U.S. markets open in 8 hours 18 minutes

Edited Transcript of JCAP earnings conference call or presentation 8-May-20 4:00pm GMT

Q1 2020 Jernigan Capital Inc Earnings Call

MEMPHIS May 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Jernigan Capital Inc earnings conference call or presentation Friday, May 8, 2020 at 4:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David Steven Corak

Jernigan Capital, Inc. - SVP of Corporate Finance

* John A. Good

Jernigan Capital, Inc. - Chairman of the Board & CEO

* Jonathan L. Perry

Jernigan Capital, Inc. - President & CIO

* Kelly P. Luttrell

Jernigan Capital, Inc. - Senior VP, CFO, Corporate Secretary & Treasurer

================================================================================

Conference Call Participants

================================================================================

* Jonathan Michael Petersen

Jefferies LLC, Research Division - SVP & Equity Analyst

* Timothy Paul Hayes

B. Riley FBR, Inc., Research Division - Analyst

* Todd Michael Thomas

KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greeting, and welcome to the Jernigan Capital, Inc. First Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. David Corak, Vice President of Corporate Finance. Please go ahead, David.

--------------------------------------------------------------------------------

David Steven Corak, Jernigan Capital, Inc. - SVP of Corporate Finance [2]

--------------------------------------------------------------------------------

Good morning, everyone, and welcome to the Jernigan Capital First Quarter 2020 Earnings Conference Call. My name is David Corak, Senior Vice President of Corporate Finance. Today's conference call is being recorded, Friday, May 8, 2020. (Operator Instructions)

Before we begin, please remember that management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Actual results could differ materially from those stated or implied by our forward-looking statements due to the risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in the company's latest filings with the SEC, which we encourage you to review. A reconciliation of the GAAP to non-GAAP financial measures provided on this call is included in our earnings press release. You can find our press release, SEC reports and audio webcast replay of this conference call on our website at www.jernigancapital.com.

Remarks and responses on this call may also reflect our estimates to date regarding the impact of the COVID-19 pandemic on our business and operations, which are uncertain and cannot be predicted with any degree of confidence. These include the duration, severity and impact of the outbreak, the actions taken to contain the COVID-19 pandemic or mitigate its impact as requested or mandated by government authorities or otherwise voluntarily taken by individuals or businesses, a direct or indirect economic effects of the illness and containment measures, amongst others, as well as the potential negative impacts on our business.

In addition to myself on the call today, we have John Good, Chairman and CEO; Jonathan Perry, President and Chief Investment Officer; and Kelly Luttrell, Senior Vice President and CFO.

I'll now turn the floor over to Mr. Good. John?

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [3]

--------------------------------------------------------------------------------

Thanks, David, and good morning, everyone.

As a preliminary matter, I'd like to say that we all hope that you are all safe and well. Our prayers continue to go out to all the frontline workers, to health care, governmental, business leaders, most of whom are having to make difficult life-altering decisions often on a moment's notice with very little supporting information. And we -- our prayers especially go out to those who've lost loved ones and jobs on account of this pandemic.

2020 has begun in a way none of us expected, and we have many good things to report at JCAP, but everything we report comes in the context of a lot of pain that people are suffering and our empathy and sympathies go out. The first quarter was one of many significant accomplishments for JCAP. We accomplished a major goal with the internalization of JCAP Advisors, our external adviser, on February 20. For that transaction insiders, including our founder, collectively own approximately 2.8 million shares in units of JCAP stock or operating partnership and approximately -- which is approximately 11.2% of our combined outstanding shares and units. We believe this level of ownership to be among the highest in REIT world, and together with the structure of the internalization transaction, we believe we've created a very strong alignment of interest that provides incentives for us to enhance shareholder value, and together with a substantially reduced G&A run rate has positioned the company for future success.

