are secured by first priority mortgages on two newly-completed self-storage properties with an expected aggregate of over 160,000 net rentable square feet, which loans will bear interest at an annual rate of 9.5%, with 6.5% payable monthly and 3.0% accruing and payable upon maturity of the loan. The Company also has a 49.9% Profits Interest, after the other members of the borrower receive $1.0 million of preferential payments per loan. All five loans will mature five years from the date of closing, with the borrower having two extension options for one year each. The bridge loans are all issued and outstanding with a single borrower.

 Operating Property Loans - The Company had two term loans totaling $6.0 million of aggregate committed principal amount, the proceeds of which were used by borrowers to finance the acquisition of, refinance existing indebtedness on, or recapitalize operating self-storage facilities. These loans are secured by first mortgages on the projects financed, are interest-only with fixed interest rates ranging from 5.85% to 6.9% per annum, and generally have a term of 72 months.

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As of June 30, 2018, the aggregate committed principal amount of the Company’s development property investments, bridge loan investments and operating property loans was approximately $673.1 million and outstanding principal was $365.5 million, as described in more detail in the table below:

	Metropolitan					Remaining
	Statistical Area	Total Investment		Funded		Unfunded
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value
Development property investments (includes a profits interest):
6/19/2015	Tampa 1 (2)	$	5,369	$	5,285	$	84	$	5,931
6/29/2015	Charlotte 1 (2)		7,624		7,357		267		9,556
7/2/2015	Milwaukee (2)		7,650		7,641		9		9,241
7/31/2015	New Haven (2)		6,930		6,600		330		8,342
8/14/2015	Raleigh (2)		8,792		8,176		616		8,442
10/27/2015	Austin (2)		8,658		7,551		1,107		8,600
9/20/2016	Charlotte 2 (2)		12,888		9,497		3,391		10,660
11/17/2016	Jacksonville 2 (2)		7,530		6,890		640		8,512
1/4/2017	New York City 1 (2)		16,117		16,056		61		20,934
1/18/2017	Atlanta 3		14,115		4,212		9,903		4,028
1/31/2017	Atlanta 4 (2)		13,678		10,206		3,472		11,995
2/24/2017	Orlando 3 (2)		8,056		5,961		2,095		7,004
2/24/2017	New Orleans (3)		12,549		4,411		8,138		4,454
2/27/2017	Atlanta 5(3)		17,492		8,262		9,230		8,179
3/1/2017	Fort Lauderdale(3)		9,952		3,934		6,018		4,045
3/1/2017	Houston (3)		13,630		6,079		7,551		6,388
4/14/2017	Louisville 1 (3)		8,523		5,255		3,268		6,049
4/20/2017	Denver 1 (3)		9,806		3,706		6,100		3,587
4/20/2017	Denver 2 (2)		11,164		8,173		2,991		9,718
5/2/2017	Atlanta 6 (3)		12,543		8,658		3,885		9,863
5/2/2017	Tampa 2		8,091		2,070		6,021		1,991
5/19/2017	Tampa 3 (3)		9,224		4,379		4,845		4,787
6/12/2017	Tampa 4 (3)		10,266		6,127		4,139		7,187
6/19/2017	Baltimore(3)(4)		10,775		5,584		5,191		5,667
6/28/2017	Knoxville(3)		9,115		4,367		4,748		4,605
6/29/2017	Boston 1 (2)		14,103		10,801		3,302		11,786
6/30/2017	New York City 2 (4)		26,482		20,356		6,126		19,759
7/27/2017	Jacksonville 3 (3)		8,096		4,411		3,685		4,993
8/30/2017	Orlando 4		9,037		2,661		6,376		2,561
9/14/2017	Los Angeles 1		28,750		7,923		20,827		7,672
9/14/2017	Miami 1		14,657		6,942		7,715		6,785
9/28/2017	Louisville 2 (3)		9,940		5,316		4,624		5,861
10/12/2017	Miami 2 (4)		9,459		1,062		8,397		818
10/30/2017	New York City 3 (4)		14,701		3,712		10,989		3,384
11/16/2017	Miami 3 (4)		20,168		4,309		15,859		3,740
11/21/2017	Minneapolis 1		12,674		285		12,389		156
12/1/2017	Boston 2		8,771		2,329		6,442		2,235
12/15/2017	New York City 4		10,591		1,283		9,308		1,168
12/27/2017	Boston 3		10,174		2,475		7,699		2,306
12/28/2017	New York City 5		16,073		5,101		10,972		4,945
2/8/2018	Minneapolis 2		10,543		3,944		6,599		3,878
3/30/2018	Philadelphia (4)		14,338		3,558		10,780		3,274
4/6/2018	Minneapolis 3		12,883		2,613		10,270		2,489
5/1/2018	Miami 9 (4)		12,421		2,448		9,973		2,219
5/15/2018	Atlanta 7		9,418		857		8,561		772
5/23/2018	Kansas City		9,968		1,413		8,555		1,324
6/7/2018	Orlando 5		12,969		-		12,969		-
6/12/2018	Los Angeles 2 (5)		9,298		4,424		4,874		4,500
		$	566,051	$	264,660	$	301,391	$	286,390

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Construction loans:
12/23/2015	Miami		17,733		15,966		1,767		15,855
		$	17,733	$	15,966	$	1,767	$	15,855
Total development property investments		$	583,784	$	280,626	$	303,158	$	302,245
Bridge loan investments (includes a profits interest):
3/2/2018	Miami 4 (2)		20,201		19,627		574		20,997
3/2/2018	Miami 5 (2)(4)		17,738		16,108		1,630		14,009
3/2/2018	Miami 6 (2)		13,370		13,370		-		17,129
3/2/2018	Miami 7 (2)(4)		18,462		16,755		1,707		14,892
3/2/2018	Miami 8 (2)		13,553		13,013		540		12,554
Total bridge loan investments		$	83,324	$	78,873	$	4,451	$	79,581
Operating property loans:
7/7/2015	Newark		3,480		3,480		-		3,402
12/22/2015	Chicago		2,502		2,500		2		2,460
Total operating property loans		$	5,982	$	5,980	$	2	$	5,862
Total investments reported at fair value		$	673,090	$	365,479	$	307,611	$	387,688

(1)	Represents principal balance of loan gross of origination fees. The principal balance includes interest accrued on the investment.
(2)	Construction at the facility was substantially complete and/or certificate of occupancy had been received as of June 30, 2018. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.
(3)	Facility had achieved at least 40% construction completion but construction was not considered substantially complete as of June 30, 2018. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.
(4)	These investments contain a higher loan-to-cost ratio and a higher interest rate, some of which interest is payment-in-kind (“PIK”) interest. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment.
(5)	This investment has a total project cost of $29.5 million of which a traditional bank will provide 65% of the total cost through a construction loan. The Company will fund 90% of the remaining 35% of costs required to complete the project through a preferred equity investment, pursuant to which the Company will receive a preferred return on its investment of 6.9% per annum that will be paid out of future cash flows of the underlying facility, a 1% transaction fee and a 49.9% Profits Interest.

The following table provides a reconciliation of the funded principal to the fair market value of investments at June 30, 2018:

Funded principal	$	365,479
Adjustments:
Unamortized origination fees		(6,389)
Change in fair value of investments		28,682
Other		(84)
Fair value of investments	$	387,688

As of December 31, 2017, the aggregate committed principal amount of the Company’s development property investments and operating property loans was approximately $523.8 million and outstanding principal was $213.1 million, as described in more detail in the table below:

	Metropolitan					Remaining
	Statistical Area	Total Investment		Funded		Unfunded
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value
Development property investments (includes a profits interest):
6/10/2015	Atlanta 1 (2)(5)	$	8,132	$	8,086	$	46	$	10,741
6/19/2015	Tampa 1 (2)		5,369		5,285		84		6,012
6/26/2015	Atlanta 2 (2)(5)		6,050		5,769		281		8,631
6/29/2015	Charlotte 1 (2)		7,624		7,251		373		10,363
7/2/2015	Milwaukee (2)		7,650		7,512		138		8,994
7/31/2015	New Haven (2)		6,930		6,524		406		8,231
8/10/2015	Pittsburgh (2)(5)		5,266		4,798		468		6,774
8/14/2015	Raleigh (3)		8,792		5,550		3,242		5,889

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9/30/2015	Jacksonville 1 (2)(5)		6,445		5,988		457		8,913
10/27/2015	Austin (2)		8,658		7,297		1,361		8,782
9/20/2016	Charlotte 2 (3)		12,888		5,453		7,435		5,686
11/17/2016	Jacksonville 2 (3)		7,530		4,971		2,559		5,818
1/4/2017	New York City 1 (2)		16,117		14,914		1,203		18,892
1/18/2017	Atlanta 3		14,115		2,393		11,722		2,236
1/31/2017	Atlanta 4 (3)		13,678		7,040		6,638		7,147
2/24/2017	Orlando 3 (3)		8,056		3,144		4,912		3,335
2/24/2017	New Orleans		12,549		677		11,872		553
2/27/2017	Atlanta 5		17,492		4,971		12,521		4,739
3/1/2017	Fort Lauderdale		9,952		1,128		8,824		1,043
3/1/2017	Houston		13,630		3,633		9,997		3,547
4/14/2017	Louisville 1 (3)		8,523		2,932		5,591		3,083
4/20/2017	Denver 1		9,806		1,940		7,866		1,849
4/20/2017	Denver 2 (3)		11,164		5,442		5,722		5,849
5/2/2017	Atlanta 6		12,543		4,344		8,199		4,262
5/2/2017	Tampa 2		8,091		1,086		7,005		1,010
5/19/2017	Tampa 3		9,224		1,422		7,802		1,335
6/12/2017	Tampa 4		10,266		1,847		8,419		1,752
6/19/2017	Baltimore (4)		10,775		3,315		7,460		3,115
6/28/2017	Knoxville		9,115		1,351		7,764		1,265
6/29/2017	Boston 1 (3)		14,103		4,978		9,125		4,914
6/30/2017	New York City 2 (4)		26,482		18,042		8,440		17,576
7/27/2017	Jacksonville 3		8,096		1,134		6,962		1,053
8/30/2017	Orlando 4		9,037		2,059		6,978		1,960
9/14/2017	Los Angeles		28,750		7,533		21,217		7,398
9/14/2017	Miami 1		14,657		5,862		8,795		5,725
9/28/2017	Louisville 2		9,940		1,864		8,076		1,762
10/12/2017	Miami 2 (4)		9,459		1,014		8,445		820
10/30/2017	New York City 3 (4)		14,701		2,595		12,106		2,294
11/16/2017	Miami 3 (4)		20,168		3,508		16,660		3,099
11/21/2017	Minneapolis 1		12,674		1,150		11,524		1,023
12/1/2017	Boston 2		8,771		1,306		7,465		1,220
12/15/2017	New York City 4		10,591		927		9,664		823
12/27/2017	Boston 3		10,174		2,259		7,915		2,169
12/28/2017	New York City 5		16,073		4,303		11,770		4,178
		$	500,106	$	194,597	$	305,509	$	215,860
Construction loans:
12/23/2015	Miami		17,733		12,492		5,241		12,373
		$	17,733	$	12,492	$	5,241	$	12,373
Total development property investments		$	517,839	$	207,089	$	310,750	$	228,233
Operating property loans:
7/7/2015	Newark		3,480		3,480		-		3,447
12/22/2015	Chicago		2,502		2,500		2		2,491
Total operating property loans		$	5,982	$	5,980	$	2	$	5,938
Total investments reported at fair value		$	523,821	$	213,069	$	310,752	$	234,171

(1)	Represents principal balance of loan gross of origination fees.  The principal balance includes interest accrued on the investment.
(2)	Construction at the facility was substantially complete and/or certificate of occupancy had been received as of December 31, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.
(3)	Facility had achieved at least 40% construction completion but construction was not considered substantially complete as of December 31, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

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(4)

These investments contain a higher loan-to-cost ratio and a higher interest rate, some of which interest is payment-in-kind (“PIK”) interest. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment.

(5)

During the first quarter of 2018, we purchased our partner’s 50.1% Profits Interest in these investments.

The following table provides a reconciliation of the funded principal to the fair market value of investments at December 31, 2017:

Funded principal	$	213,069
Adjustments:
Unamortized origination fees		(5,081)
Change in fair value of investments		26,267
Other		(84)
Fair value of investments	$	234,171

The Company has elected the fair value option of accounting for all of its investment portfolio investments in order to provide stockholders and others who rely on the Company’s financial statements with a more complete and accurate understanding of the Company’s economic performance, including its revenues and value inherent in its equity participation in development projects. See Note 4, Fair Value of Financial Instruments, for additional disclosure on the valuation methodology and significant assumptions.

No loans were in non-accrual status as of June 30, 2018 and December 31, 2017.

All of the Company’s development property investments and bridge loan investments with a Profits Interest would have been accounted for under the equity method had the Company not elected the fair value option. For these development property investments and bridge loan investments with a Profits Interest, the assets and liabilities of the equity method investees approximated $387.5 million and $343.5 million, respectively, at June 30, 2018 and approximated $234.7 million and $194.4 million, respectively, at December 31, 2017. These investees had revenues of approximately $1.5 million and $2.3 million and net operating income, excluding depreciation and interest expense, of approximately $0.4 million and $0.5 million for the three and six months ended June 30, 2018, respectively. These investees had revenues of approximately $0.7 million and $1.2 million and net operating income, excluding depreciation and interest expense, of approximately $0.1 million and less than $0.1 million for the three and six months ended June 30, 2017, respectively. For the six months ended June 30, 2018, the total income (interest income and change in fair value) from one bridge loan investment with a Profits Interest exceeded 20% of the Company’s net income. The Company recorded total income for the six months ended June 30, 2018 of $4.2 million from the Miami 6 MSA bridge loan investment with a Profits Interest.

For 16 of the Company’s development property investments with a Profits Interest, an investor has an option to put its interest to the Company upon the event of default of the underlying property loans. The put, if exercised, requires the Company to purchase the member’s interest at the original purchase price plus a yield of 4.5% on such purchase price. The Company concluded that the likelihood of loss is remote and assigned no value to these put provisions as of June 30, 2018 and December 31, 2017.

Investments reported at cost (Self-Storage Real Estate Owned)

2018 Activity

On January 10, 2018, the Company purchased 100% of the Class A membership units of the limited liability company that owned the Jacksonville 1 development property investment with a Profits Interest for $2.7 million. Accordingly, as of January 10, 2018, the Company wholly owns and consolidates this investment in the accompanying consolidated financial statements.

On February 2, 2018, the Company purchased 100% of the Class A membership units of the limited liability companies that owned the Atlanta 1 and Atlanta 2 development property investments with a Profits Interest for $2.4 million and $3.0 million, respectively. Accordingly, as of February 2, 2018, the Company wholly owns and consolidates these investments in the accompanying consolidated financial statements.

On February 20, 2018, the Company purchased 100% of the Class A membership units of the limited liability company that owned the Pittsburgh development property investment with a Profits Interest for $0.9 million and assumed liabilities of $1.3 million. Accordingly, as of February 20, 2018, the Company wholly owns and consolidates this investment in the accompanying consolidated financial statements.

2017 Activity

On February 3, 2017, the Company purchased 50% of the economic rights of the Class A membership units of a limited liability company that owned the Orlando 1 development property investment with a Profits Interest for $1.3 million and increased its Profits Interest on this development property investment from 49.9% to 74.9%. The Class A member retained all management and voting rights in the limited liability company. Previously, the Company accounted for this investment as an equity method investment. Because the Company was entitled to

17

greater than 50% of the residual profits from the investment, the Company accounted for this investment as a real estate investment in its consolidated financial statements in accordance with ASC 310, Receivables.

On August 9, 2017, the Company purchased the remaining 50% of the economic rights of the Class A membership units of a limited liability company that owned the Orlando 1 development property investment with a Profits Interest and 100% of the economic rights of the Class A membership units of a limited liability company that owned the Orlando 2 development property investment with a Profits Interest for $1.6 million and increased its Profits Interest on these development property investment from 74.9% to 100% and 49.9% to 100%, respectively. The Orlando 2 investment is an additional phase to the Orlando 1 investment that is being operated as one self-storage facility. The Company now owns all management and voting rights in the limited liability companies. Previously, the Company accounted for the Orlando 1 investment as a real estate investment and the Orlando 2 investment as an equity method investment. Because the Company is now entitled to greater than 50% of the residual profits from the Orlando 2 investment, the Company accounts for this investment as a real estate investment in its consolidated financial statements. The Company will continue to account for the Orlando 1 investment as a real estate investment. Accordingly, as of August 9, 2017, the Company wholly owns and consolidates these investments in the accompanying consolidated financial statements.

The Company evaluated the 2018 and 2017 purchases under ASU 2017-01 and concluded that the transactions consisted of a single identifiable asset that represents substantially all of the fair value of the gross assets acquired. Therefore, these transactions do not constitute the purchase of a business and have been treated as asset acquisitions. In accordance with ASU 2017-01, as of the respective acquisition dates, the Company’s basis in the self-storage real estate owned is recorded at cost (generally equal to the cash consideration paid, assumed liabilities, if applicable, and the funded loan balance, net of unamortized origination fees), plus unrealized gains recorded at the date of acquisition. The allocation to the basis of the assets acquired is based on their relative fair values.

The following table shows the Company’s basis as of the date of acquisition for the facilities acquired during the six months ended June 30, 2018:

		Jacksonville 1		Atlanta 1		Atlanta 2		Pittsburgh		Totals
Funded principal balance, net of unamortized origination fees	$	5,966	$	8,084	$	5,766	$	4,938	$	24,754
Unrealized appreciation on investments		2,947		2,704		2,900		1,976		10,527
Cash consideration, inclusive of transaction costs (1)		2,625		2,342		2,960		1,183		9,110
Assumed liabilities (2)		-		-		-		1,258		1,258
Net property working capital acquired		95		41		40		40		216
Total cost basis	$	11,633	$	13,171	$	11,666	$	9,395	$	45,865

(1)	Includes $23,000 of transaction costs incurred but not yet paid as of June 30, 2018.
(2)	Included in accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheet as of June 30, 2018.

The following table shows the Company’s basis as of the date of acquisition for the facility acquired during the year ended December 31, 2017:

Funded principal balance, net of unamortized origination fees	$	9,139
Unrealized appreciation on investments		3,780
Cash consideration, inclusive of transaction costs		2,856
Net property working capital acquired		52
Total cost basis	$	15,827

The following table shows the impact of these real estate investments on the Company’s accompanying Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017:

	June 30, 2018		December 31, 2017
Land	$	8,183	$	1,505
Building and improvements		51,285		13,720
In-place leases		2,223		602
Property equipment		5		-
Construction-in-progress		200		-
Accumulated depreciation and amortization		(2,061)		(472)
Self-storage real estate owned	$	59,835	$	15,355

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The following tables show the impact of these real estate investments on the Company’s accompanying Consolidated Statement of Operations for the three and six months ended June 30, 2018 and 2017:

	Three months ended		Three months ended
	June 30, 2018		June 30, 2017
Rental and other property-related income from real estate owned	$	805	$	105
Property operating expenses of real estate owned		(420)		(43)
Depreciation and amortization expense		(887)		(38)
Total expenses of real estate owned	$	(1,307)	$	(81)

	Six months ended		Six months ended
	June 30, 2018		June 30, 2017
Rental and other property-related income from real estate owned	$	1,428	$	168
Property operating expenses of real estate owned		(731)		(74)
Depreciation and amortization expense		(1,589)		(62)
Total expenses of real estate owned	$	(2,320)	$	(136)

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value option under ASC 825-10 allows companies to elect to report selected financial assets and liabilities at fair value. The Company has elected the fair value option of accounting for its development property investments, bridge loan investments and operating property loan investments in order to provide stockholders and others who rely on the Company’s financial statements with a more complete and accurate understanding of the Company’s economic performance, including its revenues and value inherent in its equity participation in self-storage development projects.

The Company applies ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements. ASC 820 defines fair value as the price that would be received for an investment in an orderly transaction between market participants on the measurement date. ASC 820 requires the Company to assume that the investment is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principal market as the market for the purchase and sale of self-storage properties, which the Company believes would be the most likely market for the Company’s loan and equity investments given the nature of the collateral securing such loans and the types of borrowers. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad levels listed below:

Level 1-	Quoted prices for identical assets or liabilities in an active market.
Level 2-	Financial assets and liabilities whose values are based on the following: (i) Quoted prices for similar assets or liabilities in active markets; (ii) Quoted prices for identical or similar assets or liabilities in non-active markets; (iii) Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.
Level 3-	Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.

The carrying values of cash, other loans, receivables, the secured revolving credit facility, senior loan participations and payables approximate their fair values due to their short-term nature or due to a variable interest rate. Cash, receivables, and payables are categorized as Level 1 instruments in the measurement of fair value. Other loans, the secured revolving credit facility and senior loan participations are categorized as Level 2 instruments in the measurement of fair value as the fair values of these investments are determined using a discounted cash flow model with inputs from third-party pricing sources and similar instruments. The following table summarizes the instruments categorized in Level 3 of the fair value hierarchy and the valuation techniques and inputs used to measure their fair value.

