Steadfast Income REIT, Inc. - FORM 10-Q - November 9, 2018

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EX-31.1 - EXHIBIT 31.1 - Steadfast Income REIT, Inc.ex311-sir9302018.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, 2018
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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer o
Accelerated filer o
 
 
Non-Accelerated filer þ
Smaller reporting company o
 
 
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 2, 2018, there were 74,650,288 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, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
Assets:
 
 
 
Real Estate:
 
 
 
Land
$
126,002,217

 
$
106,932,041

Building and improvements
1,037,152,532

 
916,068,353

Tenant origination and absorption costs
1,766,904

 
—

Other intangible assets
2,644,263

 
2,644,263

Total real estate held for investment, cost
1,167,565,916

 
1,025,644,657

Less accumulated depreciation and amortization
(216,584,185
)
 
(182,081,988
)
Total real estate held for investment, net
950,981,731

 
843,562,669

Real estate held for sale, net
—

 
183,152,661

Total real estate, net
950,981,731

 
1,026,715,330

Cash and cash equivalents
97,309,038

 
171,228,485

Restricted cash
15,576,439

 
31,005,231

Investment in unconsolidated joint venture
13,818,724

 
8,133,156

Rents and other receivables
2,280,501

 
2,737,800

Assets related to real estate held for sale
—

 
2,862,292

Other assets
2,321,271

 
3,258,584

Total assets
$
1,082,287,704

 
$
1,245,940,878

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
30,124,758

 
$
28,004,830

Notes payable:
 
 
 
Mortgage notes payable, net
721,917,291

 
625,302,105

Credit facility, net
52,333,769

 
90,222,098

Notes payable related to real estate held for sale, net
—

 
160,261,735

Total notes payable, net
774,251,060

 
875,785,938

Distributions payable
3,411,890

 
4,595,301

Due to affiliates
1,537,339

 
1,967,129

Liabilities related to real estate held for sale
—

 
4,939,907

Total liabilities
809,325,047

 
915,293,105

Commitments and contingencies (Note 11)

 

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, 74,868,939 and 75,479,409 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
748,690

 
754,794

Convertible stock, $0.01 par value per share; 1,000 shares authorized, issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
10

 
10

Additional paid-in capital
658,186,441

 
664,110,915

Cumulative distributions and net losses
(385,972,484
)
 
(334,217,946
)
Total stockholders’ equity
272,962,657

 
330,647,773

Total liabilities and stockholders’ equity
$
1,082,287,704

 
$
1,245,940,878

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,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
31,885,583

 
$
49,068,474

 
$
93,133,369

 
$
146,047,621

Tenant reimbursements and other
4,356,135

 
6,523,633

 
12,620,283

 
18,943,156

Total revenues
36,241,718

 
55,592,107

 
105,753,652

 
164,990,777

Expenses:
 
 
 
 
 
 
 
Operating, maintenance and management
10,457,329

 
16,392,711

 
28,936,191

 
44,808,803

Real estate taxes and insurance
5,657,098

 
9,275,615

 
18,329,576

 
28,982,886

Fees to affiliates
4,113,139

 
5,682,920

 
11,854,429

 
16,972,905

Depreciation and amortization
12,579,032

 
17,850,748

 
34,781,722

 
53,852,540

Interest expense
8,452,962

 
11,655,008

 
24,021,396

 
33,763,957

Loss on debt extinguishment
—

 
401,674

 
2,282,247

 
401,674

General and administrative expenses
1,151,340

 
2,042,856

 
4,835,308

 
5,218,885

Total expenses
42,410,900

 
63,301,532

 
125,040,869

 
184,001,650

Loss before other (expense) income
(6,169,182
)
 
(7,709,425
)
 
(19,287,217
)
 
(19,010,873
)
Other (expense) income:
 
 
 
 
 
 
 
Equity in loss from unconsolidated joint venture
(287,540
)
 
—

 
(3,102,044
)
 
—

Gain on sales of real estate, net
—

 
5,382,847

 
81,247,054

 
5,382,847

Total other (expense) income
(287,540
)
 
5,382,847

 
78,145,010

 
5,382,847

Net (loss) income
$
(6,456,722
)

$
(2,326,578
)
 
$
58,857,793

 
$
(13,628,026
)
(Loss) income per common share — basic and diluted
$
(0.09
)
 
$
(0.03
)
 
$
0.78

 
$
(0.18
)
Weighted average number of common shares outstanding — basic
74,928,285

 
75,707,400

 
75,164,006

 
75,884,934

Weighted average number of common shares outstanding — diluted
74,940,350

 
75,707,400

 
75,176,774

 
75,884,934

Distributions declared per common share
$
0.140

 
$
0.181

 
$
1.470

 
$
0.536

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, 2017
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 (Unaudited)
 
Common Stock
 
Convertible Stock
 
Additional Paid-
In Capital
 
Cumulative
Distributions &
Net Losses
 
Total Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
BALANCE, December 31, 2016
76,202,862

 
$
762,029

 
1,000

 
$
10

 
$
672,018,194

 
$
(352,351,990
)
 
$
320,428,243

Issuance of common stock
7,500

 
75

 
—

 
—

 
(75
)
 
—

 
—

Repurchase of common stock
(730,953
)
 
(7,310
)
 
—

 
—

 
(7,992,690
)
 
—

 
(8,000,000
)
Distributions declared
—

 
—

 
—

 
—

 
—

 
(54,339,823
)
 
(54,339,823
)
Amortization of stock-based compensation
—

 
—

 
—

 
—

 
85,486

 
—

 
85,486

Net income for the year ended December 31, 2017
—

 
—

 
—

 
—

 
—

 
72,473,867

 
72,473,867

BALANCE, December 31, 2017
75,479,409

 
754,794

 
1,000

 
10

 
664,110,915

 
(334,217,946
)
 
330,647,773

Issuance of common stock
7,500

 
75

 
—

 
—

 
(75
)
 
—

 
—

Repurchase of common stock
(617,970
)
 
(6,179
)
 
—

 
—

 
(5,993,821
)
 
—

 
(6,000,000
)
Distributions declared
—

 
—

 
—

 
—

 
—

 
(110,612,331
)
 
(110,612,331
)
Amortization of stock-based compensation
—

 
—

 
—

 
—

 
69,422

 
—

 
69,422

Net income for the nine months ended September 30, 2018
—

 
—

 
—

 
—

 
—

 
58,857,793

 
58,857,793

BALANCE, September 30, 2018
74,868,939

 
$
748,690

 
1,000

 
$
10

 
$
658,186,441

 
$
(385,972,484
)
 
$
272,962,657

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,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Net income (loss)
$
58,857,793

 
$
(13,628,026
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
34,781,722

 
53,852,540

Amortization of deferred financing costs
799,989

 
1,410,865

Amortization of stock-based compensation
69,422

 
68,191

Amortization of loan premiums
(222,466
)
 
(930,922
)
Change in fair value of interest rate cap agreements
(103,506
)
 
606,690

Gain on sales of real estate
(81,247,054
)
 
(5,382,847
)
Loss on debt extinguishment
2,282,247

 
401,674

Insurance claim recoveries
(1,005
)
 
(45,660
)
Loss on disposal of building and improvements
427

 
14,613

Gain on short-term investments
—

 
(278,883
)
Equity in loss from unconsolidated joint venture
3,102,044

 
—

Changes in operating assets and liabilities:
 
 
 
Rents and other receivables
457,299

 
(47,527
)
Other assets
1,244,119

 
1,253,864

Accounts payable and accrued liabilities
358,873

 
(699,621
)
Due to affiliates
(427,837
)
 
(723,313
)
Net cash provided by operating activities
19,952,067

 
35,871,638

Cash Flows from Investing Activities:
 
 
 
Proceeds from short-term investments
—

 
30,363,633

Cash contributions to unconsolidated joint venture
(2,931,578
)
 
—

Cash distributions from unconsolidated joint venture
530,100

 
—

Acquisition of real estate investments
(67,886,062
)
 
—

Additions to real estate investments
(6,754,330
)
 
(12,311,010
)
Escrow deposits for pending real estate acquisitions
(2,600,000
)
 
—

Purchase of interest rate cap agreements
(203,300
)
 
(37,350
)
Proceeds from sales of real estate, net
176,926,493

 
10,582,230

Proceeds from insurance claims
1,005

 
45,660

Net cash provided by investing activities
97,082,328

 
28,643,163

Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of mortgage notes payable
106,482,000

 
303,751

Principal payments on mortgage notes payable
(158,021,981
)
 
(7,796,360
)
Principal payments on credit facility
(38,410,500
)
 
—

Payment of deferred financing costs
(1,323,128
)
 
(44,866
)
Payment of debt extinguishment costs
(175,575
)
 
—

Distributions to common stockholders
(111,795,742
)
 
(40,859,650
)
Repurchase of common stock
(6,000,000
)
 
(6,000,000
)
Net cash used in financing activities
(209,244,926
)
 
(54,397,125
)
Net (decrease) increase in cash, cash equivalents and restricted cash
(92,210,531
)
 
10,117,676

Cash, cash equivalents and restricted cash, beginning of period
205,096,008

 
93,777,878

Cash, cash equivalents and restricted cash, end of period
$
112,885,477

 
$
103,895,554


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,
 
2018
 
2017
Supplemental Disclosures of Cash Flow Information:
 
 
 
Interest paid
$
23,639,700

 
$
32,497,952

Supplemental Disclosure of Noncash Transactions:
 
 
 
Decrease in distributions payable
$
(1,183,411
)
 
$
(167,021
)
Assumption of mortgage notes payable to acquire real estate
$
65,000,000

 
$
—

Application of escrow deposits to acquire real estate
$
2,600,000

 
$
—

Mortgage notes payable assumed by buyer in connection with property sales
$
(67,140,194
)
 
$
—

Assets and liabilities deconsolidated in connection with the Second Closing Properties:
 
 
 
Real estate, net
$
(98,350,076
)
 
$
—

Notes payable, net
$
76,336,778

 
$
—

Restricted cash
$
(913,408
)
 
$
—

Accounts payable and accrued liabilities
$
674,912

 
$
—

Decrease in accounts payable and accrued liabilities from additions to investment in unconsolidated joint venture
$
(398,817
)
 
$
—

Decrease in accounts payable and accrued liabilities from additions to real estate investments
$
(122,517
)
 
$
(444,078
)
Decrease in due to affiliates from additions to real estate investments
$
(1,953
)
 
$
(2,121
)

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, 2018
(unaudited)


1. Organization and Business
Steadfast Income REIT, Inc. (the “Company”) was formed on May 4, 2009, as a Maryland corporation that elected to be taxed 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 7 (Stockholders’ Equity).
The Company owns a diverse portfolio of real estate investments, primarily in the multifamily sector, located throughout the United States. As of September 30, 2018, the Company owned 39 multifamily properties comprising a total of 10,622 apartment homes, an additional 21,130 square feet of rentable commercial space at two properties, and a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes.
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 (defined and 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 19, 2010, the Company commenced its initial public offering of up to 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 offered 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 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 with distributions earned beginning on December 1, 2014. Through December 1, 2014, the Company sold 76,095,116 shares of common stock in the Public Offering for gross offering proceeds of $769,573,363, including 4,073,759 shares of common stock issued pursuant to the DRP for gross offering proceeds of $39,580,847.
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 determined an estimated value per share of the Company’s common stock of $11.44 as of December 31, 2015. On February 15, 2017, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $11.65 as of December 31, 2016. On March 13, 2018, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $10.84 as of December 31, 2017. On May 9, 2018, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $9.84, which represents the estimated value per share of the Company’s

7

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

common stock of $10.84 as of December 31, 2017, less the special distribution of $1.00 per share of common stock that was paid to stockholders of record as of the close of business on April 20, 2018.
The business of the Company is externally managed by the Advisor, pursuant to the Advisory Agreement by and among the Company, Steadfast Income REIT Operating Partnership, L.P., a Delaware limited partnership formed on July 6, 2009 (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 term of the Advisory Agreement expires on November 15, 2018. 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. Stira Capital Markets Group, LLC (formerly known as Steadfast Capital Markets Group, LLC) (the “Dealer Manager”), an affiliate of the Advisor, served as the dealer manager for the Public Offering. The Advisor, along with the Dealer Manager, also provides marketing, investor relations and other administrative services on the Company’s behalf.
Substantially all of the Company’s business is conducted through the Operating Partnership. The Company is the sole general partner of the Operating Partnership. The Company and Advisor entered into an Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”) on September 28, 2009.
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 and operating real properties, the Operating Partnership will 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, 2017, other than the adoption of Accounting Standards Update (“ASU”) 2014-09, ASU 2016-18 and ASU 2017-05, 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, 2017, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2018.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, the consolidated variable interest entity (“VIE”) that the Company controls and of which the Company is the primary beneficiary, and the Operating Partnership’s 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 Operating Partnership is a VIE as the limited partner lacks substantive kick-out rights and substantive participating rights. The Company is the primary beneficiary of, and consolidates, the Operating Partnership.
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

8

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

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, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017.
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.
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;
•
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 - The Company has entered into certain interest rate cap agreements. These derivatives 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

9

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

and are included in other assets in the accompanying consolidated balance sheets. Changes in the fair value of the interest rate cap agreements are recorded as interest expense in the accompanying consolidated statements of operations.
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, 2018
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Interest rate cap agreements
 
$
—

 
$
358,452

 
$
—

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Interest rate cap agreements
 
$
—

 
$
51,646

 
$
—

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.
Fair Value of Financial Instruments
The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, rents and other receivables, accounts payable and accrued liabilities, distributions payable, due to affiliates and notes payable.
The Company considers the carrying value of cash and cash equivalents, restricted cash, 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, 2018 and December 31, 2017, the fair value of the notes payable was $762,196,690 and $878,004,294, respectively, compared to the carrying value of $774,251,060 and $875,785,938, respectively. The Company has determined that its notes payable are classified as Level 3 within the fair value hierarchy.
Restricted Cash
Restricted cash represents those cash accounts for which the use of funds is restricted by loan covenants and cash placed with a qualified intermediary for reinvestment under Section 1031 of the Internal Revenue Code. As of September 30, 2018 and December 31, 2017, the Company had a restricted cash balance of $15,576,439 and $31,005,231, respectively, which represents $0 and $17,197,810 of cash proceeds from property sales that are being held by qualified intermediaries as of September 30, 2018 and December 31, 2017, respectively, and $15,576,439 and $13,807,421 set aside as impounds for future property tax payments, property insurance payments and tenant improvement payments as required by agreements with the Company’s lenders as of September 30, 2018 and December 31, 2017, respectively.

