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EX-31.1 - EXHIBIT 31.1 - Steadfast Income REIT, Inc.ex311-sir6302015.htm
EX-32.1 - EXHIBIT 32.1 - Steadfast Income REIT, Inc.ex321-sir6302015.htm
EX-32.2 - EXHIBIT 32.2 - Steadfast Income REIT, Inc.ex322-sir6302015.htm
EX-31.2 - EXHIBIT 31.2 - Steadfast Income REIT, Inc.ex312-sir6302015.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ     
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended June 30, 2015
OR
o     
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                      to                     
Commission file number 000-54674
STEADFAST INCOME REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland
 
27-0351641
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
 
 
 
18100 Von Karman Avenue, Suite 500
 
 
Irvine, California
 
92612
(Address of Principal Executive Offices)
 
(Zip Code)
(949) 852-0700
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer o
Accelerated filer o 
Non-Accelerated filer þ
(Do not check if smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of August 7, 2015, there were 76,858,491 shares of the Registrant’s common stock issued and outstanding.
 



STEADFAST INCOME REIT, INC.
INDEX
 
Page
 
 


1


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
STEADFAST INCOME REIT, INC.
CONSOLIDATED BALANCE SHEETS
 
June 30, 2015
 
December 31, 2014
 
(Unaudited)
 
 
ASSETS
Assets:
 
 
 
Real Estate:
 
 
 
Land
$
174,102,422

 
$
174,102,422

Building and improvements
1,468,467,030

 
1,457,633,918

Tenant origination and absorption costs

 
524,712

Other intangible assets
2,644,263

 
2,644,263

Construction-in-progress
6,736,304

 
2,048,098

Total real estate, cost
1,651,950,019

 
1,636,953,413

Less accumulated depreciation and amortization
(130,154,067
)
 
(98,342,452
)
Total real estate, net
1,521,795,952

 
1,538,610,961

Cash and cash equivalents
32,025,434

 
29,529,312

Restricted cash
22,923,437

 
25,478,939

Rents and other receivables
2,352,759

 
1,992,310

Deferred financing costs and other assets, net
9,158,077

 
13,455,606

Total assets
$
1,588,255,659

 
$
1,609,067,128

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
32,205,191

 
$
39,527,928

Notes payable:
 
 
 
Mortgage notes payable, net
1,087,119,152

 
1,070,757,025

Revolving credit facility
20,000,000

 
14,000,000

Total notes payable, net
1,107,119,152

 
1,084,757,025

Distributions payable
4,528,503

 
4,679,455

Due to affiliates, net
1,328,642

 
3,039,490

Total liabilities
1,145,181,488

 
1,132,003,898

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

 

Common stock, $0.01 par value per share; 999,999,000 shares authorized, 76,858,491 and 76,858,483 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively
768,585

 
768,585

Convertible stock, $0.01 par value per share; 1,000 shares authorized, issued and outstanding as of June 30, 2015 and December 31, 2014, respectively
10

 
10

Additional paid-in capital
680,206,117

 
680,138,132

Cumulative distributions and net losses
(237,900,541
)
 
(203,843,497
)
Total stockholders’ equity
443,074,171

 
477,063,230

Total liabilities and stockholders’ equity
$
1,588,255,659

 
$
1,609,067,128

See accompanying condensed notes to consolidated financial statements.

2


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




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

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Rental income
$
46,388,918

 
$
43,924,772

 
$
91,921,505

 
$
85,168,553

Tenant reimbursements and other
5,854,884

 
5,299,287

 
11,373,597

 
9,735,210

Total revenues
52,243,802

 
49,224,059

 
103,295,102

 
94,903,763

Expenses:
 
 
 
 
 
 
 
Operating, maintenance and management
12,766,597

 
13,130,239

 
25,593,749

 
25,843,547

Real estate taxes and insurance
9,730,344

 
8,876,041

 
18,785,743

 
17,201,391

Fees to affiliates
5,413,367

 
6,125,623

 
10,781,843

 
12,629,447

Depreciation and amortization
16,182,016

 
17,457,109

 
32,336,326

 
37,662,460

Interest expense
9,520,362

 
11,273,624

 
19,507,596

 
21,197,645

Loss on debt extinguishment

 
891,885

 

 
891,885

General and administrative expenses
1,535,545

 
1,712,143

 
3,017,775

 
3,185,990

Acquisition costs

 
483,368

 
7,145

 
1,100,282

Total expenses
55,148,231

 
59,950,032

 
110,030,177

 
119,712,647

Loss from continuing operations
(2,904,429
)
 
(10,725,973
)
 
(6,735,075
)
 
(24,808,884
)
Gain on sale of real estate, net

 
7,072,294

 

 
7,072,294

Net loss
$
(2,904,429
)

$
(3,653,679
)
 
$
(6,735,075
)
 
$
(17,736,590
)
Loss per common share — basic and diluted
$
(0.04
)
 
$
(0.05
)
 
$
(0.09
)
 
$
(0.24
)
Weighted average number of common shares outstanding — basic and diluted
76,353,485

 
75,164,490

 
76,353,485

 
74,817,466

Distributions declared per common share
$
0.179

 
$
0.179

 
$
0.356

 
$
0.356

See accompanying condensed notes to consolidated financial statements.

3


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




STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2014
AND FOR THE SIX MONTHS ENDED JUNE 30, 2015 (Unaudited)
 
Common Stock
 
Convertible Stock
 
Additional Paid-
In Capital
 
Cumulative
Distributions &
Net Losses
 
Total Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
BALANCE, December 31, 2013
74,153,580

 
$
741,538

 
1,000

 
$
10

 
$
640,181,521

 
$
(123,804,541
)
 
$
517,118,528

Issuance of common stock
2,496,806

 
24,968

 

 

 
24,170,846

 

 
24,195,814

Issuance of restricted common stock to Advisor
488,281

 
4,883

 

 

 
4,995,117

 

 
5,000,000

Transfers to redeemable common stock

 

 

 

 
13,393,647

 

 
13,393,647

Redemption of common stock
(280,184
)
 
(2,804
)
 

 

 
(2,721,144
)
 

 
(2,723,948
)
Distributions declared

 

 

 

 

 
(54,296,664
)
 
(54,296,664
)
Amortization of stock-based compensation

 

 

 

 
118,145

 

 
118,145

Net loss for the year ended December 31, 2014

 

 

 

 

 
(25,742,292
)
 
(25,742,292
)
BALANCE, December 31, 2014
76,858,483

 
768,585

 
1,000

 
10

 
680,138,132

 
(203,843,497
)
 
477,063,230

Issuance of common stock
8

 

 

 

 
78

 

 
78

Distributions declared

 

 

 

 

 
(27,321,969
)
 
(27,321,969
)
Amortization of stock-based compensation

 

 

 

 
45,767

 

 
45,767

Change in value of restricted common stock to Advisor

 

 

 

 
22,140

 

 
22,140

Net loss for the six months ended June 30, 2015

 

 

 

 

 
(6,735,075
)
 
(6,735,075
)
BALANCE, June 30, 2015
76,858,491

 
$
768,585

 
1,000

 
$
10

 
$
680,206,117

 
$
(237,900,541
)
 
$
443,074,171

See accompanying condensed notes to consolidated financial statements.

4


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




STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended June 30,
 
2015
 
2014
Cash Flows from Operating Activities:
 
 
 
Net loss
$
(6,735,075
)
 
$
(17,736,590
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
32,336,326

 
37,662,460

Accretion of below-market leases

 
(163,237
)
Amortization of deferred financing costs
732,127

 
759,388

Amortization of stock-based compensation
45,767

 
44,352

Change in value of restricted common stock to Advisor
22,140

 

Amortization of loan premiums and discounts
(617,396
)
 
(617,397
)
Change in fair value of interest rate cap agreements
1,368,174

 
3,315,514

Loss on debt extinguishment

 
95,658

Gain on sale of real estate

 
(7,072,294
)
Bad debt expense
999,662

 
999,650

Changes in operating assets and liabilities:
 
 
 
Restricted cash for operating activities
2,679,940

 
(1,752,395
)
Rents and other receivables
(1,360,111
)
 
(650,126
)
Other assets
2,533,858

 
2,593,114

Accounts payable and accrued liabilities
(7,880,221
)
 
(923,582
)
Due to affiliates, net
(1,710,848
)
 
732,964

Net cash provided by operating activities
22,414,343

 
17,287,479

Cash Flows from Investing Activities:
 
 
 
Acquisition of real estate investments

 
(92,203,757
)
Additions to real estate investments
(14,963,833
)
 
(10,774,719
)
Escrow deposits for pending real estate acquisitions

 
(2,060,400
)
Restricted cash for investing activities
(124,438
)
 
(4,708,402
)
Purchase of interest rate caps
(65,250
)
 
(591,746
)
Proceeds from sales of real estate, net

 
15,201,572

Net cash used in investing activities
(15,153,521
)
 
(95,137,452
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of mortgage notes payable
23,889,258

 
88,663,000

Principal payments on mortgage notes payable
(6,909,735
)
 
(34,879,817
)
Borrowings from credit facility
6,000,000

 
35,000,000

Principal payments on credit facility

 
(15,000,000
)
Proceeds from issuance of common stock

 
26,561,229

Reimbursement of other offering costs to affiliates

 
(3,105,246
)
Payment of deferred financing costs
(271,380
)
 
