UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to .
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Commission file number
333-160748
STEADFAST INCOME REIT,
INC.
(Exact name of registrant as
specified in its charter)
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Maryland
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27-0351641
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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18100 Von Karman Avenue, Suite 500
Irvine, California
(Address of principal
executive offices)
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92612
(Zip Code)
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(949) 852-0700
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934:
None
Securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted
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 and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company þ
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
There is no established market for the registrants shares
of common stock. The registrant is currently conducting an
ongoing initial public offering of its shares of common stock
pursuant to a Registration Statement on
Form S-11,
which shares are being sold at $10.00 per share, with discounts
available for certain categories of purchasers. There were
approximately 482,309 shares of common stock held by
non-affiliates at June 30, 2010, the last business day of
the registrants most recently completed second fiscal
quarter.
As of March 14, 2011, there were 1,422,283 outstanding
shares of common stock of the registrant.
STEADFAST
INCOME REIT, INC.
INDEX
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this annual report on
Form 10-K
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 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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 that 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:
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our ability to effectively raise and deploy the proceeds in our
initial public offering;
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changes in economic conditions generally and the real estate and
debt markets specifically;
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our ability to successfully identify and acquire properties on
terms that are favorable to us;
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risks inherent in the real estate business, including tenant
defaults, potential liability relating to environmental matters
and liquidity of real estate investments;
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legislative or regulatory changes (including changes to the laws
governing the taxation of REITs);
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the availability of capital;
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changes in interest rates; and
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changes to generally accepted accounting principles.
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Any of the assumptions underlying forward-looking statements
could be inaccurate. You are cautioned not to place undue
reliance on any forward-looking statements included herein. All
forward-looking statements are made as of the date of this
annual report and the risk that actual results will differ
materially from the expectations expressed in this annual report
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 after the date of this annual report, 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
annual report, including, without limitation, the risks
described under Risk Factors, 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 annual report will be achieved.
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PART I
Overview
Steadfast Income REIT, Inc. (formerly Steadfast Secure Income
REIT, Inc.) (which is referred to in this annual report as the
Company, we, us, or
our) was formed on May 4, 2009, as a Maryland
corporation that intends to qualify as a real estate investment
trust, or REIT, for the taxable year ended December 31,
2010. We intend to use substantially all of the net proceeds
from our ongoing initial public offering to invest in and manage
a diverse portfolio of real estate investments, primarily in the
multifamily sector, located throughout the United States. In
addition to our focus on multifamily properties, we may also
selectively invest in industrial properties and other types of
commercial properties. We may also acquire or originate
mortgage, mezzanine, bridge and other real estate loans and
equity securities of other real estate companies. Substantially
all of our business is conducted through Steadfast Income REIT
Operating Partnership, L.P., a Delaware limited partnership
formed on July 6, 2009, which we refer to as our
operating partnership. We are the sole general
partner of our operating partnership. As of December 31,
2010, we owned two multifamily properties: the Lincoln Tower
Apartments located in Springfield, Illinois and the Park Place
Condominiums located in Des Moines Iowa. For more information on
our real estate portfolio, see Our Real Estate
Investments below.
On July 23, 2009, we filed a registration statement on
Form S-11
with the Securities and Exchange Commission, or the SEC, to
offer a maximum of 150,000,000 shares of common stock for
sale to the public at an initial price of $10.00 per share
(subject to certain discounts). We are also offering up to
15,789,474 shares of common stock pursuant to our
distribution reinvestment plan at an initial price of $9.50 per
share. From the commencement of our public offering on
July 19, 2010 to December 31, 2010, we had sold
504,998 shares of common stock in our public offering for
gross proceeds of $5,019,314, including 3,653 shares of
common stock issued pursuant to our distribution reinvestment
plan for gross offering proceeds of $34,700. As of
March 14, 2011, we had sold 742,999 shares of common
stock in our public offering for gross proceeds of $7,377,056,
including 11,583 shares of common stock issued pursuant to
our distribution reinvestment plan for gross offering proceeds
of $110,038. Prior to the commencement of our public offering,
we sold shares of our common stock in a private offering. Upon
termination of the private offering, we had sold
637,279 shares of common stock at $9.40 per share (subject
to certain discounts) for net offering proceeds of $5,844,325.
As of December 31, 2009, no shares had been sold in either
our public offering or the private offering. Our public offering
will terminate on the earlier of July 19, 2012, unless
extended, or the date we sell all the shares offered in our
primary offering.
We are externally managed by Steadfast Income Advisor, LLC,
which we refer to as our advisor, pursuant to an
advisory agreement by and among us, our operating partnership
and the advisor, the Advisory Agreement. 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.
Objectives
and Strategies
Our primary investment objectives are to:
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preserve, protect and return invested capital;
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pay attractive and stable cash distributions to
stockholders; and
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realize capital appreciation in the value of our investments
over the long term.
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We intend to invest in a diverse portfolio of real estate
investments located throughout the United States, primarily in
the multifamily sector. We will seek to acquire and actively
manage stabilized, income-producing and value-added properties,
with the objective of providing a stable and secure source of
income for our
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stockholders and maximizing potential returns upon disposition
of our assets through capital appreciation. In addition to our
focus on multifamily properties, we may also selectively invest
in industrial properties and other types of commercial
properties and real estate-related assets. We may make these
investments directly or through joint ventures, in each case
provided that the underlying real estate or real estate-related
asset generally meets our criteria for direct investment.
We believe that the recent downturn in the commercial real
estate market provides an opportunity for us to purchase these
types of investment properties at historically low prices during
the period in which we will be investing the net proceeds of our
public offering, thereby enhancing our ability to realize
substantial appreciation on the ultimate disposition of the
properties. As a result, we believe that we will be able to
identify undervalued investments at attractive capitalization
rates in order to realize higher risk-adjusted returns than have
been available from commercial real estate properties acquired
in recent years. We believe desirable investment opportunities
will be more prevalent during this period than historical norms
due to the lack of available credit preventing many property
owners from refinancing existing debt. We intend to target
distressed sellers of properties in which the fundamental
attributes of the underlying property remain sound. We also
believe that the current credit market conditions provide us
with unique opportunities to acquire first mortgage, mezzanine
and bridge loans secured by these types of well-performing
investment properties at a discount to their par value in order
to realize predictable income and attractive overall rates of
returns. We believe that the multifamily and industrial sectors
of the commercial real estate property market present compelling
opportunities for investments that align with our investment
objectives due to the supply and demand dynamics expected to
arise in those sectors during the investment and operational
stages of our business.
After we have invested substantially all of the offering
proceeds from our public offering, we expect that multifamily
properties will comprise between 55% and 75% of the aggregate
cost of our portfolio; industrial properties will comprise
between 20% and 30% of the aggregate cost of our portfolio; and
a combination of real estate-related assets and other investment
types will not exceed 25% of the aggregate cost of our
portfolio. Our board of directors may revise this targeted
portfolio allocation from time to time, or at any time, if it
determines that a different portfolio composition is in our
stockholders best interests.
2010
Highlights
During 2010, we:
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commenced our initial public offering on July 19, 2010;
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acquired two multifamily properties for an aggregate purchase
price of $17,550,000, exclusive of closing costs; and
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began paying a monthly distribution at a rate equal to a 7.0%
annualized distribution rate if paid over a
365-day
period.
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Our Real
Estate Portfolio
As of December 31, 2010, we owned two multifamily
properties: the Lincoln Tower Apartments and the Park Place
Condominiums.
Lincoln Tower Apartments. On August 11,
2010, we acquired the Lincoln Tower Apartments, or the Lincoln
Tower property, for an aggregate purchase price of approximately
$9,500,000, exclusive of closing costs. We financed the payment
of the purchase price for the Lincoln Tower property with
(1) proceeds from our private and public offerings and
(2) a secured loan in the aggregate principal amount of
$6,650,000 from the seller of the Lincoln Tower property. The
Lincoln Tower property is a 17-story, class B apartment
complex constructed in 1968. The Lincoln Tower property is
comprised of 190 residential units and approximately
8,800 rentable square feet of commercial office space
located in Springfield, Illinois. The Lincoln Tower property
features one, two and three-bedroom floor plans ranging from
approximately 750 square feet to approximately
1,800 square feet. All residential units at the Lincoln
Tower property feature a master bedroom, a fully equipped
kitchen and a balcony. The Lincoln Tower property contains
underground parking facilities
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and a number of community amenities, including a fitness center,
a club room, laundry facilities and extra storage space.
Park Place Property. On December 22,
2010, we acquired the Park Place Condominiums, or the Park Place
property, for an aggregate purchase price of $8,050,000,
exclusive of closing costs. We financed the payment of the
purchase price for the Park Place property with
(1) proceeds from our public offering and (2) a
secured loan in the aggregate principal amount of $5,000,000.
The Park Place property is comprised of 147 condominium units
with approximately 90,900 rentable square feet within a
16-story building located in downtown Des Moines, Iowa. The
building was constructed in 1986 and contains 158 total
condominium units. The Park Place property contains 16 studio
units (approximately 429 square feet per unit), 91
one-bedroom units and 40 two bedroom units (approximately
679 square feet per unit). The one-bedroom units at the
Park Place property consist of units of approximately 471, 570
and 668 square feet per unit. All units at the Park Place
property feature a single bathroom and a full set of kitchen
appliances. Amenities at the Park Place property include a
fitness center, an approximately 6,000 square foot rooftop
terrace, a community room with Wi-Fi and a library, a computer
room, a guest suite, a secure access entry and onsite laundry.
In addition to the units noted above, the Park Place property
also includes 101 onsite garage parking spaces and a surface lot
located approximately two blocks away containing 40 parking
spaces.
Borrowing
Policy
We use, and intend to use in the future, secured and unsecured
debt as a means of providing additional funds for the
acquisition of our properties and our real estate-related
assets. We believe that careful use of borrowings will help us
achieve our diversification goals and potentially enhance the
returns on our investments. We expect that our borrowings will
be approximately 65% of the cost of our real properties (before
deducting depreciation and amortization) plus the value of our
other investments, after we have invested substantially all of
the net offering proceeds from our public offering. In order to
facilitate investments in the early stages of our operations, we
expect to temporarily borrow in excess of our long-term targeted
debt level. Under the Second Articles of Amendment and
Restatement, or our charter, we have a limitation on borrowing
which precludes us from borrowing in excess of 300% of our net
assets which generally approximates to 75% of the aggregate cost
of our assets. We may borrow in excess of this amount if such
excess is approved by a majority of the independent directors
and disclosed to stockholders in our next quarterly report,
along with a justification for such excess. In such event, we
will monitor our debt levels and take action to reduce any such
excess as soon as practicable. We do not intend to exceed our
charters leverage limit except in the early stages of our
operations when the costs of our investments are most likely to
substantially exceed our net offering proceeds. Our aggregate
borrowings will be reviewed by our board of directors at least
quarterly. At December 31, 2010, our borrowings were not in
excess of 300% of the value of our net assets.
Employees
We have no paid employees. The employees of our advisor or its
affiliates provide management, acquisition, advisory and certain
administrative services for us.
Competition
We are subject to significant competition in seeking real estate
investments and tenants. We compete with many third parties
engaged in real estate investment activities, including other
REITs, specialty finance companies, savings and loan
associations, banks, mortgage bankers, insurance companies,
mutual funds, institutional investors, investment banking firms,
lenders, hedge funds, governmental bodies, and other entities.
Many of our competitors have substantially greater financial and
other resources than we have and may have substantially more
operating experience than us. They also may enjoy significant
competitive advantages that result from, among other things, a
lower cost of capital.
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Regulations
Our investments are subject to various federal, state, and local
laws, ordinances, and regulations, including, among other
things, zoning regulations, land use controls, environmental
controls relating to air and water quality, noise pollution, and
indirect environmental impacts such as increased motor vehicle
activity. We believe that we have all permits and approvals
necessary under current law to operate our investments.
Income
Taxes
We intend to elect to be taxed as a REIT under the Internal
Revenue Code of 1986, as amended, or the Internal Revenue Code,
and intend to operate as such beginning with the taxable year
ending December 31, 2010. To qualify as a REIT, we must
meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of our annual
REIT taxable income to stockholders (which is computed without
regard to the dividends paid deduction or net capital gain and
which does not necessarily equal net income as calculated in
accordance with GAAP). As a REIT, we generally will not be
subject to federal income tax to the extent we distribute
qualifying dividends to our stockholders. If we fail to qualify
as a REIT in any taxable year after the taxable year in which we
initially elect to be taxed as a REIT, we will be subject to
federal income tax on our taxable income at regular corporate
income tax rates and generally will not be permitted to qualify
for treatment as a REIT for federal income tax purposes for the
four taxable years following the year during which qualification
is lost, unless the Internal Revenue Service grants us relief
under certain statutory provisions.
Financial
Information About Industry Segments
Our current business consists of owning, managing, operating,
leasing, acquiring, developing, investing in, and disposing of
real estate assets. We internally evaluate all of our real
estate assets as one industry segment, and, accordingly, we do
not report segment information.
Available
Information
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and, as a
result, file periodic reports, proxy statements and other
information with the SEC. Access to copies of our annual reports
on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements and other filings with the SEC, including
amendments to such filings, may be obtained free of charge from
our website,
http://www.steadfastreits.com.
These filings are available promptly after we file them with, or
furnish them to, the SEC. We are not incorporating our website
or any information from the website into this annual report on
Form 10-K.
The SEC also maintains a website,
http://www.sec.gov,
that contains our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
proxy statements and other filings with the SEC. Access to these
filings is free of charge.
The following are some of the risks and uncertainties that
could cause our actual results to differ materially from those
presented in our forward-looking statements. The risks and
uncertainties described below are not the only ones we face but
do represent those risks and uncertainties that we believe are
material to us. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also harm
our business. References to shares and our
common stock refer to the shares of common stock of
Steadfast Income REIT, Inc.
General
Investment Risks
We
have a limited operating history and there is no assurance that
we will be able to successfully achieve our investment
objectives.
We commenced our operations on August 11, 2010 with our
acquisition of the Lincoln Tower property. We, our sponsor and
our advisor are newly formed entities and therefore have a
limited operating history and
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may not be able to successfully operate our business or achieve
our investment objectives. As a result, an investment in our
shares of common stock may entail more risk than an investment
in the shares of common stock of a real estate investment trust
with a substantial operating history.
There
is no public trading market for shares of our common stock and
we are not required to effectuate a liquidity event by a certain
date. As a result, it will be difficult for you to sell your
shares of common stock and, if you are able to sell your shares,
you are likely to sell them at a substantial
discount.
There is no current public market for the shares of our common
stock and we have no obligation to list our shares on any public
securities market or provide any other type of liquidity to our
stockholders by a particular date. It will therefore be
difficult for you to sell your shares of common stock. Even if
you are able to sell your shares of common stock, the absence of
a public market may cause the price received for any shares of
our common stock sold to be less than what you paid or less than
your proportionate value of the assets we own. We have adopted a
share repurchase plan but it is limited in terms of the amount
of shares that may be purchased each quarter. Additionally, our
charter does not require that we consummate a transaction to
provide liquidity to stockholders on any date certain. As a
result, you should purchase shares of our common stock only as a
long-term investment, and you must be prepared to hold your
shares for an indefinite period of time.
If we
are unable to raise substantial funds in our public offering, we
will be limited in the number and type of investments we may
make, which could negatively impact your
investment.
Our public offering is being made on a best efforts
basis. Therefore, the broker-dealers participating in the
offering are only required to use their best efforts to sell
shares of our common stock, have no firm commitment or
obligation to purchase any of the shares of our common stock and
may choose to emphasize other REIT products over our offering.
As of March 14, 2011, we had sold 742,999 shares of
common stock in our public offering for gross proceeds of
$7,377,056, including 11,583 shares of common stock issued
pursuant to our distribution reinvestment plan for gross
offering proceeds of $110,038. If we raise substantially less
than the maximum offering amount in our public offering, we will
make fewer investments, resulting in less diversification in
terms of the number of investments we own, the geographic
regions in which our real properties are located and the types
of investments that we make. Further, it is likely that in our
early stages of growth we may not be able to achieve portfolio
diversification consistent with our longer-term investment
objectives, increasing the likelihood that any single
investments poor performance would materially affect our
overall investment performance. Our inability to raise
substantial funds and make investments would also increase our
fixed operating expenses as a percentage of gross income. Each
of these factors could have an adverse effect on our financial
condition and ability to make distributions to our stockholders.
Disruptions
in the financial markets and deteriorating economic conditions
could adversely impact our ability to implement our investment
strategy and achieve our investment objectives.
U.S. and global financial markets have recently experienced
extreme volatility and disruption. There has been a widespread
tightening in overall credit markets, devaluation of the assets
underlying certain financial contracts and increased borrowing
by governmental entities. The recent turmoil in the capital
markets resulted in constrained equity and debt capital
available for investment in the real estate market, resulting in
fewer buyers seeking to acquire real properties, increases in
capitalization rates and lower property values. Recently,
capital has been more available and the overall economy has
begun to improve. However, the failure of a sustained economic
recovery or future disruptions in the financial markets and
deteriorating economic conditions could impact the value of our
investments in properties. If potential purchasers of real
properties have difficulty finding debt to finance property
acquisitions, capitalization rates could increase and property
values could decrease. Current economic conditions greatly
increase the risks of our investments. See
Risks Related to Investments in Real
Estate.
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Our
ability to successfully conduct our public offering is
dependent, in part, on the ability of the dealer manager to hire
and retain key employees and to successfully establish, operate
and maintain a network of broker-dealers.
The dealer manager for our public offering is Steadfast Capital
Markets Group, LLC, which we refer to as Steadfast Capital
Markets Group or our dealer manager. Other
than serving as dealer manager for our public offering,
Steadfast Capital Markets Group has no experience acting as a
dealer manager for a public offering. The success of our public
offering and our ability to implement our business strategy is
dependent upon the ability of the dealer manager to hire and
retain key employees and to establish, operate and maintain a
network of licensed securities broker-dealers and other agents.
The success of the dealer manager will be determined in large
part by Gregory Brakovich and Jaime Shepardson, co-principals of
the dealer manager and Philip Meserve, president and chief
executive officer of the dealer manager, the loss of such
services could harm our ability to raise capital. If the dealer
manager is unable to hire qualified employees and build a
sufficient network of broker-dealers, we may not be able to
raise adequate proceeds through our public offering to implement
our investment strategy. If we are unsuccessful in implementing
our investment strategy, you could lose all or a part of your
investment.
If we
pay distributions from sources other than our cash flow from
operations, we will have fewer funds available for investments
and your overall return may be reduced.
Although our distribution policy is to use our cash flow from
operations to make distributions, our organizational documents
permit us to pay distributions from any source. For the year
ended December 31, 2010, all distributions paid to our
stockholders were funded from offering proceeds from our public
offering. To the extent we fund distributions from the net
proceeds of our public offering, we will have less funds
available for investment in real properties and real
estate-related assets than if our distributions came solely from
cash flow from operations and your overall return may be
reduced. We expect to have little, if any, cash flow from
operations available for distribution until we make substantial
investments. Further, because we may receive income at various
times during our fiscal year and because we may need cash flow
from operations during a particular period to fund expenses, we
expect that at least during the early stages of our development
and from time to time during our operational stage, we will
declare distributions in anticipation of cash flow that we
expect to receive during a later period and we will pay these
distributions in advance of our actual receipt of these funds.
In these instances, we expect to look to third party borrowings
to fund our distributions, but we may determine to use net
proceeds of our public offering when borrowings are not
available or if our board of directors determines it is
appropriate to do so. We have not established a limit on the
amount of proceeds we may use from our public offering to fund
distributions.
We may also fund distributions from advances from our advisor or
sponsor or the deferral by our advisor of fees payable under the
Advisory Agreement. Our obligation to pay all fees due to the
advisor from us pursuant to the Advisory Agreement will be
deferred during our offering stage to provide additional funds
to support the payment of distributions to our stockholders to
the extent that the distributions we pay during any calendar
quarter exceed our adjusted funds from operations (as defined in
the Advisory Agreement) for such calendar quarter up to an
amount equal to a 7.0% cumulative non-compounded annual return
on stockholders invested capital, pro-rated for such quarter.
The amount of fees that may be deferred is limited to an
aggregate amount of $5,000,000. To the extent we pay
distributions at an annualized rate lower than 7.0%, the amount
of fees that are required to be deferred by our advisor could
decrease.
In addition, if the aggregate amount of cash we distribute to
stockholders in any given year exceeds the amount of our
REIT taxable income generated during the year, the
excess amount will either be (1) a return of capital or
(2) a gain from the sale or exchange of property to the
extent that a stockholders basis in our common stock
equals or is reduced to zero as the result of our current or
prior year distributions.
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You
may be more likely to sustain a loss on your investment because
our sponsor does not have as strong an economic incentive to
avoid losses as do sponsors who have made significant equity
investments in the investment programs they are
sponsoring.
Our sponsor has only invested $200,007 in us in exchange for
22,223 shares of our common stock. Therefore, if we are
successful in raising sufficient offering proceeds to be able to
reimburse our sponsor for our organization and offering
expenses, our sponsor will have little exposure to loss in the
value of its investment in our shares. Without this exposure,
our investors may be at a greater risk of loss because our
sponsor does not have as strong an economic incentive to prevent
a decrease in the value of our shares as do those sponsors who
make more significant equity investments in the investment
programs they are sponsoring.
We
established the initial offering price of our shares of common
stock on an arbitrary basis and it may not accurately represent
the value of our assets. Therefore, the purchase price you paid
for shares of our common stock may be higher than the value of
our assets per share of our common stock at the time of your
purchase.
We are currently offering shares of common stock to the public
at a price of $10.00 per share in our ongoing public offering.
Our board of directors arbitrarily determined the offering price
for shares of our common stock that will apply at least during
the initial two years of our public offering. This initial
offering price for shares of our common stock has not been based
on appraisals of any assets we own or may own in the future. If
we extend our public offering beyond two years from the date of
its commencement, our board of directors may, but is not under
any obligation to, revise the price at which we offer shares of
our common stock to the public in the primary offering or
pursuant to our distribution reinvestment plan based upon
changes in our estimated net asset value per share and any other
factors that our board of directors deems relevant. If we
determine to change the price at which we offer shares, we do
not anticipate that we will do so more frequently than
quarterly. Therefore, the offering price established from time
to time for shares of our common stock may not accurately
represent the current value of our assets at any particular time
and may be higher or lower than the actual value of our assets.
In addition, the proceeds received from a liquidation of our
assets may be substantially less than the offering price of our
shares because certain fees and costs associated with our public
offering may be added to our estimated net asset value per share
in connection with changing the offering price of our shares.
We
will not begin providing stockholders with an estimated net
asset value per share of our common stock until six months after
completion of our offering stage. Therefore, you will not be
able to determine the true value of your shares on an ongoing
basis until the completion of our offering stage.
We will publicly disclose an estimated net asset value per share
of our common stock every six months beginning no later than six
months following the completion of our offering stage (as
defined below). Therefore, you will not be able to determine the
true value of your shares on an ongoing basis during our public
offering. Our estimated net asset value per share will be based
upon periodic valuations of all of our assets by independent
third party appraisers and qualified independent valuation
experts selected by our advisor. We will consider our offering
stage complete on the first date that we are no longer publicly
offering equity securities that are not listed on a national
securities exchange, whether through our current public offering
or follow-on public equity offerings, provided we have not filed
a registration statement for a follow-on public equity offering
as of such date (for purposes of this definition, we do not
consider public equity offerings to include
offerings on behalf of selling stockholders or offerings related
to a distribution reinvestment plan, employee benefit plan or
the redemption of interests in our operating partnership). Our
estimated net asset value per share may not be indicative of the
price our stockholders would receive if they sold our shares in
an arms-length transaction, if our shares were actively traded
or if we were liquidated.
7
Because
our charter does not require our listing or liquidation by a
specified date, you should only purchase our shares as a
long-term investment and be prepared to hold them for an
indefinite period of time.
In the future, our board of directors will consider alternatives
for providing liquidity to our stockholders, each of which is
referred to as a liquidity event, including the sale
of our assets, a sale or merger of our company or a listing of
our shares on a national securities exchange. Our board of
directors has determined that it will evaluate whether to pursue
a possible liquidity event no later than January 1, 2015.
If we have not determined to pursue a liquidity event by
December 31, 2016, our charter requires that we either
(1) seek stockholder approval of our liquidation or
(2) postpone presenting the liquidation decision to our
stockholders if a majority of our board of directors, including
a majority of the independent directors, determines that
liquidation is not then in the best interests of our
stockholders. If a majority of our board of directors, including
a majority of the independent directors, determines that
liquidation is not then in the best interests of our
stockholders, our charter requires our board of directors to
reconsider whether to seek stockholder approval of our
liquidation at least annually. Further postponement of a
liquidity event or stockholder action regarding liquidation
would only be permitted if a majority of our board of directors,
including a majority of the independent directors, again
determined that liquidation would not be in the best interests
of our stockholders. If we sought and failed to obtain
stockholder approval of our liquidation, our charter would not
require us to consummate our liquidation and would not require
our board of directors to reconsider whether to seek stockholder
approval of our liquidation, and we could continue to operate as
before. If, however, we sought and obtained stockholder approval
of a liquidation, we would begin an orderly sale of our assets.
Because our charter does not require us to pursue a liquidity
event by a specified date, you should only purchase our shares
as a long-term investment and be prepared to hold them for an
indefinite period of time.
Payment
of fees to our advisor and its affiliates reduces cash available
for investment, which may result in our stockholders not
receiving a full return of their invested capital.
Because a portion of the offering price from the sale of our
shares will be used to pay expenses and fees, the full offering
price paid by stockholders will not be invested in real
properties and real estate-related assets. As a result,
stockholders will only receive a full return of their invested
capital if we either (1) sell our assets or our company for
a sufficient amount in excess of the original purchase price of
our assets or (2) the market value of our company after we
list our shares of common stock on a national securities
exchange is substantially in excess of the original purchase
price of our assets.
If we
internalize our management functions, your interest in us could
be diluted and we could incur other significant costs associated
with being self-managed.
Our board of directors may decide in the future to internalize
our management functions. If we do so, we may elect to negotiate
to acquire our advisors assets and personnel. At this
time, we cannot anticipate the form or amount of consideration
or other terms relating to any such acquisition. Such
consideration could take many forms, including cash payments,
promissory notes and shares of our common stock. The payment of
such consideration could result in dilution of your interests as
a stockholder and could have an adverse effect on our financial
condition and ability to make distributions to our stockholders.
Additionally, while we would no longer bear the costs of the
various fees and expenses we expect to pay to our advisor under
the Advisory Agreement, our direct expenses would include
general and administrative costs, including legal, accounting
and other expenses related to corporate governance, SEC
reporting and compliance. We would also be required to employ
personnel and would be subject to potential liabilities commonly
faced by employers, such as workers disability and compensation
claims, potential labor disputes and other employee-related
liabilities and grievances as well as incur the compensation and
benefits costs of our officers and other employees and
consultants that will be paid by our advisor or its affiliates.
We may issue equity awards to officers, employees and
consultants, which awards would decrease net income and funds
from operations and may further dilute your investment. We
cannot reasonably estimate the amount of fees to our advisor we
would save or the costs we would incur if we became
self-managed. If the expenses we assume as a result of an
internalization are higher than the expenses we avoid paying to
our advisor, our funds
8
from operations would be lower as a result of the
internalization than they otherwise would have been, potentially
decreasing the amount of funds available to distribute to our
stockholders.
Internalization transactions involving the acquisition of
advisors have also, in some cases, been the subject of
litigation. Even if these claims are without merit, we could be
forced to spend significant amounts of money defending claims
which would reduce the amount of funds available for us to
invest or to pay distributions.
You
are limited in your ability to have your shares of common stock
repurchased pursuant to our share repurchase plan. You may not
be able to sell any of your shares of our common stock back to
us, and if you do sell your shares, you may not receive the
price you paid upon subscription.
Our share repurchase plan may provide you with an opportunity to
have your shares of common stock repurchased by us. We
anticipate that shares of our common stock may be repurchased on
a quarterly basis. No shares may be repurchased under our share
repurchase plan until after the first anniversary of the date of
purchase of such shares. Prior to the completion of our offering
stage, we will repurchase shares of our common stock pursuant to
our share repurchase plan at a discount from the current
offering price based upon how long such shares have been held.
Notwithstanding the foregoing, following the completion of our
offering stage, shares of our common stock will be repurchased
at a price equal to a price based upon our estimated net asset
value per share as of our most recent appraisal.
Our share repurchase plan contains certain restrictions and
limitations, including those relating to the number of shares of
our common stock that we can repurchase at any given time and
limiting the repurchase price. Specifically, the share
repurchase plan limits the number of shares to be repurchased
during any calendar year to no more than (1) 5.0% of the
weighted average of the number of shares of our common stock
outstanding in the prior calendar year and (2) those that
could be funded from the net proceeds from the sale of shares
under the distribution reinvestment plan in the prior calendar
year plus such additional funds as may be borrowed or reserved
for that purpose by our board of directors. Further, we have no
obligation to repurchase shares if the repurchase would violate
the restrictions on distributions under Maryland law, which
prohibits distributions that would cause a corporation to fail
to meet statutory tests of solvency. Our board of directors
reserves the right to reject any repurchase request for any
reason or no reason or to amend or terminate the share
repurchase plan at any time upon 30 days notice to
our stockholders. Therefore, you may not have the opportunity to
make a repurchase request prior to a potential termination of
the share repurchase plan and you may not be able to sell any of
your shares of common stock back to us. Moreover, if you do sell
your shares of common stock back to us pursuant to the share
repurchase plan, you may be forced to do so at a discount to the
purchase price you paid for your shares.
Our
success is dependent on the performance of our advisor and its
affiliates.
Our ability to achieve our investment objectives and to pay
distributions is dependent upon the performance of our advisor
and its affiliates. Our advisor and its affiliates are sensitive
to trends in the general economy, as well as the commercial real
estate and credit markets. The recent economic recession and
accompanying credit crisis negatively impacted the value of
commercial real estate assets, contributing to a general slow
down in the real estate industry, which we anticipate will
continue through 2011. The failure to achieve a sustained
economic recovery or renewed economic downturn could result in
continued reductions in overall transaction volume and size of
sales and leasing activities that our advisor and its affiliates
have recently experienced, and would continue to put downward
pressure on our advisors and its affiliates revenues
and operating results. To the extent that any decline in
revenues and operating results impacts the performance of our
advisor and its affiliates, our financial condition and ability
to pay distributions to our stockholders could also suffer.
Additionally, our obligation to pay all fees due to the advisor
pursuant to the Advisory Agreement will be deferred during our
offering stage to provide additional funds to support the
payment of distributions to our stockholders. The amount of fees
that may be deferred is limited to an aggregate amount of
$5,000,000. As a newly formed entity, our advisor will rely
primarily on the fees it receives pursuant to the Advisory
Agreement
9
and capital from our sponsor to fund its operations and
liabilities. If our advisor has insufficient cash from
operations to meet its obligations under the Advisory Agreement
and is unable to obtain financing, we would be adversely
impacted.
If we
are delayed or unable to find suitable investments, we may not
be able to achieve our investment objectives.
Delays in selecting, acquiring and developing real properties
could adversely affect investor returns. Because we are
conducting our public offering on a best efforts
basis over time, our ability to commit to purchase specific
assets will depend, in part, on the amount of proceeds we have
received at a given time. As of the date of this annual report,
we have purchased two multifamily properties. If we are unable
to access sufficient additional capital, we may suffer from
delays locating and acquiring suitable investments.
Recent
events in U.S. financial markets have had, and may continue to
have, a negative impact on the terms and availability of credit
and the overall national economy, which could have an adverse
effect on our business and our results of
operations.
The failure of large U.S. financial institutions in 2009
and the resulting turmoil in the United States financial sector
has had, and will likely continue to have, a negative impact on
the terms and availability of credit and the state of the
economy generally within the United States. The tightening of
the U.S. credit markets resulted in a lack of adequate
credit and a further economic downturn. Some lenders continue to
impose more stringent restrictions on the terms of credit,
including shorter terms and more conservative
loan-to-value
underwriting than was previously customary. The negative impact
of the tightening of the credit markets may limit our ability
finance the acquisition of properties and other real
estate-related assets on favorable terms, if at all, increased
financing costs or financing with increasingly restrictive
covenants.
Additionally, decreasing home prices and increasing mortgage
defaults resulted in uncertainty in the real estate and real
estate securities and debt markets. The market for new issuances
of commercial mortgage-backed securities, or CMBS, has been
significantly reduced as a result of the recent turmoil in the
financial markets and banks currently are generally providing
limited debt financing with more stringent conditions for
investments in real estate-related assets. As a result, the
valuation of real estate-related assets has been volatile and is
likely to continue to be volatile in the future. The volatility
in markets may make it more difficult for us to obtain adequate
financing or realize gains on our investments which could have
an adverse effect on our business and our results of operations.
We are
uncertain of our sources for funding our future capital needs.
If we do not have sufficient funds from operations to cover our
expenses or to fund improvements to our real estate and cannot
obtain debt or equity financing on acceptable terms, our ability
to cover our expenses or to fund improvements to our real estate
will be adversely affected.
The net proceeds of our public offering will be used primarily
for investments in real properties and real estate-related
assets. During the initial stages of the offering, we may not
have sufficient funds from operations to cover our expenses or
to fund improvements to our real estate. Accordingly, in the
event that we develop a need for additional capital in the
future for the improvement of our real properties or for any
other reason, sources of funding may not be available to us. If
we do not have sufficient funds from cash flow generated by our
investments or out of net sale proceeds, or cannot obtain debt
or equity financing on acceptable terms, our financial condition
and ability to make distributions may be adversely affected.
If we
cease to retain our advisor or one of its affiliates to perform
substantial advisory services for us, we may be required to
cease to conduct business under or use the name
Steadfast or any derivative thereof.
Pursuant to the terms of the Advisory Agreement, if we cease to
retain the advisor or one of its affiliates to perform
substantial advisory services for us, we are required, upon
receipt of written request from the advisor, to cease to conduct
business under or use the name Steadfast or any
derivative thereof and to
10
change our name and the names of our subsidiaries to a name that
does not contain the word Steadfast or any other
word or words that might, in the reasonable discretion of our
advisor, indicate some form of relationship between us and our
advisor or its affiliates. If we are required to cease to
conduct business under or use the name Steadfast or
any derivative thereof, it could have an adverse effect on our
ability to achieve our investment objectives, our financial
condition and our ability to make distributions to our
stockholders.
Risks
Relating to Our Organizational Structure
Maryland
law and our organizational documents limit your right to bring
claims against our officers and directors.
Maryland law provides that a director will not have any
liability as a director so long as he or she performs his or her
duties in accordance with the applicable standard of conduct. In
addition, our charter provides that, subject to the applicable
limitations set forth therein or under Maryland law, no director
or officer will be liable to us or our stockholders for monetary
damages. Our charter also provides that we will generally
indemnify our directors, our officers, our advisor and its
affiliates for losses they may incur by reason of their service
in those capacities unless their act or omission was material to
the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate dishonesty,
they actually received an improper personal benefit in money,
property or services or, in the case of any criminal proceeding,
they had reasonable cause to believe the act or omission was
unlawful. Moreover, have entered into separate indemnification
agreements with each of our directors and executive officers. As
a result, we and our stockholders may have more limited rights
against these persons than might otherwise exist under common
law. In addition, we may be obligated to fund the defense costs
incurred by these persons. However, our charter provides that we
may not indemnify our directors, our advisor and its affiliates
for loss or liability suffered by them or hold our directors or
our advisor and its affiliates harmless for loss or liability
suffered by us unless they have determined that the course of
conduct that caused the loss or liability was in our best
interests, they were acting on our behalf or performing services
for us, the liability was not the result of negligence or
misconduct by our non-independent directors, our advisor and its
affiliates or gross negligence or willful misconduct by our
independent directors, and the indemnification or agreement to
hold harmless is recoverable only out of our net assets,
including the proceeds of insurance, and not from the
stockholders. As a result of these limitations on liability and
indemnification provisions and agreements, we and our
stockholders may be entitled to a more limited right of action
than we would otherwise have if indemnification rights were not
granted.
