Please standby we are about to begin. Welcome to the Jernigan Capital Inc Fourth Quarter 2016 Earnings Conference Call. Today's conference is being today, Thursday, March 2, 2017. At this time, all participants are in a listen-only mode and the floor will be open for your questions following management’s prepared remarks. [Operator Instructions]. This call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws, including statements regarding our future performance, and fourth quarter 2016 earnings guidance and full-year 2016 updated earnings guidance, including our key related assumptions, future value of investments, our pipeline and future investment closings and expected lease up trends with respect to self-storage developments and refinance. The ultimate occurrence of events and results referred in these forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. These forward-looking statements are based upon the Company’s present intentions and expectations. But these events and results referenced in these statements are not guaranteed to occur. Investors should not place undue reliance upon forward-looking statements. For a discussion of these and other risks facing our business, see the information under the heading Risk Factors in our annual report on Form 10-K filed with the Securities and Exchange Commission and our other filings with the SEC format from time to time which are accessible on the SEC’s website at http://www.sec.gov. It is now my pleasure to turn the floor over to Dean Jernigan, CEO and Chairman of Jernigan Capital Inc. You may begin sir.

Okay, thanks and good morning everyone. Thanks for being on the call today and thank you for your interest in our company. As you can imagine we're exceedingly pleased with the Q4 and the conclusion wrap up of 2016. We continue to be pleased with the acceptance of our business model, our business plan by our shareholders, our investors but also equally pleased of the acceptance of our business plan with our developers across the country. As you can imagine those developers are out doing a lot of hard work for us on a daily basis and we are extremely pleased to have such a great group of folks helping us build this company. But that said our biggest threat remains today overbuilding and that is something I want to talk about today. Overbuilding is something that a lot of people are talking about but really without a lot of facts to back up their concern. Everyone sees clouds on the horizon. At this time I'm still not too concerned generally about the overbuilding across the country. We do have a few markets that we continue to be concerned about, that we are basically excluding from our business plan going forward because we think there's enough storage in those markets already. But, the good news is we have a lot of new data that is coming our way soon. We have one company's been providing data since mid to late 90s that is Dodge, but we have three more companies STR Global, REIS, and Yardi that are starting to provide good data for our sector. And there is hardly a week that goes by that I'm not interfacing with those companies, helping bring them along to provide the data that we need in our sector going forward. A few interesting…

Thanks Dean and I'd like to add my greetings to those who have already gotten from Dean and thank all of you for attending our call and webcast. I'd like to cover three areas before we open the floor for questions. First, our Q4 and full year results; secondly, our pipeline; and thirdly, our outlook for 2017. As Dean said we're very pleased with our fourth quarter and full year operating results. We announced Q4 and full year adjusted earnings of $0.69 and $3.11 respectively which represents earnings growth of $0.78 quarter-over-quarter and $3.51 year-over-year. So, it is a great year of growth for us. But $40.51 annual earnings growth was largely driven by increased interest income as we've continued to deploy our IPO capital and approximately $18 million of fair value increases as we completed the investment of our IPO capital and brought most of our 2015 investments to construction completion and certificates of occupancy. All the story of the development projects in which we invested in 2015 have been completed and are in lease up. One is expected -- another of the three remaining is expected to be completed in the next few weeks and then the final two will be completed later this year. With respect to those that have been completed and are in lease up, leasing activity continues to track or exceed underwriting which we view as highly positive given the fact that we've been in the slower leasing season for the last five months. Our first two 2015 projects which opened late April, early May of last year both of which are located in Central Florida have reached approximately 75% physical occupancy in only ten months following the opening. As we've stated on past calls we underwrite to a 40% first year lease up…

[Operator Instructions]. Thank you our first question is coming from RJ Miligan with Baird.

Hey guys, good morning.

Good morning RJ.

Dean, I was wondering if you could elaborate a little bit as you talk about the pockets of new supply that we are seeing while still within reason. We've seen some jurisdictions talk about or propose moratoriums on self storage development, something passed in Miami down where you guys have quite a few projects, talk about in New York, can you just elaborate on that and sort of what your thoughts are over the next couple years and in terms of how difficult it is to get some of these properties entitled?

