10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2017

OR

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

For the transition period from                               to                            

001-36892

(Commission file number)

JERNIGAN CAPITAL, INC.

(Exact name of registrant as specified in its charter)

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

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

(901) 567-9510

Registrant’s telephone number, including area code

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes     x     No     ¨

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer  x (Do not check if a smaller reporting company)	Smaller reporting company ¨
	Emerging growth company x

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

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

As of August 7, 2017, Jernigan Capital, Inc. had 14,238,350 shares of common stock outstanding.

Table of Contents

PART I.  FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3. Quantitative and Qualitative Disclosures About Market Risk	50
Item 4. Controls and Procedures	51
PART II.  Other information	52
Item 1. Legal Proceedings	52
Item 1A. Risk Factors	52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities	52
Item 3. Defaults Upon Senior Securities	53
Item 4. Mine Safety Disclosures	53
Item 5. Other Information	53
Item 6. Exhibits	53

2

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

JERNIGAN CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	As of
	June 30, 2017			December 31, 2016
	(Unaudited)
Assets:
Cash and cash equivalents	$	100,529		$	67,373
Development property investments at fair value, of which $33.3 million of funded principal is pledged as collateral against certain of the Company’s senior loan participations as of June 30, 2017 and December 31, 2016		163,979			95,102
Operating property loans at fair value, of which $2.8 million of funded principal is pledged as collateral against certain of the Company’s senior loan participations as of June 30, 2017 and December 31, 2016		8,790			9,905
Investment in and advances to real estate venture		14,314			5,373
Self-storage real estate owned		7,283			-
Other loans, at cost		6,619			11,752
Deferred costs		2,305			2,207
Prepaid expenses and other assets		1,119			868
Fixed assets, net		189			199
Total assets	$	305,127		$	192,779
Liabilities:
Senior loan participations	$	20,147		$	18,582
Due to Manager		1,027			1,008
Accounts payable, accrued expenses and other liabilities		2,399			697
Dividends payable		5,160			4,130
Total liabilities		28,733			24,417
Equity:
Jernigan Capital, Inc. stockholders’ equity:
Cumulative preferred stock, $0.01 par value, 100,000,000 shares authorized, 10,000 shares issued and outstanding at June 30, 2017 and December 31, 2016, at liquidation preference of $10.0 million, net of allocated costs		9,445			9,448
Common stock, $0.01 par value, 500,000,000 shares authorized at June 30, 2017 and December 31, 2016; 14,238,350 and 8,956,354 issued and outstanding at June 30, 2017 and December 31, 2016, respectively		142			90
Additional paid-in capital		272,525			162,664
Accumulated deficit		(5,718	)		(3,840	)
Total equity		276,394			168,362
Total liabilities and equity	$	305,127		$	192,779

See accompanying notes to consolidated financial statements.

3

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Revenues:
Interest income from investments	$	2,467		$	1,533		$	4,586		$	2,676
Rental and other property-related income from real estate owned		105			-			168			-
Other revenues		27			-			146			-
Total revenues		2,599			1,533			4,900			2,676
Costs and expenses:
General and administrative expenses		1,371			1,335			2,949			2,639
Management fees to Manager		707			402			1,337			816
Property operating expenses of real estate owned		81			-			136			-
Transaction and other expenses		-			175			-			2,127
Restructuring costs		-			47			-			54
Deferred termination fee to Manager		-			82			-			239
Total costs and expenses		2,159			2,041			4,422			5,875
Operating income (loss)		440			(508	)		478			(3,199	)
Other income (expense):
Equity in earnings from unconsolidated real estate venture		595			418			1,017			418
Change in fair value of investments		4,289			5,527			5,682			9,318
Interest expense		(230	)		(38	)		(434	)		(38	)
Other interest income		100			13			234			35
Total other income		4,754			5,920			6,499			9,733
Net income		5,194			5,412			6,977			6,534
Net income attributable to preferred stockholders		(177	)		-			(723	)		-
Net income attributable to common stockholders	$	5,017		$	5,412		$	6,254		$	6,534
Basic earnings per share attributable to common stockholders	$	0.50		$	0.89		$	0.66		$	1.07
Diluted earnings per share attributable to common stockholders	$	0.50		$	0.89		$	0.66		$	1.07
Dividends declared per share of common stock	$	0.35		$	0.35		$	0.70		$	0.70

See accompanying notes to consolidated financial statements.

4

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands, except share data) 

	Preferred Stock					Common Stock						Additional			Accumulated			Total Stockholders'			Non- Controlling
	Shares		Amount			Shares			Amount			Paid-In-Capital			Deficit			Equity			Interests			Total Equity
Balance at December 31, 2015		-	$	-			6,162,500		$	62		$	110,634		$	(9,396	)	$	101,300		$	464		$	101,764
Repurchase of 213,078 shares of common stock		-		-			(213,078	)		(2	)		(3,150	)		-			(3,152	)		-			(3,152	)
Issuances of stock-based awards		-		-			14,340			-			-			-			-			-			-
Stock-based compensation		-		-			-			-			487			-			487			-			487
Deferred termination fee to Manager		-		-			-			-			-			-			-			239			239
Effect of Management Agreement amendment		-		-			-			-			703			-			703			(703	)		-
Dividends declared on common stock		-		-			-			-			-			(4,244	)		(4,244	)		-			(4,244	)
Net income		-		-			-			-			-			6,534			6,534			-			6,534
Balance at June 30, 2016		-	$	-			5,963,762		$	60		$	108,674		$	(7,106	)	$	101,628		$	-		$	101,628
Balance at December 31, 2016		10,000	$	9,448			8,956,354		$	90		$	162,664		$	(3,840	)	$	168,362		$	-		$	168,362
Equity offering costs related to issuance of preferred stock		-		(3	)		-			-			-			-			(3	)		-			(3	)
Stock dividend paid on preferred stock		-		-			57,850			1			1,193			-			1,194			-			1,194
Proceeds from issuance of common stock, net of offering costs		-		-			4,025,000			40			83,895			-			83,935			-			83,935
At-the-market issuance of common stock, net of offering costs		-		-			1,093,202			10			24,184			-			24,194			-			24,194
Repurchase and retirement of 5,470 shares related to vested restricted stock		-		-			(5,470	)		-			(128	)		-			(128	)		-			(128	)
Issuance of stock-based awards		-		-			111,414			1			(10	)		-			(9	)		-			(9	)
Stock-based compensation		-		-			-			-			727			-			727			-			727
Dividends declared on preferred stock		-		-			-			-			-			(723	)		(723	)		-			(723	)
Dividends declared on common stock		-		-			-			-			-			(8,132	)		(8,132	)		-			(8,132	)
Net income		-		-			-			-			-			6,977			6,977			-			6,977
Balance at June 30, 2017		10,000	$	9,445			14,238,350		$	142		$	272,525		$	(5,718	)	$	276,394		$	-		$	276,394

See accompanying notes to consolidated financial statements.  

5

JERNIGAN CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands) 

	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities
Net income	$	6,977		$	6,534
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Interest capitalized on outstanding loans		(3,114	)		(1,522	)
Change in fair market value of investments		(5,682	)		(9,318	)
Stock-based compensation		727			487
Equity in earnings from unconsolidated real estate venture		(1,012	)		(418	)
Return on investment from unconsolidated joint venture		329			-
Deferred termination fee to Manager		-			239
Depreciation		91			35
Amortization of deferred financing costs		11			-
Accretion of origination fees		(299	)		(280	)
Origination fees received in cash		2,680			29
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(369	)		(255	)
Due to Manager		19			(62	)
Accounts payable, accrued expenses, and other liabilities		97			25
Net cash provided by (used in) operating activities		455			(4,506	)
Cash flows from investing activities
Purchase of fixed assets		(19	)		(3	)
Purchase of self-storage real estate owned		(1,270	)		-
Capital contributions to real estate venture		(3,172	)		-
Advances to real estate venture		(27,481	)		(718	)
Repayment of advances to real estate venture		22,396			-
Capitalized real estate venture costs		-			(226	)
Cash received for developer’s equity prior to funding		1,254			-
Funding of investment portfolio:
Development property investments		(78,129	)		(22,181	)
Operating property loans		-			(242	)
Funding of other loans		(8,940	)		(3,824	)
Repayments of investment portfolio investments		12,239			5,500
Repayments of other loans		12,704			94
Net cash used in investing activities		(70,418	)		(21,600	)
Cash flows from financing activities
Senior loan participations		1,658			5,049
Deferred costs		(12	)		(312	)
Stock repurchase		(128	)		(3,152	)
Net proceeds from issuance of common stock		108,235			-
Costs related to the future issuance of preferred stock		(3	)		-
Dividends paid on preferred stock		(348	)		-
Dividends paid on common stock		(6,283	)		(4,314	)
Net cash provided by (used in) financing activities		103,119			(2,729	)
Net change in cash and cash equivalents		33,156			(28,835	)
Cash and cash equivalents at the beginning of the period		67,373			43,859
Cash and cash equivalents at the end of the period	$	100,529		$	15,024

See accompanying notes to consolidated financial statements.  

6

JERNIGAN CAPITAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

1. ORGANIZATION AND FORMATION OF THE COMPANY

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

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

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Use of Estimates

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

Variable Interest Entities

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

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

Equity Investments

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

7

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

The Company has elected the fair value option of accounting for all of its investment portfolio loan investments, including those that are required under GAAP to be accounted for under the equity method, in order to provide stockholders and others who rely on the Company’s financial statements with a more complete and accurate understanding of the Company’s economic performance including its revenues and value inherent in the Company’s equity participation in development projects. Changes in the fair value of these investments are recorded in change in fair value of investments within other income. All direct loan costs are charged to expense as incurred.

Each loan investment, including those recorded at cost and presented on the Consolidated Balance Sheets as other loans, is evaluated for impairment on a periodic basis. For loans carried at fair value, indicators of impairment are reflected in measurement of the loan. For loans that are carried at cost, the Company estimates an allowance for loan loss at each reporting date. In evaluating loan impairment, the Company also periodically evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower on a loan by loan basis. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the property. In addition, the Company considers the overall economic environment, real estate sector and geographic sub-market in which the borrower operates. A loan will be considered impaired when, based on current information and events, it is probable that the loan will not be collected according to the contractual terms of the loan agreement. Factors to be considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. At June 30, 2017 and December 31, 2016, there were no loans that were deemed to be impaired loans. Additionally, for loans recorded at cost, the Company determined that no allowance for loan loss was necessary at June 30, 2017 and December 31, 2016.

For investments carried at fair value, fees and costs are expensed as incurred.

Loan arrangements under which the Company is entitled to greater than 50% of the residual profits are accounted for as a real estate investment in accordance with ASC 310, Receivables (“ASC 310”), and are included in the Consolidated Balance Sheets as self-storage real estate owned.

Fair Value Measurement

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

The following table presents the financial instruments measured at fair value on a recurring basis at June 30, 2017:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	163,979	$	-	$	-	$	163,979
Operating property loans		8,790		-		-		8,790
Total investments	$	172,769	$	-	$	-	$	172,769

The following table presents the financial instruments measured at fair value on a recurring basis at December 31, 2016:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	95,102	$	-	$	-	$	95,102
Operating property loans		9,905		-		-		9,905
Total investments	$	105,007	$	-	$	-	$	105,007

8

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

Self-Storage Real Estate Owned

Land is carried at historical cost. Building and improvements are carried at historical cost less accumulated depreciation and impairment losses. The cost reflects the purchase price or development cost of the assets. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. The costs of building and improvements are depreciated using the straight-line method based on a useful life of 40 years.

The Company evaluates long-lived assets for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be an impairment.  The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the facility’s basis is recoverable.  If an asset’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value.  The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset.

Cash and Cash Equivalents

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

Other Loans

The Company’s other loans balance primarily includes principal balances for certain revolving loan agreements and short-term mortgage loans made by the Company in situations where it was determined that making such loans would benefit the Company’s primary business. These loans are accounted for under the cost method.

Fixed Assets

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

Revenue Recognition

Interest income is recognized as earned on a simple interest basis and is reported in interest income from investments in the Consolidated Statements of Operations. Accrual of interest will be discontinued on a loan when management believes, after considering economic and business conditions and collection efforts that the borrower’s financial condition is such that collection of interest is doubtful. The Company will recognize income on impaired loans when they are placed into non-accrual status on a cash basis when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Company. If these factors do not exist, the Company will not recognize income on such loans. Accrued interest generally is reversed when a loan is placed on non-accrual status.

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

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

Debt Issuance Costs

Costs related to the sale of senior participations are deferred and are amortized as interest expense over the estimated life of the related senior participation using the straight-line method, which approximates the effective interest method. If a debt instrument is repurchased prior to its original maturity date, the unamortized balance of debt issuance costs are written off to interest expense or, if significant, included in “early extinguishment of debt.” Debt issuance costs are presented in the Consolidated Balance Sheets as a deduction from the carrying amount of the principal balance.

9

Transaction and other expenses

Transaction and other expenses consist of non-capitalizable advisory fees and other unreimbursed expenses incurred in connection with various financing and investment transactions and are expensed as incurred. There were no transaction and other expenses for the three or six months ended June 30, 2017. During the three and six months ended June 30, 2016, the Company incurred $0.2 million and $2.1 million of transaction and other expenses. 

Offering and Registration Costs

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

On July 27, 2016, the Company entered into a Stock Purchase Agreement (see Note 10, Stockholders’ Equity) which requires the Company to issue and sell a minimum of $50.0 million of Series A Preferred Stock by July 27, 2018. The Company incurred $2.8 million of preferred stock offering costs in connection with the execution of the Stock Purchase Agreement. Such costs are presented as deferred costs on the Consolidated Balance Sheets until such time as Series A Preferred Stock is issued. A pro rata portion of such deferred costs, based upon the ratio of the amount issued to the $50.0 million minimum issuance of Series A Preferred Stock, is reclassified to cumulative preferred stock upon issuance of the Series A Preferred Stock. Of the $2.8 million of offering costs incurred, $2.2 million is in deferred costs on the Consolidated Balance Sheet at June 30, 2017, and $0.6 million has reduced the cumulative preferred stock balance on the Consolidated Balance Sheet at June 30, 2017.

Income Taxes

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

Earnings per Share (“EPS”)

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

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

Comprehensive Income

For the three and six months ended June 30, 2017 and 2016, comprehensive income equaled net income; therefore, separate Consolidated Statements of Comprehensive Income are not included in the accompanying consolidated financial statements.

Segment Reporting

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

Recent Accounting Pronouncements

In August 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance on the classification of certain cash receipts and payments in the statement of cash flows, including distributions received from equity method investees. This guidance is effective for public business entities for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption being allowed. The Company is currently assessing the impact this new accounting guidance will have on its consolidated financial statements; however, the Company does not expect the new accounting guidance to have a material impact on its consolidated financial statements as the Company is currently presenting distributions received from equity method investees consistent with the presentation required under ASU 2016-05.

10

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

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

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2017. This ASU outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. Several ASUs expanding and clarifying the initial guidance issued in ASU 2014-09 have been released since May 2014. The Company will adopt the ASU effective January 1, 2018 and does not expect the adoption to have a material effect on its consolidated financial statements as the new guidance does not apply to revenue associated with loans or derived from lease contracts; however, the Company is still in the process of evaluating the impact these standards will have on its consolidated financial statements.

Consolidated Statements of Cash Flows - Supplemental Disclosures

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

	Six months ended June 30,
	2017		2016
Supplemental disclosure of cash flow information:
Interest paid	$	433	$	20
Supplemental disclosure of non-cash investing and financing activities:
Stock dividend paid on preferred stock	$	1,194	$	-
Dividends declared, but not paid, on preferred stock		177		-
Dividends declared, but not paid, on common stock		4,983		2,087
Contribution of assets to real estate venture		-		7,693
Reclassification of self-storage real estate owned		6,066		-
Other loans paid off with issuance of development property investments		1,410		-

3. INVESTMENTS

The Company’s self-storage investments at June 30, 2017 consisted of the following:

· Development Property Investments - The Company had 33 investments totaling an aggregate committed principal amount of approximately $337.5 million to finance the ground-up construction of or conversion of existing buildings into self-storage facilities. Each development property investment is funded as the developer constructs the project, is secured by a first mortgage on the development project and generally includes a 49.9% interest in the positive cash flows (including the sale and refinancing proceeds after debt repayment) of the project. Loans comprising development property investments are non-recourse with customary carve-outs and subject to completion guaranties, are interest-only with a fixed interest rate of typically 6.9% per annum and have a term of 72 months. 

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

11

· Operating property loans - The Company had three term loans totaling $8.8 million of aggregate committed principal amount, the proceeds of which were used by borrowers to finance the acquisition of, refinance existing indebtedness on, or recapitalize operating self-storage facilities. These loans are secured by first mortgages on the projects financed, are interest-only with fixed interest rates ranging from 5.85% to 6.9% per annum, and generally have a term of 72 months.

The Company’s development property investments and operating property loans are collectively referred to herein as the Company’s investment portfolio. 

As of June 30, 2017, the aggregate committed principal amount of the Company’s investment portfolio was approximately $364.0 million and outstanding principal was $157.5 million, as described in more detail in the table below:

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment(1)		Remaining Unfunded Commitment		Fair Value
Development property investments:
Loan investments with a profits interest:
4/21/2015	Orlando 1(2) (4)	$	5,372	$	5,367	$	5	$	1,347
6/10/2015	Atlanta 1(2)		8,132		7,908		224		10,736
6/19/2015	Tampa 1(2)		5,369		5,285		84		6,369
6/26/2015	Atlanta 2(2)		6,050		5,684		366		9,043
6/29/2015	Charlotte 1(2)		7,624		7,065		559		10,361
7/2/2015	Milwaukee(2)		7,650		6,870		780		8,304
7/31/2015	New Haven(2)		6,930		6,093		837		8,058
8/10/2015	Pittsburgh(2)		5,266		4,361		905		5,936
8/14/2015	Raleigh		8,792		3,417		5,375		3,335
9/30/2015	Jacksonville 1(2)		6,445		5,988		457		8,320
10/27/2015	Austin(2)		8,658		6,866		1,792		8,619
9/20/2016	Charlotte 2		12,888		3,029		9,859		2,796
11/17/2016	Orlando 2(3)		5,134		2,994		2,140		3,577
11/17/2016	Jacksonville 2(3)		7,530		2,847		4,683		3,011
1/4/2017	New York City 1(3)		16,117		11,093		5,024		12,509
1/18/2017	Atlanta 3		14,115		3,385		10,730		3,295
1/31/2017	Atlanta 4		13,678		5,866		7,812		5,824
2/24/2017	Orlando 3		8,056		905		7,151		835
2/24/2017	New Orleans		12,549		-		12,549		-
2/27/2017	Atlanta 5		17,492		4,854		12,638		4,737
3/1/2017	Fort Lauderdale		9,952		1,740		8,212		1,661
3/1/2017	Houston		13,630		3,532		10,098		3,445
4/14/2017	Louisville		8,523		627		7,896		542
4/20/2017	Denver 1		9,806		1,873		7,933		1,783
4/20/2017	Denver 2		11,164		2,137		9,027		2,035
5/2/2017	Atlanta 6		12,543		3,671		8,872		3,565
5/2/2017	Tampa 2		8,091		1,584		6,507		1,508
5/19/2017	Tampa 3		9,224		1,524		7,700		1,434
6/12/2017	Tampa 4		10,266		2,391		7,875		2,293
6/19/2017	Baltimore(5)		10,775		2,199		8,576		2,008
6/28/2017	Knoxville		9,115		829		8,286		738
6/29/2017	Boston		14,103		1,466		12,637		1,326
6/30/2017	New York City 2(5)		26,482		16,004		10,478		15,637
		$	337,521	$	139,454	$	198,067	$	154,987
Construction loans:
12/23/2015	Miami		17,733		9,232		8,501		8,992
		$	17,733	$	9,232	$	8,501	$	8,992
	Subtotal	$	355,254	$	148,686	$	206,568	$	163,979
Operating property loans:
6/19/2015	New Orleans(6)		2,800		2,800		-		2,792
7/7/2015	Newark		3,480		3,480		-		3,482
12/22/2015	Chicago		2,502		2,500		2		2,516
	Subtotal	$	8,782	$	8,780	$	2	$	8,790
	Total investments	$	364,036	$	157,466	$	206,570	$	172,769

12

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ Facility had received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾ In February 2017, the Company purchased, for $1.3 million, 50% of the economic rights of the Class A membership units of the limited liability company which owns this development property investment, thus increasing the Company’s profits interest in this investment from 49.9% to 74.9%. As such, the Company’s investment was reclassified as self-storage real estate owned in the June 30, 2017 Consolidated Balance Sheet. See Note 7, Self-storage Real Estate Owned, for additional discussion. The committed and funded investment amounts in this table pertain to the full terms of the development investment, while the fair value represents only the portion (25.1%) of the principal balance constituting a loan to the Class A member.

⁽⁵⁾ These investments contain a higher loan-to-cost ratio and a higher interest rate, some of which interest is payment-in-kind ("PIK") interest. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment.

⁽⁶⁾ This investment was fully repaid in July 2017.

The following table provides a reconciliation of the funded principal to the fair market value of investments at June 30, 2017:

Funded principal	$	157,466
Adjustments:
Unamortized origination fees		(3,471	)
Change in fair value of investments		24,924
Reclassification of self-storage real estate owned		(6,066	)
Other		(84	)
Fair value of investments	$	172,769

As of December 31, 2016, the aggregate committed principal amount of the Company’s investment portfolio was approximately $141.9 million and outstanding principal was $86.9 million, as described in more detail in the table below:

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment (1)		Remaining Unfunded Commitment		Fair Value
Development property investments:
Loan investments with a profits interest:
4/21/2015	Orlando 1(2)	$	5,372	$	5,308	$	64	$	7,302
6/10/2015	Atlanta 1(2)		8,132		7,694		438		10,404
6/19/2015	Tampa(2)		5,369		5,285		84		6,279
6/26/2015	Atlanta 2(2)		6,050		5,620		430		8,900
6/29/2015	Charlotte 1(2)		7,624		6,842		782		9,853
7/2/2015	Milwaukee(2)		7,650		5,608		2,042		7,008
7/31/2015	New Haven(2)		6,930		5,257		1,673		6,730
8/10/2015	Pittsburgh(3)		5,266		3,497		1,769		4,551
8/14/2015	Raleigh		8,792		1,460		7,332		1,396
9/30/2015	Jacksonville 1(2)		6,445		5,852		593		7,962
10/27/2015	Austin(3)		8,658		4,366		4,292		5,192
9/20/2016	Charlotte 2		12,888		1,446		11,442		1,298
11/17/2016	Orlando 2		5,134		1,342		3,792		1,237
11/17/2016	Jacksonville 2		7,530		624		6,906		551
		$	101,840	$	60,201	$	41,639	$	78,663
Construction loans:
8/5/2015	West Palm Beach(4)		7,500		6,712		788		6,702
8/5/2015	Sarasota(4)		4,792		3,485		1,307		3,473
12/23/2015	Miami		17,733		6,517		11,216		6,264
		$	30,025	$	16,714	$	13,311	$	16,439
	Subtotal	$	131,865	$	76,915	$	54,950	$	95,102
Operating property loans:
6/19/2015	New Orleans		2,800		2,800		-		2,768
7/7/2015	Newark		3,480		3,480		-		3,441
10/30/2015	Nashville(4)		1,210		1,210		-		1,204
12/22/2015	Chicago		2,502		2,500		2		2,492
	Subtotal	$	9,992	$	9,990	$	2	$	9,905
	Total investments	$	141,857	$	86,905	$	54,952	$	105,007

13

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ Facility had received certificate of occupancy as of December 31, 2016. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of December 31, 2016. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾ These investments were fully repaid in the six months ended June 30, 2017. 

The following table provides a reconciliation of the funded principal to the fair market value of investments at December 31, 2016:

Funded principal	$	86,905
Adjustments:
Unamortized origination fees		(1,056	)
Change in fair value of investments		19,242
Other		(84	)
Fair value of investments	$	105,007

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

No loans were in non-accrual status as of June 30, 2017 and December 31, 2016.

All of the Company’s development property investments with a profits interest, except for the Orlando 1 investment, would have been accounted for under the equity method had the Company not elected the fair value option. For these development property investments with a profits interest, the assets and liabilities of the equity method investees approximated $157.3 million and $134.1 million, respectively, at June 30, 2017 and approximated $71.0 million and $60.2 million, respectively, at December 31, 2016. These investees had revenues of approximately $0.7 million and $1.2 million and a net operating income, excluding depreciation and interest expense, of approximately $0.1 million and less than $0.1 million for the three and six months ended June 30, 2017, respectively. These investees had no significant revenues or expenses for the three and six months ended June 30, 2016 since the development properties were mostly under construction during this period. For the six months ended June 30, 2017, the total income (interest income and change in fair value) from one development property investment with a profits interest exceeded 20% of the Company’s net income. The Company recorded total income for the six months ended June 30, 2017 of $1.8 million from the New York City 1 MSA development property investment with a profits interest.

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

14

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

Level 1 - Quoted prices for identical assets or liabilities in an active market.

Level 2 - Financial assets and liabilities whose values are based on the following: (i) Quoted prices for similar assets or liabilities in active markets; (ii) Quoted prices for identical or similar assets or liabilities in non-active markets; (iii) Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 - Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.

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

Instrument	Valuation technique and assumptions	Hierarchy classification
Development property investments	Valuations are determined using an Income Approach analysis, using the discounted cash flow method model, capturing the prepayment penalty / call price schedule as applicable.  The valuation models are calibrated to the total investment net drawn amount as of the issuance date.	Level 3
Development property investments with a profits interest   (a)	Valuations are determined using an Income Approach analysis, using the discounted cash flow method model, capturing the prepayment penalty / call price schedule as applicable. The valuation models are calibrated to the total investment net drawn amount as of the issuance date factoring in the value of the profits interests.	Level 3
	An option-pricing method (OPM) framework is utilized to calculate the value of the profits interests.
Operating property loans	Valuations are determined using an Income Approach analysis, using the discounted cash flow method model, capturing the prepayment penalty / call price schedule as applicable.	Level 3

^(a) Certain of the Company's development property investments include profits interests.

15

The Company’s development property investments and operating property loan investments are valued using two different valuation techniques. The first valuation technique is an income approach analysis of the debt instrument components of the Company’s investments. The second valuation technique is an option pricing model that is used to determine the fair value of any profits interests associated with an investment. The valuation models are calibrated to the total investment net drawn amount as of the issuance date factoring in the value of the profits interests. At the issuance date of each development property investment, generally the value of the property underlying such investment approximates the sum of the net investment drawn amount plus the developer’s equity investment.

For development property investments with a profits interest, at a certain stage of construction, the option pricing method incorporates an adjustment to measure entrepreneurial profit. Entrepreneurial profit is a monetary return above total construction costs that provides compensation for the risk of a development project. Under this method, the value of each property is estimated based on the cost incurred to date, plus an estimated earned entrepreneurial profit.  Total entrepreneurial profit is estimated as the difference between the projected value of a property at stabilization and the total development costs, including land, building improvements, and lease-up costs.  Utilizing information obtained from the market coupled with the Company’s own experience, the Company has estimated that in most cases, approximately one-third of the entrepreneurial profit is earned during the construction period beginning when construction is approximately 40% complete and ending when construction is 100% complete, and approximately two-thirds of the entrepreneurial profit is earned from construction completion through stabilization. For the three properties between 40% and 100% complete at June 30, 2017, the Company has estimated the entrepreneurial profit adjustment to the enterprise value input used in the option pricing model to be equal to one-third of the estimated entrepreneurial profit, allocated on a straight-line basis. Ten properties have reached construction completion at June 30, 2017. For the Company’s development property investments at or around completion of construction, a discounted cash flow model, based on periodically updated estimates of rental rates, occupancy and operating expenses, is the primary method for projecting value of a project. The Company also will consider inputs such as appraisals that differ from the developer’s equity investment, bona fide third-party offers to purchase development projects, sales of development projects, or sales of comparable properties in its markets.

Level 3 Fair Value Measurements

The following tables summarize the significant unobservable inputs the Company used to value its investments categorized within Level 3 as of June 30, 2017 and December 31, 2016. These tables are not intended to be all-inclusive, but instead to capture the significant unobservable inputs relevant to the Company’s determination of fair values.

As of June 30, 2017
		Unobservable Inputs
Asset Category	Primary Valuation Techniques	Input	Estimated Range	Weighted Average
Development property investments(a)	Income approach analysis	Market yields/ discount rate	7.97 – 10.33%	8.70%
		Exit date	0.58 – 5.00 years	2.71 years
Development property investments with a profits interest    (b)	Option pricing model	Volatility	63.58 – 90.26%	70.77%
		Exit date	0.92 – 5.00 years	2.83 years
		Capitalization rate (c)	5.25 - 5.50%	5.47%
		Discount rate	8.25 - 8.50%	8.47%
Operating property loans	Income approach analysis	Market yields/ discount rate	5.84 – 6.98%	6.46%
		Exit date(d)	4.00 - 5.16 years	4.60 years

16

^(a) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. Therefore, this line item focuses on all development property investments, including those with a profits interest.

^(b) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. The development property investments with a profits interest only require incremental valuation techniques to determine the value of the profits interest. Therefore this line only focuses on the profits interest valuation.

^(c) Thirteen properties were 40% - 100% complete, thus requiring a capitalization rate to derive entrepreneurial profit. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.

^(d) The exit dates for the operating property loans are the contractual maturity dates.

As of December 31, 2016
		Unobservable Inputs
Asset Category	Primary Valuation Techniques	Input	Estimated Range	Weighted Average
Development property investments (a)	Income approach analysis	Market yields/ discount rate	7.23 - 9.28%	8.34%
		Exit date	0.17 - 3.88 years	1.81 years
Development property investments with a profits interest  (b)	Option pricing model	Volatility	68.72 - 73.46%	73.17%
		Exit date	1.42 - 3.88 years	2.12 years
		Capitalization rate(c)	5.25 - 5.50%	5.47%
		Discount rate	8.25 - 8.50%	8.47%
Operating property loans	Income approach analysis	Market yields/discount rate	6.09 - 7.20%	6.73%
		Exit date(d)	4.50 - 5.66 years	5.07 years

^(a) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. Therefore, this line item focuses on all development property investments, including those with a profits interest.

^(b) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. The development property investments with a profits interest only require incremental valuation techniques to determine the value of the profits interest. Therefore this line only focuses on the profits interest valuation.

^(c) Ten properties were 40% - 100% complete, thus requiring a capitalization rate to derive entrepreneurial profit. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.

^(d) The exit dates for the operating property loans are the contractual maturity dates.

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

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

	Increase (decrease) in fair value of investments
Change in market yields/discount rates (in millions)	June 30, 2017			December 31, 2016
Up 25 basis points	$	(0.8	)	$	(0.3	)
Down 25 basis points, subject to a minimum yield/rate of 10 basis points		0.8			0.3

17

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

	Increase (decrease) in fair value of investments
Change in capitalization rates (in millions)	June 30, 2017			December 31, 2016
Up 25 basis points	$	(2.2	)	$	(2.1	)
Down 25 basis points		2.4			2.3
Up 50 basis points		(4.2	)		(3.8	)
Down 50 basis points		5.0			4.6

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

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

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

The Company also evaluates the impact of changes in instrument-specific credit risk in determining the fair value of investments. There were no gains or losses attributable to changes in instrument-specific credit risk in the three and six months ended June 30, 2017 and 2016.

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

The following table presents changes in investments that use Level 3 inputs for the six month period ended June 30, 2017:

Balance as of December 31, 2016	$	105,007
Net realized gains		-
Net unrealized gains		5,682
Fundings of principal and change in unamortized origination fees		77,271
Repayments of loans		(12,239	)
Payment-in-kind interest		3,114
Reclassification of self-storage real estate owned		(6,066	)
Net transfers in or out of Level 3		-
Balance at June 30, 2017	$	172,769

As of June 30, 2017 and December 31, 2016, the total net unrealized appreciation on the investments that use Level 3 inputs was $24.9 million and $19.2 million, respectively.

For the three and six months ended June 30, 2017 and 2016, substantially all of the change in fair value of investments in the Company’s Consolidated Statements of Operations was attributable to unrealized gains relating to the Company’s Level 3 assets still held as of the respective balance sheet date.

18

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

5. INVESTMENT IN REAL ESTATE VENTURE

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

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

As of June 30, 2017, the SL1 Venture had closed on eight new development property investments with a profits interest with an aggregate commitment amount of approximately $81.4 million, bringing the total aggregate commitment of SL1 Venture’s investments to $123.3 million as of June 30, 2017. Accordingly, HVP III’s total commitment for a 90% interest in the SL1 Venture is $111.0 million, and the Company’s total commitment for a 10% interest in the SL1 Venture is $12.3 million.

Under the JV Agreement, the Company receives a priority distribution (after debt service and any reserve but before any other distributions) out of operating cash flow and residual distributions based upon 1% of the committed principal amount of loans made by the SL1 Venture, exclusive of the loans contributed to the SL1 Venture by the Company. Operating cash flow of the SL1 Venture (after debt service, reserves and the foregoing priority distributions) is distributed in accordance with capital commitments. Residual cash flow from capital and other events (after debt service, reserves and priority distributions) will be distributed (i) pro rata in accordance with capital commitments (its “Percentage Interest”) until each member has received a return of all capital contributed; (ii) pro rata in accordance with each member’s Percentage Interest until Heitman has achieved a 14% internal rate of return; (iii) to Heitman in an amount equal to its Percentage Interest less 10% and to the Company in an amount equal to the Company’s Percentage Interest plus 10% until Heitman has achieved a 17% internal rate of return; (iv) to Heitman in an amount equal to its Percentage Interest less 20% and to the Company in an amount equal to the Company’s Percentage Interest plus 20% until Heitman has achieved a 20% internal rate of return; and (v) any excess to Heitman in an amount equal to its Percentage Interest less 30% and to the Company in an amount equal to the Company’s Percentage Interest plus 30%. However, the Company will not be entitled to any such promoted interest prior to the earlier to occur of the third anniversary of the JV Agreement and Heitman receiving distributions to the extent necessary to provide Heitman with a 1.48 multiple on its contributed capital.

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

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

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

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

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

19

SL1 Venture has elected the fair value option of accounting for its development property investments with a profits interest, which are equity method investments of SL1 Venture. The assumptions used to value SL1 Venture’s investments are materially consistent with those used to value the Company’s investments. As of June 30, 2017, SL1 Venture had eleven development property investments with a profits interest as described in more detail in the table below:

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment(1)		Remaining Unfunded Commitment		Fair Value
5/14/2015	Miami 1(2) (3)	$	13,867	$	8,631	$	5,236	$	9,610
5/14/2015	Miami 2(2) (3)		14,849		7,299		7,550		7,321
9/25/2015	Fort Lauderdale (2)		13,230		5,531		7,699		5,419
4/15/2016	Washington DC(3)		17,269		11,628		5,641		12,600
4/29/2016	Atlanta 1(3)		10,223		3,475		6,748		3,641
7/19/2016	Jacksonville(3)		8,127		5,697		2,430		7,398
7/21/2016	New Jersey		7,828		1,161		6,667		1,090
8/15/2016	Atlanta 2(3)		8,772		4,900		3,872		5,474
8/25/2016	Denver(3)		11,032		6,100		4,932		6,811
9/28/2016	Columbia(3)		9,199		5,462		3,737		5,819
12/22/2016	Raleigh		8,877		1,641		7,236		1,583
	Total	$	123,273	$	61,525	$	61,748	$	66,766

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ These development property investments (having approximately $8.1 million of outstanding principal at contribution) were contributed to the SL1 Venture on March 31, 2016 by the Company.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

As of June 30, 2017, the SL1 Venture had total assets of $69.5 million and total liabilities of $7.5 million. During the three and six months ended June 30, 2017, the SL1 Venture had net income of $5.2 million and $7.5 million, of which $0.6 million and $1.0 million was allocated to the Company and $4.6 million and $6.5 million was allocated to HVP III, respectively, under the HLBV method. At June 30, 2017, $0.2 million of transaction expenses were included in the carrying amount of the Company’s investment in the SL1 Venture. Additionally, the Company may from time to time make advances to the SL1 Venture. At June 30, 2017 and December 31, 2016, the Company had $7.4 million and $2.3 million, respectively, in advances to the SL1 Venture, and the related interest on these advances are classified in equity in earnings from unconsolidated real estate venture in the Consolidated Statements of Operations.

