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 ~~March 31,~~September 30, 2019

☐ 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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

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

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

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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	JCAP	New York Stock Exchange
7.00% Series B cumulative redeemable perpetual preferred stock, $0.01 par value per share	JCAP PR B	New York Stock Exchange

As of ~~May 1,~~October 31, 2019, Jernigan Capital, Inc. had ~~20,585,194~~22,236,871 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		3847

Item 3. Quantitative and Qualitative Disclosures About Market Risk		5768

Item 4. Controls and Procedures		5769

PART II. Other information		5869

Item 1. Legal Proceedings		5869

Item 1A. Risk Factors		5869

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities		5970

Item 3. Defaults Upon Senior Securities		5970

Item 4. Mine Safety Disclosures		5970

Item 5. Other Information		5970

Item 6. Exhibits		5970

Table of Contents

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)

(Unaudited)



	As of				As of
	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Assets:
Cash and cash equivalents	$	3,860	$	8,715	$	6,961	$	8,715
Self-Storage Investment Portfolio:
Development property investments at fair value		405,999		373,564		508,887		373,564
Bridge investments at fair value		87,046		84,383		-		84,383
Self-storage real estate owned, net		106,371		96,202		232,822		96,202
Investment in and advances to self-storage real estate venture		12,360		14,155		11,027		14,155
Other loans, at cost		5,025		4,835		4,417		4,835
Deferred financing costs		4,404		4,619		4,090		4,619
Prepaid expenses and other assets		5,348		3,702		7,813		3,702
Fixed assets, net		219		233		216		233
Total assets	$	630,632	$	590,408	$	776,233	$	590,408

Liabilities:
Secured revolving credit facility	$	27,000	$	-	$	125,000	$	-
Term loans, net of unamortized costs		33,716		24,609		40,735		24,609
Due to Manager		2,267		3,334		2,749		3,334
Accounts payable, accrued expenses and other liabilities		2,612		2,402		5,392		2,402
Dividends payable		12,236		12,199		12,940		12,199
Total liabilities		77,831		42,544		186,816		42,544

Equity:
7.00% Series A preferred stock, $0.01 par value, 300,000 shares authorized; 127,125 and 125,000 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively, at liquidation preference of $127.1 million and $125.0 million, net of offering costs, respectively		124,262		122,137
7.00% Series B cumulative redeemable perpetual preferred stock, $0.01 par value, 3,750,000 shares authorized; 1,571,734 shares issued and outstanding as of March 31, 2019 and December 31, 2018, at liquidation preference of $39.3 million, net of offering costs		37,298		37,401
Common stock, $0.01 par value, 500,000,000 shares authorized at March 31, 2019 and December 31, 2018; 20,567,694 and 20,430,218 issued and outstanding at March 31, 2019 and December 31, 2018, respectively		205		204
7.00% Series A preferred stock, $0.01 par value, 300,000 shares authorized; 131,375 and 125,000 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively, at liquidation preference of $131.4 million and $125.0 million, net of offering costs, respectively						128,512		122,137
7.00% Series B cumulative redeemable perpetual preferred stock, $0.01 par value, 3,750,000 shares authorized; 1,571,734 shares issued and outstanding as of September 30, 2019 and December 31, 2018, at liquidation preference of $39.3 million, net of offering costs						37,298		37,401
Common stock, $0.01 par value, 500,000,000 shares authorized at September 30, 2019 and December 31, 2018; 22,236,871 and 20,430,218 issued and outstanding at September 30, 2019 and December 31, 2018, respectively						222		204
Additional paid-in capital		389,431		386,394		422,240		386,394
Retained earnings		1,605		1,728		1,645		1,728
Accumulated other comprehensive income (loss)						(500)		-
Total equity		552,801		547,864		589,417		547,864
Total liabilities and equity	$	630,632	$	590,408	$	776,233	$	590,408

See accompanying notes to consolidated financial statements.

Table of Contents

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)


	Three months ended				Three months ended				Nine months ended
	March 31,				September 30,				September 30,
	2019		2018		2019		2018		2019		2018
Revenues:
Interest income from investments	$	8,212	$	4,562	$	10,216	$	8,086	$	27,578	$	19,051
Rental and other property-related income from real estate owned		1,450		623		1,988		970		5,075		2,398
Other revenues		222		31		45		35		312		99
Total revenues		9,884		5,216		12,249		9,091		32,965		21,548

Costs and expenses:
General and administrative expenses		1,762		1,818		2,137		1,727		6,273		5,579
Fees to Manager		2,003		1,304		2,131		1,872		6,203		4,758
Property operating expenses of real estate owned		762		311		989		473		2,538		1,204
Depreciation and amortization of real estate owned		1,029		702		1,372		854		3,491		2,443
Other expenses		-		290		268		-		268		290
Total costs and expenses		5,556		4,425		6,897		4,926		18,773		14,274

Operating income		4,328		791		5,352		4,165		14,192		7,274

Other income (expense):
Equity in earnings from unconsolidated real estate venture		156		550		165		440		407		1,425
Realized gain on investments						-		619		-		619
Net unrealized gain on investments		8,830		4,320		7,974		11,060		28,847		24,003
Interest expense		(1,213)		(416)		(2,546)		(467)		(5,535)		(1,521)
Other interest income		13		109		9		147		30		315
Total other income		7,786		4,563		5,602		11,799		23,749		24,841
Net income		12,114		5,354		10,954		15,964		37,941		32,115
Net income attributable to preferred stockholders		(5,032)		(3,595)		(5,157)		(4,790)		(15,283)		(12,965)
Net income attributable to common stockholders	$	7,082	$	1,759	$	5,797	$	11,174	$	22,658	$	19,150

Basic earnings per share attributable to common stockholders	$	0.35	$	0.12	$	0.26	$	0.58	$	1.06	$	1.17
Diluted earnings per share attributable to common stockholders	$	0.35	$	0.12	$	0.26	$	0.57	$	1.06	$	1.16

Dividends declared per share of common stock	$	0.35	$	0.35	$	0.35	$	0.35	$	1.05	$	1.05

See accompanying notes to consolidated financial statements.

Table of Contents

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(Unaudited)

(in thousands)


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
Net Income	$	10,954	$	15,964	$	37,941	$	32,115
Other comprehensive income (loss):
Unrealized losses on interest rate swaps		(58)		-		(495)		-
Reclassification of realized gains on interest rate swaps		(1)		-		(5)		-
Other comprehensive income (loss)		(59)		-		(500)		-

Comprehensive income	$	10,895	$	15,964	$	37,441	$	32,115

Table of Contents

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands, except share data)



														Retained		Accumulated
	Series A				Series B									Earnings		Other		Total		Non-
	Preferred Stock				Preferred Stock				Common Stock			Additional		(Accumulated		Comprehensive		Stockholders'		Controlling		Total
	Shares		Amount		Shares		Amount		Shares	Amount		Paid-In-Capital		Deficit)		Income (Loss)		Equity		Interests		Equity
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		35,000		34,417		1,500,000		35,988	-		-		-		-		-		70,405		-		70,405
Stock dividend paid on preferred stock		-		-		-		-	2,222		-		44		-		-		44		-		44
Repurchase and retirement of shares of common stock		-		-		-		-	(2,234)		-		(40)		-		-		(40)		-		(40)
Issuances of stock-based awards		-		-		-		-	18,000		-		-		-		-		-		-		-
Stock-based compensation		-		-		-		-	-		-		376		-		-		376		-		376
Dividends declared on Series A preferred stock		-		-		-		-	-		-		-		(3,034)		-		(3,034)		-		(3,034)
Dividends declared on Series B preferred stock		-		-		-		-	-		-		-		(561)		-		(561)		-		(561)
Dividends declared on common stock		-		-		-		-	-		-		-		(5,056)		-		(5,056)		-		(5,056)
Net income		-		-		-		-	-		-		-		5,354		-		5,354		-		5,354
Balance at March 31, 2018		75,000	$	72,181		1,500,000	$	35,988	14,447,043	$	144	$	277,194	$	(12,199)	$	-	$	373,308	$	-	$	373,308

Retained

Series A

Series B

Earnings

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, 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

35,000

34,417

1,500,000

35,988

-

-

-

-

70,405

-

70,405
Stock dividend paid on preferred stock

-

-

-

-

2,222

-

44

-

44

-

44
Repurchase and retirement of shares of common stock

-

-

-

-

(2,234)

-

(40)

-

(40)

-

(40)
Issuances of stock-based awards

-

-

-

-

18,000

-

-

-

-

-

-
Stock-based compensation

-

-

-

-

-

-

376

-

376

-

376
Dividends declared on Series A preferred stock

-

-

-

-

-

-

-

(3,034)

(3,034)

-

(3,034)
Dividends declared on Series B preferred stock

-

-

-

-

-

-

-

(561)

(561)

-

(561)
Dividends declared on common stock

-

-

-

-

-

-

-

(5,056)

(5,056)

-

(5,056)
Net income

-

-

-

-

-

-

-

5,354

5,354

-

5,354
Balance at March 31, 2018

75,000

$
72,181

1,500,000

$
35,988

14,447,043

$
144

$
277,194

$
(12,199)

$
373,308

$
-

$
373,308

Balance at December 31, 2018

125,000

$
122,137

1,571,734

$
37,401

20,430,218

$
204

$
386,394

$
1,728

$
547,864

$
-

$
547,864
Equity offering costs related to preferred stock

-

-

-

(103)

-

-

-

-

(103)

-

(103)
At-the-market issuance of common stock, net of offering costs

-

-

-

-

136,192

1

2,751

-

2,752

-

2,752
Stock dividend paid on preferred stock

2,125

2,125

-

-

-

-

-

-

2,125

-

2,125
Repurchase and retirement of shares of common stock

-

-

-

-

(3,408)

-

(73)

-

(73)

-

(73)
Issuance of stock-based awards

-

-

-

-

4,692

-

-

-

-

-

-
Stock-based compensation

-

-

-

-

-

-

359

-

359

-

359
Dividends declared on Series A preferred stock

-

-

-

-

-

-

-

(4,344)

(4,344)

-

(4,344)

See accompanying notes to consolidated financial statements.

Table of Contents

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands, except share data)


																																	Retained		Accumulated
																				Series A				Series B									Earnings		Other		Total		Non-
																				Preferred Stock				Preferred Stock				Common Stock			Additional		(Accumulated		Comprehensive		Stockholders'		Controlling		Total
																				Shares		Amount		Shares		Amount		Shares	Amount		Paid-In-Capital		Deficit)		Income (Loss)		Equity		Interests		Equity
Balance at March 31, 2018																					75,000	$	72,181		1,500,000	$	35,988	14,447,043	$	144	$	277,194	$	(12,199)	$	-	$	373,308	$	-	$	373,308
Issuance of preferred stock, net of offering costs																					35,000		34,987		-		(8)	-		-		-		-		-		34,979		-		34,979
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																					-		-		-		-	120,028		1		2,124		-		-		2,125		-		2,125
Repurchase and retirement of shares of common stock																					-		-		-		-	(14,279)		-		(274)		-		-		(274)		-		(274)
Issuances of stock-based awards																					-		-		-		-	57,333		1		(1)		-		-		-		-		-
Stock-based compensation																					-		-		-		-	-		-		808		-		-		808		-		808
Dividends declared on Series A preferred stock																					-		-		-		-	-		-		-		(3,892)		-		(3,892)		-		(3,892)
Dividends declared on Series B preferred stock	-		-	-		-	-		-		-		(688)		(688)		-		(688)		-		-		-		-	-		-		-		(688)		-		(688)		-		(688)
Dividends declared on common stock	-		-	-		-	-		-		-		(7,205)		(7,205)		-		(7,205)		-		-		-		-	-		-		-		(6,739)		-		(6,739)		-		(6,739)
Net income	-		-	-		-	-		-		-		12,114		12,114		-		12,114		-		-		-		-	-		-		-		10,797		-		10,797		-		10,797
Balance at March 31, 2019	127,125	$	124,262	1,571,734	$	37,298	20,567,694	$	205	$	389,431	$	1,605	$	552,801	$	-	$	552,801
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.

Table of Contents

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands, except share data)


														Retained		Accumulated
	Series A				Series B									Earnings		Other		Total		Non-
	Preferred Stock				Preferred Stock				Common Stock			Additional		(Accumulated		Comprehensive		Stockholders'		Controlling		Total
	Shares		Amount		Shares		Amount		Shares	Amount		Paid-In-Capital		Deficit)		Income (Loss)		Equity		Interests		Equity
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
Issuance of preferred stock, net of offering costs		15,000		14,969		-		-	-		-		-		-		-		14,969		-		14,969
At-the-market issuance of preferred stock, net of offering costs		-		-		-		(38)	-		-		-		-		-		(38)		-		(38)
Proceeds from issuance of common stock, net of offering costs		-		-		-		-	-		-		(6)		-		-		(6)		-		(6)
At-the-market issuance of common stock, net of offering costs		-		-		-		-	-		-		(43)		-		-		(43)		-		(43)
Stock dividend paid on preferred stock		-		-		-		-	111,199		1		2,124		-		-		2,125		-		2,125
Repurchase and retirement of shares of common stock		-		-		-		-	(1,001)		-		(19)		-		-		(19)		-		(19)
Stock-based compensation		-		-		-		-	-		-		416		-		-		416		-		416
Dividends declared on Series A preferred stock		-		-		-		-	-		-		-		(4,102)		-		(4,102)		-		(4,102)
Dividends declared on Series B preferred stock		-		-		-		-	-		-		-		(688)		-		(688)		-		(688)
Dividends declared on common stock		-		-		-		-	-		-		-		(6,777)		-		(6,777)		-		(6,777)
Net income		-		-		-		-	-		-		-		15,964		-		15,964		-		15,964
Balance at September 30, 2018		125,000	$	122,137		1,571,734	$	37,425	19,364,339	$	193	$	364,108	$	(8,324)	$	-	$	515,539	$	-	$	515,539

Table of Contents

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands, except share data)


														Retained		Accumulated
	Series A				Series B									Earnings		Other		Total		Non-
	Preferred Stock				Preferred Stock				Common Stock			Additional		(Accumulated		Comprehensive		Stockholders'		Controlling		Total
	Shares		Amount		Shares		Amount		Shares	Amount		Paid-In-Capital		Deficit)		Income (Loss)		Equity		Interests		Equity
Balance at December 31, 2018		125,000	$	122,137		1,571,734	$	37,401	20,430,218	$	204	$	386,394	$	1,728	$	-	$	547,864	$	-	$	547,864
Equity offering costs related to preferred stock		-		-		-		(103)	-		-		-		-		-		(103)		-		(103)
At-the-market issuance of common stock, net of offering costs		-		-		-		-	136,192		1		2,751		-		-		2,752		-		2,752
Stock dividend paid on preferred stock		2,125		2,125		-		-	-		-		-		-		-		2,125		-		2,125
Repurchase and retirement of shares of common stock		-		-		-		-	(3,408)		-		(73)		-		-		(73)		-		(73)
Issuance of stock-based awards		-		-		-		-	4,692		-		-		-		-		-		-		-
Stock-based compensation		-		-		-		-	-		-		359		-		-		359		-		359
Dividends declared on Series A preferred stock		-		-		-		-	-		-		-		(4,344)		-		(4,344)		-		(4,344)
Dividends declared on Series B preferred stock		-		-		-		-	-		-		-		(688)		-		(688)		-		(688)
Dividends declared on common stock		-		-		-		-	-		-		-		(7,205)		-		(7,205)		-		(7,205)
Net income		-		-		-		-	-		-		-		12,114		-		12,114		-		12,114
Balance at March 31, 2019		127,125	$	124,262		1,571,734	$	37,298	20,567,694	$	205	$	389,431	$	1,605	$	-	$	552,801	$	-	$	552,801

See accompanying notes to consolidated financial statements.

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JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands, except share data)


														Retained		Accumulated
	Series A				Series B									Earnings		Other		Total		Non-
	Preferred Stock				Preferred Stock				Common Stock			Additional		(Accumulated		Comprehensive		Stockholders'		Controlling		Total
	Shares		Amount		Shares		Amount		Shares	Amount		Paid-In-Capital		Deficit)		Income (Loss)		Equity		Interests		Equity
Balance at March 31, 2019		127,125	$	124,262		1,571,734	$	37,298	20,567,694	$	205	$	389,431	$	1,605	$	-	$	552,801	$	-	$	552,801
At-the-market issuance of common stock, net of offering costs		-		-		-		-	1,452,076		15		29,976		-		-		29,991		-		29,991
Stock dividend paid on preferred stock		2,125		2,125		-		-	-		-		-		-		-		2,125		-		2,125
Repurchase and retirement of shares of common stock		-		-		-		-	(18,544)		-		(396)		-		-		(396)		-		(396)
Issuance of stock-based awards		-		-		-		-	133,730		1		(1)		-		-		-		-		-
Stock-based compensation		-		-		-		-	-		-		750		-		-		750		-		750
Forfeiture and retirement of shares related to stock-based awards		-		-		-		-	(1,666)		-		-		-		-		-		-		-
Dividends declared on Series A preferred stock		-		-		-		-	-		-		-		(4,407)		-		(4,407)		-		(4,407)
Dividends declared on Series B preferred stock		-		-		-		-	-		-		-		(688)		-		(688)		-		(688)
Dividends declared on common stock		-		-		-		-	-		-		-		(7,754)		-		(7,754)		-		(7,754)
Other comprehensive income (loss) - derivative instruments		-		-		-		-	-		-		-		-		(441)		(441)		-		(441)
Net income		-		-		-		-	-		-		-		14,874		-		14,874		-		14,874
Balance at June 30, 2019		129,250	$	126,387		1,571,734	$	37,298	22,133,290	$	221	$	419,760	$	3,630	$	(441)	$	586,855	$	-	$	586,855

See accompanying notes to consolidated financial statements.

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JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands, except share data)


														Retained		Accumulated
	Series A				Series B									Earnings		Other		Total		Non-
	Preferred Stock				Preferred Stock				Common Stock			Additional		(Accumulated		Comprehensive		Stockholders'		Controlling		Total
	Shares		Amount		Shares		Amount		Shares	Amount		Paid-In-Capital		Deficit)		Income (Loss)		Equity		Interests		Equity
Balance at June 30, 2019		129,250	$	126,387		1,571,734	$	37,298	22,133,290	$	221	$	419,760	$	3,630	$	(441)	$	586,855	$	-	$	586,855
At-the-market issuance of common stock, net of offering costs		-		-		-		-	96,081		1		1,900		-		-		1,901		-		1,901
Stock dividend paid on preferred stock		2,125		2,125		-		-	-		-		-		-		-		2,125		-		2,125
Issuance of stock-based awards		-		-		-		-	7,500		-		-		-		-		-		-		-
Stock-based compensation		-		-		-		-	-		-		580		-		-		580		-		580
Dividends declared on Series A preferred stock		-		-		-		-	-		-		-		(4,469)		-		(4,469)		-		(4,469)
Dividends declared on Series B preferred stock		-		-		-		-	-		-		-		(688)		-		(688)		-		(688)
Dividends declared on common stock		-		-		-		-	-		-		-		(7,782)		-		(7,782)		-		(7,782)
Other comprehensive income (loss) - derivative instruments		-		-		-		-	-		-		-		-		(59)		(59)		-		(59)
Net income		-		-		-		-	-		-		-		10,954		-		10,954		-		10,954
Balance at September 30, 2019		131,375	$	128,512		1,571,734	$	37,298	22,236,871	$	222	$	422,240	$	1,645	$	(500)	$	589,417	$	-	$	589,417

See accompanying notes to consolidated financial statements.

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JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)



	Three months ended March 31,				Nine months ended September 30,
	2019		2018		2019		2018
Cash flows from operating activities:
Net income	$	12,114	$	5,354	$	37,941	$	32,115
Adjustments to reconcile net income to net cash used in operating activities:
Interest capitalized on outstanding loans		(6,932)		(4,013)		(22,069)		(15,939)
Net unrealized gain on investments		(8,830)		(4,320)		(28,847)		(24,622)
Stock-based compensation		359		376		1,689		1,600
Equity in earnings from unconsolidated self-storage real estate venture		(154)		(548)		(399)		(1,417)
Return on investment from unconsolidated self-storage real estate venture		52		201		328		599
Depreciation and amortization		1,043		719		3,537		2,493
Amortization of deferred financing costs		462		177		1,440		626
Accretion of origination fees		(257)		(160)		(867)		(593)
Unrealized loss on mark-to-market interest rate cap						89		-
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(71)		(81)		(1,346)		(513)
Due to Manager		(1,068)		(79)		(585)		825
Accounts payable, accrued expenses, and other liabilities		311		255		280		314
Net cash used in operating activities		(2,971)		(2,119)		(8,809)		(4,512)

Cash flows from investing activities:
Purchase of corporate fixed assets		(1)		(6)		(29)		(84)
Purchase of self-storage real estate owned		(2,636)		(8,785)		(10,347)		(12,675)
Capital additions to self-storage real estate owned		(335)		-		(1,309)		(417)
Capital contributions to unconsolidated self-storage real estate venture		(216)		(831)		(683)		(2,033)
Return of capital from unconsolidated self-storage real estate venture		2,106		-		3,833		-
Advances to unconsolidated self-storage real estate venture		(12,304)		(6,516)		(12,723)		(14,211)
Repayment of advances to unconsolidated self-storage real estate venture		12,310		6,791		12,773		16,516
Proceeds received from settlement of profits interest						-		619
Funding of investment portfolio:
Origination fees received in cash		217		1,167		1,114		1,906
Development property and bridge investments		(29,548)		(116,746)		(129,377)		(208,538)
Funding of other loans		(185)		(325)		(185)		(4,839)
Repayments of investment portfolio investments		342		3		361		16,911
Repayments of other loans		2		418		205		1,173
Net cash used in investing activities		(30,248)		(124,830)		(136,367)		(205,672)

Cash flows from financing activities:
Cash received from Credit Facility, net of issuance costs		26,793		29,901		124,261		34,343
Cash received from term loans, net of issuance costs		9,069		-		15,995		24,564
Deferred financing costs		-		(185)
Repurchase of senior loan participation						-		(732)
Repayment of Credit Facility						-		(35,000)
Stock repurchase		(73)		(40)		(468)		(333)
Net proceeds from issuance of common stock		2,752		-		34,645		81,782
Net proceeds from issuance of Series A preferred stock		-		34,976		-		84,932
Net proceeds (offering costs) from issuance of Series B preferred stock		(103)		35,988		(103)		37,425
Dividends paid on Series A preferred stock		(2,236)		(379)		(6,736)		(3,055)
Dividends paid on Series B preferred stock		(688)		-		(2,064)		(1,249)
Dividends paid on common stock		(7,150)		(5,051)		(22,108)		(16,846)
Net cash provided by financing activities		28,364		95,210		143,422		205,831
Net change in cash and cash equivalents		(4,855)		(31,739)		(1,754)		(4,353)
Cash and cash equivalents at the beginning of the period		8,715		46,977		8,715		46,977
Cash and cash equivalents at the end of the period	$	3,860	$	15,238	$	6,961	$	42,624

See accompanying notes to consolidated financial statements.

212

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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 self-storage development projects and existing self-storage facilities, most of which were recently constructed, and also owns self-storage facilities. The Company is a Maryland corporation that was organized on October 1, 2014 and completed its initial public offering (the “IPO”) on April 1, 2015. 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

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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.

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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 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.

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 net unrealized gain on 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 net unrealized gain on 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 the 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.

Realized Gains and Net Unrealized Gain on Investments

The Company measures realized gains by the difference between the net proceeds resulting from the sale of a self-storage property underlying one of the Company’s loan investments, excluding any prepayment penalties paid to the Company in connection with the repayment of the loan secured by the self-storage property, which are recognized in interest income from investments, and the cost basis of the investment, without regard to unrealized gain or loss previously recognized. Net unrealized gain on investments reflects the unrealized gains and losses recognized on certain investments during the reporting period, including any reversal of previously recorded unrealized gains when gains are realized. All fluctuations in fair value are included in net unrealized gain on investments on the Consolidated Statements of Operations. Prior to the quarter ended September 30, 2018, a sale of a self-storage property underlying one of the Company’s loan investment had not yet occurred and, thus, the Company had not yet realized any fair value gains on its investments. Accordingly, net increases in fair value of the Company’s investments had previously been reported in a single line item ‘Changes in fair value of investments’ in the Consolidated Statements of Operations.

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 investments (which are generally structured as first mortgages and a 49.9% Profits Interest in the project), operating property

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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), the term loans, payables, and ~~payables.~~derivative financial instruments.

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The following table presents the financial instruments measured at fair value on a recurring basis at ~~March 31,~~September 30, 2019:

Fair Value Measurements Using

Total

Level 1

Level 2

Level 3
Development property investments

$
405,999

$
-

$
-

$
405,999
Bridge investments

87,046

-

-

87,046
Total investments

$
493,045

$
-

$
-

$
493,045



	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Derivative financial instruments (asset position)	$	25	$	-	$	25	$	-
Derivative financial instruments (liability position)		(500)		-		(500)		-
Development property investments		508,887		-		-		508,887

The following table presents the financial instruments measured at fair value on a recurring basis at December 31, 2018:



	Fair Value Measurements Using								Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Development property investments	$	373,564	$	-	$	-	$	373,564	$	373,564	$	-	$	-	$	373,564
Bridge investments		84,383		-		-		84,383		84,383		-		-		84,383
Total investments	$	457,947	$	-	$	-	$	457,947

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.

Derivative instruments and hedging activities

All derivative financial instruments are recorded on the balance sheet at fair value. Changes in fair value are recognized either in earnings or as other comprehensive income (loss), depending on whether the derivative has been designated as a fair value or cash flow hedge and whether it qualifies as part of a hedging relationship, the nature of the exposure being hedged, and how effective the derivative is at offsetting movements in underlying exposure. Hedge accounting is discontinued when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; the derivative expires or is sold, terminated, or exercised; it is no longer probable that the forecasted transaction will occur; or management determines that designating the derivative as a hedging instrument is no longer appropriate. The Company uses interest rate swaps and interest rate caps to effectively convert a portion of its variable rate debt to fixed rate, thus reducing the impact of changes in interest rates on interest payments (see Note 7, Debt, and Note 8, Risk Management and Use of Financial Instruments).

