UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.  )

Filed by the Registrant ☒       Filed by a Party other than the Registrant  o

Check the appropriate box:

Payment of Filing Fee (Check the appropriate box):

Jernigan Capital, Inc.

         ,January 17, 2020

To our Stockholders:

You are cordially invited to attend a special meeting of common stockholders (the “Special Meeting”) of Jernigan Capital, Inc. (the “Company”). The Special Meeting will be held on ,February 20, 2020 at 10:00 a.m. Central Standard Time, at 6410 Poplar Avenue, Suite 650, Memphis, Tennessee 38119. The Notice of Special Meeting of common stockholders and proxy statement, both of which accompany this letter, provide details regarding the business to be conducted at the meeting, as well as other important information about us.

At the Special Meeting, you will be asked to consider and vote on a proposal to approve the acquisition by Jernigan Capital Operating Company, LLC (the “Operating Company”) of substantially all of the operating assets and liabilities of JCap Advisors, LLC, the Company’s external manager (the “Manager”). We refer to this transaction as the “Internalization.” The Internalization is described briefly below and in greater detail in the enclosed materials, which we urge you to read carefully. In addition, you will be asked to consider and vote on a proposal to adjourn the Special Meeting to a later date or time, if necessary or appropriate, including for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Internalization.

In connection with the Internalization, the Company, the Manager, Dean Jernigan, our founder and former executive chairman of the board, John A. Good, our chairman and chief executive officer, and Jonathan L. Perry, our president and chief investment officer, have signed an asset purchase agreement dated December 16, 2019 (the “Purchase Agreement”), providing for the Company’s acquisition of all of the assets that the Manager uses to operate our business in exchange for 1,794,872 common units of limited liability company interest in the Operating Company (“OC Units”) issuable to the Manager upon the closing of the Internalization (the “Initial Consideration”) and an additional 769,231 OC Units issuable to the Manager if either (a) the Company’s common stock trades at or above a daily volume weighted average price of $25.00 per share for at least 30 days during any 365-day period prior to December 31, 2024 or (b) there is a change of control of the Company (as defined in the Purchase Agreement) prior to December 31, 2024, that is approved by the Company’s board of directors and the common stockholders of the Company (the “Earn Out Consideration” and, together with the Initial Consideration, the “Internalization Consideration”). As a result of the Internalization, the Manager will cease to perform any outside management services for the Company, each employee of the Manager is expected to become an employee of the Company or its subsidiaries, and the Company will become internally managed. Following the Internalization, the Company will no longer be required to pay management fees, incentive fees or expense reimbursements to the Manager.

In connection with the Internalization, our board of directors formed a special committee comprised entirely of disinterested directors (the “Special Committee”) to review, consider, negotiate and approve the terms and conditions of the Internalization, including the composition of the Internalization Consideration, and to recommend to our full board of directors whether to pursue the Internalization and, if so, on what terms and conditions. As more fully described in the accompanying proxy statement, no member of the Special Committee is affiliated with the Manager, and none has a financial interest in the Internalization that differs from that of our stockholders. In evaluating the Internalization, the Special Committee engaged independent legal and financial advisors and received a fairness opinion from HFF Securities L.P., a JLL company, its independent financial advisor, as more fully described in the accompanying proxy statement. Even if approved by our common stockholders, the Internalization will not be implemented unless other conditions to the Internalization set forth in the Purchase Agreement are satisfied. The Special Committee may waive certain of these conditions in its sole discretion.

Following the consummation of the Internalization, the Company will be led by substantially the same highly experienced management team that has been integral to our growth and success. John A. Good will continue to serve as chairman and chief executive officer, Jonathan L. Perry will continue to serve as president and chief investment

officer and Kelly P. Luttrell will continue to serve as chief financial officer. As described further in the accompanying

proxy statement, Messrs. Good and Perry have entered into employment agreements with the Company. Each such agreement will become effective upon the closing of the Internalization.

Mr. Jernigan, our founder and former executive chairman of the board, and Messrs. Good and Perry own membership interests in the Manager. These interests result in those parties having material financial interests in the Internalization, which conflicts of interests have been considered and addressed by the Special Committee in connection with its recommendations to our board of directors with respect to the Internalization. None of Messrs. Jernigan, Good or Perry is a member of the Special Committee.

The accompanying proxy statement provides a detailed description of the proposals described above, and includes information about the Company, the Operating Company, the Manager and the Internalization. We urge you to review the accompanying proxy statement carefully to ensure you will be informed about the business to be addressed at the Special Meeting. You may also obtain more information about the Company and the Manager from documents the Company has filed with the Securities and Exchange Commission. Shares of the Company’s Common Stock are listed on the New York Stock Exchange under the ticker symbol “JCAP.”

Along with the other members of the board of directors and management, I look forward to greeting you at the meeting if you are able to attend.

	Cordially,
	John A. Good
	Chairman of the Board of Directors

JERNIGAN CAPITAL, INC.

6410 Poplar Avenue, Suite 650
Memphis, Tennessee 38119

NOTICE OF SPECIAL MEETING OF COMMON STOCKHOLDERS
TO BE HELD ON FEBRUARY 20, 2020

TIME, DATE & PLACE

A Special Meeting of common stockholders (the “Special Meeting”) will be held at 10:00 a.m. Central Standard Time, on ,February 20, 2020 at 6410 Poplar Avenue, Suite 650, Memphis, Tennessee 38119.

ITEMS OF BUSINESS

Holders of our common stock will consider and vote on the following proposals at the Special Meeting:

The proxy statement accompanying this notice describes each of these items of business in detail.

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE PROPOSALS TO BE CONSIDERED AND VOTED ON AT THE SPECIAL MEETING.

WHO MAY VOTE

Holders of common stock of the Company, par value $0.01 per share, of record at the close of business on ,January 16, 2020 (the “Record Date”) are entitled to receive this notice and vote at the Special Meeting and any adjournment or postponement of the Special Meeting. As of the close of business on the Record Date, we had 23,233,283 shares of our common stock outstanding. Holders of 7.00% Series B cumulative redeemable perpetual preferred stock, $0.01 par value per share, of the Company and holders of Series A Preferred Stock of the Company are not entitled to notice of or to vote at the Special Meeting.

HOW TO VOTE

It is important that your shares be represented at the Special Meeting, regardless of the number of shares you hold and whether or not you plan to attend the Special Meeting in person. Accordingly, whether or not you plan to attend the Special Meeting, you are requested to promptly grant a proxy for your shares by completing,

signing and dating the enclosed proxy card and returning it as instructed. If you sign, date and mail your proxy card without indicating how you wish to vote, your vote will be counted as a vote (1) FOR approval of the Internalization and (2) FOR approval of the adjournment of the Special Meeting, if necessary or appropriate in the discretion of the chairman of the Special Meeting.

Unless otherwise specified, a proxy also will confer authority on the persons named therein to vote in their discretion on such other business as may properly come before the Special Meeting. Granting a proxy will not prevent you from voting your shares in person if you choose to attend the Special Meeting.

If you have any questions or need assistance submitting a proxy or your voting instructions, please call our proxy solicitor, Georgeson LLC, toll-free at (866) 431-2101.

	By Order of the Board of
	Directors
	Kelly P. Luttrell
	Corporate Secretary

Memphis, Tennessee
         ,January 17, 2020

TABLE OF CONTENTS

JERNIGAN CAPITAL, INC.
6410 Poplar Avenue Suite 650
Memphis, Tennessee 38119

PROXY STATEMENT

Jernigan Capital, Inc. is soliciting proxies from the holders of the Company’s issued and outstanding shares of common stock, par value $0.01 per share (the “common stock”), in connection with the special meeting of common stockholders (“Special Meeting”), and your vote is very important. For this reason, our board of directors requests that you allow your shares to be represented at the Special Meeting by the proxies named on the applicable enclosed Proxy Card. This proxy statement is dated January 17, 2020. In connection with our solicitation of proxies, we are mailing this proxy statement to stockholders and making such materials available on the Internet beginning on or about ,January 23, 2020.

In this proxy statement, terms such as “JCAP”, the “Company,” “we,” “us” and “our” refer to Jernigan Capital, Inc. We refer to our manager, JCap Advisors, LLC, as “the Manager.” We refer to Jernigan Capital Operating Company, LLC as “the Operating Company.” We refer to the Manager, Dean Jernigan, John A. Good and Jonathan L. Perry collectively as the “Manager Parties.”

INFORMATION ABOUT THE SPECIAL MEETING

The Special Meeting

The Special Meeting will be held ,February 20, 2020, at 10:00 a.m. Central Standard Time at 6410 Poplar Avenue, Suite 650, Memphis, Tennessee 38119 and at any adjournment or postponement thereof.

Purpose of the Special Meeting

The purpose of the Special meeting is to consider and vote on the following proposals:

As of the date of this proxy statement, we are not aware of any other matters that will be presented for action at the Special Meeting.

SUMMARY

This summary highlights only selected information from this proxy statement relating to the Internalization. This summary does not contain all of the information about the Internalization and related transactions contemplated by the Purchase Agreement that may be important to you. As a result, to understand the Internalization and the related transactions fully and for a more complete description of the terms of the Internalization and related transactions, you should read carefully this proxy statement in its entirety, including the exhibits and the other documents to which we have referred you, including the Purchase Agreement attached as Exhibit A. Each item in this summary includes a page reference directing you to a more complete description of that item elsewhere in this proxy statement. This proxy statement is first being mailed to our stockholders on or about January 23, 2020.

The Parties to the Purchase Agreement (Page 19)

Jernigan Capital, Inc.

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 metropolitan statistical areas, or 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 (i) mortgage loans typically coupled with equity interests, secured by Generation V self-storage facilities, (ii) preferred equity investments in Generation V self-storage facilities, and (iii) wholly-owned Generation V self-storage facilities. We provided the development and construction financing for each of our wholly-owned facilities, and we hold rights of first refusal to acquire each facility in which we have invested but do not now own. We are a Maryland corporation organized on October 1, 2014 that has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes.

Our website is www.jernigancapital.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the SEC. Shares of our common stock are listed on the New York Stock Exchange under the symbol “JCAP.” For additional information about us and our business, please refer to “Where You Can Find More Information” on page 70 of this proxy statement.

Jernigan Capital Operating Company, LLC

The Operating Company is a Delaware limited liability company. All of our assets are held by, and we conduct substantially all of our activities through the Operating Company and its consolidated subsidiaries. The Company is the managing member of the Operating Company and currently owns, directly or indirectly, 100% of the interests in the Operating Company.

JCap Advisors, LLC

The Manager is a Florida limited liability company formed primarily for the purpose of serving as the external manager of the Company and the Operating Company. The Manager’s relationship with the Company and the Operating Company is governed by the Third Amended and Restated Management Agreement, dated November 1, 2017 (the “Management Agreement”). Pursuant to the Management Agreement, our Manager is responsible for (a) our day-to-day operations (including finance, accounting and investor relations), (b) determining investment criteria and strategy in conjunction with our board of directors, (c) sourcing, analyzing, originating, underwriting, structuring, and acquiring our portfolio investments, (d) sourcing, analyzing, procuring and managing our capital and (e) performing portfolio management duties. The Manager has an Investment Committee that approves investments in accordance with our investment guidelines, investment strategy, and financing strategy. The Manager receives base and incentive fees and reimbursement of a substantial portion of its expenses in exchange for the services it provides to us. For more information about the Manager and the Management Agreement see “Our Manager and Management Agreement” beginning on page 20.

Dean Jernigan

Dean Jernigan is our founder and was executive chairman of our board of directors until his retirement effective December 31, 2019 and is the managing member of the Manager. Pursuant to the operating agreement of the Manager, Mr. Jernigan and certain of his affiliates will be entitled to an aggregate of 1,538,462 OC Units of the Initial Consideration and 615,385 OC Units of the Earn Out Consideration, if applicable.

John A. Good

John A. Good is our chairman and chief executive officer and a member of the Manager and became chairman of our board of directors effective December 31, 2019. Pursuant to the operating agreement of the Manager, Mr. Good will be entitled to 179,487 OC Units of the Initial Consideration and 76,923 OC Units of the Earn Out Consideration, if applicable.

Jonathan L. Perry

Jonathan L. Perry is our president and chief investment officer and a member of the Manager. Pursuant to the operating agreement of the Manager, Mr. Perry will be entitled to 76,923 OC Units of the Initial Consideration and 76,923 OC Units of the Earn Out Consideration, if applicable. Mr. Perry is the son in law of Mr. Jernigan.

The Special Meeting (page 21)

General

This section contains information about the Special Meeting of common stockholders.

Together with this proxy statement, we are sending you a notice of Special Meeting of common stockholders and a form of proxy that is being solicited by our board of directors for use at the Special Meeting. The information and instructions contained in this section are addressed to our stockholders, and all references to “you” or “stockholders” in this section and elsewhere in the proxy statement should be understood to be addressed to our stockholders.

The Proposals

The Special Meeting of our stockholders will be held at 10:00 a.m. Central Standard Time, on ,February 20, 2020 at 6410 Poplar Avenue, Suite 650, Memphis, Tennessee 38119. At the Special Meeting, you will be asked to consider and vote on:

We do not expect that any matters other than the proposals set forth above will be brought before the Special Meeting, and only matters specified in the notice of the meeting may be acted upon at the Special Meeting. If, however, such a matter is properly presented at the Special Meeting or any postponement or adjournment of the Special Meeting, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies.

Recommendations of Our Board of Directors

After careful consideration, following the unanimous approval and recommendation by a special committee (the “Special Committee”) consisting of all of our disinterested directors, our board of directors has unanimously approved the Internalization, the Purchase Agreement and the other transactions contemplated by the Purchase

Agreement, and has declared the Internalization and the other transactions contemplated by the Purchase Agreement advisable and in the best interests of the Company and our stockholders. Accordingly, our board of directors has recommended that the stockholders vote “FOR” Proposal 1, the Internalization Proposal. In addition, our board of directors has recommended that stockholders vote “FOR” Proposal 2, the Adjournment Proposal.

For more information concerning the recommendation of our board of directors with respect to the Internalization, see “Proposal 1: Proposal to Approve the Internalization—Recommendations of the Special Committee and Our Board of Directors” beginning on page 43.

Record Date, Notice and Quorum

All holders of record of our common stock as of the close of business on ,January 16, 2020, the record date for the Special Meeting (the “Record Date”), are entitled to receive notice of and attend the Special Meeting or any postponement or adjournment of the Special Meeting. Each common stockholder will be entitled to cast one vote on each matter presented at the Special Meeting for each share of common stock that such holder owned as of the Record Date. On the Record Date, there were 23,233,283 shares of common stock outstanding and entitled to vote at the Special Meeting.

The presence in person or by proxy of our common stockholders entitled to cast a majority of all the votes entitled to be cast as of the close of business on the Record Date will constitute a quorum for purposes of the Special Meeting. A quorum is necessary to transact business at the Special Meeting. Abstentions will be counted as shares present for the purposes of determining the presence of a quorum. If a quorum is not present at the Special Meeting, we expect that the Special Meeting will be postponed or adjourned to a later date.

Required Vote

Approval of the Internalization Proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Special Meeting if a quorum is present. In addition, pursuant to the Purchase Agreement, the Internalization also must be approved by the affirmative vote of a majority of the votes cast (other than votes cast for shares owned directly or indirectly by Dean Jernigan and John A. Good or their affiliates) at the Special Meeting if a quorum is present. However, the shares owned directly or indirectly by Mr. Jernigan, Mr. Good and their affiliates will count toward establishing a quorum at the Special Meeting.

Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Special Meeting if a quorum is present.

Abstentions and Broker Non-Votes

Under Maryland law, abstentions are not considered to be votes cast on a proposal. However, with respect to matters for which stockholder approval is a prerequisite to the listing of shares, the New York Stock Exchange (the “NYSE”) has taken the position that abstentions should be treated as votes cast. Because the approval of the Internalization Proposal would require the listing on the NYSE of the shares of common stock issuable upon redemption of the OC Units that comprise the Internalization Consideration, an abstention with respect to the Internalization Proposal will be treated as a vote cast, and will thus have the same effect as a vote “against” the Internalization Proposal. Abstentions will have no effect on the results of the Adjournment Proposal.

In addition, both proposals to be voted on at the Special Meeting are “non-routine” under NYSE Rule 452. As a result, there can be no broker non-votes at the Special Meeting, so failure to provide instructions to your broker or other nominee on how to vote will result in your shares not being counted as present at the meeting. A broker non-vote occurs when shares held by a broker or other nominee are represented at the meeting, but the broker or other nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular proposal but has discretionary voting power on other proposals. Nominees may exercise discretion in voting on routine matters but may not exercise discretion and therefore will not vote on non-routine matters if instructions are not given. The proposals included herein are regarded as non-routine matters, and your broker or other nominee may not vote on these proposals without instructions from you.

Votes by our Directors and Executive Officers

As of the Record Date, our directors and executive officers owned and are entitled to vote an aggregate of approximately          shares of our common stock, entitling them to exercise approximately   % of the voting power of our common stock entitled to vote at the Special Meeting. Our directors and executive officers have informed us

that they intend to vote the shares of our common stock that they own in favor of the Internalization Proposal and the Adjournment Proposal. Votes cast for shares owned directly or indirectly by Dean Jernigan and John A. Good or their affiliates will be counted for approval of the Internalization

Proposal; however, the Purchase Agreement also requires the approval by the affirmative vote of a majority of the votes cast other than votes cast for shares owned directly or indirectly by Dean Jernigan, John A. Good or their affiliates. As of the Record Date, our directors, executive officers, Mr. Jernigan and his affiliates collectively owned and are entitled to vote an aggregate of approximately 947,901 shares of our common stock, entitling them to exercise approximately 4.1% of the voting power of our common stock entitled to vote at the Special Meeting, of which 791,908 shares, or approximately 3.4% of the voting power of our common stock, are owned directly or indirectly by Mr. Jernigan, Mr. Good or their affiliates and will be excluded from the number of votes cast on the Internalization Proposal for purposes of the Purchase Agreement.

Proxies; Revocation

Any of our common stockholders of record entitled to vote may authorize a proxy by returning the enclosed proxy card, authorizing your proxy or voting instructions by telephone or through the Internet, or by appearing and voting at the Special Meeting in person. If the shares of our common stock that you own are held in “street name” by your broker, you should instruct your broker on how to vote your shares using the instructions provided by your broker.

Any proxy may be revoked at any time prior to its exercise by your delivery of a properly executed, later-dated proxy card, by authorizing your proxy by telephone or through the Internet at a later date than your previously authorized proxy, by your filing a written revocation of your proxy with our Secretary or by your voting in person at the Special Meeting. If you are a common stockholder of record, your proxy must be received by telephone or the Internet by 11:59 p.m., New York time, on ,February 19, 2020 in order for your shares to be voted at the Special Meeting.

The Internalization (page 54)

Pursuant to the terms of the Purchase Agreement, subject to the satisfaction or waiver of certain conditions set forth in the Purchase Agreement, the Operating Company will acquire substantially all of the operating assets and liabilities of the Manager and each of the employees of the Manager is expected to become an employee of the Company. As a result of the Internalization, the Manager will cease to perform any outside management services for the Company and the Company will become internally managed.

Upon the closing of the Internalization, the Operating Company will issue to the Manager 1,794,872 OC Units. In addition, if either (a) the Company’s common stock trades at or above a daily volume weighted average price of $25.00 per share for at least 30 days during any 365-day period prior to December 31, 2024 or (b) there is a change of control of the Company (as defined in the Purchase Agreement) prior to December 31, 2024 that is approved by the Company’s board of directors and the common stockholders of the Company, the Operating Company will issue an additional 769,231 OC Units to the Manager. The OC Units issuable in the Internalization are Class B OC Units. As a result, the initial distributions payable on the OC Units to be issued in the Internalization will be prorated for the number of days during the initial distribution period that such OC Units are outstanding. The Class B OC Units are otherwise identical to Class A OC Units and will automatically convert to Class A OC Units following the initial distribution period.

The consummation of the Internalization is subject to certain closing conditions, including the approval of the Internalization by a majority of votes cast by the Company’s common stockholders at the Special Meeting if a quorum is present (other than votes cast for shares owned directly or indirectly by Dean Jernigan and John A. Good or their affiliates) at the Special Meeting. The Purchase Agreement contains certain customary representations, warranties and covenants.

The Purchase Agreement may be terminated (1) by mutual consent of the Manager and the Operating Company, (2) by either the Manager or the Operating Company if the closing of the Internalization has not occurred on or before June 30, 2020, (3) by the Operating Company if (i) there has been a material breach of any representation, warranty, covenant or agreement of the Manager such that one or more of closing conditions are not capable of being fulfilled as of the Outside Date; provided that (A) the Manager has been provided written notice and a reasonable opportunity to cure such breach and (B) the Operating Company is not in material breach of its obligations under the Purchase Agreement, or (ii) the Company is unable to obtain the stockholder approval of the Internalization at its Special Meeting of common stockholders or (4) by the Manager (but only so long as the Manager is not in material breach of its obligations under the Purchase Agreement) if there has been a material breach of any representation, warranty, covenant or agreement of the Operating Company such that one or more of the conditions to closing are not capable of being fulfilled as of the Outside Date; provided that the Operating Company has been provided written notice and a reasonable opportunity to cure.

Under the Purchase Agreement, the Manager Parties have agreed to severally, and not jointly, indemnify the Company, the Operating Company and their respective affiliates and representatives for losses resulting from (i) any

inaccuracy or breach of representation or warranty of a Manager Party in the Purchase Agreement, (ii) any breach or failure to comply with any covenant made by a Manager Party in the Purchase Agreement and (iii) any asset or liability of the Manager not being acquired or assumed by the Operating Company.

The Operating Company has agreed to indemnify the Manager Parties with respect to any losses resulting from (i) any inaccuracy or breach of representation or warranty by the Operating Company in the Purchase Agreement, (ii) any breach or failure to comply with any covenant in the Purchase Agreement and (iii) any liability of the Manager assumed by Operating Company pursuant to the Purchase Agreement.