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

Under the JV Agreement, Heitman and the Company seek to obtain and, if obtained, share joint rights of first refusal to acquire self-storage facilities that are the subject of development property investments made by the SL1 Venture. Additionally, so long as the Company, through its operating subsidiary, is a member of the SL1 Venture and the SL1 Venture holds any assets, the Company will not make any investment of debt or equity or otherwise, directly or indirectly, in one or more new joint ventures or similar programs for the purposes of funding or providing development loans or financing, directly or indirectly, for the development, construction or conversion of self-storage facilities, in each case without first offering such opportunity to Heitman to participate on substantially the same terms as those set forth in the JV Agreement, either through the SL1 Venture or a newly formed real estate venture.

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

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

20

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

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

6. VARIABLE INTEREST ENTITIES

Development Property Investments

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

The Company has recorded assets of $164.0 million and $95.1 million at June 30, 2017 and December 31, 2016, respectively, for its variable interest in the VIEs which is included in the development property investments at fair value line item in the Consolidated Balance Sheets. The Company’s maximum exposure to loss as a result of its involvement with the VIEs is as follows:

	June 30, 2017		December 31, 2016
Assets recorded related to VIEs	$	163,979	$	95,102
Unfunded loan commitments to VIEs		206,568		54,950
Maximum exposure to loss	$	370,547	$	150,052

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

Investment in Real Estate Venture

The Company determined that the SL1 Venture qualifies as a VIE because it does not have enough equity to finance its activities without additional subordinated financial support. In determining whether the Company is the primary beneficiary of the entity, the Company identified the activities that most significantly impact the entity’s economic performance. Such activities are (1) approving self-storage development investments and acquiring self-storage properties, (2) managing directly-owned properties, (3) obtaining debt financing, and (4) disposing of investments. Although the Company has certain rights, it does not have the power to direct the activities that most significantly impact the entity’s economic performance and thus is not the primary beneficiary. As such, the Company does not consolidate the entity and accounts for its unconsolidated interest in the SL1 Venture using the equity method of accounting. The Company’s investment in the SL1 Venture is included in the investment in and advances to real estate venture balance in the Consolidated Balance Sheets, and earnings from the SL1 Venture are included in equity in earnings from unconsolidated real estate venture in the Company’s Consolidated Statements of Operations. The Company’s maximum contribution to the SL1 Venture is $12.3 million, and as of June 30, 2017 and December 31, 2016, the Company’s remaining unfunded commitment to the SL1 Venture is $6.1 million and $9.4 million, respectively.

21

7. SELF-STORAGE REAL ESTATE OWNED

On February 3, 2017, the Company purchased 50% of the economic rights of the Class A membership units of a limited liability company that owns a development property investment with a profits interest in Orlando, Florida for $1.3 million and increased its profits interest on this development property investment from 49.9% to 74.9%. The Class A member retains all management and voting rights in the limited liability company. Previously, the Company accounted for this investment as an equity method investment. Because the Company is entitled to greater than 50% of the residual profits from the investment, the Company now accounts for this investment as a real estate investment in its consolidated financial statements in accordance with ASC 310.

The following table shows the impact of this real estate investment on the Company’s Consolidated Balance Sheet as of June 30, 2017:

	June 30, 2017
Cash	$	5
Land		1,507
Building and improvements		5,890
Accumulated depreciation		(114	)
Self-storage real estate owned	$	7,283
Accrued liabilities	$	15

The following table shows the impact of this real estate investment on the Company’s Consolidated Statement of Operations for the three and six months ended June 30, 2017:

	Three months ended June 30, 2017			Six months ended June 30, 2017
Rental revenues	$	105		$	168
General property operating expenses		(43	)		(74	)
Depreciation expense		(38	)		(62	)
Property operating expenses of real estate owned	$	(81	)	$	(136	)

The Company’s basis in the land and building was recorded at cost (equal to cash paid and accrued interest, plus unrealized gains recorded at the date of reclassification) at February 3, 2017, the date of the Company’s purchase of 50% of the economic rights of the Class A membership units of the limited liability company that owns the development property investment with a profits interest. The allocation to land and building was based on the historical cost of these assets.

8. OTHER LOANS, AT COST

As of June 30, 2017, the Company had a balance of $5.3 million related to a bridge loan extended to a limited liability company that is under common control with a borrower in certain of the Company’s development property investments. The bridge loan is secured by a first mortgage on a portion, and a negative pledge on a portion, of certain real and personal property, is personally guaranteed, and is interest-only with a fixed interest rate of 6.9% per annum, and matures August 31, 2017. The maturity is based upon the estimated time needed to prepare the site for closing into a development loan. During the six months ended June 30, 2017, the Company received repayments of $12.1 million related to six bridge loans and entered into two new bridge loans with an aggregate commitment and funded amount of $7.3 million. At December 31, 2016, the Company had executed five bridge loans with a balance of $10.1 million extended to four limited liability companies that are under common control with borrowers in certain of the Company’s development property investments. These bridge loans were accounted for under the cost method, and fair value approximates cost at June 30, 2017 and December 31, 2016. None of these bridge loans were in non-accrual status as of June 30, 2017 and December 31, 2016. The Company determined that no allowance for loan loss was necessary at June 30, 2017 and December 31, 2016.

The Company also had executed seven revolving loan agreements with an aggregate outstanding principal amount of $1.2 million at June 30, 2017. Six of the agreements are with individuals who are owners of limited liability companies, one is with a limited liability company, and all are personally guaranteed. Six of these borrowers are either directly or indirectly owners of certain of the Company’s development property investments and one is a prospective developer. Three of the agreements provide for borrowings of up to $0.5 million, one provides for borrowings of up to $0.1 million, one provides for borrowings of up to $0.25 million, one provides for borrowings of up to $0.7 million, and one agreement provides for borrowings of up to $1.0 million (total of $3.6 million) to fund expenses for pursuit costs to contract for and perform diligence on additional self-storage sites. The revolving loans are typically unsecured but cross-defaulted against development loans. One of the revolving loans is guaranteed by a part owner of one of the Company’s development loan investments, and this guaranty is secured by a pledge of the owner’s membership interest in one of the Company’s development loan investments. The loans bear interest at 6.9-7.0% per annum and are due in full in three years. During the six months ended June 30, 2017, the Company received repayments on these revolving loan agreements of $2.0 million and draws of $1.5 million. At December 31, 2016, the Company had executed six revolving loan agreements with an aggregate outstanding principal amount of $1.7 million. These loans are accounted for under the cost method, and fair value approximates cost at June 30, 2017 and December 31, 2016. None of these loans are in non-accrual status as of June 30, 2017 and December 31, 2016. The Company determined that no allowance for loan loss was necessary at June 30, 2017 and December 31, 2016.

22

9. SENIOR PARTICIPATIONS

On April 29, 2016, the Company sold senior participations (the “Operating Property A Notes”) in two separate operating property loans in the Nashville, Tennessee and New Orleans, Louisiana MSAs, having an aggregate outstanding principal balance of $7.8 million, to a regional commercial bank in exchange for cash consideration of $5.0 million. The sale of Operating Property A Notes was effected pursuant to participation agreements between the bank and the Company (the “Participation Agreements”). On December 14, 2016, the Company received proceeds of $5.2 million for an early payoff on the operating property loan in the Nashville, Tennessee MSA, and the Company repurchased the senior participation on this loan that was included in Operating Property A Notes. The Company paid the regional commercial bank a total of $3.4 million in connection with the repurchase, which included a $0.1 million prepayment penalty that is recorded in interest expense in the Consolidated Statements of Operations. Under the remaining Participation Agreement, the Company will continue to service the underlying loan as long as it is not in default under the Participation Agreement. The bank has the option to “put” the senior participation to the Company in the event the underlying borrower defaults on the underlying loan or if the Company defaults under the Participation Agreement. The Company will pay to the bank interest on the outstanding balance of the Operating Property A Note at the rate of 30-day LIBOR plus 3.85%, or 5.07% at June 30, 2017. The Operating Property A Note matures on April 1, 2019, at which time the Company is obligated to repurchase the Operating Property A Note at the then outstanding principal balances thereof. As part of the Participation Agreement, the Company will maintain a minimum aggregate balance of $0.5 million in depository or money market accounts at the bank, and if such balance is not maintained, the interest rate will increase. The outstanding balance for the remaining Operating Property A Note at June 30, 2017 was $1.8 million.

On May 27, 2016, the Company sold a third senior participation in a construction loan on a facility in the Miami, Florida MSA (“the Miami A Note”), having a commitment amount of $17.7 million, to the same commercial bank that purchased the Operating Property A Notes in exchange for a commitment by the bank to provide net proceeds of $10.0 million to fund construction draws under the construction loan (the “Miami A Note Sale”) once the total outstanding principal balance exceeds $7.7 million. The Miami A Note Sale was effected pursuant to a participation agreement between the bank and the Company (the “Miami Participation Agreement”). Under the Miami Participation Agreement, the Company will continue to service the underlying loan as long as it is not in default under the Miami Participation Agreement. The bank has the option to “put” the senior participation to the Company in the event the underlying borrower defaults on the underlying loan or if the Company defaults under the Miami Participation Agreement. The Company will pay to the bank interest on the outstanding balance of the Miami A Note at the rate of 30-day LIBOR plus 3.10%, or 4.32% at June 30, 2017. The Company also paid a loan fee of 100 basis points, or $0.1 million upon closing of the loan. The Miami A Note initially had a maturity date of July 1, 2017. During the six months ended June 30, 2017, the maturity date was extended to January 31, 2018, at which time the Company is obligated to repurchase the Miami A Note at the then outstanding principal balance thereof. The outstanding balance for the Miami A Note at June 30, 2017 was $0.7 million.

On July 26, 2016, the Company sold to a national commercial bank operating in the Company’s markets senior participations in the construction loans of four separate development property investments with a profits interest (the “July 2016 A Notes”) (one in the Orlando, Florida MSA, two in the Atlanta, Georgia MSA, and one in the Tampa, Florida MSA) having an aggregate committed principal balance of approximately $21.8 million and earning interest at a rate of 6.9% per annum, in exchange for a commitment by the bank to provide net proceeds of $14.2 million (the “July 2016 A Note Sales”). Construction has been completed and certificates of occupancy have been issued for these properties. At closing, the bank paid to the Company approximately $12.5 million for senior participations in the construction loans and will fund up to a total of $14.2 million as future draws are made on the construction loans. The Company will pay interest to the bank on its senior participations at the annual rate of 30-day LIBOR plus 3.50%, or 4.72% at June 30, 2017. The July 2016 A Notes mature on August 1, 2019, at which time the Company is obligated to repurchase the July 2016 A Notes at the then outstanding principal balance thereof. As part of the senior participation agreements, the Company will maintain a minimum aggregate balance of $0.5 million in depository or money market accounts at the bank, and if such balance is not maintained, the interest rate will increase. The outstanding balance for the July 2016 A Notes at June 30, 2017 was $13.7 million.

On October 18, 2016, the Company sold to a local Memphis, Tennessee-based community bank a senior participation in the construction loan of one of the Company’s development property investments with a profits interest (the “October 2016 A Note”) in Charlotte, North Carolina having a committed principal balance of approximately $6.8 million and earning interest at a rate of 6.9% per annum, in exchange for a commitment by the bank to provide net proceeds of $4.4 million (the “October 2016 A Note Sale”). Construction has been completed and a certificate of occupancy has been issued for this property. At closing, the bank paid to the Company approximately $3.4 million for the senior participation in the construction loan and will fund up to a total of $4.4 million as future draws are made on the construction loans. The Company will pay interest to the bank on the senior participation at the annual rate of 30-day LIBOR plus 3.50%, or 4.72% at June 30, 2017. The October 2016 A Note matures on September 1, 2021, at which time the Company is obligated to repurchase the October 2016 A Note at the then outstanding principal balance thereof. The outstanding balance for the October 2016 A Note at June 30, 2017 was $4.0 million.

23

The table below details the bank commitments and outstanding balances of our senior participations at June 30, 2017:

	Commitment by Bank		Amount Borrowed			Remaining Funds		Interest Rate	Effective Interest Rate at June 30, 2017			Maturity Date
Operating Property A Note(1)	$	1,820	$	1,820		$	-	30-day LIBOR + 3.85%		5.07	%	April 1, 2019
Miami A Note		10,001		732			9,269	30-day LIBOR + 3.10%		4.32	%	January 31, 2018
July 2016 A Notes(2)		14,185		13,679			506	30-day LIBOR + 3.50%		4.72	%	August 1, 2019
October 2016 A Note(2)		4,405		4,041			364	30-day LIBOR + 3.50%		4.72	%	September 1, 2021
Total	$	30,411		20,272		$	10,139
Unamortized fees				(125	)
Net balance			$	20,147

⁽¹⁾ On July 20, 2017, the Company received proceeds of $2.8 million for an early payoff on the remaining Operating Property A Note in the New Orleans, Louisiana MSA, and the Company repurchased the senior participation on this loan. The Company paid the regional commercial bank a total of $1.8 million in conjunction with the repurchase, which included an $18,000 prepayment penalty.

⁽²⁾ On July 25, 2017, the Company entered into a senior secured revolving credit facility of up to $100 million (the “Credit Facility”) and subsequently repurchased the July 2016 A Notes and October 2016 A Note. See Note 13, Subsequent Events, for further information on the Credit Facility.

The table below details the bank commitments and outstanding balances of our senior participations at December 31, 2016:

	Commitment by Bank		Amount Borrowed			Remaining  Funds		Interest Rate	Effective Interest Rate at December 31, 2016			Maturity Date
Operating Property A Note	$	1,820	$	1,820		$	-	30-day LIBOR + 3.85%		4.47	%	April 1, 2019
Miami A Note		10,001		-			10,001	30-day LIBOR + 3.10%		3.72	%	July 1, 2017
July 2016 A Notes		14,185		13,420			765	30-day LIBOR + 3.50%		4.12	%	August 1, 2019
October 2016 A Note		4,405		3,375			1,030	30-day LIBOR + 3.50%		4.12	%	September 1, 2021
Total	$	30,411	$	18,615		$	11,796
Unamortized fees				(33	)
Net balance			$	18,582

10. STOCKHOLDERS’ EQUITY

The Company had 14,238,350 and 8,956,354 shares of common stock issued and outstanding, which included 202,502 and 120,001 of nonvested restricted stock, as of June 30, 2017 and December 31, 2016, respectively. The Company had 10,000 shares of Series A Preferred Stock issued and outstanding as of June 30, 2017 and December 31, 2016.

Common Stock Offerings

On December 13, 2016, the Company received $53.5 million in proceeds, net of underwriter’s discount and offering costs, related to the issuance of 2,996,311 shares of common stock.

On April 5, 2017, the Company entered into an at-the-market continuous equity offering program (“ATM Program”) with an aggregate offering price of up to $50.0 million. Since the inception of the ATM Program, the Company has issued and sold an aggregate of 1,093,202 shares of common stock at a weighted average price of $22.69 per share under the ATM Program, receiving net proceeds after commissions of $24.2 million.

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

24

Stock Repurchase Plan

On May 20, 2016, the Company’s Board of Directors authorized a share repurchase program for the repurchase of up to $10.0 million of the outstanding shares of common stock of the Company. As of June 30, 2017, the Company had repurchased and retired a total of 213,078 shares of its common stock at an aggregate cost of approximately $3.2 million. As of June 30, 2017, the Company has $6.8 million remaining under the Board’s authorization to repurchase shares of its common stock.

Equity Incentive Plan

In connection with the IPO, the Company established the 2015 Equity Incentive Plan for the purpose of attracting and retaining directors, executive officers, investment professionals and other key personnel and service providers, including officers and employees of the Manager and other affiliates, and to stimulate their efforts toward the Company’s continued success, long-term growth and profitability. The 2015 Equity Incentive Plan provides for the grant of stock options, share awards (including restricted common stock and restricted stock units), stock appreciation rights, dividend equivalent rights, performance awards, annual incentive cash awards and other equity-based awards, including Long-Term Incentive Plan (“LTIP”) units, which are convertible on a one-for-one basis into Operating Company Units (“OC Units”).  A total of 200,000 shares of common stock were reserved for issuance pursuant to the 2015 Equity Incentive Plan, subject to certain adjustments set forth in the plan. On April 1, 2015, each non-employee director of the Company received an award of 2,500 shares of restricted common stock (total of 10,000 shares) which vest ratably over a three-year period. On June 15, 2015, in connection with the appointment of the Company’s President and Chief Operating Officer (an employee of the Manager), 100,000 shares of restricted common stock were granted, which shares vest ratably over a five-year period. During the year ended December 31, 2015, the Company granted 52,500 shares of restricted common stock to an executive officer (an employee of the Manager) and key employees of the Manager, which shares vest ratably over a three-year period. The Manager provides services to the Company. On May 20, 2016, each non-employee director of the Company received an award of 3,585 shares of common stock (total of 14,340 shares) which immediately vested on the grant date. On May 3, 2017, the Company’s stockholders approved, and the Company adopted, the Amended and Restated 2015 Stock Incentive Plan increasing the number of shares of common stock reserved for issuance under the Plan by 170,000 shares from 200,000 shares to 370,000 shares and extending the term of the Plan until May 2, 2027. On May 3, 2017, three non-employee directors of the Company were each granted an award of 2,138 shares of common stock (total of 6,414 shares), which immediately vested on the grant date. In addition, certain of the Company’s officers and certain employees of the Manager were granted a cumulative total of 105,000 shares of restricted common stock, which vest ratably over a three-year period.

Restricted Stock Awards

The Amended and Restated 2015 Equity Incentive Plan permits the issuance of restricted stock awards to employees of the Manager (as the Company has no employees) and non-employee directors. Granted stock awards at June 30, 2017 and December 31, 2016 aggregated 288,254 and 176,840 service-based stock awards, respectively, of which 55,172 vested in 2016, 28,913 vested during the three months ended June 30, 2017, 17,500 will vest in the second half of 2017, 75,003 will vest in 2018, 55,001 will vest in 2019 and 54,998 will vest in 2020, respectively. Additionally, 1,667 were forfeited during the year ended December 31, 2016. Non-vested shares are earned over the respective vesting period based on a service condition only. Expenses related to restricted stock awards are charged to compensation expense and are recognized over the respective vesting period (primarily three to five years) of the awards. For restricted stock issued to non-employee directors of the Company, compensation expense is based on the market value of the shares at the grant date. For restricted stock awards issued to employees of the Manager, compensation expense is re-measured at each reporting date until service is complete and the restricted shares become vested based on the then current value of the Company’s common stock.

The Company recognized approximately $0.4 million and $0.3 million of stock-based compensation expense for the three months ended June 30, 2017 and 2016, respectively, and $0.7 million and $0.5 million of stock-based compensation expense for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017 and December 31, 2016, the total unrecognized compensation cost related to the Company’s restricted shares was approximately $3.9 million and $2.0 million, respectively, based on the grant date market value for awards issued to non-employee directors of the Company and based on the measurement of awards using the Company’s stock price of $22.00 and $21.05 as of June 30, 2017 and December 31, 2016, respectively, for awards issued to employees of the Manager. This cost is expected to be recognized over the remaining weighted average period of 2.7 years. The Company presents stock-based compensation expense in general and administrative expenses in the Consolidated Statements of Operations.

25

A summary of changes in the Company’s restricted shares for the three and six months ended June 30, 2017 and 2016 is as follows:

	Three Months Ended June 30, 2017					Three Months Ended June 30, 2016
	Shares			Weighted average grant date fair value		Shares			Weighted average grant date fair value
Nonvested at March 31,		120,001		$	20.10		162,500		$	20.08
Granted		111,414			22.59		14,340			13.95
Vested		(28,913	)		21.26		(37,672	)		18.09
Forfeited		-			-		-			-
Nonvested at June 30,		202,502		$	21.33		139,168		$	19.91

	Six Months Ended June 30, 2017					Six Months Ended June 30, 2016
	Shares			Weighted average grant date fair value		Shares			Weighted average grant date fair value
Nonvested at December 31,		120,001		$	20.10		162,500		$	20.08
Granted		111,414			22.59		14,340			13.95
Vested		(28,913	)		21.26		(37,672	)		18.09
Forfeited		-			-		-			-
Nonvested at June 30,		202,502		$	21.33		139,168		$	19.91

Nonvested restricted shares receive dividends which are nonforfeitable.

Series A Preferred Stock Private Placement

On July 27, 2016 (the “Effective Date”), the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with accounts managed by NexPoint Advisors, L.P., an affiliate of Highland Capital Management, L.P. (collectively, the “Buyers”) relating to the issuance and sale, from time to time until the second anniversary of the Effective Date (such period, the “Commitment Period”), of up to $100 million in shares of the Company’s Series A Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), at a price of $1,000 per share (the “Liquidation Value”) (subject to a minimum amount of $50 million of Series A Preferred Stock to be issued and sold by the Company on or prior to the expiration of the Commitment Period), which may be increased at the request of the Company up to $125 million. The sale of shares of Series A Preferred Stock pursuant to the Purchase Agreement may occur from time to time, in minimum monthly increments of $5 million, maximum monthly increments of $15 million and maximum increments of $35 million over any rolling three month period, all to be completed during the Commitment Period.

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

26

Holders of Series A Preferred Stock are entitled to a cumulative cash distribution (“Cash Distribution”) equal to (A) 7.0% per annum on the Liquidation Value for the period beginning on the respective date of issuance until the sixth anniversary of the Effective Date, payable quarterly in arrears, (B) 8.5% per annum on the Liquidation Value for the period beginning the day after the sixth anniversary of the Effective Date and for each year thereafter as long as the Series A Preferred Stock remains issued and outstanding, payable quarterly in arrears, and (C) an amount in addition to the amounts in (A) and (B) equal to 5.0% per annum on the Liquidation Value upon the occurrence of certain triggering events (a “Cash Premium”). In addition, the holders of the Series A Preferred Stock will be entitled to a cumulative dividend payable in-kind in shares of Common Stock or additional shares of Series A Preferred Stock, at the election of the holders (the “Stock Dividend”), equal in the aggregate to the lesser of (Y) 25% of the incremental increase in the Company’s book value (as adjusted for equity capital issuances, share repurchases and certain non-cash expenses) plus, to the extent the Company owns equity interests in income-producing real property, the incremental increase in net asset value (provided, however, that no interest in the same real estate asset will be double counted) and (Z) an amount that would, together with the Cash Distribution, result in a 14.0% internal rate of return for the holders of the Series A Preferred Stock from the date of issuance of the Series A Preferred Stock, as set forth in the Articles Supplementary classifying the Series A Preferred Stock (the “Articles Supplementary”). Triggering events that will trigger the payment of a Cash Premium with respect to a Cash Distribution include: (i) the occurrence of certain change of control events affecting the Company after the third anniversary of the Effective Date, (ii) the Company’s ceasing to be subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, (iii) the Company’s failure to remain qualified as a real estate investment trust, (iv) an event of default under the Purchase Agreement, (v) the failure by the Company to register for resale shares of Common Stock pursuant to the Registration Rights Agreement (a “Registration Default”), (vi) the Company’s failure to redeem the Series A Preferred Stock as required by the Purchase Agreement, or (vii) the filing of a complaint, a settlement with, or a judgment entered by the Securities and Exchange Commission against the Company or any of its subsidiaries or a director or executive officer of the Company relating to the violation of the securities laws, rules or regulations with respect to the business of the Company. Accrued but unpaid Cash Distributions and Stock Dividends on the Series A Preferred Stock will accumulate and will earn additional Cash Distributions and Stock Dividends as calculated above, compounded quarterly.

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

As long as shares of Series A Preferred Stock remain outstanding, the Company is required to maintain a ratio of debt to total tangible assets determined under U.S. generally accepted accounting principles of no more than 0.4:1, measured as of the last day of each fiscal quarter. The Company has complied with this covenant as of June 30, 2017.

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

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

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

Pursuant to the Purchase Agreement and the Articles Supplementary, the Company increased the size of its Board by one director and elected James Dondero, as representative of the Buyers, to the Board for a term expiring at the Company’s 2017 annual meeting of stockholders (Mr. Dondero has subsequently been reelected to the Board for a term expiring at the Company’s 2018 annual meeting of stockholders). Thereafter, so long as any shares of the Series A Preferred Stock are outstanding, the holders of the Series A Preferred Stock, voting as a single class, are entitled to nominate and elect one individual to serve on our Board of Directors. If the Company has not paid the full amount of the Cash Distribution or the Stock Dividend on the shares of the Series A Preferred Stock for six or more quarterly dividend periods (whether or not consecutive), the Company will increase the size of the Board by two directors and the holders of the our Series A Preferred Stock are entitled to elect two additional directors to serve on our Board of Directors until the Company pays in full all accumulated and unpaid Cash Distributions and Stock Dividends.

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

27

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

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

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

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

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

As of June 30, 2017, the Company had issued 10,000 restricted shares of the Series A Preferred Stock to the Buyers and received $10.0 million in proceeds pursuant to the terms of the Purchase Agreement.

On March 7, 2017, the Company declared a (i) cash distribution of $17.50 per share of Series A Preferred stock, payable on April 14, 2017, to holders of Series A Preferred Stock of record on the close of business on April 1, 2017, and (ii) distributions payable in kind in a number of shares of common stock as determined in accordance with the terms of the designation of the Series A Preferred stock, payable on April 17, 2017, to holders of Series A Preferred Stock of record on the close of business on April 1, 2017.

On May 3, 2017, the Company declared a cash distribution of $17.69 per share of Series A Preferred stock, payable on July 14, 2017, to holders of Series A Preferred Stock of record on the close of business on July 1, 2017. No distributions in kind were payable in connection with the July distribution.

11. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period.  All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share. Both the unvested restricted shares and the assumed share-settlement of the stock dividend to holders of the Series A Preferred Stock, and the related impacts to earnings, are considered when calculating earnings per share on a diluted basis with our diluted earnings per share being the more dilutive of the treasury stock or two-class methods.  For the three and six months ended June 30, 2017 and 2016, the Company’s basic earnings per share is computed using the two-class method, and our diluted earnings per share is computed using the more dilutive of the treasury stock method or two-class method:

28

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Shares outstanding
Weighted average common shares - basic		9,850,967		5,948,555		9,356,744		5,974,277
Effect of dilutive securities		182,062		155,652		151,203		159,076
Weighted average common shares, all classes		10,033,029		6,104,207		9,507,947		6,133,353
Calculation of Earnings per Share - basic
Net income	$	5,194	$	5,412	$	6,977	$	6,534
Less:
Net income allocated to preferred stockholders		177		n/a		723		n/a
Net income allocated to unvested restricted shares (1)		91		138		99		170
Net income attributable to common shareholders - two-class method	$	4,926	$	5,274	$	6,155	$	6,364
Weighted average common shares - basic		9,850,967		5,948,555		9,356,744		5,974,277
Earnings per share - basic	$	0.50	$	0.89	$	0.66	$	1.07
Calculation of Earnings per Share - diluted
Net income	$	5,194	$	5,412	$	6,977	$	6,534
Less:
Net income allocated to preferred stockholders		177		n/a		723		n/a
Net income attributable to common shareholders - two-class method	$	5,017	$	5,412	$	6,254	$	6,534
Weighted average common shares - diluted		10,033,029		6,104,207		9,507,947		6,133,353
Earnings per share - diluted	$	0.50	$	0.89	$	0.66	$	1.07

⁽¹⁾ Unvested restricted shares participate in dividends with common shares on a 1:1 basis and thus are considered participating securities under the two-class method for the three and six months ended June 30, 2017 and 2016.

12. RELATED PARTY TRANSACTIONS

Equity Method Investments

Certain of the Company’s development property investments are equity method investments for which the Company has elected the fair value option of accounting. The fair value of these equity method investments at June 30, 2017 and December 31, 2016 were $153.6 million and $78.7 million, respectively. The interest income realized and the change in fair value from these equity method investments was $6.1 million and $6.0 million for the three months ended June 30, 2017 and 2016, respectively, and $8.7 million and $10.0 million for the six months ended June 30, 2017 and 2016, respectively.

The Company’s investment in the real estate venture, the SL1 Venture, has a carrying amount of $14.3 million and $5.4 million at June 30, 2017 and December 31, 2016, respectively, and the earnings from this venture were $0.6 million and $1.0 million for the three and six months ended June 30, 2017. The earnings from this venture were $0.4 million for the three and six months ended June 30, 2016.

Management Agreement

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

29

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

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

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

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

The Internalization Price paid to the Manager in any Internalization Transaction will be payable by the Operating Company in the number of units of limited liability company interests (“OC Units”) of the Operating Company equal to the Internalization Price, divided by the volume-weighted average of the closing market price of the common stock of the Company for the ten consecutive trading days immediately preceding the date with respect to which value must be determined. However, if the common stock of the Company is not traded on a national securities exchange at the time of closing of any Internalization Transaction, then the number of OC Units shall be determined by agreement between the Board of Directors of the Company and the Manager or, in the absence of such agreement, the Internalization Price shall be paid in cash.

Prior to entry into the Amended and Restated Management Agreement, any Termination Fee would have been payable by the Operating Company in OC Units equal to the Termination Fee divided by the average of the daily market price of the Common Stock for the ten consecutive trading days immediately preceding the date of termination within 90 days after occurrence of the event requiring the payment of the Termination Fee. In accordance with ASC 505-50, Equity - Equity-based Payments to Non-Employees, since the number of OC Units to be issued was dependent upon different possible outcomes, the Company recognized the lowest aggregate amount within the range of outcomes. Accordingly, the Company estimated the deferred termination fee payable and accrued the expense over the term of the Management Agreement. Upon entry into the Amended and Restated Management Agreement, the Company ceased recognizing the deferred termination fee expense and reclassified the Non-Controlling Interests to Additional Paid-In-Capital since the Termination Fee is no longer certain of being paid other than in exchange for either the assets or equity of the Manager. Accordingly, the Company recorded no expense for the deferred termination fee in the three and six months ended June 30, 2017, and it recorded $0.1 million and $0.2 million of expense for the three and six months ended June 30, 2016, respectively.

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

30

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

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

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

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

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

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

The Amended and Restated Management Agreement provides for the Manager to earn a base management fee and an incentive fee. In addition, the Company will reimburse certain expenses of the Manager, excluding the salaries and cash bonuses of the Manager’s chief executive officer and chief financial officer, a portion of the salary of the president and chief operating officer, and certain other costs as determined by the Manager in accordance with the Amended and Restated Management Agreement. Certain prepaid expenses and fixed assets are also purchased through the Manager and reimbursed by the Company. In the event that the Company terminates the Amended and Restated Management Agreement per the terms of the agreement, other than for cause or the Company being required to register as an investment company, there will be a Termination Fee due to the Manager. Amounts reimbursable to the Manager for expenses are included in general and administrative expenses in the Consolidated Statements of Operations and totaled $0.6 million and $0.7 million for the three months ended June 30, 2017 and 2016, respectively, and $1.5 million and $1.6 million for the six months ended June 30, 2017 and 2016, respectively.

31

Management Fees

As of June 30, 2017, the Company did not have any personnel. As a result, the Company is relying on the properties, resources and personnel of the Manager to conduct operations. The Company has agreed to pay the Manager a base management fee in an amount equal to 0.375% of the Company’s stockholders’ equity (a 1.5% annual rate) calculated and payable quarterly in arrears in cash. For purposes of calculating the base management fee, the Company’s stockholder’s equity means: (a) the sum of (i) the net proceeds from all issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus (ii) the Company’s retained earnings at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods); less (b) any amount that the Company pays to repurchase the Company’s common stock since inception, provided that if the Company’s retained earnings are in a net deficit position (following any required adjustments set forth below), then retained earnings shall not be included in stockholders’ equity. It also excludes (x) any unrealized gains and losses and other non-cash items that have impacted stockholders’ equity as reported in the Company’s financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, and (y) one-time events pursuant to changes in GAAP (such as a cumulative change to the Company’s operating results as a result of a codification change pursuant to GAAP), and certain non-cash items not otherwise described above (such as depreciation and amortization), in each case after discussions between the Company’s Manager and the Company’s independent directors and approval by a majority of the Company’s independent directors. As a result, the Company’s stockholders’ equity, for purposes of calculating the base management fee, could be greater or less than the amount of stockholders’ equity shown on the Company’s financial statements. The base management fee is payable independent of the performance of the Company’s portfolio. The Manager computes the base management fee within 30 days after the end of the fiscal quarter with respect to which such installment is payable and promptly delivers such calculation to the Company’s Board of Directors. The amount of the installment shown in the calculation is due and payable no later than the date which is five business days after the date of delivery of such computation to the Board of Directors. The calculation generally will be reviewed by the Board of Directors at their regularly scheduled quarterly board meeting. The base management fee was $0.7 million and $0.4 million for the three months ended June 30, 2017 and 2016, respectively, and $1.3 million and $0.8 million for the six months ended June 30, 2017 and 2016, respectively. At June 30, 2017 and December 31, 2016, the Company had outstanding fees due to Manager of $1.0 million consisting of the management fees payable and certain general and administrative reimbursements payable.

Incentive Fee

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

IF = .20 times (A minus (B times .08)) minus C

In the foregoing formula:

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

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

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

Notwithstanding application of the incentive fee formula, no incentive fee shall be paid with respect to any fiscal quarter unless cumulative annual stockholder total return for the four most recently completed fiscal quarters is greater than 8%. Any computed incentive fee earned but not paid because of the foregoing hurdle will accrue until such 8% cumulative annual stockholder total return is achieved. The total return is calculated by adding stock price appreciation (based on the volume-weighted average of the closing price of the Company’s common stock on the NYSE (or other applicable trading market) for the last ten consecutive trading days of the applicable computation period minus the volume-weighted average of the closing market price of the Company’s common stock for the last ten consecutive trading days of the period immediately preceding the applicable computation period) plus dividends per share paid during such computation period, divided by the volume-weighted average of the closing market price of the Company’s common stock for the last ten consecutive trading days of the period immediately preceding the applicable computation period. For purposes of computing the Incentive Fee, “Core Earnings” is defined as net income (loss) determined under GAAP, plus non-cash equity compensation expense, the incentive fee, depreciation and amortization (to the extent that the Company forecloses on any facilities underlying the Company’s target investments), any unrealized losses or other non-cash expense items reflected in GAAP net income (loss), less any unrealized gains reflected in GAAP net income. The amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between the Manager and the Company’s independent directors and after approval by a majority of the independent directors.

32

The Manager computes each quarterly installment of the incentive fee within 45 days after the end of the fiscal quarter with respect to which such installment is payable and promptly delivers such calculation to the Company’s Board of Directors. The amount of the installment shown in the calculation is due and payable no later than the date which is five business days after the date of delivery of such computation to the Board of Directors. The calculation generally will be reviewed by the Board of Directors at their regularly scheduled quarterly board meeting. The Manager has not earned an incentive fee for the three and six months ended June 30, 2017 and 2016.