The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in "Accumulated other comprehensive income (loss)" and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. In accordance with ASU 2017-12, Derivatives and Hedging (Topic 815) as long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, there is no longer the requirement for periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses will be recognized in the period in which hedged transactions impact earnings, regardless of whether or not economic mismatches exist in the hedging relationship. Amounts reported in "Accumulated other comprehensive income (loss)" related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on the Company's variable rate or fixed rate debt. Changes in fair value for financial instruments not designated as cash flow hedges are recognized in earnings within interest expense in the Consolidated Statements of Operations.

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 consists primarily of: (i) the funded principal balance of the loan to the Company, net of unamortized origination fees; (ii) unrealized appreciation recognized as of the acquisition date; and (iii) the cash consideration paid and assumed liabilities, if applicable, to acquire the interests of other equity owners of the project. 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.

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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

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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 nine months ended ~~March 31,~~September 30, 2019 and 2018.

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, and land loans made by the Company in situations where it was determined that making such loans would benefit the Company’s primary business. As of March 31, 2019, the Company had executed seven revolving loan agreements with an aggregate outstanding principal amount of $0.9 million. Six 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. Six 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% or 7.0% per annum and are due in full in two or three years. At December 31, 2018, the Company had executed seven revolving loan agreements with an aggregate outstanding principal amount of $0.7 million.

As of March 31, 2019 and December 31, 2018, the Company had a balance of $3.8 million related to one land loan extended to a limited liability company that is under common control with a borrower in certain of the Company’s development property investments. The land loan is secured by a first mortgage on real and personal property, is personally guaranteed, is interest-only with a fixed interest rate of 6.9% per annum, and had an original maturity date of January 20, 2019. The maturity of the loan was based upon the estimated time needed to approve the site for closing into a development loan.

These loans are accounted for under the cost method, and fair value approximates cost at ~~March 31,~~September 30, 2019 and December 31, 2018. None of these loans are in non-accrual status as of ~~March 31,~~September 30, 2019 and December 31, 2018. The Company determined that no allowance for loan loss was necessary at ~~March 31,~~September 30, 2019 and December 31, 2018.

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 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.

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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.

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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, modified, or exchanged 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 or~~ term loans 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 Financing Costs.

Other expenses

Other expenses of $0.3 million during the three and nine months ended ~~March 31,~~September 30, 2019 consist of professional costs incurred with respect to ongoing discussions and negotiations related to our Management Agreement. Other expenses of $0.3 million during the nine months ended September 30, 2018 consist of costs related to the termination of an employee contract and have been expensed as incurred. ~~The Company incurred no other expense during the three months ended March 31, 2019.~~

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 stock offerings are reflected as a reduction of additional paid-in capital.

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 months ended March 31, 2019 and 2018, 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.

~~Table of Contents~~

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

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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 year ended December 31, 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. 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. Since adoption of the new guidance, the Company has considered its self-storage facility acquisitions to be asset acquisitions. The costs related to the acquisitions of self-storage facilities that qualify as asset acquisitions are capitalized as part of the purchase.

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~~smaller reporting companies for fiscal years and for interim periods within those fiscal years, beginning after December 15, ~~2019,~~2022, 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. The Company has assessed the impact this new accounting guidance had on its consolidated financial statements and concluded that the new accounting guidance does not have a material impact 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 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.

~~Table of Contents~~

Consolidated Statements of Cash Flows - Supplemental Disclosures

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


	Nine months ended September 30,
	2019		2018
Supplemental disclosure of cash flow information:
Interest paid	$	3,359	$	920

Supplemental disclosure of non-cash investing and financing activities:
Stock dividend paid on preferred stock	$	6,375	$	4,294
Dividends declared, but not paid, on preferred stock		5,157		4,790
Dividends declared, but not paid, on common stock		7,783		6,777
Reclassification of self-storage real estate owned		125,715		44,877
Assumed liabilities with acquisition of self-storage real estate owned		-		264
Other loans paid off with issuance of development property investments		404		117
Reclassification of deferred costs to cumulative preferred stock		-		559

Three months ended March 31,

2019

2018
Supplemental disclosure of cash flow information:

Interest paid

$
556

$
114

Supplemental disclosure of non-cash investing and financing activities:

Stock dividend paid on preferred stock

$
2,125

$
44
Dividends declared, but not paid, on preferred stock

5,032

3,595
Dividends declared, but not paid, on common stock

7,205

5,056
Reclassification of self-storage real estate owned

8,351

35,281
Assumed liabilities with acquisition of self-storage real estate owned

-

1,306
Other loans paid off with issuance of development property investments

-

117
Reclassification of deferred costs to cumulative preferred stock

-

559

3. SELF-STORAGE INVESTMENT PORTFOLIO

The Company’s self-storage investments at ~~March 31,~~September 30, 2019 consisted of the following:

Investments reported at fair value

Development Property Investments - The Company had 4750 investments totaling an aggregate committed principal amount of approximately ~~$548.1~~$608.9 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

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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. As of ~~March 31,~~September 30, 2019, ~~two~~five of the development property investments totaling ~~$12.2~~$55.0 million of aggregate committed amount were structured as preferred equity investments, which will be subordinate to a first mortgage loan procured or expected to be procured from a third party lender for 60% to 70% of the cost of the project.

~~Included in~~The Company has commenced foreclosure proceedings against the borrower of its $14.3 million Philadelphia development property ~~investments as of March 31, 2019 was one construction~~investment because the borrower has defaulted under the loan ~~with a committed principal amount of approximately $17.7 million that is interest-only at a fixed interest rate of 6.9% annum, has no equity participation and is secured~~ by, ~~a first priority mortgage on~~among other things, failing to pay the project. This construction loan had an initial term of 18 months that was extended during the first quarter of 2017 and in 2018. This loan matured and became due and payable on June 30, 2018; however, it has yet to be repaid. Accordingly, this construction loan is in default and was placed on non-accrual status during the three months ended December 31, 2018. Since that time, no interest income has been recognized and will only be recognized if interest is collected in cash.general contractor. The total unpaid balance of the loan is ~~$17.7~~$11.2 million. As the investment iswas a collateral dependent loan, the Company considered the fair value of the collateral when determining the fair value of the investment as of ~~March 31,~~September 30, 2019. The fair value of the investment as of ~~March 31,~~September 30, 2019 is ~~$17.7~~$11.7 million. ~~During the three months ended March 31, 2019, the Company commenced proceedings to foreclose on the underlying collateral.~~

Bridge Investments- ~~The~~On September 17, 2019, the Company ~~had five~~purchased 100% of the Class A membership units of the limited liability companies that owned the Miami 4, Miami 5, Miami 6, Miami 7 and Miami 8 bridge investments with ~~an aggregate committed principal amount~~a Profits Interest. Accordingly, as of approximately $83.3 million. Three of these bridge investments 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 of these bridge investments aggregating a committed principal amount of $36.2 million are secured by first priority mortgages on two newly-completed self-storage properties with an aggregate of over 163,000 net rentable square feet, which loans bear interest at an annual rate of 9.5%, with 6.5% payable monthly and 3.0% payment-in-kind (“PIK”) interest 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~~acquisition, the ~~borrower having two extension options for one year each.~~Company wholly owns and consolidates these investments in the accompanying consolidated financial statements, and, as a result, the Company had no outstanding bridge investments as of September 30, 2019.

~~Table of Contents~~

As of ~~March 31,~~September 30, 2019, the aggregate committed principal amount of the Company’s development property ~~investments and bridge investments~~investment was approximately ~~$649.1~~$608.9 million and outstanding principal was ~~$441.0~~$445.6 million, as described in more detail in the table ~~below:~~

below (dollars in thousands):


	Metropolitan	Total				Remaining
	Statistical Area	Investment		Funded		Unfunded
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value
Development property investments (includes a profits interest):
7/2/2015	Milwaukee (2)(7)	$	7,650	$	7,648	$	2	$	9,146
8/14/2015	Raleigh (2)(7)		8,792		8,789		3		8,640
10/27/2015	Austin (2)(7)		8,658		8,136		522		8,040
9/20/2016	Charlotte 2 (2)(7)		12,888		12,413		475		13,600
1/18/2017	Atlanta 3 (2)(7)		14,115		12,433		1,682		14,921
1/31/2017	Atlanta 4 (2)(7)		13,678		13,497		181		16,857
2/24/2017	Orlando 3 (2)(7)		8,056		7,629		427		9,473
2/24/2017	New Orleans (2)(7)		12,549		11,668		881		13,927
2/27/2017	Atlanta 5 (2)(7)		17,492		17,492		-		19,880
3/1/2017	Fort Lauderdale (2)(7)		9,952		9,191		761		12,974
3/1/2017	Houston (2)		14,825		14,825		-		17,820
4/14/2017	Louisville 1 (2)(7)		8,523		7,422		1,101		9,224
4/20/2017	Denver 1 (2)(7)		9,806		9,117		689		10,179
4/20/2017	Denver 2 (2)(7)		11,164		10,995		169		12,632
5/2/2017	Atlanta 6 (2)(7)		12,543		11,818		725		14,367
5/2/2017	Tampa 2 (2)(7)		8,091		7,513		578		8,790
5/19/2017	Tampa 3 (2)(7)		9,224		8,089		1,135		9,906
6/12/2017	Tampa 4 (2)(7)		10,266		9,379		887		12,654
6/19/2017	Baltimore 1 (2)(4)(7)		10,775		10,453		751		12,159
6/28/2017	Knoxville (2)(7)		9,115		8,463		652		10,316
6/29/2017	Boston 1 (2)(6)		-		-		-		3,232
6/30/2017	New York City 2 (2)(4)		27,982		28,267		1,160		29,877
7/27/2017	Jacksonville 3 (2)(7)		8,096		7,520		576		9,538
8/30/2017	Orlando 4 (2)(7)		9,037		7,967		1,070		10,164
9/14/2017	Los Angeles 1		28,750		9,470		19,280		9,722
9/14/2017	Miami 1 (3)		14,657		10,329		4,328		10,541
9/28/2017	Louisville 2 (2)(7)		9,940		9,311		629		11,527
10/12/2017	Miami 2 (4)		9,459		1,432		8,097		1,245
10/30/2017	New York City 3 (4)		15,301		6,472		9,077		6,114
11/16/2017	Miami 3 (4)		20,168		8,365		12,060		8,113
11/21/2017	Minneapolis 1 (2)		12,674		9,767		2,907		11,289
12/1/2017	Boston 2 (2)(7)		8,771		7,737		1,034		9,602
12/15/2017	New York City 4 (3)		10,591		4,887		5,704		5,350
12/27/2017	Boston 3		10,174		2,710		7,464		2,638

Metropolitan

Total

Remaining

Statistical Area

Investment

Funded

Unfunded

Closing Date

("MSA")

Commitment

Investment (1)

Commitment

Fair Value
Development property investments (includes a profits interest):

7/2/2015

Milwaukee (2)(7)

$
7,650

$
7,648

$
2

$
9,128
8/14/2015

Raleigh (2)(7)

8,792

8,689

103

8,236
10/27/2015

Austin (2)(7)

8,658

7,951

707

7,940
9/20/2016

Charlotte 2 (2)(7)

12,888

11,697

1,191

12,838
11/17/2016

Jacksonville 2 (2)(7)

7,530

7,279

251

9,397
1/18/2017

Atlanta 3 (3)

14,115

9,498

4,617

10,549
1/31/2017

Atlanta 4 (2)(7)

13,678

13,185

493

15,632
2/24/2017

Orlando 3 (2)(7)

8,056

7,363

693

8,911
2/24/2017

New Orleans (2)

12,549

10,918

1,631

12,709
2/27/2017

Atlanta 5 (2)

17,492

15,640

1,852

18,345
3/1/2017

Fort Lauderdale (2)

9,952

7,740

2,212

10,547
3/1/2017

Houston (3)

14,825

13,400

1,425

16,176
4/14/2017

Louisville 1 (2)(7)

8,523

7,141

1,382

8,831
4/20/2017

Denver 1 (3)

9,806

7,666

2,140

8,669
4/20/2017

Denver 2 (2)

11,164

10,481

683

12,952
5/2/2017

Atlanta 6 (2)(7)

12,543

11,218

1,325

13,717
5/2/2017

Tampa 2 (3)

8,091

6,684

1,407

7,540
5/19/2017

Tampa 3 (2)(7)

9,224

7,355

1,869

8,650
6/12/2017

Tampa 4 (2)(7)

10,266

9,000

1,266

11,767
6/19/2017

Baltimore 1 (2)(4)

10,775

9,461

1,593

11,105
6/28/2017

Knoxville (2)(7)

9,115

8,156

959

9,228
6/29/2017

Boston 1 (2)(6)

-

-

-

2,661
6/30/2017

New York City 2 (2)(4)

26,482

25,716

1,807

29,534
7/27/2017

Jacksonville 3 (2)(7)

8,096

6,978

1,118

8,598
8/30/2017

Orlando 4 (2)

9,037

7,114

1,923

8,732
9/14/2017

Los Angeles 1

28,750

8,979

19,771

8,938
9/14/2017

Miami 1

14,657

7,425

7,232

7,224
9/28/2017

Louisville 2 (2)(7)

9,940

8,914

1,026

11,131
10/12/2017

Miami 2 (4)

9,459

1,367

8,141

1,144
10/30/2017

New York City 3 (4)

14,701

5,276

9,587

4,911
11/16/2017

Miami 3 (4)

20,168

4,725

15,604

4,267
11/21/2017

Minneapolis 1 (3)

12,674

5,462

7,212

5,829
12/1/2017

Boston 2 (2)

8,771

5,436

3,335

6,520
12/15/2017

New York City 4

10,591

2,663

7,928

2,569
12/27/2017

Boston 3

10,174

2,608

7,566

2,500
12/28/2017

New York City 5

16,073

7,538

8,535

7,477
2/8/2018

Minneapolis 2 (2)

10,543

8,456

2,087

9,615
3/30/2018

Philadelphia (3)(4)

14,338

10,598

3,908

10,829
4/6/2018

Minneapolis 3 (3)

12,883

4,208

8,675

4,209
5/1/2018

Miami 9 (4)

12,421

2,869

9,623

2,696
5/15/2018

Atlanta 7

9,418

1,378

8,040

1,329
5/23/2018

Kansas City

9,968

2,349

7,619

2,320
6/7/2018

Orlando 5

12,969

2,533

10,436

2,478
6/12/2018

Los Angeles 2 (5)

9,298

4,675

4,874

4,721
11/16/2018

Baltimore 2

9,247

397

8,850

319
3/1/2019

New York City 6

18,796

2,112

16,684

1,963

1019

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3/15/2019

Stamford (5)

2,904

2,913

-

2,885

$
548,050

$
340,859

$
209,382

$
388,266
Construction loans:

12/23/2015

Miami

17,733

17,733

-

17,733

$
17,733

$
17,733

$
-

$
17,733
Total development property investments

$
565,783

$
358,592

$
209,382

$
405,999

Bridge investments (includes a profits interest):

3/2/2018

Miami 4 (2)(7)

20,201

20,201

-

23,217
3/2/2018

Miami 5 (2)(4)(7)

17,738

17,272

991

15,217
3/2/2018

Miami 6 (2)(7)

13,370

13,370

-

17,681
3/2/2018

Miami 7 (2)(4)(7)

18,462

17,986

1,022

16,812
3/2/2018

Miami 8 (2)(7)

13,553

13,553

-

14,119
Total bridge investments

$
83,324

$
82,382

$
2,013

$
87,046

Total investments reported at fair value

$
649,107

$
440,974

$
211,395

$
493,045

12/28/2017	New York City 5 (3)		16,073		10,718		5,355		12,065
2/8/2018	Minneapolis 2 (2)(7)		10,543		9,527		1,016		11,159
3/30/2018	Philadelphia (2)(4)(8)		14,338		11,429		3,264		11,688
4/6/2018	Minneapolis 3 (3)		12,883		8,613		4,270		10,075
5/1/2018	Miami 9 (4)		12,421		3,423		9,118		3,314
5/15/2018	Atlanta 7 (3)		9,418		4,515		4,903		5,195
5/23/2018	Kansas City (3)		9,968		6,376		3,592		7,516
6/7/2018	Orlando 5 (3)		12,969		8,190		4,779		9,613
11/16/2018	Baltimore 2		9,247		715		8,532		672
3/1/2019	New York City 6		18,796		3,111		15,685		3,088
4/18/2019	New York City 7 (4)		23,462		6,309		17,232		6,093
		$	553,880	$	394,130	$	162,753	$	454,935
Preferred equity investments:
6/12/2018	Los Angeles 2 (5)		9,298		4,839		4,874		4,883
3/15/2019	Stamford (2)(5)		2,904		3,014		-		4,990
5/8/2019	New York City 8 (5)		21,000		21,580		-		22,126
7/11/2019	New York City 9 (5)		13,095		13,298		-		13,280
8/21/2019	New York City 10 (5)		8,674		8,741		-		8,673
		$	54,971	$	51,472	$	4,874	$	53,952

Total investments reported at fair value		$	608,851	$	445,602	$	167,627	$	508,887

⁽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 ~~March 31,~~September 30, 2019. 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 ~~March 31,~~September 30, 2019. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾

These investments contain a higher loan-to-cost (“LTC”) 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. The funded amount of these investments include PIK interest accrued. These PIK interest amounts are not included in the commitment amount for each investment.

⁽⁵⁾

A traditional bank has or is expected to provide 60-70% of the total cost through a first mortgage construction loan. Of the remaining 30-40% of costs required to complete the project, the Company will provide 90% 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 funded amount of these investments include interest accrued on the preferred equity investment. These interest amounts are not included in the commitment amount for each investment.

⁽⁶⁾

The Company’s loan was repaid in full through a refinancing initiated by the Company’s partner. The investment represents the Company’s 49.9% Profits Interest which was retained during the transaction.

⁽⁷⁾

As of ~~March 31,~~September 30, 2019, this investment was pledged as collateral to the Company’s Credit Facility.

⁽⁸⁾

The Company has commenced foreclosure proceedings against the borrower of its $14.3 million Philadelphia development property investment because it has defaulted under the loan by, among other things, failing to pay the general contractor. As the investment was a collateral dependent loan, the Company considered the fair value of the collateral when determining the fair value of the investment as of September 30, 2019.

The following table provides a reconciliation of the funded principal to the fair market value of investments at ~~March 31,~~September 30, 2019:



Funded principal	$	440,974	$	445,602
Adjustments:
Unamortized origination and other fees		(6,089)		(5,843)
Net unrealized gain on investments		58,244		69,212
Other		(84)		(84)
Fair value of investments	$	493,045	$	508,887

1120

Table of Contents

As of December 31, 2018, the aggregate committed principal amount of the Company’s development property investments and bridge investments was approximately $634.3 million and outstanding principal was $413.5 million, as described in more detail in the table ~~below:~~below (dollars in thousands):



		Metropolitan					Remaining					Metropolitan					Remaining
		Statistical Area	Total Investment		Funded		Unfunded					Statistical Area	Total Investment		Funded		Unfunded
Closing Date		("MSA")	Commitment		Investment (1)		Commitment		Fair Value			("MSA")	Commitment		Investment (1)		Commitment		Fair Value
Development property investments (includes a profits interest):	Development property investments (includes a profits interest):										Development property investments (includes a profits interest):
7/2/2015		Milwaukee (2)(8)	$	7,650	$	7,648	$	2	$	9,057		Milwaukee (2)(8)	$	7,650	$	7,648	$	2	$	9,057
7/31/2015		New Haven (2)(8)(9)		6,930		6,827		103		8,350		New Haven (2)(8)(9)		6,930		6,827		103		8,350
8/14/2015		Raleigh (2)(8)		8,792		8,498		294		8,002		Raleigh (2)(8)		8,792		8,498		294		8,002
10/27/2015		Austin (2)(8)		8,658		7,817		841		7,763		Austin (2)(8)		8,658		7,817		841		7,763
9/20/2016		Charlotte 2 (2)(8)		12,888		11,445		1,443		12,793		Charlotte 2 (2)(8)		12,888		11,445		1,443		12,793
11/17/2016		Jacksonville 2 (2)(8)		7,530		7,157		373		9,122		Jacksonville 2 (2)(8)(9)		7,530		7,157		373		9,122
1/18/2017		Atlanta 3 (3)		14,115		8,711		5,404		9,337		Atlanta 3 (3)		14,115		8,711		5,404		9,337
1/31/2017		Atlanta 4 (2)		13,678		12,957		721		16,031		Atlanta 4 (2)		13,678		12,957		721		16,031
2/24/2017		Orlando 3 (2)		8,056		7,229		827		8,592		Orlando 3 (2)		8,056		7,229		827		8,592
2/24/2017		New Orleans (2)		12,549		10,587		1,962		12,221		New Orleans (2)		12,549		10,587		1,962		12,221
2/27/2017		Atlanta 5 (3)		17,492		14,095		3,397		15,371		Atlanta 5 (3)		17,492		14,095		3,397		15,371
3/1/2017		Fort Lauderdale (2)		9,952		7,604		2,348		10,475		Fort Lauderdale (2)		9,952		7,604		2,348		10,475
3/1/2017		Houston (3)(7)		14,825		10,936		3,889		13,285		Houston (3)(7)		14,825		10,936		3,889		13,285
4/14/2017		Louisville 1 (2)(8)		8,523		6,979		1,544		8,540		Louisville 1 (2)(8)		8,523		6,979		1,544		8,540
4/20/2017		Denver 1 (3)		9,806		6,884		2,922		7,706		Denver 1 (3)		9,806		6,884		2,922		7,706
4/20/2017		Denver 2 (2)		11,164		10,235		929		12,403		Denver 2 (2)		11,164		10,235		929		12,403
5/2/2017		Atlanta 6 (2)		12,543		10,589		1,954		12,774		Atlanta 6 (2)		12,543		10,589		1,954		12,774
5/2/2017		Tampa 2 (3)		8,091		5,493		2,598		6,020		Tampa 2 (3)		8,091		5,493		2,598		6,020
5/19/2017		Tampa 3 (2)		9,224		7,154		2,070		8,391		Tampa 3 (2)		9,224		7,154		2,070		8,391
6/12/2017		Tampa 4 (2)		10,266		8,846		1,420		11,419		Tampa 4 (2)		10,266		8,846		1,420		11,419
6/19/2017		Baltimore 1 (2)(4)		10,775		9,177		1,598		10,805		Baltimore 1 (2)(4)		10,775		9,177		1,598		10,805
6/28/2017		Knoxville (2)(8)		9,115		7,717		1,398		8,652		Knoxville (2)(8)		9,115		7,717		1,398		8,652
6/29/2017		Boston 1 (2)(6)		-		-		-		2,614		Boston 1 (2)(6)		-		-		-		2,614
6/30/2017		New York City 2 (2)(4)		26,482		24,760		1,722		28,102		New York City 2 (2)(4)		26,482		24,760		1,722		28,102
7/27/2017		Jacksonville 3 (2)		8,096		6,836		1,260		8,251		Jacksonville 3 (2)		8,096		6,836		1,260		8,251
8/30/2017		Orlando 4 (2)		9,037		6,769		2,268		8,264		Orlando 4 (2)		9,037		6,769		2,268		8,264
9/14/2017		Los Angeles 1		28,750		8,692		20,058		8,418		Los Angeles 1		28,750		8,692		20,058		8,418
9/14/2017		Miami 1		14,657		6,882		7,775		6,562		Miami 1		14,657		6,882		7,775		6,562
9/28/2017		Louisville 2 (2)(8)		9,940		8,691		1,249		10,652		Louisville 2 (2)(8)		9,940		8,691		1,249		10,652
10/12/2017		Miami 2 (4)		9,459		1,335		8,124		1,082		Miami 2 (4)		9,459		1,335		8,124		1,082
10/30/2017		New York City 3 (4)		14,701		4,835		9,866		4,383		New York City 3 (4)		14,701		4,835		9,866		4,383
11/16/2017		Miami 3 (4)		20,168		4,096		16,072		3,542		Miami 3 (4)		20,168		4,096		16,072		3,542
11/21/2017		Minneapolis 1		12,674		3,214		9,460		3,070		Minneapolis 1		12,674		3,214		9,460		3,070
12/1/2017		Boston 2 (3)		8,771		3,978		4,793		4,246		Boston 2 (3)		8,771		3,978		4,793		4,246
12/15/2017		New York City 4		10,591		1,777		8,814		1,631		New York City 4		10,591		1,777		8,814		1,631
12/27/2017		Boston 3		10,174		2,563		7,611		2,402		Boston 3		10,174		2,563		7,611		2,402
12/28/2017		New York City 5		16,073		6,523		9,550		6,400		New York City 5		16,073		6,523		9,550		6,400
2/8/2018		Minneapolis 2 (3)		10,543		7,802		2,741		8,773		Minneapolis 2 (3)		10,543		7,802		2,741		8,773
3/30/2018		Philadelphia (3)(4)		14,338		7,870		6,468		8,093		Philadelphia (3)(4)		14,338		7,870		6,468		8,093
4/6/2018		Minneapolis 3		12,883		2,333		10,550		2,206		Minneapolis 3		12,883		2,333		10,550		2,206
5/1/2018		Miami 9 (4)		12,421		2,803		9,618		2,564		Miami 9 (4)		12,421		2,803		9,618		2,564
5/15/2018		Atlanta 7		9,418		861		8,557		775		Atlanta 7		9,418		861		8,557		775
5/23/2018		Kansas City		9,968		1,228		8,740		1,137		Kansas City		9,968		1,228		8,740		1,137
6/7/2018		Orlando 5		12,969		800		12,169		673		Orlando 5		12,969		800		12,169		673
6/12/2018		Los Angeles 2 (5)		9,298		4,597		4,701		4,581		Los Angeles 2 (5)		9,298		4,597		4,701		4,581
11/16/2018		Baltimore 2		9,247		390		8,857		301		Baltimore 2		9,247		390		8,857		301
													$	533,280	$	314,220	$	219,060	$	355,831

Construction loans:

1221

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			$	533,280	$	314,220	$	219,060	$	355,831

Construction loans:
12/23/2015		Miami		17,733		17,733		-		17,733		Miami (10)		17,733		17,733		-		17,733
			$	17,733	$	17,733	$	0	$	17,733			$	17,733	$	17,733	$	0	$	17,733
Total development property investments	Total development property investments		$	551,013	$	331,953	$	219,060	$	373,564	Total development property investments		$	551,013	$	331,953	$	219,060	$	373,564

Bridge investments (includes a profits interest):	Bridge investments (includes a profits interest):										Bridge investments (includes a profits interest):
3/2/2018		Miami 4 (2)(8)		20,201		20,201		-		22,823		Miami 4 (2)(8)(9)		20,201		20,201		-		22,823
3/2/2018		Miami 5 (2)(4)(8)		17,738		16,883		855		14,432		Miami 5 (2)(4)(8)(9)		17,738		16,883		855		14,432
3/2/2018		Miami 6 (2)(8)		13,370		13,370		-		17,372		Miami 6 (2)(8)(9)		13,370		13,370		-		17,372
3/2/2018		Miami 7 (2)(4)(8)		18,462		17,581		881		15,971		Miami 7 (2)(4)(8)(9)		18,462		17,581		881		15,971
3/2/2018		Miami 8 (2)(8)		13,553		13,472		81		13,785		Miami 8 (2)(8)(9)		13,553		13,472		81		13,785
Total bridge investments	Total bridge investments		$	83,324	$	81,507	$	1,817	$	84,383	Total bridge investments		$	83,324	$	81,507	$	1,817	$	84,383

Total investments reported at fair value	Total investments reported at fair value		$	634,337	$	413,460	$	220,877	$	457,947	Total investments reported at fair value		$	634,337	$	413,460	$	220,877	$	457,947

⁽¹⁾

Represents principal balance of loan gross of origination fees. The principal balance includes interest and fees accrued on the investment.