(737,696
)
Distributions to common stockholders
(27,472,843
)
 
(13,290,263
)
Redemptions of common stock

 
(855,916
)
Net cash (used in) provided by financing activities
(4,764,700
)
 
82,355,291

Net increase in cash and cash equivalents
2,496,122

 
4,505,318

Cash and cash equivalents, beginning of period
29,529,312

 
19,368,573

Cash and cash equivalents, end of period
$
32,025,434

 
$
23,873,891


5


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




 
Six Months Ended June 30,
 
2015
 
2014
Supplemental Disclosures of Cash Flow Information:
 
 
 
Interest paid, net of amounts capitalized of $100,675 and $0 for the six months ended June 30, 2015 and 2014, respectively
$
18,084,480

 
$
17,513,737

Supplemental Disclosure of Noncash Transactions:
 
 
 
Application of escrow deposits to acquire real estate
$

 
$
1,900,400

Distributions paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan
$
78

 
$
12,937,009

Issuance of restricted common stock to settle liability
$

 
$
5,000,000

Increase in redeemable common stock, net
$

 
$
(10,289,276
)
Increase in redeemable common stock payable
$

 
$
401,119

Increase in accounts payable and accrued liabilities from additions to real estate investments
$
557,484

 
$


See accompanying condensed notes to consolidated financial statements.

6


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)


1. Organization and Business
Steadfast Income REIT, Inc. (the “Company”) was formed on May 4, 2009 as a Maryland corporation that has elected to be treated as, and currently qualifies as, a real estate investment trust (“REIT”). On June 12, 2009, the Company was initially capitalized pursuant to the sale of 22,223 shares of common stock to Steadfast REIT Investments, LLC (the “Sponsor”) at a purchase price of $9.00 per share for an aggregate purchase price of $200,007. On July 10, 2009, Steadfast Income Advisor, LLC (the “Advisor”), a Delaware limited liability company formed on May 1, 2009, invested $1,000 in the Company in exchange for 1,000 shares of convertible stock (the “Convertible Stock”) as described in Note 6.
Substantially all of the Company’s business is conducted through Steadfast Income REIT Operating Partnership, L.P., a Delaware limited partnership formed on July 6, 2009 (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. As the Company accepted subscriptions for shares of its common stock in the Public Offering (as defined below), the Company transferred substantially all of the net offering proceeds to the Operating Partnership in exchange for partnership interests, and the Company’s percentage ownership in the Operating Partnership increased proportionately. The Company and Advisor entered into an Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”) on September 28, 2009.
As of June 30, 2015, the Company owned 65 multifamily properties comprising a total of 16,542 apartment homes and an additional 25,973 square feet of rentable commercial space at three properties.
Private Offering
On October 13, 2009, the Company commenced a private offering of up to $94,000,000 in shares of the Company’s common stock at a purchase price of $9.40 per share (with discounts available for certain categories of purchasers) (the “Private Offering”). The Company offered its shares of common stock for sale in the Private Offering pursuant to a confidential private placement memorandum and only to persons that were “accredited investors,” as that term is defined under the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder. On July 9, 2010, the Company terminated the Private Offering and on July 19, 2010, the Company commenced its registered public offering described below. The Company sold 637,279 shares of common stock in the Private Offering for gross offering proceeds of $5,844,325.
Public Offering
On July 23, 2009, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a maximum of 150,000,000 shares of common stock for sale to the public at an initial price of $10.00 per share (with discounts available for certain categories of purchasers) (the “Primary Offering”). The Company also registered up to 15,789,474 shares of common stock for sale pursuant to the Company’s distribution reinvestment plan (the “DRP,” and together with the Primary Offering, the “Public Offering”) at an initial price of $9.50 per share. The SEC declared the Company’s registration statement effective on July 9, 2010. The Company commenced the Public Offering on July 19, 2010. The Company could reallocate shares of common stock registered in the Public Offering between the Primary Offering and the DRP.
On July 12, 2012, the Company’s board of directors determined an estimated value per share of the Company’s common stock as of March 31, 2012 of $10.24. As a result of the determination of the estimated value per share of the Company’s common stock as of March 31, 2012, effective September 10, 2012, the offering price of the Company’s common stock to the public in the Primary Offering increased from the previous price of $10.00 per share to $10.24 per share. Additionally, effective September 10, 2012, the price of shares of the Company’s common stock issued pursuant to the DRP increased from a price of

7


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

$9.50 per share to a price of $9.73 per share, or 95% of the new Primary Offering price of $10.24 per share. Effective September 10, 2012, the Company’s board of directors increased the amount of distributions paid on each share of the Company’s common stock from $0.001917 per share per day to $0.001964 per share per day, which, if paid each day over a 365-day period, is equivalent to a 7.0% annualized distribution rate based on the then new offering price of $10.24 per share.
On March 10, 2015, the Company’s board of directors determined a new estimated value per share of the Company’s common stock of $10.35 as of December 31, 2014.
The Company terminated its Public Offering on December 20, 2013. Following termination of the Public Offering, the Company continued to offer shares of common stock pursuant to the DRP until the Company’s board of directors suspended the DRP effective December 1, 2014. Through December 20, 2013, the Company sold 73,608,337 shares of common stock in the Public Offering for gross proceeds of $745,389,748, including 1,588,289 shares of common stock issued pursuant to the DRP for gross offering proceeds of $15,397,232.
The business of the Company is externally managed by the Advisor pursuant to an Advisory Agreement by and among the Company, the Operating Partnership and the Advisor (as amended, the “Advisory Agreement”), which is subject to annual renewal by the Company’s board of directors. The current term of the Advisory Agreement expires on November 15, 2015. Subject to certain restrictions and limitations, the Advisor manages the Company’s day-to-day operations, manages the Company’s portfolio of properties and real estate-related assets, sources and presents investment opportunities to the Company’s board of directors and provides investment management services on the Company’s behalf. Steadfast Capital Markets Group, LLC (the “Dealer Manager”), an affiliate of the Company, served as the dealer manager for the Public Offering. The Dealer Manager was responsible for marketing the Company’s shares of common stock being offered pursuant to the Public Offering. The Advisor, along with the Dealer Manager, also provides marketing, investor relations and other administrative services on the Company’s behalf.
The Partnership Agreement provides that the Operating Partnership is operated in a manner that will enable the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the Operating Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), which classification could result in the Operating Partnership being taxed as a corporation, rather than as a partnership.
2. Summary of Significant Accounting Policies
There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2014. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 19, 2015.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, the Operating Partnership and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The financial statements of the Company’s subsidiaries are prepared using accounting policies consistent with those of the Company.
The accompanying unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do

8


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

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, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The unaudited consolidated financial statements herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the current year presentation. These reclassifications have not changed the results of operations of prior periods.
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.

9


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

The following describes the valuation methodologies used by the Company to measure fair value, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.
Interest rate cap agreements - These derivatives did not qualify as fair value hedges and are recorded at fair value. Fair value was based on a model-driven valuation using the associated variable rate curve and an implied market volatility, both of which were observable at commonly quoted intervals for the full term of the interest rate cap agreements. Therefore, the Company’s interest rate cap agreements were classified within Level 2 of the fair value hierarchy and are included in deferred financing costs and other assets, net in the accompanying consolidated balance sheets.
The following table reflects the Company’s assets required to be measured at fair value on a recurring basis on the consolidated balance sheets:
 
 
June 30, 2015
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Interest rate cap agreements
 
$

 
$
676,015

 
$

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Interest rate cap agreements
 
$

 
$
1,978,939

 
$

 
 
 
 
 
 
 
Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.
Fair Value of Financial Instruments
The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, rents and other receivables, accounts payable and accrued liabilities, due to affiliates and notes payable.
The Company considers the carrying value of cash and cash equivalents, restricted cash, rents and other receivables, accounts payable and accrued liabilities and the revolving line of credit to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. The fair value of amounts due to affiliates is not determinable due to the related party nature of such amounts.
The fair value of the mortgage notes payable is estimated using a discounted cash flow analysis using borrowing rates available to the Company for debt instruments with similar terms and maturities. As of June 30, 2015 and December 31, 2014, the fair value of the mortgage notes payable was $1,091,142,924 and $1,082,414,832, respectively, compared to the carrying value of $1,087,119,152 and $1,070,757,025, respectively. The Company has determined that its mortgage notes payable are classified as Level 3 within the fair value hierarchy.