13. SUBSEQUENT EVENTS

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

Investment Activity

Subsequent to June 30, 2017, the Company closed on the following development property investment with a profits interest:

Closing Date	MSA	Total Investment Commitment
7/27/2017	Jacksonville 3	$	8,096
	Total	$	8,096

On July 20, 2017, the Company received proceeds of $2.8 million, including a $28,000 prepayment penalty, for the early payoff of an operating property loan in the New Orleans, Louisiana MSA. Subsequently, the Company repurchased the senior participation on this loan and paid the regional commercial bank a total of $1.8 million in conjunction with the repurchase, which included an $18,000 prepayment penalty.

Credit Facility

On July 25, 2017, the Operating Company entered into the Credit Facility with KeyBank National Association, as administrative agent (the “Agent”), KeyBanc Capital Markets Inc., as lead arranger, and the other lenders party thereto. Pursuant to an accordion feature, the Operating Company may from time to time increase the commitments up to an aggregate amount of $200 million, subject to, among other things, an absence of default under the Credit Facility, as well as receiving commitments from lenders for the additional amounts. At closing, the Operating Company borrowed $20.0 million of the $33.3 million then available under the Credit Facility. The Company used the proceeds to repurchase senior participation interests outstanding on five of the Company’s development investments from the commercial banks who held such senior participation interests, each of whom agreed to participate as lenders in the Credit Facility, and to pay fees and expenses of procuring the Credit Facility. On July 26, 2017, the Operating Company used proceeds from the Company’s recently completed offering of its common stock to fully repay the $20.0 million borrowed at closing, leaving $33.3 million available under the credit facility for future draws. The Operating Company intends to use future borrowings under the Credit Facility to fund its investments, to make secured or unsecured loans to borrowers in connection with its investments and for general corporate purposes.

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

33

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

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

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

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

· total consolidated indebtedness not exceeding 50% of gross asset value;

· a minimum fixed charge coverage ratio (defined as the ratio of consolidated adjusted earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 0.75 to 1.00 during the period between July 25, 2017 and June 30, 2018, 0.90 to 1 during the period between July 1, 2018 and December 31, 2018 and 1.20 to 1 during the period between January 1, 2019 through the maturity of the Credit Facility;

· a minimum consolidated tangible net worth (defined as gross asset value less total consolidated indebtedness) of $183.3 million plus 75% of the sum of any additional net offering proceeds;

· when aggregate loan commitments under the Credit Facility exceed $50 million, unhedged variable rate debt cannot exceed 25% of consolidated total indebtedness;

· liquidity of no less than $50 million for the period between July 25, 2017 and December 31, 2018 or on and after December 31, 2018, liquidity of no less than the sum of (i) total unfunded loan commitments of the Company and its subsidiaries plus (ii) $25 million; and

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

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

Dividend Declarations

On August 1, 2017, the Company’s Board of Directors declared a cash dividend to the holders of the Series A Preferred Stock and a distribution payable in kind, if applicable, in a number of shares of common stock or Series A Preferred Stock as determined in accordance with the election of the holders of the Series A Preferred Stock for the quarter ending September 30, 2017. The dividends are payable on October 15, 2017 (or if not a business day, on the next business day) to holders of Series A Preferred Stock of record on October 1, 2017.

On August 1, 2017, the Company’s Board of Directors also declared a cash dividend of $0.35 per share of common stock for the quarter ending September 30, 2017. The dividend is payable on October 13, 2017 to stockholders of record on October 2, 2017.

34

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

Note Regarding Forward-Looking Statements

We make statements in this Quarterly Report on Form 10-Q that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). These forward-looking statements include, without limitation, statements about our estimates, expectations, predictions and forecasts of our future business plans and financial and operating performance and/or results, as well as statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. When we use the words “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” or similar expressions or their negatives, as well as statements in future tense, we intend to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance and our actual financial and operating results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such differences are described in the section entitled “Risk Factors” in this report and in the Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”), which was filed with the Securities and Exchange Commission (“SEC”) on March 8, 2017, which factors include, without limitation, the following:

· our ability to successfully source, structure, negotiate and close investments in self-storage facilities;

· changes in our business strategy and the market’s acceptance of our investment terms;

· our ability to fund our outstanding and future investment commitments;

· availability, terms and our rate of deployment of equity and debt capital;

· our manager’s ability to hire and retain qualified personnel;

· changes in the self-storage industry, interest rates or the general economy;

· the degree and nature of our competition;

· volatility in the value of our assets carried at fair market value; and

· general volatility of the capital markets and the market price of our common stock.

Given these uncertainties, undue reliance should not be placed on our forward-looking statements. We assume no duty or responsibility to publicly update or revise any forward-looking statement that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. We urge you to review the disclosures concerning risks in the sections entitled “Risk Factors,” “Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2016 Form 10-K.

Overview

We are a commercial real estate company incorporated in Maryland that provides capital to private developers, owners and operators of self-storage facilities. Our principal business objective is to deliver attractive, long-term risk-adjusted returns to our stockholders by investing primarily in newly-constructed self-storage facilities, which we refer to as development property investments. We expect to generate attractive long-term returns on development property investments through interest payments (typically at a fixed rate) on our invested capital together with a 49.9% interest in the positive cash flows from operations, sales and/or refinancings of self-storage facilities, which we refer to herein as “Profits Interests.” We have selectively made construction loans, operating property loans, and bridge loans where we have determined that making such loans will benefit our primary business. In addition, in connection with many of our development property investments, we obtain a right of first refusal to acquire the subject property. In the future, we expect to acquire self-storage properties by exercising our rights of first refusal.

We account for our development property investments and operating property loans at fair value. Under fair value accounting, each of our development property investments and operating property loans is re-valued each quarter, and any unrealized appreciation and depreciation from those financial instruments is reflected in the carrying values of those investments in our Consolidated Balance Sheets and in our Consolidated Statements of Operations. We believe reflecting our investments at fair value provides our stockholders and others who rely on our financial statements with a more complete and accurate understanding of our financial condition and economic performance, including our revenues and the intrinsic value inherent in our Profits Interests as self-storage facilities we finance are constructed, occupied, leased-up and become stabilized.

35

As of June 30, 2017, we had 37 on-balance sheet investments, for an aggregate committed principal amount of $364.0 million, including 33 development property investments totaling approximately $337.5 million of aggregate committed principal amount, each of which provides us with a Profits Interest, one construction loan with approximately $17.7 million of committed principal amount and three operating property loans totaling approximately $8.8 million of aggregate committed principal amount. Each of the development property investments is located in a submarket within a major U.S. market with demographics that management believes will support successful lease-up and value creation in the property. As of June 30, 2017, we had funded approximately $157.5 million of the aggregate committed principal amount of our closed investments.

We have funded all of our investments to date with the following sources of capital:

· net proceeds from our initial public offering (“IPO”) and concurrent private placement, which were consummated on April 1, 2015;

· proceeds from the sale of senior participations, which we also refer to as “A notes”, in certain investments;

· net proceeds from the issuance of our Series A Preferred Stock pursuant to a Stock Purchase Agreement between us and funds managed by Highland Capital Management, L.P. providing for the issuance and sale of up to $125.0 million of Series A Preferred Stock from time to time until July 28, 2018;

· net proceeds from our follow-on public offerings of common stock, which were consummated on December 13, 2016 and June 27, 2017; and

· net proceeds from our at-the-market continuous equity offering program (“ATM Program”) which we commenced on April 5, 2017.

In addition to the sources listed above, we intend to use our Credit Facility (as defined below) to fund future investments.

On March 7, 2016, we, through our Operating Company, entered into the JV Agreement of Storage Lenders LLC to form SL1 Venture with HVP III (the “SL1 Venture”), an investment vehicle managed by Heitman. The SL1 Venture was formed for the purpose of providing capital to developers of self-storage facilities identified and underwritten by us. Upon formation, HVP III committed $110.0 million for a 90% interest in the SL1 Venture, and we committed $12.2 million for a 10% interest. On March 31, 2016, we contributed to the SL1 Venture three self-storage development investments with an aggregate commitment amount of $41.9 million. As of June 30, 2017, the SL1 Venture had closed on eight additional development property investments with a profits interest with an aggregate commitment amount of approximately $81.4 million, bringing the total aggregate commitment of SL1 Venture’s investments to $123.3 million as of June 30, 2017.

The Company is externally managed and advised by the Manager. The Manager is led by our founder and chief executive officer, Dean Jernigan, and our president and chief operating officer, John A. Good. Mr. Jernigan is a 30-year veteran of the self-storage industry, including a combined 16 years as the chief executive officer of Storage USA and CubeSmart, both New York Stock Exchange listed self-storage REITs. During his time at these two companies, Mr. Jernigan oversaw the investment of over $3 billion of capital in the self-storage industry. Mr. Good has over 28 years working with senior management teams and boards of directors of public companies in the REIT and financial services industries on corporate finance, corporate governance, merger and acquisition, tax, executive compensation, joint venture, and strategic planning projects as a nationally recognized corporate and securities lawyer. Prior to joining the Company, he served as lead counsel on over 200 securities offerings, including our IPO, raising in excess of $25 billion over the past 25 years, with more than 125 of those deals being in the REIT industry. We believe the industry experience and depth of relationships of our senior management team and other investment professionals provide us with a significant competitive advantage in sourcing, evaluating, underwriting and servicing self-storage investments.

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

Factors Impacting Our Operating Results

The results of our operations are affected by a number of factors including, among other things;

· the pace at which we are able to deploy capital into development property investments and begin earning interest income, which pace can be dependent on the timing of government issuance of building permits, weather and other factors outside our control;

· the timing of certificates of occupancy of facilities we finance and the pace of lease-up of such facilities;

· availability of capital and whether investments are made on-balance sheet or through off-balance sheet joint ventures;

· changes in the fair value of our assets; and

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

36

Our total investment income includes interest income from investments, which also reflects the accretion of origination fees, and is recognized utilizing the interest method based on the contractual rate and the outstanding principal balance of the loans we originate. The objective of the interest method is to arrive at periodic interest income that yields a level rate of return over the loan term. Interest rates may vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers. Our income also includes earnings from our investment in the SL1 Venture, which is calculated based on the allocation of earnings as prescribed in the JV Agreement. In addition, our operating results are affected by the valuation of our development property investments and our operating property loans. These investments are marked to fair value each quarter, and increases and decreases in fair value are reflected in the carrying values of the investments in our Consolidated Balance Sheets and as unrealized increases/decreases in fair value in our Consolidated Statements of Operations. In one event we made, and in the future we may make, additional equity investments in self-storage facilities, either for fee simple ownership by our Operating Company or in joint ventures with our developers, institutional or other strategic partners. Our operating results include rental income and related operating expenses from owned self-storage facilities. In that regard, in connection with many of our development investments, we have obtained rights of first refusal in connection with potential future sales of self-storage facilities that we finance. Our results for the three and six months ended June 30, 2017 and 2016 also were impacted by our accounting methods as discussed below.

Changes in Fair Value of Our Assets

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

Changes in Market Interest Rates

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

Credit Risk

We are subject to varying degrees of credit risk in connection with our target investments and other loans. Our Manager seeks to mitigate this risk by seeking to originate or acquire loans of higher quality at appropriate prices given anticipated and unanticipated losses, by utilizing a comprehensive selection, underwriting and due diligence review process, and by proactively monitoring originated or acquired loans. Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results.

Market Conditions

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

37

Recent Developments

Investment Activity

Subsequent to June 30, 2017, we closed on the following development property investment with a profits interest:

Closing Date	MSA	Total Investment Commitment
7/27/2017	Jacksonville 3	$	8,096
	Total	$	8,096

On July 20, 2017, we received proceeds of $2.8 million, including a $28,000 prepayment penalty, for the early payoff of an operating property loan in the New Orleans, Louisiana MSA. Subsequently, we repurchased the senior participation on this loan and paid the regional commercial bank a total of $1.8 million in conjunction with the repurchase, which included an $18,000 prepayment penalty.

Credit Facility

On July 25, 2017, we, through our Operating Company, entered into a senior secured revolving credit facility of up to $100 million (the “Credit Facility”) with KeyBank National Association, as administrative agent, KeyBanc Capital Markets Inc., as lead arranger, and the other lenders party thereto. Pursuant to an accordion feature, we may from time to time increase the commitments up to an aggregate amount of $200 million, subject to, among other things, an absence of default under the Credit Facility, as well as receiving commitments from lenders for the additional amounts. At closing, we borrowed $20.0 million of the $33.3 million then available under the Credit Facility. We used the proceeds to repurchase senior participation interests outstanding on five of our development investments from the commercial banks who held such senior participation interests, each of whom agreed to participate as lenders in the Credit Facility, and to pay fees and expenses of procuring the Credit Facility. On July 26, 2017, we used proceeds from our offering of common stock completed on June 27, 2017 to fully repay the $20.0 million borrowed at closing, leaving $33.3 million available under the Credit Facility for future draws. We intend to use future borrowings under the Credit Facility to fund its investments, to make secured or unsecured loans to borrowers in connection with its investments and for general corporate purposes.

On July 25, 2017, we and certain wholly-owned subsidiaries of the Operating Company (the “Subsidiaries”) have agreed to unconditionally guarantee the obligations of the Operating Company under the Credit Facility. The Credit Facility is secured by substantially all of our development investments, and other subsidiaries of the Operating Company may be added as guarantors from time to time during the term of the Credit Facility. The Credit Facility has a scheduled maturity date on July 24, 2020. Borrowings under the Credit Facility are secured by two different pools of collateral: one consisting of the Company’s mortgage loans extended to developers and the other consisting of self-storage properties owned by the Company. The borrowing capacity under the Credit Facility is tied to the amount of collateral provided to the lenders.

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

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

38

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

· total consolidated indebtedness not exceeding 50% of gross asset value;

· a minimum fixed charge coverage ratio (defined as the ratio of consolidated adjusted earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 0.75 to 1.00 during the period between July 25, 2017 and June 30, 2018, 0.90 to 1 during the period between July 1, 2018 and December 31, 2018 and 1.20 to 1 during the period between January 1, 2019 through the maturity of the Credit Facility;

· a minimum consolidated tangible net worth (defined as gross asset value less total consolidated indebtedness) of $183.3 million plus 75% of the sum of any additional net offering proceeds;

· when aggregate loan commitments under the Credit Facility exceed $50 million, unhedged variable rate debt cannot exceed 25% of consolidated total indebtedness;

· liquidity of no less than $50 million for the period between July 25, 2017 and December 31, 2018 or on and after December 31, 2018, liquidity of no less than the sum of (i) total unfunded loan commitments of the Company and its subsidiaries plus (ii) $25 million; and

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

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

Dividend Declarations

On August 1, 2017, our Board of Directors declared a cash dividend to the holders of the Series A Preferred Stock and a distribution payable in kind in a number of shares of common stock or Series A Preferred Stock as determined in accordance with the election of the holders of the Series A Preferred Stock for the quarter ending September 30, 2017. The dividends are payable on October 15, 2017 (or if not a business day, on the next business day) to holders of Series A Preferred Stock of record on October 1, 2017.

On August 1, 2017, our Board of Directors also declared a cash dividend of $0.35 per share of common stock for the quarter ending September 30, 2017. The dividend is payable on October 13, 2017 to stockholders of record on October 2, 2017.

Investment Activity

Our self-storage investments at June 30, 2017 consisted of the following:

· Development Property Investments - We had 33 investments totaling an aggregate committed principal amount of approximately $337.5 million to finance the ground-up construction of or conversion of existing buildings into self-storage facilities. Each development property investment is funded as the developer constructs the project. Each development property investment is typically comprised of a first mortgage loan and a 49.9% interest in the positive cash flows (including the sale and refinancing proceeds after debt repayment) of the project. The loans are secured by the first mortgages on the projects and in certain cases a first priority security interests in the membership interests of the owners of the projects. Loans comprising development property investments are non-recourse with customary carve-outs and subject to completion guaranties, are interest-only with a fixed interest rate of typically 6.9% per annum and have a term of 72 months.

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

· Operating property loans - We had three term loans totaling $8.8 million of aggregate committed principal amount, the proceeds of which were used by borrowers to finance the acquisition of, refinance existing indebtedness on, or recapitalize operating self-storage facilities. These loans are secured by first mortgages on the projects financed, are interest-only with fixed interest rates ranging from 5.85% to 6.9% per annum, and generally have a term of 72 months.

Our development property investments and operating property loans are collectively referred to herein as our investment portfolio.

39

As of June 30, 2017, the aggregate committed principal amount of our investment portfolio was approximately $364.0 million and outstanding principal was $157.5 million, as described in more detail in the table below (dollars in thousands):

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment(1)		Remaining Unfunded Commitment		Fair Value
Development property investments:
Loan investments with a profits interest:
4/21/2015	Orlando 1(2) (4)	$	5,372	$	5,367	$	5	$	1,347
6/10/2015	Atlanta 1(2)		8,132		7,908		224		10,736
6/19/2015	Tampa 1(2)		5,369		5,285		84		6,369
6/26/2015	Atlanta 2(2)		6,050		5,684		366		9,043
6/29/2015	Charlotte 1(2)		7,624		7,065		559		10,361
7/2/2015	Milwaukee(2)		7,650		6,870		780		8,304
7/31/2015	New Haven(2)		6,930		6,093		837		8,058
8/10/2015	Pittsburgh(2)		5,266		4,361		905		5,936
8/14/2015	Raleigh		8,792		3,417		5,375		3,335
9/30/2015	Jacksonville 1(2)		6,445		5,988		457		8,320
10/27/2015	Austin(2)		8,658		6,866		1,792		8,619
9/20/2016	Charlotte 2		12,888		3,029		9,859		2,796
11/17/2016	Orlando 2(3)		5,134		2,994		2,140		3,577
11/17/2016	Jacksonville 2(3)		7,530		2,847		4,683		3,011
1/4/2017	New York City 1(3)		16,117		11,093		5,024		12,509
1/18/2017	Atlanta 3		14,115		3,385		10,730		3,295
1/31/2017	Atlanta 4		13,678		5,866		7,812		5,824
2/24/2017	Orlando 3		8,056		905		7,151		835
2/24/2017	New Orleans		12,549		-		12,549		-
2/27/2017	Atlanta 5		17,492		4,854		12,638		4,737
3/1/2017	Fort Lauderdale		9,952		1,740		8,212		1,661
3/1/2017	Houston		13,630		3,532		10,098		3,445
4/14/2017	Louisville		8,523		627		7,896		542
4/20/2017	Denver 1		9,806		1,873		7,933		1,783
4/20/2017	Denver 2		11,164		2,137		9,027		2,035
5/2/2017	Atlanta 6		12,543		3,671		8,872		3,565
5/2/2017	Tampa 2		8,091		1,584		6,507		1,508
5/19/2017	Tampa 3		9,224		1,524		7,700		1,434
6/12/2017	Tampa 4		10,266		2,391		7,875		2,293
6/19/2017	Baltimore(5)		10,775		2,199		8,576		2,008
6/28/2017	Knoxville		9,115		829		8,286		738
6/29/2017	Boston		14,103		1,466		12,637		1,326
6/30/2017	New York City 2(5)		26,482		16,004		10,478		15,637
		$	337,521	$	139,454	$	198,067	$	154,987
Construction loans:
12/23/2015	Miami		17,733		9,232		8,501		8,992
		$	17,733	$	9,232	$	8,501	$	8,992
	Subtotal	$	355,254	$	148,686	$	206,568	$	163,979
Operating property loans:
6/19/2015	New Orleans(6)		2,800		2,800		-		2,792
7/7/2015	Newark		3,480		3,480		-		3,482
12/22/2015	Chicago		2,502		2,500		2		2,516
	Subtotal	$	8,782	$	8,780	$	2	$	8,790
	Total investments	$	364,036	$	157,466	$	206,570	$	172,769

40

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ Facility had received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾ In February 2017, the Company purchased, for $1.3 million, 50% of the economic rights of the Class A membership units of the limited liability company which owns this development property investment, thus increasing the Company’s profits interest in this investment from 49.9% to 74.9%. As such, the Company’s investment was reclassified as self-storage real estate owned in the June 30, 2017 Consolidated Balance Sheet. See Note 7, Self-storage Real Estate Owned, for additional discussion. The committed and funded investment amounts in this table pertain to the full terms of the development investment, while, the fair value represents only the portion (25.1%) of the principal balance constituting a loan to the Class A member.

⁽⁵⁾ These investments contain a higher LTC ratio and a higher interest rate, some of which interest is PIK interest. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment.

⁽⁶⁾ This investment was fully repaid in July 2017.

As of June 30, 2017, SL1 Venture had 11 development property investments with a profits interest as described in more detail in the table below (dollars in thousands):

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment(1)		Remaining Unfunded Commitment		Fair Value
5/14/2015	Miami 1(2) (3)	$	13,867	$	8,631	$	5,236	$	9,610
5/14/2015	Miami 2(2) (3)		14,849		7,299		7,550		7,321
9/25/2015	Fort Lauderdale (2)		13,230		5,531		7,699		5,419
4/15/2016	Washington DC (3)		17,269		11,628		5,641		12,600
4/29/2016	Atlanta 1 (3)		10,223		3,475		6,748		3,641
7/19/2016	Jacksonville (3)		8,127		5,697		2,430		7,398
7/21/2016	New Jersey		7,828		1,161		6,667		1,090
8/15/2016	Atlanta 2 (3)		8,772		4,900		3,872		5,474
8/25/2016	Denver (3)		11,032		6,100		4,932		6,811
9/28/2016	Columbia(3)		9,199		5,462		3,737		5,819
12/22/2016	Raleigh		8,877		1,641		7,236		1,583
	Total	$	123,273	$	61,525	$	61,748	$	66,766

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ These development property investments (having approximately $8.1 million of outstanding principal balances at contribution) were contributed to the SL1 Venture on March 31, 2016.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

Business Outlook

We continue to experience strong demand for our capital for the development of state-of-the-art Class A self-storage facilities in top U.S. markets. As of August 2, 2017, we had projects that were in various stages of our underwriting process, including several subject to executed term sheets, for prospective investment amounts of approximately $700 million. While we typically estimate closing dates for investment transactions subject to executed term sheets, often the closings of such investments are subject to events, such as site plan approval, and other occurrences outside our control, which can result in delays beyond our estimated closing dates. Moreover, we can provide no assurance that any of the existing or future projects subject to term sheets will produce actual investment commitments or if all term sheets will meet all conditions necessary to consummate investment commitments, and we can provide no assurance that we will have adequate capital to close all such prospective commitments in the future.  

Throughout the second quarter of 2017, we funded development draws on the 11 development property investments to which we had committed an aggregate of approximately $76.5 million at December 31, 2015. As of June 30, 2017, ten of those development properties had achieved certificates of occupancy, and we have realized a significant portion of the potential profit on these developments through our fair value adjustments. We currently expect a certificate of occupancy to be issued on the remaining project in early 2018.

41

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

Insofar as we have already realized a substantial percentage of fair value increases on 10 of our 11 development property investments made on-balance sheet in 2015 and have only a 10% interest in SL1 Venture until certain return hurdles are met, our 2017 fair value adjustments could be less than the fair value adjustments we realized in 2016. However, with substantially greater access to capital during the second half of 2016 and into 2017, we resumed investing “on-balance sheet” and closed three development property investments prior to the end of 2016 and twenty more with an aggregate committed principal of $243.8 million through August 2, 2017, although these development projects are not expected to be completed until late 2017 or 2018. Accordingly, the amount of fair value adjustments for anticipated profits on these projects during 2017 will be less than in 2016 but should accelerate substantially in 2018.

During the six months ended June 30, 2017, the underlying self-storage facility of two of our development property investments with a profits interest received a certificate of occupancy and commenced operations. The following table reflects occupancy data as of August 6, 2017 for these ten facilities:

Location	Date Opened	# Months Open		Occupancy
Riverview, Florida (Tampa 1)	April 11, 2016		16		83.5	%
Ocoee, Florida (Orlando 1)	May 1, 2016		15		89.8	%
Marietta, Georgia (Atlanta 2)	May 24, 2016		14		76.7	%
Alpharetta, Georgia (Atlanta 1)	May 25, 2016		14		62.2	%
Jacksonville, Florida (Jacksonville 1)	August 12, 2016		12		78.5	%
Charlotte, North Carolina (Charlotte 1)	August 18, 2016		12		39.2	%
Milwaukee, Wisconsin	October 9, 2016 (1)		10		24.6	%
New Haven, Connecticut	December 16, 2016		8		44.5	%
Round Rock, Texas (Austin)	March 16, 2017		5		20.6	%
Pittsburgh, Pennsylvania	May 11, 2017		3		9.7	%
Average			11		52.9	% (2)

⁽¹⁾ Certificate of Occupancy was received in August 2016, prior to the property being ready for opening by the manager of the project. Property opened to partial leasing in October 2016. All floors opened to leasing in February 2017.

⁽²⁾ Represents mean average occupancy.

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

Critical Accounting Policies

There have been no significant changes to our critical accounting policies as disclosed in the 2016 Form 10-K.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements affecting us is included in Note 2 of the accompanying interim consolidated financial statements.

Results of Operations

The following discussion of our results of operations for the three and six months ended June 30, 2017 and 2016 should be read in conjunction with the interim consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. 

42

Comparison of the three months ended June 30, 2017 and June 30, 2016:

(Dollars in thousands)	Three months ended
	June 30, 2017			June 30, 2016
Revenues:
Interest income from investments	$	2,467		$	1,533
Rental and other property-related income from real estate owned		105			-
Other revenues		27			-
Total revenues		2,599			1,533
Costs and expenses:
General and administrative expenses		1,371			1,335
Management fees to Manager		707			402
Property operating expenses of real estate owned		81			-
Transaction and other expenses		-			175
Restructuring costs		-			47
Deferred termination fee to Manager		-			82
Total costs and expenses		2,159			2,041
Operating income (loss)		440			(508	)
Other income (expense):
Equity in earnings from unconsolidated real estate venture		595			418
Change in fair value of investments		4,289			5,527
Interest expense		(230	)		(38	)
Other interest income		100			13
Total other income		4,754			5,920
Net income		5,194			5,412
Net income attributable to preferred stockholders		(177	)		-
Net income attributable to common stockholders	$	5,017		$	5,412

Revenues

Total interest income from investments for the three months ended June 30, 2017 was $2.5 million, an increase of approximately $0.9 million from the three months ended June 30, 2016, and consists of interest earned on the outstanding principal balances on our investment portfolio and other loans and accretion of origination fees. The interest rate on the majority of our investment portfolio and other loans is 6.9% per annum. The increase is primarily attributed to the increase in the outstanding principal balances of our investment portfolio and other loans. We also had rental revenue of $0.1 million from real estate owned during the three months ended June 30, 2017 that is related to our interest in the revenues generated by the self-storage real estate owned that was acquired during the first quarter of 2017. Other revenues of $27,000 earned during the three months ended June 30, 2017 is derived primarily from management fee revenue generated from the SL1 Venture.

Expenses

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

	Three months ended
	June 30, 2017		June 30, 2016
Compensation and benefits	$	865	$	837
Occupancy		106		77
Business development		58		107
Professional fees		146		188
Other		196		126
Total general and administrative expenses	$	1,371	$	1,335

Total general and administrative expenses

Total general and administrative expenses for the three months ended June 30, 2017 were $1.4 million, an increase of $36,000 from the three months ended June 30, 2016. Compensation and benefits included non-cash expense of stock-based compensation of $435,000 and $312,000 for the three months ended June 30, 2017 and 2016, respectively. On May 3, 2017, certain of the Company’s officers and certain employees of the Company’s external Manager were granted an aggregate of 105,000 shares of restricted stock. Stock-based compensation expense is also affected by changes in the market price of the Company’s common stock. The increase in stock-based compensation expense was offset by a decline in compensation and benefits for the three months ended June 30, 2017 primarily due to $0.2 million of third party reimbursements to the Manager which offset expenses reimbursed to the Manager by the Company on a dollar-for-dollar basis. Other expenses increased primarily due to additional franchise taxes accrued in the second quarter 2017 as compared to the second quarter of 2016.

43

Transaction and other expenses

For the three months ended June 30, 2017, there were no transaction and other expenses. The $0.2 million of transaction and other expenses for the three months ended June 30, 2016 primarily consists of advisory fees and other expenses incurred in connection with our various financing transactions.

Other operating expenses

The management fees of $0.7 million and $0.4 million in the three months ended June 30, 2017 and 2016, respectively, relate to the fee earned by the Manager pursuant to the management agreement. The increase in management fees was a result of the completion of the follow-on offerings of our common stock during the fourth quarter of 2016 and the second quarter of 2017. Property operating expenses of real estate owned for the three months ended June 30, 2017 relate to the operating activities of the Company’s self-storage real estate owned and includes $38,000 of depreciation expense. There were no restructuring costs incurred during the three months ended June 30, 2017. The $47,000 of restructuring costs incurred during the three months ended June 30, 2016 related to remaining lease termination costs incurred by closing the Miami, Florida office. The deferred termination fee to our Manager of $0.1 million for the three months ended June 30, 2016 represented the accrual over the term of the management agreement of the deferred termination fee payable by our Operating Company in OC Units pursuant to the management agreement. On May 23, 2016, we amended the management agreement thus resulting in the cessation of this accrual.

Other income (expense)

For the three months ended June 30, 2017 and 2016, we recorded other income of $4.8 million and $5.9 million, respectively, which primarily relates to the change in fair value of investments. The change in fair value of investments decreased primarily due to a significant portion of the entrepreneurial profit adjustments on our on-balance sheet investments that were closed in 2015 being recognized in 2016. We made no on-balance sheet investments from January through August 31, 2016. The $0.6 million of equity in earnings from unconsolidated real estate venture in the three months ended June 30, 2017 relates to our allocated earnings from the SL1 Venture. Interest expense for the three months ended June 30, 2017 was $0.2 million and relates to interest incurred on our senior A note participations. Other interest income for the three months ended June 30, 2017 was $0.1 million, an increase of approximately $87,000 from the same period in 2016, and it was primarily due to the increase in our cash balance from the issuance of common stock in the fourth quarter of 2016 and second quarter of 2017.

Comparison of the six months ended June 30, 2017 and June 30, 2016:

(Dollars in thousands)	Six months ended
	June 30, 2017			June 30, 2016
Revenues:
Interest income from investments	$	4,586		$	2,676
Rental and other property-related income from real estate owned		168			-
Other revenues		146			-
Total revenues		4,900			2,676
Costs and expenses:
General and administrative expenses		2,949			2,639
Management fees to Manager		1,337			816
Property operating expenses of real estate owned		136			-
Transaction and other expenses		-			2,127
Restructuring costs		-			54
Deferred termination fee to Manager		-			239
Total costs and expenses		4,422			5,875
Operating income (loss)		478			(3,199	)
Other income (expense):
Equity in earnings from unconsolidated real estate venture		1,017			418
Change in fair value of investments		5,682			9,318
Interest expense		(434	)		(38	)
Other interest income		234			35
Total other income		6,499			9,733
Net income		6,977			6,534
Net income attributable to preferred stockholders		(723	)		-
Net income attributable to common stockholders	$	6,254		$	6,534

44

Revenues

Total interest income from investments for the six months ended June 30, 2017 was $4.6 million, an increase of $1.9 million from the six months ended June 30, 2016, and consists of interest earned on the outstanding principal balances on our investment portfolio and other loans and accretion of origination fees. The interest rate on the majority of our investment portfolio and other loans is 6.9% per annum. The increase is primarily attributed to the increase in the outstanding principal balances of our investment portfolio and other loans. We also had rental revenue of $0.2 million from real estate owned during the six months ended June 30, 2017 that is related to our interest in the revenues generated by the self-storage real estate owned that was acquired during the first quarter of 2017. Other revenues of $0.1 million earned during the six months ended June 30, 2017 is derived from borrower payment of internal costs in connection with closings during the first quarter and management fee revenue generated from the SL1 Venture.

Expenses

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

	Six months ended
	June 30, 2017		June 30, 2016
Compensation and benefits	$	1,785	$	1,603
Occupancy		195		189
Business development		132		220
Professional fees		441		398
Other		396		229
Total general and administrative expenses	$	2,949	$	2,639

Total general and administrative expenses

Total general and administrative expenses for the six months ended June 30, 2017 were $2.9 million, an increase of $0.3 million from the six months ended June 30, 2016. Compensation and benefits included non-cash expense of stock-based compensation of $727,000 and $487,000 for the six months ended June 30, 2017 and 2016, respectively. On May 3, 2017, certain of the Company’s officers and certain employees of the Company’s external Manager were granted an aggregate of 105,000 shares of restricted stock. Stock-based compensation expense is also affected by changes in the market price of the Company’s common stock. The increase in stock-based compensation expense was offset by a decline in compensation and benefits for the six months ended June 30, 2017 primarily due to $0.2 million of third party reimbursements to the Manager which offset expenses reimbursed to the Manager by the Company on a dollar for dollar basis. Other expenses increased primarily due to additional franchise taxes accrued in the first half of 2017 as well as increased expenses related to directors and officers insurance and annual fees paid to certain of our independent directors.

Transaction and other expenses

For the six months ended June 30, 2017, there were no transaction and other expenses. The $2.1 million of transaction and other expenses for the six months ended June 30, 2016 primarily consists of advisory fees and other expenses incurred in connection with our various financing transactions.

45

Other operating expenses

The management fees of $1.3 million and $0.8 million in the six months ended June 30, 2017 and 2016, respectively, relate to the fee earned by the Manager pursuant to the management agreement. The increase in management fees was a result of the completion of the follow-on offerings of our common stock during the fourth quarter of 2016 and second quarter of 2017. Property operating expenses of real estate owned for the six months ended June 30, 2017 relate to the operating activities of the Company’s self-storage real estate owned and includes $62,000 of depreciation expense. There were no restructuring costs incurred during the six months ended June 30, 2017. The $54,000 of restructuring costs incurred during the six months ended June 30, 2016 related to remaining lease termination costs incurred by closing the Miami, Florida office. The deferred termination fee to our Manager of $0.2 million for the six months ended June 30, 2016 represented the accrual over the term of the management agreement of the deferred termination fee payable by our Operating Company in OC Units pursuant to the management agreement. On May 23, 2016, we amended the management agreement thus resulting in the cessation of this accrual.

Other income (expense)

For the six months ended June 30, 2017 and 2016, we recorded other income of $6.5 million and $9.7 million, respectively, which primarily relates to the change in fair value of investments. The change in fair value of investments decreased primarily due to a significant portion of the entrepreneurial profit adjustments on our on-balance sheet investments that were closed in 2015 being recognized in 2016. We made no on-balance sheet investments from January through August 31, 2016. The $1.0 million and $0.4 million of equity in earnings from unconsolidated real estate venture in the six months ended June 30, 2017 and 2016, respectively, relates to our allocated earnings from the SL1 Venture, which was entered into on March 31, 2016. Interest expense for the six months ended June 30, 2017 and 2016 was $0.4 million and $38,000, respectively, and relates to interest incurred on our senior A note participations. Other interest income for the six months ended June 30, 2017 was $0.2 million, which was an increase from the $35,000 of other interest income earned during the same period in 2016. The increase was largely due to the increase in our cash balance from the issuance of common stock in the fourth quarter of 2016 and the second quarter of 2017.

Adjusted Earnings

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

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

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

	Three months ended
	June 30, 2017		June 30, 2016
Net income attributable to common stockholders	$	5,017	$	5,412
Plus: stock dividends payable to preferred stockholders		-		-
Plus: stock-based compensation		435		312
Plus: depreciation on real estate assets		38		-
Plus: transaction and other expenses		-		175
Plus: restructuring costs		-		47
Plus: deferred termination fee to Manager		-		82
Adjusted Earnings	$	5,490	$	6,028

	Six months ended
	June 30, 2017		June 30, 2016
Net income attributable to common stockholders	$	6,254	$	6,534
Plus: stock dividends payable to preferred stockholders		371		-
Plus: stock-based compensation		727		487
Plus: depreciation on real estate assets		62		-
Plus: transaction and other expenses		-		2,127
Plus: restructuring costs		-		54
Plus: deferred termination fee to Manager		-		239
Adjusted Earnings	$	7,414	$	9,441

46

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to fund our investment portfolio, repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business needs. We will use significant cash to originate our target investments, make distributions to our stockholders and fund our operations.