⁽²⁾

Construction at the facility was substantially complete and/or certificate of occupancy had been received as of December 31, 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 December 31, 2018. See Note 4, 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 has or is expected to provide 60-70% of the total cost through a first mortgage construction loan. Of the remaining 30-40% of costs required to complete the project, the Company will provide 90% 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.

⁽⁶⁾

⁽⁷⁾

On December 31, 2018, the Company increased the total commitment amount of this loan in exchange for a fee that was immediately advanced on the loan. The fee will be recognized into income in the future as earned and will be received in cash upon the repayment of the loan.

⁽⁸⁾

As of December 31, 2018, this investment was pledged as collateral to the Company’s Credit Facility.

⁽⁹⁾

During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company purchased its partner’s 50.1% Profits Interest in this investment.

⁽¹⁰⁾

During the three months ended September 30, 2019, the Company purchased the interests in the entity that owned the property securing the Miami construction loan in connection with the entry into a settlement agreement related to foreclosure proceedings that the Company had commenced against the borrower.

The following table provides a reconciliation of the funded principal to the fair market value of investments at December 31, 2018:



Funded principal	$	413,460
Adjustments:
Unamortized origination and other fees		(6,382)
Net unrealized gain on investments		50,953
Other		(84)
Fair value of investments	$	457,947

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.

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No loans were in non-accrual status as of September 30, 2019, and no loans, with the exception of the $17.7 million Miami construction loan, were in non-accrual status as of ~~March 31, 2019 and~~ December 31, 2018. As described below, on July 2, 2019, the Company entered into an agreement pursuant to which it acquired all of the interests in the entity that owned the property securing the Miami construction loan and both parties dismissed all state court litigation related to that loan.

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All of the Company’s development property ~~investments and bridge~~ investments with a Profits Interest would have been accounted for under the equity method had the Company not elected the fair value option. Prior to the acquisition of the developer’s interest in the bridge investments during the three months ended September 30, 2019, the bridge investments would have been accounted for under the equity method had the Company not elected the fair value option for the bridge investments. For these ~~development property investments and bridge~~ investments with a Profits Interest, the assets and liabilities of the equity method investees approximated ~~$471.6~~$506.1 million and ~~$423.2~~$445.6 million, respectively, at ~~March 31,~~September 30, 2019 and approximated $442.6 million and $395.7 million, respectively, at December 31, 2018. These investees had revenues of approximately ~~$1.8~~$2.3 million and $4.5 million and operating expenses of approximately ~~$2.3~~$2.7 million and $6.4 million for the three and nine months ended ~~March 31,~~September 30, 2019, ~~and~~respectively. These investees had revenues of approximately ~~$0.8~~$1.5 million and $3.7 million and operating expenses of approximately ~~$0.7~~$1.4 million and $3.4 million for the three and nine months ended ~~March 31, 2018.~~September 30, 2018, respectively. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, no individual investment comprised more than 20% of the Company’s net income. ~~For the three months ended March 31, 2018, the total income (interest income~~ and net unrealized gain on investments) from two bridge investments with a Profits Interest exceeded 20% of the Company’s net income. The Company recorded total income for the three months ended March 31, 2018 of $1.4 million and $3.8 million from the Miami 4 MSA and Miami 6 MSA bridge investments with a Profits Interest, respectively.

For sixteen of the Company’s development property investments with a Profits Interest as of ~~March 31,~~September 30, 2019 and December 31, 2018, 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 ~~March 31,~~September 30, 2019 and December 31, 2018.

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

YTD 2019 Activity

On March 8, 2019, the Company purchased 100% of the Class A membership units of the limited liability company that owned the New Haven development property investment with a Profits Interest. On July 2, 2019, the Company acquired all of the interests in the entity that owned the property securing the Miami construction loan. On August 16, 2019, the Company purchased 100% of the Class A membership units of the limited liability company that owned the Jacksonville 2 development property investment with a Profits Interest. On September 17, 2019, the Company purchased 100% of the Class A membership units of the limited liability companies that owned the Miami 4, Miami 5, Miami 6, Miami 7 and Miami 8 bridge investments with a Profits Interest. Accordingly, as of ~~March 8, 2019,~~the dates of acquisition, the Company wholly owns and consolidates ~~this investment~~these investments in the accompanying consolidated financial statements. The acquisition date basis of ~~this investment~~these investments of ~~$11.1~~$138.9 million is primarily comprised of the development property investment or bridge investment at fair value of $125.7 million and the cash consideration ~~paid.~~of $10.5 million, which is inclusive of paid and accrued transaction costs. The Company allocated the basis based on the relative fair value of the tangible and intangible assets acquired. Intangible assets consisted of in-place leases, which aggregated to $4.9 million at the time of the acquisitions. The estimated life of these in-place leases was 12 months.

The basis of the Miami investment acquired on July 2, 2019 is currently presented in construction-in-progress within Self-storage real estate owned, net, in the table below. As of September 30, 2019, this facility has not been placed into service.

YTD 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. 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. 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. ~~Accordingly, as~~On August 31, 2018, the Company purchased 100% of the ~~dates~~Class A membership units of ~~acquisition,~~ the ~~Company wholly owns and consolidates these investments in~~limited liability company that owned the ~~accompanying consolidated financial statements.~~Charlotte 1 development property investment with a Profits Interest. The acquisition date basis of these investments of ~~$45.4~~$58.1 million is primarily comprised of the development property investment at fair value of ~~$35.3~~$44.9 million and the cash consideration paid of ~~$9.6 million.~~$13.0 million, inclusive of transaction costs and assumed liabilities. The Company allocated the basis based on the relative fair value of the tangible and intangible assets acquired. Intangible assets consisted of in-place leases, which aggregated to $2.1 million at the time of the acquisitions. The estimated life of these in-place leases was 12 months.

The Company evaluated the purchases under ASU 2017-01 and concluded that the transactions consisted of a single identifiable asset or a group of similar identifiable assets that ~~represents~~represent 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

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unrealized gains recorded at the date of acquisition. The allocation to the basis of the assets acquired is based on their relative fair values.

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The following table shows the components of the real estate investments as presented in the Company’s accompanying Consolidated Balance Sheets as of ~~March 31,~~September 30, 2019 and December 31, 2018:



	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Land	$	11,723	$	10,797	$	25,548	$	10,797
Building and improvements		94,689		85,067		186,341		85,067
In-place leases		4,084		3,552		8,485		3,552
Property equipment		13		13		81		13
Construction-in-progress		788		670		19,754		670
Accumulated depreciation and amortization		(4,926)		(3,897)		(7,387)		(3,897)
Self-storage real estate owned, net	$	106,371	$	96,202	$	232,822	$	96,202

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 and bridge 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~~

Financial assets and liabilities that are not measured at fair value on a recurring basis are cash, other loans, receivables, the secured revolving credit facility, term loans and payables and their carrying values 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 term loans 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.

As discussed in Note 8, Risk Managements and Use of Financial Instruments, interest rate swaps and interest rate caps are used to manage interest raterisk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative and these instruments are categorized in Level 2 of the fair value hierarchy. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps and interest rate caps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or

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payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

Credit valuation adjustments are incorporated to appropriately reflect the Company's and the counterparty's respective nonperformance risk in the fair value measurements. In adjusting the fair value of the derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

The following table summarizes the instruments measured at fair value on a recurring basis 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 with a profits interest and bridge 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 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. 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.	Level 3

The Company’s development property investments and bridge 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 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 from when construction is substantially complete through stabilization. For the seven development property investments that were 40% complete but for which construction was not substantially complete at ~~March 31,~~September 30, 2019, the Company has estimated the entrepreneurial profit adjustment to the enterprise value input used in the OPM to be equal to one-third of the estimated entrepreneurial profit, allocated on a straight-line basis. ~~Twenty-nine~~Thirty development property ~~and bridge~~ 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 ~~March 31,~~September 30, 2019. For the Company’s development property ~~and bridge~~ 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 development property investments with a profits interest and bridge investments categorized within Level 3 as of ~~March 31,~~September 30, 2019 and December 31, 2018. These tables

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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 ~~March 31,~~September 30, 2019
	Unobservable Inputs
Primary Valuation			Weighted
Techniques~~(a)~~	Input	Estimated Range	Average

Income approach analysis	Market yields/discount rate	~~4.15~~5.70 - ~~12.53%~~10.06%	~~8.93%~~8.22%
	Exit date ~~(c)~~(b)	~~2.00~~1.76 - ~~5.71~~6.95 years	~~3.34~~3.53 years

Option pricing model	Volatility	~~51.00~~62.50 - ~~92.41%~~95.38%	~~73.09%~~75.04%
	Exit date ~~(c)~~(b)	~~2.00~~1.76 - ~~5.71~~6.95 years	~~3.34~~3.53 years
	Capitalization rate ~~(b)~~(a)	4.75 - ~~6.00%~~5.75%	~~5.43%~~5.46%
	Discount rate ~~(b)~~(a)	7.75 - ~~11.74%~~8.75%	~~8.82%~~8.46%

^(a)

The significant unobservable inputs associated with the construction loan presented as a development property investment are not included as the fair value was determined based on the fair value of the underlying collateral. The fair value of the underlying collateral was determined using a market comparable approach and an income approach based on a capitalization rate within the range provided above for capitalization rates associated with development property investments with a profits interest.

^(b)

~~Thirty-six~~Thirty-seven 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.

^(c)(b)

The exit dates for the development property ~~investments and bridge~~ investments are generally the estimated date of stabilization of the underlying property.



As of December 31, 2018
		Unobservable Inputs
	Primary Valuation			Weighted
Asset Category	Techniques	Input	Estimated Range	Average

Development property investments and bridge investments (a)	Income approach analysis	Market yields/discount rate	4.72 - 13.09%	9.48%
		Exit date (d)	2.25 - 5.95 years	3.44 years

Development property investments with a profits interest and bridge investments (b)	Option pricing model	Volatility	53.25 - 94.30%	75.10%
		Exit date (d)	2.25 - 5.95 years	3.44 years
		Capitalization rate (c)	4.75 - 6.00%	5.42%
		Discount rate (c)	7.75 - 11.74%	8.83%

^(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. The significant unobservable inputs associated with the construction loan presented as a development property investment are not included as the fair value was determined based on the fair value of the underlying collateral. The fair value of the underlying collateral was determined using a market comparable approach and an income approach based on a capitalization rate within the range provided above for capitalization rates associated with development property investments 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.

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^(c)

Thirty-five 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 and bridge investments are generally the estimated date of stabilization of the underlying property.

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				Increase (decrease) in fair value of investments
Change in market yields/discount rates (in millions)	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Up 25 basis points	$	(2.0)	$	(1.9)	$	(2.1)	$	(1.9)
Down 25 basis points, subject to a minimum yield/rate of 10 basis points		2.1		2.0		2.2		2.0

Up 50 basis points		(4.1)		(3.9)		(4.2)		(3.9)
Down 50 basis points, subject to a minimum yield/rate of 10 basis points		4.3		4.1		4.5		4.1

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 the Company’s investments:



	Increase (decrease) in fair value of investments				Increase (decrease) in fair value of investments
Change in capitalization rates (in millions)	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Up 25 basis points	$	(9.4)	$	(8.9)	$	(9.0)	$	(8.9)
Down 25 basis points		10.3		9.8		9.8		9.8

Up 50 basis points		(18.0)		(17.0)		(17.1)		(17.0)
Down 50 basis points		21.8		20.5		20.7		20.5

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 significant gains or losses attributable to changes in instrument-specific credit risk in the three and nine months ended ~~March 31,~~September 30, 2019 and 2018.

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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

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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 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 tables present changes in investments that use Level 3 inputs:



Balance at December 31, 2018	$	457,947	$	457,947
Realized gains		-		-
Unrealized gains		8,830		28,847
Fundings of principal and change in unamortized origination fees		28,029		126,100
Repayments of loans		(342)		(361)
Payment-in-kind interest		6,932		22,069
Reclassification of self-storage real estate owned		(8,351)		(125,715)
Net transfers in or out of Level 3		-		-
Balance at March 31, 2019	$	493,045
Balance at September 30, 2019			$	508,887



Balance at December 31, 2017	$	234,171	$	234,171
Realized gains		-		(619)
Unrealized gains		4,320		24,622
Fundings of principal and change in unamortized origination fees		115,854		207,486
Repayments of loans		(3)		(16,911)
Payment-in-kind interest		4,013		15,939
Reclassification of self-storage real estate owned		(35,281)		(44,877)
Net transfers in or out of Level 3		-		-
Balance at March 31, 2018	$	323,074
Balance at September 30, 2018			$	419,811

As of ~~March 31,~~September 30, 2019 and December 31, 2018, the total net unrealized appreciation on the investments that use Level 3 inputs was ~~$58.2~~$69.2 million and $51.0 million, respectively.

For the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, substantially all of the net unrealized gain on 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,

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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,

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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 December 31, 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. 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 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.

On January 28, 2019, the SL1 Venture purchased 100% of the Class A membership units of the LLCs that owned the Atlanta 1, Jacksonville, Atlanta 2, and Denver development property investments with a Profits Interest. These purchases increased the SL1 Venture’s ownership interest on each development property investment from 49.9% to 100%. The SL1 Venture now wholly owns the self-storage properties through these LLCs. The acquisition date basis of these investments of $57.2 million is primarily comprised of the development property investment at fair value and the cash consideration paid.

On February 27, 2019, the SL1 Venture closed on a $36.1 million term loan secured by these four owned properties that bears interest at LIBOR plus 2.15% and matures on February 27, 2022. The SL1 Venture distributed $19.0 million and $2.1 million to HVP III and the Company, respectively, of these debt proceeds. In April 2019, the SL1 Venture entered into an interest rate swap to fix the interest rate on the variable rate term loan. The SL1 Venture interest rate swap bears a notional amount of $36.1 million, a fixed LIBOR rate of 2.29%, and matures on April 1, 2021.

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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 ~~March 31,~~September 30, 2019, the SL1 Venture had seven development property investments with a Profits Interest as described in more detail in the table below:



	Metropolitan					Remaining				Metropolitan					Remaining
	Statistical Area	Total Investment		Funded		Unfunded				Statistical Area	Total Investment		Funded		Unfunded
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value		("MSA")	Commitment		Investment (1)		Commitment		Fair Value
5/14/2015	Miami 1 (2)(3)	$	13,867	$	12,722	$	1,145	$	15,252	Miami 1 (2)(3)	$	13,867	$	12,819	$	1,048	$	15,716
5/14/2015	Miami 2 (2)(3)		14,849		14,492		357		15,301	Miami 2 (2)(3)		14,849		14,519		330		15,864
9/25/2015	Fort Lauderdale (2)(3)		13,230		12,826		404		17,292	Fort Lauderdale (2)(3)		13,230		12,899		331		16,969
4/15/2016	Washington DC (3)		17,269		17,269		-		19,864	Washington DC (3)(4)		-		-		-		3,043
7/21/2016	New Jersey (3)		7,828		6,465		1,363		7,587	New Jersey (3)		7,828		7,085		743		8,593
9/28/2016	Columbia (3)		9,199		9,020		179		9,695	Columbia (3)		9,199		9,072		127		10,348
12/22/2016	Raleigh (3)		8,877		8,576		301		9,303	Raleigh (3)		8,877		8,856		21		9,539
	Total	$	85,119	$	81,370	$	3,749	$	94,294	Total	$	67,850	$	65,250	$	2,600	$	80,072

⁽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⁾

Certificate of occupancy had been received as of ~~March 31,~~September 30, 2019. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾

The SL1 Venture’s loan was repaid in full through a refinancing initiated by the SL1 Venture’s partner. This investment represents the SL1 Venture’s 49.9% Profits Interest which was retained during the transaction.

As of December 31, 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)(3)	$	13,867	$	12,250	$	1,617	$	14,338
5/14/2015	Miami 2 (2)(3)		14,849		13,961		888		14,562
9/25/2015	Fort Lauderdale (2)(3)		13,230		12,352		878		16,409
4/15/2016	Washington DC (3)		17,269		17,005		264		19,200
4/29/2016	Atlanta 1 (3)(4)		10,223		9,915		308		11,352
7/19/2016	Jacksonville (3)(4)		8,127		7,422		705		11,406
7/21/2016	New Jersey (3)		7,828		5,749		2,079		6,717
8/15/2016	Atlanta 2 (3)(4)		8,772		8,293		479		9,004
8/25/2016	Denver (3)(4)		11,032		10,221		811		12,716
9/28/2016	Columbia (3)		9,199		8,868		331		9,972
12/22/2016	Raleigh (3)		8,877		8,432		445		9,450
	Total	$	123,273	$	114,468	$	8,805	$	135,126

⁽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⁾

Construction at the facility was substantially complete and/or certificate of occupancy had been received as of ~~March~~December 31, ~~2019.~~2018. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾

On January 28, 2019, the SL1 Venture purchased its developer partner’s 50.1% equity interest in this investment. As a result, the SL1 Venture now wholly owns the self-storage property.

As of ~~March 31,~~September 30, 2019, the SL1 Venture had total assets of ~~$154.7~~$139.3 million and total liabilities of ~~$37.3~~$37.9 million. During the three and nine months ended ~~March 31,~~September 30, 2019, the SL1 Venture had net income of ~~$1.5~~$1.6 million and $3.9 million, of which $0.2 million and $0.4 million was allocated to the Company and ~~$1.3~~$1.4 million and $3.5 million was allocated to HVP III, respectively, under the HLBV method.At ~~March 31,~~September 30, 2019, $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 ~~both March 31,~~September 30, 2019 and December 31, 2018, the Company had $0.4 million

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in advances to the SL1 Venture, and the related interest on these

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advances are classified in equity in earnings from unconsolidated self-storage real estate venture in the Consolidated Statements of Operations. The Company has committed to fund fifty percent of costs incurred above and beyond the committed amount of the SL1 Venture loan to three borrowers within the SL1 Venture. These amounts are contractual receivables and earn interest at 6.9%. As of September 30, 2019, the Company has funded $0.3 million related to this arrangement and the maximum estimated potential commitment is $1.2 million.

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, 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 ~~March 31,~~September 30, 2019 and December 31, 2018.

The Company is the managing member of the SL1 Venture and manages and administers (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.

6. VARIABLE INTEREST ENTITIES

Development Property Investments and Bridge Investments

The Company holds variable interests in its development property investments and bridge 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 ~~$493.0~~$508.9 million and $457.9 million at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively, for its variable interest in the development property and bridge investment VIEs which is included in the development property investments and bridge 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 investment VIEs is as follows:



	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Assets recorded related to VIEs	$	493,045	$	457,947	$	508,887	$	457,947
Unfunded loan commitments to VIEs		211,395		220,877		167,627		220,877
Maximum exposure to loss	$	704,440	$	678,824	$	676,514	$	678,824

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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 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 ~~March 31,~~September 30, 2019 and December 31, 2018, the Company’s remaining unfunded commitment to the SL1 Venture is ~~$0.5~~$0.3 million and $0.9 million, respectively. At ~~March 31,~~September 30, 2019 and December 31, 2018, the Company had $0.4 million in advances to the SL1 Venture. The Company has committed to fund fifty percent of costs incurred above and beyond the committed amount of the SL1 Venture loan to three borrowers within the SL1 Venture. These amounts are contractual receivables and earn interest at 6.9%. As of September 30, 2019, the Company has funded $0.3 million related to this arrangement and the maximum estimated potential commitment is $1.2 million.

7. DEBT

A summary of the Company’s debt is as follows:


		Effective	Carrying Value as of
	Maturity Date	Interest Rate	September 30, 2019		December 31, 2018
Secured revolving credit facility (1)	December 28, 2021	5.25%	$	125,000	$	-
Term Loans:
Term loan 1 (2)	August 1, 2021	4.39%		9,150		9,150
Term loan 2 (2)	August 1, 2021	4.39%		7,125		7,125
Term loan 3 (2)	August 1, 2021	4.39%		8,625		8,625
Term loan 4 (2)	August 1, 2021	4.39%		9,188		-
Term loan 5 (2)	August 1, 2021	4.39%		7,087		-
Total Term Loans				41,175		24,900
Term loan debt issuance costs				(440)		(291)
Net Term Loans				40,735		24,609
Total debt			$	165,735	$	24,609

(1) Includes amounts subject to interest rate cap. Effective interest rate represents the weighted average contractual interest rate before the interest rate cap as of September 30, 2019. See further discussion of interest rate cap in Note 8, Risk Management and Use of Financial Instruments.

(2) Balance is subject to interest rate swap. Interest rate represents the contractual interest on the loan as of September 30, 2019. See further discussion in Note 8, Risk Management and Use of Financial Instruments.

Credit Facility

On December 28, 2018, the Operating Company entered into an amended and restated senior secured revolving Credit Facility of up to $235 million with KeyBank National Association, as administrative agent, KeyBanc Capital Markets Inc., Raymond James Bank, N.A. and BMO Capital Markets Corp., as joint lead arrangers and syndication agents, 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 $400 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.

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On December 28, 2018, the Company and certain wholly-owned subsidiaries of the Operating Company (the “Subsidiaries”) 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 made through the Subsidiaries, 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 December 28, 2021, with two one-year extension options to extend the maturity of the facility to December 28, 2023. Borrowings under the Credit Facility are secured by three different pools of collateral: the first consisting of the Company’s mortgage loans extended to developers, the second consisting of certain non-stabilized self-storage properties owned by the Company and the third consisting of certain stabilized self-storage properties owned by the Company or one of its wholly-owned subsidiaries.

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 outstanding balance of the Company mortgage loans and (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. For loans secured by non-stabilized 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 the non-stabilized self-storage properties to be greater than 60% of the as-stabilized value of such non-stabilized self-storage properties, (ii) the maximum principal amount which would not cause the outstanding loans under the Credit Facility to be greater than 75% of the total development cost of the non-stabilized self-storage properties, and (iii) whichever of the following is then applicable: (a) the maximum principal amount that would not cause the ratio of (1) stabilized net operating income from the non-stabilized self-storage properties included in the borrowing base divided by (2) an implied debt service coverage amount to be less than 1.35 to 1.00, (b) for

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any underlying real estate asset securing the non-stabilized self-storage properties that has been included in the borrowing base for greater than 18 months, the maximum principal amount which would not cause the ratio of (1) actual adjusted net operating income for the underlying real estate asset securing such non-stabilized self-storage properties divided by (2) an implied debt service amount to be less than 0.50 to 1.00, and (c) for any underlying real estate asset securing the non-stabilized self-storage properties that has been included in the borrowing base for greater than 30 months, the maximum principal amount which would not cause the ratio of (1) actual adjusted net operating income for the underlying real estate asset securing such non-stabilized self-storage properties divided by (2) an implied debt service amount to be less than 1.00 to 1.00. For loans secured by stabilized 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 the underlying real estate asset securing the stabilized 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 the underlying real estate asset securing such stabilized 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, (i) a base rate plus a margin of 1.25%, 1.75% or 2.25% or (ii) LIBOR plus a margin of 2.25%, 2.75% or 3.25%, 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 either 0.25% or 0.30% per annum depending on the amount outstanding under the Credit Facility at the time, 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.

LIBOR is expected to be discontinued after 2021. None of the Company’s current debt that has an interest rate tied to LIBOR has a maturity date of later than December 31, 2021 unless the extension options under the Credit Facility are exercised. The Credit Facility provides procedures for determining an alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to what that alternative base rate will be and whether that base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. The Company intends to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with its lenders to ensure any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.

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

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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 1.20 to 1.00 during the period between December 28, 2018 and December 31, 2020, 1.30 to 1.00 during the period between January 1, 2021 and December 31, 2022 and 1.40 to 1.00 during the period between January 1, 2023 through the maturity of the Credit Facility;

a minimum consolidated tangible net worth (defined as gross asset value less total consolidated indebtedness) of $373.6 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 40% of consolidated total indebtedness;

liquidity of no less than the greater of (a) future funding commitments of us and our subsidiaries for the three months following each date of determination and (b) $50 million for the period between December 31, 2018 and December 31, 2019 or on and after January 1, 2020, liquidity of no less than the greater of (i) future funding commitments of the Company and its subsidiaries for the six months following each date of determination and (ii) $50 million; and

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 2.00 to 1.00.