Notwithstanding the foregoing, neither the indemnification obligations of the Manager Parties nor the indemnification obligations of the Operating Company will be triggered until the aggregate amount of all indemnifiable losses exceeds $200,000. Furthermore, subject to certain limitations, neither the indemnification obligations of the Manager Parties nor indemnification obligations of the Operating Company may exceed $3.5 million. The Manager Parties may satisfy their indemnification obligations under the Purchase Agreement with OC Units.

For a period of five years following the closing of the Internalization Transaction, subject to certain exceptions, none of the Manager Parties (other than Mr. Perry) or any of their respective affiliates will be entitled to engage in the business of acquiring, financing, owning or operating self-storage facilities or interfere with the business relationship between the Company and its suppliers and vendors or its employees other than on behalf of the Company, the Operating Company or any venture to which the Company, the Operating Company or any of their respective subsidiaries is a party. Such restriction on the solicitation of employees will not apply to the Manager Parties with respect to the employment of Jonathan L. Perry, to the extent Mr. Perry is no longer employed by the Company, and is employed by a Jernigan family-owned business that owns no more than 25 self-storage facilities and none of them are located within a three mile radius of any self-storage facilities in which the Company has an equity or debt investment. Mr. Perry is subject to separate restrictions contained in his employment agreement.

Pursuant to the Purchase Agreement, without the prior written consent of the Operating Company, subject to certain exceptions, neither the Manager nor any of its members who receive OC Units will be permitted to offer, sell, contract to sell, pledge (unless the pledgee agrees to the terms of the Lockup Period), or otherwise transfer or dispose of any of the OC Units received in connection with the Internalization or securities convertible or exchangeable or exercisable for any of such OC Units, or enter into any swap, hedge, or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the OC Units for a period of twelve months commencing on the closing date of the Internalization (the “Lockup Period”). After the Lockup Period and for a period of three years thereafter, neither the Manager nor any of its members who receive OC Units shall in any calendar quarter, without the prior approval of a majority of the independent directors of the Company’s board of directors, offer, sell, contract to sell or otherwise transfer or dispose of (other than by pledge, which is permitted following the Lockup Period) more than 145,000 OC Units or securities convertible or exchangeable or exercisable for any OC Units, or enter into any swap, hedge, or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the OC Units.

In addition, the Purchase Agreement grants customary registration rights to the Manager and its members with respect to the resale of the shares of the Company’s common stock issuable upon the redemption of the OC Units issued as consideration in the Internalization.

Opinion of the Special Committee’s Financial Advisor (page 45 and Exhibit B)

In connection with the Internalization, at a meeting of the Special Committee on December 16, 2019, the Special Committee’s financial advisor, HFF Securities L.P., a JLL Company (“HFF Securities”), rendered its oral opinion to the Special Committee, confirmed by delivery of a written opinion dated December 16, 2019 that, as of that date, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken as set forth in the written opinion, the consideration to be paid by the Company pursuant to the Purchase Agreement was fair from a financial point of view to the Company.

HFF Securities’ opinion did not address any other terms or other aspects or implications of the Internalization or related transactions and no opinion or view was expressed as to the relative merits of the Internalization or related

transactions in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or effect the

Internalization or any related transaction. HFF Securities also expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the Internalization, any related transactions or any other matter.

The full text of HFF Securities’ written opinion, dated December 16, 2019, is attached as Exhibit B to this proxy statement and is incorporated by reference hereto in its entirety.

Interests of Certain of Our Directors and Executive Officers in the Internalization (page 58)

As described above under “—Parties to the Purchase Agreement,” each of Messrs. Jernigan, Good and Perry will be entitled to a portion of the Internalization Consideration.

In addition, Mr. Good and Mr. Perry have entered into employment agreements with the Company, the Operating Company and JCAP Management LLC, a newly formed subsidiary of the Company (“JCAP Management”), which will become effective upon the completion of the Internalization. See “Proposal 1: The Internalization Proposal—Employment Agreements” for a description of the terms of the employment agreements with Mr. Good and Mr. Perry.

Regulatory Matters (page 60)

We are unaware of any material federal, state or foreign regulatory requirements or approvals that are required for the execution of the Purchase Agreement or the completion of the Internalization.

QUESTIONS AND ANSWERS ABOUT THE INTERNALIZATION AND THE SPECIAL MEETING

The following questions and answers briefly address some questions you may have regarding the proposed Internalization and the Special Meeting. The questions and answers may not address all questions that may be important to you as a common stockholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, including the exhibits and the documents we refer to in this proxy statement.

To assist in this process, the Special Committee engaged HFF Securities as its financial advisor and Hunton Andrews Kurth LLP (“Hunton”) as its legal counsel. In addition, the compensation committee of the Company’s board of directors engaged FPL Associates L.P. (“FPL”), an independent executive compensation consulting firm, in connection with the negotiation of the terms and conditions of the employment agreements with certain of our executive officers.

On December 16, 2019, at a meeting of the Special Committee held to evaluate the Internalization, HFF Securities delivered to the Special Committee an oral opinion, which was confirmed by delivery of a written opinion dated December 16, 2019, to the effect that, as of the date of such opinion and based on and subject to various assumptions and limitations described in the opinion, the Internalization Consideration was fair, from a financial point of view, to the stockholders of the Company who are not affiliated with the Manager or its affiliates.

For more information see “Proposal 1: Proposal to Approve the Internalization—Background of the Internalization” beginning on page 24 and “Proposal 1: Proposal to Approve the Internalization—Opinion of the Special Committee’s Financial Advisor” beginning on page 45.

it was advisable and in the best interests of the Company to proceed with the Internalization at this time. The Special Committee considered a number of factors in recommending approval of the Internalization, including the key reasons set forth below:

See “Proposal 1: Proposal to Approve the Internalization—Recommendations of the Special Committee and Our Board of Directors” beginning on page 43.

The Company and the Manager have agreed to extend the date by which the Company may deliver a Termination Notice (as defined in the Management Agreement) from October 3, 2019 to the 90th day following the date of the Special Meeting if the Internalization has not closed by such time.

Approval of the Internalization Proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Special Meeting if a quorum is present. In addition, pursuant to the Purchase Agreement, the Internalization also must be approved by the affirmative vote of a majority of the votes cast (other than votes cast for shares owned directly or indirectly by Dean Jernigan and John A. Good or their affiliates) at the Special Meeting if a quorum is present. However, the shares owned directly or indirectly by Mr. Jernigan, Mr. Good and their affiliates will count toward establishing a quorum at the Special Meeting.

Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Special Meeting if a quorum is present.

Under Maryland law, abstentions are not considered to be votes cast on a proposal. However, with respect to matters for which stockholder approval is a prerequisite to the listing of shares, the NYSE has taken the position that abstentions should be treated as votes cast. Because the approval of the Internalization Proposal would require the listing on the NYSE of the shares of common stock issuable upon redemption of the OC Units that comprise the Internalization Consideration, an abstention with respect to Proposal 1 will be treated as a vote cast, and will thus have the same effect as a vote “against” the Internalization Proposal. Abstentions will have no effect on the results of the Adjournment Proposal.

Stockholders of Record: Shares Registered in Your Name. If on the Record Date your shares were registered directly in your name with our transfer agent, then you are a common stockholder of record. As a common stockholder of record, you may vote in person at the Special Meeting or vote by proxy. Whether or not you plan to attend the Special Meeting, we urge you to fill out and return the Proxy Card, or vote by proxy over the telephone or on the Internet as instructed below, to ensure your vote is counted.

Beneficial Owner: Shares Registered in the Name of Broker, Bank or Other Nominee. If on the Record Date your shares were held in an account at a brokerage firm, bank, dealer or other nominee, then you are the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you by that organization. The organization holding your account is the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker or other nominee on how to vote the shares in your account. You are also invited to attend the Special Meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the Special Meeting unless you request and obtain a valid legal proxy from your broker or other nominee.

Please also note that if you are the beneficial owner of shares held in “street name” (that is, through a bank, broker or other nominee), you will also need to bring a copy of the brokerage statement or other correspondence from your broker or nominee reflecting your share ownership as of the Record Date.

In Person: You may attend the Special Meeting and vote in person.

By Proxy: You may vote by telephone, on the Internet or by mail. We encourage you to vote by telephone or Internet, both of which are convenient, cost-effective, and reliable alternatives to returning your Proxy Card by mail.

Beneficial Owners: If you are a beneficial owner (that is, your shares are held in “street name” through an account with a brokerage firm, bank, dealer or other nominee), you will receive instructions from that entity describing how to vote your shares. To vote at the Special Meeting, beneficial owners will need to contact the brokerage firm, bank, dealer or nominee that holds their shares to obtain a “legal proxy” to bring to the meeting. If you do not instruct your broker, bank or other nominee to vote your shares with respect to the Internalization Proposal, your shares will not be voted and will not be counted present for purposes of determining a quorum or otherwise.

If your shares are held in street name, you should follow the instructions provided by your brokerage firm, bank, dealer or other nominee to change your vote.

Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Special Meeting if a quorum is present..present.

Under Maryland law, abstentions are not considered to be votes cast on a proposal. However, with respect to matters for which stockholder approval is a prerequisite to the listing of shares, the NYSE has taken the position that abstentions should be treated as votes cast. Because the approval of the Internalization Proposal would require the listing on the NYSE of the shares of common stock issuable upon redemption of the OC Units that comprise the Internalization Consideration, an abstention with respect to the Internalization Proposal will be treated as a vote cast, and will thus have the same effect as a vote “against” the Internalization Proposal. Abstentions will have no effect on the results of the Adjournment Proposal.

In addition, both proposals to be voted on at the Special Meeting are “non-routine” under NYSE Rule 452. As a result, there can be no broker non-votes at the Special Meeting, so failure to provide instructions to your broker or other nominee on how to vote will result in your shares not being counted as present at the meeting. A broker non-vote occurs when shares held by a broker or other nominee are represented at the meeting, but the broker or other nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular proposal but has discretionary voting power on other proposals. Nominees may exercise discretion in voting on routine matters but may not exercise discretion and therefore will not vote on non-routine matters if instructions are not given. The proposals included herein are regarded as non-routine matters, and your broker or other nominee may not vote on these proposals without instructions from you.

If there is not a quorum present with respect to common stockholders entitled to vote at the Special Meeting, the Company will be forced to reconvene the Special Meeting at a later date in order to vote on the matters holders of the class of stock for which a quorum was not present are entitled to vote.

We and some brokers household proxy materials, delivering one copy of proxy materials to multiple stockholders sharing an address, unless contrary instructions have been received from the affected stockholders. If you are a registered holder who participates in householding, householding will continue until you are notified otherwise or until you notify us to discontinue householding. If you are a registered holder who participates in householding and wish to receive a separate set of proxy materials for the Special Meeting, please contact Broadridge Financial Solutions, Inc. by calling 1-800-542-1061 or by writing to Broadridge Financial Solutions, Inc., Attn. Householding Department, 51 Mercedes Way, Edgewood, New York 11717. Registered stockholders who share the same address and who wish to receive a single copy of proxy materials per household in the future may contact American Stock Transfer & Trust Co. by calling 1-800-937-5449. Beneficial owners should contact their broker or other nominee to request information about householding.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We make statements in this proxy statement and the documents that we incorporate by reference herein 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:

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.

RISK FACTORS

In addition to the other information contained or incorporated by reference in this proxy statement, readers should carefully consider the following risk factors and the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2018 under the caption “Item 1A. Risk Factors”:

The Internalization was negotiated between the Special Committee, which is comprised solely of disinterested members of our board of directors, and the Manager, which is affiliated with certain of our officers and directors.

The Internalization was negotiated with the Manager, which is owned by certain of our present and former officers and directors. As a result, those present and former officers and directors have different interests than the Company. This conflict would not exist in the case of a transaction negotiated with unaffiliated third parties. Moreover, if the Manager or any Manager Party breaches any of the representations, warranties or covenants made by it in the Purchase Agreement, we may choose not to enforce, or to enforce less vigorously, our rights because of our desire to maintain our ongoing relationship with certain of our directors and officers. Moreover, the representations, warranties, covenants and indemnities in the Purchase Agreement are subject to limitations and qualifiers, which may also limit our ability to enforce any remedy under the Purchase Agreement.

Certain of our directors and executive officers have interests in the Internalization that are different from, and conflict with, the interests of us and our stockholders.

Messrs. Jernigan, Good and Perry have interests in the Internalization and the other transactions described in this proxy statement that are different from, or in addition to, the interests of our stockholders generally and that create conflicts of interest, including (i) the payment of Internalization Consideration in connection with the Internalization directly or indirectly to these individuals and the entry by these individuals into arrangements relating to the payment of that consideration, and (ii) the entry by the Company, the Operating Company and JCAP Management into employment agreements with Messrs. Good and Perry, each of which will become effective upon closing of the Internalization. See “Proposal 1: The Internalization—Interests of Certain Persons in the Internalization” beginning on page 58 for a description of the consideration to be received by these individuals.

We may not manage the Internalization effectively or realize all its anticipated benefits.

We may not manage the Internalization effectively. The Internalization could be a time-consuming and costly process and we may encounter potential difficulties in the integration process including, among other things:

For all these reasons, you should be aware that it is possible that the Internalization process could result in the distraction of our management, the disruption of our ongoing business or inconsistencies in our operations, services, standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with employees or third-parties to achieve the anticipated benefits of the Internalization, or could otherwise adversely affect our business and financial results. Therefore, the failure to plan and manage the Internalization effectively could have a material adverse effect on our business, financial condition and results of operations.

We depend on our key executives and other employees of the Manager. There is no guarantee that such key executives and employees will remain employed or engaged by us for any specified period of time, and will not engage in competitive activities if they cease to be employed with or engaged by us.

We depend on the key executives and employees of the Manager. It is expected that, following the consummation of the Internalization, we will continue to substantially depend on the services of Messrs. Good and Perry, each of whom has entered into an employment agreement with the Company. Each such agreement will become effective upon the closing of the Internalization. Mr. Good’s employment agreement will have an initial term through the fourth anniversary of the closing of the Internalization, and Mr. Perry’s employment agreement will have an initial term through the third anniversary of the closing of the Internalization. These agreements have been structured to incentivize our executives to stay through the end of their initial terms and, subject to the Company’s approval, with

respect to Mr. Perry to extend his term of service for successive one-year terms. Nevertheless, as is presently the case under the Management Agreement with the Manager, the departure or the loss of the services of any of these individuals, or other senior management personnel or employees, following the Internalization could have a material adverse effect on our business, financial condition, results of operations and ability to effectively operate our business.

Further, the Purchase Agreement and the employment agreements entered into by the Company with each of Messrs. Good and Perry contain certain restrictions on the Manager Parties, including a restriction on engaging in activities that are deemed competitive to our business. Although we believe these covenants to be enforceable under current law in the states in which we do business, there can be no guarantee that if our executives were to breach these covenants and engage in competitive activities, a court of law would fully enforce these restrictions. If these executives were to terminate their employment or service relationship (as applicable) with the Company and engage in competitive activities, such activities could have a material adverse effect on our business, financial condition and results of operations.

We may be exposed to risks to which we have not historically been exposed, including liabilities with respect to the assets acquired from the Manager.

The Internalization will expose us to risks to which we have not historically been exposed. Pursuant to the Purchase Agreement, we will incur liabilities with respect to the assets acquired from the Manager and certain of its affiliates. As a result of the Internalization, we will employ persons who are currently employed by the Manager. As their employer, we will be subject to those potential liabilities that are commonly faced by employers, such as workers’ disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances, and we will bear the costs of the establishment and maintenance of employee benefit plans, if established. There are no assurances that, following the Internalization, these employees of the Manager will be able to provide us with the same level of services as was previously provided to us by the Manager, and there may be other unforeseen costs, expenses and difficulties associated with operating as an internally managed company.

The representations, warranties, covenants and indemnities in the Purchase Agreement are subject to limitations and qualifiers, which may limit our ability to enforce any remedy under these agreements.

The representations, warranties, covenants and indemnities in the Purchase Agreement are subject to limitations and qualifiers, which may limit our ability to enforce any remedy under these agreements. These include, without limitation, limitations on liability and materiality qualifiers on certain representations and covenants. Subject to certain exceptions, neither the indemnification obligations of the Manager Parties nor the indemnification obligations of the the Operating Company will be triggered until the aggregate amount of all indemnifiable losses exceeds $200,000. Furthermore, subject to certain limitations, neither the indemnification obligations of the Manager Parties nor indemnification obligations of the Operating Company may exceed $3.5 million. The Manager Parties may satisfy their indemnification obligations under the Purchase Agreement with OC Units.

Conflicts of interest may exist or could arise in the future with our Operating Company and its members, which may impede business decisions that could benefit our stockholders.

Following the implementation of our Company’s structure as a result of the Internalization, conflicts of interest may exist or could arise as a result of the relationships between us and our affiliates, on the one hand, and our Operating Company or any member thereof, which will include the Manager Parties, on the other. Our directors and officers have duties to our Company and our stockholders under applicable Maryland law in connection with their management of our Company. At the same time, we, as managing member of our Operating Company, have fiduciary duties to our Operating Company and to its members under Delaware law in connection with the management of our Operating Company. Our duties to our Operating Company and its members as the managing member may come into conflict with the duties of our directors and officers to our Company and our stockholders. These conflicts may be resolved in a manner that is not in the best interest of our stockholders.

Common stock eligible for future sale upon redemption of the OC Units issued in the Internalization may have adverse effects on our share price.

Pursuant to the Purchase Agreement, parties who receive OC Units in connection with the Internalization have registration rights with respect to the resale of shares of our common stock issuable upon redemption of such OC Units. We cannot predict the effect, if any, of future sales of the common stock issuable upon redemption of the OC Units issuable in the Internalization on the market price of our common stock. Sales of substantial amounts of common stock or the perception that such sales could occur may adversely affect the prevailing market price for our common stock. The trading price of our common stock may decline significantly when we register the shares of our common stock issuable upon redemption of the OC Units issuable in connection with the Internalization.

PARTIES TO THE PURCHASE AGREEMENT

Jernigan Capital, Inc.

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 metropolitan statistical areas, or 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 (i) mortgage loans, typically coupled with equity interests, secured by Generation V self-storage facilities, (ii) preferred equity investments in Generation V self-storage facilities, and (iii) wholly-owned Generation V self-storage facilities. We provided the development and construction financing for each of our wholly-owned facilities, and we hold rights of first refusal to acquire each facility in which we have invested but do not now own. We are a Maryland corporation organized on October 1, 2014 that has elected to be taxed as a REIT for U.S. federal income tax purposes.

Our website is www.jernigancapital.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the SEC. Shares of our common stock are listed on the NYSE under the symbol “JCAP.” For additional information about us and our business, please refer to “Where You Can Find More Information” on page 70 of this proxy statement.

Jernigan Capital Operating Company, LLC

The Operating Company is a Delaware limited liability company. All of our assets are held by, and we conduct substantially all of our activities through the Operating Company and its consolidated subsidiaries. The Company is the managing member of the Operating Company and currently owns, directly or indirectly, 100% of the interests in the Operating Company.

JCap Advisors, LLC

The Manager is a Florida limited liability company formed primarily for the purpose of serving as the external manager of the Company and the Operating Company. The Manager’s relationship with the Company and the Operating Company is governed by the Management Agreement. Pursuant to the Management Agreement, our Manager is responsible for (a) our day-to-day operations (including finance, accounting and investor relations), (b) determining investment criteria and strategy in conjunction with our board of directors, (c) sourcing, analyzing, originating, underwriting, structuring, and acquiring our portfolio investments, (d) sourcing, analyzing, procuring and managing our capital and (e) performing portfolio management duties. The Manager has an Investment Committee that approves investments in accordance with our investment guidelines, investment strategy, and financing strategy. The Manager receives base and incentive fees and reimbursement of a substantial portion of its expenses in exchange for the services it provides to us. For more information about the Manager and the Management Agreement see “Our Manager and Management Agreement” beginning on page 20.

Dean Jernigan

Dean Jernigan is our founder and was executive chairman of our board of directors until his retirement effective December 31, 2019 and is the managing member of the Manager. Pursuant to the operating agreement of the Manager, Mr. Jernigan and certain of his affiliates will be entitled to an aggregate of 1,538,462 OC Units of the Initial Consideration and 615,385 OC Units of the Earn Out Consideration, if applicable.

John A. Good

John A. Good is our chairman and chief executive officer and a member of the Manager and became chairman of our board of directors effective December 31, 2019. Pursuant to the operating agreement of the Manager, Mr. Good will be entitled to 179,487 OC Units of the Initial Consideration and 76,923 OC Units of the Earn Out Consideration, if applicable.

Jonathan L. Perry

Jonathan L. Perry is our president and chief investment officer and a member of the Manager. Pursuant to the operating agreement of the Manager, Mr. Perry will be entitled to 76,923 OC Units of the Initial Consideration and 76,923 OC Units of the Earn Out Consideration, if applicable. Mr. Perry is the son in law of Mr. Jernigan.

OUR MANAGER AND MANAGEMENT AGREEMENT

The Company is externally managed and advised by the Manager. We do not have any employees. We rely on the personnel, properties and resources of our Manager to conduct our operations. We and our Manager are parties to a third amended and restated management agreement (the “Management Agreement”), dated November 1, 2017. Pursuant to the Management Agreement, our Manager is responsible for (a) our day-to-day operations (including finance, accounting and investor relations), (b) determining investment criteria and strategy in conjunction with our board of directors, (c) sourcing, analyzing, originating, underwriting, structuring, and acquiring our portfolio investments, (d) sourcing, analyzing, procuring and managing our capital and (e) performing portfolio management duties. The Manager has an Investment Committee that approves investments in accordance with our investment guidelines, investment strategy, and financing strategy. Pursuant to the Management Agreement, we pay the Manager base and incentive fees and reimburse a substantial portion of its expenses.

For more information about the Management Agreement, see our Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated by reference herein, and the notes to the Manager’s consolidated financial statements for the years ended December 31, 2018 and 2017, which are included elsewhere in this proxy statement.

THE SPECIAL MEETING

General

This section contains information about the Special Meeting of common stockholders.