Cash and Cash Flows

The following table sets forth changes in cash and cash equivalents:

	Six months ended June 30,
	2017			2016
Net income	$	6,977		$	6,534
Adjustments to reconcile net income to net cash provided by (used in) operating activities		(6,522	)		(11,040	)
Net cash provided by (used in) operating activities		455			(4,506	)
Net cash used in investing activities		(70,418	)		(21,600	)
Net cash provided by (used in) financing activities		103,119			(2,729	)
Change in cash and cash equivalents	$	33,156		$	(28,835	)

Cash increased $33.2 million during the six months ended June 30, 2017 as compared to a decrease in cash of $28.8 million during the six months ended June 30, 2016. Net cash provided by operating activities for the six months ended June 30, 2017 was $0.5 million and net cash used in operating activities for the six months ended June 30, 2016 was $4.5 million. The primary components of cash provided by operating activities during the six months ended June 30, 2017 were $2.7 million of origination fees received in cash and $0.3 million of return on investment from our unconsolidated joint venture, offset, in part, by net income adjusted for non-cash transactions of $2.3 million and the change in cash required for working capital of $0.3 million. The primary components of cash provided by operating activities during the six months ended June 30, 2016 were net income adjusted for non-cash transactions of $4.2 million and $0.3 million due to the change in cash required for working capital.

Net cash used in investing activities for the six months ended June 30, 2017 and 2016 was $70.4 million and $21.6 million, respectively. For the six months ended June 30, 2017, the cash used for investing activities consisted primarily of $78.1 million to fund investments, $8.9 million to fund other loans, $1.3 million to purchase an additional interest in one of our development property loans, $3.2 million to fund capital contributions to the SL1 Venture, and a net use of $5.1 million for advancements made on behalf of the SL1 Venture, offset, in part, by $24.9 million from repayments of construction loans and other loan investments and $1.3 million of developer’s equity received prior to funding of the project. For the six months ended June 30, 2016, the cash used for investing activities consisted primarily of $22.4 million to fund investments, $3.8 million to fund other loans, and $0.9 million of advances to and costs capitalized related to the SL1 Venture, offset by $5.6 million of cash received from the repayment of one of our operating property loan investments.

Net cash provided by financing activities for the six months ended June 30, 2017 totaled $103.1 million and primarily related to $108.2 million of common stock issuances and $1.7 million of cash received in connection with draws on senior loan participations on certain of our investments, offset by $6.6 million of dividends paid. For the six months ended June 30, 2016, cash used by financing activities totaled $2.7 million related to $4.3 million of dividends paid and $3.2 million of stock repurchases offset, in part, by $5.0 million of cash received in conjunction with the sale of senior loan participations on certain of our investments.

Liquidity Outlook and Capital Requirements

As of June 30, 2017, we had unrestricted cash of approximately $100.5 million, and we had remaining unfunded commitments of $206.6 million related to our investment portfolio and $6.1 million related to the SL1 Venture. We believe that the sources of capital discussed below will provide us with adequate liquidity to fund our operations and investment activities for at least the next 12 months.

47

Senior Participation

On May 27, 2016, we sold a senior participation in a construction loan on a facility in the Miami, Florida MSA (“the Miami A Note”), having a commitment amount of $17.7 million, to a regional commercial bank for a commitment by the bank to provide net proceeds of $10.0 million to fund construction draws under the construction loan (the “Miami A Note Sale”) once the total outstanding principal balance exceeds $7.7 million. The outstanding balance for the Miami A Note at June 30, 2017 was $0.7 million, thus leaving $9.3 million of available funding as of June 30, 2017.

Series A Preferred Stock

On July 27, 2016, we entered into a Stock Purchase Agreement with accounts managed by NexPoint Advisors, L.P., an affiliate of Highland Capital Management, L.P., which provides that we may issue and sell up to $125.0 million of Series A Preferred Stock from time to time until July 28, 2018. As of June 30, 2017, we had issued 10,000 restricted shares of the Series A Preferred Stock and received $10.0 million in proceeds pursuant to the terms of the Stock Purchase Agreement. Accordingly, as of June 30, 2017, we have $115.0 million available for issuance under the Stock Purchase Agreement.

ATM Program

On April 5, 2017, we entered into the ATM Program whereby we may issue and sell up to $50.0 million of our common stock from time to time. Since the inception of the ATM Program, we have sold 1,093,202 shares of common stock at a weighted average price of $22.69, receiving net proceeds after commissions of $24.2 million. As of June 30, 2017, we have approximately $25.2 million available for issuance under the ATM Program.

Credit Facility

On July 25, 2017, we entered into a $100 million credit facility, which has an accordion feature permitting expansion up to $200 million. Our development property investments are eligible to be added to the base of collateral available to secure loans under the credit facility once they receive a certificate of occupancy, thereby increasing the borrowing capacity under the credit facility. As of August 7, 2017, the current borrowing capacity under the credit facility is $33.3 million.

Equity Capital Policies

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

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

Leverage Policies

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

48

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

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

Future Revisions in Policies and Strategies

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

Contractual Obligations and Commitments

The following table reflects our total contractual cash obligations as of June 30, 2017: 

Contractual Obligations	2017		2018		2019		2020		2021		Total
Long-term debt obligations (1) (2) (3)	$	-	$	732	$	15,499	$	-	$	4,041	$	20,272
Operating lease obligations		151		237		171		145		-		704
Total	$	151	$	969	$	15,670	$	145	$	4,041	$	20,976

⁽¹⁾ Represents principal payments gross of discounts and debt issuance costs.

⁽²⁾ Amounts exclude interest, which is variable based on 30-day LIBOR plus spreads ranging from 3.10% to 3.85%.

⁽³⁾ On July 25, 2017, the Company entered into the Credit Facility and subsequently repurchased the July 2016 A Notes and October 2016 A Note, which are being shown as obligations due in 2019 and 2021 in this table.

At June 30, 2017, we had $206.6 million of unfunded loan commitments related to our investment portfolio and $6.1 million related to the SL1 Venture. These commitments are funded over the 18-24 months following the investment closing date as construction is completed. At June 30, 2017, we had $2.3 million of unfunded loan commitments related to our other assets.

As of June 30, 2017, we had unrestricted cash of approximately $100.5 million.

Off-Balance Sheet Arrangements

At June 30, 2017, we did not have any relationships, including those with unconsolidated entities or financial partnerships, for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

49

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

Dividends

For the quarter ended June 30, 2017, we declared a cash dividend to our stockholders of $0.35 per share, payable on July 14, 2017 to stockholders of record on July 3, 2017. We intend to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT annually distribute at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We intend to pay regular quarterly dividends to our stockholders in an amount equal to or greater than our net taxable income, if and to the extent authorized by our Board of Directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on any secured funding facilities, other lending facilities, repurchase agreements and other debt payable. If our cash available for distribution is less than our net taxable income, we could be required to reduce our dividends, sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

Additionally, holders of our Series A Preferred Stock are entitled to a cumulative cash distribution (“Cash Distribution”) equal to (A) 7.0% per annum on the liquidation value, or $1,000 per share of Series A Preferred Stock (the “Liquidation Value”) for the period beginning on the respective date of issuance until the sixth anniversary of the Effective Date, payable quarterly in arrears, (B) 8.5% per annum on the Liquidation Value for the period beginning the day after the sixth anniversary of the Effective Date and for each year thereafter so long as the Series A Preferred Stock remains issued and outstanding, payable quarterly in arrears, and (C) an amount in addition to the amounts in (A) and (B) equal to 5.0% per annum on the Liquidation Value upon the occurrence of certain triggering events (a “Cash Premium”). In addition, the holders of the Series A Preferred Stock will be entitled to a cumulative dividend payable in-kind in shares of Common Stock or additional shares of Series A Preferred Stock, at the election of the holders (the “Stock Dividend”), equal in the aggregate to the lesser of (Y) 25% of the incremental increase in the Company’s book value (as adjusted for equity capital issuances, share repurchases and certain non-cash expenses) plus, to the extent the Company owns equity interests in income-producing real property, the incremental increase in net asset value (provided, however, that no interest in the same real estate asset will be double counted) and (Z) an amount that would, together with the Cash Distribution, result in a 14.0% internal rate of return for the holders of the Series A Preferred Stock from the date of issuance of the Series A Preferred Stock, as set forth in the Articles Supplementary classifying the Series A Preferred Stock (the “Articles Supplementary”). Triggering events that will trigger the payment of a Cash Premium with respect to a Cash Distribution include: (i) the occurrence of certain change of control events affecting the Company after the third anniversary of the Effective Date, (ii) the Company’s ceasing to be subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, (iii) the Company’s failure to remain qualified as a real estate investment trust, (iv) an event of default under the Purchase Agreement, (v) the failure by the Company to register for resale shares of Common Stock pursuant to the Registration Rights Agreement (a “Registration Default”), (vi) the Company’s failure to redeem the Series A Preferred Stock as required by the Purchase Agreement, or (vii) the filing of a complaint, a settlement with, or a judgment entered by the Securities and Exchange Commission against the Company or any of its subsidiaries or a director or executive officer of the Company relating to the violation of the securities laws, rules or regulations with respect to the business of the Company. Accrued but unpaid Cash Distributions and Stock Dividends on the Series A Preferred Stock will accumulate and will earn additional Cash Distributions and Stock Dividends as calculated above, compounded quarterly.

On May 3, 2017, the Company declared a cash distribution of $17.69 per share of Series A Preferred stock, payable on July 14, 2017, to holders of Series A Preferred Stock of record on the close of business on July 1, 2017. No distributions in kind were payable in connection with the July distribution.

Inflation

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

50

There have been no material changes in our credit risk, interest rate risk, interest rate mismatch risk, or real estate risks from what was disclosed in the 2016 Form 10-K.

Market Risk

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

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

	Increase (decrease) in fair value of investments
Change in market yields/discount rates (in millions)	June 30, 2017			December 31, 2016
Up 25 basis points	$	(0.8	)	$	(0.3	)
Down 25 basis points, subject to a minimum yield/rate of 10 basis points		0.8			0.3

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

	Increase (decrease) in fair value of investments
Change in capitalization rates (in millions)	June 30, 2017			December 31, 2016
Up 25 basis points	$	(2.2	)	$	(2.1	)
Down 25 basis points		2.4			2.3
Up 50 basis points		(4.2	)		(3.8	)
Down 50 basis points		5.0			4.6

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.   

51

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in various claims and legal actions in the ordinary course of business. As of June 30, 2017, we were not involved in any legal proceedings.

ITEM 1A. RISK FACTORS

The discussion of our business and operations should be read together with the risk factors related to the Credit Facility set forth below and the risk factors contained in Part I, Item 1A of our 2016 Form 10-K, which describes the various additional risks and uncertainties to which we are or may be subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows and prospects in a material adverse manner.

Risks Related to the Credit Facility

The Credit Facility restricts our ability to engage in certain business activities, including our ability to incur additional indebtedness and make certain investments.

The Credit Facility contains customary negative covenants and other financial and operating covenants that, among other things:

· restrict our ability to incur additional indebtedness;

· restrict our ability to incur additional liens;

· restrict our ability to make certain investments;

· restrict our ability to merge with another company

· restrict our ability to make distributions to our stockholders above our existing dividend per share, subject to other limitations; and

· require us to satisfy minimum financial coverage ratios, minimum tangible net worth requirements, maximum leverage ratios and minimum liquidity ratios.

These limitations restrict our ability to engage in certain business activities, which could materially adversely affect our financial condition, results of operations, cash flow, cash available for distribution and our ability to service our debt obligations.

The Credit Facility will bear interest at a variable rate and is secured by substantially all of our development investments.

The Credit Facility will bear interest at a variable rate on all amounts drawn under the facility. Increases in interest rates on variable rate debt will increase our interest expense, unless we make arrangements that hedge the risk of rising interest rates. These increased costs could reduce our profitability, impair our ability to meet our debt obligations, or increase the cost of financing. An increase in interest rates also could limit our ability to refinance existing debt upon maturity or cause us to pay higher rates upon refinancing.

Further, the Credit Facility is secured by substantially all of our development investments. If we are unable to repay or refinance the Credit Facility upon maturity or otherwise have an event of default under the Credit Facility, then the assets securing the Credit Facility could be foreclosed upon, or we might be forced to dispose of some of our assets on disadvantageous terms, with a consequent loss of income and asset value. A foreclosure or disadvantageous disposal on one or more of our assets could adversely affect our financial condition, results of operations, cash flow and ability to pay distributions on, and the market price of, our common stock.

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

Unregistered Sales of Equity Securities

On April 15, 2017, we issued a distribution in kind of 16,497 shares of our common stock to the record holders of our Series A Preferred Stock as of April 1, 2017 pursuant to the terms of our Series A Preferred Stock. The issuance of the shares of common stock was effected in reliance upon an exemption from registration under the Securities Act of 1933 pursuant to Section 4(a)(2) of the Securities Act.

52

Repurchases of Common Stock

The following table provides information about repurchases of our common shares during the three months ended June 30, 2017:	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs (1) (dollars in thousands)
April 1-April 30		-	$	-		-	$	6,848
May 1-May 31		-		-		-		6,848
June 1-June 30		-		-		-		6,848
Total		-	$	-		-	$	6,848

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

On June 15, 2017, John A. Good, our Chief Operating Officer, returned 5,470 shares of our common stock to us in connection with the vesting of 20,000 shares of restricted stock in order to satisfy tax withholding obligations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a)       Not applicable.

(b)       Not applicable.

ITEM 6. EXHIBITS

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

53

SIGNATURES

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

		JERNIGAN CAPITAL, INC.
Date: August 8, 2017	By:	/s/ Dean Jernigan
		Dean Jernigan
		Chairman and Chief Executive Officer (Principal Executive Officer)
Date: August 8, 2017	By:	/s/ Kelly P. Luttrell
		Kelly P. Luttrell
		Senior Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

54

EXHIBIT INDEX

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

Exhibit No.		Exhibit Description
	10.1	Second Amended and Restated Management Agreement, dated as of April 1, 2017, by and among Jernigan Capital, Inc., Jernigan Capital Operating Company, LLC and JCap Advisors, LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s 10-Q for the quarter ended March 31, 2017).
	31.1*	Certification by CEO pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (1)
	31.2*	Certification by CFO pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (1)
	32.1*	Certification by CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS	XBRL Instance Document*
	101.SCH	XBRL Taxonomy Extension Schema Document*
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed herewith

55

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dean Jernigan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Jernigan Capital, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 8, 2017	/s/ DEAN JERNIGAN
	Dean Jernigan
	Chairman of the Board and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kelly P. Luttrell, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Jernigan Capital, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2017	/s/ KELLY P. LUTTRELL
	Kelly P. Luttrell
	Senior Vice President, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Jernigan Capital, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dean Jernigan, the Chairman and Chief Executive Officer of the Company, and I, Kelly P. Luttrell, the Senior Vice President, Chief Financial Officer and Treasurer of the Company, certify, to our knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 8, 2017	/s/ DEAN JERNIGAN
	Dean Jernigan
	Chairman of the Board and Chief Executive Officer

/s/ KELLY P. LUTTRELL

Kelly P. Luttrell

Senior Vice President, Chief Financial Officer, and Treasurer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 07, 2017
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Entity Registrant Name	Jernigan Capital, Inc.
Entity Central Index Key	0001622353
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Trading Symbol	JCAP
Entity Common Stock, Shares Outstanding		14,238,350

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Assets:
Cash and cash equivalents	$ 100,529	$ 67,373
Development property investments at fair value, of which $33.3 million of funded principal is pledged as collateral against certain of the Company’s senior loan participations as of June 30, 2017 and December 31, 2016	163,979	95,102
Operating property loans at fair value, of which $2.8 million of funded principal is pledged as collateral against certain of the Company’s senior loan participations as of June 30, 2017 and December 31, 2016	8,790	9,905
Investment in and advances to real estate venture	14,314	5,373
Self-storage real estate owned	7,283	0
Other loans, at cost	6,619	11,752
Deferred costs	2,305	2,207
Prepaid expenses and other assets	1,119	868
Fixed assets, net	189	199
Total assets	305,127	192,779
Liabilities:
Senior loan participations	20,147	18,582
Due to Manager	1,027	1,008
Accounts payable, accrued expenses and other liabilities	2,399	697
Dividends payable	5,160	4,130
Total liabilities	28,733	24,417
Jernigan Capital, Inc. stockholders’ equity:
Cumulative preferred stock, $0.01 par value, 100,000,000 shares authorized, 10,000 shares issued and outstanding at June 30, 2017 and December 31, 2016, at liquidation preference of $10.0 million, net of allocated costs	9,445	9,448
Common stock, $0.01 par value, 500,000,000 shares authorized at June 30, 2017 and December 31, 2016; 14,238,350 and 8,956,354 issued and outstanding at June 30, 2017 and December 31, 2016, respectively	142	90
Additional paid-in capital	272,525	162,664
Accumulated deficit	(5,718)	(3,840)
Total equity	276,394	168,362
Total liabilities and equity	$ 305,127	$ 192,779

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions	Jun. 30, 2017	Dec. 31, 2016
Securities Held as Collateral, at Fair Value	$ 33.3	$ 33.3
Loans Pledged as Collateral	$ 2.8	$ 2.8
Common Stock, Par Value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, Shares Authorized	500,000,000	500,000,000
Common Stock, Shares Issued	14,238,350	8,956,354
Common Stock, Shares Outstanding	14,238,350	8,956,354
Cumulative Preferred Stock [Member]
Preferred Stock, Par Value (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized	100,000,000	100,000,000
Preferred Stock, Shares Issued	10,000	10,000
Preferred Stock, Shares Outstanding	10,000	10,000
Preferred Stock, Liquidation Preference, Value	$ 10.0	$ 10.0

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenues:
Interest income from investments	$ 2,467	$ 1,533	$ 4,586	$ 2,676
Rental and other property-related income from real estate owned	105	0	168	0
Other revenues	27	0	146	0
Total revenues	2,599	1,533	4,900	2,676
Costs and expenses:
General and administrative expenses	1,371	1,335	2,949	2,639
Management fees to Manager	707	402	1,337	816
Property operating expenses of real estate owned	81	0	136	0
Transaction and other expenses	0	175	0	2,127
Restructuring costs	0	47	0	54
Deferred termination fee to Manager	0	82	0	239
Total costs and expenses	2,159	2,041	4,422	5,875
Operating income (loss)	440	(508)	478	(3,199)
Other income (expense):
Equity in earnings from unconsolidated real estate venture	595	418	1,017	418
Change in fair value of investments	4,289	5,527	5,682	9,318
Interest expense	(230)	(38)	(434)	(38)
Other interest income	100	13	234	35
Total other income	4,754	5,920	6,499	9,733
Net income	5,194	5,412	6,977	6,534
Net income attributable to preferred stockholders	(177)	0	(723)	0
Net income attributable to common stockholders	$ 5,017	$ 5,412	$ 6,254	$ 6,534
Basic earnings per share attributable to common stockholders	$ 0.5	$ 0.89	$ 0.66	$ 1.07
Diluted earnings per share attributable to common stockholders	0.5	0.89	0.66	1.07
Dividends declared per share of common stock	$ 0.35	$ 0.35	$ 0.7	$ 0.7

XML

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Total Stockholders' Equity [Member]	Non-Controlling Interests [Member]	Preferred Stock [Member]
Balance at Dec. 31, 2015	$ 101,764	$ 62	$ 110,634	$ (9,396)	$ 101,300	$ 464	$ 0
Balance (in shares) at Dec. 31, 2015		6,162,500					0
Stock dividend paid on preferred stock	0
Repurchase of 213,078 shares of common stock	(3,152)	$ (2)	(3,150)	0	(3,152)	0	$ 0
Repurchase of 213,078 shares of common stock (in shares)		(213,078)					0
Issuances of stock-based awards	0	$ 0	0	0	0	0	$ 0
Issuances of stock-based awards (in shares)		14,340					0
Stock-based compensation	487	$ 0	487	0	487	0	$ 0
Deferred termination fee to Manager	239	0	0	0	0	239	0
Effect of Management Agreement Amendment	0	0	703	0	703	(703)	0
Dividends declared on common stock	(4,244)	0	0	(4,244)	(4,244)	0	0
Net income	6,534	0	0	6,534	6,534	0	0
Balance at Jun. 30, 2016	101,628	$ 60	108,674	(7,106)	101,628	0	$ 0
Balance (in shares) at Jun. 30, 2016		5,963,762					0
Balance at Dec. 31, 2016	168,362	$ 90	162,664	(3,840)	168,362	0	$ 9,448
Balance (in shares) at Dec. 31, 2016		8,956,354					10,000
Equity offering costs related to issuance of preferred stock	(3)	$ 0	0	0	(3)	0	$ (3)
Stock dividend paid on preferred stock	1,194	$ 1	1,193	0	1,194	0	$ 0
Stock dividend paid on preferred stock (in Shares)		57,850					0
Proceeds from issuance of common stock, net of offering costs	83,935	$ 40	83,895	0	83,935	0	$ 0
Proceeds from issuance of common stock, net of offering costs (in shares)		4,025,000					0
At-the-market issuance of common stock, net of offering costs	24,194	$ 10	24,184	0	24,194	0	$ 0
At-the-market issuance of common stock, net of offering costs (in shares)		1,093,202					0
Repurchase and retirement of 5,470 shares related to vested restricted stock	(128)	$ 0	(128)	0	(128)	0	$ 0
Repurchase and retirement of 5,470 shares related to vested restricted stock (in shares)		(5,470)					0
Issuances of stock-based awards	(9)	$ 1	(10)	0	(9)	0	$ 0
Issuances of stock-based awards (in shares)		111,414					0
Stock-based compensation	727	$ 0	727	0	727	0	$ 0
Deferred termination fee to Manager	0
Dividends declared on preferred stock	(723)	0	0	(723)	(723)	0	0
Dividends declared on common stock	(8,132)	0	0	(8,132)	(8,132)	0	0
Net income	6,977	0	0	6,977	6,977	0	0
Balance at Jun. 30, 2017	$ 276,394	$ 142	$ 272,525	$ (5,718)	$ 276,394	$ 0	$ 9,445
Balance (in shares) at Jun. 30, 2017		14,238,350					10,000

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities
Net income	$ 6,977	$ 6,534
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Interest capitalized on outstanding loans	(3,114)	(1,522)
Change in fair market value of investments	(5,682)	(9,318)
Stock-based compensation	727	487
Equity in earnings from unconsolidated real estate venture	(1,012)	(418)
Return on investment from unconsolidated joint venture	329	0
Deferred termination fee to Manager	0	239
Depreciation	91	35
Amortization of deferred financing costs	11	0
Accretion of origination fees	(299)	(280)
Origination fees received in cash	2,680	29
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(369)	(255)
Due to Manager	19	(62)
Accounts payable, accrued expenses, and other liabilities	97	25
Net cash provided by (used in) operating activities	455	(4,506)
Cash flows from investing activities
Purchase of fixed assets	(19)	(3)
Purchase of self-storage real estate owned	(1,270)	0
Capital contributions to real estate venture	(3,172)	0
Advances to real estate venture	(27,481)	(718)
Repayment of advances to real estate venture	22,396	0
Capitalized real estate venture costs	0	(226)
Cash received for developer’s equity prior to funding	1,254	0
Funding of investment portfolio: Development property investments	(78,129)	(22,181)
Funding of investment portfolio: Operating property loans	0	(242)
Funding of other loans	(8,940)	(3,824)
Repayments of investment portfolio investments	12,239	5,500
Repayments of other loans	12,704	94
Net cash used in investing activities	(70,418)	(21,600)
Cash flows from financing activities
Senior loan participations	1,658	5,049
Deferred costs	(12)	(312)
Stock repurchase	(128)	(3,152)
Net proceeds from issuance of common stock	108,235	0
Costs related to the future issuance of preferred stock	(3)	0
Dividends paid on preferred stock	(348)	0
Dividends paid on common stock	(6,283)	(4,314)
Net cash provided by (used in) financing activities	103,119	(2,729)
Net change in cash and cash equivalents	33,156	(28,835)
Cash and cash equivalents at the beginning of the period	67,373	43,859
Cash and cash equivalents at the end of the period	$ 100,529	$ 15,024

XML

ORGANIZATION AND FORMATION OF THE COMPANY

6 Months Ended

Jun. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. ORGANIZATION AND FORMATION OF THE COMPANY

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

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

XML

SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Use of Estimates

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

Variable Interest Entities

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

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

Equity Investments

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

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

The Company has elected the fair value option of accounting for all of its investment portfolio loan investments, including those that are required under GAAP to be accounted for under the equity method, in order to provide stockholders and others who rely on the Company’s financial statements with a more complete and accurate understanding of the Company’s economic performance including its revenues and value inherent in the Company’s equity participation in development projects. Changes in the fair value of these investments are recorded in change in fair value of investments within other income. All direct loan costs are charged to expense as incurred.

Each loan investment, including those recorded at cost and presented on the Consolidated Balance Sheets as other loans, is evaluated for impairment on a periodic basis. For loans carried at fair value, indicators of impairment are reflected in measurement of the loan. For loans that are carried at cost, the Company estimates an allowance for loan loss at each reporting date. In evaluating loan impairment, the Company also periodically evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower on a loan by loan basis. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the property. In addition, the Company considers the overall economic environment, real estate sector and geographic sub-market in which the borrower operates. A loan will be considered impaired when, based on current information and events, it is probable that the loan will not be collected according to the contractual terms of the loan agreement. Factors to be considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. At June 30, 2017 and December 31, 2016, there were no loans that were deemed to be impaired loans. Additionally, for loans recorded at cost, the Company determined that no allowance for loan loss was necessary at June 30, 2017 and December 31, 2016.

For investments carried at fair value, fees and costs are expensed as incurred.

Loan arrangements under which the Company is entitled to greater than 50% of the residual profits are accounted for as a real estate investment in accordance with ASC 310, Receivables (“ASC 310”), and are included in the Consolidated Balance Sheets as self-storage real estate owned.

Fair Value Measurement

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

 

The following table presents the financial instruments measured at fair value on a recurring basis at June 30, 2017:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	163,979	$	-	$	-	$	163,979
Operating property loans		8,790		-		-		8,790
Total investments	$	172,769	$	-	$	-	$	172,769

The following table presents the financial instruments measured at fair value on a recurring basis at December 31, 2016:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	95,102	$	-	$	-	$	95,102
Operating property loans		9,905		-		-		9,905
Total investments	$	105,007	$	-	$	-	$	105,007

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

Self-Storage Real Estate Owned

Land is carried at historical cost. Building and improvements are carried at historical cost less accumulated depreciation and impairment losses. The cost reflects the purchase price or development cost of the assets. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. The costs of building and improvements are depreciated using the straight-line method based on a useful life of 40 years.

 

The Company evaluates long-lived assets for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be an impairment.  The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the facility’s basis is recoverable.  If an asset’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value.  The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset.

Cash and Cash Equivalents

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

 

Other Loans

The Company’s other loans balance primarily includes principal balances for certain revolving loan agreements and short-term mortgage loans made by the Company in situations where it was determined that making such loans would benefit the Company’s primary business. These loans are accounted for under the cost method.

Fixed Assets

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

Revenue Recognition

Interest income is recognized as earned on a simple interest basis and is reported in interest income from investments in the Consolidated Statements of Operations. Accrual of interest will be discontinued on a loan when management believes, after considering economic and business conditions and collection efforts that the borrower’s financial condition is such that collection of interest is doubtful. The Company will recognize income on impaired loans when they are placed into non-accrual status on a cash basis when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Company. If these factors do not exist, the Company will not recognize income on such loans. Accrued interest generally is reversed when a loan is placed on non-accrual status.

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

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

Debt Issuance Costs

Costs related to the sale of senior participations are deferred and are amortized as interest expense over the estimated life of the related senior participation using the straight-line method, which approximates the effective interest method. If a debt instrument is repurchased prior to its original maturity date, the unamortized balance of debt issuance costs are written off to interest expense or, if significant, included in “early extinguishment of debt.” Debt issuance costs are presented in the Consolidated Balance Sheets as a deduction from the carrying amount of the principal balance.

Transaction and other expenses

Transaction and other expenses consist of non-capitalizable advisory fees and other unreimbursed expenses incurred in connection with various financing and investment transactions and are expensed as incurred. There were no transaction and other expenses for the three or six months ended June 30, 2017. During the three and six months ended June 30, 2016, the Company incurred $0.2 million and $2.1 million of transaction and other expenses.

Offering and Registration Costs

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

On July 27, 2016, the Company entered into a Stock Purchase Agreement (see Note 10, Stockholders’ Equity) which requires the Company to issue and sell a minimum of $50.0 million of Series A Preferred Stock by July 27, 2018. The Company incurred $2.8 million of preferred stock offering costs in connection with the execution of the Stock Purchase Agreement. Such costs are presented as deferred costs on the Consolidated Balance Sheets until such time as Series A Preferred Stock is issued. A pro rata portion of such deferred costs, based upon the ratio of the amount issued to the $50.0 million minimum issuance of Series A Preferred Stock, is reclassified to cumulative preferred stock upon issuance of the Series A Preferred Stock. Of the $2.8 million of offering costs incurred, $2.2 million is in deferred costs on the Consolidated Balance Sheet at June 30, 2017, and $0.6 million has reduced the cumulative preferred stock balance on the Consolidated Balance Sheet at June 30, 2017.

 

Income Taxes

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

Earnings per Share (“EPS”)

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

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

Comprehensive Income

For the three and six months ended June 30, 2017 and 2016, comprehensive income equaled net income; therefore, separate Consolidated Statements of Comprehensive Income are not included in the accompanying consolidated financial statements.

Segment Reporting

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

Recent Accounting Pronouncements

In August 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance on the classification of certain cash receipts and payments in the statement of cash flows, including distributions received from equity method investees. This guidance is effective for public business entities for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption being allowed. The Company is currently assessing the impact this new accounting guidance will have on its consolidated financial statements; however, the Company does not expect the new accounting guidance to have a material impact on its consolidated financial statements as the Company is currently presenting distributions received from equity method investees consistent with the presentation required under ASU 2016-05.

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

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

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2017. This ASU outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. Several ASUs expanding and clarifying the initial guidance issued in ASU 2014-09 have been released since May 2014. The Company will adopt the ASU effective January 1, 2018 and does not expect the adoption to have a material effect on its consolidated financial statements as the new guidance does not apply to revenue associated with loans or derived from lease contracts; however, the Company is still in the process of evaluating the impact these standards will have on its consolidated financial statements.

Consolidated Statements of Cash Flows - Supplemental Disclosures

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

	Six months ended June 30,
	2017		2016
Supplemental disclosure of cash flow information:
Interest paid	$	433	$	20
Supplemental disclosure of non-cash investing and financing activities:
Stock dividend paid on preferred stock	$	1,194	$	-
Dividends declared, but not paid, on preferred stock		177		-
Dividends declared, but not paid, on common stock		4,983		2,087
Contribution of assets to real estate venture		-		7,693
Reclassification of self-storage real estate owned		6,066		-
Other loans paid off with issuance of development property investments		1,410		-

XML

INVESTMENTS

6 Months Ended

Jun. 30, 2017

Schedule of Investments [Abstract]

Investment Holdings, Schedule of Investments [Text Block]

3. INVESTMENTS

The Company’s self-storage investments at June 30, 2017 consisted of the following:

⋅ Development Property Investments - The Company had 33 investments totaling an aggregate committed principal amount of approximately $337.5 million to finance the ground-up construction of or conversion of existing buildings into self-storage facilities. Each development property investment is funded as the developer constructs the project, is secured by a first mortgage on the development project and generally includes a 49.9% interest in the positive cash flows (including the sale and refinancing proceeds after debt repayment) of the project. Loans comprising development property investments are non-recourse with customary carve-outs and subject to completion guaranties, are interest-only with a fixed interest rate of typically 6.9% per annum and have a term of 72 months.

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

⋅ Operating property loans - The Company had three term loans totaling $8.8 million of aggregate committed principal amount, the proceeds of which were used by borrowers to finance the acquisition of, refinance existing indebtedness on, or recapitalize operating self-storage facilities. These loans are secured by first mortgages on the projects financed, are interest-only with fixed interest rates ranging from 5.85% to 6.9% per annum, and generally have a term of 72 months.

The Company’s development property investments and operating property loans are collectively referred to herein as the Company’s investment portfolio.

As of June 30, 2017, the aggregate committed principal amount of the Company’s investment portfolio was approximately $364.0 million and outstanding principal was $157.5 million, as described in more detail in the table below:

 

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment(1)		Remaining Unfunded Commitment		Fair Value
Development property investments:
Loan investments with a profits interest:
4/21/2015	Orlando 1(2) (4)	$	5,372	$	5,367	$	5	$	1,347
6/10/2015	Atlanta 1(2)		8,132		7,908		224		10,736
6/19/2015	Tampa 1(2)		5,369		5,285		84		6,369
6/26/2015	Atlanta 2(2)		6,050		5,684		366		9,043
6/29/2015	Charlotte 1(2)		7,624		7,065		559		10,361
7/2/2015	Milwaukee(2)		7,650		6,870		780		8,304
7/31/2015	New Haven(2)		6,930		6,093		837		8,058
8/10/2015	Pittsburgh(2)		5,266		4,361		905		5,936
8/14/2015	Raleigh		8,792		3,417		5,375		3,335
9/30/2015	Jacksonville 1(2)		6,445		5,988		457		8,320
10/27/2015	Austin(2)		8,658		6,866		1,792		8,619
9/20/2016	Charlotte 2		12,888		3,029		9,859		2,796
11/17/2016	Orlando 2(3)		5,134		2,994		2,140		3,577
11/17/2016	Jacksonville 2(3)		7,530		2,847		4,683		3,011
1/4/2017	New York City 1(3)		16,117		11,093		5,024		12,509
1/18/2017	Atlanta 3		14,115		3,385		10,730		3,295
1/31/2017	Atlanta 4		13,678		5,866		7,812		5,824
2/24/2017	Orlando 3		8,056		905		7,151		835
2/24/2017	New Orleans		12,549		-		12,549		-
2/27/2017	Atlanta 5		17,492		4,854		12,638		4,737
3/1/2017	Fort Lauderdale		9,952		1,740		8,212		1,661
3/1/2017	Houston		13,630		3,532		10,098		3,445
4/14/2017	Louisville		8,523		627		7,896		542
4/20/2017	Denver 1		9,806		1,873		7,933		1,783
4/20/2017	Denver 2		11,164		2,137		9,027		2,035
5/2/2017	Atlanta 6		12,543		3,671		8,872		3,565
5/2/2017	Tampa 2		8,091		1,584		6,507		1,508
5/19/2017	Tampa 3		9,224		1,524		7,700		1,434
6/12/2017	Tampa 4		10,266		2,391		7,875		2,293
6/19/2017	Baltimore(5)		10,775		2,199		8,576		2,008
6/28/2017	Knoxville		9,115		829		8,286		738
6/29/2017	Boston		14,103		1,466		12,637		1,326
6/30/2017	New York City 2(5)		26,482		16,004		10,478		15,637
		$	337,521	$	139,454	$	198,067	$	154,987
Construction loans:
12/23/2015	Miami		17,733		9,232		8,501		8,992
		$	17,733	$	9,232	$	8,501	$	8,992
	Subtotal	$	355,254	$	148,686	$	206,568	$	163,979
Operating property loans:
6/19/2015	New Orleans(6)		2,800		2,800		-		2,792
7/7/2015	Newark		3,480		3,480		-		3,482
12/22/2015	Chicago		2,502		2,500		2		2,516
	Subtotal	$	8,782	$	8,780	$	2	$	8,790
	Total investments	$	364,036	$	157,466	$	206,570	$	172,769

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ Facility had received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾ In February 2017, the Company purchased, for $1.3 million, 50% of the economic rights of the Class A membership units of the limited liability company which owns this development property investment, thus increasing the Company’s profits interest in this investment from 49.9% to 74.9%. As such, the Company’s investment was reclassified as self-storage real estate owned in the June 30, 2017 Consolidated Balance Sheet. See Note 7, Self-storage Real Estate Owned, for additional discussion. The committed and funded investment amounts in this table pertain to the full terms of the development investment, while the fair value represents only the portion (25.1%) of the principal balance constituting a loan to the Class A member.