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 any of certain key executives ceases to be in senior management of the Company and actively involved in the daily activities of the Company and the required lenders do not approve a replacement within 90 days of such event, then it will be considered a change in control and, as a result, an event of default under the Credit Facility. 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.

As of ~~March 31,~~September 30, 2019, the Company had ~~$27.0~~$125.0 million outstanding under the Credit Facility of ~~$118.0~~$198.5 million of total availability for borrowing under the Credit ~~Facility.~~

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Facility before considering any amounts outstanding.

As of ~~March 31,~~September 30, 2019, the Company was in compliance with all of its financial covenants of the Credit Facility.

As of ~~March 31,~~September 30, 2019 and December 31, ~~2018,~~2018, certain of the Company’s development property ~~investments and bridge~~ investments as described in Note 3, Self-Storage Investment Portfolio, were pledged as collateral against the Credit Facility. In addition, as of ~~March 31,~~September 30, 2019, the Jacksonville 1, New ~~Haven property,~~York City 1, Miami 4, Miami 5, Miami 6, Miami 7, and Miami 8 properties, which isare included in self-storage real estate owned, net, ~~was~~were pledged as collateral against the Credit Facility. As of December 31, 2018, all of the Company’s bridge investments as described in Note 3, Self-Storage Investment Portfolio, as well as the New York City 1 property, which is included in self-storage real estate owned, net, ~~was~~were also pledged as collateral against the Credit Facility.

Term Loans

On August 17, 2018, the Company entered into loan agreements with FirstBank (“FirstBank”) with respect to three term loans in the aggregate principal amount of $24.9 million. On January 18, 2019, the Company entered into a loan agreement with FirstBank with respect to a term loan in the aggregate principal amount of $9.2 million. Additionally, on August 13, 2019, the Company entered into a loan agreement with FirstBank with respect to a term loan in the aggregate principal amount of $7.1 million. These loans are collectively referred to as the “FirstBank Term Loans.” The FirstBank Term Loans are secured by first mortgages on the Company’s ~~four~~five wholly-owned self-storage facilities located in Orlando, Florida, Atlanta, Georgia, ~~and~~ Charlotte, North ~~Carolina.~~Carolina and New Haven, Connecticut. As a condition to FirstBank providing the FirstBank Term Loans, the Company has agreed to unconditionally guarantee the subsidiaries’ obligations under the FirstBank Term Loans pursuant to guaranty agreements with FirstBank (the “FirstBank Guaranties”).

The FirstBank Term Loans will mature on August 1, 2021. Borrowings under the FirstBank Term Loans bear interest at a floating variable rate of one-month LIBOR plus 2.25%, which is reset monthly. The FirstBank Term Loans are each subject to an interest rate swap to fix the 30-day LIBOR rate. Term Loans 1 to 4 swaps fix 30-day LIBOR at 2.2925% and Term Loan 5 fixes 30-day LIBOR at 1.6025%. See further discussion of the utilization of interest rate swaps in Note 8, Risk Management and Use of Financial Instruments.

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The FirstBank Term Loans contain customary representations and warranties and affirmative and negative covenants. The FirstBank Term Loans contain a financial covenant that requires the Operating Company to maintain a debt service coverage ratio of 1.35 to 1. The debt service coverage ratio will be calculated pursuant to the terms of the Credit Facility. FirstBank is a lender under the Credit Facility. The FirstBank Term Loans also contain a covenant that requires the Operating Company to maintain a loan to value ratio on the outstanding balance of the loan that does not exceed the loan to value ratio at closing.

The FirstBank Term Loans provide for standard events of default, including nonpayment of principal and other amounts when due, non-performance of covenants, breach of representations and warranties and certain bankruptcy or insolvency events. If an event of default occurs and is continuing under the FirstBank Term Loans, FirstBank may, among other things, terminate its commitments under the FirstBank Term Loans and require the immediate payment of all amounts owed thereunder. The FirstBank Term Loans each contain cross-default provisions with the Credit Facility, pursuant to which an event of default under the FirstBank Term Loans is triggered by the occurrence of an event of default under the Credit Facility that results in acceleration of the outstanding obligations of the Operating Company under the Credit Facility.

As of ~~March 31,~~September 30, 2019, the Company was in compliance with all of its financial covenants of the FirstBank Term ~~Loans.~~Loans.

~~Senior Participation~~

~~On May 27, 2016,~~8. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS

The Company’s use of derivative instruments is limited to the utilization of interest rate swap and cap agreements to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure, as well as to hedge specific liabilities. The counterparties to these arrangements are major financial institutions with which the Company ~~sold a senior participation in a construction loan on a facility~~and its subsidiaries may also have other financial relationships. The Company is potentially exposed to credit loss in the ~~Miami, Florida MSA (“~~event of non-performance by these counterparties. However, because of the ~~Miami A Note”), having~~high credit ratings of the counterparties, the Company does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Company does not hedge credit or property value market risks.

The Company enters into interest rate swap agreements that qualify and are designated as cash flow hedges designed to reduce the impact of interest rate changes on its variable rate debt. Therefore, the interest rate swaps are recorded in the Consolidated Balance Sheets at fair value and the related gains or losses are deferred in stockholders’ equity as accumulated other comprehensive income (loss). These deferred gains and losses are amortized into interest expense during the period or periods in which the related interest payments affect earnings.During the three months ended September 30, 2019, the Company entered into an interest rate swap related to its Term Loan entered into during the quarter. The Company entered into interest rate swaps for all five of its First Bank Term Loans during the nine months ended September 30, 2019.

The Company formally assesses, both at inception of a ~~commitment~~hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in cash flows of the hedged item. If management determines that a derivative was highly-effective as a hedge, then the Company accounts for the derivative using hedge accounting, pursuant to which gains or losses inherent in the derivative did not impact the Company’s results of operations. If management determines that a derivative was not highly-effective as a hedge or if a derivative ceased to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively and reflect in its statement of operations realized and unrealized gains and losses in respect of the derivative.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. In addition, the Company has agreements with each of its derivative counterparties that contain a provision where the Operating Partnership could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. As of September 30, 2019, the Company had not breached the provisions of these agreements. Although the Company's derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both the Company and its counterparties under certain situations, the Company does not net its derivative fair values or any existing rights or obligations to cash collateral in the Consolidated Balance Sheets.

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The following table summarizes the terms and fair values of the Company’s derivative financial instruments designated as hedges as of September 30, 2019 and December 31, 2018, respectively (dollars in thousands):


		Notional Amount								Fair Value
Hedge Product	Hedge Type (1)	September 30, 2019		December 31, 2018		Strike		Effective Date	Maturity	September 30, 2019		December 31, 2018
Swap	Cash flow	$	9,150	$	-	2.2925	%	6/3/2019	8/1/2021	$	(131)	$	-
Swap	Cash flow		7,125		-	2.2925	%	6/3/2019	8/1/2021		(102)		-
Swap	Cash flow		8,625		-	2.2925	%	6/3/2019	8/1/2021		(123)		-
Swap	Cash flow		9,188		-	2.2925	%	6/3/2019	8/1/2021		(131)		-
Swap	Cash flow		7,087		-	1.6025	%	8/13/2019	8/1/2021		(13)		-
		$	41,175	$	-					$	(500)	$	-

(1) Hedging variable rate Term Loans by fixing 30-day LIBOR.

The Company measures its derivative instruments designated as cash flow hedges at fair value and records them in the balance sheet as either an asset or liability. As of September 30, 2019, all derivative instruments designated as cash flow hedges are included in accounts payable, accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets. As of December 31, 2018, there were no derivative instruments outstanding. The changes in the fair value of the derivatives are reported in accumulated other comprehensive income (loss). Amounts reported in accumulated other comprehensive income (loss) related to derivatives are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

The following table presents the effect of derivatives designated as hedging instruments on the Consolidated Statements of Comprehensive Income:


Derivatives in Cash Flow Hedging Relationships	Amount of Loss Recognized in Accumulated OCL on Derivative				Gain Reclassified from Accumulated OCL into Interest Income				Location of Gain Reclassified from Accumulated OCL into Income
Three months ended September 30,	2019		2018		2019		2018
Term loan interest rate contracts	$	(58)	$	-	$	(1)	$	-	Interest Expense

Nine months ended September 30,
Term loan interest rate contracts	$	(495)	$	-	$	(5)	$	-	Interest Expense

The changes in accumulated other comprehensive income (loss) for the three months and nine months ended September 30, 2019 and 2018, are summarized as follows (dollars in thousands):


	Three months ended				Nine months ended
	September 30,				September 30,
		2019		2018		2019		2018
Accumulated other comprehensive income beginning of period	$	(441)	$	-	$	-	$	-
Other comprehensive income (loss):
Unrealized losses on interest rate swaps		(58)		-		(495)		-
Reclassification of realized gains on interest rate swaps		(1)		-		(5)		-
Amount included in other comprehensive income (loss)		(59)		-		(500)		-
Accumulated other comprehensive income (loss) end of period	$	(500)	$	-	$	(500)	$	-

During the next twelve months, the Company estimates that an additional $0.2 millionwill be reclassified to earnings as an increase to interest expense, which primarily represents the difference between the fixed interest rate swap payments and the projected variable interest rate swap receipts.

The Company also entered into an interest rate cap agreement in June 2019 with a notional amount of ~~$17.7~~$100 million ~~in exchange~~and a one-month LIBOR interest rate cap of 2.50% that expires on December 28, 2021 (the “Interest Rate Cap Agreement”). The Interest Rate Cap Agreement is for a ~~commitment by~~period equal to the ~~bank~~existing term of the Credit Facility (as defined in Note 7, Debt) and has a notional amount equal to ~~provide net proceeds of $10.0 million to fund construction draws under~~or greater than the ~~construction loan (the “Miami A Note Sale”) once the total~~then 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~~Credit Facility. 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~~did not ~~maintained,~~designate the interest rate ~~would have increased. The Company paid to~~cap as a hedge. As of September 30, 2019, the ~~bank interest on the outstanding balance~~net carrying amount of the ~~Miami A Note~~interest rate cap was $0.03 million and is included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets. There were no interest rate caps outstanding 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 MarchDecember 31, ~~2018, the maturity date was extended to June 30,~~ 2018. ~~The Company repurchased the Miami A Note on June 19, 2018~~.

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8.The following table presents the effect of derivatives not designated as hedging instruments on the Consolidated Statements of Operations:


Derivatives Not Designated as Hedging Instruments	Amount of Gain (Loss) Recognized in Earnings on Derivative				Location of Gain (Loss) Recognized in Income on Derivative
Three months ended September 30,	2019		2018
Credit Facility interest rate cap	$	(61)	$	-	Interest Expense

Nine months ended September 30,
Credit Facility interest rate cap	$	(89)	$	-	Interest Expense

9. STOCKHOLDERS’ EQUITY

The Company had ~~20,567,694~~22,236,871 and 20,430,218 shares of common stock issued and outstanding, which included ~~153,165~~216,165 and 159,165 shares of non-vested restricted stock, as of ~~March 31,~~September 30, 2019 and December 31, 2018, respectively. The Company had ~~127,125~~131,375 and 125,000 shares of Series A Preferred Stock issued and outstanding as of ~~March 31,~~September 30, 2019 and December 31, 2018, respectively. The Company also had 1,571,734 shares of Series B Preferred Stock issued and outstanding as of ~~March 31,~~September 30, 2019 and December 31, 2018.

~~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.~~ Program

On December 7, 2018, the Company entered into a new Equity Distribution Agreement with an aggregate offering price under an at the ~~ATM Program~~market equity offering program (the “ATM Program”) of up to $75.0 million. As of ~~March 31,~~September 30, 2019, the Company has issued and sold an aggregate of ~~2,417,966~~3,966,123 shares of common stock at a weighted average price of ~~$21.77~~$21.48 per share under the ATM ~~Programs,~~Program and the Company’s previous ATM Program, receiving net proceeds after commissions and other offering costs of ~~$51.1~~$83.0 million. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company issued and sold an aggregate of ~~136,192~~1,684,349 shares of common stock at a weighted average price per share of ~~$21.43~~$21.05 under the ATM ~~Programs,~~Program, receiving net proceeds after commissions and other offering costs of ~~$2.8~~$34.6 million.

~~On June 14, 2018, the~~ 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.~~does not currently have an active ATM Program.

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 ~~March 31,~~September 30, 2019, 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 ~~March 31,~~September 30, 2019, 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 Company maintains the ~~IPO, the Company established the~~Second Amended and Restated 2015 Equity Incentive Plan (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 Equity 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. On May 1, 2019, the Company’s stockholders approved, and the Company adopted, the Second Amended and Restated 2015 Equity Incentive Plan increasing the number of shares reserved for issuance under the Plan by 380,000 to an aggregate of 750,000 shares and extending the term of the Plan until May 1, 2029.

Restricted Stock Awards

The Second 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 ~~March 31,~~September 30, 2019 and December 31, 2018, ~~368,279~~509,509 and 363,587 shares of restricted stock, respectively, had been granted, of which 55,172 vested in 2016, 46,413 vested in 2017, 99,503 vested in 2018, ~~10,692~~87,256 vested during the ~~three~~nine months ended ~~March 31,~~September 30, 2019, ~~64,834 is expected to vest during the remainder~~

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107,372 is expected to vest in 2020, ~~and 17,502~~55,711 is expected to vest in ~~2021.~~2021 and 53,082 is expected to vest in 2022. Additionally, 1,666 were forfeited during the nine months ended September 30, 2019 and 1,667 were forfeited during each of the years ended December 31, 2018 and 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

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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 $0.6 and $0.4 million of stock-based compensation expense for the three months ended ~~March 31,~~September 30, 2019 and ~~2018.~~2018, respectively, and $1.7 million and $1.6 million of stock-based compensation expense for the nine months ended September 30, 2019 and 2018, respectively. As of ~~March 31,~~September 30, 2019 and December 31, 2018, the total unrecognized compensation cost related to the Company’s restricted shares was approximately ~~$1.8~~$3.6 million and $2.1 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 ~~1.6~~2.2 years. The Company presents stock-based compensation expense in general and administrative expenses in the Consolidated Statements of Operations.

A summary of changes in the Company’s restricted shares of common stock for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018 is as follows:

Three months ended

Three months ended

March 31, 2019

March 31, 2018

Weighted

Weighted

average grant

average grant

Shares

date fair value

Shares

date fair value

Nonvested at December 31,

159,165

$
18.39

185,002

$
21.58
Granted

4,692

21.46

18,000

17.78
Vested

(10,692)

19.57

(7,500)

19.25
Forfeited

-

-

-

-
Nonvested at March 31,

153,165

$
18.40

195,502

$
21.32



	Three months ended				Three months ended
	September 30, 2019				September 30, 2018
			Weighted				Weighted
			average grant				average grant
	Shares		date fair value		Shares		date fair value

Nonvested at June 30,		208,665	$	20.35		172,499	$	18.37
Granted		7,500		19.84		-		-
Vested		-		-		(11,667)		18.10
Nonvested at September 30,		216,165	$	20.34		160,832	$	18.39



	Nine months ended				Nine months ended
	September 30, 2019				September 30, 2018
			Weighted				Weighted
			average grant				average grant
	Shares		date fair value		Shares		date fair value

Nonvested at December 31,		159,165	$	18.39		185,002	$	21.58
Granted		145,922		21.60		75,333		19.18
Vested		(87,256)		18.95		(99,503)		18.48
Forfeited		(1,666)		18.10		-		-
Nonvested at September 30,		216,165	$	20.34		160,832	$	18.39

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 Company has issued all shares of Series A Preferred Stock available for

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issuance under the Purchase Agreement and the Articles Supplementary except for shares of Series A Preferred Stock issuable as in-kind dividends.

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,

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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~~“Series A 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 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, (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 ~~March 31,~~September 30, 2019.

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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

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(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.

Pursuant to the Series A 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 Company’s 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 Executive Chairman of the Board, voluntarily leaves the position (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 (“CEO”) (or such person serving as the principal executive officer) of the Company.

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.

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 September 28, 2018, the Company issued the final $15.0 million of Series A Preferred Stock that remained available for issuance under the Purchase Agreement.~~

~~On October~~ 31, 2018, the Company declared cash and stock dividends on its Series A Preferred Stock. The cash dividend of $2.2 million was paid on January 15, 2019 to holders of record on January 1, 2019. A stock dividend of 2,125 shares of additional Series A

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~~Preferred Stock was issued on January 15, 2019 to holders of record on January 1, 2019 for an aggregate value of $2.1 million pursuant to the terms of the Stock Purchase Agreement.~~

~~On February 22,~~ 2019, the Company declared a (i) cash distribution of ~~$17.45~~$17.84 per share of Series A Preferred Stock, payable on ~~April~~October 15, 2019, to holders of Series A Preferred Stock of record on the close of business on ~~April~~October 1, 2019, and (ii) distributions payable in kind in a number of shares of Series A Preferred Stock as determined in accordance with the terms of the designation of the Series A Preferred Stock, payable on ~~April~~October 15, 2019, to holders of Series A Preferred Stock of record on the close of business on ~~April~~October 1, 2019.

~~Public Offerings of~~ Series B Preferred Stock

~~On January 25, 2018,~~As of September 30, 2019, the Company ~~filed Articles Supplementary (the “Series B Articles Supplementary”) with MSDAT designating 1,725,000~~had 3,750,000 shares of its ~~authorized preferred stock as~~ 7.00% Series B cumulative redeemable perpetual preferred stock (the “Series B Preferred Stock”).

~~The~~ authorized and 1,571,734 shares of Series B Preferred Stock outstanding. 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 the Series B Preferred Stock generally do not have voting rights.

Dividends on the 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 datepayable 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~~ at a rate equal to 7.00% of 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~~liquidation preference (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 articles supplementary designating the terms of the Series B Preferred Stock (the “Series B Articles ~~Supplementary)~~Supplementary”)), wethe Company 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.

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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.~~

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~~

Table 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.Contents

As of ~~March 31,~~September 30, 2019, 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 $1.3 million under the Preferred ATM Program. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company made no sales under the Preferred ATM Program.

The ~~Company or~~Preferred ATM Program was terminated upon the ~~Agent may at any time suspend the offering or terminate the Distribution Agreement pursuant to the terms~~effectiveness of the ~~Distribution Agreement. The actual sale of Preferred ATM Shares under the Program will depend~~Company’s registration statement 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.

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Form S-3 (File No. 333-231374) on July 12, 2019.

9.10. 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 the Company’s diluted earnings per share being the more dilutive of the treasury stock or two-class methods. For the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, the Company’s basic earnings per share is computed using the two-class method, and the Company’s diluted earnings per share is computed using the more dilutive of the treasury stock method or two-class method:



	Three months ended March 31,				Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018		2019		2018
Shares outstanding
Weighted average common shares - basic		20,297,551		14,247,174		22,019,875		19,184,172		21,173,946		16,253,410
Effect of dilutive securities		157,565		308,163		213,719		275,579		191,293		286,957
Weighted average common shares, all classes		20,455,116		14,555,337		22,233,594		19,459,751		21,365,239		16,540,367

Calculation of Earnings per Share - basic
Net income	$	12,114	$	5,354	$	10,954	$	15,964	$	37,941	$	32,115
Less:
Net income allocated to preferred stockholders		5,032		3,595		5,157		4,790		15,283		12,965
Net income allocated to unvested restricted shares (1)		55		23		56		96		203		207
Net income attributable to common shareholders - two-class method	$	7,027	$	1,736	$	5,741	$	11,078	$	22,455	$	18,943

Weighted average common shares - basic		20,297,551		14,247,174		22,019,875		19,184,172		21,173,946		16,253,410
Earnings per share - basic	$	0.35	$	0.12	$	0.26	$	0.58	$	1.06	$	1.17

Calculation of Earnings per Share - diluted
Net income	$	12,114	$	5,354	$	10,954	$	15,964	$	37,941	$	32,115
Less:
Net income allocated to preferred stockholders		5,032		3,595		5,157		4,790		15,283		12,965
Net income attributable to common shareholders - two-class method	$	7,082	$	1,759	$	5,797	$	11,174	$	22,658	$	19,150

Weighted average common shares - diluted		20,455,116		14,555,337		22,233,594		19,459,751		21,365,239		16,540,367
Earnings per share - diluted	$	0.35	$	0.12	$	0.26	$	0.57	$	1.06	$	1.16

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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 nine months ended ~~March 31,~~September 30, 2019 and 2018.

~~10.~~

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11. RELATED PARTY TRANSACTIONS

Equity Method Investments

Certain of the Company’s development property investments and bridge 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 ~~March 31,~~September 30, 2019 and December 31, 2018 was ~~$475.3~~$508.9 million and $440.2 million, respectively. The interest income realized and the net unrealized gain from these equity method investments was ~~$12.0~~ $16.5million and ~~$8.4~~$18.4 million for the three months ended ~~March 31,~~September 30, 2019 and 2018, respectively and $47.2 million and $42.1 million for the nine months ended September 30, 2019 and 2018, respectively.

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The Company’s investment in the real estate venture, the SL1 Venture, has a carrying amount of ~~$12.4~~$11.0 million and $14.2 million at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively, and the earnings from this venture were $0.2 million and ~~$0.6~~$0.4 million for the three and nine months ended ~~March 31,~~September 30, 2019, respectively. The earnings from this venture were $0.4 million and $1.4 million for the three and nine months ended September 30, 2018, respectively.

Management Agreement

As of ~~March 31,~~September 30, 2019, the Company did not have any employees. The Company relies on the personnel, properties and resources of the Manager to conduct its operations. The Company and the Manager are parties to a management agreement (as amended and restated, the “Management Agreement”), which was originally entered into on April 1, 2015 and was amended and restated on May 23, 2016, April 1, 2017 and November 1, 2017. Pursuant to the Management Agreement, the Manager is responsible for (a) the Company’s day-to-day operations (including finance, accounting and investor relations), (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, (d) sourcing, analyzing, procuring and managing the Company’s capital and (e) 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.

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 will review the Manager’s performance annually. At the end of the initial term and any extension term, the Management Agreement may be terminated upon the affirmative vote of at least two-thirds of the Company’s independent directors if such independent directors determine: (a) the Manager has performed its duties in an unsatisfactory manner that is materially detrimental to the Company; or (b) the compensation payable to the Manager is not fair, subject to the Manager’s right to prevent termination based on unfair compensation by accepting a reduction of compensation agreed to by at least two-thirds of the independent directors. ~~The~~Under the terms of the Management Agreement, the Company is required to provide the Manager with a minimum 180 days’ prior notice of such a termination. In connection with ongoing discussions regarding internalizing the Manager, the Manager and a special committee comprised solely of independent members of the Company’s Board of Directors have agreed to extend the date of notice of termination to November 30, 2019. Upon such a termination, the Company will pay the Manager a Termination Fee except as provided below in the subsection entitled “Termination of Management ~~Agreement”.~~Agreement.”

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.

Management Fees

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 its IPO (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 its common stock since its IPO. 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. Retained earnings 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~~one-

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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 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 its 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 base management fee was ~~$2.0~~$2.1 million and ~~$1.3~~$1.9 million for the three months ended ~~March 31,~~September 30, 2019 and 2018, respectively, and $6.2 million and $4.8 million for the nine months ended September 30, 2019 and 2018, respectively.

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Incentive Fee

The Manager may also earn an incentive fee each fiscal quarter (or part thereof that the Management Agreement is in effect) payable in arrears in cash. The incentive fee will be 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, any incentive fee earned shall not 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 (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 the Company has not yet acquired). 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. In addition, with respect to any self-storage facility acquired by the Company with respect to which it 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 one of the Company’s loans 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 its acquisition of a self-storage facility without such facility being sold to a third party buyer in the open market.

The Manager computes the incentive fee each quarter within 45 days after the end of the fiscal quarter that is currently payable and if an incentive fee results, promptly delivers such calculation to the Company’s Board of Directors. The amount of any incentive fee

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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 Manager did not earn an incentive fee for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018.

At ~~March 31,~~September 30, 2019 and December 31, 2018, the Company had outstanding fees due to Manager of ~~$2.3~~$2.7 million and $3.3 million, respectively, consisting of the management fees payable, incentive fees payable, and certain reimbursable expenses.

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Expense Reimbursement

In addition to Management Fees and Incentive Fees as described above, the Management Agreement provides that the Company will reimburse payroll, occupancy, business development, marketing and other expenses of the Manager for conducting the business of the Company, excluding the salaries and cash bonuses of the Manager’s CEO and Chief Financial Officer (“CFO”), 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. Under the 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; however, 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 are reduced dollar-for-dollar by the amount of any such payment or reimbursement. Amounts reimbursable to the Manager for expenses are included in general and administrative expenses in the Consolidated Statements of Operations and totaled ~~$0.9~~$1.1 million and $1.0 million for the three months ended ~~March 31,~~September 30, 2019 and ~~2018.~~2018, respectively, and $3.1 million and $2.8 million for the nine months ended September 30, 2019 and 2018, respectively.

Termination of Management Agreement

In the event that the Company terminates the Management Agreement per the terms of the agreement, other than for cause or the Company being required to register as an investment company, there will be a Termination Fee due to the Manager. If the Management Agreement terminates other than for Cause, 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) a price, 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 our achieved total annual return, and (b) the Company’s equity market capitalization multiplied by a specific percentage, or Capitalization Percentage, depending on our achieved total return (the “Internalization Price”).

The EBITDA and Capitalization Percentage are as follows based on our total annual return:


Total Annual Return	EBITDA Multiple	Capitalization %
<8%	5x	5%
8% to 12%	5.5x	5.5%
>12%	6x	6%

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 our 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 Executive Chairman and the current CEO 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.

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Internalization of Manager

No later than 180 days prior to the end of the initial term of the Management Agreement, the Manager ~~will~~must offer to contribute to the Operating Company at the end of the initial term all of the assets or equity interests in the Manager (an “Internalization Transaction”). Such offer shall specify an internalization price and such terms and conditions as the Manager shall determine.