The
limit on the percentage of shares of our common stock that any
person may own may discourage a takeover or business combination
that may benefit our stockholders.
Our charter restricts the direct or indirect ownership by one
person or entity to no more than 9.8% of the value of our then
outstanding capital stock (which includes common stock and any
preferred stock we may issue) and no more than 9.8% of the value
or number of shares, whichever is more restrictive, of our then
outstanding common stock unless exempted by our board of
directors. These restrictions may discourage a change of control
of us and may deter individuals or entities from making tender
offers for shares of our common stock on terms that might be
financially attractive to stockholders or which may cause a
change in our management. In addition to deterring potential
transactions that may be favorable to our stockholders, these
provisions may also decrease your ability to sell your shares of
our common stock.
We may
issue preferred stock or other classes of common stock, which
issuance could adversely affect the holders of our common
stock.
Investors in our common stock do not have preemptive rights to
any shares issued by us in the future. We may issue, without
stockholder approval, preferred stock or other classes of common
stock with rights that could dilute the value of your shares of
common stock. However, the issuance of preferred stock must also
be approved by a majority of our independent directors not
otherwise interested in the transaction, who will have access,
at our expense, to our legal counsel or to independent legal
counsel. The issuance of preferred stock or other classes of
common stock may increase the number of stockholders entitled to
distributions without
11
simultaneously increasing the size of our asset base. Under our
charter, we have authority to issue a total of
1,100,000,000 shares of capital stock, of which
999,999,000 shares are designated as common stock with a
par value of $0.01 per share, 1,000 shares are designated
as convertible stock with a par value of $0.01 per share and
100,000,000 shares are designated as preferred stock with a
par value of $0.01 per share. Our board of directors, with the
approval of a majority of the entire board of directors and
without any action by our stockholders, may amend our charter
from time to time to increase or decrease the aggregate number
of shares of capital stock or the number of shares of capital
stock of any class or series that we have authority to issue. If
we ever created and issued preferred stock with a distribution
preference over common stock, payment of any distribution
preferences of outstanding preferred stock would reduce the
amount of funds available for the payment of distributions on
our common stock. Further, holders of preferred stock are
normally entitled to receive a preference payment in the event
we liquidate, dissolve or wind up before any payment is made to
our common stockholders, likely reducing the amount common
stockholders would otherwise receive upon such an occurrence. In
addition, under certain circumstances, the issuance of preferred
stock or a separate class or series of common stock may render
more difficult or tend to discourage a merger, tender offer or
proxy contest, the assumption of control by a holder of a large
block of our securities, or the removal of incumbent management.
Your
investment will be diluted upon conversion of the convertible
stock.
We have issued 1,000 shares of our convertible stock to our
advisor. Under limited circumstances, each outstanding share of
our convertible stock may be converted into shares of our common
stock, which will have a dilutive effect to our stockholders.
Our convertible stock will be converted into shares of common
stock if (1) we have made total distributions on the then
outstanding shares of our common stock equal to the price paid
for those shares plus an 8.0% cumulative, non-compounded, annual
return on that price, (2) we list our common stock for
trading on a national securities exchange or enter into a merger
whereby holders of our common stock receive listed securities of
another issuer or (3) our Advisory Agreement is terminated
or not renewed (other than for cause as defined in
our Advisory Agreement). Upon any of these events, each share of
convertible stock will be converted 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
(i) our enterprise value plus the aggregate
value of the distributions paid to date on the then outstanding
shares exceeds (ii) the aggregate purchase price paid by
stockholders for those outstanding shares plus an 8.0%
cumulative, non-compounded, annual return on the original issue
price of the shares, divided by (B) our enterprise value
divided by the number of outstanding shares of our common stock
on an as-converted basis as of the date of conversion. In the
event of a termination or non-renewal of our Advisory Agreement
for cause, the convertible stock will be redeemed by us for
$1.00. Upon the issuance of our common stock in connection with
the conversion of our convertible stock, your interests in us
will be diluted.
We may
grant stock-based awards to our directors, advisor employees and
consultants pursuant to our long-term incentive plan, which will
have a dilutive effect on your investment in us.
We have adopted a long-term incentive plan pursuant to which we
are authorized to grant restricted stock, stock options, stock
appreciation rights, restricted or deferred stock units,
performance awards, dividend equivalents or other stock-based
awards to directors, advisor employees and consultants selected
by our board of directors for participation in the plan. We
currently intend only to issue awards of restricted stock to our
independent directors under our long-term incentive plan. If we
issue additional stock-based awards to eligible participants
under our long-term incentive plan, the issuance of these
stock-based awards will dilute your investment in our shares of
common stock.
Certain features of our long-term incentive plan could have a
dilutive effect on your investment in us, including (1) a
lack of annual award limits, individually or in the aggregate
(subject to the limit on the maximum number of shares which may
be issued pursuant to awards granted under the plan),
(2) the fact that the limit on the maximum number of shares
which may be issued pursuant to awards granted under the plan is
not tied to the amount of proceeds raised in the offering and
(3) share counting procedures which provide that shares
subject to certain awards, including, without limitation,
substitute awards granted by us to employees of
12
another entity in connection with our merger or consolidation
with such company or shares subject to outstanding awards of
another company assumed by us in connection with our merger or
consolidation with such company, are not subject to the limit on
the maximum number of shares which may be issued pursuant to
awards granted under the plan.
The
conversion of the convertible stock held by our advisor due upon
termination of the Advisory Agreement and the voting rights
granted to the holder of our convertible stock, may discourage a
takeover attempt or prevent us from effecting a merger that
otherwise would have been in the best interests of our
stockholders.
If we engage in a merger in which we are not the surviving
entity or our Advisory Agreement is terminated without cause,
our advisor may be entitled to conversion of the shares of our
convertible stock it holds and to require that we purchase all
or a portion of the limited partnership interests in our
operating partnership that it holds at any time thereafter for
cash or our common stock. The existence of this convertible
stock may deter a prospective acquirer from bidding on our
company, which may limit the opportunity for stockholders to
receive a premium for their stock that might otherwise exist if
an investor attempted to acquire us through a merger.
The affirmative vote of two-thirds of the outstanding shares of
convertible stock, voting as a single class, will be required
(1) for any amendment, alteration or repeal of any
provision of our charter that materially and adversely changes
the rights of the convertible stock and (2) to effect a
merger of our company into another entity, or a merger of
another entity into our company, unless in each case each share
of convertible stock (A) will remain outstanding without a
material and adverse change to its terms and rights or
(B) will be converted into or exchanged for shares of stock
or other ownership interest of the surviving entity having
rights identical to that of our convertible stock. In the event
that we propose to merge with or into another entity, including
another REIT, our advisor could, by exercising these voting
rights, determine whether or not we are able to complete the
proposed transaction. By voting against a proposed merger, our
advisor could prevent us from effecting the merger, even if the
merger otherwise would have been in the best interests of our
stockholders.
Our
UPREIT structure may result in potential conflicts of interest
with limited partners in our operating partnership whose
interests may not be aligned with those of our
stockholders.
Limited partners in our operating partnership have the right to
vote on certain amendments to the operating partnership
agreement, as well as on certain other matters. Persons holding
such voting rights may exercise them in a manner that conflicts
with the interests of our stockholders. As general partner of
our operating partnership, we are obligated to act in a manner
that is in the best interest of all partners of our operating
partnership. Circumstances may arise in the future when the
interests of limited partners in our operating partnership may
conflict with the interests of our stockholders. These conflicts
may be resolved in a manner stockholders do not believe are in
their best interest.
Your
investment return may be reduced if we are required to register
as an investment company under the Investment Company Act; if we
are subject to registration under the Investment Company Act, we
will not be able to continue our business.
Neither we, our operating partnership or any of our subsidiaries
intend to register as an investment company under the Investment
Company Act. Our operating partnerships and
subsidiaries investments in real estate will represent the
substantial majority of our total asset mix. In order for us not
to be subject to regulation under the Investment Company Act, we
intend to engage, through our operating partnership and our
wholly and majority owned subsidiaries, primarily in the
business of buying real estate. These investments must be made
within a year after our public offering ends.
We expect that most of our assets will be held through
wholly-owned or majority-owned subsidiaries of our operating
partnership. We expect that most of these subsidiaries will be
outside the definition of an investment company
under Section 3(a)(1) of the Investment Company Act as they
are generally expected to
13
hold at least 60% of their assets in real property.
Section 3(a)(1)(A) of the Investment Company Act defines an
investment company as any issuer that is or holds itself out as
being engaged primarily in the business of investing,
reinvesting or trading in securities. Section 3(a)(1)(C) of
the Investment Company Act defines an investment company as any
issuer that is engaged or proposes to engage in the business of
investing, reinvesting, owning, holding or trading in securities
and owns or proposes to acquire investment securities having a
value exceeding 40% of the value of the issuers total
assets (exclusive of U.S. government securities and cash
items) on an unconsolidated basis, which we refer to as the
40% test. Excluded from the term investment
securities, among other things, are U.S. government
securities and securities issued by majority-owned subsidiaries
that are not themselves investment companies and are not relying
on the exception from the definition of investment company set
forth in Section 3(c)(1) or Section 3(c)(7) of the
Investment Company Act.
We believe that we, our operating partnership and most of the
subsidiaries of our operating partnership will not fall within
either definition of investment company under
Section 3(a)(1) of the Investment Company Act as we intend
to invest primarily in real property, through our wholly or
majority-owned subsidiaries, the majority of which we expect to
have at least 60% of their assets in real property. As these
subsidiaries would be investing either solely or primarily in
real property, they would be outside of the definition of
investment company under Section 3(a)(1) of the
Investment Company Act. We are organized as a holding company
that conducts its businesses primarily through our operating
partnership, which in turn is a holding company conducting its
business through its subsidiaries. Both we and our operating
partnership intend to conduct our operations so that they comply
with the 40% test. We will monitor our holdings to ensure
continuing and ongoing compliance with this test. In addition,
we believe that neither we nor our operating partnership will be
considered an investment company under Section 3(a)(1)(A)
of the Investment Company Act because neither we nor our
operating partnership will engage primarily or hold itself out
as being engaged primarily in the business of investing,
reinvesting or trading in securities. Rather, through our
operating partnerships wholly owned or majority owned
subsidiaries, we and our operating partnership will be primarily
engaged in the non-investment company businesses of these
subsidiaries.
In the event that the value of investment securities held by a
subsidiary of our operating partnership were to exceed 40% of
the value of its total assets, we expect that subsidiary to be
able to rely on the exclusion from the definition of
investment company provided by
Section 3(c)(5)(C) of the Investment Company Act.
Section 3(c)(5)(C), as interpreted by the staff of the SEC,
requires each of our subsidiaries relying on this exception to
invest at least 55% of its portfolio in mortgage and other
liens on and interests in real estate, which we refer to
as qualifying real estate assets, and maintain at
least 80% of its assets in qualifying real estate assets or
other real estate-related assets. The remaining 20% of the
portfolio can consist of miscellaneous assets. What we buy and
sell is therefore limited by these criteria. How we determine to
classify our assets for purposes of the Investment Company Act
will be based in large measure upon no-action letters issued by
the SEC staff in the past and other SEC interpretive guidance
and, in the absence of SEC guidance, on our view of what
constitutes a qualifying real estate asset and a real
estate-related asset. These no-action positions were issued in
accordance with factual situations that may be substantially
different from the factual situations we may face, and a number
of these no-action positions were issued more than ten years
ago. Pursuant to this guidance, and depending on the
characteristics of the specific investments, certain mortgage
loans, participations in mortgage loans, mortgage-backed
securities, mezzanine loans, joint venture investments and the
equity securities of other entities may not constitute
qualifying real estate assets and therefore investments in these
types of assets may be limited. No assurance can be given that
the SEC staff will concur with our classification of our assets.
Future revisions to the Investment Company Act or further
guidance from the SEC staff may cause us to lose our exclusion
from registration or force us to re-evaluate our portfolio and
our investment strategy. Such changes may prevent us from
operating our business successfully.
In the event that we, or our operating partnership, were to
acquire assets that could make either entity fall within the
definition of an investment company under Section 3(a)(1)
of the Investment Company Act, we believe that we would still
qualify for an exclusion from registration pursuant to
Section 3(c)(6). Although the SEC staff has issued little
interpretive guidance with respect to Section 3(c)(6), we
believe that we and our operating partnership may rely on
Section 3(c)(6) if 55% of the assets of our operating
partnership consist of,
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and at least 55% of the income of our operating partnership is
derived from, qualifying real estate assets owned by wholly
owned or majority-owned subsidiaries of our operating
partnership.
To ensure that neither we, our operating partnership or any of
our subsidiaries are required to register as an investment
company, each entity may be unable to sell assets that it would
otherwise want to sell and may need to sell assets that it would
otherwise wish to retain. In addition, we, our operating
partnership or our subsidiaries may be required to acquire
additional income- or loss-generating assets that we might not
otherwise acquire or forego opportunities to acquire interests
in companies that we would otherwise want to acquire. Although
we, our operating partnership and our subsidiaries intend to
monitor our portfolio periodically and prior to each acquisition
and disposition, any of these entities may not be able to
maintain an exclusion from registration as an investment
company. If we, our operating partnership or our subsidiaries
are required to register as an investment company but fail to do
so, the unregistered entity would be prohibited from engaging in
our business, and criminal and civil actions could be brought
against such entity. In addition, the contracts of such entity
would be unenforceable unless a court required enforcement, and
a court could appoint a receiver to take control of the entity
and liquidate its business.
Risks
Related To Conflicts of Interest
We
depend on our advisor and its key personnel and if any of such
key personnel were to cease to be affiliated with our advisor,
our business could suffer.
Our ability to achieve our investment objectives is dependent
upon the performance of our advisor. Our success depends to a
significant degree upon the continued contributions of certain
of the key personnel of our advisor, each of whom would be
difficult to replace. We currently do not have key man life
insurance on any of our advisors personnel. If our advisor
were to lose the benefit of the experience, efforts and
abilities of any these individuals, our operating results could
suffer.
Our
advisor and its affiliates, including our officers and our
affiliated directors, will face conflicts of interest caused by
compensation arrangements with us, which could result in actions
that are not in the best interests of our
stockholders.
Our advisor and its affiliates will receive substantial fees
from us in return for their services and these fees could
influence the advice provided to us. Among other matters, these
compensation arrangements could affect their judgment with
respect to:
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public offerings of equity by us, which allow the dealer manager
to earn additional dealer manager fees and allows our advisor to
earn increased acquisition fees and investment management fees;
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real property sales, since the investment management fees and
property management fees payable to our advisor and its
affiliates will decrease; and
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the purchase of assets from our sponsor and its affiliates,
which may allow our advisor or its affiliates to earn additional
acquisition fees, investment management fees and property
management fees.
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Further, our advisor may recommend that we invest in a
particular asset or pay a higher purchase price for the asset
than it would otherwise recommend if it did not receive an
acquisition fee in connection with such transactions. Certain
potential acquisition fees and investment management fees
payable to our advisor and property management fees payable to
our property managers will be paid irrespective of the quality
of the underlying real estate or property management services.
These fees may influence our advisor to recommend transactions
with respect to the sale of a property or properties that may
not be in our best interest. Our advisor will have considerable
discretion with respect to the terms and timing of our
acquisition, disposition and leasing transactions. In evaluating
investments and other management strategies, the opportunity to
earn these fees may lead our advisor to place undue emphasis on
criteria relating to its compensation at the expense of other
criteria, such as the preservation of capital, to achieve higher
short-term compensation. This could result in decisions that are
not in the best interests of our stockholders.
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We may
compete with affiliates of our sponsor for opportunities to
acquire or sell investments, which may have an adverse impact on
our operations.
We may compete with affiliates of our sponsor for opportunities
to acquire or sell real properties and other real estate-related
assets. We may also buy or sell real properties and other real
estate-related assets at the same time as affiliates of our
sponsor. In this regard, there is a risk that our sponsor will
select for us investments that provide lower returns to us than
investments purchased by its affiliates. Certain of our
affiliates own or manage real properties in geographical areas
in which we expect to own real properties. As a result of our
potential competition with affiliates of our sponsor, certain
investment opportunities that would otherwise be available to us
may not in fact be available. This competition may also result
in conflicts of interest that are not resolved in our favor.
The
time and resources that our sponsor and its affiliates could
devote to us may be diverted to other investment activities, and
we may face additional competition due to the fact that our
sponsor and its affiliates are not prohibited from raising money
for, or managing, another entity that makes the same types of
investments that we do.
Our sponsor and its affiliates are not prohibited from raising
money for, or managing, another investment entity that makes the
same types of investments as we do. As a result, the time and
resources they could devote to us may be diverted to other
investment activities. Additionally, some of our directors and
officers may serve as directors and officers of investment
entities sponsored by our sponsor and its affiliates. We cannot
currently estimate the time our officers and directors will be
required to devote to us because the time commitment required of
our officers and directors will vary depending upon a variety of
factors, including, but not limited to, general economic and
market conditions effecting us, the amount of proceeds raised in
our public offering and our advisors ability to locate and
acquire investments that meet our investment objectives. Since
these professionals engage in and will continue to engage in
other business activities on behalf of themselves and others,
these professionals will face conflicts of interest in
allocating their time among us, our advisor and its affiliates
and other business activities in which they are involved. This
could result in actions that are more favorable to affiliates of
our advisor than to us.
In addition, we may compete with affiliates of our advisor for
the same investors and investment opportunities. We may also
co-invest with any such investment entity. Even though all such
co-investments will be subject to approval by our independent
directors, they could be on terms not as favorable to us as
those we could achieve co-investing with a third party.
Our
advisor may have conflicting fiduciary obligations if we acquire
assets from affiliates of our sponsor or enter into joint
ventures with affiliates of our sponsor. As a result, in any
such transaction we may not have the benefit of
arms-length negotiations of the type normally conducted
between unrelated parties.
Our advisor may cause us to invest in a property owned by, or
make an investment in equity securities in or real
estate-related loans to, our sponsor or its affiliates or
through a joint venture with affiliates of our sponsor. In these
circumstances, our advisor will have a conflict of interest when
fulfilling its fiduciary obligation to us. In any such
transaction, we would not have the benefit of arms-length
negotiations of the type normally conducted between unrelated
parties.
The
fees we pay to affiliates in connection with our public offering
and in connection with the acquisition and management of our
investments were determined without the benefit of
arms-length negotiations of the type normally conducted
between unrelated parties.
The fees to be paid to our advisor, our property managers, the
dealer manager and other affiliates for services they provide
for us were determined without the benefit of arms-length
negotiations of the type normally conducted between unrelated
parties, may be in excess of amounts that we would otherwise pay
to third parties for such services and may reduce the amount of
cash that would otherwise be available for investments in real
properties and distributions to our stockholders.
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Risks
Related To Investments in Real Estate
Our
operating results will be affected by economic and regulatory
changes that impact the real estate market in
general.
Our investments in real properties will be subject to risks
generally attributable to the ownership of real property,
including:
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changes in global, national, regional or local economic,
demographic or real estate market conditions;
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changes in supply of or demand for similar properties in an area;
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increased competition for real property investments targeted by
our investment strategy;
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bankruptcies, financial difficulties or lease defaults by our
tenants;
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changes in interest rates and availability of financing;
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changes in the terms of available financing, including more
conservative
loan-to-value
requirements and shorter debt maturities;
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changes in government rules, regulations and fiscal policies,
including changes in tax, real estate, environmental and zoning
laws; and
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the severe curtailment of liquidity for certain real
estate-related assets.
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All of these factors are beyond our control. Any negative
changes in these factors could affect our ability to meet our
obligations and make distributions to stockholders.
We are unable to predict future changes in national, regional or
local economic, demographic or real estate market conditions.
For example, a recession or rise in interest rates could make it
more difficult for us to lease or dispose of real properties and
could make alternative interest-bearing and other investments
more attractive and therefore potentially lower the relative
value of the real estate assets we acquire. These conditions, or
others we cannot predict, may adversely affect our results of
operations and returns to our stockholders. In addition, the
value of the real properties we acquire may decrease following
the date we acquire such properties due to the risks described
above or any other unforeseen changes in market conditions. If
the value of our real properties decreases, we may be forced to
dispose of the properties at a price lower than the price we
paid to acquire our properties, which could adversely impact our
ability to make distributions and return capital to our
investors.
Real
property that incurs a vacancy could be difficult to sell or
re-lease.
Real property may incur a vacancy either by the continued
default of a tenant under its lease or the expiration of one of
our leases. Certain of the real properties we acquire may have
some level of vacancy at the time of closing. Certain other real
properties may be specifically suited to the particular needs of
a tenant and may become vacant. There can be no assurances that
we will have the funds available to correct defects or make
capital improvements necessary to attract replacement tenants.
As a result, we may have difficulty obtaining a new tenant for
any vacant space we have in our real properties. If the vacancy
continues for a long period of time, we may suffer reduced
revenues resulting in lower cash distributions to stockholders.
In addition, the resale value of the real property could be
diminished because the market value may depend principally upon
the value of the leases of such real property.
We
will compete with numerous other persons and entities for real
estate assets and tenants.
We will compete with numerous other persons and entities in
acquiring real property and attracting tenants to real
properties we acquire. These persons and entities may have
greater experience and financial strength than us. There is no
assurance that we will be able to acquire real properties or
attract tenants to real properties we acquire on favorable
terms, if at all. For example, our competitors may be willing to
offer space at rental rates below our rates, causing us to lose
existing or potential tenants and pressuring us to reduce our
rental rates to retain existing tenants or convince new tenants
to lease space at our properties. Each of these
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factors could adversely affect our results of operations,
financial condition, value of our investments and ability to pay
distributions to you.
Delays
in the acquisition and construction of real properties may have
adverse effects on our results of operations and returns to our
stockholders.
Delays we encounter in the selection and acquisition of real
properties could adversely affect your returns. Where properties
are acquired prior to the start of construction or during the
early stages of construction, it will typically take several
months to complete construction and rent available space.
Therefore, you could suffer delays in receiving cash
distributions attributable to those particular real properties.
Delays in completion of construction could give tenants the
right to terminate preconstruction leases for space at a newly
developed project. We may incur additional risks when we make
periodic progress payments or other advances to builders prior
to completion of the construction of a real property. Each of
those factors could result in increased costs of a project or
loss of our investment. In addition, we will be subject to
normal
lease-up
risks relating to newly constructed projects.
Furthermore, the price we agree to pay for a real property will
be based on our projections of rental income and expenses and
estimates of the fair market value of the real property upon
completion of construction. If our projections are inaccurate,
we may pay too much for a real property.
Real
properties are illiquid investments, and we may be unable to
adjust our portfolio in response to changes in economic or other
conditions or sell a property if or when we decide to do
so.
Real properties are illiquid investments. We may be unable to
adjust our portfolio in response to changes in economic or other
conditions. In addition, the real estate market is affected by
many factors, such as general economic conditions, availability
of financing, interest rates, supply and demand, and other
factors that are beyond our control. We cannot predict whether
we will be able to sell any real property for the price or on
the terms set by us, or whether any price or other terms offered
by a prospective purchaser would be acceptable to us. We cannot
predict the length of time needed to find a willing purchaser
and to close the sale of a real property. Additionally, we may
be required to expend funds to correct defects or to make
improvements before a real property can be sold. We cannot
assure you that we will have funds available to correct such
defects or to make such improvements.
In acquiring a real property, we may agree to restrictions that
prohibit the sale of that real property for a period of time or
impose other restrictions, such as a limitation on the amount of
debt that can be placed or repaid on that real property. All
these provisions would restrict our ability to sell a property,
which could reduce the amount of cash available for distribution
to our stockholders.
Competition
from other apartment communities for tenants could reduce our
profitability and the return on your investment.
The apartment community industry is highly competitive. This
competition could reduce occupancy levels and revenues at our
apartment communities, which would adversely affect our
operations. We expect to face competition from many sources. We
will face competition from other apartment communities both in
the immediate vicinity and in the larger geographic market where
our apartment communities will be located. These competitors may
have greater experience and financial strength than us.
Increased
competition and increased affordability of single-family homes
could limit our ability to retain residents, lease apartment
units or increase or maintain rents.
Any apartment communities we may acquire will most likely
compete with numerous housing alternatives in attracting
residents, including single-family homes, as well as owner
occupied single- and multifamily homes available to rent.
Competitive housing in a particular area and the increasing
affordability of owner occupied single- and multifamily homes
available to rent or buy caused by declining mortgage interest
rates and government programs to promote home ownership could
adversely affect our ability to retain our residents, lease
apartment units and increase or maintain rental rates.
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Short-term
multifamily and apartment leases expose us to the effects of
declining market rent, which could adversely impact our ability
to make cash distributions to our stockholders.
We expect that substantially all of our apartment leases will be
for a term of one year or less. Because these leases generally
permit the residents to leave at the end of the lease term
without penalty, our rental revenues may be impacted by declines
in market rents more quickly than if our leases were for longer
terms.
Increased
construction of similar properties that compete with our
apartment communities in any particular location could adversely
affect the operating results of our properties and our cash
available for distribution to our stockholders.
We may acquire apartment communities in locations which
experience increases in construction of properties that compete
with our apartment communities. This increased competition and
construction could:
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make it more difficult for us to find tenants to lease units in
our apartment communities;
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force us to lower our rental prices in order to lease units in
our apartment communities; and/or
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substantially reduce our revenues and cash available for
distribution to our stockholders.
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Our
leases with tenants of some of our industrial properties are
expected to be short-term leases, which may result in increased
operating expenses if those tenants vacate their space and we
are forced to locate new tenants.
We expect that a portion of our portfolio of real property
investments will be comprised of properties with industrial
tenants. The leases for these industrial tenants may be
short-term leases, ranging from one to five year terms.
Short-term leases are generally less desirable than long-term
leases because long-term leases provide a more predictable
income stream over a longer period. Long-term leases also make
it easier for us to obtain longer-term, fixed-rate mortgage
financing with principal amortization, thereby moderating the
interest rate risk associated with financing or refinancing our
real properties portfolio by reducing the outstanding principal
balance over time. Short-term leases at our industrial
properties increase the risk of an extended vacancy due to the
difficulty we may experience in finding new tenants upon the
expiration of the leases. Additionally, we may incur significant
costs related to leasing commissions and tenant improvements to
attract new tenants. To the extent that a portion of our
industrial real estate portfolio is leased under the terms of
short-term leases, we will be subject to the risks of a less
predictable income stream and greater exposure to the
fluctuations in market rental rates. We will also be subject to
interest rate risks should the short-term leases result in a
mismatch with any long-term mortgage financing on the real
properties.
Tenant
and tenant roll concentrations may decrease the value of our
investments.
An industrial property typically has a few major tenants that
lease a significant portion of the propertys leasable
space. If any one of these major tenants defaults on its lease,
this will reduce the propertys income and overall value.
In addition, tenant roll concentration occurs when there are
significant leases that terminate in a given year. Tenant roll
concentration creates uncertainty as to the future cash flow of
a property or portfolio and often decreases the value a
potential purchaser will pay for one or more properties. There
is no guarantee that our industrial properties will not have
tenant roll concentration, and if such concentration occurs, it
could decrease our ability to pay distributions to our
stockholders and the value of your investment.
The
success of our single-tenant property investments will be
subject to the financial health of their tenants and the
inability of a tenant to make required lease payments or the
early termination of a lease could adversely affect our
business.
We expect a portion of our portfolio of commercial property
investments will be comprised of single-tenant properties.
Single-tenant properties expose us to increased default risk as
default by one of our significant single tenancies due to
bankruptcy, operational failure or other reasons could have an
adverse effect on our financial condition and ability to make
distributions to our stockholders. In addition, if the current
lease for a single-tenant property is terminated or not renewed,
we may be required to make rent concessions,
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renovate the property and pay leasing commissions in order to
lease the property to another tenant or sell the property in a
timely manner.
Actions
of joint venture partners could negatively impact our
performance.
We may enter into joint ventures with third parties, including
with entities that are affiliated with our advisor. We may also
purchase and develop properties in joint ventures or in
partnerships, co-tenancies or other co-ownership arrangements
with the sellers of the properties, affiliates of the sellers,
developers or other persons. Such investments may involve risks
not otherwise present with a direct investment in real estate,
including, for example:
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the possibility that our venture partner or co-tenant in an
investment might become bankrupt;
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that the venture partner or co-tenant may at any time have
economic or business interests or goals which are, or which
become, inconsistent with our business interests or goals;
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that such venture partner or co-tenant may be in a position to
take action contrary to our instructions or requests or contrary
to our policies or objectives;
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the possibility that we may incur liabilities as a result of an
action taken by such venture partner;
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that disputes between us and a venture partner may result in
litigation or arbitration that would increase our expenses and
prevent our officers and directors from focusing their time and
effort on our business;
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the possibility that if we have a right of first refusal or
buy/sell right to buy out a co-venturer, co-owner or partner, we
may be unable to finance such a buy-out if it becomes
exercisable or we may be required to purchase such interest at a
time when it would not otherwise be in our best interest to do
so; or
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the possibility that we may not be able to sell our interest in
the joint venture if we desire to exit the joint venture.
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Under certain joint venture arrangements, neither venture
partner may have the power to control the venture and an impasse
may be reached, which might have a negative influence on the
joint venture and decrease potential returns to you. In
addition, to the extent that our venture partner or co-tenant is
an affiliate of our advisor, certain conflicts of interest will
exist.
Our
real properties will be subject to property taxes that may
increase in the future, which could adversely affect our cash
flow.
Our real properties are subject to real and personal property
taxes that may increase as tax rates change and as the real
properties are assessed or reassessed by taxing authorities. We
anticipate that certain of our leases will generally provide
that the property taxes, or increases therein, are charged to
the lessees as an expense related to the real properties that
they occupy, while other leases will generally provide that we
are responsible for such taxes. In any case, as the owner of the
properties, we are ultimately responsible for payment of the
taxes to the applicable government authorities. If real property
taxes increase, our tenants may be unable to make the required
tax payments, ultimately requiring us to pay the taxes even if
otherwise stated under the terms of the lease. If we fail to pay
any such taxes, the applicable taxing authority may place a lien
on the real property and the real property may be subject to a
tax sale. In addition, we will generally be responsible for real
property taxes related to any vacant space.
Uninsured
losses or premiums for insurance coverage relating to real
property may adversely affect your returns.
We will attempt to adequately insure all of our real properties
against casualty losses. The nature of the activities at certain
properties we may acquire, such as age-restricted communities,
may expose us and our operators to potential liability for
personal injuries and property damage claims. In addition, there
are types of losses, generally catastrophic in nature, such as
losses due to wars, acts of terrorism, earthquakes, floods,
hurricanes, pollution or environmental matters that are
uninsurable or not economically insurable, or may be
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insured subject to limitations, such as large deductibles or
co-payments. Risks associated with potential acts of terrorism
could sharply increase the premiums we pay for coverage against
property and casualty claims. Mortgage lenders sometimes require
commercial property owners to purchase specific coverage against
acts of terrorism as a condition for providing mortgage loans.
These policies may not be available at a reasonable cost, if at
all, which could inhibit our ability to finance or refinance our
real properties. In such instances, we may be required to
provide other financial support, either through financial
assurances or self-insurance, to cover potential losses. Changes
in the cost or availability of insurance could expose us to
uninsured casualty losses. In the event that any of our real
properties incurs a casualty loss which is not fully covered by
insurance, the value of our assets will be reduced by any such
uninsured loss. In addition, we cannot assure you that funding
will be available to us for repair or reconstruction of damaged
real property in the future.
Costs
of complying with governmental laws and regulations related to
environmental protection and human health and safety may be
high.
All real property investments and the operations conducted in
connection with such investments are subject to federal, state
and local laws and regulations relating to environmental
protection and human health and safety. Some of these laws and
regulations may impose joint and several liability on customers,
owners or operators for the costs to investigate or remediate
contaminated properties, regardless of fault or whether the acts
causing the contamination were legal.
Under various federal, state and local environmental laws, a
current or previous owner or operator of real property may be
liable for the cost of removing or remediating hazardous or
toxic substances on such real property. These environmental laws
often impose liability whether or not the owner or operator knew
of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of hazardous
substances, or the failure to properly remediate these
substances, may adversely affect our ability to sell, rent or
pledge such real property as collateral for future borrowings.
Environmental laws also may impose restrictions on the manner in
which real property may be used or businesses may be operated.
Some of these laws and regulations have been amended so as to
require compliance with new or more stringent standards as of
future dates. Compliance with new or more stringent laws or
regulations or stricter interpretation of existing laws may
require us to incur material expenditures. Future laws,
ordinances or regulations may impose material environmental
liability. Additionally, our tenants operations, the
existing condition of land when we buy it, operations in the
vicinity of our real properties, such as the presence of
underground storage tanks, or activities of unrelated third
parties, may affect our real properties. There are also various
local, state and federal fire, health, life-safety and similar
regulations with which we may be required to comply and which
may subject us to liability in the form of fines or damages for
noncompliance. In connection with the acquisition and ownership
of our real properties, we may be exposed to these costs in
connection with such regulations. The cost of defending against
environmental claims, any damages or fines we must pay,
compliance with environmental regulatory requirements or
remediating any contaminated real property could materially and
adversely affect our business and results of operations, lower
the value of our assets and, consequently, lower the amounts
available for distribution to you.
The
costs associated with complying with the Americans with
Disabilities Act may reduce the amount of cash available for
distribution to our stockholders.
Investment in real properties may also be subject to the
Americans with Disabilities Act of 1990, as amended, or the ADA.
Under the ADA, all places of public accommodation are required
to comply with federal requirements related to access and use by
disabled persons. We are committed to complying with the ADA to
the extent to which it applies. The ADA has separate compliance
requirements for public accommodations and
commercial facilities that generally require that
buildings and services be made accessible and available to
people with disabilities. With respect to the properties we
acquire, the ADAs requirements could require us to remove
access barriers and could result in the imposition of injunctive
relief, monetary penalties or, in some cases, an award of
damages. We will attempt to acquire properties that comply with
the ADA or place the burden on the seller or other third party,
such as a tenant, to ensure compliance with the ADA. We cannot
assure you that we will be able to acquire properties or
allocate responsibilities in
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this manner. Any monies we use to comply with the ADA will
reduce the amount of cash available for distribution to our
stockholders.
To the
extent we invest in age-restricted communities, we may incur
liability by failing to comply with the Housing for Older
Persons Act, or HOPA, the Fair Housing Act, or FHA, or certain
state regulations, which may affect cash available for
distribution to our stockholders.
To the extent we invest in age-restricted communities, any such
properties must comply with the FHA, and the HOPA. The FHA
generally prohibits age-based housing discrimination; however
certain exceptions exist for housing developments that qualify
as housing for older persons. HOPA provides the legal
requirements for such housing developments. In order for housing
to qualify as housing for older persons, HOPA requires
(1) all residents of such developments to be at least
62 years of age or (2) that at least 80% of the
occupied units are occupied by at least one person who is at
least 55 years of age and that the housing community
publish and adhere to policies and procedures that demonstrate
this required intent and comply with rules issued by the United
States Department of Housing and Urban Development, or HUD, for
verification of occupancy. In addition, certain states require
that age-restricted communities register with the state.