Together with this proxy statement, we are sending you a notice of Special Meeting of common stockholders and a form of proxy that is being solicited by our board of directors for use at the Special Meeting. The information and instructions contained in this section are addressed to our common stockholders, and all references to “you” or “stockholders” in this section and elsewhere in the proxy statement should be understood to be addressed to our common stockholders.

The Proposals

The Special Meeting of our stockholders will be held at 10:00 a.m. Central Standard Time, on ,February 20, 2020 at 6410 Poplar Avenue, Suite 650, Memphis, Tennessee 38119. At the Special Meeting, you will be asked to consider and vote on:

We do not expect that any matters other than the proposals set forth above will be brought before the Special Meeting, and only matters specified in the notice of the meeting may be acted upon at the Special Meeting. If, however, such a matter is properly presented at the Special Meeting or any postponement or adjournment of the Special Meeting, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies.

Recommendations of Our board of directors

After careful consideration, following the unanimous approval and recommendation by the Special Committee, our board of directors has unanimously approved the Internalization, the Purchase Agreement and the other transactions contemplated by the Purchase Agreement, and has declared the Internalization and the other transactions contemplated by the Purchase Agreement advisable and in the best interests of the Company and our stockholders. Accordingly, our board of directors has recommended that the stockholders vote “FOR” Proposal 1, the Internalization Proposal. In addition, our board of directors has recommended that stockholders vote “FOR” Proposal 2, the Adjournment Proposal.

For more information concerning the recommendation of our board of directors with respect to the Internalization, see “Proposal 1: Proposal to Approve the Internalization—Recommendations of the Special Committee and Our Board of Directors and Reasons for the Internalization” beginning on page 43.

Record Date, Notice and Quorum

All holders of record of our common stock as of the close of business on ,January 16, 2020, the Record Date for the Special Meeting, are entitled to receive notice of and attend the Special Meeting or any postponement or adjournment of the Special Meeting. Each common stockholder will be entitled to cast one vote on each matter presented at the Special Meeting for each share of common stock that such holder owned as of the Record Date. On the Record Date, there were 23,233,283 shares of common stock outstanding and entitled to vote at the Special Meeting.

The presence in person or by proxy of our common stockholders entitled to cast a majority of all the votes entitled to be cast as of the close of business on the Record Date will constitute a quorum for purposes of the Special Meeting. A quorum is necessary to transact business at the Special Meeting. Abstentions will be counted as shares present for the purposes of determining the presence of a quorum. If a quorum is not present at the Special Meeting, we expect that the Special Meeting will be postponed or adjourned to a later date.

Required Vote

Approval of the Internalization Proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Special Meeting if a quorum is present. In addition, pursuant to the Purchase Agreement, the Internalization also must be approved by the affirmative vote of a majority of the votes cast (other than votes cast for shares owned directly or indirectly by Dean Jernigan and John A. Good or their affiliates) at the Special Meeting if a quorum is present. However, the shares owned directly or indirectly by Mr. Jernigan, Mr. Good and their affiliates will count toward establishing a quorum at the Special Meeting.

Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Special Meeting if a quorum is present.

Abstentions and Broker Non-Votes

Under Maryland law, abstentions are not considered to be votes cast on a proposal. However, with respect to matters for which stockholder approval is a prerequisite to the listing of shares, the NYSE has taken the position that abstentions should be treated as votes cast. Because the approval of the Internalization Proposal would require the listing on the NYSE of the shares of common stock issuable upon redemption of the OC Units that comprise the Internalization Consideration, an abstention with respect to the Internalization Proposal will be treated as a vote cast, and will thus have the same effect as a vote “against” the Internalization Proposal. Abstentions will have no effect on the results of the Adjournment Proposal.

In addition, both proposals to be voted on at the Special Meeting are “non-routine” under NYSE Rule 452. As a result, there can be no broker non-votes at the Special Meeting, so failure to provide instructions to your broker or other nominee on how to vote will result in your shares not being counted as present at the meeting. A broker non-vote occurs when shares held by a broker or other nominee are represented at the meeting, but the broker or other nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular proposal but has discretionary voting power on other proposals. Nominees may exercise discretion in voting on routine matters but may not exercise discretion and therefore will not vote on non-routine matters if instructions are not given. The proposals included herein are regarded as non-routine matters, and your broker or other nominee may not vote on these proposals without instructions from you.

Votes by our Directors and Executive Officers

As of the Record Date, our directors and executive officers owned and are entitled to vote an aggregate of approximately      shares of our common stock, entitling them to exercise approximately     % of the voting power of our common stock entitled to vote at the Special Meeting. Our directors and executive officers have informed us that they intend to vote the shares of our common stock that they own in favor of the Internalization Proposal and the Adjournment Proposal. Votes cast for shares owned directly or indirectly by Dean Jernigan and John A. Good or their affiliates will be counted for approval of the Internalization Proposal; however, the Purchase Agreement also requires the approval by the affirmative vote of a majority of the votes cast other than votes cast for shares owned directly or indirectly by Dean Jernigan and John A. Good or their affiliates. As of the Record Date, our directors, executive officers, Mr. Jernigan and his affiliates collectively owned and are entitled to vote an aggregate of approximately 947,901 shares of our common stock, entitling them to exercise approximately 4.1% of the voting power of our common stock entitled to vote at the Special Meeting, of which 791,908 shares, or approximately 3.4% of the voting power of our common stock, are owned directly or indirectly by Mr. Jernigan, Mr. Good or their affiliates and will be excluded from the number of votes cast on the Internalization Proposal for purposes of the Purchase Agreement.

Proxies; Revocation

Any of our common stockholders of record entitled to vote may authorize a proxy by returning the enclosed proxy card, authorizing your proxy or voting instructions by telephone or through the Internet, or by appearing and voting at the Special Meeting in person. If the shares of our common stock that you own are held in “street name” by your broker, you should instruct your broker on how to vote your shares using the instructions provided by your broker.

Any proxy may be revoked at any time prior to its exercise by your delivery of a properly executed, later-dated proxy card, by authorizing your proxy by telephone or through the Internet at a later date than your previously authorized proxy, by your filing a written revocation of your proxy with our Secretary or by your voting in person at the Special Meeting. If you are a common stockholder of record, your proxy must be received by telephone or the Internet by 11:59 p.m., New York time, on ,February 19, 2020 in order for your shares to be voted at the Special Meeting.

Questions and Additional Information

If you have questions about the Internalization or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, Georgeson LLC, toll-free at (866) 431-2101. Your vote is important. Please sign, date and return your proxy card or voting instruction form or submit your proxy and/or voting instructions by telephone or over the Internet promptly.

PROPOSAL 1:
PROPOSAL TO APPROVE THE INTERNALIZATION

General

We are asking the holders of shares of common stock to approve the Internalization, which would entail our acquisition of substantially all of the business assets and liabilities of the Manager, in exchange for the Initial Consideration, which consists of 1,794,872 OC Units issuable to the Manager upon the closing of the Internalization, and the Earn Out Consideration, which consists of an additional 769,231 OC Units issuable to the Manager if either (a) the Company’s common stock trades at or above a daily volume weighted average price of $25.00 per share for at least 30 days during any 365-day period prior to December 31, 2024 or (b) there is a change of control of the Company prior to December 31, 2024, that is approved by the Company’s board of directors and the common stockholders of the Company, pursuant to the terms of the Purchase Agreement.

Vote Required

Approval of the Internalization Proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Special Meeting if a quorum is present. In addition, pursuant to the Purchase Agreement, the Internalization also must be approved by the affirmative vote of a majority of the votes cast (other than votes cast for shares owned directly or indirectly by Dean Jernigan and John A. Good or their affiliates) at the Special Meeting if a quorum is present. However, the shares owned directly or indirectly by Mr. Jernigan, Mr. Good and their affiliates will count toward establishing a quorum at the Special Meeting.

Recommendation

Our board of directors unanimously recommends that you vote “FOR” the approval of the Internalization Proposal.

The following is a description of the material aspects of the Internalization, including the Purchase Agreement. While we believe that the following description covers the material terms of the Internalization, the description may not contain all of the information that may be important to you. We encourage you to read carefully this entire proxy statement, including the Purchase Agreement attached to this proxy statement as Exhibit A, for a more complete understanding of the Internalization.

Overview

Under the terms of the Purchase Agreement, among other things, the Operating Company will acquire substantially all of the operating assets and liabilities of the Manager and each of the employees of the Manager is expected to become an employee of the Company. As a result, the Manager will cease to perform any outside management services for us and we will become internally managed. At the closing of the Internalization, the Operating Company will issue the Initial Consideration to the Manager and if and when the conditions described above are met, the Operating Company will issue the Earn Out Consideration to the Manager.

Background of the Internalization

The following chronology summarizes the key meetings and events that led to the signing of the Purchase Agreement. The following chronology does not purport to catalogue every conversation among our board of directors, members of our management, our advisors and other parties.

Overview

The Company completed its initial public offering, or IPO, on April 1, 2015. Since the time of its IPO, the Company’s strategy has been to provide capital to developers of self-storage facilities that are largely vertical (three to ten floors), 100% climate controlled and technologically adapted buildings, or Generation V facilities, located predominately in dense urban submarkets within top-50 United States MSAs, then over time to ultimately wholly own a substantial majority of the facilities that it has financed. The Company’s primary investment structure has been to fund first mortgage loans to developers coupled with a 49.9% profits interest in the facilities in which it invests, and the Company has received a right of first refusal upon the receipt of any bona fide offer to purchase each facility in which it has invested. The Company refers to these investments as “development property investments.” The Company’s

investment strategy was designed to generate attractive, long-term returns on development property investments through interest payments (typically at a fixed rate) on its invested capital together with a 49.9% interest in the positive cash flows from operations, sales and/or refinancings of self-storage facilities, or profits interests.

Since the IPO, the Company has been externally managed by the Manager pursuant to the Management Agreement. At the time of the Company’s IPO, the Company’s strategy was to ultimately acquire self-storage properties by either exercising its rights of first refusal or acquiring directly developers’ interests in facilities the Company has financed. The Company also had a secondary strategy to make selective acquisitions of self-storage properties for which the Company did not have a right of first refusal. At the time the Management Agreement was negotiated, the Company contemplated that, beginning no later than the beginning of the fourth quarter 2019, as the Company became more an owner-operator of self-storage properties, or an equity REIT, rather than a specialty finance company, or mortgage REIT, it would commence discussions to internalize the Manager, and as described further below, the Management Agreement required that the Manager make an offer for an internalization transaction no later than the fourth quarter of 2019.

In the years since its IPO, the Company has executed on its strategy and begun transitioning itself to an owner-operator of self-storage properties. The transition is evidenced by the Company’s current portfolio. As of December 31, 2019, the Company’s self-storage investment portfolio consisted of 15 wholly-owned self-storage facilities (one of which has not been placed into service), 50 on-balance sheet development property investments with a profits interest (33 of which are secured by facilities in lease-up and 17 of which are secured by facilities under construction), six development property investments with a profits interest in the Company’s joint venture (all of which are secured by facilities in lease-up), and five self-storage facilities wholly-owned by the Company’s joint venture. The Company believes that it has the opportunity to continue to acquire self-storage properties from its developer partners in the coming years. As a result, and consistent with its strategic planning at the time of its IPO, the Company believes now is the optimal time to complete an internalization transaction.

Proceedings of the Special Committee and the Board of Directors

The terms of the Management Agreement provide that no later than 180 days prior to March 31, 2020, the end of the Initial Term (as defined in the Management Agreement), the Manager shall provide the Company with an offer for an internalization transaction (the “Internalization Offer”). Upon receipt of the Internalization Offer, a special committee of the board of directors consisting solely of the Company’s independent directors may accept the Manager’s proposal or submit a counter offer to the Manager.

If the special committee and the Manager agree upon an internalization price under the terms of the Management Agreement, the Company shall seek (i) a fairness opinion from a nationally-recognized investment banking firm to the effect that the consideration to be paid by the Company (or the Operating Company) for the assets and equity of the Manager is fair, from a financial point of view, to holders of the Company’s common stock who are not affiliated with the Manager or its affiliates, and (ii) approval of Company stockholders holding a majority of the votes cast on such internalization proposal at a meeting of stockholders duly called and at which a quorum is present.

Pursuant to the terms of the Management Agreement, the Manager was to make an Internalization Offer no later than October 4, 2019. At the board of director’s regular board meeting on May 1, 2019, representatives of the Manager notified the board of directors that the Manager intended to present, pursuant to the Management Agreement, an Internalization Offer to the board of directors at the Company’s regular board meeting in July 2019. At the May 1 meeting, representatives of Morrison & Foerster LLP (“Morrison & Foerster”) counsel to the Company, met with the independent directors in executive session to discuss the internalization process and the appointment of a special committee as contemplated by the Management Agreement, including advising the independent directors that the special committee when formed should retain independent legal counsel and an independent financial advisor to advise the special committee in connection with the internalization process.

On June 17, 2019, the independent members of the board of directors met telephonically. During this meeting, representatives of Morrison & Foerster reviewed with the independent directors details of the Management Agreement and the internalization process and alternatives to internalization and advised the independent directors of their duties under Maryland law, including in connection with transactions involving conflicts of interest of directors, such as the internalization, and provided the independent directors with recommendations of potential independent legal counsel and financial advisors for the Special Committee for the internalization process.

During late June and early July 2019, certain independent members of the board of directors, in anticipation of formation of the Special Committee, interviewed several law firms and nationally recognized investment banking

firms to potentially act as legal counsel and financial advisors, respectively, to the Special Committee in connection with any Internalization Offer and negotiation of any internalization transaction.

During the first week of July 2019, as required by the Management Agreement, the board of directors, by unanimous resolution, formed the Special Committee, which initially consisted of the six independent directors of the Company: Harry Thie, the Company’s lead independent director, Randy Churchey, Mark Decker, James Dondero, Rebecca Owen and Howard Silver. None of the members of the Special Committee is an officer or employee of the Company, the Manager or any of the Manager’s affiliates and none has an ownership or other economic interest, direct or indirect, in the Manager.

The board of directors delegated to the Special Committee the full power and authority to retain and obtain advice from experts and advisors with respect to an internalization transaction, to review, evaluate and negotiate the terms and conditions of an internalization transaction, to determine, with assistance from its advisors, whether an internalization transaction is advisable and in the best interests of the Company, to recommend that the board of directors or, if the Company’s charter vests such power and authority exclusively in the Company’s independent directors or as may otherwise be required by the Management Agreement, that such independent directors approve an internalization transaction, to determine that pursuing an internalization transaction is not advisable, to determine whether it is advisable and in the best interests of the Company to consider alternatives to an internalization transaction, including, without limitation, any other potential strategic transaction relating to the Company and/or the Manager (a “Strategic Transaction”) or terminating or permitting the automatic extension of the Management Agreement with the Manager in accordance with the terms of the Management Agreement, and to take such other action related to or arising in connection with its consideration of an internalization transaction and/or Strategic Transaction as the Special Committee deems necessary, appropriate or advisable. The board of directors also authorized the Special Committee to retain advisors with respect to any internalization process. Shortly after its formation, the Special Committee retained Hunton Andrews Kurth LLP, which we refer to as Hunton, as its legal counsel.

On July 12, 2019, the Special Committee held a telephonic meeting at which representatives of Hunton were present. At the meeting, Mr. Thie was elected chair of the Special Committee. A representative of Hunton reviewed with the Special Committee the directors’ legal duties under Maryland law in connection with the Special Committee’s responsibilities, including the review, analysis and negotiation of an internalization transaction and other potential strategic alternatives. The Special Committee discussed the possibility of an internalization transaction and the process and role of the Special Committee in connection with reviewing and responding to an internalization proposal from the Manager. The Special Committee also discussed engaging a financial advisor to advise the Special Committee. Certain members of the Special Committee reported on the presentations and discussions with several potential financial advisors the prior week. Following discussion, the Special Committee determined to retain an investment banking firm (the “Initial Financial Advisor”) as financial advisor to the Special Committee based upon the expertise and experience of the Initial Financial Advisor in the real estate industry. Prior to the formal retention of the Initial Financial Advisor, based on disclosures made by the Initial Financial Advisor, the Special Committee concluded that the Initial Financial Advisor did not have any material relationships with the Company or the Manager that would affect its ability to provide independent advice to the Special Committee.

During the week of July 15, 2019, designated members of the Special Committee, including the chair of the compensation committee of the board of directors, interviewed potential independent compensation consultants to advise the compensation committee on executive compensation matters in the event the Company completed an internalization transaction in which the Company’s and the Manager’s executive officers become direct employees of the Company. Following the interviews and discussions among members of the Special Committee, FPL was selected as compensation consultant to the compensation committee. Prior to its engagement, FPL did not have any material prior relationship with the Company or the Manager.

On July 30, 2019, the Special Committee and representatives of the Initial Financial Advisor and Hunton met in person with representatives of the Manager, consisting of Messrs. Jernigan, Good and Perry, and its financial advisor, Raymond James & Associates, Inc. (“Raymond James”). Representatives of Morrison & Foerster were also present at this meeting. At the meeting, the representatives of the Manager and Raymond James delivered an Internalization Offer pursuant to the Management Agreement. The Internalization Offer provided that (i) the Manager would transfer to the Operating Company substantially all the business assets and liabilities used by the Manager in performing its duties for the Company under the Management Agreement, and, upon such transfer, the Manager’s external management of the Company would terminate, (ii) the employees of the Manager would become employees of the

Operating Company and (iii) the Operating Company would issue to the Manager 3.5 million Class A OC Units, which had an implied value of approximately $70.0 million based on the then-current market price of the Company’s common stock. After the Internalization Offer was presented to the Special Committee, all representatives of Raymond James and of the Manager except Mr. Jernigan, left the meeting, with Mr. Jernigan and the representatives of Morrison & Foerster remaining in the meeting. Mr. Jernigan then stated to the Special Committee that he did not wish to negotiate the terms of the Manager’s Internalization Offer and then Mr. Jernigan and the representatives of Morrison & Foerster left the meeting. The Special Committee then met with representatives of the Initial Financial Advisor and Hunton to discuss the Manager’s Internalization Offer. Following the discussion, the Special Committee instructed the Initial Financial Advisor to review the Manager’s Internalization Offer and seek additional information from the Manager and Raymond James. The Special Committee subsequently requested that the Manager designate one or more employees who did not have an ownership interest in the Manager as representatives of the Manager for the purpose of providing information to the Special Committee and its legal and financial advisors, and the Manager designated two key finance employees as its representatives to interact with the Special Committee and its advisors.

On July 31, 2019, representatives of the Initial Financial Advisor on behalf of the Special Committee requested additional information from the Manager and Raymond James regarding the Manager’s Internalization Offer. Representatives of Raymond James provided to the Initial Financial Advisor for the benefit of the Special Committee the financial projections used by Raymond James for its valuation analysis of the Manager’s Internalization Offer, and representatives of the Manager provided to the Initial Financial Advisor for the benefit of the Special Committee the Company’s corporate model, noting that certain items needed to be updated for second quarter 2019 earnings, which were to be announced later that day.

On August 2, 2019, representatives of the Initial Financial Advisor had a telephone call with representatives of the Manager to discuss the Company’s corporate finance model and business plan. In addition, on that day representatives of the Initial Financial Advisor submitted to the Manager a list of documents that the Special Committee sought to review.

On August 5 and 6, 2019, the Manager provided to the Initial Financial Advisor for the benefit of the Special Committee copies of, or data room access to, all documents included in the Special Committee’s document list submitted to the Manager on August 2, 2019, and on August 6, 2019, the Manager provided the Initial Financial Advisor with the Manager’s corporate finance model updated for second quarter 2019 earnings information.

On August 7, 2019, a representative of the Initial Financial Advisor requested from the Manager an explanation of the assumptions in the Company’s corporate finance model related to timing of an internalization transaction, and on that same day, a representative of the Manager explained such assumptions in the corporate finance model.

On August 12, 2019, representatives of the Manager provided to the Initial Financial Advisor for the benefit of the Special Committee research notes about the Company issued by research analysts after the announcement of the Company’s second quarter 2019 financial results. In addition, on that day representatives of the Manager provided to the Initial Financial Advisor for the benefit of the Special Committee a financial model developed by the Manager with respect to a possible acquisitions joint venture that the Manager was evaluating on behalf of the Company.

On August 14, 2019, representatives of the Manager and the Initial Financial Advisor had a telephone call to discuss the Company’s business plan and the financial model.

On August 15, 2019, a representative of the Manager had a telephone conference with a representative of the Initial Financial Advisor, the purpose of which was to explain to the Initial Financial Advisor the fair value accounting and reporting methodology that the Company had adopted with respect to its development property investments.

On August 20, 2019, the Special Committee held a telephonic meeting at which representatives of the Initial Financial Advisor and Hunton were present. At the meeting, the Initial Financial Advisor reviewed with the Special Committee a preliminary analysis of the Manager’s Internalization Offer, the Initial Financial Advisor’s preliminary views with respect to the Company and its business plan, including the need for the Company to reduce its dividend, and an overview of the Management Agreement and the fees and expense reimbursement payable by the Company to the Manager thereunder. The Initial Financial Advisor reviewed with the Special Committee its preliminary financial analysis which included discounted cash flow analyses and review of selected precedent internalization transactions. Representatives of the Initial Financial Advisor expressed to the Special Committee their reservations regarding the amount of consideration in the Manager’s Internalization Offer and the ability of the Initial Financial Advisor to

deliver a fairness opinion based on the proposed terms. Members of the Special Committee expressed their views that the value of the consideration in the Manager’s Internalization Offer was too high and that the Special Committee should not pursue an internalization transaction on the terms set forth in the Manager’s Internalization Offer. The Special Committee and its advisors also reviewed the financial projections and models provided by the Manager, as well as the current terms of the Management Agreement and various potential alternatives available to the Company, including continuing the Management Agreement under its current terms, negotiating with the Manager to amend the compensation and other terms of the Management Agreement or delivering a termination notice to the Manager in accordance with the terms of the Management Agreement and calculations of the termination payment amounts under the terms of the Management Agreement. Following the discussions, the Special Committee requested Mr. Thie, the chair of the Special Committee, to communicate to Mr. Jernigan (i) the Special Committee’s view that the value of the consideration in the Manager’s Internalization Offer was too high, (ii) that the Special Committee would like clarification regarding Mr. Jernigan’s statement to the Special Committee at the July 30, 2019 meeting that he did not wish to negotiate the terms of the Manager’s Internalization Offer, (iii) that the Special Committee intended to assess various alternatives with respect to the Management Agreement, including delivery to the Manager of a termination notice and renegotiation of the Management Agreement terms, and (iv) that any further internalization discussions should take into account further discussions with respect to various aspects of the business plan and the underlying assumptions.

