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, 2019



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)

Securities registered pursuant to Section 12(b) of the Act: None



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

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 (§232.405 of this chapter) 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 filer, 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 1, 2019, there were 73,905,170 shares of the Registrant’s common stock issued and outstanding.

Table of Contents

STEADFAST INCOME REIT, INC.

INDEX



	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements	2
Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018	2
Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited)	3
Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (unaudited)	4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)	6
Condensed Notes to Consolidated Financial Statements as of September 30, 2019 (unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3. Quantitative and Qualitative Disclosures About Market Risk	65
Item 4. Controls and Procedures	66
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	67
Item 1A. Risk Factors	67
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3. Defaults Upon Senior Securities	69
Item 4. Mine Safety Disclosures	69
Item 5. Other Information	70
Item 6. Exhibits	70
Signatures	73

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

STEADFAST INCOME REIT, INC.

CONSOLIDATED BALANCE SHEETS



	September 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Assets:
Real Estate:
Land	$	89,822,014		$	90,153,980
Building and improvements	804,194,436			795,383,423
Total real estate held for investment, cost	894,016,450			885,537,403
Less accumulated depreciation and amortization	(190,527,296		)	(165,112,070		)
Total real estate held for investment, net	703,489,154			720,425,333
Real estate held for sale, net	—			126,464,504
Total real estate, net	703,489,154			846,889,837
Cash and cash equivalents	120,202,920			142,078,166
Restricted cash	9,362,825			11,265,317
Investment in unconsolidated joint venture	13,316,283			14,085,399
Rents and other receivables	2,501,546			1,791,881
Assets related to real estate held for sale	—			848,960
Other assets	2,496,144			2,698,438
Total assets	$	851,368,872		$	1,019,657,998
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities	$	20,356,476		$	23,899,595
Notes payable:
Mortgage notes payable, net	498,426,493			566,900,461
Credit facility, net	—			52,363,460
Mortgage notes payable related to real estate held for sale, net	—			74,237,653
Total notes payable, net	498,426,493			693,501,574
Distributions payable	3,371,492			3,515,310
Due to affiliates	1,645,472			4,985,918
Liabilities related to real estate held for sale	—			2,994,267
Total liabilities	523,799,933			728,896,664
Commitments and contingencies (Note 10)
Redeemable common stock	1,289,113			—
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, 73,983,866 and 74,650,139 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	739,839			746,502
Convertible stock, $0.01 par value per share; 1,000 shares authorized, issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	10			10
Additional paid-in capital	650,253,927			656,204,073
Cumulative distributions and net income	(324,713,950		)	(366,189,251		)
Total stockholders’ equity	326,279,826			290,761,334
Total liabilities and stockholders’ equity	$	851,368,872		$	1,019,657,998

See accompanying condensed notes to consolidated financial statements.

Table of Contents

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,
	2019			2018			2019			2018
Revenues:
Rental income	$	26,857,176		$	35,421,095		$	84,948,693		$	102,999,303
Other income	966,375			820,623			3,218,233			2,754,349
Total revenues	27,823,551			36,241,718			88,166,926			105,753,652
Expenses:
Operating, maintenance and management	6,871,764			10,457,331			21,720,715			28,936,191
Real estate taxes and insurance	4,031,558			5,657,098			13,376,128			18,329,576
Fees to affiliates	3,934,709			4,113,139			11,083,920			11,854,429
Depreciation and amortization	8,520,813			12,579,032			25,961,590			34,781,722
Interest expense	6,044,495			8,496,658			20,505,685			24,408,327
Loss on debt extinguishment	597,681			—			3,432,058			2,282,247
General and administrative expenses	3,063,653			1,107,644			6,181,745			4,448,377
Total expenses	33,064,673			42,410,902			102,261,841			125,040,869
Loss before other income (expense)	(5,241,122		)	(6,169,184		)	(14,094,915		)	(19,287,217		)
Other income (expense):
Equity in loss from unconsolidated joint venture	(228,667		)	(287,540		)	(427,816		)	(3,102,044		)
(Loss) gain on sales of real estate, net	(88,137		)	—			86,800,659			81,247,054
Total other (expense) income	(316,804		)	(287,540		)	86,372,843			78,145,010
Net (loss) income	$	(5,557,926	)	$	(6,456,724	)	$	72,277,928		$	58,857,793
(Loss) income per common share — basic and diluted	$	(0.08	)	$	(0.09	)	$	0.97		$	0.78
Weighted average number of common shares outstanding — basic	74,051,096			74,928,285			74,273,151			75,164,006
Weighted average number of common shares outstanding — diluted	74,056,721			74,940,350			74,278,776			75,176,774

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 (Unaudited)



	Common Stock					Convertible Stock			Additional Paid- In Capital			Cumulative Distributions & Net Income			Total Stockholders’ Equity
	Shares		Amount			Shares	Amount		Additional Paid- In Capital			Cumulative Distributions & Net Income			Total Stockholders’ Equity
BALANCE, July 1, 2019	74,206,848		$	742,069		1,000	$	10	$	652,239,394		$	(308,806,598	)	$	344,174,875
Repurchase of common stock	(222,982	)	(2,230		)	—	—		(1,997,770		)	—			(2,000,000		)
Distributions declared ($0.140 per share of common stock)	—		—			—	—		—			(10,349,426		)	(10,349,426		)
Amortization of stock-based compensation	—		—			—	—		12,303			—			12,303
Net loss for the three months ended September 30, 2019	—		—			—	—		—			(5,557,926		)	(5,557,926		)
BALANCE, September 30, 2019	73,983,866		$	739,839		1,000	$	10	$	650,253,927		$	(324,713,950	)	$	326,279,826

	Common Stock					Convertible Stock			Additional Paid- In Capital			Cumulative Distributions & Net Income			Total Stockholders’ Equity
	Shares		Amount			Shares	Amount		Additional Paid- In Capital			Cumulative Distributions & Net Income			Total Stockholders’ Equity
BALANCE, January 1, 2019	74,650,139		$	746,502		1,000	$	10	$	656,204,073		$	(366,189,251	)	$	290,761,334
Repurchase of common stock	(666,273	)	(6,663		)	—	—		(5,993,337		)	—			(6,000,000		)
Distributions declared ($0.415 per share of common stock)	—		—			—	—		—			(30,802,627		)	(30,802,627		)
Amortization of stock-based compensation	—		—			—	—		43,191			—			43,191
Net income for the nine months ended September 30, 2019	—		—			—	—		—			72,277,928			72,277,928
BALANCE, September 30, 2019	73,983,866		$	739,839		1,000	$	10	$	650,253,927		$	(324,713,950	)	$	326,279,826

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND 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		Additional Paid- In Capital			Cumulative Distributions & Net Losses			Total Stockholders’ Equity
BALANCE, July 1, 2018	75,079,994		$	750,800		1,000	$	10	$	660,149,499		$	(369,043,111	)	$	291,857,198
Issuance of common stock	7,500		75			—	—		(75		)	—			—
Repurchase of common stock	(218,555	)	(2,185		)	—	—		(1,997,815		)	—			(2,000,000		)
Distributions declared ($0.140 per share of common stock)	—		—			—	—		—			(10,472,649		)	(10,472,649		)
Amortization of stock-based compensation	—		—			—	—		34,832			—			34,832
Net loss for the three months ended September 30, 2018	—		—			—	—		—			(6,456,724		)	(6,456,724		)
BALANCE, September 30, 2018	74,868,939		$	748,690		1,000	$	10	$	658,186,441		$	(385,972,484	)	$	272,962,657

	Common Stock					Convertible Stock			Additional Paid- In Capital			Cumulative Distributions & Net Losses			Total Stockholders’ Equity
	Shares		Amount			Shares	Amount		Additional Paid- In Capital			Cumulative Distributions & Net Losses			Total Stockholders’ Equity
BALANCE, January 1, 2018	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 ($1.470 per share of common stock)	—		—			—	—		—			(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