Noncompliance with the FHA, HOPA or state registration
requirements could result in the imposition of fines, awards of
damages to private litigants, payment of attorneys fees
and other costs to plaintiffs, substantial litigation costs and
substantial costs of remediation, all of which would reduce the
amount of cash available for distribution to our stockholders.
Government
housing regulations may limit the opportunities at some of the
government-assisted housing properties we invest in, and failure
to comply with resident qualification requirements may result in
financial penalties and/or loss of benefits, such as rental
revenues paid by government agencies.
To the extent that we invest in government-assisted housing, we
may acquire properties that benefit from governmental programs
intended to provide affordable housing to individuals with low
or moderate incomes. These programs, which are typically
administered by the HUD or state housing finance agencies,
typically provide mortgage insurance, favorable financing terms,
tax credits or rental assistance payments to property owners. As
a condition of the receipt of assistance under these programs,
the properties must comply with various requirements, which
typically limit rents to pre-approved amounts and impose
restrictions on resident incomes. Failure to comply with these
requirements and restrictions may result in financial penalties
or loss of benefits. In addition, we will typically need to
obtain the approval of HUD in order to acquire or dispose of a
significant interest in or manage a HUD-assisted property.
Risks
Associated with Real Estate-Related Assets
Disruptions
in the financial markets and deteriorating economic conditions
could adversely impact the commercial mortgage market as well as
the market for real estate-related assets and debt-related
investments generally, which could hinder our ability to
implement our business strategy and generate returns to
you.
We intend to allocate a portion of our portfolio to real
estate-related assets. The returns available to investors in
these investments are determined by: (1) the supply and
demand for such investments and (2) the existence of a
market for such investments, which includes the ability to sell
or finance such investments.
During periods of volatility the number of investors
participating in the market may change at an accelerated pace.
As liquidity or demand increases the returns
available to investors will decrease. Conversely, a lack of
liquidity will cause the returns available to investors to
increase. Recently, concerns pertaining to the deterioration of
credit in the residential mortgage market have adversely
impacted almost all areas of the debt capital markets including
corporate bonds, asset-backed securities and commercial real
estate bonds and loans. Only recently have these markets begun
to stabilize. Future instability in the financial markets or
weakened economic conditions may interfere with the successful
implementation of our business strategy.
22
If we
make or invest in mortgage loans, our mortgage loans may be
affected by unfavorable real estate market conditions and other
factors that impact the commercial real estate underlying the
mortgage loans, which could decrease the value of those loans
and the return on your investment.
If we make or invest in mortgage loans, we will be at risk of
defaults by the borrowers on those mortgage loans. These
defaults may be caused by many conditions beyond our control,
including interest rate levels, economic conditions affecting
real estate values and other factors that impact the value of
the underlying real estate, including those associated with the
financial condition of the tenants leasing the underlying real
properties and expenditures associated with the early
termination or nonrenewal of a lease, such as tenant improvement
costs and leasing commissions. The borrower may also be subject
to tenant roll concentration, in which there are significant
leases that terminate in a given year and increase the
uncertainty of the future cash flow of the property to the
borrower and ultimately to us as the holder of the mortgage in
the event the borrower defaults. See above
Risks Related to Investments in Real
Estate. We will not know whether the values of the
properties securing our mortgage loans will remain at the levels
existing on the dates of origination of those mortgage loans. If
the values of the underlying properties drop, our risk will
increase because of the lower value of the security associated
with such loans.
Real estate loans, in which we intend to invest, are secured by
multifamily or commercial properties and are subject to risks of
delinquency and foreclosure. The ability of a borrower to repay
a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such
property rather than upon the existence of independent income or
assets of the borrower. If the net operating income of the
property is reduced, the borrowers ability to repay the
loan may be impaired. Net operating income of an
income-producing property can be affected by, among other
things: tenant mix, success of tenant businesses, property
management decisions, property location and condition,
competition from comparable types of properties, changes in laws
that increase operating expenses or limit rents that may be
charged, any need to address environmental contamination at the
property, the occurrence of any uninsured casualty at the
property, changes in national, regional or local economic
conditions
and/or
specific industry segments, declines in regional or local real
estate values, declines in regional or local rental or occupancy
rates, increases in interest rates, real estate tax rates and
other operating expenses, changes in governmental rules,
regulations and fiscal policies, including environmental
legislation, natural disasters, terrorism, social unrest and
civil disturbances. Any of these events could have an adverse
effect on the operations of the underlying property and ability
of a borrower to repay the loan.
If we
make or invest in mortgage loans, our mortgage loans will be
subject to interest rate fluctuations that could reduce our
returns as compared to market interest rates and reduce the
value of the mortgage loans in the event we sell
them.
If we invest in fixed-rate, long-term mortgage loans and
interest rates rise, the mortgage loans could yield a return
that is lower than then-current market rates and the value of
the loan may decline. If interest rates decrease, we will be
adversely affected to the extent that mortgage loans are prepaid
because we may not be able to make new loans at the higher
interest rate. If we invest in variable-rate loans and interest
rates decrease, our revenues and the value of the loan will also
decrease. For these reasons, if we invest in mortgage loans, our
returns on those loans and the value of your investment will be
subject to fluctuations in interest rates.
Many
of our investments in real estate-related assets may be
illiquid, and we may not be able to vary our portfolio in
response to changes in economic and other
conditions.
Certain of the real estate-related assets that we may purchase
in connection with privately negotiated transactions will not be
registered under the relevant securities laws, resulting in a
prohibition against their transfer, sale, pledge or other
disposition except in a transaction that is exempt from the
registration requirements of, or is otherwise in accordance
with, those laws. The mezzanine and bridge loans we may purchase
will be particularly illiquid investments due to their short
life, their unsuitability for securitization and the greater
difficulty of recoupment in the event of a borrowers
default. As a result, our ability to vary our portfolio in
response to changes in economic and other conditions may be
relatively limited.
23
The
mezzanine loans in which we may invest would involve greater
risks of loss than senior loans secured by income-producing real
properties.
We may invest in mezzanine loans that take the form of
subordinated loans secured by second mortgages on the underlying
real property or loans secured by a pledge of the ownership
interests of the entity owning the real property, the entity
that owns the interest in the entity owning the real property or
other assets. These types of investments involve a higher degree
of risk than long-term senior mortgage lending secured by
income-producing real property because the investment may become
unsecured as a result of foreclosure by the senior lender. In
the event of a bankruptcy of the entity providing the pledge of
its ownership interests as security, we may not have full
recourse to the assets of such entity, or the assets of the
entity may not be sufficient to satisfy our mezzanine loan. If a
borrower defaults on our mezzanine loan or debt senior to our
mezzanine loan, or in the event of a borrower bankruptcy, our
mezzanine loan will be satisfied only after the senior debt. As
a result, we may not recover some or all of our investment. In
addition, mezzanine loans will have higher
loan-to-value
ratios than conventional mortgage loans, resulting in less
equity in the real property and increasing the risk of loss of
principal and interest.
Bridge
loans may involve a greater risk of loss than conventional
mortgage loans.
We may provide bridge loans secured by first-lien mortgages on
properties to borrowers who are typically seeking short-term
capital to be used in an acquisition, development or refinancing
of real estate. The borrower may have identified an undervalued
asset that has been undermanaged or is located in a recovering
market. If the market in which the asset is located fails to
recover according to the borrowers projections, or if the
borrower fails to improve the quality of the assets
management or the value of the asset, the borrower may not
receive a sufficient return on the asset to satisfy the bridge
loan, and we may not recover some or all of our investment. In
addition, owners usually borrow funds under a conventional
mortgage loan to repay a bridge loan. We may, therefore, be
dependent on a borrowers ability to obtain permanent
financing to repay our bridge loan, which could depend on market
conditions and other factors. Bridge loans are also subject to
risks of borrower defaults, bankruptcies, fraud, losses and
special hazard losses that are not covered by standard hazard
insurance. In the event of any default under bridge loans held
by us, we bear the risk of loss of principal and nonpayment of
interest and fees to the extent of any deficiency between the
value of the mortgage collateral and the principal amount of the
bridge loan. To the extent we suffer such losses with respect to
our investments in bridge loans, the value of our company and of
our common stock may be adversely affected.
Our
real estate-related assets may be sensitive to fluctuations in
interest rates, and our hedging strategies may not be
effective.
We may use various investment strategies to hedge interest rate
risks with respect to our portfolio of real estate-related
assets. The use of interest rate hedging transactions involves
certain risks. These risks include: (1) the possibility
that the market will move in a manner or direction that would
have resulted in gain for us had an interest rate hedging
transaction not been utilized, in which case our performance
would have been better had we not engaged in the interest rate
hedging transaction; (2) the risk of imperfect correlation
between the risk sought to be hedged and the interest rate
hedging transaction used; (3) potential illiquidity for the
hedging instrument used, which may make it difficult for us to
close-out or unwind an interest rate hedging transaction; and
(4) the possibility that the counterparty fails to honor
its obligation. In addition, because we intend to qualify as a
REIT, for federal income tax purposes we will have limitations
on our income sources and the hedging strategies available to us
will be more limited than those available to companies that are
not REITs. To the extent that we do not hedge our interest rate
exposure, our profitability may be negatively impacted by
changes in long-term interest rates.
24
Declines
in the market values of the real estate-related assets in which
we invest may adversely affect our periodic reported results of
operations and credit availability, which may reduce earnings
and, in turn, cash available for distribution to our
stockholders.
A portion of the real estate-related assets in which we invest
may be classified for accounting purposes as
available-for-sale.
These investments are carried at estimated fair value and
temporary changes in the market values of those assets will be
directly charged or credited to stockholders equity
without impacting net income on our income statement. Market
values of our investments may decline for a number of reasons,
such as market illiquidity, changes in prevailing market rates,
increases in defaults, increases in voluntary prepayments for
those of our investments that are subject to prepayment risk,
widening of credit spreads and downgrades of ratings of the
securities by ratings agencies. If we determine that a decline
in the estimated fair value of an
available-for-sale
security below its amortized value is
other-than-temporary,
we will recognize a loss on that security in our income
statement, which will reduce our earnings in the period
recognized.
A decline in the market value of our real estate-related assets
may adversely affect us particularly in instances where we have
borrowed money based on the market value of those assets. If the
market value of those assets declines, the lender may require us
to post additional collateral to support the loan. If we were
unable to post the additional collateral, we may have to sell
assets at a time when we might not otherwise choose to do so. A
reduction in credit available may reduce our earnings and, in
turn, cash available for distribution to stockholders. Further,
credit facility providers may require us to maintain a certain
amount of cash reserves or to set aside unlevered assets
sufficient to maintain a specified liquidity position. As a
result, we may not be able to leverage our assets as fully as we
would choose, which could reduce our return on equity. In the
event that we are unable to meet these contractual obligations,
our financial condition could deteriorate rapidly.
Some
of the real estate-related assets in which we invest will be
carried at estimated fair value as determined by us and, as a
result, there may be uncertainty as to the value of these
investments.
Some of the real-estate-related assets in which we invest will
be in the form of securities that are recorded at fair value but
that have limited liquidity or are not publicly traded. The fair
value of securities and other investments that have limited
liquidity or are not publicly traded may not be readily
determinable. We estimate the fair value of these investments on
a quarterly basis. Because such valuations are inherently
uncertain, may fluctuate over short periods of time and may be
based on numerous estimates, our determinations of fair value
may differ materially from the values that would have been used
if a ready market for these securities existed. The value of our
common stock could be adversely affected if our determinations
regarding the fair value of these investments are materially
higher than the values that we ultimately realize upon their
disposal.
Risks
Associated With Debt Financing
Disruptions
in the financial markets and deteriorating economic conditions
could adversely affect our ability to secure debt financing on
attractive terms and the values of investments we
make.
Recently, liquidity in the global credit market has been
severely contracted by market disruptions, making it costly to
obtain new lines of credit or refinance existing debt. We have,
and expect to the future, finance our investments in part with
debt. We may not be able to obtain debt financing on attractive
terms, if at all. As a result of the recent economic downturn,
lenders are providing debt with shorter terms than were
previously available. As such, we may be forced to use a greater
proportion of our offering proceeds to finance our acquisitions
and originations, reducing the number of investments we would
otherwise make. If the current debt market environment persists
we may modify our investment strategy in order to optimize our
portfolio performance. Our options would include limiting or
eliminating the use of debt and focusing on those investments
that do not require the use of leverage to meet our portfolio
goals.
25
We
will incur mortgage indebtedness and other borrowings that may
increase our business risks and could hinder our ability to make
distributions and decrease the value of your
investment.
We intend to finance a portion of the purchase price of real
properties by borrowing funds. Under our charter, we have a
limitation on borrowing which precludes us from borrowing in
excess of 300% of the value of our net assets. Net assets for
purposes of this calculation are defined to be our total assets
(other than intangibles), valued at cost prior to deducting
depreciation and amortization, allowances for bad debt or other
allowances, less total liabilities. Generally speaking, the
preceding calculation is expected to approximate 75% of the
aggregate cost of our investments before depreciation and
amortization. We may borrow in excess of these amounts if such
excess is approved by a majority of the independent directors
and is disclosed to stockholders in our next quarterly report,
along with the justification for such excess. In addition, we
may incur mortgage debt and pledge some or all of our
investments as security for that debt to obtain funds to acquire
additional investments or for working capital. We may also
borrow funds as necessary or advisable to ensure we maintain our
REIT tax qualification, including the requirement that we
distribute at least 90% of our annual REIT taxable income to our
stockholders (computed without regard to the distribution paid
deduction and excluding net capital gains). Furthermore, we may
borrow in excess of the borrowing limitations in our charter if
we otherwise deem it necessary or advisable to ensure that we
maintain our qualification as a REIT for federal income tax
purposes.
High debt levels will cause us to incur higher interest charges,
which would result in higher debt service payments and could be
accompanied by restrictive covenants. If there is a shortfall
between the cash flow from a property and the cash flow needed
to service mortgage debt on that property, then the amount
available for distributions to stockholders may be reduced. In
addition, incurring mortgage debt increases the risk of loss
since defaults on indebtedness secured by a property may result
in lenders initiating foreclosure actions. In that case, we
could lose the property securing the loan that is in default,
thus reducing the value of your investment. For tax purposes, a
foreclosure on any of our properties will be treated as a sale
of the property for a purchase price equal to the outstanding
balance of the debt secured by the mortgage. If the outstanding
balance of the debt secured by the mortgage exceeds our tax
basis in the property, we will recognize taxable income on
foreclosure, but we would not receive any cash proceeds. If any
mortgage contains cross collateralization or cross default
provisions, a default on a single property could affect multiple
properties. If any of our properties are foreclosed upon due to
a default, our ability to pay cash distributions to our
stockholders will be adversely affected.
Instability
in the debt markets and our inability to find financing on
attractive terms may make it more difficult for us to finance or
refinance properties, which could reduce the number of
properties we can acquire and the amount of cash distributions
we can make to our stockholders.
If mortgage debt is unavailable on reasonable terms as a result
of increased interest rates, underwriting standards, capital
market instability or other factors, we may not be able to
finance the initial purchase of properties. To the extent that
we place mortgage debt on properties, we run the risk of being
unable to refinance such debt when the loans come due, or of
being unable to refinance on favorable terms. If interest rates
are higher when we refinance debt, our income could be reduced.
We may be unable to refinance debt at appropriate times, which
may require us to sell properties on terms that are not
advantageous to us, or could result in the foreclosure of such
properties. If any of these events occur, our cash flow would be
reduced. This, in turn, would reduce cash available for
distribution to you and may hinder our ability to raise more
capital by issuing securities or by borrowing more money.
Increases
in interest rates could increase the amount of our debt payments
and negatively impact our operating results.
Interest we pay on our debt obligations will reduce our cash
available for distributions. If we incur variable rate debt,
increases in interest rates would increase our interest costs,
which would reduce our cash flows and our ability to make
distributions to you. If we need to repay existing debt during
periods of rising interest rates, we could be required to
liquidate one or more of our investments at times which may not
permit realization of the maximum return on such investments.
26
Lenders
may require us to enter into restrictive covenants relating to
our operations, which could limit our ability to make
distributions to our stockholders.
When providing us financing, a lender may impose restrictions on
us that affect our distribution and operating policies and our
ability to incur additional debt. Loan documents we enter into
may contain covenants that limit our ability to further mortgage
a property, discontinue insurance coverage, or replace our
advisor. In addition, loan documents may limit our ability to
replace a propertys property manager or terminate certain
operating or lease agreements related to a property. These or
other limitations may adversely affect our flexibility and our
ability to achieve our investment objectives.
The
derivative financial instruments that we may use to hedge
against interest rate fluctuations may not be successful in
mitigating our risks associated with interest rates and could
reduce the overall returns on your investment.
We may use derivative financial instruments, such as interest
rate cap or collar agreements and interest rate swap agreements,
to hedge exposures to changes in interest rates on loans secured
by our assets, but no hedging strategy can protect us
completely. These agreements involve risks, such as the risk
that counterparties may fail to honor their obligations under
these arrangements and that these arrangements may not be
effective in reducing our exposure to interest rate changes. We
cannot assure you that our hedging strategy and the derivatives
that we use will adequately offset the risk of interest rate
volatility or that our hedging transactions will not result in
losses. In addition, the use of such instruments may reduce the
overall return on our investments. These instruments may also
generate income that may not be treated as qualifying REIT
income for purposes of the 75% or 95% REIT income tests.
Federal
Income Tax Risks
Failure
to qualify as a REIT would reduce our net earnings available for
investment or distribution.
If we fail to qualify as a REIT for any taxable year after
electing REIT status, we will be subject to federal income tax
on our taxable income at corporate rates. In addition, we would
generally be disqualified from treatment as a REIT for the four
taxable years following the year of losing our REIT status.
Losing our REIT status would reduce our net earnings available
for investment or distribution to stockholders because of the
additional tax liability. In addition, distributions to
stockholders would no longer qualify for the dividends paid
deduction and we would no longer be required to make
distributions. If this occurs, we might be required to borrow
funds or liquidate some investments in order to pay the
applicable tax.
You
may have current tax liability on distributions you elect to
reinvest in our common stock.
If you participate in our distribution reinvestment plan, you
will be deemed to have received, and for income tax purposes
will be taxed on, the amount reinvested in shares of our common
stock to the extent the amount reinvested was not a tax-free
return of capital. In addition, you will be treated for tax
purposes as having received an additional distribution to the
extent the shares are purchased at a discount to fair market
value. As a result, unless you are a tax-exempt entity, you may
have to use funds from other sources to pay your tax liability
on the value of the shares of common stock received.
Even
if we qualify as a REIT for federal income tax purposes, we may
be subject to other tax liabilities that reduce our cash flow
and our ability to make distributions to you.
Even if we qualify as a REIT for federal income tax purposes, we
may be subject to some federal, state and local taxes on our
income or property. For example:
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In order to qualify as a REIT, we must distribute annually at
least 90% of our REIT taxable income (which is determined
without regard to the dividends paid deduction or net capital
gain for this purpose) to our stockholders. To the extent that
we satisfy the distribution requirement but distribute less than
100% of our REIT taxable income, we will be subject to federal
corporate income tax on the undistributed income.
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We will be subject to a 4% nondeductible excise tax on the
amount, if any, by which distributions we pay in any calendar
year are less than the sum of 85% of our ordinary income, 95% of
our capital gain net income and 100% of our undistributed income
from prior years.
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If we have net income from the sale of foreclosure property that
we hold primarily for sale to customers in the ordinary course
of business or other non-qualifying income from foreclosure
property, we must pay a tax on that income at the highest
corporate income tax rate.
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If we sell an asset, other than foreclosure property, that we
hold primarily for sale to customers in the ordinary course of
business, our gain would be subject to the 100% prohibited
transaction tax unless such sale were made by one of our
taxable REIT subsidiaries.
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REIT
distribution requirements could adversely affect our ability to
execute our business plan.
We generally must distribute annually at least 90% of our REIT
taxable income (which is determined without regard to the
dividends paid deduction or net capital gain for this purpose),
subject to certain adjustments and excluding any net capital
gain in order to qualify as a REIT. To the extent that we
satisfy this distribution requirement, but distribute less than
100% of our REIT taxable income (including net capital gain), we
will be subject to federal corporate income tax on our
undistributed REIT taxable income. In addition, we will be
subject to a 4% nondeductible excise tax if the actual amount
that we pay out to our stockholders in a calendar year is less
than a minimum amount specified under federal tax laws. We
intend to make distributions to our stockholders to comply with
the REIT requirements of the Internal Revenue Code.
From time to time, we may generate taxable income greater than
our taxable income for financial reporting purposes, or our
taxable income may be greater than our cash flow available for
distribution to stockholders. If we do not have other funds
available in these situations we could be required to borrow
funds, sell investments at disadvantageous prices or find
another alternative source of funds to make distributions
sufficient to enable us to pay out enough of our taxable income
to satisfy the REIT distribution requirement and to avoid
corporate income tax and the 4% excise tax in a particular year.
We do not know whether outside financing will be available to us
because of the continued disruptions in the financial markets.
Even if available, the use of outside financing or other
alternative sources of funds to pay distributions could increase
our costs or dilute our stockholders equity interests.
Thus, compliance with the REIT requirements may hinder our
ability to operate solely on the basis of maximizing profits.
To
maintain our REIT status, we may be forced to forgo otherwise
attractive opportunities, which may delay or hinder our ability
to meet our investment objectives and reduce your overall
return.
To qualify as a REIT, we must satisfy certain tests on an
ongoing basis concerning, among other things, the sources of our
income, nature of our assets and the amounts we distribute to
our stockholders. We may be required to make distributions to
stockholders at times when it would be more advantageous to
reinvest cash in our business or when we do not have funds
readily available for distribution. Compliance with the REIT
requirements may hinder our ability to operate solely on the
basis of maximizing profits and the value of your investment.
Our
gains from sales of our assets are potentially subject to the
prohibited transaction tax, which could reduce the return on
your investment.
Our ability to dispose of property during the first few years
following acquisition is restricted to a substantial extent as a
result of our REIT status. We will be subject to a 100% tax on
any gain realized on the sale or other disposition of any
property (other than foreclosure property) we own, directly or
through any subsidiary entity, including our operating
partnership, but excluding our taxable REIT subsidiaries, that
is deemed to be inventory or property held primarily for sale to
customers in the ordinary course of trade or business. Whether
property is inventory or otherwise held primarily for sale to
customers in the ordinary course of a trade or business depends
on the particular facts and circumstances surrounding each
property. We intend to avoid the 100% prohibited transaction tax
by (1) conducting activities that may otherwise be
considered prohibited transactions through a taxable REIT
subsidiary, (2) conducting our operations in such a
28
manner so that no sale or other disposition of an asset we own,
directly or through any subsidiary other than a taxable REIT
subsidiary, will be treated as a prohibited transaction or
(3) structuring certain dispositions of our properties to
comply with certain safe harbors available under the Internal
Revenue Code for properties held at least two years. However, no
assurance can be given that any particular property we own,
directly or through any subsidiary entity, including our
operating partnership, but excluding our taxable REIT
subsidiaries, will not be treated as inventory or property held
primarily for sale to customers in the ordinary course of a
trade or business.
Complying
with REIT requirements may force us to liquidate otherwise
attractive investments.
To qualify as a REIT, we must ensure that at the end of each
calendar quarter, at least 75% of the value of our assets
consists of cash, cash items, government securities and
qualifying real estate assets, including certain mortgage loans
and mortgage-backed securities. The remainder of our investment
in securities (other than government securities and qualified
real estate assets) generally cannot include more than 10% of
the outstanding voting securities of any one issuer or more than
10% of the total value of the outstanding securities of any one
issuer. In addition, in general, no more than 5% of the value of
our assets (other than government securities and qualified real
estate assets) can consist of the securities of any one issuer,
and no more than 25% of the value of our total assets can be
represented by securities of one or more taxable REIT
subsidiaries.
If we fail to comply with these requirements at the end of any
calendar quarter, we must correct the failure within
30 days after the end of the calendar quarter or qualify
for certain statutory relief provisions to avoid losing our REIT
qualification and suffering adverse tax consequences. As a
result, we may be required to liquidate from our portfolio
otherwise attractive investments. These actions could have the
effect of reducing our income and amounts available for
distribution to our stockholders.
Liquidation
of assets may jeopardize our REIT qualification.
To qualify as a REIT, we must comply with requirements regarding
our assets and our sources of income. If we are compelled to
liquidate our investments to repay obligations to our lenders,
we may be unable to comply with these requirements, ultimately
jeopardizing our qualification as a REIT, or we may be subject
to a 100% tax on any resultant gain if we sell assets that are
treated as dealer property or inventory.
The
failure of a mezzanine loan to qualify as a real estate asset
could adversely affect our ability to qualify as a
REIT.
We may acquire mezzanine loans. The Internal Revenue Service has
provided a safe harbor in Revenue Procedure
2003-65 for
structuring mezzanine loans so that they will be treated by the
Internal Revenue Service as a real estate asset for purposes of
the REIT asset tests, and interest derived from mezzanine loans
will be treated as qualifying mortgage interest for purposes of
the 75% gross income test, discussed below. Although the Revenue
Procedure provides a safe harbor on which taxpayers may rely, it
does not prescribe rules of substantive tax law. We may acquire
mezzanine loans that do not meet all of the requirements of the
safe harbor. In the event we own a mezzanine loan that does not
meet the safe harbor, the Internal Revenue Service could
challenge such loans treatment as a real estate asset for
purposes of the REIT asset and income tests and, if such a
challenge were sustained, we could fail to qualify as a REIT.
Legislative
or regulatory action could adversely affect
investors.
In recent years, numerous legislative, judicial and
administrative changes have been made to the federal income tax
laws applicable to investments in REITs and similar entities.
Additional changes to tax laws are likely to continue to occur
in the future and we cannot assure you that any such changes
will not adversely affect the taxation of a stockholder. Any
such changes could have an adverse effect on an investment in
shares of our common stock. We urge you to consult with your own
tax advisor with respect to the status of legislative,
regulatory or administrative developments and proposals and
their potential effect on an investment in shares of our common
stock.
29
Foreign
investors may be subject to FIRPTA on the sale of shares of our
common stock if we are unable to qualify as a domestically
controlled qualified investment entity.
A foreign person disposing of a U.S. real property
interest, including shares of a U.S. corporation whose
assets consist principally of U.S. real property interests,
is generally subject to a tax, known as FIRPTA, on the gain
recognized on the disposition. FIRPTA does not apply, however,
to the disposition of stock in a REIT if the REIT is a
domestically controlled qualified investment entity.
A REIT is a domestically controlled qualified investment entity
if, at all times during a specified testing period (the
continuous five year period ending on the date of disposition
or, if shorter, the entire period of the REITs existence),
less than 50% in value of its shares is held directly or
indirectly by
non-U.S. holders.
We cannot assure you that we will qualify as a domestically
controlled qualified investment entity. If we were to fail to so
qualify, gain realized by a foreign investor on a sale of our
common stock would be subject to FIRPTA unless our common stock
was traded on an established securities market and the foreign
investor did not at any time during a specified testing period
directly or indirectly own more than 5% of the value of our
outstanding common stock.
Retirement
Plan Risks
If you
fail to meet the fiduciary and other standards under ERISA or
the Internal Revenue Code as a result of an investment in our
stock, you could be subject to criminal and civil
penalties.
There are special considerations that apply to employee benefit
plans subject to the Employee Retirement Income Security Act of
1974, or ERISA, (such as pension, profit-sharing or 401(k)
plans) and other retirement plans or accounts subject to
Section 4975 of the Internal Revenue Code (such as an IRA
or Keogh plan) whose assets are being invested in our common
stock. If you are investing the assets of such a plan (including
assets of an insurance company general account or entity whose
assets are considered plan assets under ERISA) or account in our
common stock, you should satisfy yourself that:
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your investment is consistent with your fiduciary obligations
under ERISA and the Internal Revenue Code;
|
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|
|
your investment is made in accordance with the documents and
instruments governing your plan or IRA, including your plan or
accounts investment policy;
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|
your investment satisfies the prudence and diversification
requirements of Section 404(a)(1)(B) and 404(a)(1)(C) of ERISA
and other applicable provisions of ERISA
and/or the
Internal Revenue Code;
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|
your investment will not impair the liquidity of the plan or IRA;
|
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|
your investment will not produce unrelated business taxable
income, referred to as UBTI, for the plan or IRA;
|
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|
you will be able to value the assets of the plan annually in
accordance with ERISA requirements and applicable provisions of
the plan or IRA; and
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|
your investment will not constitute a prohibited transaction
under Section 406 of ERISA or Section 4975 of the
Internal Revenue Code.
|
Failure to satisfy the fiduciary standards of conduct and other
applicable requirements of ERISA and the Internal Revenue Code
may result in the imposition of civil and criminal penalties and
could subject the fiduciary to equitable remedies. In addition,
if an investment in our common stock constitutes a prohibited
transaction under ERISA or the Internal Revenue Code, the
fiduciary that authorized or directed the investment may be
subject to the imposition of excise taxes with respect to the
amount invested.
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ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
We have no unresolved staff comments.
30
As of December 31, 2010, we owned two multi-family
properties, the Lincoln Tower property located in Springfield,
Illinois and the Park Place property located in Des Moines,
Iowa, consisting of an aggregate of 337 rentable
multifamily units. In addition, the Lincoln Tower property
includes approximately 8,800 square feet of commercial
office space. The total cost of our real estate portfolio was
$17,550,000, exclusive of closing costs. At December 31,
2010, our portfolio was approximately 85% leased and the average
monthly rent per leased unit of our real estate portfolio was
$809. The weighted-average remaining lease term of our
multi-family portfolio is 0.5 years. The weighted-average
remaining lease term of our commercial office space leases is
2.1 years. For additional information on our real estate
portfolio, see Part I, Item 1,
Business Our Real Estate Portfolio of
this annual report on
Form 10-K.
Our principal executive offices are located at 18100 Von Karman
Avenue, Suite 500, Irvine, CA 92612. Our telephone number,
general facsimile number and website address are
(949) 852-0700,
(949) 852-0143
and
http://www.steadfastreits.com,
respectively.
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ITEM 3.
|
LEGAL
PROCEEDINGS
|
From time to time, we are party to legal proceedings that arise
in the ordinary course of our business. Management is not aware
of any legal proceedings of which the outcome is reasonably
likely to have a material adverse effect on our results of
operations or financial condition. Nor are we aware of any such
legal proceedings contemplated by government agencies.
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ITEM 4.
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(REMOVED
AND RESERVED)
|
PART II
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ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Stockholder
Information
As of March 14, 2011, we had 1,422,283 shares of
common stock outstanding held by a total of 319 stockholders.
The number of stockholders is based on the records of DST
Systems, Inc., who serves as our transfer agent.
Market
Information
No public market currently exists for our shares of common stock
and we currently have no plans to list our shares on a national
securities exchange. Until our shares are listed, if ever, our
stockholders may not sell their shares unless the buyer meets
the applicable suitability and minimum purchase requirements. In
addition, our charter prohibits the ownership of more than 9.8%
in value of our outstanding capital stock (which includes common
stock and preferred stock we may issue) and more than 9.8% in
value or number of shares, whichever is more restrictive, of our
outstanding common stock, unless exempted by our board of
directors. Consequently, there is the risk that our stockholders
may not be able to sell their shares at a time or price
acceptable to them.
To assist the Financial Industry Regulatory Authority, Inc., or
FINRA, members and their associated persons that participate in
the ongoing initial public offering of our common stock,
pursuant to FINRA Conduct Rule 5110, we disclose in each
annual report distributed to stockholders a per share estimated
value of our shares, the method by which it was developed, and
the date of the data used to develop the estimated value. In
addition, our advisor will prepare annual statements of
estimated share values to assist fiduciaries of retirement plans
subject to the annual reporting requirements of ERISA in the
preparation of their reports relating to an investment in our
shares. For these purposes, our advisor estimated the value of
our common shares at $10.00 per share as of December 31,
2010. The basis for this valuation is the fact that the current
public offering price for our shares of common stock in our
primary offering is $10.00 per share. Our advisor
31
has indicated that it intends to use the most recent price paid
to acquire a share in our ongoing public offering or follow-on
public offerings as its estimated per share value of our shares
until we have completed our offering stage.
Although this initial estimated value represents the most recent
price at which most investors are willing to purchase shares in
our primary offering, this reported value is likely to differ
from the price at which a stockholder could resell his or her
shares because (1) there is no public trading market for
the shares at this time; (2) the estimated value does not
reflect, and is not derived from, the fair market value of our
properties and other assets, nor does it represent the amount of
net proceeds that would result from an immediate liquidation of
those assets; (3) the estimated value does not take into
account how market fluctuations affect the value of our
investments; and (4) the estimated value does not take into
account how developments related to individual assets may have
increased or decreased the value of our portfolio.
Distribution
Information
To qualify and maintain our qualification as a REIT, we must
meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of our REIT
taxable income (computed without regard to the dividends-paid
deduction or net capital gain and which does not necessarily
equal net income as calculated in accordance with
U.S. generally accepted accounting principles, or GAAP).
Our board of directors may authorize distributions in excess of
those required for us to maintain REIT status depending on our
financial condition and such other factors as our board of
directors deems relevant.
We declared distributions based on daily record dates for each
day during the period commencing August 12, 2010 through
December 31, 2010. Distributions for all record dates of a
given month are paid approximately 15 days after month-end.
Distributions for these periods are calculated based on
stockholders of record each day during the distribution period
at a rate of $0.001917 per share per day which is equal to a
rate that, if paid each day for a
365-day
period, would equal a 7.0% annualized rate based on a purchase
price of $10.00 per share. There is no guarantee that we will
pay distributions at this rate in the future or at all.
Distributions declared during 2010, aggregated by quarter, are
as follows:
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For the Period from
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August 12, 2010 through
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September 30, 2010
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4th Quarter
|
|
|
Total
|
|
|
Total distributions declared
|
|
$
|
63,588
|
|
|
$
|
166,814
|
|
|
$
|
230,402
|
|
Total per share distribution
|
|
$
|
.096
|
|
|
$
|
.176
|
|
|
$
|
.272
|
|
Annualized rate based on purchase price of $10.00 per share
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
The tax composition of our distributions declared for the year
ended December 31, 2010 was as follows:
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|
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Ordinary income
|
|
|
|
%
|
Return of capital
|
|
|
100
|
%
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
We declared distributions based on daily record dates for the
period from January 1, 2011 through January 31, 2011,
which we paid on February 11, 2011, and declared
distributions based on daily record dates for the period from
February 1, 2011 through February 28, 2011, which we
paid on March 11, 2011. We have also declared distributions
based on daily record dates for the period from March 1,
2011 through March 31, 2011, which we expect to pay in
April 2011. Investors may choose to receive cash distributions
or purchase additional shares through our distribution
reinvestment plan. For additional information on distributions
we have paid since December 31, 2010, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Subsequent
Events Distributions Paid.
In order to provide additional funds for us to pay
distributions, under certain circumstances our obligation to pay
all fees due to the advisor pursuant to the Advisory Agreement
will be deferred up to an aggregate amount of $5,000,000 during
our offering stage. If, during any calendar quarter during our
offering stage, the
32
distributions we pay exceed our funds from operations (as
defined by NAREIT), plus (1) any acquisition expenses and
acquisition fees expensed by us that are related to any
property, loan or other investment acquired or expected to be
acquired by us and (2) any non-operating, non-cash charges
incurred by us, such as impairments of property or loans, any
other than temporary impairments of marketable securities, or
other similar charges, for the quarter, which is defined in the
advisory agreement as adjusted funds from
operations, the payment of fees we are obligated to pay
our advisor will be deferred in an amount equal to the amount by
which the distributions paid to our stockholders for the quarter
exceed our adjusted funds from operations up to an amount equal
to a 7.0% cumulative non-compounded annual return on
stockholders invested capital, pro-rated for such quarter.
For purposes of this calculation, if our adjusted funds from
operations is negative, then adjusted funds from operations
shall be deemed to be zero. For a discussion of how we calculate
funds from operations, see Managements Discussion
and Analysis of Financial Condition and Results of
Operations Funds From Operations. We are only
obligated to reimburse our advisor for these deferred fees if
and to the extent that our cumulative adjusted funds from
operations for the period beginning on the date of the
commencement of our private offering through the date of any
such reimbursement exceed the lesser of (1) the cumulative
amount of any distributions paid to our stockholders as of the
date of such reimbursement or (2) distributions (including
the value of shares issued pursuant to our distribution
reinvestment plan) equal to a 7.0% cumulative, non-compounded,
annual return on invested capital for our stockholders for the
period from the commencement of this offering through the date
of such reimbursement. Our obligation to pay the deferred fees
will survive the termination of the Advisory Agreement and will
continue to be subject to the repayment conditions above. No
interest will accrue on the fees deferred by our advisor. The
amount of fees that may be deferred as described above is
limited to an aggregate of $5,000,000.
Use of
Proceeds from Sales of Registered Securities and Unregistered
Sales of Equity Securities
We were initially capitalized with $202,007, $200,007 of which
was contributed by our sponsor on June 12, 2009 in exchange
for 22,223 shares of our common stock and $1,000 of which
was contributed by our advisor on July 10, 2009 in exchange
for 1,000 shares of our convertible stock. In addition, our
advisor invested $1,000 in our operating partnership in exchange
for its limited partnership interests. The issuance of our
shares of common stock and convertible stock to our affiliates
were exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) and Regulation D
promulgated under the Securities Act.
Our convertible stock will convert to shares of common stock if
and when: (A) we have made total distributions on the then
outstanding shares of our 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) we list our common stock for trading on a
national securities exchange or (C) our Advisory Agreement
is terminated or not renewed (other than for cause
as defined in our Advisory Agreement). In the event of a
termination or non-renewal of our Advisory Agreement for cause,
the convertible stock will be redeemed by us for $1.00. In
general, each share of our convertible stock will convert into a
number of shares of common stock equal to
1/1000
of the quotient of (A) 10% of the excess of (1) our
enterprise value plus the aggregate value of
distributions paid to date on the then outstanding shares of our
common stock over (2) the aggregate purchase price paid by
stockholders for those outstanding shares of common stock plus
an 8.0% cumulative, non-compounded, annual return on the
original issue price of those outstanding shares, divided by
(B) our enterprise value divided by the number of
outstanding shares of common stock on an as-converted basis, in
each case calculated as of the date of the conversion.
We conducted a private offering of up to $94,000,000 in shares
of common stock at $9.40 per share (subject to discounts) to
accredited investors (as defined in Rule 501 under the
Securities Act) pursuant to a confidential private placement
memorandum dated October 13, 2009, as supplemented. We
terminated the private offering on July 9, 2010, at which
time we had raised gross proceeds of $5,844,325, and recognized
and reimbursed offering costs of $876,649 (of the $2,301,719
offering costs incurred by us, the Advisor and its affiliates),
from the sale of 637,279 shares of our common stock.
Private offering costs not reimbursed of $1,425,070 have been
deferred and will not be reimbursed unless approved by our
independent directors. Each
33
of the purchasers of our common shares in the private offering
has represented to us that he or she is an accredited investor.
Based upon these representations, we believe that the issuance
of our common shares in the private offering was exempt from the
registration requirements pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder.
On April 15, 2010, we granted 5,000 shares of
restricted stock to each of our three independent directors
pursuant to our independent directors compensation plan in
a private transaction exempt from registration pursuant to
Section 4(2) of the Securities Act. One-fourth of the
independent directors restricted stock become
non-forfeitable on the date of grant and one-fourth will become
non-forfeitable on each of the first three anniversaries of the
date of grant.
On July 9, 2010 our Registration Statement on
Form S-11
(File
No. 333-160748),
registering a public offering of up to $1,650,000,000 in shares
of our common stock, was declared effective under the Securities
Act and we commenced our initial public offering on
July 19, 2010. We are offering up to
150,000,000 shares of our common stock to the public in our
primary offering at $10.00 per share and up to
15,789,474 shares of our common stock pursuant to our
distribution reinvestment plan at $9.50 per share. As of
December 31, 2010, we had sold 504,998 shares of our
common stock in our public offering for gross offering proceeds
of $5,019,314, including 3,653 shares of common stock
issued pursuant to the distribution reinvestment plan for gross
offering proceeds of $34,700.
As of December 31, 2010, we had incurred selling
commissions, dealer manager fees and organization and other
offering costs in our public offering in the amounts set forth
below. The dealer manager reallowed all of the selling
commissions and a portion of the dealer manager fees to
participating broker-dealers.
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|
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|
|
Estimated/
|
Type of Expense Amount
|
|
Amount
|
|
|
Actual
|
|
Selling commissions and dealer manager fees
|
|
$
|
474,100
|
|
|
Actual
|
Other organization and offering costs
|
|
|
273,592
|
|
|
Actual
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
747,692
|
|
|
|
|
|
|
|
|
|
|
Total public offering proceeds (excluding distribution
reinvestment plan proceeds)
|
|
$
|
4,984,614
|
|
|
Actual
|
|
|
|
|
|
|
|
Percentage of public offering proceeds used to pay for
organization and offering costs
|
|
|
15
|
%
|
|
Actual
|
|
|
|
|
|
|
|
From the commencement of our initial public offering through
December 31, 2010, the net offering proceeds to us, after
deducting the total expenses incurred as described above, were
approximately $4.2 million, including net offering proceeds
from our distribution reinvestment plan of $34,700. For the year
ended December 31, 2010, the ratio of the cost of raising
capital was approximately 15%.
We intend to use substantially all of the net proceeds from our
public and private offerings to invest in and manage a diverse
portfolio of real estate investments, primarily in the
multifamily sector, located throughout the United States. In
addition to our focus on multifamily properties, we may also
selectively invest in industrial properties and other types of
commercial properties. We may also acquire or originate
mortgage, bridge and other real estate loans and equity
securities of other real estate companies. As of
December 31, 2010, we had invested in two multifamily
properties for a total purchase price of $17,550,000. These
property acquisitions were funded from proceeds of our offerings
and $11,650,000 in secured financings.
During the year ended December 31, 2010, we did not
repurchase any of our securities under our share repurchase
plan. For a discussion of our share repurchase plan, see
Share Repurchase Plan below.
Share
Repurchase Plan
There is no market for our common stock and, as a result, there
is risk that a stockholder may not be able to sell shares of
common stock at a time or price acceptable to the stockholder.
To allow stockholders to sell
34
their shares of common stock in limited circumstances, our board
of directors has approved a share repurchase plan.
We have limited the number of shares that may be redeemed
pursuant to the share repurchase plan during any calendar year
to: (1) 5% of the weighted-average number of shares
outstanding during the prior calendar year and (2) those
than can be funded from the net proceeds we received from the
sale of shares under our distribution reinvestment plan during
the prior calendar year plus such additional funds as may be
reserved for that purpose by the board of directors. Unless
shares of common stock are being redeemed in connection with a
stockholders death or disability, we will not redeem
shares until they have been outstanding for at least one year.
Under the share repurchase plan, prior to the completion of the
offering stage (as defined below), the purchase price for shares
repurchased by us under the plan will be as follows:
|
|
|
|
|
Repurchase Price
|
Share Purchase Anniversary
|
|
on Repurchase Date(1)
|
|
Less than 1 year
|
|
No Repurchase Allowed
|
1 year
|
|
92.5% of Primary Offering Price
|
2 years
|
|
95.0% of Primary Offering Price
|
3 years
|
|
97.5% of Primary Offering Price
|
4 years
|
|
100.0% of Primary Offering Price
|
In the event of a stockholders death or disability
|
|
Average Issue Price for Shares(2)
|
|
|
|
(1) |
|
As adjusted for any stock dividends, combinations, splits,
recapitalizations or any similar transaction with respect to the
shares of common stock. |
|
(2) |
|
The purchase price per share for shares redeemed upon the death
or disability of a stockholder will be equal to the average
issue price per share for all of the stockholders shares. |
The purchase price per share for shares repurchased pursuant to
the share repurchase plan will be further reduced by the
aggregate amount of net proceeds per share, if any, distributed
to our stockholders prior to the repurchase date as a result of
the sale of one or more of our assets that constitutes a return
of capital distribution as a result of such sales.
Notwithstanding the foregoing, following the completion of the
offering stage, shares of our common stock will be repurchased
at a price equal to a price based upon our most recently
established estimated net asset value per share, which we will
publicly disclose every six months beginning no later than six
months following the completion of the offering stage based on
periodic valuations by independent third party appraisers and
qualified independent valuation experts selected by our advisor.
The offering stage will be considered complete on
the first date that we are no longer publicly offering equity
securities that are not listed on a national securities
exchange, whether through our initial public offering or
follow-on public equity offerings, provided we have not filed a
registration statement for a follow-on public equity offering as
of such date.
Our board of directors may, in its sole discretion, amend,
suspend or terminate the share repurchase plan at any time if it
determines that the funds available to fund the share repurchase
plan are needed for other business or operational purposes or
that amendment, suspension or termination of the share
repurchase plan is in the best interest of our stockholders. The
share repurchase plan will terminate if the shares are listed on
a national securities exchange.
35
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data as of December 31,
2010 and 2009 for the year ended December 31, 2010 and the
period from May 4, 2009 (inception) to December 31,
2009 should be read in conjunction with the accompanying
consolidated financial statements and related notes thereto and
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations.
Our results of operations for the year ended December 31,
2010 are not indicative of those expected in future periods. We
have not yet invested all of the proceeds received to date from
our public offering and expect to continue to raise additional
capital, increase our borrowings and make future acquisitions,
which would have a significant impact on our future results of
operations. During the period from May 4, 2009 (inception)
to August 10, 2010, we had been formed and commenced our
private offering and initial public offering but had not yet
commenced real estate operations, as we had not yet acquired any
real estate investments. As a result, we had no material results
of operations for that period. We commenced real estate
operations on August 11, 2010 in connection with the
acquisition of our first investment, the Lincoln Tower property,
and subsequently acquired another investment, the Park Place
property, on December 22, 2010. In general, we expect our
results of operations to improve in future periods as a result
of anticipated future acquisitions of real estate and real
estate-related investments.
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2010
|
|
2009
|
|
Balance sheet data
|
|
|
|
|
|
|
|
|
Total real estate, net
|
|
$
|
17,011,752
|
|
|
$
|
|
|
Total assets
|
|
|
20,171,682
|
|
|
|
202,007
|
|
Notes payable
|
|
|
11,650,000
|
|
|
|
|
|
Total liabilities
|
|
|
12,926,977
|
|
|
|
|
|
Redeemable common stock
|
|
|
57,827
|
|
|
|
|
|
Total equity
|
|
|
7,186,878
|
|
|
|
202,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period from
|
|
|
For the Year Ended
|
|
May 4, 2009 (Inception)
|
|
|
December 31, 2010
|
|
to December 31, 2009
|
|
Operating data
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
828,230
|
|
|
$
|
|
|
Net loss attributable to common stockholders
|
|
|
(2,162,581
|
)
|
|
|
|
|
Net loss per common share basic and diluted
|
|
|
(4.27
|
)
|
|
|
|
|
Other data
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities
|
|
$
|
(455,876
|
)
|
|
$
|
|
|
Cash flows used in investing activities
|
|
|
(10,902,324
|
)
|
|
|
|
|
Cash flows provided by financing activities
|
|
|
14,014,390
|
|
|
|
202,700
|
|
Distributions declared
|
|
|
230,402
|
|
|
|
|
|
Distributions declared per common share(1)
|
|
|
.272
|
|
|
|
|
|
Weighted-average number of common shares outstanding, basic and
diluted
|
|
|
506,003
|
|
|
|
22,223
|
|
Reconciliation of net loss to Funds from Operations
(FFO)(2)
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,163,581
|
)
|
|
$
|
|
|
Depreciation of real estate assets
|
|
|
149,928
|
|
|
|
|
|
Amortization of lease-related costs
|
|
|
390,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
(1,623,009
|
)
|
|
$
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36
(1) Distributions declared per common share assumes each
share was issued and outstanding each day from August 12,
2010 through December 31, 2010. Distributions for the
period from August 12, 2010 through December 31, 2010
are based on daily record dates and calculated at a rate of
$0.001917 per share per day.
(2) GAAP basis accounting for real estate assets utilizes
historical cost accounting and assumes real estate values
diminish over time. In an effort to overcome the difference
between real estate values and historical cost accounting for
real estate assets, the Board of Governors of NAREIT established
the measurement tool of funds from operations, or FFO. Since its
introduction, FFO has become a widely used non-GAAP financial
measure among REITs.
We believe that FFO is helpful to investors as an additional
measure of the performance of an equity REIT. We compute FFO in
accordance with standards established by the Board of Governors
of NAREIT in its April 2002 White Paper, which we refer to as
the White Paper, and related implementation
guidance, which may differ from the methodology for calculating
FFO utilized by other equity REITs, and, accordingly, may not be
comparable to such other REITs. The White Paper defines FFO as
net income (loss) (computed in accordance with GAAP), excluding
gains (or losses) from sales, plus real estate related
depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. While FFO is a
relevant and widely used measure of operating performance for
REITs, it should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of
financial performance, or to cash flows from operating
activities (determined in accordance with GAAP) as a measure of
our liquidity, nor is it indicative of funds available to fund
our cash needs, including our ability to make distributions. For
additional information on how we calculate FFO, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Funds from
Operations.
Operating cash flow and FFO may also be used to fund all or a
portion of certain capitalizable items that are excluded from
FFO, such as tenant improvements, building improvements and
deferred leasing costs.
Set forth below is additional information related to certain
items included in net loss and FFO, above, which may be helpful
in assessing our operating results. Please see the accompanying
consolidated statements of cash flows for details of our
operating, investing, and financing cash activities.
Significant
Item Included in Net Loss and FFO:
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Acquisition fees and expenses related to the purchase of real
estate of $681,543 for the year ended December 31, 2010.
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ITEM 7.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Overview
We were formed on May 4, 2009 as a Maryland corporation
that intends to qualify as a real estate investment trust, or
REIT, for the taxable year ended December 31, 2010. We
intend to use substantially all of the net proceeds from our
ongoing initial public offering to invest in and manage a
diverse portfolio of real estate investments, primarily in the
multifamily sector, located throughout the United States. In
addition to our focus on multifamily properties, we may also
selectively invest in industrial properties and other types of
commercial properties. We may also acquire or originate
mortgage, mezzanine, bridge and other real estate loans and
equity securities of other real estate companies.
On July 23, 2009, we filed a registration statement on
Form S-11,
or the registration statement, with the SEC to offer a maximum
of 150,000,000 shares of common stock for sale to the
public at an initial price of $10.00 per share (subject to
certain discounts). We are also offering up to
15,789,474 shares of common stock pursuant to our
distribution reinvestment plan at an initial price of $9.50 per
share (subject to certain discounts). From the commencement of
our public offering on July 19, 2010 to December 31,
2010, we had sold 504,998 shares of common stock in our
public offering for gross proceeds of $5,019,314, including
3,653 shares of common stock issued pursuant to the
distribution reinvestment plan for gross offering proceeds of
$34,700. Prior to the commencement of our public offering, we
sold shares of our common stock in a
37
private offering. Upon termination of the private offering, we
had sold 637,279 shares of common stock at $9.40 per share
(subject to certain discounts) for gross offering proceeds of
$5,844,325. As of December 31, 2009, no shares had been
sold in our public offering or private offering. Our public
offering will terminate on the earlier of July 19, 2012 or
the date we sell all the shares offered in our public offering.
If we extend our offering beyond two years from the date of its
commencement, our board of directors may, in its sole
discretion, from time to time, change the price at which we
offer shares to the public in the primary offering or pursuant
to our distribution reinvestment plan to reflect changes in our
estimated net asset value per share and other factors that our
board of directors deems relevant. If we determine to change the
price at which we offer our shares, we do not anticipate that we
will do so more frequently than quarterly. Our advisor will
calculate our estimated net asset value per share by dividing
our net asset value by the number of shares of our common stock
outstanding. Our net asset value will be determined by
subtracting (1) our liabilities, including the accrued fees
and other expenses attributable to this offering and our
operations, from (2) our assets, which will consist almost
entirely of the value of our interest in our operating
partnership. The value of our operating partnership is the
excess of the fair value of its assets (including real estate
properties, real estate-related assets and other investments)
over the fair value of its liabilities (including debt and the
expenses attributable to its operations), as determined by our
advisor.
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.
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. As we accept subscriptions for
shares, we transfer substantially all of the net proceeds of our
public offering to our operating partnership as a capital
contribution. 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 intend to make an election to be taxed as a REIT under the
Internal Revenue Code beginning with the taxable year ended
December 31, 2010. If we qualify as a REIT for federal
income tax purposes, we generally will not be subject to federal
income tax to the extent that we distribute qualifying dividends
to our stockholders. If we fail to qualify as a REIT in any
taxable year after the taxable year after electing REIT status,
we will be subject to federal income tax on our taxable income
at regular corporate rates and will not be permitted to qualify
for treatment as a REIT for federal income tax purposes for four
years following the year in which qualification is denied.
Failing to qualify as a REIT could materially and adversely
affect our net income.
Real
Estate Acquisitions
On August 11, 2010, we acquired a fee simple interest in
the Lincoln Tower property through a wholly-owned subsidiary of
our operating partnership for an aggregate purchase price of
approximately $9,500,000, exclusive of closing costs. We
financed the payment of the purchase price for the Lincoln Tower
property with (1) proceeds from our private and public
offerings and (2) the proceeds of a secured loan in the
aggregate principal amount of $6,650,000 from the seller of the
Lincoln Tower property.
On December 22, 2010, we acquired a fee simple interest in
the Park Place property through a wholly-owned subsidiary of our
operating partnership for an aggregate purchase price of
$8,050,000, exclusive of
38
closing costs. We financed the payment of the purchase price for
the Park Place property with (1) proceeds from our public
offering and (2) a secured loan in the aggregate principal
amount of $5,000,000 from Ames Community Bank.
Review of
our Policies
Our board of directors, including our independent directors, has
reviewed our policies described in this Annual Report and our
registration statement and determined that they are in the best
interest of our stockholders because: (1) they increase the
likelihood that we will be able to acquire a diversified
portfolio of income producing properties, thereby reducing risk
in our portfolio; (2) there are sufficient property
acquisition opportunities with the attributes that we seek;
(3) our executive officers, directors and affiliates of our
advisor have expertise with the type of real estate investments
we seek; and (4) borrowings should enable us to purchase
assets and earn rental income more quickly, thereby increasing
our likelihood of generating income for our stockholders and
preserving stockholder capital.
Liquidity
and Capital Resources
If we raise substantially less funds in our initial public
offering than the maximum offering amount, we will make fewer
investments resulting in less diversification in terms of the
type, number and size of investments we make and the value of an
investment in us will fluctuate with the performance of the
specific assets we acquire. Further, we will have certain fixed
operating expenses, including certain expenses as a public REIT,
regardless of whether we are able to raise substantial funds in
our initial public offering. Our inability to raise substantial
funds would increase our fixed operating expenses as a
percentage of gross income, reducing our net income and limiting
our ability to make distributions.
Once we have fully invested the proceeds of our initial public
offering, we expect that our overall borrowings will be 65% or
less of the cost of our investments, although we expect to
exceed this level during our offering stage in order to enable
us to quickly build a diversified portfolio. Under our charter,
we have a limitation on borrowing which precludes us from
borrowing in excess of 300% of the value of our net assets,
which generally approximates to 75% of the aggregate cost of our
assets, though we may exceed this limit only under certain
circumstances. As of December 31, 2010, our borrowings were
not in excess of 300% of the value of our net assets.
In addition to making investments in accordance with our
investment objectives, we expect to use our capital resources to
make certain payments to our advisor and the dealer manager.
During our organization and offering stage, these payments
include payments to the dealer manager for sales commissions and
the dealer manager fee and payments to our advisor for
reimbursement of certain organization and offering expenses.
However, our advisor has agreed to reimburse us to the extent
that sales commissions, the dealer manager fee and other
organization and offering expenses incurred by us exceed 15% of
the gross offering proceeds of our initial public offering.
During our operating stage, we expect to make payments to our
advisor in connection with the acquisition of investments, the
management of our assets and costs incurred by our advisor in
providing services to us.
Our principal demand for funds will be to acquire properties and
real estate-related assets, to pay operating expenses and
interest on our outstanding indebtedness and to make
distributions to our stockholders. Over time, we intend to
generally fund our cash needs for items, other than asset
acquisitions, from operations.
We expect that our principal sources of working capital will
include:
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current cash balances;
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proceeds from the sales of shares of common stock in our
offering;
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various forms of secured financing;
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equity capital from joint venture partners;
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39
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proceeds from our operating partnerships private
placements, if any;
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proceeds from our distribution reinvestment plan; and
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cash from operations.
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Over the short term, we believe that our sources of capital,
specifically our cash balances, cash flow from operations, our
ability to raise equity capital from joint venture partners, our
ability to obtain various forms of secured financing and
proceeds from our operating partnerships private
placement, if any, will be adequate to meet our liquidity
requirements and capital commitments.
Over the longer term, in addition to the same sources of capital
we will rely on to meet our short term liquidity requirements,
we may also utilize additional secured and unsecured financings,
including entering into a credit facility, and equity capital
from joint venture partners. We may also conduct additional
public or private offerings. We expect these resources will be
adequate to fund our operating activities, debt service and
distributions, which we presently anticipate will grow over
time, and will be sufficient to fund our ongoing acquisition
activities as well as providing capital for investment in future
development and other joint ventures along with potential
forward purchase commitments. As December 31, 2010, we had
not identified any sources for these types of financings;
however, we continue to evaluate possible sources of financing.
There can be no assurance that we will be able to obtain any
such financing on favorable terms, if at all.
We may, but are not required to, establish working capital
reserves from offering proceeds out of cash flow generated by
our investments or out of proceeds from the sale of our
investments. We do not anticipate establishing a general working
capital reserve; however, we may establish capital reserves with
respect to particular investments. We also may, but are not
required to, establish reserves out of cash flow generated by
investments or out of net sale proceeds in non-liquidating sale
transactions. Working capital reserves are typically utilized to
fund tenant improvements, leasing commissions and major capital
expenditures. Our lenders also may require working capital
reserves.
To the extent that the working capital reserve is insufficient
to satisfy our cash requirements, additional funds may be
provided from cash generated from operations or through
short-term borrowing. In addition, subject to certain
limitations described in our charter, we may incur indebtedness
in connection with the acquisition of any real estate asset,
refinance the debt thereon, arrange for the leveraging of any
previously unfinanced property or reinvest the proceeds of
financing or refinancing in additional properties.
Cash
Flows from Operating Activities
As of December 31, 2010, we owned two real estate
properties which we acquired on August 11, 2010 and
December 22, 2010. During the year ended December 31,
2010, net cash used in operating activities was $455,876, which
was primarily comprised of general and administrative expenses
paid prior to the commencement of our operations partially
offset by net cash received from real estate rental activities
for the period from August 11, 2010 to December 31,
2010, We expect cash flows from operating activities to increase
in future periods as a result of anticipated future acquisitions
of real estate and real estate-related investments.
Cash
Flows from Investing Activities
Our cash flows from investing activities will vary based on how
quickly we raise funds in our ongoing initial public offering
and how quickly we invest those funds towards acquisitions of
real estate and real-estate related investments. During the year
ended December 31, 2010, net cash used in investing
activities was $10,902,324 and primarily consisted of cash used
for the acquisition of our two multifamily properties.
40
Cash
Flows from Financing Activities
Our cash flows from financing activities consist primarily of
proceeds from our ongoing initial public offering and our
private offering and distributions paid to our stockholders.
During the year ended December 31, 2010, net cash provided
by financing activities was $14,014,390 and consisted of the
following:
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$4,244,134 of cash provided by offering proceeds related to our
initial public offering, net of (1) payments of commissions
on sales of common stock and related dealer manager fees in the
amount of $474,100 and (2) the reimbursement of other
offering costs to affiliates in the amount of $172,854;
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$4,967,676 of cash provided by offering proceeds related to our
private offering, net of (1) payments of commissions on
sales of common stock and related dealer manager fees in the
amount of $452,942 and (2) the reimbursement of other
offering costs to affiliates in the amount of $423,707;
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$5,000,000 of cash provided by issuance of a note payable in
connection with the acquisition of the Park Place property;
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payment of deferred financing costs of $72,500; and
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$132,136 of net cash distributions, after giving effect to
distributions reinvested by stockholders of $34,700.
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Contractual
Commitments and Contingencies
We use, and intend to use in the future, secured and unsecured
debt as a means of providing additional funds for the
acquisition of our properties and our real estate-related
assets. We believe that the careful use of borrowings will help
us achieve our diversification goals and potentially enhance the
returns on our investments. We expect that our borrowings will
be approximately 65% of the cost of our real properties (before
deducting depreciation and amortization) plus the value of our
other investments, after we have invested substantially all of
the net offering proceeds in our public offering. In order to
facilitate investments in the early stages of our operations, we
expect to temporarily borrow in excess of our long-term targeted
debt level. Under our charter, we have a limitation on borrowing
which precludes us from borrowing in excess of 300% of our net
assets which generally approximates to 75% of the aggregate cost
of our assets. We may borrow in excess of this amount if such
excess is approved by a majority of the independent directors
and disclosed to stockholders in our next quarterly report,
along with a justification for such excess. In such event, we
will monitor our debt levels and take action to reduce any such
excess as practicable. We do not intend to exceed our
charters leverage limit except in the early stages of our
operations when the costs of our investments are most likely to
substantially exceed our net offering proceeds. Our aggregate
borrowings will be reviewed by our board of directors at least
quarterly. As of December 31, 2010, our borrowings were not
in excess of 300% of the value of our net assets.
In addition to using our capital resources for investing
purposes and meeting our debt obligations, we expect to use our
capital resources to make certain payments to our advisor and
the dealer manager. During our organization and offering stage,
these payments will include payments to the dealer manager for
selling commissions and dealer manager fees and payments to the
dealer manager and our advisor for reimbursement of certain
organization and other offering expenses. However, our advisor
has agreed to reimburse us to the extent that selling
commissions, dealer manager fees and organization and other
offering expenses incurred by us exceed 15% of our gross
offering proceeds. During our acquisition and development stage,
we expect to make payments to our advisor in connection with the
selection and origination or purchase of real estate and real
estate-related investments, the management of our assets and
costs incurred by our advisor in providing services to us.
As of December 31, 2010, we had notes payable totaling an
aggregate principal amount of $11,650,000 comprised of a
$6,650,000 note issued by the seller of the Lincoln Tower
property in connection with our acquisition of the Lincoln Tower
property on August 11, 2010 and a $5,000,000 note issued by
Ames Community Bank in connection with our acquisition of the
Park Place property on December 22, 2010. For
41
more information on our outstanding indebtedness, see
Note 6 (Notes Payable) to the consolidated financial
statements included in this annual report on
Form 10-K.
The following is a summary of our contractual obligations as of
December 31, 2010:
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Payments Due During the Years Ending December 31,
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Contractual Obligations
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Total
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2011
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2012
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2013
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2014
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2015
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Interest payments on outstanding debt obligations(1)
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$
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2,649,500
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$
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661,500
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$
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661,500
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$
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661,500
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$
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399,000
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$
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266,000
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Principal payments on outstanding debt obligations(2)
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$
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11,650,000
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$
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$
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$
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5,000,000
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$
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$
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6,650,000
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(1) |
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Projected interest payments on outstanding debt obligations are
based on the outstanding principal amounts and interest rates in
effect at December 31, 2010. We incurred interest expense
of $162,877 during the twelve months ended December 31,
2010, excluding amortization of deferred financing costs
totaling $1,110. |
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(2) |
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Projected principal payments on outstanding debt obligations are
based on the terms of the Lincoln Tower note and Park Place note
whereby no principal payments are required until the maturity of
the Lincoln Tower note and the Park Place note on
September 1, 2015 and December 22, 2013, respectively. |
Results
of Operations
During the period from May 4, 2009 (inception) to
August 11, 2010, we had been formed and had commenced both
our private and public offering but had not yet commenced real
estate operations as we had not yet acquired any real estate
investments. As a result, we had no material results of
operations for that period. We commenced real estate operations
on August 11, 2010 in connection with the acquisition of
our first investment, the Lincoln Tower property, and
subsequently acquired the Park Place property on
December 22, 2010. Our results of operations for the year
ended December 31, 2010 are not indicative of those
expected in future periods. We have not yet invested all of the
proceeds from our offering received to date and expect to
continue to raise additional capital, increase our borrowings
and make future acquisitions, which would have a significant
impact on our future results of operations. In general, we
expect that our income and expenses related to our portfolio
will increase in future periods as a result of anticipated
future acquisitions of real estate and real estate-related
investments.
Net
loss
For the year ended December 31, 2010, we had a net loss of
$2,163,581 primarily due to the costs associated with our
organization and offering costs related to our private offering
and public offering further described in the notes to our
consolidated financial statements included herein and the fact
that we did not commence operations until August 11, 2010.
Total
revenues
Rental income and tenant reimbursements were $828,230 for the
year ended December 31, 2010, which consisted primarily of
$778,387 of rental income following the acquisition of the
Lincoln Tower Property and Park Place Property on
August 11, 2010 and December 22, 2010, respectively.
We expect rental income and tenant reimbursements to increase in
future periods as a result of anticipated future acquisitions of
real estate and the realization of revenues for an entire period
for both properties.
Operating
expenses
Operating, maintenance and management expenses were $297,251 for
the year ended December 31, 2010. Real estate taxes and
insurance were $138,181 for the year ended December 31,
2010. These expenses resulted from the acquisition of the
Lincoln Tower property and Park Place property on
August 11, 2010 and December 22, 2010, respectively.
We expect these amounts to increase in future periods as a
result of
42
anticipated future acquisitions of real estate and the
realization of operating expenses for an entire period for both
properties.
Fees
to affiliates
Fees to affiliates pursuant to our Advisory Agreement were
$419,694 for the year ended December 31, 2010. We expect
fees to affiliates to increase in future periods as a result of
anticipated future acquisitions of real estate and real
estate-related investments.
Depreciation
and amortization
Depreciation and amortization expenses were $540,572 for the
year ended December 31, 2010 and related to the Lincoln
Tower property and Park Place property. We expect these amounts
to increase in future periods as a result of anticipated future
acquisitions of real estate.
Interest
expense
Interest expense was $163,987 for the year ended
December 31, 2010. Included in interest expense is the
amortization of deferred financing costs of $1,110 for the year
ended December 31, 2010. Our interest expense in future
periods will vary based on our level of future borrowings, which
will depend on the amount of proceeds raised in our ongoing
initial public offering, the availability and cost of debt
financing and the opportunity to acquire real estate and real
estate-related investments meeting our investment objectives.
General
and administrative expense
General and administrative expenses were $1,108,220 for the year
ended December 31, 2010. These general and administrative
costs consisted primarily of legal fees, insurance premiums,
audit fees, transfer agent fees, other professional fees, and
independent director compensation of $369,887. We expect general
and administrative expenses to increase in future periods as we
acquire additional real estate and real estate-related
investments but to decrease as a percentage of total revenue.
Acquisition
Costs
Acquisition costs were $323,906 for the year ended
December 31, 2010 and related to the acquisition of
prospective and acquired real estate and real estate-related
investments.
Inflation
Substantially all of our multifamily property leases will be for
a term of one year or less. In an inflationary environment, this
may allow us to realize increased rents upon renewal of existing
leases or the beginning of new leases. Short-term leases
generally will minimize our risk from the adverse effects of
inflation, although these leases generally permit tenants to
leave at the end of the lease term and therefore will expose us
to the effects of a decline in market rents. In a deflationary
rent environment, we may be exposed to declining rents more
quickly under these shorter term leases.
With respect to other commercial properties, we currently
include, and expect in the future to include, provisions in our
leases designed to protect us from the impact of inflation.
These provisions will include reimbursement billings for
operating expense pass-through charges, real estate tax and
insurance reimbursements, or in some cases annual reimbursement
of operating expenses above a certain allowance. We believe that
shorter term lease contracts lessen the impact of inflation due
to the ability to adjust rental rates to market levels as leases
expire.
As of December 31, 2010, we had not entered into any leases
as a lessee.
43
REIT
Compliance
To qualify as a REIT for tax purposes, we will be required to
distribute at least 90% of our REIT taxable income (which is
computed without regard to the dividends paid deduction or net
capital gain and which does not necessarily equal net income as
calculated in accordance with GAAP) to our stockholders. We must
also meet certain asset and income tests, as well as other
requirements. We will monitor the business and transactions that
may potentially impact our REIT status. If we fail to qualify as
a REIT in any taxable year after the taxable year in which we
initially elect to be taxed as a REIT, we will be subject to
federal income tax (including any applicable alternative minimum
tax) on our taxable income at regular corporate rates.
Funds
from Operations
Our calculation of FFO, which we believe is consistent with the
calculation of FFO as defined by NAREIT, as defined below, is
presented in the following table for the year ended
December 31, 2010:
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For the Year Ended
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Reconciliation of net loss to FFO:
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December 31, 2010
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Net loss
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$
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(2,163,581
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)
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Add:
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Depreciation of real estate assets
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149,928
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Amortization of lease-related costs
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390,644
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FFO
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$
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(1,623,009
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)
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FFO per share
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$
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(3.21
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Weighted average shares
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506,003
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Set forth below is additional information related to certain
items included in net loss and FFO, which may be helpful in
assessing our operating results. Please see the accompanying
consolidated statements of cash flows for details of our
operating, investing, and financing cash activities.
Significant
Item Included in Net Loss and FFO:
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Acquisition fees and expenses related to the purchase of real
estate of $681,543 for the year ended December 31, 2010.
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We believe that FFO is helpful to investors as an additional
measure of the performance of an equity REIT. We intend to
compute FFO in accordance with standards established by the
Board of Governors of NAREIT in its April 2002 White Paper,
which we refer to as the White Paper, and related
implementation guidance, which may differ from the methodology
for calculating FFO utilized by other equity REITs, and,
accordingly, may not be comparable to such other REITs. The
White Paper defines FFO as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from sales,
plus real estate related depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint
ventures. While FFO is a relevant and widely used measure of
operating performance for REITs, it should not be considered as
an alternative to net income (determined in accordance with
GAAP) as an indication of financial performance, or to cash
flows from operating activities (determined in accordance with
GAAP) as a measure of our liquidity, nor is it indicative of
funds available to fund our cash needs, including our ability to
make distributions.
Operating cash flow and FFO may also be used to fund all or a
portion of certain capitalizable items that are excluded from
FFO, such as tenant improvements, building improvements and
deferred leasing costs.
Distributions
As described below, our board of directors has declared daily
distributions that are paid on a monthly basis. We expect to
continue paying monthly distributions unless our results of
operations, our general financial condition, general economic
conditions or other factors prohibit us from doing so. During
the early
44
stages of our operations, we may declare distributions in excess
of our FFO. As a result, our distribution rate and payment
frequency may vary from time to time. However, to qualify as a
REIT for tax purposes, we must make distributions equal to at
least 90% of our REIT taxable income each year.
In order to provide additional available funds for us to pay
distributions, under certain circumstances our obligation to pay
all fees due to the advisor pursuant to the Advisory Agreement
will be deferred up to an aggregate amount of $5,000,000 during
our offering stage. If, during any calendar quarter during our
offering stage, the distributions we pay exceed our FFO, plus
(1) any acquisition expenses and acquisition fees expensed
by us that are related to any property, loan or other investment
acquired or expected to be acquired by us and (2) any
non-operating, non-cash charges incurred by us, such as
impairments of property or loans, any other than temporary
impairments of marketable securities, or other similar charges,
for the quarter, which is defined in the advisory agreement as
adjusted funds from operations, the payment of fees
we are obligated to pay our advisor will be deferred in an
amount equal to an amount by which cash distributions paid for
the quarter exceed our adjusted funds from operations for such
quarter up to an amount equal to a 7.0% cumulative
non-compounded annual return on stockholders invested
capital, pro-rated for such quarter. For purposes of this
calculation, if our adjusted funds from operations is negative,
adjusted funds from operations shall be deemed to be zero.
We are only obligated to pay our advisor for these deferred fees
if and to the extent that our cumulative adjusted funds from
operations for the period beginning on the date of the
commencement of our private offering through the date of any
such payment exceed the lesser of (1) the cumulative amount
of any distributions paid to our stockholders as of the date of
such payment or (2) distributions (including the value of
shares issued pursuant to the distribution reinvestment plan)
equal to a 7.0% cumulative, non-compounded, annual return on
invested capital for our stockholders for the period from the
commencement of our initial public offering through the date of
such payment. Our obligation to pay the deferred fees will
survive the termination of the Advisory Agreement and will
continue to be subject to the repayment conditions above. We
will not pay interest on the deferred fees if and when such fees
are paid to our advisor. The amount of fees that may be deferred
as described above is limited to an aggregate of $5,000,000.
We accrue the probable and estimable amount of deferred fees and
the deferred fees continue to accrue until the fees are either
paid or it becomes remote that the fees will be paid to our
advisor. We anticipate that any deferred fees will ultimately be
paid and therefore will be accrued when incurred. As of
December 31, 2010, payment of $166,836 of our fees earned
by our advisor had been deferred pursuant to the terms of our
Advisory Agreement.
In connection with our acquisition of the Lincoln Tower property
on August 11, 2010, our board of directors declared a cash
distribution to our stockholders. Distributions (1) accrue
daily to our stockholders of record as of the close of business
on each day commencing on August 12, 2010, (2) are
payable in cumulative amounts on or before the 15th day of
each calendar month with respect to the prior month commencing
in September 2010 and (3) are calculated at a rate of
$0.001917 per share of common stock per day, 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 $10.00 per share of common stock.
There is no guaranty that we will pay distributions at this rate
in the future if at all.
Distributions declared and paid were as follows for the year
ended December 31, 2010 (in dollars, except per share
amounts):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions Paid(3)
|
|
|
Net Cash
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
Used In
|
|
|
|
Distributions
|
|
|
Declared Per
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Period
|
|
Declared(1)
|
|
|
Share(1)(2)
|
|
|
Cash
|
|
|
Reinvested
|
|
|
Total
|
|
|
Activities
|
|
|
For the period from August 11, 2010 to September 30,
2010
|
|
$
|
63,588
|
|
|
|
0.096
|
|
|
$
|
24,449
|
|
|
$
|
2,387
|
|
|
$
|
26,836
|
|
|
$
|
(162,787
|
)
|
Fourth Quarter 2010
|
|
|
166,814
|
|
|
|
0.176
|
|
|
|
107,687
|
|
|
|
32,313
|
|
|
|
140,000
|
|
|
|
(293,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
230,402
|
|
|
|
0.272
|
|
|
$
|
132,136
|
|
|
$
|
34,700
|
|
|
$
|
166,836
|
|
|
$
|
(455,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
(1) |
|
Distributions for the period from August 11, 2010 are based
on daily record dates and calculated at a rate of $0.001917 per
share per day. |
|
(2) |
|
Assumes share was issued and outstanding each day during the
periods presented. |
|
(3) |
|
Distributions are paid on a monthly basis. Distributions for all
record dates of a given month are paid approximately
15 days following month end. |
For the period from August 11, 2010 to December 31,
2010, we paid aggregate distributions of $166,836, including
$132,136 of distributions paid in cash and 3,653 shares of
our common stock issued pursuant to our distribution
reinvestment plan for $34,700. FFO for the year ended
December 31, 2010 was ($1,623,009) and net cash used in
operating activities was $455,876. We funded our total
distributions paid, which includes net cash distributions and
dividends reinvested by stockholders, with proceeds of our
private and public offerings. See the reconciliation of FFO to
net income above in Funds from
Operations.
Over the long-term, we expect that a greater percentage of our
distributions will be paid from cash flow from operations and
FFO (except with respect to distributions related to sales of
our real estate and real estate-related investments). However,
our operating performance cannot be accurately predicted and may
deteriorate in the future due to numerous factors, including
those discussed under Risk Factors, and
Results of Operations. Those factors
include: the future operating performance of our investments in
the existing real estate and financial environment; our ability
to identify investments that are suitable to execute our
investment objectives; the success and economic viability of our
tenants; changes in interest rates on our variable rate debt
obligations; and the level of participation in our distribution
reinvestment plan. In the event our FFO
and/or cash
flow from operations decrease in the future, the level of our
distributions may also decrease. In addition, future
distributions declared and paid may exceed FFO
and/or cash
flow from operations.
Off-Balance
Sheet Arrangements
As of December 31, 2010 and 2009, we had no off-balance
sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Related-Party
Transactions and Agreements
We have entered into agreements with our advisor, Steadfast
Income Advisor, LLC, and its affiliates, whereby we have paid,
and may continue to pay, certain fees to, or reimburse certain
expenses of, our advisor or its affiliates for acquisition and
advisory fees and expenses, financing coordination fees,
organization and offering costs, sales commissions, dealer
manager fees, asset and property management fees and expenses,
leasing fees and reimbursement of certain operating costs. See
Item 13, Certain Relationships and Related
Transactions and Director Independence and Note 8
(Related Party Arrangements) to the consolidated financial
statements included in this Annual Report on
Form 10-K
for a discussion of the various related-party transactions, with
our advisor and its affiliates.
Critical
Accounting Policies
Below is a discussion of the accounting policies that we believe
are critical because they involve significant judgments and
assumptions, require estimates about matters that are inherently
uncertain and because they are important for understanding and
evaluating our reported financial results. These judgments
affect the reported amounts of assets and liabilities and our
disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and
expenses during the reporting periods. With different estimates
or assumptions, materially different amounts could be reported
in our financial statements. Additionally, other companies may
utilize different estimates that may impact the comparability of
our results of operations to those of companies in similar
businesses.
46
Fair
Value Measurements
Under GAAP, we are required to measure certain financial
instruments at fair value on a recurring basis. In addition, we
are 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:
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|
|
|
|
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, we utilize 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 us 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 we determine the market for a financial instrument
owned by us to be illiquid or when market transactions for
similar instruments do not appear orderly, we use 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.
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.
Revenue
Recognition
We recognize minimum rent, including rental abatements,
concessions and contractual fixed increases attributable to
operating leases, on a straight-line basis over the term of the
related lease and amounts expected to be received in later years
will be recorded as deferred rents. We record property operating
expense reimbursements due from tenants for common area
maintenance, real estate taxes, and other recoverable costs in
the period the related expenses are incurred.
We recognize gains on sales of real estate either in total or
deferred for a period of time, depending on whether a sale has
been consummated, the extent of the buyers investment in
the property being sold, whether the receivable is subject to
future subordination, and the degree of our continuing
involvement with the property after the sale. If the criteria
for profit recognition under the full-accrual method are not
met, we defer gain recognition and account for the continued
operations of the property by applying the
percentage-of-completion,
reduced profit, deposit, installment or cost recovery method, as
appropriate, until the appropriate criteria are met.
Real
Estate Assets
Depreciation
and Amortization
Real estate costs related to the development, construction and
improvement of properties are capitalized. Acquisition costs are
expensed as incurred. Repair and maintenance and tenant turnover
costs are charged to expense as incurred and significant
replacements and betterments will be capitalized. Repair and
maintenance and tenant turnover costs include all costs that do
not extend the useful life of the real estate asset. We
47
consider the period of future benefit of an asset to determine
its appropriate useful life. We anticipate the estimated useful
lives of our assets by class to be generally as follows:
|
|
|
Buildings
|
|
25-40 years
|
Building improvements
|
|
10-25 years
|
Tenant improvements
|
|
Shorter of lease term or expected useful life
|
Tenant origination and absorption costs
|
|
Remaining term of related lease
|
Furniture, fixtures, and equipment
|
|
5-10 years
|
Real
Estate Purchase Price Allocation
We record the acquisition of income-producing real estate or
real estate that will be used for the production of income as a
business combination. All assets acquired and liabilities
assumed in a business combination are measured at their
acquisition-date fair values. Acquisition costs are expensed as
incurred. During the year ended December 31, 2010 we
acquired two real estate assets and expensed $681,543 of
acquisition costs.
We assess the acquisition-date fair values of all tangible
assets, identifiable intangibles and assumed liabilities using
methods similar to those used by independent appraisers (e.g.
discounted cash flow analysis) and that utilize appropriate
discount
and/or
capitalization rates and available market information. Estimates
of future cash flows are based on a number of factors including
historical operating results, known and anticipated trends, and
market and economic conditions. The fair value of tangible
assets of an acquired property considers the value of the
property as if it was vacant.
Intangible assets include the value of in-place leases, which
represents the estimated value of the net cash flows of the
in-place leases to be realized, as compared to the net cash
flows that would have occurred had the property been vacant at
the time of acquisition and subject to
lease-up.
We estimate the value of tenant origination and absorption costs
by considering the estimated carrying costs during hypothetical
expected
lease-up
periods, considering current market conditions. In estimating
carrying costs, we estimate the amount of lost rentals at market
rates during the expected
lease-up
periods.
We record above-market and below-market in-place lease values
for acquired properties based on the present value (using an
interest rate that reflects the risks associated with the leases
acquired) of the difference between (1) the contractual
amounts to be paid pursuant to the in-place leases and
(2) our estimate of fair market lease rates for the
corresponding in-place leases, measured over a period equal to
the remaining cancelable term of the lease. We will amortize any
capitalized above-market or below market lease values as an
increase or reduction to rental income over the remaining
non-cancelable terms of the respective leases.
The total amount of other intangible assets acquired will be
further allocated to in-place lease values and customer
relationship intangible values based on our evaluation of the
specific characteristics of each tenants lease and our
overall relationship with that respective tenant.
Characteristics that we will consider in allocating these values
include the nature and extent of our existing business
relationships with the tenant, growth prospects for developing
new business with the tenant, and the tenants credit
quality and expectations of lease renewals (including those
existing under the terms of the lease agreement), among other
factors.
We amortize the value of in-place leases to expense over the
remaining non-cancelable term of the respective leases. The
value of customer relationship intangibles will be amortized to
expense over the initial term and any renewal periods in the
respective leases, but in no event will the amortization periods
for the intangible assets exceed the remaining depreciable life
of the building. Should a tenant terminate its lease, the
unamortized portion of the in-place lease value and customer
relationship intangibles would be charged to expense in that
period.
Estimates of the fair values of the tangible assets,
identifiable intangibles and assumed liabilities require us to
make significant assumptions to estimate market lease rates,
property-operating expenses, carrying costs during
lease-up
periods, discount rates, market absorption periods, and the
number of years the property will be held for investment. The
use of inappropriate assumptions would result in an incorrect
valuation of our
48
acquired tangible assets, identifiable intangibles and assumed
liabilities, which would impact the amount of our net income.
Impairment
of Real Estate Assets
We will continually monitor events and changes in circumstances
that could indicate that the carrying amounts of our real estate
and related intangible assets may not be recoverable. When
indicators of potential impairment suggest that the carrying
value of real estate and related intangible assets and
liabilities may not be recoverable, we will assess the
recoverability of the assets by estimating whether we will
recover the carrying value of the asset through its undiscounted
future cash flows and its eventual disposition. Based on this
analysis, if we do not believe that we will be able to recover
the carrying value of the real estate and related intangible
assets and liabilities, we will record an impairment loss to the
extent that the carrying value exceeds the estimated fair value
of the real estate and related intangible assets and
liabilities. If our assumptions, projections or estimates
regarding an asset changes in the future, we may have to record
an impairment to reduce the net book value of such individual
asset.
Organization
and Offering Costs
Organization and offering expenses (other than sales commissions
and the dealer manager fee) include all expenses to be paid by
us in connection with our initial public offering and our
private offering, including legal, accounting, printing, mailing
and filing fees, charges of our transfer agent, expenses of
organizing us, data processing fees, advertising and sales
literature costs, transfer agent costs, bona fide
out-of-pocket
due diligence costs and amounts to reimburse our advisor or its
affiliates for the salaries of its employees and other costs in
connection with preparing supplemental sales materials and
providing other administrative services. Any reimbursement of
expenses paid to our advisor will not exceed expenses actually
incurred by our advisor.
After the termination of our initial public offering, our
advisor will reimburse us to the extent total organization and
offering expenses (including sales commissions and dealer
manager fees) borne by us in connection with the initial public
offering exceed 15% of the gross proceeds raised in our initial
public offering. We may also reimburse costs of bona fide
training and education meetings held by us (primarily the
travel, meal and lodging costs of registered representatives of
broker-dealers), attendance and sponsorship fees and cost
reimbursement of employees of our affiliates to attend seminars
conducted by broker-dealers and, in special, cases,
reimbursement to participating broker-dealers for technology
costs associated with our initial public offering, costs and
expenses related to such technology costs, and costs and
expenses associated with the facilitation of the marketing of
our shares and the ownership of our shares by such
broker-dealers customers; provided, however, that we will
not pay any of the foregoing costs to the extent that such
payment would cause total underwriting compensation to exceed
10% of the gross proceeds of our initial public offering, as
required by the rules of FINRA.
Reimbursements to our advisor or our affiliates for offering
costs paid by them on our behalf with respect to our private
offering is not limited to 15% of the gross offering proceeds of
the private offering. However, we will not make reimbursements
of organization and offering costs in excess of 15% of the gross
offering proceeds of the private offering unless approval is
obtained from the independent directors. The independent
directors have not approved the reimbursement of excess private
offering costs. Accordingly, we have not accrued for the
reimbursement of organization and offering costs of the private
offering in excess of the 15% of gross offering proceeds raised
through December 31, 2010.
Income
Taxes
We intend to elect to be taxed as a REIT under the Internal
Revenue Code and intend to operate as such beginning with the
taxable year ending December 31, 2010. To qualify as a
REIT, we must meet certain organizational and operational
requirements, including a requirement to distribute at least 90%
of our annual REIT taxable income to stockholders (which is
computed without regard to the dividends paid deduction or net
capital gain and which does not necessarily equal net income as
calculated in accordance with GAAP). As
49
a REIT, we generally will not be subject to federal income tax
to the extent we distribute qualifying dividends to our
stockholders. If we fail to qualify as a REIT in any taxable
year after the taxable year in which we initially elect to be
taxed as a REIT, we will be subject to federal income tax on our
taxable income at regular corporate income tax rates and
generally will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for the four taxable years
following the year during which qualification is lost, unless
the Internal Revenue Service grants us relief under certain
statutory provisions. Such an event could materially adversely
affect our net income and net cash available for distribution to
stockholders. However, we intend to organize and operate in such
a manner as to qualify for treatment as a REIT.
Subsequent
Events
Status
of Our Public Offering
We commenced our initial public offering on July 19, 2010.
As of March 14, 2011, we had sold 742,999 shares of
common stock in the public offering for gross proceeds of
$7,377,056, including 11,583 shares of common stock issued
pursuant to our distribution reinvestment plan for gross
offering proceeds of $110,038.
Distributions
Paid
On January 14, 2011, we paid distributions of $63,566,
which related to distributions declared for each day in the
period from December 1, 2010 through December 31, 2010
and consisted of cash distributions paid in the amount of
$40,439 and additional shares issued pursuant to our
distribution reinvestment plan in the amount of $23,127. On
February 11, 2011, we paid distributions of $72,384, which
related to distributions declared for each day in the period
from January 1, 2011 through January 31, 2011 and
consisted of cash distributions paid in the amount of $46,075
and additional shares issued pursuant to our distribution
reinvestment plan in the amount of $26,309. On March 11,
2011, we paid distributions of $71,613, which related to
distributions declared for each day in the period from
February 1, 2011 through February 28, 2011 and
consisted of cash distributions paid in the amount of $45,711
and additional shares issued pursuant to our distribution
reinvestment plan in the amount of $25,902.
Distribution
Declaration
As of December 31, 2010, $63,566 distributions have been
declared are payable.
Amendment
to Advisory Agreement
On March 21, 2011, we entered into an amendment to the
Advisory Agreement with our advisor to (1) renew the
Advisory Agreement for an additional one-year term, expiring on
May 4, 2012, and (2) make certain clarifications with
respect to the terms and conditions of the deferral of the
payment of fees to our advisor. In particular, the amendment to
the Advisory Agreement clarifies that for purposes of
calculating the amount of fees that may be deferred pursuant to
the Advisory Agreement, the amount of distributions paid during
a fiscal quarter shall include the value of shares of our common
stock distributed pursuant to our distribution reinvestment
plan. Additionally, for purposes of calculating the difference
between adjusted funds from operations (as defined in the
Advisory Agreement) and the amount of distributions paid during
a measurement period, if adjusted funds from operations during
such period is negative, adjusted funds from operations shall be
deemed to be zero.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We may be exposed to the effects of interest rate changes as a
result of borrowings used to maintain liquidity and to fund the
acquisition, expansion and refinancing of our real estate
investment portfolio and operations. We may be also exposed to
the effects of changes in interest rates as a result of the
acquisition and origination of mortgage, mezzanine, bridge and
other loans. Our profitability and the value of our investment
portfolio may be adversely affected during any period as a
result of interest rate changes. Our interest rate risk
management objectives are to limit the impact of interest rate
changes on earnings, prepayment penalties and
50
cash flows and to lower overall borrowing costs. We have managed
and will continue to manage interest rate risk by maintaining a
ratio of fixed rate, long-term debt such that floating rate
exposure is kept at an acceptable level. In addition, we may
utilize a variety of financial instruments, including interest
rate caps, floors and swap agreements, in order to limit the
effects of changes in interest rates on our operations. When we
use these types of derivatives to hedge the risk of
interest-earning assets or interest-bearing liabilities, we may
be subject to certain risks, including the risk that losses on a
hedge position will reduce the funds available for payments to
holders of our common stock and that the losses may exceed the
amount we invested in the instruments.
The table below summarizes the book values and the
weighted-average interest rates of our real estate loans
receivable and notes payable for each category as of
December 31, 2010 based on the maturity dates:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,000,000
|
|
|
$
|
|
|
|
$
|
6,650,000
|
|
|
$
|
|
|
|
$
|
11,650,000
|
|
|
$
|
11,866,816
|
|
Weighted-average annual interest rate
|
|
|
|
|
|
|
|
|
|
|
5.25
|
%(2)
|
|
|
|
|
|
|
6.0
|
%(2)
|
|
|
|
|
|
|
5.68
|
%(1)
|
|
|
|
|
|
|
|
(1) |
|
The weighted-average annual effective interest rate represents
the effective interest rate at December 31, 2010. |
|
(2) |
|
The weighted-average interest rate represents the actual
interest rate in effect at December 31, 2010 (consisting of
the contractual interest rate), using interest rate indices as
of December 31, 2010, where applicable. |
We have borrowed funds at fixed rates and have not borrowed
funds at variable rates. We intend to continue to do so for the
foreseeable future. Interest rate fluctuations will generally
not affect our future earnings or cash flows on our fixed rate
debt unless such instruments mature or are otherwise terminated.
However, interest rate changes will affect the fair value of our
fixed rate instruments. At December 31, 2010, the fair
value of our fixed rate debt was $11,866,816 and the carrying
value of our fixed rate debt was $11,650,000. The fair value
estimate of our fixed rate debt was estimated using a discounted
cash flow analysis utilizing rates we would expect to pay for
debt of a similar type and remaining maturity if the loans were
originated at December 31, 2010. As we expect to hold our
fixed rate instruments to maturity and the amounts due under
such instruments would be limited to the outstanding principal
balance and any accrued and unpaid interest, we do not expect
that fluctuations in interest rates, and the resulting change in
fair value of our fixed rate instruments, would have a
significant impact on our operations.
The weighted-average interest rate of our fixed rate debt was
5.68% at December 31, 2010. The weighted-average interest
rate represents the actual interest rate in effect at
December 31, 2010 (consisting of the contractual interest
rate), using interest rate indices as of December 31, 2010
where applicable.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Our consolidated financial statements and supplementary data can
be found beginning at
page F-1
of this annual report.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
51
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
As of the end of the period covered by this report, management,
including our chief executive officer and chief financial
officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures. Based upon, and as of
the date of, the evaluation, our chief executive officer and
chief financial officer concluded that the disclosure controls
and procedures were effective as of the end of the period
covered by this report to ensure that information required to be
disclosed in the reports we file and submit under the Exchange
Act is recorded, processed, summarized and reported as and when
required. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports we
file and submit under the Exchange Act is accumulated and
communicated to our management, including our chief executive
officer and our chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Internal
Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting that occurred during our last fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
This annual report on
Form 10-K
does not include a report of managements assessment
regarding internal control over financial reporting due to a
transition period established by the rules of the SEC for newly
public companies.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Amendment
to Advisory Agreement
On March 21, 2011, we entered into an amendment to the
Advisory Agreement with our advisor to (1) renew the
Advisory Agreement for an additional one-year term, expiring on
May 4, 2012, and (2) make certain clarifications with
respect to the terms and conditions of the deferral of the
payment of fees to our advisor. In particular, the amendment to
the Advisory Agreement clarifies that for purposes of
calculating the amount of fees that may be deferred pursuant to
the Advisory Agreement, the amount of distributions paid during
a fiscal quarter shall include the value of shares of our common
stock distributed pursuant to our distribution reinvestment
plan. Additionally, for purposes of calculating the difference
between adjusted funds from operations (as defined in the
Advisory Agreement) and the amount of distributions paid during
a measurement period, if adjusted funds from operations during
such period is negative, adjusted funds from operations shall be
deemed to be zero.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Our directors and executive officers and their positions and
offices are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Rodney F. Emery
|
|
|
60
|
|
|
Chairman of the Board, Chief Executive Officer and President
|
James M. Kasim
|
|
|
42
|
|
|
Chief Financial Officer and Treasurer
|
Ana Marie del Rio
|
|
|
56
|
|
|
Secretary
|
Scot B. Barker
|
|
|
62
|
|
|
Independent Director
|
Larry H. Dale
|
|
|
65
|
|
|
Independent Director
|
Jeffrey J. Brown
|
|
|
50
|
|
|
Independent Director
|
52
Rodney F. Emery serves as the Chairman of the Board,
Chief Executive Officer and President, a position he has held
since our inception in May 2009. Mr. Emery is the founder
of Steadfast Companies and is responsible for the corporate
vision, strategy and overall guidance of the operations of
Steadfast Companies. Mr. Emery chairs the Steadfast
Executive Committee, which establishes policy and strategy and
acts as the general oversight committee of Steadfast Companies.
Mr. Emery also serves on the Steadfast Companies Investment
Committee. Prior to founding Steadfast Companies in 1994,
Mr. Emery served for 17 years as the President of Cove
Properties, a diversified commercial real estate firm
specializing in property-management, construction and
development with a specialty in industrial properties.
Mr. Emery received a Bachelor of Science in Accounting from
the University of Southern California and serves on the board of
directors of several non-profits.
Our board of directors, excluding Mr. Emery, has determined
that the leadership positions previously and currently held by
Mr. Emery and Mr. Emerys extensive experience
acquiring, financing, developing and managing hotel,
multifamily, office, and retail real estate assets throughout
the country have provided Mr. Emery with the experience,
skills and attributes necessary to effectively carry out his
duties and responsibilities as a director. Consequently, our
board of directors has determined that Mr. Emery is a
highly qualified candidate for directorship and should therefore
continue to serve as one of our directors.
James M. Kasim serves as our Chief Financial Officer and
Treasurer, a position he has held since November 2010.
Mr. Kasim previously served as Chief Financial Officer of
Pacific Office Properties Trust, Inc. (NYSE Amex: PCE), a
publicly traded real estate investment trust, from February 2008
to September 2009. At Pacific Office Properties Trust,
Mr. Kasim was responsible for all areas of finance and
accounting and was integrally involved in the capital markets
initiatives of the company. Mr. Kasim also previously
served as President and Chief Operating Officer and Executive
Vice President and Chief Financial Officer of BentleyForbes, a
national private commercial real estate company with a portfolio
in excess of $2 Billion from September 2009 to May 2010 and from
June 2005 to July 2007, respectively. In addition,
Mr. Kasim previously served for approximately 11 years
with Ernst & Youngs Real Estate and Hospitality
practice. Mr. Kasim received a Bachelor of Science Degree
in Business Administration from California State University,
Northridge and a Masters in Business Administration, with
honors, from the Marshall School of Business at the University
of Southern California. Mr. Kasim is a Certified Public
Accountant and a member of the American Institute of Certified
Public Accountants and the California State Society of Certified
Public Accountants. Mr. Kasim has also served as Adjunct
Professor for the School of Policy, Planning and Development at
the University of Southern California in the Masters
Degree in Real Estate Development Program and continues to serve
as a guest lecturer for many of the University of Southern
Californias other programs.
Ana Marie del Rio serves as the Secretary and Compliance
Officer, a position she has held since our inception in May
2009. Ms. del Rio also serves as the Chief Operating Officer for
Steadfast Companies. Ms. del Rio manages the Human Resources,
Information Technology and Legal Services Departments for
Steadfast Companies and is responsible for risk management and
company-wide communications. She also works closely with
Steadfast Management Company, Inc. and SAH Affordable Housing,
Inc. in the management and operation of Steadfast
Companies residential units, especially in the area of
compliance. Prior to joining Steadfast Companies in April 2003,
Ms. del Rio was a partner in the public finance group at Orrick,
Herrington & Sutcliffe, LLP, where she practiced from
September 1993 to April 2003, representing both issuers and
underwriters in financing single-family and multifamily housing,
transportation projects, and other types of public-private and
redevelopment projects. From 1979 to 1993, Ms. del Rio co-owned
and operated a campaign consulting and research company
specializing in local campaigns and ballot measures. Ms. del Rio
received a Juris Doctor from the University of the Pacific,
McGeorge School of Law, and received a Master of Public
Administration and a Bachelor of Arts from the University of
Southern California.
Scot B. Barker serves as one of our independent
directors, a position he has held since September 2009. From
December 2002 to his retirement in December 2005,
Mr. Barker served as President and Chief Operating Officer
of GMAC Commercial Holding Corp., or GMACCH, one of the
nations largest financiers of commercial real estate, and
President of GMACCH Capital Markets Corp. During his tenure at
GMACCH, Mr. Barker oversaw the firms real estate
lending and investing activities in North America, Latin
America,
53
Asia and Europe. In 1978, Mr. Barker and several associates
formed Newman and Associates, Inc., an investment banking firm
specializing in financing affordable multifamily housing with
tax exempt municipal securities. Mr. Barker served as
Vice-President of Newman and Associates from 1978 to 1984 and as
President from 1984 to 1998, when Newman and Associates was
acquired by GMACCH. Prior to founding Newman and Associates,
Mr. Barker served as Vice-President with Gerwin &
Co. from 1973 to 1978. Mr. Barker has been involved in a
variety of professional and
not-for-profit
groups primarily focused on housing related business.
Mr. Barker currently serves on the board of directors of
the Rocky Mountain Mutual Housing Association and the Colorado
Housing Assistance Corporation, where he was a past chairman.
Mr. Barker was a past president of the National Housing and
Rehabilitation Association and a past member of the Federal
National Mortgage Association (Fannie Mae) Housing Impact
Advisory Council. Mr. Barker received a Bachelor of Arts
from Colorado College and a Master of Business Administration
from the University of Denver.
Our board of directors, excluding Mr. Barker, has
determined that the prior leadership positions which
Mr. Barker has held and Mr. Barkers extensive
experience with the financing of commercial real estate and
multifamily housing have provided Mr. Barker with the
experience, skills and attributes necessary to effectively carry
out his duties and responsibilities as a director. Consequently,
our board of directors has determined that Mr. Barker is a
highly qualified candidate for directorship and should therefore
continue to serve as one of our directors.
Larry H. Dale serves as one of our independent directors,
a position he has held since September 2009. In March 2009,
Mr. Dale retired as a Managing Director of Citi Community
Capital, or CCC, a leading investment banking group specializing
in affordable housing financing and a division of
Citigroups Municipal Securities Division, where
Mr. Dale was responsible for the overall management and
oversight of the operation of the division. As an employee of
CCC, Mr. Dale was involved in lending decisions and equity
sales with us. Mr. Dale joined the predecessor company to
CCC in 1997. From July 1987 to January 1997, Mr. Dale
served as a Senior Vice President of Federal National Mortgage
Association, or Fannie Mae. Prior to joining Fannie Mae,
Mr. Dale served from 1984 to 1987 as Vice President of
Newman and Associates, Inc., an investment banking firm focused
on financing affordable multifamily housing with tax exempt
municipal securities. Prior to joining Newman and Associates,
Mr. Dale served from 1981 to 1983 as President of Mid-City
Financial Corporation, a regional multifamily development,
financing, and management firm. From 1971 to 1981, Mr. Dale
was employed by the U.S. Department of Housing and Urban
Development (HUD), including service as a Deputy to the
Assistant Secretary for Housing/FHA Commissioner from 1979 to
1981. Mr. Dale currently serves as Chairman of the Board of
the National Equity Fund, Chairman of the Board of the Community
Preservation and Development Corporation, Vice-Chairman of Mercy
Housing Incorporateds Board of Trustees, a member of the
board of directors and the Executive Committee of the Local
Initiative Support Corporation and a member of the Advisory
Board of the Paramount Community Development Fund, the Capmark
Community Development Fund, the Mercy Loan Fund New Market
Tax Credit (NMTC) Advisory Board, the Community Impact NMTC
Advisory Board, and the Local Initiatives Support
Corporationss New Markets Support Companys Board of
Managers. Mr. Dale received a Bachelor of Science in
Materials Science from Cornell University and a Master of
Political Science from the Maxwell School at Syracuse University.
Our board of directors, excluding Mr. Dale, has determined
that the prior leadership positions which Mr. Dale has held
and Mr. Dales extensive experience in the investment
banking industry have provided Mr. Dale with the
experience, skills and attributes necessary to effectively carry
out his duties and responsibilities as a director. Consequently,
our board of directors has determined that Mr. Dale is a
highly qualified candidate for directorship and should therefore
continue to serve as one of our directors.
Jeffrey J. Brown serves as one of our independent
directors, a position he has held since September 2009.
Mr. Brown is the Chief Executive Officer and founding
member of Brown Equity Partners, LLC, or BEP, which provides
capital to management teams and companies needing equity of
$3 million to $20 million. Prior to founding BEP in
January 2007, Mr. Brown served as a founding partner and
primary deal originator of the venture capital and private
equity firm Forrest Binkley & Brown (FBB) from 1993 to
January 2007. In March 2005, SBIC Partners II, L.P., an
investment vehicle formed by FBB and licensed through the Small
Business Administration (SBA), voluntarily agreed to enter into
receivership after failing to meet various SBA capital
54
requirements. Prior to founding Forrest Binkley &
Brown, Mr. Brown served as a Senior Vice President of Bank
America Venture Capital Group from 1990 to 1993 and as a Senior
Vice President of Security Pacific Capital Corporation from 1987
to 1990. Mr. Brown also worked at the preferred stock desk
of Morgan Stanley & Co. from 1986 to 1987 and as a
software engineer at Hughes Aircraft Company from 1983 to 1985.
In his 22 years of venture capital and private equity
experience, Mr. Brown has served on the board of directors
of numerous public and private companies, and has served as the
chair of audit, compensation, finance and other special board
committees of such boards. Mr. Brown currently serves on
the board of directors of M Financial Holdings Incorporated,
Fieldstone Homes, Inc., Tail Activewear, Inc. and Glaspro, Inc.
Mr. Brown received a Bachelor of Science in Mathematics,
Summa Cum Laude, from Willamette University and a Master of
Business Administration from the Stanford University Graduate
School of Business.
Our board of directors, excluding Mr. Brown, has determined
that Mr. Browns extensive experience in the venture
capital and private equity industry and his prior service as a
director and as the chairman of audit, compensation, finance and
other special board committees of a number of public and private
companies have provided Mr. Brown with the experience,
skills and attributes necessary to effectively carry out his
duties and responsibilities as a director. Consequently, our
board of directors has determined that Mr. Brown is a
highly qualified candidate for directorship and should therefore
continue to serve as one of our directors.
The Audit
Committee
Our board of directors has established an audit committee. The
audit committees function is to assist our board of
directors in fulfilling its responsibilities by overseeing
(1) the integrity of our financial statements, (2) our
compliance with legal and regulatory requirements, (3) the
independent auditors qualifications and independence, and
(4) the performance of the independent auditors and our
internal audit function. The members of the audit committee are
Scot B. Barker, Larry H. Dale and Jeffrey J. Brown. All of the
members of the audit committee are independent as
defined by our charter and the New York Stock Exchange. All
members of the audit committee have significant financial
and/or
accounting experience. The board of directors has determined
that Mr. Brown satisfies the SECs requirements for
and serves as our audit committee financial expert.
Investment
Committee
Our board of directors has delegated to the investment committee
(1) certain responsibilities with respect to investment in
specific investments proposed by our advisor and (2) the
authority to review our investment policies and procedures on an
ongoing basis. The investment committee must at all times be
comprised of at least three members, a majority of whom must be
independent directors. The current members of the investment
committee are Rodney F. Emery, Scot B. Barker, Larry H. Dale and
Jeffrey J. Brown, with Mr. Emery serving as the chairman of
the investment committee.
With respect to investments, the investment committee has the
authority to approve all real property acquisitions,
developments and dispositions, including real property portfolio
acquisitions, developments and dispositions, as well as all
estate-related investments and all investments consistent with
our investment objectives, for a purchase price, total project
cost or sales price of up to 10% of the cost of our net assets
as of the date of investment.
Code of
Conduct and Ethics
We have adopted a Code of Ethics that applies to all of our
executive officers and directors, including but not limited to,
our principal executive officer and principal financial officer.
Our Code of Ethics can be found at
http://www.steadfastreits.com.
55
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Compensation
of Executive Officers
Our executive officers do not receive compensation directly from
us for services rendered to us. As a result, we do not nor has
our board of directors considered a compensation policy for our
executive officers and have not included a Compensation and
Discussion Analysis in this Annual Report on
Form 10-K.
Our executive officers are officers
and/or
employees of, or hold an indirect ownership interest in our
advisor,
and/or its
affiliates, and our executive officers are compensated by these
entities, in part, for their services to us. See Item 13,
Certain Relationships and Related Transactions, and
Director Independence Certain Transactions with
Related Persons for a discussion of the fees paid to our
advisor and its affiliates.
Compensation
of Directors
If a director is also one of our executive officers, we do not
pay any compensation to that person for services rendered as a
director. The amount and form of compensation payable to our
independent directors for their service to us is determined by
our board of directors, based upon recommendations from our
advisor. Three of our executive officers, Messrs. Emery and
Kasim and Ms. del Rio, manage and control our advisor, and
through the advisor, they are involved in recommending and
setting the compensation to be paid to our independent directors.
We have provided below certain information regarding
compensation earned by or paid to our directors during fiscal
year 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
Earned or
|
|
|
|
|
|
|
Paid in Cash in
|
|
All Other
|
|
|
Name
|
|
2010
|
|
Compensation(2)
|
|
Total
|
|
Scot B. Barker
|
|
$
|
58,872
|
|
|
$
|
84,621
|
|
|
$
|
143,493
|
|
Larry H. Dale
|
|
|
100,743
|
|
|
|
42,750
|
|
|
|
143,493
|
|
Jeffrey J. Brown
|
|
|
113,627
|
|
|
|
42,750
|
|
|
|
156,377
|
|
Rodney F. Emery(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Directors who are also our executive officers do not receive
compensation for services rendered as a director. |
|
(2) |
|
The amounts shown in this column reflect the aggregate fair
value computed as of the grant date in accordance with Financial
Accounting Standards Board Accounting Standards Codification
Topic 718, Compensation Stock Compensation. |
Cash
Compensation
We pay each of our independent directors:
|
|
|
|
|
an annual retainer of $65,000 (the audit committee chairperson
receives an initial $10,000 annual retainer);
|
|
|
|
$3,000 for each in-person board meeting attended;
|
|
|
|
$2,000 for each in-person committee meeting attended; and
|
|
|
|
$1,000 for each teleconference meeting of the board or committee.
|
Equity
Plan Compensation
We have approved and adopted an independent directors
compensation plan, which operates as a
sub-plan of
our long-term incentive plan. Under the independent
directors compensation plan and subject to such
plans conditions and restrictions, each of our current
independent directors was entitled to receive 5,000 shares
of restricted common stock in connection with the initial
meeting of the full board of directors.
56
Our board of directors, and each of the independent directors,
agreed to delay the initial grant of restricted stock until we
raised $2,000,000 in gross offering proceeds. On April 15,
2010, we raised $2,000,000 in gross offering proceeds in our
private offering and each independent director received his
initial grant of 5,000 shares of restricted stock. Going
forward, each new independent director that joins our board of
directors will receive 5,000 shares of restricted common
stock upon election to our board of directors. In addition, on
the date following an independent directors re-election to
our board of directors, he or she will receive 2,500 shares
of restricted common stock. The shares of restricted common
stock will generally 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; provided,
however, that the restricted stock will become fully vested and
non-forfeitable on the earlier to occur of (1) the
termination of the independent directors service as a
director due to his or her death or disability, or (2) a
change in control.
Compensation
Committee Interlocks and Insider Participation
We currently do not have a compensation committee of our board
of directors because we do not plan to pay any compensation to
our officers. There are no interlocks or insider participation
as to compensation decisions required to be disclosed pursuant
to SEC regulations.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Equity
Compensation Plan Information
The following table provides information about our common stock
that may be issued upon the exercise of options, warrants and
rights under our incentive award plan, as of December 31,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Number of Securities
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
Remaining Available for
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Future Issuance Under
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Equity Compensation Plans
|
|
|
Equity compensation plans approved by security holders:
|
|
|
|
|
|
$
|
|
|
|
|
985,000
|
|
Equity compensation plans not approved by security holders:
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
|
985,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Ownership of Certain Beneficial Owners
The following table shows, as of March 14, 2011, the amount
of our common stock beneficially owned (unless otherwise
indicated) by (1) any person who is known by us to be the
beneficial owner of more than 5% of the outstanding shares of
our common stock, (2) our directors, (3) our executive
officers, and (4) all of our directors and executive
officers as a group.
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of
|
|
|
|
|
Name and Address of Beneficial Owner
|
|
Beneficial Ownership(2)
|
|
|
Percentage
|
|
|
Rodney F. Emery(1)(3)
|
|
|
22,223
|
|
|
|
1.6
|
%
|
Scot B. Barker(1)
|
|
|
18,481
|
|
|
|
*
|
|
Larry H. Dale(1)
|
|
|
8,000
|
|
|
|
*
|
|
Jeffrey J. Brown(1)
|
|
|
5,000
|
|
|
|
*
|
|
James M. Kasim(1)
|
|
|
|
|
|
|
*
|
|
Ana Marie del Rio(1)
|
|
|
|
|
|
|
*
|
|
Dutch-Anglo Trading LP(4)
|
|
|
101,075
|
|
|
|
7.1
|
%
|
All officers and directors as a group
|
|
|
53,704
|
|
|
|
3.8
|
%
|
57
|
|
|
* |
|
Less than 1% of the outstanding common stock. |
|
(1) |
|
The address of the named beneficial owner is
c/o Steadfast
Income REIT, Inc., 18100 Von Karman Avenue, Suite 500,
Irvine, CA, 92612. |
|
(2) |
|
None of the shares are pledged as security. |
|
(3) |
|
Includes 22,223 shares owned by Steadfast REIT Investments,
LLC, which is primarily indirectly owned and controlled by
Rodney F. Emery. |
|
(4) |
|
Dutch-Anglo Trading LP is indirectly controlled by
Mr. Alastain Oldfield. The address for Mr. Oldfield is
c/o Dutch-Anglo
Trading LP, 16561 Carousel Lane, Huntington Beach, California
92649. |
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
Certain
Transactions with Related Persons
The following describes all transactions during the year ended
December 31, 2010 and currently proposed transactions
involving us, our directors, our advisor, our sponsor and any
affiliate thereof. Our independent directors are specifically
charged with and have examined the fairness of such transactions
to our stockholders, and have determined that all such
transactions are fair and reasonable to us.
Ownership
Interests
On June 12, 2009, our sponsor, Steadfast REIT Investments,
LLC, purchased 22,223 shares of our common stock for an
aggregate purchase price of $200,007 and was admitted as our
initial stockholder. Our sponsor is majority owned and
controlled by Rodney F. Emery, our chairman and chief executive
officer. On July 10, 2009, our advisor purchased
1,000 shares of our convertible stock for an aggregate
purchase price of $1,000. As of December 31, 2010, our
advisor owned 100% of our outstanding convertible stock. We are
the general partner of our operating partnership and our advisor
has made a $1,000 capital contribution to the operating
partnership as the initial limited partner.
Our convertible stock will convert to shares of common stock if
and when: (A) we have made total distributions on the then
outstanding shares of our 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) we list our common stock for trading on a
national securities exchange or (C) our Advisory Agreement
is terminated or not renewed (other than for cause
as defined in our Advisory Agreement). In the event of a
termination or non-renewal of our Advisory Agreement for cause,
the convertible stock will be redeemed by us for $1.00. In
general, each share of our convertible stock will convert into a
number of shares of common stock equal to 1/1000 of the quotient
of (A) 10% of the excess of (1) our enterprise
value plus the aggregate value of distributions paid to
date on the then outstanding shares of our common stock over
(2) the aggregate purchase price paid by stockholders for
those outstanding shares of common stock plus an 8.0%
cumulative, non-compounded, annual return on the original issue
price of those outstanding shares, divided by (B) our
enterprise value divided by the number of outstanding shares of
common stock on an as-converted basis, in each case calculated
as of the date of the conversion.
Our
Relationships with our Advisor and our Sponsor
Steadfast Income Advisor, LLC is our advisor and, as such,
supervises and manages our
day-to-day
operations and selects our real property investments and real
estate-related assets, subject to the oversight by our board of
directors. Our advisor also provides marketing, sales and client
services on our behalf. Our advisor is owned by our sponsor.
Mr. Rodney F. Emery, our chairman and chief executive
officer, indirectly controls our sponsor, our advisor and our
dealer manager. Ms. del Rio, our Secretary, owns an indirect 7%
interest in our sponsor, advisor and dealer manager. All of our
other officers and directors, other than our independent
directors, are officers of our advisor and officers, limited
partners
and/or
members of our sponsor
58
and other affiliates of our advisor. Services provided by our
advisor under the terms of the Advisory Agreement include the
following:
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finding, presenting and recommending investment opportunities to
us consistent with our investment policies and objectives;
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making investment decisions for us, subject to the limitations
in our charter and the direction and oversight of our board of
directors;
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structuring the terms and conditions of our investments, sales
and joint ventures;
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acquiring investments on our behalf in compliance with our
investment objectives and policies;
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sourcing and structuring our loan originations;
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arranging for financing and refinancing of investments;
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entering into service agreements for our loans;
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supervising and evaluating each loan servicers and
property managers performance;
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reviewing and analyzing the operating and capital budgets of the
properties underlying our investments and the properties we may
acquire;
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entering into leases and service contracts for our properties;
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assisting us in obtaining insurance;
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generating our annual budget;
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reviewing and analyzing financial information for each of our
assets and our overall investment portfolio;
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formulating and overseeing the implementation of strategies for
the administration, promotion, management, financing and
refinancing, marketing, servicing and disposition of our
investments;
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performing investor relations services;
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maintaining our accounting and other records and assisting us in
filing all reports required to be filed with the SEC, the
Internal Revenue Service and other regulatory agencies;
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engaging and supervising the performance of our agents,
including our registrar and transfer agent; and
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performing any other services reasonably requested by us.
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The above summary is provided to illustrate the material
functions that our advisor performs for us as an advisor and is
not intended to include all of the services that may be provided
to us by our advisor, its affiliates or third parties.
Fees
and Expense Reimbursements Paid to our Advisor
Pursuant to the terms of our Advisory Agreement, we pay our
advisor the fees described below.
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We pay our advisor an acquisition fee of 2.0% of (1) the
purchase price in connection with the acquisition or origination
of any type of real property or real estate-related asset or
(2) our 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. For the year ended
December 31, 2010, we incurred acquisition fees of $357,637
in connection with the acquisition of the Lincoln Tower property
and the Park Place property. However, $134,995 of such fee has
been deferred pursuant to the terms of the Advisory Agreement
until our cumulative adjusted funds from operations (as defined
in the Advisory Agreement) exceed the lesser of (1) the
cumulative amount of any distributions paid to our stockholders
as of the date of reimbursement of the deferred fee or
(2) distributions (including the value of shares issued
pursuant to our distribution reinvestment plan)
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59
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equal to a 7.0% cumulative, non-compounded, annual return on
invested capital to our stockholders as of the date of
reimbursement.
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We pay our advisor an annual investment management fee that is
payable monthly in an amount equal to one-twelfth of 0.8% of the
cost of all assets we own and of our investments in joint
ventures, including acquisition fees, origination fees,
acquisition and origination expenses and any debt attributable
to such investments. For the year ended December 31, 2010,
we incurred an investment management fee to our advisor of
$31,841 which has been deferred pursuant to the terms of the
Advisory Agreement.
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We pay our advisor a disposition fee of 1.5% of the contract
sales price of each property sold if our advisor or its
affiliates provides a substantial amount of services, as
determined by our independent directors, in connection with the
sale of a real property or real estate-related asset. With
respect to a property held in a joint venture, the foregoing
commission will be reduced to a percentage of such amounts
reflecting our economic interest in the joint venture. For the
year ended December 31, 2010, we did not pay our advisor
any disposition fees.
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In addition to the fees we pay to our advisor pursuant to the
Advisory Agreement, we also reimburse our advisor and its
affiliates for the costs and expenses described below, subject
to the limitations described under the heading 2%/25%
Guidelines.
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We reimburse our advisor and its affiliates for organization and
offering expenses, for actual legal, accounting, printing
mailing and filing fees, charges of our transfer agent, expenses
of organizing the company, data processing fees, advertising and
sales literature costs, information technology costs, bona
fide out
of-of-pocket
due diligence costs, and other costs in connection with
preparing supplemental sales materials and providing other
administrative services in connection with the our offerings.
Any such reimbursement will not exceed actual expenses incurred
by our advisor. After the termination of the initial public
offering, our advisor has agreed to reimburse us to the extent
selling commissions, dealer manager fees and organization and
offering expenses borne by us exceed 15% of the gross proceeds
raised in our offerings. For the year ended December 31,
2010, we paid our advisor $690,083 for the reimbursement of
organization and offering expenses. As of December 31,
2010, our advisor and its affiliates have incurred organization
and offering costs of $4,089,406 which are not recorded in our
financial statements as of December 31, 2010 because such
costs only become a liability of ours when shares are sold and
selling commissions, the dealer manager fee and other
organization and offering costs do not exceed 15% of gross
offering proceeds.
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We reimburse our advisor for the cost of administrative
services, including personnel costs and our allocable share of
other overhead of the advisor such as rent and utilities;
provided, however, that no reimbursement shall be made for costs
of such personnel to the extent that personnel are used in
transactions for which our advisor receives an acquisition fee,
investment management fee or disposition fee or for the employee
costs our advisor pays to our executive officers. For the year
ended December 31, 2010, no amounts were paid to our
advisor for administrative services.
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We reimburse our advisor for acquisition expenses incurred
related to the selection and acquisition of real property
investments and real estate-related investments. For the year
ended December 31, 2010, we paid our advisor $101,753 for
acquisition expenses.
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2%/25%
Guidelines
As described above, our advisor and its affiliates are entitled
to reimbursement of actual expenses incurred for administrative
and other services provided to us for which they do not
otherwise receive a fee. However, we will not reimburse our
advisor or its affiliates at the end of any fiscal quarter for
total operating expenses that for the four
consecutive fiscal quarters then ended, or the Expense Year,
exceeded the greater of (1) 2% of our average invested
assets or (2) 25% of our net income, which we refer to as
the 2%/25% Guidelines, and our advisor must
reimburse us quarterly for any amounts by which our total
operating expenses exceed the 2%/25% Guidelines in the Expense
Year, unless our independent directors have
60
determined that such excess expenses were justified based on
unusual and non-recurring factors. Commencing upon the fourth
fiscal quarter following the fiscal quarter ended March 31,
2010, our advisor must reimburse us for the amount by which our
operating expenses for the proceeding four fiscal quarters then
ended exceed the 2%/25% Guidelines.
Total operating expenses means all costs and
expenses paid or incurred by us, as determined under generally
accepted accounting principles, that are in any way related to
our operation or to corporate business, including advisory fees,
but excluding (1) 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,
registration and the listing of our shares of common stock,
(2) interest payments, (3) taxes, (4) non-cash
expenditures such as depreciation, amortization and bad debt
reserves, (5) incentive fees, (6) acquisition fees and
acquisition expenses, (7) real estate commissions on the
sale of a real property, and (8) other fees and expenses
connected with the acquisition, disposition, management and
ownership of real estate interests, mortgage loans or other
property (including the costs of foreclosure, insurance
premiums, legal services, maintenance, repair, and improvement
of property).
Our Advisory Agreement has a one-year term expiring May 4,
2012, subject to an unlimited number of successive one-year
renewals upon mutual consent of the parties. We may terminate
the Advisory Agreement without penalty upon 60 days
written notice. If we terminate the Advisory Agreement, we will
pay our advisor all unpaid advances for operating expenses and
all earned but unpaid fees.
For the year ended December 31, 2010, our total operating
expenses as a percentage of average invested assets were 8.9%.
Selling
Commissions and Fees Paid to our Dealer Manager
The dealer manager for our offerings of common stock is
Steadfast Capital Markets Group, LLC, an affiliate of our
sponsor. Our dealer manager is a licensed broker-dealer
registered with FINRA. As the dealer manager for our offering,
Steadfast Capital Markets Group is entitled to certain selling
commissions, dealer manager fees and reimbursements relating to
raising capital. Our Dealer Manager Agreement with Steadfast
Capital Markets Group provides for the following compensation:
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We pay our dealer manager selling commissions of up to 6.5% of
the gross offering proceeds from the sale of our shares in the
private and public offerings, all of which may be reallowed to
participating broker-dealers. For the year ended
December 31, 2010, we paid $584,962 in selling commissions
to our dealer manager.
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We pay our dealer manager a dealer manager fee of 3.5% of the
gross offering proceeds from the sale of our shares in the
private and public offerings, a portion of which may be
reallowed to participating broker-dealers. For the year ended
December 31, 2010, we paid $342,080 in dealer manager fees
to our dealer manager.
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We reimburse our dealer manager for salaries and related
benefits for certain organizational and offering services
performed on behalf of the Advisor that are not for distribution
related services. Reimbursement of these amounts, combined with
the reimbursement of all other organizational and offering
costs, shall not exceed 15% of the gross proceeds raised in our
initial public offering. As of December 31, 2010, $872,662
of compensation and related benefits incurred by our dealer
manager is included in the $5,713,747 of total organizational
and offering expenses incurred by the advisor and affiliates.
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Property
Management Fees Paid to Our Property Manager
We have entered into property management agreements with
Steadfast Management Company, Inc., or the property manager, an
affiliate of our sponsor, with respect to the management of each
of the Lincoln Tower property and the Park Place property.
Pursuant to the management agreement, we pay the property
manager a monthly management fee in an amount equal to 3.5% of
each of the Lincoln Tower propertys and
61
Park Place propertys gross revenues (as defined in the
respective management agreements) for each month. Each
management agreement has an initial one year term and will
continue thereafter on a
month-to-month
basis unless either party gives prior notice of its desire to
terminate the management agreement, provided that we may
terminate the management agreement at any time without cause
upon thirty (30) days prior written notice to the property
manager. For the year ended December 31, 2010, we have paid
property management fees of $23,202 to our property manager.
Currently
Proposed Transactions
Other than as described above, there is no currently proposed
material transactions with related persons other than those
covered by the terms of the agreements described above.
Policies
and Procedures for Transactions with Related Persons
In order to reduce or eliminate certain potential conflicts of
interest, our charter and our Advisory Agreement contain
restrictions and conflict resolution procedures relating to
transactions we enter into with our advisor, our directors or
their respective affiliates. Each of the restrictions and
procedures that apply to transactions with our advisor and its
affiliates will also apply to any transaction with any entity or
real estate program controlled by our advisor and its
affiliates. As a general rule, any related party transaction
must be approved by a majority of the directors (including a
majority of independent directors) not otherwise interested in
the transaction. In determining whether to approve or authorize
a particular related party transaction, these persons will
consider whether the transaction between us and the related
party is fair and reasonable to us and has terms and conditions
no less favorable to us than those available from unaffiliated
third parties.
We have also adopted a Code of Ethics that applies to each of
our officers and directors, of which we refer to as
covered persons. The Code of Ethics sets forth
certain conflicts of interest policies that limit and govern
certain matters among us, the covered persons, our advisor and
their respective affiliates.
Director
Independence
Although our shares are not listed for trading on any national
securities exchange, a majority of the members of our board of
directors, and all of the members of the audit committee are
independent as defined by the New York Stock
Exchange. The New York Stock Exchange standards provide that to
qualify as an independent director, in addition to satisfying
certain bright-line criteria, the board of directors must
affirmatively determine that a director has no material
relationship with us (either directly or as a partner,
stockholder or officer of an organization that has a
relationship with us). In addition, we have determined that
these directors are independent pursuant to the definition of
independence in our charter, which is based on the definition
included in the North American Securities Administrators
Association, Inc.s Statement of Policy Regarding Real
Estate Investment Trusts, as revised and adopted on May 7,
2007. The board of directors has determined that Scot B. Barker,
Larry H. Dale and Jeffrey J. Brown each satisfies the
bright-line criteria and that none has a relationship with us
that would interfere with such persons ability to exercise
independent judgment as a member of the board of directors. None
of these directors has ever served as (or is related to) an
employee of ours or any of our predecessors or acquired
companies or received any compensation from us or any such other
entities except for compensation directly related to service as
a director. Therefore, we believe that all of these directors
are independent directors.
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ITEM 14.
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PRINCIPAL
ACCOUNTING FEES AND SERVICES
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Independent
Registered Public Accounting Firm
During the year ended December 31, 2010 and 2009,
Ernst & Young LLP, or Ernst & Young, served
as our independent registered public accounting firm and
provided certain tax and other services. Ernst & Young
has served as our independent auditor since our formation.
62
Pre-Approval
Policies
The audit committee charter imposes a duty on the audit
committee to pre-approve all auditing services performed for us
by our independent auditors as well as all permitted non-audit
services in order to ensure that the provision of such services
does not impair the auditors independence. In determining
whether or not to pre-approve services, the audit committee will
consider whether the service is a permissible service under the
rules and regulations promulgated by the SEC. The audit
committee, may, in its discretion, delegate to one or more of
its members the authority to pre-approve any audit or non-audit
services to be performed by the independent auditors, provided
any such approval is presented to and approved by the full audit
committee at its next scheduled meeting.
All services rendered by Ernst & Young for the years
ended December 31, 2010 and 2009 were pre-approved in
accordance with the policies and procedures described above.
Principal
Independent Registered Public Accounting Firm Fees
The audit committee reviewed the audit and non-audit services
performed by Ernst & Young, as well as the fees
charged by Ernst & Young for such services. In its
review of the non-audit service fees, the audit committee
considered whether the provision of such services is compatible
with maintaining the independence of Ernst & Young.
The aggregate fees billed to us for professional accounting
services, including the audit of our annual financial statements
by Ernst & Young for the years ended December 31,
2010 and 2009 are set forth in the table below.
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2010
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2009
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Audit fees
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$
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328,542
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$
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165,119
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Audit-related fees
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53,017
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1,995
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Tax fees
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All other fees
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1,865
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9,168
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Total
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$
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383,424
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$
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176,282
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For purposes of the preceding table, Ernst &
Youngs professional fees are classified as follows:
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Audit fees These are fees for professional
services performed for the audit of our annual financial
statements and the required review of quarterly financial
statements and other procedures performed by Ernst &
Young in order for them to be able to form an opinion on our
consolidated financial statements. These fees also cover
services that are normally provided by independent auditors in
connection with statutory and regulatory filings or engagements.
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Audit-related fees These are fees for
assurance and related services that traditionally are performed
by independent auditors that are reasonably related to the
performance of the audit or review of the financial statements,
such as due diligence related to acquisitions and dispositions,
attestation services that are not required by statute or
regulation, internal control reviews and consultation concerning
financial accounting and reporting standards.
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Tax fees These are fees for all professional
services performed by professional staff in our independent
auditors tax division, except those services related to
the audit of our financial statements. These include fees for
tax compliance, tax planning and tax advice, including federal,
state and local issues. Services may also include assistance
with tax audits and appeals before the Internal Revenue Service
and similar state and local agencies, as well as federal, state
and local tax issues related to due diligence.
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All other fees These are fees for any
services not included in the above-described categories.
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63
PART IV
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ITEM 15.
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EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
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(a)
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Financial
Statement Schedules
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See the Index to Financial Statements at
page F-1
of this report.
The following financial statement schedule is included herein at
pages F-31 through F-32 of this report:
Schedule III Real Estate Assets and Accumulated
Depreciation and Amortization
EXHIBIT LIST
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Exhibit
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Description
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3
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.1
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Second Articles of Amendment and Restatement of Steadfast Income
REIT, Inc. (incorporated by reference to Exhibit 3.1 to
Pre-Effective Amendment No. 4 to the Registrants
Registration Statement on
Form S-11,
filed May 6, 2010, Commission File
No. 333-160748
(Pre-Effective Amendment No. 4))
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3
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.2
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Bylaws of Steadfast Secure Income REIT, Inc. (incorporated by
reference to Exhibit 3.2 to the Registrants
Registration Statement on
Form S-11,
filed July 23, 2009, Commission File
No. 333-160748)
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4
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.1
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Form of Subscription Agreement (incorporated by reference to
Appendix B to the prospectus, dated July 9, 2010 of
the Registrant)
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4
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.2
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Form of Distribution Reinvestment Plan (incorporated by
reference to Appendix C to the prospectus, dated
July 9, 2010, of the Registrant)
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10
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.1
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Amended and Restated Advisory Agreement, dated as of May 4,
2010, by and among Steadfast Income REIT, Inc., Steadfast Secure
Income REIT Operating Partnership, L.P. and Steadfast Income
Advisor, LLC (incorporated by reference to Exhibit 10.1 to
Pre- Effective Amendment No. 4)
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10
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.2
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Amendment No. 1 to Advisory Agreement dated as of
March 21, 2011, by and among Steadfast Income REIT, Inc.,
Steadfast Income REIT Operating Partnership, L.P. and Steadfast
Income Advisor, LLC.
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10
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.3
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Limited Partnership Agreement of Steadfast Secure Income REIT
Operating Partnership, L.P. (incorporated by reference to
Exhibit 10.3 to Pre-Effective Amendment No. 1 to the
Registrants Registration Statement on
Form S-11,
filed October 15, 2009, Commission File
No. 333-160748
(Pre-Effective Amendment No. 1)
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10
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.4
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Steadfast Secure Income REIT, Inc. 2009 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.4 to Pre-Effective
Amendment No. 1)
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10
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.5
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Steadfast Secure Income REIT, Inc. Independent Directors
Compensation Plan (incorporated by reference to
Exhibit 10.5 to Pre-Effective Amendment No. 1)
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10
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.6
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Form of Restricted Stock Award Certificate (incorporated by
reference to Exhibit 10.6 to Pre-Effective Amendment
No. 4)
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10
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.7
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Purchase Agreement, dated as of March 25, 2010, by and
between Chicago Title Land Trust Company, as Trustee
under Trust Number
51-0615-0
dated August 15, 1967, an Illinois Land Trust by Towne
Realty, Inc. d/b/a Lincoln Tower, Inc. as authorized beneficiary
and Steadfast Asset Holdings, Inc. (incorporated by reference to
Exhibit 10.7 to Post-Effective Amendment No. 1, filed
November 12, 2010, Commission File
No. 333-160748
(Post-Effective Amendment No. 1))
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10
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.8
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First Amendment to Purchase Agreement, dated as of May 14,
2010, by and between Chicago Title Land Trust Company,
as Trustee under Trust Number
51-0615-0
dated August 15, 1967, an Illinois Land Trust by Towne
Realty, Inc. d/b/a Lincoln Tower, Inc. as authorized beneficiary
and Steadfast Asset Holdings, Inc. (incorporated by reference to
Exhibit 10.8 to Post-Effective Amendment No. 1)
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64
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Exhibit
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Description
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10
|
.9
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Assignment and Assumption of Purchase Agreement, dated as of
August 10, 2010, by and between Steadfast Asset Holdings,
Inc. and SIR Lincoln Tower, LLC. (incorporated by reference to
Exhibit 10.9 to Post-Effective Amendment No. 1)
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10
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.10
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Purchase Money Note, dated August 11, 2010, issued by SIR
Lincoln Tower, LLC in favor of Towne Realty, Inc. d/b/a Lincoln
Tower, Inc. (including attached Acknowledgment and Agreement of
Key Principal to Personal Liability For Exceptions to
Non-Recourse Liability by Steadfast Income REIT, Inc.)
(incorporated by reference to Exhibit 10.10 to
Post-Effective Amendment No. 1)
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10
|
.11
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Purchase Money Mortgage, Assignment of Rents, Leases and
Security Agreement, dated as of August 11, 2010, by and
between SIR Lincoln Tower, LLC and Towne Realty, Inc. d/b/a
Lincoln Tower, Inc. (incorporated by reference to
Exhibit 10.11 to Post-Effective Amendment No. 1)
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10
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.12
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Property Management Agreement, entered into as of
August 11, 2010, by and between SIR Lincoln Tower, LLC and
Steadfast Management Co., Inc. (incorporated by reference to
Exhibit 10.12 to Post-Effective Amendment No. 1)
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10
|
.13
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Assignment and Assumption Agreement, dated December 15,
2010, by and between Steadfast Asset Holdings, Inc. and SIR Park
Place, LLC (incorporated by reference to Exhibit 10.1 to
the Registrants Current Report on
Form 8-K
filed December 17, 2010)
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10
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.14
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Purchase and Sale Agreement and Joint Escrow Instructions, dated
September 7, 2010, by and between Park Place Condo, LLC and
Steadfast Asset Holdings, Inc. (incorporated by reference to
Exhibit 10.2 to the Registrants Current Report on
Form 8-K
filed December 17, 2010)
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10
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.15
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First Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions, dated October 20, 2010, by and between Park
Place Condo, LLC and Steadfast Asset Holdings, Inc.
(incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K
filed December 17, 2010)
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10
|
.16
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Second Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions, dated November 22, 2010, by and between Park
Place Condo, LLC and Steadfast Asset Holdings, Inc.
(incorporated by reference to Exhibit 10.4 to the
Registrants Current Report on
Form 8-K
filed December 17, 2010)
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10
|
.17
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Third Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions, dated November 22, 2010, by and between Park
Place Condo, LLC and Steadfast Asset Holdings, Inc.
(incorporated by reference to Exhibit 10.5 to the
Registrants Current Report on
Form 8-K
filed December 17, 2010)
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10
|
.18
|
|
Fourth Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions, dated December 10, 2010, by and between Park
Place Condo, LLC and Steadfast Asset Holdings, Inc. LLC
(incorporated by reference to Exhibit 10.6 to the
Registrants Current Report on
Form 8-K
filed December 17, 2010)
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10
|
.19
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|
Loan Agreement, dated as of December 22, 2010, by and
between SIR Park Place, LLC, Steadfast Income REIT, Inc. and
Ames Community Bank (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed December 29, 2010)
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10
|
.20
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|
Promissory Note, dated December 22, 2010, issued by SIR
Park Place, LLC in favor of Ames Community Bank (incorporated by
reference to Exhibit 10.2 to the Registrants Current
Report on
Form 8-K
filed December 29, 2010)
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10
|
.21
|
|
Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing Statement, dated as of December 22, 2010, by
and between SIR Park Place, LLC and Ames Community Bank
(incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K
filed December 29, 2010)
|
|
10
|
.22
|
|
Guaranty, dated as of December 22, 2010, by and between
Steadfast Income REIT, Inc. and Ames Community Bank
(incorporated by reference to Exhibit 10.4 to the
Registrants
Form 8-K
filed December 29, 2010)
|
|
10
|
.23
|
|
Assignment of Management Agreement, dated as of
December 22, 2010, by and between SIR Park Place, LLC and
Ames Community Bank (incorporated by reference to
Exhibit 10.5 to the Registrants Current Report on
Form 8-K
filed December 29, 2010)
|
65
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.24
|
|
Environmental and Hazardous Substance Indemnification Agreement,
dated as of December 22, 2010, by and between SIR Park
Place, LLC and Ames Community Bank (incorporated by reference to
Exhibit 10.6 to the Registrants Current Report on
Form 8-K
filed December 29, 2010)
|
|
10
|
.25
|
|
Property Management Agreement, dated as of December 22,
2010, by and between SIR Park Place, LLC and Steadfast
Management Co., Inc. (incorporated by reference to
Exhibit 10.7 to the Registrants Current Report on
Form 8-K
filed December 29, 2010)
|
|
21
|
|
|
Subsidiaries of the Company
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002
|
SUPPLEMENTAL
INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE
ACT.
The registrant has not sent an annual report or proxy materials
to its stockholders. The registrant will furnish each
stockholder with an annual report within 120 days following
the close of each fiscal year. The registrant will furnish
copies of such report and proxy materials to the Securities and
Exchange Commission when they are sent to stockholders.
66
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
|
|
Financial Statement Schedule
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
|
|
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Steadfast Income REIT, Inc.
We have audited the accompanying consolidated balance sheets of
Steadfast Income REIT, Inc. (the Company) as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, equity, and cash flows for the year
ended December 31, 2010 and the period from May 4,
2009 (inception) to December 31, 2009. Our audits also
included the financial statement schedule in Item 15(a),
Schedule III-Real
Estate Assets and Accumulated Depreciation and Amortization.
These financial statements and schedule are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Steadfast Income REIT, Inc. at
December 31, 2010 and 2009, and the consolidated results of
its operations and its cash flows for the year ended
December 31, 2010 and the period from May 4, 2009
(inception) to December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.
Irvine, California
March 21, 2011
F-2
STEADFAST
INCOME REIT, INC.
(FORMERLY STEADFAST SECURE INCOME REIT, INC.)
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
ASSETS
|
Assets:
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
758,600
|
|
|
$
|
|
|
Building and improvements
|
|
|
15,569,680
|
|
|
|
|
|
Tenant origination and absorption costs
|
|
|
1,224,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate, cost
|
|
|
17,552,324
|
|
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
(540,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate, net
|
|
|
17,011,752
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2,858,197
|
|
|
|
202,007
|
|
Rents and other receivables
|
|
|
119,210
|
|
|
|
|
|
Deferred financing costs and other assets, net
|
|
|
182,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
20,171,682
|
|
|
$
|
202,007
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
831,501
|
|
|
$
|
|
|
Notes payable
|
|
|
11,650,000
|
|
|
|
|
|
Distributions payable
|
|
|
63,566
|
|
|
|
|
|
Due to affiliates, net
|
|
|
381,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,926,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Redeemable common stock
|
|
|
57,827
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share;
100,000 shares authorized, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share;
999,999,000 shares authorized, 1,184,283 and
22,223 shares issued and outstanding at December 31,
2010 and December 31, 2009, respectively
|
|
|
11,843
|
|
|
|
222
|
|
Convertible stock, $0.01 par value per share;
1,000 shares issued and outstanding as of December 31,
2010 and December 31, 2009
|
|
|
10
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
9,568,008
|
|
|
|
200,775
|
|
Cumulative distributions and net losses
|
|
|
(2,392,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,186,878
|
|
|
|
201,007
|
|
Noncontrolling interest
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
7,186,878
|
|
|
|
202,007
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
20,171,682
|
|
|
$
|
202,007
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
STEADFAST
INCOME REIT, INC.
(FORMERLY STEADFAST SECURE INCOME REIT, INC.)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period from
|
|
|
|
|
|
|
May 4, 2009
|
|
|
|
For the Year Ended
|
|
|
(Inception) to
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
778,387
|
|
|
$
|
|
|
Tenant reimbursements and other
|
|
|
49,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
828,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating, maintenance and management
|
|
|
297,251
|
|
|
|
|
|
Real estate taxes and insurance
|
|
|
138,181
|
|
|
|
|
|
Fees to affiliates
|
|
|
419,694
|
|
|
|
|
|
Depreciation and amortization
|
|
|
540,572
|
|
|
|
|
|
Interest expense
|
|
|
163,987
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,108,220
|
|
|
|
|
|
Other acquisition costs
|
|
|
323,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,991,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,163,581
|
)
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(2,162,581
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(4.27
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding basic and diluted
|
|
|
506,003
|
|
|
|
22,223
|
|
|
|
|
|
|
|
|
|
|
Distributions declared
|
|
$
|
230,402
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per common share
|
|
$
|
0.272
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
STEADFAST
INCOME REIT, INC.
(FORMERLY STEADFAST SECURE INCOME REIT, INC.)
CONSOLIDATED
STATEMENTS OF EQUITY
FOR THE
PERIOD FROM MAY 4, 2009 (INCEPTION) TO DECEMBER 31, 2009
AND FOR THE YEAR ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Distributions
|
|
|
Stock-
|
|
|
Non-
|
|
|
|
|
|
|
Common Stock
|
|
|
Convertible Stock
|
|
|
Paid-in
|
|
|
and Net
|
|
|
holders
|
|
|
Controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Losses
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
BALANCE, May 4, 2009 (Inception)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Issuance of common stock
|
|
|
22,223
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
199,785
|
|
|
|
|
|
|
|
200,007
|
|
|
|
|
|
|
|
200,007
|
|
Issuance of convertible stock
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
10
|
|
|
|
990
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
Contribution from noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2009
|
|
|
22,223
|
|
|
|
222
|
|
|
|
1,000
|
|
|
|
10
|
|
|
|
200,775
|
|
|
|
|
|
|
|
201,007
|
|
|
|
1,000
|
|
|
|
202,007
|
|
Issuance of common stock
|
|
|
1,162,060
|
|
|
|
11,621
|
|
|
|
|
|
|
|
|
|
|
|
10,893,889
|
|
|
|
|
|
|
|
10,905,510
|
|
|
|
|
|
|
|
10,905,510
|
|
Transfers to redeemable common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,827
|
)
|
|
|
|
|
|
|
(57,827
|
)
|
|
|
|
|
|
|
(57,827
|
)
|
Commissions on sales of common stock and related dealer manager
fees to affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(927,042
|
)
|
|
|
|
|
|
|
(927,042
|
)
|
|
|
|
|
|
|
(927,042
|
)
|
Other offering costs to affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(596,561
|
)
|
|
|
|
|
|
|
(596,561
|
)
|
|
|
|
|
|
|
(596,561
|
)
|
Distributions declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(230,402
|
)
|
|
|
(230,402
|
)
|
|
|
|
|
|
|
(230,402
|
)
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,774
|
|
|
|
|
|
|
|
54,774
|
|
|
|
|
|
|
|
54,774
|
|
Net loss for the year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,162,581
|
)
|
|
|
(2,162,581
|
)
|
|
|
(1,000
|
)
|
|
|
(2,163,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2010
|
|
|
1,184,283
|
|
|
$
|
11,843
|
|
|
|
1,000
|
|
|
$
|
10
|
|
|
$
|
9,568,008
|
|
|
$
|
(2,392,983
|
)
|
|
$
|
7,186,878
|
|
|
$
|
|
|
|
$
|
7,186,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
STEADFAST
INCOME REIT, INC.
(FORMERLY STEADFAST SECURE INCOME REIT, INC.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period from
|
|
|
|
|
|
|
May 4, 2009
|
|
|
|
For the Year Ended
|
|
|
(Inception) to
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,163,581
|
)
|
|
$
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
540,572
|
|
|
|
|
|
Amortization of deferred finance costs
|
|
|
1,110
|
|
|
|
|
|
Stock-based compensation
|
|
|
96,646
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Rent and related receivables
|
|
|
(25,685
|
)
|
|
|
|
|
Other assets
|
|
|
(111,134
|
)
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
831,501
|
|
|
|
|
|
Due to affiliates, net
|
|
|
374,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(455,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisition of real estate investments
|
|
|
(10,900,000
|
)
|
|
|
|
|
Additions to real estate investments
|
|
|
(2,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,902,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable
|
|
|
5,000,000
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
10,735,413
|
|
|
|
202,700
|
|
Payments of commissions on sales of common stock and related
dealer manager fees
|
|
|
(927,042
|
)
|
|
|
|
|
Reimbursement of other offering costs to affiliates
|
|
|
(589,345
|
)
|
|
|
|
|
Distributions paid to common stockholders
|
|
|
(132,136
|
)
|
|
|
|
|
Payment of deferred financing costs
|
|
|
(72,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
14,014,390
|
|
|
|
202,700
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
2,656,190
|
|
|
|
202,700
|
|
Cash and cash equivalents, beginning of period
|
|
|
202,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,858,197
|
|
|
$
|
202,700
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
129,627
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Noncash Transactions:
|
|
|
|
|
|
|
|
|
Increase in distributions payable
|
|
$
|
63,566
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of notes payable to acquire real estate
|
|
$
|
6,650,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to common stockholders through common stock
issuances pursuant to the distribution reinvestment plan
|
|
$
|
34,700
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010
|
|
1.
|
Organization
and Business
|
Steadfast Income REIT, Inc. (formerly Steadfast Secure Income
REIT, Inc.) (the Company) was formed on May 4,
2009, as a Maryland corporation that intends to qualify 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
Advisors, LLC, a Delaware limited liability company formed on
May 1, 2009 (the Advisor), invested $1,000 in
the Company in exchange for 1,000 shares of convertible
stock (the Convertible Stock) as described in
Note 7.
Substantially all of the Companys business is conducted
through Steadfast Income REIT Operating Partnership, L.P., a
Delaware limited partnership formed on July 6, 2009 (the
Operating Partnership). The Company is the sole
general partner of, and owns a 0.01% partnership interest in,
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. Pursuant to the Partnership Agreement,
the Company contributes funds as necessary to the Operating
Partnership.
Private
Offering
On October 13, 2009, the Company commenced a private
offering of up to $94,000,000 in shares of the Companys
common stock, subject to an option to increase the offering by
up to $18,800,000 in shares of common stock, at a purchase price
of $9.40 per share (with discounts available for certain
categories of purchasers) (the Private Offering).
The Company offered its shares of common stock for sale in the
Private Offering pursuant to a confidential private placement
memorandum and only to persons that were accredited
investors, as that term is defined under the Securities
Act of 1933, as amended, and Regulation D promulgated
thereunder. On July 9, 2010, the Company terminated the
Private Offering and on July 19, 2010 the Company commenced
its registered public offering described below. The Company sold
637,279 shares of common stock in the Private Offering for
gross proceeds of $5,844,325. As of December 31, 2009, no
shares had been sold in the Private Offering.
Pubic
Offering
On July 23, 2009, the Company filed a registration
statement on
Form S-11
with the Securities and Exchange Commission (the
SEC) to offer a maximum of 150,000,000 shares
of common stock for sale to the public at an initial price of
$10.00 per share (with discounts available for certain
categories of purchasers) (the Public Offering). The
Company is also offering up to 15,789,474 shares of common
stock pursuant to the Companys distribution reinvestment
plan (the DRP) at an initial price of $9.50 per
share. The SEC declared the Companys registration
statement effective on July 9, 2010. The Company commenced
its Public Offering on July 19, 2010. If the Company
extends the Public Offering beyond two years from the date the
registration statement was declared effective, the
Companys board of directors may, from time to time, in its
sole discretion, change the price at which the Company offers
shares to the public in the Public Offering or to its
stockholders pursuant to the DRP to reflect changes in the
Companys estimated net asset value per share and other
factors that the Companys board of directors deems
relevant. The Company may reallocate the shares between the
Public Offering and the DRP. As of December 31, 2010, the
Company had sold 504,998 shares of common stock in the
Public Offering for gross proceeds of $5,019,314, including
3,653 shares of common stock issued pursuant to the DRP for
gross offering proceeds of $34,700.
The Company intends to use substantially all of the net proceeds
from the Public Offering to invest in and manage a diverse
portfolio of real estate investments, primarily in the
multifamily sector, located throughout the United States. In
addition to the Companys focus on multifamily properties,
the Company may also selectively invest in industrial properties
and other types of commercial properties. The Company may
F-7
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
also acquire or originate mortgage, mezzanine, bridge and other
real estate loans and equity securities of other real estate
companies.
The business of the Company is externally managed by the
Advisor, pursuant to the Advisory Agreement, dated
September 28, 2009, by and between the Company and the
Advisor, which was amended and restated on May 4, 2010 (the
Advisory Agreement). The Company has retained
Steadfast Capital Markets Group LLC (the Dealer
Manager), an affiliate of the Company, to serve as the
dealer manager of the Public Offering. The Dealer Manager will
be responsible for marketing the Companys shares of common
stock being offered pursuant to the Public Offering.
As the Company accepts subscriptions for shares of its common
stock, it transfers substantially all of the net proceeds of the
Public Offering to the Operating Partnership as a capital
contribution. The Partnership Agreement provides that the
Operating Partnership will be operated in a manner that will
enable the Company to (1) satisfy the requirements for
being classified as a REIT for tax purposes, (2) avoid any
federal income or excise tax liability, and (3) ensure that
the Operating Partnership will not be classified as a
publicly traded partnership for purposes of
Section 7704 of the Internal Revenue Code of 1986, as
amended (the Internal Revenue Code), which
classification could result in the Operating Partnership being
taxed as a corporation, rather than as a partnership. In
addition to the administrative and operating costs and expenses
incurred by the Operating Partnership in acquiring and operating
real properties, the Operating Partnership will pay all of the
Companys administrative costs and expenses, and such
expenses will be treated as expenses of the Operating
Partnership.
The Company commenced its operations on August 11, 2010
upon acquiring a fee simple interest in a multifamily property
located in Springfield, Illinois.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
the Company, the Operating Partnership and its subsidiaries. All
significant intercompany balances and transactions are
eliminated in consolidation. The financial statements of the
Companys subsidiaries are prepared using accounting
policies consistent with those of the Company. The Company
evaluates subsequent events up until the date the consolidated
financial statements are issued.
The consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles
(GAAP) as contained within the Financial Accounting
Standards Board (FASB) Accounting Standards
Codification (ASC) and the rules and regulations of
the SEC.
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.
Real
Estate Assets
Depreciation
and Amortization
Real estate costs related to the development, construction and
improvement of properties will be capitalized. Acquisition costs
are expensed as incurred. Repair and maintenance and tenant
turnover costs will be charged to expense as incurred and
significant replacements and betterments will be capitalized.
Repair and maintenance and tenant turnover costs include all
costs that do not extend the useful life of the real estate
F-8
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
asset. The Company considers the period of future benefit of an
asset to determine its appropriate useful life and anticipates
the estimated useful lives of our assets by class to be
generally as follows:
|
|
|
Buildings
|
|
25-40 years
|
Building improvements
|
|
10-25 years
|
Tenant improvements
|
|
Shorter of lease term or expected useful life
|
Tenant origination and absorption costs
|
|
Remaining term of related lease
|
Furniture, fixtures, and equipment
|
|
5-10 years
|
Real
Estate Purchase Price Allocation
The Company records the acquisition of income-producing real
estate or real estate that will be used for the production of
income as a business combination. All assets acquired and
liabilities assumed in a business combination are measured at
their acquisition-date fair values. Acquisition costs are
expensed as incurred.
The Company assesses the acquisition-date fair values of all
tangible assets, identifiable intangibles and assumed
liabilities using methods similar to those used by independent
appraisers (e.g., discounted cash flow analysis) and that
utilize appropriate discount
and/or
capitalization rates and available market information. Estimates
of future cash flows are based on a number of factors including
historical operating results, known and anticipated trends, and
market and economic conditions. The fair value of tangible
assets of an acquired property considers the value of the
property as if it was vacant.
Intangible assets include the value of in-place leases, which
represents the estimated value of the net cash flows of the
in-place leases to be realized, as compared to the net cash
flows that would have occurred had the property been vacant at
the time of acquisition and subject to
lease-up.
The Company estimates the value of tenant origination and
absorption costs by considering the estimated carrying costs
during hypothetical expected
lease-up
periods, considering current market conditions. In estimating
carrying costs, the Company estimates the amount lost rentals
using market rates during the expected
lease-up
periods.
The Company records above-market and below-market in-place lease
values for acquired properties based on the present value (using
an interest rate that reflects the risks associated with the
leases acquired) of the difference between (1) the
contractual amounts to be paid pursuant to the in-place leases
and (2) our estimate of fair market lease rates for the
corresponding in-place leases, measured over a period equal to
the remaining cancelable term of the lease. The Company
amortizes any capitalized above-market or below market lease
values as a reduction or increase to rental income over the
remaining non-cancelable terms of the respective leases.
The total amount of other intangible assets acquired will be
further allocated to in-place lease values and customer
relationship intangible values based on the Companys
evaluation of the specific characteristics of each tenants
lease and its overall relationship with that respective tenant.
Characteristics that the Company considers in allocating these
values include the nature and extent of our existing business
relationships with the tenant, growth prospects for developing
new business with the tenant, and the tenants credit
quality and expectations of lease renewals (including those
existing under the terms of the lease agreement), among other
factors.
The Company amortizes the value of in-place leases to expense
over the remaining non-cancelable term of the respective leases.
The value of customer relationship intangibles will be amortized
to expense over the initial term and any renewal periods in the
respective leases, but in no event will the amortization periods
for the intangible assets exceed the remaining depreciable life
of the building. Should a tenant terminate its lease, the
unamortized portion of the in-place lease value and customer
relationship intangibles would be charged to expense in that
period.
F-9
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Estimates of the fair values of the tangible assets,
identifiable intangibles and assumed liabilities require us to
make significant assumptions to estimate market lease rates,
property-operating expenses, carrying costs during
lease-up
periods, discount rates, market absorption periods, and the
number of years the property will be held for investment. The
use of inappropriate assumptions would result in an incorrect
valuation of our acquired tangible assets, identifiable
intangibles and assumed liabilities, which would impact the
amount of our net income.
Impairment
of Real Estate Assets
The Company will continually monitor events and changes in
circumstances that could indicate that the carrying amounts of
our real estate and related intangible assets may not be
recoverable. When indicators of potential impairment suggest
that the carrying value of real estate and related intangible
assets and liabilities may not be recoverable, the Company
assesses the recoverability of the assets by estimating whether
the Company will recover the carrying value of the asset through
its undiscounted future cash flows and its eventual disposition.
Based on this analysis, if the Company does not believe that the
Company will be able to recover the carrying value of the real
estate and related intangible assets and liabilities, the
Company records an impairment loss to the extent that the
carrying value exceeds the estimated fair value of the real
estate and related intangible assets and liabilities. If any
assumptions, projections or estimates regarding an asset changes
in the future, the Company may have to record an impairment to
reduce the net book value of such individual asset.
Rents
and Other Receivables
The Company will periodically evaluate the collectibility of
amounts due from tenants and maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of
tenants to make required payments under lease agreements. The
Company maintains an allowance for deferred rent receivable that
arises from the straight-lining of rents in accordance with ASC
Topic 840, Leases. The Company exercises judgment in
establishing these allowances and consider payment history and
current credit status of our tenants in developing these
estimates.
Revenue
Recognition
The Company leases apartment and condominium units under
operating leases with terms generally of one year or less.
Generally credit investigations are performed for prospective
residents and security deposits are obtained. The Company will
recognize minimum rent, including rental abatements, concessions
and contractual fixed increases attributable to operating
leases, on a straight-line basis over the term of the related
lease and amounts expected to be received in later years will be
recorded as deferred rents. The Company records property
operating expense reimbursements due from tenants for common
area maintenance, real estate taxes, and other recoverable costs
in the period the related expenses are incurred.
The Company recognizes gains on sales of real estate either in
total or deferred for a period of time, depending on whether a
sale has been consummated, the extent of the buyers
investment in the property being sold, whether the receivable is
subject to future subordination, and the degree of the
Companys continuing involvement with the property after
the sale. If the criteria for profit recognition under the
full-accrual method are not met, the Company will defer gain
recognition and account for the continued operations of the
property by applying the
percentage-of-completion,
reduced profit, deposit, installment or cost recovery method, as
appropriate, until the appropriate criteria are met.
Cash
and Cash Equivalents
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents. Cash equivalents may include cash and short-term
investments. Short-term
F-10
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
investments are stated at cost, which approximates fair value.
As of December 31, 2009, the Companys cash on deposit
was 100% within the federally insured limits. As of
December 31, 2010, the Company had amounts in excess of
federally insured limits in deposit accounts with a financial
institution. The Company limits such deposits to financial
institutions with high credit standing.
Deferred
Financing Costs
The Company capitalizes deferred financing costs such as
commitment fees, legal fees and other third party costs
associated with obtaining commitments for financing that result
in a closing of such financing. The Company amortizes these
costs over the terms of the respective financing agreements
using the interest method. The Company expenses unamortized
deferred financing costs when the associated debt is refinanced
or repaid before maturity unless specific rules are met that
would allow for the carryover of such costs to the refinanced
debt. Costs incurred in seeking financing transactions that do
not close are expensed in the period in which it is determined
that the financing will not close.
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.
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.
F-11
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounting
for Stock-Based Compensation
The Company accounts for stock-based compensation in accordance
with ASC Topic 718, Compensation Stock
Compensation (ASC 718). ASC 718 established
a fair value based method of accounting for stock-based
compensation. Accounting for stock-based compensation under
ASC 718 requires the fair value of stock-based compensation
awards to be amortized as an expense over the vesting period and
requires any dividend equivalents earned to be treated as
dividends for financial reporting purposes. Stock-based
compensation awards are valued at the fair value on the date of
grant and amortized as an expense over the vesting period.
Distribution
Policy
The Company intends to elect to be taxed as a REIT and to
operate as a REIT beginning with its taxable year ending
December 31, 2010. To maintain its qualification as a REIT,
the Company intends to make distributions each taxable year
equal to at least 90% of its REIT taxable income (which is
determined without regard to the dividends paid deduction or net
capital gain and which does not necessarily equal net income as
calculated in accordance with GAAP). For the period from
August 12, 2010 to December 31, 2010, distributions
were based on daily record dates and calculated at a rate of
$0.001917 per share per day. Each day during the period from
August 12, 2010 through December 31, 2010 was a record
date for distributions.
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 to maintain the
Companys status as a REIT under the Internal Revenue Code.
Organization
and Offering Costs
Organization and offering expenses include all expenses (other
than sales commissions and related dealer manager fees) to be
paid by the Company in connection with the Public Offering and
the Private Offering, including legal, accounting, printing,
mailing and filing fees, charges of the Companys transfer
agent, expenses of organizing the Company, data processing fees,
advertising and sales literature costs, transfer agent costs,
bona fide
out-of-pocket
due diligence costs and amounts to reimburse the Advisor or its
affiliates for the salaries of its employees and other costs in
connection with preparing supplemental sales materials and
providing other administrative services.
The Company may also reimburse costs of bona fide training and
education meetings held by the Company (primarily travel, meal
and lodging costs of registered representatives of
broker-dealers), attendance and sponsorship fees and cost
reimbursement of employees of the Companys affiliates to
attend seminars conducted by broker-dealers and, in special,
cases, reimbursement to participating broker-dealers for
technology costs associated with the Public Offering, costs and
expenses related to such technology costs, and costs and
expenses associated with the facilitation of the marketing of
the Companys shares and the ownership of the
Companys shares by such broker-dealers customers;
provided, however, that the Company will not pay any of the
foregoing costs to the extent that such payment would cause
total underwriting compensation to exceed 10% of the gross
proceeds of the Public Offering, as required by the rules of the
Financial Industry Regulatory Authority, Inc.
(FINRA).
Pursuant to the Advisory Agreement and the Dealer Manager
Agreement, the Company is obligated to reimburse the Advisor,
the Dealer Manager or their affiliates, as applicable, for
organization and offering costs paid by them on behalf of the
Company, provided that the Advisor would be obligated to
reimburse the Company to the extent selling commissions, dealer
manager fees and organization and offering costs incurred by the
Company in the Public Offering exceed 15% of gross offering
proceeds of the Public Offering. Any reimbursement of expenses
paid to Advisor will not exceed actual expenses incurred by the
Advisor.
F-12
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reimbursements to the Advisor, the Dealer Manager, or their
affiliates, for offering costs paid by them on behalf of the
Company with respect to the Private Offering are not limited to
15% of the gross offering proceeds of the Private Offering.
However, the Company will not make reimbursements of offering
costs in excess of 15% of the gross offering proceeds of the
Private Offering unless approval is obtained from the
Companys independent directors. The independent directors
have not approved the reimbursement of excess private offering
costs. Accordingly, the Company has not accrued for the
reimbursement of organization and offering costs of the Private
Offering in excess of the 15% of gross offering proceeds raised
through December 31, 2010.
Income
Taxes
The Company intends to be taxed as a REIT under the Internal
Revenue Code and intends to operate as such beginning with its
taxable year ending December 31, 2010. To qualify as a
REIT, the Company must meet certain organizational and
operational requirements, including the requirement to
distribute at least 90% of the Companys annual REIT
taxable income to stockholders (which is computed without regard
to the dividends paid deduction or net capital gain and which
does not necessarily equal net income as calculated in
accordance with GAAP). As a REIT, the Company generally will not
be subject to federal income tax to the extent it distributes
qualifying dividends to its stockholders. If the Company fails
to qualify as a REIT in any taxable year after the taxable year
in which the Company initially elects to be taxed as a REIT, it
will be subject to federal income tax on its taxable income at
regular corporate income tax rates and generally will not be
permitted to qualify for treatment as a REIT for federal income
tax purposes for the four taxable years following the year
during which qualification is lost, unless the Internal Revenue
Service grants the Company relief under certain statutory
provisions. Such an event could materially adversely affect the
Companys net income and net cash available for
distribution to stockholders. However, the Company intends to
organize and operate in such a manner as to qualify for
treatment as a REIT.
The Company has concluded that there are no significant
uncertain tax positions requiring recognition in its financial
statements, nor has the Company been assessed interest or
penalties by any major tax jurisdictions. The Companys
evaluation was performed for tax years ended December 31,
2010 and 2009.
Per
Share Data
Basic net income (loss) per share of common stock is calculated
by dividing net income (loss) by the weighted-average number of
shares of common stock issued and outstanding during such
period. Diluted net income (loss) per share of common stock
equals basic net income (loss) per share of common stock as
there were no potentially dilutive securities outstanding during
the year ended December 31, 2010. Distributions declared
per common share assumes each share was issued and outstanding
each day during the period from August 12, 2010 through
December 31, 2010.
Recently
Issued Accounting Standards
In January 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-01,
Equity (Topic 505): Accounting for Distributions to
Shareholders with Components of Stock and Cash (ASU
No. 2010-01).
This ASU clarifies that when the stock portion of a distribution
allows stockholders to elect to receive cash or stock with a
potential limitation on the total amount of cash that all
stockholders can elect to receive in the aggregate, the
distribution would be considered a share issuance as opposed to
a stock dividend and the share issuance would be reflected in
earnings per share prospectively. ASU
No. 2010-01
is effective for interim and annual periods ending on or after
December 15, 2009 and should be applied on a retrospective
basis. The adoption of ASU
No. 2010-01
had no impact on the Companys consolidated financial
statements.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements
(ASU
No. 2010-06).
ASU
No. 2010-06
F-13
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
requires additional disclosures regarding significant transfers
in and out of Levels 1 and 2 fair value measurements,
including a description of the reasons for the transfers.
Further, this ASU requires additional disclosures about
purchases, sales, issuances and settlements relating to the
activity in Level 3 fair value measurements. ASU
No. 2010-06
is effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements relating to the
activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those
fiscal years. The adoption of ASU
No. 2010-06
did not have a material impact on the Companys
consolidated financial statements.
In February 2010, the FASB issued ASU
No. 2010-09
(ASU
No. 2010-09),
Subsequent Events (Topic 855), amends guidance on
subsequent events to alleviate potential conflicts between FASB
guidance and SEC requirements. Under ASU
No. 2010-09,
SEC filers are no longer required to disclose the date through
which subsequent events have been evaluated in originally issued
and revised financial statements. This guidance was effective
immediately and the Company adopted these new requirements for
the period ended June 30, 2010. The adoption of this
guidance did not have a material impact on the financial
statements.
In December 2010, the FASB issued ASU
No. 2010-29,
Business Combinations: Disclosure of Supplementary Pro Forma
Information for Business Combinations (a consensus of the FASB
Emerging Issues Task Force) (Topic 805) (ASU
No. 2010-29)
which addresses diversity in practice about the interpretation
of the pro forma revenue and earnings disclosure requirements
for business combinations. ASU
No. 2010-29
specifies that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of
the combined entity as though the business combination that
occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only.
The amendments in ASU
No. 2010-29
also expand the supplemental pro forma disclosures to include a
description of the nature and amount of material, nonrecurring
pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and
earnings. The amendments in ASU
No. 2010-29
are effective prospectively for business combinations for which
the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2010. Early adoption is permitted. The Company adopted ASU
No. 2010-29
for the year ended December 31, 2010 and the adoption of
ASU No. 2010-29 did not have a material impact on its
consolidated financial position or results of operations.
Lincoln
Tower Property Acquisition
On August 11, 2010, the Company acquired a fee simple
interest in a multifamily property located in Springfield,
Illinois, commonly known as the Lincoln Tower Apartments (the
Lincoln Tower Property), through a wholly-owned
subsidiary of the Operating Partnership.
The Company acquired the Lincoln Tower Property for an aggregate
purchase price of approximately $9,500,000, exclusive of closing
costs. The Company financed the payment of the purchase price
for the Lincoln Tower Property with (1) proceeds from the
Private Offering and Public Offering and (2) a
seller-financed loan in the aggregate principal amount of
$6,650,000. An acquisition fee of $192,858 was earned by the
Advisor in connection with the acquisition of the Lincoln Tower
Property.
The Lincoln Tower Property is a 17-story apartment complex
constructed in 1968 and contains 190 one-, two- and
three-bedroom apartments ranging from approximately 750 to
1,800 square feet, as well as underground parking
facilities and various community amenities such as a night
attendant, a fitness center, a club room, laundry facilities and
extra storage space. The Lincoln Tower Propertys
residential units were 87%
F-14
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
leased as of December 31, 2010. The Lincoln Tower Property
also includes approximately 8,800 square feet of commercial
office space, which was 75% occupied as of December 31,
2010.
Park
Place Property Acquisition
On December 22, 2010, the Company acquired a fee simple
interest in the Park Place Condominiums located in Des Moines,
Iowa (the Park Place Property), through a
wholly-owned subsidiary of the Operating Partnership.
The Company acquired the Park Place Property for an aggregate
purchase price of $8,050,000, exclusive of closing costs. The
Company financed the payment of the purchase price for the Park
Place Property with (1) proceeds from the Public Offering
and (2) a loan in the aggregate principal amount of
$5,000,000. An acquisition fee of $164,779 was earned by the
Advisor in connection with the acquisition of the Park Place
Property.
The Park Place Property is comprised of 147 condominium units
within a 16-story building located in downtown Des Moines, Iowa.
The building was constructed in 1986 and contains 158 total
condominium units. The Park Place Property contains 16 studio
units (approximately 429 square feet per unit), 91
one-bedroom units and 40 two bedroom units (approximately
679 square feet per unit). The one-bedroom units at the
Park Place Property consist of units of approximately 471, 570
and 668 square feet per unit. Amenities at the Park Place
Property include a fitness center, an approximately
6,000 square foot rooftop terrace, a community room with
Wi-Fi and library, a computer room, a guest suite, a secure
access entry and onsite laundry. In addition to the units noted
above, the Park Place Property also includes 101 onsite garage
parking spaces and a nearby surface lot containing 40 parking
spaces. As of December 31, 2010, the Park Place Property
was approximately 86% occupied and leased.
The purchase price for the Lincoln Tower Property and the Park
Place Property was allocated as follows as of the closing date:
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|
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|
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|
|
Tenant
|
|
|
Total
|
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|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
Building and
|
|
|
Origination and
|
|
|
Purchase
|
|
Property Name
|
|
City
|
|
|
State
|
|
|
Date
|
|
|
Land
|
|
|
Improvements
|
|
|
Absorption Costs
|
|
|
Price
|
|
|
Lincoln Tower
|
|
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Springfield
|
|
|
|
IL
|
|
|
|
08/11/2010
|
|
|
$
|
258,600
|
|
|
$
|
8,741,736
|
|
|
$
|
499,664
|
|
|
$
|
9,500,000
|
|
Park Place
|
|
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Des Moines
|
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|
IA
|
|
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|
12/22/2010
|
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|
500,000
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6,825,620
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|
|
724,380
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8,050,000
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|
|
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|
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|
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$
|
758,600
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|
|
$
|
15,567,356
|
|
|
$
|
1,224,044
|
|
|
$
|
17,550,000
|
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|
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|
As of December 31, 2010, the Companys real estate
portfolio was solely comprised of the Lincoln Tower Property and
the Park Place Property. The following table provides summary
information regarding the properties owned by the Company as of
December 31, 2010:
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Accumulated
|
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Total
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|
Date
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Total Real Estate
|
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Depreciation
|
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Real Estate,
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Property Name
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Acquired
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City
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State
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Property Type
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at Cost
|
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And Amortization
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|
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Net
|
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Lincoln Tower Property
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08/11/2010
|
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Springfield
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IL
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Apartment
|
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$
|
9,502,324
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|
|
$
|
(493,546
|
)
|
|
$
|
9,008,778
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Park Place Property
|
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|
12/22/2010
|
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Des Moines
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IA
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Condominium Rental
|
|
|
8,050,000
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|
|
(47,026
|
)
|
|
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8,002,974
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|
|
|
|
|
|
|
|
|
|
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$
|
17,552,324
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|
|
$
|
(540,572
|
)
|
|
$
|
17,011,752
|
|
|
|
|
|
|
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Operating
Leases
As of December 31, 2010, the Companys real estate
portfolio was 85% leased by a diverse group of tenants,
comprised of 289 residential tenants and eight commercial
tenants. For the period from August 11,
F-15
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2010 to December 31, 2010, the Companys real estate
portfolio earned approximately 91% and 9% of its rental income
from residential tenants and commercial office tenants,
respectively. The residential tenant lease terms consist of
lease durations equal to twelve months or less. The commercial
office tenant leases consist of lease durations varying from
three to five years.
Some residential and commercial leases contain provisions to
extend the lease agreements, options for early termination after
paying a specified penalty, rights of first refusal to purchase
the property at competitive market rates, and other terms and
conditions as negotiated. The Company retains substantially all
of the risks and benefits of ownership of the real estate assets
leased to tenants. Generally, upon the execution of a lease, the
Company requires security deposits from tenants in the form of a
cash deposit
and/or a
letter of credit for commercial tenants. Amounts required as
security deposits vary depending upon the terms of the
respective leases and the creditworthiness of the tenant, but
generally are not significant amounts. Therefore, exposure to
credit risk exists to the extent that a receivable from a tenant
exceeds the amount of its security deposit. Security deposits
received in cash related to tenant leases are included in other
liabilities in the accompanying consolidated balance sheets and
totaled $173,775 as of December 31, 2010.
As of December 31, 2010, the future minimum rental receipts
from the Companys properties under non-cancelable
operating leases attributable to commercial office tenants is as
follows:
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|
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2011
|
|
$
|
130,037
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|
2012
|
|
|
112,258
|
|
2013
|
|
|
43,229
|
|
2014
|
|
|
11,008
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
$
|
296,532
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|
|
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|
As of December 31, 2010, no tenant represented over 1% of
the Companys annualized base rent and there were no
significant industry concentrations with respect to its
commercial leases.
As of December 31, 2010, the Company has no tenants with
rent balances outstanding over 90 days.
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4.
|
Tenant
Origination and Absorption Costs
|
As of December 31, 2010, the Companys tenant
origination and absorption costs are as follows:
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Cost
|
|
$
|
1,224,044
|
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Accumulated Amortization
|
|
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(390,644
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)
|
|
|
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Net Amount
|
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$
|
833,400
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|
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The decrease in net income as a result of amortization of the
Companys tenant origination and absorption costs for the
year ended December 31, 2010 was $390,644. Tenant
origination and absorption costs had a weighted-average
amortization period as of the date of acquisition of
approximately one year.
As of December 31, 2010, none of the Companys
properties had above-market lease assets or below-market lease
liabilities.
F-16
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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|
5.
|
Deferred
Financing Costs and Other Assets
|
As of December 31, 2010, deferred financing costs and other
assets consisted of:
|
|
|
|
|
Deferred financing costs
|
|
$
|
72,500
|
|
Prepaid expenses
|
|
|
57,447
|
|
Other assets
|
|
|
53,686
|
|
|
|
|
|
|
|
|
|
183,633
|
|
Less accumulated amortization
|
|
|
(1,110
|
)
|
|
|
|
|
|
Deferred financing costs and other assets, net
|
|
$
|
182,523
|
|
|
|
|
|
|
The Company had no deferred financing costs and other assets as
of December 31, 2009. As of December 31, 2010 and
December 31, 2009, the Companys net deferred
financing costs were $71,390 and $0, respectively.
As of December 31, 2010, the Companys notes payable
principal amount totaled $11,650,000, comprised of $6,650,000
issued by the seller of the Lincoln Tower Property in connection
with the acquisition of the Lincoln Tower property on
August 11, 2010 (the Lincoln Tower Note) and
$5,000,000 issued by a regional bank in connection with the
Companys acquisition of the Park Place Property on
December 22, 2010 (the Park Place Note).
The Lincoln Tower Note requires interest only payments during
the term and has a term of 60 months, ending
September 1, 2015 with the option to extend the maturity
date for up to two successive periods of 12 months each,
subject to customary and market rate extension provisions.
Interest on the Lincoln Tower Note will accrue at a rate of 6%
per annum through September 1, 2015.
The Park Place Note requires interest only payments during the
term and has a term of 36 months, ending December 22,
2013 with the option to extend the maturity date for up to two
successive periods of 12 months each, subject to customary
and market rate extension provisions. Interest on the Park Place
Note will accrue at a rate of 5.25% per annum through
December 22, 2013.
The Notes payable contain customary non-financial and financial
debt covenants. As of December 31, 2010, the Company was in
compliance with all financial debt covenants.
During the year ended December 31, 2010, the Company
incurred and expensed $163,987 of interest. The Company did not
incur any interest expense for periods prior to August 11,
2010 since it did not have any indebtedness prior to that date.
As of December 31, 2010, $33,250 of interest expense was
payable, which is included in accounts payable and accrued
liabilities in the accompanying consolidated balance sheet.
Included in interest expense for the year ended
December 31, 2010 was $1,110 of amortization of deferred
financing costs.
General
Under the Companys Second Articles of Amendment and
Restatement (the Charter:), the total number of
shares of capital stock authorized for issuance is
1,100,000,000 shares, consisting of 999,999,000 shares
of common stock with a par value of $0.01 per share,
1,000 shares of convertible stock with a par value of $0.01
per share and 100,000,000 shares designated as preferred
stock with a par value of $0.01 per share.
F-17
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Common
Stock
The shares of 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 Companys board of directors in accordance with the
Maryland General Corporation Law and to all rights of a
stockholder pursuant to the Maryland General Corporation Law.
The common stock has no preferences or preemptive, conversion or
exchange rights.
During 2009, the Company issued 22,223 shares of common
stock to the Sponsor for $200,007. For the year ended
December 31, 2010, the Company issued 1,142,277 shares
of common stock in its Private Offering and Public Offering for
offering proceeds of $9,305,336, net of offering costs of
$1,523,603. Offering proceeds include $93,525 of amounts
receivable from the Companys transfer agent as of
December 31, 2010. These offering costs primarily consist
of selling commissions and dealer manager fees.
During 2010, the Company granted 15,000 shares of
restricted common stock to independent directors at a fair value
of $8.55 as compensation for services. The shares 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 directors
service as a director due to his or her death or disability, or
(2) a change in control. Included in general and
administrative expenses is $54,774 for the year ended
December 31, 2010 for compensation expense related to
issuance of restricted common stock. The weighted average
remaining term of the restricted common stock is 3.5 years.
In addition, on the date following an independent
directors re-election to the board of directors, he or she
will receive 2,500 shares of restricted common stock.
In addition, during 2010, the Company issued 4,783 shares
of common stock to an independent director as compensation, in
lieu of cash, at a weighted average fair value of $8.76.
Included in general and administrative expenses is $41,872 of
compensation expense for independent director compensation
issued as common stock in lieu of cash compensation.
Convertible
Stock
The Company has issued 1,000 shares of Convertible Stock to
the Advisor for $1,000. The Convertible Stock will convert into
shares of 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 be deemed to have
occurred on the effective date of any merger of the Company in
which the consideration received by the holders of 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 Companys enterprise value (as
defined in the Charter) plus the aggregate value of
distributions paid to date on the outstanding shares of common
stock exceeds the (2) 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 Companys enterprise
value divided by the number of outstanding shares of common
stock, in each case calculated as of the date of the conversion.
In the event of a termination or non-renewal of the Advisory
Agreement by the Company for cause, the Convertible Stock will
be redeemed by the Company for $1.00.
F-18
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Preferred
Stock
The Charter also provides the Companys 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, 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. The Companys 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 December 31, 2010 and
December 31, 2009, no shares of the Companys
preferred stock were issued and outstanding.
Distribution
Reinvestment Plan
The Companys board of directors has approved the DRP
through which common stockholders may elect to reinvest an
amount equal to the distributions declared on their shares of
common stock in additional shares of the Companys common
stock in lieu of receiving cash distributions. The initial
purchase price per share under the DRP is $9.50. If the Company
extends the Public Offering beyond two years from the date of
its commencement, the Companys board of directors may, in
its sole discretion, from time to time, change this price based
upon changes in the Companys estimated net asset value per
share, the then current public offering price of shares of the
Companys common stock and other factors that the
Companys board of directors deems relevant.
No sales commissions or dealer manager fees are payable on
shares sold through the DRP. The Companys board of
directors may terminate the DRP at its discretion at any time
upon ten days notice to the Companys stockholders.
Following any termination of the DRP, all subsequent
distributions to stockholders will be made in cash.
Share
Repurchase Plan and Redeemable Common Stock
There is no market for the Companys common stock and, as a
result, there is risk that a stockholder may not be able to sell
the Companys stock at a time or price acceptable to the
stockholder. To allow stockholders to sell their shares of
common stock in limited circumstances, the Companys board
of directors has approved a share repurchase plan.
Unless shares of common stock are being redeemed in connection
with a stockholders death or disability, the Company may
not redeem shares until they have been outstanding for one year.
In addition, the Company has limited the number of shares
redeemed pursuant to the share repurchase plan during any
calendar year to: (1) 5% of the weighted-average number of
shares outstanding during the prior calendar year and
(2) those than can be funded from the net proceeds the
Company received from the sale of shares under the DRP during
the prior calendar year plus such additional funds as may be
reserved for that purpose by the Companys board of
directors.
F-19
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the share repurchase plan, prior to the completion of the
Offering Stage (as defined below), the purchase price for shares
repurchased by the Company under the plan will be as follows:
|
|
|
|
|
Repurchase Price
|
Share Purchase Anniversary
|
|
on Repurchase Date(1)
|
|
Less than 1 year
|
|
No Repurchase Allowed
|
1 year
|
|
92.5% of Primary Offering Price
|
2 years
|
|
95.0% of Primary Offering Price
|
3 years
|
|
97.5% of Primary Offering Price
|
4 years
|
|
100.0% of Primary Offering Price
|
In the event of a stockholders death or disability
|
|
Average Issue Price for Shares(2)
|
|
|
|
(1) |
|
As adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to the shares of
common stock. |
|
(2) |
|
The purchase price per share for shares redeemed upon the death
or disability of a stockholder will be equal to the average
issue price per share for all of the stockholders shares. |
The purchase price per share for shares repurchased pursuant to
the share repurchase plan will be further reduced by the
aggregate amount of net proceeds per share, if any, distributed
to the Companys stockholders prior to the repurchase date
as a result of the sale of one or more of the Companys
assets that constitutes a return of capital distribution as a
result of such sales.
Notwithstanding the foregoing, following the completion of the
Offering Stage, shares of the Companys common stock will
be repurchased at a price equal to a price based upon the
Companys most recently established estimated net asset
value per share, which the Company will publicly disclose every
six months beginning no later than six months following the
completion of the Offering Stage based on periodic valuations by
independent third party appraisers and qualified independent
valuation experts selected by the Advisor. The Offering
Stage will be considered complete on the first date that
the Company is no longer publicly offering equity securities
that are not listed on a national securities exchange, whether
through the Public Offering or follow-on public equity
offerings, provided the Company has not filed a registration
statement for a follow-on public equity offering as of such date.
The Companys board of directors may, in its sole
discretion, amend, suspend or terminate the share repurchase
plan at any time if it determines that the funds available to
fund the share repurchase plan are needed for other business or
operational purposes or that amendment, suspension or
termination of the share repurchase plan is in the best interest
of the Companys stockholders. The share repurchase plan
will terminate if the shares of the Companys common stock
are listed on a national securities exchange. The Company did
not redeem any shares during year ended December 31, 2010.
Pursuant to the share repurchase program, the Company has an
obligation to redeem shares which is outside the Companys
control (redemption requests tendered by shareholders), in an
amount of future redemptions, which is reclassified from
permanent equity to temporary equity in the accompanying
consolidated statements of equity as transfers to
redeemable common stock. For the year ended
December 31, 2010, the Company reclassified $57,827 from
permanent equity to temporary equity, which is included as
redeemable common stock on the accompanying consolidated balance
sheets. The redeemable common stock balance at any given time
will consist of (a) DRP proceeds from the prior year plus
(b) DRP proceeds from the current year through the current
period less (c) actual current year redemptions paid or
pending redemption. Any remaining redeemable common stock
balances initially reclassified to temporary equity before the
prior year (representing excess proceeds not used for redemption
in the prior calendar year) is reclassified back to permanent
equity, as such amounts are no longer subject to redemption. For
the period
F-20
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
from May 4, 2009 (Inception) to December 31, 2009,
there was no redeemable common stock as there were no DRP
proceeds.
Distributions
The Companys long-term policy will be to pay distributions
from cash flow from operations. However, the Company expects to
have insufficient cash flow from operations available for
distribution until it makes substantial investments. In order to
provide additional available funds to pay distributions, under
certain circumstances the Companys obligation to pay all
fees due to the Advisor from the Company pursuant to the
Advisory Agreement will be deferred up to an aggregate amount of
$5,000,000 during the Offering Stage. If, during any calendar
quarter during the offering stage, the distributions paid by the
Company exceed FFO, plus (1) any acquisition expenses and
acquisition fees expensed that are related to any property, loan
or other investment acquired or expected to be acquired, and
(2) any non-operating, non-cash charges incurred, such as
impairments of property or loans, any other than temporary
impairments of marketable securities, or other similar charges,
for the quarter, which is defined in the Advisory Agreement as
Adjusted Funds From Operations, the payment of fees
the Company is obligated to pay the Advisor will be deferred in
an amount equal to the amount by which distributions paid to
stockholders for the quarter exceed Adjusted Funds From
Operations for such quarter up to an amount equal to a 7.0%
cumulative non-compounded annual return on stockholders
invested capital, pro-rated for such quarter. For purposes of
this calculation, if Adjusted Funds From Operations is negative,
Adjusted Funds From Operations shall be deemed to be zero.
The Company is only obligated to pay the Advisor for these
deferred fees if and to the extent that cumulative Adjusted
Funds From Operations for the period beginning on the date of
the commencement of the private offering through the date of any
such payment exceed the lesser of (1) the cumulative amount
of any distributions paid to stockholders as of the date of such
payment or (2) distributions (including the value of shares
issued pursuant to the distribution reinvestment plan) equal to
a 7.0% cumulative, non-compounded, annual return on invested
capital for the period from the commencement of the initial
public offering through the date of such payment. The
Companys obligation to pay the deferred fees will survive
the termination of the Advisory Agreement and will continue to
be subject to the repayment conditions above. The Company will
not pay interest on the deferred fees if and when such fees are
paid to the Advisor.
Distributions
Declared
In connection with the acquisition of the Lincoln Tower
Property, the Companys board of directors declared a cash
distribution to stockholders. Distributions (1) accrue
daily to stockholders of record as of the close of business on
each day commencing on August 12, 2010, (2) are
payable in cumulative amounts on or before the 15th day of
each calendar month with respect to the prior month, and
(3) are calculated at a rate of $0.001917 per share of
common stock per day, which if paid each day over a
365-day
period is equivalent to an 7.0% annualized distribution rate
based on a purchase price of $10.00 per share of common stock.
Stockholders may elect to receive cash distributions or purchase
additional shares through the Companys DRP.
The distributions declared for the period from August 12,
2010 through December 31, 2010 were $230,402, including
$57,827, or 6,087 shares of common stock, of amounts
attributable to the DRP.
As of December 31, 2010, $63,566 distributions declared are
payable, which includes $23,127 of distributions that have been
reinvested through the Companys distribution reinvestment
plan.
Distributions
Paid
During the period from August 12, 2010 to December 31,
2010, the Company paid cash distributions of $132,136, which
related to distributions declared for each day in the period
from August 12, 2010 through
F-21
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
November 30, 2010. Stockholders purchased 3,653 shares
for gross offering proceeds of $34,700 through the
Companys distribution reinvestment plan for the period
from August 12, 2010 through December 31, 2010.
|
|
8.
|
Related
Party Arrangements
|
The Company has entered into the Advisory Agreement with the
Advisor and a Dealer Manager Agreement with the Dealer Manager
with respect to the Public Offering. Pursuant to the Advisory
Agreement and Dealer Manager Agreement, the Company is obligated
to pay the Advisor and the Dealer Manager specified fees upon
the provision of certain services related to the Public
Offering, the investment of funds in real estate and real
estate-related investments, management of the Companys
investments and for other services (including, but not limited
to, the disposition of investments). Subject to the limitations
described below, the Company is also obligated to reimburse the
Advisor and its affiliates for organization and offering costs
incurred by the Advisor and its affiliates on behalf of the
Company, and the Company is obligated to reimburse the Advisor
and its affiliates for acquisition and origination expenses and
certain operating expenses incurred on behalf of the Company or
incurred in connection with providing services to the Company.
In certain circumstances, the Companys obligation to pay
some or all of the fees due to the Advisor pursuant to the
Advisory Agreement will be deferred up to an aggregate amount of
$5,000,000.
Amounts attributable to the Advisor and its affiliates incurred
during year ended December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable
|
|
|
|
For the Year Ended December 31, 2010
|
|
|
(Receivable) at
|
|
|
|
Incurred
|
|
|
Paid
|
|
|
December 31, 2010
|
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Expensed(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Organizational cost reimbursement
|
|
$
|
100,738
|
|
|
$
|
100,738
|
|
|
$
|
|
|
Investment management fees
|
|
|
31,841
|
|
|
|
|
|
|
|
31,841
|
(1)
|
Acquisition fees
|
|
|
357,637
|
|
|
|
|
|
|
|
357,637
|
(1)
|
Property management:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
30,216
|
|
|
|
23,202
|
|
|
|
7,014
|
|
Reimbursement of onsite personnel
|
|
|
98,347
|
|
|
|
98,347
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances for operating expenses
|
|
|
408,189
|
|
|
|
376,634
|
|
|
|
31,555
|
|
Other offering costs reimbursement
|
|
|
596,561
|
|
|
|
589,345
|
|
|
|
7,216
|
|
Selling commissions
|
|
|
584,962
|
|
|
|
584,962
|
|
|
|
|
|
Dealer management fees
|
|
|
342,080
|
|
|
|
342,080
|
|
|
|
|
|
Due to affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from Advisor
|
|
|
|
|
|
|
53,353
|
|
|
|
(53,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,550,571
|
|
|
$
|
2,168,661
|
|
|
$
|
381,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Payment of $134,995 of acquisition fees and $31,841 of
investment management fees earned by the Advisor has been
deferred as of December 31, 2010 pursuant to the terms of
the Advisory Agreement until the Companys cumulative
Adjusted Funds From Operations exceed the lesser of (1) the
cumulative amount of any distributions paid to the
Companys stockholders as of the date of reimbursement of
the deferred fee or (2) distributions (including the value
of shares issued pursuant to the DRP) equal to a 7.0%
cumulative, non-compounded, annual return on invested capital to
the Companys stockholders as of the date of |
F-22
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
reimbursement. The amount of fees that may be deferred is
limited to an aggregate amount of $5,000,000. The remaining
amount of acquisition fees of $222,642, subsequently paid in
February 2011, is due and payable and included in due to
affiliates in the accompanying balance sheet at
December 31, 2010. |
|
(2) |
|
Included in the $419,694 of fees to affiliates in the
accompanying consolidated statements of operations is the
following; acquisition fees $357,637, investment management fees
$31,841 and property management fees $30,216 for the year ended
December 31, 2010. Organizational cost reimbursement
$100,738 and property management reimbursement of onsite
personnel of $98,347 are included in general and administrative
expenses of the year ended December 31, 2010. |
Organizational
and Offering Costs
Organization and offering costs (other than selling commissions
and dealer manager fees) of the Company are initially being paid
by the Advisor or its affiliates on behalf of the Company. These
organization and other offering costs include all expenses to be
paid by the Company in connection with the Public Offering and
Private Offering, including legal, accounting, printing, mailing
and filing fees, charges of the Companys transfer agent,
expenses of organizing the Company, data processing fees,
advertising and sales literature costs, transfer agent costs,
bona fide
out-of-pocket
due diligence costs and amounts to reimburse the Advisor or its
affiliates for the salaries of its employees and other costs in
connection with preparing supplemental sales materials and
providing other administrative services in connection with the
Public Offering and the Private Offering. Any reimbursement of
expenses paid to Advisor will not exceed actual expenses
incurred by the Advisor. Organization costs include all expenses
to be incurred by the Company in connection with the formation
of the Company, including but not limited to legal fees and
other costs to incorporate the Company.
Pursuant to the Advisory Agreement, the Company is obligated to
reimburse the Advisor or its affiliates, as applicable, for
organization and offering costs paid by them on behalf of the
Company in connection with the Public Offering, provided that
the Advisor is obligated to reimburse the Company to the extent
selling commissions, dealer manager fees and organization and
offering costs incurred by the Company in the Public Offering
exceed 15% of gross offering proceeds raised in the Public
Offering.
Reimbursements to the Advisor or its affiliates for offering
costs paid by them on behalf of the Company with respect to the
Private Offering is not limited to 15% of the gross offering
proceeds of the Private Offering. However, the Company will not
make reimbursements of organization and offering costs in excess
of 15% of the gross offering proceeds of the Private Offering
unless approval is obtained from the independent directors. The
independent directors have not approved the reimbursement of
excess private offering costs. Accordingly, the Company has not
accrued for the reimbursement of organization and offering costs
of the Private Offering in excess of the 15% of gross offering
proceeds raised through December 31, 2010.
F-23
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amount of organization and offering (O&O)
costs that is reimbursable or was paid through December 31,
2010 is as follows:
|
|
|
|
|
Gross offering proceeds
|
|
$
|
10,828,938
|
|
O&O limitation
|
|
|
15
|
%
|
|
|
|
|
|
Total O&O costs available to be paid/reimbursed
|
|
$
|
1,624,341
|
|
|
|
|
|
|
O&O expenses recorded:
|
|
|
|
|
Sales commissions paid
|
|
|
584,962
|
|
Broker dealer fees paid
|
|
|
342,080
|
|
Private offering costs reimbursements
|
|
|
423,707
|
|
Public offering costs reimbursements
|
|
|
165,638
|
|
Public offering costs reimbursement accrual
|
|
|
7,216
|
|
Organizational costs reimbursements
|
|
|
100,738
|
|
|
|
|
|
|
Total O&O costs reimbursements recorded by the Company
|
|
$
|
1,624,341
|
|
|
|
|
|
|
The Company may also reimburse costs of bona fide training and
education meetings held by the Company (primarily the travel,
meal and lodging costs of registered representatives of
broker-dealers), attendance and sponsorship fees and cost
reimbursement of employees of the Companys affiliates to
attend seminars conducted by broker-dealers and, in special,
cases, reimbursement to participating broker-dealers for
technology costs associated with the Public Offering, costs and
expenses related to such technology costs, and costs and
expenses associated with the facilitation of the marketing of
the Companys shares and the ownership of the
Companys shares by such broker-dealers customers;
provided, however, that the Company will not pay any of the
foregoing costs to the extent that such payment would cause
total underwriting compensation to exceed 10% of the gross
proceeds of the Public Offering, as required by the rules of
FINRA.
As of December 31, 2010, the Advisor had incurred
$5,713,747 of organizational and offering costs on behalf of the
Company, of which $4,089,406 has been deferred as of that date,
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Through
|
|
|
Amounts
|
|
|
Deferred as of
|
|
|
|
December 31, 2010
|
|
|
Recognized
|
|
|
December 31, 2010
|
|
|
Organizational expenses
|
|
$
|
100,738
|
|
|
$
|
100,738
|
|
|
$
|
|
|
Private Offering costs
|
|
|
2,301,719
|
|
|
|
876,649
|
|
|
|
1,425,070
|
|
Public Offering costs
|
|
|
3,311,290
|
|
|
|
646,954
|
|
|
|
2,664,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,713,747
|
|
|
$
|
1,624,341
|
|
|
$
|
4,089,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organization costs are expensed as incurred. Offering costs,
including selling commissions and dealer manager fees, are
deferred and charged to stockholders equity as such
amounts are reimbursed to the Advisor, the Dealer Manager or
their affiliates from gross offering proceeds. During the year
ended December 31, 2010, the Company incurred, and
reimbursed, $876,649 of offering costs to the Advisor that were
attributable to the Private Offering all of which were charged
to stockholders equity as the Company elected to first
reimburse costs associated with the Private Offering up to the
15% limitation. Through December 31, 2010, the Company
incurred $100,738 of organizational costs of which $100,738 was
reimbursed to the Advisor during the year ended
December 31, 2010. During the year ended December 31,
2010, the Company reimbursed the Advisor $1,624,341 for
organization costs incurred through December 31, 2010.
As of December 31, 2010, the Company, Advisor and its
affiliates had incurred $100,738 of organizational costs,
$2,301,719 of offering costs in connection with the Private
Offering, and $3,311,290 of offering costs in connection with
the Public Offering. After reimbursing offering costs associated
with the Private Offering up to the 15% limitation of $876,649
($1,425,070 of which remains potentially reimbursable to the
F-24
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Advisor subject to the approval of the independent directors),
the Company began reimbursing the Advisor for organization
costs. After reimbursing organization costs, the Company
commenced reimbursing the Advisor for offering costs incurred in
connection with the Public Offering. The Company did not accrue
for the reimbursement of any organization and offering costs in
the financial statements as of December 31, 2009, nor were
any reimbursements made during that period because such costs
did not become a liability of the Company until $2,000,000 in
proceeds were raised in the Private or Public Offerings which
did not occur until April 15, 2010.
Investment
Management Fee
With respect to investments in real estate, 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 Companys allocable cost of each real property
or real estate-related asset acquired through a joint venture.
Such fee will be calculated including acquisition fees,
acquisition expenses and any debt attributable to such
investments, or the Companys proportionate share thereof
in the case of investments made through joint ventures. During
the year ended December 31, 2010, the Company incurred
$31,841 of investment management fees to the Advisor was
included in due to affiliates in the accompanying balance sheet
as of December 31, 2010. Payment of the $31,841 of
investment management fees due to the Advisor as of
December 31, 2010 has been deferred.
Acquisition
Fees
The Company pays the Advisor an acquisition fee equal to 2.0% of
(1) the purchase price in connection with the acquisition
or origination of any type of real property or real
estate-related asset acquired directly by the Company or
(2) the Companys allocable portion of the purchase
price in connection with the acquisition or origination of any
type of real property or real estate-related asset acquired
through a joint venture, including any acquisition and
origination expenses and any debt attributable to such
investments. As of December 31, 2010, $357,637 of
acquisition fees attributable to the Advisor was earned by the
Advisor in connection with the acquisitions of the Lincoln Tower
Property and Park Place Property. During the year ended
December 31, 2010, the distributions the Company paid
exceeded the Companys Adjusted Funds From Operations;
therefore, in accordance with the Advisory Agreement the
acquisition and investment management fees the Company is
obligated to pay the Advisor have been deferred in an amount
equal to distributions paid to the Companys stockholders
during the year in excess of the Companys Adjusted Funds
From Operations up to an amount equal to a 7.0% cumulative,
non-compounded, annual return on invested capital pro-rated for
such quarter. For purposes of this calculation, if the
Companys Adjusted Funds From Operations is negative, then
Adjusted Funds From Operations shall be deemed to be zero. The
amount of fees that may be deferred is limited to an aggregate
amount of $5,000,000. During the year ended December 31,
2010, the Company paid distributions of $166,836; therefore, as
of December 31, 2010, $166,836 of fees earned by the
Advisor have been deferred, comprising of $134,995 of
acquisition fees and $31,841 of investment management fees.
These amounts have been deferred until the Companys
cumulative Adjusted Funds From Operations exceed the lesser of
(1) the cumulative amount of any distributions paid to the
Companys stockholders as of the date of reimbursement of
the deferred fee or (2) distributions (including the value
of shares issued pursuant to the DRP) equal to a 7.0%
cumulative, non-compounded, annual return on invested capital to
the Companys stockholders as of the date of reimbursement.
The remaining amount of acquisition fees of $222,642 is due and
payable and included due to affiliates in the accompanying
balance sheet at December 31, 2010.
In addition to acquisition fees, the Company reimburses the
Advisor for amounts it 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. During the year ended December 31,
2010, the Advisor incurred $323,906 of acquisition costs paid to
third parties.
F-25
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Charter limits the Companys 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 Companys board
of directors, including a majority of the independent directors,
is required to approve any acquisition fees (or portion thereof)
that would cause the total of all acquisition fees and expenses
relating to an acquisition to exceed 6.0% of the contract
purchase price. In connection with the purchase of securities,
the acquisition fee may be paid to an affiliate of the Advisor
that is registered as a FINRA member broker-dealer if applicable
FINRA rules would prohibit the payment of the acquisition fee to
a firm that is not a registered broker-dealer.
Property
Management Fees and Expenses
The Company has entered into Property Management Agreements with
Steadfast Management Company, Inc., or the property manager, an
affiliate of our sponsor. The property management fee payable
with respect to each property under the Property Management
Agreements is equal to 3.5% of the annual gross revenue
collected which is usual and customary for comparable property
management services rendered to similar properties in the
geographic market of the property, as determined by the Advisor
and approved by a majority of our board of directors, including
a majority of our independent directors. Each Property
Management Agreement has an initial one year term and will
continue thereafter on a
month-to-month
basis unless either party gives prior notice of its desire to
terminate the Management Agreement, provided that the Company
may terminate the Management Agreement at any time without cause
upon 30 days prior written notice to the Property Manager.
During the period from August 11, 2010 to December 31,
2010, the Company incurred $30,216 of property management fees
payable to the property manager.
In addition, the Company reimburses the property manager for the
salaries and related benefits of
on-site
property management employees. For the period from
August 11, 2010 to December 31, 2010, the Company
incurred $98,347 of salaries and related benefits of
on-site
property management employees, of which no amounts are payable
to the property management affiliate at December 31, 2010.
Advances
for Operating Expenses and Due from Advisor
As of December 31, 2010, the Advisor and its affiliates
incurred $408,189 of the Companys direct operating
expenses, comprising of independent director fees and insurance
and acquisition expenses, of which $31,555 is included in due to
affiliates, net on the accompanying consolidated balance sheets.
As of December 31, 2010, the Company paid directly $53,353
of legal and accounting expenses attributable to the Advisor,
which is included in due to affiliates, net on the accompanying
consolidated balance sheets.
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
in providing services to the Company, including the
Companys allocable share of the Advisors 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 its executive officers.
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 greater of 2% of the Companys average
invested assets, or 25% of the Companys net income (the
2% 25% Guidelines), unless the independent directors
have determined that such excess expenses were justified based
on unusual and non-recurring factors. Commencing upon the fourth
fiscal quarter following the fiscal quarter ended March 31,
2010, and at least annually thereafter, the Advisor must
reimburse the Company for the amount by which the Companys
F-26
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operating expenses for the preceding four fiscal quarters then
ended exceed the greater of 2%/25% Guidelines. Average
invested assets means the average monthly book value of
the Companys 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, as determined
under GAAP that are in any way related to the Companys
operation, including investment management fees, but excluding
(a) the expenses of raising capital such as organization
and offering expenses, legal, audit, accounting, underwriting,
brokerage, listing, registration and other fees, printing and
other such expenses and taxes incurred in connection with the
issuance, distribution, transfer, listing and registration of
shares of the Companys 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 Companys assets; (f) acquisition fees and
acquisition expenses (including expenses relating to potential
acquisitions that the Company does not close); (g) real
estate commissions on the resale of investments; and
(h) other expenses connected with the acquisition,
disposition, management and ownership of investments (including
the costs of foreclosure, insurance premiums, legal services,
maintenance, repair and improvement of real property).
The Company has not recorded an accrual for any portion of the
operating expenses incurred by the Advisor in providing services
to the Company. The Company will accrue for the reimbursement of
the Advisors operating expenses up to the greater of the
amount allowed by the 2%/25% Guidelines or the amount approved
by the independent directors.
Disposition
Fee
If the Advisor or its affiliates provides a substantial amount
of services, as determined by the Companys independent
directors, in connection with the sale of a property or real
estate-related asset, the Company will pay the Advisor or its
affiliates 1.5% of the sales price of each property or real
estate-related asset sold.
No disposition fee will be paid for securities traded on a
national securities exchange. 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% Guidelines.
In connection with the sale of securities, the disposition fee
may be paid to an affiliate of the Advisor that is registered as
a FINRA member broker-dealer if applicable FINRA rules would
prohibit the payment of the disposition fee to a firm that is
not a registered broker-dealer.
The Charter limits the maximum amount of the disposition fees
payable to the Advisor for the sale of any real property to the
lesser of one-half of the brokerage commission paid or 3.0% of
the contract sales price.
As of December 31, 2010, the Company has not sold or
otherwise disposed of property or real estate-related assets.
Accordingly, the Company has not incurred any disposition fees
as of December 31, 2010.
Selling
Commissions and Dealer Manager Fees
The Company pays the Dealer Manager up to 6.5% and 3.5% of the
gross offering proceeds from the primary offering as selling
commissions and dealer manager fees, respectively. A reduced
sales commission and dealer manager fee is paid in connection
with volume discounts and certain other categories of sales. No
sales commission or dealer manager fee is paid with respect to
shares of common stock issued through the DRP. The Dealer
Manager will reallow 100% of sales commissions earned to
participating broker-dealers. The Dealer Manager may also
reallow to any participating broker-dealer a portion of the
dealer manager fee that is attributable to that participating
broker-dealer to defray the marketing costs of that
participating broker-dealer. The Dealer Manager will negotiate
the reallowance on a
case-by-case
basis with each participating broker-dealer subject to various
factors associated with the cost of the marketing program.
During the year ended December 31, 2010, the Company paid
$584,962 of selling commissions, and $342,080 of dealer manager
fees
F-27
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
from the proceeds received from the sale of the Companys
common stock, which were recorded as a reduction of additional
paid in capital.
|
|
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
Companys 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
such plan as of December 31, 2010 and December 31,
2009, except those awards granted to the independent directors
as described below.
Under the Companys independent directors
compensation plan, each of the Companys current
independent directors was entitled to receive 5,000 shares
of restricted common stock in connection with the initial
meeting of the Companys full board of directors. The
Companys board of directors, and each of the independent
directors, agreed to delay the initial grant of restricted stock
until the Company raised $2,000,000 in gross offering proceeds
in the Private Offering. In addition, on the date following an
independent directors re-election to the Companys
board of directors, he or she will receive 2,500 shares of
restricted common stock. One-fourth of the shares of restricted
common stock will generally vest and become non-forfeitable upon
issuance and the remaining portion will vest in three equal
annual installments beginning on the date of grant and ending on
the third anniversary of the date of grant; provided, however,
that the restricted stock will become fully vested and become
non-forfeitable on the earlier to occur of (1) the
termination of the independent directors service as a
director due to his or her death or disability, or (2) a
change in control.
On April 15, 2010, after raising $2,000,000 in gross
offering proceeds in the Private Offering, the Company granted
each of the three independent directors 5,000 shares of
restricted common stock. The Company recorded stock-based
compensation expense of $54,774 for the year ended
December 31, 2010 and none during the year ended December
31 2009.
|
|
10.
|
Pro Forma
Financial Information (Unaudited)
|
The Company acquired two properties during the year ended
December 31, 2010, including the Lincoln Tower Property and
the Park Place Property. The following unaudited pro forma
information for year ended December 31, 2010 and 2009 have
been prepared to give effect to the acquisition of the Lincoln
Tower Property and Park Place Property as if the acquisitions
occurred on January 1, 2009. This pro forma information
does not purport to represent what the actual results of
operations of the Company would have been had this acquisition
occurred on these dates, nor do they purport to predict the
results of operations for future periods.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
$
|
3,416,206
|
|
|
$
|
3,069,191
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
951,049
|
|
|
$
|
1,828,265
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,446,670
|
)
|
|
$
|
(2,413,680
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(1.32
|
)
|
|
$
|
(2.20
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding, basic and
diluted
|
|
|
1,098,586
|
|
|
|
1,098,586
|
|
|
|
|
|
|
|
|
|
|
F-28
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The pro forma information for the year December 31, 2010
was adjusted to exclude $357,637 of acquisition costs related to
the acquisition of the Lincoln Tower Property and Park Place
Property incurred in 2010. The costs were recognized in the pro
forma information for the year ended December 31, 2009.
|
|
11.
|
Commitments
and Contingencies
|
Economic
Dependency
The Company is dependent on the Advisor and the Dealer Manager
for certain services that are essential to the Company,
including the sale of the Companys shares of common and
preferred stock available for issue; the identification,
evaluation, negotiation, purchase, and disposition of real
estate and real estate-related investments; management of the
daily operations of the Companys 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
As of December 31, 2010, the Company owned two real estate
properties one located in Springfield, Illinois and one located
in Des Moines, Iowa. As a result of these acquisitions, the
geographic concentration of the Companys portfolio makes
it particularly susceptible to adverse economic developments in
the Springfield, Illinois and Des Moines, Iowa 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 Companys
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.
Although there can be no assurance, 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 Companys 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 Companys results of operations or financial
condition. Nor are we aware of any such legal proceedings
contemplated by government agencies.
|
|
12.
|
Quarterly
Results (Unaudited)
|
Presented below is a summary of the unaudited quarterly
financial information for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
277,651
|
|
|
$
|
550,579
|
|
Net loss
|
|
$
|
|
|
|
$
|
(426,270
|
)
|
|
$
|
(781,538
|
)
|
|
$
|
(955,773
|
)
|
Net loss per common share, basic and diluted
|
|
$
|
|
|
|
$
|
(2.85
|
)
|
|
$
|
(1.15
|
)
|
|
$
|
(1.04
|
)
|
Distributions declared per common share(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
.096
|
|
|
$
|
0.176
|
|
F-29
STEADFAST
INCOME REIT, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
Distributions declared per common share assumes each share was
issued and outstanding each day during the respective quarterly
period from August 12, 2010 through December 31, 2010.
Each day during the period from August 12, 2010 through
December 31, 2010 was a record date for distributions. |
Distributions
Paid
On January 14, 2011, the Company paid distributions of
$63,566, which related to distributions declared for each day in
the period from December 1, 2010 through December 31,
2010 and consisted of cash distributions paid in the amount of
$40,439 and additional shares issued pursuant to the DRP in the
amount of $23,127. On February 11, 2011, the Company paid
distributions of $72,384, which related to distributions
declared for each day in the period from January 1, 2011
through January 31, 2011 and consisted of cash
distributions paid in the amount of $46,075 and additional
shares issued pursuant to the DRP in the amount of $26,309. On
March 11, 2011, the Company paid distributions of $71,613,
which related to distributions declared for each day in the
period from February 1, 2011 through February 28, 2011
and consisted of cash distributions paid in the amount of
$45,711 and additional shares issued pursuant to the DRP in the
amount of $25,902.
Status
of the Offering
The Company commenced its Public Offering on July 19, 2010.
As of March 14, 2011, the Company had sold
742,999 shares of common stock in the Public Offering for
gross proceeds of $7,377,056, including 11,583 shares of
common stock issued pursuant to the DRP for gross offering
proceeds of $110,038. Total shares sold as of March 14,
2011 in the Private Offering and Public Offering were
1,380,278 shares representing gross proceeds of
$13,221,380, including 11,583 shares of common stock issued
pursuant to the DRP for gross offering proceeds of $110,038.
Amendment
to Advisory Agreement
On March 21, 2011, the Company entered into an amendment to
the Advisory Agreement with Advisor to (1) renew the
Advisory Agreement for an additional one-year term expiring on
May 4, 2012, and (2) make certain clarifications with
respect to the terms and conditions of the deferral of the
payment of fees to Advisor. In particular, the amendment to the
Advisory Agreement clarifies that for purposes of calculating
the amount of fees that may be deferred pursuant to the Advisory
Agreement, the amount of distributions paid during a fiscal
quarter shall include the value of shares of the Companys
common stock distributed pursuant to the DRP. Additionally, for
purposes of calculating the difference between Adjusted Funds
From Operations, and the amount of distributions paid during a
measurement period, if Adjusted Funds From Operations during
such period is negative, Adjusted Funds From Operations shall be
deemed to be zero.
F-30
STEADFAST
INCOME REIT, INC.
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND
AMORTIZATION
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
|
|
|
Gross Amount at which Carried at Close of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Original
|
|
|
|
|
|
|
|
|
|
Ship
|
|
|
|
|
|
|
|
|
Building and
|
|
|
|
|
|
Subsequent to
|
|
|
|
|
|
Building and
|
|
|
|
|
|
Depreciation And
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Location
|
|
|
Percent
|
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements (1)
|
|
|
Total
|
|
|
Acquisition
|
|
|
Land
|
|
|
Improvements (1)
|
|
|
Total(2)
|
|
|
Amortization
|
|
|
Construction
|
|
|
Acquired
|
|
|
Lincoln Tower Property
|
|
|
Springfield, Illinois
|
|
|
|
100
|
%
|
|
$
|
6,650,000
|
|
|
$
|
258,600
|
|
|
$
|
9,241,400
|
|
|
$
|
9,500,000
|
|
|
$
|
2,324
|
|
|
$
|
258,600
|
|
|
$
|
9,243,724
|
|
|
$
|
9,502,324
|
|
|
$
|
(493,547
|
)
|
|
|
1968
|
|
|
|
8/2010
|
|
Park Place Property
|
|
|
Des Moines, Iowa
|
|
|
|
100
|
%
|
|
|
5,000,000
|
|
|
|
500,000
|
|
|
|
7,550,000
|
|
|
|
8,050,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
7,550,000
|
|
|
|
8,050,000
|
|
|
|
(47,025
|
)
|
|
|
1986
|
|
|
|
12/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,650,000
|
|
|
$
|
758,600
|
|
|
$
|
16,791,400
|
|
|
$
|
17,550,000
|
|
|
$
|
2,324
|
|
|
$
|
758,600
|
|
|
$
|
16,793,724
|
|
|
$
|
17,552,324
|
|
|
$
|
(540,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Building and improvements include tenant origination and
absorption costs. |
|
(2) |
|
The aggregate cost of real estate for federal income tax
purposes was $17,550,000 as of December 31, 2010. |
F-31
STEADFAST
INCOME REIT, INC.
SCHEDULE III
REAL
ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND
AMORTIZATION (Continued)
DECEMBER
31, 2010
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
$
|
|
|
|
$
|
|
|
Acquisitions
|
|
|
17,550,000
|
|
|
|
|
|
Improvements
|
|
|
2,324
|
|
|
|
|
|
Write-off of fully depreciated and fully amortized assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
17,552,234
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
$
|
|
|
|
$
|
|
|
Depreciation and amortization expense
|
|
|
540,572
|
|
|
|
|
|
Write-off of fully depreciated and fully amortized assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
540,572
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Irvine, State of
California, on March 21, 2011.
Steadfast Income REIT, Inc.
Rodney F. Emery
Chief Executive Officer, President and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Rodney
F. Emery
Rodney
F. Emery
|
|
Chief Executive Officer, President and Chairman of the Board
(principal executive officer)
|
|
March 21, 2011
|
|
|
|
|
|
/s/ James
M. Kasim
James
M. Kasim
|
|
Chief Financial Officer and Treasurer (principal financial
officer and principal accounting officer)
|
|
March 21, 2011
|
|
|
|
|
|
/s/ Scot
B. Barker
Scot
B. Barker
|
|
Director
|
|
March 21, 2011
|
|
|
|
|
|
/s/ Larry
H. Dale
Larry
H. Dale
|
|
Director
|
|
March 21, 2011
|
|
|
|
|
|
/s/ Jeffrey
J. Brown
Jeffrey
J. Brown
|
|
Director
|
|
March 21, 2011
|