10


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

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). Distributions were based on daily record dates and calculated at a rate of $0.001964 per share per day. Each day during the period from January 1, 2015 through June 30, 2015 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. During the three and six months ended June 30, 2015, the Company declared distributions of $0.179 and $0.356 per common share, respectively. During the three and six months ended June 30, 2014, the Company declared distributions of $0.179 and $0.356 per common share, respectively.
Per Share Data
Basic earnings (loss) per share attributable for all periods presented are computed by dividing net income (loss) attributable to controlling interest by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings (loss) per share are computed based on the weighted average number of shares of the Company’s common stock and all potentially dilutive securities, if any. Distributions declared per common share assumes each share was issued and outstanding each day during the period. The Company’s unvested shares of restricted common stock contain non-forfeitable rights to dividends and are considered to be participating securities in accordance with GAAP and, therefore, are included in the computation of earnings (loss) per share under the two-class method. Under the two-class method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The unvested shares of restricted common stock are not allocated losses as the awards do not have a contractual obligation to share in the losses of the Company. The two-class method is an earnings (loss) allocation formula that determines earnings (loss) per share for each class of common shares and participating securities according to dividends declared and participation rights in undistributed earnings.
Segment Disclosure
The Company has determined that it has one reportable segment with activities related to investing in multifamily properties. The Company’s investments in real estate are in different geographic regions, and management evaluates operating performance on an individual asset level. However, as each of the Company’s assets has similar economic characteristics, tenants and products and services, its assets have been aggregated into one reportable segment.
Recently Issued Accounting Standards Updates
In May 2014, the FASB issued Accounting Standard Updates (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The new guidance requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. The new guidance does not apply to lease contracts within the scope of Leases (Topic 840). In July 2015, the FASB decided to delay the effective date of the new guidance by one year, which will result in the new guidance being effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied retrospectively. Early adoption is permitted, but can be no earlier than the original

11


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

public entity effective date of fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is still evaluating the impact of adopting the new guidance on its financial statements, but does not expect the adoption to have a material impact on its financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, that requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern. Until now, the requirement to perform a going concern evaluation existed only in auditing standards. The new guidance requires management to evaluate relevant conditions, events and certain management plans that are known or reasonably knowable as of the evaluation date when determining whether substantial doubt about an entity’s ability to continue as a going concern exists. Management will be required to make this evaluation for both annual and interim reporting periods. The standard states substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The guidance is effective for annual periods ending after December 15, 2016 and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect there to be a material impact from adopting this new guidance.
In January 2015, the FASB issued ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, that eliminates the concept of the extraordinary items from GAAP. The objective of the new guidance is to simplify the income statement presentation requirements of GAAP by altogether removing the concept of extraordinary items from consideration. The guidance is effective for annual periods, including interim periods within that period, beginning after December 15, 2015. Early adoption is permitted. The Company does not expect there to be a material impact from adopting this new guidance.
In February 2015, the FASB issued ASU 2015-02, Consolidation, that provides amendments to the consolidation analysis. The amendments in this new guidance affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The guidance is effective for annual periods, including interim periods within that period, beginning after December 15, 2015. Early adoption is permitted. The Company does not expect there to be a material impact from adopting this new guidance.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, that will require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs will not be affected by the new guidance. The guidance requires retrospective application and is effective for annual periods, including interim periods within that period, beginning after December 15, 2015. Early adoption is permitted. Upon adoption, the Company will reclassify debt issuance costs from deferred financing costs and other assets, net to notes payable on the consolidated balance sheet.
3. Real Estate
As of June 30, 2015, the Company owned 65 multifamily properties, encompassing in the aggregate 16,542 residential apartment homes and 25,973 square feet of rentable commercial space. The total cost of the Company’s real estate portfolio was $1,624,892,557. As of June 30, 2015 and December 31, 2014, the Company’s portfolio was approximately 95.2% and 94.1% occupied and the average monthly rent was $981 and $966, respectively.

12


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

As of June 30, 2015 and December 31, 2014, accumulated depreciation and amortization related to the Company’s consolidated real estate properties and related intangibles were as follows:
 
 
June 30, 2015
 
 
Assets
 
 
Land
 
Building and Improvements
 
Tenant Origination and Absorption Costs
 
Other Intangible Assets
 
Construction-in-Progress
 
Total Real Estate
Investments in real estate
 
$
174,102,422

 
$
1,468,467,030

 
$

 
$
2,644,263

 
$
6,736,304

 
$
1,651,950,019

Less: Accumulated depreciation and amortization
 

 
(129,837,787
)
 

 
(316,280
)
 

 
(130,154,067
)
Net investments in real estate and related lease intangibles
 
$
174,102,422

 
$
1,338,629,243

 
$

 
$
2,327,983

 
$
6,736,304

 
$
1,521,795,952

 
 
December 31, 2014
 
 
Assets
 
 
Land
 
Building and Improvements
 
Tenant Origination and Absorption Costs
 
Other Intangible Assets
 
Construction-in-Progress
 
Total Real Estate
Investments in real estate
 
$
174,102,422

 
$
1,457,633,918

 
$
524,712

 
$
2,644,263

 
$
2,048,098

 
$
1,636,953,413

Less: Accumulated depreciation and amortization
 

 
(97,793,830
)
 
(308,926
)
 
(239,696
)
 

 
(98,342,452
)
Net investments in real estate and related lease intangibles
 
$
174,102,422

 
$
1,359,840,088

 
$
215,786

 
$
2,404,567

 
$
2,048,098

 
$
1,538,610,961

Depreciation and amortization expenses were $16,182,016 and $32,336,326 for the three and six months ended June 30, 2015, and $17,457,109 and $37,662,460 for the three and six months ended June 30, 2014, respectively.
Depreciation of the Company’s buildings and improvements were $16,138,343 and $32,043,956 for the three and six months ended June 30, 2015, and $14,574,731 and $28,440,333 for the three and six months ended June 30, 2014, respectively.
Amortization of the Company’s tenant origination and absorption costs was $5,381 and $215,786 for the three and six months ended June 30, 2015, and $2,844,086 and $9,145,543 for the three and six months ended June 30, 2014, respectively. Tenant origination and absorption costs had a weighted-average amortization period as of the date of acquisition of less than one year. At June 30, 2015, all tenant origination and absorption costs were fully amortized and written off.
Amortization of the Company’s other intangible assets was $38,292 and $76,584 for the three and six months ended June 30, 2015, and $38,292 and $76,584 for the three and six months ended June 30, 2014, respectively.

13


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

The future amortization of the Company’s acquired other intangible assets as of June 30, 2015 and thereafter is as follows:
July 1 through December 31, 2015
$
76,584

2016
153,168

2017
153,168

2018
153,168

2019
153,168

Thereafter
1,638,727

 
$
2,327,983

Operating Leases
As of June 30, 2015, the Company’s real estate portfolio comprised 16,542 residential apartment homes and was 97.5% leased by a diverse group of residents. For each of the three and six months ended June 30, 2015 and 2014, the Company’s real estate portfolio earned approximately 99% of its rental income from residential tenants and approximately 1% of its rental income from commercial tenants, respectively. The residential tenant lease terms consist of lease durations equal to 12 months or less. The commercial office tenant leases consist of lease durations varying from 2.67 to 6.29 years.
Some residential and commercial leases contain provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires security deposits from tenants in the form of a cash deposit and/or a letter of credit for commercial tenants. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets and totaled $4,498,664 and $4,156,797 as of June 30, 2015 and December 31, 2014, respectively.
The future minimum rental receipts from the Company’s properties under non-cancelable operating leases attributable to commercial office tenants as of June 30, 2015 and thereafter is as follows:
July 1 through December 31, 2015
$
177,516

2016
353,852

2017
358,234

2018
202,540

2019
163,431

Thereafter
198,530

 
$
1,454,103

As of June 30, 2015 and December 31, 2014, no tenant represented over 10% of the Company’s annualized base rent and there were no significant industry concentrations with respect to its commercial leases.

14


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

4. Deferred Financing Costs and Other Assets
As of June 30, 2015 and December 31, 2014, deferred financing costs and other assets, net of accumulated amortization, consisted of:
 
June 30,
2015
 
December 31,
2014
Deferred financing costs
$
10,014,657

 
$
9,743,277

Less: accumulated amortization
(3,242,444
)
 
(2,510,317
)
 
6,772,213

 
7,232,960

Prepaid expenses
388,749

 
2,900,609

Interest rate cap agreements
676,015

 
1,978,939

Deposits
1,321,100

 
1,343,098

 
$
9,158,077

 
$
13,455,606

5. Debt
Mortgage Notes Payable
The following is a summary of mortgage notes payable secured by real property as of June 30, 2015 and December 31, 2014:
 
 
June 30, 2015
 
 
 
 
 
 
Interest Rate Range
 
Weighted Average Interest Rate
 
 
Type
 
Number of Instruments
 
Maturity Date Range
 
Minimum
 
Maximum
 
 
Principal Outstanding
Mortgage notes payable - fixed(1)
 
37

 
10/1/2017 - 1/1/2053
 
3.31
%
 
5.94
%
 
4.31
%
 
$
482,654,587

Mortgage notes payable - variable(2)
 
28

 
5/16/2017 - 6/1/2025
 
1-Mo LIBOR + 1.62%

 
1-Mo LIBOR + 2.75%

 
2.54
%
 
604,464,565

Total mortgage notes payable
 
65

 
 
 
 
 
 
 
3.33
%
 
$
1,087,119,152


15


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

 
 
December 31, 2014
 
 
 
 
 
 
Interest Rate Range
 
Weighted Average Interest Rate
 
 
Type
 
Number of Instruments
 
Maturity Date Range
 
Minimum
 
Maximum
 
 
Principal Outstanding
Mortgage notes payable - fixed(1)
 
37

 
10/1/2017 - 1/1/2053
 
3.31
%
 
5.94
%
 
4.30
%
 
$
481,090,989

Mortgage notes payable - variable(2)
 