On August 23, 2019, Mr. Thie notified Messrs. Jernigan, Good and Perry by telephone of the Special Committee’s response to the Manager’s Internalization Offer. Mr. Thie inquired whether the Manager was willing to negotiate terms for an internalization transaction with the Special Committee. Mr. Thie informed Messrs. Jernigan, Good and Perry that if the Manager chose not to negotiate an internalization transaction, the Special Committee would consider submitting a termination notice pursuant to Section 13(a) of the Management Agreement. Mr. Jernigan informed Mr. Thie that it was the Manager’s view, based on discussions with Raymond James, that the Initial Financial Advisor and Raymond James should have a call to discuss the Special Committee’s positions on the Internalization Offer and alternatives that the Special Committee might be considering.

On August 26, 2019 and August 28, 2019, representatives of the Initial Financial Advisor had discussions with representatives of Raymond James with respect to the business plan and the Manager’s Internalization Offer.

On August 29, 2019, the Special Committee held a telephonic meeting at which representatives of the Initial Financial Advisor and Hunton were present. At the meeting, Mr. Thie described his conversation with Messrs. Jernigan, Good and Perry on August 23, 2019. Representatives of the Initial Financial Advisor discussed with the Special Committee their recent conversations with representatives of Raymond James. The Special Committee again reiterated its view that the valuation of the consideration in the Manager’s Internalization Offer was too high. Representatives of the Initial Financial Advisor also reviewed their financial analysis of the Manager’s Internalization Offer, the Manager, the Company and the business plan and reiterated their reservations regarding the Manager’s Internalization Offer and their ability to deliver a fairness opinion based on those terms. The Special Committee considered the management fees and expense reimbursements payable by the Company to the Manager under the Management Agreement and discussed potential amendments to the Management Agreement if the parties were unable to agree on terms for an internalization transaction, including potential amendments to the management fee and expense reimbursement provisions. The Special Committee also considered the amount that would become payable to the Manager under the Management Agreement if the Special Committee elected to terminate the Management Agreement at March 31, 2020 under the terms of the Management Agreement. The Special Committee expressed its view that an internalization transaction was in the Company’s best interests because it would eliminate the management fees and other expenses under the Management Agreement, internalize the management team and allow the management team to continue to pursue the Company’s business plan. However, the Special Committee also expressed the view, based on advice from the Initial Financial Advisor, that the amount of the payment by the Company to the Manager in connection with an internalization transaction should be in the general range of the amount that would be payable to the Manager upon a termination of the Management Agreement at March 31, 2020. Following such discussion, the Special Committee instructed the representatives of the Initial Financial Advisor to inform Raymond James that the Special Committee was willing to consider an internalization transaction for consideration payable to the Manager in OC Units having a value of $20-30 million, which was the approximate amount payable to the Manager in March 2020 if the Management Agreement were to be terminated under the terms of the Management Agreement, with a portion of such payment being in the form of an equity performance award that would vest upon the Company’s common stock achieving certain stock price targets although no specific terms of an equity performance award were

proposed. The Special Committee’s proposal also contemplated entering into employment agreements with the senior management team of the Manager effective upon internalization, but the Special Committee’s proposal did not propose any terms for such employment agreements at that time.

On August 29, 2019, representatives of the Initial Financial Advisor pursuant to the Special Committee’s instruction verbally informed Raymond James of the general terms of the Special Committee’s internalization counter-proposal as directed by the Special Committee. Representatives of the Initial Financial Advisor also informed Raymond James, at the direction of the Special Committee, that if the Manager was not willing to negotiate within this framework, the Special Committee would consider delivering a termination notice to the Manager in accordance with Section 13(a) of the Management Agreement.

On September 1, 2019, representatives of Raymond James requested a conference call to be attended by Raymond James, the Initial Financial Advisor, Mr. Good and representatives of the Special Committee to discuss the basis for the Special Committee’s counter-proposal.

On September 3, 2019, two members of the Special Committee and representatives of the Initial Financial Advisor had a telephone call with Mr. Good and representatives of Raymond James to discuss the basis for the Special Committee’s counter-proposal, during which telephone call, the parties also engaged in a discussion regarding the Company’s business plan and potential next steps for an internalization transaction. Later on September 3, 2019, the two members of the Special Committee had a follow-up call with Mr. Good to discuss the Special Committee’s counter-proposal for an internalization transaction. Following the calls, Mr. Good provided the Initial Financial Advisor for the benefit of the Special Committee with estimated 2020 and 2021 G&A expense information for the Company assuming that an internalization transaction was completed.

On September 6, 2019, the Initial Financial Advisor contacted Raymond James requesting a response to the Special Committee’s counter-proposal.

On September 9, 2019, Mr. Good, on behalf of the Manager, sent a revised Internalization Offer to the Special Committee. The revised Internalization Offer provided that the Company would issue OC Units to the Manager with a value of $50.0 million. Mr. Good also outlined an alternative proposal pursuant to which the parties would amend the Management Agreement to (i) extend its term for one year, (ii) eliminate all incentive fees payable to the Manager, and (iii) provide for the Manager’s assumption of an additional $2 million of G&A expense per year commencing April 1, 2020. Mr. Good also stated that the Manager would like to convene a board of directors meeting in Dallas, Texas within the next few days to discuss the proposal in person.

On September 10, 2019, Mr. Good and representatives of Hunton had a telephone call to discuss and clarify certain aspects of the Manager’s revised proposal.

On September 10, 2019, Mr. Good provided to all members of the board of directors a Notice of Special Meeting of the board of directors to be held September 12, 2019 in Dallas, Texas for the purposes of (1) providing a financial and capital update for the Company, (2) hearing a presentation from management regarding, and discussing, the Company’s dividend policy, and (3) discussing the current status of the internalization process.

Later on September 10, 2019, certain members of the Special Committee held a call with representatives of the Initial Financial Advisor and Hunton to review the Manager’s revised internalization proposal and alternative proposal to amend the Management Agreement, and to review and discuss materials prepared by the Initial Financial Advisor, including an analysis of management fees and other expenses payable under the Management Agreement as compared to those of certain other externally managed equity REITs. Members of the Special Committee expressed their views that the value of the Manager’s revised internalization proposal was too high. Representatives of the Initial Financial Advisor reiterated to the Special Committee their reservations regarding the Manager’s revised internalization proposal and their ability to deliver a fairness opinion based on those terms. Following discussion, the Special Committee’s view was that the total amounts payable by the Company under the Management Agreement were higher than those paid by other externally managed equity REITs, particularly the payment of base and incentive fees and reimbursement of substantially all of the Manager’s expenses. The Special Committee also discussed potential responses to the Manager’s revised internalization proposal and alternative proposal to amend the Management Agreement.

On September 12, 2019, the board of directors held an in-person meeting in Dallas, Texas with certain of the directors, and the legal and financial advisors of both the Special Committee and the Manager, participating by telephone. A representative of Morrison & Foerster was also present in person at the meeting. At the meeting, there

was a general discussion about the Company’s operational performance and financing/capital plans, and management made a detailed presentation regarding the Company’s dividend policy. Mr. Jernigan made some general comments about the internalization process, including statements regarding his willingness to negotiate, in which statements he expressed regret for communicating earlier his preference not to negotiate the terms of an internalization transaction. Following the board meeting, the Special Committee held a meeting with representatives of the Initial Financial Advisor and Hunton present by telephone. The Special Committee discussed the Manager’s recent internalization proposal and alternative proposal to amend the Management Agreement. The Special Committee also discussed the Company’s G&A expenses under the Management Agreement and possible alternatives to bring the Company’s G&A expenses more in line with industry peers. The Special Committee also discussed with its advisors the terms of a potential counter-proposal to the Manager, including reducing the number of upfront OC Units issuable to the Manager and proposing equity performance awards to incentivize management to achieve performance targets after completion of an internalization transaction. The Special Committee instructed Hunton to begin work on a draft term sheet to reflect such counter-proposal.

On September 13, 2019, representatives of the Initial Financial Advisor and Hunton, at the Special Committee’s direction, held a telephone call with representatives of FPL to discuss potential parameters for equity performance awards that could be issued to management as part of a counter-proposal by the Special Committee for an internalization transaction.

On September 15, 2019, members of the Special Committee held a telephone call with representatives of FPL, the Initial Financial Advisor and Hunton to discuss compensation levels for executive officers and the amounts budgeted in the business plan. During the call, the parties also discussed the Company issuing equity performance awards to certain members of the management team in connection with an internalization transaction.

On September 16, 2019, the Special Committee held a telephonic meeting, at which representatives of the Initial Financial Advisor and Hunton were present. The Special Committee discussed with its advisors potential counter-proposals to the Manager, including various approaches to amending management fee and expense reimbursement provisions of the Management Agreement in order to reduce the Company’s G&A expenses to a level more in line with comparable industry peers.

On September 17, 2019, representatives of Hunton, acting at the Special Committee’s direction, had a telephone call with Mr. Good and representatives of Morrison & Foerster to discuss the general terms of the Special Committee’s counter-proposal prior to sending it to the Manager.

Also on September 17, 2019, the Special Committee held a telephonic meeting at which representatives of Hunton were present. The Special Committee continued its discussion of a counter-proposal to the Manager. A representative of Hunton also reviewed his conversation with Mr. Good earlier in that day. Following discussion, the Special Committee instructed Hunton to express the Special Committee’s preference for the Company to complete an internalization transaction immediately rather than waiting until the end of the first quarter of 2020, as contemplated by the terms of the Management Agreement. The Special Committee agreed to increase from its prior proposal the amount of the upfront internalization payment payable to the Manager by an amount equal to the Manager’s budgeted profit for the period from September 30, 2019 through March 31, 2020, estimated to be approximately $6.4 million.

Following further discussion, the Special Committee approved a counter-proposal to the Manager containing terms and conditions consistent with the Special Committee’s discussions in the preceding days. The Special Committee directed the Initial Financial Advisor to deliver to Raymond James a letter to the Manager from the Special Committee setting forth its counter-proposal for an internalization transaction through which the Company would acquire all of the assets of the Manager in exchange for OC Units having a value of $31.3 million, which represented (i) the approximate amount of a $24.9 million termination fee payable under Section 13(b) of the Management Agreement (calculated in accordance with the Company’s business plan and excluding the Company’s outstanding preferred stock in such calculation) plus (ii) $6.4 million, which represented the approximate budgeted management fees under the Management Agreement through March 31, 2020, based on the Company’s business plan, and utilizing the volume weighted average of the closing prices of the Company’s common stock on the NYSE for the 10 business days immediately prior to the date of execution of definitive agreements with respect to the internalization transaction. The Special Committee’s counter-proposal also provided that the value of the OC Units issuable to the Manager would be reduced by the amount of any base management fees paid by the Company to the Manager for the quarter ended September 30, 2019 and any subsequent period prior to completing the internalization transaction. The counter-proposal further provided that (x) effective upon completion of the internalization transaction,

employees of the Manager would become employees of the Company and the Company and its senior executive officers would enter into employment agreements that would provide for cash compensation, as well as performance equity awards that would be earned upon the Company achieving certain specified performance metrics (not specified in the counter-proposal letter), including but not limited to the Company’s stock price performance, consistent with the Company’s business plan and forecasts previously prepared by the Manger and presented to the Special Committee and the Initial Financial Advisor, and with further input from FPL, (y) the internalization would be subject to satisfaction of the conditions set forth in Section 17(a) of the Management Agreement, and (z) in response to the Manager’s proposal of September 9, 2019 with respect to proposed amendment of the Management Agreement, the Special Committee did not wish to engage in negotiation of amendments to the Management Agreement at the current time.

On September 18, 2019, the Initial Financial Advisor, acting at the direction of the Special Committee, delivered to Raymond James a letter to the Manager from the Special Committee setting forth the Special Committee’s counter-proposal for an internalization transaction as described above.

On September 18 and 19, 2019, certain members of the Special Committee had communications with representatives of the Initial Financial Advisor, Hunton and FPL, with respect to the potential terms for performance equity awards for management, as referenced in the counter-proposal letter delivered to the Manager on September 18, 2019. The Special Committee reviewed various potential vesting scenarios for the awards based on the Company achieving certain levels of total stockholder return over various measurement periods following completion of an internalization transaction.

On September 20, 2019, the Special Committee held a telephonic meeting at which representatives of the Initial Financial Advisor and Hunton were present. The Special Committee discussed potential terms for the performance equity awards and considered various assumptions relating to the issuance of such awards.

Following discussion, the Special Committee approved a performance equity award proposal for Mr. Jernigan, which had a target value of shares under the award of $10 million, but would range from $0 for performance below the minimum level to $15 million for performance at or above the maximum level. The equity performance award would provide for 100% vesting (payout) at the target level, 50% payout at the minimum level and 150% payout at the maximum level, with interpolation for performance between the minimum and target levels and the target and maximum levels.

The minimum, target and maximum values of the Special Committee’s proposal, assuming a starting Company stock price of $19.70, the approximate then-current price of the Company’s common stock, were as follows:

The performance criterion for all periods would be total stockholder return (“TSR”), defined as stock price appreciation plus reinvested dividends during the applicable measurement period. Stock price appreciation would be measured based on the thirty-day volume weighted average ended on the date of measurement. Under the Special Committee’s proposal, shares would be earned under the performance equity award, as shown below, if the cumulative TSR targets were achieved, based on an assumed starting price of $19.70 in all cases:

If shares were to vest based on achieving performance criterial described above, Mr. Jernigan would be entitled to receive the dividends that accrued on the shares from the date of original issuance of the awards. If the minimum performance criteria was not met for any measurement period, all eligible shares in that measurement period would be forfeited with no right to receive dividends on forfeited shares.

The Special Committee’s proposal further stated that (i) Mr. Jernigan must remain employed by the Company on each vesting date to receive any shares earned on that date and if he left the Company prior to December 31, 2022, all unvested shares would be forfeited, (ii) in the event of Mr. Jernigan’s death or disability prior to December 31, 2022 a pro rata portion of the award for the year of death or disability could vest based upon the TSR calculation as of the date of death or disability, (iii) in the event of the sale or merger of the Company prior to December 31, 2022, the vesting with respect to any previously unvested and non-forfeited shares would be based on the per share sale price consideration in such transaction irrespective of when the sale or merger transaction occurred, and (iv) in addition to the performance equity award to Mr. Jernigan, the Company would enter into employment agreements with other executive officers, with compensation in accordance with the most recent G&A budget presented by the Manager to the Special Committee and after consultation with FPL.

The Special Committee instructed the representatives of the Initial Financial Advisor and Hunton to prepare a written proposal outlining the proposed terms for the performance equity awards to the Manager. Later on September 20, 2019, at the direction of the Special Committee, representatives of the Initial Financial Advisor delivered to Raymond James the Special Committee’s proposal for performance equity awards to management employees of the Company following internalization, which proposal supplemented the Special Committee’s September 18, 2019 counter-proposal to the Manager with respect to an internalization transaction. After sending the proposed terms of the performance equity awards, the representatives of the Initial Financial Advisor held a call with representatives of Raymond James to discuss the Special Committee’s performance equity award proposal.

On September 21, 2019, two members of the Special Committee met with Messrs. Good, Jernigan and Perry, with Messrs. Jernigan and Perry participating for a portion of the meeting by telephone. During the meeting, the parties discussed the Special Committee’s performance equity award proposal, which Mr. Jernigan rejected. Mr. Jernigan told the members of the Special Committee that the Manager’s Internalization Offer was for $50.0 million of consideration in the form of OC Units in connection with an internalization transaction and that he was withdrawing the Manager’s prior alternative proposal to amend the Management Agreement. After Messrs. Jernigan and Perry excused themselves, Mr. Good and the two members of the Special Committee continued discussing potential alternative terms that might form the basis for an internalization transaction that both the Manager and the Special Committee could accept, including the possibility of earn-out consideration as a portion of the total consideration.

On September 22, 2019, representatives of Raymond James provided the Special Committee certain financial analyses with respect to an internalization transaction. Representatives of the Initial Financial Advisor also provided information to members of the Special Committee with respect to calculations of the termination fee and internalization price under the definitions in the Management Agreement.

On September 23, 2019, a representative of Hunton had a telephone conversation with Mr. Good and representatives of King & Spalding LLP (“King & Spalding”), counsel to the Manager, with respect to the Special Committee’s counter-proposal delivered to the Manager on September 18, 2019, as supplemented by the performance equity award proposal delivered to the Manager on September 20, 2019.

Later on September 23, 2019, Mr. Good, on behalf of the Manager, submitted to the Special Committee a response letter to the Special Committee’s proposals. The Manager’s response letter discussed the Manager’s view of the history of and intent behind the internalization provisions in the Management Agreement, reminded the Special Committee of the technical provisions in the termination section of the Management Agreement and then provided a detailed counter-proposal for an internalization transaction in which the Manager would transfer to the Company substantially all of its business assets in exchange for a number of OC Units equal to $50.0 million based on the volume weighted average price of the Company’s common stock on the NYSE for the ten consecutive days preceding the date of public announcement of the transaction. The letter did not provide a proposal to amend the Management Agreement if the parties could not reach agreement on an internalization transaction, instead stating that the Manager believed that extension of the Management Agreement would not be well received by stockholders of the Company.

On September 24, 2019, Mr. Thie discussed with a representative of Hunton a response to the Manager’s September 23, 2019 proposal and instructed Hunton to prepare a draft response which was circulated to the members of the Special Committee and representatives of the Initial Financial Advisor for review. Following the review and input from the Special Committee, the Special Committee instructed Hunton to deliver the response to the Manager and King & Spalding.

On September 25, 2019, Hunton delivered to the Manager and King & Spalding the letter from the Special Committee to the Manager responding to the Manager’s September 23, 2019 proposal letter. The response letter, as authorized by the Special Committee, (i) stated that the Special Committee didn’t see any meaningful difference between the Manager’s September 23, 2019 proposal and the Manager’s September 9, 2019 proposal, and (ii) requested that the Manager submit an internalization proposal to the Special Committee in accordance with the terms of Section 17(a) of the Management Agreement, with which the Special Committee claimed the Manager’s prior proposals had not complied. The letter reiterated that the Special Committee remained interested in completing an internalization transaction with the Manager within the framework prescribed by Section 17(a) of the Management Agreement or otherwise in accordance with the Special Committee’s September 18, 2019 proposal to the Manager, as supplemented by the Special Committee’s September 20, 2019 equity performance award proposal to the Manager. The Special Committee’s letter further stated that if the Manager was unwilling to undertake an internalization transaction on those terms, the Special Committee intended to focus its efforts on re-negotiation of the terms of the Management Agreement, as referenced in the Manager’s September 23, 2019 letter to the Special Committee. Finally, the letter stated that the Special Committee was willing to negotiate in good faith revised terms for the Management Agreement within a mutually agreeable time frame in which the parties agreed to extend the date on which a formal termination notice must be sent from the Company to the Manager pursuant to Section 13(a) of the Management Agreement.

On September 26, 2019, representatives of Hunton and King & Spalding held a call to discuss the Special Committee’s letter. Representatives of King & Spalding advised the representatives of Hunton that the Manager believed the parties were far apart on terms for an internalization transaction and that the parties should move toward discussing amendments to the Management Agreement. Representatives of King & Spalding also stated that the Manager was proposing an in-person meeting between the principals of the Manager and certain members of the Special Committee to discuss the internalization proposals and counter-proposals, without legal or financial advisors present. A representative of Hunton advised the representatives of King & Spalding that the Special Committee would require the Manager to agree to an extension of the time period for delivery of a notice under Section 13(a) of the Management Agreement.

On September 27, 2019, a representative of King & Spalding informed a representative of Hunton that the Manager would not agree to an extension of the notice period under Section 13(a) of the Management Agreement as requested by the Special Committee. Later on September 27, 2019, the Special Committee made a formal determination by written consent, as contemplated by Section 13(a) of the Management Agreement, that the compensation payable to the Manager under the Management Agreement is unfair to the Company and the Subsidiaries (as defined in the Management Agreement) and authorized delivery to the Manager on behalf of the Company of a timely notice of termination pursuant to Section 13(a) of the Management Agreement if a satisfactory notice extension period was not agreed upon by the Manager.

Later on September 27, 2019, King & Spalding delivered to Hunton a letter from the Manager in response to the Special Committee’s letter of September 25, 2019. The Manager’s letter stated that the Special Committee would receive from Raymond James a summary of management agreement terms for other externally managed REITs, including an analysis of comparable base fees, incentive fees and reimbursement of G&A expenses. The letter also stated that the Manager was willing to amend the Management Agreement to provide for reimbursement of the Manager’s overhead expenses in line with certain other externally managed REITs and proposed an in-person or telephonic meeting among the parties to discuss. The Manager’s letter also proposed that implementation of the amendments to the Management Agreement be effective April 1, 2020. A representative of Hunton subsequently distributed the letter to the Special Committee and the Initial Financial Advisor. After the Manager’s letter had been delivered, a representative of Raymond James delivered to a representative of Hunton an analysis of certain externally managed REIT management agreements, which Hunton subsequently distributed to the Special Committee and the Initial Financial Advisor.

On September 28, 2019, a representative of King & Spalding delivered to a representative of Hunton a letter stating that the Manager proposed to amend the Management Agreement to eliminate the Company’s reimbursement of the

compensation expense for employees of the Manager, such that the compensation expense for all employees of the Manager would be borne by the Manager, with all other provisions of the Management Agreement remaining unchanged. A representative of Hunton subsequently distributed the letter and updated materials from Raymond James to the Special Committee and the Initial Financial Advisor.