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Instrument	Valuation technique and assumptions	Hierarchy classification
Development property investments	Valuations are determined using an Income Approach analysis, using the discounted cash flow method model, capturing the prepayment penalty / call price schedule as applicable. The valuation models are calibrated to the total investment net drawn amount as of the issuance date.	Level 3
Development property investments with a profits interest and bridge loan investments (a)	Valuations are determined using an Income Approach analysis, using the discounted cash flow method model, capturing the prepayment penalty / call price schedule as applicable. The valuation models are calibrated to the total investment net drawn amount as of the issuance date factoring in the value of the Profits Interests. Typically, the calibration is done on an investment level basis. In certain instances, we may acquire a portfolio of investments in which case the calibration is done on an aggregate basis to the aggregate net drawn amount as of the date of issuance.	Level 3
	An option-pricing method (OPM) framework is utilized to calculate the value of the Profits Interests. At certain stages in the investments life cycle (as described subsequently), the OPM requires an enterprise value derived from fair value of the underlying real estate project. The fair value of the underlying real estate project is determined using either a discounted cash flows model or direct capitalization approach.
Operating property loans	Valuations are determined using an Income Approach analysis, using the discounted cash flow method model, capturing the prepayment penalty / call price schedule as applicable.	Level 3

(a) Certain of the Company's development property investments include Profits Interests.

The Company’s development property investments, bridge loan investments and operating property loan investments are valued using two different valuation techniques. The first valuation technique is an income approach analysis of the debt instrument components of the Company’s investments. The second valuation technique is an option pricing model (“OPM”) that is used to determine the fair value of any Profits Interests associated with an investment. The valuation models are calibrated to the total investment net drawn amount as of the issuance date factoring in the value of the Profits Interests. At the issuance date of each development property investment, generally the value of the property underlying such investment approximates the sum of the net investment drawn amount plus the developer’s equity investment. Typically the calibration is done on an investment level basis. To the extent investments are entered into on a portfolio basis, the valuation models are calibrated on an aggregate basis to the aggregate net investment proceeds using the overall implied internal rate of return using a discounted cash flow for each investment.

For development property investments with a Profits Interest, at a certain stage of construction, the OPM incorporates an adjustment to measure entrepreneurial profit. Entrepreneurial profit is a monetary return above total construction costs that provides compensation for the risk of a development project. Under this method, the value of each property is estimated based on the cost incurred to date, plus an estimated earned entrepreneurial profit. Total entrepreneurial profit is estimated as the difference between the projected value of a property at stabilization and the total development costs, including land, building improvements, and lease-up costs. Utilizing information obtained from the market coupled with the Company’s own experience, the Company has estimated that in most cases, approximately one-third of the entrepreneurial profit is earned during the construction period beginning when construction is approximately 40% complete and ending when construction is substantially complete, and approximately two-thirds of the entrepreneurial profit is earned when construction is substantially complete through stabilization. For the thirteen development property investments that were 40% complete but for which construction was not substantially complete at June 30, 2018, the Company has estimated the entrepreneurial profit adjustment to the enterprise value input used in the option pricing model to be equal to one-third of the estimated entrepreneurial profit, allocated on a straight-line basis. Eighteen development property and bridge loan investments, not including the properties reported as self-storage real estate owned, had reached substantial construction completion and/or received a certificate of occupancy at June 30, 2018. For the Company’s development property and bridge loan investments at substantial construction completion, a discounted cash flow model, based on periodically updated estimates of rental rates, occupancy and operating expenses, is the primary method for projecting value of a project. The Company also will consider inputs such as appraisals which differ from the developer’s equity investment, bona fide third-party offers to purchase development projects, sales of development projects, or sales of comparable properties in its markets.

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Level 3 Fair Value Measurements

The following tables summarize the significant unobservable inputs the Company used to value its investments categorized within Level 3 as of June 30, 2018 and December 31, 2017. These tables are not intended to be all-inclusive, but instead to capture the significant unobservable inputs relevant to the Company’s determination of fair values.

As of June 30, 2018
		Unobservable Inputs
	Primary Valuation			Weighted
Asset Category	Techniques	Input	Estimated Range	Average
Development property investments and bridge loan investments (a)	Income approach analysis	Market yields/discount rate	4.81 - 12.25%	9.24%
		Exit date (d)	0.25 - 6.46 years	3.54 years
Development property investments with a profits interest and bridge loan investments (b)	Option pricing model	Volatility	51.74 - 92.34%	72.35%
		Exit date (d)	0.25 - 6.46 years	3.68 years
		Capitalization rate (c)	5.25 - 6.15%	5.48%
		Discount rate (c)	8.25 - 11.20%	8.85%
Operating property loans	Income approach analysis	Market yields/discount rate	6.47 - 7.43%	6.87%
		Exit date (d)	3.48 - 4.15 years	3.87 years

(a)	The valuation technique for the development property investments with a Profits Interest does not differ from the development property investments without a Profits Interest. Therefore, this line item focuses on all development property investments, including those with a Profits Interest.
(b)	The valuation technique for the development property investments with a Profits Interest does not differ from the development property investments without a Profits Interest. The development property investments with a Profits Interest only require incremental valuation techniques to determine the value of the Profits Interest. Therefore this line only focuses on the Profits Interest valuation.
(c)	Thirty-one properties were 40% - 100% complete, thus requiring a capitalization rate and/or discount rate to derive entrepreneurial profitwhich are used to derive the enterprise value input to the OPM. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.
(d)	The exit dates for the development property investments and bridge loan investments are generally the estimated date of stabilization of the underlying property. The exit dates for the operating property loans are the contractual maturity dates.

As of December 31, 2017
		Unobservable Inputs
	Primary Valuation			Weighted
Asset Category	Techniques	Input	Estimated Range	Average
Development property investments (a)	Income approach analysis	Market yields/discount rate	7.83 - 10.62%	9.00%
		Exit date (d)	0.08 - 6.71 years	2.96
Development property investments with a profits interest (b)	Option pricing model	Volatility	63.94 - 94.03%	74.08%
		Exit date (d)	0.42 - 6.71 years	3.12 years
		Capitalization rate (c)	5.50 - 6.15%	5.51%
		Discount rate (c)	8.50 - 9.15%	8.51%
Operating property loans	Income approach analysis	Market yields/discount rate	6.08 - 7.01%	6.47%
		Exit date (d)	3.98 - 4.65 years	4.37 years

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(a)	The valuation technique for the development property investments with a Profits Interest does not differ from the development property investments without a Profits Interest. Therefore, this line item focuses on all development property investments, including those with a Profits Interest.
(b)	The valuation technique for the development property investments with a Profits Interest does not differ from the development property investments without a Profits Interest. The development property investments with a Profits Interest only require incremental valuation techniques to determine the value of the Profits Interest. Therefore this line only focuses on the Profits Interest valuation.
(c)	Eighteen properties were 40% - 100% complete, thus requiring a capitalization rate and/or discount rate to derive entrepreneurial profit, which are used to derive the enterprise value input to the OPM. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.
(d)	The exit dates for the development property investments are generally the estimated date of stabilization of the underlying property. The exit dates for the operating property loans are the contractual maturity dates.

The fair value measurements are sensitive to changes in unobservable inputs. A change in those inputs to a different amount might result in a significantly higher or lower fair value measurement. The following provides a discussion of the impact of changes in each of the unobservable inputs on the fair value measurement.

Market yields - changes in market yields and discount rates, each in isolation, may change the fair value of certain of the Company’s investments. Generally, an increase in market yields or discount rates may result in a decrease in the fair value of certain of the Company’s investments. The following fluctuations in the market yields/discount rates would have had the following impact on the fair value of our investments:

	Increase (decrease) in fair value of investments
Change in market yields/discount rates (in millions)	June 30, 2018		December 31, 2017
Up 25 basis points	$	(2.0)	$	(1.2)
Down 25 basis points, subject to a minimum yield/rate of 10 basis points		2.1		1.2
Up 50 basis points		(4.0)		(2.3)
Down 50 basis points, subject to a minimum yield/rate of 10 basis points		4.2		2.4

Capitalization rate - changes in capitalization rate, in isolation and all else equal, may change the fair value of certain of the Company’s development investments containing Profits Interests. Generally an increase in the capitalization rate assumption may result in a decrease in the fair value of the Company’s investments. The following fluctuations in the capitalization rates would have had the following impact on the fair value of our investments:

	Increase (decrease) in fair value of investments
Change in capitalization rates (in millions)	June 30, 2018		December 31, 2017
Up 25 basis points	$	(5.5)	$	(2.8)
Down 25 basis points		6.0		3.1
Up 50 basis points		(10.6)		(5.3)
Down 50 basis points		12.7		6.4

Exit date - changes in exit date, in isolation and all else equal, may change the fair value of certain of the Company’s investments that have Profits Interests. Generally, an acceleration in the exit date assumption may result in an increase in the fair value of the Company’s investments.

Volatility - changes in volatility, in isolation and all else equal, may change the fair value of certain of the Company’s investments that have Profits Interests. Generally, an increase in volatility may result in an increase in the fair value of the Profits Interests in certain of the Company’s investments.

Operating cash flow projections - changes in the operating cash flow projections of the underlying self-storage facilities, in isolation and all else equal, may change the fair value of certain of the Company’s investments that have Profits Interests. Generally, an increase in operating cash flow projections may result in an increase in the fair value of the Profits Interests in certain of the Company’s investments.

The Company also evaluates the impact of changes in instrument-specific credit risk in determining the fair value of investments. There were no gains or losses attributable to changes in instrument-specific credit risk in the three and six months ended June 30, 2018 and 2017.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate an investment in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it. In addition, changes in the market environment and

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other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned. 

The following table presents changes in investments that use Level 3 inputs:

Balance at December 31, 2017	$	234,171
Net realized gains		-
Net unrealized gains		12,943
Fundings of principal and change in unamortized origination fees		169,702
Repayments of loans		(3,257)
Payment-in-kind interest		9,410
Reclassification of self-storage real estate owned		(35,281)
Net transfers in or out of Level 3		-
Balance at June 30, 2018	$	387,688

As of June 30, 2018 and December 31, 2017, the total net unrealized appreciation on the investments that use Level 3 inputs was $28.7 million and $26.3 million, respectively.

For the three and six months ended June 30, 2018 and 2017, substantially all of the change in fair value of investments in the Company’s Consolidated Statements of Operations were attributable to unrealized gains relating to the Company’s Level 3 assets still held as of the respective balance sheet date.

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur.

5. INVESTMENT IN SELF-STORAGE REAL ESTATE VENTURE

On March 7, 2016, the Company, through its Operating Company, entered into the Limited Liability Company Agreement (the “JV Agreement”) of Storage Lenders LLC, a Delaware limited liability company, to form a real estate venture (the “SL1 Venture”) with HVP III Storage Lenders Investor, LLC (“HVP III”), an investment vehicle managed by Heitman Capital Management LLC (“Heitman”). The SL1 Venture was formed for the purpose of providing capital to developers of self-storage facilities identified and underwritten by the Company. Upon formation, HVP III committed $110.0 million for a 90% interest in the SL1 Venture, and the Company committed $12.2 million for a 10% interest.

On March 31, 2016, the Company contributed to the SL1 Venture three of its existing development property investments with a Profits Interest located in Miami and Fort Lauderdale, Florida that were not yet under construction. These investments had an aggregate committed principal amount of approximately $41.9 million and an aggregate drawn balance of $8.1 million. In exchange, the Company’s initial funding commitment of $12.2 million was reduced by $8.1 million, representing the Company’s initial “Net Invested Capital” balance as defined in the JV Agreement. The Company accounted for this contribution in accordance with ASC 845, Nonmonetary Transactions, and recorded an investment in the SL1 Venture based on the fair value of the contributed development property investments, which is the same as carryover basis. The fair value of the contributed development property investments as of March 31, 2016 was $7.7 million. Pursuant to the JV Agreement, Heitman, in fulfilling its initial $110.0 million commitment, provides capital to the SL1 Venture as cash is required, including funding draws on the three contributed development property investments. During the year ended December 31, 2016, HVP III and the Company agreed to true up the balances in the respective members’ capital accounts to be in accordance with the 90% commitment and 10% commitment made by HVP III and the Company, respectively. Accordingly, during the year ended December 31, 2016, HVP III contributed cash of $7.3 million to the SL1 Venture, and the Company received a $7.3 million cash distribution as a return of its capital.

As of June 30, 2018, the SL1 Venture had closed on eight new development property investments with a Profits Interest with an aggregate commitment amount of approximately $81.4 million, bringing the total aggregate commitment of the SL1 Venture’s investments to $123.3 million as of June 30, 2018. Accordingly, HVP III’s total commitment for a 90% interest in the SL1 Venture is $111.0 million, and the Company’s total commitment for a 10% interest in the SL1 Venture is $12.3 million.

Under the JV Agreement, the Company receives a priority distribution (after debt service and any reserve but before any other distributions) out of operating cash flow and residual distributions based upon 1% of the committed principal amount of loans made by the SL1 Venture, exclusive of the loans contributed to the SL1 Venture by the Company. Operating cash flow of the SL1 Venture (after debt service, reserves and the foregoing priority distributions) is distributed in accordance with capital commitments. Residual cash flow from capital and other events (after debt service, reserves and priority distributions) will be distributed (i) pro rata in accordance with capital commitments (its “Percentage Interest”) until each member has received a return of all capital contributed; (ii) pro rata in accordance with each member’s Percentage Interest until Heitman has achieved a 14% internal rate of return; (iii) to Heitman in an amount equal to its Percentage Interest less 10% and to the Company in an amount equal to the Company’s Percentage Interest plus 10% until Heitman has achieved a 17% internal rate of return; (iv) to Heitman in an amount equal to its Percentage Interest less 20% and to the Company in an amount equal to the Company’s Percentage Interest plus 20% until Heitman has achieved a 20% internal rate of return; and (v) any excess to Heitman in an amount equal to its

23

Percentage Interest less 30% and to the Company in an amount equal to the Company’s Percentage Interest plus 30%. However, the Company will not be entitled to any such promoted interest prior to the earlier to occur of the third anniversary of the JV Agreement and Heitman receiving distributions to the extent necessary to provide Heitman with a 1.48 multiple on its contributed capital.

Since the allocation of cash distributions and liquidating distributions are determined as described in the preceding paragraph, the Company has applied the hypothetical-liquidation-at-book-value (“HLBV”) method to allocate the earnings of the SL1 Venture. Under the HLBV approach, the Company’s share of the investee’s earnings or loss is calculated by:

 The Company’s capital account at the end of the period assuming that the investee was liquidated or sold at book value, plus

 Cash distributions received by the Company during the period, minus

 Cash contributions made by the Company during the period, minus

 The Company’s capital account at the beginning of the period assuming that the investee were liquidated or sold at book value.

The SL1 Venture has elected the fair value option of accounting for its development property investments with a Profits Interest, which are equity method investments of the SL1 Venture. The assumptions used to value the SL1 Venture’s investments are materially consistent with those used to value the Company’s investments. As of June 30, 2018, the SL1 Venture had eleven development property investments with a Profits Interest as described in more detail in the table below:

	Metropolitan					Remaining
	Statistical Area	Total Investment		Funded		Unfunded
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value
5/14/2015	Miami 1 (2) (4)	$	13,867	$	11,829	$	2,038	$	14,263
5/14/2015	Miami 2 (2) (3)		14,849		12,704		2,145		14,137
9/25/2015	Fort Lauderdale (2) (3)		13,230		11,211		2,019		13,166
4/15/2016	Washington DC (4)		17,269		16,426		843		18,980
4/29/2016	Atlanta 1 (4)		10,223		9,304		919		10,299
7/19/2016	Jacksonville (4)		8,127		7,378		749		11,594
7/21/2016	New Jersey (3)		7,828		3,493		4,335		3,525
8/15/2016	Atlanta 2 (4)		8,772		7,982		790		9,119
8/25/2016	Denver (4)		11,032		9,998		1,034		12,335
9/28/2016	Columbia (4)		9,199		8,566		633		9,780
12/22/2016	Raleigh (4)		8,877		7,243		1,634		8,642
	Total	$	123,273	$	106,134	$	17,139	$	125,840

(1)	Represents principal balance of loan gross of origination fees. The principal balance includes interest accrued on the investment.
(2)	These development property investments (having approximately $8.1 million of outstanding principal at contribution) were contributed to the SL1 Venture on March 31, 2016 by the Company.
(3)	Facility had achieved at least 40% construction completion but construction was not considered substantially complete as of June 30, 2018. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.
(4)	Construction at the facility was substantially complete and/or certificate of occupancy had been received as of June 30, 2018. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

As of June 30, 2018, the SL1 Venture had total assets of $126.0 million and total liabilities of $2.1 million. During the three and six months ended June 30, 2018, the SL1 Venture had net income of $4.0 million and $9.1 million, of which $0.4 million and $1.0 million was allocated to the Company and $3.6 million and $8.1 million was allocated to HVP III, respectively, under the HLBV method. At June 30, 2018, $0.2 million of transaction expenses were included in the carrying amount of the Company’s investment in the SL1 Venture. Additionally, the Company may from time to time make advances to the SL1 Venture. At June 30, 2018 and December 31, 2017, the Company had $2.0 million and $3.2 million, respectively, in advances to the SL1 Venture, and the related interest on these advances are classified in equity in earnings from unconsolidated self-storage real estate venture in the Consolidated Statements of Operations.

In accordance with the JV Agreement, for each development property investment, the borrower must deliver to the SL1 Venture a completion guarantee whereby the borrower agrees to cover all costs in excess of the agreed-upon budget amount. Additionally, the Company is required to deliver to the SL1 Venture a backstop completion guarantee for each development property investment to guarantee completion in the event the borrower does not satisfy its obligations. The Company concluded that the likelihood of loss is remote and assigned no value to these guarantees as of June 30, 2018 and December 31, 2017.

Under the JV Agreement, Heitman and the Company will seek to obtain and, if obtained, will share joint rights of first refusal to acquire self-storage facilities that are the subject of development property investments made by the SL1 Venture. Additionally, so long as the Company,

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through its operating subsidiary, is a member of the SL1 Venture and the SL1 Venture holds any assets, the Company will not make any investment of debt or equity or otherwise, directly or indirectly, in one or more new joint ventures or similar programs for the purposes of funding or providing development loans or financing, directly or indirectly, for the development, construction or conversion of self-storage facilities, in each case without first offering such opportunity to Heitman to participate on substantially the same terms as those set forth in the JV Agreement, either through the SL1 Venture or a newly formed real estate venture.

The JV Agreement permits Heitman to cause the Company to repurchase from Heitman its Developer Equity Interests (as defined in the JV Agreement) in certain limited circumstances. Under the JV Agreement, if a developer causes to be refinanced a self-storage facility with respect to which the SL1 Venture has made a development property investment and such refinancing does not coincide with a sale of the underlying self-storage facility, then at any time after the fourth anniversary of the commencement of the SL1 Venture, Heitman may either put to the Company its share of the Developer Equity Interests in respect of each such development property investment, or sell Heitman’s Developer Equity Interests to a third party. The Company concluded that the likelihood of loss is remote and assigned no value to these puts as of June 30, 2018 and December 31, 2017.

The Company is the managing member of the SL1 Venture and will manage and administer (i) the day-to-day business and affairs of the SL1 Venture and any of its acquired properties and (ii) loan servicing and other administration of the approved development property investments. The Company will be paid a monthly expense reimbursement amount by the SL1 Venture in connection with its role as managing member, as set forth in the JV Agreement. Heitman may remove the Company as the managing member of the SL1 Venture if it commits an event of default (as defined in the JV Agreement), if it undergoes a change of control (as defined in the JV Agreement), or if it becomes insolvent.

Heitman approves all “Major Decisions” of the SL1 Venture, as defined in the JV Agreement, including, but not limited to, each investment of capital, the incurrence of any indebtedness, the sale or other disposition of assets of the SL1 Venture, the replacement of the managing member, the acceptance of new members into the SL1 Venture and the liquidation of the SL1 Venture.

For four of the SL1 Venture development property investments with a Profits Interest, an investor has an option to put its interest to the Company upon the event of default of the underlying property loans. The put options, if exercised, require the Company to purchase the member’s interest at the original purchase price plus a yield of 4.5% on such purchase price. The Company concluded that the likelihood of loss is remote and assigned no value to these put options at June 30, 2018 and December 31, 2017.

6. VARIABLE INTEREST ENTITIES

Development Property Investments and Bridge Loan Investments

The Company holds variable interests in its development property investments and bridge loan investments. The Company has determined that these investees qualify as VIEs because the entities do not have enough equity to finance their activities without additional subordinated financial support. In determining whether the Company is the primary beneficiary of the development property VIEs, the Company identified the activities that most significantly impact the development property VIEs’ economic performance. Such activities are (1) managing the construction and operations of the project, (2) selecting the property manager, (3) making financing decisions, (4) authorizing capital expenditures and (5) disposing of the property. Although the Company has certain participating and protective rights, it does not have the power to direct the activities that most significantly impact the development property VIEs’ economic performance and is not the primary beneficiary; therefore, the Company does not consolidate the development property VIEs.

The Company has recorded assets of $381.8 million and $228.2 million at June 30, 2018 and December 31, 2017, respectively, for its variable interest in the development property and bridge loan VIEs which is included in the development property investments and bridge loan investments at fair value line items in the Consolidated Balance Sheets. The Company’s maximum exposure to loss as a result of its involvement with the development property and bridge loan VIEs is as follows:

	June 30, 2018		December 31, 2017
Assets recorded related to VIEs	$	381,826	$	228,233
Unfunded loan commitments to VIEs		307,609		310,750
Maximum exposure to loss	$	689,435	$	538,983

The Company has a construction completion guaranty from the managing members of the development property VIEs or individual affiliates/owners of such managing members.