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. Discussions related to a potential internalization of the Manager began in the third quarter of 2019 and are ongoing. 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. The Company can provide no assurances that an internalization of the Manager will be agreed upon prior to March 2023 on favorable terms or at all, or the effects of the failure to complete such internalization, including the effects of an amendment or termination of the Management Agreement.

Under the 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 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 Company’s Board of Directors 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 Company’s closing market price of the common stock for the ten consecutive trading days immediately preceding the date with respect to which value must be determined. However, if the Company’s common stock 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 Company’s Board of Directors and the Manager or, in the absence of such agreement, the Internalization Price shall be paid in cash.

~~11.~~12. CONTINGENCIES

~~As described in Note 3,~~ ~~Self-Storage Investment Portfolio~~,On January 8, 2019, the ~~Company’s $17.7 million Miami construction loan has been placed on non-accrual status and the~~ Company ~~has~~ commenced proceedings to foreclose on the underlying ~~collateral.~~collateral of the Company’s $17.7 million Miami construction loan. The foreclosure proceedings were commenced by the Company ~~on January 8, 2019~~ in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida in an action entitled Jernigan Capital Operating Company v. Storage Partners of Miami I, LLC et. al. On May 1, 2019, the defendant borrower filed an answer to the Company’s complaint and a counter-claim against the Company. ~~The counter-claim alleges, among other things, that, in its dealings with~~An agreement between the Company and the borrower was executed on July 2, 2019, which resulted in the Company ~~breached certain agreements with~~acquiring all of the ~~borrower, breached an alleged implied covenant of good faith~~ interests in the entity that owns the property that secured the loan and ~~fair dealing, made false statements~~both parties dismissing all state court litigation related to that induced certain actions by the borrower, violated Florida’s Deceptive and Unfair Trade Practices Act and breached fiduciary duties allegedly owed to the borrower. The Company believes that the counter-claims brought by the borrower are without merit and intends to vigorously pursue the foreclosure action and other claims for damages against the borrower and its principals and to vigorously defend against the related counter-claims by the borrower. The Company can provide no assurances as to the outcome of this litigation or provide an estimate of any potential liability or related litigation expenses at this time.loan.

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~~12.~~13. 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.

Dividend Declarations

On October 29, 2019, 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 December 31, 2019. The dividends are payable on January 15, 2020 to holders of Series A Preferred Stock of record on January 2, 2020.

On October 29, 2019, 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 December 31, 2019. The dividends are payable on January 15, 2020 to holders of Series B Preferred Stock of record on January 2, 2020.

On October 29, 2019, the Company’s Board of Directors declared a cash dividend of $0.35 per share of common stock for the quarter ending December 31, 2019. The dividend is payable on January 15, 2020 to stockholders of record on January 2, 2020.

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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 our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”), which was filed with the Securities and Exchange Commission (“SEC”) on March 1, 2019, 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 and acquisitions of 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 for self-storage development projects in which we invest;

the future availability for borrowings under our credit facility (including borrowing base capacity, compliance with covenants 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;

the internalization of our Manager, which may or may not occur on the timeline anticipated or at all, and the resulting outcome if no internalization transaction occurs, including any amendment to or termination of the Management Agreement;

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 or other changes to our historical dividend rate;

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 2018 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 top-50 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. These facilities are located in submarkets with demographic profiles and competitive positions that management believes will support successful lease-up of such facilities and value creation for our stockholders. Our investments include mortgage loans typically coupled with equity interests as well as outright ownership of self-storage facilities.

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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 facility costs (including land, pre-development and other “soft” costs, hard construction costs, fees and interest and operating reserves). 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 also typically receive a ROFR to acquire the self-storage facility upon sale.

Additionally, in March 2018 we closed a bridge financing investment consisting of five separate loans with an aggregate commitment amount of $83.3 million secured by first mortgages with equity participations and ROFRs on five self-storage properties in the Miami, Florida MSA that are in lease-up. We refer to this investment herein as a “Bridge Investment.” On September 17, 2019, we acquired 100% of the limited liability companies that own the underlying self-storage facilities of these Bridge Investments, and we now wholly own and consolidate these properties in the accompanying consolidated financial statements and no longer have any bridge investments outstanding. We have also selectively made construction loans and mortgage loans secured by mature operating self-storage facilities.

In addition to the foregoing, we intend to acquire self-storage facilities that we have financed either through the exercise of ROFRs or through privately negotiated transactions with our investment counterparties, subject to acquisition prices being consistent with our investment objective to create long-term value for our stockholders. In March 2019, we acquired the 50.1% equity interest of our developer partner in the LLC that owned the New Haven development property. In July 2019, we acquired all of the interests in the entity that owned the property securing the Miami construction loan. In August 2019, we purchased 100% of the Class A membership units of the limited liability company that owned the Jacksonville 2 development property investment with a Profits Interest. During the year ended December 31, 2018, we acquired the 50.1% equity interests of our developer partners in the LLCs that own the Jacksonville 1, Atlanta 1, Atlanta 2, Pittsburgh, Charlotte 1, and New York City 1 development properties. During the year ended December 31, 2017, we acquired the 50.1% equity interests of our developer partner in the LLCs that own the Orlando 1 and Orlando 2 development property investments, which are two self-storage facilities adjacent to each other. We now own 100% of the membership interests in the LLCs that own fifteen facilities and fully consolidate these facilities in the accompanying consolidated financial statements.

We account for our development property investments and bridge investments (prior to the acquisition discussed above) 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 and bridge investment each quarter, which re-valuation 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 revenues and the creation of value through our Profits Interests as self-storage facilities we finance are constructed, leased-up and become stabilized.

We have historically funded our on-balance sheet investments with (i) proceeds from sales of our securities, including sales of our common stock in follow-on offerings and pursuant to our common stock at-the-market equity offering program (the “ATM Program”), (ii) funds from secured indebtedness, including borrowings under our $235 million Credit Facility and term loans on individual properties, and (iii) net proceeds from the monetization of existing development property investments. In the past we also have used proceeds from the sale of senior participations, the sale of our Series A Preferred Stock pursuant to the Purchase Agreement, pursuant to which we issued $125 million of Series A Preferred Stock, and the sale of our Series B Preferred Stock. We also have an effective shelf registration statement on Form S-3 on file with the SEC registering the future sale from time to time of up to $500.0 million of our securities. We currently do not have an active ATM Program, and, as a result, are not currently able to fund investments with proceeds from our ATM Program. Until we have an active ATM Program, we expect to fund investments primarily with borrowings under our Credit Facility. As of September 30 2019, we have remaining unfunded commitments under our development investments of approximately $167.6 million, including non-cash interest reserves of approximately $39.8 million. As of September 30 2019, we have $7.0 million of cash on hand and $110.0 million of remaining capacity under our Credit Facility, assuming we are able to access the full borrowing base availability. In addition, we have a $165.0 million accordion feature under our Credit Facility, which is subject to various conditions, including obtaining commitments from lenders for the additional amounts. We may also use any combination of the following additional capital sources to fund capital needs.

Refinancing of JCAP mortgage indebtedness (49.9% profits interest and ROFR retained),

Potential sales of facilities underlying current development investments to a third party, and

Additional common stock issuances.

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However, we can provide no assurances that we will have access to all of the sources noted above. Additionally, until we negotiate an internalization transaction or other agreement with the Manager, and such transaction or other agreement is announced, we will not have access to the public equity capital markets. We can provide no assurance that internalization will occur at this time.

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 December 31, 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. In January 2019, the SL1 Venture acquired the 50.1% equity interests of its developer partners in the LLCs that own the Jacksonville, Atlanta 1, Atlanta 2, and Denver development properties. The SLI Venture now owns 100% of the membership interests in the LLCs that own these four facilities.

We are externally managed and advised by JCAP Advisors, LLC (the “Manager”). The Manager is led by our founder and Executive Chairman, Dean Jernigan, our Chief Executive Officer (“CEO”), John A. Good, and our President and Chief Investment Officer (“CIO”), Jonathan Perry. Mr. Jernigan is a 30-year veteran of the self-storage industry, including a combined 16 years as the CEO of Storage USA and CubeSmart, both New York Stock Exchange (“NYSE”) listed self-storage REITs. During his time at these two companies, Mr. Jernigan oversaw the investment of several billion dollars of capital in the self-storage industry. Mr. Good has over 30 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. Mr. Perry has over 20 years of experience in the self-storage sector having joined the Company in June 2018 from CubeSmart, where he most recently served as Senior Vice President and CIO. Mr. Perry has led several billion dollars of self-storage investments and transactions over his career and has established extensive relationships across the 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.

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 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 the completion of facilities we finance, which can be dependent on the inspection process of municipal building departments that are from time to time understaffed;

the pace and strength of the lease-up of the facilities we finance;

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;

our ability to acquire self-storage facilities at attractive prices; and

the performance of self-storage facilities in which we have invested, either directly or through the SL1 Venture.

As the current development cycle nears its end, we believe that developers who constructed new self-storage facilities earlier in the cycle will seek to sell their ownership positions or seek to recapitalize existing financing. 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

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projects, providing opportunities for us to acquire new Generation V self-storage facilities in the lease-up phase. We intend to pursue bridge investments of recently built self-storage facilities in the lease-up phase, selectively evaluate acquisitions of our current developer partners’ membership interests in projects that we have financed and selectively evaluate acquisitions of self-storage projects that we have not financed. In addition, we may modify or recapitalize existing financing on current investments for our developers in exchange for loan-related fees to compensate us for these modifications. On occasion, we expect certain of our developer partners to refinance our development investments. In these cases, refinancing proceeds would be used to return our capital associated with the first mortgage, but we would retain our Profits Interest and ROFR in the investment.

As our focus shifts to acquiring the newly-developed facilities that we have financed since our IPO and acquiring properties that we have not financed, our results of operations will also be impacted by the following additional factors, in addition to the factors described above:

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 generate additional fee income from modifications and/or recapitalizations of existing investments;

our ability to redeploy the net proceeds from any potential refinancing of our development property investments;

our additional emphasis on net rental income and/or net operating income and less emphasis on fair value accretion and current interest income; and

our ability to access debt and equity capital at a cost commensurate with the returns from outright ownership of self-storage facilities.

Our total investment income includes interest income from loan investments, which also reflects the accretion of origination fees and recognition of modification 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 and bridge investments. 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 nine months ended September 30, 2019 and 2018 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 development property investments and bridge investments (prior to the bridge investment acquisition described in Overview). 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 creation of value through our Profits Interests as self-storage facilities we finance are constructed, leased-up and become stabilized. Under the fair value option, we mark our development property investments, bridge 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 and bridge investments 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 and bridge investments may fluctuate from period to period. Additionally, the fair value of our development property investments and bridge 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 we may ultimately realize. Our development property investments and bridge investments 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

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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.

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 mortgage loans in our investment 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 mortgage loans in our investment 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. 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 substantially higher new self-storage construction starts and deliveries in 2016 through 2019. In the top 50 MSAs in the United States, 2020 is expected to experience new deliveries at lower levels than 2018 and 2019, which were the highest years for new deliveries in this development cycle. The key demand drivers of the self-storage sector include population mobility and new job creation, both of which are experiencing increases since the 2009/2010 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 at this point in the cycle are government regulations (primarily zoning restrictions), lack of available land sites on which to develop, compressing development yields as compared to prevailing market cap rates and an increasing inability to source attractive financing in the sector. Typically, lenders are only willing to lend up to 65% loan-to-cost (“LTC”), whereas our substantial industry knowledge enables us to make loans at ratios of approximately 90% LTC. In certain situations, we will advance more than 90% of cost and receive a higher rate of interest. In these situations, we expect to receive overall economics that are more attractive than our 90% of cost deals, but some of the interest income in these deals will be received as payment-in-kind (“PIK”) interest rather than cash interest. In certain investments, we expect a combination of factors including longer than expected construction times and slower than expected lease up times, to result in potential shortages in interest reserves and/ or operating reserves. In these situations, we may modify the investments in exchange for additional loan-related fees. In certain circumstances, these reserve shortages and/or other factors could result in foreclosure of the underlying facility.

Recent Developments

Dividend Declarations

On October 29, 2019, 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 December 31, 2019. The dividends are payable on January 15, 2020 to holders of Series A Preferred Stock of record on January 2, 2020.

On October 29, 2019, our 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 December 31, 2019. The dividends are payable on January 15, 2020 to holders of Series B Preferred Stock of record on January 2, 2020.

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On October 29, 2019, our Board of Directors declared a cash dividend of $0.35 per share of common stock for the quarter ending December 31, 2019. The dividend is payable on January 15, 2020 to stockholders of record on January 2, 2020.

~~Investment Activity~~Factors Impacting Our Operating Results

~~Subsequent~~

The results of our operations have historically been affected, and will continue to ~~March 31, 2019,~~be affected, by a number of factors including, among other things:

the timing of the completion of facilities we finance, which can be dependent on the inspection process of municipal building departments that are from time to time understaffed;

the pace and strength of the lease-up of the facilities we finance;

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;

our ability to acquire self-storage facilities at attractive prices; and

the performance of self-storage facilities in which we have invested, either directly or through the SL1 Venture.

As the ~~Company closed~~current development cycle nears its end, we believe that developers who constructed new self-storage facilities earlier in the cycle will seek to sell their ownership positions or seek to recapitalize existing financing. 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

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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 generate additional fee income from modifications and/or recapitalizations of existing investments;

our ability to redeploy the net proceeds from any potential refinancing of our development property investments;

our additional emphasis on net rental income and/or net operating income and less emphasis on fair value accretion and current interest income; and

our ability to access debt and equity capital at a cost commensurate with the returns from outright ownership of self-storage facilities.

Our total investment income includes interest income from loan investments, which also reflects the accretion of origination fees and recognition of modification fees, and is recognized utilizing the effective interest method based on the ~~following~~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 and bridge investments. 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 nine months ended September 30, 2019 and 2018 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 development property investments and bridge investments (prior to the bridge investment acquisition described in Overview). 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 creation of value through our Profits ~~Interest:~~Interests as self-storage facilities we finance are constructed, leased-up and become stabilized. Under the fair value option, we mark our development property investments, bridge 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 and bridge investments 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 and bridge investments may fluctuate from period to period. Additionally, the fair value of our development property investments and bridge 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 we may ultimately realize. Our development property investments and bridge investments 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

Total Investment
Closing Date

MSA

Commitment
4/18/2019

New York City 7

23,462

Total

$
23,462

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~~Second Amended and Restated 2015 Equity Incentive Plan~~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.

~~On May 1, 2019,~~Changes in Market Interest Rates

With respect to our business operations, increases in interest rates, in general, may over time cause: the ~~Company’s stockholders approved,~~interest expense associated with our borrowings to increase; the value of mortgage loans in our investment portfolio to decline; interest rates on any floating rate loans to reset, although on a delayed basis, to higher interest rates; and to the ~~Company adopted,~~extent we enter into interest rate swap agreements as part of our hedging strategy, the ~~Second Amended~~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 mortgage loans in our investment portfolio to increase; interest rates on any floating rate loans to reset, although on a delayed basis, to lower interest rates; and ~~Restated 2015 Equity Incentive Plan increasing~~to the ~~number~~extent we enter into interest rate swap agreements as part of ~~shares reserved for issuance~~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 ~~Plan~~loan documents, one of our underwriting principles is that we will generally not make a loan secured by ~~380,000~~a property that we, at the time of our investment decision, do not wish to ~~an aggregate of 750,000 shares~~ultimately own. We believe this principle and ~~extending~~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 substantially higher new self-storage construction starts and deliveries in 2016 through 2019. In the ~~term~~top 50 MSAs in the United States, 2020 is expected to experience new deliveries at lower levels than 2018 and 2019, which were the highest years for new deliveries in this development cycle. The key demand drivers of the ~~Plan until May 1, 2029.~~self-storage sector include population mobility and new job creation, both of which are experiencing increases since the 2009/2010 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 at this point in the cycle are government regulations (primarily zoning restrictions), lack of available land sites on which to develop, compressing development yields as compared to prevailing market cap rates and an increasing inability to source attractive financing in the sector. Typically, lenders are only willing to lend up to 65% loan-to-cost (“LTC”), whereas our substantial industry knowledge enables us to make loans at ratios of approximately 90% LTC. In certain situations, we will advance more than 90% of cost and receive a higher rate of interest. In these situations, we expect to receive overall economics that are more attractive than our 90% of cost deals, but some of the interest income in these deals will be received as payment-in-kind (“PIK”) interest rather than cash interest. In certain investments, we expect a combination of factors including longer than expected construction times and slower than expected lease up times, to result in potential shortages in interest reserves and/ or operating reserves. In these situations, we may modify the investments in exchange for additional loan-related fees. In certain circumstances, these reserve shortages and/or other factors could result in foreclosure of the underlying facility.

Recent Developments

Dividend Declarations

On ~~May 1,~~October 29, 2019, ~~the Company’s~~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 ~~June 30,~~December 31, 2019. The dividends are payable on ~~July~~January 15, ~~2019~~2020 to holders of Series A Preferred Stock of record on ~~July 1, 2019.~~January 2, 2020.

On ~~May 1,~~October 29, 2019, ~~the Company’s~~our 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 ~~June 30,~~December 31, 2019. The dividends are payable on ~~July~~January 15, ~~2019~~2020 to holders of Series B Preferred Stock of record on ~~July 1, 2019.~~January 2, 2020.

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On ~~May 1,~~October 29, 2019, ~~the Company’s~~our Board of Directors declared a cash dividend of $0.35 per share of common stock for the quarter ending ~~June 30,~~December 31, 2019. The dividend is payable on ~~July~~January 15, ~~2019~~2020 to stockholders of record on ~~July 1, 2019.~~January 2, 2020.

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

~~Note Regarding Forward-Looking Statements~~

~~our ability to successfully source, structure, negotiate and close investments in and acquisitions of 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 for self-storage development projects 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.~~

~~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. These facilities are located in submarkets with demographic profiles and competitive positions that management believes will support successful lease-up of such facilities and value creation for our stockholders. Our investments include mortgage loans typically coupled with equity interests as well as outright ownership of self-storage facilities.

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Our principal business objective is to deliver attractive risk-adjusted returns by investing in new Generation V self-storage 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 structured as loans equal to between 90% and 97% of facility costs (including land, pre-development and other “soft” costs, hard construction costs, fees and interest and operating reserves). 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 also typically receive a ROFR to acquire the self-storage facility upon sale.

In addition to the foregoing, we intend to acquire self-storage facilities that we have financed either through the exercise of ROFRs or through privately negotiated transactions with our investment counterparties, subject to acquisition prices being consistent with our investment objective to create long-term value for our stockholders. During the quarter ended March 31, 2019, we acquired the 50.1% equity interest of our developer partner in the LLC that owned the New Haven development property. During the year ended December 31, 2018, we acquired the 50.1% equity interests of our developer partners in the LLCs that own the Jacksonville 1, Atlanta 1, Atlanta 2, Pittsburgh, Charlotte 1, and New York City 1 development properties. During the year ended December 31, 2017, we acquired the 50.1% equity interests of our developer partner in the LLCs that own the Orlando 1 and Orlando 2 development property investments, which are two self-storage facilities adjacent to each other. We now own 100% of the membership interests in the LLCs that own these eight facilities and fully consolidate these facilities in the accompanying consolidated financial statements.

We account for our development property investments and bridge investments 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 and bridge investment each quarter, which re-valuation 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 revenues and the creation of value through our Profits Interests as self-storage facilities we finance are constructed, leased-up and become stabilized.

We generally fund our on-balance sheet investments with (i) proceeds from sales of our securities, including sales of our common stock and our Series B Preferred Stock in follow-on offerings and pursuant to our common stock at-the-market equity offering program (the “ATM Program”) and our Series B preferred stock at-the-market equity offering program (the “Preferred ATM Program”), (ii) funds from secured indebtedness, including borrowings under our $235 million Credit Facility and term loans on individual properties, and (iii) net proceeds from the monetization of existing development property investments. In the past we also have used proceeds from the sale of senior participations and the sale of our Series A Preferred Stock pursuant to the Purchase Agreement, pursuant to which we issued $125 million of Series A Preferred Stock.

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 December 31, 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. During the quarter ended March 31, 2019, the SL1 Venture acquired the 50.1% equity interests of its developer partners in the LLCs that own the Jacksonville, Atlanta 1, Atlanta 2, and Denver development properties. The SLI Venture now owns 100% of the membership interests in the LLCs that own these four facilities.

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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 timing of the completion of facilities we finance, which can be dependent on the inspection process of municipal building departments that are from time to time understaffed;

the pace and strength of the lease-up of the facilities we finance;

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;

our ability to acquire self-storage facilities at attractive prices; and

the performance of self-storage facilities in which we have invested, either directly or through the SL1 Venture.

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projects, providing opportunities for us to acquire new Generation V self-storage facilities in the lease-up phase. Further, we believe our willingness and desire to make structured bridge investments will be an attractive capital solution to developers with a need or desire to recapitalize their investments, repay debt, buy out partners or provide capital needed to stabilize facilities. We intend to pursue bridge investments of recently built self-storage facilities in the lease-up phase, selectively evaluate acquisitions of our current developer partners’ membership interests in projects that we have financed and selectively evaluate acquisitions of self-storage projects that we have not financed. In addition, we may modify or recapitalize existing financing on current investments for our ~~developers.~~ developers in exchange for loan-related fees to compensate us for these modifications. On occasion, we expect certain of our developer partners to refinance our development investments. In these cases, refinancing proceeds would be used to return our capital associated with the first mortgage, but we would retain our Profits Interest and ROFR in the investment.

As our focus shifts to acquiring the newly-developed facilities that we have financed since our IPO and acquiring properties that we have not financed, ~~and refinancing newly completed facilities,~~ our results of operations will also be impacted by the following additional factors, in addition to the factors described above:

our ability to generate these new types of investment opportunities while at the same time managing our existing pipeline of development investment opportunities;

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our ability to ~~offer flexible transaction structures that meet the needs~~generate additional fee income from modifications and/or recapitalizations of ~~developers while at the same time providing us with returns commensurate with the risks taken;~~existing investments;

our ability to redeploy the net proceeds from any potential refinancing of our development property investments;

our additional emphasis on ~~current interest income,~~ net rental income and/or net operating income and less emphasis on fair value ~~accretion;~~accretion andcurrent interest income; and

our ability to access debt and equity capital at a cost commensurate with the returns from ~~bridge investments and~~ outright ownership of self-storage facilities.

Our total investment income includes interest income from loan investments, which also reflects the accretion of origination fees and recognition of modification 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 and bridge investments. 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 nine months ended ~~March 31,~~September 30, 2019 and 2018 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 development property investments and bridge ~~investments.~~investments (prior to the bridge investment acquisition described in Overview). 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 creation of value through our Profits Interests as self-storage facilities we finance are constructed, leased-up and become stabilized. Under the fair value option, we mark our development property investments, bridge 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 and bridge investments 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 and bridge investments may fluctuate from period to period. Additionally, the fair value of our development property investments and bridge 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 we may ultimately realize. Our development property investments and bridge investments 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

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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.

Changes in Market Interest Rates

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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.~~own. 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 substantially higher new self-storage construction starts and deliveries ~~during~~in 2016 ~~2017 and 2018, and 2019~~through 2019. In the top 50 MSAs in the United States, 2020 is expected to experience new deliveries at lower levels ~~similar to~~than 2018 and 2019, which ~~was~~were the highest ~~year~~years for new deliveries in this development cycle. The key demand drivers of the self-storage sector include population mobility and new job creation, both of which are experiencing increases since the 2009/2010 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 at this point in the cycle are government regulations (primarily zoning restrictions), lack of available land sites on which to develop, compressing development yields as compared to prevailing market cap rates and ~~the lack of~~an increasing inability to source attractive financing ~~available~~ in the sector. Typically, lenders are only willing to lend up to 65% loan-to-cost (“LTC”), whereas our substantial industry knowledge enables us to make loans at ratios of approximately 90% LTC. In certain situations, we will advance more than 90% of cost and receive a higher rate of ~~interest,~~interest. In these situations, we expect to receive overall economics that are more attractive than our 90% of cost deals, but some of ~~which~~the interest income in these deals will be received as payment-in-kind (“PIK”) interest rather than cash interest. In certain investments, we expect a combination of factors including longer than expected construction times and slower than expected lease up times, to result in potential shortages in interest reserves and/ or operating reserves. In these situations, we may modify the investments in exchange for additional loan-related fees. In certain circumstances, these reserve shortages and/or other factors could result in foreclosure of the underlying facility.

Recent Developments

~~Investment Activity~~

~~Subsequent to March 31, 2019, we closed on the following development property investment with a Profits Interest:~~

Total Investment
Closing Date

MSA

Commitment
4/18/2019

New York City 7

23,462

Total

$
23,462

~~Second Amended and Restated 2015 Equity Incentive Plan~~Dividend Declarations

On May 1, 2019, our stockholders approved, and we adopted, the Second Amended and Restated 2015 Equity Incentive Plan increasing the number of shares reserved for issuance under the Plan by 380,000 to an aggregate of 750,000 shares and extending the term of the Plan until May 1, 2029.

~~Dividend Declarations~~

~~On May 1,~~October 29, 2019, 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 ~~June 30,~~December 31, 2019. The dividends are payable on ~~July~~January 15, ~~2019~~2020 to holders of Series A Preferred Stock of record on ~~July 1, 2019.~~January 2, 2020.

On ~~May 1,~~October 29, 2019, our 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 ~~June 30,~~December 31, 2019. The dividends are payable on ~~July~~January 15, ~~2019~~2020 to holders of Series B Preferred Stock of record on ~~July 1, 2019.~~January 2, 2020.

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On ~~May 1,~~October 29, 2019, our Board of Directors declared a cash dividend of $0.35 per share of common stock for the quarter ending ~~June 30,~~December 31, 2019. The dividend is payable on ~~July~~January 15, ~~2019~~2020 to stockholders of record on ~~July 1, 2019.~~

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January 2, 2020.