10

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

The following table represents the components of the cash, cash equivalents and restricted cash presented on the accompanying consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017:
 
 
September 30,
 
 
2018
 
2017
Cash and cash equivalents
 
$
97,309,038

 
$
80,224,237

Restricted cash
 
15,576,439

 
23,671,317

Total cash, cash equivalents and restricted cash
 
$
112,885,477

 
$
103,895,554

The beginning of period restricted cash balance for the nine months ended September 30, 2018 and 2017, includes $2,862,292 and $12,086,960 that is included in assets related to real estate held for sale as of December 31, 2017 and 2016, respectively, on the accompanying consolidated balance sheet. All such amounts were disposed of in conjunction with the property sales during the nine months ended September 30, 2018 and year ended December 31, 2017.
Investments in Unconsolidated Joint Ventures
The Company accounts for investments in unconsolidated joint venture entities in which it may exercise significant influence over, but does not control, using the equity method of accounting. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to reflect additional contributions or distributions and the Company’s proportionate share of equity in the joint venture’s income (loss). The Company recognizes its proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in income (loss) of unconsolidated joint venture on the consolidated statements of operations. On a quarterly basis, the Company evaluates its investment in an unconsolidated joint venture for other-than-temporary impairments. The Company has elected the cumulative earnings approach to classify cash receipts from the unconsolidated joint venture on the accompanying consolidated statements of cash flows. 
Distribution Policy
The Company has elected to be taxed as, and qualifies as, a REIT beginning with its taxable year ending December 31, 2010. 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 during the three months ended March 31, 2018, June 30, 2018 and September 30, 2018, were based on daily record dates and calculated at a rate of $0.001964 per share per day, $0.001683, and $0.001519 per share per day, respectively. Distributions during the nine months ended September 30, 2017, were based on daily record dates and calculated at a rate of $0.001964 per share per day. Each day during the nine months ended September 30, 2018 and 2017, was a distribution record date.
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, 2018, the Company declared aggregate distributions of $0.140 and $1.470 per common share, respectively, including a special distribution the Company’s board of directors declared in the amount $1.00 per share of common stock to stockholders of record as of the close of business on April 20, 2018. During the three and nine months ended September 30, 2017, the Company declared distributions of $0.181 and $0.536 per common share, respectively.
Per Share Data
Basic earnings (loss) per share attributable to common stockholders for all periods presented are computed by dividing net income (loss) by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings (loss) per share is 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 assume each share was issued and

11

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

outstanding each day during the period. Nonvested shares of the Company’s restricted common stock give rise to potentially dilutive shares of the Company’s common stock.
In accordance with FASB ASC Topic 260-10-45, Earnings Per Share, the Company uses the two-class method to calculate earnings (loss) per share. Basic earnings (loss) per share is calculated based on dividends declared and the rights of common shares and participating securities in any undistributed earnings, which represents net income (loss) remaining after deduction of dividends declared during the period. The undistributed earnings (loss) are allocated to all outstanding common shares based on the relative percentage of each class of shares. The Company does not have any participating securities outstanding other than the shares of common stock and the unvested restricted common stock during the periods presented. Earnings (loss) attributable to the unvested restricted common stock are deducted from earnings (loss) in the computation of per share amounts where applicable.
Reclassifications
Certain amounts in the Company’s prior period condensed consolidated unaudited financial statements were reclassified to conform to the current period presentation. These reclassifications did not change the results of operations of prior periods. On January 1, 2018, the Company adopted ASU 2016-18, as further described below. As a result, the Company no longer presents transfers between cash and restricted cash in the consolidated statements of cash flows. Instead, restricted cash is included with cash and cash equivalents when reconciling the beginning of the period and end of the period total amounts shown on the consolidated statements of cash flows.
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.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 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. ASU 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 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 ASU 2014-09 by one year, which resulted in ASU 2014-09 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 selected the modified retrospective transition method with a cumulative effect recognized as of the date of adoption and adopted ASU 2014-09 effective January 1, 2018. The Company identified limited sources of revenues from non-lease components, and the Company did not experience a material impact on its revenue recognition in the consolidated financial statements upon adoption. Additionally, there was no impact to the Company’s recognition of rental revenue, as rental revenue from leasing arrangements was specifically excluded from ASU 2014-09.
In February 2016, the FASB issued ASU 2016-02, Leases, (“ASU 2016-02”), 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. ASU 2016-02 requires a modified retrospective transition approach. ASU 2016-02 will be effective in the first quarter of 2019 and allows for early adoption. The Company is evaluating the impact of ASU 2016-02 on its leases both as it relates to the Company acting as a lessor and as a lessee. Based on the preliminary results of its evaluation, as it relates to the former, the Company does not expect any material impact on the recognition of leases in the consolidated financial statements because under ASU 2016-02, lessors will continue to account for leases using an approach that is substantially equivalent to

12

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

existing guidance for sales-type leases, direct financing leases, and operating leases. As it relates to the latter, the Company does not expect a material impact on the recognition of leases in the consolidated financial statements because the quantity of leased equipment by the Company is limited. The Company is finalizing its evaluation of ASU 2016-02 and plans to adopt ASU 2016-02 on January 1, 2019.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”). ASU 2016-13 requires more timely recording of credit losses on loans and other financial instruments that are not accounted for at fair value through net income (loss), including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 require the Company to measure all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets and eliminates the “incurred loss” methodology in current GAAP. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures and believes that rents and other receivables in its consolidated balance sheets may be impacted by the adoption of ASU 2016-13.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance January 1, 2018 and applied it retrospectively. As a result of adopting ASU 2016-18, the Company began presenting restricted cash along with cash and cash equivalents in its consolidated statements of cash flows.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (“Subtopic 610-20”): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”), that clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset and defines the term in substance nonfinancial asset. ASU 2017-05 also clarifies that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. Subtopic 610-20, which was issued in May 2014 as part of ASU 2014-09 (discussed above), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity is required to apply amendments in ASU 2017-05 at the same time it applies the amendments in ASU 2014-09 (discussed above). ASU 2017-05 requires modified retrospective application and is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2014-09 and ASU 2017-05 on January 1, 2018, and experienced an impact on the gain recognized related to the sale of the Second Closing Properties (as defined in Note 3 (Real Estate)). The sale of the Second Closing Properties is considered a partial sale and the Company no longer controlled the Second Closing Properties after the sale. The retained noncontrolling interest was recognized at fair value and a full gain on the sale was recognized under ASU 2014-09.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The FASB issued ASU 2017-09 to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 requires prospective application and is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Upon adoption of ASU 2017-09 on January 1, 2018, the Company did not experience a material impact.

13

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). The FASB issued ASU 2018-11 to clarify ASU 2016-02. The amendments in ASU 2018-11 provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies ASU 2016-02 at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 also provides lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met: (1) the timing and pattern of transfer of the nonlease components and associated lease component are the same, and (2) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with Topic 606. Otherwise, the entity must account for the combined component as an operating lease in accordance with Topic 842. For entities that have not adopted Topic 842 before the issuance of ASU 2018-11, the effective date and transition requirements for ASU 2018-11 related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The FASB issued ASU 2018-13 to improve the effectiveness of fair value measurement disclosures by adding, eliminating, and modifying certain disclosure requirements. The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. ASU 2018-13 requires prospective and retrospective application depending on the amendment and is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2018-13 will have on its consolidated financial statements and related disclosures and believes that certain disclosures of interest rate cap agreements in its consolidated financial statements may be impacted by the adoption of ASU 2018-13.

14

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

3. Real Estate
Property Acquisitions
During the nine months ended September 30, 2018, the Company acquired each of the following two properties through Section 1031 exchanges:
 
 
 
 
 
 
 
 
Purchase Price Allocation
Property Name
 
Location
 
Purchase Date
 
Units
 
Land
 
Buildings and Improvements
 
Tenant Origination and Absorption Costs
 
Total Purchase Price
Double Creek Flats
 
Plainfield, IN
 
5/7/2018
 
240

 
$
1,306,880

 
$
30,081,288

 
$
463,911

 
$
31,852,079

Jefferson at Perimeter Apartments
 
Dunwoody, GA
 
6/11/2018
 
504

 
17,763,296

 
84,567,694

 
1,302,993

 
103,633,983

 
 
 
 
 
 
744

 
$
19,070,176

 
$
114,648,982

 
$
1,766,904

 
$
135,486,062

As of September 30, 2018, the Company owned 39 multifamily properties encompassing in the aggregate 10,622 apartment homes and an additional 21,130 square feet of rentable commercial space at two properties. The total purchase price of the Company’s real estate portfolio was $1,131,486,219. As of September 30, 2018 and December 31, 2017, the Company’s portfolio was approximately 94.2% and 93.8% occupied and the average monthly rent was $1,058 and $1,037, respectively.
As of September 30, 2018 and December 31, 2017, accumulated depreciation and amortization related to the Company’s consolidated real estate properties and related intangibles were as follows:
 
 
September 30, 2018
 
 
Assets
 
 
Land
 
Building and Improvements
 
Tenant Origination and Absorption Costs
 
Other Intangible Assets
 
Total Real Estate Held for Investment
 
Real Estate Held for Sale
Investments in real estate
 
$
126,002,217

 
$
1,037,152,532

 
$
1,766,904

 
$
2,644,263

 
$
1,167,565,916

 
$
—

Less: Accumulated depreciation and amortization
 
—

 
(214,602,209
)
 
(1,167,901
)
 
(814,075
)
 
(216,584,185
)
 
—

Net investments in real estate and related lease intangibles
 
$
126,002,217

 
$
822,550,323

 
$
599,003

 
$
1,830,188

 
$
950,981,731

 
$
—

 
 
December 31, 2017
 
 
Assets
 
 
Land
 
Building and Improvements
 
Tenant Origination and Absorption Costs
 
Other Intangible Assets
 
Total Real Estate Held for Investment
 
Real Estate Held for Sale
Investments in real estate
 
$
106,932,041

 
$
916,068,353

 
$
—

 
$
2,644,263

 
$
1,025,644,657

 
$
222,652,327

Less: Accumulated depreciation and amortization
 
—

 
(181,382,789
)
 
—

 
(699,199
)
 
(182,081,988
)
 
(39,499,666
)
Net investments in real estate and related lease intangibles
 
$
106,932,041

 
$
734,685,564

 
$
—

 
$
1,945,064

 
$
843,562,669

 
$
183,152,661


15

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

Depreciation and amortization expenses were $12,579,032 and $34,781,722 for the three and nine months ended September 30, 2018, and $17,850,748 and $53,852,540 for the three and nine months ended September 30, 2017, respectively.
Depreciation of the Company’s buildings and improvements was $11,657,288 and $33,498,945 for the three and nine months ended September 30, 2018, and $17,812,456 and $53,737,664 for the three and nine months ended September 30, 2017, respectively.
Amortization of the Company’s tenant origination and absorption costs was $883,452 and $1,167,901 for the three and nine months ended September 30, 2018, respectively. There was no amortization of the Company’s tenant origination and absorption costs for the three and nine months ended September 30, 2017. Tenant origination and absorption costs had a weighted-average amortization period as of the date of acquisition of less than one year.
Amortization of the Company’s other intangible assets was $38,292 and $114,876 for the three and nine months ended September 30, 2018, and $38,292 and $114,876 for the three and nine months ended September 30, 2017, respectively.
The future amortization of the Company’s acquired other intangible assets as of September 30, 2018, and thereafter is as follows:
October 1 through December 31, 2018
$
38,292

2019
153,168

2020
153,168

2021
153,168

2022
153,168

Thereafter
1,179,224

 
$
1,830,188

Operating Leases
As of September 30, 2018, the Company’s real estate portfolio comprised 10,622 residential apartment homes and was 95.7% leased by a diverse group of residents. For each of the three and nine months ended September 30, 2018 and 2017, the Company’s real estate portfolio earned in excess of 99% and less than 1% of its rental income from residential tenants and commercial office tenants, respectively. 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 0.67 to 6.50 years.
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 $3,068,718 and $3,339,602 as of September 30, 2018 and December 31, 2017, respectively.

16

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

The future minimum rental receipts from the Company’s properties under non-cancelable operating leases attributable to commercial office tenants as of September 30, 2018, and thereafter is as follows:
October 1 through December 31, 2018
$
65,260

2019
180,858

2020
74,313

2021
76,535

2022
78,844

Thereafter
185,501

 
$
661,311

As of September 30, 2018 and December 31, 2017, 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.
Joint Venture Arrangement with Blackstone Real Estate Income Trust, Inc.
On November 10, 2017, the Company, BREIT Steadfast MF JV LP (the “Joint Venture”), BREIT Steadfast MF Parent LLC (“BREIT LP”) and BREIT Steadfast MF GP LLC (“BREIT GP”, and together with BREIT LP, “BREIT”), executed a Contribution Agreement (the “Contribution Agreement”) whereby the Company agreed to contribute a portfolio of 20 properties owned by the Company to the Joint Venture in exchange for a combination of cash and a 10% ownership interest in the Joint Venture (the “Transaction”). BREIT LP owns a 90% interest in the Joint Venture and BREIT GP serves as the general partner of the Joint Venture. Each of BREIT LP and BREIT GP is a wholly-owned subsidiary of Blackstone Real Estate Income Trust, Inc. SIR LANDS Holdings, LLC, a wholly-owned subsidiary of the Company, holds the Company’s 10% interest in the Joint Venture.
The 20 properties contributed by the Company to the Joint Venture consist of properties located in Austin, Dallas and San Antonio, Texas, Nashville, Tennessee and Louisville, Kentucky (the “LANDS Portfolio”). On November 15, 2017 (the “First Closing Date”), the Company, through certain indirect wholly-owned subsidiaries, contributed 12 apartment communities (the “First Closing Properties”) to indirect, wholly-owned subsidiaries of the Joint Venture. On January 31, 2018 (the “Second Closing Date”), the Company, through certain indirect wholly-owned subsidiaries, contributed eight apartment communities (the “Second Closing Properties”) to indirect, wholly-owned subsidiaries of the Joint Venture. For additional information on the Transaction, see Note 4 (Investment in Unconsolidated Joint Venture).
The aggregate purchase price of the First Closing Properties was $318,576,792, exclusive of closing costs. On the First Closing Date, the Company sold a 90% interest in the First Closing Properties for $335,430,000, resulting in a gain of $76,135,530, which includes reductions to the net book value of the properties due to historical depreciation and amortization expense. The aggregate purchase price of the Second Closing Properties was $117,240,032, exclusive of closing costs. On the Second Closing Date, the Company sold a 90% interest in the Second Closing Properties for $125,370,000, resulting in a gain of $38,523,427, which includes reductions to the net book value of the properties due to historical depreciation and amortization expense. The purchaser of the First Closing Properties and Second Closing Properties was the Joint Venture.
2018 Property Dispositions
The Moorings Apartments
On November 30, 2012, the Company, through an indirect wholly owned subsidiary, acquired The Moorings Apartments, a multifamily property located in Roselle, Illinois, containing 216 apartment homes. The purchase price of The Moorings Apartments was $20,250,000, exclusive of closing costs. On January 5, 2018, the Company sold The Moorings Apartments