We improved the balance sheet by using our ATM program to opportunistically issue approximately $15.4 million of common stock at a compelling price in the first few days of the year. And we followed that up by upsizing our credit facility in late March to $375 million. We improved the pricing and covenants in the facility. And finally, within the last few days, we've locked a maximum interest rate of 3.1% on $200 million of our facility through its maturity. With all of those measures, we've ensured adequate liquidity for the company at an attractive price for the foreseeable future. Furthermore, we completed the most acquisitive quarter in the company's history. We acquired developers' interests in 9 self-storage properties during the first quarter. All of these facilities we had financed earlier in the development cycle. And this is a continuation of our strong track record of executing on our original business plan to own outright the vast majority of the properties we financed. Since the end of the quarter, we've acquired the developers' interest in two more facilities that we previously financed, giving us 11 total acquisitions for the year-to-date. Meanwhile, our portfolio, state of the art, predominantly urban core Gen-V storage facilities has continued to mature nicely. And as of this weekend, 61 of the 71 self-storage developments we've financed are completed and open for business at an average occupancy of 55%.

Lastly, our wholly owned properties for the quarter exceeded revenue and NOI expectations, resulting in operating income before fair value marks that significantly exceeded our expectations. Like everyone else in the world, each person in the JCAP family has been profoundly affected in some way by the novel coronavirus that's created the pandemic known as COVID-19. This pandemic was something none of us planned for or could have reasonably predicted, and it has changed the world as we all know it, whether we like it or not. We all must now change the way we look at our businesses and life in general. I'm very pleased with the reaction to the pandemic by the JCAP team. They've been champs and pros. And our reaction has included a combination of both defensive maneuvers and the pursuit of opportunities. In other words, we've been playing a lot of defense, but we've also been playing some offense. On the defensive front, we kept our entire team healthy throughout the pandemic to date by encouraging teammates to work from home before most businesses did so. I think we gave that directive on or about March 16. And then on March 25, we officially closed our corporate office and had everyone work from home to promote social distancing and keep everyone well. Technologically, we were already equipped to do this and the transition was seamless and has worked amazingly well. We diligently reviewed all of our corporate G&A, and we've reduced our deferred nonessential expenditures, including all travel, but we've retained all of our employees, and everybody has been retained at current pay levels. We increased and extended the term of our credit facility with reduced spreads and relaxed covenants and then we fixed the rate on $200 million at a maximum of 3.1% for nearly 3 years, as I've already mentioned.

We increased the frequency and thoroughness of dialogue with our third-party managers so that we could carefully monitor and interactively understand operations and overall performance effectively in real time. We quickly got our arms around the potential long-term effect of the pandemic on our development property investments, those investments that are open and operating but we don't wholly own. We reunderwrite those investments based on the most current information that we had, and we made rational adjustments to the fair values of such investment. And then finally, we reunderwrote all the projects for -- that we had in the Q for which construction had not yet begun. We determined that five of those projects were no longer economically feasible, and we agreed with our developer partners to forgo those projects. On the offensive front, we intend to continue to be opportunistic, notwithstanding the market disruption and uncertainty. This offense could and has entailed accelerating the buyout of some of our developer partners, stepping up the efforts to form a joint venture to acquire properties that we believe will be -- in what we believe will be a robust acquisition cycle that's around the corner. And finally, by leveraging JCAP's best-of-class portfolio to partner with other industry players in ways that enhance shareholder value.

While we believe we're doing all the right things to address the dramatic effect of the pandemic on our lives and our business, we and our managers have lost some level of ability to control operating results going forward because those fundamentals, particularly a lot of our demand drivers have been common beared by the virus and by the governmental and economic response to the virus. We all expect that the economic downturn, which in the short time since it began, has at times looked worse than any with which most of us have dealt in our lifetimes will somewhat negatively impact operating results over the balance of this year and perhaps beyond. The extent to which is difficult to predict when so many people remain in their homes, many businesses remain closed, and unemployment continues to climb. While the pandemic is unfortunate enough, the fact that the economic fallout is hit during a period of elevated supply in some markets has sharpened the blow. As reflected in our fair value marks this quarter, we built in assumptions for longer lease-up periods and lower short-term rental rates due to the pandemic occurring during a period of elevated supply and also potentially interrupting the 2020 rental season. Our fair value mark should, in no respect, be viewed as a loss of confidence in our portfolio or in the longer-term performance of self-storage properties.

We entered 2020 with a best-in-class portfolio of recently delivered Gen-V self-storage assets in some of the best markets in the country. We remain confident in our underlying business strategy and in the management capabilities and brands of our third-party managers.

With that, I'll turn things over to Jonathan to review property operating results and transactional activity. Jonathan?