⁽⁵⁾ These investments contain a higher loan-to-cost ratio and a higher interest rate, some of which interest is payment-in-kind ("PIK") interest. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment.

⁽⁶⁾ This investment was fully repaid in July 2017.

The following table provides a reconciliation of the funded principal to the fair market value of investments at June 30, 2017:

Funded principal	$	157,466
Adjustments:
Unamortized origination fees		(3,471)
Change in fair value of investments		24,924
Reclassification of self-storage real estate owned		(6,066)
Other		(84)
Fair value of investments	$	172,769

As of December 31, 2016, the aggregate committed principal amount of the Company’s investment portfolio was approximately $141.9 million and outstanding principal was $86.9 million, as described in more detail in the table below:

 

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment (1)		Remaining Unfunded Commitment		Fair Value
Development property investments:
Loan investments with a profits interest:
4/21/2015	Orlando 1(2)	$	5,372	$	5,308	$	64	$	7,302
6/10/2015	Atlanta 1(2)		8,132		7,694		438		10,404
6/19/2015	Tampa(2)		5,369		5,285		84		6,279
6/26/2015	Atlanta 2(2)		6,050		5,620		430		8,900
6/29/2015	Charlotte 1(2)		7,624		6,842		782		9,853
7/2/2015	Milwaukee(2)		7,650		5,608		2,042		7,008
7/31/2015	New Haven(2)		6,930		5,257		1,673		6,730
8/10/2015	Pittsburgh(3)		5,266		3,497		1,769		4,551
8/14/2015	Raleigh		8,792		1,460		7,332		1,396
9/30/2015	Jacksonville 1(2)		6,445		5,852		593		7,962
10/27/2015	Austin(3)		8,658		4,366		4,292		5,192
9/20/2016	Charlotte 2		12,888		1,446		11,442		1,298
11/17/2016	Orlando 2		5,134		1,342		3,792		1,237
11/17/2016	Jacksonville 2		7,530		624		6,906		551
		$	101,840	$	60,201	$	41,639	$	78,663
Construction loans:
8/5/2015	West Palm Beach(4)		7,500		6,712		788		6,702
8/5/2015	Sarasota(4)		4,792		3,485		1,307		3,473
12/23/2015	Miami		17,733		6,517		11,216		6,264
		$	30,025	$	16,714	$	13,311	$	16,439
	Subtotal	$	131,865	$	76,915	$	54,950	$	95,102
Operating property loans:
6/19/2015	New Orleans		2,800		2,800		-		2,768
7/7/2015	Newark		3,480		3,480		-		3,441
10/30/2015	Nashville(4)		1,210		1,210		-		1,204
12/22/2015	Chicago		2,502		2,500		2		2,492
	Subtotal	$	9,992	$	9,990	$	2	$	9,905
	Total investments	$	141,857	$	86,905	$	54,952	$	105,007

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ Facility had received certificate of occupancy as of December 31, 2016. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of December 31, 2016. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾ These investments were fully repaid in the six months ended June 30, 2017.

The following table provides a reconciliation of the funded principal to the fair market value of investments at December 31, 2016:

Funded principal	$	86,905
Adjustments:
Unamortized origination fees		(1,056)
Change in fair value of investments		19,242
Other		(84)
Fair value of investments	$	105,007

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

No loans were in non-accrual status as of June 30, 2017 and December 31, 2016.

All of the Company’s development property investments with a profits interest, except for the Orlando 1 investment, would have been accounted for under the equity method had the Company not elected the fair value option. For these development property investments with a profits interest, the assets and liabilities of the equity method investees approximated $157.3 million and $134.1 million, respectively, at June 30, 2017 and approximated $71.0 million and $60.2 million, respectively, at December 31, 2016. These investees had revenues of approximately $0.7 million and $1.2 million and a net operating income, excluding depreciation and interest expense, of approximately $0.1 million and less than $0.1 million for the three and six months ended June 30, 2017, respectively. These investees had no significant revenues or expenses for the three and six months ended June 30, 2016 since the development properties were mostly under construction during this period. For the six months ended June 30, 2017, the total income (interest income and change in fair value) from one development property investment with a profits interest exceeded 20% of the Company’s net income. The Company recorded total income for the six months ended June 30, 2017 of $1.8 million from the New York City 1 MSA development property investment with a profits interest.

 

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

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

Level 1 - Quoted prices for identical assets or liabilities in an active market.

Level 2 - Financial assets and liabilities whose values are based on the following: (i) Quoted prices for similar assets or liabilities in active markets; (ii) Quoted prices for identical or similar assets or liabilities in non-active markets; (iii) Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 - Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.

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

Instrument	Valuation technique and assumptions	Hierarchy classification
Development property investments	Valuations are determined using an Income Approach analysis, using the discounted cash flow method model, capturing the prepayment penalty / call price schedule as applicable.  The valuation models are calibrated to the total investment net drawn amount as of the issuance date.	Level 3
Development property investments with a profits interest   (a)	Valuations are determined using an Income Approach analysis, using the discounted cash flow method model, capturing the prepayment penalty / call price schedule as applicable. The valuation models are calibrated to the total investment net drawn amount as of the issuance date factoring in the value of the profits interests.	Level 3
	An option-pricing method (OPM) framework is utilized to calculate the value of the profits interests.
Operating property loans	Valuations are determined using an Income Approach analysis, using the discounted cash flow method model, capturing the prepayment penalty / call price schedule as applicable.	Level 3

^(a) Certain of the Company's development property investments include profits interests. 

The Company’s development property investments and operating property loan investments are valued using two different valuation techniques. The first valuation technique is an income approach analysis of the debt instrument components of the Company’s investments. The second valuation technique is an option pricing model that is used to determine the fair value of any profits interests associated with an investment. The valuation models are calibrated to the total investment net drawn amount as of the issuance date factoring in the value of the profits interests. At the issuance date of each development property investment, generally the value of the property underlying such investment approximates the sum of the net investment drawn amount plus the developer’s equity investment.

For development property investments with a profits interest, at a certain stage of construction, the option pricing method incorporates an adjustment to measure entrepreneurial profit. Entrepreneurial profit is a monetary return above total construction costs that provides compensation for the risk of a development project. Under this method, the value of each property is estimated based on the cost incurred to date, plus an estimated earned entrepreneurial profit.  Total entrepreneurial profit is estimated as the difference between the projected value of a property at stabilization and the total development costs, including land, building improvements, and lease-up costs.  Utilizing information obtained from the market coupled with the Company’s own experience, the Company has estimated that in most cases, approximately one-third of the entrepreneurial profit is earned during the construction period beginning when construction is approximately 40% complete and ending when construction is 100% complete, and approximately two-thirds of the entrepreneurial profit is earned from construction completion through stabilization. For the three properties between 40% and 100% complete at June 30, 2017, the Company has estimated the entrepreneurial profit adjustment to the enterprise value input used in the option pricing model to be equal to one-third of the estimated entrepreneurial profit, allocated on a straight-line basis. Ten properties have reached construction completion at June 30, 2017. For the Company’s development property investments at or around completion of construction, a discounted cash flow model, based on periodically updated estimates of rental rates, occupancy and operating expenses, is the primary method for projecting value of a project. The Company also will consider inputs such as appraisals that differ from the developer’s equity investment, bona fide third-party offers to purchase development projects, sales of development projects, or sales of comparable properties in its markets.

 

Level 3 Fair Value Measurements

The following tables summarize the significant unobservable inputs the Company used to value its investments categorized within Level 3 as of June 30, 2017 and December 31, 2016. These tables are not intended to be all-inclusive, but instead to capture the significant unobservable inputs relevant to the Company’s determination of fair values.

As of June 30, 2017
		Unobservable Inputs
Asset Category	Primary Valuation Techniques	Input	Estimated Range	Weighted Average
Development property investments(a)	Income approach analysis	Market yields/ discount rate	7.97 – 10.33%	8.70%
		Exit date	0.58 – 5.00 years	2.71 years
Development property investments with a profits interest    (b)	Option pricing model	Volatility	63.58 – 90.26%	70.77%
		Exit date	0.92 – 5.00 years	2.83 years
		Capitalization rate (c)	5.25 - 5.50%	5.47%
		Discount rate	8.25 - 8.50%	8.47%
Operating property loans	Income approach analysis	Market yields/ discount rate	5.84 – 6.98%	6.46%
		Exit date(d)	4.00 - 5.16 years	4.60 years

^(a) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. Therefore, this line item focuses on all development property investments, including those with a profits interest.

^(b) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. The development property investments with a profits interest only require incremental valuation techniques to determine the value of the profits interest. Therefore this line only focuses on the profits interest valuation.

^(c) Thirteen properties were 40% - 100% complete, thus requiring a capitalization rate to derive entrepreneurial profit. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.

^(d) The exit dates for the operating property loans are the contractual maturity dates.

As of December 31, 2016
		Unobservable Inputs
Asset Category	Primary Valuation Techniques	Input	Estimated Range	Weighted Average
Development property investments (a)	Income approach analysis	Market yields/ discount rate	7.23 - 9.28%	8.34%
		Exit date	0.17 - 3.88 years	1.81 years
Development property investments with a profits interest (b)	Option pricing model	Volatility	68.72 - 73.46%	73.17%
		Exit date	1.42 - 3.88 years	2.12 years
		Capitalization rate(c)	5.25 - 5.50%	5.47%
		Discount rate	8.25 - 8.50%	8.47%
Operating property loans	Income approach analysis	Market yields/discount rate	6.09 - 7.20%	6.73%
		Exit date(d)	4.50 - 5.66 years	5.07 years

^(a) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. Therefore, this line item focuses on all development property investments, including those with a profits interest.

^(b) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. The development property investments with a profits interest only require incremental valuation techniques to determine the value of the profits interest. Therefore this line only focuses on the profits interest valuation.

^(c) Ten properties were 40% - 100% complete, thus requiring a capitalization rate to derive entrepreneurial profit. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.

^(d) The exit dates for the operating property loans are the contractual maturity dates.

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

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

	Increase (decrease) in fair value of investments
Change in market yields/discount rates (in millions)	June 30, 2017		December 31, 2016
Up 25 basis points	$	(0.8)	$	(0.3)
Down 25 basis points, subject to a minimum yield/rate of 10 basis points		0.8		0.3

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

	Increase (decrease) in fair value of investments
Change in capitalization rates (in millions)	June 30, 2017		December 31, 2016
Up 25 basis points	$	(2.2)	$	(2.1)
Down 25 basis points		2.4		2.3
Up 50 basis points		(4.2)		(3.8)
Down 50 basis points		5.0		4.6

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

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

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

The Company also evaluates the impact of changes in instrument-specific credit risk in determining the fair value of investments. There were no gains or losses attributable to changes in instrument-specific credit risk in the three and six months ended June 30, 2017 and 2016.

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

The following table presents changes in investments that use Level 3 inputs for the six month period ended June 30, 2017:

Balance as of December 31, 2016	$	105,007
Net realized gains		-
Net unrealized gains		5,682
Fundings of principal and change in unamortized origination fees		77,271
Repayments of loans		(12,239)
Payment-in-kind interest		3,114
Reclassification of self-storage real estate owned		(6,066)
Net transfers in or out of Level 3		-
Balance at June 30, 2017	$	172,769

As of June 30, 2017 and December 31, 2016, the total net unrealized appreciation on the investments that use Level 3 inputs was $24.9 million and $19.2 million, respectively.

 

For the three and six months ended June 30, 2017 and 2016, substantially all of the change in fair value of investments in the Company’s Consolidated Statements of Operations was attributable to unrealized gains relating to the Company’s Level 3 assets still held as of the respective balance sheet date.

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

XML

INVESTMENT IN REAL ESTATE VENTURE

6 Months Ended

Jun. 30, 2017

Banking and Thrift [Abstract]

Equity Method Investments and Joint Ventures Disclosure [Text Block]

5. INVESTMENT IN REAL ESTATE VENTURE

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

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

As of June 30, 2017, the SL1 Venture had closed on eight new development property investments with a profits interest with an aggregate commitment amount of approximately $81.4 million, bringing the total aggregate commitment of SL1 Venture’s investments to $123.3 million as of June 30, 2017. Accordingly, HVP III’s total commitment for a 90% interest in the SL1 Venture is $111.0 million, and the Company’s total commitment for a 10% interest in the SL1 Venture is $12.3 million.

 

Under the JV Agreement, the Company receives a priority distribution (after debt service and any reserve but before any other distributions) out of operating cash flow and residual distributions based upon 1% of the committed principal amount of loans made by the SL1 Venture, exclusive of the loans contributed to the SL1 Venture by the Company. Operating cash flow of the SL1 Venture (after debt service, reserves and the foregoing priority distributions) is distributed in accordance with capital commitments. Residual cash flow from capital and other events (after debt service, reserves and priority distributions) will be distributed (i) pro rata in accordance with capital commitments (its “Percentage Interest”) until each member has received a return of all capital contributed; (ii) pro rata in accordance with each member’s Percentage Interest until Heitman has achieved a 14% internal rate of return; (iii) to Heitman in an amount equal to its Percentage Interest less 10% and to the Company in an amount equal to the Company’s Percentage Interest plus 10% until Heitman has achieved a 17% internal rate of return; (iv) to Heitman in an amount equal to its Percentage Interest less 20% and to the Company in an amount equal to the Company’s Percentage Interest plus 20% until Heitman has achieved a 20% internal rate of return; and (v) any excess to Heitman in an amount equal to its Percentage Interest less 30% and to the Company in an amount equal to the Company’s Percentage Interest plus 30%. However, the Company will not be entitled to any such promoted interest prior to the earlier to occur of the third anniversary of the JV Agreement and Heitman receiving distributions to the extent necessary to provide Heitman with a 1.48 multiple on its contributed capital.

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

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

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

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

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

SL1 Venture has elected the fair value option of accounting for its development property investments with a profits interest, which are equity method investments of SL1 Venture. The assumptions used to value SL1 Venture’s investments are materially consistent with those used to value the Company’s investments. As of June 30, 2017, SL1 Venture had eleven development property investments with a profits interest as described in more detail in the table below:

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment(1)		Remaining Unfunded Commitment		Fair Value
5/14/2015	Miami 1(2) (3)	$	13,867	$	8,631	$	5,236	$	9,610
5/14/2015	Miami 2(2) (3)		14,849		7,299		7,550		7,321
9/25/2015	Fort Lauderdale (2)		13,230		5,531		7,699		5,419
4/15/2016	Washington DC(3)		17,269		11,628		5,641		12,600
4/29/2016	Atlanta 1(3)		10,223		3,475		6,748		3,641
7/19/2016	Jacksonville(3)		8,127		5,697		2,430		7,398
7/21/2016	New Jersey		7,828		1,161		6,667		1,090
8/15/2016	Atlanta 2(3)		8,772		4,900		3,872		5,474
8/25/2016	Denver(3)		11,032		6,100		4,932		6,811
9/28/2016	Columbia(3)		9,199		5,462		3,737		5,819
12/22/2016	Raleigh		8,877		1,641		7,236		1,583
	Total	$	123,273	$	61,525	$	61,748	$	66,766

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ These development property investments (having approximately $8.1 million of outstanding principal at contribution) were contributed to the SL1 Venture on March 31, 2016 by the Company.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

As of June 30, 2017, the SL1 Venture had total assets of $69.5 million and total liabilities of $7.5 million. During the three and six months ended June 30, 2017, the SL1 Venture had net income of $5.2 million and $7.5 million, of which $0.6 million and $1.0 million was allocated to the Company and $4.6 million and $6.5 million was allocated to HVP III, respectively, under the HLBV method. At June 30, 2017, $0.2 million of transaction expenses were included in the carrying amount of the Company’s investment in the SL1 Venture. Additionally, the Company may from time to time make advances to the SL1 Venture. At June 30, 2017 and December 31, 2016, the Company had $7.4 million and $2.3 million, respectively, in advances to the SL1 Venture, and the related interest on these advances are classified in equity in earnings from unconsolidated real estate venture in the Consolidated Statements of Operations.

 

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

Under the JV Agreement, Heitman and the Company seek to obtain and, if obtained, share joint rights of first refusal to acquire self-storage facilities that are the subject of development property investments made by the SL1 Venture. Additionally, so long as the Company, through its operating subsidiary, is a member of the SL1 Venture and the SL1 Venture holds any assets, the Company will not make any investment of debt or equity or otherwise, directly or indirectly, in one or more new joint ventures or similar programs for the purposes of funding or providing development loans or financing, directly or indirectly, for the development, construction or conversion of self-storage facilities, in each case without first offering such opportunity to Heitman to participate on substantially the same terms as those set forth in the JV Agreement, either through the SL1 Venture or a newly formed real estate venture.

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

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

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

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

XML

VARIABLE INTEREST ENTITIES

6 Months Ended

Jun. 30, 2017

Variable Interest Entity, Nonconsolidated, Carrying Amount, Assets and Liabilities, Net [Abstract]

Variable Interest Entity Disclosure [Text Block]

6. VARIABLE INTEREST ENTITIES

Development Property Investments

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

The Company has recorded assets of $164.0 million and $95.1 million at June 30, 2017 and December 31, 2016, respectively, for its variable interest in the VIEs which is included in the development property investments at fair value line item in the Consolidated Balance Sheets. The Company’s maximum exposure to loss as a result of its involvement with the VIEs is as follows:

 

	June 30, 2017		December 31, 2016
Assets recorded related to VIEs	$	163,979	$	95,102
Unfunded loan commitments to VIEs		206,568		54,950
Maximum exposure to loss	$	370,547	$	150,052

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

Investment in Real Estate Venture

The Company determined that the SL1 Venture qualifies as a VIE because it does not have enough equity to finance its activities without additional subordinated financial support. In determining whether the Company is the primary beneficiary of the entity, the Company identified the activities that most significantly impact the entity’s economic performance. Such activities are (1) approving self-storage development investments and acquiring self-storage properties, (2) managing directly-owned properties, (3) obtaining debt financing, and (4) disposing of investments. Although the Company has certain rights, it does not have the power to direct the activities that most significantly impact the entity’s economic performance and thus is not the primary beneficiary. As such, the Company does not consolidate the entity and accounts for its unconsolidated interest in the SL1 Venture using the equity method of accounting. The Company’s investment in the SL1 Venture is included in the investment in and advances to real estate venture balance in the Consolidated Balance Sheets, and earnings from the SL1 Venture are included in equity in earnings from unconsolidated real estate venture in the Company’s Consolidated Statements of Operations. The Company’s maximum contribution to the SL1 Venture is $12.3 million, and as of June 30, 2017 and December 31, 2016, the Company’s remaining unfunded commitment to the SL1 Venture is $6.1 million and $9.4 million, respectively. 

XML

SELF-STORAGE REAL ESTATE OWNED

6 Months Ended

Jun. 30, 2017

Banking and Thrift [Abstract]

Real Estate Owned [Text Block]

7. SELF-STORAGE REAL ESTATE OWNED

On February 3, 2017, the Company purchased 50% of the economic rights of the Class A membership units of a limited liability company that owns a development property investment with a profits interest in Orlando, Florida for $1.3 million and increased its profits interest on this development property investment from 49.9% to 74.9%. The Class A member retains all management and voting rights in the limited liability company. Previously, the Company accounted for this investment as an equity method investment. Because the Company is entitled to greater than 50% of the residual profits from the investment, the Company now accounts for this investment as a real estate investment in its consolidated financial statements in accordance with ASC 310.

 

The following table shows the impact of this real estate investment on the Company’s Consolidated Balance Sheet as of June 30, 2017:

	June 30, 2017
Cash	$	5
Land		1,507
Building and improvements		5,890
Accumulated depreciation		(114)
Self-storage real estate owned	$	7,283
Accrued liabilities	$	15

The following table shows the impact of this real estate investment on the Company’s Consolidated Statement of Operations for the three and six months ended June 30, 2017:

	Three months ended June 30, 2017		Six months ended June 30, 2017
Rental revenues	$	105	$	168
General property operating expenses		(43)		(74)
Depreciation expense		(38)		(62)
Property operating expenses of real estate owned	$	(81)	$	(136)

The Company’s basis in the land and building was recorded at cost (equal to cash paid and accrued interest, plus unrealized gains recorded at the date of reclassification) at February 3, 2017, the date of the Company’s purchase of 50% of the economic rights of the Class A membership units of the limited liability company that owns the development property investment with a profits interest. The allocation to land and building was based on the historical cost of these assets.

XML

OTHER LOANS, AT COST

6 Months Ended

Jun. 30, 2017

Receivables [Abstract]

Other Assets Disclosure [Text Block]

8. OTHER LOANS, AT COST

As of June 30, 2017, the Company had a balance of $5.3 million related to a bridge loan extended to a limited liability company that is under common control with a borrower in certain of the Company’s development property investments. The bridge loan is secured by a first mortgage on a portion, and a negative pledge on a portion, of certain real and personal property, is personally guaranteed, and is interest-only with a fixed interest rate of 6.9% per annum, and matures August 31, 2017. The maturity is based upon the estimated time needed to prepare the site for closing into a development loan. During the six months ended June 30, 2017, the Company received repayments of $12.1 million related to six bridge loans and entered into two new bridge loans with an aggregate commitment and funded amount of $7.3 million. At December 31, 2016, the Company had executed five bridge loans with a balance of $10.1 million extended to four limited liability companies that are under common control with borrowers in certain of the Company’s development property investments. These bridge loans were accounted for under the cost method, and fair value approximates cost at June 30, 2017 and December 31, 2016. None of these bridge loans were in non-accrual status as of June 30, 2017 and December 31, 2016. The Company determined that no allowance for loan loss was necessary at June 30, 2017 and December 31, 2016.

The Company also had executed seven revolving loan agreements with an aggregate outstanding principal amount of $1.2 million at June 30, 2017. Six of the agreements are with individuals who are owners of limited liability companies, one is with a limited liability company, and all are personally guaranteed. Six of these borrowers are either directly or indirectly owners of certain of the Company’s development property investments and one is a prospective developer. Three of the agreements provide for borrowings of up to $0.5 million, one provides for borrowings of up to $0.1 million, one provides for borrowings of up to $0.25 million, one provides for borrowings of up to $0.7 million, and one agreement provides for borrowings of up to $1.0 million (total of $3.6 million) to fund expenses for pursuit costs to contract for and perform diligence on additional self-storage sites. The revolving loans are typically unsecured but cross-defaulted against development loans. One of the revolving loans is guaranteed by a part owner of one of the Company’s development loan investments, and this guaranty is secured by a pledge of the owner’s membership interest in one of the Company’s development loan investments. The loans bear interest at 6.9-7.0% per annum and are due in full in three years. During the six months ended June 30, 2017, the Company received repayments on these revolving loan agreements of $2.0 million and draws of $1.5 million. At December 31, 2016, the Company had executed six revolving loan agreements with an aggregate outstanding principal amount of $1.7 million. These loans are accounted for under the cost method, and fair value approximates cost at June 30, 2017 and December 31, 2016. None of these loans are in non-accrual status as of June 30, 2017 and December 31, 2016. The Company determined that no allowance for loan loss was necessary at June 30, 2017 and December 31, 2016.

XML

SENIOR PARTICIPATIONS

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

9. SENIOR PARTICIPATIONS

On April 29, 2016, the Company sold senior participations (the “Operating Property A Notes”) in two separate operating property loans in the Nashville, Tennessee and New Orleans, Louisiana MSAs, having an aggregate outstanding principal balance of $7.8 million, to a regional commercial bank in exchange for cash consideration of $5.0 million. The sale of Operating Property A Notes was effected pursuant to participation agreements between the bank and the Company (the “Participation Agreements”). On December 14, 2016, the Company received proceeds of $5.2 million for an early payoff on the operating property loan in the Nashville, Tennessee MSA, and the Company repurchased the senior participation on this loan that was included in Operating Property A Notes. The Company paid the regional commercial bank a total of $3.4 million in connection with the repurchase, which included a $0.1 million prepayment penalty that is recorded in interest expense in the Consolidated Statements of Operations. Under the remaining Participation Agreement, the Company will continue to service the underlying loan as long as it is not in default under the Participation Agreement. The bank has the option to “put” the senior participation to the Company in the event the underlying borrower defaults on the underlying loan or if the Company defaults under the Participation Agreement. The Company will pay to the bank interest on the outstanding balance of the Operating Property A Note at the rate of 30-day LIBOR plus 3.85%, or 5.07% at June 30, 2017. The Operating Property A Note matures on April 1, 2019, at which time the Company is obligated to repurchase the Operating Property A Note at the then outstanding principal balances thereof. As part of the Participation Agreement, the Company will maintain a minimum aggregate balance of $0.5 million in depository or money market accounts at the bank, and if such balance is not maintained, the interest rate will increase. The outstanding balance for the remaining Operating Property A Note at June 30, 2017 was $1.8 million.

On May 27, 2016, the Company sold a third senior participation in a construction loan on a facility in the Miami, Florida MSA (“the Miami A Note”), having a commitment amount of $17.7 million, to the same commercial bank that purchased the Operating Property A Notes in exchange for a commitment by the bank to provide net proceeds of $10.0 million to fund construction draws under the construction loan (the “Miami A Note Sale”) once the total outstanding principal balance exceeds $7.7 million. The Miami A Note Sale was effected pursuant to a participation agreement between the bank and the Company (the “Miami Participation Agreement”). Under the Miami Participation Agreement, the Company will continue to service the underlying loan as long as it is not in default under the Miami Participation Agreement. The bank has the option to “put” the senior participation to the Company in the event the underlying borrower defaults on the underlying loan or if the Company defaults under the Miami Participation Agreement. The Company will pay to the bank interest on the outstanding balance of the Miami A Note at the rate of 30-day LIBOR plus 3.10%, or 4.32% at June 30, 2017. The Company also paid a loan fee of 100 basis points, or $0.1 million upon closing of the loan. The Miami A Note initially had a maturity date of July 1, 2017. During the six months ended June 30, 2017, the maturity date was extended to January 31, 2018, at which time the Company is obligated to repurchase the Miami A Note at the then outstanding principal balance thereof. The outstanding balance for the Miami A Note at June 30, 2017 was $0.7 million.

 

On July 26, 2016, the Company sold to a national commercial bank operating in the Company’s markets senior participations in the construction loans of four separate development property investments with a profits interest (the “July 2016 A Notes”) (one in the Orlando, Florida MSA, two in the Atlanta, Georgia MSA, and one in the Tampa, Florida MSA) having an aggregate committed principal balance of approximately $21.8 million and earning interest at a rate of 6.9% per annum, in exchange for a commitment by the bank to provide net proceeds of $14.2 million (the “July 2016 A Note Sales”). Construction has been completed and certificates of occupancy have been issued for these properties. At closing, the bank paid to the Company approximately $12.5 million for senior participations in the construction loans and will fund up to a total of $14.2 million as future draws are made on the construction loans. The Company will pay interest to the bank on its senior participations at the annual rate of 30-day LIBOR plus 3.50%, or 4.72% at June 30, 2017. The July 2016 A Notes mature on August 1, 2019, at which time the Company is obligated to repurchase the July 2016 A Notes at the then outstanding principal balance thereof. As part of the senior participation agreements, the Company will maintain a minimum aggregate balance of $0.5 million in depository or money market accounts at the bank, and if such balance is not maintained, the interest rate will increase. The outstanding balance for the July 2016 A Notes at June 30, 2017 was $13.7 million.

On October 18, 2016, the Company sold to a local Memphis, Tennessee-based community bank a senior participation in the construction loan of one of the Company’s development property investments with a profits interest (the “October 2016 A Note”) in Charlotte, North Carolina having a committed principal balance of approximately $6.8 million and earning interest at a rate of 6.9% per annum, in exchange for a commitment by the bank to provide net proceeds of $4.4 million (the “October 2016 A Note Sale”). Construction has been completed and a certificate of occupancy has been issued for this property. At closing, the bank paid to the Company approximately $3.4 million for the senior participation in the construction loan and will fund up to a total of $4.4 million as future draws are made on the construction loans. The Company will pay interest to the bank on the senior participation at the annual rate of 30-day LIBOR plus 3.50%, or 4.72% at June 30, 2017. The October 2016 A Note matures on September 1, 2021, at which time the Company is obligated to repurchase the October 2016 A Note at the then outstanding principal balance thereof. The outstanding balance for the October 2016 A Note at June 30, 2017 was $4.0 million.

 

The table below details the bank commitments and outstanding balances of our senior participations at June 30, 2017:

	Commitment by Bank		Amount Borrowed		Remaining Funds		Interest Rate	Effective Interest Rate at June 30, 2017			Maturity Date
Operating Property A Note(1)	$	1,820	$	1,820	$	-	30-day LIBOR + 3.85%		5.07	%	April 1, 2019
Miami A Note		10,001		732		9,269	30-day LIBOR + 3.10%		4.32	%	January 31, 2018
July 2016 A Notes(2)		14,185		13,679		506	30-day LIBOR + 3.50%		4.72	%	August 1, 2019
October 2016 A Note(2)		4,405		4,041		364	30-day LIBOR + 3.50%		4.72	%	September 1, 2021
Total	$	30,411		20,272	$	10,139
Unamortized fees				(125)
Net balance			$	20,147

⁽¹⁾ On July 20, 2017, the Company received proceeds of $2.8 million for an early payoff on the remaining Operating Property A Note in the New Orleans, Louisiana MSA, and the Company repurchased the senior participation on this loan. The Company paid the regional commercial bank a total of $1.8 million in conjunction with the repurchase, which included an $18,000 prepayment penalty.

⁽²⁾ On July 25, 2017, the Company entered into a senior secured revolving credit facility of up to $100 million (the “Credit Facility”) and subsequently repurchased the July 2016 A Notes and October 2016 A Note. See Note 13, Subsequent Events, for further information on the Credit Facility.

The table below details the bank commitments and outstanding balances of our senior participations at December 31, 2016:

	Commitment by Bank		Amount Borrowed		Remaining Funds		Interest Rate		Effective Interest Rate at December 31, 2016			Maturity Date
Operating Property A Note	$	1,820	$	1,820	$	-		30-day LIBOR + 3.85%		4.47	%		April 1, 2019
Miami A Note		10,001		-		10,001		30-day LIBOR + 3.10%		3.72	%		July 1, 2017
July 2016 A Notes		14,185		13,420		765		30-day LIBOR + 3.50%		4.12	%		August 1, 2019
October 2016 A Note		4,405		3,375		1,030		30-day LIBOR + 3.50%		4.12	%		September 1, 2021
Total	$	30,411	$	18,615	$	11,796
Unamortized fees				(33)
Net balance			$	18,582

XML

STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2017

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

10. STOCKHOLDERS’ EQUITY

The Company had 14,238,350 and 8,956,354 shares of common stock issued and outstanding, which included 202,502 and 120,001 of nonvested restricted stock, as of June 30, 2017 and December 31, 2016, respectively. The Company had 10,000 shares of Series A Preferred Stock issued and outstanding as of June 30, 2017 and December 31, 2016.

 

Common Stock Offerings

On December 13, 2016, the Company received $53.5 million in proceeds, net of underwriter’s discount and offering costs, related to the issuance of 2,996,311 shares of common stock.

 

On April 5, 2017, the Company entered into an at-the-market continuous equity offering program (“ATM Program”) with an aggregate offering price of up to $50.0 million. Since the inception of the ATM Program, the Company has issued and sold an aggregate of 1,093,202 shares of common stock at a weighted average price of $22.69 per share under the ATM Program, receiving net proceeds after commissions of $24.2 million.

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

Stock Repurchase Plan

On May 20, 2016, the Company’s Board of Directors authorized a share repurchase program for the repurchase of up to $10.0 million of the outstanding shares of common stock of the Company. As of June 30, 2017, the Company had repurchased and retired a total of 213,078 shares of its common stock at an aggregate cost of approximately $3.2 million. As of June 30, 2017, the Company has $6.8 million remaining under the Board’s authorization to repurchase shares of its common stock.

 

Equity Incentive Plan

In connection with the IPO, the Company established the 2015 Equity Incentive Plan for the purpose of attracting and retaining directors, executive officers, investment professionals and other key personnel and service providers, including officers and employees of the Manager and other affiliates, and to stimulate their efforts toward the Company’s continued success, long-term growth and profitability. The 2015 Equity Incentive Plan provides for the grant of stock options, share awards (including restricted common stock and restricted stock units), stock appreciation rights, dividend equivalent rights, performance awards, annual incentive cash awards and other equity-based awards, including Long-Term Incentive Plan (“LTIP”) units, which are convertible on a one-for-one basis into Operating Company Units (“OC Units”).  A total of 200,000 shares of common stock were reserved for issuance pursuant to the 2015 Equity Incentive Plan, subject to certain adjustments set forth in the plan. On April 1, 2015, each non-employee director of the Company received an award of 2,500 shares of restricted common stock (total of 10,000 shares) which vest ratably over a three-year period. On June 15, 2015, in connection with the appointment of the Company’s President and Chief Operating Officer (an employee of the Manager), 100,000 shares of restricted common stock were granted, which shares vest ratably over a five-year period. During the year ended December 31, 2015, the Company granted 52,500 shares of restricted common stock to an executive officer (an employee of the Manager) and key employees of the Manager, which shares vest ratably over a three-year period. The Manager provides services to the Company. On May 20, 2016, each non-employee director of the Company received an award of 3,585 shares of common stock (total of 14,340 shares) which immediately vested on the grant date. On May 3, 2017, the Company’s stockholders approved, and the Company adopted, the Amended and Restated 2015 Stock Incentive Plan increasing the number of shares of common stock reserved for issuance under the Plan by 170,000 shares from 200,000 shares to 370,000 shares and extending the term of the Plan until May 2, 2027. On May 3, 2017, three non-employee directors of the Company were each granted an award of 2,138 shares of common stock (total of 6,414 shares), which immediately vested on the grant date. In addition, certain of the Company’s officers and certain employees of the Manager were granted a cumulative total of 105,000 shares of restricted common stock, which vest ratably over a three-year period.

 

Restricted Stock Awards

The Amended and Restated 2015 Equity Incentive Plan permits the issuance of restricted stock awards to employees of the Manager (as the Company has no employees) and non-employee directors. Granted stock awards at June 30, 2017 and December 31, 2016 aggregated 288,254 and 176,840 service-based stock awards, respectively, of which 55,172 vested in 2016, 28,913 vested during the three months ended June 30, 2017, 17,500 will vest in the second half of 2017, 75,003 will vest in 2018, 55,001 will vest in 2019 and 54,998 will vest in 2020, respectively. Additionally, 1,667 were forfeited during the year ended December 31, 2016. Non-vested shares are earned over the respective vesting period based on a service condition only. Expenses related to restricted stock awards are charged to compensation expense and are recognized over the respective vesting period (primarily three to five years) of the awards. For restricted stock issued to non-employee directors of the Company, compensation expense is based on the market value of the shares at the grant date. For restricted stock awards issued to employees of the Manager, compensation expense is re-measured at each reporting date until service is complete and the restricted shares become vested based on the then current value of the Company’s common stock.

