Steadfast Income REIT, Inc. - FORM 10-Q - November 14, 2016

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EX-32.2 - EXHIBIT 32.2 - Steadfast Income REIT, Inc.ex322-sir9302016.htm
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EX-31.2 - EXHIBIT 31.2 - Steadfast Income REIT, Inc.ex312-sir9302016.htm
EX-31.1 - EXHIBIT 31.1 - Steadfast Income REIT, Inc.ex311-sir9302016.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ     
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2016
OR
o     
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                      to                     
Commission file number 000-54674
STEADFAST INCOME REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland
 
27-0351641
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
 
 
 
18100 Von Karman Avenue, Suite 500
 
 
Irvine, California
 
92612
(Address of Principal Executive Offices)
 
(Zip Code)
(949) 852-0700
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer o
Accelerated filer o 
Non-Accelerated filer þ
(Do not check if smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of November 4, 2016, there were 76,203,010 shares of the Registrant’s common stock issued and outstanding.
 


STEADFAST INCOME REIT, INC.
INDEX
 
Page
 
 


1

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
STEADFAST INCOME REIT, INC.
CONSOLIDATED BALANCE SHEETS
 
September 30, 2016
 
December 31, 2015
 
(Unaudited)
 
 
ASSETS
Assets:
 
 
 
Real Estate:
 
 
 
Land
$
174,102,422

 
$
174,102,422

Building and improvements
1,511,224,371

 
1,487,961,762

Other intangible assets
2,644,263

 
2,644,263

Construction-in-progress
—

 
2,192,635

Total real estate, cost
1,687,971,056

 
1,666,901,082

Less accumulated depreciation and amortization
(214,964,389
)
 
(163,445,987
)
Total real estate, net
1,473,006,667

 
1,503,455,095

Cash and cash equivalents
74,793,620

 
32,076,582

Restricted cash
25,035,324

 
27,700,811

Short-term investments
30,000,000

 
—

Rents and other receivables
2,823,301

 
2,742,011

Other assets, net
4,410,351

 
4,328,851

Total assets
$
1,610,069,263

 
$
1,570,303,350

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
43,471,677

 
$
40,752,458

Notes payable:
 
 
 
Mortgage notes payable, net
987,012,365

 
1,115,752,899

Credit facilities, net
232,490,899

 
—

Total notes payable, net
1,219,503,264

 
1,115,752,899

Distributions payable
4,487,297

 
4,668,261

Due to affiliates
2,316,649

 
2,682,209

Total liabilities
1,269,778,887

 
1,163,855,827

Commitments and contingencies (Note 10)

 

Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value per share; 100,000,000 shares authorized, no shares issued and outstanding
—

 
—

Common stock, $0.01 par value per share; 999,999,000 shares authorized, 76,392,605 and 76,674,502 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
763,926

 
766,745

Convertible stock, $0.01 par value per share; 1,000 shares authorized, issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
10

 
10

Additional paid-in capital
673,917,322

 
677,624,840

Cumulative distributions and net losses
(334,390,882
)
 
(271,944,072
)
Total stockholders’ equity
340,290,376

 
406,447,523

Total liabilities and stockholders’ equity
$
1,610,069,263

 
$
1,570,303,350

See accompanying condensed notes to consolidated financial statements.

2

PART I — FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)




STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Rental income
$
48,606,833

 
$
47,233,877

 
$
143,710,190

 
$
139,155,382

Tenant reimbursements and other
7,765,092

 
5,932,544

 
19,591,268

 
17,306,141

Total revenues
56,371,925

 
53,166,421

 
163,301,458

 
156,461,523

Expenses:
 
 
 
 
 
 
 
Operating, maintenance and management
15,607,923

 
14,681,517

 
43,220,781

 
40,275,265

Real estate taxes and insurance
8,980,995

 
8,524,454

 
27,940,715

 
27,310,197

Fees to affiliates
7,062,486

 
5,660,066

 
19,947,606

 
16,441,909

Depreciation and amortization
17,559,941

 
16,496,386

 
51,723,985

 
48,832,712

Interest expense
10,520,206

 
10,019,513

 
30,707,522

 
29,527,109

Loss on debt extinguishment
3,743,325

 
—

 
4,932,369

 
—

General and administrative expenses
2,596,236

 
1,388,213

 
6,185,026

 
4,405,988

Acquisition costs
—

 
—

 
—

 
7,145

Total expenses
66,071,112

 
56,770,149

 
184,658,004

 
166,800,325

Net loss
$
(9,699,187
)

$
(3,603,728
)
 
$
(21,356,546
)
 
$
(10,338,802
)
Loss per common share — basic and diluted
$
(0.13
)
 
$
(0.05
)
 
$
(0.28
)
 
$
(0.14
)
Weighted average number of common shares outstanding — basic and diluted
76,164,515

 
76,370,121

 
76,258,795

 
76,371,860

Distributions declared per common share
$
0.180

 
$
0.181

 
$
0.536

 
$
0.537

See accompanying condensed notes to consolidated financial statements.

3

PART I — FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)




STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2015
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 (Unaudited)
 
Common Stock
 
Convertible Stock
 
Additional Paid-
In Capital
 
Cumulative
Distributions &
Net Losses
 
Total Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
BALANCE, December 31, 2014
76,858,483

 
$
768,585

 
1,000

 
$
10

 
$
680,138,132

 
$
(203,843,497
)
 
$
477,063,230

Issuance of common stock
14,008

 
140

 
—

 
—

 
(62
)
 
—

 
78

Transfers to redeemable common stock
—

 
—

 
—

 
—

 
(1,000,000
)
 
—

 
(1,000,000
)
Repurchase of common stock
(197,989
)
 
(1,980
)
 
—

 
—

 
(1,998,020
)
 
—

 
(2,000,000
)
Distributions declared
—

 
—

 
—

 
—

 
—

 
(55,076,217
)
 
(55,076,217
)
Amortization of stock-based compensation
—

 
—

 
—

 
—

 
184,350

 
—

 
184,350

Change in value of restricted common stock to Advisor
—

 
—

 
—

 
—

 
300,440

 
—

 
300,440

Net loss for the year ended December 31, 2015
—

 
—

 
—

 
—

 
—

 
(13,024,358
)
 
(13,024,358
)
BALANCE, December 31, 2015
76,674,502

 
766,745

 
1,000

 
10

 
677,624,840

 
(271,944,072
)
 
406,447,523

Issuance of common stock
7,500

 
75

 
—

 
—

 
(75
)
 
—

 
—

Transfers to redeemable common stock
—

 
—

 
—

 
—

 
(1,000,000
)
 
—

 
(1,000,000
)
Repurchase of common stock
(289,397
)
 
(2,894
)
 
—

 
—

 
(2,997,106
)
 
—

 
(3,000,000
)
Distributions declared
—

 
—

 
—

 
—

 
—

 
(41,090,264
)
 
(41,090,264
)
Amortization of stock-based compensation
—

 
—

 
—

 
—

 
61,254

 
—

 
61,254

Change in value of restricted common stock to Advisor
—

 
—

 
—

 
—

 
228,409

 
—

 
228,409

Net loss for the nine months ended September 30, 2016
—

 
—

 
—

 
—

 
—

 
(21,356,546
)
 
(21,356,546
)
BALANCE, September 30, 2016
76,392,605

 
$
763,926

 
1,000

 
$
10

 
$
673,917,322

 
$
(334,390,882
)
 
$
340,290,376

See accompanying condensed notes to consolidated financial statements.

4

PART I — FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)




STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
Net loss
$
(21,356,546
)
 
$
(10,338,802
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
51,723,985

 
48,832,712

Amortization of deferred financing costs
1,237,263

 
1,183,398

Amortization of stock-based compensation
61,254

 
171,486

Change in value of restricted common stock to Advisor
228,409

 
27,431

Amortization of loan premiums and discounts, net
(934,747
)
 
(926,094
)
Change in fair value of interest rate cap agreements
466,841

 
1,908,550

Loss on debt extinguishment
4,932,369

 
—

Insurance claim recoveries
(897,985
)
 
—

Loss on disposal of building and improvements
848,546

 
—

Changes in operating assets and liabilities:
 
 
 
Restricted cash for operating activities
1,788,259

 
(1,071,569
)
Rents and other receivables
(81,290
)
 
(1,270,093
)
Other assets
(402,524
)
 
360,694

Accounts payable and accrued liabilities
1,097,178

 
(1,082,251
)
Due to affiliates
(407,334
)
 
(1,093,400
)
Net cash provided by operating activities
38,303,678

 
36,702,062

Cash Flows from Investing Activities:
 
 
 
Short-term investments
(30,000,000
)
 
—

Additions to real estate investments
(21,460,288
)
 
(23,363,985
)
Restricted cash for investing activities
877,228

 
299,697

Purchase of interest rate cap agreements
(259,000
)
 
(296,250
)
Proceeds from insurance claims
897,985

 
—

Net cash used in investing activities
(49,944,075
)
 
(23,360,538
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of mortgage notes payable
427,867,278

 
83,246,333

Principal payments on mortgage notes payable
(555,671,555
)
 
(54,136,297
)
Borrowings from credit facility
251,124,750

 
6,000,000

Principal payments on credit facility
(16,000,000
)
 
—

Payment of deferred financing costs
(5,489,473
)
 
(595,601
)
Payment of debt extinguishment costs
(3,202,337
)
 
—

Distributions to common stockholders
(41,271,228
)
 
(41,360,816
)
Repurchase of common stock
(3,000,000
)
 
—

Net cash provided by (used in) financing activities
54,357,435

 
(6,846,381
)
Net increase in cash and cash equivalents
42,717,038

 
6,495,143

Cash and cash equivalents, beginning of period
32,076,582

 
29,529,312

Cash and cash equivalents, end of period
$
74,793,620

 
$
36,024,455


5

PART I — FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)




STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
 
Nine Months Ended September 30,
 
2016

2015
Supplemental Disclosures of Cash Flow Information:
 
 
 
Interest paid, net of amounts capitalized of $80,166 and $134,943 for the nine months ended September 30, 2016 and 2015, respectively
$
29,713,280

 
$
27,511,861

Supplemental Disclosure of Noncash Transactions:
 
 
 
Distributions paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan
$
—

 
$
78

Increase in redeemable common stock payable
$
1,000,000

 
$
4,267,538

Increase in accounts payable and accrued liabilities from additions to real estate investments
$
622,041

 
$
495,544

Decrease in due to affiliates from additions to real estate investments
$
41,774

 
$
—


See accompanying condensed notes to consolidated financial statements.

6

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)


1. Organization and Business
Steadfast Income REIT, Inc. (the “Company”) was formed on May 4, 2009, as a Maryland corporation that has elected to be treated as, and currently qualifies as, a real estate investment trust (“REIT”). On June 12, 2009, the Company was initially capitalized pursuant to the sale of 22,223 shares of common stock to Steadfast REIT Investments, LLC (the “Sponsor”) at a purchase price of $9.00 per share for an aggregate purchase price of $200,007. On July 10, 2009, Steadfast Income Advisor, LLC (the “Advisor”), a Delaware limited liability company formed on May 1, 2009, invested $1,000 in the Company in exchange for 1,000 shares of convertible stock (the “Convertible Stock”) as described in Note 6.
Substantially all of the Company’s business is conducted through Steadfast Income REIT Operating Partnership, L.P., a Delaware limited partnership formed on July 6, 2009 (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. As the Company accepted subscriptions for shares of its common stock in the Public Offering (as defined below), the Company transferred substantially all of the net offering proceeds to the Operating Partnership in exchange for limited partnership interests, and the Company’s percentage ownership in the Operating Partnership increased proportionately. The Company and Advisor entered into an Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”) on September 28, 2009.
As of September 30, 2016, the Company owned 65 multifamily properties comprising a total of 16,709 apartment homes and an additional 25,973 square feet of rentable commercial space at three properties.
Private Offering
On October 13, 2009, the Company commenced a private offering of up to $94,000,000 in shares of the Company’s common stock at a purchase price of $9.40 per share (with discounts available for certain categories of purchasers) (the “Private Offering”). The Company offered its shares of common stock for sale in the Private Offering pursuant to a confidential private placement memorandum and only to persons that were “accredited investors,” as that term is defined under the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder. On July 9, 2010, the Company terminated the Private Offering and on July 19, 2010, the Company commenced its registered Public Offering described below. The Company sold 637,279 shares of common stock in the Private Offering for gross offering proceeds of $5,844,325.
Public Offering
On July 23, 2009, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a maximum of 150,000,000 shares of common stock for sale to the public at an initial price of $10.00 per share (with discounts available for certain categories of purchasers) (the “Primary Offering”). The Company also registered up to 15,789,474 shares of common stock for sale pursuant to the Company’s distribution reinvestment plan (the “DRP,” and together with the Primary Offering, the “Public Offering”) at an initial price of $9.50 per share. The SEC declared the Company’s registration statement effective on July 9, 2010. The Company commenced the Public Offering on July 19, 2010.
On July 12, 2012, the Company’s board of directors determined an estimated value per share of the Company’s common stock as of March 31, 2012 of $10.24. As a result of the determination of the estimated value per share of the Company’s common stock as of March 31, 2012, effective September 10, 2012, the offering price of the Company’s common stock to the public in the Primary Offering increased from the previous price of $10.00 per share to $10.24 per share. Additionally, effective September 10, 2012, the price of shares of the Company’s common stock issued pursuant to the DRP increased from a price of $9.50 per share to a price of $9.73 per share, or 95% of the new Primary Offering price of $10.24 per share. Effective September 10, 2012, the Company’s board of directors increased the amount of distributions paid on each share of the

7

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

Company’s common stock from $0.001917 per share per day to $0.001964 per share per day, which, if paid each day over a 365-day period, is equivalent to a 7.0% annualized distribution rate based on the $10.24 per share offering price.
The Company terminated its Public Offering on December 20, 2013. Following termination of the Public Offering, the Company continued to offer shares of common stock pursuant to the DRP until the Company’s board of directors suspended the DRP effective for distributions earned beginning on December 1, 2014. Through December 20, 2013, the Company sold 73,608,337 shares of common stock in the Public Offering for gross proceeds of $745,389,748, including 1,588,289 shares of common stock issued pursuant to the DRP for gross offering proceeds of $15,397,232.
On March 10, 2015, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $10.35 as of December 31, 2014. On February 25, 2016, the Company’s board of directors again determined an estimated value per share of the Company’s common stock of $11.44 as of December 31, 2015.
The business of the Company is externally managed by the Advisor, pursuant to the Advisory Agreement by and among the Company, the Operating Partnership and the Advisor (as amended, the “Advisory Agreement”), which is subject to annual renewal by the Company’s board of directors. The current term of the Advisory Agreement expires on November 15, 2017. Subject to certain restrictions and limitations, the Advisor manages the Company’s day-to-day operations, manages the Company’s portfolio of properties and real estate-related assets, sources and presents investment opportunities to the Company’s board of directors and provides investment management services on the Company’s behalf. Steadfast Capital Markets Group, LLC (the “Dealer Manager”), an affiliate of the Advisor, served as the dealer manager for the Public Offering. The Dealer Manager was responsible for marketing the Company’s shares of common stock being offered pursuant to the Public Offering. The Advisor, along with the Dealer Manager, provides marketing, investor relations and other administrative services on the Company’s behalf.
The Partnership Agreement provides that the Operating Partnership is operated in a manner that will enable the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the Operating Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), which classification could result in the Operating Partnership being taxed as a corporation, rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by the Operating Partnership in acquiring real properties, the Operating Partnership may pay all of the Company’s administrative costs and expenses, and such expenses will be treated as expenses of the Operating Partnership.
2. Summary of Significant Accounting Policies
There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2015, other than the adoption of Accounting Standard Updates (“ASU”) 2015-03, as amended by ASU 2015-15 and ASU 2016-15, as further described below. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 18, 2016.

8

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, the Operating Partnership and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The financial statements of the Company’s subsidiaries are prepared using accounting policies consistent with those of the Company.
The accompanying unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary for a fair and consistent presentation of the results of such periods. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The unaudited consolidated financial statements herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the current year presentation. These reclassifications have not changed the results of operations of prior periods. During the nine months ended September 30, 2016, the Company adopted new accounting guidance to simplify the presentation of debt issuance costs. As a result, net deferred financing costs of $6,697,472 related to mortgage notes payable as of December 31, 2015, were reclassified from other assets, net to mortgage notes payable, net on the consolidated balance sheets.
Short-term Investments
Short-term investments consist of any highly-liquid securities that have an original maturity of less than one year but greater than three months at the time of purchase. As of September 30, 2016, short-term investments consisted of $30,000,000 held in a certificate of deposit and are included in short-term investments on the consolidated balance sheets. No short-term investments were held as of December 31, 2015. The short-term investment is classified as held-to-maturity and was recorded at the amortized cost on the accompanying consolidated balance sheets.
Fair Value Measurements
Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other assets and liabilities at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
•
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

9

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

•
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
•
Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.
When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and will classify such items in Level 1 or Level 2. In instances where the market is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and will establish a fair value by assigning weights to the various valuation sources.
The following describes the valuation methodologies used by the Company to measure fair value, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.
Interest rate cap agreements - These derivatives did not qualify as fair value hedges and are recorded at fair value. Fair value was based on a model-driven valuation using the associated variable rate curve and an implied market volatility, both of which were observable at commonly quoted intervals for the full term of the interest rate cap agreements. Therefore, the Company’s interest rate cap agreements were classified within Level 2 of the fair value hierarchy and are included in other assets, net in the accompanying consolidated balance sheets.
The following table reflects the Company’s assets required to be measured at fair value on a recurring basis on the consolidated balance sheets:
 
 
September 30, 2016
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Interest rate cap agreements
 
$
—

 
$
90,302

 
$
—

 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Interest rate cap agreements
 
$
—

 
$
298,143

 
$
—

 
 
 
 
 
 
 
Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

10

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

Fair Value of Financial Instruments
The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, short-term investments, rents and other receivables, accounts payable and accrued liabilities, distributions payable, due to affiliates and mortgage notes payable.
The Company considers the carrying value of cash and cash equivalents, restricted cash, short-term investments, rents and other receivables, accounts payable and accrued liabilities and distributions payable to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. The fair value of amounts due to affiliates is not determinable due to the related party nature of such amounts.
The fair value of the notes payable is estimated using a discounted cash flow analysis using borrowing rates available to the Company for debt instruments with similar terms and maturities. As of September 30, 2016 and December 31, 2015, the fair value of the notes payable was $1,226,421,667 and $1,118,126,231, respectively, compared to the carrying value of $1,219,503,264 and $1,115,752,899, respectively. The Company has determined that its notes payable are classified as Level 3 within the fair value hierarchy.
Distribution Policy
The Company has elected to be treated as, and currently qualifies as, a REIT. To maintain its qualification as a REIT, the Company intends to make distributions each taxable year equal to at least 90% of its REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). Distributions were based on daily record dates and calculated at a rate of $0.001964 per share per day during the year ended December 31, 2015 and the three months ended March 31, 2016. Distributions were based on daily record dates and calculated at a rate of $0.001958 per share per day during the six months ended September 30, 2016.
Distributions to stockholders are determined by the board of directors of the Company and are dependent upon a number of factors relating to the Company, including funds available for the payment of distributions, financial condition, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order for the Company to qualify as a REIT under the Internal Revenue Code. During the three and nine months ended September 30, 2016, the Company declared distributions of $0.180 and $0.536 per common share, respectively. During the three and nine months ended September 30, 2015, the Company declared distributions of $0.181 and $0.537 per common share, respectively.
Per Share Data
Basic earnings (loss) per share attributable for all periods presented are computed by dividing net income (loss) attributable to controlling interest by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings (loss) per share are computed based on the weighted average number of shares of the Company’s common stock and all potentially dilutive securities, if any. Distributions declared per common share assumes each share was issued and outstanding each day during the period. The Company’s unvested shares of restricted common stock contain non-forfeitable rights to dividends and are considered to be participating securities in accordance with GAAP and, therefore, are included in the computation of earnings (loss) per share under the two-class method. Under the two-class method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The unvested shares of restricted common stock are not allocated losses as the awards do not have a contractual obligation to share in the losses of the Company. The two-class method is an earnings (loss) allocation formula that determines earnings (loss) per share for each class of common shares and participating securities according to dividends declared and participation rights in undistributed earnings.