--------------------------------------------------------------------------------

Jonathan L. Perry, Jernigan Capital, Inc. - President & CIO [4]

--------------------------------------------------------------------------------

Thanks, John, and hello, everyone.

I'll start by reviewing the first quarter's property operating results and then give some color on what we are seeing in the second quarter to date. Let me start by saying that all of our stores have remained open throughout this pandemic and are actively fulfilling the needs of both new and existing customers. In the first quarter, our wholly owned portfolio continued to lease up well resulting in our exceeding the top end of our guidance range on revenue and also on net operating income. The beat on net operating income was about 30%. Move-in velocity was strong as we picked up 388 basis points of physical occupancy on properties in our own portfolio at quarter end, excluding one property that was placed in service in the middle of the quarter. This was driven partially by earlier-than-expected college move-ins, but overall demand was healthy before the pandemic hit. Rate increases to existing customers continued to be strong in the first quarter, averaging 12.8%. However, all existing customer rate increases were paused beginning mid-March 2020.

Moving into the second quarter, we're happy to report that we picked up 160 basis points of occupancy during the month of April with move-ins running about 60% of budget and move-outs about 70% of plan. While it's still early, rental activity appears to have troughed the second week of April, and we've seen a steady increase in rental activity since that time. That trend has continued into May as we gained another 80 basis points of occupancy in about a week's time. For the first week of May, both rentals and vacates are running 75% at plan for the owned assets. Each of our properties is managed by one of the public REITS, and we followed their respective lead on collection procedures. For April, our collections were slightly better than those reported by the other operators. As you have heard from others, auctions have not been held in most locations for about 2 months. The collection process has begun in earnest. The states have begun to reopen. So we would expect any lingering AR issues to be cleaned up over the course of the next 30 to 45 days. During that same time period, we would also expect to reinstitute rate increases to existing tenants. While it's still early, given an unexpected return -- giving an expected return to a more normalized operating environment, coupled with the daily increase in mobility in the states in which we're located, we're cautiously optimistic that we can still capture a significant portion of the 2020 rental season. With that, I can turn it over to Kelly.

--------------------------------------------------------------------------------

Kelly P. Luttrell, Jernigan Capital, Inc. - Senior VP, CFO, Corporate Secretary & Treasurer [5]

--------------------------------------------------------------------------------

Thank you, Jonathan, and happy afternoon, everyone.

Last night, we reported a $2.53 loss per share for the first quarter. This loss includes $0.46 related to the change in fair value of our development investments and $1.84 related to internalization expenses, goodwill impairment and the final payment of management fees to JCAP Advisors.. We also reported an adjusted loss per share of $0.42, which includes the $0.46 related to the change in fair value of investments as well. EPS and adjusted EPS were below our guided ranges entirely due to fair value. For the first time in our history this quarter, we recognized a decline in the fair value of our investments primarily resulting from the impact of the COVID-19 pandemic. As a reminder, our fair value investments are comprised of two components, a debt component and a real estate component. The combination of these two components reflect the overall market value of our investments. While interest rates ticked down during the quarter, the debt component was negatively impacted by a dramatic increase in credit spreads, which were up approximately 200 basis points. The real estate component is inherently forward-looking in nature by virtue of it capturing the present value of our profits interest and our investments, which is derived from the value of the businesses conducted at each storage facility underlying the development property investment. And valuing these profits interests, we re-underwrite all of the underlying facilities each quarter, reassessing stabilization dates, rental rates, lease-up pace, new competition and exit cap rates amongst numerous other variables. To the extent those variables move, so too will our fair value marks. The decline in the real estate component is attributed to our expectations for elongated economic stabilization time lines of the majority of the underlying properties in our portfolio as well as the ongoing impact of new supply. In general, we pushed out the stabilization date 6 to 12 months on our investments, which we believe to be a rational range given the high level of uncertainty as to the severity and duration of the current pandemic.

Exclusive of fair value though, our results came in above our expectation for the quarter. Property NOI on our wholly owned assets as well as interest income were above the high end of our guided ranges, while G&A and interest expense were at or below the midpoint of our guided ranges.