Investment Activity

Overview of total investment activity

As of ~~March 31,~~September 30, 2019, our self-storage investment portfolio consists of ~~eight~~15 wholly-owned self-storage facilities 47(one of which has not been placed into service), 50 on-balance sheet development property investments with a Profits Interest ~~(22~~(29 of which are secured by facilities in lease-up and 2521 of which are secured by facilities under construction), seven development property investments with a profits interest in our SL1 Venture (all of which are secured by facilities in lease-up), and four self-storage facilities wholly-owned by the ~~SL1 Venture~~ ~~and five bridge investments secured by facilities that are all in lease-up. We also have one construction loan secured by a facility under construction.~~SL1.


		# Properties	# of Properties Open and Operating	# of Properties Under Construction	Size (NRSF)		Total JCAP Investment Commitment
On-balance sheet
	Wholly Owned Assets	15	14	1	1,104,557	$	207,294
	Development Property Investments	50	29	21	4,063,748	$	608,851
Joint Venture
	Wholly Owned Assets	4	4	0	307,407	$	4,831
	Development Property Investments	7	7	0	521,392	$	6,785

On-balance sheet investment activity

Our on-balance sheet self-storage investments at ~~March 31,~~September 30, 2019 consisted of the following:

Wholly-Owned Property Investments – As of September 30, 2019, we had acquired 100% of the membership interests in the LLCs of 15 of our previous development property investments, resulting in the ownership of fifteen self-storage facilities, as described in more detail in the table below (dollars in thousands):


Location
(MSA)	Date	Date	Gross		Accumulated		Net		Size	Months	% Physical
Address	Opened	Acquired	Basis		Depreciation		Basis		(NRSF) (1)	Open (2)	Occupancy (2)
Orlando 1/2	5/1/2016	8/9/2017	$	15,829	$	(1,442)	$	14,387	93,965	42	86.9	%
Jacksonville 1	8/12/2016	1/10/2018		11,664		(1,033)		10,631	59,848	39	90.0	%
Atlanta 2	5/24/2016	2/2/2018		11,859		(872)		10,987	66,187	41	84.3	%
Atlanta 1	5/25/2016	2/2/2018		13,198		(889)		12,309	71,718	41	90.6	%
Pittsburgh	5/11/2017	2/20/2018		10,033		(448)		9,585	47,486	30	45.1	%
Charlotte 1	8/18/2016	8/31/2018		12,746		(823)		11,923	86,750	38	65.3	%
New York City 1	9/29/2017	12/21/2018		25,924		(1,122)		24,802	105,272	25	76.5	%
New Haven	12/16/2016	3/8/2019		11,051		(448)		10,603	64,225	34	77.8	%
Miami	(3)	7/2/2019		19,745		-		19,745	71,953	(3)	(3)
Jacksonville 2	3/27/2018	8/16/2019		11,605		(77)		11,528	70,255	19	65.8	%
Miami 4	10/9/2016	9/17/2019		24,188		(70)		24,118	74,685	37	90.6	%
Miami 5	8/13/2018	9/17/2019		15,178		(23)		15,155	77,075	14	59.4	%
Miami 6	8/12/2016	9/17/2019		20,075		(55)		20,020	76,765	39	85.2	%
Miami 7	3/26/2018	9/17/2019		21,544		(41)		21,503	86,450	19	64.5	%
Miami 8	12/12/2016	9/17/2019		15,570		(44)		15,526	51,923	35	93.7	%
Total Owned Properties			$	240,209	$	(7,387)	$	232,822	1,104,557	32(4)	76.9	%(4)

⁽¹⁾

The NRSF includes only climate controlled and non-climate controlled storage space. It does not include retail space, office space, non-covered RV space or parking spaces.

⁽²⁾

As of October 27, 2019.

⁽³⁾

As of September 30, 2019, this facility had not been placed into service.

⁽⁴⁾

Average weighted based on NRSF.

Development Property Investments - We had 4750 investments totaling an aggregate committed principal amount of approximately ~~$548.1~~$608.9 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

Table of Contents

mortgage and a 49.9% Profits Interest to us. 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. As of September 30, 2019, five of the development property investments totaling $55.0 million of aggregate committed amount were structured as preferred equity investments, which will be subordinate to a first mortgage loan expected to be procured from a third party lender for 60% to 70% of the cost of the project.

~~Also included in~~The Company has commenced foreclosure proceedings against the borrower of its $14.3 million Philadelphia development property ~~investments as of March 31, 2019 was one construction~~investment because the borrower has defaulted under the loan ~~with a committed principal amount of approximately $17.7 million that 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~~among other things, failing to pay the ~~project.~~ This construction loan had an initial term of 18 months that was extended during the first quarter of 2017 and in 2018. This loan matured and became due and payable on June 30, 2018; however, it has yet to be repaid. Accordingly, this construction loan is in default and was placed on non-accrual status during the three months ended December 31, 2018. Since that time, no interest income has been recognized and will only be recognized if interest is collected in cash.general contractor. The total unpaid balance of the loan is ~~$17.7~~$11.2 million. As the investment iswas a collateral dependent loan, we considered the fair value of the collateral when determining the fair value of the investment as of ~~March 31,~~September 30, 2019. The fair value of the investment as of ~~March 31,~~September 30, 2019 is ~~$17.7~~$11.7 million. ~~During the three months ended March 31, 2019, we commenced proceedings to foreclose on the underlying collateral.~~

Bridge Investments – On September 17, 2019, the Company purchased 100% of the Class A membership units of the limited liability companies that owned the Miami 4, Miami 5, Miami 6, Miami 7 and Miami 8 bridge investments with a Profits Interest. As a result, we no longer have any outstanding bridge investments.

As of ~~March 31,~~September 30, 2019, the aggregate committed principal amount of our development property investments for which the underlying self-storage facility was open and operating was approximately ~~$565.8~~$319.5 million and outstanding principal was ~~$358.6~~$298.5 million, as described in more detail in the table below (dollars in thousands):



	Metropolitan					Remaining				Location					Remaining
	Statistical Area	Total Investment		Funded		Unfunded				(MSA)			Funded		Unfunded		Fair		Size	Date	Months	% Physical
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value		Address	Commitment		Investment		Commitment (1)		Value		(NRSF) (2)	Opened	Open (3)	Occupancy (3)
Development property investments (includes a profits interest):
7/2/2015	Milwaukee (2)(7)	$	7,650	$	7,648	$	2	$	9,128	Milwaukee 420 W St Paul Ave	$	7,650	$	7,648	$	2	$	9,146	81,489	10/9/2016	37	75.2	%
10/27/2015										Austin 251 North A W Grimes Blvd		8,658		8,136		522		8,040	77,234	3/16/2017	31	89.2	%
8/14/2015	Raleigh (2)(7)		8,792		8,689		103		8,236	Raleigh 1515 Sunrise Ave		8,792		8,789		3		8,640	60,171	3/8/2018	20	68.0	%
10/27/2015	Austin (2)(7)		8,658		7,951		707		7,940
9/20/2016	Charlotte 2 (2)(7)		12,888		11,697		1,191		12,838
11/17/2016	Jacksonville 2 (2)(7)		7,530		7,279		251		9,397
1/18/2017	Atlanta 3 (3)		14,115		9,498		4,617		10,549
1/31/2017	Atlanta 4 (2)(7)		13,678		13,185		493		15,632	Atlanta 4 4676 S Atlanta Rd		13,678		13,497		181		16,857	103,776	7/12/2018	16	43.1	%
2/24/2017	Orlando 3 (2)(7)		8,056		7,363		693		8,911	Orlando 3 12709 E Colonial Dr		8,056		7,629		427		9,473	69,645	7/26/2018	15	43.8	%
4/20/2017										Denver 2 3110 S Wadsworth Blvd		11,164		10,995		169		12,632	74,307	7/31/2018	15	47.6	%
6/29/2017										Boston 1 (4) 329 Boston Post Rd E		-		-		-		3,232	90,553	8/8/2018	15	42.9	%
4/14/2017										Louisville 1 2801 N Hurstbourne Pkwy		8,523		7,422		1,101		9,224	65,786	8/15/2018	14	44.8	%
9/20/2016										Charlotte 2 1010 E 10th St		12,888		12,413		475		13,600	75,760	8/30/2018	14	49.0	%
9/28/2017										Louisville 2 3415 Bardstown Rd		9,940		9,311		629		11,527	76,603	8/31/2018	14	41.3	%
6/12/2017										Tampa 4 3201 32nd Ave S		10,266		9,379		887		12,654	72,765	10/9/2018	13	46.2	%
5/2/2017										Atlanta 6 2033 Monroe Dr		12,543		11,818		725		14,367	80,885	10/15/2018	12	31.1	%
7/27/2017										Jacksonville 3 2004 Edison Ave		8,096		7,520		576		9,538	68,100	11/6/2018	12	42.2	%
6/19/2017										Baltimore 1 (5) 1835 Washington Blvd		10,775		10,453		751		12,159	83,635	11/20/2018	11	32.1	%
5/19/2017										Tampa 3 2460 S Falkenburg Rd		9,224		8,089		1,135		9,906	70,574	11/29/2018	11	45.8	%
6/28/2017										Knoxville 130 Jack Dance St		9,115		8,463		652		10,316	72,490	11/30/2018	11	39.8	%
2/24/2017	New Orleans (2)		12,549		10,918		1,631		12,709	New Orleans 2705 Severn Ave		12,549		11,668		881		13,927	86,545	12/21/2018	10	38.7	%
2/27/2017	Atlanta 5 (2)		17,492		15,640		1,852		18,345
3/1/2017	Fort Lauderdale (2)		9,952		7,740		2,212		10,547
3/1/2017	Houston (3)		14,825		13,400		1,425		16,176
4/14/2017	Louisville 1 (2)(7)		8,523		7,141		1,382		8,831
4/20/2017	Denver 1 (3)		9,806		7,666		2,140		8,669
4/20/2017	Denver 2 (2)		11,164		10,481		683		12,952
5/2/2017	Atlanta 6 (2)(7)		12,543		11,218		1,325		13,717
5/2/2017	Tampa 2 (3)		8,091		6,684		1,407		7,540
5/19/2017	Tampa 3 (2)(7)		9,224		7,355		1,869		8,650
6/30/2017										New York City 2 (5) 465 W 150th St		27,982		28,267		1,160		29,877	40,951	12/28/2018	10	28.0	%
8/30/2017										Orlando 4 9001 Eastmar Commons		9,037		7,967		1,070		10,164	76,340	1/16/2019	9	45.6	%
2/8/2018										Minneapolis 2 3216 Winnetka Ave N		10,543		9,527		1,016		11,159	83,648	3/14/2019	7	31.1	%
12/1/2017										Boston 2 10 Hampshire Rd		8,771		7,737		1,034		9,602	76,181	3/19/2019	7	32.7	%

4353

Table of Contents

6/12/2017

Tampa 4 (2)(7)

10,266

9,000

1,266

11,767
6/19/2017

Baltimore 1 (2)(4)

10,775

9,461

1,593

11,105
6/28/2017

Knoxville (2)(7)

9,115

8,156

959

9,228
6/29/2017

Boston 1 (2)(6)

-

-

-

2,661
6/30/2017

New York City 2 (2)(4)

26,482

25,716

1,807

29,534
7/27/2017

Jacksonville 3 (2)(7)

8,096

6,978

1,118

8,598
8/30/2017

Orlando 4 (2)

9,037

7,114

1,923

8,732
9/14/2017

Los Angeles 1

28,750

8,979

19,771

8,938
9/14/2017

Miami 1

14,657

7,425

7,232

7,224
9/28/2017

Louisville 2 (2)(7)

9,940

8,914

1,026

11,131
10/12/2017

Miami 2 (4)

9,459

1,367

8,141

1,144
10/30/2017

New York City 3 (4)

14,701

5,276

9,587

4,911
11/16/2017

Miami 3 (4)

20,168

4,725

15,604

4,267
11/21/2017

Minneapolis 1 (3)

12,674

5,462

7,212

5,829
12/1/2017

Boston 2 (2)

8,771

5,436

3,335

6,520
12/15/2017

New York City 4

10,591

2,663

7,928

2,569
12/27/2017

Boston 3

10,174

2,608

7,566

2,500
12/28/2017

New York City 5

16,073

7,538

8,535

7,477
2/8/2018

Minneapolis 2 (2)

10,543

8,456

2,087

9,615
3/30/2018

Philadelphia (3)(4)

14,338

10,598

3,908

10,829
4/6/2018

Minneapolis 3 (3)

12,883

4,208

8,675

4,209
5/1/2018

Miami 9 (4)

12,421

2,869

9,623

2,696
5/15/2018

Atlanta 7

9,418

1,378

8,040

1,329
5/23/2018

Kansas City

9,968

2,349

7,619

2,320
6/7/2018

Orlando 5

12,969

2,533

10,436

2,478
6/12/2018

Los Angeles 2 (5)

9,298

4,675

4,874

4,721
11/16/2018

Baltimore 2

9,247

397

8,850

319
3/1/2019

New York City 6

18,796

2,112

16,684

1,963
3/15/2019

Stamford (5)

2,904

2,913

-

2,885

$
548,050

$
340,859

$
209,382

$
388,266

Construction loans:

12/23/2015

Miami

17,733

17,733

-

17,733

$
17,733

$
17,733

$
-

$
17,733
Total development property investments

$
565,783

$
358,592

$
209,382

$
405,999

2/27/2017	Atlanta 5 56 Peachtree Valley Rd NE		17,492		17,492		-		19,880	87,160	4/8/2019	7	17.3	%
3/30/2018	Philadelphia (5)(6) 550 Allendale Rd		14,338		11,429		3,264		11,688	69,930	4/25/2019	6	22.7	%
3/1/2017	Fort Lauderdale 5601 NE 14th Ave		9,952		9,191		761		12,974	80,559	5/2/2019	6	41.0	%
5/2/2017	Tampa 2 9125 Ulmerton Rd		8,091		7,513		578		8,790	70,967	5/9/2019	6	37.0	%
3/1/2017	Houston 1050 Brittmoore Rd		14,825		14,825		-		17,820	131,345	5/21/2019	5	11.7	%
4/20/2017	Denver 1 6206 W Alameda Ave		9,806		9,117		689		10,179	59,524	6/28/2019	4	24.6	%
1/18/2017	Atlanta 3 1484 Northside Dr NW		14,115		12,433		1,682		14,921	93,283	8/6/2019	3	12.0	%
11/21/2017	Minneapolis 1 2109 University Ave W		12,674		9,767		2,907		11,289	88,348	9/3/2019	2	4.6	%
Total Completed Development Investments		$	319,543	$	298,495	$	23,277	$	353,581	2,268,554		12(7)	37.9	%(7)

⁽¹⁾

~~Represents principal balance of loan gross of origination fees. The principal balance includes~~Commitment is fixed during underwriting at an amount deemed sufficient to cover interest ~~accrued~~carry and excess operating expenses over rental revenue during lease-up and deferred developer’s fees (if any) payable upon stabilization. Remaining unfunded commitment on completed projects is expected to be utilized primarily for such purposes. To the ~~investment~~.extent not needed for such purposes, such commitment will not be advanced.

⁽²⁾

~~Construction at the facility was substantially complete and/~~The NRSF includes only climate controlled and non-climate controlled storage space. It does not include retail space, office space, non-covered RV space or ~~certificate of occupancy had been received as of March 31, 2019. See Note 4 to the accompanying unaudited consolidated financial statements,~~ ~~Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit~~.parking spaces.

⁽³⁾

~~Facility had achieved at least 40% construction completion but construction was not considered substantially complete as~~As of ~~March 31,~~October 27, 2019. ~~See Note 4 to the accompanying unaudited consolidated financial statements,~~ ~~Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.~~

⁽⁴⁾

⁽⁵⁾

A traditional bank will provide 60-70% of the total cost through a first mortgage construction loan. Of the remaining 30-40% of costs required to complete the project, the Company will provide 90% 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 funded amount of these investments include interest accrued on the preferred equity investment. These interest amounts are not included in the commitment amount for each investment.

~~Table of Contents~~

⁽⁶⁾

~~Our~~This loan was repaid in full through a refinancing ~~initiated~~negotiated by our partner. The investment represents our 49.9% Profits Interest which was retained during the transaction.

⁽⁵⁾

The funded amount of these investments include PIK interest accrued on our loan or interest accrued on our preferred equity investment, as applicable. These interest amounts are not included in the commitment amount for each investment.

⁽⁶⁾

The Company has commenced foreclosure proceedings against the borrower.

⁽⁷⁾

~~As of March 31, 2019, this investment was pledged as collateral to our Credit Facility.~~Average weighted based on NRSF.

~~Wholly-Owned Property Investments –~~ We have acquired 100% of the membership interests in the LLCs of eight of our previous development property investments with a profits interest, resulting in the ownership of eight self-storage facilities, as described in more detail in the table below (~~dollars in thousands~~):

Location

(MSA)

Date

Date

Gross

Accumulated

Net

Size

Months

% Physical
Address

Opened

Acquired

Basis

Depreciation

Basis

(NRSF) (1)

Open (2)

Occupancy (2)
Orlando 1/2
11920 W Colonial Dr.

5/1/2016

8/9/2017

$
15,829

$
(1,265)

$
14,564

93,965

36

85.8
%
Jacksonville 1
1939 East West Pkwy

8/12/2016

1/10/2018

11,663

(901)

10,762

59,848

33

86.5
%
Atlanta 2
340 Franklin Gateway SE

5/24/2016

2/2/2018

11,668

(747)

10,921

66,187

35

78.1
%
Atlanta 1
5110 McGinnis Ferry Rd

5/25/2016

2/2/2018

13,174

(762)

12,412

71,718

35

86.8
%
Pittsburgh
6400 Hamilton Ave

5/11/2017

2/20/2018

9,708

(342)

9,366

47,594

24

41.4
%
Charlotte 1
9323 Wright Hill Rd

8/18/2016

8/31/2018

12,746

(463)

12,283

85,350

32

61.1
%
New York City 1
1775 5th Ave

9/29/2017

12/21/2018

25,458

(396)

25,062

105,272

19

62.8
%
New Haven
453 Washington Ave

12/16/2016

3/8/2019

11,051

(50)

11,001

64,225

28

65.7
%
Total Owned Properties

$
111,297

$
(4,926)

$
106,371

Table of Contents

As of September 30, 2019, the aggregate committed principal amount of our development property investments for which the underlying self-storage facility was still under construction was approximately $289.3 million and outstanding principal was $147.1 million, as described in more detail in the tables below (dollars in thousands):


	Location					Remaining						Estimated
	(MSA)			Funded		Unfunded		Fair		Size	Construction	C/O
Closing Date	Address	Commitment		Investment		Commitment		Value		(NRSF) (1)	Start Date	Quarter (2)
9/14/2017	Los Angeles 1 959 W Hyde Park Blvd		28,750		9,470		19,280		9,722	120,038	Q2 2020	Q1 2021
9/14/2017	Miami 1 4250 SW 8th St		14,657		10,329		4,328		10,541	69,175	Q2 2018	Q1 2020
10/12/2017	Miami 2 (4) 880 W Prospect Rd		9,459		1,432		8,097		1,245	58,000	Q1 2020	Q4 2020
10/30/2017	New York City 3 (4) 5203 Kennedy Blvd		15,301		6,472		9,077		6,114	68,660	Q4 2017	Q4 2020
11/16/2017	Miami 3 (4) 120-132 NW 27th Ave		20,168		8,365		12,060		8,113	96,295	Q4 2018	Q2 2020
12/15/2017	New York City 4 6 Commerce Center Dr		10,591		4,887		5,704		5,350	78,325	Q2 2018	Q1 2020
12/27/2017	Boston 3 19 Coolidge Hill Rd		10,174		2,710		7,464		2,638	62,700	Q1 2020	Q1 2021
12/28/2017	New York City 5 375 River St		16,073		10,718		5,355		12,065	90,700	Q4 2018	Q4 2019
4/6/2018	Minneapolis 3 101 American Blvd West		12,883		8,613		4,270		10,075	87,084	Q3 2018	Q4 2019
5/1/2018	Miami 9 (4) 10651 W Okeechobee Rd		12,421		3,423		9,118		3,314	70,538	Q1 2020	Q4 2020
5/15/2018	Atlanta 7 2915 Webb Rd		9,418		4,515		4,903		5,195	76,519	Q3 2018	Q1 2020
5/23/2018	Kansas City 510 Southwest Blvd		9,968		6,376		3,592		7,516	76,751	Q3 2018	Q4 2019
6/7/2018	Orlando 5 7212 W Sand Lake Rd		12,969		8,190		4,779		9,613	75,918	Q4 2018	Q4 2019
6/12/2018	Los Angeles 2 (4) 7855 Haskell Ave		9,298		4,839		4,874		4,883	116,022	Q4 2019	Q1 2021
11/16/2018	Baltimore 2 8179 Ritchie Hwy		9,247		715		8,532		672	61,750	Q2 2019	Q4 2020
3/1/2019	New York City 6 435 Tompkins Ave		18,796		3,111		15,685		3,088	76,250	Q4 2019	Q4 2020
3/15/2019	Stamford (3)(4) 370 West Main St		2,904		3,014		-		4,990	38,650	Q2 2019	Q4 2019
4/18/2019	New York City 7 (4) 14 Merrick Rd		23,462		6,309		17,232		6,093	95,331	Q3 2019	Q3 2020
5/8/2019	New York City 8 (4) 74 Bogart St		21,000		21,580		-		22,126	193,763	Q1 2020	Q3 2021
7/11/2019	New York City 9 (4) 74-16 Grand Ave		13,095		13,298		-		13,280	105,950	Q1 2020	Q2 2021
8/21/2019	New York City 10 (4) 1401 4th Ave		8,674		8,741		-		8,673	76,775	Q3 2019	Q4 2020
Total Development Investments in Progress		$	289,308	$	147,107	$	144,350	$	155,306	1,795,194

⁽¹⁾

The ~~net rentable square feet (“NRSF”~~NRSF includes only climate controlled and non-climate controlled storage space. It does not include retail space, office space, non-covered RV space or parking spaces.

⁽²⁾

Estimated C/O dates represent the Company’s best estimate as of September 30, 2019 based on project specific information learned through underwriting and communications with respective developers. These dates are subject to change due to unexpected project delays/efficiencies.

⁽³⁾

This facility received a temporary C/O or C/O subsequent to September 30, 2019.

⁽⁴⁾

Table of Contents

Real estate venture activity

As of September 30, 2019, the SL1 Venture wholly owned the four self-storage properties described in more detail in the table below (dollars in thousands):


Location
(MSA)	Date	Date	Gross		Accumulated		Net		Size	Months	% Physical
Address	Opened	Acquired	Basis		Depreciation		Basis		(NRSF) (1)	Open (2)	Occupancy (2)
Jacksonville	7/26/2017	1/28/2019	$	16,602	$	(808)	$	15,794	80,621	27	85.0	%
Atlanta 2	9/14/2017	1/28/2019		10,850		(392)		10,458	70,139	25	71.4	%
Denver	12/14/2017	1/28/2019		16,470		(599)		15,871	85,500	22	62.2	%
Atlanta 1	4/12/2018	1/28/2019		13,283		(396)		12,887	71,147	19	55.8	%
Total Owned Properties			$	57,205	$	(2,195)	$	55,010	307,407	23(3)	68.8	%(3)

⁽¹⁾

The NRSF includes only climate controlled and non-climate controlled storage space. It does not include retail space, office space, non-covered RV space or parking spaces.

⁽²⁾

As of ~~April 28,~~October 27, 2019.

~~Bridge Investments –~~ We have five separate bridge investments with an aggregate commitment amount of $83.3 million secured by first mortgages on five properties in the Miami, Florida MSA. Three of these bridge investments amounting to an aggregate 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 in cash. We have a 49.9% Profits Interest in these three properties. Two of these bridge investments aggregating a principal amount of $36.2 million are secured by first priority mortgages on two recently-completed self-storage properties with an aggregate of over 163,000 net rentable square feet, which loans bear interest at an annual rate of 9.5%, with 6.5% payable monthly in cash and 3.0% PIK interest, 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 mature five years from the date of closing, with the borrower having two extension options for one year each.

As of March 31, 2019, the aggregate committed principal amount of our bridge investments was approximately $83.3 million and our outstanding principal was $82.4 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
Bridge investments:

3/2/2018

Miami 4 (2)(4)

$
20,201

$
20,201

$
-

$
23,217
3/2/2018

Miami 5 (2)(3)(4)

17,738

17,272

991

15,217
3/2/2018

Miami 6 (2)(4)

13,370

13,370

-

17,681
3/2/2018

Miami 7 (2)(3)(4)

18,462

17,986

1,022

16,812
3/2/2018

Miami 8 (2)(4)

13,553

13,553

-

14,119

~~Table of Contents~~

~~Total bridge investments~~

~~83,324~~

~~82,382~~

~~2,013~~

~~87,046~~

⁽¹⁾

~~Represents principal balance of loan gross of origination fees. The principal balance includes interest accrued on the investment.~~

⁽²⁾

~~Certificate of occupancy had been received as of March 31, 2019. See Note 4 to the accompanying consolidated financial statements,~~ ~~Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.~~

⁽³⁾

⁽⁴⁾

~~As of March 31, 2019, this investment was pledged as collateral to our Credit Facility.~~Average weighted based on NRSF.