17

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

for $28,100,000, resulting in a gain of $9,658,823, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of The Moorings Apartments was not affiliated with the Company or the Advisor.
Arrowhead Apartment Homes
On November 30, 2012, the Company, through an indirect wholly owned subsidiary, acquired Arrowhead Apartment Homes, a multifamily property located in Palatine, Illinois, containing 200 apartment homes. The purchase price of the Arrowhead Apartment Homes was $16,750,000, exclusive of closing costs. On January 31, 2018, the Company sold the Arrowhead Apartment Homes for $23,600,000, resulting in a gain of $8,928,691, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of the Arrowhead Apartment Homes was not affiliated with the Company or the Advisor.
Willow Crossing Apartments
On November 20, 2013, the Company, through an indirect wholly owned subsidiary, acquired Willow Crossing Apartments, a multifamily property located in Elk Grove, Illinois, containing 579 apartment homes. The purchase price of the Willow Crossing Apartments was $58,000,000, exclusive of closing costs. On February 28, 2018, the Company sold the Willow Crossing Apartments for $79,000,000, resulting in a gain of $24,136,113, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of the Willow Crossing Apartments was not affiliated with the Company or the Advisor.
The results of operations for the three and nine months ended September 30, 2018 and 2017, for the disposed properties through the date of sale, including the properties contributed to the Joint Venture, were included in continuing operations on the Company’s consolidated statements of operations and are as follows:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
(83,205
)
 
$
20,168,594

 
$
2,451,700

 
$
59,934,648

Tenant reimbursements and other
(39,839
)
 
2,721,063

 
380,654

 
8,149,055

Total revenues
(123,044
)
 
22,889,657

 
2,832,354

 
68,083,703

Expenses:
 
 
 
 
 
 
 
Operating, maintenance and management
26,821

 
7,175,202

 
976,214

 
19,550,509

Real estate taxes and insurance
(11,444
)
 
4,183,092

 
309,609

 
12,735,473

Fees to affiliates
(9,858
)
 
899,703

 
124,449

 
2,655,951

Depreciation and amortization
—

 
7,237,313

 
279,432

 
22,089,398

Interest expense
610

 
4,657,196

 
681,932

 
13,254,366

Loss on debt extinguishment
—

 
401,674

 
2,010,457

 
401,674

General and administrative expenses
12,390

 
476,582

 
496,884

 
830,926

Total expenses
$
18,519

 
$
25,030,762

 
$
4,878,977

 
$
71,518,297


18

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

4.
Investment in Unconsolidated Joint Venture
On November 10, 2017, the Company, the Joint Venture, BREIT LP and BREIT GP executed the Contribution Agreement whereby the Company agreed to contribute the LANDS Portfolio to the Joint Venture in exchange for a combination of cash and a 10% ownership interest in the Joint Venture. BREIT LP owns a 90% interest in the Joint Venture and BREIT GP serves as the general partner of the Joint Venture. Each of BREIT LP and BREIT GP is a wholly-owned subsidiary of Blackstone Real Estate Income Trust, Inc. SIR LANDS Holdings, LLC, holds the Company’s 10% interest in the Joint Venture.
The Company exercises significant influence, but does not control the Joint Venture. Accordingly, as of the First Closing Date and Second Closing Date, the Company deconsolidated the First Closing Properties and Second Closing Properties and has accounted for its investment in the Joint Venture under the equity method of accounting. Income, losses, contributions and distributions are generally allocated based on the members’ respective equity interests.
As of September 30, 2018 and December 31, 2017, the book value of the Company’s investment in the Joint Venture was $13,818,724 and $8,133,156, respectively, which includes $7,640,166 and $5,515,754 of outside basis difference. The outside basis difference represents the Company’s transaction costs related to entering into the Joint Venture. During the three and nine months ended September 30, 2018, $60,294 and $534,592, respectively, of amortization of this basis difference was included in equity in loss from unconsolidated joint venture on the accompanying consolidated statements of operations. There was no amortization of the outside basis difference during the three and nine months ended September 30, 2017. During the three and nine months ended September 30, 2018, the Company received distributions of $0 and $530,100 related to its investment in the Joint Venture, respectively. No distributions were received during the three and nine months ended September 30, 2017.
Unaudited financial information for the Joint Venture as of September 30, 2018 and December 31, 2017, and for the three and nine months ended September 30, 2018, is summarized below:
 
 
September 30, 2018
 
December 31, 2017
Assets:
 
 
 
 
Real estate assets, net
 
$
493,559,514

 
$
374,277,205

Other assets
 
24,455,288

 
15,328,440

Total assets
 
$
518,014,802

 
$
389,605,645

Liabilities and equity:
 
 
 
 
Notes payable, net
 
$
341,031,466

 
$
264,558,057

Other liabilities
 
24,727,834

 
11,525,292

Company’s capital
 
15,225,545

 
11,352,230

Other partner’s capital
 
137,029,957

 
102,170,066

Total liabilities and equity
 
$
518,014,802

 
$
389,605,645


19

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

 
For the Three Months Ended September 30, 2018
 
For the Nine Months Ended September 30, 2018
Revenues
$
15,571,241

 
$
44,783,429

Expenses
17,843,699

 
70,457,945

Net loss
$
(2,272,458
)
 
$
(25,674,516
)
 
 
 
 
Company’s proportional net loss
$
(227,246
)
 
$
(2,567,452
)
Amortization of outside basis
(60,294
)
 
(534,592
)
Equity in loss of unconsolidated joint venture
$
(287,540
)
 
$
(3,102,044
)
5. Other Assets
As of September 30, 2018 and December 31, 2017, other assets consisted of:
 
September 30,
2018
 
December 31,
2017
Prepaid expenses
$
1,131,689

 
$
2,132,212

Interest rate cap agreements (Note 12)
358,452

 
51,646

Deposits
831,130

 
1,074,726

Other assets
$
2,321,271

 
$
3,258,584


20

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

6. Debt
Mortgage Notes Payable
The following is a summary of mortgage notes payable secured by real property as of September 30, 2018 and December 31, 2017:
 
 
September 30, 2018
 
 
 
 
 
 
Interest Rate Range
 
Weighted Average Interest Rate
 
 
Type
 
Number of Instruments
 
Maturity Date Range
 
Minimum
 
Maximum
 
 
Principal Outstanding
Mortgage notes payable - fixed
 
24

 
1/1/2019 - 10/1/2056
 
3.19
%
 
5.75
%
 
3.96
%
 
$
384,789,500

Mortgage notes payable - variable(1)
 
12

 
7/1/2023 - 11/1/2027
 
1-Mo LIBOR + 1.77%

 
1-Mo LIBOR + 2.38%

 
4.46
%
 
341,231,672

Total mortgage notes payable, gross
 
36

 
 
 
 
 
 
 
4.20
%
 
726,021,172

Premium, net(2)
 
 
 
 
 
 
 
 
 
 
 
380,529

Deferred financing costs, net(3)
 
 
 
 
 
 
 
 
 
 
 
(4,484,410
)
Total mortgage notes payable, net
 
 
 
 
 
 
 
 
 
 
 
$
721,917,291

 
 
December 31, 2017
 
 
 
 
 
 
Interest Rate Range
 
Weighted Average Interest Rate
 
 
Type
 
Number of Instruments
 
Maturity Date Range
 
Minimum
 
Maximum
 
 
Principal Outstanding
Mortgage notes payable - fixed
 
32

 
4/1/2018 - 10/1/2056
 
3.19
%
 
5.75
%
 
3.89
%
 
$
416,673,854

Mortgage notes payable - variable(1)
 
14

 
10/1/2018 - 1/1/2026
 
1-Mo LIBOR +2.02%

 
1-Mo LIBOR + 2.50%

 
3.86
%
 
372,481,000

Total mortgage notes payable, gross
 
46

 
 
 
 
 
 
 
3.87
%
 
789,154,854

Premium, net(2)
 
 
 
 
 
 
 
 
 
 
 
673,653

Deferred financing costs, net(3)
 
 
 
 
 
 
 
 
 
 
 
(4,264,667
)
Total mortgage notes payable, net
 
 
 
 
 
 
 
 
 
 
 
$
785,563,840

_____________________________
(1)
See Note 12 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.

21

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

(2)
Accumulated amortization related to debt premiums as of September 30, 2018 and December 31, 2017 was $1,000,240 and $2,468,041, respectively.
(3)
Accumulated amortization related to deferred financing costs as of September 30, 2018 and December 31, 2017 was $3,277,299 and $3,951,049, respectively.
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, multifamily note, loan and security agreements, mortgages and guaranty entered into in connection with the credit facility are 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 London Inter-bank Offered Rate 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. 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 entire outstanding principal balance and any accrued and unpaid interest on the credit facility are due on the maturity date. 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. Between November 15, 2017 and May 31, 2018, seven of the Collateral Pool Properties were either disposed or refinanced, with the advances made to each of the seven Collateral Pool Properties being repaid in full.
As of September 30, 2018 and December 31, 2017, the advances obtained under the credit facility are summarized in the following table:
 
 
Amount of Advance as of
Collateralized Property(1)
 
September 30, 2018
 
December 31, 2017
Carrington Park at Huffmeister
 
$
—

 
$
20,430,500

Carrington Place
 
27,535,500

 
27,535,500

Carrington at Champion Forest
 
25,121,250

 
25,121,250

Oak Crossing
 
—

 
17,980,000

 
 
52,656,750

 
91,067,250

Deferred financing costs, net on Credit Facility(2)
 
(322,981
)
 
(845,152
)
Credit Facility, net
 
$
52,333,769

 
$
90,222,098

___________

22

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

(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, 2018 and December 31, 2017, was $264,560 and $390,241, respectively.
Maturity and Interest
The following is a summary of the Company’s aggregate maturities as of September 30, 2018:
 
 
 
 
Remainder of 2018
 
Maturities During the Years Ending December 31,
 
 
Contractual Obligation
 
Total
 
 
2019
 
2020
 
2021
 
2022
 
Thereafter
Principal payments on outstanding debt obligations(1)
 
$
778,677,922

 
$
1,863,128

 
$
59,341,242

 
$
53,723,208

 
$
73,499,260

 
$
31,789,383

 
$
558,461,701

_____________________________
(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, 2018 and December 31, 2017, the Company was in compliance with all financial and non-financial debt covenants.
For the three and nine months ended September 30, 2018, the Company incurred interest expense of $8,452,962 and $24,021,396, respectively. Interest expense for the three and nine months ended September 30, 2018, includes amortization of deferred financing costs of $263,009 and $799,989, amortization of loan premiums of $48,326 and $222,466 and net unrealized gain from the change in fair value of interest rate cap agreements of $18,199 and $103,506, respectively.
For the three and nine months ended September 30, 2017, the Company incurred interest expense of $11,655,008 and $33,763,957, respectively. Interest expense for the three and nine months ended September 30, 2017 includes amortization of deferred financing costs of $472,157 and $1,410,865, amortization of loan premiums of $313,645 and $930,922 and net unrealized loss from the change in fair value of interest rate cap agreements of $90,601 and $606,690, respectively.
Interest expense of $2,673,715 and $2,766,036 was payable as of September 30, 2018 and December 31, 2017, respectively, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.
7. 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.

23

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

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. From inception to September 30, 2018, the Company had issued 76,732,395 shares of common stock in its Private Offering and Public Offering for aggregate 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 offering proceeds of $39,580,847. Offering costs primarily consisted of selling commissions and dealer manager fees. The Company terminated its Public Offering on December 20, 2013, but continued to offer shares pursuant to the DRP through November 30, 2014.
The issuance and vesting activity for the nine months ended September 30, 2018, and for the year ended December 31, 2017, for the restricted stock issued to the Company’s independent directors as compensation for services in connection with their re-election to the board of directors at the Company’s annual meeting is as follows:
 
 
For the Nine Months Ended September 30, 2018
 
For the Year Ended
December 31, 2017
 
 
 
Nonvested shares at the beginning of the period
 
11,875

 
11,875

Granted shares
 
7,500

 
7,500

Vested shares
 
(8,125
)
 
(7,500
)
Nonvested shares at the end of the period
 
11,250

 
11,875

The weighted average fair value of restricted stock issued to the Company’s independent directors for the nine months ended September 30, 2018 and for the year ended December 31, 2017 is as follows:
Grant Year
 
Weighted Average Fair Value
2017
 
$
11.65

2018
 
9.84

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 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 $34,832 and $69,422 for the three and nine months ended September 30, 2018, and $38,131 and $68,191 for the three and nine months ended September 30, 2017, respectively, for compensation expense related to the issuance of restricted common stock. The weighted average remaining term of the restricted common stock is 1.86 years as of September 30, 2018. As of September 30, 2018, the compensation expense related to the issuance of the restricted common stock not vested was $111,391.

24

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

Convertible Stock
During 2009, 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, 2018 and December 31, 2017, no shares of the Company’s preferred stock were issued and outstanding.
Distribution Reinvestment Plan
The Company’s board of directors had 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, 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, although there is no assurance as to if or when this will happen, and change the DRP price based upon changes in the Company’s estimated value per share and other factors that the Company’s board of directors deems relevant.
No sales commissions or dealer manager fees were payable on shares sold through the DRP.
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 does not apply to repurchases requested within two years after the death or disability of a stockholder.

25

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

The purchase price for shares repurchased under the Company’s share repurchase program prior to April 28, 2018, was as follows:
Share Purchase Anniversary
 
Repurchase Price
on Repurchase Date(1)
Less than 1 year
 
No Repurchase Allowed
1 year
 
92.5% of Estimated Value per Share(2)
2 years
 
95.0% of Estimated Value per Share(2)
3 years
 
97.5% of Estimated Value per Share(2)
4 years
 
100.0% of Estimated Value per Share(2)
In the event of a stockholder’s death or disability(3)
 
Average Issue Price for Shares(4)
The Company’s board of directors elected to suspend the Company’s share repurchase program, effective April 28, 2018. The board of directors of the Company subsequently determined to reinstate and amend the terms of the Company’s share repurchase program, effective May 20, 2018. Pursuant to the amended and reinstated share repurchase program, the revised repurchase price is equal to 93% of the most recently publicly disclosed estimated value per share. From May 20, 2018 to September 30, 2018, the share repurchase price was $9.15 per share, which represents 93% of the estimated value per share of $9.84. The share repurchase price is further reduced based on how long the stockholder has held the shares as follows:
Share Purchase Anniversary
 
Repurchase Price
on Repurchase Date(1)
Less than 1 year
 
No Repurchase Allowed
1 year
 
92.5% of the Share Repurchase Price(2)
2 years
 
95.0% of the Share Repurchase Price(2)
3 years
 
97.5% of the Share Repurchase Price(2)
4 years
 
100.0% of the Share Repurchase Price(2)
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)
The “Share Repurchase Price” shall equal 93% of the Estimated Value per Share. The “Estimated Value per Share” equals the most recently determined estimated value per share determined by the Company’s board of directors.
(3)
The required one year holding period to be eligible to redeem shares under the Company’s share repurchase program does not apply in the event of death or disability of a stockholder.
(4)
The purchase price per share for shares redeemed 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 is 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.