Looking forward with the general uncertainty and lack of visibility with respect to the impact of the COVID pandemic and economic recovery, we are withdrawing our EPS and adjusted EPS guidance ranges for the full year. We will reevaluate our guidance at such time as visibility improves, and we can predict with better search in TR results.

Turning to liquidity and capital sources and uses. At 3/31, we had remaining funding commitments of $119 million on our development property investments. However, as John mentioned, we have elected to forgo five development projects that have not yet commenced construction, and $42 million of this $119 million is related to those five investments. This leaves $77 million of remaining commitments to be funded over the course of the next few years as illustrated on Page 18 of our supplement. Also, as John noted, we intend to be active on the acquisition front as well, but it's too early to predict the number of developer buyouts and the prices we would pay in such buyouts. In March, we upsized and extended the maturity of our secured revolving credit facility from $235 million up to $375 million and extended the term out to March 2023. The new facility has lower credit spreads and relaxed financial covenants as compared to the previous facility, and we intend to use the facility to fund our development draws and acquisitions this year as our leverage levels remain very reasonable. Additionally, we expect to have some capital recycling opportunities. While we have ROFRs on all of our development projects and a desire to own a substantial majority of the facilities we finance, we also have the optionality to allow the sale of a facility underlying one of our development investments, or the refinance or repayment of the loan when it makes sense. In 2020, we can have capital recycling opportunities upwards of $40 million compared to potential refinancing, repayments and/or asset sales. With our upsized credit facility, the ATM sales we did prior to the pandemic, cash on hand and potential capital recycling opportunities, we believe we are well positioned to fund our existing development commitments, opportunistically acquire developers' interests and operate our core business as planned.

Our contractual investment commitments and our development pipeline are now fully covered at conservative leverage level for the foreseeable future, and we have created dry powder to continue to execute developer buyouts opportunistically. I turn it back over to John real quick.

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [6]

--------------------------------------------------------------------------------

Thanks, Kelly. And before we begin Q&A, I'd like to highlight a few silver linings that we see in the current environment, both related to the sector, generally into JCAP specifically. Silver lining #1, change. This pandemic is certainly causing change in everyone's lives and with change come self-storage usage.

Silver lining #2, end of the development cycle. Development in already overbuilt markets is likely to either be deferred for the long term or abandoned all together for a host of reasons caused related to or accelerated by the COVID-19 pandemic.

Silver lining, #3, the power of the platforms. CubeSmart extra space, life storage and public storage, our third-party managers have the best marketing know-how, revenue management platforms and brand awareness in all of the self-storage industry. And all of this has been on substantial display during the past 8 weeks. It's all substantially enhanced from the great financial crisis in 2008 and 2009, and it is paying great benefits right now. While the severity of this event has and will put these platforms to the test, we expect that they'll outperform the last downturn.

Silver lining #4, JCAP was built for a scenario like this. We pre-funded the business with common and preferred equity, and we built optionality into our investment structure. We believe that both our capital structure and our optionality have positioned us not only to survive the pandemic and the resulting dramatic economic downturn but also to thrive as things recover.

And silver lining #5, external growth. Unlike many other public REITS, our external growth story has not gone away as we have a captive pipeline of deals as we've talked about in our prepared remarks up to this point. We also have as much experience now with Gen-V lease-up properties as anyone in the sector, and we believe we're the perfect partner to source, evaluate, underwrite and close acquisition transactions of new properties as they inevitably will hit the market when things reopen. We strongly believe we'll be successful in forming such a partnership.

With that, it's time for me to turn it over to Jerry for Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) First question is from Todd Thomas, KeyBanc Capital Markets.

--------------------------------------------------------------------------------

Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [2]

--------------------------------------------------------------------------------

John, so you talked about being opportunistic in playing offense and referenced the joint venture or partnership more than once, which is interesting. I guess how far along are you in the process to establish a vehicle that might help support those efforts? And would this involve -- would this be an acquisition venture for equity investments? Or would it be more of a debt fund, something to help expand your lending and bridge loan program at this point?