11

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

Segment Disclosure
The Company has determined that it has one reportable segment with activities related to investing in multifamily properties. The Company’s investments in real estate are in different geographic regions, and management evaluates operating performance on an individual asset level. However, as each of the Company’s assets has similar economic characteristics, tenants and products and services, its assets have been aggregated into one reportable segment.
Recently Issued Accounting Standards Updates
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new guidance requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. The new guidance does not apply to lease contracts within the scope of Leases (Topic 840). In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), which delayed the effective date of the new guidance by one year, which will result in the new guidance being effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied retrospectively. Early adoption is permitted, but can be no earlier than the original public entity effective date of fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is evaluating the impact of adopting the new guidance on its financial statements, but does not expect the adoption to have a material impact on its financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, that requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern. Until now, the requirement to perform a going concern evaluation existed only in auditing standards. The new guidance requires management to evaluate relevant conditions, events and certain management plans that are known or reasonably knowable as of the evaluation date when determining whether substantial doubt about an entity’s ability to continue as a going concern exists. Management will be required to make this evaluation for both annual and interim reporting periods. The standard states substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The guidance is effective for annual periods ending after December 15, 2016 and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect there to be a material impact from adopting this new guidance.
In January 2015, the FASB issued ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, that eliminates the concept of the extraordinary items from GAAP. The objective of the new guidance is to simplify the income statement presentation requirements of GAAP by altogether removing the concept of extraordinary items from consideration. The guidance is effective for annual periods, including interim periods within that period, beginning after December 15, 2015. The Company did not experience a material impact from adopting this new guidance.
In February 2015, the FASB issued ASU 2015-02, Consolidation, which makes changes to both the variable interest model and the voting model of consolidation. Under ASU 2015-02, companies will need to re-evaluate whether an entity meets the criteria to be considered a variable interest entity (“VIE”) or whether the consolidation of an entity should be assessed under the voting model. The new standard specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or similar entity unless that presumption can be overcome. The new standard was effective for the Company beginning on January 1, 2016. The adoption of the new standard did not result in the consolidation of entities not previously consolidated or the deconsolidation of any entities previously consolidated. Upon adopting the new standard, the Operating Partnership became a VIE as the limited partner lacks substantive kick-out rights and substantive participating rights. The Company is the primary beneficiary of, and continues to consolidate, the Operating Partnership determined to be a VIE.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, as amended in August 2015 by ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, that will require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying

12

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

amount of debt liability, consistent with debt discounts or premiums. The FASB will permit debt issuance costs related to line-of-credit arrangements to be deferred and presented as an asset and subsequently amortized over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs will not be affected by the new guidance. The guidance requires retrospective application and is effective for annual periods, including interim periods within that period, beginning after December 15, 2015. Early adoption is permitted. Upon adoption, the Company reclassified net debt issuance costs of $9,332,831 and $6,697,472 as of September 30, 2016 and December 31, 2015, respectively, related to mortgage notes payable from other assets, net to mortgage notes payable, net on the consolidated balance sheets.
In February 2016, the FASB issued ASU 2016-02, Leases, amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The guidance will be effective in the first quarter of 2019 and allows for early adoption. The Company is assessing whether the new standard will have a material effect on its financial position or results of operations.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), that clarifies how certain cash receipts and cash payments should be classified on the statement of cash flows. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. Upon adoption, the Company reclassified payments for debt extinguishment costs of $3,202,337 from cash flows from operating activities to cash flows from financing activities as of September 30, 2016. There was no impact as of December 31, 2015.
3. Real Estate
As of September 30, 2016, the Company owned 65 multifamily properties, encompassing in the aggregate 16,709 apartment homes and 25,973 square feet of rentable commercial space. The total purchase price of the Company’s real estate portfolio, including development and construction costs for apartment homes constructed by the Company, was $1,643,666,920, exclusive of closing costs. As of September 30, 2016 and December 31, 2015, the Company’s portfolio was approximately 94.0% occupied and the average monthly rent was $1,027 and $999, respectively.
As of September 30, 2016 and December 31, 2015, accumulated depreciation and amortization related to the Company’s consolidated real estate properties and related intangibles were as follows:
 
 
September 30, 2016
 
 
Assets
 
 
Land
 
Building and Improvements
 
Other Intangible Assets
 
Construction-in-Progress
 
Total Real Estate
Investments in real estate
 
$
174,102,422

 
$
1,511,224,371

 
$
2,644,263

 
$
—

 
$
1,687,971,056

Less: Accumulated depreciation and amortization
 
—

 
(214,456,650
)
 
(507,739
)
 
—

 
(214,964,389
)
Net investments in real estate and related lease intangibles
 
$
174,102,422

 
$
1,296,767,721

 
$
2,136,524

 
$
—

 
$
1,473,006,667


13

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

 
 
December 31, 2015
 
 
Assets
 
 
Land
 
Building and Improvements
 
Other Intangible Assets
 
Construction-in-Progress
 
Total Real Estate
Investments in real estate
 
$
174,102,422

 
$
1,487,961,762

 
$
2,644,263

 
$
2,192,635

 
$
1,666,901,082

Less: Accumulated depreciation and amortization
 
—

 
(163,053,124
)
 
(392,863
)
 
—

 
(163,445,987
)
Net investments in real estate and related lease intangibles
 
$
174,102,422

 
$
1,324,908,638

 
$
2,251,400

 
$
2,192,635

 
$
1,503,455,095

Depreciation and amortization expenses were $17,559,941 and $51,723,985 for the three and nine months ended September 30, 2016, and $16,496,386 and $48,832,712 for the three and nine months ended September 30, 2015, respectively.
Depreciation of the Company’s buildings and improvements were $17,521,649 and $51,609,109 for the three and nine months ended September 30, 2016, and $16,458,094 and $48,502,050 for the three and nine months ended September 30, 2015, respectively.
No amortization of tenant origination and absorption costs were recorded for the three and nine months ended September 30, 2016. Amortization of the Company’s tenant origination and absorption costs was $0 and $215,786 for the three and nine months ended September 30, 2015. Tenant origination and absorption costs had a weighted-average amortization period as of the date of acquisition of less than one year. At December 31, 2015, all tenant origination and absorption costs were fully amortized and written off.
Amortization of the Company’s other intangible assets was $38,292 and $114,876 for the three and nine months ended September 30, 2016, and $38,292 and $114,876 for the three and nine months ended September 30, 2015, respectively.
The future amortization of the Company’s acquired other intangible assets as of September 30, 2016 and thereafter is as follows:
October 1 through December 31, 2016
$
38,292

2017
153,168

2018
153,168

2019
153,168

2020
153,168

Thereafter
1,485,560

 
$
2,136,524

Operating Leases
As of September 30, 2016, the Company’s real estate portfolio comprised 16,709 apartment homes and was 96.5% leased by a diverse group of residents. For each of the three and nine months ended September 30, 2016 and 2015, the Company’s real estate portfolio earned approximately 99% of its rental income from residential tenants and approximately 1% of its rental income from commercial office tenants. The residential tenant lease terms consist of lease durations equal to 12 months or less. The commercial office tenant leases consist of remaining lease durations varying from 2.67 to 3.08 years.

14

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

Some residential and commercial leases contain provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires security deposits from tenants in the form of a cash deposit and/or a letter of credit for commercial tenants. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets and totaled $5,077,677 and $4,672,961 as of September 30, 2016 and December 31, 2015, respectively.
The future minimum rental receipts from the Company’s properties under non-cancelable operating leases attributable to commercial office tenants as of September 30, 2016 and thereafter is as follows:
October 1 through December 31, 2016
$
46,614

2017
187,120

2018
189,136

2019
108,760

 
$
531,630

As of September 30, 2016 and December 31, 2015, no tenant represented over 10% of the Company’s annualized base rent and there were no significant industry concentrations with respect to its commercial leases.
4. Other Assets, Net
As of September 30, 2016 and December 31, 2015, other assets, net of accumulated amortization, consisted of:
 
September 30,
2016
 
December 31,
2015
Deferred financing costs of revolving credit facility
$
—

 
$
660,585

Less: accumulated amortization
—

 
(547,402
)
 
—

 
113,183

Prepaid expenses
3,078,372

 
2,648,238

Interest rate cap agreements (Note 11)
90,302

 
298,143

Deposits
1,241,677

 
1,269,287

Other assets, net
$
4,410,351

 
$
4,328,851


15

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

5. Debt
Mortgage Notes Payable
The following is a summary of mortgage notes payable, net secured by real property as of September 30, 2016 and December 31, 2015:
 
 
September 30, 2016
 
 
 
 
 
 
Interest Rate Range
 
Weighted Average Interest Rate
 
 
Type
 
Number of Instruments
 
Maturity Date Range
 
Minimum
 
Maximum
 
 
Principal Outstanding
Mortgage notes payable - fixed
 
37

 
10/1/2017 - 10/1/2056
 
3.19
%
 
5.94
%
 
4.07
%
 
$
473,453,405

Mortgage notes payable - variable(1)
 
21

 
8/31/2017 - 1/1/2026
 
1-Mo LIBOR + 1.65%

 
1-Mo LIBOR + 2.65%

 
2.81
%
 
517,740,682

Total mortgage notes payable, gross
 
58

 
 
 
 
 
 
 
3.41
%
 
991,194,087

Premium, net(2)
 
 
 
 
 
 
 
 
 
 
 
2,517,258

Deferred financing costs, net(3)
 
 
 
 
 
 
 
 
 
 
 
(6,698,980
)
Total mortgage notes payable, net
 
 
 
 
 
 
 
 
 
 
 
$
987,012,365

 
 
December 31, 2015
 
 
 
 
 
 
Interest Rate Range
 
Weighted Average Interest Rate
 
 
Type
 
Number of Instruments
 
Maturity Date Range
 
Minimum
 
Maximum
 
 
Principal Outstanding
Mortgage notes payable - fixed
 
37

 
10/1/2017 - 1/1/2053
 
3.31
%
 
5.94
%
 
4.32
%
 
$
477,139,001

Mortgage notes payable - variable(1)
 
30

 
5/16/2017 - 1/1/2026
 
1-Mo LIBOR + 1.62%

 
1-Mo LIBOR + 2.75%

 
2.77
%
 
641,859,365

Total mortgage notes payable, gross
 
67

 
 
 
 
 
 
 
3.44
%
 
1,118,998,366

Premium/discount, net(2)
 
 
 
 
 
 
 
 
 
 
 
3,452,005

Deferred financing costs, net(3)
 
 
 
 
 
 
 
 
 
 
 
(6,697,472
)
Total mortgage notes payable, net
 
 
 
 
 
 
 
 
 
 
 
$
1,115,752,899

_____________________________
(1)
See Note 11 for a discussion of the interest rate cap agreements used to manage the exposure to interest rate movement on the Company’s variable rate loans.

16

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

(2)
The following table summarizes the debt premiums and discounts as of September 30, 2016, including the unamortized portion included in the principal balance as well as amounts amortized as an offset to interest expense in the accompanying consolidated statements of operations:
Unamortized Portion of Net Debt Premium as of September 30, 2016
 
Amortization of Net Debt Premium During the
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
$
2,517,258

 
$
317,351

 
$
308,698

 
$
934,747

 
$
926,094

(3)
The following table summarizes the deferred financing costs, net related to mortgage notes payable as of September 30, 2016 and December 31, 2015:
 
 
September 30, 2016
 
December 31, 2015
Deferred financing costs
 
$
10,104,244

 
$
10,140,097

Less: accumulated amortization
 
(3,405,264
)
 
(3,442,625
)
Deferred financing costs, net
 
$
6,698,980

 
$
6,697,472

Refinancing Transactions
On June 29 and June 30, 2016, 14 wholly-owned subsidiaries of the Company terminated the existing mortgage loans with their respective lenders for an aggregate principal amount of $283,313,677 and entered into new loan agreements (each a “Loan Agreement”) with, as applicable, PNC Bank, N.A. (“PNC Bank”) and Berkeley Point Capital LLC (“Berkeley” and, together with PNC Bank, the “Lenders”) for an aggregate principal amount of $358,002,000 (the “June Refinancing Transactions”). On July 29, 2016, nine wholly-owned subsidiaries of the Company also entered into a credit agreement (the “Credit Agreement”) with PNC Bank in connection with the refinancing of certain additional mortgage loans as further detailed below. Further, on August 30, 2016 and September 29, 2016, three wholly-owned subsidiaries of the Company terminated the existing mortgage loans with an aggregate principal amount of $61,575,025 and entered into new mortgage notes for an aggregate principal amount of $63,620,600 (collectively, the “Third Quarter Refinancing Transactions” and together with the June Refinancing Transactions, the “Refinancing Transactions”).
In the June Refinancing Transactions, each Loan Agreement was made pursuant to the Freddie Mac Capital Markets Execution Program (the “CME”), as evidenced by a multifamily note. Pursuant to the CME, the applicable Lender originates the mortgage loan and then transfers the loan to the Federal Home Loan Mortgage Association. Each Loan Agreement provides for a term loan with a maturity date of July 1, 2023, unless the maturity date is accelerated in accordance with its terms. Each loan accrues interest at one-month LIBOR plus 2.31%. The entire outstanding principal balance and any accrued and unpaid interest on each of the Loans are due on the maturity date. Interest and principal payments on the loans are payable monthly in arrears on specified dates as set forth in each Loan Agreement. Monthly payments are due and payable on the first day of each month, commencing August 1, 2016.
Revolving Credit Facility
The Company entered into a revolving credit facility with PNC Bank to borrow up to $20,000,000. On July 18, 2014, the Company and PNC Bank amended the revolving credit facility to, among other things, increase the potential borrowing limit from $20,000,000 to $35,000,000. The amended and restated credit facility consisted of a Tranche A and a Tranche B, and

17

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

provided certain security for borrowings under the credit facility. The maximum amount that could be borrowed under Tranche A and Tranche B were $20,000,000 and $15,000,000, respectively.
For each advance under the amended and restated credit facility, the Company had the option to select the interest rate from the following options: (1) Base Rate Option (as defined in the amended and restated credit facility) plus (i) with respect to Tranche A, 0.75% and (ii) with respect to Tranche B, 2.0%; or (2) LIBOR Option, which was a rate per annum fixed for the LIBOR Interest Period (as defined in the amended and restated credit facility) equal to the sum of LIBOR plus (i) with respect to Tranche A, 1.6% and (ii) with respect to Tranche B, 3.0%.
No amounts were outstanding under the credit facility as of September 30, 2016 or December 31, 2015. The amended and restated credit facility had a maturity date of July 17, 2016, subject to extension. On June 30, 2016, the Company repaid all outstanding amounts due and terminated the amended and restated credit facility.
Credit Facility
On July 29, 2016, nine wholly-owned subsidiaries of the Company entered into the Credit Agreement and a multifamily note with PNC Bank (the Credit Agreement, Loan and Security Agreements, Mortgages and Guaranty, collectively referred to herein as the “Loan Documents”) that provide for a new credit facility in an amount not to exceed $350,000,000 to refinance certain of the Company’s existing mortgage loans. The credit facility has a maturity date of August 1, 2021, subject to extension, as further described in the Credit Agreement. Advances made under the credit facility are secured by the properties set out in the schedule below (the “Collateral Pool Property”), pursuant to a mortgage deed of trust with the nine wholly-owned subsidiaries of the Company in favor of PNC Bank.
The credit facility accrues interest at the one-month LIBOR plus (1) the servicing spread of 0.05% and (2) the net spread, based on the debt service coverage ratio, of between 1.73% and 1.93%, as further described in the Credit Agreement. The entire outstanding principal balance and any accrued and unpaid interest on the credit facility are due on the maturity date. Interest only payments on the credit facility are payable monthly in arrears and are due and payable on the first day of each month, commencing September 1, 2016. The Company’s nine wholly-owned subsidiaries may voluntarily prepay all or a portion of the amounts advanced under the Loan Documents. Notwithstanding the foregoing, in the event a Collateral Pool Property is released or the Credit Agreement is terminated, a termination fee is due and payable by the Company’s nine wholly-owned subsidiaries. In certain instances of a breach of the Credit Agreement, the Company guarantees to PNC Bank the full and prompt payment and performance when due of all amounts for which the Company’s nine wholly-owned subsidiaries are personally liable under the Loan Documents, in addition to all costs and expenses incurred by PNC Bank in enforcing such guaranty. The Company paid loan origination fees to PNC Bank of $1,293,186, and the Advisor earned a refinancing fee of $1,175,624.