Table of Contents

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,
	2019			2018
Cash Flows from Operating Activities:
Net income	$	72,277,928		$	58,857,793
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	25,961,590			34,781,722
Amortization of deferred financing costs	729,401			799,989
Amortization of stock-based compensation	43,191			69,422
Amortization of loan premiums	(48,562		)	(222,466		)
Change in fair value of interest rate cap agreements	163,363			(103,506		)
Gain on sales of real estate	(86,800,659		)	(81,247,054		)
Loss on debt extinguishment	3,432,058			2,282,247
Insurance claim recoveries	(86,190		)	(1,005		)
Loss on disposal of building and improvements	53,207			427
Equity in loss from unconsolidated joint venture	427,816			3,102,044
Changes in operating assets and liabilities:
Rents and other receivables	(921,795		)	457,299
Other assets	(35,407		)	1,244,119
Accounts payable and accrued liabilities	(3,490,110		)	358,873
Due to affiliates	(3,357,984		)	(427,837		)
Net cash provided by operating activities	8,347,847			19,952,067
Cash Flows from Investing Activities:
Cash contribution to unconsolidated joint venture	(548,800		)	(2,931,578		)
Cash distribution from unconsolidated joint venture	890,100			530,100
Acquisition of real estate investments	—			(67,886,062		)
Additions to real estate investments	(9,423,100		)	(6,754,330		)
Escrow deposits for pending real estate acquisitions	—			(2,600,000		)
Purchase of interest rate cap agreements	(47,000		)	(203,300		)
Proceeds from sales of real estate, net	211,990,358			178,277,349
Proceeds from insurance claims	298,320			1,005
Net cash provided by investing activities	203,159,878			98,433,184
Cash Flows from Financing Activities:
Proceeds from issuance of mortgage notes payable	222,934,000			106,482,000
Principal payments on mortgage notes payable	(365,119,705		)	(158,021,981		)
Principal payments on credit facility	(52,656,750		)	(38,410,500		)
Payment of deferred financing costs	(1,356,539		)	(1,323,128		)
Payment of debt extinguishment costs	(2,988,984		)	(1,526,431		)
Distributions to common stockholders	(30,946,445		)	(111,795,742		)
Repurchases of common stock	(6,000,000		)	(6,000,000		)
Net cash used in financing activities	(236,134,423		)	(210,595,782		)
Net decrease in cash, cash equivalents and restricted cash	(24,626,698		)	(92,210,531		)
Cash, cash equivalents and restricted cash, beginning of period	154,192,443			205,096,008
Cash, cash equivalents and restricted cash, end of period	$	129,565,745		$	112,885,477

Table of Contents

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,
	2019		2018
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	21,272,206	$	24,026,631
Supplemental Disclosure of Noncash Transactions:
Distributions payable	$	3,371,492	$	3,411,890
Assumption of mortgage notes payable to acquire real estate	$	—	$	65,000,000
Application of escrow deposits to acquire real estate	$	—	$	2,600,000
Redeemable common stock	$	1,289,113	$	—
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
Accounts payable and accrued liabilities from additions to real estate investments	$	362,179	$	81,950
Due to affiliates from additions to real estate investments	$	22,180	$	6,613
Repurchases payable	$	710,887	$	2,000,000
Operating lease right-of-use asset, net	$	107,080	$	—
Operating lease liabilities, net	$	114,332	$	—

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(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, 2019, the Company owned 27 multifamily properties comprising a total of 7,527 apartment homes and a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes. On March 13, 2019, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $9.40 as of December 31, 2018.

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 beginning with distributions earned on December 1, 2014. Through December 1, 2014, the Company issued 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 pursuant to the DRP for gross offering proceeds of $39,580,847.

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 current term of the Advisory Agreement expires on November 15, 2020. 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

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

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.

Pending Merger with Steadfast Apartment REIT, Inc.

On August 5, 2019, the Company, Steadfast Apartment REIT, Inc. (“STAR”), a public non-traded REIT sponsored by the Sponsor, Steadfast Apartment REIT Operating Partnership, L.P., STAR’s operating partnership (“STAR Operating Partnership”), the Operating Partnership, and SI Subsidiary, LLC, a wholly-owned subsidiary of STAR (“SIR Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, the Company will merge with and into SIR Merger Sub (the “Merger”), with SIR Merger Sub surviving the Merger, such that following the Merger, the surviving entity will continue as a wholly-owned subsidiary of STAR. In accordance with the applicable provisions of the Maryland General Corporation Law (the “MGCL”), the separate existence of the Company shall cease.

At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of the Company’s common stock (or a fraction thereof), $0.01 par value per share, will be converted into the right to receive 0.5934 shares of STAR’s common stock, $0.01 par value per share.

The obligation of each party to consummate the Merger is subject to a number of conditions, including receipt of the approval of the Merger and of an amendment to the Company’s Third Articles of Amendment and Restatement (the “Charter”) to delete certain provisions regarding roll-up transactions by the holders of a majority of the outstanding shares of SIR Common Stock (the “SIR Stockholder Approval”).

The Company (with the prior approval of the special committee of its board of directors) may terminate the Merger Agreement in order to enter into an “Alternative Acquisition Agreement” with respect to a “Superior Proposal” (each as defined in the Merger Agreement) at any time prior to receipt by the Company of the SIR Stockholder Approval pursuant to the terms of the Merger Agreement. STAR may terminate the Merger Agreement at any time prior to the receipt of the SIR Stockholder Approval, in certain limited circumstances, including upon an “Adverse Recommendation Change” (as defined in the Merger Agreement).

If the Merger Agreement is terminated in connection with the Company’s acceptance of a Superior Proposal or making an Adverse Recommendation Change, then the Company must pay to STAR a termination fee of $20,866,122 and up to $2,000,000 as reimbursement for STAR’s Expenses (as defined in the Merger Agreement).

On August 5, 2019, STAR, Steadfast Apartment REIT III Inc., a public non-traded REIT sponsored by the Sponsor, (“STAR III”), STAR Operating Partnership, Steadfast Apartment REIT III Operating Partnership, L.P., the operating partnership of STAR III, and SIII Subsidiary, LLC, a wholly-owned subsidiary of STAR (“STAR III Merger Sub”), entered into an Agreement and Plan of Merger (the “STAR III Merger Agreement”). Subject to the terms and conditions of the STAR III Merger Agreement, STAR III will merge with and into STAR III Merger Sub (the “STAR III Merger”), with STAR III Merger Sub surviving the STAR III Merger, such that following the STAR III Merger, the surviving entity will continue as a wholly-owned subsidiary of STAR. In accordance with the applicable provisions of the MGCL, the separate existence of STAR III shall cease.

The consummation of the Company’s merger with STAR is not contingent upon the completion of the merger between STAR and STAR III, and the consummation of the merger between STAR and STAR III is not contingent upon the completion of the Company’s merger with STAR.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

The combined company after the planned mergers will retain the name “Steadfast Apartment REIT, Inc.” Each merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code.

Concurrently with the entry into the SIR Merger Agreement, the Company and the Advisor entered into a termination letter agreement (the “Termination Agreement”), effective as of August 5, 2019. Pursuant to the Termination Agreement, the Advisory Agreement will be terminated at the effective time of the SIR Merger. Also pursuant to the Termination Agreement, the Advisor agreed to waive any disposition fee it otherwise would be entitled to pursuant to the Advisory Agreement related to the SIR Merger.

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, 2018, other than Accounting Standards Update (“ASU”) 2016-02 and the Securities and Exchange Commission’s (“SEC”) Disclosure Update and Simplification rule (Release 33-10532), 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, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2019.

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 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, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018.

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Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

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 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 unaudited consolidated statements of operations.

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Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

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, 2019
	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Assets:
Interest rate cap agreements	$	—	$	1,315	$	—

	December 31, 2018
	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Assets:
Interest rate cap agreements	$	—	$	117,678	$	—

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, 2019 and December 31, 2018, the fair value of the notes payable was $498,323,633 and $681,095,544, respectively, compared to the carrying value of $498,426,493 and $693,501,574, 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. As of September 30, 2019 and December 31, 2018, the Company had a restricted cash balance of $9,362,825 and $11,265,317, respectively, which represents 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, 2019 and December 31, 2018, respectively.

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Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(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, 2019 and 2018:



	September 30,
	2019		2018
Cash and cash equivalents	$	120,202,920	$	97,309,038
Restricted cash	9,362,825		15,576,439
Total cash, cash equivalents and restricted cash	$	129,565,745	$	112,885,477

The beginning of period cash, cash equivalents and restricted cash balance for the nine months ended September 30, 2019, includes $142,078,166 of cash and cash equivalents, $11,265,317 of restricted cash and $848,960 of restricted cash related to real estate held for sale as of December 31, 2018, on the accompanying consolidated balance sheet. In conjunction with property sales during the nine months ended September 30, 2019, $848,960 of restricted cash related to real estate held for sale was disposed of during the period.

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 earnings (loss). The Company recognizes its proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in earnings (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 commencing with the taxable year ended December 31, 2010. To continue to qualify 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 declared during the three and nine months ended September 30, 2019 were based on daily record dates and calculated at a rate of $0.001519 per share per day. Distributions were based on daily record dates and calculated at a rate of $0.001964 per share per day, $0.001683 per share per day and $0.001519 per share per day during the three months ended March 31, 2018, June 30, 2018 and September 30, 2018, respectively.

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, 2019, the Company declared aggregate distributions of $0.140 and $0.415 per common share, respectively. 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.

Per Share Data

Basic earnings (loss) per share attributable to common stockholders for all periods presented are computed by dividing net income 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

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Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

potentially dilutive securities, if any. Distributions declared per common share assume each share was issued and 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 consolidated financial statements were reclassified to conform to

the current period presentation. These reclassifications did not change the results of operations of those prior periods. On January 1, 2019, the Company adopted ASU 2016-02, as further described below. As a result, all income earned pursuant to tenant leases is reflected as one-line item, “Rental Income,” in the consolidated statements of operations. To facilitate comparability, the Company has reclassified prior period’s lease and non-lease income consistently with the current year.