27

 
5/16/2017 - 8/1/2024
 
1-Mo LIBOR + 1.62%

 
1-Mo LIBOR + 2.75%

 
2.53
%
 
589,666,036

Total mortgage notes payable
 
64

 
 
 
 
 
 
 
3.36
%
 
$
1,070,757,025

_____________________________
(1)
The following table summarizes the debt premiums and discounts as of June 30, 2015, including the unamortized portion included in the principal balance as well as amounts amortized as an offset to interest expense in the accompanying consolidated statements of operations:
Unamortized Portion of Net Debt Premium as of June 30, 2015
 
Amortization of Net Debt Premium During the
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
$
4,069,401

 
$
308,698

 
$
308,699

 
$
617,396

 
$
617,397

(2)
See Note 11 for a discussion of the interest rate cap agreements used to manage the exposure to interest rate movement on the Company’s variable rate loans.
Revolving Credit Facility
The Company entered into a revolving credit facility with PNC Bank, N.A. (“PNC Bank”) to borrow up to $20,000,000. Each advance under the facility is due within 180 days from the date of the advance. On July 18, 2014, the Company and PNC Bank amended the revolving credit facility to, among other things, increase the potential borrowing limit from $20,000,000 to $35,000,000. The amended and restated credit facility consists of a Tranche A and a Tranche B, and provides certain security for borrowings under the credit facility. The maximum amount that may be borrowed under Tranche A and Tranche B are $20,000,000 and $15,000,000, respectively. The amended and restated credit facility has a maturity date of July 17, 2016, subject to extension.
For each advance prior to the July 18, 2014 amendment, the Company had the option to select the interest rate from the following options: (1) 2.0% plus the highest of (A) the Prime Rate (as defined in the revolving credit facility), (B) the sum of the Federal Funds Rate (as defined in the revolving credit facility) plus 0.5%, and (C) daily LIBOR plus 1.0% or (2) LIBOR plus 3.0%. For each advance wherein one of the LIBOR options was selected by the Company, the Company could select either the one-month LIBOR, three-month LIBOR or six-month LIBOR. For each advance under the amended and restated credit facility, the Company has the option to select the interest rate from the following options: (1) Base Rate Option (as defined in the amended and restated credit facility) plus (i) with respect to Tranche A, 0.75% and (ii) with respect to Tranche B, 2.0%; or (2) LIBOR Option, which is a rate per annum fixed for the LIBOR Interest Period (as defined in the amended and restated credit facility) equal to the sum of LIBOR plus (i) with respect to Tranche A, 1.6% and (ii) with respect to Tranche B, 3.0%. The Company elected for each draw to date the LIBOR Option and the in-place interest rate was 1.79% as of June 30, 2015.

16


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

As of June 30, 2015 and December 31, 2014, $20,000,000 and $14,000,000 was outstanding under the credit facility, respectively.
The following is a summary of the Company’s aggregate maturities as of June 30, 2015:
 
 
 
 
Remainder of 2015
 
Maturities During the Years Ending December 31,
 
 
Contractual Obligation
 
Total
 
 
2016
 
2017
 
2018
 
2019
 
Thereafter
Principal payments on outstanding debt obligations(1)
 
$
1,103,049,751

 
$
8,206,741

 
$
36,402,105

 
$
52,553,195

 
$
83,997,288

 
$
128,172,272

 
$
793,718,150

_____________________________
(1)
Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. Amounts exclude the amortization of the debt premiums associated with certain notes payable.
The Company’s notes payable contain customary financial and non-financial debt covenants. As of June 30, 2015 and December 31, 2014, the Company was in compliance with all financial debt covenants.
For the three and six months ended June 30, 2015, the Company incurred interest expense of $9,582,276 and $19,608,271. Interest expense for the three and six months ended June 30, 2015 includes amortization of deferred financing costs of $368,150 and $732,127, amortization of loan premiums of $308,698 and $617,396, net unrealized loss from the change in fair value of interest rate cap agreements of $346,588 and $1,368,174 and capitalized interest of $61,914 and $100,675, respectively. The capitalized interest is included in real estate on the consolidated balance sheets.
For the three and six months ended June 30, 2014, the Company incurred interest expense of $11,273,624 and $21,197,645. Interest expense for the three and six months ended June 30, 2014 includes amortization of deferred financing costs of $395,300 and $759,388, amortization of loan premiums of $308,699 and $617,397 and net unrealized loss from the change in fair value of interest rate cap agreements of $2,125,640 and $3,315,514, respectively.
Interest expense of $2,810,591 and $2,870,380 was payable as of June 30, 2015 and December 31, 2014, respectively, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.
6. Stockholders’ Equity
General
Under the Company’s Third Articles of Amendment and Restatement (the “Charter”), the total number of shares of capital stock authorized for issuance is 1,100,000,000 shares, consisting of 999,999,000 shares of common stock with a par value of $0.01 per share, 1,000 shares of convertible stock with a par value of $0.01 per share and 100,000,000 shares designated as preferred stock with a par value of $0.01 per share.
Common Stock
The shares of the Company’s common stock entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the Company’s board of directors in accordance with the Maryland General Corporation Law and to all rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no preferences or preemptive, conversion or exchange rights.

17


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

During 2009, the Company issued 22,223 shares of common stock to the Sponsor for $200,007. As of June 30, 2015, the Company had issued 76,732,395 shares of common stock in its Private Offering and Public Offering for offering proceeds of $679,572,220, net of offering costs of $95,845,468, including 4,073,759 shares of common stock pursuant to the DRP for total proceeds of $39,580,847. Offering costs primarily consist of selling commissions and dealer manager fees. The Company terminated its Public Offering on December 20, 2013, but continued to offer shares pursuant to the DRP through November 30, 2014.
The issuance and vesting activity for the six months ended June 30, 2015 and for the years ended December 31, 2014 and 2013 for the restricted stock issued to the Company’s independent directors as compensation for services in connection with their initial election or re-election to the board of directors at the Company’s annual meeting is as follows:
 
 
For the Six Months Ended June 30, 2015
 
For the Years Ended December 31,
 
 
 
2014
 
2013
Nonvested shares at the beginning of the period
 
16,875

 
18,750

 
20,625

Granted shares
 

 
10,000

 
10,000

Vested shares
 

 
(11,875
)
 
(11,875
)
Nonvested shares at the end of the period
 
16,875

 
16,875

 
18,750

Additionally, the weighted average fair value of restricted stock issued to the Company’s independent directors for the six months ended June 30, 2015 and for the years ended December 31, 2014 and 2013 is as follows:
Grant Year
 
Weighted Average Fair Value
2013
 
$
10.24

2014
 
10.24

2015
 

The shares of restricted common stock vest and become non-forfeitable in four equal annual installments beginning on the date of grant and ending on the third anniversary of the date of grant and will become fully vested and become non-forfeitable on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability, or (2) a change in control of the Company and as otherwise provided in the Incentive Award Plan, as defined below.
Included in general and administrative expenses is $22,883 and $45,767 for the three and six months ended June 30, 2015 and $22,176 and $44,352 for the three and six months ended June 30, 2014, respectively, for compensation expense related to the issuance of restricted common stock. The weighted average remaining term of the restricted common stock is 0.94 years as of June 30, 2015.
On June 11, 2014, the Company entered into a restricted stock agreement with the Advisor whereby the Company issued to the Advisor 488,281.25 restricted shares of the Company’s common stock at a fair market value of $10.24 per share in satisfaction of certain deferred fees due to the Advisor in the aggregate amount of $5,000,000. The shares of restricted stock vest and become non-forfeitable upon the earliest to occur of (i) 50% at December 31, 2015 and 50% at December 31, 2016, (ii) certain liquidity events of the Company, (iii) the Company’s cumulative modified funds from operations exceed the lesser of (a) the cumulative amount of distributions paid to the Company’s stockholders or (b) an amount that is equal to a 7.0% cumulative, non-compounded annual return on the Company’s stockholders’ invested capital, or (iv) the Company’s termination of, or

