3. SELF-STORAGE INVESTMENT PORTFOLIO

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

Investments reported at fair value


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


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


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


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

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



	Metropolitan					Remaining
	Statistical Area	Total Investment		Funded		Unfunded
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value
Development property investments (includes a profits interest):
6/19/2015	Tampa 1 (2)	$	5,369	$	5,285	$	84	$	5,931
6/29/2015	Charlotte 1 (2)		7,624		7,357		267		9,556
7/2/2015	Milwaukee (2)		7,650		7,641		9		9,241
7/31/2015	New Haven (2)		6,930		6,600		330		8,342
8/14/2015	Raleigh (2)		8,792		8,176		616		8,442
10/27/2015	Austin (2)		8,658		7,551		1,107		8,600
9/20/2016	Charlotte 2 (2)		12,888		9,497		3,391		10,660
11/17/2016	Jacksonville 2 (2)		7,530		6,890		640		8,512
1/4/2017	New York City 1 (2)		16,117		16,056		61		20,934
1/18/2017	Atlanta 3		14,115		4,212		9,903		4,028
1/31/2017	Atlanta 4 (2)		13,678		10,206		3,472		11,995
2/24/2017	Orlando 3 (2)		8,056		5,961		2,095		7,004
2/24/2017	New Orleans (3)		12,549		4,411		8,138		4,454
2/27/2017	Atlanta 5 (3)		17,492		8,262		9,230		8,179
3/1/2017	Fort Lauderdale (3)		9,952		3,934		6,018		4,045
3/1/2017	Houston (3)		13,630		6,079		7,551		6,388
4/14/2017	Louisville 1 (3)		8,523		5,255		3,268		6,049
4/20/2017	Denver 1 (3)		9,806		3,706		6,100		3,587
4/20/2017	Denver 2 (2)		11,164		8,173		2,991		9,718
5/2/2017	Atlanta 6 (3)		12,543		8,658		3,885		9,863
5/2/2017	Tampa 2		8,091		2,070		6,021		1,991
5/19/2017	Tampa 3 (3)		9,224		4,379		4,845		4,787
6/12/2017	Tampa 4 (3)		10,266		6,127		4,139		7,187
6/19/2017	Baltimore (3)(4)		10,775		5,584		5,191		5,667
6/28/2017	Knoxville (3)		9,115		4,367		4,748		4,605
6/29/2017	Boston 1 (2)		14,103		10,801		3,302		11,786
6/30/2017	New York City 2 (4)		26,482		20,356		6,126		19,759
7/27/2017	Jacksonville 3 (3)		8,096		4,411		3,685		4,993
8/30/2017	Orlando 4		9,037		2,661		6,376		2,561
9/14/2017	Los Angeles 1		28,750		7,923		20,827		7,672
9/14/2017	Miami 1		14,657		6,942		7,715		6,785
9/28/2017	Louisville 2 (3)		9,940		5,316		4,624		5,861
10/12/2017	Miami 2 (4)		9,459		1,062		8,397		818
10/30/2017	New York City 3 (4)		14,701		3,712		10,989		3,384
11/16/2017	Miami 3 (4)		20,168		4,309		15,859		3,740
11/21/2017	Minneapolis 1		12,674		285		12,389		156
12/1/2017	Boston 2		8,771		2,329		6,442		2,235
12/15/2017	New York City 4		10,591		1,283		9,308		1,168
12/27/2017	Boston 3		10,174		2,475		7,699		2,306
12/28/2017	New York City 5		16,073		5,101		10,972		4,945
2/8/2018	Minneapolis 2		10,543		3,944		6,599		3,878
3/30/2018	Philadelphia (4)		14,338		3,558		10,780		3,274
4/6/2018	Minneapolis 3		12,883		2,613		10,270		2,489
5/1/2018	Miami 9 (4)		12,421		2,448		9,973		2,219
5/15/2018	Atlanta 7		9,418		857		8,561		772
5/23/2018	Kansas City		9,968		1,413		8,555		1,324
6/7/2018	Orlando 5		12,969		-		12,969		-
6/12/2018	Los Angeles 2 (5)		9,298		4,424		4,874		4,500
		$	566,051	$	264,660	$	301,391	$	286,390
Construction loans:
12/23/2015	Miami		17,733		15,966		1,767		15,855
		$	17,733	$	15,966	$	1,767	$	15,855
Total development property investments		$	583,784	$	280,626	$	303,158	$	302,245

Bridge loan investments (includes a profits interest):
3/2/2018	Miami 4 (2)		20,201		19,627		574		20,997
3/2/2018	Miami 5 (2)(4)		17,738		16,108		1,630		14,009
3/2/2018	Miami 6 (2)		13,370		13,370		-		17,129
3/2/2018	Miami 7 (2)(4)		18,462		16,755		1,707		14,892
3/2/2018	Miami 8 (2)		13,553		13,013		540		12,554
Total bridge loan investments		$	83,324	$	78,873	$	4,451	$	79,581

Operating property loans:
7/7/2015	Newark		3,480		3,480		-		3,402
12/22/2015	Chicago		2,502		2,500		2		2,460
Total operating property loans		$	5,982	$	5,980	$	2	$	5,862

Total investments reported at fair value		$	673,090	$	365,479	$	307,611	$	387,688