The table below provides a reconciliation of the prior period presentation of the income statement line items that were reclassified in our consolidated statements of operations to conform to the current period presentation, pursuant to the adoption of the new lease accounting standard and election of the single component practical expedient:



	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Rental income (presentation prior to January 1, 2019)	$	31,892,448	$	93,133,369
Tenant reimbursements⁽¹⁾(presentation prior to January 1, 2019)	3,528,647		9,865,934
Rental income (presentation effective January 1, 2019)	$	35,421,095	$	102,999,303

_______________


(1)	Tenants reimbursements include reimbursements for recoverable costs.

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 February 2016, the FASB established ASC Topic 842, Leases (“ASC 842”), by issuing ASU 2016-02, which requires lessees to recognize right-of-use assets and lease liabilities for operating leases on the balance sheet and disclose key information about leasing arrangements. ASC 842 also makes targeted changes to lessor accounting. ASC 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842 (“ASU 2018-01”), ASU 2018-10, Codification Improvements to Topic 842 (“ASU 2018-10”), ASU 2018-11, Targeted Improvements (“ASU 2018-11”) and ASU 2018-20, Leases (Topic 842), Narrow-scope Improvements for Lessors (“ASU 2018-20”). ASC 842 requires a modified retrospective transition approach and was effective in the first quarter of 2019 and allowed for early adoption. The Company elected an optional transition method that allows entities to initially apply ASC 842 at the adoption

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Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

date (January 1, 2019) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company evaluated the impact of ASC 842 on its leases both as it relates to the Company acting as a lessee and as a lessor. Based on its evaluation, as it relates to the former, the Company elected to apply each of the practical expedients described in ASC 842-10-65-1(f) that allowed the Company, among other things, to not reassess lease classification conclusions or initial direct cost accounting as of December 31, 2018, therefore these leases continue to be accounted for as operating leases. The Company also elected the practical expedient described in ASC 842-20-25-2 not to apply the recognition requirements in ASC 842 to short-term leases and instead, to recognize lease payments in the consolidated statement of operations on a straight-line basis over the lease term. The Company did not experience a material impact on the recognition of leases in the consolidated financial statements because the quantity of leased equipment by the Company is limited and immaterial to the consolidated financial statements. Upon adoption, the Company recognized an initial operating lease right-of-use asset, net, of $94,742 and an operating lease liability, net, of $87,862.

As it relates to the Company as lessor, the Company did not experience a material impact on the recognition of leases in the consolidated financial statements because under ASC 842, lessors continue to account for leases using an approach that is substantially equivalent to historical guidance for sales-type leases, direct financing leases, and operating leases. The Company elected a practical expedient which allows lessors to not separate non-lease components from the lease component when the timing and pattern of transfer for the lease components and non-lease components are the same and if the lease component is classified as an operating lease. As a result, on January 1, 2019, the Company began presenting all rentals and reimbursements from tenants as a single line item rental income within the consolidated statements of operations. As of January 1, 2019, the Company implemented changes to its business processes and controls related to accounting for and the presentation and disclosure of leases, including the reclassification of tenant reimbursements, previously disclosed as part of tenant reimbursements and other, to rental income, in the consolidated statements of operations.

Under ASC 842, beginning on January 1, 2019, changes in the probability of collecting tenant rental income could result in direct adjustments of rental income and tenant receivables. The Company did not experience a material impact on its rental income and tenant receivables as of the adoption date.

The Company’s rental income consists of fixed rental payments from tenants under operating leases and is recognized on a straight-line basis over the respective operating lease terms. The Company recognizes minimum rent, including rental abatements, concessions and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the non-cancelable term of the related lease. The Company’s rental income that relates to variable lease payments consists of tenant reimbursements and includes reimbursements for recoverable costs, which are recognized as revenue in the period during which the applicable expenses are incurred and the tenant’s obligation to reimburse the Company arises.

The Company recognized $26,857,176 and $84,948,693 of rental income related to operating lease payments of which $2,709,239 and $8,017,862 was for variable lease payments for the three and nine months ended September 30, 2019, respectively.

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. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (“ASU 2018-19”), which clarifies that operating lease receivables accounted for under ASC 842 Leases, are not in the scope of the new credit losses guidance. The effective date and transition requirements for this guidance are the same as for ASU 2016-13. 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

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Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures and does not expect a material impact on its consolidated financial statements and related disclosures from its adoption.

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 issuance of ASU 2018-13 is part of a disclosure framework project. The disclosure framework project’s objective and primary focus are to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of each entity’s financial statements. Achieving the objective of improving the effectiveness of the notes to financial statements includes: (1) the development of a framework that promotes consistent decisions by the FASB board about disclosure requirements and (2) the appropriate exercise of discretion by reporting entities. 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 benefit. ASU 2018-13 removed certain disclosure requirements under Topic 820 such as the disclosure requirements of the valuation process for level 3 fair value measurements and modified and added certain of the disclosure requirements in Topic 820. 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.

The SEC’s Disclosure Update and Simplification rule (Release 33-10532) amends the interim financial statement requirements to require a reconciliation of changes in stockholder’ equity in the notes or as a separate statement. This analysis should reconcile the beginning balance to the ending balance of each caption in stockholders’ equity for each period for which an income statement is required to be filed and comply with the remaining content requirements of Rule 3-04 of Regulation S-X. As a result, registrants will have to provide the reconciliation for both the year-to-date and quarterly periods and comparable periods in Form 10-Q but only for the year-to-date periods in registration statements. The rule does not prescribe the format of the presentation as long as the appropriate periods are provided. Per a Compliance and Disclosure Interpretation (Q 105.09, Exchange Act Forms, 10-Q), “The amendments are effective for all filings made on or after November 5, 2018. In light of the timing of effectiveness of the amendments and proximity of effectiveness to the filing date for most filers’ quarterly reports, the staff would not object if the filer’s first presentation of the changes in the shareholders’ equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments.” This allows the Company to adopt the amendment for the Company’s first quarter 2019 filing. The Company has adopted this guidance in the nine months ended September 30, 2019 by presenting a reconciliation of changes in stockholders’ equity for the current and prior period as a separate statement.

3. Real Estate

As of September 30, 2019, the Company owned 27 multifamily properties encompassing in the aggregate 7,527 residential apartment homes. The total purchase price of the Company’s real estate portfolio was $862,854,253. As of September 30, 2019 and December 31, 2018, the Company’s portfolio was approximately 95.8% and 94.3% occupied and the average monthly rent was $1,123 and $1,068, respectively.

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Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

As of September 30, 2019 and December 31, 2018, accumulated depreciation and amortization related to the Company’s consolidated real estate properties and related intangibles were as follows:



	September 30, 2019
	Assets
	Land		Building and Improvements			Total Real Estate Held for Investment			Real Estate Held for Sale
Investments in real estate	$	89,822,014	$	804,194,436		$	894,016,450		$	—
Less: Accumulated depreciation and amortization	—		(190,527,296		)	(190,527,296		)	—
Net investments in real estate and related lease intangibles	$	89,822,014	$	613,667,140		$	703,489,154		$	—



	December 31, 2018
	Assets
	Land		Building and Improvements			Total Real Estate Held for Investment			Real Estate Held for Sale
Investments in real estate	$	90,153,980	$	795,383,423		$	885,537,403		$	165,346,251
Less: Accumulated depreciation and amortization	—		(165,112,070		)	(165,112,070		)	(38,881,747		)
Net investments in real estate and related lease intangibles	$	90,153,980	$	630,271,353		$	720,425,333		$	126,464,504

Total depreciation and amortization expenses were $8,520,813 and $25,961,590 for the three and nine months ended September 30, 2019, and $12,579,032 and $34,781,722 for the three and nine months ended September 30, 2018, respectively.

Depreciation of the Company’s buildings and improvements was $8,519,728 and $25,945,678 for the three and nine months ended September 30, 2019, and $11,657,288 and $33,498,945 for the three and nine months ended September 30, 2018, respectively.

Amortization of the Company’s other intangible assets was $0 and $12,764 for the three and nine months ended September 30, 2019, and $38,292 and $114,876 for the three and nine months ended September 30, 2018, respectively.

Operating Leases

As of September 30, 2019, the Company’s real estate portfolio comprised 7,527 residential apartment homes and was 97.5% leased by a diverse group of residents. For each of the three and nine months ended September 30, 2019 and 2018, 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.

Some residential 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. 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

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Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

cash related to tenant leases are included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets and totaled $2,340,759 and $2,868,600 as of September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019 and December 31, 2018, no tenant represented over 10% of the Company’s annualized base rent.

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.