~~Real estate venture activity~~

As of ~~March 31,~~September 30, 2019, the SL1 Venture had seven development property investments with a Profits Interest as described in more detail in the table below (dollars in thousands):



	Metropolitan					Remaining					Location					Remaining
	Statistical Area	Total Investment		Funded		Unfunded					(MSA)			Funded		Unfunded		Fair		Size	Date	Months	% Physical
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value			Address	Commitment		Investment		Commitment (1)		Value		(NRSF) (2)	Opened	Open (3)	Occupancy (3)
9/28/2016											Columbia 401 Hampton St	$	9,199	$	9,072	$	127	$	10,348	70,935	8/23/2017	26	67.3	%
4/15/2016											Washington DC (4) 1325 Kenilworth Ave NE		-		-		-		3,043	90,295	9/25/2017	25	72.5	%
5/14/2015	Miami 1 (2)(3)	$	13,867	$	12,722	$	1,145	$	15,252		Miami 1 490 NW 36th St		13,867		12,819		1,048		15,716	75,770	2/23/2018	20	68.0	%
12/22/2016											Raleigh 7710 Alexander Town Blvd		8,877		8,856		21		9,539	64,108	6/8/2018	17	56.8	%
9/25/2015											Fort Lauderdale 812 NW 1st St		13,230		12,899		331		16,969	87,384	7/26/2018	15	38.4	%
5/14/2015	Miami 2 (2)(3)		14,849		14,492		357		15,301		Miami 2 1100 NE 79th St		14,849		14,519		330		15,864	73,890	10/30/2018	12	62.3	%
9/25/2015	Fort Lauderdale (2)(3)		13,230		12,826		404		17,292
4/15/2016	Washington DC (3)		17,269		17,269		-		19,864
7/21/2016	New Jersey (3)		7,828		6,465		1,363		7,587		New Jersey 6 Central Ave		7,828		7,085		743		8,593	59,010	1/24/2019	9	45.4	%
9/28/2016	Columbia (3)		9,199		9,020		179		9,695
12/22/2016	Raleigh (3)		8,877		8,576		301		9,303
	Total	$	85,119	$	81,370	$	3,749	$	94,294
Total Completed Development Investments										Total Completed Development Investments		$	67,850	$	65,250	$	2,600	$	80,072	521,392		18(5)	59.0	%(5)

⁽¹⁾

~~Represents principal balance of loan gross of origination fees. The principal balance includes~~Commitment is fixed during underwriting at an amount deemed sufficient to cover interest ~~accrued~~carry and excess operating expenses over rental revenue during lease-up and deferred developer’s fees (if any) payable upon stabilization. Remaining unfunded commitment on completed projects is expected to be utilized primarily for such purposes. To the ~~investment.~~extent not needed for such purposes, such commitment will not be advanced.

⁽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⁾

~~Certificate of occupancy had been received as of March 31, 2019. See Note 4,~~ ~~Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.~~

On January 28, 2019, the SL1 Venture purchased 100% of the Class A membership units of the LLCs that owned the Atlanta 1, Jacksonville, Atlanta 2, and Denver development property investments with a Profits Interest. These purchases increased the SL1 Venture’s ownership interest on each development property investment from 49.9% to 100%. The SL1 Venture now wholly owns the self-storage properties through these LLCs, ~~as described in more detail in the table below (dollars in thousands~~):

Location

(MSA)

Date

Date

Gross

Accumulated

Net

Size

Months

% Physical
Address

Opened

Acquired

Basis

Depreciation

Basis

(NRSF) (1)

Open (2)

Occupancy (2)
Jacksonville
3211 San Pablo Rd S

7/26/2017

1/28/2019

$
16,602

$
(204)

$
16,398

80,621

21

79.9
%
Atlanta 2
11220 Medlock Bridge Rd

9/14/2017

1/28/2019

10,850

(99)

10,751

70,139

19

58.7
%
Denver
2255 E 104th Ave

12/14/2017

1/28/2019

16,470

(152)

16,318

85,575

16

56.2
%
Atlanta 1
1801 Savoy Dr

4/12/2018

1/28/2019

13,283

(100)

13,183

71,147

13

41.1
%
Total Owned Properties

$
57,205

$
(555)

$
56,650

⁽¹⁾

The ~~net rentable square feet (“NRSF”)~~NRSF includes only climate controlled and non-climate controlled storage space. It does not include retail space, office space, non-covered RV space or parking ~~spaces.~~spaces.

⁽²⁾⁽³⁾

As of ~~April 28, 2019.~~October 27, 2019.

⁽⁴⁾

⁽⁵⁾

Average weighted based on NRSF.

~~On February 27, 2019, the SL1 Venture closed on a $36.1 million term loan secured by these four properties that bears interest at LIBOR plus 2.15% and matures on February 27, 2022.~~

~~Table of Contents~~

Business Outlook

Investment Activity

We continue to experience demand for our capital for the development of state-of-the-art Class A self-storage facilities in top U.S. markets. As of ~~May 1,~~October 31, 2019, we had projects that were in various stages of our underwriting process, including ~~several~~ones subject to executed term sheets, for prospective development property investment amounts in excess of ~~$300~~$250 million. We have reduced our pipeline intentionally, as the development cycle is now ~~entering~~in its fifth ~~year. Having evaluated over $11 billion of potential~~year and new supply continues to impact self-storage ~~development projects since our formation~~fundamentals in ~~March 2015 while closing approximately $950 million,~~many submarkets in the top-50 markets in which we ~~believe we have demonstrated a track record of careful underwriting and selectivity.~~might otherwise desire to invest. While we ~~typically estimate closing dates for investment transactions subject~~continue to executed term sheets, often the closings of such investments are subject to events, such as site plan approval, 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 prospectiveseek new development commitments in select markets around the ~~future.~~

~~From the time of~~United States, we intend to reduce our ~~IPO in March 2015 through December 31, 2015, we committed an aggregate of approximately $76.5 million in 11~~new development property investments. As of March 31, 2019, all of the properties underlying these development investments had received certificates of occupancy. Of those 11 initial investments, we have acquired our developer’s interest in seven investments and chose not to exercise our ROFR to buy the storage facility underlying one investment.

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. As of March 31, 2019, all of those development properties had achieved certificates of occupancy. On January 28, 2019, the SL1 Venture acquired our developer’s interest in four of these investments.

From the second half of 2016 through the end of 2018, we invested solely on-balance sheet, closing 44 development property investments with a Profits Interest and five bridge investments with aggregate committed principal of $535.4 million and $83.3 million, respectively. Of these 44 development property investments with a Profits Interest, two opened for leasing in 2017, 16 opened for leasing in 2018, 16 are expected to open for leasing in 2019, and 10 are expected to open for leasing in 2020.

The construction progress and deliveries of these on-balance sheet investments contributed to significant fair value appreciation in 2018 in excess of that recognized in 2017. As the number of deliveries decrease in 2019 and 2020, we would expect fair value appreciation in these years to decreaseinvestment commitment amounts as compared to ~~2018. Furthermore, fair value appreciation recognized during lease-up can be negatively impacted by lower rental rates due~~2016, 2017 and 2018 as our focus is shifting to supply saturation in some markets, which we have experienced and expect to continue to experience. The impact of new supply and other economic factors could result in our desire to modify existing agreements with our developers or in certain circumstances result in foreclosure of the underlying facility. In addition, ourpotential acquisition opportunities of our developers’ interests ~~is expected to continue into 2019~~in our development investments and ~~even more so into 2020, which could also negatively impact future profits as fair value appreciation is not recognized after the acquisition date.~~newly-constructed and opened self-storage facilities that complement our existing portfolio.

Table of Contents

We intend to acquire the majority of the self-storage facilities that we have financed either through the exercise of ROFRs or through privately negotiated transactions with our investment counterparties, subject to acquisition prices being consistent with our investment objective to create long-term value for our stockholders. ~~Since~~From the third quarter of 2017 through the third quarter of 2019, we ~~have~~ acquired ~~eight~~nine self-storage facilities from our core development program through privately negotiated transactions with our developer ~~partners.~~

~~As of March 31, 2019, we currently have eight self-storage facilities that are wholly-owned and consolidated~~partners on our balance sheet, 47four self-storage facilities within our real estate venture with Heitman, one facility that was designated a construction loan and the five self-storage facilities underlying our Miami bridge investment. The thirteen acquisitions from our core development program and Heitman joint Venture occurred on average 17 months after the respective self-storage facilities commenced operating activities. While there is no assurance that this trend will continue, we believe the frequency of opportunities to acquire our developers’ interests will begin to accelerate in 2020 due to the fact that of the 57 underlying facilities in our development portfolio as of September 30, 2019, at least 35 facilities will have been open for 17 months or more by December 31, 2020.

If we experience an increase in the acquisitions of self-storage properties that we have financed, the amount of fair value appreciation recognized in future periods in our Consolidated Statement of Operations may be reduced as compared to previous years, as fair value appreciation is not recognized after the acquisition date; however, our property operating income will increase as we acquire and consolidate additional self-storage facilities. Additionally, the construction progress and deliveries of our on-balance sheet investments to date contributed to significant fair value appreciation in 2018 in excess of that recognized in previous years. As the number of these deliveries is expected to decrease in 2019 and 2020, we would expect fair value appreciation in these years to decrease as compared to 2018, all else being equal. Fair value appreciation recognized during lease-up can be negatively impacted by lower rental rates due to supply saturation in some markets, which we have experienced and expect to continue to experience. In light of these factors, over the next few years, we expect the primary driver of our earnings to shift from fair value appreciation and interest income, to property operating income. The pace and magnitude of this shift will depend on our ability to acquire our developer partner’s interests and the rate at which the facilities lease up.

In certain investments, we expect one or more factors, including longer than expected construction times and slower than expected lease up times, to result in potential shortages in interest reserves and/or operating reserves. In these situations, we may modify the investments in exchange for additional economics, primarily in the form of loan related fees. These fees have and will continue to be recognized in interest income from investments within our Consolidated Statements of Operations. In certain circumstances, these reserve shortages and/or other factors could result in foreclosure of the underlying facility.

Shift in Business Model

At the time of our IPO, we contemplated that beginning no later than the beginning of the fourth quarter 2019, we would commence discussions to acquire our Manager subject to approval by a special committee of our board of directors, delivery of a fairness opinion of a nationally-recognized investment banking firm and a vote of our stockholders. The process for internalizing our manager is set forth in detail in the Management Agreement with our Manager, which has been filed with the SEC since our IPO and described in our public filings. Discussions related to a potential internalization of our Manager began in the third quarter of 2019 and are ongoing. We can provide no assurances that an internalization of the Manager will be agreed upon prior to March 2023 on favorable terms or at all, or the effects of the failure to complete such internalization, including the effects of an amendment or termination of the Management Agreement.

In addition, we expect to continue to acquire interests of our developer partners in our development property investments, ~~with~~exercise ROFRs and/or acquire self-storage properties that we did not finance. We believe that within the next 18 months, a ~~Profits Interest (22~~majority of our assets will be owned self-storage facilities; we also expect to internalize management within that timeframe. While we expect to continue our development and bridge investing programs, we believe that we are, and that our institutional stockholders are beginning to view us more as, an owner-operator of self-storage properties, or an equity REIT, rather than as a specialty finance company, or mortgage REIT. This change in business model will necessarily entail a change in the way we expect to operate and finance the Company in the future. As this shift in business model occurs, we anticipate that our Board of Directors will continue to evaluate our investment, leverage and dividend policies in light of changes in the ways in which ~~are secured by facilities~~we generate a majority of our revenue and income, changes in ~~lease-up~~stockholder expectations, and 25changes in the nature of ~~which are secured by facilities under construction), seven development property investments~~our business and investment returns/cash flows. Our Board of Directors continues to evaluate our dividend policy, and we expect our Board of Directors to, in particular, evaluate a “right-sizing” of our dividend in 2020. Any of these policies could be changed at the discretion of our Board of Directors. We can provide no assurance that we will be successful in our ~~SL1 Venture (all~~acquisition program and change in business model on the timeline expected or at all and can provide no assurances regarding the amount of ~~which are secured~~any right-sizing of our dividend or when such dividend will be fully covered by facilities in lease-up), four self-storage facilities wholly-owned by the SL1 Venture, and five bridge investments secured by facilities that are all in lease-up. We also have one construction loan secured by a facility under construction.our cash flows from operations.

4757

Table of Contents

The following table reflects occupancy data as of April 28, 2019 for the 29 underlying self-storage facilities of our development property investments with a Profits Interest, eight wholly-owned properties and four properties owned by the SL1 Venture that have received a certificate of occupancy as of that date:

# Months

Location

Date Opened

Open

Occupancy

Ocoee, Florida (Orlando 1 and Orlando 2) (1)

May 1, 2016

36

85.8
%

Marietta, Georgia (Atlanta 2) (1)

May 24, 2016

35

78.1
%

Alpharetta, Georgia (Atlanta 1) (1)

May 25, 2016

35

86.8
%

Jacksonville, Florida (Jacksonville 1) (1)

August 12, 2016

33

86.5
%

Charlotte, North Carolina (Charlotte 1) (1)

August 18, 2016

32

61.1
%

Milwaukee, Wisconsin

October 9, 2016 (2)

31

66.8
%

New Haven, Connecticut (1)

December 16, 2016

29

65.7
%

Round Rock, Texas (Austin)

March 16, 2017

26

78.8
%

Pittsburgh, Pennsylvania (1)

May 11, 2017 (3)

24

41.4
%

Jacksonville, Florida (4)(6)

July 26, 2017

21

79.9
%

Columbia, South Carolina (4)

August 23, 2017

20

66.0
%

Atlanta, Georgia (Atlanta 2) (4)(6)

September 14, 2017

20

58.7
%

Washington DC (4)

September 25, 2017

19

60.7
%

New York, New York (New York City 1) (1)

September 29, 2017

19

62.8
%

Denver, Colorado (4)(6)

December 14, 2017

17

56.2
%

Miami, Florida (Miami 1) (4)

February 23, 2018

14

52.1
%

Raleigh, North Carolina

March 8, 2018

14

40.7
%

Jacksonville, Florida (Jacksonville 2)

March 27, 2018

13

43.8
%

Atlanta, Georgia (Atlanta 1) (4)(6)

April 12, 2018

13

41.1
%

Average (Facilities open for more than 1 year)

23.7

64.5
%
(5)

# Months

Location

Date Opened

Open

Occupancy

Raleigh, North Carolina (4)

June 8, 2018

11

31.5
%

Atlanta, Georgia (Atlanta 4)

July 12, 2018

10

23.8
%

Orlando, Florida (Orlando 3)

July 26, 2018

9

26.5
%

Fort Lauderdale, Florida (4)

July 26, 2018

9

25.0
%

Denver, Colorado (Denver 2)

July 31, 2018

9

20.0
%

Boston, Massachusetts (Boston 1)

August 8, 2018

9

22.1
%

Louisville, Kentucky (Louisville 1)

August 15, 2018

9

25.9
%

Charlotte, North Carolina (Charlotte 2)

August 30, 2018

8

23.9
%

Louisville, Kentucky (Louisville 2)

August 31, 2018

8

18.5
%

Tampa, Florida (Tampa 4)

October 9, 2018

7

19.2
%

Atlanta, Georgia (Atlanta 6)

October 15, 2018

7

23.1
%

Miami, Florida (Miami 2) (4)

October 30, 2018

6

36.7
%

Jacksonville, Florida (Jacksonville 3)

November 6, 2018

6

18.3
%

Baltimore, Maryland (Baltimore 1)

November 20, 2018

5

13.0
%

Tampa, Florida (Tampa 3)

November 29, 2018

5

20.5
%

Knoxville, Tennessee

November 30, 2018

5

23.1
%

New Orleans, Louisiana

December 21, 2018

4

16.0
%

New York, New York (New York City 2)

December 28, 2018

4

4.1
%

Orlando, Florida (Orlando 4)

January 16, 2019

4

16.1
%

Red Bank, New Jersey (4)

January 24, 2019

3

6.4
%

Minneapolis, Minnesota (Minneapolis 2)

March 14, 2019

2

5.9
%

Boston, Massachusetts (Boston 2)

March 19, 2019

1

2.7
%

Average (Facilities open for less than 1 year)

6.4

19.5
%
(5)

⁽¹⁾

~~As of March 31, 2019, we wholly own the self-storage facility underlying this investment.~~

~~Table of Contents~~

⁽²⁾

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.

⁽³⁾

~~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.~~

⁽⁴⁾

~~Investment is included in SL1 Venture portfolio.~~

⁽⁵⁾

~~Represents weighted average occupancy based on total rentable square feet.~~

⁽⁶⁾

~~As of March 31, 2019, the SL1 Venture wholly owns the self-storage facility underlying this investment.~~

The following table reflects occupancy data as of April 28, 2019 for all of the underlying self-storage facilities of our bridge 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

33

81.5
%

Miami, Florida (Miami 4)

October 9, 2016

31

85.7
%

Miami, Florida (Miami 8)

December 12, 2016

29

85.5
%

Miami, Florida (Miami 7)

March 26, 2018

13

46.6
%

Miami, Florida (Miami 5)

August 13, 2018

9

24.1
%

Average

22.8

62.6
%
(1)

⁽¹⁾

~~Represents weighted average occupancy based on total rentable square feet.~~

~~The occupancy rates noted above pertain to the aforementioned 46 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 2018 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 nine months ended ~~March 31,~~September 30, 2019 and 2018 should be read in conjunction with the unaudited 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 ~~March 31,~~September 30, 2019 and ~~March 31,~~September 30, 2018:

(Dollars in thousands)

Three months ended

March 31, 2019

March 31, 2018
Revenues:

Interest income from investments

$
8,212

$
4,562
Rental and other property-related income from real estate owned

1,450

623
Other revenues

222

31
Total revenues

9,884

5,216

Costs and expenses:

General and administrative expenses

1,762

1,818
Fees to Manager

2,003

1,304
Property operating expenses of real estate owned

762

311

~~Table of Contents~~



(Dollars in thousands)					Three months ended
					September 30, 2019		September 30, 2018
Revenues:
Interest income from investments					$	10,216	$	8,086
Rental and other property-related income from real estate owned						1,988		970
Other revenues						45		35
Total revenues						12,249		9,091

Costs and expenses:
General and administrative expenses						2,137		1,727
Fees to Manager						2,131		1,872
Property operating expenses of real estate owned						989		473
Depreciation and amortization of real estate owned		1,029		702		1,372		854
Other expenses		-		290		268		-
Total costs and expenses		5,556		4,425		6,897		4,926

Operating income		4,328		791		5,352		4,165

Other income (expense):
Equity in earnings from unconsolidated real estate venture		156		550		165		440
Realized gain on investments						-		619
Net unrealized gain on investments		8,830		4,320		7,974		11,060
Interest expense		(1,213)		(416)		(2,546)		(467)
Other interest income		13		109		9		147
Total other income		7,786		4,563		5,602		11,799
Net income		12,114		5,354		10,954		15,964
Net income attributable to preferred stockholders		(5,032)		(3,595)		(5,157)		(4,790)
Net income attributable to common stockholders	$	7,082	$	1,759	$	5,797	$	11,174

Revenues

Total interest income from investments for the three months ended ~~March 31,~~September 30, 2019 was ~~$8.2~~$10.2 million, an increase of approximately ~~$3.7~~$2.1 million, or ~~80%~~26%, from the three months ended ~~March 31,~~September 30, 2018. The increase is primarily ~~attributed~~attributable to the increase in the outstanding principal balances of our investment portfolio. We also had rental revenue of ~~$1.5~~$2.0 million and ~~$0.6~~$1.0 million from real estate owned during the three months ended September 30, 2019 and 2018, respectively. This increase is the result of eight acquisitions of our developer’s interests in the fourth quarter of 2018 and the nine months ended September 30, 2019 coupled with increasing occupancy and rental rates for properties that were wholly owned for the entirety of both periods.

Table of Contents

Expenses

The following table provides a detail of total general and administrative expenses, excluding fees to Manager (dollars in thousands):



	Three months ended
	September 30, 2019		September 30, 2018
Compensation and benefits	$	1,445	$	1,126
Occupancy		101		106
Business development		65		90
Professional fees		224		236
Other		302		169
Total general and administrative expenses (excluding fees to Manager)	$	2,137	$	1,727

Total general and administrative expenses

Total general and administrative expenses (excluding fees to Manager) for the three months ended September 30, 2019 were $2.1 million, an increase of $0.4 million, or 24%, from the three months ended September 30, 2018 primarily as a result of an increase in compensation and benefits. Compensation and benefits included non-cash expense of stock-based compensation of $549,000 and $385,000 for the three months ended September 30, 2019 and 2018, respectively. Compensation and benefits increased as a result of hiring a tax director due to the complexity of our investment portfolio and a property accountant as we have taken more properties on balance sheet at the Manager during 2019, as well as annual compensation increases.

Other operating expenses

We incurred Manager fees of $2.1 million and $1.9 million in the three months ended September 30, 2019 and 2018, respectively, pursuant to the management agreement. The increase in fees to our Manager was primarily the result of the issuance of common stock under our ATM Program and the issuances of our Series A 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 and has increased primarily due to the timing of the acquisitions of the properties generating these expenses.

Other expenses

Other expenses for the three months ended September 30, 2019 consist of costs incurred with respect to ongoing discussions and negotiations related to our Management Agreement. There were no other expenses during the three months ended September 30, 2018.

Other income (expense)

For the three months ended September 30, 2019 and 2018, we recorded other income of $5.6 million and $11.8 million, respectively, which primarily relates to the net unrealized gain on investments. 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 ~~31,~~2016. From the second half of 2016 through the end of 2018, we invested solely on-balance sheet, closing 44 development property investments with a Profits Interest and five bridge investments with aggregate committed principal of $535.4 million and $83.3 million, respectively. Of these 44 development property investments with a Profits Interest, one opened for leasing in 2017, two opened for leasing in the first quarter of 2018, none opened during the second quarter of 2018, seven opened during the third quarter of 2018, and many of the remaining investments were partially constructed during late 2018 and into 2019. The construction progress and large number of deliveries of these on-balance sheet investments contributed to fair value appreciation in the third quarter of 2018 in excess of that recognized in the third quarter of 2019.

The $0.2 million and $0.4 million of equity in earnings from unconsolidated real estate venture in the three months ended September 30, 2019 and 2018, respectively, relates to our allocated earnings from the SL1 Venture. The SL1 Venture has elected the fair value option of accounting for its development property investments. The decrease in our equity in earnings from unconsolidated real estate venture is attributed to higher fair value gains being recognized in 2018 by the SL1 Venture, resulting in higher income allocations to us during that year. Interest expense for the three months ended September 30, 2019 and 2018 was $2.5 million and $0.5 million, respectively, and relates primarily to amortization of deferred financing costs and interest incurred on our Credit Facility and term loans. Other interest income relates to interest earned on our cash deposits.

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Comparison of the nine months ended September 30, 2019 and September 30, 2018:



(Dollars in thousands)	Nine months ended
	September 30, 2019		September 30, 2018
Revenues:
Interest income from investments	$	27,578	$	19,051
Rental and other property-related income from real estate owned		5,075		2,398
Other revenues		312		99
Total revenues		32,965		21,548

Costs and expenses:
General and administrative expenses		6,273		5,579
Fees to Manager		6,203		4,758
Property operating expenses of real estate owned		2,538		1,204
Depreciation and amortization of real estate owned		3,491		2,443
Other expenses		268		290
Total costs and expenses		18,773		14,274

Operating income		14,192		7,274

Other income (expense):
Equity in earnings from unconsolidated real estate venture		407		1,425
Net unrealized gain on investments		28,847		24,003
Interest expense		(5,535)		(1,521)
Other interest income		30		315
Total other income		23,749		24,841
Net income		37,941		32,115
Net income attributable to preferred stockholders		(15,283)		(12,965)
Net income attributable to common stockholders	$	22,658	$	19,150

Revenues

Total interest income from investments for the nine months ended September 30, 2019 was $27.6 million, an increase of approximately $8.5 million, or 45%, from the nine months ended September 30, 2018. The increase is primarily attributable to the increase in the outstanding principal balances of our investment portfolio. We also had rental revenue of $5.1 million and $2.4 million from real estate owned during the nine months ended September 30, 2019 and 2018, respectively, that ~~is related~~has increased primarily due to the ~~revenues generated by~~timing of the ~~self-storage real estate owned that has been acquired.~~acquisitions of the properties generating these revenues. This increase is the result of thirteen acquisitions of our developer’s interests in 2018 and during the nine months ended September 30, 2019 coupled with increasing occupancy and rental rates. Other revenues of ~~$0.2~~$0.3 million earned during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 were derived primarily from fees earned in connection with the procurement of the term loans in the SL1 Venture and management fee revenue generated from the SL1 Venture.

Expenses

The following table provides a detail of total general and administrative expenses, excluding fees to Manager (dollars in thousands):



	Three months ended				Nine months ended
	March 31, 2019		March 31, 2018		September 30, 2019		September 30, 2018
Compensation and benefits	$	1,029	$	959	$	3,907	$	3,529
Occupancy		102		100		310		317
Business development		61		180		169		319
Professional fees		292		346		995		712
Other		278		233		892		702
Total general and administrative expenses (excluding fees to Manager)	$	1,762	$	1,818	$	6,273	$	5,579

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Total general and administrative expenses

Total general and administrative expenses (excluding fees to Manager) for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 were ~~$1.8~~$6.3 million, ~~a decrease~~an increase of ~~$0.1~~$0.7 million, or 3%12%, from the ~~three~~nine months ended ~~March 31, 2018. Business development costs decreased~~September 30, 2018 primarily as a result of an increase in compensation and benefits. For the nine months ended September 30, 2018, compensation and benefits included $0.2 million of third party reimbursements to the Manager, which offset expenses reimbursed to the Manager by us on a dollar-for-dollar basis. Compensation and benefits increased as a result of hiring a tax director due to the complexity of our investment portfolio and a property accountant as we have taken more properties on balance sheet at the Manager during 2019, as well as annual compensation increases. Professional fees increased primarily due to ~~the developer conference held by us~~legal fees incurred during the ~~three~~nine months ended ~~March 31, 2018. No such conference was held in the three months ended March 31, 2019. Industry association dues and trade show costs also decreased for the three months ended March 31,~~September 30, 2019 ~~as compared to the three months ended March 31, 2018.~~regarding certain foreclosure proceedings.

Other operating expenses

We ~~paid our~~incurred Manager fees of ~~$2.0~~$6.2 million and ~~$1.3~~$4.8 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, respectively, pursuant to the management agreement. The increase in fees to our Manager was primarily the result of a follow-on offering of our common stock during the second quarter of 2018, the issuance of common stock under our ATM Program, and the issuances of our

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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.~~owned and has increased primarily due to the timing of the acquisitions of the properties generating these expenses.