18

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

As of September 30, 2016, the advances obtained under the credit facility on July 29, 2016 are summarized in the following table:
Collateralized Property(1)
 
Amount of Advance
Ashley Oaks Apartment Homes
 
$
24,867,500

Trails at Buda Ranch
 
21,025,000

Deer Valley Apartments
 
22,982,500

Carrington Park at Huffmeister
 
20,430,500

Carrington Place
 
27,535,500

Carrington at Champion Forest
 
25,121,250

Audubon Park Apartments
 
16,602,500

Oak Crossing
 
17,980,000

Meritage at Steiner Ranch
 
58,580,000

 
 
$
235,124,750

Deferred financing costs, net on Credit Facility(2)
 
(2,633,851
)
Credit Facility, net
 
$
232,490,899

___________
(1)
Each property is pledged as collateral for repayment of all amounts advanced under the credit facility.
(2)
Accumulated amortization related to deferred financing costs for the credit facility as of September 30, 2016, was $288,296.
Maturity and Interest
The following is a summary of the Company’s aggregate maturities as of September 30, 2016:
 
 
 
 
Remainder of 2016
 
Maturities During the Years Ending December 31,
 
 
Contractual Obligation
 
Total
 
 
2017
 
2018
 
2019
 
2020
 
Thereafter
Principal payments on outstanding debt obligations(1)
 
$
1,226,318,837

 
$
2,432,254

 
$
50,291,756

 
$
76,606,732

 
$
89,789,011

 
$
101,811,593

 
$
905,387,491

_____________________________
(1)
Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. Amounts exclude the amortization of the deferred financing costs and debt premiums associated with certain notes payable.
The Company’s notes payable contain customary financial and non-financial debt covenants. As of September 30, 2016 and December 31, 2015, the Company was in compliance with all financial and non-financial debt covenants.

19

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

For the three and nine months ended September 30, 2016, the Company incurred interest of $10,534,005 and $30,787,688, respectively. Interest expense for the three and nine months ended September 30, 2016 includes amortization of deferred financing costs of $459,798 and $1,237,263, amortization of loan premiums and discounts of $317,351 and $934,747, net unrealized loss from the change in fair value of interest rate cap agreements of $21,570 and $466,841 and capitalized interest of $13,799 and $80,166, respectively. The capitalized interest is included in real estate on the consolidated balance sheets.
For the three and nine months ended September 30, 2015, the Company incurred interest of $10,053,781 and $29,662,052, respectively. Interest expense for the three and nine months ended September 30, 2015 includes amortization of deferred financing costs of $451,270 and $1,183,398, amortization of loan premiums of $308,698 and $926,094, net unrealized loss from the change in fair value of interest rate cap agreements of $540,376 and $1,908,550 and capitalized interest of $34,268 and $134,943, respectively. The capitalized interest is included in real estate on the consolidated balance sheets.
Interest expense of $3,157,807 and $2,932,922 was payable as of September 30, 2016 and December 31, 2015, respectively, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.
6. Stockholders’ Equity
General
Under the Company’s Third Articles of Amendment and Restatement (the “Charter”), the total number of shares of capital stock authorized for issuance is 1,100,000,000 shares, consisting of 999,999,000 shares of common stock with a par value of $0.01 per share, 1,000 shares of convertible stock with a par value of $0.01 per share and 100,000,000 shares designated as preferred stock with a par value of $0.01 per share.
Common Stock
The shares of the Company’s common stock entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the Company’s board of directors in accordance with the Maryland General Corporation Law and to all rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no preferences or preemptive, conversion or exchange rights.
During 2009, the Company issued 22,223 shares of common stock to the Sponsor for $200,007. The Company terminated its Public Offering on December 20, 2013, but continued to offer shares pursuant to the DRP through November 30, 2014. As of September 30, 2016, the Company had issued 76,732,395 shares of common stock in its Private Offering and Public Offering for offering proceeds of $679,572,220, net of offering costs of $95,845,468, including 4,073,759 shares of common stock pursuant to the DRP for total proceeds of $39,580,847. Offering costs primarily consisted of selling commissions and dealer manager fees.

20

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

The issuance and vesting activity for the nine months ended September 30, 2016 and for the year ended December 31, 2015 for the restricted stock issued to the Company’s independent directors as compensation for services in connection with their initial election or re-election to the board of directors at the Company’s annual meeting, upon their departure from the board of directors, or in appreciation of their service and commitment to the Company is as follows:
 
 
For the Nine Months Ended September 30, 2016
 
For the Year Ended
December 31, 2015
 
 
 
Nonvested shares at the beginning of the period
 
11,250

 
16,875

Granted shares
 
7,500

 
14,000

Vested shares
 
(6,875
)
 
(19,625
)
Nonvested shares at the end of the period
 
11,875

 
11,250

Additionally, the weighted average fair value of restricted stock issued to the Company’s independent directors for the nine months ended September 30, 2016 and for the year ended December 31, 2015 is as follows:
Grant Year
 
Weighted Average Fair Value
2015
 
$
10.35

2016
 
11.44

The shares of restricted common stock vest and become non-forfeitable in four equal annual installments beginning on the date of grant and ending on the third anniversary of the date of grant and will become fully vested and become non-forfeitable on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability or (2) a change in control of the Company and as otherwise provided in the Incentive Award Plan, as defined below.
Included in general and administrative expenses is $35,526 and $61,254 for the three and nine months ended September 30, 2016 and $125,719 and $171,486 for the three and nine months ended September 30, 2015, respectively, for compensation expense related to the issuance of restricted common stock. The weighted average remaining term of the restricted common stock is 1.97 years as of September 30, 2016. As of September 30, 2016, the compensation expense related to the issuance of the restricted common stock not vested was $120,143.
On June 11, 2014, the Company entered into a restricted stock agreement with the Advisor whereby the Company issued to the Advisor 488,281.25 restricted shares of the Company’s common stock at a fair market value of $10.24 per share in satisfaction of certain deferred fees due to the Advisor in the aggregate amount of $5,000,000. The shares of restricted stock vest and become non-forfeitable upon the earliest to occur of (i) 50% at December 31, 2015 and 50% at December 31, 2016, (ii) certain liquidity events of the Company, (iii) the Company’s cumulative modified funds from operations exceed the lesser of (a) the cumulative amount of distributions paid to the Company’s stockholders or (b) an amount that is equal to a 7.0% cumulative, non-compounded annual return on the Company’s stockholders’ invested capital, or (iv) the Company’s termination of, or failure to renew, the Advisory Agreement other than for “cause” (as defined in the Advisory Agreement). The shares of restricted stock shall be forfeited if the Advisor is terminated for any reason other than (iv) above. The fair value of the shares of unvested restricted stock was $2,792,969 as of September 30, 2016. As of September 30, 2016, 244,141 shares were vested. The fair value of the vested common stock and unvested restricted common stock as of September 30, 2016 and December 31, 2015 of $5,585,938 and $5,493,164, respectively, are recorded in stockholders’ equity in the accompanying consolidated balance sheets. Included in general and administrative expenses on the accompanying consolidated statements of operations is

21

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

$57,714 and $228,409 for the three and nine months ended September 30, 2016 and $5,291 and $27,431 for the three and nine months ended September 30, 2015, respectively, for the change in value of restricted common stock issued to the Advisor.
Convertible Stock
The Company issued 1,000 shares of Convertible Stock to the Advisor for $1,000. The Convertible Stock will convert into shares of the Company’s common stock if and when: (A) the Company has made total distributions on the then outstanding shares of common stock equal to the original issue price of those shares plus an 8.0% cumulative, non-compounded, annual return on the original issue price of those shares, (B) subject to specified conditions, the Company lists the common stock for trading on a national securities exchange or (C) the Advisory Agreement is terminated or not renewed by the Company (other than for “cause” as defined in the Advisory Agreement). A “listing” will also be deemed to have occurred on the effective date of any merger of the Company in which the consideration received by the holders of the Company’s common stock is the securities of another issuer that are listed on a national securities exchange. Upon conversion, each share of Convertible Stock will convert into a number of shares of common stock equal to 1/1000 of the quotient of (A) 10% of the amount, if any, by which (1) the Company’s “enterprise value” (as defined in the Charter) plus the aggregate value of distributions paid to date on the outstanding shares of common stock exceeds (2) the aggregate purchase price paid by the stockholders for those shares plus an 8.0% cumulative, non-compounded, annual return on the original issue price of those shares, divided by (B) the Company’s enterprise value divided by the number of outstanding shares of common stock, in each case calculated as of the date of the conversion. In the event of a termination or non-renewal of the Advisory Agreement by the Company for cause, the Convertible Stock will be redeemed by the Company for $1.00.
Preferred Stock
The Charter also provides the Company’s board of directors with the authority to issue one or more classes or series of preferred stock, and prior to the issuance of such shares of preferred stock, the board of directors shall have the power from time to time to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares of preferred stock. The Company’s board of directors is authorized to amend the Charter, without the approval of the stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue. As of September 30, 2016 and December 31, 2015, no shares of the Company’s preferred stock were issued and outstanding.
Distribution Reinvestment Plan
In connection with the Public Offering, the Company’s board of directors approved the DRP through which common stockholders could elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares of the Company’s common stock in lieu of receiving cash distributions. The initial purchase price per share under the DRP was $9.50. Effective September 10, 2012, in connection with the change in the Public Offering price, shares of the Company’s common stock were issued pursuant to the DRP at a price of $9.73 per share. Effective with distributions earned beginning on December 1, 2014, the Company’s board of directors elected to suspend the DRP. As a result, all distributions are paid in cash and not reinvested in shares of the Company’s common stock. The Company’s board of directors may, in its sole discretion, from time to time, reinstate the DRP at a price based upon the Company’s estimated value per share and other factors that the Company’s board of directors deems relevant, although there is no assurance as to if or when this will happen.
No sales commissions or dealer manager fees were payable on shares sold through the DRP.

22

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

Share Repurchase Program and Redeemable Common Stock
The Company’s share repurchase program may provide an opportunity for stockholders to have their shares of common stock repurchased by the Company, subject to certain restrictions and limitations. No shares can be repurchased under the Company’s share repurchase program until after the first anniversary of the date of purchase of such shares; provided, however, that this holding period shall not apply to repurchases requested within two years after the death or disability of a stockholder.
The purchase price for shares repurchased under the Company’s share repurchase program is as follows:
Share Purchase Anniversary
 
Repurchase Price
on Repurchase Date(1)(2)
Less than 1 year
 
No Repurchase Allowed
1 year
 
92.5% of Estimated Value per Share
2 years
 
95.0% of Estimated Value per Share
3 years
 
97.5% of Estimated Value per Share
4 years
 
100.0% of Estimated Value per Share
In the event of a stockholder’s death or disability(3)
 
Average Issue Price for Shares(4)
________________
(1)
As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock.
(2)
For purposes of the share repurchase program, the “Estimated Value per Share” will equal the most recently publicly disclosed estimated value per share of the Company as determined by the Company’s board of directors.
(3)
The required one-year holding period does not apply to repurchases requested within two years after the death or disability of a stockholder.
(4)
The purchase price per share for shares repurchased upon the death or disability of a stockholder will be equal to the average issue price per share for all of the stockholder’s shares.
The purchase price per share for shares repurchased pursuant to the share repurchase program will be further reduced by the aggregate amount of net proceeds per share, if any, distributed to the Company’s stockholders prior to the repurchase date as a result of the sale of one or more of the Company’s assets that constitutes a return of capital distribution as a result of such sales.
Repurchases of shares of the Company’s common stock are made quarterly upon written request to the Company at least 15 days prior to the end of the applicable quarter during which the share repurchase program is in effect. Repurchase requests are honored approximately 30 days following the end of the applicable quarter (the “Repurchase Date”). Stockholders may withdraw their repurchase request at any time up to three business days prior to the Repurchase Date. On October 21, 2014, the Company’s board of directors elected to suspend the Company’s share repurchase program, effective November 20, 2014. On May 12, 2015, the Company’s board of directors elected to reinstate the share repurchase program, effective July 1, 2015.
During the three and nine months ended September 30, 2016, the Company repurchased a total of 93,939 and 289,397 shares with a total repurchase value of $1,000,000 and $3,000,000, respectively, and received net requests for the repurchase of 470,377 and 1,084,838 shares with a total net repurchase value of $5,168,917 and $11,858,991, respectively. During the three and nine months ended September 30, 2015, the Company received net requests for the repurchase of 422,879 shares with a

23

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

total net repurchase value of $4,267,538. No amounts were repurchased during the three and nine months ended September 30, 2015.
The Company cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all repurchase requests made in any quarter. In the event that the redemption requests exceed the Company’s restrictions on limitation or the Company does not have sufficient funds available to repurchase all of the shares of the Company’s common stock for which repurchase requests have been submitted in any quarter, priority will be given to redemption requests in the case of the death or disability of a stockholder. If the Company repurchases less than all of the shares subject to a repurchase request in any quarter, with respect to any shares which have not been repurchased, the requesting stockholder could (1) withdraw the request for repurchase or (2) ask that the Company honor the request in a future quarter, if any, when such repurchases may be made pursuant to the limitations of the share repurchase program and when sufficient funds are available. Such pending requests would be honored among all requests for redemptions in any given redemption period as follows: first, pro rata as to redemptions sought upon a stockholder’s death or disability; and, next, pro rata as to other redemption requests.
The Company is not obligated to repurchase shares of the Company’s common stock under the share repurchase program. In no event shall redemptions under the share repurchase program exceed 5% of the weighted average number of shares of the Company’s common stock outstanding during the prior calendar year. In addition to the above limitation, effective July 1, 2015, in no event shall the value of the shares repurchased pursuant to the share repurchase program exceed $2,000,000 during the quarter beginning July 1, 2015, with each subsequent quarter not to exceed $1,000,000. On August 9, 2016, the Company’s board of directors approved and authorized an increase to the value of the shares that may be repurchased pursuant to the share repurchase program from $1,000,000 to $2,000,000, effective on the October 2016 repurchase date. There is no fee in connection with a repurchase of shares of the Company’s common stock. As of September 30, 2016, the Company has recognized redemptions payable of $2,000,000, which is included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.
The Company’s board of directors may, in its sole discretion, amend, suspend or terminate the share repurchase program at any time upon 30 days’ notice to the Company’s stockholders if it determines that the funds available to fund the share repurchase program are needed for other business or operational purposes or that amendment, suspension or termination of the share repurchase program is in the best interest of the Company’s stockholders. Therefore, stockholders may not have the opportunity to make a repurchase request prior to any potential termination of the Company’s share repurchase program.
Distributions Declared
Distributions declared (1) accrue daily to stockholders of record as of the close of business on each day, (2) are payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month and (3) are calculated at a rate of $0.001958 per share per day, which if paid each day over a 366-day period, is equivalent to a 7.0% annualized distribution rate based on a purchase price of $10.24 per share of common stock.
Distributions declared for the three and nine months ended September 30, 2016 were $13,767,424 and $41,090,264, all of which were payable in cash.
Distributions declared for the three and nine months ended September 30, 2015 were $13,888,802 and $41,210,771, including $0 and $78, or 0 and 8 shares of common stock, respectively, attributable to the DRP.
As of September 30, 2016 and December 31, 2015, $4,487,297 and $4,668,261 in distributions declared were payable, none of which were reinvested pursuant to the DRP.

24

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

Distributions Paid
For the three and nine months ended September 30, 2016, the Company paid total distributions of $13,772,501 and $41,271,228, which related to distributions declared for each day in the period from June 1, 2016 through August 31, 2016 and December 1, 2015 through August 31, 2016, respectively. All distributions were paid in cash.
For the three and nine months ended September 30, 2015, the Company paid cash distributions of $13,887,973 and $41,360,816, which related to distributions declared for each day in the period from June 1, 2015 through August 31, 2015 and December 1, 2014 through August 31, 2015, respectively. Additionally, for the three and nine months ended September 30, 2015, 0 and 8 shares of common stock were issued pursuant to the DRP for gross offering proceeds of $0 and $78, respectively. For the three and nine months ended September 30, 2015, the Company paid total distributions of $13,887,973 and $41,360,894.
7. Earnings (Loss) Per Share
The following table presents a reconciliation of net loss attributable to common stockholders and shares used in calculating basic and diluted earnings (loss) per share (“EPS”) for the three and nine months ended September 30, 2016 and 2015:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net loss attributable to the Company
 
$
(9,699,187
)
 
$
(3,603,728
)
 
$
(21,356,546
)
 
$
(10,338,802
)
Less: dividends declared on participating securities
 
46,391

 
90,485

 
138,165

 
268,505

Net loss attributable to common stockholders
 
(9,745,578
)
 
(3,694,213
)
 
(21,494,711
)
 
(10,607,307
)
Weighted average common shares outstanding — basic and diluted
 
76,164,515

 
76,370,121

 
76,258,795

 
76,371,860

Loss per common share — basic and diluted
 
$
(0.13
)
 
$
(0.05
)
 
$
(0.28
)
 
$
(0.14
)
The Company excluded all unvested restricted common shares outstanding issued to the Advisor and the Company’s independent directors from the calculation of diluted loss per common share as the effect would have been antidilutive.
8. Related Party Arrangements
The Company has entered into the Advisory Agreement with the Advisor. Pursuant to the Advisory Agreement, the Company is obligated to pay the Advisor specified fees upon the provision of certain services related to the investment of funds in real estate and real estate-related investments, the management of the Company’s investments and for other services (including, but not limited to, the disposition of investments). Subject to the limitations described below, the Company is also obligated to reimburse the Advisor and its affiliates for organization and offering costs incurred by the Advisor and its affiliates on behalf of the Company, and the Company is obligated to reimburse the Advisor and its affiliates for acquisition and origination expenses and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company.