Sure. What was passed in Miami was basically a distance moratorium. You can't build a new storage facility within half a mile of an existing facility. So that would tend to spread them out and with the limited amount of zoning that we have to build storage. In any way it will certainly limit new developments going forward in the Miami Dade County area. It is -- they've tended to be build in clusters here in Miami because that's where the zoning happen to be. So I’m still bit concerned about Texas. They started this cycle six months to a year before everyone else. They actually got started in 2014 and Boston is going to be overbuilt, I'm most certain of that. In Dallas certain parts of Dallas will be overbuilt. Houston not as much and San Antonia not as much but when you go down through the other markets I'm most concerned about. Miami has really two, possibly three sub markets. They have enough storage going on right now and so we're discouraging everyone to stay out of those sub markets as seems to be working. You know smaller markets like Denver and Charlotte, Boston, Portland or the other ones are dangerous but I do think this time RJ that these companies that I talked about earlier of data suppliers are going to be putting out good data. They have got some data out now, they're going to be putting out more as the year goes on. So I think for the first time ever we're going to have good visibility. Reese [ph] is even going to put out a report that is measuring demand and that's the first time ever we see anything like this. They do it with the department sector now where they're going to be forecasting rents and occupancy three or four years out which I think will be very, very useful for our sector. So, not too concerned at this point in time but we continue to put spotlights on markets where we are concerned.

Okay, thanks Dean. John you mentioned that these projects are leasing up ahead of expectations or ahead of underwriting. Can you just talk about where rents are relative to underwriting and expected IRRs on some of these at least the seven that are coming -- getting delivered this year?

Yeah, we haven't changed out. We haven't changed our IRR projections and we still think our IRR's are in that 18% to 22% range. The rents that we're getting we're in lease up so you're not going to know where rents are going to be at stabilization to get there. But they've certainly been -- they've certainly been strong. I mean maybe the better way to address the question is on all of these projects that were opened last spring, we are starting to get significant cash interest payment. So they are more than covering expenses. And on the two earliest properties that are kind of in that 70% range we can see full coverage of our interest payment probably by the time we hit the spring lease up season. So they've done really well, the rates have held up really well through the winter. But again these are in many cases lease up rates and so we will know the full impact once we get to stabilization.

Okay, thanks John and then one last question before I jump back in the queue is on the Heitman JV. Obviously that's fully invested or committed. Just curious what do you know with that going forward given the fact that you guys have access to a lot of other capital alternatives through whether it be the Highland prefer or the equity markets selling A Notes. I'm just curious what -- is there an opportunity to do something more with Heitman or how do you envision that flowing over the next couple years?

Well under the terms of our joint venture agreement with Heitman, they participate with us in the rights of first refusal to the extent we have those on the projects. And what our agreement says is that to the extent we exercise ROFR's and by partners in -- by developer partners in on those deals. We split that opportunity with Heitman 50:50 so it's just a straight up joint venture at that point in time. 50% them 50% us, that's what we negotiated at the time. Whether at some point in time they would want to exit their half is a question best left for another day. But that's the plan with that. We really don't have any other contractibility to acquire those properties so it would take a discussion between us and Heitman for us to get all of them out. They can pass -- they don't have to participate in that 50%, they can let them go. But until we get to that point we don't know and there is really no way to know what they’ll want to do. I know that we both like all the properties very much.

Got it, thanks guys.

Our next question comes from Jonathan Hughes with Raymond James.

Hey, good morning guys, thanks for taking my questions. Looking at guidance, the projected origination volume this year of say 360 million and then funding of about 150 million from the preferred in long tail that implies a future need of about 200 million. I realize some of that will be offset by A Note sales in 2018 but how do you think about funding the remainder of that pipeline?

Jonathan thanks for the question. We obviously have a very strong balance sheet and a very strong growth momentum. You know we'll start to get significant cash flow from these properties as they come online. So, to some degree we'll have some ability from that to the extent we have cash flow in excess of our dividend. We I think at this point in time we have a lot of options available to us. We kind of have the full tool chest of access to capital and as we get to the point where we need to determine which way to go we'll evaluate all the opportunities and take the one that's best for our shareholders. I think that that's a 2018 discussion. We think that for 2017 we are in great shape from a liquidity standpoint and going into 2018 we think we'll have all the options available to us that you would expect a well performing REIT to have.

Okay that’s great appreciate that. And another one for you John, you mentioned timing delays kind of impacted guidance for the year, would you say the permitting an approval process is about the same versus a year ago or has it gotten modestly better, just any color there would be great?