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

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



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

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



	Metropolitan					Remaining
	Statistical Area	Total Investment		Funded		Unfunded
Closing Date	("MSA")	Commitment		Investment (1)		Commitment		Fair Value
Development property investments (includes a profits interest):
6/10/2015	Atlanta 1 (2)(5)	$	8,132	$	8,086	$	46	$	10,741
6/19/2015	Tampa 1 (2)		5,369		5,285		84		6,012
6/26/2015	Atlanta 2 (2)(5)		6,050		5,769		281		8,631
6/29/2015	Charlotte 1 (2)		7,624		7,251		373		10,363
7/2/2015	Milwaukee (2)		7,650		7,512		138		8,994
7/31/2015	New Haven (2)		6,930		6,524		406		8,231
8/10/2015	Pittsburgh (2)(5)		5,266		4,798		468		6,774
8/14/2015	Raleigh (3)		8,792		5,550		3,242		5,889
9/30/2015	Jacksonville 1 (2)(5)		6,445		5,988		457		8,913
10/27/2015	Austin (2)		8,658		7,297		1,361		8,782
9/20/2016	Charlotte 2 (3)		12,888		5,453		7,435		5,686
11/17/2016	Jacksonville 2 (3)		7,530		4,971		2,559		5,818
1/4/2017	New York City 1 (2)		16,117		14,914		1,203		18,892
1/18/2017	Atlanta 3		14,115		2,393		11,722		2,236
1/31/2017	Atlanta 4 (3)		13,678		7,040		6,638		7,147
2/24/2017	Orlando 3 (3)		8,056		3,144		4,912		3,335
2/24/2017	New Orleans		12,549		677		11,872		553
2/27/2017	Atlanta 5		17,492		4,971		12,521		4,739
3/1/2017	Fort Lauderdale		9,952		1,128		8,824		1,043
3/1/2017	Houston		13,630		3,633		9,997		3,547
4/14/2017	Louisville 1 (3)		8,523		2,932		5,591		3,083
4/20/2017	Denver 1		9,806		1,940		7,866		1,849
4/20/2017	Denver 2 (3)		11,164		5,442		5,722		5,849
5/2/2017	Atlanta 6		12,543		4,344		8,199		4,262
5/2/2017	Tampa 2		8,091		1,086		7,005		1,010
5/19/2017	Tampa 3		9,224		1,422		7,802		1,335
6/12/2017	Tampa 4		10,266		1,847		8,419		1,752
6/19/2017	Baltimore (4)		10,775		3,315		7,460		3,115
6/28/2017	Knoxville		9,115		1,351		7,764		1,265
6/29/2017	Boston 1 (3)		14,103		4,978		9,125		4,914
6/30/2017	New York City 2 (4)		26,482		18,042		8,440		17,576
7/27/2017	Jacksonville 3		8,096		1,134		6,962		1,053
8/30/2017	Orlando 4		9,037		2,059		6,978		1,960
9/14/2017	Los Angeles		28,750		7,533		21,217		7,398
9/14/2017	Miami 1		14,657		5,862		8,795		5,725
9/28/2017	Louisville 2		9,940		1,864		8,076		1,762
10/12/2017	Miami 2 (4)		9,459		1,014		8,445		820
10/30/2017	New York City 3 (4)		14,701		2,595		12,106		2,294
11/16/2017	Miami 3 (4)		20,168		3,508		16,660		3,099
11/21/2017	Minneapolis 1		12,674		1,150		11,524		1,023
12/1/2017	Boston 2		8,771		1,306		7,465		1,220
12/15/2017	New York City 4		10,591		927		9,664		823
12/27/2017	Boston 3		10,174		2,259		7,915		2,169
12/28/2017	New York City 5		16,073		4,303		11,770		4,178
		$	500,106	$	194,597	$	305,509	$	215,860

Construction loans:
12/23/2015	Miami		17,733		12,492		5,241		12,373
		$	17,733	$	12,492	$	5,241	$	12,373
Total development property investments		$	517,839	$	207,089	$	310,750	$	228,233

Operating property loans:
7/7/2015	Newark		3,480		3,480		-		3,447
12/22/2015	Chicago		2,502		2,500		2		2,491
Total operating property loans		$	5,982	$	5,980	$	2	$	5,938

Total investments reported at fair value		$	523,821	$	213,069	$	310,752	$	234,171


(1)	Represents principal balance of loan gross of origination fees. The principal balance includes interest accrued on the investment.
(2)	Construction at the facility was substantially complete and/or certificate of occupancy had been received as of December 31, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.
(3)	Facility had achieved at least 40% construction completion but construction was not considered substantially complete as of December 31, 2017. See Note 4, Fair Value of Financial Instruments, for information regarding recognition of entrepreneurial profit.
(4)	These investments contain a higher loan-to-cost ratio and a higher interest rate, some of which interest is payment-in-kind (“PIK”) interest. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment.
(5)	During the first quarter of 2018, we purchased our partner’s 50.1% Profits Interest in these investments.

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



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

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

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

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

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

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

2018 Activity

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

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

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

2017 Activity

On February 3, 2017, the Company purchased 50% of the economic rights of the Class A membership units of a limited liability company that owned the Orlando 1 development property investment with a Profits Interest for $1.3 million and increased its Profits Interest on this development property investment from 49.9% to 74.9%. The Class A member retained all management and voting rights in the limited liability company. Previously, the Company accounted for this investment as an equity method investment. Because the Company was entitled to greater than 50% of the residual profits from the investment, the Company accounted for this investment as a real estate investment in its consolidated financial statements in accordance with ASC 310, Receivables.

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

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

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



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


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

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



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

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



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

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



	Three months ended		Three months ended
	June 30, 2018		June 30, 2017

Rental and other property-related income from real estate owned	$	805	$	105

Property operating expenses of real estate owned		(420)		(43)
Depreciation and amortization expense		(887)		(38)
Total expenses of real estate owned	$	(1,307)	$	(81)



	Six months ended		Six months ended
	June 30, 2018		June 30, 2017

Rental and other property-related income from real estate owned	$	1,428	$	168

Property operating expenses of real estate owned		(731)		(74)
Depreciation and amortization expense		(1,589)		(62)
Total expenses of real estate owned	$	(2,320)	$	(136)