25

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

Amounts attributable to the Advisor and its affiliates incurred for the three and nine months ended September 30, 2016 and 2015 and amounts outstanding to the Advisor and its affiliates as of September 30, 2016 and December 31, 2015 are as follows:
 
Incurred (Received) For the
 
Incurred (Received) For the
 
Payable (Prepaid) as of
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
September 30, 2016
 
December 31, 2015
Consolidated Statements of Operations:
 
 
 
 
 
 
 
 
 
 
 
Expensed
 
 
 
 
 
 
 
 
 
 
 
Investment management fees(1)
$
3,525,330

 
$
3,473,724

 
$
10,537,619

 
$
10,370,441

 
$
7,843

 
$
1,169,770

Acquisition fees(1)
—

 
187,735

 
960

 
187,735

 
—

 
—

Acquisition expenses(2)
—

 
—

 
—

 
7,145

 
—

 
—

Property management
 
 
 
 
 
 
 
 
 
 
 
Fees(1)
1,621,239

 
1,570,816

 
4,793,878

 
4,621,570

 
533,527

 
520,127

Reimbursement of onsite personnel(3)
4,851,872

 
5,003,907

 
14,017,673

 
14,079,041

 
1,036,120

 
703,791

Other fees(1)
422,190

 
427,791

 
1,331,412

 
1,262,163

 
52,011

 
52,237

Other fees - G&A(4)
33,427

 
—

 
33,427

 
—

 
—

 
—

Other operating expenses(4)
311,955

 
292,300

 
982,560

 
1,046,087

 
149,985

 
51,029

Refinancing fee(1)
1,493,727

 
—

 
3,283,737

 
—

 
310,134

 
—

Insurance proceeds(5)
—

 
—

 
(100,000
)
 
—

 
—

 
—

Consolidated Balance Sheets:
 
 
 
 
 
 
 
 
 
 
 
Capitalized
 
 
 
 
 
 
 
 
 
 
 
Construction management
 
 
 
 
 
 
 
 
 
 
 
Fees(6)
421,811

 
711,056

 
937,201

 
1,283,818

 
213,613

 
71,133

Reimbursement of labor costs(6)
97,813

 
25,335

 
279,695

 
75,896

 
13,416

 
114,122

Insurance deductible reserve account(7)
62,093

 
37,245

 
136,582

 
37,245

 
(186,277
)
 
(74,489
)
Deferred financing costs(8)
84,022

 
—

 
139,229

 
—

 
—

 
—

 
$
12,925,479

 
$
11,692,664

 
$
36,373,973

 
$
32,933,896

 
$
2,130,372

 
$
2,607,720

_____________________________
(1)
Included in fees to affiliates in the accompanying consolidated statements of operations.
(2)
Included in acquisition costs in the accompanying consolidated statements of operations.
(3)
Included in operating, maintenance and management in the accompanying consolidated statements of operations.
(4)
Included in general and administrative expenses in the accompanying consolidated statements of operations.
(5)
Included in tenant reimbursements and other in the accompanying consolidated statements of operations.
(6)
Included in building and improvements in the accompanying consolidated balance sheets.

26

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

(7)
Included in other assets, net in the accompanying consolidated balance sheets upon payment. The amortization of the reserve is included in operating, maintenance and management in the accompanying consolidated statements of operations.
(8)
Included in mortgage notes payable, net in the accompanying consolidated balance sheets.
Investment Management Fee
The Company pays the Advisor a monthly investment management fee equal to one-twelfth of 0.80% of (1) the cost of real properties and real estate-related assets acquired directly by the Company or (2) the Company’s allocable cost of each real property or real estate-related asset acquired through a joint venture. Such fee is calculated including acquisition fees, acquisition expenses and any debt attributable to such investments, or the Company’s proportionate share thereof in the case of investments made through joint ventures. The cost of real properties and real estate-related assets that have been sold by the Company during the applicable month is excluded from the fee.
Acquisition Fees and Expenses
The Company pays the Advisor an acquisition fee equal to 2.0% of (1) the cost of investment, as defined in the Advisory Agreement, in connection with the acquisition or origination of any type of real property or real estate-related asset acquired directly by the Company or (2) the Company’s allocable portion of the purchase price in connection with the acquisition or origination of any type of real property or real estate-related asset acquired through a joint venture, including any acquisition and origination expenses and any debt attributable to such investments.
In addition to acquisition fees, the Company reimburses the Advisor for amounts directly incurred by the Advisor or its affiliates, including personnel-related costs for acquisition due diligence, legal and non-recurring management services, and amounts the Advisor pays to third parties in connection with the selection, acquisition or development of a property or acquisition of real estate-related assets, whether or not the Company ultimately acquires the property or the real estate-related assets.
The Charter limits the Company’s ability to pay acquisition fees if the total of all acquisition fees and expenses relating to the purchase would exceed 6.0% of the contract purchase price. Under the Charter, a majority of the Company’s board of directors, including a majority of the independent directors, is required to approve any acquisition fees (or portion thereof) that would cause the total of all acquisition fees and expenses relating to an acquisition to exceed 6.0% of the contract purchase price. In connection with the purchase of securities, the acquisition fee may be paid to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the acquisition fee to a firm that is not a registered broker-dealer.
Property Management Fees and Expenses
The Company has entered into Property Management Agreements with Steadfast Management Company, Inc., an affiliate of the Sponsor (the “Property Manager”), in connection with the acquisition of each of the Company’s properties (other than EBT Lofts, Library Lofts and Stuart Hall Lofts, which are managed by an unaffiliated third-party management company). The property management fee payable with respect to each property under the Property Management Agreements (each a “Property Management Agreement”) ranges from 2.50% to 3.75% of the annual gross revenue collected, which is usual and customary for comparable property management services rendered to similar properties in similar geographic markets, as determined by the Advisor and approved by a majority of the Company’s board of directors, including a majority of the independent directors. The Property Manager also receives an oversight fee of 1% of gross revenues at certain of the properties at which it does not serve as a property manager. Generally, each Property Management Agreement has an initial one year term and will continue

27

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

thereafter on a month-to-month basis unless either party gives a 60-day prior notice of its desire to terminate the Property Management Agreement, provided that the Company may terminate the Property Management Agreement at any time upon a determination of gross negligence, willful misconduct or bad acts of the Property Manager or its employees or upon an uncured breach of the Property Management Agreement upon 30 days’ prior written notice to the Property Manager.
In addition to the property management fee, the Property Management Agreements also specify certain other fees payable to the Property Manager or its affiliates, including fees for benefit administration, information technology infrastructure, licenses, and support and training services. The Company also reimburses the Property Manager for the salaries and related benefits of on-site property management employees.
Construction Management
The Company has entered into Construction Management Agreements with Pacific Coast Land and Construction, Inc., an affiliate of the Sponsor (the “Construction Manager”), in connection with the planned capital improvements and renovation for certain of the Company’s properties. The construction management fee payable with respect to each property under the Construction Management Agreements (each a “Construction Management Agreement”) ranges from 5.0% to 12.0% of the costs of the improvements for which the Construction Manager has planning and oversight authority. Generally, each Construction Management Agreement has a term equal to the planned renovation timeline unless either party gives a 30-day prior notice of its desire to terminate the Construction Management Agreement. Construction management fees are capitalized to the respective real estate properties in the period in which they are incurred, as such costs relate to capital improvements and renovations for apartment homes taken out of service while they undergo the planned renovation.
The Company may also reimburse the Construction Manager for the salaries and related benefits of its employees for time spent working on capital improvements and renovations at its properties.
Insurance Deductible Reserve
The Company deposits with an affiliate of the Sponsor moneys to fund an insurance deductible reserve account to cover the cost of required insurance deductibles across all multifamily properties of the Company and other affiliated entities. Upon filing a major claim, proceeds from the insurance deductible reserve account may be used by the Company or another affiliate of the Sponsor.
Other Operating Expense Reimbursement
In addition to the various fees paid to the Advisor, the Company is obligated to pay directly or reimburse all expenses incurred by the Advisor in providing services to the Company, including the Company’s allocable share of the Advisor’s overhead, such as rent, employee costs, utilities and information technology costs. The Company will not reimburse the Advisor for employee costs in connection with services for which the Advisor or its affiliates receive acquisition fees or disposition fees or for the salaries the Advisor pays to the Company’s executive officers.
The Charter limits the Company’s total operating expenses during any four fiscal quarters to the greater of 2% of the Company’s average invested assets or 25% of the Company’s net income for the same period (the “2%/25% Limitation”). The Company may reimburse the Advisor, at the end of each fiscal quarter, for operating expenses incurred by the Advisor; provided, however, that the Company shall not reimburse the Advisor at the end of any fiscal quarter for operating expenses that exceed the 2%/25% Limitation unless the independent directors have determined that such excess expenses were justified based on unusual and non-recurring factors. The Advisor must reimburse the Company for the amount by which the Company’s operating expenses for the preceding four fiscal quarters then ended exceed the 2%/25% Limitation unless the independent directors have determined that such excess expenses were justified. For purposes of determining the 2%/25% Limitation

28

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

amount, “average invested assets” means the average monthly book value of the Company’s assets invested directly or indirectly in equity interests and loans secured by real estate during the 12-month period before deducting depreciation, bad debts or other non-cash reserves. “Total operating expenses” means all expenses paid or incurred by the Company that are in any way related to the Company’s operation, including the Company’s allocable share of Advisor overhead and investment management fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, listing and registration of shares of the Company’s common stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain in the sale of the Company’s assets; (f) acquisition fees and acquisition expenses (including expenses relating to potential acquisitions that the Company does not close); (g) real estate commissions on the resale of investments; and (h) other expenses connected with the acquisition, disposition, management and ownership of investments (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of real property).
At September 30, 2016, the Company’s total operating expenses, as defined above, did not exceed the 2%/25% Limitation.
Disposition Fee
The Company will pay the Advisor a disposition fee in connection with a sale of a property or real estate-related asset and in the event of the sale of the entire Company, in either case when the Advisor or its affiliates provides a substantial amount of services as determined by a majority of the Company’s independent directors. With respect to a sale of a property or real estate-related asset, the Company will pay the Advisor a disposition fee equal to 1.5% of the contract sales price of the investment sold. With respect to a final liquidity event, the Company will pay the Advisor a disposition fee equal to (i) 0.5% of the total consideration paid in a final liquidity event if the price per share paid to stockholders is less than or equal to $9.00; (ii) 0.75% of the total consideration paid in a final liquidity event if the price per share paid to stockholders is between $9.01 and $10.24; (iii) 1.00% of the total consideration paid in a final liquidity event if the price per share paid to stockholders is between $10.25 and $11.24; (iv) 1.25% of the total consideration paid in a final liquidity event if the price per share paid to stockholders is between $11.25 and $12.00; and (v) 1.5% of the total consideration paid in a final liquidity event if the price per share paid to stockholders is greater than or equal to $12.01. To the extent the disposition fee is paid upon the sale of any assets other than real property, it will be included as an operating expense for purposes of the 2%/25% Limitation. In connection with the sale of securities, the disposition fee may be paid to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the disposition fee to a firm that is not a registered broker-dealer. The Charter limits the maximum amount of the disposition fees payable to the Advisor for the sale of any real property to the lesser of one-half of the brokerage commission paid or 3% of the contract sales price, but in no event shall the total real estate commissions paid, including any disposition fees payable to the Advisor, exceed 6% of the contract sales price.
Refinancing Fee
The Company pays the Advisor a refinancing fee equal to 0.50% of the refinancing amount in connection with the refinancing of certain of the Company’s existing mortgage loans. For the three and nine months ended September 30, 2016, the Advisor earned $1,493,727 and $3,283,737 in refinancing fees in connection with the Refinancing Transactions.
Restricted Stock Agreement
On June 11, 2014, the Company entered into a restricted stock agreement with the Advisor whereby the Company issued to the Advisor 488,281.25 restricted shares of the Company’s common stock at a fair market value of $10.24 per share in satisfaction of certain deferred fees due to the Advisor in the aggregate amount of $5,000,000. The shares of restricted stock

29

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

vest and become non-forfeitable upon the earliest to occur of (i) 50% at December 31, 2015 and 50% at December 31, 2016, (ii) certain liquidity events of the Company, (iii) the Company’s cumulative modified funds from operations exceed the lesser of (a) the cumulative amount of distributions paid to the Company’s stockholders or (b) an amount that is equal to a 7.0% cumulative, non-compounded annual return on the Company’s stockholders’ invested capital, or (iv) the Company’s termination of, or failure to renew, the Advisory Agreement other than for “cause” (as defined in the Advisory Agreement). The shares of unvested restricted stock shall be forfeited if the Advisor is terminated for any reason other than (iv) above.
9. Incentive Award Plan and Independent Director Compensation
The Company has adopted an incentive plan (the “Incentive Award Plan”) that provides for the grant of equity awards to its employees, directors and consultants and those of the Company’s affiliates. The Incentive Award Plan authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards or cash-based awards. No awards have been granted under the Incentive Award Plan as of September 30, 2016 and December 31, 2015, except those awards granted to the independent directors as described below.
Under the Company’s independent directors’ compensation plan, which is a sub-plan of the Incentive Award Plan, each of the Company’s independent directors was entitled to receive 5,000 shares of restricted common stock in connection with the initial meeting of the Company’s full board of directors. The Company’s board of directors, and each of the independent directors, agreed to delay the initial grant of restricted stock until the Company raised $2,000,000 in gross offering proceeds in the Private Offering. Each subsequent independent director that joins the Company’s board of directors receives 5,000 shares of restricted common stock upon election to the Company’s board of directors. In addition, on the date following an independent director’s re-election to the Company’s board of directors, he or she receives 2,500 shares of restricted common stock. One-fourth of the shares of restricted common stock generally vest and become non-forfeitable upon issuance and the remaining portion will vest in three equal annual installments beginning on the date of grant and ending on the third anniversary of the date of grant; provided, however, that the restricted stock will become fully vested and become non-forfeitable on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability or (2) a change in control of the Company and as otherwise provided in the Incentive Award Plan. On August 10, 2015, the Company’s board of directors granted 2,000 shares of restricted common stock pursuant to the Incentive Award Plan to each of Larry H. Dale and Kerry D. Vandell in appreciation for their service as independent directors and commitment to the Company for their prior years of service as independent directors, all of which vested immediately. On August 11, 2015, the Company granted 5,000 shares of restricted common stock to its new independent director, Don B. Saulic. On August 9, 2016, the Company granted 2,500 shares of restricted common stock to each of its three independent directors upon their re-election to the Company’s board of directors at the 2016 annual meeting of stockholders. The Company recorded stock-based compensation expense of $35,526 and $61,254 for the three and nine months ended September 30, 2016 and $125,719 and $171,486 for the three and nine months ended September 30, 2015, respectively.

30

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

10. Commitments and Contingencies
Economic Dependency
The Company is dependent on the Advisor and its affiliates for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase and disposition of real estate and real estate-related investments; management of the daily operations of the Company’s real estate and real estate-related investment portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.
Concentration of Credit Risk
The geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the Houston, Texas, Chicago, Illinois and Austin, Texas apartment markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocations of businesses, increased competition from other apartment communities, decrease in demand for apartments or any other changes, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.
Environmental
As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.
Legal Matters
From time to time, the Company is subject, or party, to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on the Company’s results of operations or financial condition nor is the Company aware of any such legal proceedings contemplated by government agencies.
11. Derivative Financial Instruments
The Company uses interest rate derivatives with the objective of managing exposure to interest rate movements thereby minimizing the effect of interest rate changes and the effect they could have on future cash flows. Interest rate cap agreements are used to accomplish this objective. The following table provides the terms of the Company’s interest rate derivative instruments that were in effect at September 30, 2016 and December 31, 2015:
September 30, 2016
Type
 
Maturity Date Range
 
Based on
 
Number of Instruments
 
Notional Amount
 
Variable Rate
 
Weighted Average Rate Cap
 
Fair Value
Interest rate cap
 
11/1/2016 - 10/1/2019
 
One-Month LIBOR
 
44

 
$
995,112,000

 
0.53
%
 
2.69
%
 
$
90,302


31

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

December 31, 2015
Type
 
Maturity Date Range
 
Based on
 
Number of Instruments
 
Notional Amount
 
Variable Rate
 
Weighted Average Rate Cap
 
Fair Value
Interest rate cap
 
11/1/2016 - 10/1/2019
 
One-Month LIBOR
 
30

 
$
637,110,000

 
0.43
%
 
2.68
%
 
$
298,143

The interest rate cap agreements are not designated as cash flow hedges. Accordingly, the Company records any changes in the fair value of the interest rate cap agreements as interest expense. The change in the fair value of the interest rate cap agreements for the three and nine months ended September 30, 2016 resulted in an unrealized loss of $21,570 and $466,841, respectively, which is included in interest expense in the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2016, the Company acquired interest rate cap agreements of $0 and $259,000, and during the three and nine months ended September 30, 2015, the Company acquired interest rate cap agreements of $231,000 and $296,250. The fair value of the interest rate cap agreements of $90,302 and $298,143 as of September 30, 2016 and December 31, 2015, respectively, are included in other assets, net on the accompanying consolidated balance sheets.
12. Subsequent Events
Distributions Paid
On October 3, 2016, the Company paid distributions of $4,487,297, which related to distributions declared for each day in the period from September 1, 2016 through September 30, 2016. All such distributions were paid in cash.
On November 1, 2016, the Company paid distributions of $4,636,500, which related to distributions declared for each day in the period from October 1, 2016 through October 31, 2016. All such distributions were paid in cash.
Shares Repurchased
On October 31, 2016, the Company repurchased 189,743 shares of its common stock for a total repurchase value of $2,000,000, or $10.54 per share, pursuant to the Company’s share repurchase program.
Distributions Declared
On November 8, 2016, the Company’s board of directors approved and authorized a daily distribution to stockholders of record as of the close of business on each day of the period commencing on January 1, 2017 and ending on March 31, 2017. The distributions will be equal to $0.001964 per share of the Company’s common stock. The distributions for each record date in January 2017, February 2017 and March 2017 will be paid in February 2017, March 2017 and April 2017, respectively. The distributions will be payable to stockholders from legally available funds therefor.
Advisory Agreement
On November 8, 2016, the Company entered into Amendment No. 9 (the “Amendment”) to the Amended and Restated Advisory Agreement, by and among the Company, the Operating Partnership and the Advisor. The amendment renewed the Advisory Agreement for a term beginning on November 15, 2016 and ending on November 15, 2017.
Plan of Liquidation
In the event that the board of directors has not determined to pursue a liquidity event by December 31, 2016, the board of directors will adopt a resolution declaring that a proposed liquidation of the Company is advisable on substantially the terms and conditions set forth in the resolution (the “Plan of Liquidation”) and direct that the proposed Plan of Liquidation be

32

PART I — FINANCIAL INFORMATION (continued)
 
Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)

submitted for consideration at either an annual or special meeting of the stockholders. The adoption of a Plan of Liquidation and the submission to the stockholders may be postponed if a majority of directors, including a majority of independent directors, determines that a liquidation is not then in the best interest of the stockholders. On November 8, 2016, the Company’s board of directors, including a majority of the independent directors, determined to postpone presenting a liquidation decision to stockholders as it is not now in the best interests of the Company’s stockholders. In accordance with the Company’s charter, the board of directors will reconsider whether to seek stockholder approval of the Company’s liquidation at least annually. The board of directors, pursuant to its fiduciary duties, continuously evaluates opportunities, including possible liquidation events, of the Company.