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [3]

--------------------------------------------------------------------------------

Yes. Todd, thanks for the question. It's a great question. We started talking about this in probably the second quarter of 2018. When Jonathan joined the company, we felt like we were picking up one of the great minds in the space and someone who had as much experience and as much know-how in terms of opportunistically acquiring properties as anyone we could have possibly added to the team. So these conversations have gone on really for the better part of 2 years. I think that over the last couple of months, and particularly as we've started to move to -- move into the rental season and toward those summer months, we always felt like this was going to be the rental season that when you match the curve of development with lease-ups and took into account the fact that an estimate of about 75% of those who have developed during this cycle have been merchant builders, this was going to be the summer when things were going to start. And I think it's only natural in that you had the development cycle scheduled to come to an end. I think COVID-19 has accelerated the end of the development cycle. And I also believe that COVID-19, with the inevitable impact that it will have on this rental season has put developers, these merchant builders, into a posture where they're probably much more interested in liquidity now than they might have been. And more likely than not, pricing differences have narrowed.

So with that in mind, I think we have stepped up our conversations. We've had more inbound calls. And it's too early for me to comment on how far down the road we are, but we are having meaningful conversations along those lines right now.

--------------------------------------------------------------------------------

Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [4]

--------------------------------------------------------------------------------

Okay. That's helpful. And then you talked about the more elongated stabilization time frame, 6 to 12 months on average that impacted some of the fair value marks in the quarter. Can you speak to how pro forma rents have changed maybe for assets and lease-up or projects under construction today?

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [5]

--------------------------------------------------------------------------------

So Todd, with projects under construction, most of those have been underwritten. We reported that we effectively agreed with developers to terminate five projects that were approved a couple of years ago in some cases, and that's all set out, I believe, on Page 15 of our supplement. Those were the older projects that might have been underwritten with older rent levels. I think most everything that's under construction now is probably fairly current from a rent standpoint, save any change that's occurred from the pandemic, but I don't think any of us can say right now that the pandemic is going to have a permanent impact on the level of rent. So I think it's way too early for us to start to reproject stabilized rents on properties that aren't going to stabilize for 4 years.

--------------------------------------------------------------------------------

Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [6]

--------------------------------------------------------------------------------

Okay. Got it. And then just two quick questions, I guess, on the dividend. First, as you look at the model today, you previously had talked about the expectation to have the dividend covered in early '22. And I know there's a lot of moving parts and a fair amount of uncertainty with those five assets, the five projects that you stepped away from and an elongated stabilization time frame on others, perhaps and a bunch of other moving pieces. But any thoughts or insights as to how you might be trending as it pertains to the dividend coverage in early '22?

And then the second part is, I know you just recently rightsized the dividend, but I'm just curious if there any additional considerations here just given the current environment.

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [7]

--------------------------------------------------------------------------------

Sure. And thanks for the question, Todd, it's something we really ought to talk about continuously. As everyone knows, we've gone basically 4.5, almost 5 years now with a dividend that has always been predicated on a financial model that was tied really to the overall building of shareholder value. I would like to emphasize just as a preliminary matter that in terms of looking at whether that we're on track to cover that dividend or not, we gave guidance for the first quarter, and we blew out the guidance. So that was -- that's a positive sign. The pandemic has certainly changed things. And the way that I look at it is we were comfortable when we rightsized the dividend. That even considering elevated new supply, we had a pathway to cover that dividend in the first half of 2022. As we've reunderwritten our facilities and as we have moved back stabilization dates, perhaps that's going to impact cash flows to the point that the dividend coverage could be moved back as well. But the -- on the flip side of that, you have a situation where our original projections were made understanding and knowing that most people believe new supply was going to remain perhaps at an elevated level for longer than those of us in the industry would have liked. And I believe this pandemic has effectively lopped off the tail there. And so to the extent you have a relief of some of that pressure, which we believe will invariably happen, perhaps that to some degree maybe completely mitigates any elongation of the stabilization periods that we projected when we did our fair value marks this quarter.

So at this point, we're still hopeful that we're going to hit that original time line. If we don't hit that original time line, we don't believe that the delay would be in excess of what that delay in the stabilization period has been. And once we get into that first half of 2022, there will be cash flow that will be very close to dividend coverage. May not be quite there, but everybody has always understood that this was a pathway to eventual coverage. I like to say that maybe a little debris has been thrown into the path, and I think we'll clear that to breathe fairly quickly and be back on our way.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

We have a question from Tim Hayes, VFR (sic) [FBR].