2019 Property Dispositions

Dawntree Apartments

On August 15, 2013, the Company, through an indirect wholly-owned subsidiary, acquired Dawntree Apartments, a multifamily property located in Carrollton, Texas, containing 400 apartment homes. The purchase price of Dawntree Apartments was $24,000,000, exclusive of closing costs. On March 8, 2019, the Company sold Dawntree Apartments for $46,200,000, resulting in a gain of $24,141,403, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Dawntree Apartments was not affiliated with the Company or the Advisor.

In connection with the disposition of Dawntree Apartments, the Company, through an indirect wholly-owned subsidiary, entered into an agreement to defease the remaining outstanding principal balance of $14,201,657 under the note payable. As a result of this agreement, the Company made a $903,564 defeasance payment (excluding expenses), the collateral was released, and the Company was released from all primary debtor obligations associated with the note payable. The Company recognized a $811,084 loss associated with the defeasance, which is included in loss on debt extinguishment on the consolidated statement of income.

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Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

Estancia Apartments

On June 29, 2012, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired Estancia Apartments, a multifamily property located in Tulsa, Oklahoma, containing 294 apartment homes. The purchase price of Estancia Apartments was $27,900,000, exclusive of closing costs. On March 22, 2019, the Company sold Estancia Apartments for $30,683,000, resulting in a gain of $6,892,244, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Estancia Apartments was not affiliated with the Company or the Advisor.

Sonoma Grande Apartments

On May 24, 2012, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired Sonoma Grande Apartments, a multifamily property located in Tulsa, Oklahoma, containing 336 apartment homes. The purchase price of Sonoma Grande Apartments was $32,200,000, exclusive of closing costs. On March 22, 2019, the Company sold Sonoma Grande Apartments for $35,067,000, resulting in a gain of $9,367,938, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Sonoma Grande Apartments was not affiliated with the Company or the Advisor.

EBT Lofts, Library Lofts East and Stuart Hall Lofts

On December 30, 2011, February 28, 2013 and August 27, 2013, the Company, through wholly-owned subsidiaries of the Operating Partnership, acquired EBT Lofts, Library Lofts East and Stuart Hall Lofts, respectively, multifamily properties located in Kansas City, Missouri, collectively containing 335 apartment homes. The combined purchase price of EBT Lofts, Library Lofts East and Stuart Hall Lofts was $38,175,000, exclusive of closing costs. On April 26, 2019, the Company sold EBT Lofts, Library Lofts East and Stuart Hall Lofts for $50,685,000, resulting in a gain of $19,120,514, which includes reductions to the net book value of the properties due to historical depreciation and amortization expense. The purchaser of EBT Lofts, Library Lofts East and Stuart Hall Lofts was not affiliated with the Company or the Advisor.

In connection with the disposition of Library Lofts East, the Company, through an indirect wholly-owned subsidiary, entered into an agreement to defease the remaining outstanding principal balance of $8,120,272 under the note payable. As a result of this agreement, the Company made a $95,417 defeasance payment (excluding expenses), the collateral was released, and the Company was released from all primary debtor obligations associated with the note payable. The Company recognized a $160,080 loss associated with the defeasance, which is included in loss on debt extinguishment on the consolidated statement of income.

Waterford on the Meadow

On July 3, 2013, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired Waterford on the Meadow, a multifamily property located in Plano, Texas, containing 350 apartment homes. The purchase price of Waterford on the Meadow was $23,100,000, exclusive of closing costs. On May 14, 2019, the Company sold Waterford on the Meadow for $42,000,000, resulting in a gain of $20,315,545, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Waterford on the Meadow was not affiliated with the Company or the Advisor.

In connection with the disposition of Waterford on the Meadow, the Company, through an indirect wholly-owned subsidiary, entered into an agreement to defease the remaining outstanding principal balance of $12,484,478 under the note payable. As a result of this agreement, the Company made a $449,231 defeasance payment (excluding expenses), the collateral was released, and the Company was released from all primary debtor obligations associated with the note payable. The Company recognized a $517,294 loss associated with the defeasance, which is included in loss on debt extinguishment on the consolidated statement of income.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

Truman Farm Villas

On December 22, 2011, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired Truman Farm Villas, a multifamily property located in Grandview, Missouri, containing 200 apartment homes. The purchase price of Truman Farm Villas was $9,100,000, exclusive of closing costs. On May 15, 2019, the Company sold Truman Farm Villas for $14,650,000, resulting in a gain of $7,051,452, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Truman Farm Villas was not affiliated with the Company or the Advisor.

The results of operations for the three and nine months ended September 30, 2019 and 2018, through the date of sale for all properties disposed of through September 30, 2019, including the properties contributed to the Joint Venture on the Second Closing Date, 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,
	2019			2018		2019		2018
Revenues:
Rental income	$	—		$	9,736,098	$	6,436,219	$	31,835,371
Tenant reimbursements and other	—			115,260		193,397		497,245
Total revenues	—			9,851,358		6,629,616		32,332,616
Expenses:
Operating, maintenance and management	(37,765		)	3,490,991		2,535,242		10,342,146
Real estate taxes and insurance	(41,310		)	1,374,515		421,347		5,019,372
Fees to affiliates	3			396,267		299,468		1,234,699
Depreciation and amortization	—			2,956,533		531,447		9,160,479
Interest expense	—			1,719,077		954,160		6,039,544
Loss on debt extinguishment	—			—		1,796,532		2,011,282
General and administrative expenses	—			79,728		38,587		222,989
Total expenses	$	(79,072	)	$	10,017,111	$	6,576,783	$	34,030,511


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, a wholly-owned subsidiary of the Operating Partnership, holds the Company’s 10% interest in the Joint Venture.

The Company does not exercise significant influence nor does it 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.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

As of September 30, 2019 and December 31, 2018, the book value of the Company’s investment in the Joint Venture was $13,316,283 and $14,085,399, respectively, which includes $7,640,166 and $7,640,166 of outside basis difference, respectively. 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, 2019 and 2018, $60,294 and $180,882, and $60,294 and $534,592, respectively, of amortization of this basis difference was included in equity in losses from unconsolidated joint venture on the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2019 and 2018, the Company received distributions of $580,700 and $890,100 and $0 and $530,100, respectively, related to its investment in the Joint Venture.

Unaudited financial information for the Joint Venture as of September 30, 2019 and December 31, 2018, and for the three and nine months ended September 30, 2019, is summarized below:



	September 30, 2019		December 31, 2018
Assets:
Real estate assets, net	$	491,510,283	$	493,776,142
Other assets	17,446,734		24,091,229
Total assets	$	508,957,017	$	517,867,371
Liabilities and equity:
Notes payable, net	$	340,252,366	$	340,840,505
Other liabilities	19,061,703		21,501,680
Company’s capital	14,964,279		15,552,513
Other partner’s capital	134,678,669		139,972,673
Total liabilities and equity	$	508,957,017	$	517,867,371



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues	$	15,849,829		$	15,571,241		$	48,303,658		$	44,783,429
Expenses	17,533,557			17,843,699			50,772,998			70,457,945
Net loss	$	(1,683,728	)	$	(2,272,458	)	$	(2,469,340	)	$	(25,674,516	)

Company’s proportional net loss	$	(168,373	)	$	(227,246	)	$	(246,934	)	$	(2,567,452	)
Amortization of outside basis	(60,294		)	(60,294		)	(180,882		)	(534,592		)
Equity in losses of unconsolidated joint venture	$	(228,667	)	$	(287,540	)	$	(427,816	)	$	(3,102,044	)

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

5. Other Assets

As of September 30, 2019 and December 31, 2018, other assets consisted of:



	September 30, 2019		December 31, 2018
Prepaid expenses	$	1,484,154	$	1,866,024
Interest rate cap agreements (Note 11)	1,315		117,678
Deposits	885,043		714,736
Operating lease right-of-use assets, net	125,632		—
Other assets	$	2,496,144	$	2,698,438

Amortization of the Company’s operating lease right-of-use assets for the three and nine months ended September 30, 2019 were $1,085 and $3,148, respectively. Amortization of the Company’s operating lease right-of-use assets for the three and nine months ended September 30, 2018 were $0 and $0, respectively.