On September 29, 2019, the Special Committee held a telephonic meeting at which representatives of the Initial Financial Advisor and Hunton were present. At the meeting, the Special Committee discussed with its advisors the proposal received from the Manager with respect to amendment of the Management Agreement and reviewed and discussed the REIT industry management agreement analyses and other materials prepared by the Initial Financial Advisor. The Special Committee also discussed potential amendments to the Management Agreement if the parties were unable to reach agreement on internalization terms. Following discussion, the Special Committee instructed Hunton to prepare a response letter to the Manager.

On September 29, 2019, a representative of Hunton, at the direction of the Special Committee, delivered a response letter to representatives of King & Spalding. The letter set forth the general terms of a counter-proposal authorized by the Special Committee with respect to amendment of the Management Agreement, including: (i) a 1.5% base management fee (excluding preferred stock in calculation of the fee), (ii) the elimination of all incentive fees, (iii) compensation expense for all employees of the Manager and occupancy costs would be borne by the Manager, (iv) the Company would pay directly third party G&A expenses such as the Company’s outside professional fees, board compensation, stockholder and corporate expenses, (v) the annual G&A and reimbursable expense budget would be approved annually by the board of directors, and (vi) the time period for the Manager to deliver a notice to the Company of a Notice of Proposal to Negotiate (as defined in the Management Agreement) would be changed from “no fewer than 45 days prior to the prospective Effective Termination Date” to “no later than 10 days following delivery of a Termination Notice.” The Special Committee’s letter stated that the proposed amendments to the Management Agreement were designed to provide the Manager annual profit of approximately $1.5 million in 2020. The letter also stated that the Special Committee expected the Manager to agree with the Company to a reasonable extension of the date by which a notice under Section 13(a) of the Management Agreement must be sent from the Company to the Manager pursuant to the terms of the Management Agreement. The letter also stated that the proposed amendments would be effective for the remaining term of the Management Agreement. The letter also proposed a telephonic meeting between members of the Special Committee, its advisors, and the Manager and its advisors on September 30, 2019.

On September 30, 2019, a representative of King & Spalding advised Hunton that the Manager had rejected the Special Committee’s counter-proposal, that the Manager was not making a counter-proposal, and that there was no reason to have a call between representatives of the Manager and the Special Committee to discuss the Special Committee’s counter-proposal. Also on September 30, 2019, representatives of the Initial Financial Advisor and Raymond James held a call to discuss the Manager’s rejection of the Special Committee’s counter-proposal.

On September 30, 2019, the Special Committee held a telephonic meeting at which representatives of the Initial Financial Advisor and Hunton were present. At the meeting, the Special Committee discussed the Manager’s rejection of the Special Committee’s counter-proposal, and the Manager’s refusal to provide a new counter-proposal. The Special Committee expressed its concern about the lack of progress in the negotiations. The Special Committee also discussed whether it should make another good faith overture to the Manager to seek to make progress in the negotiations. Following discussion, the Special Committee asked Mr. Thie to contact Mr. Jernigan to discuss the Special Committee’s most recent counter-proposal to the Manager and the Manager’s rejection of same without submitting a counter-proposal.

On October 1, 2019, Mr. Thie discussed the Special Committee’s counter-proposal with Mr. Jernigan by telephone. Also on October 1, 2019, Mr. Jernigan had separate calls with certain other members of the Special Committee in which Mr. Jernigan stated that the Manager was working on a new proposal and would agree to an extension of the notice period under Section 13(a) of the Management Agreement until October 10, 2019.

Later on October 1, 2019, the Special Committee held a telephonic meeting at which representatives of the Initial Financial Advisor and Hunton were present. The Special Committee was updated on the various conversations different members of the Special Committee had with Mr. Jernigan earlier in the day.

On October 1, 2019, the chief investment officer of NexPoint Advisors, L.P. (“NexPoint”) sent a letter addressed to the board of directors, Mr. Jernigan and Mr. Good. The founder and president of NexPoint, Mr. Dondero, is a director of the Company and member of the Special Committee. In the letter, NexPoint, a large holder of the Company’s

common stock and advisor to holders of all of the Company’s outstanding Series A preferred stock, stated that it was familiar with the ongoing internalization dialogue between the Manager and the Special Committee, had studied other internalization processes and was involved in other recent management company sales, and had reviewed the analyst community’s models of the Company. The NexPoint letter urged the Manager and the Special Committee to reach an agreement on internalization, including through an extension to the notice period under Section 13(a) of the Management Agreement so as to permit a mediation process. NexPoint’s letter also stated that it believed an upfront payment of $35 million in OC Units and a $15 million earn-out payable in OC Units that would cliff vest upon the earlier of (i) three years, or (ii) if the Company’s common stock reaches $24.00 per share for a minimum of 30 trading days in a year was likely appropriate.

On October 2, 2019, Mr. Thie had a call with Mr. Jernigan in which Mr. Jernigan stated that the Manager wanted to focus on amending the Management Agreement and then possibly take up discussion of an internalization transaction in the future. Mr. Jernigan also advised Mr. Thie that the Manager was working on a new proposal for amendment of the Management Agreement to submit to the Special Committee. Later on October 2, 2019, the Manager submitted a counter-proposal to the Special Committee for amendments to the Management Agreement proposing: (i) a flat base management fee of $5.0 million per year paid quarterly starting on April 1, 2020, (ii) elimination of incentive fees with the understanding that future terminal value calculations would be calculated as if base fees and incentive fees were computed according to the Management Agreement before amendment, (iii) all compensation expense and occupancy costs would be borne by the Manager and (iv) agreeing to the Special Committee’s proposal to change the time period for delivery of a Notice of Proposal to Negotiate, as defined in the Management Agreement.

On October 2, 2019, the Special Committee held a telephonic meeting at which representatives of the Initial Financial Advisor and Hunton were present. The Special Committee discussed the Manager’s most recent proposal to amend the Management Agreement. The Special Committee also discussed its continued preference to pursue an internalization transaction as the Special Committee believed an internalization transaction would offer benefits to the Company and its stockholders of internalized and fully-aligned management, potential access to a broader investor base, an internalized management platform to continue the Company’s business plan and reduced G&A expenses. Despite its preference for an internalization transaction, the Special Committee discussed a response to the Manager’s most recent proposal for amendments to the Management Agreement, including additional amendments to the Management Agreement that the Special Committee deemed important, including adjustments to the base management fee, elimination of the incentive fees and reimbursement of expenses. The Special Committee instructed Hunton to prepare a letter to the Manager setting forth the Special Committee’s Management Agreement amendment terms discussed at the meeting.

Following review by the Special Committee, on October 3, 2019, the Special Committee instructed Hunton to deliver a counter-proposal to the Manager with respect to amendments to the Management Agreement but also to express in the letter the Special Committee’s preference for the Company and the Manager to enter into an internalization transaction. The letter stated that in connection with an internalization transaction, the Special Committee would be willing to amend its prior proposal with respect to performance equity awards so as to provide for a potential cliff vesting of all the performance equity awards on March 31, 2023. As an alternative to an internalization transaction, the counter-proposal also responded to the Manager’s proposed amendments to the Management Agreement, as follows: (i) Mr. Good and Ms. Luttrell would become employees of the Company and would be directly compensated by the Company, (ii) all incentive fees would be eliminated, (iii) the Company would reimburse the Manager for the compensation expenses of employees of the Manager, other than Mr. Jernigan, and such other expenses as the Special Committee agrees after receiving the details of any such reimbursable expenses from the Manager (additionally, the annual compensation and G&A and reimbursable expense budget would be presented to the independent directors of the Company for approval); (iv) the Company would pay directly certain G&A expenses such as the Company’s outside professional fees, board compensation, stockholder and corporate expenses; and (v) the time period for the Manager to deliver a Notice of Proposal to Negotiate (as defined in the Management Agreement) would be changed from “no fewer than 45 days prior to the prospective Effective Termination Date” to “no later than 10 days following delivery of a Termination Notice.” The counter-proposal provided that the amendments would be effective April 1, 2020 and continue in effect for the remaining term of the Management Agreement. The counter-proposal was conditioned on an agreement among the parties to a reasonable extension of the date on which a notice under Section 13(a) of the Management Agreement must be sent by the Company to the Manager in order to permit proper documentation of the amended Management Agreement and appropriate announcements and regulatory filings.

On October 4, 2019, certain members of the Special Committee had telephone conversations with Mr. Jernigan and Mr. Good to express the Special Committee’s continued preference for an internalization transaction and to discuss potential terms for such a transaction. Among other things, the parties discussed a potential internalization transaction in which certain of the OC Units would be issuable following completion of the transaction under an earn-out arrangement.

On October 4, 2019, the Manager submitted a counter-proposal to the Special Committee for an internalization transaction providing for (i) an initial $35.0 million payment in OC units valued at the volume weighted average price of the Company’s common stock on the NYSE as of the close of trading on October 3, 2019 of $19.50 per share, and (ii) an additional delayed payment of $15.0 million payable on January 2, 2023 in OC units at $19.50 per OC Unit, without conditions, which payment date would be accelerated (y) if the Company’s common stock traded at a price of $24.00 or more per share for at least 30 days during any trailing 365 day period, or (z) if earlier, upon a change of control of the Company in a transaction approved by the board of directors and the Company’s stockholders. The counter-proposal provided that, if the earn-out payment was paid on January 2, 2023, then no accrued distributions would be payable in respect of such OC Units issued at that time and if the earn-out payment was paid at any other time, all dividend distributions attributable to such OC Units from the date of closing of the internalization transaction through the time of such payment would be paid to the Manager in cash or, at the option of the Manager, additional OC Units, the number of which shall be the amount of such accrued dividend distributions divided by the 10-day volume weighed average price of the Company’s common stock on the NYSE as of the day prior to the date such distribution is payable. The counter-proposal also proposed that the internalization transaction would be effective December 31, 2019, subject to satisfaction of the conditions set forth in Section 17(c) of the Management Agreement.

Later on October 4, 2019, representatives of Hunton and King & Spalding had telephone conversations regarding the Manager’s counter-proposal. Representatives of King & Spalding requested that if the Manager’s counter-proposal was not acceptable, the Special Committee respond with its best proposal.

On October 4, 2019, the Special Committee held a telephonic meeting at which representatives of Hunton were present. At the meeting, the Special Committee discussed the Manager’s October 4, 2019 counter-proposal. Following discussion, the Special Committee instructed Hunton to prepare a response to the Manager in accordance with the Special Committee’s discussions.

On October 5, 2019, the Manager sent a revised counter-proposal to the Special Committee consisting of the following material terms:

Later on October 5, 2019, the Special Committee held a telephonic meeting at which representatives of the Initial Financial Advisor and Hunton were present. At the meeting, the Special Committee discussed with its advisors the Manager’s revised proposal and whether to make a counter-proposal that provided for an initial payment by the Company to the Manager upon internalization as well as the possibility for an earn-out payment if certain performance hurdles were met. Among other things, the Special Committee emphasized the need to align any internalization earn-out payments with the Company’s stockholders such that an earn-out payment would only be made if the Company’s stockholders had benefitted through stock price appreciation. Following extensive discussion, the Special Committee decided that the proper counter-proposal from the Special Committee was to the Manager’s October 4, 2019 counter-proposal letter. The Special Committee instructed Mr. Thie to communicate to the Manager proposed changes to the Manager’s October 4, 2019 counter-proposal letter that would provide the basis for a letter of intent to engage in an internalization transaction. Representatives of the Initial Financial Advisor expressed to the Special Committee reservations with respect to certain of the terms in the Special Committee’s proposed counter-proposal, including the amount of consideration payable to the Manager, and their ability to deliver a fairness opinion based on those terms. The Special Committee nonetheless made the determination that an internalization transaction on the terms approved by the Special Committee was in the best interest of the Company and its stockholders, including relative to risks associated with terminating or seeking to re-negotiate the Management Agreement, such as the ability to retain the management team and continue execution of the Company’s business plan.

On the morning of October 6, 2019, Mr. Thie had a telephone conference with Mr. Good during which he communicated the Special Committee’s counter proposal to the Manager’s October 4, 2019 counter-proposal. The Special Committee’s counter-proposal provided for an internalization transaction providing for (i) a $35 million initial payment in OC Units valued at the volume weighted average price of the Company’s common stock on the NYSE as of the close of trading on October 3, 2019 of $19.50 per share, and (ii) an additional earn-out payment of $15 million, which would only be payable if the Company’s common stock traded for a minimum price of $25.00 for at least 30 days during any trailing 365-day period prior to December 31, 2024 or, if earlier, upon a change of control of the Company in a transaction approved by the Board and the Company’s stockholders. The Special Committee’s counter-proposal also provided that distributions with respect to the OC Units would be payable following the date of issuance. Mr. Thie also communicated to Mr. Good that the Initial Financial Advisor would be requesting additional information from the Manager. At Mr. Thie’s request, Hunton prepared a letter that incorporated the agreed upon terms, which letter was to be signed by both parties, and sent the letter to the Manager, who in turn provided the letter to King & Spalding.

On October 6, 2019, the Manager informed Mr. Thie that the Manager agreed to an extension of the date for a notice from the Company to the Manager under Section 13(a) of the Management Agreement to November 1, 2019. Later on October 6, 2019, the Manager and a representative of the Special Committee signed a non-binding letter describing the financial terms of the proposed internalization transaction as proposed by Mr. Thie earlier that day.

On the evening of October 7, 2019, a representative of the Initial Financial Advisor notified Mr. Thie that following internal conversations, the Initial Financial Advisor was not prepared to continue its engagement and would be resigning as financial advisor to the Special Committee. Mr. Thie asked the representative of the Initial Financial Advisor not to submit its resignation letter until Mr. Thie had an opportunity to discuss with the Special Committee.

On October 8, 2019, representatives of Hunton and King & Spalding held a call to discuss the legal structure of the internalization transaction, information requests and transaction documentation. They concluded that the transaction would be structured as a purchase by the Operating Company of the assets of the Manager.

On October 8, 2019, the Special Committee held a telephonic meeting at which representatives of Hunton were present. The Special Committee discussed the Initial Financial Advisor’s message to Mr. Thie that it had decided to resign and discussed whether the Initial Financial Advisor would be willing to continue its engagement under revised terms proposed by Mr. Thie. The Special Committee also discussed whether the Special Committee should take steps to hire a new financial advisor. Subsequent to the October 8, 2019 meeting, representatives of the Initial Financial Advisor indicated that they were not willing to continue the engagement.

On October 11, 2019, the Initial Financial Advisor delivered a letter to the Special Committee pursuant to which the Initial Financial Advisor terminated its engagement agreement with the Company and the Special Committee. The letter confirmed that the Company was not required to pay any advisory fees to the Initial Financial Advisor pursuant to the engagement agreement.

On October 11, 2019, Mr. Churchey resigned as a director of the Company and as a result the size of the Special Committee was reduced to five members. Mr. Churchey indicated that he resigned for personal reasons and not as a result of any disagreement with the Company, the board of directors or management of the Company.

On October 12, 2019, Mr. Jernigan discussed with certain members of the Special Committee the status of moving forward with an internalization transaction.

On October 13, 2019, certain members of the Special Committee had telephone conversations with Mr. Jernigan and Mr. Good to discuss the status of moving forward with an internalization transaction.

On October 14, 2019, the Special Committee held a telephonic meeting at which representatives of Hunton were present. The Special Committee discussed recent conversations between certain members of the Special Committee and Messrs. Jernigan and Good. The Special Committee expressed its continuing desire to complete an internalization transaction but also discussed potential alternatives to an internalization transaction, including amendments to the Management Agreement. The Special Committee discussed asking the Manager to further extend the Section 13(a) notice deadline under the Management Agreement, the timing of a potential internalization transaction or Management Agreement amendments, and the engagement of a new financial advisor, among other things. Following the discussions, the Special Committee instructed Hunton, on behalf of the Special Committee, to contact on a preliminary basis certain potential financial advisor candidates and request qualification materials for review by the Special Committee.

During the week of October 14, 2019, Hunton contacted a number of potential financial advisors on behalf of the Special Committee and requested qualification materials for review by the Special Committee. The materials were distributed to the Special Committee and the Special Committee reviewed and discussed the materials and considered potential new financial advisors.

Also during the week of October 14, 2019, certain members of the compensation committee of the Company’s board of directors, who are also members of the Special Committee, had conversations with representatives of FPL regarding FPL’s ongoing executive compensation study and analysis on behalf of the Special Committee and compensation committee.

On October 15, 2019, the Manager sent to the Special Committee materials describing the Manager’s views on internalization as compared to certain other alternatives, such as amendment of the Management Agreement. The Manager also sent the Special Committee information with respect to various dividend payment scenarios for the Company and a G&A expense analysis. Also on October 15, 2019, representatives of Hunton had a call with Mr. Good and representatives of King & Spalding to discuss the Special Committee’s process going forward. The representatives of Hunton advised Mr. Good that the Special Committee requested that there be one spokesperson for the Manager through whom communications would flow to and from the Special Committee. The Special Committee requested that Mr. Good be the spokesperson for the Manager.

On October 23, 2019, the Special Committee held a telephonic meeting at which representatives of Hunton were present. At the meeting, the Special Committee discussed engagement of a financial advisor and the information received from potential financial advisors. After discussion, the Special Committee selected three potential financial advisors for interview by the Special Committee and instructed Hunton to arrange the interviews.

On October 25, 2019, the Company and the Manager executed an extension agreement with respect to the notice period under Section 13(a) of the Management Agreement extending the period until November 4, 2019 with a further automatic extension until November 30, 2019 in the event a representative of the Special Committee informed Mr. Good that the Special Committee had selected a financial advisor.

On October 28, 2019, the Special Committee held interview calls with three potential financial advisors. Representatives of Hunton participated in the calls. After the interviews, the Special Committee directed Hunton to obtain additional information and engagement term proposals from the three potential financial advisors.

On October 30, 2019, the Special Committee held a telephonic meeting at which representatives of Hunton were present. The Special Committee discussed financial advisor candidates. Following discussions, the Special Committee selected HFF Securities, as its financial advisor, subject to confirmation of HFF Securities’ independence,

and subject to negotiation of a satisfactory engagement agreement with HFF Securities. The Special Committee selected HFF Securities based on HFF Securities’ expertise and experience in internalization transactions and the real estate industry generally. The Special Committee notified Mr. Good of its selection of HFF Securities as financial advisor to the Special Committee.

Beginning November 1, 2019, HFF Securities began coordinating with the Manager to obtain financial information and other materials requested by HFF Securities. Mr. Thie delivered to Mr. Good HFF Securities’ list of documents requested to be reviewed in connection with their engagement. On November 4, 2019, Mr. Good notified representatives of HFF Securities that representatives of the Manager had uploaded substantially all of the documents responsive to HFF Securities’ document request list.

During the week of November 4, 2019, certain members of the Special Committee who are also members of the compensation committee of the board of directors contacted FPL with respect to FPL’s ongoing executive compensation analysis.

On November 11, 2019, Mr. Good and other representatives of the Manager held a lengthy telephone call with representatives of HFF Securities during which representatives of the Manager answered questions about the Company’s corporate finance model, its business plan, its assumptions regarding G&A expense after an internalization transaction and other questions about the Company, the Manager and their respective businesses. During the week of November 11, 2019, representatives of the Manager had other telephone calls with representatives of HFF Securities to answer additional questions about the Company and the Manager.

On November 15, 2019, the Special Committee held a telephonic meeting with HFF Securities and Hunton to discuss HFF Securities’ preliminary analysis work, information review and discussions with officers of the Manager. The Special Committee asked questions of HFF Securities and provided input to HFF Securities and agreed to meet again shortly when HFF Securities was ready to make an initial presentation to the Special Committee.

On November 20, 2019, the Special Committee held a telephonic meeting at which representatives of HFF Securities and Hunton were present. At the meeting, HFF Securities representatives discussed with the Special Committee an overview of the Company, including its current capitalization and investment portfolio, stock price performance and comparison to industry peers. Representatives of HFF Securities also discussed research analysts’ published expectations with respect to the Company’s performance, dividends and an internalization transaction. The HFF Securities presentation also included an analysis of precedent internalization transactions, a review of comparable public companies, observations on the Company’s business plan, as well as an analysis of the current Management Agreement terms. HFF Securities also provided a preliminary analysis of the financial terms of the internalization transaction set forth in the October 6, 2019 letter of intent between the Company and the Manager. Following discussions, the Special Committee instructed HFF Securities to continue its financial analysis of the Company, the Manager and a potential internalization transaction for further review and discussion by the Special Committee. The Special Committee also instructed Hunton to begin work on a proposal from the Special Committee to the Manager with respect to an internalization transaction in accordance with terms discussed by the Special Committee and to circulate the draft proposal to the Special Committee and HFF Securities for review and input.

On November 22, 2019, the Special Committee held a telephonic meeting at which representatives of HFF Securities and Hunton were present. At the meeting, representatives of HFF Securities discussed with the Special Committee HFF Securities’ continuing analysis of the terms of a new internalization proposal from the Special Committee to the Manager and the expected timing for completion of its work and a subsequent presentation to the Special Committee. The Special Committee instructed Hunton to continue work on a draft proposal from the Special Committee to the Manager for an internalization transaction for further review by the Special Committee and HFF Securities prior to submission to the Manager. The representatives of HFF Securities left the meeting and Hunton reviewed with the Special Committee the directors’ legal duties under Maryland law.

On November 26, 2019, the Special Committee held a telephonic meeting at which representatives of HFF Securities and Hunton were present. HFF Securities discussed with the Special Committee HFF Securities’ review of information with respect to the Company and the Manager as well as its financial analyses to date with respect to an internalization transaction, including a comparable transaction analysis, G&A synergies analysis and discounted cash flow analysis. The Special Committee discussed with its advisors the terms of a new internalization proposal to the Manager, including transaction consideration that provided for both an upfront payment and potential earn-out consideration, as well as employment arrangements for the Manager’s employees and other matters. Following

discussion, the representatives of HFF Securities left the meeting and representatives of Hunton reviewed with the Special Committee the directors’ legal duties under Maryland law. Following further discussion, the Special Committee instructed Hunton to submit the Special Committee’s new proposal to the Manager and its counsel.