The Company recognized approximately $0.4 million and $0.3 million of stock-based compensation expense for the three months ended June 30, 2017 and 2016, respectively, and $0.7 million and $0.5 million of stock-based compensation expense for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017 and December 31, 2016, the total unrecognized compensation cost related to the Company’s restricted shares was approximately $3.9 million and $2.0 million, respectively, based on the grant date market value for awards issued to non-employee directors of the Company and based on the measurement of awards using the Company’s stock price of $22.00 and $21.05 as of June 30, 2017 and December 31, 2016, respectively, for awards issued to employees of the Manager. This cost is expected to be recognized over the remaining weighted average period of 2.7 years. The Company presents stock-based compensation expense in general and administrative expenses in the Consolidated Statements of Operations.

 

A summary of changes in the Company’s restricted shares for the three and six months ended June 30, 2017 and 2016 is as follows: 

	Three Months Ended June 30, 2017				Three Months Ended June 30, 2016
	Shares		Weighted average grant date fair value		Shares		Weighted average grant date fair value
Nonvested at March 31,		120,001	$	20.10		162,500	$	20.08
Granted		111,414		22.59		14,340		13.95
Vested		(28,913)		21.26		(37,672)		18.09
Forfeited		-		-		-		-
Nonvested at June 30,		202,502	$	21.33		139,168	$	19.91

	Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
	Shares		Weighted average grant date fair value		Shares		Weighted average grant date fair value
Nonvested at December 31,		120,001	$	20.10		162,500	$	20.08
Granted		111,414		22.59		14,340		13.95
Vested		(28,913)		21.26		(37,672)		18.09
Forfeited		-		-		-		-
Nonvested at June 30,		202,502	$	21.33		139,168	$	19.91

Nonvested restricted shares receive dividends which are nonforfeitable.

Series A Preferred Stock Private Placement

On July 27, 2016 (the “Effective Date”), the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with accounts managed by NexPoint Advisors, L.P., an affiliate of Highland Capital Management, L.P. (collectively, the “Buyers”) relating to the issuance and sale, from time to time until the second anniversary of the Effective Date (such period, the “Commitment Period”), of up to $100 million in shares of the Company’s Series A Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), at a price of $1,000 per share (the “Liquidation Value”) (subject to a minimum amount of $50 million of Series A Preferred Stock to be issued and sold by the Company on or prior to the expiration of the Commitment Period), which may be increased at the request of the Company up to $125 million. The sale of shares of Series A Preferred Stock pursuant to the Purchase Agreement may occur from time to time, in minimum monthly increments of $5 million, maximum monthly increments of $15 million and maximum increments of $35 million over any rolling three month period, all to be completed during the Commitment Period.

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

Holders of Series A Preferred Stock are entitled to a cumulative cash distribution (“Cash Distribution”) equal to (A) 7.0% per annum on the Liquidation Value for the period beginning on the respective date of issuance until the sixth anniversary of the Effective Date, payable quarterly in arrears, (B) 8.5% per annum on the Liquidation Value for the period beginning the day after the sixth anniversary of the Effective Date and for each year thereafter as long as the Series A Preferred Stock remains issued and outstanding, payable quarterly in arrears, and (C) an amount in addition to the amounts in (A) and (B) equal to 5.0% per annum on the Liquidation Value upon the occurrence of certain triggering events (a “Cash Premium”). In addition, the holders of the Series A Preferred Stock will be entitled to a cumulative dividend payable in-kind in shares of Common Stock or additional shares of Series A Preferred Stock, at the election of the holders (the “Stock Dividend”), equal in the aggregate to the lesser of (Y) 25% of the incremental increase in the Company’s book value (as adjusted for equity capital issuances, share repurchases and certain non-cash expenses) plus, to the extent the Company owns equity interests in income-producing real property, the incremental increase in net asset value (provided, however, that no interest in the same real estate asset will be double counted) and (Z) an amount that would, together with the Cash Distribution, result in a 14.0% internal rate of return for the holders of the Series A Preferred Stock from the date of issuance of the Series A Preferred Stock, as set forth in the Articles Supplementary classifying the Series A Preferred Stock (the “Articles Supplementary”). Triggering events that will trigger the payment of a Cash Premium with respect to a Cash Distribution include: (i) the occurrence of certain change of control events affecting the Company after the third anniversary of the Effective Date, (ii) the Company’s ceasing to be subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, (iii) the Company’s failure to remain qualified as a real estate investment trust, (iv) an event of default under the Purchase Agreement, (v) the failure by the Company to register for resale shares of Common Stock pursuant to the Registration Rights Agreement (a “Registration Default”), (vi) the Company’s failure to redeem the Series A Preferred Stock as required by the Purchase Agreement, or (vii) the filing of a complaint, a settlement with, or a judgment entered by the Securities and Exchange Commission against the Company or any of its subsidiaries or a director or executive officer of the Company relating to the violation of the securities laws, rules or regulations with respect to the business of the Company. Accrued but unpaid Cash Distributions and Stock Dividends on the Series A Preferred Stock will accumulate and will earn additional Cash Distributions and Stock Dividends as calculated above, compounded quarterly.

 

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

As long as shares of Series A Preferred Stock remain outstanding, the Company is required to maintain a ratio of debt to total tangible assets determined under U.S. generally accepted accounting principles of no more than 0.4:1, measured as of the last day of each fiscal quarter. The Company has complied with this covenant as of June 30, 2017.

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

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

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

Pursuant to the Purchase Agreement and the Articles Supplementary, the Company increased the size of its Board by one director and elected James Dondero, as representative of the Buyers, to the Board for a term expiring at the Company’s 2017 annual meeting of stockholders (Mr. Dondero has subsequently been reelected to the Board for a term expiring at the Company’s 2018 annual meeting of stockholders). Thereafter, so long as any shares of the Series A Preferred Stock are outstanding, the holders of the Series A Preferred Stock, voting as a single class, are entitled to nominate and elect one individual to serve on our Board of Directors. If the Company has not paid the full amount of the Cash Distribution or the Stock Dividend on the shares of the Series A Preferred Stock for six or more quarterly dividend periods (whether or not consecutive), the Company will increase the size of the Board by two directors and the holders of the our Series A Preferred Stock are entitled to elect two additional directors to serve on our Board of Directors until the Company pays in full all accumulated and unpaid Cash Distributions and Stock Dividends.

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

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

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

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

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

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

As of June 30, 2017, the Company had issued 10,000 restricted shares of the Series A Preferred Stock to the Buyers and received $10.0 million in proceeds pursuant to the terms of the Purchase Agreement.

On March 7, 2017, the Company declared a (i) cash distribution of $17.50 per share of Series A Preferred stock, payable on April 14, 2017, to holders of Series A Preferred Stock of record on the close of business on April 1, 2017, and (ii) distributions payable in kind in a number of shares of common stock as determined in accordance with the terms of the designation of the Series A Preferred stock, payable on April 17, 2017, to holders of Series A Preferred Stock of record on the close of business on April 1, 2017.

On May 3, 2017, the Company declared a cash distribution of $17.69 per share of Series A Preferred stock, payable on July 14, 2017, to holders of Series A Preferred Stock of record on the close of business on July 1, 2017. No distributions in kind were payable in connection with the July distribution.

XML

EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

11. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period.  All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share. Both the unvested restricted shares and the assumed share-settlement of the stock dividend to holders of the Series A Preferred Stock, and the related impacts to earnings, are considered when calculating earnings per share on a diluted basis with our diluted earnings per share being the more dilutive of the treasury stock or two-class methods.  For the three and six months ended June 30, 2017 and 2016, the Company’s basic earnings per share is computed using the two-class method, and our diluted earnings per share is computed using the more dilutive of the treasury stock method or two-class method:

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Shares outstanding
Weighted average common shares - basic		9,850,967		5,948,555		9,356,744		5,974,277
Effect of dilutive securities		182,062		155,652		151,203		159,076
Weighted average common shares, all classes		10,033,029		6,104,207		9,507,947		6,133,353
Calculation of Earnings per Share - basic
Net income	$	5,194	$	5,412	$	6,977	$	6,534
Less:
Net income allocated to preferred stockholders		177		n/a		723		n/a
Net income allocated to unvested restricted shares (1)		91		138		99		170
Net income attributable to common shareholders - two-class method	$	4,926	$	5,274	$	6,155	$	6,364
Weighted average common shares - basic		9,850,967		5,948,555		9,356,744		5,974,277
Earnings per share - basic	$	0.50	$	0.89	$	0.66	$	1.07
Calculation of Earnings per Share - diluted
Net income	$	5,194	$	5,412	$	6,977	$	6,534
Less:
Net income allocated to preferred stockholders		177		n/a		723		n/a
Net income attributable to common shareholders - two-class method	$	5,017	$	5,412	$	6,254	$	6,534
Weighted average common shares - diluted		10,033,029		6,104,207		9,507,947		6,133,353
Earnings per share - diluted	$	0.50	$	0.89	$	0.66	$	1.07

⁽¹⁾ Unvested restricted shares participate in dividends with common shares on a 1:1 basis and thus are considered participating securities under the two-class method for the three and six months ended June 30, 2017 and 2016.

XML

RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2017

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

12. RELATED PARTY TRANSACTIONS

Equity Method Investments

Certain of the Company’s development property investments are equity method investments for which the Company has elected the fair value option of accounting. The fair value of these equity method investments at June 30, 2017 and December 31, 2016 were $153.6 million and $78.7 million, respectively. The interest income realized and the change in fair value from these equity method investments was $6.1 million and $6.0 million for the three months ended June 30, 2017 and 2016, respectively, and $8.7 million and $10.0 million for the six months ended June 30, 2017 and 2016, respectively.

The Company’s investment in the real estate venture, the SL1 Venture, has a carrying amount of $14.3 million and $5.4 million at June 30, 2017 and December 31, 2016, respectively, and the earnings from this venture were $0.6 million and $1.0 million for the three and six months ended June 30, 2017. The earnings from this venture were $0.4 million for the three and six months ended June 30, 2016.

Management Agreement

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

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

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

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

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

The Internalization Price paid to the Manager in any Internalization Transaction will be payable by the Operating Company in the number of units of limited liability company interests (“OC Units”) of the Operating Company equal to the Internalization Price, divided by the volume-weighted average of the closing market price of the common stock of the Company for the ten consecutive trading days immediately preceding the date with respect to which value must be determined. However, if the common stock of the Company is not traded on a national securities exchange at the time of closing of any Internalization Transaction, then the number of OC Units shall be determined by agreement between the Board of Directors of the Company and the Manager or, in the absence of such agreement, the Internalization Price shall be paid in cash.

Prior to entry into the Amended and Restated Management Agreement, any Termination Fee would have been payable by the Operating Company in OC Units equal to the Termination Fee divided by the average of the daily market price of the Common Stock for the ten consecutive trading days immediately preceding the date of termination within 90 days after occurrence of the event requiring the payment of the Termination Fee. In accordance with ASC 505-50, Equity - Equity-based Payments to Non-Employees, since the number of OC Units to be issued was dependent upon different possible outcomes, the Company recognized the lowest aggregate amount within the range of outcomes. Accordingly, the Company estimated the deferred termination fee payable and accrued the expense over the term of the Management Agreement. Upon entry into the Amended and Restated Management Agreement, the Company ceased recognizing the deferred termination fee expense and reclassified the Non-Controlling Interests to Additional Paid-In-Capital since the Termination Fee is no longer certain of being paid other than in exchange for either the assets or equity of the Manager. Accordingly, the Company recorded no expense for the deferred termination fee in the three and six months ended June 30, 2017, and it recorded $0.1 million and $0.2 million of expense for the three and six months ended June 30, 2016, respectively.

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

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

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

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

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

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

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

The Amended and Restated Management Agreement provides for the Manager to earn a base management fee and an incentive fee. In addition, the Company will reimburse certain expenses of the Manager, excluding the salaries and cash bonuses of the Manager’s chief executive officer and chief financial officer, a portion of the salary of the president and chief operating officer, and certain other costs as determined by the Manager in accordance with the Amended and Restated Management Agreement. Certain prepaid expenses and fixed assets are also purchased through the Manager and reimbursed by the Company. In the event that the Company terminates the Amended and Restated Management Agreement per the terms of the agreement, other than for cause or the Company being required to register as an investment company, there will be a Termination Fee due to the Manager. Amounts reimbursable to the Manager for expenses are included in general and administrative expenses in the Consolidated Statements of Operations and totaled $0.6 million and $0.7 million for the three months ended June 30, 2017 and 2016, respectively, and $1.5 million and $1.6 million for the six months ended June 30, 2017 and 2016, respectively.

Management Fees

As of June 30, 2017, the Company did not have any personnel. As a result, the Company is relying on the properties, resources and personnel of the Manager to conduct operations. The Company has agreed to pay the Manager a base management fee in an amount equal to 0.375% of the Company’s stockholders’ equity (a 1.5% annual rate) calculated and payable quarterly in arrears in cash. For purposes of calculating the base management fee, the Company’s stockholder’s equity means: (a) the sum of (i) the net proceeds from all issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus (ii) the Company’s retained earnings at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods); less (b) any amount that the Company pays to repurchase the Company’s common stock since inception, provided that if the Company’s retained earnings are in a net deficit position (following any required adjustments set forth below), then retained earnings shall not be included in stockholders’ equity. It also excludes (x) any unrealized gains and losses and other non-cash items that have impacted stockholders’ equity as reported in the Company’s financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, and (y) one-time events pursuant to changes in GAAP (such as a cumulative change to the Company’s operating results as a result of a codification change pursuant to GAAP), and certain non-cash items not otherwise described above (such as depreciation and amortization), in each case after discussions between the Company’s Manager and the Company’s independent directors and approval by a majority of the Company’s independent directors. As a result, the Company’s stockholders’ equity, for purposes of calculating the base management fee, could be greater or less than the amount of stockholders’ equity shown on the Company’s financial statements. The base management fee is payable independent of the performance of the Company’s portfolio. The Manager computes the base management fee within 30 days after the end of the fiscal quarter with respect to which such installment is payable and promptly delivers such calculation to the Company’s Board of Directors. The amount of the installment shown in the calculation is due and payable no later than the date which is five business days after the date of delivery of such computation to the Board of Directors. The calculation generally will be reviewed by the Board of Directors at their regularly scheduled quarterly board meeting. The base management fee was $0.7 million and $0.4 million for the three months ended June 30, 2017 and 2016, respectively, and $1.3 million and $0.8 million for the six months ended June 30, 2017 and 2016, respectively. At June 30, 2017 and December 31, 2016, the Company had outstanding fees due to Manager of $1.0 million consisting of the management fees payable and certain general and administrative reimbursements payable.

Incentive Fee

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

IF = .20 times (A minus (B times .08)) minus C

In the foregoing formula:

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

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

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

Notwithstanding application of the incentive fee formula, no incentive fee shall be paid with respect to any fiscal quarter unless cumulative annual stockholder total return for the four most recently completed fiscal quarters is greater than 8%. Any computed incentive fee earned but not paid because of the foregoing hurdle will accrue until such 8% cumulative annual stockholder total return is achieved. The total return is calculated by adding stock price appreciation (based on the volume-weighted average of the closing price of the Company’s common stock on the NYSE (or other applicable trading market) for the last ten consecutive trading days of the applicable computation period minus the volume-weighted average of the closing market price of the Company’s common stock for the last ten consecutive trading days of the period immediately preceding the applicable computation period) plus dividends per share paid during such computation period, divided by the volume-weighted average of the closing market price of the Company’s common stock for the last ten consecutive trading days of the period immediately preceding the applicable computation period. For purposes of computing the Incentive Fee, “Core Earnings” is defined as net income (loss) determined under GAAP, plus non-cash equity compensation expense, the incentive fee, depreciation and amortization (to the extent that the Company forecloses on any facilities underlying the Company’s target investments), any unrealized losses or other non-cash expense items reflected in GAAP net income (loss), less any unrealized gains reflected in GAAP net income. The amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between the Manager and the Company’s independent directors and after approval by a majority of the independent directors.

The Manager computes each quarterly installment of the incentive fee within 45 days after the end of the fiscal quarter with respect to which such installment is payable and promptly delivers such calculation to the Company’s Board of Directors. The amount of the installment shown in the calculation is due and payable no later than the date which is five business days after the date of delivery of such computation to the Board of Directors. The calculation generally will be reviewed by the Board of Directors at their regularly scheduled quarterly board meeting. The Manager has not earned an incentive fee for the three and six months ended June 30, 2017 and 2016.

XML

SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2017

Subsequent Events [Abstract]

Subsequent Events [Text Block]

13. SUBSEQUENT EVENTS

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

Investment Activity

Subsequent to June 30, 2017, the Company closed on the following development property investment with a profits interest:

Closing Date	MSA	Total Investment Commitment
7/27/2017	Jacksonville 3	$	8,096
	Total	$	8,096

On July 20, 2017, the Company received proceeds of $2.8 million, including a $28,000 prepayment penalty, for the early payoff of an operating property loan in the New Orleans, Louisiana MSA. Subsequently, the Company repurchased the senior participation on this loan and paid the regional commercial bank a total of $1.8 million in conjunction with the repurchase, which included an $18,000 prepayment penalty.

Credit Facility

On July 25, 2017, the Operating Company entered into the Credit Facility with KeyBank National Association, as administrative agent (the “Agent”), KeyBanc Capital Markets Inc., as lead arranger, and the other lenders party thereto. Pursuant to an accordion feature, the Operating Company may from time to time increase the commitments up to an aggregate amount of $200 million, subject to, among other things, an absence of default under the Credit Facility, as well as receiving commitments from lenders for the additional amounts. At closing, the Operating Company borrowed $20.0 million of the $33.3 million then available under the Credit Facility. The Company used the proceeds to repurchase senior participation interests outstanding on five of the Company’s development investments from the commercial banks who held such senior participation interests, each of whom agreed to participate as lenders in the Credit Facility, and to pay fees and expenses of procuring the Credit Facility. On July 26, 2017, the Operating Company used proceeds from the Company’s recently completed offering of its common stock to fully repay the $20.0 million borrowed at closing, leaving $33.3 million available under the credit facility for future draws. The Operating Company intends to use future borrowings under the Credit Facility to fund its investments, to make secured or unsecured loans to borrowers in connection with its investments and for general corporate purposes.

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

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

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

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

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

⋅ total consolidated indebtedness not exceeding 50% of gross asset value;

⋅ a minimum fixed charge coverage ratio (defined as the ratio of consolidated adjusted earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 0.75 to 1.00 during the period between July 25, 2017 and June 30, 2018, 0.90 to 1 during the period between July 1, 2018 and December 31, 2018 and 1.20 to 1 during the period between January 1, 2019 through the maturity of the Credit Facility;

⋅ a minimum consolidated tangible net worth (defined as gross asset value less total consolidated indebtedness) of $183.3 million plus 75% of the sum of any additional net offering proceeds;

⋅ when aggregate loan commitments under the Credit Facility exceed $50 million, unhedged variable rate debt cannot exceed 25% of consolidated total indebtedness;

⋅ liquidity of no less than $50 million for the period between July 25, 2017 and December 31, 2018 or on and after December 31, 2018, liquidity of no less than the sum of (i) total unfunded loan commitments of the Company and its subsidiaries plus (ii) $25 million; and

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

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

Dividend Declarations

On August 1, 2017, the Company’s Board of Directors declared a cash dividend to the holders of the Series A Preferred Stock and a distribution payable in kind, if applicable, in a number of shares of common stock or Series A Preferred Stock as determined in accordance with the election of the holders of the Series A Preferred Stock for the quarter ending September 30, 2017. The dividends are payable on October 15, 2017 (or if not a business day, on the next business day) to holders of Series A Preferred Stock of record on October 1, 2017.

On August 1, 2017, the Company’s Board of Directors also declared a cash dividend of $0.35 per share of common stock for the quarter ending September 30, 2017. The dividend is payable on October 13, 2017 to stockholders of record on October 2, 2017.

XML

SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Basis of Presentation

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

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

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

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

Variable Interest Entities

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

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

Equity Method Investments, Policy [Policy Text Block]

Equity Investments

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

Policy Loans Receivable, Policy [Policy Text Block]

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

The Company has elected the fair value option of accounting for all of its investment portfolio loan investments, including those that are required under GAAP to be accounted for under the equity method, in order to provide stockholders and others who rely on the Company’s financial statements with a more complete and accurate understanding of the Company’s economic performance including its revenues and value inherent in the Company’s equity participation in development projects. Changes in the fair value of these investments are recorded in change in fair value of investments within other income. All direct loan costs are charged to expense as incurred.

Each loan investment, including those recorded at cost and presented on the Consolidated Balance Sheets as other loans, is evaluated for impairment on a periodic basis. For loans carried at fair value, indicators of impairment are reflected in measurement of the loan. For loans that are carried at cost, the Company estimates an allowance for loan loss at each reporting date. In evaluating loan impairment, the Company also periodically evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower on a loan by loan basis. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the property. In addition, the Company considers the overall economic environment, real estate sector and geographic sub-market in which the borrower operates. A loan will be considered impaired when, based on current information and events, it is probable that the loan will not be collected according to the contractual terms of the loan agreement. Factors to be considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. At June 30, 2017 and December 31, 2016, there were no loans that were deemed to be impaired loans. Additionally, for loans recorded at cost, the Company determined that no allowance for loan loss was necessary at June 30, 2017 and December 31, 2016.

For investments carried at fair value, fees and costs are expensed as incurred.

Loan arrangements under which the Company is entitled to greater than 50% of the residual profits are accounted for as a real estate investment in accordance with ASC 310, Receivables (“ASC 310”), and are included in the Consolidated Balance Sheets as self-storage real estate owned.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurement

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

 

The following table presents the financial instruments measured at fair value on a recurring basis at June 30, 2017:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	163,979	$	-	$	-	$	163,979
Operating property loans		8,790		-		-		8,790
Total investments	$	172,769	$	-	$	-	$	172,769

The following table presents the financial instruments measured at fair value on a recurring basis at December 31, 2016:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	95,102	$	-	$	-	$	95,102
Operating property loans		9,905		-		-		9,905
Total investments	$	105,007	$	-	$	-	$	105,007

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

Real Estate, Policy [Policy Text Block]

Self-Storage Real Estate Owned

Land is carried at historical cost. Building and improvements are carried at historical cost less accumulated depreciation and impairment losses. The cost reflects the purchase price or development cost of the assets. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. The costs of building and improvements are depreciated using the straight-line method based on a useful life of 40 years.

 

The Company evaluates long-lived assets for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be an impairment.  The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the facility’s basis is recoverable.  If an asset’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value.  The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

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

Loans and Leases Receivable, Valuation, Policy [Policy Text Block]

Other Loans

The Company’s other loans balance primarily includes principal balances for certain revolving loan agreements and short-term mortgage loans made by the Company in situations where it was determined that making such loans would benefit the Company’s primary business. These loans are accounted for under the cost method.

Property, Plant and Equipment, Policy [Policy Text Block]

Fixed Assets

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

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Interest income is recognized as earned on a simple interest basis and is reported in interest income from investments in the Consolidated Statements of Operations. Accrual of interest will be discontinued on a loan when management believes, after considering economic and business conditions and collection efforts that the borrower’s financial condition is such that collection of interest is doubtful. The Company will recognize income on impaired loans when they are placed into non-accrual status on a cash basis when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Company. If these factors do not exist, the Company will not recognize income on such loans. Accrued interest generally is reversed when a loan is placed on non-accrual status.

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

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

Debt Issuance Costs[Policy ] [Policy Text Block]

Debt Issuance Costs

Costs related to the sale of senior participations are deferred and are amortized as interest expense over the estimated life of the related senior participation using the straight-line method, which approximates the effective interest method. If a debt instrument is repurchased prior to its original maturity date, the unamortized balance of debt issuance costs are written off to interest expense or, if significant, included in “early extinguishment of debt.” Debt issuance costs are presented in the Consolidated Balance Sheets as a deduction from the carrying amount of the principal balance.

Selling, General and Administrative Expenses, Policy [Policy Text Block]

Transaction and other expenses

Transaction and other expenses consist of non-capitalizable advisory fees and other unreimbursed expenses incurred in connection with various financing and investment transactions and are expensed as incurred. There were no transaction and other expenses for the three or six months ended June 30, 2017. During the three and six months ended June 30, 2016, the Company incurred $0.2 million and $2.1 million of transaction and other expenses.

Offering Costs [Policy Text Block]

Offering and Registration Costs

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

On July 27, 2016, the Company entered into a Stock Purchase Agreement (see Note 10, Stockholders’ Equity) which requires the Company to issue and sell a minimum of $50.0 million of Series A Preferred Stock by July 27, 2018. The Company incurred $2.8 million of preferred stock offering costs in connection with the execution of the Stock Purchase Agreement. Such costs are presented as deferred costs on the Consolidated Balance Sheets until such time as Series A Preferred Stock is issued. A pro rata portion of such deferred costs, based upon the ratio of the amount issued to the $50.0 million minimum issuance of Series A Preferred Stock, is reclassified to cumulative preferred stock upon issuance of the Series A Preferred Stock. Of the $2.8 million of offering costs incurred, $2.2 million is in deferred costs on the Consolidated Balance Sheet at June 30, 2017, and $0.6 million has reduced the cumulative preferred stock balance on the Consolidated Balance Sheet at June 30, 2017.

Income Tax, Policy [Policy Text Block]

Income Taxes

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

Earnings Per Share, Policy [Policy Text Block]

Earnings per Share (“EPS”)

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

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

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income

For the three and six months ended June 30, 2017 and 2016, comprehensive income equaled net income; therefore, separate Consolidated Statements of Comprehensive Income are not included in the accompanying consolidated financial statements.

Segment Reporting, Policy [Policy Text Block]

Segment Reporting

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

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In August 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance on the classification of certain cash receipts and payments in the statement of cash flows, including distributions received from equity method investees. This guidance is effective for public business entities for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption being allowed. The Company is currently assessing the impact this new accounting guidance will have on its consolidated financial statements; however, the Company does not expect the new accounting guidance to have a material impact on its consolidated financial statements as the Company is currently presenting distributions received from equity method investees consistent with the presentation required under ASU 2016-05.

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

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

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2017. This ASU outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. Several ASUs expanding and clarifying the initial guidance issued in ASU 2014-09 have been released since May 2014. The Company will adopt the ASU effective January 1, 2018 and does not expect the adoption to have a material effect on its consolidated financial statements as the new guidance does not apply to revenue associated with loans or derived from lease contracts; however, the Company is still in the process of evaluating the impact these standards will have on its consolidated financial statements.

XML

SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

The following table presents the financial instruments measured at fair value on a recurring basis at June 30, 2017:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	163,979	$	-	$	-	$	163,979
Operating property loans		8,790		-		-		8,790
Total investments	$	172,769	$	-	$	-	$	172,769

The following table presents the financial instruments measured at fair value on a recurring basis at December 31, 2016:

	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Development property investments	$	95,102	$	-	$	-	$	95,102
Operating property loans		9,905		-		-		9,905
Total investments	$	105,007	$	-	$	-	$	105,007

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

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

	Six months ended June 30,
	2017		2016
Supplemental disclosure of cash flow information:
Interest paid	$	433	$	20
Supplemental disclosure of non-cash investing and financing activities:
Stock dividend paid on preferred stock	$	1,194	$	-
Dividends declared, but not paid, on preferred stock		177		-
Dividends declared, but not paid, on common stock		4,983		2,087
Contribution of assets to real estate venture		-		7,693
Reclassification of self-storage real estate owned		6,066		-
Other loans paid off with issuance of development property investments		1,410		-

XML

INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2017

Schedule of Investments [Line Items]

Schedule Of Changes In Fair Value Of Investments [Table Text Block]

The following table provides a reconciliation of the funded principal to the fair market value of investments at June 30, 2017:

Funded principal	$	157,466
Adjustments:
Unamortized origination fees		(3,471)
Change in fair value of investments		24,924
Reclassification of self-storage real estate owned		(6,066)
Other		(84)
Fair value of investments	$	172,769

The following table provides a reconciliation of the funded principal to the fair market value of investments at December 31, 2016:

Funded principal	$	86,905
Adjustments:
Unamortized origination fees		(1,056)
Change in fair value of investments		19,242
Other		(84)
Fair value of investments	$	105,007

Self Storage Investments [Member]

Schedule of Investments [Line Items]

Investment Holdings, Schedule of Investments [Table Text Block]

As of June 30, 2017, the aggregate committed principal amount of the Company’s investment portfolio was approximately $364.0 million and outstanding principal was $157.5 million, as described in more detail in the table below:

 

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment(1)		Remaining Unfunded Commitment		Fair Value
Development property investments:
Loan investments with a profits interest:
4/21/2015	Orlando 1(2) (4)	$	5,372	$	5,367	$	5	$	1,347
6/10/2015	Atlanta 1(2)		8,132		7,908		224		10,736
6/19/2015	Tampa 1(2)		5,369		5,285		84		6,369
6/26/2015	Atlanta 2(2)		6,050		5,684		366		9,043
6/29/2015	Charlotte 1(2)		7,624		7,065		559		10,361
7/2/2015	Milwaukee(2)		7,650		6,870		780		8,304
7/31/2015	New Haven(2)		6,930		6,093		837		8,058
8/10/2015	Pittsburgh(2)		5,266		4,361		905		5,936
8/14/2015	Raleigh		8,792		3,417		5,375		3,335
9/30/2015	Jacksonville 1(2)		6,445		5,988		457		8,320
10/27/2015	Austin(2)		8,658		6,866		1,792		8,619
9/20/2016	Charlotte 2		12,888		3,029		9,859		2,796
11/17/2016	Orlando 2(3)		5,134		2,994		2,140		3,577
11/17/2016	Jacksonville 2(3)		7,530		2,847		4,683		3,011
1/4/2017	New York City 1(3)		16,117		11,093		5,024		12,509
1/18/2017	Atlanta 3		14,115		3,385		10,730		3,295
1/31/2017	Atlanta 4		13,678		5,866		7,812		5,824
2/24/2017	Orlando 3		8,056		905		7,151		835
2/24/2017	New Orleans		12,549		-		12,549		-
2/27/2017	Atlanta 5		17,492		4,854		12,638		4,737
3/1/2017	Fort Lauderdale		9,952		1,740		8,212		1,661
3/1/2017	Houston		13,630		3,532		10,098		3,445
4/14/2017	Louisville		8,523		627		7,896		542
4/20/2017	Denver 1		9,806		1,873		7,933		1,783
4/20/2017	Denver 2		11,164		2,137		9,027		2,035
5/2/2017	Atlanta 6		12,543		3,671		8,872		3,565
5/2/2017	Tampa 2		8,091		1,584		6,507		1,508
5/19/2017	Tampa 3		9,224		1,524		7,700		1,434
6/12/2017	Tampa 4		10,266		2,391		7,875		2,293
6/19/2017	Baltimore(5)		10,775		2,199		8,576		2,008
6/28/2017	Knoxville		9,115		829		8,286		738
6/29/2017	Boston		14,103		1,466		12,637		1,326
6/30/2017	New York City 2(5)		26,482		16,004		10,478		15,637
		$	337,521	$	139,454	$	198,067	$	154,987
Construction loans:
12/23/2015	Miami		17,733		9,232		8,501		8,992
		$	17,733	$	9,232	$	8,501	$	8,992
	Subtotal	$	355,254	$	148,686	$	206,568	$	163,979
Operating property loans:
6/19/2015	New Orleans(6)		2,800		2,800		-		2,792
7/7/2015	Newark		3,480		3,480		-		3,482
12/22/2015	Chicago		2,502		2,500		2		2,516
	Subtotal	$	8,782	$	8,780	$	2	$	8,790
	Total investments	$	364,036	$	157,466	$	206,570	$	172,769

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ Facility had received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾ In February 2017, the Company purchased, for $1.3 million, 50% of the economic rights of the Class A membership units of the limited liability company which owns this development property investment, thus increasing the Company’s profits interest in this investment from 49.9% to 74.9%. As such, the Company’s investment was reclassified as self-storage real estate owned in the June 30, 2017 Consolidated Balance Sheet. See Note 7, Self-storage Real Estate Owned, for additional discussion. The committed and funded investment amounts in this table pertain to the full terms of the development investment, while the fair value represents only the portion (25.1%) of the principal balance constituting a loan to the Class A member.

⁽⁵⁾ These investments contain a higher loan-to-cost ratio and a higher interest rate, some of which interest is payment-in-kind ("PIK") interest. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment.

⁽⁶⁾ This investment was fully repaid in July 2017.

As of December 31, 2016, the aggregate committed principal amount of the Company’s investment portfolio was approximately $141.9 million and outstanding principal was $86.9 million, as described in more detail in the table below:

 

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment (1)		Remaining Unfunded Commitment		Fair Value
Development property investments:
Loan investments with a profits interest:
4/21/2015	Orlando 1(2)	$	5,372	$	5,308	$	64	$	7,302
6/10/2015	Atlanta 1(2)		8,132		7,694		438		10,404
6/19/2015	Tampa(2)		5,369		5,285		84		6,279
6/26/2015	Atlanta 2(2)		6,050		5,620		430		8,900
6/29/2015	Charlotte 1(2)		7,624		6,842		782		9,853
7/2/2015	Milwaukee(2)		7,650		5,608		2,042		7,008
7/31/2015	New Haven(2)		6,930		5,257		1,673		6,730
8/10/2015	Pittsburgh(3)		5,266		3,497		1,769		4,551
8/14/2015	Raleigh		8,792		1,460		7,332		1,396
9/30/2015	Jacksonville 1(2)		6,445		5,852		593		7,962
10/27/2015	Austin(3)		8,658		4,366		4,292		5,192
9/20/2016	Charlotte 2		12,888		1,446		11,442		1,298
11/17/2016	Orlando 2		5,134		1,342		3,792		1,237
11/17/2016	Jacksonville 2		7,530		624		6,906		551
		$	101,840	$	60,201	$	41,639	$	78,663
Construction loans:
8/5/2015	West Palm Beach(4)		7,500		6,712		788		6,702
8/5/2015	Sarasota(4)		4,792		3,485		1,307		3,473
12/23/2015	Miami		17,733		6,517		11,216		6,264
		$	30,025	$	16,714	$	13,311	$	16,439
	Subtotal	$	131,865	$	76,915	$	54,950	$	95,102
Operating property loans:
6/19/2015	New Orleans		2,800		2,800		-		2,768
7/7/2015	Newark		3,480		3,480		-		3,441
10/30/2015	Nashville(4)		1,210		1,210		-		1,204
12/22/2015	Chicago		2,502		2,500		2		2,492
	Subtotal	$	9,992	$	9,990	$	2	$	9,905
	Total investments	$	141,857	$	86,905	$	54,952	$	105,007

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ Facility had received certificate of occupancy as of December 31, 2016. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of December 31, 2016. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

⁽⁴⁾ These investments were fully repaid in the six months ended June 30, 2017.

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

These tables are not intended to be all-inclusive, but instead to capture the significant unobservable inputs relevant to the Company’s determination of fair values.