6. Debt

Mortgage Notes Payable

The following is a summary of mortgage notes payable secured by real property as of September 30, 2019 and December 31, 2018:



	September 30, 2019
			Interest Rate Range				Weighted Average Interest Rate
Type	Number of Instruments	Maturity Date Range	Minimum		Maximum		Weighted Average Interest Rate		Principal Outstanding
Mortgage notes payable - fixed	20	1/1/2020 - 10/1/2056	3.19	%	4.63	%	3.75	%	$	502,584,586
Mortgage notes payable - variable⁽¹⁾	—	—	—		—		—		—
Total mortgage notes payable, gross	20						3.75	%	502,584,586
Premium, net⁽²⁾									—
Deferred financing costs, net⁽³⁾									(4,158,093		)
Total mortgage notes payable, net									$	498,426,493

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)



	December 31, 2018
			Interest Rate Range				Weighted Average Interest Rate
Type	Number of Instruments	Maturity Date Range	Minimum		Maximum		Weighted Average Interest Rate		Principal Outstanding
Mortgage notes payable - fixed	20	5/1/2019 - 10/1/2056	3.19	%	5.48	%	3.95	%	$	361,723,899
Mortgage notes payable - variable⁽¹⁾	10	7/1/2023 - 11/1/2027	1-Mo LIBOR + 1.77%		1-Mo LIBOR + 2.38%		4.69	%	283,046,390
Total mortgage notes payable, gross	30						4.27	%	644,770,289
Premium, net⁽²⁾									302,530
Deferred financing costs, net⁽³⁾									(3,934,705		)
Total mortgage notes payable, net									$	641,138,114

_____________________________


(1)	See Note 11 (Derivative Financial Instruments) 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.


(2)	Accumulated amortization related to debt premiums as of September 30, 2019 and December 31, 2018 was $0 and $960,519, respectively.


(3)	Accumulated amortization related to deferred financing costs as of September 30, 2019 and December 31, 2018 was $2,241,230 and $2,929,134, respectively.

Refinancing Transactions

On the closing dates set out in the table below, the Company, through its indirect wholly-owned subsidiaries (each a “Borrower” and collectively, the “Borrowers”), refinanced $203,010,610 of existing variable rate loans with its existing lenders, Jones Lang LaSalle Multifamily, LLC (“JLL”), Berkadia Commercial Mortgage LLC (“Berkadia”), PNC Bank, National Association (“PNC Bank”) and Newmark Knight Frank (“NKF”) (collectively, the “Lenders”) with new fixed rate Freddie Mac loans and a fixed rate Fannie Mae loan in an aggregate principal amount of $222,934,000. Each of the loans has a maturity date of October 1, 2029. Interest only payments are payable monthly through October 1, 2025, with interest and principal payments due monthly thereafter. The Borrowers paid $1,016,689 in the aggregate in loan origination fees to the Lenders in connection with the refinancings, and the Advisor earned loan coordination fees of $600,000. The Refinancing Transactions are treated as loan modifications in accordance with ASC 470 Debt, with lender direct expenses capitalized as deferred financing costs in mortgage notes payable in the accompanying consolidated balance sheets and third-party loan fees expensed in interest expense in the accompanying consolidated statements of operations.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

The following is a summary of the refinancing of mortgage notes payable secured by real property during the three months ended September 30, 2019:



Secured Property	Closing Dates	Lender	Interest Rate		Principal Loan Amount
Jefferson at Perimeter Apartments	9/20/2019	JLL	3.48	%	$	73,800,000
Reserve at Creekside	9/20/2019	Berkadia	3.57	%	15,000,000
Tapestry Park Apartments	9/26/2019	NKF	3.66	%	48,750,000
Sycamore Terrace Apartments	9/26/2019	NKF	3.62	%	23,067,000
Villas at Huffmeister	9/27/2019	PNC Bank	3.56	%	27,440,000
Villas of Kingwood	9/27/2019	PNC Bank	3.56	%	34,877,000
					$	222,934,000

Credit Facility

On July 29, 2016, nine wholly-owned subsidiaries of the Company entered into a credit agreement and a multifamily note with PNC Bank (as amended, the credit agreement, multifamily note, loan and security agreements, mortgages and guaranty are collectively referred to herein as the “Loan Documents”) that provided for a new credit facility (the “Credit Facility”) in an amount not to exceed $350,000,000 to refinance certain of the Company’s then-existing mortgage loans. The Credit Facility had a maturity date of August 1, 2021, subject to extension, as further described in the credit agreement. Advances made under the Credit Facility were secured by the subsidiaries’ properties (the “Collateral Pool Property”), pursuant to a mortgage deed of trust with the Company’s subsidiaries party to the Credit Facility in favor of PNC Bank.

The Credit Facility accrued interest at the one-month London Inter-bank Offered Rate (“LIBOR”) plus (1) the servicing spread of 0.05% and (2) the net spread, based on the debt service coverage ratio, of between 1.73% and 1.93%, as further described in the credit agreement. Interest only payments on the Credit Facility were payable monthly in arrears and were due and payable on the first day of each month. The entire outstanding principal balance and any accrued and unpaid interest on the Credit Facility were due on the maturity date. The Company’s subsidiaries could voluntarily prepay all or a portion of the amounts advanced under the Loan Documents. Notwithstanding the foregoing, in the event a Collateral Pool Property was released or the credit agreement was terminated, a termination fee would be due and payable by the Company’s subsidiaries (as applicable). In certain instances of a breach of the credit agreement, the Company guaranteed to PNC Bank the full and prompt payment and performance when due of all amounts for which the Company’s nine wholly-owned subsidiaries were 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 of or refinanced, with the advances made to each of the seven Collateral Pool Properties being repaid in full. On July 29, 2019, the Company made a final remaining principal payment of $10,000,000 and terminated the Credit Facility. The Company incurred $597,681 in debt extinguishment costs related to the extinguishment of the Credit Facility.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

Maturity and Interest

The following is a summary of the Company’s aggregate maturities as of September 30, 2019:



			Remainder of 2019		Maturities During the Years Ending December 31,
Contractual Obligation	Total		Remainder of 2019		2020		2021		2022		2023		Thereafter
Principal payments on outstanding debt obligations⁽¹⁾	$	502,584,586	$	787,141	$	15,663,605	$	3,295,375	$	28,056,772	$	52,688,373	$	402,093,320

__________________


(1)	Scheduled 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 associated with the notes payable.

The Company’s notes payable contain customary financial and non-financial debt covenants. At September 30, 2019 and December 31, 2018, the Company was in compliance with all financial and non-financial debt covenants.

For the three and nine months ended September 30, 2019, the Company incurred interest expense of $6,044,495 and $20,505,685, respectively. Interest expense for the three and nine months ended September 30, 2019, includes amortization of deferred financing costs of $130,114 and $729,401, amortization of loan premiums of $0 and $48,562, loan fees associated with mortgage notes refinancing of $587,615 and $595,040 and net unrealized loss from the change in fair value of interest rate cap agreements of $2,066 and $163,363, respectively.

For the three and nine months ended September 30, 2018, the Company incurred interest expense of $8,496,658 and $24,408,327, 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, loan fees associated with mortgage notes refinancing of $43,696 and $386,931 and net unrealized gain from the change in fair value of interest rate cap agreements of $18,199 and $103,506, respectively.

Interest expense of $909,601 and $2,520,324 was payable as of September 30, 2019 and December 31, 2018, 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 of preferred stock with a par value of $0.01 per share.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(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 MGCL and to all rights of a stockholder pursuant to the MGCL. The Company’s 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, 2019, the Company had issued 76,732,395 shares of common stock in a private offering and the 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, 2019, and for the year ended December 31, 2018, for the restricted stock issued to the Company’s independent directors were as follows:



	For the Nine Months Ended September 30, 2019		For the Year Ended December 31, 2018
	For the Nine Months Ended September 30, 2019		For the Year Ended December 31, 2018
Nonvested shares at the beginning of the period	11,250		11,875
Granted shares	—		7,500
Vested shares	(5,625	)	(8,125	)
Nonvested shares at the end of the period	5,625		11,250

The weighted average fair value of restricted stock issued to the Company’s independent directors for the nine months ended September 30, 2019 and for the year ended December 31, 2018 is as follows:



Grant Year	Weighted Average Fair Value
2018	$	9.84
2019	n/a

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 $12,303 and $43,191 for the three and nine months ended September 30, 2019, and $34,832 and $69,422 for the three and nine months ended September 30, 2018, respectively, for compensation expense related to the issuance of restricted common stock. The weighted average remaining term of the Company’s restricted common stock is 1.36 years as of September 30, 2019. As of September 30, 2019, the compensation expense related to the issuance of the Company’s restricted common stock not vested was $42,713.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(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, all of the shares of 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, 2019 and December 31, 2018, no shares of the Company’s preferred stock were issued and outstanding.

Distribution Reinvestment Plan

The Company’s board of directors approved the DRP through which common stockholders could elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares of the Company’s common stock in lieu of receiving cash distributions. The initial purchase price per share under the DRP was $9.50. Effective September 10, 2012, 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. 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 selling 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.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

The repurchase 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⁾

________________


(1)	As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock.


(2)	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 repurchase 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 repurchased upon the death or disability of a stockholder will be equal to the average issue price per share for all of the stockholder’s shares.

The 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. The current share repurchase price is $8.74 per share, which represents 93% of the estimated value per share of $9.40, as approved by the Company’s board of directors. 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⁾

________________

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)


(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.