18


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

failure to renew, the Advisory Agreement other than for “cause” (as defined in the Advisory Agreement). The shares of restricted stock shall be forfeited if the Advisor is terminated for any reason other than (iv) above. The fair value of the shares of restricted stock was $5,053,711 as of June 30, 2015.
Convertible Stock
The Company issued 1,000 shares of Convertible Stock to the Advisor for $1,000. The Convertible Stock will convert into shares of the Company’s common stock if and when: (A) the Company has made total distributions on the then outstanding shares of common stock equal to the original issue price of those shares plus an 8.0% cumulative, non-compounded, annual return on the original issue price of those shares, (B) subject to specified conditions, the Company lists the common stock for trading on a national securities exchange or (C) the Advisory Agreement is terminated or not renewed by the Company (other than for “cause” as defined in the Advisory Agreement). A “listing” will also be deemed to have occurred on the effective date of any merger of the Company in which the consideration received by the holders of the Company’s common stock is the securities of another issuer that are listed on a national securities exchange. Upon conversion, each share of Convertible Stock will convert into a number of shares of common stock equal to 1/1000 of the quotient of (A) 10% of the amount, if any, by which (1) the Company’s “enterprise value” (as defined in the Charter) plus the aggregate value of distributions paid to date on the outstanding shares of common stock exceeds (2) the aggregate purchase price paid by the stockholders for those shares plus an 8.0% cumulative, non-compounded, annual return on the original issue price of those shares, divided by (B) the Company’s enterprise value divided by the number of outstanding shares of common stock, in each case calculated as of the date of the conversion. In the event of a termination or non-renewal of the Advisory Agreement by the Company for cause, the Convertible Stock will be redeemed by the Company for $1.00.
Preferred Stock
The Charter also provides the Company’s board of directors with the authority to issue one or more classes or series of preferred stock, and prior to the issuance of such shares of preferred stock, the board of directors shall have the power from time to time to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares of preferred stock. The Company’s board of directors is authorized to amend the Charter, without the approval of the stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue. As of June 30, 2015 and December 31, 2014, no shares of the Company’s preferred stock were issued and outstanding.
Distribution Reinvestment Plan
In connection with the Public Offering, the Company’s board of directors approved the DRP through which common stockholders could elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares of the Company’s common stock in lieu of receiving cash distributions. The initial purchase price per share under the DRP was $9.50. Effective September 10, 2012, in connection with the change in the Public Offering price, shares of the Company’s common stock were issued pursuant to the DRP at a price of $9.73 per share. Effective with distributions earned beginning on December 1, 2014, the Company’s board of directors elected to suspend the DRP. As a result, all distributions are currently paid in cash and not reinvested in shares of the Company’s common stock. The Company’s board of directors may, in its sole discretion, from time to time, reinstate the DRP at a price based upon the Company’s estimated value per share and other factors that the Company’s board of directors deems relevant, although there is no assurance as to if or when this will happen.
No sales commissions or dealer manager fees were payable on shares sold through the DRP.

19


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

Share Repurchase Program and Redeemable Common Stock
The Company’s share repurchase program may provide an opportunity for stockholders to have their shares of common stock repurchased by the Company, subject to certain restrictions and limitations. No shares can be repurchased under the Company’s share repurchase program until after the first anniversary of the date of purchase of such shares; provided, however, that this holding period shall not apply to repurchases requested within two years after the death or disability of a stockholder.
The purchase price for shares repurchased under the Company’s share repurchase program is as follows:
Share Purchase Anniversary
 
Repurchase Price
on Repurchase Date(1)
Less than 1 year
 
No Repurchase Allowed
1 year
 
92.5% of Estimated Value per Share(2)
2 years
 
95.0% of Estimated Value per Share(2)
3 years
 
97.5% of Estimated Value per Share(2)
4 years
 
100.0% of Estimated Value per Share(2)
In the event of a stockholder’s death or disability(3)
 
Average Issue Price for Shares(4)
________________
(1)
As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock.
(2)
For purposes of the share repurchase program, the “Estimated Value per Share” equals the most recently determined Estimated Value per Share when the share repurchase program is in effect.
(3)
The required one year holding period to be eligible to redeem shares under the Company’s share repurchase program does not apply in the event of death or disability of a stockholder.
(4)
The purchase price per share for shares redeemed upon the death or disability of a stockholder is equal to the average issue price per share for all of the stockholder’s shares.
The purchase price per share for shares repurchased pursuant to the share repurchase program is further reduced by the aggregate amount of net proceeds per share, if any, distributed to the Company’s stockholders prior to the repurchase date as a result of the sale of one or more of the Company’s assets that constitutes a return of capital distribution as a result of such sales.
Repurchases of shares of the Company’s common stock are made quarterly upon written request to the Company at least 15 days prior to the end of the applicable quarter during quarters in which the share repurchase is in effect. Repurchase requests are honored approximately 30 days following the end of the applicable quarter (the “Repurchase Date”). Stockholders may withdraw their repurchase request at any time up to three business days prior to the Repurchase Date. On October 21, 2014, the Company’s board of directors elected to suspend the Company’s share repurchase program, effective November 20, 2014. As a result, the Company has not processed redemption requests received after such date. On May 12, 2015, the Company’s board of directors elected to reinstate the share repurchase program effective July 1, 2015.
During the three and six months ended June 30, 2014, the Company redeemed a total of 38,415 and 87,928 shares with a total redemption value of $381,372 and $855,916 and received requests for the redemption of 76,036 and 137,606 shares with a total redemption value of $731,533 and $1,346,295, respectively, all of which were redeemed during the year ended December 31, 2014.

20


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

The Company cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all repurchase requests made in any quarter. In the event that the Company does not have sufficient funds available to repurchase all of the shares of the Company’s common stock for which repurchase requests have been submitted in any quarter, priority was given to redemption requests in the case of the death or disability of a stockholder. If the Company repurchases less than all of the shares subject to a repurchase request in any quarter, with respect to any shares which have not been repurchased, the requesting stockholder could (1) withdraw the request for repurchase or (2) ask that the Company honor the request in a future quarter, if any, when such repurchases may be made pursuant to the limitations of the share repurchase program and when sufficient funds were available. Such pending requests would be honored among all requests for redemptions in any given redemption period as follows: first, pro rata as to redemptions sought upon a stockholder’s death or disability; and, next, pro rata as to other redemption requests.
The Company is not obligated to repurchase shares of the Company’s common stock under the share repurchase program. In no event shall redemptions under the share repurchase program exceed 5% of the weighted average number of shares of the Company’s common stock outstanding during the prior calendar year. There is no fee in connection with a repurchase of shares of the Company’s common stock.
The aggregate amount of repurchases under the Company’s share repurchase program is not expected to exceed the aggregate proceeds received from the sale of shares pursuant to the DRP. However, if this amount is not sufficient to fund repurchase requests, subject to the 5% limitation outlined above, the Company’s board of directors may, in its sole discretion, choose to use other sources of funds to repurchase shares of the Company’s common stock. Such sources of funds could include cash on hand, cash available from borrowings and cash from liquidations of securities investments as of the end of the applicable month, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, cash distributions to stockholders or purchases of real estate assets.
Effective July 1, 2015 with the reinstatement of the share repurchase program, in no event shall the value of the shares repurchased pursuant to the share repurchase program exceed $2,000,000 during the quarter beginning July 1, 2015, with each subsequent quarter not to exceed $1,000,000. There is no fee in connection with a repurchase of shares of the Company’s common stock.
In addition, the Company’s board of directors may, in its sole discretion, amend, suspend, or terminate the share repurchase program at any time upon 30 days’ notice to the Company’s stockholders if it determines that the funds available to fund the share repurchase program are needed for other business or operational purposes or that amendment, suspension or termination of the share repurchase program is in the best interest of the Company’s stockholders.
Pursuant to the share repurchase program, for the three and six months ended June 30, 2014, the Company reclassified $6,327,073 and $10,289,276, net of $381,372 and $855,916 of fulfilled redemption requests, respectively, from permanent equity to temporary equity, which is included as redeemable common stock on the accompanying consolidated balance sheets.

21


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

Distributions
The Company’s long-term policy is to pay distributions from cash flow from operations. However, in order to provide additional available funds to pay distributions, the Company’s obligation to pay up to $5,000,000 of fees due to the Advisor pursuant to the Advisory Agreement was deferred. On June 11, 2014, the Company issued $5,000,000 in restricted shares of common stock to the Advisor, subject to certain vesting requirements, as disclosed above, to settle the previously deferred fees due to the Advisor. As of June 30, 2015 and December 31, 2014, no fees had been deferred pursuant to the Advisory Agreement.
Distributions Declared
Distributions declared to date (1) accrue daily to stockholders of record as of the close of business on each day, (2) are payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month and (3) are calculated at a rate of $0.001964 per share per day, which if paid each day over a 365-day period, is equivalent to a 7.0% annualized distribution rate based on a purchase price of $10.24 per share of common stock.
Distributions declared for the three and six months ended June 30, 2015 were $13,736,290 and $27,321,969, including $0 and $78, or 0 and 8 shares of common stock, respectively, attributable to the DRP.
Distributions declared for the three and six months ended June 30, 2014 were $13,454,087 and $26,628,938, including $6,654,678 and $13,171,466, or 683,934 and 1,353,696 shares of common stock, respectively, attributable to the DRP.
As of June 30, 2015 and December 31, 2014, $4,528,503 and $4,679,455 in distributions declared were payable, none of which were reinvested pursuant to the DRP.
Distributions Paid
For the three and six months ended June 30, 2015, the Company paid cash distributions of $13,887,241 and $27,472,843, which related to distributions declared for each day in the period from March 1, 2015 through May 31, 2015 and December 1, 2014 through May 31, 2015, respectively. Additionally, for the three and six months ended June 30, 2015, 0 and 8 shares of common stock were issued pursuant to the DRP for gross offering proceeds of $0 and $78, respectively. For the three and six months ended June 30, 2015, the Company paid total distributions of $13,887,241 and $27,472,921.
For the three and six months ended June 30, 2014, the Company paid cash distributions of $6,834,399 and $13,290,263, which related to distributions declared for each day in the period from March 1, 2014 through May 31, 2014 and December 1, 2013 through May 31, 2014, respectively. Additionally, for the three and six months ended June 30, 2014, 689,571 and 1,329,601 shares of common stock were issued pursuant to the DRP for gross offering proceeds of $6,709,523 and $12,937,009, respectively. For the three and six months ended June 30, 2014, the Company paid total distributions of $13,543,922 and $26,227,272.