Yeah, Jonathan I think that permitting kind of nationwide is probably about the same. It's driven market to market so you have some markets where it can be very short. For example you go down into Texas and you have either no zoning laws or very live zoning laws and then from a permitting standpoint the permitting process was more perfunctory. And so you can get permits real quickly and that might explain why there's so much more construction going on in Texas. You take Miami, it's probably about the same and Dean can chime in if he wants to. But Miami's probably the same as it has been. Other markets, yes it tends to run into that three or four month range. So that really hasn't changed. The one thing that has changed is I think our developers are doing a really good job of negotiating extensions to purchase contracts. So they're able to close with us much closer to the time that they're ready to be permitted. So while we continue to build in that permitting period into our internal forecasting, in some cases we're seeing the developers do a really good job of getting these projects ready more quickly than they were when we first started.

Okay and then can you remind us when you expect the first development sale that carries an equity kicker, is that still kind of an early bid next year target?

We both have the same answer going, John explain and give it to get them.

Yeah, I think that's going to be driven by the developers but obviously if you have a couple of projects that are already at 75% leased up, I think those developers who are merchant builders might like to sell those earlier. For example our project in Ocoee Florida which is right at 75% leased right now, our developer there has already sold us and this will be mentioned in our 10-K which we will file in a few days. He has already sold us half of his interest to provide itself with capital, we got to do more development. And so I think that and by buying that half of his interest we picked up another 25% of the potential profit on that project. And we feel like the price that we paid was a very fair price under the circumstances. So, if that's indicative of the mindset of our developers then we certainly believe that next year that could start but we could actually see a couple later this year.

Okay, Paul who is here with me has one question for you.

Yeah, thanks. Hey, good morning. Dean I would just like to hear your comments on what's happening with the buyers of the properties. It sounds like the REITs are just not as active especially in the CO deals, so just curious as to your comments on how the market is holding up?

Yeah it appears to me, good morning Paul, it appears to me that with the recent pull back in share prices for the REITs they pull their horns in some on acquisitions at least CO acquisitions. I really haven't seen much in the way of just stabilize asset sales either. But I don't think they've gone away and of course there's other folks out there with capital that are continuing to keep pressure on cap rates. And so over the years I've talked about there’s always an adjustment period of normally six months to a year where sellers have to adjust to buyers desires as far as cap rates are concerned. And I don't think we've gotten there yet. I think we still have cap rates in similar range that they were in last year, just not much activity. As far as CO acquisitions are concerned I think they all kind of fill themselves up and are sitting on the sidelines for the time being. So I don't -- I think there is a silver lining as I've said before in this development cycle and that is I think probably about 75% if everything is being built, being built by merchant builders. It will be sold in to those who have capital in the near term. So, those days are ahead of was and those are going to be fun acquisition days for everybody with capital. But right now just a little bit of a quiet time after the REITs here prices pulled back then.

Okay, I think that's it for us. Thank you.

Thank you.

Thanks guys.

[Operator Instructions]. Our next question comes from David Corak with FBR Capital Markets.

Hey, good morning everyone. John, regarding your comments on Ocoee and buying part of the developer's interest, what's the opportunity to do that with more assets and in that case are you guys basically in control of who buys the asset eventually?

Well, to answer you first two questions there. In terms of answering your first question, of course there are opportunities to do that and as these guys seek equity capital there got to be more deals. This is obviously a good source of equity capital particularly if they can make the sales at capital gains rates which in this case our developer was. And we think that will kind of hold through going forward. In terms of who controls the ultimate sale of the project, if we buy a partial interest for example in the Ocoee deal, we bought at partial interest but we are not amending the terms of the underlying LLC agreements. So the developer remains in control of the project. I mean that's been our model all along. We won't be in control of the project until we own 100% of it. And that's -- I think that's going to hold true. But we're the -- as is evidenced by what happened with Ocoee, I think the logical best buyer for the rest of that interest is probably us. So, who controls the sale of the project outside of us that may not matter all that much given the fact that we're the most logical buyer.

Okay, that makes sense. And then kind of along the same lines, what's your appetite at this point for acquiring assets some of which could occur in the back half of the year and then the ones in Central Florida that you mentioned, do you have ROFRs on those and if not would you still intend to kind of pull the trigger on acquisitions there?

Good morning Dave, it is Dean. As we've talked about really since the IPO we expect our company to evolve as the cycle evolves. And so we've always said that we thought I think on previous calls we've said we thought that that activity would probably start toward the end of this year. Although we might have a developer to want to do something earlier such as the case with our developer in Orlando or Ocoee. And so when we see opportunities we're going to use our shareholders capital and the best use that we can to maximize and create value for our shareholders. So there clearly would be some opportunities for us to buy in our partners and maybe even buy unmarketed deals. Our capital is not deep enough that where we can go out and compete toe to toe with the REITs and private equity for just buying fully marketed deals. But when we have the opportunity to buy something on a one off basis that we think meets our long-term objectives for our shareholders that is something that we will consider.