(3)	The required one-year holding period to be eligible to repurchase 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 repurchased upon the death or disability of a stockholder will be equal to the average issue price per share for all of the stockholder’s shares.

The purchase price per share for shares repurchased pursuant to the share repurchase program 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.

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.

In connection with the proposed SIR Merger, on August 5, 2019, the Company’s board of directors approved the Amended and Restated Share Repurchase Plan (the “Amended & Restated SRP”), which became effective September 5, 2019, and applied with repurchases made on Repurchase Dates (as defined in the Amended & Restated SRP) subsequent to the effective date of the Amended & Restated SRP. Under the Amended & Restated SRP, the Company will only repurchase shares of common stock in connection with the death or qualifying disability (as determined by the Company’s board in its sole discretion) of a stockholder, subject to certain terms and conditions specified in the Amended & Restated SRP. Repurchases pursuant to the Amended and Restated SRP will continue to be limited to $2,000,000 per quarter (as explained below).

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, 2019 and 2018, the Company had outstanding and unfulfilled repurchase requests of 77,453 (pursuant to the Amended & Restated SRP) and 218,800 shares of common stock and recorded $710,887 and $2,000,000 in accounts payable and accrued liabilities on the accompanying consolidated balance sheets related to these unfulfilled repurchase requests, all of which were repurchased on the October 31, 2019 and 2018 repurchase dates, respectively.

During the three and nine months ended September 30, 2019, the Company repurchased a total of 222,982 and 666,273 shares with a total repurchase value of $2,000,000 and $6,000,000, respectively, and received requests for the repurchase of 78,845 and 2,062,474 shares with a total repurchase value of $723,786 and $18,155,528, respectively. 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 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.

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 the 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

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

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’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.

For the three and nine months ended September 30, 2019, the Company reclassified $1,289,113, net, pursuant to the share repurchase program from accounts payable and accrued liabilities to temporary equity. For the three and nine months ended September 30, 2018, the Company had no amounts to reclassify from accounts payable and accrued liabilities to temporary equity.

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 nine months ended September 30, 2019, 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. Distributions 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 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. On April 16, 2018, the Company’s board of directors authorized 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, 2019, were $10,349,426 and $30,802,627, respectively, all of which were attributable to cash distributions. Distributions declared for the three and nine months ended September 30, 2018, were $10,472,649 and $110,612,331, all of which were attributable to cash distributions.

As of September 30, 2019 and December 31, 2018, $3,371,492 and $3,515,310 in distributions declared were payable.

Distributions Paid

For the three and nine months ended September 30, 2019, the Company paid cash distributions of $10,359,596 and $30,946,445, which related to distributions declared for each day in the period from June 1, 2019 through August 31, 2019, and December 1, 2018 through August 31, 2019, respectively. All such distributions were paid in cash.

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

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

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.

8. Related Party Arrangements

Pursuant to the Company’s Advisory Agreement with the Advisor, 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 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.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

Amounts attributable to the Advisor and its affiliates incurred for the three and nine months ended September 30, 2019 and 2018, and amounts that are payable (prepaid) to the Advisor and its affiliates as of September 30, 2019 and December 31, 2018, 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,
	2019		2018		2019		2018		September 30, 2019			December 31, 2018
Consolidated Statements of Operations:
Expensed
Investment management fees⁽¹⁾	$	1,973,063	$	2,543,225	$	6,276,766	$	7,309,666	$	—		$	1,640,485
Due diligence costs⁽²⁾	—		7,415		—		230,732		—			211,188
Property management:
Fees⁽¹⁾	796,493		1,035,326		2,522,318		3,038,678		266,966			334,577
Reimbursement of onsite personnel⁽³⁾	2,407,875		3,383,288		7,870,440		9,469,655		747,564			589,551
Reimbursements - other⁽¹⁾	565,153		474,588		1,684,836		1,083,925		27,214			39,349
Reimbursements - property operations⁽³⁾	17,625		27,993		56,228		70,386		—			—
Reimbursements - G&A⁽²⁾	22,362		37,028		79,011		71,754		—			—
Other operating expenses⁽²⁾	379,446		129,426		1,226,048		805,175		181,548			115,212
Disposition fees⁽⁴⁾	—		—		3,289,275		3,841,050		—			2,052,750
Disposition transaction costs⁽⁴⁾	—		—		39,483		67,464		—			—
Loan coordination fee⁽¹⁾	600,000		60,000		600,000		422,160		400,000			—
Property insurance⁽⁵⁾	452,566		503,734		1,303,149		1,131,915		(268,596		)	(119,055		)
Insurance proceeds⁽⁶⁾	—		—		—		—		—			(75,000		)
Rental Revenue⁽⁷⁾	4,491		—		8,283		—		—			—
Consolidated Balance Sheets:
Capitalized
Construction management:
Fees⁽⁸⁾	215,696		43,739		371,098		109,212		16,601			2,608
Reimbursement of labor costs⁽⁸⁾	50,099		29,392		104,316		64,829		5,579			198
Capital expenditures⁽⁸⁾	—		1,500		—		39,680		—			—
Capitalized costs on investment in unconsolidated joint venture⁽⁹⁾	—		—		—		58,386		—			—
Acquisition expenses⁽¹⁰⁾	—		—		—		245,048		—			—
Acquisition fees⁽¹⁰⁾	—		—		—		705,722		—			—
	$	7,484,869	$	8,276,654	$	25,431,251	$	28,765,437	$	1,376,876		$	4,791,863

_____________________________


(1)	Included in fees to affiliates in the accompanying consolidated statements of operations.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)


(2)	Included in general and administrative expenses in the accompanying consolidated statements of operations.


(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 other income in the accompanying consolidated statements of operations.


(7)	Included in rental income in the accompanying consolidated statements of operations.


(8)	Included in building and improvements in the accompanying consolidated balance sheets.


(9)	Included in investment in unconsolidated joint venture in the accompanying consolidated balance sheets.


(10)	Included in total real estate, cost in the accompanying consolidated balance sheets.

Investment Management Fee

The Company pays the Advisor a monthly investment management fee equal to one-twelfth of 0.80% of (1) the cost of real properties and real estate-related assets acquired directly by the Company or (2) the Company’s allocable cost of each real property or real estate-related asset acquired through a joint venture. The investment management fee is calculated including acquisition fees, acquisition expenses, cost of development, construction or improvement 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 investigation, selection and acquisition (by purchase, investment or exchange) of any type of real property or real estate-related asset; provided, however, that the total acquisition fee payable by the Company to the Advisor or its affiliates shall equal 0.5% of the cost of investment in the event that proceeds from a prior sale of an investment are used to fund the acquisition of an investment, or (2) the Company’s allocable cost of a real property or real estate-related asset acquired in a joint venture, in each case including purchase price, acquisition expenses and any debt attributable to such investments.

In addition to acquisition fees, the Company reimburses the Advisor for amounts directly incurred by the Advisor or its affiliates, including personnel-related costs for acquisition due diligence, legal and non-recurring management services, and amounts the Advisor pays to third parties in connection with the selection, acquisition or development of a property or acquisition of real estate-related assets, whether or not the Company ultimately acquires the property or the real estate-related assets.

The Charter limits the Company’s ability to pay acquisition fees if the total of all acquisition fees and expenses relating to the purchase would exceed 6.0% of the contract purchase price. Under the Charter, a majority of the Company’s board of directors, including a majority of the independent directors, is required to approve any acquisition fees (or portion thereof) that would cause the total of all acquisition fees and expenses relating to an acquisition to exceed 6.0% of the contract purchase price. In connection with the purchase of securities, the acquisition fee may be paid to an affiliate of the Advisor that is registered as a 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.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

Property Management Fees and Expenses

The Company entered into Property Management Agreements (as amended from time to time, each a “Property Management Agreement”) 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 were managed by an unaffiliated third-party management company). As of September 30, 2019, the property management fee payable with respect to each property under each 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 received an oversight fee of 1% of gross revenues at certain of the properties at which it did 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 reimbursements payable to the Property Manager or its affiliates, including reimbursements 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 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, 2019, 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.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(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, 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) and investment management fees; (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, 2019, 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; provided, however, that the price per share paid to stockholders as listed in each of clauses (i) through (v) above shall be adjusted for any special distributions, stock splits, combinations, recapitalizations or any similar transaction with respect to our shares. 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

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the disposition fee to a firm that is not a registered broker-dealer. The Charter limits the maximum amount of the disposition fees payable to the Advisor for the sale of any real property to the lesser of one-half of the brokerage commission paid or 3.0% 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

The Company pays the Advisor a loan coordination fee equal to 0.50% of the amount of debt financed or refinanced (in each case, other than at the time of the acquisition of a property or a real estate-related asset), or the Company’s proportionate share of the initial amount of new debt financed or refinanced or the amount of any debt refinanced in the case of investments made through a joint venture. In some instances, the Company and the Advisor have agreed to a loan coordination fee of $100,000 per loan refinanced.