--------------------------------------------------------------------------------

Timothy Paul Hayes, B. Riley FBR, Inc., Research Division - Analyst [9]

--------------------------------------------------------------------------------

My first one, I know you with your guidance and we'll respect that. But just given the constructive signs you're seeing from developers and the increased amount of inbound calls and increased amount of conversations you're having, do you still think you're on track to own more than 50% of your portfolio on balance sheet by year-end?

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [10]

--------------------------------------------------------------------------------

Tim, when we put our guidance out, as Kelly said in her prepared remarks, the guidance that we have withdrawn is our EPS and our adjusted EPS guidance. We're in the first week of May right now, and our guidance was 15 to 25 facilities for the -- or 15 to 20 facilities for the year. And on May 7, we're at 11. So I still feel pretty good that we're on target in that regard. Jonathan, you may like to comment on that as well.

--------------------------------------------------------------------------------

Jonathan L. Perry, Jernigan Capital, Inc. - President & CIO [11]

--------------------------------------------------------------------------------

I don't really have too much to add to that, John. I agree with that. The conversations that we're having right now are, I'd call them, somewhat elevated or accelerated. We expected to have a significant number of conversations with our partners after the rental season in the latter half of this year. I think if you think about our guidance, it was more back-end loaded with acquisitions. And I think that you could see those come into the wholly owned tenant a little bit sooner. So when you think about the range that was put out there, I believe that I'd be comfortable targeting the higher end of that range.

--------------------------------------------------------------------------------

Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [12]

--------------------------------------------------------------------------------

Okay. That's helpful. And then just sticking on the topic of kind of strategic alternatives or strategic investments here. We saw obviously, SmartStop recently took a significant stake in the company and then recently went activist. Can you just touch on maybe what conversations have been like with them? And what changes or actions, if any, that they want to see or are kind of even been driving so far? And maybe just in the broader context of how maybe M&A fits into this purse of strategic alternatives that you could be pursuing?

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [13]

--------------------------------------------------------------------------------

Yes. Thanks, Tim, that's a great question. Let me start by saying that SmartStop made its initial filing in late March, and they filed a 13G which is a passive position, and the number of shares that they reported in that filing was the same, I believe, as the number of shares that they reported in the 13D that they filed on April 28. And I would say that characterizing someone who filed a 13D as having gone activist is maybe a little bit strong of a suggestion, an activist will generally file a 13D and immediately start taking definitive types of action to affect some kind of change. And that has not really happened at this point in time. Smart -- we know the SmartStop people. SmartStop is a significant participant in our industry. They're, I think, maybe the tenth largest self-storage company out there. And we've had conversations with them passively at industry conferences and things like that like we have with everybody else. We all talk about our businesses. And from the standpoint of what that means for JCAP, we've always said anytime a shareholder has asked us how we view M&A, we have always said we are a shareholder focused as any company you're ever going to find. If you look at the 6.3% level of ownership that SmartStop has, our insiders have double that. And so there's nobody more focused on shareholder value than we are. So if something comes along that we believe will produce a better value for our shareholders than we believe we can do on a stand-alone basis, we will always go to our Board, discuss that and figure out the right thing to do.

--------------------------------------------------------------------------------

Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [14]

--------------------------------------------------------------------------------

Thanks, John. That's some thoughtful commentary . I appreciate it. And I guess one more from me. Maybe just touch on the markets, maybe which ones are performing better than you would expect in this situation, if there is any level of expectations here? And which ones are most impacted by what's going on. In Miami, New York and Atlanta, clearly top 3 in your portfolio and New York having a hard time, but Atlanta opening up a little bit earlier than other impacted MSAs. Maybe if you could just give a little bit of context around the performance in some of these specific markets.