33

PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying financial statements of Steadfast Income REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Steadfast Income REIT, Inc., a Maryland corporation, and, as required by context, Steadfast Income REIT Operating Partnership, L.P., a Delaware limited partnership, which we refer to as our “Operating Partnership,” and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q (the “Quarterly Report”) that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.
The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
•
the fact that we have had a net loss for each quarterly and annual period since inception;
•
changes in economic conditions generally and the real estate and debt markets specifically;
•
our ability to successfully dispose of real estate on terms that are favorable to us;
•
risks inherent in the real estate business, including tenant defaults, tenant vacancies, potential liability relating to environmental matters and liquidity of real estate investments;
•
our ability to secure resident leases for our multifamily properties at favorable rental rates;
•
the impact of competition on rental rates at our apartment homes;
•
the fact we pay fees and expenses to our Advisor and its affiliates that were not negotiated on an arm’s length basis and the payment of these fees and expenses increases the risk that our stockholders will not earn a profit on their investment in us;
•
legislative or regulatory changes (including changes to the laws governing the taxation of REITs);
•
the availability of capital;
•
changes in interest rates; and
•
changes to GAAP.
Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed on any forward-looking statements included herein. All forward-looking statements are made as of the date this Quarterly Report is filed with the SEC, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements made herein, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the

34

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


forward-looking statements included in this Quarterly Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report will be achieved.
All forward-looking statements included herein should be read in light of the factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 18, 2016.
Overview
We were formed on May 4, 2009, as a Maryland corporation that has elected to be treated as, and currently qualifies as, a REIT. As described in more detail below, we own and manage a diverse portfolio of real estate investments, primarily in the multifamily sector, located throughout the United States.
On July 19, 2010, we commenced our Public Offering of up to a maximum of 150,000,000 shares of common stock at an initial price of $10.00 per share (subject to certain discounts) and up to 15,789,474 shares of common stock pursuant to our DRP at an initial price of $9.50 per share. On July 12, 2012, our board of directors determined an estimated value per share of our common stock of $10.24 as of March 31, 2012. As a result of the determination of the estimated value per share of our common stock as of March 31, 2012, effective September 10, 2012, the offering price of our common stock in our Public Offering increased from the previous price of $10.00 per share to $10.24 per share. Additionally, effective September 10, 2012, the price of shares of our common stock issued pursuant to our DRP increased from a price of $9.50 per share to a price of $9.73 per share, or 95% of the $10.24 per share offering price. On March 10, 2015, our board of directors determined an estimated value per share of our common stock of $10.35 as of December 31, 2014. On February 25, 2016, our board of directors determined an estimated value per share of our common stock of $11.44 as of December 31, 2015. For additional information on the determination of our estimated value per share and the risks related thereto, see our Current Report on Form 8-K filed with the SEC on February 29, 2016.
On December 20, 2013, we terminated our Public Offering. Upon termination of our Public Offering, we had sold 73,608,337 shares of common stock for gross proceeds of $745,389,748, including 1,588,289 shares of common stock issued pursuant to our DRP for gross offering proceeds of $15,397,232. Following the termination of our Public Offering, we continued to offer shares of our common stock pursuant to our DRP until our board of directors determined to suspend our DRP effective with distributions earned beginning on December 1, 2014. Our board of directors may, in its sole discretion, reinstate the DRP and change the price at which we offer shares of common stock to our stockholders pursuant to the DRP to reflect future changes in our estimated value per share and other factors that our board of directors deems relevant.
As of September 30, 2016, we owned 65 multifamily properties located within the greater midwest and southern geographic regions of the United States. Our property portfolio consists of an aggregate of 16,709 apartment homes and 25,973 square feet of rentable commercial space. The total purchase price of our real estate portfolio, including development and construction costs for apartment homes we constructed, was $1,643,666,920, exclusive of closing costs. At September 30, 2016, our portfolio was approximately 96.5% leased.
Steadfast Income Advisor, LLC is our advisor. Subject to certain restrictions and limitations, our Advisor manages our day-to-day operations and our portfolio of properties. Our Advisor sources and presents investment opportunities to our board of directors. Our Advisor also provides investment management, marketing, investor relations and other administrative services on our behalf.

35

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


Substantially all of our business is conducted through our Operating Partnership. We are the sole general partner of our Operating Partnership. The initial limited partner of our Operating Partnership is our Advisor. The Partnership Agreement of our Operating Partnership provides that our Operating Partnership will be operated in a manner that will enable us to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that our Operating Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code, which classification could result in our Operating Partnership being taxed as a corporation, rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by our Operating Partnership in acquiring and operating real properties, our Operating Partnership will pay all of our administrative costs and expenses, and such expenses will be treated as expenses of our Operating Partnership.
We have elected to be taxed as a REIT for federal income tax purposes beginning with the taxable year ending December 31, 2010. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied. Failing to qualify as a REIT could materially and adversely affect our net income.  
Market Outlook
During times of economic downturn, market conditions could negatively impact the multifamily real estate sector, resulting in lower occupancy, lower rental rates and declining values. The economy in the United States has improved; however, there is no assurance that economic conditions will continue to improve or will not worsen in the future. We believe we currently have unique investment opportunities, particularly in the multifamily sector. Home ownership rates are the lowest they have been since 1967. Demographic and economic factors favor the flexibility of rental housing and discourage the potential financial burden associated with home ownership. Additionally, Millennials and Baby Boomers, the two largest demographic groups comprising roughly half of the total population in the United States, are increasingly choosing to live in a variety of rental housing. Our plan is to provide rental housing for these multi-generational groups as they age. Millennials are getting married and having children later and are choosing to live in apartment communities until their mid-30s. Today, 30% of Millennials are still living with their parents or are still in school. When they get a job, Millennials will likely rent moderate income apartments based upon an average income of $35,000. We believe this creates demand for multifamily housing.


36

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


Our Real Estate Portfolio
As of September 30, 2016, we owned the 65 multifamily properties listed below:
 
 
 
 
 
 
 
Number
of Units
 
Contract Purchase Price(1)
 
Mortgage Debt Outstanding at September 30, 2016
 
Average Occupancy as of
 
Average Monthly
Rent(2) as of
 
Property Name
 
Location
 
Purchase Date
 
 
 
 
Sep 30, 2016
 
Dec 31, 2015
 
Sep 30, 2016
 
Dec 31, 2015
1
Park Place Condominiums
 
Des Moines, IA
 
12/22/2010
 
151

 
$
8,323,400

 
$
4,710,118

 
82.1
%
 
94.7
%
 
$
907

 
$
877

2
Clarion Park Apartments
 
Olathe, KS
 
6/28/2011
 
220

 
11,215,000

 
8,176,387

 
91.4
%
 
95.0
%
 
821

 
781

3
Cooper Creek Village Apartments
 
Louisville, KY
 
8/24/2011
 
123

 
10,420,000

 
6,256,646

 
95.1
%
 
94.3
%
 
908

 
903

4
Truman Farm Villas
 
Grandview, MO
 
12/22/2011
 
200

 
9,100,000

 
5,493,156

 
98.0
%
 
98.5
%
 
706

 
697

5
EBT Lofts
 
Kansas City, MO
 
12/30/2011
 
102

 
8,575,000

 
5,193,914

 
93.1
%
 
95.1
%
 
1,008

 
1,009

6
Windsor on the River Apartments
 
Cedar Rapids, IA
 
1/26/2012
 
424

 
33,000,000

 
22,752,427

 
91.0
%
 
92.2
%
 
732

 
688

7
Renaissance at St. Andrews
 
Louisville, KY
 
2/17/2012
 
216

 
12,500,000

 
8,549,874

 
93.5
%
 
94.9
%
 
674

 
705

8
Spring Creek Edmond Apartments
 
Edmond, OK
 
3/9/2012
 
252

 
19,350,000

 
12,941,276

 
94.4
%
 
95.6
%
 
885

 
842

9
Montclair Parc Apartment Homes
 
Oklahoma City, OK
 
4/26/2012
 
360

 
35,750,000

 
22,896,620

 
94.2
%
 
94.7
%
 
869

 
864

10
Sonoma Grande Apartments
 
Tulsa, OK
 
5/24/2012
 
336

 
32,200,000

 
21,483,489

 
92.6
%
 
93.8
%
 
969

 
956

11
Estancia Apartments
 
Tulsa, OK
 
6/29/2012
 
294

 
27,900,000

 
20,818,096

 
91.8
%
 
93.9
%
 
934

 
967

12
Montelena Apartments
 
Round Rock, TX
 
7/13/2012
 
232

 
18,350,000

 
11,704,209

 
95.7
%
 
93.5
%
 
1,105

 
1,071

13
Valley Farms Apartment Homes
 
Louisville, KY
 
8/30/2012
 
160

 
15,100,000

 
9,618,551

 
92.5
%
 
93.8
%
 
836

 
857

14
Hilliard Park Apartments
 
Columbus, OH
 
9/11/2012
 
201

 
19,800,000

 
13,000,467

 
95.0
%
 
91.5
%
 
1,025

 
998

15
Sycamore Terrace Apartments
 
Terre Haute, IN
 
9/20/2012 & 3/5/2014
 
250

 
23,174,157

 
17,787,791

 
98.0
%
 
97.6
%
 
1,108

 
1,154

16
Hilliard Summit Apartments
 
Columbus, OH
 
9/28/2012
 
208

 
24,100,000

 
15,792,087

 
95.7
%
 
92.8
%
 
1,188

 
1,105

17
Springmarc Apartments
 
San Marcos, TX
 
10/19/2012
 
240

 
21,850,000

 
14,546,299

 
96.3
%
 
97.9
%
 
995

 
956

18
Renaissance at St. Andrews Condominiums(3)
 
Louisville, KY
 
10/31/2012
 
30

 
1,423,000

 
—

 
93.3
%
 
100.0
%
 
741

 
689

19
Ashley Oaks Apartment Homes
 
San Antonio, TX
 
11/29/2012
 
462

 
30,790,000

 
24,583,480

 
94.6
%
 
95.2
%
 
809

 
793

20
Arrowhead Apartment Homes
 
Palatine, IL
 
11/30/2012
 
200

 
16,750,000

 
11,842,041

 
96.0
%
 
93.5
%
 
1,070

 
1,061

21
The Moorings Apartments
 
Roselle, IL
 
11/30/2012
 
216

 
20,250,000

 
14,315,168

 
96.3
%
 
95.8
%
 
1,075

 
1,080

22
Forty 57 Apartments
 
Lexington, KY
 
12/20/2012
 
436

 
52,500,000

 
37,207,556

 
96.1
%
 
95.2
%
 
892

 
881


37

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


 
 
 
 
 
 
 
Number
of Units
 
Contract Purchase Price(1)
 
Mortgage Debt Outstanding at September 30, 2016
 
Average Occupancy as of
 
Average Monthly
Rent(2) as of
 
Property Name
 
Location
 
Purchase Date
 
 
 
 
Sep 30, 2016
 
Dec 31, 2015
 
Sep 30, 2016
 
Dec 31, 2015
23
Keystone Farms Apartments
 
Nashville, TN
 
12/28/2012
 
90

 
$
8,400,000

 
$
5,866,817

 
96.7
%
 
100.0
%
 
$
1,203

 
$
1,138

24
Riverford Crossing Apartments
 
Frankfort, KY
 
12/28/2012
 
300

 
30,000,000

 
21,146,068

 
95.7
%
 
95.3
%
 
882

 
835

25
Valley Farms
     North(4)
 
Louisville, KY
 
12/28/2012
 
128

 
14,607,032

 
9,720,000

 
93.0
%
 
74.2
%
 
1,071

 
885

26
Montecito Apartments
 
Austin, TX
 
12/31/2012
 
268

 
19,000,000

 
13,467,183

 
92.5
%
 
97.0
%
 
974

 
908

27
Hilliard Grand Apartments
 
Dublin, OH
 
12/31/2012
 
314

 
40,500,000

 
29,170,045

 
96.5
%
 
94.9
%
 
1,244

 
1,252

28
The Hills at Fair Oaks
 
Fair Oaks Ranch, TX
 
1/31/2013
 
288

 
34,560,000

 
23,982,484

 
93.8
%
 
91.7
%
 
1,005

 
1,032

29
Library Lofts East
 
Kansas City, MO
 
2/28/2013
 
118

 
12,750,000

 
8,558,825

 
94.9
%
 
95.8
%
 
1,040

 
981

30
Trails at Buda Ranch
 
Buda, TX
 
3/28/2013
 
264

 
23,000,000

 
20,779,883

 
95.8
%
 
97.0
%
 
1,059

 
1,003

31
Deep Deuce at Bricktown
 
Oklahoma City, OK
 
3/28/2013
 
294

 
38,220,000

 
25,205,113

 
94.6
%
 
92.5
%
 
1,281

 
1,349

32
Deer Valley Apartments
 
Lake Bluff, IL
 
4/30/2013
 
224

 
28,600,000

 
22,785,975

 
94.2
%
 
92.4
%
 
1,289

 
1,262

33
Grayson Ridge Apartment Homes
 
North Richland Hills, TX
 
5/31/2013
 
240

 
14,300,000

 
13,867,101

 
95.4
%
 
95.4
%
 
856

 
815

34
Rosemont Olmos Park Apartments
 
San Antonio, TX
 
5/31/2013
 
144

 
22,050,000

 
14,179,587

 
94.4
%
 
93.8
%
 
1,276

 
1,218

35
Retreat at Quail North
 
Oklahoma City, OK
 
6/12/2013
 
240

 
25,250,000

 
16,719,417

 
91.7
%
 
94.6
%
 
927

 
948

36
Lodge at Trails Edge
 
Indianapolis, IN
 
6/18/2013
 
268

 
18,400,000

 
12,115,434

 
97.0
%
 
94.8
%
 
735

 
714

37
Arbors of Carrollton
 
Carrollton, TX
 
7/3/2013
 
131

 
8,800,000

 
6,002,076

 
98.5
%
 
95.4
%
 
904

 
893

38
Waterford on the Meadow
 
Plano, TX
 
7/3/2013
 
350

 
23,100,000

 
15,931,017

 
95.4
%
 
96.6
%
 
975

 
885

39
The Belmont
 
Grand Prairie, TX
 
7/26/2013
 
260

 
12,100,000

 
8,869,756

 
95.4
%
 
95.4
%
 
859

 
767

40
Meritage at Steiner Ranch
 
Austin, TX
 
8/6/2013
 
502

 
80,000,000

 
58,111,226

 
94.0
%
 
94.0
%
 
1,410

 
1,368

41
Tapestry Park Apartments
 
Birmingham, AL
 
8/13/2013 & 12/1/2014
 
354

 
50,285,000

 
43,579,613

 
94.6
%
 
95.2
%
 
1,282

 
1,273

42
Dawntree Apartments
 
Carrollton, TX
 
8/15/2013
 
400

 
24,000,000

 
15,220,898

 
97.3
%
 
96.0
%
 
926

 
836

43
Stuart Hall Lofts
 
Kansas City, MO
 
8/27/2013
 
115

 
16,850,000

 
15,958,591

 
93.9
%
 
96.5
%
 
1,313

 
1,274

44
BriceGrove Park Apartments
 
Canal Winchester, OH
 
8/29/2013
 
240

 
20,100,000

 
17,064,142

 
93.8
%
 
95.0
%
 
828

 
815

45
Retreat at Hamburg Place
 
Lexington, KY
 
9/5/2013
 
150

 
16,300,000

 
12,026,404

 
94.0
%
 
94.0
%
 
978

 
953

46
Cantare at Indian Lake Village
 
Hendersonville, TN
 
9/24/2013
 
206

 
29,000,000

 
28,080,675

 
97.6
%
 
96.1
%
 
1,145

 
1,164


38

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


 
 
 
 
 
 
 
Number
of Units
 
Contract Purchase Price(1)
 
Mortgage Debt Outstanding at September 30, 2016
 
Average Occupancy as of
 
Average Monthly
Rent(2) as of
 
Property Name
 
Location
 
Purchase Date
 
 
 