22


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

7. Earnings (Loss) Per Share
The following table presents a reconciliation of net loss attributable to common stockholders and shares used in calculating basic and diluted earnings (loss) per share, or EPS, for the three and six months ended June 30, 2015 and 2014:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Net loss attributable to the Company
 
$
(2,904,429
)
 
$
(3,653,679
)
 
$
(6,735,075
)
 
$
(17,736,590
)
Less: dividends declared on participating securities
 
90,284

 
21,572

 
179,575

 
24,886

Net loss attributable to common stockholders
 
(2,994,713
)
 
(3,675,251
)
 
(6,914,650
)
 
(17,761,476
)
Weighted average common shares outstanding — basic and diluted
 
76,353,485

 
75,164,490

 
76,353,485

 
74,817,466

Loss per common share — basic and diluted
 
$
(0.04
)
 
$
(0.05
)
 
$
(0.09
)
 
$
(0.24
)
As of June 30, 2015, the Company excluded 488,281.25 and 16,875 of unvested restricted common shares outstanding issued to the Advisor and the Company’s independent directors, respectively, from the calculation of diluted loss per common share as the effect would have been antidilutive.
8. Related Party Arrangements
The Company has entered into the Advisory Agreement with the Advisor. Pursuant to the Advisory Agreement, the Company is obligated to pay the Advisor specified fees upon the provision of certain services related to the investment of funds in real estate and real estate-related investments, the management of the Company’s investments and for other services (including, but not limited to, the disposition of investments). Subject to the limitations described below, the Company is also obligated to reimburse the Advisor and its affiliates for organization and offering costs incurred by the Advisor and its affiliates on behalf of the Company, and the Company is obligated to reimburse the Advisor and its affiliates for acquisition and origination expenses and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company.

23


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

Amounts attributable to the Advisor and its affiliates incurred for the three and six months ended June 30, 2015 and 2014 and amounts outstanding to the Advisor and its affiliates as of June 30, 2015 and December 31, 2014 are as follows:
 
Incurred For the
 
Incurred For the
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Payable as of
 
2015
 
2014
 
2015
 
2014
 
June 30, 2015
 
December 31, 2014
Consolidated Statements of Operations:
 
 
 
 
 
 
 
 
 
 
 
Expensed
 
 
 
 
 
 
 
 
 
 
 
Investment management fees(1)
$
3,454,795

 
$
3,317,493

 
$
6,896,717

 
$
6,491,789

 
$
21,664

 
$
1,155,012

Acquisition fees(1)

 
917,225

 

 
2,496,902

 

 
603,400

Acquisition expenses(2)

 
201,945

 
7,145

 
411,149

 

 
4,002

Property management
 
 
 
 
 
 
 
 
 
 
 
Fees(1)
1,547,586

 
1,464,108

 
3,050,754

 
2,817,406

 
522,129

 
501,540

Reimbursement of onsite personnel(3)
4,609,838

 
4,482,540

 
9,075,134

 
8,573,720

 
533,435

 
583,161

Other fees(1)
410,986

 
426,797

 
834,372

 
823,350

 
50,550

 
76,913

Other operating expenses(4)
440,022

 
259,125

 
753,787

 
482,803

 
136,026

 
72,253

Disposition fees(5)

 
238,313

 

 
238,313

 

 

Consolidated Balance Sheets:
 
 
 
 
 
 
 
 
 
 
 
Capitalized to real estate
 
 
 
 
 
 
 
 
 
 
 
Construction management fees
307,328

 
340,600

 
572,762

 
569,742

 
64,838

 
43,209

 
$
10,770,555

 
$
11,648,146

 
$
21,190,671

 
$
22,905,174

 
$
1,328,642

 
$
3,039,490

_____________________________
(1)
Included in fees to affiliates in the accompanying consolidated statements of operations.
(2)
Included in acquisition costs in the accompanying consolidated statements of operations.
(3)
Included in operating, maintenance and management in the accompanying consolidated statements of operations.
(4)
Included in general and administrative expenses in the accompanying consolidated statements of operations.
(5)
Included in gain on sale of real estate, net in the accompanying consolidated statements of operations.
Organization and Offering Costs
The Company terminated the Public Offering on December 20, 2013. Prior to the termination of the Public Offering, organization and offering costs (other than selling commissions and dealer manager fees) of the Company were initially 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 the Private Offering, including legal, accounting, printing,

24


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

mailing and filing fees, charges of the Company’s 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. Reimbursement of expenses paid to the Advisor did not exceed the actual expenses incurred by the Advisor. Organization costs included all expenses 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.
Included in organization and offering costs are payments made to Crossroads Capital Advisors, LLC (“Crossroads”), an affiliate of the Sponsor, for certain specified services provided to the Company on behalf of the Advisor, including, without limitation, establishing operational and administrative processes; engaging and negotiating with vendors; providing recommendations and advice for the development of marketing materials and ongoing communications with investors; assisting in public relations activities and the administration of the DRP and share repurchase program; and providing advice as to our real estate portfolio and property operations.
Pursuant to the Advisory Agreement, the Company was 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 was 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 exceeded 15% of gross offering proceeds raised in the completed Public Offering. No amounts were owed to the Company by the Advisor pursuant to the Advisory Agreement.
Organization costs were expensed as incurred. From inception through June 30, 2015, the Company incurred $100,738 of organizational costs on the Company’s behalf, of which $100,738 was reimbursed to the Advisor. No organizational costs were incurred or recognized during the three and six months ended June 30, 2015 and 2014.
Offering costs, including selling commissions and dealer manager fees, were deferred and charged to stockholders’ equity as such amounts were reimbursed to the Advisor, the Dealer Manager or their affiliates from gross offering proceeds. For each of the three and six months ended June 30, 2015 and 2014, no amounts were reimbursed to the Advisor as the Public Offering terminated on December 20, 2013.
The Company has reimbursed the Advisor $95,946,206 for organization and offering costs incurred from inception through June 30, 2015, including reimbursements of organization costs of $100,738, reimbursements of Private Offering costs of $2,301,719 and reimbursements of Public Offering costs of $93,543,749.
Investment Management Fee
The Company pays the Advisor a monthly investment management fee equal to one-twelfth of 0.80% of (1) the cost of real properties and real estate-related assets acquired directly by the Company or (2) the Company’s allocable cost of each real property or real estate-related asset acquired through a joint venture. Such fee is calculated including acquisition fees, acquisition expenses and any debt attributable to such investments, or the Company’s proportionate share thereof in the case of investments made through joint ventures. The cost of real properties and real estate-related assets that have been sold by the Company during the applicable month is excluded from the fee.

25


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

Acquisition Fees and Expenses
The Company pays the Advisor an acquisition fee equal to 2.0% of (1) the cost of investment, as defined in the Advisory Agreement, in connection with the acquisition or origination of any type of real property or real estate-related asset acquired directly by the Company or (2) the Company’s allocable portion of the purchase price in connection with the acquisition or origination of any type of real property or real estate-related asset acquired through a joint venture, including any acquisition and origination expenses and any debt attributable to such investments.
In addition to acquisition fees, the Company reimburses the Advisor for amounts directly incurred by the Advisor or its affiliates, including personnel-related costs for acquisition due diligence, legal and non-recurring management services, and amounts the Advisor pays to third parties in connection with the selection, acquisition or development of a property or acquisition of real estate-related assets, whether or not the Company ultimately acquires the property or the real estate-related assets.
The Charter limits the Company’s ability to pay acquisition fees if the total of all acquisition fees and expenses relating to the purchase would exceed 6.0% of the contract purchase price. Under the Charter, a majority of the Company’s board of directors, including a majority of the independent directors, is required to approve any acquisition fees (or portion thereof) that would cause the total of all acquisition fees and expenses relating to an acquisition to exceed 6.0% of the contract purchase price. In connection with the purchase of securities, the acquisition fee may be paid to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the acquisition fee to a firm that is not a registered broker-dealer.
Property Management Fees and Expenses
The Company has entered into Property Management Agreements with Steadfast Management Company, Inc., an affiliate of the Sponsor (the “Property Manager”), in connection with the acquisition of each of the Company’s properties (other than EBT Lofts, Library Lofts and Stuart Hall Lofts, which are managed by an unaffiliated third-party management company). The property management fee payable with respect to each property under the Property Management Agreements (each a “Property Management Agreement”) ranges from 2.50% to 3.75% of the annual gross revenue collected, which is usual and customary for comparable property management services rendered to similar properties in similar geographic markets, as determined by the Advisor and approved by a majority of the Company’s board of directors, including a majority of the independent directors. The Property Manager also receives an oversight fee of 1% of gross revenues at certain of the properties at which it does not serve as a property manager. Generally, each Property Management Agreement has an initial one year term and continues thereafter on a month-to-month basis unless either party gives a 60 day prior notice of its desire to terminate the Property Management Agreement, provided that the Company may terminate the Property Management Agreement at any time without cause or upon an uncured breach of the Property Management Agreement upon 30 days prior written notice to the Property Manager.
In addition to the property management fee, the Property Management Agreements also specify certain other fees payable to the Property Manager or its affiliates, including fees for benefit administration and training services. The Company also reimburses the Property Manager for the salaries and related benefits of on-site property management employees.
Construction Management Fees
The Company has entered into Construction Management Agreements with Pacific Coast Land and Construction, Inc., an affiliate of the Sponsor (the “Construction Manager”), in connection with planned capital improvements and renovation for certain of the Company’s properties. The construction management fee payable with respect to each property under the Construction Management Agreements (each a “Construction Management Agreement”) ranges from 8.0% to 12.0% of the costs of the improvements for which the Construction Manager has planning and oversight authority. Generally, each