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [15]

--------------------------------------------------------------------------------

Yes. Tim, I think I'll give a high-level comment and then maybe let Jonathan get into a little more of the details. We've been -- I've waked up every morning over the last 7 weeks. And the first thing I do is I pull the daily flash report showing the rental activity in each one of our markets. And it's really hard at this stage to say there has been any particular trend among the portfolio. Some days, you'll have a store that will just completely surprise. We had some days in the real heart of the crisis where you look at our store on 150th Street in Manhattan. And you had a bunch of rentals at that store when New York appeared to be completely shut down. I think that at a macro level, it's going to, in many respects, just follow the reopening of state. The state of Georgia, as everyone knows, is more or less completely reopened right now. Florida is, if not completely reopened, certainly on the verge. I think if you look across the whole portfolio, somewhere around 80% of our total portfolio is now located in a state where you've had states of emergency that were previously in effect, resented and auctions can resume. And you have other -- some -- you have some normalcy returning to business and individual life in those states. And so I think that it's just going to follow the pace at which states and cities and submarkets not only legally reopen, but people feel comfortable getting out and starting to engage in life again.

Jonathan, why don't you add your commentary to that?

--------------------------------------------------------------------------------

Jonathan L. Perry, Jernigan Capital, Inc. - President & CIO [16]

--------------------------------------------------------------------------------

Yes. I would just say that you're right. It's hard to really paint even a market with a broad brush. We've seen -- we have a handful, not many, but we have a handful of stores that may be more exposed or may cater more to universities than others. Our property in Pittsburgh comes to mind. We have an asset in Knoxville and a couple of our assets in Miami and Jacksonville have really performed well, and you can attribute some of that to catching the university rentals or the student rentals earlier in the season. But even -- and we're actually seeing a little bit of a second spike, so to speak, in some of those markets. I know our property in Austin last -- over the course of the last 2 weeks has performed really well. So it's a little bit too soon to see trends, I think, on a market basis because you have some ups and downs at properties even within an MSA.

But you're right, as John alluded to, 90% of our own portfolio is in states or looking in the states that are open. So we feel good there. We're seeing movement in Georgia and Florida, in particular, the Northeast is just going to take a little while longer. We have an asset in Pennsylvania or Philadelphia suburbs as well as our assets in New Jersey and New York, and other than the initial rush before everything shut down to get items in storage. You haven't seen a whole lot of activity up there. So it's really by region. And then once you start digging into particular MSAs, it's going to be on a store-by-store basis.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

We now have a question from Jon Petersen from Jefferies.

--------------------------------------------------------------------------------

Jonathan Michael Petersen, Jefferies LLC, Research Division - SVP & Equity Analyst [18]

--------------------------------------------------------------------------------

Great. I was curious if you've seen any properties transact in the market that would give you any idea of how property values might have changed and maybe more specifically to JCAP, I guess, your model with the fair value marks, are you still assuming mid-5 stabilized NOI cap rates? And then maybe -- an even finer point on it, what was the stabilized cap rate on the properties that you were assuming on the properties you guys did buy out this quarter?

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [19]

--------------------------------------------------------------------------------

Yes. Jonathan, why don't you take that one?

--------------------------------------------------------------------------------

Jonathan L. Perry, Jernigan Capital, Inc. - President & CIO [20]

--------------------------------------------------------------------------------

Yes. So just as far as the market goes, the deals that were under contract and in the Q and financing was lined up. For the most part, I believe those deals have been closing. I don't know of really any deals that have come out since the pandemic hit that have transacted. That's not to say that they won't, but it's buyers are taking a little bit more of a measured approach just waiting for the dust to settle a little bit. But when you think about that, there continues to be an abundance of capital on the sidelines continuing to look to get into the space, and I think it's just going to continue to build up in a muted transaction environment.

As far as cap rates go, my sense and the groups, the people that I talked to that have a good beat on it and I trust their opinion, we're all of the opinion that we don't really see cap rates expanding. It's really just a more intense focus on the NOI. And so maybe deals are underwritten in a different way, but you're still solving for the same yield, whether or not it's a stabilized yield or an IRR. So I don't think the consensus there is that there's -- we don't expect to see much of an expansion, if any, in yields or cap rates.

On the deals that we bought, I don't know that we've necessarily disclosed yields in the past, but I would say that these are in line with previous acquisitions. They were both teed up and in the queue under evaluation pre-COVID. We felt comfortable with where how they performed through the pandemic and feel good about that investment. I guess in the past, we have suggested that on acquisitions, we're looking at stabilized returns in the low to mid-7s, and I would say that these fit that range.