 
Sep 30, 2016
 
Dec 31, 2015
 
Sep 30, 2016
 
Dec 31, 2015
47
The Landing at Mansfield
 
Mansfield, TX
 
9/27/2013
 
336

 
$
30,900,000

 
$
27,138,805

 
96.1
%
 
97.0
%
 
$
1,013

 
$
949

48
Heights at 2121
 
Houston, TX
 
9/30/2013
 
504

 
37,000,000

 
38,195,356

 
89.1
%
 
92.5
%
 
912

 
957

49
Villas at Huffmeister
 
Houston, TX
 
10/10/2013
 
294

 
37,600,000

 
27,123,560

 
92.2
%
 
92.9
%
 
1,175

 
1,145

50
Villas of Kingwood
 
Kingwood, TX
 
10/10/2013
 
330

 
40,150,000

 
35,255,253

 
93.6
%
 
90.6
%
 
1,303

 
1,241

51
Waterford Place at Riata Ranch
 
Cypress, TX
 
10/10/2013
 
228

 
23,400,000

 
17,242,387

 
90.8
%
 
91.7
%
 
1,047

 
1,093

52
Carrington Place
 
Houston, TX
 
11/7/2013
 
324

 
32,900,000

 
27,244,804

 
91.7
%
 
92.0
%
 
1,080

 
1,054

53
Carrington at Champion Forest
 
Houston, TX
 
11/7/2013
 
284

 
33,000,000

 
24,846,293

 
92.3
%
 
96.1
%
 
1,061

 
1,099

54
Carrington Park at Huffmeister
 
Cypress, TX
 
11/7/2013
 
232

 
25,150,000

 
20,191,122

 
95.3
%
 
93.5
%
 
1,173

 
1,126

55
Willow Crossing Apartments
 
Elk Grove, IL
 
11/20/2013
 
579

 
58,000,000

 
57,597,771

 
94.5
%
 
94.8
%
 
1,116

 
1,062

56
Echo at Katy Ranch
 
Katy, TX
 
12/19/2013
 
260

 
35,100,000

 
—

 
92.7
%
 
86.9
%
 
1,355

 
1,236

57
Heritage Grand at Sienna Plantation
 
Missouri City, TX
 
12/20/2013
 
240

 
27,000,000

 
17,298,375

 
92.5
%
 
92.5
%
 
1,144

 
1,190

58
Audubon Park Apartments
 
Nashville, TN
 
12/27/2013
 
256

 
16,750,000

 
16,323,159

 
87.9
%
 
91.8
%
 
914

 
895

59
Mallard Crossing Apartments
 
Cincinnati, OH
 
12/27/2013
 
350

 
39,800,000

 
33,476,529

 
94.6
%
 
90.6
%
 
1,066

 
986

60
Renaissance at Carol Stream
 
Carol Stream, IL
 
12/31/2013
 
293

 
29,150,000

 
23,023,645

 
92.5
%
 
92.5
%
 
1,012

 
1,008

61
Reserve at Creekside
 
Chattanooga, TN
 
3/28/2014
 
192

 
18,875,000

 
14,183,494

 
96.9
%
 
95.3
%
 
991

 
959

62
Mapleshade Park
 
Dallas, TX
 
3/31/2014
 
148

 
23,325,000

 
19,227,121

 
93.9
%
 
91.2
%
 
1,620

 
1,474

63
Richland Falls(5)
 
Murfreesboro, TN
 
5/16/2014
 
276

 
30,394,331

 
19,802,382

 
92.4
%
 
96.8
%
 
1,025

 
924

64
Oak Crossing Apartments
 
Fort Wayne, IN
 
6/3/2014
 
222

 
24,230,000

 
17,624,956

 
95.0
%
 
89.6
%
 
947

 
950

65
Park Shore Apartments
 
St. Charles, IL
 
9/12/2014
 
160

 
18,350,000

 
15,630,270

 
94.4
%
 
90.6
%
 
1,159

 
1,152

 
 
 
 
 
 
 
16,709

 
$
1,643,666,920

 
$
1,219,503,264

 
94.0
%
 
94.0
%
 
$
1,027

 
$
999

________________
(1)
The contract purchase price is comprised of the purchase price upon acquisition and the development and construction costs of apartment homes we have constructed, as applicable.
(2)
Average monthly rent is based upon the effective rental income after considering the effect of vacancies, concessions and write-offs.
(3)
Renaissance at St. Andrews Condominiums, initially comprised of 29 apartment homes, was acquired by us on October 31, 2012. On May 20, 2016, we acquired one additional unit at the Renaissance at St. Andrews Condominiums community for a purchase price of $48,000.

39

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


(4)
Valley Farms North, initially comprised of 32 apartment homes and entitled for an additional 224 apartment homes, was acquired by us on December 28, 2012. During 2014, construction began on an additional 96 of the entitled 224 apartment homes at Valley Farms North. During 2015, all 96 additional apartment homes were completed and available to be leased.
(5)
Richland Falls was acquired by us on May 16, 2014, and included improved land zoned for an additional 86 apartment homes. During 2015, construction began on an additional 86 apartment homes at Richland Falls, all of which were completed and available to be leased as of September 30, 2016.
Critical Accounting Policies
The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC. There have been no significant changes to our accounting policies during 2016, other than as discussed in Note 2 to our condensed consolidated unaudited financial statements in this Quarterly Report.
Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code and have operated as such beginning with the taxable year ended December 31, 2010. To continue to qualify as a REIT, we must continue to meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate income tax rates and generally would not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification was lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe we are organized and operate in such a manner as to qualify for treatment as a REIT.
We follow the income tax guidance under GAAP to recognize, measure, present and disclose in our consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of September 30, 2016 and December 31, 2015, we did not have any liabilities for uncertain tax positions that we believe should be recognized in our consolidated financial statements. Due to uncertainty regarding the realization of certain deferred tax assets, we have established valuation allowances, primarily in connection with the net operating loss carryforward related to the REIT. We have not been assessed material interest or penalties by any major tax jurisdictions. Our evaluation was performed for the tax years ended December 31, 2015, 2014 and 2013.
Distributions
Our board of directors has declared daily distributions that are paid on a monthly basis. We expect to continue paying monthly distributions unless our results of operations, our general financial condition, general economic conditions or other factors prohibit us from doing so. We may declare distributions in excess of our funds from operations. As a result, our distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income” each year.

40

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


Distributions declared (1) accrue daily to our stockholders of record as of the close of business on each day, (2) are payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month and (3) are calculated at a rate of $0.001964 per share per day during the year ended December 31, 2015 and three months ended March 31, 2016 and at a rate of $0.001958 per share per day during the six months ended September 30, 2016.
The distributions paid during each of the last five fiscal quarters ended September 30, 2016 were as follows:
Period
  
Distributions
Declared(1)
  
Distributions
Declared Per
Share(1)(2)
 
Distributions Paid(3)
 
Sources of
Distributions Paid
 
Net Cash
Provided By
Operating Activities
 
 
Cash Flow From Operations
 
Credit Facilities
  
 
 
Third Quarter 2015
 
$
13,888,802

 
$
0.181

 
$
13,887,973

 
$
13,887,973

 
$
—

 
$
14,287,719

Fourth Quarter 2015
 
13,865,446

 
0.181

 
13,726,517

 
13,726,517

 
—

 
14,722,025

First Quarter 2016
 
13,649,330

 
0.178

 
13,669,663

 
11,942,765

 
1,726,898

 
11,942,765

Second Quarter 2016
 
13,673,510

 
0.178

 
13,829,064

 
11,699,749

 
2,129,315

 
11,699,749

Third Quarter 2016
 
13,767,424

 
0.180

 
13,772,501

 
13,772,501

 
—

 
14,661,164

 
 
$
68,844,512

 
$
0.898

 
$
68,885,718

 
$
65,029,505

 
$
3,856,213

 
$
67,313,422

________________ 
(1)
Distributions are based on daily record dates and calculated at a rate of $0.001964 per share per day during the year ended December 31, 2015 and three months ended March 31, 2016 and at a rate of $0.001958 per share per day during the six months ended September 30, 2016.
(2)
Assumes each share was issued and outstanding each day during the periods presented.
(3)
Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid approximately three days following month end. All distributions were paid in cash.
For the three and nine months ended September 30, 2016, we paid aggregate distributions of $13,772,501 and $41,271,228. All such distributions were paid in cash. For the three and nine months ended September 30, 2016, our net loss was $9,699,187 and $21,356,546, we had funds from operations (“FFO”), of $7,860,754 and $30,367,439 and net cash provided by operations of $14,661,164 and $38,303,678, respectively. For the three and nine months ended September 30, 2016, we funded $13,772,501 and $37,415,015 of distributions paid with net cash provided by operating activities and with proceeds from our credit facilities of $0 and $3,856,213, respectively. For information on how we calculate FFO and the reconciliation of FFO to net loss, see “—Funds from Operations and Modified Funds from Operations.”
Over the long-term, we expect that our distributions will be paid from cash flow from operations (except with respect to distributions related to sales of our real estate and real estate-related investments). However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward-Looking Statements,” and “Results of Operations” herein. In the event our cash flow from operations decreases in the future, the level of our distributions may also decrease.
Inflation
Substantially all of our multifamily property leases will be for a term of one year or less. In an inflationary environment, this may allow us to realize increased rents upon renewal of existing leases or the beginning of new leases. Short-term leases generally will minimize our risk from the adverse effects of inflation, although these leases generally permit tenants to leave at the end of the lease term and therefore will expose us to the effects of a decline in market rents. In a deflationary rent environment, we may be exposed to declining rents more quickly under these shorter term leases.
With respect to our commercial properties, we include in our leases future provisions designed to protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases annual reimbursement of operating expenses above a certain allowance. We believe

41

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


that shorter term lease contracts on commercial properties lessen the impact of inflation due to the ability to adjust rental rates to market levels as leases expire.
As of September 30, 2016, we had not entered into any leases as a lessee.
REIT Compliance
To qualify as a REIT for tax purposes, we are required to distribute at least 90% of our REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP) to our stockholders. We must also meet certain asset and income tests, as well as other requirements. We will monitor the business and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates.
Liquidity and Capital Resources
We have used, and intend to use in the future, secured and unsecured borrowings. At the conclusion of our Public Offering, our overall borrowings were approximately 65% of the cost of our investments (before deducting depreciation and amortization) plus the value of our other investments. Going forward, we expect that our borrowings will be approximately 65% of the value of our properties, as determined by an independent third party appraiser or qualified independent valuation expert. Under our Charter, we have a limitation on borrowing in excess of 300% of the value of our net assets, which generally approximates to 75% of the aggregate cost of our assets, though we may exceed this limit under certain circumstances. As of September 30, 2016, our borrowings were not in excess of 300% of the value of our net assets.
We expect to use our capital resources to make certain payments to our Advisor in connection with the disposal of investments, the management of our assets and costs incurred by our Advisor in providing services to us.
Our principal demand for funds will be to fund value-enhancement and other capital improvement projects at our properties, to pay operating expenses and interest on our outstanding indebtedness and to make distributions to our stockholders. We intend to generally fund our cash needs for items, other than asset acquisitions, from operations. Otherwise, we expect that our principal sources of working capital will include:
•
current cash balances;
•
various forms of secured and unsecured financing;
•
equity capital from joint venture partners; and
•
cash from operations.
Over the short term, we believe that our sources of capital, specifically our cash balances, cash flow from operations, our ability to raise equity capital from joint venture partners and our ability to obtain various forms of secured and unsecured financing will be adequate to meet our liquidity requirements and capital commitments.
Over the longer term, in addition to the sources of capital noted above which we will rely on to meet our short term liquidity requirements, we may also utilize proceeds from the sale of our properties. We may also conduct additional public or private offerings. We expect these resources to be adequate to fund our operating activities, debt service and distributions, which we presently anticipate will grow over time, and will be sufficient to fund our ongoing operating activities as well as providing capital for investment in future development and other joint ventures along with potential forward purchase commitments.
On October 22, 2012, we entered into a revolving credit facility with PNC Bank to borrow up to $5,000,000. On April 25, 2013, we amended the credit facility to increase the borrowing capacity to $20,000,000. On July 18, 2014, we further amended the revolving credit facility, to, among other things, increase the borrowing capacity from $20,000,000 to $35,000,000. The amended and restated credit facility consisted of a Tranche A and a Tranche B, and provided certain security for borrowings under the credit facility. The maximum amount that could be borrowed under Tranche A and Tranche B were $20,000,000 and

42

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


$15,000,000, respectively. The amended and restated credit facility had a maturity date of July 17, 2016, subject to extension. On June 30, 2016, we repaid all outstanding amounts due and terminated the amended and restated credit facility.
On July 29, 2016, we entered into a Credit Agreement and a multifamily note with PNC Bank that provide for a new credit facility in an amount not to exceed $350,000,000 to refinance certain of our existing mortgage loans. The credit facility has a maturity date of August 1, 2021, subject to extension. Advances made under the credit facility will be secured by the properties set out in Note 5 of the accompanying consolidated financial statements. We continue to evaluate possible sources of capital, including, without limitation, entering into additional credit facilities. There can be no assurance that we will be able to obtain any such financings on favorable terms, if at all.
Cash Flows Provided by Operating Activities
As of September 30, 2016, we owned 65 multifamily properties. During the nine months ended September 30, 2016, net cash provided by operating activities was $38,303,678 compared to net cash provided by operating activities of $36,702,062 for the nine months ended September 30, 2015. The increase in net cash provided by operating activities is primarily due to improved operations at our portfolio of properties, partially offset by increased interest payments and certain costs paid in connection with the Refinancing Transactions. Additionally, cash flows provided by operating activities varied due to timing of payments of operating expenses during the nine months ended September 30, 2016 compared to the prior period.
Cash Flows Used in Investing Activities
During the nine months ended September 30, 2016, net cash used in investing activities was $49,944,075 compared to net cash used in investing activities of $23,360,538 during the nine months ended September 30, 2015. The increase in net cash used in investing activities was primarily due to a $30,000,000 investment in a certificate of deposit during the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015. Net cash used in investing activities during the nine months ended September 30, 2016 consisted of the following:
•
$30,000,000 of cash used for short-term investments;
•
$21,460,288 of cash used for improvements to real estate investments;
•
$877,228 of cash provided by restricted cash accounts related to replacement reserves;
•
$259,000 of cash used to purchase interest rate cap agreements; and
•
$897,985 of cash provided by insurance claims.
Cash Flows Provided by Financing Activities
During the nine months ended September 30, 2016, net cash provided by financing activities was $54,357,435 compared to net cash used in financing activities of $6,846,381 during the nine months ended September 30, 2015. The increase in cash flow from financing activities is due primarily to the increase in proceeds from notes payable in connection with the Refinancing Transactions, partially offset by increases to payments of deferred financing costs and redemptions of common stock. Net cash provided by financing activities during the nine months ended September 30, 2016 consisted of the following:
•
$133,293,750 of net cash used for principal payments of mortgage notes payable, net of deferred financing costs in the amount of $5,489,473 and proceeds from the issuance of mortgage notes payable of $427,867,278, each primarily in connection with the Refinancing Transactions;
•
$235,124,750 provided by net borrowings from the credit facilities, primarily in connection with the Refinancing Transactions;
•
$3,202,337 of cash paid for debt extinguishment costs in connection with the Refinancing Transactions;
•
$41,271,228 of cash distributions; and
•
$3,000,000 of cash paid for the redemption of common stock.

43

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


Contractual Commitments and Contingencies
We have used, and intend to use in the future, secured and unsecured debt. We believe that the careful use of borrowings will help us achieve our diversification goals and potentially enhance the returns on our investments. At the conclusion of our Public Offering, our borrowings were approximately 65% of the cost of our real properties (before deducting depreciation and amortization) plus the value of our other investments. Going forward, we expect that our borrowings will be approximately 65% of the value of our properties, as determined by an independent third party appraiser or qualified independent valuation expert. Under our Charter, we are prohibited from borrowing in excess of 300% of our net assets, which generally approximates to 75% of the aggregate cost of our assets. We may borrow in excess of this amount if such excess is approved by a majority of our independent directors and disclosed to stockholders in our next Quarterly Report, along with a justification for such excess. In such event, we will monitor our debt levels and take action to reduce any such excess as practicable. Our aggregate borrowings are reviewed by our board of directors at least quarterly. As of September 30, 2016, our aggregate borrowings were not in excess of 300% of the value of our net assets.
In addition to using our capital resources for investing purposes and meeting our debt obligations, we expect to use our capital resources to make certain payments to our Advisor or its affiliates. We expect to make payments to our Advisor in connection with the selection and origination or purchase of real estate and real estate-related investments, the management of our assets, the management of the development or improvement of our assets and costs incurred by our Advisor in providing services to us.
As of September 30, 2016, we had indebtedness totaling an aggregate principal amount of $1,219,503,264, including the net premiums on certain notes payable of $2,517,258 and the net deferred financing costs of $9,332,831. The following is a summary of our contractual obligations as of September 30, 2016:
 
 
 
 
Payments due by period
Contractual Obligations
 
Total
 
Less than
1 year
 
1-3
years
 
3-5
years
 
More than
5 years
Interest payments on outstanding debt obligations(1)
 
$
249,333,878

 
$
9,995,432

 
$
76,756,167

 
$
63,114,909

 
$
99,467,370

Principal payments on outstanding debt obligations(2)
 
1,226,318,837

 
2,432,254

 
126,898,488

 
191,600,604

 
905,387,491

Total
 
$
1,475,652,715

 
$
12,427,686

 
$
203,654,655

 
$
254,715,513

 
$
1,004,854,861

_____________________________
(1)
Projected interest payments on outstanding debt obligations are based on the outstanding principal amounts and interest rates in effect at September 30, 2016. We incurred interest of $10,534,005 and $30,787,688 during the three and nine months ended September 30, 2016, including amortization of deferred financing costs totaling $459,798 and $1,237,263, amortization of loan premiums and discounts of $317,351 and $934,747, net unrealized losses from the change in fair value of interest rate cap agreements of $21,570 and $466,841 and capitalized interest of $13,799 and $80,166, respectively.
(2)
Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. Amounts exclude the amortization of the debt premiums and discounts in addition to net deferred financing costs associated with certain notes payable.