As of June 30, 2017
		Unobservable Inputs
Asset Category	Primary Valuation Techniques	Input	Estimated Range	Weighted Average
Development property investments(a)	Income approach analysis	Market yields/ discount rate	7.97 – 10.33%	8.70%
		Exit date	0.58 – 5.00 years	2.71 years
Development property investments with a profits interest    (b)	Option pricing model	Volatility	63.58 – 90.26%	70.77%
		Exit date	0.92 – 5.00 years	2.83 years
		Capitalization rate (c)	5.25 - 5.50%	5.47%
		Discount rate	8.25 - 8.50%	8.47%
Operating property loans	Income approach analysis	Market yields/ discount rate	5.84 – 6.98%	6.46%
		Exit date(d)	4.00 - 5.16 years	4.60 years

^(a) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. Therefore, this line item focuses on all development property investments, including those with a profits interest.

^(b) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. The development property investments with a profits interest only require incremental valuation techniques to determine the value of the profits interest. Therefore this line only focuses on the profits interest valuation.

^(c) Thirteen properties were 40% - 100% complete, thus requiring a capitalization rate to derive entrepreneurial profit. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.

^(d) The exit dates for the operating property loans are the contractual maturity dates.

As of December 31, 2016
		Unobservable Inputs
Asset Category	Primary Valuation Techniques	Input	Estimated Range	Weighted Average
Development property investments (a)	Income approach analysis	Market yields/ discount rate	7.23 - 9.28%	8.34%
		Exit date	0.17 - 3.88 years	1.81 years
Development property investments with a profits interest (b)	Option pricing model	Volatility	68.72 - 73.46%	73.17%
		Exit date	1.42 - 3.88 years	2.12 years
		Capitalization rate(c)	5.25 - 5.50%	5.47%
		Discount rate	8.25 - 8.50%	8.47%
Operating property loans	Income approach analysis	Market yields/discount rate	6.09 - 7.20%	6.73%
		Exit date(d)	4.50 - 5.66 years	5.07 years

^(a) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. Therefore, this line item focuses on all development property investments, including those with a profits interest.

^(b) The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. The development property investments with a profits interest only require incremental valuation techniques to determine the value of the profits interest. Therefore this line only focuses on the profits interest valuation.

^(c) Ten properties were 40% - 100% complete, thus requiring a capitalization rate to derive entrepreneurial profit. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.

^(d) The exit dates for the operating property loans are the contractual maturity dates.

Schedule Of Change In Fair Value Of Investments Due To Change In Market Yield Discount Rates [Table Text Block]

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

	Increase (decrease) in fair value of investments
Change in market yields/discount rates (in millions)	June 30, 2017		December 31, 2016
Up 25 basis points	$	(0.8)	$	(0.3)
Down 25 basis points, subject to a minimum yield/rate of 10 basis points		0.8		0.3

Schedule Of Change In Fair Value Of Investments Due To Change In Capitalization Rates [Table Text Block]

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

	Increase (decrease) in fair value of investments
Change in capitalization rates (in millions)	June 30, 2017		December 31, 2016
Up 25 basis points	$	(2.2)	$	(2.1)
Down 25 basis points		2.4		2.3
Up 50 basis points		(4.2)		(3.8)
Down 50 basis points		5.0		4.6

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

The following table presents changes in investments that use Level 3 inputs for the six month period ended June 30, 2017:

Balance as of December 31, 2016	$	105,007
Net realized gains		-
Net unrealized gains		5,682
Fundings of principal and change in unamortized origination fees		77,271
Repayments of loans		(12,239)
Payment-in-kind interest		3,114
Reclassification of self-storage real estate owned		(6,066)
Net transfers in or out of Level 3		-
Balance at June 30, 2017	$	172,769

XML

INVESTMENT IN REAL ESTATE VENTURE (Tables)

6 Months Ended

Jun. 30, 2017

Banking and Thrift [Abstract]

Equity Method Investments [Table Text Block]

As of June 30, 2017, SL1 Venture had eleven development property investments with a profits interest as described in more detail in the table below:

Closing Date	Metropolitan Statistical Area ("MSA")	Total Investment Commitment		Funded Investment(1)		Remaining Unfunded Commitment		Fair Value
5/14/2015	Miami 1(2) (3)	$	13,867	$	8,631	$	5,236	$	9,610
5/14/2015	Miami 2(2) (3)		14,849		7,299		7,550		7,321
9/25/2015	Fort Lauderdale (2)		13,230		5,531		7,699		5,419
4/15/2016	Washington DC(3)		17,269		11,628		5,641		12,600
4/29/2016	Atlanta 1(3)		10,223		3,475		6,748		3,641
7/19/2016	Jacksonville(3)		8,127		5,697		2,430		7,398
7/21/2016	New Jersey		7,828		1,161		6,667		1,090
8/15/2016	Atlanta 2(3)		8,772		4,900		3,872		5,474
8/25/2016	Denver(3)		11,032		6,100		4,932		6,811
9/28/2016	Columbia(3)		9,199		5,462		3,737		5,819
12/22/2016	Raleigh		8,877		1,641		7,236		1,583
	Total	$	123,273	$	61,525	$	61,748	$	66,766

⁽¹⁾ Represents principal balance of loan gross of origination fees.

⁽²⁾ These development property investments (having approximately $8.1 million of outstanding principal at contribution) were contributed to the SL1 Venture on March 31, 2016 by the Company.

⁽³⁾ Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

XML

VARIABLE INTEREST ENTITIES (Tables)

6 Months Ended

Jun. 30, 2017

Variable Interest Entity, Nonconsolidated, Carrying Amount, Assets and Liabilities, Net [Abstract]

Schedule of Variable Interest Entities [Table Text Block]

The Company’s maximum exposure to loss as a result of its involvement with the VIEs is as follows:

 

	June 30, 2017		December 31, 2016
Assets recorded related to VIEs	$	163,979	$	95,102
Unfunded loan commitments to VIEs		206,568		54,950
Maximum exposure to loss	$	370,547	$	150,052

XML

SELF-STORAGE REAL ESTATE OWNED (Tables)

6 Months Ended

Jun. 30, 2017

Banking and Thrift [Abstract]

Real Estate Investment, Impact in Consolidated Balance Sheet , Disclosure [Table Text Block]

The following table shows the impact of this real estate investment on the Company’s Consolidated Balance Sheet as of June 30, 2017:

	June 30, 2017
Cash	$	5
Land		1,507
Building and improvements		5,890
Accumulated depreciation		(114)
Self-storage real estate owned	$	7,283
Accrued liabilities	$	15

Real Estate Investment, Impact in Consolidated Statement of Operations, Disclosure [Table Text Block]

The following table shows the impact of this real estate investment on the Company’s Consolidated Statement of Operations for the three and six months ended June 30, 2017:

	Three months ended June 30, 2017		Six months ended June 30, 2017
Rental revenues	$	105	$	168
General property operating expenses		(43)		(74)
Depreciation expense		(38)		(62)
Property operating expenses of real estate owned	$	(81)	$	(136)

XML

SENIOR PARTICIPATIONS (Tables)

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Schedule of Line of Credit Facilities [Table Text Block]

The table below details the bank commitments and outstanding balances of our senior participations at June 30, 2017:

	Commitment by Bank		Amount Borrowed		Remaining Funds		Interest Rate	Effective Interest Rate at June 30, 2017			Maturity Date
Operating Property A Note(1)	$	1,820	$	1,820	$	-	30-day LIBOR + 3.85%		5.07	%	April 1, 2019
Miami A Note		10,001		732		9,269	30-day LIBOR + 3.10%		4.32	%	January 31, 2018
July 2016 A Notes(2)		14,185		13,679		506	30-day LIBOR + 3.50%		4.72	%	August 1, 2019
October 2016 A Note(2)		4,405		4,041		364	30-day LIBOR + 3.50%		4.72	%	September 1, 2021
Total	$	30,411		20,272	$	10,139
Unamortized fees				(125)
Net balance			$	20,147

⁽¹⁾ On July 20, 2017, the Company received proceeds of $2.8 million for an early payoff on the remaining Operating Property A Note in the New Orleans, Louisiana MSA, and the Company repurchased the senior participation on this loan. The Company paid the regional commercial bank a total of $1.8 million in conjunction with the repurchase, which included an $18,000 prepayment penalty.

⁽²⁾ On July 25, 2017, the Company entered into a senior secured revolving credit facility of up to $100 million (the “Credit Facility”) and subsequently repurchased the July 2016 A Notes and October 2016 A Note. See Note 13, Subsequent Events, for further information on the Credit Facility.

The table below details the bank commitments and outstanding balances of our senior participations at December 31, 2016:

	Commitment by Bank		Amount Borrowed		Remaining Funds		Interest Rate		Effective Interest Rate at December 31, 2016			Maturity Date
Operating Property A Note	$	1,820	$	1,820	$	-		30-day LIBOR + 3.85%		4.47	%		April 1, 2019
Miami A Note		10,001		-		10,001		30-day LIBOR + 3.10%		3.72	%		July 1, 2017
July 2016 A Notes		14,185		13,420		765		30-day LIBOR + 3.50%		4.12	%		August 1, 2019
October 2016 A Note		4,405		3,375		1,030		30-day LIBOR + 3.50%		4.12	%		September 1, 2021
Total	$	30,411	$	18,615	$	11,796
Unamortized fees				(33)
Net balance			$	18,582

XML

STOCKHOLDERS' EQUITY (Tables)

6 Months Ended

Jun. 30, 2017

Stockholders' Equity Note [Abstract]

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

A summary of changes in the Company’s restricted shares for the three and six months ended June 30, 2017 and 2016 is as follows: 

	Three Months Ended June 30, 2017				Three Months Ended June 30, 2016
	Shares		Weighted average grant date fair value		Shares		Weighted average grant date fair value
Nonvested at March 31,		120,001	$	20.10		162,500	$	20.08
Granted		111,414		22.59		14,340		13.95
Vested		(28,913)		21.26		(37,672)		18.09
Forfeited		-		-		-		-
Nonvested at June 30,		202,502	$	21.33		139,168	$	19.91

	Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
	Shares		Weighted average grant date fair value		Shares		Weighted average grant date fair value
Nonvested at December 31,		120,001	$	20.10		162,500	$	20.08
Granted		111,414		22.59		14,340		13.95
Vested		(28,913)		21.26		(37,672)		18.09
Forfeited		-		-		-		-
Nonvested at June 30,		202,502	$	21.33		139,168	$	19.91

XML

EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

 For the three and six months ended June 30, 2017 and 2016, the Company’s basic earnings per share is computed using the two-class method, and our diluted earnings per share is computed using the more dilutive of the treasury stock method or two-class method:

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Shares outstanding
Weighted average common shares - basic		9,850,967		5,948,555		9,356,744		5,974,277
Effect of dilutive securities		182,062		155,652		151,203		159,076
Weighted average common shares, all classes		10,033,029		6,104,207		9,507,947		6,133,353
Calculation of Earnings per Share - basic
Net income	$	5,194	$	5,412	$	6,977	$	6,534
Less:
Net income allocated to preferred stockholders		177		n/a		723		n/a
Net income allocated to unvested restricted shares (1)		91		138		99		170
Net income attributable to common shareholders - two-class method	$	4,926	$	5,274	$	6,155	$	6,364
Weighted average common shares - basic		9,850,967		5,948,555		9,356,744		5,974,277
Earnings per share - basic	$	0.50	$	0.89	$	0.66	$	1.07
Calculation of Earnings per Share - diluted
Net income	$	5,194	$	5,412	$	6,977	$	6,534
Less:
Net income allocated to preferred stockholders		177		n/a		723		n/a
Net income attributable to common shareholders - two-class method	$	5,017	$	5,412	$	6,254	$	6,534
Weighted average common shares - diluted		10,033,029		6,104,207		9,507,947		6,133,353
Earnings per share - diluted	$	0.50	$	0.89	$	0.66	$	1.07

⁽¹⁾ Unvested restricted shares participate in dividends with common shares on a 1:1 basis and thus are considered participating securities under the two-class method for the three and six months ended June 30, 2017 and 2016.

XML

SUBSEQUENT EVENTS (Tables)

6 Months Ended

Jun. 30, 2017

Development Property Investment [Member]

Investment Holdings, Schedule of Investments [Table Text Block]

Subsequent to June 30, 2017, the Company closed on the following development property investment with a profits interest:

Closing Date	MSA	Total Investment Commitment
7/27/2017	Jacksonville 3	$	8,096
	Total	$	8,096

XML

SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Development property investments	$ 163,979	$ 95,102
Operating property loans	8,790	9,905
Total investments	172,769	105,007
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Development property investments	0	0
Operating property loans	0	0
Total investments	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Development property investments	0	0
Operating property loans	0	0
Total investments	0	0
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Development property investments	163,979	95,102
Operating property loans	8,790	9,905
Total investments	$ 172,769	$ 105,007

XML

SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Supplemental disclosure of cash flow information:
Interest paid	$ 433	$ 20
Supplemental disclosure of non-cash investing and financing activities:
Stock dividend paid on preferred stock	1,194	0
Dividends declared, but not paid, on preferred stock	177	0
Dividends declared, but not paid, on common stock	4,983	2,087
Contribution of assets to real estate venture	0	7,693
Reclassification of self-storage real estate owned	6,066	0
Other loans paid off with issuance of development property investments	$ 1,410	$ 0

XML

SIGNIFICANT ACCOUNTING POLICIES (Details Textual) - USD ($)	1 Months Ended	3 Months Ended	6 Months Ended
	Jul. 27, 2016	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Significant Accounting Policies [Line Items]
Deferred Offering Costs	$ 2,800,000		$ 2,200,000
Other Nonrecurring (Income) Expense		$ 200,000		$ 2,100,000
Time Deposits, at or Above FDIC Insurance Limit			$ 250,000
Building and Building Improvements [Member]
Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			40 years
Series A Preferred Stock [Member]
Significant Accounting Policies [Line Items]
Value of Shares to Be issued Prior to Commitment Period	$ 50,000,000		$ 50,000,000
Cumulative Preferred Stock [Member]
Significant Accounting Policies [Line Items]
Decrease in Cumulative Preferred Stock Value			$ 600,000
Development Property Investment [Member]
Significant Accounting Policies [Line Items]
Equity Method Investment, Ownership Percentage			49.90%

XML

INVESTMENTS (Details) - USD ($) $ in Thousands		6 Months Ended		12 Months Ended
		Jun. 30, 2017		Dec. 31, 2016
Schedule of Investments [Line Items]
Funded Investment		$ 157,466		$ 86,905
Development property investments, Fair Value		163,979		95,102
Operating property loans, Fair Value		8,790		9,905
Investments, Fair Value Disclosure		172,769		105,007
Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		355,254		131,865
Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	148,686		76,915
Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		206,568		54,950
Loan investments [Member]
Schedule of Investments [Line Items]
Development property investments, Fair Value		154,987		78,663
Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		337,521		101,840
Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	139,454		60,201
Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		198,067		41,639
Construction Loans [Member]
Schedule of Investments [Line Items]
Development property investments, Fair Value		8,992		16,439
Construction Loans [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		17,733		30,025
Construction Loans [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	9,232		16,714
Construction Loans [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		8,501		13,311
Operating Property Loans [Member]
Schedule of Investments [Line Items]
Operating property loans, Fair Value		8,790
Operating Property Loans [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		8,782		9,992
Operating Property Loans [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	8,780		9,990
Operating Property Loans [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		2		2
Development Property Investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		364,036		141,857
Development Property Investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	157,466		86,905
Development Property Investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 206,570		$ 54,952
Orlando 1 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		4/21/2015		4/21/2015
Development property investments, Fair Value		$ 1,347	[2],[3]	$ 7,302	[4]
Orlando 1 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		5,372	[2]	5,372	[4]
Orlando 1 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	5,367	[2],[3]	5,308	[4]
Orlando 1 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 5	[2],[3]	$ 64	[4]
Atlanta 1 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/10/2015		6/10/2015
Development property investments, Fair Value		$ 10,736	[2]	$ 10,404	[4]
Atlanta 1 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		8,132	[2]	8,132	[4]
Atlanta 1 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	7,908	[2]	7,694	[4]
Atlanta 1 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 224	[2]	$ 438	[4]
Tampa 1 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/19/2015		6/19/2015
Development property investments, Fair Value		$ 6,369	[2]	$ 6,279	[4]
Tampa 1 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		5,369	[2]	5,369	[4]
Tampa 1 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	5,285	[2]	5,285	[4]
Tampa 1 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 84	[2]	$ 84	[4]
Atlanta 2 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/26/2015		6/26/2015
Development property investments, Fair Value		$ 9,043	[2]	$ 8,900	[4]
Atlanta 2 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		6,050	[2]	6,050	[4]
Atlanta 2 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	5,684	[2]	5,620	[4]
Atlanta 2 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 366	[2]	$ 430	[4]
Charlotte 1 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/29/2015		6/29/2015
Development property investments, Fair Value		$ 10,361	[2]	$ 9,853	[4]
Charlotte 1 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		7,624	[2]	7,624	[4]
Charlotte 1 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	7,065	[2]	6,842	[4]
Charlotte 1 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 559	[2]	$ 782	[4]
Milwaukee | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		7/2/2015		7/2/2015
Development property investments, Fair Value		$ 8,304	[2]	$ 7,008	[4]
Milwaukee | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		7,650	[2]	7,650	[4]
Milwaukee | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	6,870	[2]	5,608	[4]
Milwaukee | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 780	[2]	$ 2,042	[4]
New Haven | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		7/31/2015		7/31/2015
Development property investments, Fair Value		$ 8,058	[2]	$ 6,730	[4]
New Haven | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		6,930	[2]	6,930	[4]
New Haven | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	6,093	[2]	5,257	[4]
New Haven | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 837	[2]	$ 1,673	[4]
Pittsburgh | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		8/10/2015		8/10/2015
Development property investments, Fair Value		$ 5,936	[2]	$ 4,551
Pittsburgh | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		5,266	[2]	5,266
Pittsburgh | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	4,361	[2]	3,497
Pittsburgh | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 905	[2]	$ 1,769
Raleigh | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		8/14/2015		8/14/2015
Development property investments, Fair Value		$ 3,335		$ 1,396
Raleigh | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		8,792		8,792
Raleigh | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	3,417		1,460
Raleigh | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 5,375		$ 7,332
Jacksonville 1 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		9/30/2015		9/30/2015
Development property investments, Fair Value		$ 8,320	[2]	$ 7,962	[4]
Jacksonville 1 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		6,445	[2]	6,445	[4]
Jacksonville 1 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	5,988	[2]	5,852	[4]
Jacksonville 1 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 457	[2]	$ 593	[4]
Austin | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		10/27/2015		10/27/2015
Development property investments, Fair Value		$ 8,619	[2]	$ 5,192	[5]
Austin | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		8,658	[2]	8,658	[5]
Austin | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	6,866	[2]	4,366	[5]
Austin | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 1,792	[2]	$ 4,292	[5]
Charlotte 2 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		9/20/2016		9/20/2016
Development property investments, Fair Value		$ 2,796		$ 1,298
Charlotte 2 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		12,888		12,888
Charlotte 2 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	3,029		1,446
Charlotte 2 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 9,859		$ 11,442
Orlando 2 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		11/17/2016		11/17/2016
Development property investments, Fair Value		$ 3,577	[6]	$ 1,237
Orlando 2 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		5,134		5,134
Orlando 2 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	2,994	[6]	1,342
Orlando 2 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 2,140	[6]	$ 3,792
Jacksonville 2 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		11/17/2016		11/17/2016
Development property investments, Fair Value		$ 3,011	[6]	$ 551
Jacksonville 2 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		7,530	[6]	7,530
Jacksonville 2 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	2,847	[6]	624
Jacksonville 2 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 4,683	[6]	$ 6,906
New York City 1 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		1/4/2017
Development property investments, Fair Value	[6]	$ 12,509
New York City 1 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[6]	16,117
New York City 1 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1],[6]	11,093
New York City 1 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[6]	$ 5,024
Atlanta 3 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		1/18/2017
Development property investments, Fair Value		$ 3,295
Atlanta 3 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		14,115
Atlanta 3 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	3,385
Atlanta 3 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 10,730
Atlanta 4 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		1/31/2017
Development property investments, Fair Value		$ 5,824
Atlanta 4 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		13,678
Atlanta 4 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	5,866
Atlanta 4 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 7,812
Orlando 3 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		2/24/2017
Development property investments, Fair Value		$ 835
Orlando 3 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		8,056
Orlando 3 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	905
Orlando 3 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 7,151
New Orleans | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		2/24/2017
Development property investments, Fair Value		$ 0
New Orleans | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		12,549
New Orleans | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	0
New Orleans | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 12,549
Atlanta 5 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		2/27/2017
Development property investments, Fair Value		$ 4,737
Atlanta 5 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		17,492
Atlanta 5 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	4,854
Atlanta 5 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 12,638
Fort Lauderdale | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		3/1/2017
Development property investments, Fair Value		$ 1,661
Fort Lauderdale | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		9,952
Fort Lauderdale | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	1,740
Fort Lauderdale | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 8,212
Houston | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		3/1/2017
Development property investments, Fair Value		$ 3,445
Houston | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		13,630
Houston | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	3,532
Houston | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 10,098
West Palm Beach | Construction Loans [Member]
Schedule of Investments [Line Items]
Investment Closing Date				8/5/2015
Development property investments, Fair Value	[7]			$ 6,702
West Palm Beach | Construction Loans [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[7]			7,500
West Palm Beach | Construction Loans [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1],[7]			6,712
West Palm Beach | Construction Loans [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[7]			$ 788
Sarasota | Construction Loans [Member]
Schedule of Investments [Line Items]
Investment Closing Date				8/5/2015
Development property investments, Fair Value	[7]			$ 3,473
Sarasota | Construction Loans [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[7]			4,792
Sarasota | Construction Loans [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1],[7]			3,485
Sarasota | Construction Loans [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[7]			$ 1,307
Miami | Construction Loans [Member]
Schedule of Investments [Line Items]
Investment Closing Date		12/23/2015		12/23/2015
Development property investments, Fair Value		$ 8,992		$ 6,264
Miami | Construction Loans [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		17,733		17,733
Miami | Construction Loans [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	9,232		6,517
Miami | Construction Loans [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 8,501		$ 11,216
New Orleans | Operating Property Loans [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/19/2015		6/19/2015
Operating property loans, Fair Value		$ 2,792	[8]	$ 2,768
New Orleans | Operating Property Loans [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		2,800	[8]	2,800
New Orleans | Operating Property Loans [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	2,800	[8]	2,800
New Orleans | Operating Property Loans [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 0	[8]	$ 0
Newark | Operating Property Loans [Member]
Schedule of Investments [Line Items]
Investment Closing Date		7/7/2015		7/7/2015
Operating property loans, Fair Value		$ 3,482		$ 3,441
Newark | Operating Property Loans [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		3,480		3,480
Newark | Operating Property Loans [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	3,480		3,480
Newark | Operating Property Loans [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 0		$ 0
Nashville | Operating Property Loans [Member]
Schedule of Investments [Line Items]
Investment Closing Date				10/30/2015
Operating property loans, Fair Value	[7]			$ 1,204
Nashville | Operating Property Loans [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[7]			1,210
Nashville | Operating Property Loans [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1],[7]			1,210
Nashville | Operating Property Loans [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[7]			$ 0
Chicago | Operating Property Loans [Member]
Schedule of Investments [Line Items]
Investment Closing Date		12/22/2015		12/22/2015
Operating property loans, Fair Value		$ 2,516		$ 2,492
Chicago | Operating Property Loans [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		2,502		2,502
Chicago | Operating Property Loans [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	2,500		2,500
Chicago | Operating Property Loans [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 2		$ 2
Louisville | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		4/14/2017
Development property investments, Fair Value		$ 542
Louisville | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		8,523
Louisville | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	627
Louisville | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 7,896
Denver 1 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		4/20/2017
Development property investments, Fair Value		$ 1,783
Denver 1 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		9,806
Denver 1 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	1,873
Denver 1 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 7,933
Denver 2 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		4/20/2017
Development property investments, Fair Value		$ 2,035
Denver 2 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		11,164
Denver 2 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	2,137
Denver 2 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 9,027
Atlanta 6 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		5/2/2017
Development property investments, Fair Value		$ 3,565
Atlanta 6 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		12,543
Atlanta 6 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	3,671
Atlanta 6 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 8,872
Tampa 2 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		5/2/2017
Development property investments, Fair Value		$ 1,508
Tampa 2 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		8,091
Tampa 2 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	1,584
Tampa 2 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 6,507
Tampa 3 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		5/19/2017
Development property investments, Fair Value		$ 1,434
Tampa 3 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		9,224
Tampa 3 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	1,524
Tampa 3 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 7,700
Tampa 4 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/12/2017
Development property investments, Fair Value		$ 2,293
Tampa 4 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		10,266
Tampa 4 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	2,391
Tampa 4 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 7,875
Baltimore | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/19/2017
Development property investments, Fair Value	[9]	$ 2,008
Baltimore | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[9]	10,775
Baltimore | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1],[9]	2,199
Baltimore | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[9]	$ 8,576
Knoxville | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/28/2017
Development property investments, Fair Value		$ 738
Knoxville | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		9,115
Knoxville | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	829
Knoxville | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 8,286
Boston | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/29/2017
Development property investments, Fair Value		$ 1,326
Boston | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		14,103
Boston | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1]	1,466
Boston | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment		$ 12,637
New York City 2 | Loan investments [Member]
Schedule of Investments [Line Items]
Investment Closing Date		6/30/2017
Development property investments, Fair Value	[9]	$ 15,637
New York City 2 | Loan investments [Member] | Investment Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[9]	26,482
New York City 2 | Loan investments [Member] | Funded Investment [Member]
Schedule of Investments [Line Items]
Funded Investment	[1],[9]	16,004
New York City 2 | Loan investments [Member] | Unfunded Commitment [Member]
Schedule of Investments [Line Items]
Investment Commitment	[9]	$ 10,478

[1] Represents principal balance of loan gross of origination fees.

[2] Facility had received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

[3] In February 2017, the Company purchased, for $1.3 million, 50% of the economic rights of the Class A membership units of the limited liability company which owns this development property investment, thus increasing the Company’s profits interest in this investment from 49.9% to 74.9%. As such, the Company’s investment was reclassified as self-storage real estate owned in the June 30, 2017 Consolidated Balance Sheet. See Note 7, Self-storage Real Estate Owned, for additional discussion. The committed and funded investment amounts in this table pertain to the full terms of the development investment, while the fair value represents only the portion (25.1%) of the principal balance constituting a loan to the Class A member.

[4] Facility had received certificate of occupancy as of December 31, 2016. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

[5] Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of December 31, 2016. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

[6] Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

[7] These investments were fully repaid in the six months ended June 30, 2017.

[8] This investment was fully repaid in July 2017.

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

XML

INVESTMENTS (Details 1) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Schedule of Investments [Line Items]
Funded principal	$ 157,466		$ 86,905
Adjustments:
Unamortized origination fees	(3,471)		(1,056)
Change in fair value of investments	24,924		19,242
Reclassification of self-storage real estate owned	(6,066)	$ 0
Other	(84)		(84)
Fair value of investments	$ 172,769		$ 105,007

XML

INVESTMENTS (Details Textual) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Feb. 03, 2017	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Schedule of Investments [Line Items]
Number Of Investment				33
Revenues		$ 2,599	$ 1,533	$ 4,900	$ 2,676
Operating Income (Loss), Total		440	$ (508)	$ 478	$ (3,199)
Investment Owned, Funded Investment Percentage				25.10%
New Orleans MSA Development Property Investment [Member]
Schedule of Investments [Line Items]
Equity Method Investment, Summarized Financial Information, Net Income (Loss)				$ 1,800
Construction Loans [Member]
Schedule of Investments [Line Items]
Mortgage Loans on Real Estate, Periodic Payment Terms				18 months
Mortgage Loans on Real Estate, Interest Rate				6.90%
Other Commitment		$ 17,700		$ 17,700
Development Property Investment [Member]
Schedule of Investments [Line Items]
Mortgage Loans on Real Estate, Periodic Payment Terms				72 months
Equity Method Investment, Ownership Percentage		49.90%		49.90%
Mortgage Loans on Real Estate, Interest Rate				6.90%
Equity Method Investment, Assets, Total		$ 157,300		$ 157,300		$ 71,000
Equity Method Investment, Liabilities, Total		134,100		134,100		60,200
Other Commitment		337,500		337,500
Revenues		700		1,200
Operating Income (Loss), Total		100		$ 100
Put Option Purchase Price Terms				an investor has an option to put its interest to the Company upon the event of default of the underlying property loans. The put, if exercised, requires the Company to purchase the members interest at the original purchase price plus a yield of 4.5% on such purchase price.
Development Property Investment [Member] | Class A ship Units [Member]
Schedule of Investments [Line Items]
Investment Owned, Balance, Principal Amount	$ 1,300
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	50.00%
Development Property Investment [Member] | Maximum [Member] | Class A ship Units [Member]
Schedule of Investments [Line Items]
Equity Method Investment, Ownership Percentage	74.90%
Development Property Investment [Member] | Minimum [Member] | Class A ship Units [Member]
Schedule of Investments [Line Items]
Equity Method Investment, Ownership Percentage	49.90%
Operating Property Loans [Member]
Schedule of Investments [Line Items]
Mortgage Loans on Real Estate, Periodic Payment Terms				72 months
Other Commitment		8,800		$ 8,800
Operating Property Loans [Member] | Maximum [Member]
Schedule of Investments [Line Items]
Mortgage Loans on Real Estate, Interest Rate				6.90%
Operating Property Loans [Member] | Minimum [Member]
Schedule of Investments [Line Items]
Mortgage Loans on Real Estate, Interest Rate				5.85%
Total Commitment [Member] | Maximum [Member]
Schedule of Investments [Line Items]
Other Commitment		364,000		$ 364,000		141,900
Total Commitment [Member] | Minimum [Member]
Schedule of Investments [Line Items]
Other Commitment		$ 157,500		$ 157,500		$ 86,900

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details)		6 Months Ended		12 Months Ended
		Jun. 30, 2017		Dec. 31, 2016
Development Property Investments [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Primary Valuation Techniques	[1]	Income approach analysis		Income approach analysis
Development Property Investments [Member] | Minimum [Member] | Income approach analysis [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Exit date		6 months 29 days	[1]	2 months 1 day
Market yields/ discount rate		7.97%		7.23%
Development Property Investments [Member] | Maximum [Member] | Income approach analysis [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Exit date		5 years	[1]	3 years 10 months 17 days
Market yields/ discount rate		10.33%		9.28%
Development Property Investments [Member] | Weighted Average [Member] | Income approach analysis [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Exit date		2 years 8 months 16 days	[1]	1 year 9 months 22 days
Market yields/ discount rate		8.70%		8.34%
Loan Investments With Profits Interest [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Primary Valuation Techniques	[2]	Option pricing model		Option pricing model
Loan Investments With Profits Interest [Member] | Minimum [Member] | Option pricing model [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Volatility		63.58%	[2]	68.72%
Exit date		11 months 1 day	[2]	1 year 5 months 1 day
Capitalization rate	[2]	5.25%	[3]	5.25%	[4]
Market yields/ discount rate				8.25%
Loan Investments With Profits Interest [Member] | Maximum [Member] | Option pricing model [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Volatility		90.26%	[2]	73.46%
Exit date		5 years	[2]	3 years 10 months 17 days
Capitalization rate	[2]	5.50%	[3]	5.50%	[4]
Market yields/ discount rate				8.50%
Loan Investments With Profits Interest [Member] | Weighted Average [Member] | Option pricing model [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Volatility		70.77%	[2]	73.17%
Exit date		2 years 9 months 29 days	[2]	2 years 1 month 13 days
Capitalization rate	[2]	5.47%	[3]	5.47%	[4]
Market yields/ discount rate		8.47%		8.47%
Operating Property Loans [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Primary Valuation Techniques		Income approach analysis		Income approach analysis
Operating Property Loans [Member] | Minimum [Member] | Income approach analysis [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Exit date		4 years	[5]	4 years 6 months
Market yields/ discount rate		5.84%		6.09%
Operating Property Loans [Member] | Maximum [Member] | Income approach analysis [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Exit date		5 years 1 month 28 days	[5]	5 years 7 months 28 days
Market yields/ discount rate		6.98%		7.20%
Operating Property Loans [Member] | Weighted Average [Member] | Income approach analysis [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Exit date		4 years 7 months 6 days	[5]	5 years 25 days
Market yields/ discount rate		6.46%		6.73%

[1] The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. Therefore, this line item focuses on all development property investments, including those with a profits interest.

[2] The valuation technique for the development property investments with a profits interest does not differ from the development property investments without a profits interest. The development property investments with a profits interest only require incremental valuation techniques to determine the value of the profits interest. Therefore this line only focuses on the profits interest valuation.

[3] Thirteen properties were 40% - 100% complete, thus requiring a capitalization rate to derive entrepreneurial profit. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.

[4] Ten properties were 40% - 100% complete, thus requiring a capitalization rate to derive entrepreneurial profit. Capitalization rates are estimated based on current data derived from independent sources in the markets in which the Company holds investments.

[5] The exit dates for the operating property loans are the contractual maturity dates.