Investment in Real Estate Venture

The Company determined that the SL1 Venture qualifies as a VIE because it does not have enough equity to finance its activities without additional subordinated financial support. In determining whether the Company is the primary beneficiary of the entity, the Company identified the activities that most significantly impact the entity’s economic performance. Such activities are (1) approving self-storage development investments and acquiring self-storage properties, (2) managing directly-owned properties, (3) obtaining debt financing, and (4) disposing of investments. Although the Company has certain rights, it does not have the power to direct the activities that most significantly impact the entity’s economic performance and thus is not the primary beneficiary. As such, the Company does not consolidate the entity and accounts for

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its unconsolidated interest in the SL1 Venture using the equity method of accounting. The Company’s investment in the SL1 Venture is included in the investment in and advances to self-storage real estate venture balance in the Consolidated Balance Sheets, and earnings from the SL1 Venture are included in equity in earnings from unconsolidated real estate venture in the Company’s Consolidated Statements of Operations. The Company’s maximum contribution to the SL1 Venture is $12.3 million, and as of June 30, 2018 and December 31, 2017, the Company’s remaining unfunded commitment to the SL1 Venture is $1.7 million and $3.4 million, respectively. At June 30, 2018 and December 31, 2017, the Company had $2.0 million and $3.2 million, respectively, in advances to the SL1 Venture.

7. DEBT

Credit Facility

On July 25, 2017, the Operating Company entered into a $100 million senior secured revolving Credit Facility with KeyBank National Association, as administrative agent, KeyBanc Capital Markets Inc., as lead arranger, and the other lenders party thereto (the “Credit Facility”). Pursuant to an accordion feature, the Operating Company may from time to time increase the commitments up to an aggregate amount of $200 million, subject to, among other things, an absence of default under the Credit Facility, as well as receiving commitments from lenders for the additional amounts. The Operating Company typically uses borrowings under the Credit Facility to fund its investments, to make secured or unsecured loans to borrowers in connection with its investments and for general corporate purposes.

On July 25, 2017, the Company and certain wholly-owned subsidiaries of the Operating Company entered into an Unconditional Guaranty of Payment and Performance whereby they have agreed to unconditionally guarantee the obligations of the Operating Company under the Credit Facility. The Credit Facility is secured by a portion of the Company’s investments, and other subsidiaries of the Operating Company may be added as guarantors from time to time during the term of the Credit Facility. The Credit Facility has a scheduled maturity date on July 24, 2020. Borrowings under the Credit Facility are secured by two different pools of collateral: one consisting of the Company’s mortgage loans extended to developers and the other consisting of self-storage properties owned by the Company.

The amount available to borrow under the Credit Facility is limited according to a borrowing base valuation of the assets available as collateral. For loans secured by Company mortgage loans, the borrowing base availability is the lesser of (i) 60% of the value of the Company mortgage loans, (ii) the maximum principal amount which would not cause the outstanding loans under the Credit Facility secured by the Company mortgage loans to be greater than 50% of the underlying real estate asset fair value securing the Company mortgage loans and (iii) for any Company mortgage loan that has been included in the borrowing base for greater than 18 months, the maximum principal amount which would not cause the ratio of (a) adjusted net operating income for the underlying real estate asset securing such Company mortgage loan divided by (b) an implied debt service amount to be less than 1.30 to 1.00. For loans secured by self-storage properties, the borrowing base availability is the lesser of (i) the maximum principal amount that would not cause the outstanding loans under the Credit Facility secured by self-storage properties to be greater than 65% of the value of such self-storage properties and (ii) the maximum principal amount that would not cause the ratio of (i) aggregate adjusted net operating income from all self-storage properties included in the borrowing base divided by (ii) an implied debt service coverage amount to be less than 1.30 to 1.00.

The Credit Facility includes certain requirements that may limit the borrowing capacity available to the Company from time to time. Under the terms of the Credit Facility, the outstanding principal balance of the revolving credit loans, swing loans and letter of credit liabilities under the Credit Facility may not exceed the borrowing base availability.

Each loan made under the Credit Facility bears interest at either, at the Operating Company’s election, a base rate plus a margin of either 1.75% or 2.75% or LIBOR plus a margin of either 2.75% or 3.75%, in each case depending on the borrowing base available for such loan. In addition, the Operating Company is required to pay a fee of a per diem rate of 0.35% per annum, times the excess of the sum of the commitments of the lenders, as in effect from time to time, over the outstanding principal amount of revolving credit loans under the Credit Facility.

The Credit Facility contains certain customary representations and warranties and financial and other affirmative and negative covenants. The Operating Company’s ability to borrow under the Credit Facility is subject to ongoing compliance by the Company and the Operating Company with various customary restrictive covenants, including but not limited to limitations on its incurrence of indebtedness, investments, dividends, asset sales, acquisitions, mergers and consolidations and liens and encumbrances. In addition, the Credit Facility contains certain financial covenants including the following:

	total consolidated indebtedness not exceeding 50% of gross asset value;
	a minimum fixed charge coverage ratio (defined as the ratio of consolidated adjusted earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 0.75 to 1.00 during the period between July 25, 2017 and June 30, 2018, 0.90 to 1 during the period between July 1, 2018 and December 31, 2018 and 1.20 to 1 during the period between January 1, 2019 through the maturity of the Credit Facility;
	a minimum consolidated tangible net worth (defined as gross asset value less total consolidated indebtedness) of $183.3 million plus 75% of the sum of any additional net offering proceeds;
	when aggregate loan commitments under the Credit Facility exceed $50 million, unhedged variable rate debt cannot exceed 25% of consolidated total indebtedness;
	liquidity of no less than $50 million for the period between July 25, 2017 and December 31, 2018 or on and after December 31, 2018, liquidity of no less than the sum of (i) total unfunded loan commitments of the Company and its subsidiaries plus (ii) $25 million; and

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 a debt service coverage ratio (defined as the ratio of consolidated adjusted earnings before interest, taxes, depreciation and amortization to the Company’s consolidated interest expense and debt principal payments for any given period) of 2 to 1.

The Credit Facility provides for standard events of default, including nonpayment of principal and other amounts when due, non-performance of covenants, breach of representations and warranties, certain bankruptcy or insolvency events, and changes in control. If an event of default occurs and is continuing under the Credit Facility, the lenders may, among other things, terminate their commitments under the Credit Facility and require the immediate payment of all amounts owed thereunder.

In January 2018, the Company entered into the First Amendment to the Credit Facility to clarify how acquisitions of developers’ interests would be addressed under the Credit Facility. 

As of June 30, 2018, the Company had no outstanding borrowings under the Credit Facility and $90.8 million was available for borrowing under the Credit Facility.

As of June 30, 2018, the Company was in compliance with all of its financial covenants and it anticipates being in compliance with all of its financial covenants throughout the term of the Credit Facility.

As of June 30, 2018, the funded principal of $60.5 million of development property investments at fair value, the funded principal of $78.6 million of bridge loan investments at fair value, the funded principal of $6.0 million of operating property loans at fair value, and $17.6 million of the self-storage real owned, net, is pledged as collateral against the Credit Facility. As of December 31, 2017, the funded principal of $47.4 million of development property investments at fair value, the funded principal of $6.0 million of operating property loans at fair value, and $4.4 million of the self-storage real owned, net, is pledged as collateral against the Credit Facility.

Senior Participation

On May 27, 2016, the Company sold a senior participation in a construction loan on a facility in the Miami, Florida MSA (“the Miami A Note”), having a commitment amount of $17.7 million in exchange for a commitment by the bank to provide net proceeds of $10.0 million to fund construction draws under the construction loan (the “Miami A Note Sale”) once the total outstanding principal balance exceeded $7.7 million. The Miami A Note Sale was effected pursuant to a participation agreement between the bank and the Company (the “Miami Participation Agreement”). Under the Miami Participation Agreement, the Company continued to service the underlying loan as long as it was not in default under the Miami Participation Agreement. The bank had the option to “put” the senior participation to the Company in the event the underlying borrower defaulted on the underlying loan or if the Company defaulted under the Miami Participation Agreement. As part of the Participation Agreement, the Company maintained a minimum aggregate balance of $0.5 million in depository or money market accounts at the bank, and if such balance was not maintained, the interest rate would have increased. The Company paid to the bank interest on the outstanding balance of the Miami A Note at the rate of 30-day LIBOR plus 3.10%.  The Company also paid a loan fee of 100 basis points, or $0.1 million upon closing of the loan. The Miami A Note initially had a maturity date of July 1, 2017. On March 31, 2018, the maturity date was extended to June 30, 2018. The Company repurchased the Miami A Note on June 19, 2018. There was no outstanding balance for the Miami A Note as of June 30, 2018.

As of December 31, 2017, the funded principal of $12.5 million of the Miami development property investment at fair value was pledged as collateral against the Company’s senior participation.

The table below details the bank commitments and outstanding balance of our senior participation at December 31, 2017:

	Commitment by Bank		Amount Borrowed		Remaining Funds		Interest Rate	Effective Interest Rate at  December 31, 2017		Maturity Date(1)
Miami A Note		10,001		732		9,269	30-day LIBOR + 3.10%	4.66	%	January 31, 2018
Unamortized fees				(14)
Net balance			$	718

(1) On January 30, 2018, the maturity date was extended to March 31, 2018. On March 31, 2018, the maturity date was extended to June 30, 2018. On June 19, 2018, the Company repurchased the Miami A Note.

8. STOCKHOLDERS’ EQUITY

The Company had 19,254,141 and 14,429,055 shares of common stock issued and outstanding, which included 172,499 and 185,002 shares of nonvested restricted stock, as of June 30, 2018 and December 31, 2017, respectively. The Company had 110,000 and 40,000 shares of Series A Preferred Stock issued and outstanding as of June 30, 2018 and December 31, 2017. The Company also had 1,571,734 shares of Series B Preferred Stock issued and outstanding as of June 30, 2018.

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Common Stock Offerings

On April 5, 2017, the Company entered into an at-the-market continuous equity offering program (“ATM Program”) with an aggregate offering price of up to $50.0 million. As of June 30, 2018, the Company has issued and sold an aggregate of 1,323,722 shares of common stock at a weighted average price of $22.24 per share under the ATM Program, receiving net proceeds after commissions and other offering costs of $28.5 million.

On June 27, 2017, the Company received $83.9 million in proceeds, net of underwriters’ discounts and offering costs payable by the Company, related to the public offering of 4,025,000 shares of common stock.

On June 14, 2018, the Company received $81.1 million in proceeds, net of underwriters’ discounts and offering costs payable by the Company, related to the public offering of 4,600,000 shares of common stock.

Stock Repurchase Plan

On May 20, 2016, the Company’s Board of Directors authorized a share repurchase program for the repurchase of up to $10.0 million of the outstanding shares of common stock of the Company. As of June 30, 2018, the Company had repurchased and retired a total of 213,078 shares of its common stock at an aggregate cost of approximately $3.2 million. As of June 30, 2018, the Company has $6.8 million remaining under the Board’s authorization to repurchase shares of its common stock.

Equity Incentive Plan

In connection with the IPO, the Company established the 2015 Equity Incentive Plan for the purpose of attracting and retaining directors, executive officers, investment professionals and other key personnel and service providers, including officers and employees of the Manager and other affiliates, and to stimulate their efforts toward the Company’s continued success, long-term growth and profitability. The 2015 Equity Incentive Plan provides for the grant of stock options, share awards (including restricted common stock and restricted stock units), stock appreciation rights, dividend equivalent rights, performance awards, annual incentive cash awards and other equity-based awards, including Long-Term Incentive Plan (“LTIP”) units, which are convertible on a one-for-one basis into Operating Company Units (“OC Units”). A total of 200,000 shares of common stock were reserved for issuance pursuant to the 2015 Equity Incentive Plan, subject to certain adjustments set forth in the plan. On May 3, 2017, the Company’s stockholders approved, and the Company adopted, the Amended and Restated 2015 Stock Incentive Plan increasing the number of shares of common stock reserved for issuance under the Plan by 170,000 shares from 200,000 shares to 370,000 shares and extending the term of the Plan until May 2, 2027.

Restricted Stock Awards

The Amended and Restated 2015 Equity Incentive Plan permits the issuance of restricted shares of the Company’s common stock to employees of the Manager (as the Company has no employees) and the Company’s non-employee directors. As of June 30, 2018 and December 31, 2017 363,587 and 288,254 shares of restricted stock, respectively, had been granted, of which 55,172 vested in 2016, 46,413 vested in 2017, 87,836 vested during the six months ended June 30, 2018, 10,000 will vest in the second half of 2018, 72,500 will vest in 2019, 72,497 will vest in 2020 and 17,502 will vest in 2021. Additionally, 1,667 were forfeited during the year ended December 31, 2016. Non-vested shares are earned over the respective vesting period based on a service condition only. Expenses related to restricted stock awards are charged to compensation expense and are recognized over the respective vesting period (primarily three to five years) of the awards. For restricted stock issued to non-employee directors of the Company, compensation expense is based on the market value of the shares at the grant date. For restricted stock awards issued to employees of the Manager, prior to the adoption of ASU 2018-07, compensation expense was re-measured at each reporting date until service was complete and the restricted shares became vested based on the then current value of the Company’s common stock. The Company early adopted ASU 2018-07 effective April 1, 2018, which established a grant date fair value of $18.10 based on the market value of the award as of April 1, 2018 for all nonemployee awards that have not vested as of April 1, 2018. Furthermore, for future awards, compensation expense is based on the market value of the shares at the grant date.

The Company recognized approximately $0.8 million and $0.4 million of stock-based compensation expense for the three months ended June 30, 2018 and 2017, respectively, and $1.2 million and $0.7 million of stock-based compensation expense for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and December 31, 2017, the total unrecognized compensation cost related to the Company’s restricted shares was approximately $2.9 million and $2.7 million, respectively, based on the grant date market value for awards issued to non-employee directors of the Company and the fair value of awards as of the adoption date of ASU 2018-07 for awards issued to employees of the Manager. This cost is expected to be recognized over the remaining weighted average period of 2.3 years. The Company presents stock-based compensation expense in general and administrative expenses in the Consolidated Statements of Operations.

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A summary of changes in the Company’s restricted shares of common stock for the three and six months ended June 30, 2018 and 2017 is as follows:

	Three months ended				Three months ended
	June 30, 2018				June 30, 2017
			Weighted				Weighted
			average grant				average grant
	Shares		date fair value		Shares		date fair value
Nonvested at March 31,		195,502	$	21.32		120,001	$	20.10
Granted		57,333		19.52		111,414		22.59
Vested		(80,336)		18.46		(28,913)		21.26
Forfeited		-		-		-		-
Nonvested at June 30,		172,499	$	18.37		202,502	$	21.33

	Six months ended				Six months ended
	June 30, 2018				June 30, 2017
			Weighted				Weighted
			average grant				average grant
	Shares		date fair value		Shares		date fair value
Nonvested at December 31,		185,002	$	21.58		120,001	$	20.10
Granted		75,333		19.18		111,414		22.59
Vested		(87,836)		18.53		(28,913)		21.26
Forfeited		-		-		-		-
Nonvested at June 30,		172,499	$	18.37		202,502	$	21.33

Nonvested restricted shares of common stock receive dividends which are nonforfeitable.

Series A Preferred Stock Private Placement

On July 27, 2016 (the “Effective Date”), the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with accounts managed by NexPoint Advisors, L.P., an affiliate of Highland Capital Management, L.P. (collectively, the “Buyers”) relating to the issuance and sale, from time to time until the second anniversary of the Effective Date (such period, the “Commitment Period”), of up to $125 million in shares of the Company’s Series A Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), at a price of $1,000 per share (the “Liquidation Value”). The sale of shares of Series A Preferred Stock pursuant to the Purchase Agreement may occur from time to time, in minimum monthly increments of $5 million, maximum monthly increments of $15 million and maximum increments of $35 million over any rolling three month period, all to be completed during the Commitment Period.

The Series A Preferred Stock ranks senior to the shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), with respect to distribution rights and rights upon liquidation, winding up and dissolution of the Company, on parity with any class or series of capital stock of the Company expressly designated as ranking on parity with the Series A Preferred Stock with respect to distribution rights and rights upon liquidation, winding up and dissolution of the Company, junior to any class or series of capital stock of the Company expressly designated as ranking senior to the Series A Preferred Stock with respect to distribution rights and rights upon liquidation, winding up and dissolution of the Company and junior in right of payment to the Company’s existing and future indebtedness.

Holders of Series A Preferred Stock are entitled to a cumulative cash distribution (“Cash Distribution”) equal to (A) 7.0% per annum on the Liquidation Value for the period beginning on the respective date of issuance until the sixth anniversary of the Effective Date, payable quarterly in arrears, (B) 8.5% per annum on the Liquidation Value for the period beginning the day after the sixth anniversary of the Effective Date and for each year thereafter as long as the Series A Preferred Stock remains issued and outstanding, payable quarterly in arrears, and (C) an amount in addition to the amounts in (A) and (B) equal to 5.0% per annum on the Liquidation Value upon the occurrence of certain triggering events (a “Cash Premium”). In addition, the holders of the Series A Preferred Stock will be entitled to a cumulative dividend payable in-kind in shares of Common Stock or additional shares of Series A Preferred Stock, at the election of the holders (the “Stock Dividend”), equal in the aggregate to the lesser of (Y) 25% of the incremental increase in the Company’s book value (as adjusted for equity capital issuances, share repurchases and certain non-cash expenses) plus, to the extent the Company owns equity interests in income-producing real property, the incremental increase in net asset value (provided, however, that no interest in the same real estate asset will be double counted) and (Z) an amount that would, together with the Cash Distribution, result in a 14.0% internal rate of return for the holders of the Series A Preferred Stock from the date of issuance of the Series A Preferred Stock, as set forth in the Articles Supplementary classifying the Series A Preferred Stock (the “Articles Supplementary”). Triggering events that will trigger the payment of a Cash Premium with respect to a Cash Distribution include: (i) the occurrence of certain change of control events affecting the Company after the third anniversary of the Effective

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Date, (ii) the Company’s ceasing to be subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, (iii) the Company’s failure to remain qualified as a real estate investment trust, (iv) an event of default under the Purchase Agreement, (v) the failure by the Company to register for resale shares of Common Stock pursuant to the Registration Rights Agreement (a “Registration Default”), (vi) the Company’s failure to redeem the Series A Preferred Stock as required by the Purchase Agreement, or (vii) the filing of a complaint, a settlement with, or a judgment entered by the Securities and Exchange Commission against the Company or any of its subsidiaries or a director or executive officer of the Company relating to the violation of the securities laws, rules or regulations with respect to the business of the Company.

On January 25, 2018, the Company filed, with the State Department of Assessments and Taxation of the State of Maryland (“MSDAT”), Amendment No. 1 (the “Series A Articles Supplementary Amendment”) to the Articles Supplementary (the “Series A Articles Supplementary”) to the Articles of Amendment and Restatement of the Company (the “Charter”), designating the terms of the Series A Preferred Stock. The Series A Articles Supplementary Amendment provides for certain amendments to the calculation of the cumulative dividend in the Series A Articles Supplementary, including, among other things, with respect to the computation and payment of the Aggregate Stock Dividend (as defined in the Series A Articles Supplementary) for the fiscal quarters beginning with the fiscal quarter ending March 31, 2018 through and including the fiscal quarter ending June 30, 2021.

For the first three fiscal quarters of the fiscal years 2018, 2019 and 2020 and for the first fiscal quarter of 2021, the Company will declare and pay an Aggregate Stock Dividend equal to $2,125,000 (the “Target Stock Dividend”). For the last fiscal quarter of each of 2018, 2019 and 2020 and for the second fiscal quarter of 2021, the Company will compute the cumulative Aggregate Stock Dividend for all periods after December 31, 2017 through the end of such fiscal quarter equal to 25% of the incremental increase in the Company’s book value (as adjusted for equity capital issuances, share repurchases and certain non-cash expenses) plus, to the extent that we own equity interests in income-producing real property, the incremental increase in net asset value (provided, however, that no interest in the same real estate asset will be double counted) (the “Computed Stock Dividend”), and will declare and pay for such quarter an Aggregate Stock Dividend equal to the greater of the Target Stock Dividend or the Computed Stock Dividend minus the sum of all Aggregate Stock Dividends declared and paid for all fiscal quarters after December 31, 2017 and before the fiscal quarter for which such payment is computed, in each case subject to an amount that would, together with the Cash Distribution (as defined in the Series A Articles Supplementary), result in a 14.0% internal rate of return for the holders of Series A Preferred Stock from the date of issuance of the Series A Preferred Stock. Accrued but unpaid Cash Distributions and Stock Dividends on the Series A Preferred Stock will accumulate and will earn additional Cash Distributions and Stock Dividends as calculated above, compounded quarterly.

Accrued but unpaid Cash Distributions and Stock Dividends on the Series A Preferred Stock will accumulate and will earn additional Cash Distributions and Stock Dividends as calculated above, compounded quarterly.

The holders of Series A Preferred Stock have the right to purchase their pro rata share of any qualified offering of Common Stock, which consists of any offering by the Company of Common Stock except any shares of Common Stock issued (i) in connection with a merger, consolidation, acquisition or similar business combination, (ii) in connection with a joint venture, strategic alliance or similar corporate partnering arrangement, (iii) in connection with any acquisition of assets by the Company, (iv) at market prices pursuant to a registered at-the-market program and/or (v) as part of a compensatory or employment arrangement.

As long as shares of Series A Preferred Stock remain outstanding, the Company is required to maintain a ratio of debt to total tangible assets determined under U.S. generally accepted accounting principles of no more than 0.4:1, measured as of the last day of each fiscal quarter. The Company has complied with this covenant as of June 30, 2018.

The Series A Preferred Stock may be redeemed at the Company’s option (i) after five years from the Effective Date at a price equal to 105% of the Liquidation Value per share plus the value of all accumulated and unpaid Cash Distributions and Stock Dividends, and (ii) after six years from the Effective Date at a price equal to 100% of the Liquidation Value per share plus the value of all accumulated and unpaid Cash Distributions and Stock Dividends. In the event of certain change of control events affecting the Company prior to the third anniversary of the Effective Date, the Company must redeem all shares of Series A Preferred Stock for a price equal to (a) the Liquidation Value, plus (b) accumulated and unpaid Cash Distributions and Stock Dividends, plus (c) a make-whole premium designed to provide the holders of the Series A Preferred Stock with a return on the redeemed shares equal to a 14.0% internal rate of return through the third anniversary of the Effective Date.