44

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


Results of Operations
Overview
The discussion that follows is based on our consolidated results of operations for the three and nine months ended September 30, 2016 and 2015. The ability to compare one period to another is significantly affected by our value-enhancement strategy and the construction of additional apartment homes. Although the number of multifamily properties owned as of September 30, 2016 compared to September 30, 2015 remained unchanged at 65, our results of operations were impacted by the construction of an additional 96 apartment homes at one existing multifamily property during the nine months ended September 30, 2015, the construction of an additional 86 apartment homes at another existing multifamily property after September 30, 2015 and our value-enhancement activity completed through September 30, 2016, as further discussed below.
Our results of operations for the three and nine months ended September 30, 2016 are not indicative of those expected in future periods. For the three and nine months ended September 30, 2016, we continue the process of value-enhancement projects, which may have a significant impact on our future results of operations. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of organic rent increases, anticipated value-enhancement projects and construction of additional apartment homes.
To provide additional insight into our operating results, we are also providing a detailed analysis of same-store versus non-same-store net operating income (“NOI”). For more information on NOI and a reconciliation of NOI (a non-GAAP financial measure) to net loss, see “—Net Operating Income.”
Consolidated Results of Operations for the Three Months Ended September 30, 2016 and 2015
The following table summarizes the consolidated results of operations for the three months ended September 30, 2016 and 2015:
 
 
For the Three Months Ended September 30,
 
 
 
 
 
 
2016
 
2015
 
Change $
 
Change %
Total revenues
 
$
56,371,925

 
$
53,166,421

 
$
3,205,504

 
6
 %
Operating, maintenance and management
 
(15,607,923
)
 
(14,681,517
)
 
(926,406
)
 
6
 %
Real estate taxes and insurance
 
(8,980,995
)
 
(8,524,454
)
 
(456,541
)
 
5
 %
Fees to affiliates
 
(7,062,486
)
 
(5,660,066
)
 
(1,402,420
)
 
25
 %
Depreciation and amortization
 
(17,559,941
)
 
(16,496,386
)
 
(1,063,555
)
 
6
 %
Interest expense
 
(10,520,206
)
 
(10,019,513
)
 
(500,693
)
 
5
 %
Loss on debt extinguishment
 
(3,743,325
)
 
—

 
(3,743,325
)
 
100%

General and administrative expenses
 
(2,596,236
)
 
(1,388,213
)
 
(1,208,023
)
 
87
 %
Net loss
 
$
(9,699,187
)
 
$
(3,603,728
)
 
$
(6,095,459
)
 
169
 %
 
 
 
 
 
 

 

NOI(1)
 
$
28,234,520

 
$
27,961,843

 
$
272,677

 
1
 %
FFO(2)
 
$
7,860,754

 
$
12,892,658

 
$
(5,031,904
)
 
(39
)%
MFFO(2)
 
$
11,683,363

 
$
13,626,060

 
$
(1,942,697
)
 
(14
)%
________________
(1)
NOI is a non-GAAP financial measure used by investors and our management to evaluate and compare the performance of our properties and to determine trends in earnings. However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest income and other expense, acquisition costs, certain fees to affiliates, depreciation and amortization expense and gains or losses from the sale of our properties and

45

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs, all of which are significant economic costs. For additional information on how we calculate NOI and a reconciliation of NOI to net loss, see “—Net Operating Income.”
(2)
GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), established the measurement tool of FFO. Since its introduction, FFO has become a widely used non-GAAP financial measure among REITs. Additionally, we use modified funds from operations (“MFFO”), as defined by the Investment Program Association (the “IPA”) as a supplemental measure to evaluate our operating performance. MFFO is based on FFO but includes certain adjustments we believe are necessary due to changes in accounting and reporting under GAAP since the establishment of FFO. Neither FFO nor MFFO should be considered as alternatives to net loss or other measurements under GAAP as indicators of our operating performance, nor should they be considered as alternatives to cash flow from operating activities or other measurements under GAAP as indicators of liquidity. For additional information on how we calculate FFO and MFFO and a reconciliation of FFO and MFFO to net loss, see “—Funds From Operations and Modified Funds From Operations.”
Net loss
For the three months ended September 30, 2016, we had a net loss of $9,699,187 compared to a net loss of $3,603,728 for the three months ended September 30, 2015. The increase in net loss of $6,095,459 over the comparable prior year period was primarily due to the increase in operating, maintenance and management expenses of $926,406, the increase in real estate taxes and insurance of $456,541, the increase in fees to affiliates of $1,402,420, the increase in depreciation and amortization expense of $1,063,555, the increase in interest expense of $500,693, the increase in loss on debt extinguishment of $3,743,325 and the increase in general and administrative expenses of $1,208,023, partially offset by the increase in total revenues of $3,205,504. Our operations were primarily negatively impacted by the costs incurred in connection with the Third Quarter Refinancing Transactions.
Total revenues
Rental income and tenant reimbursements for the three months ended September 30, 2016 were $56,371,925 compared to $53,166,421 for the three months ended September 30, 2015. The increase of $3,205,504 was primarily due to the average monthly rent for our property portfolio increasing from $998 at September 30, 2015 to $1,027 at September 30, 2016 primarily attributable to ordinary monthly rent increases and the completion of value-enhancement projects, as well as non-recurring insurance claim recoveries recognized during the three months ended September 30, 2016. Additionally, total units increased by 87 from 16,622 at September 30, 2015 to 16,709 at September 30, 2016. We expect rental income and tenant reimbursements to increase in future periods as a result of ordinary monthly rent increases and our value-enhancement strategy.
Operating, maintenance and management expense
Operating, maintenance and management expenses for the three months ended September 30, 2016 were $15,607,923 compared to $14,681,517 for the three months ended September 30, 2015. The increase of $926,406 was primarily due to higher costs incurred for utilities and repairs and maintenance during the three months ended September 30, 2016 compared to the three months ended September 30, 2015. We expect that these amounts will decrease as a percentage of total revenues as we implement operational efficiencies at our multifamily properties.

46

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


Real estate taxes and insurance
Real estate taxes and insurance expenses for the three months ended September 30, 2016 were $8,980,995 compared to $8,524,454 for the three months ended September 30, 2015. The increase of $456,541 was due primarily to increased assessed values of our property portfolio resulting in higher property taxes at certain of our properties. These amounts may increase in future periods as a result of municipal property tax rate increases and/or increases in the assessed value of our property portfolio.
Fees to affiliates
Fees to affiliates for the three months ended September 30, 2016 were $7,062,486 compared to $5,660,066 for the three months ended September 30, 2015. The increase of $1,402,420 was primarily due to the $1,493,727 in refinancing fees incurred in connection with the Third Quarter Refinancing Transactions during the three months ended September 30, 2016 compared to no refinancing fees incurred during the three months ended September 30, 2015. We expect fees to affiliates to decrease in future periods as a result of the decrease in anticipated future refinancing activity.
Depreciation and amortization
Depreciation and amortization expenses for the three months ended September 30, 2016 were $17,559,941 compared to $16,496,386 for the three months ended September 30, 2015. The increase of $1,063,555 was primarily due to the net increase in depreciable and amortizable assets of $28,391,751 since September 30, 2015. We expect these amounts to increase slightly in future periods as a result of anticipated future enhancements to our real estate portfolio.
Interest expense
Interest expense for the three months ended September 30, 2016 was $10,520,206 compared to $10,019,513 for the three months ended September 30, 2015. The increase of $500,693 was primarily due to a net increase of $100,562,297 in our total notes payable balance from September 30, 2015 to September 30, 2016. Our interest expense in future periods will vary based on our level of borrowings, which will depend on the availability and cost of debt financing and the opportunity to sell real estate properties and real estate-related investments.
Loss on debt extinguishment
Loss on debt extinguishment for the three months ended September 30, 2016 was $3,743,325 compared to $0 for the three months ended September 30, 2015. These expenses consisted of prepayment penalties and the expense of the deferred financing costs, net related to the repayment and extinguishment of debt in conjunction with the refinancing of certain notes payable during the three months ended September 30, 2016. The loss on debt extinguishment will vary in future periods if we repay the remaining outstanding principal prior to the scheduled maturity dates of the notes payable.
General and administrative expense
General and administrative expenses for the three months ended September 30, 2016 were $2,596,236 compared to $1,388,213 for the three months ended September 30, 2015. These general and administrative costs consisted primarily of legal fees, insurance premiums, audit fees, other professional fees, independent director compensation and certain state taxes. The increase of $1,208,023 was primarily due to costs incurred related to the refinancing of certain mortgage notes payable during the three months ended September 30, 2016. Similar activity did not occur during the three months ended September 30, 2015. We expect general and administrative expenses to decrease as a percentage of total revenues.

47

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


Consolidated Results of Operations for the Nine Months Ended September 30, 2016 and 2015
The following table summarizes the consolidated results of operations for the nine months ended September 30, 2016 and 2015:
 
 
For the Nine Months Ended September 30,
 
 
 
 
 
 
2016
 
2015
 
Change $
 
Change %
Total revenues
 
$
163,301,458

 
$
156,461,523

 
$
6,839,935

 
4
 %
Operating, maintenance and management
 
(43,220,781
)
 
(40,275,265
)
 
(2,945,516
)
 
7
 %
Real estate taxes and insurance
 
(27,940,715
)
 
(27,310,197
)
 
(630,518
)
 
2
 %
Fees to affiliates
 
(19,947,606
)
 
(16,441,909
)
 
(3,505,697
)
 
21
 %
Depreciation and amortization
 
(51,723,985
)
 
(48,832,712
)
 
(2,891,273
)
 
6
 %
Interest expense
 
(30,707,522
)
 
(29,527,109
)
 
(1,180,413
)
 
4
 %
Loss on debt extinguishment
 
(4,932,369
)
 
—

 
(4,932,369
)
 
100%

General and administrative expenses
 
(6,185,026
)
 
(4,405,988
)
 
(1,779,038
)
 
40
 %
Acquisition costs
 
—

 
(7,145
)
 
7,145

 
(100
)%
Net loss
 
$
(21,356,546
)
 
$
(10,338,802
)
 
$
(11,017,744
)
 
107
 %
 
 
 
 
 
 
 
 
 
NOI(1)
 
$
84,389,684

 
$
82,992,328

 
$
1,397,356

 
2
 %
FFO(2)
 
$
30,367,439

 
$
38,493,910

 
$
(8,126,471
)
 
(21
)%
MFFO(2)
 
$
35,996,018

 
$
40,624,771

 
$
(4,628,753
)
 
(11
)%
________________
(1)
See “—Net Operating Income” below for a reconciliation of NOI to net income (loss).
(2)
See “—Funds From Operations and Modified Funds From Operations” below for a reconciliation FFO and MFFO to net income (loss).
Net loss
For the nine months ended September 30, 2016, we had a net loss of $21,356,546 compared to a net loss of $10,338,802 for the nine months ended September 30, 2015. The increase in net loss of $11,017,744 over the comparable prior year period was primarily due to the increase in operating, maintenance and management expenses of $2,945,516, the increase in real estate taxes and insurance of $630,518, the increase in fees to affiliates of $3,505,697, the increase in depreciation and amortization expense of $2,891,273, the increase in interest expense of $1,180,413, the increase in loss on debt extinguishment of $4,932,369 and the increase in general and administrative expenses of $1,779,038, partially offset by the increase in total revenues of $6,839,935 and the decrease in acquisition costs of $7,145. Our operations were primarily negatively impacted by the costs incurred in connection with the Refinancing Transactions.
Total revenues
Rental income and tenant reimbursements for the nine months ended September 30, 2016 were $163,301,458 compared to $156,461,523 for the nine months ended September 30, 2015. The increase of $6,839,935 was primarily due to the average monthly rent for our property portfolio increasing from $998 at September 30, 2015 to $1,027 at September 30, 2016 primarily attributable to ordinary monthly rent increases and the completion of value-enhancement projects, as well as non-recurring insurance claim recoveries recognized during the nine months ended September 30, 2016. Additionally, our total units increase

48

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


d by 87 from 16,622 at September 30, 2015 to 16,709 at September 30, 2016. We expect rental income and tenant reimbursements to increase in future periods as a result of ordinary monthly rent increases and our value-enhancement strategy.
Operating, maintenance and management expense
Operating, maintenance and management expenses for the nine months ended September 30, 2016 were $43,220,781 compared to $40,275,265 for the nine months ended September 30, 2015. The increase of $2,945,516 was primarily due to higher costs incurred for utilities, repairs and maintenance and property operating costs during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. We expect that these amounts will decrease as a percentage of total revenues as we implement operational efficiencies at our multifamily properties.
Real estate taxes and insurance
Real estate taxes and insurance expenses for the nine months ended September 30, 2016 were $27,940,715 compared to $27,310,197 for the nine months ended September 30, 2015. The increase of $630,518 was due primarily to increased assessed values of our property portfolio resulting in higher property taxes at certain of our properties. We expect these amounts may increase in future periods as a result of municipal property tax increases as well as increases in the assessed value of our property portfolio.
Fees to affiliates
Fees to affiliates for the nine months ended September 30, 2016 were $19,947,606 compared to $16,441,909 for the nine months ended September 30, 2015. This increase of $3,505,697 was primarily due to the $3,283,737 in refinancing fees incurred in connection with the Refinancing Transactions during the nine months ended September 30, 2016 compared to no refinancing fees incurred during the nine months ended September 30, 2015. Additionally, investment management fees and property management fees increased from the nine months ended September 30, 2015 to the nine months ended September 30, 2016. We expect fees to affiliates to decrease in future periods as a result of the decrease in anticipated future refinancing activity.
Depreciation and amortization
Depreciation and amortization expenses for the nine months ended September 30, 2016 were $51,723,985 compared to $48,832,712 for the nine months ended September 30, 2015. The increase of $2,891,273 was primarily due to the net increase in depreciable and amortizable assets of $28,391,751 since September 30, 2015. We expect these amounts to increase slightly in future periods as a result of anticipated future enhancements to our real estate portfolio.
Interest expense
Interest expense for the nine months ended September 30, 2016 was $30,707,522 compared to $29,527,109 for the nine months ended September 30, 2015. The increase of $1,180,413 was primarily due to a net increase of $100,562,297 in our total notes payable balance from September 30, 2015 to September 30, 2016. Our interest expense in future periods will vary based on our level of borrowings, which will depend on the availability and cost of debt financing and the opportunity to sell real estate properties and real estate-related investments.
Loss on debt extinguishment
Loss on debt extinguishment for the nine months ended September 30, 2016 was $4,932,369 compared to $0 for the nine months ended September 30, 2015. These expenses consisted of prepayment penalties and the expense of the deferred financing costs, net related to the repayment and extinguishment of the debt in conjunction with the refinancing of certain mortgage notes payable during the nine months ended September 30, 2016. The loss on debt extinguishment will vary in future periods if we repay the remaining outstanding principal prior to the scheduled maturity dates of the mortgage notes payable.

49

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


General and administrative expense
General and administrative expenses for the nine months ended September 30, 2016 were $6,185,026 compared to $4,405,988 for the nine months ended September 30, 2015. These general and administrative costs consisted primarily of legal fees, insurance premiums, audit fees, other professional fees, independent director compensation and certain state taxes. The increase of $1,779,038 was primarily due to costs incurred related to the refinancing of certain mortgage notes payable during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. We expect general and administrative expenses to decrease as a percentage of total revenues.
Acquisition costs
Acquisition costs for the nine months ended September 30, 2016 were $0 compared to $7,145 for the nine months ended September 30, 2015. The acquisition costs were consistent, with no meaningful changes from the nine months ended September 30, 2015 to the nine months ended September 30, 2016. We do not expect to incur significant acquisition costs in the future as we have invested all proceeds from our Public Offering.
Property Operations for the Three Months Ended September 30, 2016 Compared to the Three Months Ended September 30, 2015
For purposes of evaluating comparative operating performance, we categorize our properties as “same-store” or “non-same-store.” A “same-store” property is a property that was owned at July 1, 2015. A “non-same-store” property is a property that was acquired, placed into service or disposed of after July 1, 2015. As of September 30, 2016, 65 properties were categorized as same-store properties.
The following table presents the same-store and non-same-store results from operations for the three months ended September 30, 2016 and 2015:
 
 
For the Three Months Ended September 30,
 
 
 
 
 
 
2016
 
2015
 
Change $
 
Change %
Same-store properties:
 
 
 
 
 
 
 
 
Revenues
 
$
54,866,867

 
$
53,166,421

 
$
1,700,446

 
3
%
Operating expenses
 
26,632,347

 
25,204,578

 
1,427,769

 
6
%
Net operating income
 
28,234,520

 
27,961,843

 
272,677

 
1
%
 
 
 
 
 
 
 
 
 
Non-same-store properties:
 
 
 
 
 
 
 
 
Net operating income
 
—

 
—

 
—

 

 
 
 
 
 
 
 
 
 
Total net operating income(1)
 
$
28,234,520

 
$
27,961,843

 
$
272,677

 

________________
(1)
See “—Net Operating Income” below for a reconciliation of NOI to net loss.
Net Operating Income
Same-store net operating income for the three months ended September 30, 2016 was $28,234,520 compared to $27,961,843 for the three months ended September 30, 2015. The 1% increase in same-store net operating income was primarily due to a 3% increase in same-store rental revenues offset by a 6% increase in same-store operating expenses over the comparable prior year period.