On the evening of November 26, 2019, Hunton delivered the Special Committee’s new internalization proposal to the Manager and King & Spalding. As authorized by the Special Committee, the new proposal set forth the following terms for an internalization transaction between the Company and the Manager:

The Special Committee’s proposal also stated that the internalization transaction would be subject to negotiation and execution of definitive agreements among the Company, the Operating Company and the Manager and would also be subject to the conditions set forth in Section 17(a) of the Management Agreement and that stockholder approval of the internalization transaction would require approval of holders of a majority of the Company’s outstanding common stock, exclusive of shares held by affiliates of the Manager, at a meeting at which a quorum is present.

The proposal also stated that it was made on the condition that prior to November 30, 2019, the Company, the Operating Company and the Manager agree in writing that the time period in which the Company may deliver a notice to the Manager pursuant to Section 13(a) of the Management Agreement be extended from November 30, 2019 to the 90th day following the date of the special meeting of stockholders of the Company held for the purpose of Company stockholders voting on the internalization transaction.

On November 27, 2019, Mr. Good advised Hunton that the Manager accepted the terms set forth in the Special Committee’s proposal letter dated November 26, 2019 and the parties signed a non-binding letter of intent. Later on November 27, 2019, the Company and the Manager executed a letter agreement extending the date by which the Company may deliver a notice pursuant to Section 13(a) of the Management Agreement from November 30, 2019, until the 90th day following the date for the special meeting of the stockholders of the Company held for the purpose of voting on the internalization transaction.

Between November 27, 2019 and December 6, 2019, representatives of Hunton, HFF Securities, King & Spalding, Morrison & Foerster and the Manager had numerous discussions and communications regarding the structure of the transaction, documentation, and information with respect to the Company and the Manager.

On December 4, 2019, Morrison & Foerster distributed to Hunton, King & Spalding and the Manager a draft form of employment agreement for Mr. Good and Mr. Perry.

On December 6, 2019, FPL distributed to members of the Special Committee who are also members of the compensation committee of the board of directors an initial draft of a proposed internally managed executive compensation program prepared by FPL for the Company’s five most senior executive officers.

On December 6, 2019, Hunton distributed the initial draft of the Purchase Agreement to King & Spalding, Morrison & Foerster, the Manager and the Special Committee.

Between December 7, 2019 and December 15, 2019, representatives of Hunton, King & Spalding and Morrison & Foerster distributed comments to the Purchase Agreement, exhibits and schedules thereto, and the employment agreements. During such period, HFF Securities provided feedback to the Special Committee and its representatives at Hunton concerning the drafts of the Purchase Agreement.

On December 9, 2019, members of the Special Committee who are also members of the compensation committee of the board of directors held a telephonic meeting at which representatives of FPL and Hunton were present. At the meeting, representatives of FPL reviewed and discussed proposed compensation for the Company’s five most senior executive officers post-internalization as set forth in the draft of a proposed internally managed executive compensation program prepared by FPL and distributed to the Special Committee. The parties also discussed the draft employment agreements for Mr. Good and Mr. Perry.

On December 11, 2019, Hunton distributed a summary of the proposed terms of the employment agreements for Mr. Good and Mr. Perry. Later on December 11, 2019, Hunton distributed the Special Committee’s comments to the draft employment agreements and had conversations with Mr. Good to discuss the comments.

On December 12, 2019, the Special Committee held a telephonic meeting at which representatives of Hunton were present. The Special Committee discussed the most recent employment agreement terms proposed by Mr. Good and Mr. Perry, specifically as relates to the term of the agreement, severance payments upon termination, non-compete and non-solicitation provisions and approved the terms proposed.

On December 14, 2019, Mr. Jernigan submitted to Mr. Thie for distribution to the other directors a letter announcing his retirement as chairman of the board of directors of the Company effective December 31, 2019. In the letter, Mr. Jernigan also recommended that the board of directors appoint Mr. Good as chairman of the board of directors upon Mr. Jernigan’s retirement.

On December 16, 2019, Hunton sent to the Special Committee the agreed-upon form of Purchase Agreement and a summary of the key terms of the Purchase Agreement, the agreed-upon forms of employment agreements and summaries of the key terms of the employment agreements between the Company and each of Mr. Good and Mr. Perry, a proposed form of press release by the Company, a proposed form of Current Report on Form 8-K for the Company, a proposed investor deck prepared by management with respect to the proposed internalization transaction, and resolutions of the Special Committee. Also on December 16, 2019, HFF Securities sent presentation materials to the Special Committee in advance of a meeting of the Special Committee.

On December 16, 2019, the Special Committee met telephonically with representatives of Hunton. Hunton reviewed with the members of the Special Committee their legal duties under Maryland law. Later, representatives of HFF Securities joined the meeting. Representatives of Hunton reviewed with the Special Committee the key terms of the Purchase Agreement and the summary of the Purchase Agreement prepared by Hunton and the key terms of each of Mr. Good’s and Mr. Perry’s employment agreement. The representatives of HFF Securities reviewed with the Special Committee presentation materials prepared by HFF Securities and responded to questions from the Special Committee. Representatives of HFF Securities provided the Special Committee an overview of the internalization process to date and summarized the proposed financial terms set forth in the Purchase Agreement. The HFF Securities presentation included an overview of the Company, an analysis of the Company’s historical stock trading, summaries of research analysts published estimates of internalization terms and potential dividend reduction. The presentation and discussion also included the business plan and projections prepared by the Manager and projected G&A savings. HFF Securities also presented information on the post-internalization performance of other externally-managed REITs following internalization and certain financial metrics of other self-storage companies. HFF Securities described to the Special Committee its information review process, conversations with the Manager, review of information and various analyses, including an analysis of the proposed internalization transaction consideration payable by the Company on the terms set forth in the Purchase Agreement, including precedent transactions,

comparable companies, G&A synergies and discounted cash flow analyses. Following discussions, the Special Committee inquired of HFF Securities whether HFF Securities was prepared to deliver a fairness opinion with respect to the consideration payable by the Company pursuant to an internalization transaction on the terms set forth in the Purchase Agreement. Representatives of HFF Securities then rendered to the Special Committee an oral opinion, confirmed by delivery of a written opinion dated December 16, 2019, to the effect that as of such date and based on and subject to various assumptions made, procedures followed, factors considered and limitations and qualifications on the review undertaken, that the consideration to be paid by the Company in the internalization transaction was fair, from a financial point of view, to the stockholders of the Company who are not affiliated with the Manager or its affiliates. The representatives of HFF Securities then left the meeting. Following additional discussion, the Special Committee unanimously approved the Company entering into and performing its obligations under the Purchase Agreement and recommended that the full board of directors of the Company approve the Purchase Agreement and the transactions contemplated thereby and that the board of directors recommend the approval of the internalization transaction to the stockholders of the Company at a special meeting to be held for the Company’s stockholders to vote on the internalization transaction.

Following the Special Committee meeting, on December 16, 2019, the compensation committee held a telephonic meeting to review the employment agreements for Messrs. Good and Perry. After discussion, the compensation committee unanimously approved the employment agreements of Messrs. Good and Perry and recommended the approval of the employment agreement to the board of directors.

Immediately following the meeting of the compensation committee, the nominating and corporate governance committee of the board of directors met to discuss the retirement of Mr. Jernigan as executive chairman, reducing the size of the board of directors effective upon Mr. Jernigan’s retirement from the board of directors and the potential appointment of Mr. Good as chairman of the board of directors. Following discussion, the nominating and corporate governance committee unanimously approved and recommended that the board of directors approve the reduction in the size of the board of directors and the appointment of Mr. Good as chairman of the board of directors, each to be effective upon the retirement of Mr. Jernigan on December 31, 2019.

Immediately following the meeting of the nominating and corporate governance committee, the full board of directors held a telephonic meeting to discuss and vote on the Purchase Agreement and related matters. First, representatives of Morrison & Foerster reviewed with the full board their legal duties under Maryland law. Next, Mr. Thie, chair of the Special Committee, reported to the full board on the discussions and recommendations of the Special Committee, including the fact that the Special Committee had received the fairness opinion of HFF Securities. Mr. Thie informed the board of directors that the Special Committee had unanimously approved the Company entering into and performing its obligations under the Purchase Agreement and recommended that the full board of directors of the Company approve the Purchase Agreement and the transactions contemplated thereby and that the board of directors recommend the approval of the internalization transaction to the stockholders of the Company at a special meeting to be held for the Company’s stockholders to vote on the internalization transaction. Following discussion, and on motion duly made and seconded, the board of directors unanimously determined to be advisable and in the best interests of the Company and its stockholders and the Operating Company and approved (i) the Purchase Agreement and the transactions contemplated thereby, (ii) the board of directors recommendation that the Internalization to the common stockholders of the Company for approval at a special meeting to be held for the Company’s stockholders to vote on the internalization transaction, (iii) the employment agreements with Messrs. Good and Perry and (iv) (A) the reduction in the size of the board of directors and (B) the appointment of Mr. Good as chairman of the board of directors, each to be effective upon the retirement from the board of directors by Mr. Jernigan on December 31, 2019.

Later on December 16, 2019, the Purchase Agreement was signed on behalf of the parties thereto. Also, the employment agreements between the Company and Mr. Good and Mr. Perry were signed, to be effective only upon closing of the internalization transaction, and thereafter, the Company filed a Current Report on Form 8-K. A press release announcing the internalization transaction and related matters was issued.

Recommendations of the Special Committee and Our Board of Directors

Recommendation of the Special Committee; Reasons for Recommendation

The Special Committee unanimously recommended that the board of directors approve the Internalization based upon a variety of factors. In evaluating the Internalization, the Special Committee held numerous meetings and consulted with its legal and financial advisors as described in greater detail in the section entitled “—Background of the Internalization” beginning on page 24. The Special Committee considered the following factors, among others, in its evaluation and recommendation of the Internalization:

The Special Committee also took into account the following negative factors with respect to the Internalization:

The foregoing discussion of the factors considered by the Special Committee is not intended to be exhaustive and is not provided in any specific order or ranking, but rather includes material factors considered by the Special Committee. In reaching its decision to approve the Internalization, the Purchase Agreement and the other transactions contemplated by the Purchase Agreement, the Special Committee did not quantify or assign any relative weights to the factors considered and individuals may have given different weights to different factors. The Special Committee conducted an overall review of the factors considered and determined that, in the aggregate, the potential benefits outweighed the potential risks or possible negative consequences of consummating the Internalization and the other transactions contemplated by the Purchase Agreement.

Recommendation of Our Board of Directors; Reasons for Recommendation

Upon the recommendation of the Special Committee, our board of directors unanimously approved the Internalization, the Purchase Agreement and the other transactions contemplated by the Purchase Agreement, and determined that they are advisable to, and in the best interests of, the Company. Accordingly, the board of directors unanimously recommends that you vote “FOR” the Internalization Proposal.

The board of directors based its determination primarily on:

The foregoing discussion of the factors considered by our board of directors is not intended to be exhaustive and is not provided in any specific order or ranking, but rather includes material factors considered by the board of directors. In reaching its decision regarding the Internalization, the Purchase Agreement and the other transactions contemplated by the Purchase Agreement, the board of directors did not quantify or assign any relative weights to the factors considered and individuals may have given different weights to different factors.

Internalization Consideration

Upon the closing of the Internalization, the Operating Company will issue to the Manager the Initial Consideration, which consists of 1,794,872 OC Units. In addition, if either (a) the Company’s common stock trades at or above a daily volume weighted average price of $25.00 per share for at least 30 days during any 365-day period prior to December 31, 2024 or (b) there is a change of control of the Company (as defined in the Purchase Agreement) prior to December 31, 2024, that is approved by the Company’s board of directors and the common stockholders of the Company, the Operating Company will issue the Earn Out Consideration to the Manager, which consists of an additional 769,231 OC Units. The OC Units issuable in the Internalization are Class B OC Units. As a result, the initial distributions payable on the OC Units to be issued in the Internalization will be prorated for the number of days during the initial distribution period that such OC Units are outstanding.

Terms of the OC Units

OC Units are units of limited liability company interest in the Operating Company, which may, subject to certain limitations, be redeemed for cash or, at our option, exchanged for shares of our common stock on a one-for-one basis in lieu of cash; provided, however, that OC Units issued as part of the Internalization Consideration may not be redeemed for one (1) year following the closing of the Internalization. Subject to certain restrictions and exceptions, members of the Operating Company holding OC Units may exercise their redemption rights at any time after one year following the date of issuance of their OP Units. After the Lockup Period and for a period of three years thereafter,

neither the Manager nor any of its members who receive OC Units shall in any calendar quarter, without the prior approval of a majority of the independent directors of the Company’s board of directors, offer, sell, contract to sell or otherwise transfer or dispose of (other than by pledge, which is permitted following the Lockup Period) more than 145,000 OC Units or securities convertible or exchangeable or exercisable for any OC Units, or enter into any swap, hedge, or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the OC Units.

Holders of OC Units are entitled to receive distributions at the same time as dividends are paid to holders of our common stock. Distributions on the OC Units issuable in the Internalization will be prorated for the number of days they are outstanding during the initial distribution period. Any OC Units issuable as Earn Out Consideration will not receive or accrue distributions until the time that that they are issued.

Consequences if the Internalization is Not Completed

If the Internalization is not completed, the Company will continue to be externally managed by the Manager pursuant to the Management Agreement. In accordance with the terms of the Management Agreement, unless the Management Agreement is terminated, the Manager will be required to make another offer with respect to an internalization transaction by the third quarter of 2020. The Management Agreement requires an internalization transaction to be completed no later than 2023. As a result, unless the Management Agreement is terminated, an internalization transaction will be completed in the future if the Internalization is not completed at this time.

Furthermore, if the Internalization is not completed, and depending on the circumstances that would have caused the Internalization not to be completed, the benefits of the Internalization, including, without limitation, reduction in the Company’s general and administrative expenses, will not be realized, and the trading price of our common stock may decline significantly.

Accordingly, if the Internalization is not completed, there can be no assurances as to the effect of these risks and opportunities on the future value of our common stock. If the Internalization is not completed, our board of directors will continue to evaluate and review our business operations, dividend policy and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to identify ways to enhance stockholder value. If our stockholders do not approve the Internalization, or if the Internalization is not completed for any other reason, there can be no assurance that the eventual price paid in connection with a later internalization transaction would be lower than the Internalization Consideration as described in this proxy statement.

Opinion of the Special Committee’s Financial Advisor

The Special Committee retained HFF Securities to act as the Special Committee’s financial advisor in connection with the Internalization, pursuant to an engagement letter between HFF Securities, the Special Committee and the Company dated November 5, 2019. HFF Securities is the real estate investment banking affiliate of Jones Lang LaSalle, a world leader in real estate services. The Special Committee selected HFF Securities to act as its financial advisor in connection with the Internalization on the basis of HFF Securities’ experience with similar transactions and its reputation in the real estate industry as a nationally recognized investment banking firm.

On December 16, 2019, at a meeting of the Special Committee held to evaluate the Internalization, HFF Securities delivered to the Special Committee an oral opinion, which was confirmed by delivery of a written opinion dated December 16, 2019 (collectively, the “Opinion”), to the effect that, as of the date of the Opinion and based on and subject to various assumptions and limitations described in the Opinion, the Internalization Consideration was fair, from a financial point of view, to the stockholders of Company who are not affiliated with the Manager or its affiliates.

The full text of HFF Securities’ written opinion to the Special Committee, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Exhibit B to this proxy statement and is incorporated by reference herein in its entirety. The following summary of the Opinion is qualified in its entirety by reference to the full text of the Opinion. HFF Securities delivered the Opinion to the Special Committee for the benefit and use of the Special Committee (in its capacity as such) in connection with and for purposes of its evaluation of the Internalization Consideration from a financial point of view. The Opinion does not address any other terms or aspects of the Internalization, and no opinion or view was expressed as to the relative merits of the Internalization in comparison to other strategies or transactions that might be available to the Company or in which the

Company might engage or as to the underlying business decision of the Company to proceed with or effect the Internalization. The Opinion does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed Internalization or any related matter.

In connection with rendering the Opinion, HFF Securities:

HFF Securities assumed and relied upon without independent verification the accuracy and completeness of the financial, legal, regulatory, tax, accounting and other information provided to, reviewed by or discussed with HFF Securities (including information that is available from generally recognized public sources) for the purposes of the Opinion. With respect to the financial forecasts and projections provided to HFF Securities, with the Special Committee’s consent, HFF Securities assumed that they were reasonably prepared in good faith and are consistent with the best currently available estimates and judgments of senior management of the Company as to the future financial performance of the Company and the other matters covered thereby. HFF Securities assumed no responsibility for and expressed no view as to such forecasts, projections or any other forward-looking information or the assumptions on which they are based, and HFF Securities relied upon the assurances of the senior management of the Company that they are unaware of any facts that would make the information provided to or reviewed by HFF Securities incomplete or misleading. In rendering the Opinion, HFF Securities expressed no view as to the reasonableness of such forward-looking information or any estimate, judgment or assumption on which it is based. HFF Securities did not perform any independent valuation or appraisal of the assets or liabilities (contingent, derivative, off-balance-sheet or otherwise) of the Manager, the Company or its subsidiaries, nor was HFF Securities furnished with any such valuations or appraisals. In particular, HFF Securities did not express any opinion as to the value of any asset or liability of the Manager, the Company or any of its subsidiaries, whether at current market prices or in the future. HFF Securities did not assume any obligation to conduct, nor did HFF Securities conduct, any physical inspection of the properties or facilities of the Manager or the Company. In arriving at HFF Securities’ opinion, HFF Securities did not take into account any litigation that is pending or may be brought against the

Manager, the Company or any of its or their affiliates or representatives. In addition, HFF Securities did not evaluate the solvency of any party to the Purchase Agreement under any state or federal laws or rules, regulations, guidelines or principles relating to bankruptcy, insolvency or similar matters.

For purposes of rendering its opinion, HFF Securities assumed that there has not occurred any material change in the assets, liabilities, financial condition, results of operations, business or prospects of the Manager, the Company or any of its subsidiaries since the respective dates on which the most recent financial statements or other information, financial or otherwise, relating to the Manager, the Company or any of its subsidiaries, was made available to HFF Securities. HFF Securities also assumed, with the Special Committee’s consent, that the final executed Purchase Agreement would not differ in any material respect from the draft Purchase Agreement reviewed by HFF Securities, that the representations and warranties of each party set forth in the Purchase Agreement are true and correct, that each party to the Purchase Agreement will perform all of the covenants and agreements required to be performed by it thereunder and that all conditions to the Internalization set forth in the Purchase Agreement will be timely satisfied and not modified or waived and that the Internalization will be consummated in accordance with the terms set forth in the Purchase Agreement without modification, waiver or delay, except, in each case, as would not be material to HFF Securities’ analyses. In addition, HFF Securities assumed, with the Special Committee’s consent, that any governmental, regulatory or third-party consents, approvals or agreements necessary for the consummation of the Internalization will be obtained without any imposition of a delay, limitation, restriction or condition that would, in any respect be material to HFF Securities’ analyses, have an adverse effect on the Company or the contemplated benefits of the Internalization. HFF Securities also assumed, with the Special Committee’s consent, that the Earn Out Consideration comprises a portion of the consideration payable by the Company in the Internalization and HFF Securities does not express any view or opinion on the likelihood that any Earn Out Consideration will actually be paid by the Company at any time. In addition, personnel of HFF Securities are not legal, accounting, regulatory or tax experts and with the Special Committee’s consent HFF Securities relied, without independent verification, on the assessment of the Company and its advisors with respect to such matters. The Opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to HFF Securities as of, December 16, 2019. It should be understood that, although subsequent developments may affect the Opinion and the assumptions used in preparing it, HFF Securities does not have any obligation to update, revise or reaffirm the Opinion. HFF Securities does not express any view or opinion as to the price at which any share of the Company’s common stock or any other security may trade at any time, including subsequent to the date of the Opinion. The credit, financial and stock markets as well as industries in which the Company operates have experienced, and continue to experience, volatility and HFF Securities expresses no opinion or view as to any potential effects of such volatility on the Company or the Internalization.

The Opinion addresses only the fairness, from a financial point of view, of the Internalization Consideration to be paid by the Company in the Internalization to the stockholders of the Company who are not affiliated with the Manager or its affiliates, and HFF Securities does not express any view as to the fairness of the Internalization to, or any consideration of, the holders of any other securities of the Company, creditors or other constituencies of the Company or its subsidiaries or any other term of the proposed Internalization or the other matters contemplated by the Purchase Agreement. HFF Securities has not been asked to, nor does HFF Securities offer, any opinion as to any other term or aspect of the Purchase Agreement or any other agreement or instrument contemplated by or entered into in connection with the Internalization or the form or structure of the Purchase Agreement or the likely timeframe in which the Internalization will be consummated. Furthermore, HFF Securities expresses no opinion with respect to the amount or nature of any compensation to any officers, directors or employees of any party to the Internalization, or any class of such persons or with respect to the fairness of any such compensation. HFF Securities does not express any opinion as to any tax or other consequences that may result from the transactions contemplated by the Purchase Agreement, nor does its opinion address any legal, tax, regulatory or accounting matters, as to which HFF Securities understands the Company has received such advice as it deems necessary from qualified professionals. The Opinion does not address the underlying business decision of the Company to engage in the Internalization or the relative merits of the Internalization as compared to any strategic alternatives that may be available to the Company.

The Opinion was furnished solely for the use and benefit of the Special Committee in connection with its consideration of the Internalization and was not intended to, and did not constitute a recommendation as to whether the Special Committee should recommend or proceed with the Internalization, nor did it constitute a recommendation to any stockholder of Company as to how such stockholder should vote or act with respect to the Internalization or any matter related thereto.

Summary of Financial Analysis

The following is a summary of the material financial analyses provided by HFF Securities to the Special Committee in connection with the Internalization. The summary set forth below does not purport to be a complete description of the financial analyses performed by, and underlying the opinion of, HFF Securities, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by HFF Securities.