26

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

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 end of the applicable quarter.
During the three and nine months ended September 30, 2018, the Company repurchased a total of 218,555 and 617,970 shares with a total repurchase value of $2,000,000 and $6,000,000, respectively, and received net requests for the repurchase of 540,098 and 2,111,753 shares with a total net repurchase value of $4,927,921 and $18,790,955, respectively. During the three and nine months ended September 30, 2017, the Company redeemed a total of 178,700 and 542,881 shares with a total repurchase value of $2,000,000 and $6,000,000, respectively, and received net requests for the repurchase of 974,696 and 1,997,597 shares with a total net repurchase value of $11,150,165 and $22,891,881. As of September 30, 2018 and 2017, the Company’s total outstanding repurchase requests received that were subject to the Company’s limitations on repurchases (discussed below) were 4,594,502 shares and 2,765,053 shares, respectively, with a total net repurchase value of $42,426,793 and $32,016,930, respectively.
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. To the extent that repurchase requests exceed the Company’s limitations on repurchases 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 is given to repurchase 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 were available. Such pending requests are honored among all requests for repurchases in any given repurchase period as follows: first, pro rata as to repurchases sought upon a stockholder’s death or disability; and, next, pro rata as to other repurchase requests.
The Company is not obligated to repurchase shares of the Company’s common stock under the share repurchase program. In no event shall repurchases 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 or the $2,000,000 limit for any quarter put in place by the Company’s board of directors. There is no fee in connection with a repurchase of shares of the Company’s common stock. As of September 30, 2018, the Company has recognized repurchases 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) accrued daily to stockholders of record as of the close of business on each day, (2) were payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month and (3) were calculated at a rate of $0.001519 per share per day during the three months ended September 30, 2018, which if paid each day over a 365-day period, is equivalent to a 6.0% annualized distribution rate based on a purchase price of $9.24 per share of common stock, were calculated at a rate of $0.001683 per share per day during the three months ended June 30, 2018, which if paid each day over a 365-day period, is equivalent to a 6.0% annualized distribution rate based on a purchase price of $10.24

27

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

per share of common stock and were calculated at a rate of $0.001964 per share per day during the three months ended March 31, 2018, which if paid each day over a 365-day period, is equivalent to a 7.0% annualized distribution rate based on a purchase price of $10.24 per share of common stock. Additionally, on April 16, 2018, the Company’s board of directors declared a special distribution in the amount of $1.00 per share, or $75,298,163 in the aggregate, to stockholders of record as of the close of business on April 20, 2018. Distributions declared for the three and nine months ended September 30, 2018, were $10,472,649 and $110,612,331, respectively, all of which were attributable to cash distributions.
Distributions declared for the three and nine months ended September 30, 2017, were $13,681,897 and $40,692,629, all of which were attributable to cash distributions.
As of September 30, 2018 and December 31, 2017, $3,411,890 and $4,595,301 in distributions declared were payable.
Distributions Paid
For the three and nine months ended September 30, 2018, the Company paid cash distributions of $10,851,615 and $111,795,742, which related to distributions declared for each day in the period from June 1, 2018 through August 31, 2018, and December 1, 2017 through August 31, 2018, respectively, inclusive of the special distribution in the amount of $75,298,163 paid on May 2, 2018, to stockholders of record as of the close of business on April 20, 2018. All such distributions were paid in cash.
For the three and nine months ended September 30, 2017, the Company paid cash distributions of $13,692,248 and $40,859,650, which related to distributions declared for each day in the period from June 1, 2017 through August 31, 2017, and December 1, 2016 through August 31, 2017, respectively. All such distributions were paid in cash.
8. Earnings (Loss) Per Share
The following table presents a reconciliation of net income (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, 2018 and 2017:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net income (loss) attributable to the Company
 
$
(6,456,722
)
 
$
(2,326,578
)
 
$
58,857,793

 
$
(13,628,026
)
Less: dividends declared on participating securities
 
1,784

 
2,419

 
5,997

 
7,177

Net income (loss) attributable to common stockholders
 
(6,458,506
)
 
(2,328,997
)
 
58,851,796

 
(13,635,203
)
Weighted average common shares outstanding — basic
 
74,928,285

 
75,707,400

 
75,164,006

 
75,884,934

Weighted average common shares outstanding — diluted
 
74,940,350

 
75,707,400

 
75,176,774

 
75,884,934

Earnings (loss) per common share — basic and diluted
 
$
(0.09
)
 
$
(0.03
)
 
$
0.78

 
$
(0.18
)
For the three and nine months ended September 30, 2017, the Company excluded all unvested restricted common shares outstanding issued to the Company’s independent directors from the calculation of diluted loss per common share as the effect would have been antidilutive.

28

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

9. 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.

29

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

Amounts attributable to the Advisor and its affiliates incurred for the three and nine months ended September 30, 2018 and 2017, and amounts that are payable (prepaid) to the Advisor and its affiliates as of September 30, 2018 and December 31, 2017, 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,
 
 
2018
 
2017
 
2018
 
2017
 
September 30, 2018
 
December 31, 2017
Consolidated Statements of Operations:
 
 
 
 
 
 
 
 
 
 
 
Expensed
 
 
 
 
 
 
 
 
 
 
 
Investment management fees(1)
$
2,543,225

 
$
3,573,959

 
$
7,309,666

 
$
10,723,093

 
$
20,041

 
$
—

Acquisition expenses(2)
7,415

 
—

 
230,732

 
—

 
—

 
—

Property management:
 
 
 
 
 
 
 
 
 
 
 
Fees(1)
1,035,326

 
1,640,754

 
3,038,678

 
4,871,838

 
348,243

 
402,315

Reimbursement of onsite personnel(3)
3,383,288

 
4,978,529

 
9,469,655

 
14,317,706

 
991,220

 
772,584

Other fees(1)
474,588

 
468,207

 
1,083,925

 
1,377,974

 
34,197

 
44,981

Other fees - property operations(3)
27,993

 
72,353

 
70,386

 
155,259

 
—

 
—

Other fees - G&A(2)
37,028

 
28,591

 
71,754

 
99,016

 
—

 
—

Other operating expenses(2)
129,426

 
248,051

 
805,175

 
898,494

 
137,025

 
87,221

Disposition fees(4)
—

 
601,125

 
3,841,050

 
601,125

 
—

 
566,625

Disposition transaction costs(4)
—

 
15,469

 
67,464

 
15,469

 
—

 
—

Loan coordination fee(1)
60,000

 
—

 
422,160

 
—

 
—

 
86,675

Property insurance(5)
503,734

 
612,878

 
1,131,915

 
737,063

 
(72,161
)
 
(160,942
)
Insurance proceeds(6)
—

 
—

 
—

 
(102,147
)
 
—

 
—

Consolidated Balance Sheets:
 
 
 
 
 
 
 
 
 
 
 
Capitalized
 
 
 
 
 
 
 
 
 
 
 
Construction management:
 
 
 
 
 
 
 
 
 
 
 
Fees(7)
43,739

 
159,345

 
109,212

 
421,063

 
4,474

 
6,431

Reimbursement of labor costs(7)
29,392

 
62,966

 
64,829

 
193,830

 
2,139

 
297

Capital expenditures(7)
1,500

 
15,202

 
39,680

 
53,882

 
—

 
—

Capitalized costs on investment in unconsolidated joint venture(8)
—

 
—

 
58,386

 
—

 
—

 
—

Acquisition expenses(9)
—

 
—

 
245,048

 
—

 
—

 
—

Acquisition fees(9)
—

 
—

 
705,722

 
—

 
—

 
—

 
$
8,276,654

 
$
12,477,429

 
$
28,765,437

 
$
34,363,665

 
$
1,465,178

 
$
1,806,187


30

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

_____________________________
(1)
Included in fees to affiliates in the accompanying consolidated statements of operations.
(2)
Included in general and administrative expenses in the accompanying consolidated statements of operations. Reflects acquisition expenses that did not meet the capitalization criteria under ASU 2017-01, Business Combinations (Topic 805): Clarifying the definition of business (“ASU 2017-01”).
(3)
Included in operating, maintenance and management in the accompanying consolidated statements of operations.
(4)
Included in gain on sales of real estate, net in the accompanying consolidated statements of operations.
(5)
Property related insurance expense and the amortization of the prepaid insurance deductible account are included in general and administrative expenses in the accompanying consolidated statements of operations. The amortization of the prepaid property insurance is included in operating, maintenance and management expenses in the accompanying consolidated statements of operations. The prepaid insurance is included in other assets in the accompanying consolidated balance sheets upon payment.
(6)
Included in tenant reimbursements and other in the accompanying consolidated statements of operations.
(7)
Included in building and improvements in the accompanying consolidated balance sheets.
(8)
Included in investment in unconsolidated joint venture in the accompanying consolidated balance sheets.
(9)
Included in total real estate, cost in the accompanying consolidated balance sheets. Reflects acquisition expenses that did meet the capitalization criteria under ASU 2017-01.
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. The investment management 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 some instances, the Advisor has agreed to reduce the acquisition fee to 0.5% of the cost of investment when funds from the disposition of a prior property are used to fund the acquisition of a real property.
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

31

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

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 Financial Industry Regulatory Authority, Inc. (“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). As of September 30, 2018, the property management fee payable with respect to each property under the Property Management Agreements (as amended from time to time, each a “Property Management Agreement”) ranged from 2.50% to 3.50% 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 members 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 thereafter on a month-to-month basis unless either party gives 60-days’ 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, support and training services and capital expenditures. 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. As of September 30, 2018, the construction management fee payable with respect to each property pursuant to the Construction Management Agreements (each a “Construction Management Agreement”) ranged from 6.0% to 12.0% of the costs of the improvements for which the Construction Manager has planning and oversight authority. Generally, each Construction Management Agreement can be terminated by either party with 30 days’ prior written notice to the other party. 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 units 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 certain of its employees for time spent working on capital improvements and renovations at its properties.
Property Insurance
The Company deposits amounts with an affiliate of the Sponsor to fund a prepaid insurance deductible account to cover the cost of required insurance deductibles across all properties of the Company and other affiliated entities. Upon filing a major claim, proceeds from the insurance deductible account may be used by the Company or another affiliate of the Sponsor. In addition, the Company deposits amounts with an affiliate of the Sponsor to cover the cost of property insurance across certain properties of the Company.

32

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

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, “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, 2018, the Company’s total operating expenses, as defined above, did not exceed the 2%/25% Limitation.
Disposition Fee
The Company pays 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 (a “Final Liquidity Event”), 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 pays 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) 1.50% 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

33

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

Advisor for the sale of any real property to the lesser of one-half of the brokerage commission paid or 3.0% 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 6.0% of the contract sales price.
Loan Coordination Fee
From time to time, upon the approval of a majority of independent directors, the Company pays the Advisor a loan coordination fee equal to 0.50% of the amount of debt refinanced.
Contribution, Settlement and Release Agreements
Certain of the Company’s subsidiaries and the Property Manager were named as defendants in two Texas class action lawsuits alleging violations of the Texas Water Code (collectively, the “Actions”). The Company’s subsidiaries and the Property Manager disputed plaintiffs’ claims in the Actions; however, to avoid the time and expense associated with defending the Actions, the Company’s subsidiaries and other affiliated Steadfast entities (collectively, the “Steadfast Parties”) entered into Settlement Agreements with the plaintiffs that provided for a settlement payment to the class members and a release of claims by plaintiffs and class members against the Steadfast Parties. In connection with the settlement agreements, on April 17, 2017, the Steadfast Parties entered into a contribution, settlement and release agreement whereby all agreed to an allocation of all costs related to the actions and their settlements and a release of all claims a Steadfast Party may have against any other Steadfast Party. The Company’s proportionate share of the settlements was $378,405, which consisted of funds used to pay a portion of (1) the settlement payments to the plaintiffs and class members in the actions and (2) legal costs, less insurance proceeds.
10. 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, 2018 and December 31, 2017, 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 then 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 initial 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, if any, that joins the Company’s board of directors would receive 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 first anniversary of 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 9, 2018, 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 2018 annual meeting of stockholders. The Company recorded stock-based compensation expense of $34,832 and $69,422 for the three and nine months ended September 30, 2018, and $38,131 and $68,191 for the three and nine months ended September 30, 2017, respectively.

34

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

11. 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 and Oklahoma City, Oklahoma 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.

35

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

12. 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, 2018 and December 31, 2017:
September 30, 2018
Type
 
Maturity Date Range
 
Based on
 
Number of Instruments
 
Notional Amount
 
Variable Rate
 
Weighted Average Rate Cap
 
Fair Value
Interest rate cap
 
12/1/2018 - 7/1/2021
 
One-Month LIBOR
 
14

 
$
386,897,000

 
2.26
%
 
2.91
%
 
$
358,452

December 31, 2017
Type
 
Maturity Date Range
 
Based on
 
Number of Instruments
 
Notional Amount
 
Variable Rate
 
Weighted Average Rate Cap
 
Fair Value
Interest rate cap
 
1/1/2018 - 10/1/2019
 
One-Month LIBOR
 
18

 
$
458,655,000

 
1.56
%
 
2.89
%
 
$
51,646

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, 2018, resulted in an unrealized gain of $18,199 and $103,506, respectively, which is included in interest expense in the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2018, the Company acquired interest rate cap agreements of $0 and $203,300, respectively, and during the three and nine months ended September 30, 2017, the Company acquired interest rate cap agreements of $37,350. The fair value of the interest rate cap agreements of $358,452 and $51,646 as of September 30, 2018 and December 31, 2017, respectively, is included in other assets on the accompanying consolidated balance sheets.
13. Subsequent Events
Distributions Paid
On October 1, 2018, the Company paid distributions of $3,411,890, which related to distributions declared for each day in the period from September 1, 2018 through September 30, 2018. All such distributions were paid in cash.
On November 1, 2018, the Company paid distributions of $3,525,297, which related to distributions declared for each day in the period from October 1, 2018 through October 31, 2018. All such distributions were paid in cash.
Repayment and Termination of loans
On October 31, 2018, the Company repaid in full the existing mortgage loans secured by Truman Farms Villas and EBT Lofts with an aggregate principal amount of $10,003,847.