Holders of Series A Preferred Stock will be entitled to a separate class vote with respect to (i) any amendments to the Company’s Amended and Restated Articles of Incorporation (the “Charter”), as supplemented by the Articles Supplementary, or bylaws that would alter or change the rights, preferences, privileges or restrictions of the Series A Preferred Stock so as to materially and adversely affect such Series A Preferred Stock and (ii) reclassification or otherwise, any issuances by the Company of securities that are senior to, or equal in priority with, the Series A Preferred Stock.

In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Stock shall be entitled to receive an amount equal to the greater of (i) the Liquidation Value, plus all accumulated but unpaid Cash Distributions and Stock Dividends thereon to, but not including, the date of any liquidation, but excluding any Cash Premium and (ii) the amount that would be paid on such date in the event of a redemption following a change of control.

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Pursuant to the Purchase Agreement and the Articles Supplementary, the Company increased the size of its Board by one director and elected James Dondero, as representative of the Buyers, to the Board for a term expiring at the Company’s 2017 annual meeting of stockholders (Mr. Dondero has subsequently been reelected to the Board for a term expiring at the Company’s 2019 annual meeting of stockholders). Thereafter, so long as any shares of the Series A Preferred Stock are outstanding, the holders of the Series A Preferred Stock, voting as a single class, are entitled to nominate and elect one individual to serve on our Board of Directors. If the Company has not paid the full amount of the Cash Distribution or the Stock Dividend on the shares of the Series A Preferred Stock for six or more quarterly dividend periods (whether or not consecutive), the Company will increase the size of the Board by two directors and the holders of the our Series A Preferred Stock are entitled to elect two additional directors to serve on our Board of Directors until the Company pays in full all accumulated and unpaid Cash Distributions and Stock Dividends.

Further, at any time that the Series A Preferred Stock remains outstanding, if Dean Jernigan, the Company’s current Chief Executive Officer and Chairman of the Board, voluntarily leaves the position of Chief Executive Officer, and is not serving as the Executive Chairman of the Board (a “Key Man Event”), the holders of the Series A Preferred Stock shall have the right to accept or reject the service of any person as Chief Executive Officer (or such person serving as the principal executive officer) of the Company.

The Purchase Agreement requires that the Company and its subsidiaries conduct their business in the ordinary course of business consistent with past practice and use reasonable best efforts to (i) preserve substantially intact the business organization and (ii) avoid becoming subject to the requirements of the Investment Company Act of 1940, as amended (the “1940 Act”). Additionally, the Company and its subsidiaries may not change or alter materially its method of accounting or the manner in which it keeps its accounting books and records unless required by the Securities and Exchange Commission to reflect changes in U.S. generally accepted accounting principles or, in the business judgment of the Board, such change would be in the best interests of the Company or stockholders.

Future issuances of shares of Series A Preferred Stock at any one or more closings after the Effective Date are contingent upon the satisfaction of certain conditions at the time of such proposed purchase, including that (i) the representations and warranties of the Purchase Agreement remain true and correct in all material respects and the Company has complied with all covenants and conditions under the Purchase Agreement, the Articles Supplementary, the Registration Rights Agreement and the documents related thereto, (ii) no material adverse effect (as such term is defined in the Purchase Agreement) has occurred, (iii) there is no suspension of trading of the Common Stock on the New York Stock Exchange or such other market or exchange on which the Common Stock is then listed or traded (the “Principal Market”), (iv) a Key Man Event shall not have occurred, as described above, and (v) the Company has delivered certain customary closing deliverables.

An event of default under the Purchase Agreement terminates the obligation of the Buyers to acquire shares of Series A Preferred Stock from the Company and also triggers the Cash Premium described above. Such events of default under the Purchase Agreement include (i) a Registration Default, (ii) the suspension of trading or delisting of the Common Stock on the Principal Market, (iii) the failure by the transfer agent of the Company to issue shares of the Series A Preferred Stock to the Buyers (subject to an applicable cure period), (iv) the Company’s breach of a representation or warranty, covenant or other term or condition under the Purchase Agreement, Articles Supplementary, the Registration Rights Agreement or the documents related thereto that has a material adverse effect (subject to an applicable cure period), (v) the failure of the Company to sell $50 million of shares of Series A Preferred Stock on or prior to the tenth business day after the expiration of the Commitment Period, (vi) an event of default under any secured indebtedness of the Company, or (vii) certain bankruptcy proceedings.

The holders of the Series A Preferred Stock have certain customary registration rights with respect to the Common Stock issued as Stock Dividends pursuant to the terms of a Registration Rights Agreement.

The issuance and sale of the Series A Preferred Stock, and the issuance of shares of common stock and/or additional shares of Series A Preferred Stock issuable as Stock Dividends, will be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D thereunder. The Buyers represented to the Company that they are “accredited investors” as defined in Rule 501 of the Securities Act and that the Series A Preferred Stock is being acquired for investment purposes and not with a view to, or for sale in connection with, any distribution thereof, and appropriate legends will be affixed to any certificates evidencing the shares of Series A Preferred Stock or Common Stock issuable pursuant to the Purchase Agreement.

As of June 30, 2018, the Company had issued 110,000 restricted shares of the Series A Preferred Stock to the Buyers and received $110.0 million in proceeds pursuant to the terms of the Purchase Agreement.

On February 28, 2018, the Company declared a (i) cash distribution of $12.12 per share of Series A Preferred Stock, payable on April 13, 2018, to holders of Series A Preferred Stock of record on the close of business on April 1, 2018, and (ii) distributions payable in kind in a number of shares of common stock as determined in accordance with the terms of the designation of the Series A Preferred Stock, payable on April 13, 2018, to holders of Series A Preferred Stock of record on the close of business on April 1, 2018.

On May 2, 2018, the Company declared a (i) cash distribution of $16.07 per share of Series A Preferred Stock, payable on July 13, 2018, to holders of Series A Preferred Stock of record on the close of business on July 1, 2018, and (ii) distributions payable in kind in a number of shares of common stock as determined in accordance with the terms of the designation of the Series A Preferred Stock, payable on July 13, 2018, to holders of Series A Preferred Stock of record on the close of business on July 1, 2018.

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Public Offerings of Series B Preferred Stock

On January 25, 2018, the Company filed Articles Supplementary (the “Series B Articles Supplementary”) with MSDAT designating 1,725,000 of its authorized preferred stock as 7.00% Series B cumulative redeemable perpetual preferred stock (the “Series B Preferred Stock”).

The Series B Preferred Stock ranks senior to the Company’s common stock, with respect to distribution rights and rights upon liquidation, winding up and dissolution of the Company, and on parity with the Series A Preferred Stock and any other class or series of capital stock of the Company expressly designated as ranking on parity with the Series B Preferred Stock with respect to distribution rights and rights upon liquidation, winding up and dissolution of the Company, junior to any class or series of capital stock of the Company expressly designated as ranking senior to the Series B Preferred Stock with respect to distribution rights and rights upon liquidation, winding up and dissolution of the Company and junior in right of payment to the Company’s existing and future indebtedness.

Holders of Series B Preferred Stock are entitled to receive, when, as and if authorized by the Board and declared by the Company, out of funds legally available for the payment of dividends under Maryland law, cumulative cash dividends from, and including, the original issue date quarterly in arrears on the fifteenth (15th) day of January, April, July and October of each year (or if not a business day, on the immediately preceding business day) (each, a “dividend payment date”). These cumulative cash dividends will accrue on the liquidation preference amount of $25.00 per share at a rate per annum equal to 7.00% with respect to each dividend period from and including the original issue date (equivalent to an annual rate of $1.7500 per share) from the date of issuance of such Series B Preferred Stock. Dividends will be payable to holders of record as of 5:00 p.m., New York City time, on the related record date. The record dates for the Series B Preferred Stock are the close of business on the first (1st) day of January, April, July or October immediately preceding the relevant dividend payment date (each, a “dividend record date”). If any dividend record date falls on any day other than a business day as defined in the Series B Articles Supplementary, the dividend record date shall be the immediately succeeding business day.

On or after January 26, 2023, the Series B Preferred Stock may be redeemed, at the Company’s option, upon not less than 30 nor more than 60 days’ written notice, in whole or in part, at any time and from time to time, for cash at a redemption price equal to $25.00 per share, plus any accrued and unpaid dividends (whether or not authorized or declared) to, but excluding, the date fixed for redemption. Holders of Series B Preferred Stock will have no right to require the redemption or repurchase of the Series B Preferred Stock. Upon the occurrence of a Change of Control (as defined in the Series B Articles Supplementary), we may redeem for cash, in whole or in part, the Series B Preferred Stock within 120 days after the date on which such Change of Control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends (whether or not authorized or declared) to, but excluding, the date fixed for redemption.

Upon the occurrence of a Change of Control, each holder of Series B Preferred Stock will have the right (unless, prior to the Change of Control conversion date, the company has provided or provides notice of its election to redeem, in whole or in part, the Series B Preferred Stock) to convert some or all of the Series B Preferred Stock held by such holder (the “Change of Control Conversion Right”), on the Change of Control Conversion Date (as defined below) into a number of the Company’s common stock per Series B Preferred Stock to be converted equal to the lesser of: (1) the quotient obtained by dividing (i) the sum of  (x) the liquidation preference amount of $25.00 per Series B Preferred Stock, plus (y) any accrued and unpaid dividends thereon (whether or not authorized or declared) to, but excluding, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a Series B Preferred Stock dividend payment for which dividends have been declared and prior to the corresponding Series B Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in this sum and such declared dividend will instead be paid, on such dividend payment date, to the holder of record of the Series B Preferred Stock to be converted as of 5:00 p.m. New York City time, on such record date) by (ii) the defined Stock Price; and (2) the 2.74876 share cap, subject to certain adjustments.

Holders of the Series B Preferred Stock generally will have no voting rights. However, if the Company is in arrears on dividends, whether or not authorized or declared, on the Series B Preferred Stock for six or more quarterly periods, whether or not consecutive, holders of Series B Preferred Stock (voting together as a single class with the holders of all other classes or series of parity preferred stock (which excludes holders of Series A Preferred Stock, who are entitled to a separate class vote to elect separate Series A Preferred directors, as described above, upon which like voting rights have been conferred and are exercisable)) will be entitled to elect two additional directors at a special meeting called upon the request of the holders of at least 10% of such outstanding shares of Series B Preferred Stock or the holders of at least 10% of outstanding shares of any such other class or series of the Company’s parity preferred stock or at the Company’s next annual meeting and each subsequent annual meeting of stockholders, until all accrued and unpaid dividends with respect to the Series B Preferred Stock have been paid. Such directors will be elected by a vote of holders of a majority of the outstanding Series B Preferred Stock and any other series of parity equity securities upon which like voting rights have been conferred and are exercisable, voting together as a single class (which excludes holders of Series A Preferred Stock, who are entitled to a separate class vote to elect separate Series A Preferred directors as described above).

In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series B Preferred Stock shall be entitled to receive a liquidating distribution in the amount of  $25.00 per share, plus accrued and unpaid dividends (whether or not authorized or declared) to, but excluding, the date of final distribution to such holders.

On January 26, 2018, the Company received $36.0 million in proceeds, net of underwriter’s discount and offering costs, related to the issuance of 1,500,000 shares of Series B Preferred Stock.

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In connection with the issuance of the Series B Preferred Stock, the Company, acting in its capacity as the sole managing member of the Operating Company, entered into Amendment No. 2 to the Limited Liability Company Agreement in order to provide for the issuance, and the designation of the terms and conditions, of newly classified 7.00% Series B preferred units of limited liability company interest in the Operating Company, the economic terms of which are identical to those of the Series B Preferred Stock. For more information about the Series B Preferred Stock, see our Current Report on Form 8-K filed on January 25, 2018.

Series B Preferred Stock At-the-Market Offering Program

On March 29, 2018, the Company and the Operating Company entered into a Distribution Agreement (the “Distribution Agreement”), by and among the Company, the Operating Company, the Manager and B. Riley FBR, Inc. (the “Agent”) in connection with the commencement of an at-the-market continuous offering program (the “Preferred ATM Program”). Pursuant to the terms and conditions of the Distribution Agreement, the Company may, from time to time, issue and sell through or to the Agent, shares of the Series B Preferred Stock, having an aggregate offering price of up to $45.0 million (the “Preferred ATM Shares”).

In connection with the Preferred ATM Program, the Company filed, with MSDAT, Articles Supplementary (the “Preferred ATM Articles Supplementary”) to the Articles of Amendment and Restatement of the Company, designating 2,025,000 shares of its previously undesignated preferred stock as Series B Preferred Stock. The Preferred ATM Articles Supplementary increase the number of shares of the Company’s preferred stock designated as Series B Preferred Stock from 1,725,000 to 3,750,000.

As of June 30, 2018, the Company has sold 71,734 shares of Series B Preferred Stock at a weighted average price of $22.94, receiving net proceeds after commissions and other offering costs of $1.5 million under the Preferred ATM Program.

The Company or the Agent may at any time suspend the offering or terminate the Distribution Agreement pursuant to the terms of the Distribution Agreement. The actual sale of Preferred ATM Shares under the Program will depend on a variety of factors to be determined by the Company from time to time, including, among other things, market conditions, the trading price of the Series B Preferred Stock, capital needs and determinations by the Company of the appropriate sources of funding for the Company. The Company has no obligation to sell any of the Preferred ATM Shares, and may, at any time, suspend offers under the Distribution Agreement or terminate the Distribution Agreement.

9. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share. Both the unvested restricted shares and the assumed share-settlement of the accrued stock dividend to holders of the Series A Preferred Stock, and the related impacts to earnings, are considered when calculating earnings per share on a diluted basis with our diluted earnings per share being the more dilutive of the treasury stock or two-class methods. For the three and six months ended June 30, 2018 and 2017, the Company’s basic earnings per share is computed using the two-class method, and our diluted earnings per share is computed using the more dilutive of the treasury stock method or two-class method:

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Shares outstanding
Weighted average common shares - basic		15,274,459		9,850,967		14,763,741		9,356,744
Effect of dilutive securities		289,858		182,062		294,446		151,203
Weighted average common shares, all classes		15,564,317		10,033,029		15,058,187		9,507,947
Calculation of Earnings per Share - basic
Net income	$	10,797	$	5,194	$	16,151	$	6,977
Less:
Net income allocated to preferred stockholders		4,580		177		8,175		723
Net income allocated to unvested restricted shares (1)		72		91		98		99
Net income attributable to common shareholders - two-class method	$	6,145	$	4,926	$	7,878	$	6,155
Weighted average common shares - basic		15,274,459		9,850,967		14,763,741		9,356,744
Earnings per share - basic	$	0.40	$	0.50	$	0.53	$	0.66
Calculation of Earnings per Share - diluted
Net income	$	10,797	$	5,194	$	16,151	$	6,977
Less:
Net income allocated to preferred stockholders		4,580		177		8,175		723

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Net income attributable to common shareholders - two-class method	$	6,217	$	5,017	$	7,976	$	6,254
Weighted average common shares - diluted		15,564,317		10,033,029		15,058,187		9,507,947
Earnings per share - diluted	$	0.40	$	0.50	$	0.53	$	0.66

(1) Unvested restricted shares of common stock participate in dividends with unrestricted shares of common stock on a 1:1 basis and thus are considered participating securities under the two-class method for the three and six months ended June 30, 2018 and 2017.

10. RELATED PARTY TRANSACTIONS

Equity Method Investments

Certain of the Company’s development property investments and bridge loan investments are equity method investments for which the Company has elected the fair value option of accounting. The fair value of these equity method investments at June 30, 2018 and December 31, 2017 was $366.0 million and $215.9 million, respectively. The interest income realized and the change in fair value from these equity method investments was $14.7 million and $6.1 million for the three months ended June 30, 2018 and 2017, respectively, and $23.0 million and $8.7 million for the six months ended June 30, 2018 and 2017, respectively.

The Company’s investment in the real estate venture, the SL1 Venture, has a carrying amount of $14.8 million and $13.9 million at June 30, 2018 and December 31, 2017, respectively, and the earnings from this venture were $0.4 million and $1.0 million for the three and six months ended June 30, 2018. The earnings from this venture were $0.6 million and $1.0 million for the three and six months ended June 30, 2017.

Management Agreement

On April 1, 2015, the Company entered into a Management Agreement with its Manager (the “Management Agreement”). Pursuant to the terms of the Management Agreement, the Manager will be responsible for (a) the Company’s day-to-day operations, (b) determining investment criteria and strategy in conjunction with the Company’s Board of Directors, (c) sourcing, analyzing, originating, underwriting, structuring, and acquiring the Company’s portfolio investments, and (d) performing portfolio management duties. The Manager has an Investment Committee that approves investments in accordance with the Company’s investment guidelines, investment strategy, and financing strategy.

On May 23, 2016, the Company entered into an Amended and Restated Management Agreement (the “Amended and Restated Management Agreement”) by and among the Company, the Operating Company and the Manager that amends and restates the original Management Agreement dated April 1, 2015. The Amended and Restated Management Agreement was approved on behalf of the Company and the Operating Company by a unanimous vote of the Nominating and Corporate Governance Committee of the Company’s Board of Directors, which consists solely of independent directors.

The Amended and Restated Management Agreement modified certain procedures with respect to the future internalization of the Manager (as described in the Amended and Restated Management Agreement, an “Internalization Transaction”). Prior to entry into the Amended and Restated Management Agreement, if no Internalization Transaction had occurred prior to the end of the last renewal term, the Manager would have been entitled to the Termination Fee (as defined in the Amended and Restated Management Agreement) and the Company would not have acquired the assets of the Manager. The Amended and Restated Management Agreement, however, requires an Internalization Transaction at the end of the last renewal term (if an Internalization Transaction or termination of the Amended and Restated Management Agreement has not occurred prior to that date). The Internalization Price in such event would equal the Termination Fee amount and the Company would receive the Manager’s assets. Accordingly, the amount the Manager would receive has not changed, but the Company now would receive the assets of the Manager, which it would not have received prior to the Amended and Restated Management Agreement. 

Under the Amended and Restated Management Agreement, if an Internalization Transaction has not occurred prior to March 31, 2023, the last day of the last renewal term, then the Manager and the Company shall consummate an Internalization Transaction to be effective as of that date and all assets of the Manager (or, alternatively, all of the equity interests in the Manager) shall be conveyed to and acquired by the Operating Company in exchange for the Internalization Price (as described herein). At such time, all employees of the Manager shall become employees of the Operating Company and the Manager shall discontinue all business activities. Unlike an Internalization Transaction that occurs prior to the end of the final renewal term of the Amended and Restated Management Agreement, an Internalization Transaction that occurs at the end of the final renewal term shall not require a fairness opinion, the approval of a special committee of the Company’s Board of Directors or the approval of the Company’s stockholders.

The “Internalization Price” payable in the event of an Internalization Transaction at the end of the last renewal term shall be equal to the Termination Fee and the Board of Directors of the Company has no discretion to change such Internalization Price or the conditions applicable to its payment.

The Internalization Price paid to the Manager in any Internalization Transaction will be payable by the Operating Company in the number of units of limited liability company interests (“OC Units”) of the Operating Company equal to the Internalization Price, divided by the volume-weighted average of the closing market price of the common stock of the Company for the ten consecutive trading days immediately preceding

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the date with respect to which value must be determined. However, if the common stock of the Company is not traded on a national securities exchange at the time of closing of any Internalization Transaction, then the number of OC Units shall be determined by agreement between the Board of Directors of the Company and the Manager or, in the absence of such agreement, the Internalization Price shall be paid in cash.

Prior to entry into the Amended and Restated Management Agreement, any Termination Fee would have been payable by the Operating Company in OC Units equal to the Termination Fee divided by the average of the daily market price of the Company’s common stock for the ten consecutive trading days immediately preceding the date of termination within 90 days after occurrence of the event requiring the payment of the Termination Fee. In accordance with ASC 505-50, Equity—Equity-based Payments to Non-Employees, since the number of OC Units to be issued was dependent upon different possible outcomes, the Company recognized the lowest aggregate amount within the range of outcomes. Accordingly, the Company estimated the deferred termination fee payable and accrued the expense over the term of the Management Agreement. Upon entry into the Amended and Restated Management Agreement, the Company ceased recognizing the deferred termination fee expense and reclassified the Non-Controlling Interests to Additional Paid-In-Capital since the Termination Fee is no longer certain of being paid other than in exchange for either the assets or equity of the Manager. Accordingly, the Company recorded no expense during the three and six months ended June 30, 2018 and 2017.

On April 1, 2017, the Company, the Operating Company and the Manager entered into a Second Amended and Restated Management Agreement to modify the manner in which certain expenses incurred by the Manager are accounted for and paid by the Company. Under the Amended and Restated Management Agreement, the Manager may engage independent contractors that provide investment banking, securities brokerage, mortgage brokerage and other financial, legal and account services as may be required for the Company’s investments, and the Company agrees to reimburse the Manager for costs and expenses incurred in connection with these services. The Second Amended and Restated Management Agreement now provides that expenses incurred by the Manager are reimbursable to the Manager by the Company only to the extent such expenses are not otherwise directly reimbursed by an unaffiliated third party. The amount of expenses to be reimbursed to the Manager by the Company will be reduced dollar-for-dollar by the amount of any such payment or reimbursement.

On November 1, 2017, the Company, the Operating Company and the Manager entered into the Third Amended and Restated Management Agreement in order to clarify the original intent of the parties with respect to the definition of Core Earnings and to make other minor changes necessary to reflect the current and anticipated business model from and after this time. The Third Amended and Restated Management Agreement is otherwise substantially consistent with the Second Amended and Restated Management Agreement.