The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by HFF Securities, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by HFF Securities. The implied value of the Internalization Consideration, excluding Earn Out Consideration and including Earn Out Consideration, was calculated based on the Company’s stock price of $17.70 as of market close on December 13, 2019. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by HFF Securities.

Precedent Transaction Analysis

HFF Securities performed an analysis of selected precedent transactions involving publicly-traded and non-traded REITs that shared certain characteristics with the Internalization. HFF Securities reviewed publicly available financial information relating to the following 17 selected transactions that HFF Securities deemed generally relevant as management internalization transactions in the real estate sector:

HFF Securities reviewed, among other things, the implied valuation of the consideration paid in such transactions calculated as follows:

The analysis indicated the following, excluding and including earn-out consideration payable in such precedent transactions:

Using the reference ranges for the benchmarks set forth above and information provided by management, HFF Securities determined the following implied values for the Manager:

No transaction, company or business used in this analysis is identical or directly comparable to the Manager or the Company. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies or businesses to which the Company was compared.

Comparable Company Analysis

HFF Securities reviewed publicly available information related to various U.S.-based publicly-traded asset managers. In contrast to the Manager, which solely advises the Company, a large majority of the asset managers analyzed by HFF Securities advise multiple real estate vehicles and, as a result, have assets under management that are significantly greater than the Company’s and derive their revenue from a more diversified portfolio of real estate assets. HFF Securities reviewed publicly available financial and stock market information of the following two selected companies that HFF Securities viewed as generally relevant as U.S.-based real estate asset managers that manage only real estate-related investment vehicles:

HFF Securities reviewed, among other things, the implied valuation of the publicly traded asset managers calculated as follows:

The analysis indicated the following:

Using the reference ranges for the benchmarks set forth above and information provided by management, HFF Securities determined the following implied values for the Manager:

No company or business used in this analysis is identical or directly comparable to the Manager. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the values of the companies or businesses to which the Manager was compared.

Precedent Transaction Analysis: G&A Expense Savings from Internalization

HFF Securities performed an analysis of selected precedent transactions involving publicly traded and non-traded REITs that reflected certain savings in respect of G&A expenses that shared certain characteristics with the Internalization.

HFF Securities reviewed, among other things, the implied valuation of the consideration paid in such transactions, both excluding and including any earn-out consideration, calculated as the consideration divided by estimated G&A synergies to the extent publicly disclosed, which is referred to as “Consideration/ Synergies.”

This analysis indicated the following:

Using the reference ranges for the benchmarks set forth above and information provided by management, HFF Securities determined the following implied values for the Manager:

No transaction, company or business used in this analysis is identical or directly comparable to the Internalization. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the G&A expense savings recognized by the companies involved in the precedent transactions to which the Internalization was compared.

Discounted Cash Flow Analysis

HFF Securities performed a discounted cash flow analysis of the Company by calculating the estimated present value as of December 31, 2019 of the standalone unlevered, after-tax free cash flows that the Manager was forecasted to generate during the twelve-month periods ending December 31, 2019 through December 31, 2022 and the three-month period ending March 31, 2023, according to financial projections provided by the Manager on behalf of the Company. HFF Securities calculated terminal values for the Manager using both the EBITDA multiple and Capitalization of Equity methods, each as defined in the Management Agreement. The unlevered, after-tax free cash flows and terminal values were then discounted to present value (as of December 13, 2019) using a selected range

of discount rates of 12.5% to 22.5% for the base management fee and 23.0% to 36.0% for the incentive fee, which were selected based on HFF Securities’ professional judgment to reflect an estimate of the Manager’s weighted average cost of capital. This analysis indicated the following approximate implied value reference range for the Manager, as compared to the Internalization Consideration.

Other factors

HFF Securities also noted for the Special Committee certain additional factors that were not considered part of HFF Securities’ financial analysis with respect to the Opinion but were referenced for informational purposes, including, among other things:

General

As noted above, the discussion set forth above is a summary of the material financial analyses and other factors reviewed by HFF Securities with the Special Committee in connection with the Internalization and is not a comprehensive description of all analyses undertaken or factors considered by HFF Securities. The preparation of a financial opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. HFF Securities believes that the analyses summarized above must be considered as a whole. HFF Securities further believes that selecting portions of its analyses considered or focusing on information presented in tabular format, without considering all analyses and all narrative description of the analyses, could create a misleading or incomplete view of the processes underlying HFF Securities’ analyses and Opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.

In performing its analyses, HFF Securities considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. The estimates of the future performance of the Company in or underlying HFF Securities’ analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by HFF Securities’ analyses. These analyses were prepared solely as part of HFF Securities’ analysis of the fairness, from a financial point of view, of the Internalization Consideration to be paid by the Company in the Internalization and were provided to the Special Committee in connection with its evaluation of the Internalization. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or acquired or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be HFF Securities’ view of the actual value of the Company.

The type and amount of consideration payable in the Internalization were determined through negotiations between the Special Committee and the Manager Parties, rather than by any financial advisor, and were approved by the Special Committee. The decision to enter into the Purchase Agreement was solely that of the Special Committee. HFF Securities’ opinion and analyses were only one of many factors considered by the Special Committee in its evaluation of the transaction and should not be viewed as determinative of the views of the Special Committee or any other party with respect to the transaction or the consideration payable in connection with the Internalization.

The Company has agreed to pay HFF Securities for its services as financial advisor to the Special Committee in connection with the transaction an aggregate fee currently estimated to be approximately $700,000, of which $350,000 was payable upon execution of the engagement letter and the balance was payable upon delivery of HFF Securities’ Opinion. In addition, the Company has agreed to reimburse HFF Securities for its reasonable expenses incurred in connection with HFF Securities’ engagement and to indemnify HFF Securities and certain related parties against specified liabilities.

HFF Securities’ Opinion was approved by a committee of HFF Securities’ investment banking and other professionals in accordance with its customary practice. HFF Securities and its affiliates comprise a full-service securities firm engaged in investment, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies and individuals.

HFF Securities and its affiliates may in the future provide financial advice and services to the Company or the Manager and their respective affiliates for which it and its affiliates would expect to receive compensation.

Forward-Looking Financial Information

Other than historically providing periodic earnings guidance, we and the Manager do not as a matter of course make public our management’s forecasts or projections of future performance or earnings. In connection with the proposed Internalization, we have elected to make available to our common stockholders certain financial projections of the Manager and the Company. The Manager projections are for the years ending December 31, 2019, 2020, 2021 and 2022 and for the quarter ended March 31, 2023, and such projections assume that the Management Agreement remains in effect on its current terms during the entirety of those periods until an internalization transaction is required pursuant to the terms of the Management Agreement on March 31, 2023. The Company projections reflect the anticipated general and administrative expenses of the Company for the year ending December 31, 2020. These projections were prepared by management in good faith and are based on estimates and assumptions that management believes are reasonable as of the time the projections were prepared. The projections were provided to the Special Committee in connection with its review of the proposed transaction and to the financial advisor to the Special Committee, HFF Securities, for its use and reliance in connection with its financial analyses and opinion as described in the section entitled “Opinion of the Special Committee’s Financial Advisor.” The projections were on an accounting basis consistent with the financial statements of the Company and of the Manager; however, the projections were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for prospective financial information or generally accepted accounting principles (“GAAP”). Neither the Company’s nor the Manager’s independent registered public accounting firm has compiled or examined any of the projections or expressed any conclusion or provided any form of assurance with respect to the projections and, accordingly, assumes no responsibility for them.

The projections included below are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and are subject to risks and uncertainties that could cause actual results to differ materially from those statements and should be read with caution. They are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and recent developments. While presented with numerical specificity, the projections were not prepared by us in the ordinary course and are based upon a variety of estimates and hypothetical assumptions made by our management with respect to, among other things, general economic, market, interest rate and financial conditions, the availability and cost of capital and our ability to raise capital in the future, potential future acquisitions, competition and other effects within the self storage industry, real estate and market conditions, and those risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC. See also the section entitled “Cautionary Statement Regarding Forward-Looking Statements” on page 14.

None of the assumptions underlying the projections may be realized, and they are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control. Accordingly, there can be no assurance that the assumptions made in preparing the projections will prove accurate, and actual results may materially differ. In addition, the projections do not take into account any of the transactions contemplated by the Purchase agreement, including the Internalization, which may also cause actual results to materially differ.

For these reasons, as well as the bases and assumptions on which the projections were compiled, the inclusion of the information set forth below should not be regarded as an indication that the projections will be an accurate prediction of future events, or that any recipient of the projections considered, or now considers, them to be necessarily predictive of actual future events, and they should not be relied on as such. None of the Company, the Manager or any of their respective affiliates, advisors or other representatives has made, or makes, any representation to any stockholder regarding the information contained in the projections and, except as required by applicable securities laws, neither we nor the Manager intends to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrences of future events even in the event that any or all of the assumptions are shown to be in error.

The Manager’s financial projections include projections of earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the Manager for the periods presented. Manager EBITDA is a financial metric that is not prepared in accordance with GAAP. This non-GAAP financial measure was used by HFF Securities and the Special Committee in analyzing the Internalization Consideration because management believes the metric enhances investors’ understanding of the Manager’s financial performance. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The calculation of Manager EBITDA may differ from the calculation of EBITDA by other companies.

Manager Projections

The following table sets forth the projections of the Manager’s fees and expenses and EBITDA for the years ending 2019, 2020, 2021 and 2022 and the three months ending March 31, 2023.

Company Projections

The following table sets forth the Company’s projected management fees and expenses and expected general and administrative expense savings as a result of the Internalization in each case for the year ending December 31, 2020.

Description of the Purchase Agreement

Pursuant to the Purchase Agreement, the Operating Company will purchase all of the operating assets and liabilities of the Manager. The Manager will retain certain assets and liabilities unrelated to the management of our business. Upon the closing of the Internalization, the Operating Company will issue the Initial Consideration. If either (a) the Company’s common stock trades at or above a daily volume weighted average price of $25.00 per share for at least 30 days during any 365-day period prior to December 31, 2024 or (b) there is a change of control of the Company (as defined in the Purchase Agreement) prior to December 31, 2024, that is approved by the Company’s board of directors and the common stockholders of the Company, the Operating Company will issue an additional 769,231 OC Units to the Manager.

The OC Units issuable in the Internalization are Class B OC Units. As a result, the initial distributions payable on the OC Units to be issued in the Internalization will be prorated for the number of days during the initial distribution period that such OC Units are outstanding.

Conditions to Closing of the Internalization

The obligations of the Operating Company to effect the Internalization are subject to the satisfaction or waiver of certain conditions, including the following:

The obligations of the Manager Parties to effect the Internalization are subject to the satisfaction or waiver of certain conditions, including the following:

Representations and Warranties

The Purchase Agreement contains reciprocal representations and warranties that relate to, among other topics, the following:

The Purchase Agreement also contains representations and warranties of the Manager Parties, which relate to, among other topics:

The Purchase Agreement also contains representations and warranties of the Operating Company and the Company, which relate to, among other topics:

Conduct of Business Prior to Closing

The Manager Parties have agreed to certain covenants in the Purchase Agreement restricting the conduct of the Manager’s business between the date of the Purchase Agreement and the date of the closing of the Internalization. The Manager is required to (i) maintain its legal existence, (ii) conduct its business in the ordinary course pursuant to the Management Agreement, (iii) pay the debts, taxes and other obligations of the acquired business when due, (iv) maintain the assets to be acquired in the same condition as they were as of the date of the Purchase Agreement, (v) continue the insurance policies of the Manager’s business and (vi) use commercially reasonable efforts to (a) operate the business in such a manner that the representations and warranties included in the Purchase Agreement will be true and correct in all material respects as of the date of closing as they were on the date of the purchase agreement and (b) preserve and maintain good relationships with suppliers, distributors, employees, governmental authorities, business associates and others having material relationships with the business of the Manager.

The Manager is prohibited from doing any of the following:

Restrictive Covenants

For a period of five years (the “Restricted Period”) following the closing of the Internalization, subject to certain exceptions, none of the Manager, Mr. Jernigan, Mr. Good or any of their respective affiliates will be entitled to engage in the business of acquiring, financing, owning or operating self-storage facilities other than for the Company, the Operating Company or any venture to which the Company, the Operating Company or any of their respective subsidiaries is a party. As described elsewhere in this proxy statement, Mr. Perry will be subject to separate restrictions on competition contained in his employment agreement, which are also incorporated in the Purchase Agreement.

In addition, during the Restricted Period, the Manager Parties have agreed not to interfere with business relationships of the Company, the Operating Company or their respective affiliates, and not to hire, solicit, request or induce any employee of the Company to terminate his or her employment with the Company. Such restriction will not apply to the employment of Mr. Perry by a Jernigan family-owned business that owns no more than 25 self-storage facilities and none of them are located within a three mile radius of any self-storage facilities in which the Company has an equity or debt investment. The Purchase Agreement also contains non-disparagement and confidentiality provisions.

Other Covenants and Agreements

The Purchase Agreement contains a number of customary and transaction-specific covenants including but not limited to:

Lock-Up and Registration Rights

Pursuant to the Purchase Agreement, without the prior written consent of the Operating Company, subject to certain exceptions, neither the Manager nor any of its members who receive OC Units will be permitted to offer, sell, contract to sell, pledge (unless the pledgee agrees to the terms of the Lockup Period), or otherwise transfer or dispose of any of the OC Units received in connection with the Internalization or securities convertible or exchangeable or exercisable for any of such OC Units, or enter into any swap, hedge, or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the OC Units for a period of twelve months commencing on the closing date of the Internalization (the “Lockup Period”). After the Lockup Period and for a period of three years thereafter, neither the Manager nor any of its members who receive OC Units shall in any calendar quarter, without the prior approval of a majority of the independent directors of the Company’s board of directors, offer, sell, contract to sell or otherwise transfer or dispose of (other than by pledge, which is permitted following the Lockup Period) more than 145,000 OC Units or securities convertible or exchangeable or exercisable for any OC Units, or enter into any swap, hedge, or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the OC Units. Notwithstanding the foregoing, nothing shall prohibit the Manager from distributing OC Units to its members; provided that such members agree to be subject to the same restrictions set forth above.

In addition, the Purchase Agreement grants customary registration rights to the Manager and its members with respect to the resale of the shares of the Company’s common stock issuable upon the redemption of the OC Units issued as consideration in the Internalization.

Termination

The Purchase Agreement may be terminated (1) by mutual consent of the Manager and the Operating Company, (2) by either the Manager or the Operating Company if the closing of the Internalization has not occurred on or before June 30, 2020 (the “Outside Date”), (3) by the Operating Company if (i) there has been a material Breach of any representation, warranty, covenant or agreement of the Manager such that one or more of closing conditions are not capable of being fulfilled as of the Outside Date; provided that (a) the Manager has been provided written notice and a reasonable opportunity to cure such breach and (b) the Operating Company is not in material breach of its obligations under this the Purchase Agreement, or (ii) the Company is unable to obtain the stockholder approval of the Internalization at its Special Meeting of stockholders or (4) by the Manager (but only so long as the Manager is not in material breach of its obligations under the Purchase Agreement) if there has been a material breach of any representation, warranty, covenant or agreement of the Operating Company such that one or more of the conditions to closing are not capable of being fulfilled as of the Outside Date; provided that the Operating Company has been provided written notice and a reasonable opportunity to cure.

In the event of a termination, all further obligations of the parties under the Purchase Agreement will terminate, except for certain provisions that expressly survive a termination.

Indemnification

The Manager Parties have agreed to severally, and not jointly, indemnify the Company, the Operating Company and their respective affiliates and representatives for losses resulting from:

The Operating Company has agreed to indemnify the Manager Parties with respect to any losses resulting from:

Notwithstanding the foregoing, neither the indemnification obligations of the Manager Parties nor the indemnification obligations of the Operating Company will be triggered until the aggregate amount of all indemnifiable losses exceeds $200,000 (the “Basket”). Furthermore, subject to certain limitations, neither the indemnification obligations of the Manager Parties nor indemnification obligations of the Operating Company may exceed $3.5 million (the “Cap”). Neither the Basket nor the Cap shall apply with respect to any Fundamental Representation (as defined below). The Manager Parties may satisfy their indemnification obligations under the Purchase Agreement with OC Units.

“Fundamental Representation” means (a) the Manager Party representations with respect to (i) organization, (ii) authority, no violation of law and enforceability and (iii) title to and sufficiency of the purchase assets and (b) the Operating Company and Company representations with respect to (i) organization and (ii) authority, no violation of law and enforceability.

Each of the representations and warranties in the Purchase Agreement will remain in full force and effect for eighteen months following the closing of the Internalization, except for the Fundamental Representations, which will survive for the full period of all applicable underlying statutes of limitations plus 60 days.

Nothing in the Purchase Agreement shall be construed to limit in any respect any indemnification obligation that the Operating Company has under any separate indemnification agreement with any Manager Party that predates the Purchase Agreement, or, with respect to the Manager, the indemnification provisions of the Management Agreement, each of which indemnification agreements and indemnification provisions shall survive the closing of the Internalization and remain in full force and effect thereafter; provided, however, that the Operating Company shall not have any obligation to indemnify any Manager Party under any such agreements for any liabilities arising pursuant to the Purchase Agreement.

Interests of Certain of Our Directors and Executive Officers in the Internalization

In considering the recommendation of the board of directors to vote for the proposals described in this proxy statement, you should be aware that Mr. Jernigan, who was an executive officer and director of the Company as of the date of the Purchase Agreement, and Messrs. Good and Perry, who, in the case of Mr. Good, was and continues to be a director and executive officer of the Company and, in the case of Mr. Perry, was and continues to be an executive officer of the Company, have interests in those transactions that are different from, or in addition to, the interests of our stockholders generally and that create conflicts of interest. These interests include:

Employment Agreements

On December 16, 2019, the Company, the Operating Company and JCAP Management entered into an employment agreement with each of Mr. Good and Mr. Perry (collectively, the “Employment Agreements,” and each an “Employment Agreement”).

Term

The Employment Agreements will become effective as of the closing of the Internalization. Mr. Good’s Employment Agreement has a four year term. Mr. Perry’s Employment Agreement has an initial term of three years, with automatic renewals of additional successive one-year periods unless either party thereto provides at least 60 days’ advance notice of non-renewal. Mr. Good’s Employment Agreement does not provide for automatic renewal, but nothing in the Employment Agreement shall preclude Mr. Good’s remaining an “at will” employee of the Company after expiration of his Employment Agreement. If the closing of the Internalization does not occur within 90 days following the special meeting of the Company’s stockholders held to approve the Internalization, the Employment Agreements will be void and of no further effect.

Duties

The Employment Agreements provide that Mr. Good and Mr. Perry (collectively, the “Executive Officers,” and each, an “Executive Officer”) will be employed by JCAP Management and that Mr. Good will serve as Chief Executive Officer of the Company and Mr. Perry will serve as President and Chief Investment Officer of the Company. Mr. Good will report to the Company’s board of directors and Mr. Perry will report to the Company’s Chief Executive Officer. The Employment Agreements require that the Executive Officers devote substantially all of their business time and attention to the performance of their duties to the Company, but they allow the Executive Officers to engage in certain other outside activities, so long as those duties and activities do not unreasonably interfere with the performance of their duties to us or violate the restrictive covenants in the Employment Agreements.

Compensation

The Employment Agreements provide that Mr. Good and Mr. Perry will receive annual base salaries of $425,000 and $400,000, respectively, with target annual cash bonus opportunities of at least 100% of base salary, and at least 85% of base salary, respectively (the “Target Annual Bonus”), subject to performance criteria and targets established and administered by the Company’s board of directors (or a committee thereof). In addition, the Executives will be eligible to receive equity and other long-term incentive awards (including long-term incentive units in the Operating Company) at the discretion of the Company’s board of directors (or a committee thereof) under any applicable plan or program adopted by the Company, and they will be eligible to participate in all employee benefit programs made available to the Company’s senior executives generally. Any annual bonus for 2020 payable to Mr. Good shall be prorated based on the number of days in 2020 after the closing date of the Internalization. Mr. Perry is also entitled to a $1,500 monthly auto allowance.

Severance Payments

The Employment Agreements provide that, if an Executive Officer’s employment is terminated by the Company without “cause” or by the Executive Officer for “good reason” (as those terms are defined in the Employment Agreements), subject to the Executive Officer executing and not revoking a release of claims, the Executive Officer will receive the following severance entitlements: (1) two times the sum, or in the case of a termination within 12 months following a change of control of the Company, three times the sum of (a) his base salary and (b) his average annual bonus earned in the two calendar years preceding the year of termination (or, in the case of Mr. Good, if the termination occurs in 2020, his Target Bonus, and if the termination occurs in 2021, his Target Annual Bonus and the annual bonus actually earned in 2020, annualized); (2) a prorated annual bonus for the year of termination; (3) all outstanding time-based equity-based awards vest, and performance-based equity awards will vest if and to the extent the applicable performance-based vesting conditions are satisfied with any such amount pro-rated for the actual number of days in the applicable performance period preceding the effective date of termination; and (4) continuation of subsidized health care coverage for up to 18 months

or monthly payments equal to the Company cost of providing such coverage. The severance described in (1) above is paid in installments over 24 months following the termination date unless the termination occurs within 12 months following a change in control of the Company, in which case the severance is paid in a lump sum within 60 days after the date of termination. Mr. Perry would also be entitled to the severance payments and benefits described above if his employment is terminated by the Company due to the Company’s election not to renew the term of the Employment Agreement. Mr. Perry would not be entitled to severance if the termination is due to his election not to renew the term of the Employment Agreement. In the case of Mr. Good, after the expiration of his four-year Employment Agreement term, in the event Mr. Good’s employment is terminated by the Company without cause prior to the one-year anniversary of the expiration of such Employment Agreement term, he shall receive one year of severance payments and benefits described above, provided, that, the amount of such payment shall be reduced dollar-for-dollar for salary, bonus and benefits that may be received by Mr. Good after the expiration of his Employment Agreement by reason of his continuing to be employed by the Company as an “at-will” employee during such one-year period, prior to his termination.