36

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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)

Shares Repurchased
On October 31, 2018, the Company repurchased 218,800 shares of its common stock for a total repurchase value of $2,000,000, or $9.14 per share, pursuant to the Company’s share repurchase program.
Distributions Declared
On November 7, 2018, 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, 2019 and ending on March 31, 2019. The distributions will be equal to $0.001519 per share of the Company’s common stock. The distributions for each record date in January 2019, February 2019 and March 2019 will be paid in February 2019, March 2019 and April 2019, respectively. The distributions will be payable to stockholders from legally available funds therefor.
Advisory Agreement
On November 7, 2018, the Company entered into Amendment No. 11 (the “Amendment”) to the Advisory Agreement. The Amendment (i) reduces the amount of the acquisition fee payable to the Advisor in the event proceeds from a prior disposition are used to fund an acquisition, (ii) amends the terms of the payment of the disposition fee payable to the Advisor to take into account, among other items, special distributions paid by the Company, (iii) provides for the payment of a loan coordination fee to the Advisor for any financing or refinancing of any debt (in each case, other than at the time of the acquisition of an investment), in an amount equal to 0.50% of the amount financed or refinanced and (iv) renews the term of the Advisory Agreement, effective November 15, 2018, for an additional one-year term ending on November 15, 2019.


37

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 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, or 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:
•
changes in economic conditions generally and the real estate and debt markets specifically;
•
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 at favorable rental rates;
•
our ability to carry out any value-enhancement projects;
•
risks related to owning investments with joint venture partners;
•
our ability to identify and acquire multifamily properties;
•
changes to our share repurchase program, distribution rate and similar matters;
•
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;
•
our ability to retain our executive officers and other key personnel of our advisor, our property manager and our affiliates;
•
legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts, or REITs);
•
our ability to generate sufficient cash flows to pay distributions to our stockholders;
•
the availability of capital;
•
changes in interest rates; and
•
changes to generally accepted accounting principles, or GAAP.

38

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


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 Security and Exchange Commission, or 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 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, 2017, filed with the SEC on March 29, 2018.
Overview
We were formed on May 4, 2009, as a Maryland corporation that elected to be taxed 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 initial public offering of up to a maximum of 150,000,000 shares of common stock and up to 15,789,474 shares of common stock pursuant to our distribution reinvestment plan. Upon termination of our public offering on December 20, 2013, 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 distribution reinvestment plan for gross offering proceeds of $15,397,232. Following the termination of our initial public offering, we continued to offer shares of our common stock pursuant to our distribution reinvestment plan until our board of directors determined to suspend our distribution reinvestment plan effective with distributions earned beginning on December 1, 2014. Our board of directors may, in its sole discretion, reinstate the distribution reinvestment plan and also change the price at which we offer shares of common stock to our stockholders pursuant to the distribution reinvestment plan based upon changes in the estimated value per share and other factors our board of directors deems relevant.
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. On February 15, 2017, our board of directors determined an estimated value per share of our common stock of $11.65 as of December 31, 2016. On March 13, 2018, our board of directors determined an estimated value per share of our common stock of $10.84 as of December 31, 2017. On May 9, 2018, our board of directors determined an estimated value per share of our common stock of $9.84, which represents the estimated value per share of our common stock of $10.84 as of December 31, 2017, less the $1.00 per share special distribution that was paid to stockholders of record as of the close of business on April 20, 2018.
As of September 30, 2018, we owned 39 multifamily properties located within the greater midwest and southern geographic regions of the United States. As of September 30, 2018, our property portfolio was comprised of a total of 10,622 apartment homes and an additional 21,130 square feet of rentable commercial space at two properties. The total purchase price of our real estate portfolio was $1,131,486,219. At September 30, 2018, our portfolio was approximately 95.7% leased. As of September 30, 2018, we also owned a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes.
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 and real estate-related assets. 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.

39

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 Steadfast Income REIT Operating Partnership, L.P., 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 limited 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 of 1986, as amended, or 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 elected to be taxed as a REIT under the Internal Revenue Code commencing with the taxable year ended 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 would be subject to federal income tax on our taxable income at regular corporate rates and would 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
The economy in the United States has improved since the last recession; however, there is no assurance that economic conditions will continue to improve or will not worsen in the future. We believe economic and demographic trends will benefit our existing portfolio and that we have unique future investment opportunities, particularly in the multifamily sector. Home ownership rates are near all-time lows. 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 rental housing over home ownership. Demographic studies suggest that Baby Boomers are downsizing their suburban homes and relocating to multifamily apartments. Millennials are renting multifamily apartments due to high levels of student debt and increased credit standards in order to qualify for a home mortgage. According to the Federal Reserve Bank of New York, aggregate student debt has surpassed automotive, home equity lines of credit and credit card debt. 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 $45,000 - $65,000. We believe these factors will continue to contribute to the demand for multifamily housing.

40

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, 2018, we owned the 39 multifamily properties listed below:
 
 
 
 
 
 
 
Number
of Units
 
Total Purchase Price
 
Mortgage Debt Outstanding at September 30, 2018(1)
 
Average Occupancy(2) as of
 
Average Monthly
Rent(3) as of
 
Property Name
 
Location
 
Purchase Date
 
 
 
 
Sep 30, 2018
 
Dec 31, 2017
 
Sep 30, 2018
 
Dec 31, 2017
1
Clarion Park Apartments
 
Olathe, KS
 
6/28/2011
 
220

 
$
11,215,000

 
$
11,928,064

 
93.6
%
 
89.5
%
 
$
855

 
$
832

2
Truman Farm Villas
 
Grandview, MO
 
12/22/2011
 
200

 
9,100,000

 
5,261,324

 
97.0
%
 
99.0
%
 
719

 
743

3
EBT Lofts
 
Kansas City, MO
 
12/30/2011
 
102

 
8,575,000

 
4,976,195

 
94.1
%
 
89.2
%
 
1,091

 
1,064

4
Spring Creek Apartments
 
Edmond, OK
 
3/9/2012
 
252

 
19,350,000

 
17,102,499

 
94.4
%
 
93.3
%
 
833

 
844

5
Montclair Parc Apartment Homes
 
Oklahoma City, OK
 
4/26/2012
 
360

 
35,750,000

 
21,855,985

 
94.7
%
 
94.7
%
 
851

 
849

6
Sonoma Grande Apartments
 
Tulsa, OK
 
5/24/2012
 
336

 
32,200,000

 
20,570,553

 
92.3
%
 
92.6
%
 
890

 
902

7
Estancia Apartments
 
Tulsa, OK
 
6/29/2012
 
294

 
27,900,000

 
—

 
89.8
%
 
94.9
%
 
834

 
919

8
Hilliard Park Apartments
 
Columbus, OH
 
9/11/2012
 
201

 
19,800,000

 
12,461,198

 
96.5
%
 
93.0
%
 
1,098

 
1,030

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

 
23,174,157

 
17,840,509

 
92.8
%
 
93.2
%
 
1,154

 
1,107

10
Hilliard Summit Apartments
 
Columbus, OH
 
9/28/2012
 
208

 
24,100,000

 
15,115,803

 
94.7
%
 
94.7
%
 
1,202

 
1,191

11
Forty 57 Apartments
 
Lexington, KY
 
12/20/2012
 
436

 
52,500,000

 
35,754,483

 
93.8
%
 
95.0
%
 
916

 
923

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

 
30,000,000

 
20,335,763

 
94.7
%
 
95.0
%
 
901

 
903

13
Montecito Apartments
 
Austin, TX
 
12/31/2012
 
268

 
19,000,000

 
12,898,406

 
95.9
%
 
90.7
%
 
1,009

 
981

14
Hilliard Grand Apartments
 
Dublin, OH
 
12/31/2012
 
314

 
40,500,000

 
28,484,941

 
96.2
%
 
94.6
%
 
1,264

 
1,240

15
Library Lofts East
 
Kansas City, MO
 
2/28/2013
 
118

 
12,750,000

 
8,212,138

 
95.8
%
 
87.3
%
 
1,073

 
1,059

16
Deep Deuce at Bricktown(4)
 
Oklahoma City, OK
 
3/28/2013
 
294

 
38,271,000

 
32,063,250

 
94.6
%
 
91.5
%
 
1,262

 
1,157

17
Retreat at Quail North
 
Oklahoma City, OK
 
6/12/2013
 
240

 
25,250,000

 
16,322,019

 
92.5
%
 
94.6
%
 
931

 
942

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

 
18,400,000

 
11,598,949

 
93.7
%
 
95.1
%
 
775

 
759

19
Waterford on the Meadow
 
Plano, TX
 
7/3/2013
 
350

 
23,100,000

 
15,263,613

 
96.9
%
 
94.3
%
 
1,041

 
1,028

20
Tapestry Park Apartments
 
Birmingham, AL
 
8/13/2013 & 12/1/2014
 
354

 
50,285,000

 
43,698,192

 
94.4
%
 
93.2
%
 
1,350

 
1,291

21
Dawntree Apartments
 
Carrollton, TX
 
8/15/2013
 
400

 
24,000,000

 
14,539,538

 
97.5
%
 
93.0
%
 
1,026

 
990

22
Stuart Hall Lofts
 
Kansas City, MO
 
8/27/2013
 
115

 
16,850,000

 
16,036,555

 
93.9
%
 
90.4
%
 
1,326

 
1,282

23
BriceGrove Park Apartments
 
Canal Winchester, OH
 
8/29/2013
 
240

 
20,100,000

 
17,126,068

 
94.6
%
 
93.8
%
 
871

 
868


41

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


 
 
 
 
 
 
 
Number
of Units
 
Total Purchase Price
 
Mortgage Debt Outstanding at September 30, 2018(1)
 
Average Occupancy(2) as of
 
Average Monthly
Rent(3) as of
 
Property Name
 
Location
 
Purchase Date
 
 
 
 
Sep 30, 2018
 
Dec 31, 2017
 
Sep 30, 2018
 
Dec 31, 2017
24
Retreat at Hamburg Place
 
Lexington, KY
 
9/5/2013
 
150

 
$
16,300,000

 
$
12,067,260

 
92.7
%
 
92.7
%
 
$
990

 
$
1,011

25
Heights at 2121
 
Houston, TX
 
9/30/2013
 
504

 
37,000,000

 
38,222,619

 
93.5
%
 
94.0
%
 
922

 
896

26
Villas at Huffmeister
 
Houston, TX
 
10/10/2013
 
294

 
37,600,000

 
27,151,880

 
95.9
%
 
92.9
%
 
1,202

 
1,149

27
Villas of Kingwood
 
Kingwood, TX
 
10/10/2013
 
330

 
40,150,000

 
35,279,671

 
96.4
%
 
96.7
%
 
1,239

 
1,240

28
Waterford Place at Riata Ranch
 
Cypress, TX
 
10/10/2013
 
228

 
23,400,000

 
—

 
90.8
%
 
92.5
%
 
1,084

 
1,075

29
Carrington Place
 
Houston, TX
 
11/7/2013
 
324

 
32,900,000

 
27,369,510

 
92.9
%
 
93.2
%
 
1,086

 
1,077

30
Carrington at Champion Forest
 
Houston, TX
 
11/7/2013
 
284

 
33,000,000

 
24,964,259

 
94.4
%
 
97.2
%
 
1,087

 
1,091

31
Carrington Park at Huffmeister
 
Cypress, TX
 
11/7/2013
 
232

 
25,150,000

 
19,429,882

 
95.3
%
 
94.0
%
 
1,206

 
1,157

32
Echo at Katy Ranch
 
Katy, TX
 
12/19/2013
 
260

 
35,100,000

 
—

 
91.5
%
 
96.5
%
 
1,187

 
1,354

33
Heritage Grand at Sienna Plantation
 
Missouri City, TX
 
12/20/2013
 
240

 
27,000,000

 
16,876,993

 
94.6
%
 
94.2
%
 
1,143

 
1,151

34
Mallard Crossing Apartments
 
Loveland, OH
 
12/27/2013
 
350

 
39,800,000

 
33,486,214

 
94.3
%
 
95.4
%
 
1,085

 
1,073

35
Reserve at Creekside
 
Chattanooga, TN
 
3/28/2014
 
192

 
18,875,000

 
14,235,132

 
95.8
%
 
90.6
%
 
1,008

 
950

36
Mapleshade Park
 
Dallas, TX
 
3/31/2014
 
148

 
23,325,000

 
19,287,609

 
97.3
%
 
95.3
%
 
1,644

 
1,648

37
Oak Crossing Apartments
 
Fort Wayne, IN
 
6/3/2014
 
222

 
24,230,000

 
20,194,521

 
95.5
%
 
96.8
%
 
994

 
987

38
Double Creek Flats
 
Plainfield, IN
 
5/7/2018
 
240

 
31,852,079

 
21,872,477

 
92.9
%
 
—
%
 
998

 
—

39
Jefferson at Perimeter Apartments
 
Dunwoody, GA
 
6/11/2018
 
504

 
103,633,983

 
64,366,988

 
90.1
%
 
—
%
 
1,331

 
—

 
 
 
 
 
 
 
10,622

 
$
1,131,486,219

 
$
774,251,060

 
94.2
%
 
93.8
%
 
$
1,058

 
$
1,037

________________
(1)
Mortgage debt outstanding is net of deferred financing costs associated with the loans for the properties listed above.
(2)
At September 30, 2018, our portfolio was approximately 95.7% leased, calculated using the number of occupied and contractually leased units divided by total units.
(3)
Average monthly rent is based upon the effective rental income after considering the effect of vacancies, concessions and write-offs.
Joint Venture Arrangement with Blackstone Real Estate Income Trust, Inc.
On November 10, 2017, we, BREIT Steadfast MF JV LP, or the joint venture, BREIT Steadfast MF Parent LLC, or BREIT LP, and BREIT Steadfast MF GP LLC, or BREIT GP, and together with BREIT LP, “BREIT,” executed a contribution agreement whereby we agreed to contribute a portfolio of 20 properties owned by us to the joint venture in exchange for a combination of cash and a 10% ownership interest in the joint venture. BREIT LP owns a 90% interest in the joint venture and BREIT GP serves as the general partner of the joint venture. Each of BREIT LP and BREIT GP is a wholly-owned subsidiary of

42

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


Blackstone Real Estate Income Trust, Inc. SIR LANDS Holdings, LLC, or SIR LP, our wholly-owned subsidiary, holds our 10% interest in the joint venture.
The 20 properties contributed by us to the joint venture consist of properties located in Austin, Dallas and San Antonio, Texas, Nashville, Tennessee and Louisville, Kentucky, which we refer to as the “LANDS Portfolio.” The value of the LANDS Portfolio under the Contribution Agreement was approximately $512 million, subject to adjustment.
The transaction closed in two stages. The first closing occurred November 15, 2017, and included 12 properties for which the existing debt was prepaid at closing. The second closing occurred January 31, 2018, and included eight properties for which the joint venture assumed the existing loans. At the first closing, SIR LP and BREIT entered into a joint venture agreement that sets forth the rights and obligations of the parties to the joint venture. The management of the joint venture is vested in BREIT GP; SIR LP has limited consent rights and limited liquidity rights. We received approximately $153.8 million in net cash proceeds from the contribution of our properties to the joint venture.
At each closing, the new joint venture property owner entered into a Property Management Agreement with Steadfast Management Company, Inc. as property manager. We also entered into an Investment Agreement with affiliates of BREIT whereby we will undertake to present certain investment opportunities in multifamily properties to a to-be-formed joint venture between us and certain affiliates of BREIT. Our obligation to present investment opportunities is not exclusive and neither BREIT nor any of its affiliates has any obligation to invest in any such investment opportunity.
Our advisor entered into an Accounting and Administrative Agreement with the joint venture at the first closing whereby our advisor provides certain accounting and administrative services for a fee.