Under the Third Amended and Restated Management Agreement, “Core Earnings” is defined as (1) net income (loss) determined under GAAP, plus (2) non-cash equity compensation expense, the incentive fee, depreciation and amortization, plus (3) any unrealized losses or other non-cash expense items reflected in GAAP net income (loss), less (4) any unrealized gains reflected in GAAP net income (including any unrealized appreciation with respect to self-storage facilities that we have not yet acquired). The Third Amended and Restated Management Agreement clarifies that in addition to certain previously agreed upon adjustments, with respect to any self-storage facility acquired by the Company with respect to which we had an outstanding loan as of the time of such acquisition, the amount of Core Earnings determined pursuant to the formula above in the period of such acquisition shall also be increased by the difference between (A) the appraised value, as determined by a nationally recognized, independent third-party appraiser mutually agreed to by the Company and the Manager who has significant expertise in valuing self-storage properties, and (B) (i) the outstanding principal amount of any Company loan secured by such acquired self-storage facility at the time of such acquisition plus (ii) any other consideration given to the former owner upon such acquisition. This addition is intended to include in Core Earnings the amount of the Company’s unrealized gain on account of the Company’s acquisition of a self-storage facility without such facility being sold to a third party buyer in the open market.

The initial term of the Management Agreement will expire on March 31, 2020, with up to a maximum of three, one-year extensions that end on March 31, 2023. The Company’s independent directors review the Manager’s performance annually. Following the initial term, the Management Agreement may be terminated annually upon the affirmative vote of at least two-thirds of the Company’s independent directors based upon: (a) the Manager’s unsatisfactory performance that is materially detrimental to the Company; or (b) the Company’s determination that the management fees payable to the Manager are not fair, subject to the Manager’s right to prevent termination based on unfair fees by accepting a reduction of management fees agreed to by at least two-thirds of the independent directors. The Company is required to provide its Manager with 180 days’ prior notice of such a termination. Upon such a termination, the Company will pay the Manager a Termination Fee except as provided below.

No later than 180 days prior to the end of the initial term of the Management Agreement, the Manager will offer to contribute to the Company’s Operating Company at the end of the initial term all of the assets or equity interests in the Manager at the internalization price and on such terms and conditions included in a written offer provided by the Manager.

Upon receipt of the Manager’s initial internalization offer, a special committee consisting solely of the Company’s independent directors may accept the Manager’s proposal or submit a counter offer to the Manager. If the Manager and the special committee are unable to agree, the Manager and the special committee will repeat this process annually during the term of any extension of the Management Agreement. Acquisition of the Manager pursuant to this process requires a fairness opinion from a nationally recognized investment banking firm and stockholder approval, in addition to approval by the special committee. As described above, if an Internalization Transaction has not occurred prior to March 31, 2023, the last day of the last renewal term, then the Manager and the Company shall consummate an Internalization Transaction to be effective as of that date, and such Internalization Transaction shall not require a fairness opinion, the approval of a special committee of the Company’s Board of Directors or the approval of the Company’s stockholders.

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If the Management Agreement terminates other than for Cause (as defined below), voluntary non-renewal by the Manager or the Company being required to register as an investment company under the 1940 Act, then the Company shall pay to the Manager, on the date on which such termination is effective, a Termination Fee equal to the greater of (i) three times the sum of the average annual Base Management Fee and Incentive Fee earned by the Manager during the 24-month period prior to such termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination, or (ii) the offer price, which will be based on the lesser of (a) the Manager’s earnings before interest, taxes, depreciation and amortization (adjusted for unusual, extraordinary and non-recurring charges and expenses), or “EBITDA” annualized based on the most recent quarter ended, multiplied by a specific multiple, or EBITDA Multiple, depending on the Company’s achieved total annual return, and (b) the Company’s equity market capitalization multiplied by a specific percentage, or Capitalization Percentage, depending on the Company’s achieved total return (the Internalization Price). Any Termination Fee will be payable by the Operating Company in cash.

The Company also may terminate the Management Agreement at any time, including during the initial term, without the payment of any Termination Fee, with 30 days’ prior written notice from the Board of Directors, for cause. “Cause” is defined as: (i) the Manager’s continued breach of any material provision of the Management Agreement following a prescribed period; (ii) the occurrence of certain events with respect to the bankruptcy or insolvency of the Manager; (iii) a change of control of the Manager that a majority of the Company’s independent directors determines is materially detrimental to the Company; (iv) the Manager committing fraud against the Company, misappropriating or embezzling the Company’s funds, or acting grossly negligent in the performance of its duties under the Management Agreement; (v) the dissolution of the Manager; (vi) the Manager fails to provide adequate or appropriate personnel that are reasonably necessary for the Manager to identify investment opportunities for the Company and to manage and develop the Company’s investment portfolio if such default continues uncured for a period of 60 days after written notice thereof, which notice must contain a request that the same be remedied; (vii) the Manager is convicted (including a plea of nolo contendere) of a felony; or (viii) both the current Chief Executive Officer and the current President and Chief Operating Officer are no longer senior executive officers of the Manager or the Company during the term of the Management Agreement other than by reason of death or disability.

The Manager may terminate the Management Agreement if the Company becomes required to register as an investment company under the 1940 Act, with such termination deemed to occur immediately before such event, in which case the Company would not be required to pay the Manager a Termination Fee. The Manager may also decline to renew the Management Agreement by providing the Company with 180 days’ written notice, in which case the Company would not be required to pay a Termination Fee.

The Management Agreement provides for the Manager to earn a base management fee and an incentive fee, both of which are described further below. In addition, the Company will reimburse certain expenses of the Manager, excluding the salaries and cash bonuses of the Manager’s chief executive officer and chief financial officer, a portion of the salary of the president and chief operating officer, and certain other costs as determined by the Manager in accordance with the Management Agreement. Certain prepaid expenses and fixed assets are also purchased through the Manager and reimbursed by the Company. In the event that the Company terminates the Management Agreement pursuant to its terms, other than for Cause or the Company being required to register as an investment company under the 1940 Act, there will be a Termination Fee due to the Manager. Amounts reimbursable to the Manager for expenses are included in general and administrative expenses in the Consolidated Statements of Operations and totaled $0.9 million and $0.6 million for the three months ended June 30, 2018 and 2017, respectively, and $1.8 million and $1.5 million for the six months ended June 30, 2018 and 2017, respectively.

Management Fees

As of June 30, 2018, the Company did not have any personnel. As a result, the Company is relying on the properties, resources and personnel of the Manager to conduct operations. Pursuant to the Management Agreement, the Company pays the Manager a base management fee in an amount equal to 0.375% of the Company’s stockholders’ equity (a 1.5% annual rate) calculated and payable quarterly in arrears in cash. For purposes of calculating the base management fee, the Company’s stockholder’s equity means: (a) the sum of (i) the net proceeds from all issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus (ii) the Company’s retained earnings at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods); less (b) any amount that the Company pays to repurchase the Company’s common stock since inception, provided that if the Company’s retained earnings are in a net deficit position (following any required adjustments set forth below), then retained earnings shall not be included in stockholders’ equity. It also excludes (x) any unrealized gains and losses and other non-cash items that have impacted stockholders’ equity as reported in the Company’s financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, and (y) one-time events pursuant to changes in GAAP (such as a cumulative change to the Company’s operating results as a result of a codification change pursuant to GAAP), and certain non-cash items not otherwise described above (such as depreciation and amortization), in each case after discussions between the Company’s Manager and the Company’s independent directors and approval by a majority of the Company’s independent directors. As a result, the Company’s stockholders’ equity, for purposes of calculating the base management fee, could be greater or less than the amount of stockholders’ equity shown on the Company’s financial statements. The base management fee is payable independent of the performance of the Company’s portfolio. The Manager computes the base management fee within 30 days after the end of the fiscal quarter with respect to which such installment is payable and promptly delivers such calculation to the Company’s Board of Directors. The amount of the installment shown in the calculation is due and payable no later than the date which is five business days after the date of delivery of such computation to the Board of Directors. The calculation generally will be reviewed by the Board of Directors at their regularly scheduled quarterly board meeting. The base management fee was $1.6 million and $0.7 million for the three months ended June 30, 2018 and 2017,

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respectively, and $2.9 million and $1.3 million for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018 and December 31, 2017, the Company had outstanding fees due to Manager of $1.9 million and $1.5 million, respectively, consisting of the management fees payable and certain general and administrative reimbursements payable.

Incentive Fee

The Manager is entitled to an incentive fee with respect to each fiscal quarter (or part thereof that the Management Agreement is in effect) in arrears in cash. The incentive fee is an amount, not less than zero, determined pursuant to the following formula:

Incentive Fee = .20 times (A minus (B times .08)) minus C

In the foregoing formula:

 A equals the Company’s Core Earnings (as defined below) for the previous 12-month period;

 B equals (i) the weighted average of the issue price per share of the Company’s common stock of all of its public offerings of common stock, multiplied by (ii) the weighted average number of all shares of common stock outstanding (including (i) any restricted stock units and any restricted shares of common stock in the previous 12-month period and (ii) shares of common stock issuable upon conversion of outstanding OC Units); and

 C equals the sum of any incentive fees earned by the Manager with respect to the first three fiscal quarters of such previous 12-month period.

Notwithstanding application of the incentive fee formula, no incentive fee shall be paid with respect to any fiscal quarter unless cumulative annual stockholder total return for the four most recently completed fiscal quarters is greater than 8%. Any computed incentive fee earned but not paid because of the foregoing hurdle will accrue until such 8% cumulative annual stockholder total return is achieved. The total return is calculated by adding stock price appreciation (based on the volume-weighted average of the closing price of the Company’s common stock on the New York Stock Exchange (or other applicable trading market) for the last ten consecutive trading days of the applicable computation period minus the volume-weighted average of the closing market price of the Company’s common stock for the last ten consecutive trading days of the period immediately preceding the applicable computation period) plus dividends per share paid during such computation period, divided by the volume-weighted average of the closing market price of the Company’s common stock for the last ten consecutive trading days of the period immediately preceding the applicable computation period. For purposes of computing the Incentive Fee, “Core Earnings” is defined as net income (loss) determined under GAAP, plus non-cash equity compensation expense, the incentive fee, depreciation and amortization (to the extent that the Company forecloses on any facilities underlying the Company’s target investments), any unrealized losses or other non-cash expense items reflected in GAAP net income (loss), less any unrealized gains reflected in GAAP net income. The amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between the Manager and the Company’s independent directors and after approval by a majority of the independent directors.  The Third Amended and Restated Management Agreement clarifies that in addition to certain previously agreed upon adjustments, with respect to any self-storage facility acquired by the Company with respect to which we had an outstanding loan as of the time of such acquisition, the amount of Core Earnings determined pursuant to the formula above in the period of such acquisition shall also be increased by the difference between (A) the appraised value, as determined by a nationally recognized, independent third-party appraiser mutually agreed to by the Company and the Manager who has significant expertise in valuing self-storage properties, and (B) (i) the outstanding principal amount of any Company loan secured by such acquired self-storage facility at the time of such acquisition plus (ii) any other consideration given to the former owner upon such acquisition. This addition is intended to include in Core Earnings the amount of the Company’s unrealized gain on account of the Company’s acquisition of a self-storage facility without such facility being sold to a third party buyer in the open market.

The Manager computes each quarterly installment of the incentive fee within 45 days after the end of the fiscal quarter with respect to which such installment is payable and promptly delivers such calculation to the Company’s Board of Directors. The amount of the installment shown in the calculation is due and payable no later than the date which is five business days after the date of delivery of such computation to the Board of Directors. The calculation generally will be reviewed by the Board of Directors at their regularly scheduled quarterly board meeting. The Manager has not earned an incentive fee for the three and six months ended June 30, 2018 and 2017.

11. SUBSEQUENT EVENTS

The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. Other than those disclosed below, there have been no subsequent events that occurred during such period that require disclosure or recognition in the accompanying consolidated financial statements.

Investment Activity

On July 20, 2018, the Company closed on a land loan with a commitment amount of $3.8 million in the Boston, Massachusetts MSA. This investment was made for the purpose of closing a development property investment in the future.

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Dividend Declarations

On July 31, 2018, the Company’s Board of Directors declared a cash dividend to the holders of the Series A Preferred Stock and a distribution payable in kind, if applicable, in a number of shares of common stock or Series A Preferred Stock as determined in accordance with the election of the holders of the Series A Preferred Stock for the quarter ending September 30, 2018. The dividends are payable on October 15, 2018 to holders of Series A Preferred Stock of record on October 1, 2018.

On July 31, 2018, the Company’s Board of Directors declared a cash dividend on the Series B Preferred Stock in the amount of $0.4375 per share for the quarter ending September 30, 2018. The dividends are payable on October 15, 2018 to holders of Series B Preferred Stock of record on October 1, 2018.

On July 31, 2018, the Company’s Board of Directors declared a cash dividend of $0.35 per share of common stock for the quarter ending September 30, 2018. The dividend is payable on October 15, 2018 to stockholders of record on October 1, 2018.

Other Capital Activities

On July 25, 2018, the Company entered into the First Amendment to the Purchase Agreement in order to extend the final date to issue Series A Preferred Stock under the Purchase Agreement from July 27, 2018 to September 30, 2018.

On July 25, 2018, the Company entered into the Second Amendment to the Credit Facility, which amends the Credit Facility to, among other things, modify the restrictions on indebtedness so as to permit the Company to enter into certain other indebtedness.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

We make statements in this Quarterly Report on Form 10-Q that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). These forward-looking statements include, without limitation, statements about our estimates, expectations, predictions and forecasts of our future business plans and financial and operating performance and/or results, as well as statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. When we use the words “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” or similar expressions or their negatives, as well as statements in future tense, we intend to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance and our actual financial and operating results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such differences are described in the section entitled “Risk Factors” in this report and in our Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”), which was filed with the Securities and Exchange Commission (“SEC”) on March 2, 2018, and in other filings we make with the SEC from time to time, which factors include, without limitation, the following:

	our ability to successfully source, structure, negotiate and close investments in self-storage facilities;
	changes in our business strategy and the market’s acceptance of our investment terms;
	our ability to fund our outstanding and future investment commitments;
	our ability to complete construction and obtain certificates of occupancy at the facilities in which we invest;
	the future availability for borrowings under our credit facility (including borrowing base capacity and the availability of the accordion feature);
	availability, terms and our rate of deployment of equity and debt capital;
	our manager’s ability to hire and retain qualified personnel;
	changes in the self-storage industry, interest rates or the general economy;
	the degree and nature of our competition;
	volatility in the value of our assets carried at fair market value;
	potential limitations on our ability to pay dividends at historical rates;
	limitations in our existing and future debt agreements on our ability to pay distributions;
	the impact of our outstanding preferred stock on our ability to execute our business plan and pay distributions on our common stock; and
	general volatility of the capital markets and the market price of our common stock.

Given these uncertainties, undue reliance should not be placed on our forward-looking statements. We assume no duty or responsibility to publicly update or revise any forward-looking statement that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. We urge you to review the disclosures concerning risks in the sections entitled “Risk Factors,” “Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2017 Form 10-K and in other filings we make with the SEC from time to time.

Overview

We are a commercial real estate company that invests primarily in new or recently-constructed and opened self-storage facilities located predominately in dense urban submarkets within large United States MSAs. Facilities in which we invest are largely vertical (three to ten floors), 100% climate controlled and technologically adapted buildings, which we call Generation V facilities, located in submarkets with demographic profiles and competitive positions that management believes will support successful lease-up and value creation in the project. Our investments include mortgage loans typically coupled with equity interests as well as outright ownership of self-storage facilities.

Our principal business objective is to deliver attractive risk-adjusted returns by investing in new Generation V facilities primarily in urban submarkets. A substantial majority of our investments to date have been first mortgage loans to finance ground-up construction of and conversion of existing buildings into new Generation V self-storage facilities. These investments, which we refer to as “development property investments,” are typically structured as loans equal to between 90% and 97% of the cost of the facility. We receive a fixed rate of interest on loaned amounts and up to a 49.9% interest in the positive cash flows from operations, sales and /or refinancings of self-storage facilities, which we refer to as “Profits Interest”. We typically receive a right of first refusal to acquire the self-storage facility upon sale.

In order to adapt our investment activities to the current self-storage cycle, we opportunistically provide capital to refinance primarily Generation V facilities that have been developed since 2013 and are currently in lease-up. Facilities refinanced by our bridge loan investments will predominately be in locations and have demographic and competitive profiles that are very similar to our development property investments. On March 2, 2018, we closed our first bridge loan investment consisting of five separate loans with Profits Interest having an aggregate commitment amount of $83.3 million secured by first mortgages on five properties in the Miami, Florida MSA.

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During the six months ended June  30, 2018, we acquired the 50.1% equity interests of our developer partners in our Jacksonville 1, Atlanta 1, Atlanta 2 and Pittsburgh development property investments. Each property is now wholly-owned by us and consolidated in the accompanying interim consolidated financial statements. As of June 30, 2018, we wholly-owned a total of five self-storage facilities.

We account for our development property investments, bridge loan investments, and operating property loans at fair value, with appreciation and depreciation in the value of these investments being reflected in the carrying value of the assets and in the determination of net income. In determining fair value, we re-value each development property investment, bridge loan investment, and operating property loan each quarter, which revaluation includes an analysis of the current value of any Profits Interest associated with the investment. We believe that carrying our assets at fair value and reflecting appreciation and depreciation in our earnings provide our stockholders and others who rely on our financial statements with a more complete and accurate understanding of our financial condition and economic performance, including our revenues and the intrinsic value inherent in our Profits Interests as self-storage facilities we finance are constructed, leased-up and become stabilized.

We have funded all of our on-balance sheet investments to date with the following sources of capital:

	net proceeds from our initial public offering (“IPO”) and concurrent private placement, which were consummated on April 1, 2015;
	proceeds from the sale of senior participations, which we also refer to as “A notes”, in certain investments;
	net proceeds from the issuance of our Series A Preferred Stock (“Series A Preferred Stock”) pursuant to a Stock Purchase Agreement (the “Purchase Agreement”) between us and funds managed by Highland Capital Management, L.P., providing for the issuance and sale of up to $125.0 million of Series A Preferred Stock from time to time;
	net proceeds from our follow-on public offerings of common stock, which were consummated on December 13, 2016, June 27, 2017 and June 14, 2018;
	net proceeds from the at-the-market continuous equity offering program (“ATM Program”) which we commenced on April 5, 2017;
	available proceeds from our $100 million Credit Facility, that may from time to time, pursuant to an accordion feature, be increased to commitments up to an aggregate amount of $200 million;
	net proceeds from our public offering of Series B Preferred Stock, which was consummated on January 26, 2018; and
	net proceeds from our $45.0 preferred at-the-market continuous equity offering program (“Preferred ATM Program”), which we commenced in March of 2018.

On March 7, 2016, we, through our Operating Company, entered into the Limited Liability Company Agreement of Storage Lenders (the “SL1

Venture”) with HVP III Storage Lenders Investor, LLC (“HVP III”), an investment vehicle managed by Heitman. The SL1 Venture was formed for the purpose of providing capital to developers of self-storage facilities identified and underwritten by us. Upon formation, HVP III committed $110.0 million for a 90% interest in the SL1 Venture, and we committed $12.2 million for a 10% interest. On March 31, 2016, we contributed to the SL1 Venture three self-storage development investments with an aggregate commitment amount of $41.9 million. As of June 30, 2018, the SL1 Venture had closed on eight additional development property investments with a Profits Interest with an aggregate commitment amount of approximately $81.4 million, bringing the total aggregate commitment of SL1 Venture’s investments to $123.3 million as of June 30, 2018.

We are externally managed and advised by JCAP Advisors, LLC (the “Manager”). The Manager is led by our founder and chief executive officer, Dean Jernigan, and our president and chief operating officer, John A. Good. Mr. Jernigan is a 30-year veteran of the self-storage industry, including a combined 16 years as the chief executive officer of Storage USA and CubeSmart, both NYSE listed self-storage REITs. During his time at these two companies, Mr. Jernigan oversaw the investment of over $3 billion of capital in the self-storage industry. Mr. Good has over 29 years of experience working with senior management teams and boards of directors of public companies in the REIT and financial services industries on corporate finance, corporate governance, merger and acquisition, tax, executive compensation, joint venture, and strategic planning projects as a nationally recognized corporate and securities lawyer. Prior to joining the Company, he served as lead counsel on over 200 securities offerings, including our IPO, raising in excess of $25 billion over the past 25 years, with more than 125 of those deals being in the REIT industry. We believe the industry experience and depth of relationships of our senior management team and other investment professionals provide us with a significant competitive advantage in sourcing, evaluating, underwriting and servicing self-storage investments.

We are a Maryland corporation that was organized on October 1, 2014 that has elected to be taxed as a REIT under the Internal Revenue Code of 1986 (“the Code”), as amended. As a REIT, we generally will not be subject to U.S. federal income taxes on our taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains, to the extent that we annually distribute all of our REIT taxable income to stockholders and comply with certain other requirements for qualification as a REIT set forth in the Code. We are structured as an UPREIT and conduct our investment activities through our Operating Company. We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the 1940 Act.

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Factors Impacting Our Operating Results

The results of our operations have historically been affected, and will continue to be affected, by a number of factors including, among other things:

	the pace at which we are able to deploy capital into development property investments and bridge loan investments and begin earning interest income, which pace can be dependent on the timing of government issuance of building permits, weather and other factors outside our control;
	the timing of construction completion of facilities we finance and the pace of lease-up of such facilities;
	availability of capital and whether investments are made on-balance sheet or through off-balance sheet joint ventures;
	changes in the fair value of our assets; and
	the performance of self-storage facilities in which we have invested, either directly or through the SL1 Venture.