Okay, that makes sense. And then switching over back to your guidance guys, can you walk through kind of how your assumptions, I think you mentioned a couple -- you're building on a couple interest rate hikes, how rising interest rates or those two hikes specifically that you're talking about can affect the valuations of both the portfolio that's in place today and then any new deals going forward?

Clearly with the rising interest rate environment there's going to be an impact at some point in time on cap rates. What I've said and I still firmly believe that there will be a delay and maybe a substantial delay in our sector because we have so much capital still trying to find a foothold, a platform in our sector and this is of course not the REITs, this is private equity or whomever. And I hear from a lot of them who are interested in getting a platform in the sector. So, if we had a dramatically wave in interest rates I think our cap rates would still feel some pressure to stay down because of that capital sitting on the sidelines. Now on a go forward basis yes, cap rates will increase. But assuming high interest rate you are also assuming inflation which means rents will increase more. And so what I've learned over the years that at the end of the day whether you're buying assets at 10 cap rate with inflation at 4% or 5%, we've always been able to get about double what the existing inflation rate is for our top line rents. We will make it up on the income side and of course all that falls through to net operating income. So it’s all a margin game for us. So if cap rates go up there will be higher incomes on the asset that will be buying going forward. So I've always been able to do you know focus and make the margin if you will and not be too concerned about cap rates. As long as cap rates are relative to interest rates and interest rates are relative to exactly what's going on in our economy. Normally they are.

That's fair, that's great color. John just in terms of the guidance, I mean if we don't see some interest rate hikes is there upside to kind of your fair value adjustments on the year?

I think there may be a little bit David but not a ton because the changes in interest rates really only affects the valuation of the debt component of our instrumental hand. Most of our value is being driven by the real estate value and that's dependent on cap rate. So yeah, and the other thing is that as can be seen over the last 30 days or so, you've had all of these -- all this talk about short-term rate increases and the 10 years gone down. So who knows where it's going. One thing that I can say fairly confidently over the last 10 years, those changes have tended to be pretty short lived and it bounces around some. And given the fact that it's only affecting kind of a small part of our portfolio and a fairly short term part of our portfolio we don't anticipate that if rates don't go up we're going to pick up a lot there.

Sure, alright guys, I appreciate the color very much.

Hey David, thank you.

Our next question comes from Jonathan Hughes with Raymond James.

Just a few follow ups, could you walk us through just how you think about your blended cost of capital, and how you derive that?

Well this is something I've been doing for a lot of years Jonathan and there's science. I mean I guess if there's some MBA professor out there he will give you some science to it but it's really quite simple for me. I just look at what the return expectations are from our shareholders and I look at our cost of debt and blend the two. Today your guess is probably as good as mine as far as what those return expectations are. We certainly have shareholders in our stocks that are interested in the dividend. And if they get growth on top of that that’s great so to speak. We have other shareholders who get the growth story and are looking for I would think maybe low teens. So somewhere and then of course our cost of debt is down around 4% and so somewhere in there, there is a plan would you agree.

And then you have the Highland, you have the Highland preferred which contractually has kind of a cap of 14% out that total return is capped at a 14% IRR to them.

Right and then the max drawn that is -- is it 50 million?

Yes, the minimum draw is 50 and we've drawn 10 so we're $40 million away from the minimum draw. The max draws a 125 and that deal sunsets July 27, 2018 so we have that period of time from between now and that period of time to draw that 125 absent some agreed upon extension of that day.

Yes, okay and then one more, you mentioned more complex properties being built these days. But are there any multi use assets in your pipeline maybe a multifamily component?

We have one deal that we have a term sheet on I believe that it will not be multi-family in our building. The storage is standalone but it's being done by a mix used developer. And so that one is interesting and that I think those 360 apartments are going to be built in a building next to us which brought in customers for us. We have the mix use that's required by some authorities where we put some small amount of retail on the ground floor but nothing more dramatic than those two things John.

Okay, that’s it for me. Thanks guys.

Okay.

At this time I'd like to turn the conference over to Mr. Jernigan for any additional or closing remarks.

Okay, thanks to everyone for your interest in our company. We look forward to talking to you soon. Good day.