43

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


The LANDS Portfolio consists of the following properties:
Legal Owner
 
Property
 
Units
 
Metro
SIR Arbors, LLC
 
Arbors of Carrollton
 
131
 
DFW
SIR Ashley Oaks, LLC
 
Ashley Oaks
 
462
 
San Antonio
SIR Audubon Park, LLC
 
Audubon Park
 
256
 
Nashville
SIR Belmont Apartments, LLC
 
Belmont
 
260
 
DFW
SIR Cantare, LLC
 
Cantare at ILV
 
206
 
Nashville
SIR Cooper Creek, LLC
 
Cooper Creek
 
123
 
Louisville
SIR Grayson Ridge, LLC
 
Grayson Ridge
 
240
 
DFW
SIR Fairmarc, LLC
 
Hills at Fair Oaks
 
288
 
San Antonio
SIR Keystone, LLC
 
Keystone Farms
 
90
 
Nashville
SIR Mansfield Landing, LLC
 
Landing at Mansfield
 
336
 
DFW
SIR Steiner Ranch Apartments, LLC
 
Meritage at Steiner Ranch
 
502
 
Austin
SIR Montelena, LLC
 
Montelena
 
232
 
Austin
SIR Renaissance, LLC
 
Renaissance St. Andrews
 
216
 
Louisville
SIR Richland, LLC
 
Richland Falls
 
276
 
Nashville
SIR Rosemont, LLC
 
Rosemont at Olmos Park
 
144
 
San Antonio
SIR Renaissance Condos, LLC
 
RSA - Condos
 
30
 
Louisville
SIR SM Apartments, LLC
 
Springmarc Apartments
 
240
 
Austin
SIR Buda Ranch, LLC
 
Trails at Buda Ranch
 
264
 
Austin
SIR Valley Farms, LLC
 
Valley Farms
 
160
 
Louisville
SIR Valley Farms North, LLC
 
Valley Farms North
 
128
 
Louisville
SIR Valley Farms Clubhouse, LLC
 
Valley Farms
 
—
 
Louisville
2018 Property Dispositions
The Moorings Apartments
On November 30, 2012, we, through an indirect wholly owned subsidiary, acquired The Moorings Apartments, a multifamily property located in Roselle, Illinois, containing 216 apartment homes. The purchase price of The Moorings Apartments was $20,250,000, exclusive of closing costs. On January 5, 2018, we sold The Moorings Apartments for $28,100,000, resulting in a gain of $9,658,823, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of The Moorings Apartments was not affiliated with us or our advisor.
Arrowhead Apartment Homes
On November 30, 2012, we, through an indirect wholly owned subsidiary, acquired Arrowhead Apartment Homes, a multifamily property located in Palatine, Illinois, containing 200 apartment homes. The purchase price of the Arrowhead Apartment Homes was $16,750,000, exclusive of closing costs. On January 31, 2018, we sold the Arrowhead Apartment Homes for $23,600,000, resulting in a gain of $8,928,691, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of the Arrowhead Apartment Homes was not affiliated with us or our advisor.

44

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


Willow Crossing Apartments
On November 20, 2013, we, through an indirect wholly owned subsidiary, acquired Willow Crossing Apartments, a multifamily property located in Elk Grove, Illinois, containing 579 apartment homes. The purchase price of the Willow Crossing Apartments was $58,000,000, exclusive of closing costs. On February 28, 2018, we sold the Willow Crossing Apartments for $79,000,000, resulting in a gain of $24,136,113, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of the Willow Crossing Apartments was not affiliated with us or our advisor.
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, 2017. There have been no significant changes to our accounting policies during the period covered by this report other than described in Note 2 (Summary of Significant Accounting Policies) to our condensed consolidated unaudited financial statements in this Quarterly Report on Form 10-Q.
Income Taxes
We elected to be taxed as, and currently qualify as, a REIT under the Internal Revenue Code and have operated as such commencing 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, 2018 and December 31, 2017, 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, 2017, 2016 and 2015.
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 cash flow 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.

45

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) were calculated at a rate of $0.001519 per share per day during the three months ended September 30, 2018, at a rate of $0.001683 per share per day during the three months ended June 30, 2018, and at a rate of $0.001964 per share per day during the three months ended March 31, 2018.
The distributions declared and paid during the first, second and third quarters of 2018 were as follows:
Period
  
Distributions
Declared(1)
  
Distributions
Declared Per
Share(1)(2)
 
Distributions Paid(3)
 
Sources of
Distributions Paid
 
Net Cash
(Used in) Provided By
Operating Activities
  
 
Cash Flow From Operations
 
Cash and Cash Equivalents
 
Sale of Real Estate Investments
First Quarter 2018
 
$
13,320,570

 
$
0.177

 
$
13,331,421

 
$
—

 
$
13,331,421

 
—

 
$
(1,457,476
)
Second Quarter 2018
 
86,819,112

 
1.153

 
87,612,706

 
10,633,355

 
1,681,188

 
75,298,163

 
10,633,355

Third Quarter 2018
 
10,472,649

 
0.140

 
10,851,615

 
10,776,188

 
75,427

 
—

 
10,776,188

 
 
$
110,612,331

 
$
1.470

 
$
111,795,742

 
$
21,409,543

 
$
15,088,036

 
$
75,298,163

 
$
19,952,067

________________ 
(1)
Distributions are based on daily record dates and calculated at a rate of $0.001519 per share per day during the three months ended September 30, 2018, at a rate of $0.001683 per share per day during the three months ended June 30, 2018, and at a rate of $0.001964 per share per day during the three months ended March 31, 2018. Additionally, on April 16, 2018, our board of directors declared a special distribution in the amount of $1.00 per share to stockholders of record as of the close of business on April 20, 2018, which was paid on May 2, 2018.
(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, 2018, we paid aggregate distributions of $10,851,615 and $111,795,742, respectively. All such distributions were paid in cash. For the three and nine months ended September 30, 2018, our net (loss) income was $(6,456,722) and $58,857,793, we had funds from operations, or FFO, of $6,770,834 and $16,607,689 and net cash provided by operating activities of $10,776,188 and $19,952,067, respectively. For the three and nine months ended September 30, 2018, of the $10,851,615 and $111,795,742 in total distributions paid, all of which were paid in cash, we funded $10,776,188 and $21,409,543, or 99% and 19%, of distributions paid with net cash provided by operating activities, $75,427 and $15,088,036, or 1% and 14%, with existing cash and cash equivalents, and $0 and $75,298,163, or 0% and 67%, from the sales of real estate investments, respectively. Since inception, of the $364,894,581 in total distributions paid through September 30, 2018, including shares issued pursuant to our distribution reinvestment plan, 60% of such amounts were funded from cash flow from operations, 21% of such amounts were funded from the sales of real estate investments, 10% of such amounts were funded from offering proceeds, 2% of such amounts were funded from credit facilities and 7% of such amounts were funded from cash and cash equivalents. 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

46

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


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 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, 2018, we had not entered into any material 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 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 would 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 use, and intend to use in the future, secured and unsecured borrowings. At September 30, 2018, our debt was approximately 58% of the value of our properties, as determined by the most recent valuations performed by an independent third-party appraiser as of December 31, 2017. 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 Third Articles of Amendment and Restatement, or 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, 2018, our aggregate borrowings were not in excess of 300% of the value of our net assets.
Our principal demand for funds will be to acquire investments in accordance with our investment strategy, fund value-enhancement and other capital improvement projects at our properties, pay operating expenses and interest on our outstanding indebtedness and make distributions to our stockholders. In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our advisor in connection with the acquisition and disposal of investments, the management of our assets and costs incurred by our advisor in providing services to us.
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 unrestricted cash balances, which was $97,309,038 as of September 30, 2018;
•
various forms of secured and unsecured financing; and
•
equity capital from joint venture partners.
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 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

47

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


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 July 29, 2016, we entered into a credit agreement and a multifamily note with PNC Bank, National Association that provide for a credit facility in an amount not to exceed $350,000,000 to refinance certain of our then existing mortgage loans. The credit facility has a maturity date of August 1, 2021, subject to extension. Advances made under the credit facility are secured by certain of our properties. See Note 6 (Debt) of the accompanying condensed consolidated unaudited financial statements for a description of our credit facility. During 2017, five properties that secured the credit facility were sold, and were removed from the credit facility. During the nine months ended September 30, 2018, two properties that secured the credit facility were refinanced, and were removed from the credit facility. As of September 30, 2018, $52,656,750 was outstanding on our credit facility. 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
During the nine months ended September 30, 2018, net cash provided by operating activities was $19,952,067, compared to net cash provided by operating activities of $35,871,638 for the nine months ended September 30, 2017. The decrease in net cash provided by operating activities is primarily due to changes in net income (loss), depreciation and amortization expense, gain on sales of real estate, loss on debt extinguishment, investment in unconsolidated joint venture and accounts payable and accrued liabilities compared to the nine months ended September 30, 2017. The decrease in net cash provided by operating activities during the nine months ended September 30, 2018 was primarily due to the disposition of 26 multifamily properties, partially offset by the acquisition of two multifamily properties subsequent to September 30, 2017.
Cash Flows Provided by Investing Activities
During the nine months ended September 30, 2018, net cash provided by investing activities was $97,082,328, compared to $28,643,163 during the nine months ended September 30, 2017. The increase in net cash provided by investing activities during the nine months ended September 30, 2018, was primarily due to the disposition of three multifamily properties and the contribution of eight multifamily properties to the joint venture in exchange for cash and a 10% interest in the joint venture, partially offset by the acquisition of two multifamily properties. Net cash provided by investing activities during the nine months ended September 30, 2018, consisted of the following:
•
$2,401,478 of cash used for the investment in an unconsolidated joint venture, net of distributions received from the unconsolidated joint venture of $530,100;
•
$67,886,062 of cash used relating to the acquisition of our multifamily properties;
•
$6,754,330 of cash used for improvements to real estate investments;
•
$2,600,000 of cash used for deposits for potential real estate acquisitions;
•
$203,300 of cash used for the acquisition of interest rate cap agreements;
•
$176,926,493 of cash provided by the sales of real estate investments; and
•
$1,005 of cash provided by insurance claims.
Cash Flows Used in Financing Activities
During the nine months ended September 30, 2018, net cash used in financing activities was $209,244,926, compared to $54,397,125 during the nine months ended September 30, 2017. The increase in cash flows used in financing activities is due primarily to the increase in principal repayments on mortgage notes payable, net of borrowings, in addition to the special distribution of $75,298,163 paid to stockholders. Net cash used in financing activities during the nine months ended September 30, 2018, consisted of the following:
•
$52,863,109 of net cash used for mortgage notes payable, comprised of $158,021,981 of cash used for principal repayments, $106,482,000 of proceeds from mortgage notes payable and the payment of deferred financing costs of $1,323,128;
•
$38,410,500 of cash used for principal payments of the credit facility;
•
$175,575 of cash paid for the extinguishment of debt;

48

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


•
$111,795,742 of cash distributions; and
•
$6,000,000 of cash paid for the repurchase of common stock.
Contractual Commitments and Contingencies
We use, 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 September 30, 2018, our debt was approximately 58% of the value of our properties, as determined by the most recent valuations performed by an independent third-party appraiser as of December 31, 2017. Going forward, we expect that our borrowings will be approximately 65% of the value of our properties. 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, 2018, 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 or its affiliates 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, 2018, we had indebtedness totaling an aggregate principal amount of $774,251,060, including the net premiums on certain notes payable of $380,529 and the net deferred financing costs of $4,807,391. The following is a summary of our contractual obligations as of September 30, 2018:
 
 
 
 
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)
 
$
212,644,883

 
$
8,191,074

 
$
61,752,498

 
$
52,344,531

 
$
90,356,780

Principal payments on outstanding debt obligations(2)
 
778,677,922

 
1,863,128

 
113,064,450

 
105,288,643

 
558,461,701

Total
 
$
991,322,805

 
$
10,054,202

 
$
174,816,948

 
$
157,633,174

 
$
648,818,481

_____________________________
(1)
Projected interest payments on outstanding debt obligations are based on the outstanding principal amounts and interest rates in effect at September 30, 2018. We incurred interest expense of $8,452,962 and $24,021,396 during the three and nine months ended September 30, 2018, including amortization of deferred financing costs totaling $263,009 and $799,989, amortization of loan premiums of $48,326 and $222,466 and net unrealized gains from the change in fair value of interest rate cap agreements of $18,199 and $103,506.
(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 in addition to net deferred financing costs associated with certain notes payable.
Our debt obligations contain customary financial or non-financial debt covenants. As of September 30, 2018 and December 31, 2017 we were in compliance with all of our financial and non-financial debt covenants.

