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Jernigan Capital addresses investor concerns over JV, stock decline

JerniganCapital Inc. in a Form 8-K filed April 13 addressed investorconcerns regarding its jointventure with an affiliate of Heitman Investment Management LLC,perceived liquidityissues and the decline in its stock price.

The company said that the stock price decline is caused by anumber of reasons. Specifically, the company said the market has beenmisinformed by third parties that "misstated or omitted material facts andmade erroneous inferences" about the company's capital situation; that thedelayed filing of its 10-K was because it needed additional time to finalizethe terms of the joint venture with an affiliate of Heitman, and that the jointventure and the filing were completed three business days after its notice oflate filing; that "the market has not yet appreciated the value inherentin the portfolio of development investments" that the company has originated;and that the company did not expect the increase in general and administrativeexpenses at the time of the IPO, and that its ramp-up of infrastructure is nowcomplete and the expenses have leveled off.

Jernigan Capital said it opted for the joint venture, notingthat it was not due to liquidity concerns but due to the investment strategy'sgreater potential for returns to shareholders than what the company would havederived from a public equity offering at below book value. Jernigan Capital saidit is not required to provide all investments to the joint venture for anunlimited amount of time. The company emphasized that it is obligated toprovide all new self-storage development investment opportunities to the jointventure until the earlier of March 31, 2017, or until the joint venture'scapital is fully committed. The company believes that the joint venture willcommit substantially all of the remaining $80.3 million of capital before theend of the second quarter. Jernigan Capital further explained that of thepipeline in excess of $80.3 million, the company is free to pursue othercorporate financing initiatives to fund that pipeline, including additionaljoint ventures, private equity investments at the corporate level, various debtfinancings and public equity offerings.

Jernigan Capital also said it is required to give Heitman aright of first offer if the company chooses to raise capital in a joint venturewith the same or similar proposed terms with the Heitman joint venture, andthat nothing in the parties' agreement prohibits Jernigan Capital from seekinga joint venture with another party subject to the right of first offer or ifHeitman does not exercise its right of first offer. The company disclosed thatHeitman has the authority to remove Jernigan Capital as managing member of thejoint venture upon, among other things, a change of control of JerniganCapital; Dean Jernigan's ceasing to have an active role at the company; or thecompany's bankruptcy, insolvency or if the company commits fraud.

Additionally, Jernigan Capital said it is finalizing theproposed credit facility discussed in its March earnings release and has agreedon substantially all business terms, including the interest rate. The companyexpects the facility to be structured as a senior participating interest in apool of Jernigan Capital investment assets upon which the potential lender andthe company have agreed. Jernigan Capital is looking to execute the definitiveagreement by the end of April.

Jernigan Capital said it has sufficient sources of capitalto meet its current commitments if the credit facility is not procured. Thecompany believes Heitman will approve the joint venture's acquisition of anumber of the company's development investments, resulting in the joint ventureassuming remaining funding obligations and paying Jernigan Capital cash for 90%of the amount already funded to date on the investments. The cash receivedwould be sufficient to fund all other investment obligations of the company.