Pending Merger with STAR

Termination Agreement

Concurrently with the entry into the Merger Agreement, the Company and Advisor entered into a termination letter agreement (the “Termination Agreement”), effective as of August 5, 2019. Pursuant to the Termination Agreement, the current Advisory Agreement will be terminated at the effective time of the Merger. Also pursuant to the Termination Agreement, the Advisor waived any disposition fee it otherwise would be entitled to pursuant to the Advisory Agreement related to the SIR Merger

The Termination Agreement also provides that upon approval of the special committee of the Company’s board of directors, the Company shall consent (which consent shall not be unreasonably withheld, delayed or conditioned) and shall take all necessary actions (including amending the Merger Agreement) to provide for the Exchange (as defined below) if, pursuant to the Merger Agreement, prior to consummation of the Merger, STAR Advisor (as defined herein) requests that, in lieu of the Subordinated Incentive Listing Fee, Subordinated Share of Net Sales Proceeds and Performance Fee provided for and defined in the Amended and Restated Advisory Agreement between STAR and Steadfast Apartment Advisor, LLC, its external advisor (“STAR Advisor”), STAR issue, at the closing of the Merger, convertible stock in exchange for the convertible stock currently owned by STAR Advisor.

9. Incentive Award Plan and Independent Director Compensation

The Company has adopted an incentive plan (the “Incentive Award Plan”) that provides for the grant of equity awards to its employees, directors and consultants and those of the Company’s affiliates. The Incentive Award Plan authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards or cash-based awards. No awards have been granted under the Incentive Award Plan as of September 30, 2019 and December 31, 2018, 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 a private offering that preceded the Public Offering. Each subsequent independent director 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-

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

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. These restricted stock awards entitle the holders to participate in distributions even if the shares are not fully vested.

The Company recorded stock-based compensation expense of $12,303 and $43,191 for the three and nine months ended September 30, 2019, respectively, and $34,832 and $69,422 for the three and nine months ended September 30, 2018, respectively.

10. Commitments and Contingencies

Economic Dependency

The Company is dependent on the Advisor and its affiliates for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase and disposition of real estate and real estate-related investments; management of the daily operations of the Company’s real estate and real estate-related investment portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.

Concentration of Credit Risk

The geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the Houston, Texas, Oklahoma City, Oklahoma, Columbus, Ohio, Atlanta, Georgia and Lexington, Kentucky 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.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

11. Derivative Financial Instruments

The Company uses interest rate derivatives with the objective of managing exposure to interest rate movements thereby minimizing the effect of interest rate changes and the effect they could have on future cash flows. Interest rate cap agreements are used to accomplish this objective. The following table provides the terms of the Company’s interest rate derivative instruments that were in effect at September 30, 2019 and December 31, 2018:



September 30, 2019
Type	Maturity Date Range	Based on	Number of Instruments	Notional Amount		Variable Rate		Weighted Average Rate Cap		Fair Value
Interest rate cap	1/1/2020 - 7/1/2021	One-Month LIBOR	6	$	203,266,995	2.02	%	3.49	%	$	1,315



December 31, 2018
Type	Maturity Date Range	Based on	Number of Instruments	Notional Amount		Variable Rate		Weighted Average Rate Cap		Fair Value
Interest rate cap	6/1/2019 - 7/1/2021	One-Month LIBOR	10	$	283,654,000	2.52	%	2.81	%	$	117,678

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, 2019, resulted in an unrealized loss of $2,066 and $163,363, respectively, which is included in interest expense in the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2019 and 2018, the Company acquired interest rate cap agreements of $0 and $47,000 and $0 and $203,300, respectively. The fair value of the interest rate cap agreements of $1,315 and $117,678 as of September 30, 2019 and December 31, 2018, respectively, is included in other assets on the accompanying consolidated balance sheets.

12. Subsequent Events

Distributions Paid

On October 1, 2019, the Company paid distributions of $3,371,492, which related to distributions declared for each day in the period from September 1, 2019 through September 30, 2019. All such distributions were paid in cash.

On November 1, 2019, the Company paid distributions of $3,483,761, which related to distributions declared for each day in the period from October 1, 2019 through October 31, 2019. All such distributions were paid in cash.

Shares Repurchased

On October 31, 2019, the Company repurchased 78,845 shares of its common stock for a total repurchase value of $723,786, or $9.18 per share, pursuant to the Company’s share repurchase program.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

Refinancing of the Montecito Apartments

On October 31, 2019, the Company, through its indirect wholly-owned subsidiary, refinanced $12,572,626 of existing variable rate loan with PNC Bank with a new fixed rate Fannie Mae loan in an aggregate principal amount of $18,900,000. The loan has a ten-year term, with interest only payments for the entire term of the loan. The Company paid $151,200 in the aggregate in loan origination fees to PNC Bank in connection with the refinancing, and the Advisor earned a loan coordination fee of $94,500.

Distributions Declared

On November 6, 2019, 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, 2020 and ending on March 31, 2020. The distributions will be equal to $0.001515 per share of the Company’s common stock. The distributions for each record date in January 2020, February 2020 and March 2020 will be paid in February 2020, March 2020 and April 2020, respectively. The distributions will be payable to stockholders from legally available funds therefor.

Advisory Agreement

On November 6, 2019, the Company entered into Amendment No. 12 (the “Amendment”) to the Advisory Agreement. The Amendment renews the Advisory Agreement for a one-year term beginning on November 15, 2019, and ending on November 15, 2020.

Restricted Stock Grant

On November 7, 2019, 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 2019 annual meeting of stockholders.

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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. References to “our advisor” are to Steadfast Income Advisor, LLC, our external advisor.

Certain statements regarding future estimates and expectations may not be applicable to the extent the Merger (as defined herein) is completed.

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 execute on our value-enhancement strategy;


•	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 other decisions;


•	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;


•	completion of the Merger is subject to many conditions and if these conditions are not satisfied or waived, the Merger will not be completed, which could result in the expenditure of significant unrecoverable transaction costs;


•	failure to complete the Merger could negatively impact our future business and financial results;

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


•	the pendency of the Merger, including as a result of the restrictions on the operation of our business during the period between signing the related merger agreement and the completion of the Merger, could adversely affect our business and operations;


•	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.

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 Securities 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, 2018, filed with the SEC on March 15, 2019.

Overview

We were formed on May 4, 2009, as a Maryland corporation that elected to be taxed as, and currently qualifies as, a real estate investment trust, or REIT. We own and manage a diverse portfolio of real estate investments, primarily in the multifamily sector, located throughout the United States. As of September 30, 2019, we owned (1) 27 multifamily properties located within the greater Midwest and southern geographic regions of the United States that comprised a total of 7,527 apartment homes and (2) a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes. The total purchase price of our real estate portfolio was $862,854,253. At September 30, 2019, our portfolio was approximately 97.5% leased.

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 1, 2014, we had sold 76,095,116 shares of common stock for gross offering proceeds of $769,573,363, including 4,073,759 shares of common stock issued pursuant to our distribution reinvestment plan for gross offering proceeds of $39,580,847. 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 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 13, 2019, our board of directors approved an estimated value per share of our common stock of $9.40 as of December 31, 2018.

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.

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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

We believe economic and demographic trends will benefit our existing portfolio and that we have unique future investment opportunities 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 also getting married and having children later and are choosing to live in apartment communities until their mid-30s. Today, approximately 30% of Millennials are still living with their parents or are still in school. When they are employed, Millennials will likely rent moderate income apartments based upon an average income of $45,000 - $65,000. Our plan is to provide rental housing for these generational groups as they age. We believe these factors will continue to contribute to the demand for multifamily housing.

Pending Merger with Steadfast Apartment REIT, Inc.

On August 5, 2019, we, Steadfast Apartment REIT, Inc., or STAR, Steadfast Apartment REIT Operating Partnership, L.P., STAR’s operating partnership, our operating partnership, and SI Subsidiary, LLC, a wholly-owned subsidiary of STAR, or Merger Sub, entered into an Agreement and Plan of Merger, or the Merger Agreement.

Subject to the terms and conditions of the Merger Agreement, we will merge with and into Merger Sub with Merger Sub surviving the merger, or the Merger, such that following the Merger, the surviving entity will continue as a wholly-owned subsidiary of STAR. In accordance with the applicable provisions of the Maryland General Corporation Law, our separate existence shall cease.

At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of our common stock (or a fraction thereof), $0.01 par value per share, will be converted into the right to receive 0.5934 shares of STAR’s common stock, $0.01 par value per share.

The obligation of each party to consummate the Merger is subject to a number of conditions, including receipt of the approval of the Merger and an amendment to our Charter to delete certain provisions regarding roll-up transactions by the holders of a majority of the outstanding shares of our common stock, or the SIR Stockholder Approval.