Other expenses

Other expenses for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 consist of costs incurred with respect to ongoing discussions and negotiations related to our Management Agreement. Other expenses for the nine months ended September 30, 2018 consist of costs related to the termination of an employee contract. ~~There were no other expenses for the three months ended March 31, 2019.~~

Other income (expense)

For the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, we recorded other income of ~~$7.8~~$23.7 million and ~~$4.6~~$24.8 million, respectively, which primarily relates to the net unrealized gain on investments. 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. From the second half of 2016 through the end of 2018, we invested solely on-balance sheet, closing 44 development property investments with a Profits Interest and five bridge investments with aggregate committed principal of $535.4 million and $83.3 million, respectively. Of these 44 development property investments with a Profits Interest, two opened for leasing in 2017, ~~two~~eight opened ~~for leasing in~~during the first ~~quarter~~nine months of 2018, 14eight opened during the remainder of 2018, and many of the remaining investments were partially constructed during late 2018 and into 2019. The construction progress and deliveries of these on-balance sheet investments contributed to ~~significant~~ fair value appreciation in the ~~first quarter of~~nine months ended September 30, 2019 in excess of that recognized in the ~~first quarter~~nine months ended September 30, 2018. In addition, market interest rate decreases resulted in significant fair value appreciation of ~~2018.~~the debt component of our investments in 2019.

The ~~$0.2~~$0.4 million and ~~$0.6~~$1.4 million of equity in earnings from unconsolidated real estate venture in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, respectively, relates to our allocated earnings from the SL1 Venture. The SL1 Venture has elected the fair value option of accounting for its development property investments. The decrease in our equity in earnings from unconsolidated real estate venture is attributed to higher fair value gains being recognized in 2018 by the SL1 Venture, resulting in higher income allocations to us during that year. Interest expense for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 was ~~$1.2~~$5.5 million and ~~$0.4~~$1.5 million, respectively, and relates primarily to amortization of deferred financing costs and interest incurred on our Credit Facility and term loans. Other interest income 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 to preferred stockholders, stock-based compensation expense, depreciation and amortization on real estate assets, depreciation and amortization on SL1 Venture 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

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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				Three months ended
	March 31, 2019		March 31, 2018		September 30, 2019		September 30, 2018
Net income attributable to common stockholders	$	7,082	$	1,759	$	5,797	$	11,174
Plus: stock dividends to preferred stockholders		2,125		2,125		2,125		2,125
Plus: stock-based compensation		328		345		549		385
Plus: depreciation and amortization on real estate assets		1,029		702		1,372		854
Plus: depreciation and amortization on SL1 Venture real estate assets		56		-		82		-
Plus: other expenses		-		290		268		-
Adjusted Earnings	$	10,620	$	5,221	$	10,193	$	14,538



	Nine months ended
	September 30, 2019		September 30, 2018
Net income attributable to common stockholders	$	22,658	$	19,150
Plus: stock dividends to preferred stockholders		6,375		6,375
Plus: stock-based compensation		1,596		1,507
Plus: depreciation and amortization on real estate assets		3,491		2,443
Plus: depreciation and amortization on SL1 Venture real estate assets		219		-
Plus: other expenses		268		290
Adjusted Earnings	$	34,607	$	29,765

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Liquidity Outlook and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to fund construction mortgage loans included in 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, acquire the interests of developers in self-storage facilities we have financed, make distributions to our stockholders and fund our operations. In the future periods we will likely require cash to pay the net purchase price for self-storage facilities with respect to which we exercise ROFRs. We have not yet generated sufficient cash flow from operations or investment activities to enable us to make any investments or cover our distributions to our stockholders. As a result, we are dependent on the issuance of equity securities, borrowings under our Credit Facility 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):



	Three months ended March 31,				Nine months ended September 30,
	2019		2018		2019		2018
Net income	$	12,114	$	5,354	$	37,941	$	32,115
Adjustments to reconcile net income to net cash used in operating activities:		(15,085)		(7,473)		(46,750)		(36,627)
Net cash used in operating activities		(2,971)		(2,119)		(8,809)		(4,512)
Net cash used in investing activities		(30,248)		(124,830)		(136,367)		(205,672)
Net cash provided by financing activities		28,364		95,210		143,422		205,831
Change in cash and cash equivalents	$	(4,855)	$	(31,739)	$	(1,754)	$	(4,353)

Cash decreased ~~$4.9~~$1.8 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 as compared to a decrease in cash of ~~$31.7~~$4.4 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2018. Net cash used in operating activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 was ~~$3.0~~$8.8 million and ~~$2.1~~$4.5 million, respectively. The primary components of cash used in operating activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 were net income adjusted for non-cash transactions of ~~$2.2~~$7.5 million and the change in cash

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from working capital of ~~$0.8~~$1.7 million, offset by ~~$0.1~~$0.3 million of return on investment from the SL1 Venture. The primary components of cash used in operating activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2018 were net income adjusted for non-cash transactions of ~~$2.4~~$5.7 million, offset by ~~$0.2~~$0.6 million of return on investment from the SL1 Venture and the change in cash from working capital of ~~$0.1~~$0.6 million.

Net cash used in investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 was ~~$30.2~~$136.4 million and ~~$124.8~~$205.7 million, respectively. For the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the cash used for investing activities consisted primarily of ~~$29.5~~$129.3 million to fund investments, ~~$2.6~~$10.3 million to purchase ~~additional interests~~the developers’ interest in ~~one~~three of our development property investments and our all five of our bridge investments, $1.3 million in capital additions to our self-storage real estate owned, offset, in part, by ~~$2.1~~$3.8 million in return of capital from the SL1 Venture. For the ~~three~~nine months ended ~~March 31,~~September 30, 2018, the cash used for investing activities consisted primarily of ~~$116.7~~$208.5 million to fund investments, ~~and $8.8~~$4.8 million to fund other loans, $13.1 million to purchase additional interests in ~~four~~five of our development property investments and capital additions to those properties, $2.0 million to fund capital contributions to the SL1 Venture, offset, in part, by origination fees received in cash of ~~$1.2 million.~~$1.9 million, cash received of $0.6 million related to proceeds received from the settlement of profits interest as a result of the sale of the asset underlying our Tampa 1 development investment, a net inflow of $2.3 million for advancements made on behalf of the SL1 Venture, and $18.1 million from repayments of development property investments, operating property loans and other loan investments.

Net cash provided by financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 totaled ~~$28.4~~$143.4 million and primarily related to ~~$26.8~~$124.3 million of net proceeds received from the Credit Facility, ~~$2.8~~$34.6 million of net proceeds from common stock issuances, ~~$9.1~~$16.0 million of net proceeds received from term loans, offset, in part, by ~~$10.1~~$30.9 million of dividends paid. For the ~~three~~nine months ended ~~March 31,~~September 30, 2018, net cash provided by financing activities totaled ~~$95.2~~$205.8 million and primarily related to ~~$71.0~~$122.4 million of net proceeds from preferred stock issuances, ~~and $29.9~~$81.8 million of net proceeds from common stock issuances, $24.6 million of net proceeds received ~~in connection with~~from term loans, offset by a net outflow of $0.7 million related to draws and the subsequent repayment on the ~~secured revolving~~ Credit Facility, ~~offset, in part, by $5.4~~$0.7 million repayment of our senior loan participation, $0.3 million of stock repurchases, and $21.2 million of dividends ~~paid.~~paid

Liquidity Outlook and Capital Requirements

~~As of March 31, 2019, we had unrestricted cash of approximately $3.9 million, and we had remaining~~Remaining unfunded commitments of ~~$211.4~~$167.9 million, including non-cash interest reserves of approximately $35.8 million, related to our investment portfolio and ~~$0.5 million related~~SL1 Venture are estimated to be funded on the ~~SL1 Venture. During~~following schedule:



Future Fundings for Investments	2019		2020		2021		2022		2023 and thereafter		Total
Estimated Funding Amount	$	31,591	$	103,218	$	26,893	$	2,118	$	4,067	$	167,887

We expect to fund the ~~remainder~~remaining unfunded commitments primarily with cash on hand, borrowings under our Credit Facility, and future issuances of common stock.

As of September 30, 2019, we ~~also expect~~have $7.0 million of cash on hand and $110.0 million of remaining capacity under our Credit Facility, assuming we are able to ~~acquire additional developer interests in self-storage facilities~~access the full borrowing base availability. In addition, we have ~~financed and~~a $165.0 million accordion feature under our Credit Facility, which is subject to ~~execute~~various conditions, including obtaining commitments from lenders for the additional amounts. We may also use any combination of the following additional capital sources to ~~provide~~fund capital needs:

Refinancing of JCAP mortgage indebtedness (49.9% profits interest and ROFR retained),

Potential sales of facilities underlying current development investments to a third party, and

Additional common stock issuances.

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~~capital to additional self-storage development projects.~~ We believe that the sources of capital discussed ~~below~~above will provide us with adequate liquidity to fund our operations and investment activities for at least the next 12 months.

~~Remaining unfunded commitments~~ However, we can provide no assurances that we will have access to all of ~~$211.9 million related~~the sources noted above. Additionally, until we negotiate an internalization transaction or other agreement with the Manager, and such transaction or other agreement is announced, we will not have access to ~~our investment portfolio and SL1 Venture are estimated to be funded on~~ the ~~following schedule:~~public equity capital markets. We can provide no assurance that internalization will occur at this time.

Future Fundings for Investments

2019

2020

2021

2022

2023 and thereafter

Total
Estimated Funding Amount

$
102,162

$
91,388

$
14,690

$
1,225

$
2,435

$
211,900

Credit Facility

On December 28, 2018, we entered into an amendment and restatement of the Credit Facility to, among other things allow up to $235 million of borrowings and an accordion feature permitting expansion up to $400 million. Our development property investments are eligible to be added to the base of collateral available to secure loans under the Credit Facility once they receive a certificate of

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occupancy, thereby increasing the borrowing capacity under the Credit Facility. Accordingly, we believe our availability under the Credit Facility will increase substantially over the next twelve months as construction on several investments in our investment portfolio are completed. However, we can provide no assurances that we will have access to the full amount of the Credit Facility. As of ~~May 1,~~October 31, 2019, we had ~~$49.9~~$148.0 million outstanding of our ~~$144.4~~$198.5 million in total availability under the Credit Facility.

During the remainder of 2019 and in 2020, we believe we will have substantial opportunities for new ~~investments.~~investments, consisting primarily in the buyout of developers’ interests in self-storage facilities we have financed. 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, procure the Credit Facility, and enter into term loan debt. 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.

LIBOR is expected to be discontinued after 2021. None of our current debt that has an interest rate tied to LIBOR has a maturity date of later than December 31, 2021 unless the extension options under the Credit Facility are exercised. The Credit Facility provides procedures for determining an alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to what that alternative base rate will be and whether that base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders to ensure any transition away from LIBOR will have minimal impact on our financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.

Common Stock ATM Program

On April 5, 2017, we entered into the ATM Program with an aggregate offering price of up to $50.0 million. On December 7, 2018, we entered into a new equity distribution agreement with an aggregate offering price under the new ATM Program of up to $75.0 million. Since the inception of the ATM ~~Programs,~~Program and our previous ATM Program, we have sold an aggregate of ~~2,435,466~~3,966,123 shares of common stock at a weighted average price of ~~$21.76~~$21.48 per share, receiving net proceeds after commissions and other offering costs of ~~$51.4~~$83.0 million. ~~As of May 1, 2019, we~~We do not currently have ~~approximately $72.0 million available for issuance under the~~an active ATM ~~Program~~Program..

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.

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 a substantial portion of our investments with the net proceeds from our IPO and concurrent private placement, which were consummated on April 1, 2015, proceeds from the issuance of our Series A Preferred Stock, proceeds from

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three follow-on public offerings of common stock, which were consummated on December 13, 2016, June 27, 2017, and June 14, 2018, proceeds received from sales of shares from time to time under the ATM Programs and proceeds from the issuance of our Series B Preferred Stock. At ~~March 31,~~September 30, 2019, we had total indebtedness of ~~$61.1~~$97.0 million, or ~~9.7%~~13.8% of total assets. During the remainder of 2019, we expect to continue to primarily utilize borrowings under our Credit Facility ~~along with the other sources of capital described herein~~ to fund our operations and our investment commitments. Our investment guidelines state that our leverage will generally be 25% to 35% of our total assets. 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 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

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charges) of 1.20 to 1.00 during the period between December 28, 2018 and December 31, 2020, 1.30 to 1.00 during the period between January 1, 2021 and December 31, 2022 and 1.40 to 1.00 during the period between January 1, 2023 through the maturity of the Credit Facility; (iii) a minimum consolidated tangible net worth (defined as gross asset value less total consolidated indebtedness) of $373.6 million plus 75% of the sum of any additional net offering proceeds; (iv) when the outstanding balance under the Credit Facility exceeds $50 million, unhedged variable rate debt cannot exceed 40% of consolidated total indebtedness; (v) liquidity of no less than the greater of (a) future funding commitments of us and our subsidiaries for the three months following each date of determination and (b) $50 million for the period between December 31, 2018 and December 31, 2019 or on and after January 1, 2020, liquidity of no less than the greater of (a) future funding commitments of us and our subsidiaries for the six months following each date of determination and (b) $50 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 2.00 to 1.00.

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 our mortgage loans, the borrowing base availability is the lesser of (i) 60% of the outstanding balance of our mortgage loans and (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 asset fair value securing our mortgage loans. For loans secured by non-stabilized 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 the non-stabilized self-storage properties to be greater than 60% of the as-stabilized value of such non-stabilized self-storage properties, (ii) the maximum principal amount which would not cause the outstanding loans under the Credit Facility to be greater than 75% of the total development cost of the non-stabilized self-storage properties, and (iii) whichever of the following is then applicable: (a) the maximum principal amount that would not cause the ratio of (1) stabilized net operating income from the non-stabilized self-storage properties included in the borrowing base divided by (2) an implied debt service coverage amount to be less than 1.35 to 1.00, (b) for any underlying real estate asset securing the non-stabilized self-storage properties that has been included in the borrowing base for greater than 18 months, the maximum principal amount which would not cause the ratio of (1) actual adjusted net operating income for the underlying real estate asset securing such non-stabilized self-storage properties divided by (2) an implied debt service amount to be less than 0.50 to 1.00, and (c) for any underlying real estate asset securing the non-stabilized self-storage properties that has been included in the borrowing base for greater than 30 months, the maximum principal amount which would not cause the ratio of (1) actual adjusted net operating income for the underlying real estate asset securing such non-stabilized self-storage properties divided by (2) an implied debt service amount to be less than 1.00 to 1.00. For loans secured by stabilized 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 the underlying real estate asset securing the stabilized 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 the underlying real estate asset securing such stabilized 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 the composition of our investment portfolio. 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 investment portfolio to minimize the risk that we will have to refinance our liabilities prior to the maturities of our investments 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

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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

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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.

Contractual Obligations and Commitments

The following table reflects our total contractual cash obligations as of ~~March 31,~~September 30, 2019 (dollars in thousands):



Contractual Obligations	2019		2020		2021		2022		2023		Thereafter		Total		2019		2020		2021		2022		2023		Thereafter		Total
Long-term debt obligations (1)(2)	$	-	$	-	$	61,088	$	-	$	-	$	-	$	61,088	$	-	$	-	$	166,175	$	-	$	-	$	-	$	166,175

⁽¹⁾

Represents principal payments gross of discounts and debt issuance costs.

⁽²⁾

Amount excludes interest, which is variable based on 30-day LIBOR plus spreads ranging from 2.25% to 3.25%.

The following schedule depicts the impact of interest rate swaps and interest rate caps on our debt as of September 30, 2019:


	Principal		LIBOR		Margin		Effective Interest Rate		Effective Date	Maturity
Term Loans under interest rate swaps	$	34,088	2.2925	%	2.25	%	4.5425	%	6/3/2019	8/1/2021
Term Loan under interest rate swap		7,087	1.6025	%	2.25	%	3.8525	%	8/13/2019	8/1/2021
Secured revolving credit facility under interest rate cap(1)		125,000	2.0955	%	3.154	%	5.2495	%	6/25/2019	12/28/2021
	$	166,175

⁽¹⁾

The effective interest rate represents the average on the underlying variable debt unless the cap rate of LIBOR plus 2.50% is reached.

At ~~March 31,~~September 30, 2019, we had ~~$211.4~~$167.6 million of unfunded loan commitments related to our investment portfolio and ~~$0.5~~$0.3 million related to the SL1 Venture. These commitments are primarily funded over the 12-30 months following the investment closing date as construction is completed. At ~~March 31,~~September 30, 2019, we had ~~$2.0~~$2.4 million of unfunded loan commitments related to our other assets.

As of ~~March 31,~~September 30, 2019, we had unrestricted cash of approximately ~~$3.9~~$7.0 million.

Off-Balance Sheet Arrangements

At ~~March 31,~~September 30, 2019, 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 ~~March 31,~~September 30, 2019, we declared a cash dividend to our stockholders of $0.35 per share, payable on ~~April~~October 15, 2019 to stockholders of record on ~~April~~October 1, 2019. 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

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year thereafter so long as the Series A Preferred Stock remains issued and outstanding, payable quarterly in arrears, and (C) an amount

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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 our 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, 2018 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, 2018 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.

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 our 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 SEC 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.

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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 2018 Form ~~10-K.~~10-K except as set forth below.

Market Risk

Our development property investments and bridge investments 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				Increase (decrease) in fair value of investments
Change in market yields/discount rates (in millions)	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Up 25 basis points	$	(2.0)	$	(1.9)	$	(2.1)	$	(1.9)
Down 25 basis points, subject to a minimum yield/rate of 10 basis points		2.1		2.0		2.2		2.0

Up 50 basis points		(4.1)		(3.9)		(4.2)		(3.9)
Down 50 basis points, subject to a minimum yield/rate of 10 basis points		4.3		4.1		4.5		4.1

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)	September 30, 2019		December 31, 2018
Up 25 basis points	$	(9.0)	$	(8.9)
Down 25 basis points		9.8		9.8

Up 50 basis points		(17.1)		(17.0)
Down 50 basis points		20.7		20.5

Interest Rate Risk

As of September 30, 2019, the effect of our hedge agreements was to fix the interest rate on our $41.2 million variable rate term loans and our Credit Facility. Based on our current debt balances and interest rate swaps and caps in effect as of September 30, 2019, a one hundred basis point increase/decrease in the 30 day LIBOR interest rate would have the following impact on our annual cash interest expense:

Increase (decrease) in fair value of investments
Change in capitalization rates (in millions)

March 31, 2019

December 31, 2018
Up 25 basis points

$
(9.4)

$
(8.9)
Down 25 basis points

10.3

9.8

Up 50 basis points

(18.0)

(17.0)
Down 50 basis points

21.8

20.5


	Increase (decrease) in annual cash interest expense
Change in 30 Day LIBOR	September 30, 2019
Up 100 basis points	$	0.7
Down 100 basis points		(1.3)

Derivative financial instruments expose us to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. We believe we minimize our credit risk on these transactions by dealing with major, creditworthy financial institutions. As part of our on-going control procedures, we monitor the credit ratings of counterparties and our exposure to

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any single entity, thus minimizing credit risk concentration. We believe the likelihood of realized losses from counterparty non-performance is remote.

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 CEO and CFO. 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

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such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Based on the controls evaluation, our CEO and CFO 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 CEO and CFO.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended ~~March 31,~~September 30, 2019 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. ~~Other than as described below, we~~We are not currently involved in any material legal proceedings outside the ordinary course of our business.

As described elsewhere in this Quarterly Report on Form 10-Q, the Company’s $17.7 million Miami construction loan has been placed on non-accrual status and the Company has commenced proceedings to foreclose on the underlying collateral. The foreclosure proceedings were commenced by the Company on January 8, 2019 in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida in an action entitled ~~Jernigan Capital Operating Company v. Storage Partners of Miami I, LLC et. al.~~ On May 1, 2019, the defendant borrower filed an answer to the Company’s complaint and a counter-claim against the Company. The counter-claim alleges, among other things, that, in its dealings with the borrower, the Company breached certain agreements with the borrower, breached an alleged implied covenant of good faith and fair dealing, made false statements that induced certain actions by the borrower, violated Florida’s Deceptive and Unfair Trade Practices Act and breached fiduciary duties allegedly owed to the borrower. The Company believes that the counter-claims brought by the borrower are without merit and intends to vigorously pursue the foreclosure action and other claims for damages against the borrower and its principals and to vigorously defend against the related counter-claims by the borrower. The Company can provide no assurances as to the outcome of this litigation or provide an estimate of any potential liability or related litigation expenses at this time.

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 2018 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								Maximum Dollar
provides information					Total Number of		Value						Total Number of		Value
about repurchases of our	Total				Shares Purchased		that May Yet Be		Total				Shares Purchased		that May Yet Be
common shares during	Number of		Average		as Part of Publicly		Purchased Under the		Number of		Average		as Part of Publicly		Purchased Under the
the three months	Shares		Price Paid		Announced Plans or		Plans or Programs (1)		Shares		Price Paid		Announced Plans or		Plans or Programs (1)
ended March 31, 2019:	Purchased		Per Share		Programs		(dollars in thousands)
January 1-January 31		-	$	-		-	$	6,848
February 1-February 28		-		-		-		6,848
March 1-March 31		-		-		-		6,848
ended September 30, 2019:									Purchased		Per Share		Programs		(dollars in thousands)
July 1-July 31										-	$	-		-	$	6,848
August 1-August 31										-		-		-		6,848
September 1-September 30										-		-		-		6,848
Total		-	$	-		-	$	6,848		-	$	-		-	$	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 February 22, 2019, an employee of the Manager returned 1,482 shares of our common stock to us in connection with the vesting of 4,692 shares of restricted stock, in order to satisfy tax withholding obligations.

On March 8, 2019, an employee of the Manager returned 1,926 shares of our common stock to us in connection with the vesting of 6,000 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~~		Second Amendment to Term Loan Agreement dated as of January 18, 2019 between McGinnis Ferry Owner, LLC, as borrower, and FirstBank, as lender (incorporated by reference to Exhibit 10.28 to Jernigan Capital, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 1, 2019).

~~10.2~~		Second Amendment to Term Loan Agreement dated as of January 18, 2019 between Franklin Owner, LLC, as borrower, and FirstBank, as lender (incorporated by reference to Exhibit 10.29 to Jernigan Capital, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 1, 2019).

~~10.3~~		Second Amendment to Term Loan Agreement dated as of January 18, 2019 between Storage Builders II, LLC, as borrower, and FirstBank, as lender (incorporated by reference to Exhibit 10.30 to Jernigan Capital, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 1, 2019).

10.4*		Letter Agreement, dated as of January 28, 2019, by and between HVP III Storage Lenders Investor, LLC and Jernigan Capital Operating Company, LLC amending the terms of the Limited Liability Company Agreement of Storage Lenders LLC.

10.5*		~~Amendment to the Limited Liability Company Agreement of Storage Lenders LLC, dated March 28, 2019.~~

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: ~~May 2,~~November 1, 2019	By:	/s/ John A. Good
		John A. Good
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~May 2,~~November 1, 2019	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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3/15/2019	Stamford (5)		2,904		2,913		-		2,885
		$	548,050	$	340,859	$	209,382	$	388,266
Construction loans:
12/23/2015	Miami		17,733		17,733		-		17,733
		$	17,733	$	17,733	$	-	$	17,733
Total development property investments		$	565,783	$	358,592	$	209,382	$	405,999

Bridge investments (includes a profits interest):
3/2/2018	Miami 4 (2)(7)		20,201		20,201		-		23,217
3/2/2018	Miami 5 (2)(4)(7)		17,738		17,272		991		15,217
3/2/2018	Miami 6 (2)(7)		13,370		13,370		-		17,681
3/2/2018	Miami 7 (2)(4)(7)		18,462		17,986		1,022		16,812
3/2/2018	Miami 8 (2)(7)		13,553		13,553		-		14,119
Total bridge investments		$	83,324	$	82,382	$	2,013	$	87,046

Total investments reported at fair value		$	649,107	$	440,974	$	211,395	$	493,045



		# Months
Location	Date Opened	Open		Occupancy
Ocoee, Florida (Orlando 1 and Orlando 2) (1)	May 1, 2016		36		85.8	%
Marietta, Georgia (Atlanta 2) (1)	May 24, 2016		35		78.1	%
Alpharetta, Georgia (Atlanta 1) (1)	May 25, 2016		35		86.8	%
Jacksonville, Florida (Jacksonville 1) (1)	August 12, 2016		33		86.5	%
Charlotte, North Carolina (Charlotte 1) (1)	August 18, 2016		32		61.1	%
Milwaukee, Wisconsin	October 9, 2016 (2)		31		66.8	%
New Haven, Connecticut (1)	December 16, 2016		29		65.7	%
Round Rock, Texas (Austin)	March 16, 2017		26		78.8	%
Pittsburgh, Pennsylvania (1)	May 11, 2017 (3)		24		41.4	%
Jacksonville, Florida (4)(6)	July 26, 2017		21		79.9	%
Columbia, South Carolina (4)	August 23, 2017		20		66.0	%
Atlanta, Georgia (Atlanta 2) (4)(6)	September 14, 2017		20		58.7	%
Washington DC (4)	September 25, 2017		19		60.7	%
New York, New York (New York City 1) (1)	September 29, 2017		19		62.8	%
Denver, Colorado (4)(6)	December 14, 2017		17		56.2	%
Miami, Florida (Miami 1) (4)	February 23, 2018		14		52.1	%
Raleigh, North Carolina	March 8, 2018		14		40.7	%
Jacksonville, Florida (Jacksonville 2)	March 27, 2018		13		43.8	%
Atlanta, Georgia (Atlanta 1) (4)(6)	April 12, 2018		13		41.1	%
Average (Facilities open for more than 1 year)			23.7		64.5	%	(5)