26


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

Construction Management Agreement has a term equal to the planned renovation timeline unless either party gives a 30 day prior notice of its desire to terminate the Construction Management Agreement. Construction management fees are capitalized to the respective real estate properties in the period in which they are incurred, as such costs relate to capital improvements and renovations for apartment homes while they undergo the planned renovation.
Other Operating Expense Reimbursement
In addition to the various fees paid to the Advisor, the Company is obligated to pay directly or reimburse all expenses incurred by the Advisor in providing services to the Company, including the Company’s allocable share of the Advisor’s overhead, such as rent, employee costs, utilities and information technology costs. The Company will not reimburse the Advisor for employee costs in connection with services for which the Advisor or its affiliates receive acquisition fees or disposition fees or for the salaries the Advisor pays to the Company’s executive officers.
The Charter limits the Company’s total operating expenses during any four fiscal quarters to the greater of 2% of the Company’s average invested assets or 25% of the Company’s net income for the same period (the “2%/25% Limitation”). The Company may reimburse the Advisor, at the end of each fiscal quarter, for operating expenses incurred by the Advisor; provided, however, that the Company shall not reimburse the Advisor at the end of any fiscal quarter for operating expenses that exceed the 2%/25% Limitation unless the independent directors have determined that such excess expenses were justified based on unusual and non-recurring factors. The Advisor must reimburse the Company for the amount by which the Company’s operating expenses for the preceding four fiscal quarters then ended exceed the 2%/25% Limitation unless the independent directors have determined that such excess expenses were justified. For purposes of determining the 2%/25% Limitation amount, “average invested assets” means the average monthly book value of the Company’s assets invested directly or indirectly in equity interests and loans secured by real estate during the 12-month period before deducting depreciation, bad debts or other non-cash reserves. “Total operating expenses” means all expenses paid or incurred by the Company that are in any way related to the Company’s operation, including the Company’s allocable share of Advisor overhead and investment management fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, listing and registration of shares of the Company’s common stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain in the sale of the Company’s assets; (f) acquisition fees and acquisition expenses (including expenses relating to potential acquisitions that the Company does not close); (g) real estate commissions on the resale of investments; and (h) other expenses connected with the acquisition, disposition, management and ownership of investments (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of real property).
At June 30, 2015, the Company’s total operating expenses, as defined above, did not exceed the 2%/25% Limitation test.
Disposition Fee
If the Advisor or its affiliates provides a substantial amount of services, as determined by the Company’s 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. To the extent the disposition fee is paid upon the sale of any assets other than real property, it will be included as an operating expense for purposes of the 2%/25% Limitation. In connection with the sale of securities, the disposition fee may be paid to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the disposition fee to a firm that is not a registered broker-dealer. The Charter limits the maximum amount of the disposition fees payable to the Advisor for the sale of any real property to the lesser of one-half of the brokerage commission paid or 3% of the contract sales price, but in no event

27


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

shall the total real estate commissions paid, including any disposition fees payable to the Advisor, exceed 6% of the contract sales price.
Restricted Stock Agreement
On June 11, 2014, the Company entered into a restricted stock agreement with the Advisor whereby the Company issued to the Advisor 488,281.25 restricted shares of the Company’s common stock at a fair market value of $10.24 per share in satisfaction of certain deferred fees due to the Advisor in the aggregate amount of $5,000,000. The shares of restricted stock vest and become non-forfeitable upon the earliest to occur of (i) 50% at December 31, 2015 and 50% at December 31, 2016, (ii) certain liquidity events of the Company, (iii) the Company’s cumulative modified funds from operations exceed the lesser of (a) the cumulative amount of distributions paid to the Company’s stockholders or (b) an amount that is equal to a 7.0% cumulative, non-compounded annual return on the Company’s stockholders’ invested capital, or (iv) the Company’s termination of, or failure to renew, the Advisory Agreement other than for “cause” (as defined in the Advisory Agreement). The shares of restricted stock shall be forfeited if the Advisor is terminated for any reason other than (iv) above.
9. Incentive Award Plan and Independent Director Compensation
The Company has adopted an incentive plan (the “Incentive Award Plan”) that provides for the grant of equity awards to its employees, directors and consultants and those of the Company’s affiliates. The Incentive Award Plan authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards or cash-based awards. No awards have been granted under the Incentive Award Plan as of June 30, 2015 and December 31, 2014, except those awards granted to the independent directors as described below.
Under the Company’s independent directors’ compensation plan, which is a sub-plan of the Incentive Award Plan, each of the Company’s independent directors was entitled to receive 5,000 shares of restricted common stock in connection with the initial meeting of the Company’s full board of directors. The Company’s board of directors, and each of the independent directors, agreed to delay the initial grant of restricted stock until the Company raised $2,000,000 in gross offering proceeds in the Private Offering. In addition, on the date following an independent director’s re-election to the Company’s board of directors, he or she receives 2,500 shares of restricted common stock. One-fourth of the shares of restricted common stock generally vest and become non-forfeitable upon issuance and the remaining portion vest in three equal annual installments beginning on the date of grant and ending on the third anniversary of the date of grant; provided, however, that the restricted stock will become fully vested and become non-forfeitable on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability, or (2) a change in control of the Company and as otherwise provided in the Incentive Award Plan. The Company recorded stock-based compensation expense of $22,883 and $45,767 for the three and six months ended June 30, 2015 and $22,176 and $44,352 for the three and six months ended June 30, 2014, respectively.
10. Commitments and Contingencies
Economic Dependency
The Company is dependent on the Advisor and its affiliates for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase, and disposition of real estate and real estate-related investments; management of the daily operations of the Company’s real estate and real estate-related investment portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.

28


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

Concentration of Credit Risk
The geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the Houston, Texas, Chicago, Illinois and Austin, Texas apartment markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocations of businesses, increased competition from other apartment communities, decrease in demand for apartments or any other changes, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.
Environmental
As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.
Legal Matters
From time to time, the Company is subject, or party, to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on the Company’s results of operations or financial condition nor is the Company aware of any such legal proceedings contemplated by government agencies.
11. Derivative Financial Instruments
The Company uses interest rate derivatives with the objective of managing exposure to interest rate movements thereby minimizing the effect of interest rate changes and the effect they could have on future cash flows. Interest rate cap agreements are used to accomplish this objective. The following table provides the terms of the Company’s interest rate derivative instruments that were in effect at June 30, 2015 and December 31, 2014:
June 30, 2015
Type
 
Maturity Date Range
 
Based on
 
Number of Instruments
 
Notional Amount
 
Variable Rate
 
Weighted Average Rate Cap
 
Fair Value
Interest rate cap
 
11/1/2016 - 1/1/2019
 
One-Month LIBOR
 
28

 
$
595,961,000

 
0.19
%
 
2.56
%
 
$
676,015

December 31, 2014
Type
 
Maturity Date Range
 
Based on
 
Number of Instruments
 
Notional Amount
 
Variable Rate
 
Weighted Average Rate Cap
 
Fair Value
Interest rate cap
 
11/1/2016 - 1/1/2019
 
One-Month LIBOR
 
27

 
$
577,961,000

 
0.17
%
 
2.38
%
 
$
1,978,939


29


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(unaudited)

The interest rate cap agreements are not designated as cash flow hedges. Accordingly, the Company records any changes in the fair value of the interest rate cap agreements as interest expense. The change in the fair value of the interest rate cap agreements for the three and six months ended June 30, 2015 resulted in an unrealized loss of $346,588 and $1,368,174, respectively, which is included in interest expense in the accompanying consolidated statements of operations. The fair value of the interest rate cap agreements of $676,015 as of June 30, 2015 is included in deferred financing costs and other assets, net on the accompanying consolidated balance sheets.
12. Subsequent Events
Distributions Paid
On July 1, 2015, the Company paid distributions of $4,528,503, which related to distributions declared for each day in the period from June 1, 2015 through June 30, 2015. All such distributions were paid in cash.
On August 3, 2015, the Company paid distributions of $4,679,458, which related to distributions declared for each day in the period from July 1, 2015 through July 31, 2015. All such distributions were paid in cash.
Issuance and Acceleration of Restricted Stock to Independent Directors
The Company’s independent directors are granted shares of restricted common stock of the Company upon initial election and re-election to the board of directors. One-fourth of the shares of restricted common stock generally vest and become non-forfeitable upon issuance and the remaining portion vest in three equal annual installments beginning on the date of grant and ending on the third anniversary of the date of grant; provided, however, that the restricted stock will become fully vested and become non-forfeitable on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability, or (2) a change in control of the Company and as otherwise provided in the Incentive Award Plan. In connection with their initial election and re-election to the board of directors, Larry H. Dale and Kerry D. Vandell, respectively, were granted 18,000 and 11,107 shares of the Company’s restricted common stock (collectively, the “Awards”). On August 10, 2015 the board of directors determined it was in the best interest of the Company and its stockholders that all of the time-based vesting restrictions on the awards shall lapse, and the Awards were fully vested effective August 10, 2015.
Additionally, in commemoration of Messrs. Dale and Vandell’s service and commitment to the Company, the board of directors determined that it was in the best interest of the Company and its stockholders to grant 2,000 shares of the Company’s restricted common stock that immediately vest to each of Messrs. Dale and Vandell pursuant to the Incentive Award Plan on August 10, 2015.