As the current development cycle winds down, we believe that developers who constructed new self-storage facilities earlier in the cycle will be seeking financing to pay off existing construction debt and buy out private equity partners. We believe our bridge financing program will meet the needs and plans of these developers in a way unlikely to be met by the traditional lending market. Moreover, we believe our current developer partners and other developers with whom we do not currently have financing relationships will be seeking early exits from their development projects, providing opportunities for us to acquire new Generation V facilities in the lease-up phase. We intend to continue to pursue bridge financings of recently built self-storage facilities in lease-up phase and to selectively evaluate acquisitions of our current developer partners’ membership interests in projects that we have financed. In addition to the factors described above, our results of operations will also be impacted by the following additional factors:

	our ability to generate these new types of investment opportunities while at the same time managing our existing pipeline of development investment opportunities;
	our ability to offer flexible transaction structures that meet the needs of developers while at the same time providing us with returns commensurate with the risks taken;
	increased emphasis on current interest or net rental income and less emphasis on fair value accretion; and
	our ability to access debt and equity capital at a cost commensurate with the returns from bridge loans and outright ownership of self-storage facilities.

Our total investment income includes interest income from investments, which also reflects the accretion of origination fees, and is recognized utilizing the effective interest method based on the contractual rate and the outstanding principal balance of the loans we originate. The objective of the effective interest method is to arrive at periodic interest income that yields a level rate of return over the loan term. Interest rates may vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers. Our income also includes earnings from our investment in the SL1 Venture, which is calculated based on the allocation of earnings as prescribed in the JV Agreement. In addition, our operating results are affected by the valuation of our development property investments, bridge loan investments and our operating property loans. These investments are marked to fair value each quarter, and increases and decreases in fair value are reflected in the carrying values of the investments in our Consolidated Balance Sheets and as unrealized increases/decreases in fair value in our Consolidated Statements of Operations. We have made, and in the future we may make, additional equity investments in self-storage facilities, either for fee simple ownership by our Operating Company or in joint ventures with our developers, institutional or other strategic partners. In that regard, in connection with many of our development investments, we have obtained rights of first refusal in connection with potential future sales of self-storage facilities that we finance. Our operating results include rental income and related operating expenses from owned self-storage facilities. Our results for the three and six months ended June 30, 2018 and 2017 also were impacted by our accounting methods as discussed below.

Changes in Fair Value of Our Assets

We have elected the fair value option of accounting for our investment portfolio. We have elected fair value accounting for these financial instruments because we believe such accounting provides stockholders and others who rely on our financial statements with a more complete and accurate understanding of our economic performance, including our revenues and the intrinsic value inherent in the Profits Interests we possess. Under the fair value option, we mark our development property investments, bridge loan investments, and operating property loans to estimated fair value at the end of each accounting period, with corresponding increases or decreases in fair value being reflected in our Consolidated Statements of Operations. There is no active secondary market for our development property investments, bridge loan investments, and operating property loans and no readily available market value; accordingly, our determination of fair value requires judgment and extensive use of estimates. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our development property investments, bridge loan investments, and operating property loans may fluctuate from period to period. Additionally, the fair value of our development property investments, bridge loan investments, and operating property loans may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Our development property investments, bridge loan investments, and operating property loans are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate an investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the

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gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

Changes in Market Interest Rates

With respect to our business operations, increases in interest rates, in general, may over time cause: the interest expense associated with our borrowings to increase; the value of our loan portfolio to decline; interest rates on any floating rate loans to reset, although on a delayed basis, to higher interest rates; and to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase. Conversely, decreases in interest rates, in general, may over time cause: the interest expense associated with our borrowings to decrease; the value of our mortgage loan portfolio to increase; interest rates on any floating rate loans to reset, although on a delayed basis, to lower interest rates; and to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease.

Credit Risk

We are subject to varying degrees of credit risk in connection with our target investments and other loans. Our Manager seeks to mitigate this risk by seeking to originate or acquire loans of higher quality at appropriate prices given anticipated and unanticipated losses, by utilizing a comprehensive selection, underwriting and due diligence review process, and by proactively monitoring originated or acquired loans. Although we expect that our borrowers will perform in full on their obligations under the loan documents, one of our underwriting principles is that we will generally not make a loan secured by a property that we, at the time of our investment decision, do not wish to ultimately own and operate. We believe this principle and our ability to effectively own and operate self-storage properties mitigates credit risk. Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results.

Market Conditions

We believe that present conditions in certain markets continue to be conducive to realizing attractive risk-adjusted returns on investments in self-storage facilities owned by private operators. The self-storage sector has experienced increased construction starts recently and the trend is expected to continue upwards. The key demand drivers of the self-storage sector include population mobility and new job creation, both of which are experiencing increases since the recession, as well as population growth. These drivers have created demand for self-storage, which in turn have developers looking to develop and match demand with supply. The main deterrents for developers are government regulations (primarily zoning restrictions) and the lack of financing available in the sector. Currently, lenders are only willing to lend up to 70% of the loan-to-value ratio, whereas our substantial industry knowledge enables us to make loans at ratios of approximately 90% loan-to-cost (“LTC”). In certain situations, we will advance more than 90% of cost and receive a higher rate of interest, some of which will be received as payment-in-kind (“PIK”) interest rather than cash interest.

Recent Developments

Investment Activity

On July 20, 2018, we closed on a land loan with a commitment amount of $3.8 million in the Boston, Massachusetts MSA. This investment was made for the purpose of closing a development property investment in the future.

Dividend Declarations

On July 31, 2018, our Board of Directors declared a cash dividend to the holders of the Series A Preferred Stock and a distribution payable in kind, if applicable, in a number of shares of common stock or Series A Preferred Stock as determined in accordance with the election of the holders of the Series A Preferred Stock for the quarter ending September 30, 2018. The dividends are payable on October 15, 2018 to holders of Series A Preferred Stock of record on October 1, 2018.

On July 31, 2018, our Board of Directors declared a pro rata cash dividend on the Series B Preferred Stock in the amount of $0.4375 per share for the quarter ending September 30, 2018. The dividends are payable on October  15, 2018 to holders of Series B Preferred Stock of record on October 1, 2018.

On July 31, 2018, our Board of Directors declared a cash dividend of $0.35 per share of common stock for the quarter ending September 30, 2018. The dividend is payable on October  15, 2018 to stockholders of record on October 1, 2018.

Other Capital Activities

On July 25, 2018, we entered into the First Amendment to the Purchase Agreement in order to extend the final date to issue Series A Preferred Stock under the Purchase Agreement from July 27, 2018 to September 30, 2018.

On July 25, 2018, we entered into the Second Amendment to the Credit Facility, which amends the Credit Facility to, among other things, modify the restrictions on indebtedness so as to permit us to enter into certain other indebtedness.

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Investment Activity

On-balance sheet investment activity

During the three months ended June 30, 2018 we closed on the following development property investments with a Profits Interest:

		Investment		Total Investment
Closing Date	MSA	Type		Commitment
4/6/2018	Minneapolis 3		Development	$	12,883
5/1/2018	Miami 9		Development		12,421
5/15/2018	Atlanta 7		Development		9,418
5/23/2018	Kansas City		Development		9,968
6/7/2018	Orlando 5		Development		12,969
6/12/2018	Los Angeles 2		Development		9,298
			Total	$	66,957

Minneapolis 3 is a proposed new-build climate controlled self-storage project that will consist of 863 units with approximately 86,075 net rentable square feet. The property will also offer RV, boat, and vehicle storage. The project will be located on 101 American Boulevard, Bloomington, Minnesota 55420, 10 miles southwest of downtown Minneapolis. Directly east and less than two miles from the site is the entrance to IKEA and Mall of America. Key retailers inside Mall of America include Apple, Nordstrom, North Face, Zara, H&M, Barnes and Noble, and Oakley. Less than three miles northwest of the site is France Avenue within Edina, Minnesota, which has high end shopping and restaurants such as Apple, Target, and Whole Foods. Construction is expected to begin in the fourth quarter of 2018 and be completed in the fourth quarter of 2019. Cascade Storage Partners, LLC, based in Charlotte, North Carolina, is the developer of the proposed project. This will be the eighth development project in which the Company and Cascade, or its affiliates, including Pamlico Investments, Inc., have invested.

Miami 9 is a proposed all climate controlled self-storage project that will consist of a single, three story building with 761 units and approximately 70,538 net rentable square feet. The project will be located on W. Okeechobee Road near the intersection of US Highway 27 and the Palmetto Expressway. In addition to Hialeah Gardens, the facility will also serve residents of Hialeah, Doral, Miami Lakes, Miami Springs and Palm Springs North. Self Storage Associates, Inc., headquartered in Ocoee, Florida, is the developer of the proposed project. TheCompany and Self Storage Associates have co-invested in six other self-storage development projects. Construction is expected to begin in the first quarter of 2019 and be completed in the third quarter of 2019. The proposed facility will be managed by CubeSmart.

Atlanta 7 is a proposed all climate controlled self-storage project that will consist of a single three-story building with 754 units in approximately 76,500 net rentable square feet. The project will be located at 2915 Webb Rd, Milton, Georgia, which is a suburb of Atlanta. The project’s submarket has an annual population growth rate in excess of 3% and includes significant new multifamily developments as well as high-end national retailers such as Apple, Lululemon, Anthropologie and Crate & Barrel. J. Craig Harper, headquartered in Atlanta, Georgia, is the developer of the proposed project. This is the second project in which J. Craig Harper and the Company have co-invested. Construction is expected to begin in the third quarter of 2018 and be completed in the third quarter of 2019. The proposed facility will be managed by CubeSmart.

Kansas City is a proposed all climate controlled self-storage project that will consist of a single five-story building with 826 units in approximately 77,200 net rentable square feet. The project will be located at 510 Southwest Blvd, Kansas City, Missouri between the markets of Mission Hills & Prairie Village and downtown Kansas City, Missouri. The project is less than a mile from the University of Kansas Medical Center and just over two miles from Country Club Plaza, a high-end lifestyle center with national retailers and restaurants such as Apple, Anthropologie, Lululemon, Tiffany, Cheesecake Factory and Capital Grille. This is the Company’s first investment in the Kansas City MSA. Phillips Development, headquartered in Tampa, Florida, is the developer of the proposed project. This is the fifth project in which Phillips Development and the Company have co-invested. Construction is expected to begin in the third quarter of 2018 and be completed in the third quarter of 2019. The proposed facility will be managed by CubeSmart.

Orlando 5 is a proposed all climate controlled self-storage project that will consist of a single seven-story building with 816 units in approximately 76,200 net rentable square feet. The project will be located at 7212 W. Sand Lake Road, Orlando, Florida. The proposed project is less than half a mile from Turkey Lake Road, Dr. Phillips Boulevard and Interstate 4, three major north/west thoroughfares, and will be in close proximity to the Lake Butler, Bay Hill and Windermere communities. The project’s submarket has an annual population growth rate of approximately 2.5%, has recently experienced substantial new multifamily development and contains national grocers, retailers and restaurants such as Whole Foods, Publix, Trader Joe’s and Flemings Steakhouse. Structure Development, headquartered in Orlando, Florida, is the developer of the proposed project. This is the sixth project in which Structure Development and the Company have co-invested. Construction is expected to begin in the third quarter of 2018 and be completed in the third quarter of 2019. The proposed facility will be managed by CubeSmart.

Los Angeles 2 is a proposed all climate controlled self-storage project that will consist of a single three-story building with 1,236 units in approximately 116,022 net rentable square feet. The project will be located at 7855 Haskell Avenue in Van Nuys, California, a city in the

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central San Fernando Valley region, located in the greater Los Angeles MSA. The proposed project is less than one block from the I-405, a major north-south freeway that runs along the pacific coast. In addition to Van Nuys, the facility will also serve the surrounding communities of Mission Hills, San Fernando, North Hills, Lake Balboa and Sherman Oaks. Construction is expected to begin in the third quarter of 2019 and to be completed in the fourth quarter of 2020. Pacific Storage Partners, LLC, located in Los Angeles, CA, is the developer of the proposed project. This is the tenth project in which Pacific Storage Partners, or its affiliates, have co-invested with the Company. The proposed facility is anticipated to be managed by Extra Space Storage. This project has a total cost of $29.5 million of which a traditional bank will provide 65% of the total cost through a construction loan. We will fund 90% of the remaining 35% of costs required to complete the project through a preferred equity investment. In return, we will receive a preferred return on our investment of 6.9% per annum that will be paid out of future cash flows of the underlying facility, a 1% transaction fee and a 49.9% Profits Interest.

Our self-storage investments at June 30, 2018 consisted of the following:

 Development Property Investments - We had 48 investments totaling an aggregate committed principal amount of approximately $566.1 million to finance the ground-up construction or conversion of existing buildings into self-storage facilities. Each development property investment is generally funded as the developer constructs the project and is typically comprised of a first mortgage and a 49.9% Profits Interest. The loans are secured by first priority mortgages or deeds of trust on the projects and, in certain cases, first priority security interests in the membership interests of the owners of the projects. Loans comprising development property investments are non-recourse with customary carve-outs and subject to completion guaranties, are interest-only with a fixed interest rate of typically 6.9% per annum and typically have a term of 72 months.   Also included in development property investments as of June 30, 2018 was one construction loan with a committed principal amount of approximately $17.7 million and an initial term of 18 months that was extended during the first quarter of 2017 and in 2018. This construction loan is interest-only at a fixed interest rate of 6.9% per annum, has no equity participation and is secured by a first priority mortgage on the project. The self-storage facility under construction is subject to a purchase and sale agreement between the developer and a third-party purchaser pursuant to which the financed project is anticipated to be sold and the loan repaid on or about the time a certificate of occupancy is issued for the financed self-storage facility, which is expected in the third quarter of 2018.

 Bridge Loan Investments – We had five bridge loan investments with an aggregate committed principal amount of approximately $83.3 million. Three bridge loans amounting to an aggregate committed principal amount of $47.1 million are secured by first priority mortgages on self-storage properties with an aggregate of over 203,000 net rentable square feet that were completed and began lease up in 2016, which loans bear interest at an annual rate of 6.9%, payable monthly. We have a 49.9% Profits Interest in these three properties. Two bridge loans aggregating a committed principal amount of $36.2 million are secured by first priority mortgages on two newly-completed self-storage properties with an expected aggregate of over 160,000 net rentable square feet, which loans will bear interest at an annual rate of 9.5%, with 6.5% payable monthly and 3.0% accruing and payable upon maturity of the loan. We also have a 49.9% Profits Interest, after the other members of the borrower receive $1.0 million of preferential payments per loan. All five loans will mature five years from the date of closing, with the borrower having two extension options for one year each. The bridge loans are all issued and outstanding with a single borrower.

 Operating Property Loans - We had two term loans totaling $6.0 million of aggregate committed principal amount, the proceeds of which were used by borrowers to finance the acquisition of, refinance existing indebtedness on, or recapitalize operating self-storage facilities. These loans are secured by first mortgages on the projects financed, are interest-only with fixed interest rates ranging from 5.85% to 6.9% per annum, and generally have a term of 72 months.

As of June 30, 2018, the aggregate committed principal amount of our development property investments, bridge loan investments and operating property loans was approximately $673.1 million and outstanding principal was $365.5 million, as described in more detail in the table below (dollars in thousands):

	Metropolitan					Remaining
	Statistical Area	Total Investment		Funded		Unfunded
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value
Development property investments (includes a profits interest):
6/19/2015	Tampa 1 (2)	$	5,369	$	5,285	$	84	$	5,931
6/29/2015	Charlotte 1 (2)		7,624		7,357		267		9,556
7/2/2015	Milwaukee (2)		7,650		7,641		9		9,241
7/31/2015	New Haven (2)		6,930		6,600		330		8,342
8/14/2015	Raleigh (2)		8,792		8,176		616		8,442
10/27/2015	Austin (2)		8,658		7,551		1,107		8,600
9/20/2016	Charlotte 2 (2)		12,888		9,497		3,391		10,660
11/17/2016	Jacksonville 2 (2)		7,530		6,890		640		8,512
1/4/2017	New York City 1 (2)		16,117		16,056		61		20,934
1/18/2017	Atlanta 3		14,115		4,212		9,903		4,028
1/31/2017	Atlanta 4 (2)		13,678		10,206		3,472		11,995

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2/24/2017	Orlando 3 (2)		8,056		5,961		2,095		7,004
2/24/2017	New Orleans (3)		12,549		4,411		8,138		4,454
2/27/2017	Atlanta 5(3)		17,492		8,262		9,230		8,179
3/1/2017	Fort Lauderdale(3)		9,952		3,934		6,018		4,045
3/1/2017	Houston (3)		13,630		6,079		7,551		6,388
4/14/2017	Louisville 1 (3)		8,523		5,255		3,268		6,049
4/20/2017	Denver 1 (3)		9,806		3,706		6,100		3,587
4/20/2017	Denver 2 (2)		11,164		8,173		2,991		9,718
5/2/2017	Atlanta 6 (3)		12,543		8,658		3,885		9,863
5/2/2017	Tampa 2		8,091		2,070		6,021		1,991
5/19/2017	Tampa 3 (3)		9,224		4,379		4,845		4,787
6/12/2017	Tampa 4 (3)		10,266		6,127		4,139		7,187
6/19/2017	Baltimore(3)(4)		10,775		5,584		5,191		5,667
6/28/2017	Knoxville(3)		9,115		4,367		4,748		4,605
6/29/2017	Boston 1 (2)		14,103		10,801		3,302		11,786
6/30/2017	New York City 2 (4)		26,482		20,356		6,126		19,759
7/27/2017	Jacksonville 3 (3)		8,096		4,411		3,685		4,993
8/30/2017	Orlando 4		9,037	��	2,661		6,376		2,561
9/14/2017	Los Angeles 1		28,750		7,923		20,827		7,672
9/14/2017	Miami 1		14,657		6,942		7,715		6,785
9/28/2017	Louisville 2 (3)		9,940		5,316		4,624		5,861
10/12/2017	Miami 2 (4)		9,459		1,062		8,397		818
10/30/2017	New York City 3 (4)		14,701		3,712		10,989		3,384
11/16/2017	Miami 3 (4)		20,168		4,309		15,859		3,740
11/21/2017	Minneapolis 1		12,674		285		12,389		156
12/1/2017	Boston 2		8,771		2,329		6,442		2,235
12/15/2017	New York City 4		10,591		1,283		9,308		1,168
12/27/2017	Boston 3		10,174		2,475		7,699		2,306
12/28/2017	New York City 5		16,073		5,101		10,972		4,945
2/8/2018	Minneapolis 2		10,543		3,944		6,599		3,878
3/30/2018	Philadelphia (4)		14,338		3,558		10,780		3,274
4/6/2018	Minneapolis 3		12,883		2,613		10,270		2,489
5/1/2018	Miami 9 (4)		12,421		2,448		9,973		2,219
5/15/2018	Atlanta 7		9,418		857		8,561		772
5/23/2018	Kansas City		9,968		1,413		8,555		1,324
6/7/2018	Orlando 5		12,969		-		12,969		-
6/12/2018	Los Angeles 2 (5)		9,298		4,424		4,874		4,500
		$	566,051	$	264,660	$	301,391	$	286,390
Construction loans:
12/23/2015	Miami		17,733		15,966		1,767		15,855
		$	17,733	$	15,966	$	1,767	$	15,855
Total development property investments		$	583,784	$	280,626	$	303,158	$	302,245
Bridge loan investments (includes a profits interest):
3/2/2018	Miami 4 (2)		20,201		19,627		574		20,997
3/2/2018	Miami 5 (2)(4)		17,738		16,108		1,630		14,009
3/2/2018	Miami 6 (2)		13,370		13,370		-		17,129
3/2/2018	Miami 7 (2)(4)		18,462		16,755		1,707		14,892
3/2/2018	Miami 8 (2)		13,553		13,013		540		12,554
Total bridge loan investments		$	83,324	$	78,873	$	4,451	$	79,581
Operating property loans:
7/7/2015	Newark		3,480		3,480		-		3,402
12/22/2015	Chicago		2,502		2,500		2		2,460
Total operating property loans		$	5,982	$	5,980	$	2	$	5,862
Total investments reported at fair value		$	673,090	$	365,479	$	307,611	$	387,688

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(1)	Represents principal balance of loan gross of origination fees. The principal balance includes interest accrued on the investment.
(2)	Construction at the facility was substantially complete and/or certificate of occupancy had been received as of June  30, 2018. See Note 4 to the accompanying unaudited consolidated financial statements, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.
(3)	Facility had achieved at least 40% construction completion but construction was not considered substantially complete as of June  30, 2018. See Note 4 to the accompanying unaudited consolidated financial statements, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.
(4)	These investments contain a higher LTC ratio and a higher interest rate, some of which interest is PIK interest. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment.
(5)	This investment has a total project cost of $29.5 million of which a traditional bank will provide 65% of the total cost through a construction loan. We will fund 90% of the remaining 35% of costs required to complete the project through a preferred equity investment, pursuant to which we will receive a preferred return on our investment of 6.9% per annum that will be paid out of future cash flows of the underlying facility, a 1% transaction fee and a 49.9% Profits Interest.

 Wholly-Owned Property Investment – We  own 100% of the LLC membership interests in the LLCs of five of our previous development property investments. During 2017, we acquired the LLCs comprising our Orlando 1 and Orlando 2 development property investments. We now own 100% of the self-storage facility located at 11920 W. Colonial Drive, Ocoee, Florida. The facility is managed by CubeSmart. In addition, during the first quarter of 2018, our developer partners in our Jacksonville 1, Atlanta 1, Atlanta 2 and Pittsburgh investments offered to sell us their remaining membership interests in the LLCs that owned those projects, and we consummated those purchases in the first quarter of 2018. These self-storage facilities are located at (i) 1939 East West Parkway, Fleming Island, Florida; (ii) 5110 McGinnis Ferry Road, Alpharetta, Georgia; (iii) 340 Franklin Road Gateway SE, Marietta, Georgia; and (iv) 6400 Hamilton Avenue, Pittsburgh, Pennsylvania, respectively. See Note 3 to the accompanying interim consolidated financial statements,  Self-Storage Investment Portfolio.