50

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


Revenues
Same-store revenues for the three months ended September 30, 2016 were $54,866,867 compared to $53,166,421 for the three months ended September 30, 2015. The 3% increase in same-store revenues was primarily due to the average rent increases at the same-store properties from $998 as of September 30, 2015 to $1,027 as of September 30, 2016, primarily attributable to ordinary monthly rent increases and the completion of value-enhancement projects.
Operating Expenses
Same-store operating expenses for the three months ended September 30, 2016 were $26,632,347 compared to $25,204,578 for the three months ended September 30, 2015. The 6% increase in same-store operating expenses was primarily due to increased utilities, repairs and maintenance and real estate taxes for the three months ended September 30, 2016 relative to the comparable prior year period.
Net Operating Income
NOI is a non-GAAP financial measure of performance. NOI is used by investors and our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by (1) the cost of funds, (2) acquisition costs, (3) non-operating fees to affiliates, (4) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP or (5) general and administrative expenses and other gains and losses that are specific to us. The cost of funds is eliminated from net income (loss) because it is specific to our particular financing capabilities and constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future. Acquisition costs and non-operating fees to affiliates are eliminated because they do not reflect continuing operating costs of the property owner.
Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our multifamily properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating these costs from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.
The usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest income and other expense, acquisition costs, certain fees to affiliates, depreciation and amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income which further limits its usefulness.
NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the components of net income (loss) that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

51

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


The following is a reconciliation of our NOI to net loss for the three and nine months ended September 30, 2016 and 2015 computed in accordance with GAAP:
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net loss
 
$
(9,699,187
)
 
$
(3,603,728
)
 
$
(21,356,546
)
 
$
(10,338,802
)
Fees to affiliates(1)
 
5,019,057

 
3,661,459

 
13,822,316

 
10,558,176

Depreciation and amortization
 
17,559,941

 
16,496,386

 
51,723,985

 
48,832,712

Interest expense
 
10,520,206

 
10,019,513

 
30,707,522

 
29,527,109

Loss on debt extinguishment
 
3,743,325

 
—

 
4,932,369

 
—

General and administrative expenses
 
2,596,236

 
1,388,213

 
6,185,026

 
4,405,988

Acquisition costs
 
—

 
—

 
—

 
7,145

Other gains and losses
 
(1,505,058
)
 
—

 
(1,624,988
)
 
—

Net operating income
 
$
28,234,520

 
$
27,961,843

 
$
84,389,684

 
$
82,992,328

________________
(1)
Fees to affiliates for the three and nine months ended September 30, 2016 excludes property management fees of $1,621,239 and $4,793,878 and other fees of $422,190 and $1,331,412, respectively, that are included in NOI. Fees to affiliates for the three and nine months ended September 30, 2015 excludes property management fees of $1,570,816 and $4,621,570 and other fees of $427,791 and $1,262,163, respectively, that are included in NOI.
(2)
Other gains and losses for the three and nine months ended September 30, 2016 include non-recurring insurance proceeds that are not included in NOI.
Funds from Operations and Modified Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, NAREIT, an industry trade group, has promulgated a measure known as funds from operations, or FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income (loss) as determined under GAAP.
We define FFO, a non-GAAP financial measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and non-cash impairment charges of real estate related investments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. Our FFO calculation complies with NAREIT’s policy described above.

52

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO, and MFFO as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.
Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that public, non-listed REITs, like us, are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. Our board of directors will determine to pursue a liquidity event when it believes that the then-current market conditions are favorable. Thus, as a limited life REIT, we will not continuously purchase assets and will have a limited life.
Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA, an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a public, non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired.

53

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


We define MFFO, a non-GAAP financial measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”), issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we rely on our Advisor for managing interest rate, hedge and foreign exchange risk, we do not retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such non-recurring gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations.
Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. In the event that operational earnings and cash flow are not available to fund our reimbursement of acquisition fees and expenses incurred by our Advisor, such fees and expenses will need to be reimbursed to our Advisor from other sources, including debt, net proceeds from the sale of properties, or from ancillary cash flows. The acquisition of properties, and the corresponding acquisition fees and expenses, is the key operational feature of our business plan to generate operational income and cash flow to fund distributions to our stockholders. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance.
Our management uses MFFO and the adjustments used to calculate MFFO in order to evaluate our performance against other public, non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate MFFO allow us to present our performance in a manner that reflects certain characteristics that are unique to public, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

54

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


Presentation of this information is intended to provide useful information to investors as they compare the operating performance to that of other public, non-listed REITs, although it should be noted that not all public, non-listed REITs calculate FFO and MFFO the same way, so comparisons with other public, non-listed REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with GAAP measurements as an indication of our performance. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. MFFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining MFFO.
Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and in response to such standardization we may have to adjust our calculation and characterization of FFO or MFFO accordingly.
Our calculation of FFO and MFFO is presented in the following table for the three and nine months ended September 30, 2016 and 2015:
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
Reconciliation of net loss to MFFO:
 
2016
 
2015
 
2016
 
2015
Net loss
 
$
(9,699,187
)
 
$
(3,603,728
)
 
$
(21,356,546
)
 
$
(10,338,802
)
Depreciation of real estate assets
 
17,521,649

 
16,458,094

 
51,609,109

 
48,502,050

Amortization of lease-related costs
 
38,292

 
38,292

 
114,876

 
330,662

FFO
 
7,860,754

 
12,892,658

 
30,367,439

 
38,493,910

Acquisition fees and expenses(1)(2)
 
—

 
187,735

 
960

 
194,880

Unrealized loss on derivative instruments
 
21,570

 
540,376

 
466,841

 
1,908,550

Loss on debt extinguishment
 
3,743,325

 
—

 
4,932,369

 
—

Change in value of restricted common stock to Advisor
 
57,714

 
5,291

 
228,409

 
27,431

MFFO
 
$
11,683,363

 
$
13,626,060

 
$
35,996,018

 
$
40,624,771

________________
(1)
By excluding acquisition fees and expenses, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our Advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. In the event that operational earnings and cash flows are not available to fund our reimbursement of acquisition fees and expenses incurred by our Advisor, such fees and expenses will need to be reimbursed to the Advisor from other sources, including debt, net proceeds from the sale of properties, or from ancillary cash flows.
(2)
Acquisition fees and expenses for the three and nine months ended September 30, 2016 includes acquisition fees of $0 and $960 and acquisition fees of $187,735 and $187,735 for the three and nine months ended September 30, 2015,

55

PART I — FINANCIAL INFORMATION (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


respectively, that are recorded in fees to affiliates in the accompanying consolidated statements of operations. Acquisition fees and expenses for the three and nine months ended September 30, 2016 also include acquisition expenses of $0 and $0 and acquisition expenses of $0 and $7,145 for the three and nine months ended September 30, 2015, respectively, that are recorded in acquisition costs in the accompanying consolidated statements of operations.
FFO and MFFO may be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.
Off-Balance Sheet Arrangements
As of September 30, 2016, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Related-Party Transactions and Agreements
We have entered into agreements with our Advisor and its affiliates whereby we have paid, and may continue to pay, certain fees to, or reimburse certain expenses of, our Advisor or its affiliates for acquisition and advisory fees and expenses, financing coordination fees, organization and offering costs, asset and property management fees and expenses, leasing fees and reimbursement of certain operating costs. Refer to Note 8 to our condensed consolidated unaudited financial statements included in this Quarterly Report for a discussion of the various related-party transactions, agreements and fees.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We may be exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. We may be also exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We have managed and will continue to manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we have, and may in the future, utilize a variety of financial instruments, including interest rate caps, floors and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in the instruments.
We borrow funds and make investments at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. At September 30, 2016, the fair value of our fixed rate debt was $483,868,305 and the carrying value of our fixed rate debt was $473,819,459. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated at September 30, 2016. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

56

PART I — FINANCIAL INFORMATION (continued)

Conversely, movements in interest rates on our variable rate debt would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. At September 30, 2016, the fair value of our variable rate debt was $742,553,362 and the carrying value of our variable rate debt was $745,683,805. Based on interest rates as of September 30, 2016, if interest rates were 100 basis points higher during the 12 months ending September 30, 2017, interest expense on our variable rate debt would increase by $7,705,406 and if interest rates were 100 basis points lower during the 12 months ending September 30, 2017, interest expense on the variable rate debt would decrease by $4,055,430.
At September 30, 2016, the weighted-average interest rate of our fixed rate debt and variable rate debt was 4.07% and 2.68%, respectively. The weighted-average interest rate represents the actual interest rate in effect at September 30, 2016 (consisting of the contractual interest rate), using interest rate indices as of September 30, 2016 where applicable.
We will also be exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of a derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. As of September 30, 2016, we did not have counterparty risk on our interest rate cap agreements as the underlying variable rates for each of our interest rate cap agreements as of September 30, 2016 were not in excess of the capped rates. See also Note 11 to our condensed consolidated financial statements included in this Quarterly Report.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report, our management, including our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ending September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


57

PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.
Item 1A. Risk Factors
There have been no material changes to the risk factors contained in Part I, Item IA set forth in our Annual Report on Form 10-K filed with the SEC on March 18, 2016.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2016, we fulfilled repurchase requests and repurchased shares of our common stock pursuant to our share repurchase program as follows:
 
 
Total Number of Shares Requested to be Repurchased(1)
 
Total Number of Shares Repurchased(2)
 
Average Price Paid per Share(3)
 
Approximate Dollar Value of Shares Available That May Be /Repurchased Under the Program
July 2016
 
163,822

 
93,939

 
$
10.65

 
(4) 
August 2016
 
134,534

 
—

 
—

 
(4) 
September 2016
 
172,021

 
—

 
—

 
(4) 
 
 
470,377

 
93,939

 
$
10.65

 
 
____________________
(1)
We generally repurchase shares approximately 30 days following the end of the applicable quarter in which requests were received. On October 31, 2016, we repurchased 189,743 shares of our common stock for a total repurchase value of $2,000,000, or $10.54 per share, pursuant to our share repurchase program.
(2) We are not obligated to repurchase shares under the share repurchase program.
(3)
Pursuant to the program, as amended, we currently repurchase shares at prices determined as follows:
•
92.5% of the estimated value per share for stockholders who have held their shares for at least one year;
•
95.0% of the estimated value per share for stockholders who have held their shares for at least two years;
•
97.5% of the estimated value per share for stockholders who have held their shares for at least three years; and
•
100% of the estimated value per share for stockholders who have held their shares for at least four years.
Notwithstanding the above, the redemption price for redemptions sought upon a stockholder’s death or “qualifying disability” will be equal to the average issue price per share for all of the stockholder’s shares purchased from us.
(4)
The number of shares that may be redeemed pursuant to the share repurchase program during any calendar year is limited to 5% of the weighted-average number of shares outstanding during the prior calendar year and the value of the shares repurchased shall not exceed $2,000,000 during the quarter beginning July 1, 2015, with shares repurchased each subsequent quarter not to exceed $1,000,000. The value of the shares that may be repurchased pursuant to the share

58

PART II—OTHER INFORMATION (continued)


repurchase program each quarter has increased from $1,000,000 to $2,000,000, effective on the October 2016 repurchase date. 
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits listed on this Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q) are filed herewith, or incorporated by reference.

59

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
Steadfast Income REIT, Inc.
 
Date:
November 14, 2016
By:  
/s/ Rodney F. Emery  
 
 
 
Rodney F. Emery 
 
 
 
Chief Executive Officer and Chairman of the Board (Principal Executive Officer) 
 
 
 
 
Date:
November 14, 2016
By:  
/s/ Kevin J. Keating  
 
 
 
Kevin J. Keating 
 
 
 
Treasurer
(Principal Financial and Accounting Officer) 




EXHIBIT INDEX

Effective February 1, 2010, Steadfast Secure Income REIT, Inc., Steadfast Secure Income Advisor, LLC and Steadfast Secure Income REIT Operating Partnership, L.P. changed their names to Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC and Steadfast Income REIT Operating Partnership, L.P., respectively. With respect to documents executed prior to the name change, the following Exhibit List refers to the entity names used prior to the name changes in order to accurately reflect the names of the entities that appear on such documents.

The following exhibits are included, or incorporated by reference, in this Quarterly Report for the three months ended September 30, 2016 (and are numbered in accordance with Item 601 of Regulation S-K).

3.1
Third Articles of Amendment and Restatement of Steadfast Income REIT, Inc. (included as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 6, 2014 and incorporated herein by reference)

3.2
Bylaws of Steadfast Secure Income REIT, Inc. (included as Exhibit 3.2 to the Company’s Registration Statement on Form S-11 (File No. 333-160748) filed July 23, 2009 and incorporated herein by reference)

10.1
Multifamily Loan and Security Agreement, made as of July 29, 2016, by and between SIR Ashley Oaks, LLC and PNC Bank, National Association (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.2
Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of July 29, 2016, by SIR Ashley Oaks, LLC to Ann Johnson for the benefit of PNC Bank, National Association (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
  
10.3
Assignment of Management Agreement and Subordination of Management Fees, dated as of July 29, 2016, by and among SIR Ashley Oaks, LLC, PNC Bank, National Association and Steadfast Management Company, Inc. (included as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 
10.4
Multifamily Loan and Security Agreement, made as of July 29, 2016, by and between SIR Buda Ranch, LLC and PNC Bank, National Association (included as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.5
Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of July 29, 2016, by SIR Buda Ranch, LLC to Ann Johnson for the benefit of PNC Bank, National Association (included as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.6
Assignment of Management Agreement and Subordination of Management Fees, dated as of July 29, 2016, by and among SIR Buda Ranch, LLC, PNC Bank, National Association and Steadfast Management Company, Inc. (included as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 
10.7
Multifamily Loan and Security Agreement, made as of July 29, 2016, by and between SIR Deer Valley, LLC and PNC Bank, National Association (included as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.8
Multifamily Mortgage, Assignment of Rents and Security Agreement, dated as of July 29, 2016, by and between SIR Deer Valley, LLC and PNC Bank, National Association (included as Exhibit 10.8 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)



10.9
Assignment of Management Agreement and Subordination of Management Fees, dated as of July 29, 2016, by and among SIR Deer Valley, LLC, PNC Bank, National Association and Steadfast Management Company, Inc. (included as Exhibit 10.9 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.10
Multifamily Loan and Security Agreement, made as of July 29, 2016, by and between SIR Carrington Park, LLC and PNC Bank, National Association (included as Exhibit 10.10 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.11
Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of July 29, 2016, by SIR Carrington Park, LLC to Ann Johnson for the benefit of PNC Bank, National Association (included as Exhibit 10.11 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.12
Assignment of Management Agreement and Subordination of Management Fees, dated as of July 29, 2016, by and among SIR Carrington Park, LLC, PNC Bank, National Association and Steadfast Management Company, Inc. (included as Exhibit 10.12 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 
10.13
Multifamily Loan and Security Agreement, made as of July 29, 2016, by and between SIR Carrington Place, LLC and PNC Bank, National Association (included as Exhibit 10.13 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.14
Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of July 29, 2016, by SIR Carrington Place, LLC to Ann Johnson for the benefit of PNC Bank, National Association (included as Exhibit 10.14 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.15
Assignment of Management Agreement and Subordination of Management Fees, dated as of July 29, 2016, by and among SIR Carrington Place, LLC, PNC Bank, National Association and Steadfast Management Company, Inc. (included as Exhibit 10.15 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.16
Multifamily Loan and Security Agreement, made as of July 29, 2016, by and between SIR Carrington Champion, LLC and PNC Bank, National Association (included as Exhibit 10.16 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.17
Multifamily Deed Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of July 29, 2016, by SIR Carrington Champion, LLC to Ann Johnson for the benefit of PNC Bank, National Association (included as Exhibit 10.17 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 
10.18
Assignment of Management Agreement and Subordination of Management Fees, dated as of July 29, 2016, by and among SIR Carrington Champion, LLC, PNC Bank, National Association and Steadfast Management Company, Inc. (included as Exhibit 10.18 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.19
Multifamily Loan and Security Agreement, made as of July 29, 2016, by and between SIR Audubon Park, LLC and PNC Bank, National Association (included as Exhibit 10.19 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 



10.20
Multifamily Deed of Trust, Absolute Assignment of Leases and Rents and Security Agreement (Including Fixture Filing), dated as of July 29, 2016, by SIR Audubon Park, LLC to Joseph B. Pitt, Jr. for the benefit of PNC Bank, National Association (included as Exhibit 10.20 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.21
Assignment of Management Agreement and Subordination of Management Fees, dated as of July 29, 2016, by and among SIR Audubon Park, LLC, PNC Bank, National Association and Steadfast Management Company, Inc. (included as Exhibit 10.21 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 
10.22
Multifamily Loan and Security Agreement, made as of July 29, 2016, by and between SIR Oak Crossing, LLC and PNC Bank, National Association (included as Exhibit 10.22 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.23
Multifamily Mortgage, Assignment of Rents, Security Agreement and Fixture Filing, dated as of July 29, 2016, by and between SIR Oak Crossing, LLC and PNC Bank, National Association (included as Exhibit 10.23 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 
10.24
Assignment of Management Agreement and Subordination of Management Fees, dated as of July 29, 2016, by and among SIR Oak Crossing, LLC, PNC Bank, National Association and Steadfast Management Company, Inc. (included as Exhibit 10.24 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.25
Multifamily Loan and Security Agreement, made as of July 29, 2016, by and between SIR Steiner Ranch Apartments, LLC and PNC Bank, National Association (included as Exhibit 10.25 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 
10.26
Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of July 29, 2016, by SIR Steiner Ranch Apartments, LLC to Ann Johnson for the benefit of PNC Bank, National Association (included as Exhibit 10.26 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
  
10.27
Assignment of Management Agreement and Subordination of Management Fees, dated as of July 29, 2016, by and among SIR Steiner Ranch Apartments, LLC, PNC Bank, National Association and Steadfast Management Company, Inc. (included as Exhibit 10.27 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 
10.28
Credit Agreement, dated July 29, 2016, by and between SIR Ashley Oaks, LLC, SIR Buda Ranch, LLC, SIR Deer Valley, LLC, SIR Carrington Park, LLC, SIR Carrington Place, LLC, SIR Carrington Champion, SIR Audubon Park, LLC, SIR Oak Crossing, LLC, SIR Steiner Ranch Apartments, LLC and PNC Bank, National Association (included as Exhibit 10.28 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)

10.29
Multifamily Note, made as of July 29, 2016, by SIR Ashley Oaks, LLC, SIR Audubon Park, LLC, SIR Carrington Champion, LLC, SIR Carrington Park, LLC, SIR Carrington Place, LLC, SIR Deer Valley, LLC, SIR Steiner Ranch Apartments, LLC, SIR Oak Crossing, LLC and SIR Buda Ranch, LLC, in favor of PNC Bank, National Association (included as Exhibit 10.29 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)
 
10.30
Guaranty, dated as of July 29, 2016, by Steadfast Income REIT, Inc. to and for the benefit of PNC Bank, National Association (included as Exhibit 10.30 to the Company’s Current Report on Form 8-K filed August 3, 2016 and incorporated herein by reference)



31.1*
Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*
Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS* XBRL Instance Document.

101.SCH* XBRL Taxonomy Extension Schema Document.

101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB* XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.
____________

* Filed herewith.

** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Steadfast Income REIT, Inc. Reports