30


PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying financial statements of Steadfast Income REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Steadfast Income REIT, Inc., a Maryland corporation, and, as required by context, Steadfast Income REIT Operating Partnership, L.P., a Delaware limited partnership, which we refer to as our “operating partnership,” and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.
The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
the fact that we have had a net loss for each quarterly and annual period since inception;
changes in economic conditions generally and the real estate and debt markets specifically;
our ability to successfully dispose of real estate on terms that are favorable to us;
risks inherent in the real estate business, including tenant defaults, tenant vacancies, potential liability relating to environmental matters and liquidity of real estate investments;
the fact we pay fees and expenses to our advisor and its affiliates that were not negotiated on an arm’s length basis and the payment of these fees and expenses increases the risk that our stockholders will not earn a profit on their investment in us;
legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts, or REITs);
the availability of capital;
changes in interest rates; and
changes to generally accepted accounting principles, or GAAP.
Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed on any forward-looking statements included herein. All forward-looking statements are made as of the date this quarterly report is filed with the Securities and Exchange Commission, or SEC, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements made herein, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this quarterly report, the inclusion of such

31


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


forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this quarterly report will be achieved.
All forward-looking statements included herein should be read in light of the factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 19, 2015.
Overview
We were formed on May 4, 2009, as a Maryland corporation that has elected to qualify as a real estate investment trust, or REIT. As described in more detail below, we own and manage a diverse portfolio of real estate investments, primarily in the multifamily sector, located throughout the United States.
On July 19, 2010, we commenced our initial public offering of up to a maximum of 150,000,000 shares of common stock at an initial price of $10.00 per share (subject to certain discounts) and up to 15,789,474 shares of common stock pursuant to our distribution reinvestment plan at an initial price of $9.50 per share. On July 12, 2012, our board of directors determined an estimated value per share of our common stock of $10.24 as of March 31, 2012. As a result of the determination of the estimated value per share of our common stock as of March 31, 2012, effective September 10, 2012, the offering price of our common stock in our ongoing public offering increased from the previous price of $10.00 per share to $10.24 per share. Additionally, effective September 10, 2012, the price of shares of our common stock issued pursuant to our distribution reinvestment plan increased from a price of $9.50 per share to a price of $9.73 per share, or 95% of the new offering price of $10.24 per share.
On December 20, 2013, we terminated our ongoing public offering. Upon termination of our public offering, we had sold 73,608,337 shares of common stock for gross proceeds of $745,389,748, including 1,588,289 shares of common stock issued pursuant to our distribution reinvestment plan for gross offering proceeds of $15,397,232. On January 3, 2014, we registered with the SEC to offer up to 12,000,000 shares of common stock to existing stockholders pursuant to our distribution reinvestment plan. Our board of directors may, in its sole discretion, change the price at which we offer shares of common stock to our stockholders pursuant to the distribution reinvestment plan to reflect future changes in our estimated value per share and other factors that our board of directors deems relevant. On October 21, 2014, our board of directors elected to suspend our DRP, effective December 1, 2014. On March 10, 2015, our board of directors determined an estimated value per share of our common stock of $10.35 as of December 31, 2014.
As of June 30, 2015, we owned 65 multifamily properties located within the greater midwest and southern geographic regions of the United States. Our property portfolio consists of an aggregate of 16,542 apartment homes and 25,973 square feet of rentable commercial space. The cost of our real estate portfolio was $1,624,892,557, exclusive of closing costs. At June 30, 2015, our portfolio was approximately 97.5% leased.
Steadfast Income Advisor, LLC is our advisor. Subject to certain restrictions and limitations, our advisor manages our day-to-day operations and our portfolio of properties. Our advisor sources and presents investment opportunities to our board of directors. Our advisor also provides investment management, marketing, investor relations and other administrative services on our behalf.

32


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


Substantially all of our business is conducted through our operating partnership. We are the sole general partner of our operating partnership. The initial limited partner of our operating partnership is our advisor. The 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 beginning with the taxable year ending December 31, 2010. As a REIT, we generally are not subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied. Failing to qualify as a REIT could materially and adversely affect our net income.  



33


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


Our Real Estate Portfolio
As of June 30, 2015, we owned the 65 multifamily properties listed below:
 
 
 
 
 
 
 
 
 
 
 
Mortgage Debt Outstanding at June 30, 2015
 
Average Occupancy(1) as of
 
Average Monthly
Rent(2) as of
 
Property Name
 
Location
 
Purchase Date
 
Number
of Units
 
Contract Purchase Price
 
 
Jun 30, 2015
 
Dec 31, 2014
 
Jun 30, 2015
 
Dec 31, 2014
1

Park Place Condominiums
 
Des Moines, IA
 
12/22/2010
 
151

 
$
8,323,400

 
$
4,840,656

 
94.7
%
 
86.1
%
 
$
915

 
$
813

2

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

 
11,215,000

 
8,399,502

 
95.0
%
 
97.7
%
 
768

 
753

3

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

 
10,420,000

 
6,436,767

 
91.1
%
 
94.3
%
 
872

 
913

4

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

 
9,100,000

 
5,653,314

 
98.5
%
 
98.0
%
 
682

 
679

5

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

 
8,575,000

 
5,344,437

 
95.1
%
 
95.1
%
 
949

 
924

6

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

 
33,000,000

 
23,500,000

 
95.3
%
 
94.8
%
 
699

 
686

7

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

 
12,500,000

 
8,855,412

 
93.1
%
 
97.7
%
 
682

 
658

8

Spring Creek of Edmond
 
Edmond, OK
 
3/9/2012
 
252

 
19,350,000

 
13,405,181

 
95.6
%
 
96.0
%
 
856

 
847

9

Montclair Parc Apartments
 
Oklahoma City, OK
 
4/26/2012
 
360

 
35,750,000

 
23,579,698

 
95.8
%
 
96.7
%
 
883

 
866

10

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

 
32,200,000

 
22,103,726

 
95.8
%
 
95.2
%
 
957

 
953

11

Estancia Apartments
 
Tulsa, OK
 
6/29/2012
 
294

 
27,900,000

 
21,305,975

 
96.3
%
 
95.9
%
 
958

 
961

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

 
18,350,000

 
12,124,702

 
97.0
%
 
94.8
%
 
1,039

 
1,003

13
Valley Farms Apartments
 
Louisville, KY
 
8/30/2012
 
160

 
15,100,000

 
9,977,075

 
92.5
%
 
97.5
%
 
876

 
845

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

 
19,800,000

 
13,431,688

 
95.0
%
 
97.0
%
 
976

 
999

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

 
23,174,157

 
18,000,000

 
94.4
%
 
94.8
%
 
1,099

 
1,151

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

 
24,100,000

 
16,275,216

 
95.7
%
 
90.9
%
 
1,081

 
1,080

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

 
21,850,000

 
15,021,221

 
94.2
%
 
92.5
%
 
921

 
878

18
Renaissance at St. Andrews Condominiums
 
Louisville, KY
 
10/31/2012
 
29

 
1,375,000

 

 
100.0
%
 
96.6
%
 
715

 
650

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

 
30,790,000

 
21,104,183

 
92.4
%
 
93.3
%
 
757

 
756

20
Arrowhead Apartments
 
Palatine, IL
 
11/30/2012
 
200

 
16,750,000

 
12,198,130

 
98.0
%
 
97.5
%
 
1,056

 
1,027

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

 
20,250,000

 
14,746,312

 
96.3
%
 
95.4
%
 
1,055

 
1,022

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

 
52,500,000

 
38,211,189

 
95.2
%
 
95.0
%
 
833

 
836


34


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


 
 
 
 
 
 
 
 
 
 
 
Mortgage Debt Outstanding at June 30, 2015
 
Average Occupancy(1) as of
 
Average Monthly
Rent
(2) as of
 
Property Name
 
Location
 
Purchase Date
 
Number
of Units
 
Contract Purchase Price
 
 
Jun 30, 2015
 
Dec 31, 2014
 
Jun 30, 2015
 
Dec 31, 2014
23
Keystone Farms Apartments
 
Nashville, TN
 
12/28/2012
 
90

 
$
8,400,000

 
$
6,044,268

 
98.9
%
 
98.9
%
 
$
1,077

 
$
1,044

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

 
30,000,000

 
21,737,196

 
95.7
%
 
96.7
%
 
835

 
803

25
South Pointe at Valley Farms(3)
 
Louisville, KY
 
12/28/2012
 
48

 
5,275,000

 
7,044,443

 
77.1
%
 
93.8
%
 
1,003

 
992

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

 
19,000,000

 
13,866,050

 
94.4