49

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, 2018 and 2017. The ability to compare one period to another is affected by the acquisitions and dispositions made during those periods and our value-enhancement strategy. The number of multifamily properties wholly owned by us decreased to 39 as of September 30, 2018, from 63 as of September 30, 2017. Our results of operations compared to the prior year periods were primarily affected by the disposition of six multifamily properties, the contribution of 20 multifamily properties to the joint venture in exchange for cash and a proportionate 10% interest in the joint venture, the acquisition of two multifamily properties and our value-enhancement activity completed through September 30, 2018, as further discussed below.
Our results of operations for the three and nine months ended September 30, 2018, are not indicative of those expected in future periods. 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 and, to a lesser extent, the impact of anticipated value-enhancement projects.
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, or NOI. For more information on NOI and a reconciliation of NOI (a non-GAAP measure) to net loss, see “—Net Operating Income.” Throughout this Results of Operations discussion, references to the disposition of 26 multifamily properties includes the contribution of 20 multifamily properties to the joint venture.
Consolidated Results of Operations for the Three Months Ended September 30, 2018 and 2017
The following table summarizes the consolidated results of operations for the three months ended September 30, 2018 and 2017:
 
 
For the Three Months Ended September 30,
 
 
 
 
 
$ Change Due to Acquisitions and Dispositions(1)
 
$ Change Due to Properties Held Throughout Both Periods(2)
 
 
2018
 
2017
 
Change $
 
Change %
 
 
Total revenues
 
$
36,241,718

 
$
55,592,107

 
$
(19,350,389
)
 
(35
)%
 
$
(20,186,753
)
 
$
836,364

Operating, maintenance and management
 
(10,457,329
)
 
(16,392,711
)
 
5,935,382

 
36
 %
 
6,495,530

 
(560,148
)
Real estate taxes and insurance
 
(5,657,098
)
 
(9,275,615
)
 
3,618,517

 
39
 %
 
3,701,856

 
(83,339
)
Fees to affiliates
 
(4,113,139
)
 
(5,682,920
)
 
1,569,781

 
28
 %
 
1,948,691

 
(378,910
)
Depreciation and amortization
 
(12,579,032
)
 
(17,850,748
)
 
5,271,716

 
30
 %
 
5,185,253

 
86,463

Interest expense
 
(8,452,962
)
 
(11,655,008
)
 
3,202,046

 
27
 %
 
3,727,950

 
(525,904
)
Loss on debt extinguishment
 
—

 
(401,674
)
 
401,674

 
100
 %
 
401,674

 
—

General and administrative expenses
 
(1,151,340
)
 
(2,042,856
)
 
891,516

 
44
 %
 
447,723

 
443,793

Equity in loss from unconsolidated joint venture
 
(287,540
)
 
—

 
(287,540
)
 
100
 %
 
(287,540
)
 
—

Gain on sales of real estate, net
 
—

 
5,382,847

 
(5,382,847
)
 
(100
)%
 
(5,382,847
)
 
—

Net loss
 
$
(6,456,722
)
 
$
(2,326,578
)
 
$
(4,130,144
)
 
(178
)%
 
 
 
 
 
 
 
 
 
 

 

 
 
 
 
NOI(3)
 
$
18,940,484

 
$
27,639,908

 
$
(8,699,424
)
 
(31
)%
 
 
 
 
FFO(4)
 
$
6,770,834

 
$
10,141,323

 
$
(3,370,489
)
 
(33
)%
 
 
 
 
MFFO(4)
 
$
6,766,276

 
$
10,633,598

 
$
(3,867,322
)
 
(36
)%
 
 
 
 
________________

50

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


(1)
Represents the favorable (unfavorable) dollar amount change for the three months ended September 30, 2018, compared to the three months ended September 30, 2017, related to multifamily properties acquired or disposed of on or after July 1, 2017.
(2)
Represents the favorable (unfavorable) dollar amount change for the three months ended September 30, 2018, compared to the three months ended September 30, 2017, related to multifamily properties owned by us throughout both periods presented.
(3)
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 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.”
(4)
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, or 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, or MFFO, as defined by the Institute for Portfolio Alternatives (formerly known as the Investment Program Association), or 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, 2018, we had a net loss of $6,456,722, compared to a net loss of $2,326,578 for the three months ended September 30, 2017. The increase in net loss of $4,130,144 over the comparable prior year period was primarily due to the decrease in total revenues of $19,350,389, the increase in equity in losses of unconsolidated joint venture of $287,540 and the decrease in gain on sales of real estate of $5,382,847, partially offset by the decrease in operating, maintenance and management expenses of $5,935,382, the decrease in real estate taxes and insurance of $3,618,517, the decrease in fees to affiliates of $1,569,781, the decrease in depreciation and amortization expense of $5,271,716, the decrease in interest expense of $3,202,046, the decrease in loss on debt extinguishment of $401,674 and the decrease in general and administrative expenses of $891,516. Our results of operations were primarily impacted by the disposition of 26 multifamily properties and acquisition of two multifamily properties since September 30, 2017.
Total revenues
Rental income and tenant reimbursements for the three months ended September 30, 2018, were $36,241,718, compared to $55,592,107 for the three months ended September 30, 2017. The decrease of $19,350,389 was primarily due to our total number of units decreasing by 5,512 from 16,134 at September 30, 2017, to 10,622 at September 30, 2018, as a result of the disposition of 26 multifamily properties, partially offset by the acquisition of two multifamily properties subsequent to September 30, 2017. Additionally, average occupancy decreased from 94.3% at September 30, 2017, to 94.2% at September 30, 2018. The average monthly rent for our property portfolio increased from $1,049 at September 30, 2017, to $1,058 at September 30, 2018, primarily attributable to ordinary monthly rent increases and the completion of value-enhancement

51

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


projects. We expect rental income and tenant reimbursements to increase in future periods as a result of ordinary monthly rent increases and any value-enhancement projects.
Operating, maintenance and management expense
Operating, maintenance and management expenses for the three months ended September 30, 2018, were $10,457,329, compared to $16,392,711 for the three months ended September 30, 2017. The decrease of $5,935,382 was primarily due to a decrease of $6,495,530 as a result of the decrease in the number of properties in our portfolio subsequent to September 30, 2017. Additionally, the increase of $560,148 at the multifamily properties held throughout both periods was primarily due to increases in repairs and maintenance, utilities, turnover expenses and wages and salaries during the three months ended September 30, 2018, compared to the three months ended September 30, 2017. We expect that these amounts will decrease as a percentage of total revenues as we continue to implement operational efficiencies at our multifamily properties.
Real estate taxes and insurance
Real estate taxes and insurance expenses for the three months ended September 30, 2018, were $5,657,098, compared to $9,275,615 for the three months ended September 30, 2017. The decrease of $3,618,517 was due primarily to a decrease of $3,701,856 as a result of the decrease in the number of properties in our portfolio subsequent to September 30, 2017. Additionally, the increase of $83,339 at the properties held throughout both periods was primarily due to increased assessed values at certain of our properties resulting in higher property taxes. 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 properties.
Fees to affiliates
Fees to affiliates for the three months ended September 30, 2018, were $4,113,139 compared to $5,682,920, for the three months ended September 30, 2017. The decrease of $1,569,781 was primarily due to the decrease of investment management fees and property management fees as a result of the decrease in the number of properties in our portfolio subsequent to September 30, 2017. We expect fees to affiliates to decrease in future periods as a result of continued lower property management fees and investment management fees incurred on a smaller portfolio.
Depreciation and amortization
Depreciation and amortization expenses for the three months ended September 30, 2018, were $12,579,032, compared to $17,850,748 for the three months ended September 30, 2017. The decrease of $5,271,716 was primarily due to the net decrease in depreciable and amortizable assets of $425,768,425 as a result of the decrease in the number of properties in our portfolio subsequent to September 30, 2017. 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, 2018, was $8,452,962, compared to $11,655,008 for the three months ended September 30, 2017. The decrease of $3,202,046 was primarily due to a net decrease of $409,457,250 in our total notes payable balance as a result of the decrease in the number of properties in our portfolio subsequent to September 30, 2017, partially offset by increases in the London Inter-bank Offered Rate, or LIBOR, from September 30, 2017, to September 30, 2018, that impact the interest on our variable rate loans. Our interest expense in future periods will vary based on the impact changes to LIBOR will have on our variable rate debt and our level of borrowings, which will depend on the availability and cost of debt financing, the opportunity to acquire real estate and real estate-related investments meeting our investment objectives and the opportunity to sell real estate properties and real estate-related investments.

52

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


Loss on debt extinguishment
There was no loss on debt extinguishment for the three months ended September 30, 2018. Loss on debt extinguishment was $401,674 for the three months ended September 30, 2017. 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 sale of two multifamily properties during the three months ended September 30, 2017. 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, 2018, were $1,151,340, compared to $2,042,856 for the three months ended September 30, 2017. 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 decrease of $891,516 was primarily due to legal costs incurred in connection with the joint venture transaction during the three months ended September 30, 2017. Similar activity did not occur during the three months ended September 30, 2018. We expect general and administrative expenses to decrease as a percentage of total revenues in future periods.
Equity in loss from unconsolidated joint venture
Equity in loss from unconsolidated joint venture for the three months ended September 30, 2018, was $287,540 compared to $0 for the three months ended September 30, 2017. Our investment in the joint venture has been accounted for as an unconsolidated joint venture under the equity method of accounting. Equity in loss from unconsolidated joint venture will be based on the operating results of the joint venture in future periods.
Gain on sales of real estate
There was no gain on sales of real estate for the three months ended September 30, 2018. Gain on sales of real estate was $5,382,847 related to the disposition of two multifamily properties during the three months ended September 30, 2017. Our gain on sales of real estate in future periods will vary based on the opportunity to sell real properties and real estate-related investments.


53

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, 2018 and 2017
The following table summarizes the consolidated results of operations for the nine months ended September 30, 2018 and 2017:
 
 
For the Nine Months Ended September 30,
 
 
 
 
 
$ Change Due to Acquisitions and Dispositions(1)
 
$ Change Due to Properties Held Throughout Both Periods(2)
 
 
2018
 
2017
 
Change $
 
Change %
 
 
Total revenues
 
$
105,753,652

 
$
164,990,777

 
$
(59,237,125
)
 
(36
)%
 
$
(61,506,051
)
 
$
2,268,926

Operating, maintenance and management
 
(28,936,191
)
 
(44,808,803
)
 
15,872,612

 
35
 %
 
17,771,104

 
(1,898,492
)
Real estate taxes and insurance
 
(18,329,576
)
 
(28,982,886
)
 
10,653,310

 
37
 %
 
11,775,491

 
(1,122,181
)
Fees to affiliates
 
(11,854,429
)
 
(16,972,905
)
 
5,118,476

 
30
 %
 
6,123,278

 
(1,004,802
)
Depreciation and amortization
 
(34,781,722
)
 
(53,852,540
)
 
19,070,818

 
35
 %
 
19,090,242

 
(19,424
)
Interest expense
 
(24,021,396
)
 
(33,763,957
)
 
9,742,561

 
29
 %
 
11,343,915

 
(1,601,354
)
Loss on debt extinguishment
 
(2,282,247
)
 
(401,674
)
 
(1,880,573
)
 
(468
)%
 
(1,608,783
)
 
(271,790
)
General and administrative expenses
 
(4,835,308
)
 
(5,218,885
)
 
383,577

 
7
 %
 
316,174

 
67,403

Equity in loss from unconsolidated joint venture
 
(3,102,044
)
 
—

 
(3,102,044
)
 
(100%)

 
(3,102,044
)
 
—

Gain on sales of real estate, net
 
81,247,054

 
5,382,847

 
75,864,207

 
1,409
 %
 
75,864,207

 
—

Net income (loss)
 
$
58,857,793

 
$
(13,628,026
)
 
$
72,485,819

 
532
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOI(3)
 
$
55,238,480

 
$
84,502,534

 
$
(29,264,054
)
 
(35
)%
 
 
 
 
FFO(4)
 
$
16,607,689

 
$
34,841,667

 
$
(18,233,978
)
 
(52
)%
 
 
 
 
MFFO(4)
 
$
19,101,204

 
$
35,850,031

 
$
(16,748,827
)
 
(47
)%
 
 
 
 
________________
(1)
Represents the favorable (unfavorable) dollar amount change for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017, related to multifamily properties acquired or disposed of on or after January 1, 2017.
(2)
Represents the favorable (unfavorable) dollar amount change for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017, related to multifamily properties owned by us throughout both periods presented.
(3)
See “—Net Operating Income” below for a reconciliation of NOI to net income (loss).
(4)
See “—Funds From Operations and Modified Funds From Operations” below for a reconciliation FFO and MFFO to net income (loss).
Net income (loss)
For the nine months ended September 30, 2018, we had net income of $58,857,793 compared to a net loss of $13,628,026 for the nine months ended September 30, 2017. The increase in net income of $72,485,819 over the comparable prior year period was primarily due to the increase in gain on sales of real estate, net of $75,864,207, the decrease in operating, maintenance and management expenses of $15,872,612, the decrease in real estate taxes and insurance of $10,653,310, the decrease in fees to affiliates of $5,118,476, the decrease in depreciation and amortization expense of $19,070,818, the decrease in interest expense of $9,742,561 and the decrease in general and administrative expenses of $383,577, partially offset by the

54

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


decrease in total revenues of $59,237,125, the increase in loss on debt extinguishment of $1,880,573, and the increase in equity in loss of unconsolidated joint venture partner of $3,102,044. Our results of operations were primarily impacted by the disposition of 26 multifamily properties and the acquisition of two multifamily properties since September 30, 2017.
Total revenues
Rental income and tenant reimbursements for the nine months ended September 30, 2018, were $105,753,652, compared to $164,990,777 for the nine months ended September 30, 2017. The decrease of $59,237,125 was primarily due to our total number of units decreasing by 5,512 from 16,134 at September 30, 2017, to 10,622 at September 30, 2018, as a result of the disposition of 26 multifamily properties, partially offset by the acquisition of two multifamily properties subsequent to September 30, 2017. Additionally, the average occupancy decreased from 94.3% at September 30, 2017, to 94.2% at September 30, 2018. The average monthly rent for our property portfolio increased from $1,049 at September 30, 2017, to $1,058 at September 30, 2018, primarily attributable to ordinary monthly rent increases and the completion of value-enhancement projects. We expect rental income and tenant reimbursements to increase in future periods as a result of the two multifamily properties acquired during the nine months ended September 30, 2018 having a full period of ownership, ordinary monthly rent increases and any value-enhancement projects.
Operating, maintenance and management expense
Operating, maintenance and management expenses for the nine months ended September 30, 2018, were $28,936,191, compared to $44,808,803 for the nine months ended September 30, 2017. The decrease of $15,872,612 was primarily due to a net decrease of $17,771,104 as a result of the decrease in the number of properties in our portfolio subsequent to September 30, 2017. Additionally, the increase of $1,898,492 at the properties held throughout both periods was primarily due to increased repairs and maintenance, utilities and wages and salaries during the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. We expect that these amounts will decrease as a percentage of total revenues as we continue to 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, 2018, were $18,329,576, compared to $28,982,886 for the nine months ended September 30, 2017. The decrease of $10,653,310 was primarily due to a decrease of $11,775,491 related to the decrease in the number of properties in our portfolio subsequent to September 30, 2017. Additionally, the increase of $1,122,181 at the properties held throughout both periods was primarily due to increased assessed values at certain of our properties resulting in higher property taxes. 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 properties.
Fees to affiliates
Fees to affiliates for the nine months ended September 30, 2018, were $11,854,429, compared to $16,972,905 for the nine months ended September 30, 2017. This decrease of $5,118,476 was primarily due to the decrease of investment management fees and property management fees as a result of the decrease in the number of properties in our portfolio subsequent to September 30, 2017. We expect fees to affiliates to increase in future periods as a result of higher property management fees from anticipated increases in future rental income.
Depreciation and amortization
Depreciation and amortization expenses for the nine months ended September 30, 2018, were $34,781,722, compared to $53,852,540 for the nine months ended September 30, 2017. The decrease of $19,070,818 was primarily due to the net decrease in depreciable and amortizable assets of $425,768,425 as a result of the decrease in the number of properties in our portfolio subsequent to September 30, 2017. We expect these amounts to increase slightly in future periods as a result of anticipated future enhancements to our real estate portfolio.