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 1) - Market Yield And Discount Rate [Member] - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Up 25 Basis Points [Member]
Investments in and Advances to Affiliates [Line Items]
Increase (decrease) in fair value of investments	$ (0.8)	$ (0.3)
Down 25 Basis Points [Member]
Investments in and Advances to Affiliates [Line Items]
Increase (decrease) in fair value of investments	$ 0.8	$ 0.3

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Up 25 Basis Points [Member]
Investments in and Advances to Affiliates [Line Items]
Increase (decrease) in fair value of investments	$ (2.2)	$ (2.1)
Down 25 Basis Points [Member]
Investments in and Advances to Affiliates [Line Items]
Increase (decrease) in fair value of investments	2.4	2.3
Up 50 basis points [Member]
Investments in and Advances to Affiliates [Line Items]
Increase (decrease) in fair value of investments	(4.2)	(3.8)
Down 50 Basis Points [Member]
Investments in and Advances to Affiliates [Line Items]
Increase (decrease) in fair value of investments	$ 5.0	$ 4.6

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Balance as of December 31, 2016			$ 105,007
Net realized gains			0
Net unrealized gains	$ 4,289	$ 5,527	5,682	$ 9,318
Fundings of principal and change in unamortized origination fees			77,271
Repayments of loans			(12,239)
Payment-in-kind interest			3,114
Reclassification of self-storage real estate owned			6,066	$ 0
Net transfers in or out of Level 3			0
Balance at June 30, 2017	$ 172,769		$ 172,769

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details Textual) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Fair Value, Concentration of Risk, Financial Statement Captions [Line Items]
Investment Owned, Unrecognized Unrealized Appreciation (Depreciation), Net	$ 24.9	$ 19.2
Minimum [Member]
Fair Value, Concentration of Risk, Financial Statement Captions [Line Items]
Percentage of Completion of construction	40.00%
Maximum [Member]
Fair Value, Concentration of Risk, Financial Statement Captions [Line Items]
Percentage of Completion of construction	100.00%

XML

INVESTMENT IN REAL ESTATE VENTURE (Details) - USD ($) $ in Thousands		6 Months Ended
		Jun. 30, 2017	Dec. 31, 2016
Real Estate Properties [Line Items]
Equity Method Investments, Fair Value Disclosure		$ 163,979	$ 95,102
Funded Investment		157,466	86,905
Loans and Finance Receivables [Member]
Real Estate Properties [Line Items]
Investment Commitment		355,254	131,865
Loan Origination Commitments [Member]
Real Estate Properties [Line Items]
Funded Investment	[1]	148,686	76,915
Unfunded Loan Commitment [Member]
Real Estate Properties [Line Items]
Investment Commitment		206,568	54,950
Loan investments [Member]
Real Estate Properties [Line Items]
Equity Method Investments, Fair Value Disclosure		154,987	78,663
Loan investments [Member] | SL1 Venture [Member]
Real Estate Properties [Line Items]
Equity Method Investments, Fair Value Disclosure		$ 66,766
Loan investments [Member] | Miami 1 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		5/14/2015
Equity Method Investments, Fair Value Disclosure	[2],[3]	$ 9,610
Loan investments [Member] | Miami 2 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		5/14/2015
Equity Method Investments, Fair Value Disclosure	[2],[3]	$ 7,321
Loan investments [Member] | Fort Lauderdale | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		9/25/2015
Equity Method Investments, Fair Value Disclosure	[3]	$ 5,419
Loan investments [Member] | Washington DC | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		4/15/2016
Equity Method Investments, Fair Value Disclosure	[2]	$ 12,600
Loan investments [Member] | Atlanta 1 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		4/29/2016
Equity Method Investments, Fair Value Disclosure	[2]	$ 3,641
Loan investments [Member] | Jacksonville | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		7/19/2016
Equity Method Investments, Fair Value Disclosure	[2]	$ 7,398
Loan investments [Member] | New Jersey | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		7/21/2016
Equity Method Investments, Fair Value Disclosure		$ 1,090
Loan investments [Member] | Atlanta 2 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		8/15/2016
Equity Method Investments, Fair Value Disclosure	[2]	$ 5,474
Loan investments [Member] | Denver | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		8/25/2016
Equity Method Investments, Fair Value Disclosure	[2]	$ 6,811
Loan investments [Member] | Columbia | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		9/28/2016
Equity Method Investments, Fair Value Disclosure	[2]	$ 5,819
Loan investments [Member] | Raleigh | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Closing Date		12/22/2016
Equity Method Investments, Fair Value Disclosure		$ 1,583
Loan investments [Member] | Loans and Finance Receivables [Member]
Real Estate Properties [Line Items]
Investment Commitment		337,521	101,840
Loan investments [Member] | Loans and Finance Receivables [Member] | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment		123,273
Loan investments [Member] | Loans and Finance Receivables [Member] | Miami 1 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2],[3]	13,867
Loan investments [Member] | Loans and Finance Receivables [Member] | Miami 2 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2],[3]	14,849
Loan investments [Member] | Loans and Finance Receivables [Member] | Fort Lauderdale | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[3]	13,230
Loan investments [Member] | Loans and Finance Receivables [Member] | Washington DC | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	17,269
Loan investments [Member] | Loans and Finance Receivables [Member] | Atlanta 1 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	10,223
Loan investments [Member] | Loans and Finance Receivables [Member] | Jacksonville | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	8,127
Loan investments [Member] | Loans and Finance Receivables [Member] | New Jersey | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment		7,828
Loan investments [Member] | Loans and Finance Receivables [Member] | Atlanta 2 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	8,772
Loan investments [Member] | Loans and Finance Receivables [Member] | Denver | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	11,032
Loan investments [Member] | Loans and Finance Receivables [Member] | Columbia | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	9,199
Loan investments [Member] | Loans and Finance Receivables [Member] | Raleigh | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment		8,877
Loan investments [Member] | Loan Origination Commitments [Member]
Real Estate Properties [Line Items]
Funded Investment	[1]	139,454	60,201
Loan investments [Member] | Loan Origination Commitments [Member] | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1]	61,525
Loan investments [Member] | Loan Origination Commitments [Member] | Miami 1 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1],[2],[3]	8,631
Loan investments [Member] | Loan Origination Commitments [Member] | Miami 2 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1],[2],[3]	7,299
Loan investments [Member] | Loan Origination Commitments [Member] | Fort Lauderdale | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1],[3]	5,531
Loan investments [Member] | Loan Origination Commitments [Member] | Washington DC | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1],[2]	11,628
Loan investments [Member] | Loan Origination Commitments [Member] | Atlanta 1 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1],[2]	3,475
Loan investments [Member] | Loan Origination Commitments [Member] | Jacksonville | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1],[2]	5,697
Loan investments [Member] | Loan Origination Commitments [Member] | New Jersey | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1]	1,161
Loan investments [Member] | Loan Origination Commitments [Member] | Atlanta 2 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1],[2]	4,900
Loan investments [Member] | Loan Origination Commitments [Member] | Denver | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1],[2]	6,100
Loan investments [Member] | Loan Origination Commitments [Member] | Columbia | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1],[2]	5,462
Loan investments [Member] | Loan Origination Commitments [Member] | Raleigh | SL1 Venture [Member]
Real Estate Properties [Line Items]
Funded Investment	[1]	1,641
Loan investments [Member] | Unfunded Loan Commitment [Member]
Real Estate Properties [Line Items]
Investment Commitment		198,067	$ 41,639
Loan investments [Member] | Unfunded Loan Commitment [Member] | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment		61,748
Loan investments [Member] | Unfunded Loan Commitment [Member] | Miami 1 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2],[3]	5,236
Loan investments [Member] | Unfunded Loan Commitment [Member] | Miami 2 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2],[3]	7,550
Loan investments [Member] | Unfunded Loan Commitment [Member] | Fort Lauderdale | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[3]	7,699
Loan investments [Member] | Unfunded Loan Commitment [Member] | Washington DC | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	5,641
Loan investments [Member] | Unfunded Loan Commitment [Member] | Atlanta 1 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	6,748
Loan investments [Member] | Unfunded Loan Commitment [Member] | Jacksonville | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	2,430
Loan investments [Member] | Unfunded Loan Commitment [Member] | New Jersey | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment		6,667
Loan investments [Member] | Unfunded Loan Commitment [Member] | Atlanta 2 | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	3,872
Loan investments [Member] | Unfunded Loan Commitment [Member] | Denver | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	4,932
Loan investments [Member] | Unfunded Loan Commitment [Member] | Columbia | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment	[2]	3,737
Loan investments [Member] | Unfunded Loan Commitment [Member] | Raleigh | SL1 Venture [Member]
Real Estate Properties [Line Items]
Investment Commitment		$ 7,236

[1] Represents principal balance of loan gross of origination fees.

[2] Facility had achieved at least 40% construction completion but had not received certificate of occupancy as of June 30, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.

[3] These development property investments (having approximately $8.1 million of outstanding principal at contribution) were contributed to the SL1 Venture on March 31, 2016 by the Company.

XML

INVESTMENT IN REAL ESTATE VENTURE (Details Textual) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended		12 Months Ended
	Mar. 07, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Mar. 31, 2016
Investments Real Estate Properties [Line Items]
Real Estate Investments, Joint Ventures		$ 14,314		$ 14,314		$ 5,373
Other Nonrecurring (Income) Expense			$ 200		$ 2,100
Investments in Joint Venture, Distribution Terms				1% of the committed principal amount of loans made by the SL1 Venture, exclusive of the loans contributed to the SL1 Venture by the Company. Operating cash flow of the SL1 Venture (after debt service, reserves and the foregoing priority distributions) is distributed in accordance with capital commitments. Residual cash flow from capital and other events (after debt service, reserves and priority distributions) will be distributed (i) pro rata in accordance with capital commitments (its Percentage Interest) until each member has received a return of all capital contributed; (ii) pro rata in accordance with each members Percentage Interest until Heitman has achieved a 14% internal rate of return; (iii) to Heitman in an amount equal to its Percentage Interest less 10% and to the Company in an amount equal to the Companys Percentage Interest plus 10% until Heitman has achieved a 17% internal rate of return; (iv) to Heitman in an amount equal to its Percentage Interest less 20% and to the Company in an amount equal to the Companys Percentage Interest plus 20% until Heitman has achieved a 20% internal rate of return; and (v) any excess to Heitman in an amount equal to its Percentage Interest less 30% and to the Company in an amount equal to the Companys Percentage Interest plus 30%. However, the Company will not be entitled to any such promoted interest prior to the earlier to occur of the third anniversary of the JV Agreement and Heitman receiving distributions to the extent necessary to provide Heitman with a 1.48 multiple on its contributed capital.
Loans Receivable, Net		157,466		$ 157,466		86,905
Parent Company [Member]
Investments Real Estate Properties [Line Items]
Equity Method Investment, Summarized Financial Information, Net Income (Loss)		600		1,000
SL1 Venture [Member]
Investments Real Estate Properties [Line Items]
Real Estate Investments, Joint Ventures		81,400		81,400
Investment Owned, Balance, Principal Amount		123,300		123,300
Equity Method Investment, Summarized Financial Information, Assets, Total		69,500		69,500
Other Nonrecurring (Income) Expense				200
Equity Method Investment, Summarized Financial Information, Liabilities, Total		7,500		7,500
Equity Method Investment, Summarized Financial Information, Net Income (Loss)		5,200		$ 7,500
Investment Yield Percentage On Purchase Price				4.50%
Loans Receivable, Net							$ 8,100
Proceeds from Real Estate and Real Estate Joint Ventures						7,300
SL1 Venture [Member] | Parent Company [Member]
Investments Real Estate Properties [Line Items]
Real Estate Investments, Joint Ventures		12,300		$ 12,300
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	10.00%			10.00%
Investment Owned, Balance, Principal Amount							41,900
Investments in Affiliates, Subsidiaries, Associates, and Joint Ventures, Fair Value Disclosure							7,700
Loans Receivable, Net	$ 12,200						$ 8,100
Heitman And Large Institutional Co-Investor [Member] | SL1 Venture [Member]
Investments Real Estate Properties [Line Items]
Real Estate Investments, Joint Ventures	$ 110,000
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	90.00%
Other Nonrecurring (Income) Expense				$ 7,400		2,300
Payments to Acquire Interest in Joint Venture						$ 7,300
HVP III Storage Lenders Investor, LLC [Member]
Investments Real Estate Properties [Line Items]
Equity Method Investment, Summarized Financial Information, Net Income (Loss)		4,600		6,500
HVP III Storage Lenders Investor, LLC [Member] | SL1 Venture [Member]
Investments Real Estate Properties [Line Items]
Real Estate Investments, Joint Ventures		$ 111,000		$ 111,000
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest				90.00%

XML

VARIABLE INTEREST ENTITIES (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Variable Interest Entity [Line Items]
Assets recorded related to VIEs	$ 163,979	$ 95,102
Unfunded loan commitments to VIEs	206,568	54,950
Maximum exposure to loss	$ 370,547	$ 150,052

XML

VARIABLE INTEREST ENTITIES (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Variable Interest Entity [Line Items]
Equity Method Investments, Fair Value Disclosure	$ 163,979	$ 95,102
Investment in Real Estate Venture [Member]
Variable Interest Entity [Line Items]
Other Commitment	12,300
Investment in Real Estate Venture [Member] | Unfunded Loan Commitment [Member]
Variable Interest Entity [Line Items]
Other Commitment	$ 6,100	$ 9,400

XML

SELF-STORAGE REAL ESTATE OWNED (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Self-storage real estate owned	$ 7,283	$ 0
Real Estate Investment [Member]
Cash	5
Land	1,507
Building and improvements	5,890
Accumulated depreciation	(114)
Self-storage real estate owned	7,283
Accrued liabilities	$ 15

XML

SELF-STORAGE REAL ESTATE OWNED (Details 1) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Rental revenues	$ 105	$ 0	$ 168	$ 0
Real Estate Investment [Member]
Rental revenues	105		168
General property operating expenses	(43)		(74)
Depreciation expense	(38)		(62)
Property operating expenses of real estate owned	$ (81)		$ (136)

XML

SELF-STORAGE REAL ESTATE OWNED (Details Textual) - USD ($) $ in Thousands		6 Months Ended
	Feb. 03, 2017	Jun. 30, 2017	Jun. 30, 2016
Payments To Self Storage Real Estate Owned		$ 1,270	$ 0
Development Property Investment [Member]
Equity Method Investment, Ownership Percentage		49.90%
Class A ship Units [Member] | Development Property Investment [Member]
Limited Liability Company (LLC) or Limited Partnership (LP), Members or Limited Partners, Ownership Interest	50.00%
Payments To Self Storage Real Estate Owned	$ 1,300
Class A ship Units [Member] | Development Property Investment [Member] | Minimum [Member]
Equity Method Investment, Ownership Percentage	49.90%
Class A ship Units [Member] | Development Property Investment [Member] | Maximum [Member]
Equity Method Investment, Ownership Percentage	74.90%

XML

OTHER LOANS, AT COST (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Proceeds from Other Debt	$ 1,500
Line of Credit [Member]
Other Investments and Securities, at Cost	1,200	$ 1,700
Line of Credit Facility, Maximum Borrowing Capacity	3,600
Proceeds from Lines of Credit	12,100
Debt Instrument, Face Amount	$ 7,300
Line of Credit [Member] | Maximum [Member]
Line of Credit Facility, Interest Rate During Period	7.00%
Line of Credit [Member] | Minimum [Member]
Line of Credit Facility, Interest Rate During Period	6.90%
Secured Debt [Member]
Secured Debt	$ 5,300	$ 10,100
Debt Instrument, Interest Rate, Stated Percentage	6.90%
Agreement Three [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 250
Agreement Four [Member]
Line of Credit Facility, Maximum Borrowing Capacity	700
Agreement One [Member]
Line of Credit Facility, Maximum Borrowing Capacity	500
Agreement Two [Member]
Line of Credit Facility, Maximum Borrowing Capacity	100
Agreement Five [Member]
Line of Credit Facility, Maximum Borrowing Capacity	1,000
Loan Agreement [Member] | Line of Credit [Member]
Proceeds from Lines of Credit	$ 2,000

XML

SENIOR PARTICIPATIONS (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2017		Dec. 31, 2016
Senior Notes	$ 20,147		$ 18,582
Unamortized fees	(125)		(33)
Senior Participations [Member]
Other Commitment	30,411		30,411
Senior Notes	20,272		18,615
Senior Participations [Member] | Ramaining Funds [Member]
Other Commitment	10,139		11,796
Operating Property A Notes [Member] | Senior Participations [Member]
Other Commitment	1,820	[1]	1,820
Senior Notes	$ 1,820	[1]	$ 1,820
Debt Instrument, Description of Variable Rate Basis	30-day LIBOR + 3.85%	[1]	30-day LIBOR + 3.85%
Debt Instrument, Interest Rate, Stated Percentage	5.07%	[1]	4.47%
Debt Instrument, Maturity Date	Apr. 01, 2019	[1]	Apr. 01, 2019
Operating Property A Notes [Member] | Senior Participations [Member] | Ramaining Funds [Member]
Other Commitment	$ 0	[1]	$ 0
Miami A Note [Member] | Senior Participations [Member]
Other Commitment	10,001		10,001
Senior Notes	$ 732		$ 0
Debt Instrument, Description of Variable Rate Basis	30-day LIBOR + 3.10%		30-day LIBOR + 3.10%
Debt Instrument, Interest Rate, Stated Percentage	4.32%		3.72%
Debt Instrument, Maturity Date	Jan. 31, 2018		Jul. 01, 2017
Miami A Note [Member] | Senior Participations [Member] | Ramaining Funds [Member]
Other Commitment	$ 9,269		$ 10,001
July 2016 A Notes [Member] | Senior Participations [Member]
Other Commitment	14,185	[2]	14,185
Senior Notes	$ 13,679	[2]	$ 13,420
Debt Instrument, Description of Variable Rate Basis	30-day LIBOR + 3.50%	[2]	30-day LIBOR + 3.50%
Debt Instrument, Interest Rate, Stated Percentage	4.72%	[2]	4.12%
Debt Instrument, Maturity Date	Aug. 01, 2019	[2]	Aug. 01, 2019
July 2016 A Notes [Member] | Senior Participations [Member] | Ramaining Funds [Member]
Other Commitment	$ 506	[2]	$ 765
October 2016 A Note [Member] | Senior Participations [Member]
Other Commitment	4,405	[2]	4,405
Senior Notes	$ 4,041	[2]	$ 3,375
Debt Instrument, Description of Variable Rate Basis	30-day LIBOR + 3.50%	[2]	30-day LIBOR + 3.50%
Debt Instrument, Interest Rate, Stated Percentage	4.72%	[2]	4.12%
Debt Instrument, Maturity Date	Sep. 01, 2021	[2]	Sep. 01, 2021
October 2016 A Note [Member] | Senior Participations [Member] | Ramaining Funds [Member]
Other Commitment	$ 364	[2]	$ 1,030

[1] On July 20, 2017, the Company received proceeds of $2.8 million for an early payoff on the remaining Operating Property A Note in the New Orleans, Louisiana MSA, and the Company repurchased the senior participation on this loan. The Company paid the regional commercial bank a total of $1.8 million in conjunction with the repurchase, which included an $18,000 prepayment penalty.

[2] On July 25, 2017, the Company entered into a senior secured revolving credit facility of up to $100 million (the “Credit Facility”) and subsequently repurchased the July 2016 A Notes and October 2016 A Note. See Note 13, Subsequent Events, for further information on the Credit Facility.

XML

SENIOR PARTICIPATIONS (Details Textual) - USD ($) $ in Thousands			1 Months Ended					6 Months Ended
	Dec. 14, 2016	Oct. 18, 2016	Jul. 25, 2017	Jul. 20, 2017	Jul. 26, 2016	May 27, 2016	Apr. 29, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Schedule Of Senior Participations [Line Items]
Proceeds from Notes Payable								$ 1,658	$ 5,049
Senior Notes								20,147		$ 18,582
Loans Receivable, Net								157,466		86,905
Proceeds from Sale of Property, Plant, and Equipment				$ 2,800
Subsequent Event [Member]
Schedule Of Senior Participations [Line Items]
Debt Instrument, Description of Variable Rate Basis			a base rate plus a margin of either 1.75% or 2.75% or LIBOR plus a margin of either 2.75% or 3.75%, in each case depending on the borrowing base available for such loan.
Other Commitment				8,096
Senior Participations [Member]
Schedule Of Senior Participations [Line Items]
Senior Notes								20,272		18,615
Other Commitment								30,411		$ 30,411
Construction Loans [Member]
Schedule Of Senior Participations [Line Items]
Other Commitment								$ 17,700
Senior Notes [Member] | Construction Loans [Member]
Schedule Of Senior Participations [Line Items]
Proceeds from Notes Payable		$ 3,400
Operating Property A Notes [Member]
Schedule Of Senior Participations [Line Items]
Proceeds from Notes Payable	$ 5,200						$ 5,000
Debt Instrument, Description of Variable Rate Basis								30-day LIBOR plus 3.85%, or 5.07%
Debt Instrument, Collateral Amount							$ 500
Senior Notes								$ 1,800
Debt Instrument, Maturity Date							Apr. 01, 2019
Loans Receivable, Net							$ 7,800
Debt Instrument Prepayment Penalty	100			18,000
Repayments of Notes Payable	$ 3,400			$ 1,800
Miami A Note [Member]
Schedule Of Senior Participations [Line Items]
Proceeds from Notes Payable						$ 10,000
Debt Instrument, Description of Variable Rate Basis								30-day LIBOR plus 3.10%, or 4.32%
Debt Instrument, Collateral Amount						7,700
Debt Instrument, Fee Amount						$ 100
Debt Instrument, Fee						loan fee of 100 basis points, or $0.1 million upon closing of the loan
Debt Instrument, Maturity Date						Jul. 01, 2017
Long-term Debt								$ 700
Other Commitment						$ 17,700
July Two Thousand Sixteen A Notes [Member]
Schedule Of Senior Participations [Line Items]
Debt Instrument, Description of Variable Rate Basis								30-day LIBOR plus 3.50%, or 4.72%
Debt Instrument, Collateral Amount					$ 500
July Two Thousand Sixteen A Notes [Member] | Senior Participations [Member] | Subsequent Event [Member]
Schedule Of Senior Participations [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity			$ 100,000
July Two Thousand Sixteen A Notes [Member] | Senior Notes [Member]
Schedule Of Senior Participations [Line Items]
Proceeds from Notes Payable					$ 14,200
Debt Instrument, Interest Rate, Stated Percentage					6.90%
Debt Instrument, Maturity Date					Aug. 01, 2019
Long-term Debt								$ 13,700
Other Commitment					$ 21,800
July Two Thousand Sixteen A Notes [Member] | Senior Notes [Member] | Construction Loans [Member]
Schedule Of Senior Participations [Line Items]
Senior Notes					12,500
Line of Credit Facility, Maximum Borrowing Capacity					$ 14,200
October 2016 A Note [Member]
Schedule Of Senior Participations [Line Items]
Debt Instrument, Face Amount		6,800
Proceeds from Notes Payable		$ 4,400
Debt Instrument, Description of Variable Rate Basis								30-day LIBOR plus 3.50%, or 4.72%
Debt Instrument, Interest Rate, Stated Percentage		6.90%
Debt Instrument, Maturity Date								Sep. 01, 2021
Long-term Debt, Gross								$ 4,000
October 2016 A Note [Member] | Construction Loans [Member]
Schedule Of Senior Participations [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity		$ 4,400

XML

STOCKHOLDERS' EQUITY (Details) - Restricted Stock [Member] - $ / shares	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Class of Stock [Line Items]
Shares, Nonvested shares at beginning of period	120,001	162,500	120,001	162,500	162,500
Shares, Granted	111,414	14,340	111,414	14,340
Shares, Vested	(28,913)	(55,172)	(28,913)	(37,672)	(3,585)
Shares, Forfeited	0	0	0	0	(1,667)
Shares, Nonvested shares at end of period	202,502	139,168	202,502	139,168	120,001
Weighted average grant date fair value, Nonvested at beginning of period	$ 20.1	$ 20.08	$ 20.1	$ 20.08	$ 20.08
Weighted average grant date fair value, Granted	22.59	13.95	22.59	13.95
Weighted average grant date fair value, Vested	21.26	18.09	21.26	18.09
Weighted average grant date fair value, Forfeited	0	0	0	0
Weighted average grant date fair value, Nonvested at end of period	$ 21.33	$ 19.91	$ 21.33	$ 19.91	$ 20.1

XML

STOCKHOLDERS' EQUITY (Details Textual) - USD ($) $ / shares in Units, $ in Thousands				1 Months Ended						3 Months Ended		6 Months Ended		12 Months Ended
	May 03, 2017	Apr. 05, 2017	Dec. 13, 2016	Jun. 27, 2017	Jul. 31, 2016	Jul. 27, 2016	May 20, 2016	Jun. 15, 2015	Apr. 30, 2015	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Dec. 31, 2015	Mar. 31, 2017	Mar. 07, 2017	Mar. 31, 2016
Class of Stock [Line Items]
Common Stock, Shares, Issued										14,238,350		14,238,350		8,956,354
Common Stock, Shares, Outstanding										14,238,350		14,238,350		8,956,354
Preferred Stock, Shares Authorized						100,000,000
Stock Issued During Period, Shares, New Issues			2,996,311	4,025,000
Proceeds from Issuance of Common Stock			$ 53,500	$ 83,900								$ 108,235	$ 0
Restricted Stock or Unit Expense										$ 400	$ 300	$ 700	500
Share Price										$ 22.00		$ 22.00		$ 21.05
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition												2 years 8 months 12 days
Stock Repurchase Program, Authorized Amount							$ 10,000
Stock Repurchased and Retired During Period, Value												$ 3,200
Stock Repurchase Program, Remaining Authorized Repurchase Amount										$ 6,800		6,800
Preferred Stock Value Reserved For Future Issuance						$ 35,000
Preferred Stock, Par or Stated Value Per Share						$ 0.01
Preferred Stock, Liquidation Preference Per Share						$ 1,000
Proceeds from Issuance of Preferred Stock and Preference Stock												(3)	$ 0
Series A Preferred Stock [Member]
Class of Stock [Line Items]
Value of Shares to Be issued Prior to Commitment Period						$ 50,000						$ 50,000
Preferred Stock Value Reserved For Future Issuance						125,000
Percentage of Increase in Book Value					25.00%
Internal Rate Of Return For Preferred Shareholders					14.00%
Preferred Stock, Par or Stated Value Per Share										$ 0.01		$ 0.01
Preferred Stock, Redemption Terms					The Series A Preferred Stock may be redeemed at the Companys option (i) after five years from the Effective Date at a price equal to 105% of the Liquidation Value per share plus the value of all accumulated and unpaid Cash Distributions and Stock Dividends, and (ii) after six years from the Effective Date at a price equal to 100% of the Liquidation Value per share plus the value of all accumulated and unpaid Cash Distributions and Stock Dividends. In the event of certain change of control events affecting the Company prior to the third anniversary of the Effective Date, the Company must redeem all shares of Series A Preferred Stock for a price equal to (a) the Liquidation Value, plus (b) accumulated and unpaid Cash Distributions and Stock Dividends, plus (c) a make-whole premium designed to provide the holders of the Series A Preferred Stock with a return on the redeemed shares equal to a 14.0% internal rate of return through the third anniversary of the Effective Date.
Stock Issued During Period, Shares, Restricted Stock Award, Gross												10,000
Proceeds from Issuance of Preferred Stock and Preference Stock												$ 10,000
Preferred Stock, Shares Issued										10,000		10,000
Preferred Stock, Shares Outstanding										10,000		10,000
Dividends Payable, Amount Per Share																	$ 17.50
Series A Preferred Stock [Member] | Until Sixth Anniversary [Member]
Class of Stock [Line Items]
Preferred Stock, Dividend Rate, Percentage					7.00%
Series A Preferred Stock [Member] | After Sixth Anniversary [Member]
Class of Stock [Line Items]
Preferred Stock, Dividend Rate, Percentage					8.50%
Series A Preferred Stock [Member] | Occurrence of certain triggering events [Member]
Class of Stock [Line Items]
Preferred Stock, Dividend Rate, Percentage					5.00%
Maximum [Member]
Class of Stock [Line Items]
Preferred Stock Value Reserved For Future Issuance						15,000
Minimum [Member]
Class of Stock [Line Items]
Preferred Stock Value Reserved For Future Issuance						5,000
Restricted Stock [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period										111,414	14,340	111,414	14,340
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period										28,913	55,172	28,913	37,672	3,585
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options										$ 3,900		$ 3,900		$ 2,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period										0	0	0	0	1,667
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Beginning Balance										202,502	139,168	202,502	139,168	120,001	162,500	120,001		162,500
Director [Member] | Restricted Stock [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period									2,500
Non Employee Director [Member] | Restricted Stock [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	2,138						14,340
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period							3,585
Manager [Member] | Restricted Stock [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	105,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
2015 Equity Incentive Plan [Member]
Class of Stock [Line Items]
Common Stock, Capital Shares Reserved for Future Issuance	6.8								200,000
2015 Equity Incentive Plan [Member] | Restricted Stock [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	6,414							100,000	10,000			288,254		176,840
2015 Equity Incentive Plan [Member] | Restricted Stock [Member] | Share-based Compensation Award, Tranche One [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period												17,500
2015 Equity Incentive Plan [Member] | Restricted Stock [Member] | Share-based Compensation Award, Tranche Two [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period												75,003
2015 Equity Incentive Plan [Member] | Restricted Stock [Member] | Share-based Compensation Award, Tranche Three [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period												55,001
2015 Equity Incentive Plan [Member] | Restricted Stock [Member] | Share Based Compensation Award Tranche Four [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period												54,998
Stock Repurchase Plan [Member]
Class of Stock [Line Items]
Stock Repurchased and Retired During Period, Shares												213,078
Stock Incentive Plan 2017 [Member]
Class of Stock [Line Items]
Common Stock, Capital Shares Reserved for Future Issuance	200,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	370,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized	170,000
ATM Program [Member]
Class of Stock [Line Items]
Stock Issued During Period, Shares, New Issues		1,093,202
Proceeds from Issuance of Common Stock		$ 24,200
Equity Offering Program, Maximum Amount Authorized		$ 50,000
Shares Issued, Price Per Share		$ 22.69
Series A Preferred Stock Private Placement [Member]
Class of Stock [Line Items]
Preferred Stock, Dividends Per Share, Declared	$ 17.69
Series A Preferred Stock Private Placement [Member] | Minimum [Member]
Class of Stock [Line Items]
Value of Shares to Be issued Prior to Commitment Period						$ 50,000
Common Stock [Member]
Class of Stock [Line Items]
Stock Issued During Period, Shares, New Issues												4,025,000
Stock Issued During Period, Shares, Restricted Stock Award, Gross												111,414	14,340
Common Stock [Member] | Restricted Stock [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period															52,500

XML

EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Shares outstanding
Weighted average common shares - basic		9,850,967	5,948,555	9,356,744	5,974,277
Effect of dilutive securities		182,062	155,652	151,203	159,076
Weighted average common shares, all classes		10,033,029	6,104,207	9,507,947	6,133,353
Calculation of Earnings per Share - basic
Net income		$ 5,194	$ 5,412	$ 6,977	$ 6,534
Net income allocated to preferred stockholders		177	0	723	0
Net income allocated to unvested restricted shares	[1]	91	138	99	170
Net income attributable to common shareholders - two-class method		$ 4,926	$ 5,274	$ 6,155	$ 6,364
Weighted average common shares - basic		9,850,967	5,948,555	9,356,744	5,974,277
Earnings per share - basic		$ 0.5	$ 0.89	$ 0.66	$ 1.07
Calculation of Earnings per Share - diluted
Net income		$ 5,194	$ 5,412	$ 6,977	$ 6,534
Net income allocated to preferred stockholders		177	0	723	0
Net income attributable to common shareholders - two-class method		$ 5,017	$ 5,412	$ 6,254	$ 6,534
Weighted average common shares - diluted		10,033,029	6,104,207	9,507,947	6,133,353
Earnings per share - diluted		$ 0.5	$ 0.89	$ 0.66	$ 1.07

[1] Unvested restricted shares participate in dividends with common shares on a 1:1 basis and thus are considered participating securities under the two-class method for the three and six months ended June 30, 2017 and 2016.

XML

RELATED PARTY TRANSACTIONS (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Related Party Transaction [Line Items]
Annual Rate Of Interest			1.50%
Cumulative Annual Stockholder Total Return			8.00%
Percentage Of Base Management Fee	0.375%		0.375%
Expenses Reimbursed To Manager	$ 600	$ 700	$ 1,500	$ 1,600
Base Management Fee	700	400	1,300	800
Equity Method Investments, Fair Value Disclosure	163,979		163,979		$ 95,102
Severance Costs		100		200
Due to Officers or Stockholders	1,000		1,000		1,000
Carrying Amount	14,314		14,314		5,373
SL1 Venture [Member]
Related Party Transaction [Line Items]
Revenue from Related Parties	600	400	1,000	400
Carrying Amount	14,300		14,300		5,400
Equity Method Investments [Member]
Related Party Transaction [Line Items]
Change in Fair value from equity investment	6,100	$ 6,000	8,700	$ 10,000
Equity Method Investments, Fair Value Disclosure	$ 153,600		$ 153,600		$ 78,700

XML

SUBSEQUENT EVENTS (Details) - Subsequent Event [Member] $ in Thousands	1 Months Ended
	Jul. 20, 2017 USD ($)
Other Commitment	$ 8,096
Jacksonville, Florida MSA [Member]
Investment Closing Date	7/27/2017
Other Commitment	$ 8,096

XML

SUBSEQUENT EVENTS (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended			3 Months Ended		6 Months Ended
	Aug. 01, 2017	Jul. 25, 2017	Jul. 20, 2017	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Subsequent Event [Line Items]
Common Stock, Dividends, Per Share, Declared				$ 0.35	$ 0.35	$ 0.7	$ 0.7
Proceeds from Notes Payable						$ 1,658	$ 5,049
Subsequent Event [Member]
Subsequent Event [Line Items]
Debt Instrument, Description of Variable Rate Basis		a base rate plus a margin of either 1.75% or 2.75% or LIBOR plus a margin of either 2.75% or 3.75%, in each case depending on the borrowing base available for such loan.
Common Stock, Dividends, Per Share, Declared	$ 0.35
Debt Instrument, Covenant Description		total consolidated indebtedness not exceeding 50% of gross asset value; a minimum fixed charge coverage ratio (defined as the ratio of consolidated adjusted earnings before interest, taxes, depreciation and amortization to consolidated fixed charges) of 0.75 to 1.00 during the period between July 25, 2017 and June 30, 2018, 0.90 to 1 during the period between July 1, 2018 and December 31, 2018 and 1.20 to 1 during the period between January 1, 2019 through the maturity of the Credit Facility; a minimum consolidated tangible net worth (defined as gross asset value less total consolidated indebtedness) of $183.3 million plus 75% of the sum of any additional net offering proceeds; when aggregate loan commitments under the Credit Facility exceed $50 million, unhedged variable rate debt cannot exceed 25% of consolidated total indebtedness; liquidity of no less than $50 million for the period between July 25, 2017 and December 31, 2018 or on and after December 31, 2018, liquidity of no less than the sum of (i) total unfunded loan commitments of the Company and its subsidiaries plus (ii) $25 million; and a debt service coverage ratio (defined as the ratio of consolidated adjusted earnings before interest, taxes, depreciation and amortization to the Companys consolidated interest expense and debt principal payments for any given period) of 2 to 1.
Subsequent Event [Member] | Maximum [Member] | Base Rate [Member]
Subsequent Event [Line Items]
Debt Instrument, Basis Spread on Variable Rate		2.75%
Subsequent Event [Member] | Maximum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Subsequent Event [Line Items]
Debt Instrument, Basis Spread on Variable Rate		3.75%
Subsequent Event [Member] | Minimum [Member] | Base Rate [Member]
Subsequent Event [Line Items]
Debt Instrument, Basis Spread on Variable Rate		1.75%
Subsequent Event [Member] | Minimum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Subsequent Event [Line Items]
Debt Instrument, Basis Spread on Variable Rate		2.75%
Subsequent Event [Member] | Revolving Credit Facility [Member]
Subsequent Event [Line Items]
Line of Credit Facility, Commitment Fee Percentage		0.35%
Line of Credit Facility, Expiration Date		Jul. 25, 2020
Line of Credit Facility, Borrowing Capacity, Description		The amount available to borrow under the Credit Facility is limited according to a borrowing base valuation of the assets available as collateral. For loans secured by Company mortgage loans, the borrowing base availability is the lesser of (i) 60% of the value of the Company mortgage loans, (ii) the maximum principal amount which would not cause the outstanding loans under the Credit Facility secured by the Company mortgage loans to be greater than 50% of the underlying real estate assetfair valuesecuring the Company mortgage loans and (iii) for any Company mortgage loan that has been included in the borrowing base for greater than 18 months, the maximum principal amount which would not cause the ratio of (a) adjusted net operating income for the underlying real estate asset securing such Company mortgage loan divided by (b) an implied debt service amount to be less than 1.30 to 1.00. For loans secured by self-storage properties, the borrowing base availability is the lesser of (i) the maximum principal amount that would not cause the outstanding loans under the Credit Facility secured by self-storage properties to be greater than 65% of the value of such self-storage properties and (ii) the maximum principal amount that would not cause the ratio of (i) aggregate adjusted net operating income from all self-storage properties included in the borrowing base divided by (ii) an implied debt service coverage amount to be less than 1.30 to 1.00.
Subsequent Event [Member] | Jernigan Capital Inc [Member] | Revolving Credit Facility [Member]
Subsequent Event [Line Items]
Line of Credit Facility, Current Borrowing Capacity		$ 20,000
Line of Credit Facility, Remaining Borrowing Capacity		33,300
Repayments of Secured Debt		$ 20,000
Line of Credit Facility, Covenant Terms		Pursuant to an accordion feature, the Operating Company may from time to time increase the commitments up to an aggregate amount of $200 million, subject to, among other things, an absence of default under the Credit Facility, as well as receiving commitments from lenders for the additional amounts.
Subsequent Event [Member] | Operating Propertys Notes [Member]
Subsequent Event [Line Items]
Proceeds from Notes Payable			$ 2,800
Debt Instrument Prepayment Penalty			18,000
Repayments of Notes Payable			1,800
Subsequent Event [Member] | Senior Participation [Member]
Subsequent Event [Line Items]
Debt Instrument Prepayment Penalty			$ 28,000