For purposes of the Employment Agreements, “good reason” means, in summary, (i) assignment of duties or responsibilities substantially inconsistent with the Executive’s title or a material diminution in the Executive’s title, authority or responsibilities, (ii) a material reduction in an Executive’s base salary or Target Annual Bonus opportunity, (iii) a 35-mile relocation of an Executive Officer’s principal place of business, or (iv) a continuous, willful and material breach of the Employment Agreement by us, and “cause” means, in summary, the Executive’s (i) conviction of, or plea of guilty or nolo contendere to, a felony (excluding traffic-related felonies), or any financial crime involving us, (ii) willful and gross misconduct in the performance of his duties (other than by reason of his incapacity or disability), or (iii) continuous, willful and material breach of the Employment Agreement. For purposes of the Employment Agreements, “change in control” means, in summary, the occurrence of (i) the sale, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the Company’s properties or assets, (ii) a change in the majority of the Company’s board of directors unless approved by incumbent directors, (iii) acquisition of 50% of more of the voting power of the Company’s stock, or (iv) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar transaction after which the Company’s shareholders do not own, directly or indirectly, more than 50% of the voting power of the surviving entity’s (or a parent entity’s) stock.

Non-Solicitation, Non-Competition, Intellectual Property, Confidentiality and Non-Disparagement

The Employment Agreements provide that for (i) eighteen months (in the case of Mr. Good) or (ii) twelve months (in the case of Mr. Perry) following the termination of employment, the respective Executive Officer will not solicit the Company’s employees, exclusive consultants or independent contractors, hire any individual who is (or was, within the six month period immediately preceding such hiring) the Company’s employee, exclusive consultant, or exclusive independent contractor, solicit, entice or induce the Company’s customers for the purpose of providing products or services that are competitive with the products or services the Company provides, or solicit, entice, or induce the Company’s customers to terminate or reduce their business with the Company. The Employment Agreements also contain non-competition covenants that prohibit the Executives from having any ownership interest in a competitor other than a passive investment of no more than 5%, or engaging in or performing services for a competitor, if such services either are the same as or similar to (individually or in the aggregate) the services Executive performed for the Company during his employment, or are performed with respect to products or services of the competitor that are competitive with the products or services provided by the Company with which Executive was involved during his employment or about which he received confidential information during his employment. Mr. Good’s Employment Agreement provides that the period during which the non-competition provision applies is eighteen months following termination for any reason, and Mr. Perry’s Employment Agreement provides that the period during which the non-competition provision applies is twelve months following a termination of employment in connection with which Mr. Perry is entitled to severance. Mr. Perry’s Employment Agreement provides that, following termination of employment, his ownership of, or devoting time as he determines in good faith to be necessary or appropriate to fulfill his duties to, a Jernigan family-owned business that owns no more than 25 self-storage facilities and none of them are located within a three mile radius of any self-storage facilities in which the Company has an equity or debt investment will not constitute a violation of the non-competition covenant under his Employment Agreement. Each Employment Agreement also contains covenants relating to the treatment of confidential information and intellectual property matters and restrictions on the ability of each of the Executive Officers on the one hand and the Company on the other hand to disparage the other.

Regulatory Matters

We are unaware of any material federal, state or foreign regulatory requirements or approvals that are required for the execution of the Purchase Agreement or the completion of the Internalization.

SELECTED HISTORICAL FINANCIAL DATA OF THE MANAGER
(In thousands)

The following table sets forth selected financial data relating to the Manager’s historical financial condition and results of operations for the years ended December 31, 2018 and 2017 and the nine months ended September 30, 2019 and 2018. Please read the following selected financial data of the Manager in conjunction with the Manager’s audited financial statements for the year ended December 31, 2018, the Manager’s unaudited financial statements for the year ended December 31, 2017 and for the nine months ended September 30, 2019 and 2018 and the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Manager” beginning on page 64.

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF THE COMPANY

JERNIGAN CAPITAL, INC.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(In thousands, except share and per share amounts)

The following table sets forth, for the periods and as of the dates indicated, our selected historical financial and pro forma financial data on a consolidated basis. The historical data for the years ended 2017 and 2018 is derived from our audited financial statements from such periods, and the historical financial data for the nine months ended September 30, 2019 and 2018 is derived from our unaudited historical financial statements from such periods. The unaudited pro forma financial data is derived from our pro forma financial statements included elsewhere in this proxy statement. The information set forth below should be read in conjunction with our consolidated financial statements and notes thereto, and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” incorporated by reference in this proxy statement and our unaudited pro forma financial statements included elsewhere in this proxy statement.

HISTORICAL AND PRO FORMA PER SHARE DATA OF THE COMPANY

JERNIGAN CAPITAL, INC.
HISTORICAL AND PRO FORMA PER SHARE DATA

The following table sets forth, for the periods and as of the dates indicted, our selected historical and pro forma per share data on a consolidated basis. The information set forth below should be read in conjunction with our consolidated financial statements and notes thereto, and our “Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2018 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which are incorporated by reference in this proxy statement, and our unaudited pro forma financial statements, included elsewhere in this proxy statement.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE MANAGER

Overview

The Manager was formed in 2013 primarily for the sole purpose of serving as the external advisor of the Company. 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 together 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 needs 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. Substantially all of the Manager’s revenue is derived from fees paid pursuant to the Management Agreement. For more information about the Management Agreement, see our Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated by reference herein.

Significant Accounting Policies

Cash and Cash Equivalents—All highly-liquid investments with a maturity of three months or less when purchased are considered cash equivalents. The Manager maintains cash balances in various banks. At times, the amounts of cash may exceed the amount the Federal Deposit Insurance Corporation insures.

Revenue Recognition—Pursuant to the Management Agreement, the Manager earns a base management fee, and potentially earns incentive fees and awards. The Manager records the fees as they are earned.

Reimbursements from the Company for general and administrative expenses are accrued as revenue in the period the applicable expenditures are incurred.

Fixed Assets—The costs of ordinary repairs and maintenance are charged to operations when incurred. Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset. When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.

Deferred Financing Costs—Deferred financing costs include legal, and other loan costs incurred by the Manager in connection with its financing agreements. Deferred financing costs related to the Manager’s term loan are recorded as an offset to the related liability and amortized over the term of the applicable debt agreement using the straight-line method, which approximates the effective interest method.

Income Taxes—The Manager is structured as a pass-through entity; therefore, income taxes are normally incurred and paid by its members rather than by the Manager. As such, federal, state and local income taxes have not been provided for on the consolidated financial statements to the extent members are responsible for reporting their allocable share of income, gain, deductions, losses and credits on their respective individual income tax returns. Certain state and local jurisdictions do not recognize limited liability status and therefore insignificant amounts are due and payable on an annual basis.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk—Financial instruments that potentially subject the Manager to a concentration of credit risk consist primarily of cash and cash equivalents. The Manager places its cash and cash equivalents with high credit quality institutions and minimizes its credit risk exposure via formal credit policies and monitoring procedures. The Manager maintains funds in accounts with financial institutions that, from time to time, exceed the Federal Deposit Insurance Corporation insured limit.

Recent Accounting Pronouncements— In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), as amended by ASU 2015-04 to defer the effective date. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including the guidance on real estate derecognition for most transactions. ASU 2014-09 provides that an entity should recognize revenue to depict the transfer of promised goods or services to

customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 became effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019 and permits the use of the cumulative effect transition method, retrospective method, or modified retrospective method. The standard also allows the use of certain practical expedients. Since the issuance of ASU 2014-09, the FASB has issued ASU 2016-08, which is intended to improve the understandability of the implementation guidance regarding principal versus agent considerations, and has issued ASU 2016-10 to clarify the identification of performance obligations and the implementation guidance related to licensing. The FASB also issued ASU 2016-12 to provide further implementation guidance in some areas and add practical expedients. The effective dates of these amendments are the same as ASU 2014-09. The new guidance will be effective for the Manager’s year ending December 31, 2019. The ASU permits application of the new revenue recognition guidance to be applied using one of two retrospective application methods. The Manager does not believe the adoption of the standard will have a significant impact on its financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those years, on a modified retrospective basis. The Manager plans to adopt ASU 2016-02 effective January 1, 2021. The Manager is currently assessing the impact this new standard will have on its financial statements.

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 smaller reporting companies for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption being allowed as of the fiscal years beginning after December 15, 2018. The Manager is currently assessing the impact this new accounting guidance will have on its consolidated financial statements; however, the Manager does not expect the new accounting guidance to have a material impact on its consolidated financial statements.

Results of Operations

Below is a discussion of the results from operations of the Manager for the nine-month periods ended September 30, 2019 and 2018, and the years ended December 31, 2018 and 2017. The financial statements of the Manager as of December 31, 2018 have been audited. All other periods are unaudited. All dollar amounts below are shown in thousands.

Substantially all of the revenue of the Manager is derived from fees paid by the Company pursuant to the Management Agreement for business management and advisor services. The expenses of the Manager are primarily comprised of payroll and other general and administrative expenses related to its operations.

Results of operations for the nine-month period ended September 30, 2019 as compared to September 30, 2018

Net income for the nine months ended September 30, 2019 was $4,474 as compared to net income of $3,849 for the nine months ended September 30, 2018. The change in net income is described in more detail below. The following tables include certain selected financial information for the nine-month periods ended September 30, 2019 and 2018. This data should be read in conjunction with financial statements of the Manager, including the notes thereto, included elsewhere in this proxy statement.

The following discussion relating to changes in the results of operations of the Manager includes only certain of those line items within its statements of operations for which there was a material change between the nine-month periods ended September 30, 2019 and 2018.

For the nine-month period ended September 30, 2019, the total revenues of the Manager increased to $9,746 from $8,430 during the same period in 2018, an increase of $1,316. The increase is primarily attributable to incremental base management fees earned by the Manager as a result of a follow-on offering of the Company’s common stock during the second quarter of 2018, the issuance of common stock under the Company’s at-the-market offering program, and the issuance of the Company’s Series A preferred stock.

Total expenses increased from $4,581 to $5,272, an increase of $691, for the nine-month period ended September 30, 2019, as compared to the same period in 2018. The increase was primarily attributable to an increase in other general and administrative expenses non-reimbursable by the Company of $483 related to the operating expenses of an airplane acquired in November 2018.

Results of operations for the year ended December 31, 2018 as compared to December 31, 2017

Net income for the year ended December 31, 2018 was $5,903 as compared to $3,174 for the year ended December 31, 2017. The change in net income is described in more detail below. The following tables include certain selected financial information for the calendar years ended December 31, 2018 and 2017. This data should be read in conjunction with the financial statements of the Manager, including the notes thereto, included elsewhere in this proxy statement.

The following discussion relating to changes in the results of operations of the Manager includes only certain of those line items within its statements of income for which there was a material change between the years ended December 31, 2018 and 2017.

For the year ended December 31, 2018, the total revenues of the Manager increased $5,090 to $12,196 from $7,106 during the year ended December 31, 2017. The increase in revenues is primarily attributed to incremental base management fees earned by the Manager as a result of the follow-on offerings of the Company’s common stock during the second quarters of 2018 and 2017, the issuance of shares of the Company’s common stock under the Company’s at-the-market offering programs, and the issuances of the Company’s Series A and Series B preferred stock. The increase in revenues is also attributed to incentive fee revenue of $730 that was earned during the year ended December 31, 2018 primarily due to the Company’s purchases of developer interests in six self-storage facilities during the year. No incentive fees were earned in 2017.

Total expenses increased $2,064 from $4,229 to $6,293 for the year ended December 31, 2018, as compared to the same period in 2017. The increase was primarily attributable to an increase in compensation and benefits.

The gain on sale in 2017 is due to the sale of the Manager’s interest in an airplane during 2017.

Quantitative and Qualitative Disclosure about Market Risk

Interest Rate Risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond the Manager’s control. To the extent the Internalization is not completed, the Manager will be subject to interest rate risk in connection with its borrowings.

Contractual Obligations

The following table reflects the Manager’s total contractual cash obligations that are not reimbursable by the Company as of December 31, 2018 (dollars in thousands):

None of the obligations reflected in the table above will be assumed by the Company in connection with the Internalization.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

Common Stock

The number of shares of our common stock owned and percentage ownership in the following table is based on shares of common stock outstanding on ,January 16, 2020. The following table sets forth information as of ,January 16, 2020, regarding each person known to us to be the beneficial owner of more than five percent of our common stock.

Series A Preferred Stock

The number of shares of our Series A Preferred Stock owned and percentage ownership in the following table is based on 135,625 shares of Series A Preferred Stock outstanding on ,January 16, 2020. The following table sets forth information as of ,2020,January 16, 2020, regarding each person known to us to be the beneficial owner of our Series A Preferred Stock.

Security Ownership of Management and Directors

The number of shares of common stock and OC Units owned and percentage ownership in the following table is based on shares of common stock outstanding on ,January 16, 2020 and 1,794,872 OC Units to be outstanding upon the completion of the Internalization. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. Unless otherwise indicated, we believe that the persons identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them.

The following table sets forth the beneficial ownership of our common stock as of ,January 16, 2020 and the combined number of shares of common stock and OC Units on a pro forma basis following the completion of the Internalization by (i) each director, (ii) each executive officer, named in the Summary Compensation Table,including Mr. Jernigan who resigned as our executive chairman effective December 31, 2019, and (iii) all directors nominees and executive officers as a group as of ,January 16, 2020 and on a pro forma basis following the Internalization. Except as otherwise indicated, the address of each officer, director and/or nominee listed below is c/o Jernigan Capital, Inc., 6410 Poplar Avenue, Suite 650, Memphis, Tennessee 38119.

PROPOSAL 2:
PROPOSAL TO APPROVE THE ADJOURNMENT OF THE SPECIAL MEETING

Proposal 2 is to consider and vote upon the proposal to approve adjourning the Special Meeting, if necessary or appropriate in the discretion of the chairman of the Special Meeting, to solicit additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve the Internalization Proposal.

General

The Special Meeting may be adjourned to another time or place, if necessary or appropriate in the discretion of the chairman of the Special Meeting, to permit further solicitation of proxies to obtain additional votes in favor of the Internalization Proposal.

If, at the Special Meeting, the number of shares of common stock present or represented and voting in favor of the Internalization Proposal is insufficient to approve the Internalization Proposal, the Company intends to move for the Adjournment in order to enable our board of directors to solicit additional proxies for approval of such proposal. In addition, as permitted by the Maryland General Corporation Law (the “MGCL”), prior to the Special Meeting being convened, the meeting may be postponed by our board of directors to a date not more than 120 days after the Record Date for the Special Meeting. Moreover, pursuant to our bylaws, the chairman of the Special Meeting may adjourn the meeting without any action by the stockholders and without regard to whether a quorum is present. We are asking our stockholders to approve this Proposal 2 for the Adjournment if necessary or appropriate in the discretion of the chairman of the Special Meeting.

Vote Required

Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Special Meeting if a quorum is present.

Recommendation

Our board of directors unanimously recommends that you vote “FOR” the approval of the Adjournment Proposal.

NO DISSENTER’S RIGHTS OF APPRAISAL

We are organized as a corporation under Maryland law. Under the MGCL, because our shares of common stock were listed on the NYSE on the Record Date for determining stockholders entitled to vote at the Special Meeting, our common stockholders do not have any appraisal rights, dissenters’ rights or the rights of an objecting stockholder in connection with the Internalization. In addition, holders of our common stock may not exercise any appraisal rights, dissenters’ rights or the rights of an objecting stockholder to receive the fair value of the stockholder’s shares in connection with the Internalization because, as permitted by the MGCL, our charter provides that stockholders are not entitled to exercise such rights unless our board of directors, upon the affirmative vote of a majority of the Company’s board of directors, determines that the rights apply. Our board of directors has made no such determination. However, our common stockholders can vote against the Internalization.

STOCKHOLDERS SHARING THE SAME ADDRESS

The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy materials with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies.

We and some brokers household proxy materials, delivering one copy of proxy materials to multiple stockholders sharing an address, unless contrary instructions have been received from the affected stockholders. If you are a registered holder who participates in householding, householding will continue until you are notified otherwise or until you notify us to discontinue householding. If you are a registered holder who participates in householding and wish to receive a separate Notice of Internet Availability or set of proxy materials for the Special Meeting, please contact Broadridge Financial Solutions, Inc. by calling 1-800-542-1061 or by writing to Broadridge Financial Solutions, Inc., Attn. Householding Department, 51 Mercedes Way, Edgewood, New York 11717. Registered stockholders who share the same address and who wish to receive a single copy of proxy materials per household in the future may contact American Stock Transfer & Trust Co. by calling 1-800-937-5449. Beneficial owners should contact their broker or other nominee to request information about householding.

OTHER MATTERS

No business may be transacted at the Special Meeting other than the matters set forth in the notice of Special Meeting accompanying this proxy statement, and we currently know of no other business that will be presented for consideration at the Special Meeting. Nevertheless, the enclosed proxy confers discretionary authority to vote with respect to matters described in Rule 14a-4(c) under the Exchange Act, including matters that the board of directors does not know, a reasonable time before proxy solicitation, are to be presented at the meeting. If any of these matters are presented at the meeting, then the proxies named in the enclosed proxy card will vote in accordance with their discretion.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Exchange Act. We file reports, proxy statements and other information with the SEC. The SEC maintains a website, located at www.sec.gov, that contains reports, proxy statements and other information regarding companies and individuals that file electronically with the SEC.

You also may obtain free copies of the documents the Company files with the SEC on the “Investor Relations” page of our website at http://investors.jernigancapital.com (the information available at our website address is not incorporated by reference into this proxy statement).

The information contained in this proxy statement speaks only as of the date indicated on the cover of this proxy statement unless the information specifically indicates that another date applies.

Statements contained in this proxy statement, or in any document incorporated in this proxy statement by reference, regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” information into this proxy statement. This means that we can disclose important information by referring to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this proxy statement. This proxy statement and the information that we later

file with the SEC may update and supersede the information incorporated by reference. Similarly, the information that we later file with the SEC may update and supersede the information in this proxy statement. We also incorporate by reference into this proxy statement the following documents filed by us with the SEC under the Exchange Act:

We undertake to provide without charge to each person to whom a copy of this proxy statement has been delivered, upon request, by first class mail or other equally prompt means, within one business day of receipt of the request, a copy of any or all of the documents incorporated by reference into this proxy statement, other than the exhibits to these documents, unless the exhibits are specifically incorporated by reference into the information that this proxy statement incorporates.

Requests for copies of our filings should be directed to Jernigan Capital, Inc., 6410 Poplar Avenue, Suite 650, Memphis, Tennessee 38119, Attention: Corporate Secretary, and should be made at least five business days before the date of the Special Meeting in order to receive them before the Special Meeting.

The proxy statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is not lawful to make any offer or solicitation in that jurisdiction. The delivery of this proxy statement should not create an implication that there has been no change in our affairs since the date of this proxy statement or that the information herein is correct as of any later date.

INDEX TO FINANCIAL STATEMENTS

JERNIGAN CAPITAL, INC.

UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS

Introduction

On December 16, 2019, Jernigan Capital, Inc. (the “Company”), Jernigan Capital Operating Company, LLC (the “Operating Company”), JCap Advisors, LLC (the “Manager”), Dean Jernigan, John A. Good and Jonathan L. Perry (each of them, together with the Manager, the “Manager Parties”) entered into an Asset Purchase Agreement (the “Purchase Agreement”) pursuant to which, among other things, the Operating Company will acquire substantially all of the operating assets and liabilities of the Manager and each of the employees of the Manager is expected to become an employee of the Company (the “Internalization”). As a result of the Internalization, the Manager will cease to perform any outside management services for the Company and the Company will become internally managed.

Upon the closing of the Internalization, the Operating Company will issue to the Manager 1,794,872 common units (the “Initial Consideration”) of limited liability company interest in the Operating Company (“OC Units”). In addition, if either (a) the Company’s common stock trades at or above a daily volume weighted average price of $25.00 per share for at least 30 days during any 365-day period prior to December 31, 2024 or (b) there is a change of control of the Company (as defined in the Purchase Agreement) prior to December 31, 2024, that is approved by the Company’s board of directors and the common stockholders of the Company, the Operating Company will issue an additional 769,231 OC Units to the Manager (the “Earn Out Consideration” and, together with the Initial Consideration, the “Internalization Consideration”). The OC Units issuable in the Internalization are Class B OC Units, so, as described further below, the initial distributions payable on the OC Units to be issued in the Internalization will be prorated for the number of days during the initial distribution period that such OC Units are outstanding. The Class B OC Units are otherwise identical to Class A OC Units and will automatically convert to Class A OC Units following the initial distribution period.

The following unaudited pro forma condensed combined financial statements are based on the Company’s historical consolidated financial statements, which are incorporated by reference into this proxy statement, and the Manager’s historical financial statements, which are included elsewhere in this proxy statement, as adjusted to give effect to the Internalization. The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018 give effect to the Internalization as if it had occurred on January 1, 2018. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2019 gives effect to the Internalization as if it had occurred on September 30, 2019.

The unaudited pro forma condensed consolidated financial statements were prepared using the acquisition method of accounting, with the Company considered the accounting acquirer. Under the acquisition method of accounting, the purchase price is allocated to the underlying assets of the Manager being acquired and liabilities of the Manager being assumed pursuant to the Purchase Agreement based on their respective fair values, with the excess purchase price, if any, allocated to goodwill.

The unaudited pro forma condensed combined financial statements set forth below primarily give effect to:

The Internalization Consideration is a fixed number of OC Units. As a result, the implied value of the consideration payable to the Manager Parties will fluctuate between now and the closing of the Internalization. However, the ultimate value of the Internalization Consideration will be determined for purposes of the final purchase price allocation based on the closing price of the Company’s common stock on the closing date of the Internalization. For purposes of the pro forma condensed combined financial statements, the Company has assumed a stock price of $19.14, the closing price of the Company’s common stock on December 31, 2019, the most recent practicable date prior to the filing of this proxy statement.2019.

The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the unaudited pro forma condensed combined financial statements.

The unaudited condensed consolidated financial statements have been developed and should be read in conjunction with: