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EXCEL - IDEA: XBRL DOCUMENT - Steadfast Income REIT, Inc. | Financial_Report.xls |
EX-31.1 - EX-31.1 - Steadfast Income REIT, Inc. | g27525exv31w1.htm |
EX-31.2 - EX-31.2 - Steadfast Income REIT, Inc. | g27525exv31w2.htm |
EX-32.2 - EX-32.2 - Steadfast Income REIT, Inc. | g27525exv32w2.htm |
EX-32.1 - EX-32.1 - Steadfast Income REIT, Inc. | g27525exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 333-160748
STEADFAST INCOME REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland | 27-0351641 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
18100 Von Karman Avenue, Suite 500 | ||
Irvine, California | 92612 | |
(Address of Principal Executive Offices) | (Zip Code) |
(949) 852-0700
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filed, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large Accelerated filer o | Accelerated filer o | Non-Accelerated filer o (Do not check if smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As
of August 9, 2011, there were 2,433,087 shares of the Registrants common stock issued and
outstanding.
STEADFAST INCOME REIT, INC.
INDEX
INDEX
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54 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
1
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements
STEADFAST INCOME REIT, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2011 | December 31, 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Assets: |
||||||||
Real Estate: |
||||||||
Land |
$ | 3,112,459 | $ | 758,600 | ||||
Building and improvements |
30,527,676 | 15,569,680 | ||||||
Tenant origination and absorption costs |
1,683,022 | 1,224,044 | ||||||
Total real estate, cost |
35,323,157 | 17,552,324 | ||||||
Less accumulated depreciation and amortization |
(1,761,525 | ) | (540,572 | ) | ||||
Total real estate, net |
33,561,632 | 17,011,752 | ||||||
Cash and cash equivalents |
5,737,651 | 2,858,197 | ||||||
Restricted cash |
392,220 | | ||||||
Rents and other receivables |
186,594 | 119,210 | ||||||
Deferred financing costs and other assets, net |
371,756 | 182,523 | ||||||
Total assets |
$ | 40,249,853 | $ | 20,171,682 | ||||
LIABILITIES AND EQUITY |
||||||||
Liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ | 1,048,615 | $ | 831,501 | ||||
Notes payable |
25,822,000 | 11,650,000 | ||||||
Distributions payable |
114,009 | 63,566 | ||||||
Due to affiliates, net |
690,156 | 381,910 | ||||||
Total liabilities |
27,674,780 | 12,926,977 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Redeemable common stock |
220,522 | 57,827 | ||||||
Equity: |
||||||||
Stockholders Equity: |
||||||||
Preferred stock, $0.01 par value per share;
100,000,000 shares authorized, no shares issued and outstanding |
| | ||||||
Common stock, $0.01 par value per share;
999,999,000 shares authorized, 2,103,227 and 1,184,283
shares issued and outstanding at June 30, 2011 and December
31, 2010, respectively |
21,032 | 11,843 | ||||||
Convertible stock, $0.01 par value per share;
1,000 shares issued and outstanding as of June 30, 2011 and
December 31, 2010 |
10 | 10 | ||||||
Additional paid-in capital |
17,201,054 | 9,568,008 | ||||||
Cumulative distributions and net losses |
(4,867,545 | ) | (2,392,983 | ) | ||||
Total stockholders equity |
12,354,551 | 7,186,878 | ||||||
Noncontrolling interest |
| | ||||||
Total equity |
12,354,551 | 7,186,878 | ||||||
Total liabilities and equity |
$ | 40,249,853 | $ | 20,171,682 | ||||
See accompanying notes to consolidated financial statements.
2
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Rental income |
$ | 968,250 | $ | | $ | 1,738,142 | $ | | ||||||||
Tenant reimbursements
and other |
105,864 | | 217,404 | | ||||||||||||
Total revenues |
1,074,114 | | 1,955,546 | | ||||||||||||
Expenses: |
||||||||||||||||
Operating, maintenance
and management |
336,141 | | 694,038 | | ||||||||||||
Real estate taxes and
insurance |
50,158 | | 211,693 | | ||||||||||||
Fees to affiliates |
444,528 | | 512,684 | | ||||||||||||
Depreciation and
amortization |
590,819 | | 1,220,953 | | ||||||||||||
Interest expense |
217,273 | | 384,085 | | ||||||||||||
General and
administrative expenses |
28,171 | 378,755 | 523,416 | 378,755 | ||||||||||||
Other acquisition costs |
278,262 | 47,515 | 338,191 | 47,515 | ||||||||||||
1,945,352 | 426,270 | 3,885,060 | 426,270 | |||||||||||||
Net loss |
(871,238 | ) | (426,270 | ) | (1,929,514 | ) | (426,270 | ) | ||||||||
Net loss attributable to
noncontrolling interest |
| | | | ||||||||||||
Net loss attributable to
common stockholders |
$ | (871,238 | ) | $ | (426,270 | ) | $ | (1,929,514 | ) | $ | (426,270 | ) | ||||
Net loss per common
share basic and
diluted |
$ | (0.48 | ) | $ | (2.85 | ) | $ | (1.22 | ) | $ | (2.10 | ) | ||||
Weighted average number
of common shares
outstanding basic and
diluted |
1,812,300 | 149,386 | 1,577,250 | 203,297 | ||||||||||||
Distributions declared
per common share |
$ | 0.174 | $ | | $ | 0.347 | $ | | ||||||||
See accompanying notes to consolidated financial statements.
3
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2010
AND THE SIX MONTHS ENDED JUNE 30, 2011
(Unaudited)
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2010
AND THE SIX MONTHS ENDED JUNE 30, 2011
(Unaudited)
Stockholders Equity | ||||||||||||||||||||||||||||||||||||
Cummulative | ||||||||||||||||||||||||||||||||||||
Common Stock | Convertible Stock | Additional Paid- | Distributions & | Total Stockholders | Noncontrolling | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | In Capital | Net Losses | Equity | Interest | Total Equity | ||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||
Commissions on sales of
common stock and
related
dealer manager fees to
affiliates |
| | | | (927,042 | ) | | (927,042 | ) | | (927,042 | ) | ||||||||||||||||||||||||
Transfers to redeemable
common stock |
| | | | (57,827 | ) | | (57,827 | ) | | (57,827 | ) | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||
Issuance of common stock |
918,944 | 9,189 | | | 9,118,560 | | 9,127,749 | | 9,127,749 | |||||||||||||||||||||||||||
Commissions on sales of
common stock and
related
dealer manager fees to
affiliates |
| | | | (847,294 | ) | | (847,294 | ) | | (847,294 | ) | ||||||||||||||||||||||||
Transfers to redeemable
common stock |
| | | | (162,695 | ) | | (162,695 | ) | | (162,695 | ) | ||||||||||||||||||||||||
Other offering costs to
affiliates |
| | | | (491,557 | ) | | (491,557 | ) | | (491,557 | ) | ||||||||||||||||||||||||
Distributions declared |
| | | | | (545,048 | ) | (545,048 | ) | | (545,048 | ) | ||||||||||||||||||||||||
Amortization of
stock-based
compensation |
| | | | 16,032 | | 16,032 | | 16,032 | |||||||||||||||||||||||||||
Net loss for the six
months ended June 30,
2011 |
| | | | | (1,929,514 | ) | (1,929,514 | ) | | (1,929,514 | ) | ||||||||||||||||||||||||
BALANCE, June 30, 2011 |
2,103,227 | $ | 21,032 | 1,000 | $ | 10 | $ | 17,201,054 | $ | (4,867,545 | ) | $ | 12,354,551 | $ | | $ | 12,354,551 | |||||||||||||||||||
See accompanying notes to consolidated financial statements.
4
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Unaudited)
Six Months Ended | ||||
June 30, 2011 | ||||
Cash Flows from Operating Activities: |
||||
Net loss |
$ | (1,929,514 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
||||
Depreciation and amortization |
1,220,953 | |||
Amortization of deferred finance costs |
8,466 | |||
Stock-based compensation |
32,282 | |||
Changes in operating assets and liabilities: |
||||
Restricted cash |
(126,062 | ) | ||
Rent and other receivables |
(9,709 | ) | ||
Other assets |
(80,979 | ) | ||
Accounts payable and accrued liabilities |
217,114 | |||
Due to affiliates, net |
306,917 | |||
Net cash used in operating activities |
(360,532 | ) | ||
Cash Flows from Investing Activities: |
||||
Acquisition of real estate investments |
(17,715,000 | ) | ||
Addition to real estate investments |
(55,833 | ) | ||
Restricted cash |
(266,158 | ) | ||
Net cash used in investing activities |
(18,036,991 | ) | ||
Cash Flows from Financing Activities: |
||||
Proceeds from issuance of notes payable |
14,172,000 | |||
Proceeds from issuance of common stock |
8,868,001 | |||
Payments of commissions on sale of common stock and related dealer
manager fees |
(847,294 | ) | ||
Reimbursement of other offering costs to affiliates |
(490,228 | ) | ||
Payment of deferred financing costs |
(116,720 | ) | ||
Distributions to common stockholders |
(308,782 | ) | ||
Net cash provided by financing activities |
21,276,977 | |||
Net increase in cash and cash equivalents |
2,879,454 | |||
Cash and cash equivalents, beginning of period |
2,858,197 | |||
Cash and cash equivalents, end of period |
$ | 5,737,651 | ||
Supplemental Disclosures of Cash Flow Information: |
||||
Interest paid |
$ | 332,684 | ||
Supplemental Disclosure of Noncash Transactions: |
||||
Increase in distributions payable |
$ | 50,443 | ||
Distributions paid to common stockholders through common stock issuances
pursuant to the dividend reinvestment plan |
$ | 185,822 | ||
See accompanying notes to consolidated financial statements.
5
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
1. Organization and Business
Steadfast 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 the Operating Partnership. As the Company
accepts subscriptions for shares of its common stock, the Company will transfer substantially all
of the net offering proceeds to the Operating Partnership in exchange for partnership interests and
the Companys percentage ownership in the Operating Partnership will increase proportionately. The
Company and Advisor entered into an Amended and Restated Limited Partnership Agreement of the
Operating Partnership (the Partnership Agreement) on September 28, 2009.
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 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 offering proceeds of $5,844,325.
Public Offering
On July 23, 2009, the Company filed a registration statement on Form S-11 with the Securities
and Exchange Commission (the SEC) to offer a maximum of 150,000,000 shares of common stock for
sale to the public at an initial price of $10.00 per share (with discounts available for certain
categories of purchasers) (the 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 of common stock 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 June 30, 2011, the Company
had sold 1,422,157 shares of common stock in the Public Offering for gross offering proceeds of
$14,130,813, including 23,213 shares of common stock issued pursuant to the DRP for gross offering
proceeds of $220,522.
6
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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 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 as of May 4, 2010, as amended by Amendment No. 1 to the Amended and Restated
Advisory Agreement, dated as of March 21, 2011 (as amended, the Advisory Agreement), which is subject to
annual renewal by the Companys board of directors. 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 is responsible for marketing the
Companys shares of common stock being offered pursuant to the Public Offering.
Pursuant to the Partnership Agreement, the Company contributes substantially all of the net
offering proceeds 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 accompanying unaudited consolidated financial statements are prepared in accordance with
U.S. generally accepted accounting principles (GAAP) for interim financial information as
contained within the Financial Accounting Standards Board (FASB), Accounting Standards
Codification (ASC) and the rules and regulations of the SEC, including the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements
do not include all of the information and footnotes required by GAAP for audited financial
statements. In the opinion of management, the financial statements for the unaudited interim
periods presented include all adjustments that are of a normal and recurring nature and necessary
for a fair and consistent presentation of the results of such periods. Operating results for the
three and six months ended June 30, 2011 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2011.
7
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
The consolidated financial statements herein should be read in conjunction with the
consolidated financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended December 31, 2010.
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 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
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
intangible assets 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.
8
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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 of 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) the Companys 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 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.
Estimates of the fair values of the tangible assets, identifiable intangible assets 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 could result in an incorrect valuation of acquired tangible assets,
identifiable intangible assets and assumed liabilities, which could impact the amount of the
Companys 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 the Companys 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 it 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.
9
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Rents and Other Receivables
The Company will periodically evaluate the collectability 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 considers payment
history and current credit status of 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 investments are stated at cost, which approximates fair value. As of June
30, 2011 and 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.
Restricted Cash
Restricted cash represents those cash accounts for which the use of funds is restricted by
loan covenants. As of June 30, 2011 and December 31, 2010, our restricted cash balance was $392,220
and $0, respectively, which represents amounts set aside as impounds for future property tax
payments, property insurance payments and tenant improvement payments as required by our agreements
with our lenders.
10
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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.
11
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718,
CompensationStock 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 has elected 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 three and six months
ended June 30, 2011, 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 January 1, 2011 through June 30, 2011
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 for the Company to qualify
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 for the Public Offering to
exceed 10% of the gross proceeds of the Public Offering, as required by the rules of the Financial
Industry Regulatory Authority, Inc. (FINRA).
12
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Pursuant to the Advisory Agreement and the dealer manager agreement (the Dealer Manager
Agreement) by and among the Company, the Operating Partnership and the Dealer Manager, 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.
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 such excess costs from the Private Offering.
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 in the Private
Offering.
Income Taxes
The
Company has elected to be taxed as a REIT under the Internal Revenue Code beginning with the
tax 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 believes it is organized and operates in such a manner as to qualify for treatment as a REIT.
The Company follows ASC Topic 740, Income Taxes, to recognize, measure, present and disclose
in its accompanying consolidated financial statements uncertain tax positions that the Company has
taken or expects to take on a tax return. As of June 30, 2011 and December 31, 2010, the Company
did not have any liabilities for uncertain tax positions that it believes should be recognized in
its accompanying consolidated financial statements. The Company has not been assessed interest or
penalties by any major tax jurisdictions. The Companys evaluation was performed for tax year ended
December 31, 2010.
13
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Per Share Data
The Company reports earnings (loss) per share in accordance to ASC Topic 260, Earnings per
Share. Basic earnings (loss) per share attributable for all periods presented are computed by
dividing net income (loss) attributable to controlling interest by the weighted average number of
shares of the Companys common stock outstanding during the period. Diluted earnings (loss) per
share are computed based on the weighted average number of shares of the Companys common stock and
all potentially dilutive securities, if any. Distributions declared per common share assumes each
share was issued and outstanding each day during the period. Nonvested shares of the Companys
restricted common stock give rise to potentially dilutive shares of the Companys common stock but
such shares were excluded from the computation of diluted earnings per share because such shares
were anti-dilutive during the period.
Segment Disclosure
ASC Topic 280, Segment Reporting, establishes standards for reporting financial and
descriptive information about a public entitys reportable segments. The Company has determined
that it has one reportable segment, with activities related to investing in multifamily properties.
The Companys investments in real estate are in different geographic regions, and management
evaluates operating performance on an individual asset level. However, as each of the Companys
assets has similar economic characteristics, tenants and products and services, its assets have
been aggregated into one reportable segment for the three and six months ended June 30, 2011.
Recently Issued Accounting Standards
In January 2011, the FASB issued Accounting Standards Update (ASU) 2011-01 (ASU No.
2011-01), Receivables (ASC Topic 310): Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update No. 2010-20 (ASU No. 2010-20) which delays the effective
date of the disclosure requirements for troubled debt restructurings in ASU No. 2010-20 for public
entities. Other disclosure requirements in ASU No. 2010-20 are not deferred by ASU 2011-01. This
guidance was effective immediately. The adoption of ASU No. 2011-01 did not have a material impact
on the Companys consolidated financial statements.
In April, 2011, the FASB issued ASU 2011-02 (ASU No. 2011-02), Receivables (ASC Topic 310):
A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring in Update
No. 2010-20 which addresses whether a creditor has granted a concession and
whether a debtor is experiencing financial difficulties for purposes of determining whether a
restructuring constitutes a troubled debt restructuring. An entity should disclose the total amount
of receivables and the allowance for credit losses as of the end of the period of adoption related
to those receivables that are newly considered impaired under ASC Topic 310 for which impairment
was previously measured under Contingencies (ASC Topic 450). ASU No. 2011-02 is effective for
annual periods ending on or after June 15, 2011. Early adoption is permitted for public and
nonpublic entities. The adoption of ASU 2011-02 is not expected to have a material impact on the
Companys consolidated financial statements.
14
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
In
April 2011, the FASB issued ASU 2011-03 (ASU No. 2011-03), Transfers and Servicing (ASC
Topic 860): Reconsideration of Effective Control for Repurchase Agreements which removes the
transferors ability criterion from the consideration of effective control for repurchase
agreements and other agreements that both entitle and obligate the transferor to repurchase or
redeem financial assets before their maturity. Other criteria (under ASC Topic 860) applicable to
the assessment of effective control are not changed by ASU No. 2011-03. ASU No. 2011-03 is
effective for the first interim or annual period beginning on or after December 15, 2011 and should
be applied prospectively to transactions or modifications of existing transactions that occur on or
after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 is not
expected to have a material impact on the Companys consolidated financial statements.
In
May 2011, the FASB issued ASU 2011-04 (ASU No. 2011-04), Fair Value Measurement (ASC Topic
820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP
and IFRSs which addresses changes to improve the comparability of fair value measurements presented
and disclosed in financial statements prepared in accordance with GAAP and International Financial
Reporting Standards and clarifies fair value measurement and disclosure requirements. ASU 2011-04
is effective for the first interim or annual period beginning after December 15, 2011 and should be
applied prospectively. Early application is not permitted. The adoption of ASU 2011-04 is not
expected to have a material impact on the Companys consolidated financial statements.
In
June 2011, the FASB issued ASU 2011-05 (ASU No. 2011-05), Comprehensive Income (ASC Topic
220), Presentation of Comprehensive Income, which gives an entity the option to present the
components of net income, components of other comprehensive income (OCI) and total comprehensive
income in a single continuous statement of comprehensive income or two separate consecutive
statements. In either presentation, an entity is required to present each component of net income
along with total net income, each component of other comprehensive income along with a total for
other comprehensive income, and a total amount for comprehensive income. The amendments in
this update do not change the items that must be reported in other comprehensive income or when an
item of other comprehensive income must be reclassified to net income, nor does it affect how
earnings per share is calculated or presented. Further, OCI will no longer be allowed to be
presented in the statement of stockholders equity. ASU No. 2011-05 should be
applied retrospectively, and is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011. The adoption of this guidance is not anticipated to have a
material impact on the Companys consolidated financial statements.
3. Real Estate
Lincoln Tower Property
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.
15
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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 98% leased as of June 30, 2011. The Lincoln Tower Property also
includes approximately 9,000 square feet of commercial office space, which was 90% occupied as of
June 30, 2011.
Park Place Property
On December 22, 2010, the Company acquired a fee simple interest in 147 condominium units
within a 16-story building 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 Private Offering and 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
147 condominium units comprising the Park Place Property are within a 16-story building
located in downtown Des Moines, Iowa (the Park Place Building). The Park Place 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 June 30,
2011, the Park Place Property was approximately 94% leased.
Arbor Pointe Property
On May 5, 2011, the Company acquired a fee simple interest in the Arbor Pointe Apartments
located in Louisville, Kentucky (the Arbor Pointe Property), through a wholly-owned subsidiary of
the Operating Partnership. The Company acquired the Arbor Pointe Property for an aggregate purchase
price of $6,500,000, exclusive of closing costs. The Company financed the payment of the purchase
price for the Arbor Pointe Property with (1) proceeds from the Public Offering and (2) a loan in
the aggregate principal amount of $5,200,000. An acquisition fee of $133,565 was earned by the
Advisor in connection with the acquisition of the Arbor Pointe Property.
The Arbor Pointe Property is comprised of 60 two-bedroom, garden style apartments and 70
three-bedroom townhouses and each apartment unit includes two bathrooms, central heat and air
conditioning, a full set of kitchen appliances, washer and dryer connections and private patios or
balconies. Common area amenities at the Arbor Pointe Property include an on-site management office,
swimming pool, playground and community room. As of June 30, 2011, the Arbor Pointe Property was
approximately 99% leased.
16
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Clarion Park Property
On
June 28, 2011, the Company acquired a fee simple interest in the Clarion Park Apartments
located in Olathe, Kansas (the Clarion Park Property), through a wholly-owned subsidiary of the
Operating Partnership. The Company acquired the Clarion Park Property for an aggregate purchase
price of $11,215,000, exclusive of closing costs. The Company financed the payment of the purchase
price for the Clarion Park Property with (1) proceeds from the Public Offering and (2) a loan in
the aggregate principal amount of $8,972,000. An acquisition fee of $229,118 was earned by the
Advisor in connection with the acquisition of the Clarion Park Property.
The Clarion Park Property is comprised of 220 one-, two- and three-bedroom, garden style
apartments and two-bedroom townhouses. The units average 950 square feet and include a full set of
kitchen appliances, washer and dryer connections and patios, with many units offering walk-in
closets and outdoor storage. Common area amenities at the Clarion Park Property include an on-site
management office, laundry room, playground, sports court and fitness trail. As of June 30, 2011,
the Clarion Park Property was approximately 99% occupied and leased.
The
purchase prices for the Lincoln Tower Property, the Park Place Property, the Arbor Pointe
Property and the Clarion Park Property (collectively, the
Properties) were allocated as follows as
of the respective closing dates of each acquisition:
Property Name | City | State | Acquisition Date |
Land | Building and Improvements |
Tenant Origination and Absorption Costs |
Total Purchase Price |
|||||||||||||||||||||
Lincoln Tower Property |
Springfield | IL | 08/11/2010 | $ | 258,600 | $ | 8,741,736 | $ | 499,664 | $ | 9,500,000 | |||||||||||||||||
Park Place Property |
Des Moines | IA | 12/22/2010 | 500,000 | 6,825,620 | 724,380 | 8,050,000 | |||||||||||||||||||||
Arbor Pointe Property |
Louisville | KY | 05/05/2011 | 886,124 | 5,436,189 | 177,687 | 6,500,000 | |||||||||||||||||||||
Clarion Park Property |
Olathe | KS | 06/28/2011 | 1,467,735 | 9,465,974 | 281,291 | 11,215,000 | |||||||||||||||||||||
$ | 3,112,459 | $ | 30,469,519 | $ | 1,683,022 | $ | 35,265,000 | |||||||||||||||||||||
As of June 30, 2011, the Companys real estate portfolio was solely comprised of the
Properties. The following table provides summary information regarding the properties owned by the
Company as of June 30, 2011:
Accumulated | ||||||||||||||||||||
Acquisition | Total Real Estate at | Depreciation and | Total Real Estate, | |||||||||||||||||
Property Name | City | State | Date | Property Type | Cost | Amortization | Net | |||||||||||||
Lincoln Tower Property |
Springfield | IL | 08/11/2010 | Apartment | $ | 9,553,251 | $ | (784,440 | ) | $ | 8,768,811 | |||||||||
Park Place Property |
Des Moines | IA | 12/22/2010 | Condominium Rental | 8,052,696 | (882,955 | ) | 7,169,741 | ||||||||||||
Arbor Pointe Property |
Louisville | KY | 05/05/2011 | Apartment | 6,502,210 | (88,931 | ) | 6,413,279 | ||||||||||||
Clarion Park Property |
Olathe | KS | 06/28/2011 | Apartment | 11,215,000 | (5,199 | ) | 11,209,801 | ||||||||||||
$ | 35,323,157 | $ | (1,761,525 | ) | $ | 33,561,632 | ||||||||||||||
Depreciation and amortization expenses were $590,819 and $1,220,953 for the three and
six months ended June 30, 2011, respectively. The Company commenced its operation on August 11,
2010 and therefore did not have such expenses for the three and six months ended June 30, 2010.
17
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Operating Leases
As
of June 30, 2011, the Companys real estate portfolio comprised of 663 residential tenants and was 98% leased by a diverse group of
tenants. For the three months ended
June 30, 2011, the Companys real estate portfolio earned approximately 96% and 4% of its rental
income from residential tenants and commercial office tenants, respectively. For the six months
ended June 30, 2011, the Companys real estate portfolio earned approximately 95% and 5% 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. The Company did not have
rental income for the three and six months ended June 30, 2010 as it had not yet commenced
operations.
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 accounts
payables and accrued liabilities in the accompanying consolidated balance sheets and totaled
$265,535 and $173,775 as of June 30, 2011 and December 31, 2010, respectively.
The future minimum rental receipts from the Companys properties under non-cancelable
operating leases attributable to commercial office tenants as of June 30, 2011 and thereafter is as
follows:
July 1, 2011 through December 31, 2011 |
$ | 81,162 | ||
2012 |
144,612 | |||
2013 |
74,487 | |||
2014 |
11,008 | |||
Thereafter |
| |||
$ | 311,269 | |||
As of June 30, 2011, no tenant represented over 10% of the Companys annualized base
rent and there were no significant industry concentrations with respect to its commercial leases.
18
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
4. Tenant Origination and Absorption Costs
As of June 30, 2011, the Companys tenant origination and absorption costs were as follows:
June 30, 2011 | December 31, 2010 | |||||||
Cost |
$ | 1,683,022 | $ | 1,224,044 | ||||
Accumulated amortization |
(1,241,992 | ) | (390,644 | ) | ||||
Tenant origination and abosorption costs, net |
$ | 441,030 | $ | 833,400 | ||||
The decrease in net income as a result of amortization of the Companys tenant
origination and absorption costs for the three and six months ended June 30, 2011 was $388,082 and
$851,348, respectively. Tenant origination and absorption costs had a weighted-average amortization
period as of the date of acquisition of less than one year.
As of June 30, 2011 and December 31, 2010, none of the Properties had above-market lease
assets or below-market lease liabilities.
5. Deferred Financing Costs and Other Assets
As of June 30, 2011 and December 31, 2010, deferred financing costs and other assets, net of
accumulated amortization, consisted of:
June 30, 2011 | December 31, 2010 | |||||||
Deferred financing costs |
$ | 189,220 | $ | 72,500 | ||||
Prepaid expenses |
122,906 | 57,447 | ||||||
Other assets |
69,206 | 53,686 | ||||||
381,332 | 183,633 | |||||||
Less: accumulated amortization |
(9,576 | ) | (1,110 | ) | ||||
Deferred financing costs and other
assets, net |
$ | 371,756 | $ | 182,523 | ||||
As of June 30, 2011 and December 31, 2010, the Companys net deferred financing
costs were $179,644 and $71,390, respectively.
19
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
6. Notes Payable
As of June 30, 2011 and December 31, 2010, the outstanding principal
amounts of the Companys notes payable totaled $25,822,000 and $11,650,000, respectively, and were 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), $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), $5,200,000 issued by a regional bank in connection with the Companys
acquisition of the Arbor Pointe Property on May 5, 2011 (the Arbor Pointe Note), and $8,972,000
issued by a regional bank in connection with the Companys acquisition of the Clarion Park Property
on June 29, 2011 (the Clarion Park 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 accrues 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 accrues at a rate of 5.25% per annum through December 22, 2013.
The
Arbor Pointe Note requires monthly principal and interest payments during the term and has
a term of 84 months, ending June 1, 2018. Interest on the Arbor Pointe Note accrues at a rate of
4.86% per annum through June 1, 2018.
The
Clarion Park Note requires monthly principal and interest payments during the term and has
a term of 84 months, ending July 1, 2018. Interest on the Clarion Park Note accrues at a rate of
4.58% per annum through July 1, 2018.
20
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
The
following is a summary of our aggregate maturities as of June 30, 2011:
Remainder of | Maturities During the Years Ending December 31, | |||||||||||||||||||||||||||
Contractual Obligation | Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||||
Principal payments on
outstanding
debt obligations (1) |
$ | 25,822,000 | $ | 98,973 | $ | 214,998 | $ | 5,226,185 | $ | 238,321 | $ | 6,899,879 | $ | 13,143,644 |
(1) | Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. |
The Companys notes payable contain customary financial and non-financial debt covenants. As
of June 30, 2011 and December 31, 2010, the Company was in compliance with all financial debt
covenants.
As of June 30, 2011 and December 31, 2010, $76,185 and $33,250 of interest expense was
payable, respectively, which are included in accounts payable and accrued liabilities in the
accompanying consolidated balance sheets.
7. Stockholders Equity
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.
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.
21
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
During 2009, the Company issued 22,223 shares of common stock to the Sponsor for $200,007. As
of June 30, 2011, the Company had issued 2,036,223 shares of common stock in its Private Offering
and Public Offering for offering proceeds of $16,892,162, net of offering costs of $2,862,454.
These offering costs primarily consist of selling commissions and dealer manager fees. As of June
30, 2011, the Company also had issued 23,213 shares of common stock at $9.50 per share pursuant to
the DRP for total proceeds of $220,522. Offering proceeds include $151,200 of amounts receivable
from the Companys transfer agent as of June 30, 2011.
During 2010, the Company granted 15,000 shares of restricted common stock to its independent
directors at a fair value of $8.55 as compensation for services. The shares of restricted stock
vest and become non-forfeitable in four equal annual installments beginning on the date of grant
and ending on the third anniversary of the date of grant and will become fully vested and become
non-forfeitable on the earlier to occur of (1) the termination of the independent directors
service as a director due to his or her death or disability, or
(2) a change in control of the Company.
Included
in general and administrative expenses are $8,016 and $16,032 for the three and six
months ended June 30, 2011, respectively, for compensation expense related to the issuance of
restricted common stock. The weighted average remaining term of the restricted common stock is 1.79
years.
In addition, during the year ended December 31, 2010, the Company issued 4,782 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.
For the three and six months ended June 30, 2011, the Company issued 893 and 1,786 shares of common
stock to an independent director as compensation, in lieu of cash, at a weighted average fair value
of $9.10. Included in general and administrative expenses is $8,125 and $16,250 of compensation
expense for independent director compensation issued as common stock in lieu of cash compensation
for the three and six months ended June 30, 2011, respectively.
Convertible Stock
The Company issued 1,000 shares of Convertible Stock to the Advisor for $1,000. The
Convertible Stock will convert into shares of the Companys 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 the Companys 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.
22
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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 of preferred
stock, the board of directors shall have the power from time to time to classify or reclassify, in
one or more series, any unissued shares and designate the preferences, rights and privileges of
such shares of preferred stock. The 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 June 30, 2011 and December 31, 2010, 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 price of shares of the Companys common stock in the
Public Offering 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 day
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 receive liquidity for 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 of common stock pursuant to the share repurchase plan
until such shares have been outstanding for one year. In addition, the Company has 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 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.
23
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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 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 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 for the three and six months
ended June 30, 2011 and 2010.
24
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Pursuant to the share repurchase plan, the Company has an obligation to redeem shares which is
outside the Companys control, 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 three and six months ended June 30, 2011, the
Company reclassified $110,484 and $162,695, respectively, 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 (1) DRP proceeds from
the prior year plus (2) DRP proceeds from the current year through the current period less (3)
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.
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 funds from
operations (FFO), as defined by the National Association
of Real Estate Investment Trusts, 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. As of
June 30,2011, $202,602 fees had been deferred pursuant to the Advisory Agreement.
On March 21, 2011, the Company entered into an amendment to the Advisory Agreement with the
Advisor to 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.
25
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
The
Company is only obligated to pay the Advisor its 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 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 a 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 DRP.
The distributions declared for the six months ended June 30, 2011 were $545,048, including
$207,616, or 21,854 shares of common stock, attributable to the DRP.
As of June 30, 2011 and December 31, 2010, $114,009 and $63,566 distributions declared were
payable, which included $44,921 and $23,127 of distributions reinvested pursuant to the DRP.
Distributions Paid
For the six months ended June 30, 2011, the Company paid cash distributions of
$308,782, which related to distributions declared for each day in the period from December 1, 2010
through May 31, 2011. Additionally, 19,560 shares of common stock were issued pursuant to the DRP
for gross offering proceeds of $185,822 for the six months ended June 30, 2011. For the three and
six months ended June 30, 2011, the Company paid total distributions of $286,791 and $494,604,
respectively.
26
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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 and the 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.
As discussed in Note 7, 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 and paid (received) for the
three and six months ended June 30, 2011 and 2010 are as follows:
Incurred | Paid (Received) | |||||||||||||||
For the Three Months | For the Six Months | For the Three Months | For the Six Months | |||||||||||||
Ended June 30, 2011 | Ended June 30, 2011 | Ended June 30, 2011 | Ended June 30, 2011 | |||||||||||||
Consolidated Statements of Operations |
||||||||||||||||
Expensed |
||||||||||||||||
Organizational cost reimbursement |
$ | | $ | | $ | | $ | | ||||||||
Investment management fees (1) |
44,604 | 80,370 | | | ||||||||||||
Acquisition fees (1) |
362,683 | 362,683 | | 222,642 | ||||||||||||
Acquisition
expenses (2) |
75,131 | 135,060 | 88,161 | 135,246 | ||||||||||||
Property management |
||||||||||||||||
Fees (1) |
37,241 | 69,631 | 32,064 | 60,503 | ||||||||||||
Reimbursement of onsite
personnel (3) |
112,126 | 215,078 | 101,592 | 190,869 | ||||||||||||
Consolidated Balance Sheets |
||||||||||||||||
Additional paid-in-capital |
||||||||||||||||
Other offering costs reimbursement |
302,264 | 491,557 | 299,082 | 490,228 | ||||||||||||
Selling commissions |
331,319 | 534,272 | 331,319 | 534,272 | ||||||||||||
Dealer management fees |
194,073 | 313,022 | 194,073 | 313,022 | ||||||||||||
Due to (from) affiliates |
||||||||||||||||
Due from Advisor |
| | | (53,353 | ) | |||||||||||
$ | 1,459,441 | $ | 2,201,673 | $ | 1,046,291 | $ | 1,893,429 | |||||||||
(1) | Included in the $444,528 and $512,684 of fees to affiliates in the accompanying consolidated statement of operations for the three and six months ended June 30, 2011, respectively. | |
(2) | Included in the $278,262 and $338,191 of acquisition expenses in the accompanying consolidated statements of operations for the three and six months ended June 30, 2011, respectively. | |
(3) | Included in the $336,141 and $694,038 of operating, maintenance and management in the accompanying consolidated statements of operations for the three and six months ended June 30, 2011, respectively. |
27
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Amounts outstanding to the Advisor and its affiliates as of June 30, 2011 and December 31,
2010 are as follows:
Payable (Receivable) as of | ||||||||
June 30, 2011 | December 31, 2010 | |||||||
Consolidated Statements of Operations |
||||||||
Expensed |
||||||||
Organizational cost reimbursement |
$ | | $ | | ||||
Investment management fees (1) |
112,211 | 31,841 | ||||||
Acquisition fees (2) |
497,678 | 357,637 | ||||||
Acquisition expenses |
31,369 | 31,555 | ||||||
Property management |
||||||||
Fees |
16,143 | 7,014 | ||||||
Reimbursement of onsite
personnel |
24,209 | | ||||||
Consolidated Balance Sheets |
||||||||
Additional paid-in-capital |
||||||||
Other offering costs reimbursement |
8,546 | 7,216 | ||||||
Selling commissions |
| | ||||||
Dealer management fees |
| | ||||||
Due to (from) affiliates |
||||||||
Due from Advisor |
| (53,353 | ) | |||||
$ | 690,156 | $ | 381,910 | |||||
(1) | Investment management fees of $67,607 and $31,841 earned by the Advisor have been deferred as of June 30, 2011 and December 31, 2010, respectively, pursuant to the terms of the Advisory Agreement. | |
(2) | Acquisition fees earned by the advisor totaling $134,995 were deferred as of June 30, 2011 and December 31, 2010 pursuant to the terms of the Advisory Agreement. The remaining acquisition fees of $362,683 and $222,642 were due and payable and are included in due to affiliates in the accompanying balance sheets at June 30, 2011 and December 31, 2010, respectively. |
28
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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 the 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 cost of the Private Offering. 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 the Private Offering.
The amount of organization and offering (O&O) costs that is reimbursable or was paid from
inception through June 30, 2011 is as follows:
Gross offering proceeds: |
$ | 19,754,616 | ||
O&O limitation |
15 | % | ||
Total O&O costs available to be paid/reimbursed |
$ | 2,963,192 | ||
O&O expenses recorded |
||||
Sales commissions paid |
$ | 1,119,234 | ||
Broker dealer fees paid |
655,102 | |||
Private offering costs reimbursements |
423,707 | |||
Public offering costs reimbursements |
655,865 | |||
Public offering costs reimbursement accrual |
8,546 | |||
Organizational costs reimbursements |
100,738 | |||
Total O&O costs reimbursements recorded by the company |
$ | 2,963,192 | ||
29
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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 June 30, 2011 and December 31, 2010, the Advisor had incurred $8,189,923 and $5,713,747,
respectively, of organizational and offering costs on behalf of the Company, of which $5,226,730
and $4,089,406, respectively, have been deferred as of that date, as follows:
Incurred for the | ||||||||||||||||||||||||
Incurred through | Amounts | Deferred as of | Six Months Ended | Amounts | Deferred as of | |||||||||||||||||||
December 31, 2010 | Recognized | December 31, 2010 | June 30, 2011 | Recognized | June 30, 2011 | |||||||||||||||||||
Organizational
expenses |
$ | 100,738 | $ | 100,738 | $ | | $ | | $ | | $ | | ||||||||||||
Private Offering costs |
2,301,719 | 876,649 | 1,425,070 | | | 1,425,070 | ||||||||||||||||||
Public Offering costs |
3,311,290 | 646,954 | 2,664,336 | 2,476,175 | 1,338,852 | 3,801,659 | ||||||||||||||||||
$ | 5,713,747 | $ | 1,624,341 | $ | 4,089,406 | $ | 2,476,175 | $ | 1,338,852 | $ | 5,226,729 | |||||||||||||
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. For
the three and six months ended June 30, 2011, the Company did not incur or reimburse any offering
costs to the Advisor that were attributable to the Private Offering. From inception through June
30, 2011, the Company incurred $100,738 of organizational costs of which $100,738 was reimbursed to
the Advisor. For the three and six month ended June 30, 2011, the Company reimbursed the Advisor
$827,657 and $1,338,852, respectively, for organization and offering costs incurred resulting in
$2,963,192 of reimbursements for organizational and offering costs from inception through June 30,
2011.
During the three and six months ended June 30, 2011, the Company, the Advisor and its
affiliates incurred $0 of organizational costs, $0 of offering costs in connection with the Private
Offering, and $302,265 and $491,558, respectively, 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 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 accrued
$8,546 and $7,216 for the reimbursement of offering costs in the financial statements as of June
30, 2011 and December 31, 2010, respectively.
30
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Investment Management Fee
The Company pays the Advisor a monthly investment management fee equal to one-twelfth of 0.80%
of (1) the cost of real properties and real estate-related assets acquired directly by the Company
or (2) the 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. For the three and six months ended
June 30, 2011, the Company incurred $44,604 and $80,370, respectively, of investment management
fees to the Advisor, which amount was included in due to affiliates in the accompanying balance
sheets as of June 30, 2011. At June 30, 2011, $44,604 of investment management fees are due and
payable to the Advisor. During the year ended December 31, 2010, the distributions the Company paid
exceeded the Companys Adjusted Funds From Operations for each quarter; therefore, in accordance
with the Advisory Agreement, $67,607 of investment management fees the Company was obligated to pay
the Advisor have been deferred as of June 30, 2011.
Acquisition Fees and Expenses
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. Acquisition fees of $362,683 and $222,642
were due and payable and included in due to affiliates in the accompanying balance sheets at June
30, 2011 and December 31, 2010, respectively.
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 the Park Place
Property. During the year ended December 31, 2010, the distributions the Company paid exceeded the
Companys Adjusted Funds From Operations for each quarter; therefore, in accordance with the
Advisory Agreement, $134,995 of acquisition fees the Company was obligated to pay the Advisor have
been deferred as of June 30, 2011.
In addition to acquisition fees, the Company reimburses the Advisor for amounts directly
incurred by the Advisor and amounts the Advisor pays to third parties in connection with the
selection, acquisition or development of a property or acquisition of real estate-related assets,
whether or not the Company ultimately acquires the property or the real estate-related assets. For
the three and six months ended June 30, 2011, the Advisor incurred $75,131 and $135,060,
respectively, of direct acquisition costs and $203,131 of acquisition costs paid to third parties.
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.
31
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Property Management Fees and Expenses
The Company has entered into Property Management Agreements with Steadfast Management Company,
Inc., an affiliate of the Sponsor (the Property Manager) in connection with the acquisition of
each of the Properties. 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
similar geographic markets, as determined by the Advisor and approved
by a majority of the Companys board of
directors, including a majority of the 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 Property Management Agreement, provided
that the Company may terminate the Property Management Agreement at any time without cause upon 30
days prior written notice to the Property Manager. For the three and six months ended June 30,
2011, the Company incurred $37,241 and $69,631, respectively, 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 three and six months ended June 30, 2011, the
Company incurred $112,126 and $215,078, respectively, of salaries and related benefits of on-site
property management employees, of which $24,209 was payable to the Property Manager at June 30,
2011.
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 the Companys executive officers.
32
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
The Charter limits the Companys operating expenses (as defined in the Charter) during any
four fiscal quarters to the greater of 2% of the Companys average invested assets or 25% of the
Companys net income for the same period (the 2% 25% Limitation). The Company may reimburse the
Advisor, at the end of each fiscal quarter, for operating expenses incurred by the Advisor;
provided, however, that the Company shall not reimburse the Advisor at the end of any fiscal
quarter for operating expenses that exceed the 2%/25% Limitation, unless the independent directors
have determined that such excess expenses were justified based on unusual and non-recurring
factors. 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 operating expenses for the preceding four
fiscal quarters then ended exceed the 2%/25% Limitation. For purposes of determining the 2%/25% Limitation amount, 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 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).
On May 25, 2011, the Company entered into an Operating Expense Reimbursement and Guaranty
Agreement (the Reimbursement Agreement), which provides that if, on the earlier of (1) the
termination date of the Advisory Agreement and
(2) December 31, 2011 (in each case, such date the
Determination Date), the Companys total operating
expenses exceed the 2%/25% Limitation, measured
for the Companys entire operating history, then Advisor will reimburse the Company for the Excess
Amount (the Determination Date Payment). For the four fiscal quarters ended June 30,
2011, the Companys total operating expenses exceeded the 2%/25% Limitation by $1,102,090 (the
Excess Amount). In connection with the Reimbursement Agreement, the
payment of the Excess Amount was guaranteed by an affiliate of the Company.
33
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
The Reimbursement Agreement also provides that within 30 days of December 31 of each year
subsequent to December 31, 2011, Advisor will be reimbursed by the Company for the Determination
Date Payment, if any, to the extent that the Companys total operating expenses through such date do
not exceed the 2%/25% Limitation, measured from the commencement of the Companys operations through
such date. The Company will reimburse the Advisor on a quarterly basis for any future operating
expenses incurred by the Advisor on behalf of the Company up to the 2%/25% Limitation for the prior
four quarters, while any excess may be reimbursed by the Company, subject to independent director
approval, at such time as the Companys operating expenses for the entire operating history do not
exceed the 2%/25% Limitation, including any
reimbursement. In connection with the Reimbursement
Agreement, the Advisor agreed to pay all of the operating expenses of
the Company beginning April 1, 2011, until such time as the
Companys cumulative operating expenses are below the 2%/25%
Limitation. For the three and six months ended June
30, 2011, the Advisor and its affiliates incurred $406,815 of the Companys operating
expenses, of which $0 is included in due to affiliates, net, on the accompanying consolidated balance
sheets. As of December 31, 2010, the Company paid $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.
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% Limitation. In connection with the sale of securities, the disposition fee may be paid
to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable
FINRA rules would prohibit the payment of the disposition fee to a firm that is not a registered
broker-dealer. The Charter limits the maximum amount of the disposition fees payable to the Advisor
for the sale of any real property to the lesser of one-half of the brokerage commission paid or
3.0% of the contract sales price. As of June 30, 2011, the
Company had not sold or otherwise
disposed of property or real estate-related assets. Accordingly, the
Company had not incurred any
disposition fees as of June 30, 2011.
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 pursuant to 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 of the dealer manager fee on a case-by-case basis with each
participating broker-dealer subject to various factors associated with the cost of the marketing
program. For the three and six months ended June 30, 2011, the Company paid $331,319 and $534,272,
respectively, of selling commissions, and $194,073 and $313,022, respectively, of dealer manager
fees from the proceeds received from the sale of the Companys common stock, which were recorded as
a reduction of additional paid in capital.
34
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
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 June 30, 2011 and December 31, 2010, except those awards granted to the independent
directors as described below.
Under the Companys independent directors compensation plan, which is a sub-plan of the
Incentive Award 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 of the Company.
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. In addition to the shares granted under the independent
directors compensation plan, one of the
independent directors has elected to receive 50% of the director compensation in stock. The Company
recorded stock-based compensation expense of $16,141 and $32,282 for the three and six months ended
June 30, 2011, respectively.
10. 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.
35
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(unaudited)
Concentration of Credit Risk
As of June 30, 2011, the Company owned four real estate properties the Lincoln Tower Property
located in Springfield, Illinois, the Park Place Property located in Des Moines, Iowa, the Arbor
Pointe Property located in Louisville, Kentucky and the Clarion Park Property located in Olathe,
KS. 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,
Des Moines, Iowa, Louisville, Kentucky and Olathe, Kansas 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 is the Company aware of any such legal proceedings
contemplated by government agencies.
11. Subsequent Events
The Company evaluates subsequent events up until the date the consolidated financial statements are
issued.
Distributions Paid
On July 14, 2011, the Company paid distributions of $114,009, which related to distributions
declared for each day in the period from June 1, 2011 through June 30, 2011 and consisted of cash
distributions paid in the amount of $69,088 and $44,921 in shares issued pursuant to the DRP.
Status of the Offering
The Company commenced its Public Offering on July 19, 2010. As of August 9, 2011, the Company
had sold 1,752,017 shares of common stock in the Public Offering for gross proceeds of $17,414,201,
including 27,943 shares of common stock issued pursuant to the DRP for gross offering proceeds of
$265,459. Total shares sold as of August 9, 2011 in the Private Offering and Public Offering were
2,389,296, shares representing gross proceeds of $23,258,526, including 27,943 shares of common
stock issued pursuant to the DRP for gross offering proceeds of $265,459.
36
Table of Contents
PART I FINANCIAL INFORMATION (CONTINUED)
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying
financial statements of Steadfast Income REIT, Inc. and the notes thereto. As used herein, the
terms we, our and us refer to Steadfast Income REIT, Inc., a Maryland corporation, and, as
required by context, Steadfast Income REIT Operating Partnership, L.P., a Delaware limited
partnership, which we refer to as our operating partnership, and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q that are not historical
facts (including any statements concerning investment objectives, other plans and objectives of
management for future operations or economic performance, or assumptions or forecasts related
thereto) are forward-looking statements. These statements are only predictions. We caution that
forward-looking statements are not guarantees. Actual events or our investments and results of
operations could differ materially from those expressed or implied in any forward-looking
statements. Forward-looking statements are typically identified by the use of terms such as may,
should, expect, could, intend, plan, anticipate, estimate, believe, continue,
predict, potential or the negative of such terms and other comparable terminology.
The forward-looking statements included herein are based upon our current expectations, plans,
estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions
relating to the foregoing involve judgments with respect to, among other things, future economic,
competitive and market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. Although we believe that
the expectations reflected in such forward-looking statements are based on reasonable assumptions,
our actual results and performance could differ materially from those set forth in the
forward-looking statements. Factors which could have a material adverse effect on our operations
and future prospects include, but are not limited to:
| the fact that we have a limited operating history as we commenced operations on August 11, 2010; | ||
| our ability to effectively deploy the proceeds raised in our public offering of common stock; | ||
| changes in economic conditions generally and the real estate and debt markets specifically; | ||
| our ability to continue to successfully identify and acquire real estate and real estate-related assets on terms that are favorable to us; | ||
| risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters and liquidity of real estate investments; | ||
| legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts, or REITs); | ||
| the availability of capital; | ||
| interest rates; and | ||
| changes to generally accepted accounting principles, or GAAP. |
37
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
Any of the assumptions underlying the forward-looking statements included herein could be
inaccurate, and undue reliance should not be placed on any forward-looking statements included
herein. All forward-looking statements are made as of the date this quarterly report is filed with
the Securities and Exchange Commission, or SEC, and the risk that actual results will differ
materially from the expectations expressed herein will increase with the passage of time. Except as
otherwise required by the federal securities laws, we undertake no obligation to publicly update or
revise any forward-looking statements made herein, whether as a result of new information, future
events, changed circumstances or any other reason.
All forward-looking statements included herein should be read in light of the factors
identified in the Risk Factors section of our Annual Report on Form 10-K filed with the SEC on
March 21, 2011.
Overview
We are a Maryland corporation formed in May 2009 that commenced operations on August 11, 2010.
We are dependent upon proceeds received from our previous private offering and our ongoing public
offering of common stock to conduct our proposed investment activities as described below. The
capital required to purchase our investments will be obtained from our securities offerings and
from any indebtedness that we may incur in connection with the investment or thereafter. We have
initially been capitalized with $202,007; $200,007 of which was contributed by our sponsor,
Steadfast REIT Investments, LLC, on June 12, 2009 in exchange for 22,223 shares of our common
stock, and $1,000 of which was contributed by Steadfast Income Advisor, LLC, which we refer to as
our advisor, on July 10, 2009 in exchange for 1,000 shares of our convertible stock. In addition,
our advisor has invested $1,000 in our operating partnership in exchange for limited partnership
interests.
On October 13, 2009, we commenced a private offering of up to $94,000,000 in shares of our
common stock at a purchase price of $9.40 per share (with discounts available for certain
categories of purchasers), which we refer to as the private offering. We offered shares of our
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, or the Securities Act, and Regulation D promulgated thereunder.
On or about July 9, 2010, we terminated our private offering, at which time we had raised gross
proceeds of $5,844,325 from the sale of 637,279 shares of our common stock.
On July 23, 2009, we filed a registration statement on Form S-11 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, which we refer to as our initial public offering. 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. The SEC declared our registration statement effective on July 9, 2010 and
we commenced the initial public offering on July 19, 2010. If we extend the initial public offering
beyond two years from the date our registration statement was declared effective, our board of
directors may, from time to time, in its sole discretion, change the price at which we offer shares
to the public in the initial public offering or to our stockholders pursuant to the distribution
reinvestment plan to reflect changes in our estimated net asset value per share and other factors
that our board of directors deems relevant. We may reallocate the shares registered for the initial
public offering and those shares registered pursuant to the distribution reinvestment plan. As of
June 30, 2011, we had sold 1,422,157 shares of common stock in our initial public offering for
gross offering proceeds of $14,130,813, including 23,213 shares of common stock issued pursuant to
our distribution reinvestment plan for gross offering proceeds of $220,522.
We intend to use substantially all of the net proceeds from our initial public offering to
invest in a diverse portfolio of real estate and real estate-related assets, primarily in the
multifamily sector. 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 will experience a relative increase in liquidity as additional subscriptions for shares
of our common stock are received and a relative decrease in liquidity as offering proceeds are used
to acquire and operate our assets.
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PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
As of June 30, 2011, we owned four multi-family properties, the Lincoln Tower Apartments, or
the Lincoln Tower property, located in Springfield, Illinois, the Park Place Condominiums, or the
Park Place property, located in Des Moines, Iowa, the Arbor Pointe Apartments, or the Arbor Pointe
property, located in Louisville, Kentucky, and Clarion Park Apartments, or the Clarion Park property, located
in Olathe, Kansas, consisting of an aggregate of 685 rentable multifamily units. The Lincoln Tower
property also includes approximately 9,000 square feet of commercial office space. The total cost
of our real estate portfolio was $35,265,000, exclusive of closing costs. At June 30, 2011, our
portfolio was approximately 98% leased.
Steadfast Income Advisor, LLC is our advisor. Subject to certain restrictions and limitations,
our advisor manages our day-to-day operations and will manage 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. The dealer manager for our initial public offering is
Steadfast Capital Markets Group, LLC, an affiliate of our advisor, which we refer to as the dealer
manager.
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 will transfer substantially all of the net proceeds of our 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
have elected to be taxed as a REIT for federal income tax purposes commencing with our tax filing
for the tax year ending December 31, 2010, which means as a REIT we generally will not be subject
to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a
REIT in any taxable year 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 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.
2011 Real Estate Acquisitions
On May 5, 2011, we acquired a fee simple interest in the Arbor Pointe property through a
wholly-owned subsidiary of our operating partnership for an aggregate purchase price of
approximately $6,500,000, exclusive of closing costs. We financed the payment of the purchase price
for the Arbor Pointe property with (1) proceeds from our public offering and (2) the proceeds of a
secured loan in the aggregate principal amount of $5,200,000 from a regional bank.
On June 28, 2011, we acquired a fee simple interest in the Clarion Park property through a
wholly-owned subsidiary of our operating partnership for an aggregate purchase price of
approximately $11,215,000, exclusive of closing costs. We financed the payment of the purchase
price for the Clarion Park property with (1) proceeds from our public offering and (2) the proceeds
of a secured loan in the aggregate principal amount of $8,972,000 from a regional bank.
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PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
Critical Accounting Policies
The preparation of our financial statements requires significant management judgments,
assumptions and estimates about matters that are inherently uncertain. These judgments affect the
reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts of revenue and expenses during
the reporting periods. With different estimates or assumptions, materially different amounts could
be reported in our financial statements. Additionally, other companies may utilize different
estimates that may impact the comparability of our results of operations to those of companies in
similar businesses. A discussion of the accounting policies that management considers critical in
that they involve significant management judgments, assumptions and estimates is included in our
Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC. There have been
no significant changes to our accounting policies during 2011.
Organization and Offering Costs
Organization and offering expenses include all expenses (other than sales commissions and the
dealer manager fee) 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 escrow
holder and 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 plus 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 the Financial Industry Regulatory Authority,
Inc., or FINRA.
Reimbursements to our advisor or its affiliates for organization and 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 our 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 in our private offering.
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PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
Income Taxes
We
have elected to be taxed as a REIT under the Internal Revenue Code and believe we have
operated as such beginning with the filing of our tax return for 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. Such an event could materially adversely
affect our net income and net cash available for distribution to stockholders.
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 stages of our operations, we may declare distributions in excess of our
funds from operations. As a result, our distribution rate and payment frequency may vary from time
to time. However, to qualify as a REIT for tax purposes, we must make distributions equal to at
least 90% of our REIT taxable income each year.
In order to provide additional available funds for us to pay distributions, under certain
circumstances our obligation to pay all fees due to our advisor pursuant to the advisory agreement
by and among us, our operating partnership and our advisor will be deferred up to an aggregate
amount of $5 million during our offering stage. If, during any calendar quarter during our offering
stage, the distributions we pay exceed our funds from operations, or FFO (as defined by the
National Association of Real Estate Investment Trusts, or 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, prorated 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. As of June 30, 2011 we had deferred
$202,602 in fees payable to our advisor pursuant to the terms of the advisory agreement. There
were no amounts deferred for the three months ended June 30, 2011 as adjusted funds from operations
exceeded the total distributions paid for the quarter.
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) an amount that is 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 million.
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PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
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.
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, (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. We made our first monthly distribution payment in
September 2010.
For the three and six months ended June 30, 2011, we paid aggregate distributions of $286,791
and $494,604, respectively, including $176,308 and $308,782, respectively, of distributions paid in
cash and 11,630 shares and 19,560 shares, respectively, of our common stock issued pursuant to the
distribution reinvestment plan for $110,484 and $185,822, respectively. For the three and six
months ended June 30, 2011 our net loss was $871,238 and $1,929,514, our
FFO, totaled $(280,419) and $(708,561) and cash flow used in operations was $68,051 and $360,532,
respectively. We funded our total distributions paid, which includes net cash distributions and
dividends reinvested by stockholders, with funds from proceeds of our public offering. For
information on how we calculate FFO and the reconciliation of FFO to net loss,see Funds from
Operations and Modified Funds from Operations.
Over the long-term, we expect that a percentage of our distributions will be paid from cash
flow from operations (except with respect to distributions related to sales of our real estate and
real estate-related investments). However, our operating performance cannot be accurately predicted
and may deteriorate in the future due to numerous factors, including those discussed under
Forward-Looking Statements, and Results of Operations herein. Those factors include: the future
operating performance of our investments in 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; and the level of participation in our distribution
reinvestment plan. In the event our cash flow from operations decreases in the future, the level of
our distributions may also decrease. In addition, future distributions declared and paid may exceed
cash flow from operations.
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.
We use, and intend to use in the future, secured and unsecured borrowings for the acquisition
of properties. Once we have fully invested the proceeds of our initial public offering, we expect
that our overall borrowings will be 65% 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 the Second Articles of Amendment and Restatement, or our charter, we have a
limitation on borrowing in excess of 300% of the value of our net assets, which generally
approximates to 75% of the aggregate cost of our assets, though we may exceed this limit under
certain circumstances. As of June 30, 2011, our borrowings were not in excess of 300% of the value
of our net assets.
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PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
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. Otherwise, we expect that our principal sources of working capital
will include:
| current cash balances; | ||
| sales of shares of common stock in our public offering; | ||
| various forms of secured financing; | ||
| equity capital from joint venture partners; | ||
| proceeds from our operating partnerships private placements, if any; and | ||
| proceeds from our distribution reinvestment plan. |
Over the short term, we believe that our sources of capital, specifically our cash balances,
cash flow from operations, proceeds from our initial public offering, 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 sources of capital noted above which we will rely on
to meet our short term liquidity requirements, we may also utilize additional secured and unsecured
financings. 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 of June 30, 2011, we had not
identified any sources for these types of financings; however, we continue to evaluate possible
sources of capital, including, without limitation, entering in to a credit facility. There
can be no assurance that we will be able to obtain any such financings on favorable terms, if at
all.
Our advisor may, but is 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.
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PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
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 Used in Operating Activities
As of June 30, 2011, we owned four real estate properties, two of which we acquired during the
six months ended June 30, 2011. During the six months ended June 30, 2011, net cash used in
operating activities was $360,532, which primarily comprised of general and administrative expenses
offset by net cash from real estate rental activities. We expect that our cash flows from operating
activities will increase in future periods as a result of anticipated future acquisitions of real
estate and real estate-related investments.
Cash Flows Used in Investing Activities
During the six months ended June 30, 2011, net cash used in investing activities was
$18,036,991, and primarily consisted of the acquisition of the Arbor Pointe property and the Clarion Park property. Our cash used in 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.
Cash Flows from Financing Activities
Our cash flows from financing consist primarily of proceeds from our ongoing initial public
offering and distributions paid to our stockholders. During the six months ended June 30, 2011, net
cash provided by financing activities was $21,276,977, and primarily consisted of $14,172,000 of
proceeds from the issuance of notes payable; $7,530,479 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 $847,294,and (2) the reimbursement of other offering
costs to affiliates in the amount of $490,228; and $308,782 of net cash distributions, after giving
effect to distributions reinvested by stockholders of $185,822.
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 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 in excess of 300% of the value of our net assets
which generally approximates to 75% of the aggregate cost of our assets. We may borrow in excess of
this amount if such excess is approved by a majority of our independent directors and disclosed to
stockholders in our next quarterly report, along with a justification for such excess. In such
event, we will monitor our debt levels and take action to reduce any such excess as practicable. 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 are reviewed by our board of directors at least quarterly. As of
June 30, 2011, our aggregate borrowings were not in excess of 300% of the value of our net assets.
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PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
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 June 30, 2011, we had a notes payable in the principal amount of $25,822,000. The
following is a summary of our contractual obligations as of June 30, 2011:
Payments Due During the Years Ending December 31, | ||||||||||||||||||||||||||||
Remainder of | ||||||||||||||||||||||||||||
Contractual Obligation | Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||||
Interest payments on
outstanding debt obligations (1) |
$ | 6,781,434 | $ | 659,855 | $ | 1,331,182 | $ | 1,319,266 | $ | 1,040,985 | $ | 896,427 | $ | 1,533,719 | ||||||||||||||
Principal payments on outstanding
debt obligations (2) |
$ | 25,822,000 | $ | 98,973 | $ | 214,998 | $ | 5,226,185 | $ | 238,321 | $ | 6,899,879 | $ | 13,143,644 |
(1) | Projected interest payments on outstanding debt obligations are based on the outstanding principal amounts and interest rates in effect at June 30, 2011. We incurred interest expense of $217,273 and $384,085 during the three and six months ended June 30, 2011, respectively, including amortization of deferred financing costs totaling $4,841 and $8,466, respectively. | |
(2) | Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. |
Results of Operations
Overview
During the period from May 4, 2009 (inception) to August 11, 2010, we had been formed and had
commenced and completed our private offering and commenced our 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. On August 11, 2010, we acquired
our first real estate investment and, accordingly, commenced operations on that date.
Our results of operations for the three and six months ended June 30, 2011 are not indicative
of those expected in future periods. We have not yet invested all of the proceeds from our ongoing
initial public 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.
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PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
Net loss
We had a net loss of $871,238 and
$1,929,514 for the three and six months ended June 30, 2011, respectively, primarily due to
depreciation and amortization expenses, fees to affiliates, other acquisition costs, and operating expenses.
Total revenues
Total revenues were $1,074,114 and 1,955,546 for the three and six months ended June 30, 2011,
respectively, and consisted primarily of $968,250 and $1,738,142 in rental revenues from
multifamily properties. We expect rental income and tenant reimbursements to increase in future
periods as a result of anticipated future acquisitions of real estate.
Operating expenses
Operating, maintenance and management expenses were $336,141 and $694,038 for the three and
six months ended June 30, 2011, respectively. We incurred these expenses in connection with the
operations of our multifamily properties.
Real estate taxes and insurance
Real estate taxes and insurance expenses were
$50,158 and $211,693 for the three and six months ended June 30, 2011, respectively, and include an estimated $70,379 in anticipated property tax
reductions related to a revised property tax assessment with respect to the Park Place property. We
expect these amounts to increase in future periods as a result of anticipated future acquisitions
of real estate.
Fees to affiliates
Fees to affiliates owed pursuant to our advisory agreement were $444,528 and $512,684 for the
three and six months ended June 30, 2011, respectively. 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 $590,819 and $1,220,953 for the three and six
months ended June 30, 2011, respectively, and related primarily to depreciation and amortization
expenses associated with the Lincoln Tower property and the 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 $217,273 and $384,085 for the three and six months ended June 30, 2011,
respectively. Included in interest expense is the amortization of deferred financing costs of
$4,841 and $8,466 for the three and six months ended June 30, 2011, respectively. 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.
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PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And Results of Operations (continued)
General and administrative expense
General and administrative expenses were $28,171 and $523,416 for the three and six months
ended June 30, 2011, respectively. These general and administrative costs consisted primarily of
legal fees, audit fees, transfer agent fees and other professional
fees. The decrease in general and administrative expenses from the
prior quarter is due primarily to the Advisor incurring $406,815 of
operating expenses on behalf of the Company for the three months
ended June 30, 2011, which are not included in the accompanying
consolidated statements of operations. We expect general and
administrative expenses incurred by our advisor, and potentially reimbursable by us, 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.
Other Acquisition Costs
Other
acquisition costs were $278,262 and $338,191 for the three and six months ended June 30,
2011, respectively, and relate primarily to the acquisition of real estate.
Inflation
Substantially all of our multifamily property leases will be for a term of one year or less.
In an inflationary environment, this may allow us to realize increased rents upon renewal of
existing leases or the beginning of new leases. Short-term leases generally will minimize our risk
from the adverse effects of inflation, although these leases generally permit tenants to leave at
the end of the lease term and therefore will expose us to the effects of a decline in market rents.
In a deflationary rent environment, we may be exposed to declining rents more quickly under these
shorter term leases.
With respect to our commercial properties, we include in our leases future provisions designed
to protect us from the impact of inflation. These provisions include reimbursement billings for
operating expense pass-through charges, real estate tax and insurance reimbursements, or in some
cases annual reimbursement of operating expenses above a certain allowance. We believe that shorter
term lease contracts on commercial properties lessen the impact of inflation due to the ability to
adjust rental rates to market levels as leases expire.
As of June 30, 2011, we had not entered into any leases as a lessee.
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, we will be subject to federal income
tax (including any applicable alternative minimum tax) on our taxable income at regular corporate
rates.
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Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
Funds from Operations and Modified Funds from Operations
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 our
management and 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.
In addition to FFO, we use modified funds from operations, or MFFO, as defined by the
Investment Program Association, or the IPA as a non-GAAP supplemental financial performance measure
to evaluate our operating performance. MFFO includes funds generated by the operations of our real
estate investments and funds used in our operations. MFFO is based on FFO, but includes certain
additional adjustments which we believe are necessary due to changes in the accounting and reporting
rules under GAAP that have been put into effect since the establishment of NAREITs definition of
FFO. These changes have prompted a significant increase in the magnitude of non-cash and
non-operating items included in FFO, as defined. Such items include acquisition fees and expenses,
amortization of above and below market intangible lease assets and liabilities, the effects of
straight-line rent revenue recognition, accretion of discounts and amortization of premiums on debt
investments, non-cash impairment charges of real estate related investments, gains and losses on
the extinguishment or sale of debt or hedges, fair value adjustments to derivative instruments that
do not qualify for hedge accounting treatment, adjustments related to contingent purchase price
obligations and adjustments for consolidated and unconsolidated partnerships and joint ventures.
We
believe MFFO is useful to investors in evaluating how the assets in
our current portfolio might perform after our
offering and acquisition stage has been completed and, as a result, may provide an indication of
the sustainability of our distributions in the future. However, as described in greater detail
below, MFFO should not be considered as an alternative to net income (loss), nor as an indication
of our liquidity. Many of the adjustments to MFFO are similar to adjustments required by SEC rules
for the presentation of pro forma business combination disclosures, particularly acquisition
expenses, gains or losses recognized in business combinations and other activity not representative
of future activities. Because MFFO is primarily affected by the same factors as FFO but without
non-operating changes, particularly valuation changes, we believe the presentation of MFFO is
useful to investors because fluctuations in MFFO are more indicative of changes in operating
activities. MFFO is also more comparable in evaluating our performance over time and as compared to
other real estate companies, which may not be as involved in acquisition activities or as affected
by impairments and other non-operating charges. Our calculation of Adjusted Funds from
Operations, as defined in our advisory agreement, is consistent with the IPA calculation of MFFO.
FFO or MFFO should not be considered as an alternative to net income (loss), nor as
indications of our liquidity, nor are they either indicative of funds available to fund our cash
needs, including our ability to make distributions. In particular, as we are currently in the
acquisition phase of our life cycle, acquisition costs and other adjustments which are increases to
MFFO are, and may continue to be, a significant use of cash. MFFO also excludes impairment charges,
rental revenue adjustments and unrealized gains and losses related to certain other fair value
adjustments. Although the related holdings are not held for sale or used in trading activities, if
the holdings were sold currently, it could affect our operating results. Accordingly, both FFO and
MFFO should be reviewed in connection with other GAAP measurements. Our FFO and MFFO as presented
may not be comparable to amounts calculated by other REITs.
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Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
Our calculation of FFO and MFFO is presented in the following table for the three and six
months ended June 30, 2011:
For the Three Months | For the Six Months | |||||||
Ended June 30, 2011 | Ended June 30, 2011 | |||||||
Reconciliation of net loss to FFO: |
||||||||
Net loss attributable to common shareholders |
$ | (871,238 | ) | $ | (1,929,514 | ) | ||
Depreciation of real estate assets |
202,737 | 369,605 | ||||||
Amortization of lease-related costs |
388,082 | 851,348 | ||||||
FFO |
(280,419 | ) | (708,561 | ) | ||||
Straight-line rent adjustment |
| | ||||||
Amortization of above or below market leases |
| | ||||||
Acquisition fees and expenses |
640,945 | 700,874 | ||||||
Net loss attributable to noncontrolling interest |
| | ||||||
MFFO |
$ | 360,526 | $ | (7,687 | ) | |||
Pursuant
to the terms of our advisory agreement, because MFFO was in excess of distributions paid during the three months ended June 30,
2011, there was no deferral of acquisition and investment management fees earned during the
three months ended June 30, 2011. Acquisition fees and investment management fees of $362,683 and
$44,604, respectively, are due and payable and are included in due to affiliates, net,in the
accompanying consolidated balance sheet.
FFO and MFFO may be used to fund all or a portion of certain capitalizable items that are excluded
from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.
Off-Balance Sheet Arrangements
As of June 30, 2011, we had no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial
conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources.
Related-Party Transactions and Agreements
We have entered into agreements with our advisor and its affiliates, whereby we agree to pay
certain fees to, or reimburse certain expenses of, our advisor or its affiliates for acquisition
fees and expenses, organization and offering costs, sales commissions, dealer manager fees, asset
and property management fees and reimbursement of operating costs. Refer to Note 8 to our condensed
consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q for a
discussion of the various related-party transactions, agreements and fees.
49
Table of Contents
PART I FINANCIAL INFORMATION (continued)
Item 3. Qualitative and Quantitative Disclosure About Market Risk
We may be exposed to the effects of interest rate changes as a result of borrowings used to
maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate
investment portfolio and operations. We may be also exposed to the effects of changes in interest
rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other
loans. Our profitability and the value of our investment portfolio may be adversely affected during
any period as a result of interest rate changes. Our interest rate risk management objectives are
to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and
to lower overall borrowing costs. We have managed and will continue to manage interest rate risk by
maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an
acceptable level. In addition, we 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.
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 June 30, 2011, the fair value of our fixed rate debt was $26,405,796 and the
carrying value of our fixed rate debt was $25,822,000. 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 June 30, 2011. 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 5.13% at June 30, 2011. The
weighted-average interest rate represents the actual interest rate in effect at June 30, 2011
(consisting of the contractual interest rate), using interest rate indices as of June 30, 2011
where applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
As of the end of the period covered by this report, our management, including our chief
executive officer and our principal financial officer, evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based upon
and as of the date of the evaluation, our chief executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of the end of the period
covered by this report to ensure that information required to be disclosed in the reports we file
and submit under the Exchange Act is recorded, processed, summarized and reported as and when
required. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in the reports we file and
submit under the Exchange Act is accumulated and communicated to our management, including our
chief executive officer and our principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred
during our last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
50
Table of Contents
PART IIOTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three and six months ended June 30, 2011, we did not sell any equity securities
that were not registered under the Securities Act of 1933, or the Securities Act.
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. 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. Steadfast Capital Markets Group, LLC, an affiliate of our advisor, is serving as
the dealer manager for our initial public offering. As of June 30, 2011, we had sold
2,059,436 shares of our common stock, including 23,213 shares issued pursuant to the distribution
reinvestment plan, for gross offering proceeds of $19,975,138 in the private offering and public
offering.
From inception through June 30, 2011, 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.
Estimated/ | ||||||||
Type of Expense Amount | Amount | Actual | ||||||
Selling commissions and dealer manager fees |
$ | 1,321,394 | Actual | |||||
Other organization and offering costs |
765,150 | Actual | ||||||
Total expenses |
$ | 2,086,544 | ||||||
Total public offering proceeds (excluding DRP
proceeds) |
$ | 13,910,291 | 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 June 30, 2011, the net offering
proceeds to us, after deducting the total expenses incurred as described above, were
$12,044,269 including net offering proceeds from our distribution reinvestment plan of $220,522. For
the period from inception through June 30, 2011, the ratio of the cost of raising capital was
approximately 15%.
We intend to use substantially all of the net proceeds from our 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, bridge and other real estate loans and equity securities
of other real estate companies. As of June 30, 2011, we had used approximately $9,443,000 in
offering proceeds to partially fund the acquisition of four multifamily properties.
During the three and six months ended June 30, 2011, we did not repurchase any of our
securities, or redeem any shares of our common stock pursuant to our share redemption plan.
51
Table of Contents
PART IIOTHER INFORMATION (continued)
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Reserved and Removed.
Item 5. Other Information.
None.
Item 6. Exhibits.
Effective February 1, 2010, Steadfast Secure Income REIT, Inc., Steadfast Secure Income
Advisor, LLC and Steadfast Secure Income REIT Operating Partnership, L.P. changed their names to
Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC and Steadfast Income REIT Operating
Partnership, L.P., respectively. With respect to documents executed prior to the name change, the
following Exhibit List refers to the entity names used prior to the name changes in order to
accurately reflect the names of the entities that appear on such documents.
3.1 | Second Articles of Amendment and Restatement of Steadfast Income REIT, Inc. (filed as Exhibit 3.1 to Pre-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
3.2 | Bylaws of Steadfast Secure Income REIT, Inc. (filed as Exhibit 3.2 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
4.1 | Form of Subscription Agreement (included as Appendix B to prospectus, incorporated by reference to Exhibit 4.1 to Post-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748)). | |
4.2 | Steadfast Income REIT, Inc. Distribution Reinvestment Plan (included as Appendix C to prospectus, incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748)). | |
10.1 | Notice, dated April 11, 2011, from Steadfast Asset Holdings, Inc. to Arbor Pointe, L.P. (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed May 10, 2011) | |
10.2 | Assignment and Assumption of Purchase Agreement, dated May 5, 2011, by and between Steadfast Asset Holdings, Inc. and SIR Arbor Pointe, LLC (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed May 10, 2011) | |
10.3 | Property Management Agreement, dated as of May 5, 2011, by and between SIR Arbor Pointe, LLC and Steadfast Management Co., Inc. (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed May 10, 2011) | |
10.4 | Multifamily Note, dated May 4, 2011, by SIR Arbor Pointe, LLC in favor of PNC Bank, National Association and Acknowledgement and Agreement of Key Principal to Personal Liability for Exceptions to Non-Recourse Liability by Steadfast Income REIT, Inc. (Incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed May 10, 2011) | |
10.5 | Multifamily Mortgage, Assignment of Rents and Security Agreement, dated as of May 4, 2011, by and among SIR Arbor Pointe, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.6 to the Companys Form 8-K filed May 10, 2011) | |
10.6 | Assignment of Management Agreement, dated as of May 4, 2011, by and among SIR Arbor Pointe, LLC, Steadfast Management Co., Inc. and PNC Bank, National Association (Incorporated by reference to Exhibit 10.7 to the Companys Form 8-K filed May 10, 2011) |
52
Table of Contents
PART IIOTHER INFORMATION (continued)
Item 6. Exhibits (continued)
10.7 | Operating Expense Reimbursement and Guaranty Agreement, dated as of May 25, 2011, by and among Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC, Beacon Bay Holdings, LLC and Rodney F. Emery (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed May 25, 2011) | |
10.8 | Purchase and Sale Agreement and Joint Escrow Instructions, dated May 3, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed June 17, 2011) | |
10.9 | First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated June 8, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed June 17, 2011) | |
10.10 | Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated June 10, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed June 17, 2011) | |
10.11 | Assignment and Assumption of Purchase Agreement, dated as of June 13, 2011, by and between Steadfast Asset Holdings, Inc. and SIR Clarion Park, LLC (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed June 17, 2011) | |
10.12 | Property Management Agreement, dated as of June 28, 2011, by and between SIR Clarion Park, LLC and Steadfast Management Co., Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed July 6, 2011) | |
10.13 | Multifamily Note, dated as of June 28, 2011, by SIR Clarion Park, LLC in favor of PNC Bank, National Association (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed July 6, 2011) | |
10.14 | Multifamily Loan and Security Agreement, dated as of June 28, 2011, by and between SIR Clarion Park, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed July 6, 2011) | |
10.15 | Multifamily Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of June 28, 2011, by and among SIR Clarion Park, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed July 6, 2011) | |
10.16 | Guaranty of Non-Recourse Obligations, dated as of June 28, 2011, by and between Steadfast Income REIT, Inc. and PNC Bank, National Association (Incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed July 6, 2011) | |
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 Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document (Furnished herewith) | |
101.SCH | XBRL Schema Document (Furnished herewith) | |
101.CAL | XBRL Calculation Linkbase Document (Furnished herewith) | |
101.LAB | XBRL Labels Linkbase Document (Furnished herewith) | |
101.PRE | XBRL Presentation Linkbase Document (Furnished herewith) | |
101.DEF | XBRL Definition Linkbase Document (Furnished herewith) |
53
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Steadfast Income REIT, Inc. |
||||
Date: August 15, 2011 | By: | /s/ Rodney F. Emery | ||
Rodney F. Emery | ||||
Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) | ||||
Date: August 15, 2011 | By: | /s/ Kevin J. Keating | ||
Kevin J. Keating | ||||
Treasurer (Principal Financial and Accounting Officer) |
||||
Table of Contents
EXHIBIT INDEX
Effective February 1, 2010, Steadfast Secure Income REIT, Inc., Steadfast Secure Income
Advisor, LLC and Steadfast Secure Income REIT Operating Partnership, L.P. changed their names to
Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC and Steadfast Income REIT Operating
Partnership, L.P., respectively. With respect to documents executed prior to the name change, the
following Exhibit List refers to the entity names used prior to the name changes in order to
accurately reflect the names of the entities that appear on such documents.
3.1 | Second Articles of Amendment and Restatement of Steadfast Income REIT, Inc. (filed as Exhibit 3.1 to Pre-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
3.2 | Bylaws of Steadfast Secure Income REIT, Inc. (filed as Exhibit 3.2 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
4.1 | Form of Subscription Agreement (included as Appendix B to prospectus, incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
4.2 | Steadfast Income REIT, Inc. Distribution Reinvestment Plan (included as Appendix C to prospectus, incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
10.1 | Notice, dated April 11, 2011, from Steadfast Asset Holdings, Inc. to Arbor Pointe, L.P. (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed May 10, 2011) | |
10.2 | Assignment and Assumption of Purchase Agreement, dated May 5, 2011, by and between Steadfast Asset Holdings, Inc. and SIR Arbor Pointe, LLC (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed May 10, 2011) | |
10.3 | Property Management Agreement, dated as of May 5, 2011, by and between SIR Arbor Pointe, LLC and Steadfast Management Co., Inc. (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed May 10, 2011) | |
10.4 | Multifamily Note, dated May 4, 2011, by SIR Arbor Pointe, LLC in favor of PNC Bank, National Association and Acknowledgement and Agreement of Key Principal to Personal Liability for Exceptions to Non-Recourse Liability by Steadfast Income REIT, Inc. (Incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed May 10, 2011) | |
10.5 | Multifamily Mortgage, Assignment of Rents and Security Agreement, dated as of May 4, 2011, by and among SIR Arbor Pointe, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.6 to the Companys Form 8-K filed May 10, 2011) | |
10.6 | Assignment of Management Agreement, dated as of May 4, 2011, by and among SIR Arbor Pointe, LLC, Steadfast Management Co., Inc. and PNC Bank, National Association (Incorporated by reference to Exhibit 10.7 to the Companys Form 8-K filed May 10, 2011) | |
10.7 | Operating Expense Reimbursement and Guaranty Agreement, dated as of May 25, 2011, by and among Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC, Beacon Bay Holdings, LLC and Rodney F. Emery (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed May 25, 2011) |
Table of Contents
10.8 | Purchase and Sale Agreement and Joint Escrow Instructions, dated May 3, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed June 17, 2011) | |
10.9 | First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated June 8, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed June 17, 2011) | |
10.10 | Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated June 10, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed June 17, 2011) | |
10.11 | Assignment and Assumption of Purchase Agreement, dated as of June 13, 2011, by and between Steadfast Asset Holdings, Inc. and SIR Clarion Park, LLC (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed June 17, 2011) | |
10.12 | Property Management Agreement, dated as of June 28, 2011, by and between SIR Clarion Park, LLC and Steadfast Management Co., Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed July 6, 2011) | |
10.13 | Multifamily Note, dated as of June 28, 2011, by SIR Clarion Park, LLC in favor of PNC Bank, National Association (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed July 6, 2011) | |
10.14 | Multifamily Loan and Security Agreement, dated as of June 28, 2011, by and between SIR Clarion Park, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed July 6, 2011) | |
10.15 | Multifamily Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of June 28, 2011, by and among SIR Clarion Park, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed July 6, 2011) | |
10.16 | Guaranty of Non-Recourse Obligations, dated as of June 28, 2011, by and between Steadfast Income REIT, Inc. and PNC Bank, National Association (Incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed July 6, 2011) | |
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 Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document (Furnished herewith) | |
101.SCH | XBRL Schema Document (Furnished herewith) | |
101.CAL | XBRL Calculation Linkbase Document (Furnished herewith) | |
101.LAB | XBRL Labels Linkbase Document (Furnished herewith) | |
101.PRE | XBRL Presentation Linkbase Document (Furnished herewith) | |
101.DEF | XBRL Definition Linkbase Document (Furnished herewith) |