Real estate venture activity

As of June 30, 2018, the SL1 Venture had 11 development property investments with a Profits Interest as described in more detail in the table below (dollars in thousands):

	Metropolitan					Remaining
	Statistical Area	Total Investment		Funded		Unfunded
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value
5/14/2015	Miami 1 (2) (4)	$	13,867	$	11,829	$	2,038	$	14,263
5/14/2015	Miami 2 (2) (3)		14,849		12,704		2,145		14,137
9/25/2015	Fort Lauderdale (2) (3)		13,230		11,211		2,019		13,166
4/15/2016	Washington DC (4)		17,269		16,426		843		18,980
4/29/2016	Atlanta 1 (4)		10,223		9,304		919		10,299
7/19/2016	Jacksonville (4)		8,127		7,378		749		11,594
7/21/2016	New Jersey (3)		7,828		3,493		4,335		3,525
8/15/2016	Atlanta 2 (4)		8,772		7,982		790		9,119
8/25/2016	Denver (4)		11,032		9,998		1,034		12,335
9/28/2016	Columbia (4)		9,199		8,566		633		9,780
12/22/2016	Raleigh (4)		8,877		7,243		1,634		8,642
	Total	$	123,273	$	106,134	$	17,139	$	125,840

(1)	Represents principal balance of loan gross of origination fees. The principal balance includes interest accrued on the investment.
(2)	These development property investments (having approximately $8.1 million of outstanding principal balances at contribution) were contributed to the SL1 Venture on March 31, 2016.
(3)	Facility had achieved at least 40% construction completion but construction was not considered substantially complete as of June  30, 2018. See Note 4 to the accompanying unaudited consolidated financial statements, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.
(4)	Construction at the facility was substantially complete and/or certificate of occupancy had been received as of June 30, 2018. See Note 4 to the accompanying unaudited consolidated financial statements, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

Business Outlook

We continue to experience strong demand for our capital for the development of state-of-the-art Class A self-storage facilities in top U.S. markets. As of July 29, 2018, we had projects that were in various stages of our underwriting process, including several subject to executed term sheets, for prospective development property investment amounts of $475 million. While we typically estimate closing dates for investment transactions subject to executed term sheets, often the closings of such investments are subject to events, such as site plan approval,

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issuances of building permits and other occurrences outside of our control, which can result in delays beyond our estimated closing dates. Moreover, we can provide no assurance that any of the existing or future projects subject to term sheets will produce actual investment commitments or if all term sheets will meet all conditions necessary to consummate investment commitments, and we can provide no assurance that we will have adequate capital to close all such prospective commitments in the future. 

Throughout the six months ended June 30, 2018, we have continued to fund draws, primarily consisting of interest and operating reserve draws, on the six development property investments, to which we had committed an aggregate of approximately $45.0 million at December 31, 2015. As of June 30, 2018, all of those development properties had achieved certificates of occupancy, and we have realized a significant portion of the potential profit on these developments through our fair value adjustments.

During the period January 1 through August 31, 2016, we made no on-balance sheet development property investments, with all such investments being made through the SL1 Venture pursuant to the terms of our joint venture agreement executed in March 2016. We have a 10% capital interest in the SL1 Venture that entitles us to 10% of operating earnings and profits from sales of properties by the joint venture, as well as potential residual interests upon our SL1 Venture partners achieving certain internal rates of return on their invested capital.

During the second half of 2016 and throughout 2017 and 2018, we invested solely on-balance sheet, closing three development property investments with an aggregate committed principal of $25.6 million prior to the end of 2016, 32 development property investments with an aggregate committed principal of $408.8 million during 2017, and 13 additional development property and bridge investments with an aggregate committed principal of $175.2 million throughout the first two quarters of 2018, although the majority of these development projects are not expected to be completed until later in 2018, 2019 or 2020. Accordingly, the amount of fair value adjustments for anticipated profits on projects during 2018 should be substantially greater than the 2017 amount.

During the six months ended June  30, 2018, the underlying self-storage facility of five of our development property investments with a Profits Interest, three of which are in the SL1 Venture, received a certificate of occupancy and commenced operations. The following tables reflect occupancy data as of July 29, 2018 for all of the underlying self-storage facilities of our development property investments with a Profits Interest that have received a certificate of occupancy: 

		# Months
Location	Date Opened	Open		Occupancy
Riverview, Florida (Tampa 1)	April 11, 2016		28		87.1	%
Ocoee, Florida (Orlando 1 and Orlando 2) (1)(2)	May 1, 2016		27		84.3	%
Marietta, Georgia (Atlanta 2) (2)	May 24, 2016		26		89.0	%
Alpharetta, Georgia (Atlanta 1) (2)	May 25, 2016		26		75.8	%
Jacksonville, Florida (Jacksonville 1) (2)	August 12, 2016		24		94.7	%
Charlotte, North Carolina (Charlotte 1)	August 18, 2016		23		61.0	%
Milwaukee, Wisconsin	October 9, 2016 (3)		22		57.1	%
New Haven, Connecticut	December 16, 2016		19		70.7	%
Round Rock, Texas (Austin)	March 16, 2017		16		69.1	%
Pittsburgh, Pennsylvania (2)	May 11, 2017 (4)		15		47.9	%
Average (Facilities open for more than 1 year)			22.6		73.7	%	(6)

		# Months
Location	Date Opened	Open		Occupancy
Jacksonville, Florida (5)	July 26, 2017		12		71.6	%
Columbia, South Carolina (5)	August 23, 2017		11		72.4	%
Atlanta, Georgia (Atlanta 2) (5)	September 14, 2017		11		32.7	%
Washington DC (5)	September 25, 2017		10		46.4	%
New York, New York (New York City 1)	September 29, 2017		10		39.7	%
Denver, Colorado (5)	December 14, 2017		8		41.0	%
Miami, Florida (Miami 1) (5)	February 23, 2018		5		24.8	%
Raleigh, North Carolina	March 8, 2018		5		13.4	%
Jacksonville, Florida (Jacksonville 2)	March 27, 2018		4		27.1	%
Atlanta, Georgia (Atlanta 1) (5)	April 12, 2018		4		20.4	%
Raleigh, North Carolina (5)	June 8, 2018		2		7.6	%
Average (Facilities open for less than 1 year)			7.3		36.1	%	(6)

(1)	Orlando 1 was at 86.2% physical occupancy on July 18, 2017. On July 19, 2017, an addition (Orlando 2) opened for business. Occupancy reflected is for combined facility.
(2)	As of June 30, 2018, we wholly own the self-storage facility underlying this investment.
(3)	Certificate of Occupancy was received in August 2016, prior to the property being ready for opening by the manager of the project. Property opened to partial leasing in October 2016. All floors opened to leasing in February 2017.

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(4)	Temporary Certificate of Occupancy was received and reservations of units were allowed, but tenant move-ins commenced when final Certificate of Occupancy was issued in July 2017.
(5)	Investment is included in SL1 Venture portfolio.
(6)	Represents mean average occupancy.

In order to adapt our investment activities to the current self-storage cycle, we launched our bridge financing program to make bridge mortgage loans to refinance primarily Generation V facilities that have been developed since 2013 and are currently in lease-up, and facilities refinanced by our bridge loans will predominately be in locations and have demographic and competitive profiles that are very similar to our development property investments. On March 2, 2018, we closed our first bridge loan investment consisting of five separate bridge loans with an aggregate commitment amount of $83.3 million secured by first mortgages on five properties in the Miami, Florida MSA.

The following table reflects occupancy data as of July 29, 2018 for all of the underlying self-storage facilities of our bridge loan investments with a Profits Interest that have received a certificate of occupancy: 

		# Months
Location	Date Opened	Open		Occupancy
Miami, Florida (Miami 6)	August 12, 2016		24		79.2	%
Miami, Florida (Miami 4)	October 9, 2016		22		80.5	%
Miami, Florida (Miami 8)	December 12, 2016		20		85.2	%
Miami, Florida (Miami 7)	March 26, 2018		4		20.5	%
Average			17.2		66.4	%	(1)

(1) Represents mean average occupancy.

The occupancy rates noted above pertain to the aforementioned 25 properties only and are not indicative of future lease-up rates of other facilities that will commence operations.

Critical Accounting Policies

There have been no significant changes to our critical accounting policies as disclosed in the 2017 Form 10-K.

Recent Accounting Pronouncements

See Note 2 to the accompanying interim consolidated financial statements, Significant Accounting Policies, for a discussion of recent accounting pronouncements.

Results of Operations

The following discussion of our results of operations for the three and six months ended June 30, 2018 and 2017 should be read in conjunction with the interim consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. 

Comparison of the three months ended June 30, 2018 and June 30, 2017:

(Dollars in thousands)	Three months ended
	June 30, 2018		June 30, 2017
Revenues:
Interest income from investments	$	6,403	$	2,467
Rental and other property-related income from real estate owned		805		105
Other revenues		33		27
Total revenues		7,241		2,599
Costs and expenses:
General and administrative expenses		2,034		1,371
Management fees to Manager		1,582		707
Property operating expenses of real estate owned		420		43
Depreciation and amortization of real estate owned		887		38
Total costs and expenses		4,923		2,159
Operating income		2,318		440

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Other income (expense):
Equity in earnings from unconsolidated real estate venture		435		595
Change in fair value of investments		8,623		4,289
Interest expense		(638)		(230)
Other interest income		59		100
Total other income		8,479		4,754
Net income		10,797		5,194
Net income attributable to preferred stockholders		(4,580)		(177)
Net income attributable to common stockholders	$	6,217	$	5,017

Revenues

Total interest income from investments for the three months ended June 30, 2018 was $6.4 million, an increase of approximately $3.9 million, or 160%, from the three months ended June 30, 2017. The increase is primarily attributed to the increase in the outstanding principal balances of our investment portfolio. We also had rental revenue of $0.8 million from real estate owned during the three months ended June 30, 2018 that is related to the revenues generated by the self-storage real estate owned that was acquired during 2017 and 2018. Other revenues of $33,000 and $27,000 earned during the three months ended June 30, 2018 and 2017, respectively, are derived primarily from management fee revenue generated from the SL1 Venture.

Expenses

The following table provides a detail of total general and administrative expenses (dollars in thousands):

	Three months ended
	June 30, 2018		June 30, 2017
Compensation and benefits	$	1,444	$	865
Occupancy		111		106
Business development		49		58
Professional fees		130		146
Other		300		196
Total general and administrative expenses	$	2,034	$	1,371

Total general and administrative expenses

Total general and administrative expenses for the three months ended June 30, 2018 were $2.0 million, an increase of $0.7 million, or 48%, from the three months ended June 30, 2017. Compensation and benefits included non-cash expense of stock-based compensation of $777,000 and $435,000 for the three months ended June 30, 2018 and 2017, respectively. For the three months ended June 30, 2017, compensation and benefits also included $173,000 of third party reimbursements to the Manager, which offset expenses reimbursed to the Manager by us on a dollar-for-dollar basis. We received $30,000 of third party reimbursements during the three months ended June 30, 2018. Compensation and benefits also increased as a result of annual compensation increases as well as the addition of senior personnel during the six months ended June 30, 2018. Other expense increased $104,000, or 53%, primarily due to increased investor relations travel and related expenses. 

Other operating expenses

The management fees of $1.6 million and $0.7 million in the three months ended June 30, 2018 and 2017, respectively, relate to the fees earned by the Manager pursuant to the management agreement. The increase in management fees was primarily a result of the follow-on offerings of our common stock during the second quarter of 2018 and 2017, the issuance of common stock under our ATM Program, and the issuances of our Series A and Series B preferred stock. Property operating expenses of real estate owned and depreciation and amortization of real estate owned relate to the operating activities of our self-storage real estate owned.

Other income (expense)

For the three months ended June 30, 2018 and 2017, we recorded other income of $8.5 million and $4.8 million, respectively, which primarily relates to the change in fair value of investments. The change in fair value of investments increased primarily due to a significant portion of the entrepreneurial profit adjustments on our on-balance sheet investments that were closed in late 2016 and 2017 being recognized in 2018. The $0.4 million and $0.6 million of equity in earnings from unconsolidated real estate venture in the three months ended June 30, 2018 and 2017, respectively, relates to our allocated earnings from the SL1 Venture. Interest expense for the three months ended June 30, 2018 was $0.6 million and relates to interest incurred on our senior participation and Credit Facility, amortization of deferred financing costs incurred in connection with the Credit Facility, and unused commitment fees related to the Credit Facility. Interest expense for the three months ended June  30, 2017 was $0.2 million and related to interest incurred on our senior participations. Other interest income relates to interest earned on our cash deposits.

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Comparison of the six months ended June 30, 2018 and June 30, 2017:

(Dollars in thousands)	Six months ended
	June 30, 2018		June 30, 2017
Revenues:
Interest income from investments	$	10,965	$	4,586
Rental and other property-related income from real estate owned		1,428		168
Other revenues		64		146
Total revenues		12,457		4,900
Costs and expenses:
General and administrative expenses		3,852		2,949
Management fees to Manager		2,886		1,337
Property operating expenses of real estate owned		731		74
Depreciation and amortization of real estate owned		1,589		62
Other expenses		290		-
Total costs and expenses		9,348		4,422
Operating income		3,109		478
Other income (expense):
Equity in earnings from unconsolidated real estate venture		985		1,017
Change in fair value of investments		12,943		5,682
Interest expense		(1,054)		(434)
Other interest income		168		234
Total other income		13,042		6,499
Net income		16,151		6,977
Net income attributable to preferred stockholders		(8,175)		(723)
Net income attributable to common stockholders	$	7,976	$	6,254

Revenues

Total interest income from investments for the six months ended June 30, 2018 was $11.0 million, an increase of approximately $6.4 million, or 139%, from the six months ended June 30, 2017. The increase is primarily attributed to the increase in the outstanding principal balances of our investment portfolio. We also had rental revenue of $1.4 million from real estate owned during the six months ended June 30, 2018 that is related to the revenues generated by the self-storage real estate owned that was acquired during 2017 and 2018. Other revenues of $64,000 earned during the six months ended June 30, 2018 is derived primarily from management fee revenue generated from the SL1 Venture. Other revenues of $146,000 earned during the six months ended June 30, 2017 is derived from borrower payment of internal costs in connection with closings during the first quarter and management fee revenue generated from the SL1 Venture.

Expenses

The following table provides a detail of total general and administrative expenses (dollars in thousands):

	Six months ended
	June 30, 2018		June 30, 2017
Compensation and benefits	$	2,403	$	1,785
Occupancy		211		195
Business development		229		132
Professional fees		476		441
Other		533		396
Total general and administrative expenses	$	3,852	$	2,949

Total general and administrative expenses

Total general and administrative expenses for the six months ended June 30, 2018 were $3.9 million, an increase of $0.9 million, or 31%, from the six months ended June 30, 2017. Compensation and benefits included non-cash expense of stock-based compensation of $1.1 million and $727,000 for the six months ended June 30, 2018 and 2017, respectively. For the six months ended June 30, 2018 and 2017, compensation and benefits also included $0.2 million of third party reimbursements to the Manager, which offset expenses reimbursed to the Manager by us on a

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dollar-for-dollar basis. Compensation and benefits also increased as a result of annual compensation increases as well as the addition of senior personnel during the six months ended June 30, 2018. Business development expenses increased $97,000, or 73%, primarily due to an additional developer conference held and self-storage conferences attended in 2018. Other expense increased $137,000, or 35%, primarily due to increased investor relations travel and related expenses and an increase in our franchise tax accrual for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017.

Other operating expenses

The management fees of $2.9 million and $1.3 million in the six months ended June 30, 2018 and 2017, respectively, relate to fees earned by the Manager pursuant to the management agreement. The increase in management fees was primarily a result of the follow-on offerings of our common stock during the second quarter of 2018 and 2017, the issuance of common stock under our ATM Program, and the issuances of our Series A and Series B preferred stock. Property operating expenses of real estate owned and depreciation and amortization of real estate owned relate to the operating activities of our self-storage real estate owned.

Other expenses

Other expenses consist of costs related to the termination of an employee contract during the six months ended June 30, 2018. There were no other expenses for the six months ended June 30, 2017.

Other income (expense)

For the six months ended June 30, 2018 and 2017, we recorded other income of $13.0 million and $6.5 million, respectively, which primarily relates to the change in fair value of investments. The change in fair value of investments increased primarily due to a significant portion of the entrepreneurial profit adjustments on our on-balance sheet investments that were closed in late 2016 and 2017 being recognized in 2018. The $1.0 million of equity in earnings from unconsolidated real estate venture in the six months ended June 30, 2018 and 2017 relates to our allocated earnings from the SL1 Venture. Interest expense for the six months ended June 30, 2018 was $1.1 million and relates to interest incurred on our senior participation and Credit Facility, amortization of deferred financing costs incurred in connection with the Credit Facility, and unused commitment fees related to the Credit Facility. Interest expense for the six months ended June 30, 2017 was $0.4 million and relates to interest incurred on our senior participations. Other interest income for the six months ended June 30, 2018 and 2017 relates to interest earned on our cash deposits.

Adjusted Earnings

Adjusted Earnings is a performance measure that is not specifically defined by GAAP and is defined as net income attributable to common stockholders (computed in accordance with GAAP) plus stock dividends payable to preferred stockholders, stock-based compensation expense, depreciation and amortization on real estate assets, and other expenses.

Adjusted Earnings should not be considered as an alternative to net income or any other GAAP measurement of performance or as an alternative to cash flow from operating, investing, and financing activities as a measure of liquidity. We believe that Adjusted Earnings is helpful to investors as a starting point in measuring our operational performance, because it excludes various equity-based payments (including stock dividends) and other items included in net income that do not relate to or are not indicative of our operating performance, which can make periodic and peer analyses of operating performance more difficult. Our computation of Adjusted Earnings may not be comparable to other key performance indicators reported by other REITs or real estate companies.

The following tables are reconciliations of Adjusted Earnings to net income attributable to common stockholders (dollars in thousands):

	Three months ended
	June 30, 2018		June 30, 2017
Net income attributable to common stockholders	$	6,217	$	5,017
Plus: stock dividends payable to preferred stockholders		2,125		-
Plus: stock-based compensation		777		435
Plus: depreciation and amortization on real estate assets		887		38
Adjusted Earnings	$	10,006	$	5,490

	Six months ended
	June 30, 2018		June 30, 2017
Net income attributable to common stockholders	$	7,976	$	6,254
Plus: stock dividends payable to preferred stockholders		4,250		371
Plus: stock-based compensation		1,122		727
Plus: depreciation and amortization on real estate assets		1,589		62
Plus: other expenses		290		-
Adjusted Earnings	$	15,227	$	7,414

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Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to fund our investment portfolio, repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business needs. We use significant cash to originate our target investments, make distributions to our stockholders and fund our operations. We have not yet generated sufficient cash flow from operations or investment activities to enable us to cover our distributions to our stockholders. As a result, we are dependent on our Credit Facility, our ability to issue shares of our Series A and Series B Preferred Stock, our ability to issue common stock under our ATM Program and preferred stock under our Preferred ATM Program and other access to third-party sources of capital to continue our investing activities and pay distributions to our stockholders.

Cash Flows

The following table sets forth changes in cash and cash equivalents (dollars in thousands):

	Six months ended June 30,
	2018		2017
Net income	$	16,151	$	6,977
Adjustments to reconcile net income to net cash used in operating activities:		(19,640)		(9,202)
Net cash used in operating activities		(3,489)		(2,225)
Net cash used in investing activities		(175,845)		(67,738)
Net cash provided by financing activities		175,688		103,119
Change in cash and cash equivalents	$	(3,646)	$	33,156

Cash decreased $3.6 million during the six months ended June 30, 2018 as compared to an increase in cash of $33.2 million during the six months ended June 30, 2017. Net cash used in operating activities for the six months ended June 30, 2018 and 2017 was $3.5 million and $2.2 million, respectively. The primary components of cash used in operating activities during the six months ended June 30, 2018 were net income adjusted for non-cash transactions of $4.3 million, offset by $0.5 million of return on investment from the SL1 Venture and the change in cash from working capital of $0.4 million. The primary components of cash used in operating activities during the six months ended June 30, 2017 were net income adjusted for non-cash transactions of $2.3 million and a change in working capital of $0.3 million, offset by $0.3 million of return on investment from the SL1 Venture.

Net cash used in investing activities for the six months ended June 30, 2018 and 2017 was $175.8 million and $67.7 million, respectively. For the six months ended June 30, 2018, the cash used for investing activities consisted primarily of $171.0 million to fund investments, $0.7 million to fund other loans, $9.3 million to purchase additional interests in four of our development property investments and capital additions to those properties, $1.7 million to fund capital contributions to the SL1 Venture, offset, in part, by origination fees received in cash of $1.9 million, a net inflow of $1.2 million for advancements made on behalf of the SL1 Venture, and $3.8 million from repayments of development property investments and other loan investments. For the six months ended June 30, 2017, the cash used for investing activities consisted primarily of $78.1 million to fund investments, $8.9 million to fund other loans, $1.3 million to purchase an additional interest in one of our development property loans, $3.2 million to fund capital contributions to the SL1 Venture, and a net use of $5.1 million for advancements made on behalf of the SL1 Venture, offset, in part, by $2.7 million of origination fees received in cash, $24.9 million from repayments of construction loans and other loan investments and $1.3 million of developer’s equity received prior to funding of the project

Net cash provided by financing activities for the six months ended June 30, 2018 totaled $175.7 million and primarily related to $107.4 million of net proceeds from preferred stock issuances, $81.8 million of net proceeds from common stock issuances, offset by a net outflow of $0.6 million related to draws and the subsequent repayment on the Credit Facility, $0.7 million repayment of our senior loan participation, $0.3 million of stock repurchases, and $12.0 million of dividends paid. For the six months ended June 30, 2017, net cash provided by financing activities totaled $103.1 million and primarily related to $108.2 million of common stock issuances and $1.7 million of cash received in connection with draws on senior loan participations on certain of our investments, offset by $6.6 million of dividends paid.