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

We (with the prior approval of the special committee of our board of directors) may terminate the Merger Agreement in order to enter into an “Alternative Acquisition Agreement” with respect to a “Superior Proposal” (each as defined in the Merger Agreement) at any time prior to our receipt of the SIR Stockholder Approval pursuant to the terms of the Merger Agreement. STAR may terminate the Merger Agreement at any time prior to the receipt of the SIR Stockholder Approval, in certain limited circumstances, including upon an “Adverse Recommendation Change” (as defined in the Merger Agreement).

If the Merger Agreement is terminated in connection with our acceptance of a Superior Proposal or making an Adverse Recommendation Change, then we must pay to STAR a termination fee of $20,866,122 and up to $2,000,000 as reimbursement for STAR’s Expenses (as defined in the Merger Agreement).

On August 5, 2019, STAR also entered into an Agreement and Plan of Merger to acquire Steadfast Apartment REIT III, Inc., or STAR III. STAR’s proposed merger with STAR III is also a stock-for-stock transaction whereby STAR III will be merged into a wholly-owned subsidiary of STAR. The consummation of STAR’s merger with us is not contingent upon the completion of STAR’s merger with STAR III, and the consummation of STAR’s merger with STAR III is not contingent upon the completion of STAR’s merger with us.

The combined company after the mergers will retain the name “Steadfast Apartment REIT, Inc.” Each merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code.

For additional information on the Merger, see our Current Report on Form 8-K filed with the SEC on August 6, 2019.

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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, 2019, we owned the 27 multifamily properties listed below:



				Number of Units	Total Purchase Price		Mortgage Debt Outstanding at September 30, 2019		Average Occupancy⁽¹⁾ as of				Average Monthly Rent⁽²⁾ as of
	Property Name	Location	Purchase Date	Number of Units	Total Purchase Price		Mortgage Debt Outstanding at September 30, 2019		Sep 30, 2019		Dec 31, 2018		Sep 30, 2019		Dec 31, 2018
1	Clarion Park Apartments	Olathe, KS	6/28/2011	220	$	11,215,000	$	11,936,941	95.7	%	96.4	%	$	872	$	841
2	Spring Creek Apartments	Edmond, OK	3/9/2012	252	19,350,000		17,145,073		97.4	%	94.0	%	873		848
3	Montclair Parc Apartment Homes	Oklahoma City, OK	4/26/2012	360	35,750,000		—		96.8	%	94.4	%	891		857
4	Hilliard Park Apartments	Columbus, OH	9/11/2012	201	19,800,000		12,173,887		96.2	%	94.5	%	1,140		1,120
5	Sycamore Terrace Apartments	Terre Haute, IN	9/20/2012 & 3/5/2014	250	23,174,157		22,728,173		93.1	%	94.0	%	1,171		1,138
6	Hilliard Summit Apartments	Columbus, OH	9/28/2012	208	24,100,000		14,757,094		95.3	%	95.7	%	1,236		1,217
7	Forty 57 Apartments	Lexington, KY	12/20/2012	436	52,500,000		34,982,843		96.3	%	93.1	%	970		912
8	Riverford Crossing Apartments	Frankfort, KY	12/28/2012	300	30,000,000		19,904,276		96.9	%	97.3	%	978		933
9	Montecito Apartments	Austin, TX	12/31/2012	268	19,000,000		12,596,576		96.7	%	95.1	%	1,039		1,008
10	Hilliard Grand Apartments	Dublin, OH	12/31/2012	314	40,500,000		28,108,786		96.1	%	96.5	%	1,317		1,290
11	Deep Deuce at Bricktown	Oklahoma City, OK	3/28/2013	294	38,271,000		32,087,170		94.6	%	93.9	%	1,284		1,235
12	Retreat at Quail North	Oklahoma City, OK	6/12/2013	240	25,250,000		16,103,751		94.4	%	92.9	%	978		954
13	Tapestry Park Apartments	Birmingham, AL	8/13/2013 & 12/1/2014	354	50,285,000		48,223,343		95.6	%	92.9	%	1,376		1,311
14	BriceGrove Park Apartments	Canal Winchester, OH	8/29/2013	240	20,100,000		—		95.6	%	95.8	%	911		879
15	Retreat at Hamburg Place	Lexington, KY	9/5/2013	150	16,300,000		—		97.0	%	96.0	%	1,038		897
16	Villas at Huffmeister	Houston, TX	10/10/2013	294	37,600,000		27,213,547		95.4	%	93.9	%	1,228		1,209
17	Villas of Kingwood	Kingwood, TX	10/10/2013	330	40,150,000		34,598,132		96.9	%	94.8	%	1,246		1,282
18	Waterford Place at Riata Ranch	Cypress, TX	10/10/2013	228	23,400,000		—		96.3	%	93.9	%	1,149		1,104
19	Carrington Place	Houston, TX	11/7/2013	324	32,568,034		—		94.3	%	91.7	%	1,117		1,076
20	Carrington at Champion Forest	Houston, TX	11/7/2013	284	33,000,000		—		95.6	%	94.0	%	1,147		1,106
21	Carrington Park at Huffmeister	Cypress, TX	11/7/2013	232	25,150,000		19,472,583		95.3	%	94.4	%	1,170		1,198

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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, 2019		Average Occupancy⁽¹⁾ as of				Average Monthly Rent⁽²⁾ as of
	Property Name	Location	Purchase Date	Number of Units	Total Purchase Price		Mortgage Debt Outstanding at September 30, 2019		Sep 30, 2019		Dec 31, 2018		Sep 30, 2019		Dec 31, 2018
22	Heritage Grand at Sienna Plantation	Missouri City, TX	12/20/2013	240	$	27,000,000	$	16,654,527	93.4	%	95.8	%	$	1,160	$	1,147
23	Mallard Crossing Apartments	Loveland, OH	12/27/2013	350	39,800,000		—		96.1	%	93.7	%	1,142		1,095
24	Reserve at Creekside	Chattanooga, TN	3/28/2014	192	18,875,000		14,701,227		97.2	%	96.4	%	1,055		1,040
25	Oak Crossing Apartments	Fort Wayne, IN	6/3/2014	222	24,230,000		20,235,203		97.2	%	95.9	%	1,024		1,002
26	Double Creek Flats	Plainfield, IN	5/7/2018	240	31,852,079		21,893,600		96.3	%	93.8	%	1,050		1,063
27	Jefferson at Perimeter Apartments	Dunwoody, GA	6/11/2018	504	103,633,983		72,909,761		94.6	%	89.3	%	1,413		1,331
				7,527	$	862,854,253	$	498,426,493	95.8	%	94.3	%	$	1,123	$	1,068

________________


(1)	At September 30, 2019 and December 31, 2018, our portfolio was approximately 97.5% and 95.5% leased, respectively.


(2)	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, 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 Blackstone Real Estate Income Trust, Inc. SIR LANDS Holdings, LLC, or SIR LP, a wholly-owned subsidiary, holds our 10% interest in the joint venture.

The transaction closed in two stages. The first closing occurred November 15, 2017, and included those properties for which the existing debt was prepaid at closing. The second closing occurred January 31, 2018, and included those properties for which the joint venture assumed the existing loans.

2019 Property Dispositions

Dawntree Apartments

On August 15, 2013, we, through a wholly-owned subsidiary of the Operating Partnership, acquired Dawntree Apartments, a multifamily property located in Carrollton, Texas, containing 400 apartment homes. The purchase price of Dawntree Apartments was $24,000,000, exclusive of closing costs. On March 8, 2019, we sold Dawntree Apartments for $46,200,000, resulting in a gain of $24,141,403, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Dawntree Apartments was not affiliated with us or our advisor.

Estancia Apartments

On June 29, 2012, we, through a wholly-owned subsidiary of the Operating Partnership, acquired Estancia Apartments, a multifamily property located in Tulsa, Oklahoma, containing 294 apartment homes. The purchase price of Estancia Apartments was $27,900,000, exclusive of closing costs. On March 22, 2019, we sold Estancia Apartments for $30,683,000, resulting in a

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

gain of $6,892,244, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Estancia Apartments was not affiliated with us or our advisor.

Sonoma Grande Apartments

On May 24, 2012, we, through a wholly-owned subsidiary of the Operating Partnership, acquired Sonoma Grande Apartments, a multifamily property located in Tulsa, Oklahoma, containing 336 apartment homes. The purchase price of Sonoma Grande Apartments was $32,200,000, exclusive of closing costs. On March 22, 2019, we sold Sonoma Grande Apartments for $35,067,000, resulting in a gain of $9,367,938, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Sonoma Grande Apartments was not affiliated with us or our advisor.

EBT Lofts, Library Lofts East and Stuart Hall Lofts

On December 30, 2011, February 28, 2013 and August 27, 2013, we, through wholly-owned subsidiaries of the Operating Partnership, acquired EBT Lofts, Library Lofts East and Stuart Hall Lofts, respectively, multifamily properties located in

Steadfast Income REIT, Inc. 10-Q