55

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


Interest expense
Interest expense for the nine months ended September 30, 2018, was $24,021,396, compared to $33,763,957 for the nine months ended September 30, 2017. The decrease of $9,742,561 was primarily due to a net decrease of $409,457,250 in our total notes payable balance as a result of the decrease in the number of properties in our portfolio subsequent to September 30, 2017, partially offset by increases in LIBOR from September 30, 2017 to September 30, 2018, that impact the interest on our variable rate loans. Our interest expense in future periods will vary based on the impact changes to LIBOR will have on our variable rate debt and our level of borrowings, which will depend on the availability and cost of debt financing, the opportunity to acquire real estate and real estate-related investments meeting our investment objectives 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, 2018, was $2,282,247, compared to $401,674 for the nine months ended September 30, 2017. 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 sale of 11 multifamily properties and repayment of notes payable at two multifamily properties during the nine months ended September 30, 2018, compared to the prepayment penalties and the expense of the deferred financing costs, net related to the repayment and extinguishment of the debt in conjunction with the sale of two multifamily properties during the nine months ended September 30, 2017. 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.
General and administrative expense
General and administrative expenses for the nine months ended September 30, 2018, were $4,835,308, compared to $5,218,885 for the nine months ended September 30, 2017. 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 decrease of $383,577 was primarily due to a decrease of $316,174 related to the decrease in the number of properties in our portfolio subsequent to September 30, 2017. The activity related to the properties held throughout both periods was consistent with no meaningful changes during the nine months ended September 30, 2017, compared to the nine months ended September 30, 2018. We expect general and administrative expenses to decrease as a percentage of total revenues.
Equity in loss from unconsolidated joint venture
Equity in loss from unconsolidated joint venture for the nine months ended September 30, 2018, was $3,102,044 compared to $0 for the nine months ended September 30, 2017. Our investment in the joint venture has been accounted for as an unconsolidated joint venture under the equity method of accounting. Equity in loss from unconsolidated joint venture will be based on the operating results of the joint venture in future periods.
Gain on sales of real estate
Gain on sales of real estate for the nine months ended September 30, 2018, was $81,247,054, compared to $5,382,847 for the nine months ended September 30, 2017. The gain on sales of real estate consists of the gain recognized on the disposition of 11 multifamily properties during the nine months ended September 30, 2018, compared to the disposition of two multifamily properties during the nine months ended September 30, 2017. Our gain on sales of real estate in future periods will vary based on the opportunity to sell real properties and real estate-related investments.

56

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


Property Operations for the Three Months Ended September 30, 2018 Compared to the Three Months Ended September 30, 2017
For purposes of evaluating comparative operating performance, we categorize properties as “same-store” or “non-same-store.” A “same-store” property is a property that was owned at July 1, 2017 and September 30, 2018. A “non-same-store” property is a property that was acquired, placed into service or disposed of after July 1, 2017. As of September 30, 2018, 37 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, 2018 and 2017:
 
 
For the Three Months Ended September 30,
 
 
 
 
 
 
2018
 
2017
 
Change $
 
Change %
Same-store properties:
 
 
 
 
 
 
 
 
Revenues
 
$
33,158,386

 
$
32,562,713

 
$
595,673

 
2
 %
Operating expenses
 
16,365,464

 
15,519,289

 
846,175

 
5
 %
NOI
 
16,792,922

 
17,043,424

 
(250,502
)
 
(1
)%
 
 
 
 
 
 
 
 
 
Non-same-store properties:
 
 
 
 
 
 
 
 
NOI
 
2,147,562

 
10,596,484

 
(8,448,922
)
 

 
 
 
 
 
 
 
 
 
Total NOI(1)
 
$
18,940,484

 
$
27,639,908

 
$
(8,699,424
)
 

________________
(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, 2018, was $16,792,922, compared to $17,043,424 for the three months ended September 30, 2017. The 1% decrease in same-store net operating income was primarily due to a 2% increase in same-store rental revenues offset by a 5% increase in same-store operating expenses over the comparable prior year period.
Revenues
Same-store revenues for the three months ended September 30, 2018, were $33,158,386, compared to $32,562,713 for the three months ended September 30, 2017. The 2% increase in same-store revenues was primarily due to the average rent increases at the same-store properties from $1,031 as of September 30, 2017, to $1,046 as of September 30, 2018, 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, 2018, were $16,365,464, compared to $15,519,289 for the three months ended September 30, 2017. The 5% increase in same-store operating expenses was primarily due to increased repairs and maintenance expenses and to a lesser extent increased payroll expenses and utility expenses for the three months ended September 30, 2018, relative to the comparable prior year period.

57

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


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 “—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.

58

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 income (loss) for the three and nine months ended September 30, 2018 and 2017, computed in accordance with GAAP:
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net (loss) income
 
$
(6,456,722
)
 
$
(2,326,578
)
 
$
58,857,793

 
$
(13,628,026
)
Fees to affiliates(1)
 
2,603,225

 
3,573,959

 
7,731,826

 
10,723,093

Depreciation and amortization
 
12,579,032

 
17,850,748

 
34,781,722

 
53,852,540

Interest expense
 
8,452,962

 
11,655,008

 
24,021,396

 
33,763,957

Loss on debt extinguishment
 
—

 
401,674

 
2,282,247

 
401,674

General and administrative expenses
 
1,151,340

 
2,042,856

 
4,835,308

 
5,218,885

Gain on sales of real estate, net
 
—

 
(5,382,847
)
 
(81,247,054
)
 
(5,382,847
)
Adjustments for investment in unconsolidated joint venture(2)
 
1,001,590

 
—

 
5,236,092

 
—

Other gains(3)
 
(390,943
)
 
(174,912
)
 
(1,260,850
)
 
(446,742
)
Net operating income
 
$
18,940,484

 
$
27,639,908

 
$
55,238,480

 
$
84,502,534

________________
(1)
Fees to affiliates for the three and nine months ended September 30, 2018, exclude property management fees of $1,035,326 and $3,038,678 and other fees of $474,588 and $1,083,925, respectively, that are included in NOI. Fees to affiliates for the three and nine months ended September 30, 2017, exclude property management fees of $1,640,754 and $4,871,838 and other fees of $468,207 and $1,377,974, respectively, that are included in NOI.
(2)
Reflects adjustments to add back our noncontrolling interest share of the adjustments to reconcile our net income (loss) attributable to common stockholders to NOI for our equity investment in the unconsolidated joint venture, which principally consists of depreciation, amortization and interest expense incurred by the joint venture.
(3)
Other gains for the three and nine months ended September 30, 2018 and 2017 include non-recurring insurance proceeds and interest income 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 the measure of FFO which we believe to be an appropriate supplemental measure to reflect the operating performance of a real estate investment trust, or 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, or 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

59

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


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.
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 are not capitalized, as discussed below, and 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

60

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


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.
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, or 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, except with respect to certain acquisition fees and expenses as discussed below. In calculating MFFO, we exclude acquisition related expenses that are not capitalized, 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. Historically, under GAAP, acquisition fees and expenses were characterized as operating expenses in determining operating net income. However, following the recent publication of ASU 2017-01, Business Combinations (Topic 805): Clarifying the definition of business, or ASU 2017-01, acquisition fees and expenses are capitalized and depreciated under certain conditions. We elected to early adopt ASU 2017-01, resulting in a substantial part of acquisition fees and expenses being capitalized and therefore not excluded from the calculation of MFFO but captured as depreciation in calculating FFO. However, 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

61

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


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 that are not capitalized, 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.
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, 2018 and 2017:
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
Reconciliation of net loss to MFFO:
 
2018
 
2017
 
2018
 
2017
Net (loss) income
 
$
(6,456,722
)
 
$
(2,326,578
)
 
$
58,857,793

 
$
(13,628,026
)
Depreciation of real estate assets
 
11,657,288

 
17,812,456

 
33,498,945

 
53,737,664

Amortization of lease-related costs
 
921,744

 
38,292

 
1,282,777

 
114,876

Gain on sales of real estate, net
 
—

 
(5,382,847
)
 
(81,247,054
)
 
(5,382,847
)
Adjustments for investment in unconsolidated joint venture(1)
 
648,524

 
—

 
4,215,228

 
—

FFO
 
6,770,834

 
10,141,323

 
16,607,689

 
34,841,667

Acquisition expenses(2)(3)
 
13,641

 
—

 
314,774

 
—

Unrealized (gain) loss on derivative instruments
 
(18,199
)
 
90,601

 
(103,506
)
 
606,690

Loss on debt extinguishment
 
—

 
401,674

 
2,282,247

 
401,674

MFFO
 
$
6,766,276

 
$
10,633,598

 
$
19,101,204

 
$
35,850,031

________________
(1)
Reflects adjustments to add back our noncontrolling interest share of the adjustments to reconcile our net income (loss) attributable to common stockholders to FFO for our equity investment in the unconsolidated joint venture, which principally consists of depreciation and amortization incurred by the joint venture.
(2)
By excluding acquisition 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

62

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


operating performance of our properties. Acquisition expenses include payments to our advisor or third parties. Historically, acquisition expenses under GAAP were 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. Following the recent publication of ASU 2017-01, acquisition expenses are capitalized and depreciated under certain conditions. We elected to early adopt ASU 2017-01 resulting in a substantial part of our acquisition expenses being capitalized and therefore not excluded from the calculation of MFFO but are captured as depreciation in calculating FFO. All paid and accrued acquisition 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 expenses and other costs related to the property. In the event that operational earnings and cash flow are not available to fund our reimbursement of acquisition expenses incurred by our advisor, such expenses will need to be reimbursed to the advisor from other sources, including debt, operational earnings or cash flow, net proceeds from the sale of properties, or from ancillary cash flows.
(3)
Acquisition expenses for the three and nine months ended September 30, 2018 of $13,641 and $314,774 did not meet the criteria for capitalization under ASU 2017-01 and are recorded in general and administrative expenses in the accompanying condensed consolidated unaudited statements of operations. No acquisition expenses were incurred for each of the three and nine months ended September 30, 2017.
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, 2018, 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 condition, 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 9 (Related Party Arrangements) to our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q 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,

63

PART I — FINANCIAL INFORMATION (continued)

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, 2018, the fair value of our fixed rate debt was $365,826,475 and the carrying value of our fixed rate debt was $383,118,595. 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, 2018. 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.
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, 2018, the fair value of our variable rate debt was $396,370,215 and the carrying value of our variable rate debt was $391,132,465. Based on interest rates as of September 30, 2018, if interest rates were 100 basis points higher during the 12 months ending September 30, 2019, interest expense on our variable rate debt would increase by $3,995,833 and if interest rates were 100 basis points lower during the 12 months ending September 30, 2019, interest expense on the variable rate debt would decrease by $3,995,942.
At September 30, 2018, the weighted-average interest rate of our fixed rate debt and variable rate debt was 3.96% and 4.42%, respectively. The weighted-average interest rate of our blended fixed and variable rates was 4.19% at September 30, 2018. The weighted-average interest rate represents the actual interest rate in effect at September 30, 2018 (consisting of the contractual interest rate), using interest rate indices as of September 30, 2018 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, 2018, 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, 2018 were not in excess of the capped rates. See also Note 12 (Derivative Financial Instruments) to our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily are required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of September 30, 2018, was conducted under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)

64

PART I — FINANCIAL INFORMATION (continued)

under the Exchange Act). Based on this evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures, as of September 30, 2018, were effective at the reasonable assurance level.
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, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


65

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 1, Item 1A set forth in our Annual Report on Form 10-K filed with the SEC on March 29, 2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 9, 2018, we granted each of our three independent directors 2,500 shares of restricted common stock upon re-election to our board of directors at the 2018 annual meeting of stockholders pursuant to our independent directors’ compensation plan. The shares of restricted common stock issued pursuant to our independent directors’ compensation plan were issued in transactions exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
During the three months ended September 30, 2018, 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)(4)
 
Approximate Dollar Value of Shares Available That May Be /Repurchased Under the Program
July 2018
 
215,326

 
218,555

 
$
9.15

 
(5) 
August 2018
 
168,165

 
—

 
—

 
(5) 
September 2018
 
156,607

 
—

 
—

 
(5) 
 
 
540,098

 
218,555

 
$
—

 
 
____________________
(1)
We generally repurchase shares on the last business day of the month following the end of each fiscal quarter in which requests were received. We suspended our share repurchase program effective April 28, 2018. Our board of directors subsequently decided to reinstate and amend the share repurchase program effective May 20, 2018. Due to the suspension and subsequent reinstatement of the share repurchase program, valid repurchase requests received during the three months ended March 31, 2018, were honored on May 31, 2018. On October 31, 2018, we repurchased 218,800 shares of our common stock for a total repurchase value of $2,000,000, or $9.14 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 redeem shares at prices determined as follows:
•
92.5% of the share repurchase price for stockholders who have held their shares for at least one year;
•
95.0% of the share repurchase price for stockholders who have held their shares for at least two years;
•
97.5% of the share repurchase price for stockholders who have held their shares for at least three years; and

66

PART II—OTHER INFORMATION (continued)


•
100.0% of the share repurchase price for stockholders who have held their shares for at least four years.
Effective May 20, 2018, the “share repurchase price” is equal to 93% of the most recently determined estimated value per share less reductions due to the holding period for shares and other events specified in the share repurchase program. Notwithstanding the above, the repurchase price for repurchases 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)
For the three months ended September 30, 2018, the sources of the cash used to redeem shares were 100% from existing cash and cash equivalents.
(5) 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 in any quarter.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.

67

PART II—OTHER INFORMATION (continued)


Item 5. Other Information
None.
Item 6. Exhibits
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 Index 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 on Form 10-Q for the three months ended September 30, 2018 (and are numbered in accordance with Item 601 of Regulation S-K).

3.1

3.2

4.1

31.1*

31.2*

32.1**

32.2**

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.
____________


68

PART II—OTHER INFORMATION (continued)


*
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.


69

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 9, 2018
By:  
/s/ Rodney F. Emery  
 
 
 
Rodney F. Emery 
 
 
 
Chief Executive Officer and Chairman of the Board (Principal Executive Officer) 
 
 
 
 
Date:
November 9, 2018
By:  
/s/ Kevin J. Keating  
 
 
 
Kevin J. Keating 
 
 
 
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 


Steadfast Income REIT, Inc. Reports