Liquidity Outlook and Capital Requirements

As of June 30, 2018, we had unrestricted cash of approximately $43.3 million, and we had remaining unfunded commitments of $307.6 million related to our investment portfolio and $1.7 million related to the SL1 Venture. We believe that the sources of capital discussed below will provide us with adequate liquidity to fund our operations and investment activities for at least the next 12 months.

The timing of the remaining unfunded commitments of $309.3 million related to our investment portfolio and SL1 Venture is expected to be funded as follows:

Future Fundings for Investments	2018		2019		2020		2021		2022		Total
Estimated Funding Amount	$	116,967	$	149,543	$	26,712	$	10,692	$	5,410	$	309,324

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Series A Preferred Stock

On July 27, 2016, we entered into the Purchase Agreement with accounts managed by NexPoint Advisors, L.P., an affiliate of Highland Capital Management, L.P., which provides that we may issue and sell up to $125.0 million of Series A Preferred Stock from time to time until July 27, 2018. As of June 30, 2018, we had issued 110,000 restricted shares of the Series A Preferred Stock and received $110.0 million in proceeds pursuant to the terms of the Purchase Agreement. On July 25, 2018, we entered into the First Amendment to the Purchase Agreement in order to extend the final date to issue shares of Series A Preferred Stock under the Purchase Agreement from July 27, 2018 to September 30, 2018. Accordingly, as of August 1, 2018, we have $15.0 million available for issuance under the Purchase Agreement.

Common Stock ATM Program

On April 5, 2017, we entered into the ATM Program whereby we may issue and sell up to $50.0 million of our common stock from time to time. Since the inception of the ATM Program, we have sold 1,323,722 shares of common stock at a weighted average price of $22.24, receiving net proceeds after commissions and other offering costs of $28.5 million. As of August 1, 2018, we have approximately $20.6 million available for issuance under the ATM Program.

Preferred ATM Program

On March 29, 2018, we and the Operating Company entered into the Distribution Agreement in connection with the commencement of the Preferred ATM Program. Pursuant to the terms and conditions of the Distribution Agreement, we may, from time to time, issue and sell through or to the Agent, shares of the Series B Preferred Stock, having an aggregate offering price of up to $45.0 million. We or the Agent may at any time suspend the offering or terminate the Distribution Agreement pursuant to the terms of the Distribution Agreement. The actual sale of Preferred ATM Shares under the Program will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of the Series B Preferred Stock, capital needs and determinations by us of our appropriate sources of funding. We have no obligation to sell any of the Preferred ATM Shares, and may at any time suspend offers under the Distribution Agreement or terminate the Distribution Agreement.

Since the inception of the Preferred ATM Program, we have sold 71,734 shares of Series B preferred stock at a weighted average price of $22.94, receiving net proceeds after commissions and other offering costs of $1.5 million. As of August 1, 2018, we have approximately $43.4 million available for issuance under the Preferred ATM Program.

Credit Facility

On July 25, 2017, we entered into a $100 million Credit Facility, which has an accordion feature permitting expansion up to $200 million. Our development property investments and bridge loan investments are eligible to be added to the base of collateral available to secure loans under the Credit Facility once construction has been completed, thereby increasing the borrowing capacity under the Credit Facility. Accordingly, we believe our availability under the Credit Facility will increase substantially over the next six months as construction on several investments in our investment portfolio are completed. We expect such availability to increase over the balance of 2018 as our on-balance sheet self-storage investments continue to achieve certificates of occupancy and commence lease-up. As of August 1, 2018, we had no borrowings under the Credit Facility out of our $90.8 million in total availability under the Credit Facility.

During the remainder of 2018, we believe we will have substantial new opportunities for development property investments and bridge investments. Since our IPO, we have been able to issue publicly-traded common stock and preferred stock, access preferred equity in a private placement, sell senior participations in existing loans and procure the Credit Facility. Moreover, as self-storage facilities we have financed are completed, opened and leased up, developers will have the right and the opportunity to sell or refinance such facilities, providing us with an additional source of capital if refinancings occur or we choose to allow sales to occur without exercising our ROFRs with respect to sold facilities. Cash received from sales and refinancings can be recycled into new investments. Accordingly, we believe we will have adequate capital to finance new investments for at least the next 12 months.

Proposed Term Loans

We have signed a non-binding term sheet to enter into term loans in an aggregate principal amount of $24.9 million secured by three of our wholly-owned assets, and we expect to close on these loans during the third quarter of 2018. The entry into the term loans remains subject to final documentation, and we can provide no assurances that we will enter into the term loans on the expected terms, the expected timeline or at all.

Equity Capital Policies

Subject to applicable law and NYSE listing standards, our board of directors has the authority, without further stockholder approval, to issue additional authorized common stock and preferred stock or otherwise raise capital, including through the issuance of senior securities, in any manner and on the terms and for the consideration it deems appropriate, including in exchange for property. Stockholders will have no preemptive right to additional shares issued in any offering, and any offering may cause a dilution of your investment.

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Additionally, the holders of our Series A Preferred Stock have the right to purchase their pro rata share of any qualified offering of common stock, which consists of any offering of common stock except any shares of common stock issued (i) in connection with a merger, consolidation, acquisition or similar business combination, (ii) in connection with a joint venture, strategic alliance or similar corporate partnering arrangement, (iii) in connection with any acquisition of assets by us, (iv) at market prices pursuant to a registered at-the-market program and/or (v) as part of a compensatory or employment arrangement.

Leverage Policies

To date, we have funded all of our investments with the net proceeds from our IPO and concurrent private placement, which were consummated on April 1, 2015, proceeds from the sale of senior participations in certain investments, proceeds from the issuance of our Series A Preferred Stock, proceeds from three follow-on public offerings of common stock, which were consummated on December 13, 2016, June 27, 2017, and June 14, 2018 and proceeds received from sales of shares from time to time under the ATM Program and proceeds from the issuance of our Series B Preferred Stock. In the future, we may utilize equity raised in follow-on offerings, through the ATM Program, through the Preferred Stock ATM Program and/or borrowings under our Credit Facility or other borrowings against our target investments in accordance with our investment guidelines in order to increase the size of our loan portfolio and potential return to stockholders. Our investment guidelines state that our leverage will generally not exceed 50% of the total value of our loan portfolio. Additionally, as long as shares of Series A Preferred Stock remain outstanding, we are required to maintain a ratio of debt to total tangible assets determined under GAAP of no more than 0.4:1, measured as of the last day of each fiscal quarter. Our ability to issue shares of Series A Preferred Stock is also subject to certain conditions as outlined in Note 8 of the accompanying interim consolidated financial statements. Our Credit Facility contains certain financial covenants including: (i) total consolidated indebtedness not exceeding 50% of gross asset value; (ii) a minimum fixed charge coverage ratio (defined as the ratio of consolidated adjusted earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 0.75 to 1.00 during the period between July 25, 2017 and June 30, 2018, 0.90 to 1 during the period between July 1, 2018 and December 31, 2018 and 1.20 to 1 during the period between January 1, 2019 through the maturity of the Credit Facility; (iii) a minimum consolidated tangible net worth (defined as gross asset value less total consolidated indebtedness) of $183.3 million plus 75% of the sum of any additional net offering proceeds; (iv) when aggregate loan commitments under the Credit Facility exceed $50 million, unhedged variable rate debt cannot exceed 25% of consolidated total indebtedness; (v) liquidity of no less than $50 million for the period between July 25, 2017 and December 31, 2018 or on and after December 31, 2018, liquidity of no less than the sum of (a) total unfunded loan commitments of us and our subsidiaries plus (b) $25 million; and (vi) a debt service coverage ratio (defined as the ratio of consolidated adjusted earnings before interest, taxes, depreciation and amortization to our consolidated interest expense and debt principal payments for any given period) of 2 to 1.

The amount available to borrow under the Credit Facility is limited according to a borrowing base valuation of the assets available as collateral. For loans secured by Company mortgage loans, the borrowing base availability is the lesser of (i) 60% of the value of our mortgage loans, (ii) the maximum principal amount which would not cause the outstanding loans under the Credit Facility secured by our mortgage loans to be greater than 50% of the underlying real estate assets securing our mortgage loans and (iii) for any of our mortgage loans that have been included in the borrowing base for greater than 18 months, the maximum principal amount which would not cause the ratio of (a) adjusted net operating income for the underlying real estate asset securing such Company mortgage loan divided by (b) an implied debt service amount to be less than 1.30 to 1.00. For loans secured by self-storage properties, the borrowing base availability is the lesser of (i) the maximum principal amount that would not cause the outstanding loans under the Credit Facility secured by self-storage properties to be greater than 65% of the value of such self-storage properties and (ii) the maximum principal amount that would not cause the ratio of (i) aggregate adjusted net operating income from all self-storage properties included in the borrowing base divided by (ii) an implied debt service coverage amount to be less than 1.30 to 1.00.

Our actual leverage will depend on our mix of loans. Our charter and bylaws do not limit the amount of indebtedness we can incur, and our board of directors has discretion to deviate from or change our investment guidelines at any time. We will use corporate leverage for the sole purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates. Our financing strategy focuses on the use of match-funded financing structures. This means that we will seek to match the maturities and/or repricing schedules of our financial obligations with those of our loan portfolio to minimize the risk that we will have to refinance our liabilities prior to the maturities of our loans and to reduce the impact of changing interest rates on earnings, which our new Credit Facility will help us better achieve. We will disclose any material changes to our leverage policies in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the quarterly report on Form 10-Q or annual report on Form 10-K for the period in which the change was made, or in a Current Report on Form 8-K if required by the rules of the SEC or the board of directors deems it advisable, in its sole discretion.

Future Revisions in Policies and Strategies

The board of directors has the power to modify or waive our investment policies and strategies without the consent of our stockholders to the extent that the board of directors (including a majority of our independent directors) determines that a modification or waiver is in the best interest of our stockholders. Among other factors, developments in the market that either affect the policies and strategies mentioned herein or that change our assessment of the market may cause our board of directors to revise our policies and strategies. 

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Contractual Obligations and Commitments

The following table reflects our total contractual cash obligations as of June 30, 2018 (dollars in thousands):

Contractual Obligations	2018		2019		2020		2021		2022		Thereafter		Total
Long-term debt obligations	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Operating lease obligations		92		171		145		-		-		-		408
Total	$	92	$	171	$	145	$	-	$	-	$	-	$	408

At June 30, 2018, we had $307.6 million of unfunded loan commitments related to our investment portfolio and $1.7 million related to the SL1 Venture. These commitments are primarily funded over the 18-24 months following the investment closing date as construction is completed. At June 30, 2018, we had $3.0 million of unfunded loan commitments related to our other assets.

As of June 30, 2018, we had unrestricted cash of approximately $43.3 million.

Off-Balance Sheet Arrangements

At June 30, 2018, we did not have any relationships, including those with unconsolidated entities or financial partnerships, for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Our investment in real estate venture is recorded using the equity method as we do not have a controlling interest.

Dividends

For the quarter ended June 30, 2018, we declared a cash dividend to our stockholders of $0.35 per share, payable on July 13, 2018 to stockholders of record on July 2, 2018. We intend to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT annually distribute at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We intend to pay regular quarterly dividends to our stockholders in an amount equal to or greater than our net taxable income, if and to the extent authorized by our Board of Directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on any secured funding facilities, other lending facilities, repurchase agreements and other debt payable. If our cash available for distribution is less than our net taxable income, we could be required to reduce our dividends, sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

Additionally, holders of our Series A Preferred Stock are entitled to a cumulative cash distribution (“Cash Distribution”) equal to (A) 7.0% per annum on the liquidation value, or $1,000 per share of Series A Preferred Stock (the “Liquidation Value”) for the period beginning on the respective date of issuance until the sixth anniversary of the Effective Date, payable quarterly in arrears, (B) 8.5% per annum on the Liquidation Value for the period beginning the day after the sixth anniversary of the Effective Date and for each year thereafter so long as the Series A Preferred Stock remains issued and outstanding, payable quarterly in arrears, and (C) an amount in addition to the amounts in (A) and (B) equal to 5.0% per annum on the Liquidation Value upon the occurrence of certain triggering events (a “Cash Premium”). In addition, the holders of the Series A Preferred Stock will be entitled to a cumulative dividend payable in-kind in shares of Common Stock or additional shares of Series A Preferred Stock, at the election of the holders (the “Stock Dividend”), equal in the aggregate to the lesser of (Y) 25% of the incremental increase in our book value (as adjusted for equity capital issuances, share repurchases and certain non-cash expenses) plus, to the extent we own equity interests in income-producing real property, the incremental increase in net asset value (provided, however, that no interest in the same real estate asset will be double counted) and (Z) an amount that would, together with the Cash Distribution, result in a 14.0% internal rate of return for the holders of the Series A Preferred Stock from the date of issuance of the Series A Preferred Stock, as set forth in the Articles Supplementary classifying the Series A Preferred Stock (the “Articles Supplementary”). For the first three fiscal quarters of the fiscal years 2018, 2019 and 2020 and for the first fiscal quarter of 2021, we will declare and pay a Series A Aggregate Stock Dividend equal to $2,125,000, or the Series A Target Stock Dividend. For the last fiscal quarter of each of 2018, 2019 and 2020 and for the second fiscal quarter of 2021, we will compute the cumulative Series A Aggregate Stock Dividend for all periods after December 31, 2017 through the end of such fiscal quarter equal to 25% of the incremental increase in our book value (as adjusted for equity capital issuances, share repurchases and certain non-cash expenses) plus, to the extent we own equity interests in income-producing real property, the incremental increase in net asset value (provided, however, that no interest in the same real estate asset will be double counted), or the Series A Computed Stock Dividend, and will declare and pay for such quarter a Series A Aggregate Stock Dividend equal to the greater of the Series A Target Stock Dividend or the Series A Computed Stock Dividend minus the sum of all Series A Aggregate Stock Dividends declared and paid for all fiscal quarters after December 31, 2017 and before the fiscal quarter for which such payment is computed, in each case subject to an amount that would, together with the Series A Cash Distribution, result in a 14.0% internal rate of return for the holders of the Series A Preferred Stock from the date of issuance of the Series A Preferred Stock.

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Triggering events that will trigger the payment of a Cash Premium with respect to a Cash Distribution include: (i) the occurrence of certain change of control events affecting us after the third anniversary of the Effective Date, (ii) our ceasing to be subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, (iii) our failure to remain qualified as a real estate investment trust, (iv) an event of default under the Purchase Agreement, (v) the failure by us to register for resale shares of Common Stock pursuant to the Registration Rights Agreement (a “Registration Default”), (vi) our failure to redeem the Series A Preferred Stock as required by the Purchase Agreement, or (vii) the filing of a complaint, a settlement with, or a judgment entered by the Securities and Exchange Commission against us or any of our subsidiaries or any of our directors or executive officers relating to the violation of the securities laws, rules or regulations with respect to our business. Accrued but unpaid Cash Distributions and Stock Dividends on the Series A Preferred Stock will accumulate and will earn additional Cash Distributions and Stock Dividends as calculated above, compounded quarterly.

Holders of Series B Preferred Stock are entitled to receive, when, as and if authorized by our Board of Directors and declared by us, out of funds legally available for the payment of dividends under Maryland law, cumulative cash dividends from, and including, the original issue date quarterly in arrears on the fifteenth (15th) day of January, April, July and October of each year (or if not a business day, on the immediately preceding business day) (each, a “dividend payment date”). These cumulative cash dividends will accrue on the liquidation preference amount of $25.00 per share at a rate per annum equal to 7.00% with respect to each dividend period from and including the original issue date (equivalent to an annual rate of  $1.7500 per share) from the date of issuance of such Series B Preferred Stock. Dividends will be payable to holders of record as of 5:00 p.m., New York City time, on the related record date. The record dates for the Series B Preferred Stock are the close of business on the first (1st) day of January, April, July or October immediately preceding the relevant dividend payment date (each, a “dividend record date”). If any dividend record date falls on any day other than a business day as defined in the Series B Articles Supplementary, the dividend record date shall be the immediately succeeding business day.

Inflation

Virtually all of our assets and liabilities will be interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our financial statements are prepared in accordance with GAAP and our distributions will be determined by our board of directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification; in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns through ownership of our capital stock. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake.

There have been no material changes in our credit risk, interest rate risk, interest rate mismatch risk, or real estate risks from what was disclosed in the 2017 Form 10-K.

Market Risk

Our development property investments, bridge loan investments, and operating property loans generally will be reflected at their estimated fair value, with changes in fair market value recorded in our income. The estimated fair value of these investments fluctuates primarily due to changes in interest rates, capitalization rates, and other factors. Generally, in a rising interest rate environment, the estimated fair value of the fixed-rate securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of the fixed-rate securities would be expected to increase. As market volatility increases or liquidity decreases, the fair value of our investments may be adversely impacted. If we are unable to readily obtain independent pricing to validate our estimated fair value of any loan investment in our portfolio, the fair value gains or losses recorded in income may be adversely affected.

The following fluctuations in the market yields/discount rates would have had the following impact on the fair value of our investments: 

	Increase (decrease) in fair value of investments
Change in market yields/discount rates (in millions)	June 30, 2018		December 31, 2017
Up 25 basis points	$	(2.0)	$	(1.2)
Down 25 basis points, subject to a minimum yield/rate of 10 basis points		2.1		1.2
Up 50 basis points		(4.0)		(2.3)
Down 50 basis points, subject to a minimum yield/rate of 10 basis points		4.2		2.4

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The following fluctuations in the capitalization rates would have had the following impact on the fair value of our investments:

	Increase (decrease) in fair value of investments
Change in capitalization rates (in millions)	June 30, 2018		December 31, 2017
Up 25 basis points	$	(5.5)	$	(2.8)
Down 25 basis points		6.0		3.1
Up 50 basis points		(10.6)		(5.3)
Down 50 basis points		12.7		6.4

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. The controls evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer, President and Chief Operating Officer, and Chief Financial Officer. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this quarterly report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on the controls evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC, and that material information related to our company and our consolidated subsidiaries is made known to management, including the Chief Executive Officer and Chief Financial Officer.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in various claims and legal actions in the ordinary course of business. We are not currently involved in any material legal proceedings outside the ordinary course of our business.

ITEM 1A. RISK FACTORS

The discussion of our business and operations should be read together with the risk factors contained in Part I, Item 1A of our 2017 Form 10-K, which describes the various additional risks and uncertainties to which we are or may be subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows and prospects in a material adverse manner.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS FROM REGISTERED SECURITIES

Unregistered Sales of Equity Securities

None.

Repurchases of Common Stock

The following table							Maximum Dollar
provides information					Total Number of		Value
about repurchases of our	Total				Shares Purchased		that May Yet Be
common shares during	Number of		Average		as Part of Publicly		Purchased Under the
the three months	Shares		Price Paid		Announced Plans or		Plans or Programs (1)
ended June 30, 2018:	Purchased		Per Share		Programs		(dollars in thousands)
April 1-April 30		-	$	-		-	$	6,848
May 1-May 31		-		-		-		6,848
June 1-June 30		-		-		-		6,848
Total		-	$	-		-	$	6,848

(1) On May 23, 2016, we announced a program permitting us to repurchase a portion of our outstanding common stock not to exceed a dollar maximum of $10.0 million established by our Board of Directors.

On May 2, 2018, an officer of the Manager returned 4,103 shares of our common stock to us in connection with the vesting of 15,000 shares of restricted stock, in order to satisfy tax withholding obligations.

On May 3, 2018, certain officers and employees of the Manager returned 10,176 shares of our common stock to us in connection with the vesting of 35,001 shares of restricted stock, in order to satisfy tax withholding obligations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a)       Not applicable.

(b)       Not applicable.

ITEM 6. EXHIBITS

The exhibits listed in the accompanying Exhibit Index, which is incorporated herein by reference, are filed or furnished as part of this Quarterly Report on Form 10-Q.

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EXHIBIT INDEX

*This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

Exhibit No.		Exhibit Description
	10.1*	Amendment No. 1 to the Stock Purchase Agreement dated as of July 27, 2016 by and between Jernigan Capital, Inc. and certain funds managed or advised by Highland Capital Management, L.P.
	10.2*	Amendment No. 1 to the Credit Agreement dated as of July 25, 2017 by and among Jernigan Capital Operating Company, LLC, KeyBank National Association, as administrative agent, KeyBanc Capital Markets Inc., as joint lead arranger, Raymond James Bank, N.A., as joint lead arranger and syndication agent, and the other lenders party thereto.
	12.1*	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
	31.1*	Certification by CEO pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
	31.2*	Certification by CFO pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
	32.1*	Certification by CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS	XBRL Instance Document*
	101.SCH	XBRL Taxonomy Extension Schema Document*
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		JERNIGAN CAPITAL, INC.
Date: August 2, 2018	By:	/s/ Dean Jernigan
		Dean Jernigan
		Chairman and Chief Executive Officer (Principal Executive Officer)
Date: August 2, 2018	By:	/s/ Kelly P. Luttrell
		Kelly P. Luttrell
		Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary (Principal Financial and Accounting Officer)

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