--------------------------------------------------------------------------------

Jonathan Michael Petersen, Jefferies LLC, Research Division - SVP & Equity Analyst [21]

--------------------------------------------------------------------------------

Okay. That's helpful. And I'm sorry if I missed this, but did you say what percent of your development projects, or your developer's projects have been stopped by local regulations? Just curious how much is still going on and how much is kind of shovels down right now?

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [22]

--------------------------------------------------------------------------------

Yes. Jon, it's really just the New York and New Jersey area. And so what is that, Jonathan, maybe five projects?

--------------------------------------------------------------------------------

Jonathan L. Perry, Jernigan Capital, Inc. - President & CIO [23]

--------------------------------------------------------------------------------

Six.

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [24]

--------------------------------------------------------------------------------

Six projects. So we have six projects in New York and New Jersey that currently construction has -- is halted. And talking to one of our developers up there this morning. The expectation on the delay is 60 days minimum. I think you're probably looking at up there 90, maybe 120 days delay on some of these projects.

--------------------------------------------------------------------------------

Jonathan L. Perry, Jernigan Capital, Inc. - President & CIO [25]

--------------------------------------------------------------------------------

Yes. Jon, a little color on that, though, if you go through the list of projects, most of those projects were very early stage. In fact, in some cases, they haven't -- they really haven't broken ground yet. So from the standpoint of increasing cost because you have a lot of carry, that's probably not a huge issue here. And then secondly, the fact that there is a delay when you start looking ahead to delivery. When these deliver, the supply picture may be a little better when they do deliver. So to some degree, the delay could be in small respects, blessings in disguise.

--------------------------------------------------------------------------------

Jonathan Michael Petersen, Jefferies LLC, Research Division - SVP & Equity Analyst [26]

--------------------------------------------------------------------------------

Got it. Okay. That's helpful. And then I'm curious about delayed development. Maybe you kind of just answered my question, but you said get five projects that were canceled. I'm curious for the ones -- I think the ones you just mentioned where they haven't even necessarily broken ground yet. I guess how many more projects are out there that maybe could be added to the list of being canceled?

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [27]

--------------------------------------------------------------------------------

Well, I -- that's a hard question to answer. And I would say right now that everything that we haven't agreed with developers to cancel, I would say, you're likely to go forward. If you look at the ones that were canceled, then, again, I'll refer you to Page 15 in the supplemental. Maybe the most important column on that page is the far left column, which is the -- what we call the closing date. And that was the date that we closed the construction loan and land was taken down. And many of those go back to kind of Q4 of 2017, in some cases, earlier in Q4 than others. And in all of our investment documents, we have contractual start date and contractual delivery dates. And in the case of those five, way past the contractual start date. I don't think any one of them was going to hit the contractual delivery date. And by missing -- I'm not talking about missing by a few days. They were going to miss big. And in all of those cases as we went and we looked at the projects and as we reunderwrote the projects, the projects just didn't work anymore.

So that's one batch. I think the batch that we just talked about where we had the delays, I don't think you have the same dynamics now. If we get 2 years down the road and we have a project that we closed on in the third or fourth quarter of 2019 and it still hasn't broken ground, then we may be having a different discussion. But right now, that batch looks like it will start and go forward as planned, and I can't think of any of those that right now, I could point to and say, there's a high likelihood that it's going to be canceled.

And Jonathan, feel free to chime in there if you have another view.

--------------------------------------------------------------------------------

Jonathan L. Perry, Jernigan Capital, Inc. - President & CIO [28]

--------------------------------------------------------------------------------

No. I agree with that. When you think about the ones that are under construction, quite a few of those are expected to be delivered, I guess two of those or maybe three are expected to be delivered this year. So they are, they -- in two instances that I know of, they're going through their final inspections and a delay may just because of delays in a municipality official getting out there and performing the inspection. So they're just at different stages than the ones that were dropped, for the most part.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

(Operator Instructions) Ladies and gentlemen, there are no further questions, we've reached the end of the question-and-answer session. I'd like to turn the conference back over to John Good for closing remarks.

--------------------------------------------------------------------------------

John A. Good, Jernigan Capital, Inc. - Chairman of the Board & CEO [30]

--------------------------------------------------------------------------------

Thanks, Jerry, and thanks, everyone, for attending the call, and thanks for the very thoughtful questions from those of you who asked questions, and we look forward to talking to you guys again in late July. Take care and be safe.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.