UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
July 21, 2017
Steadfast Apartment REIT III, Inc.
(Exact Name of Registrant as Specified in Charter)
Maryland | 000-55772 | 47-4871012 | ||
(State or Other Jurisdiction | (Commission File Number) | (IRS Employer | ||
of Incorporation) | Identification No.) | |||
18100 Von Karman Avenue, Suite 500
Irvine, California 92612
(Address of Principal Executive Offices, including Zip Code)
Registrant’s telephone number, including area code: (949) 852-0700
Not applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | ||||
Emerging growth company x | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x | ||||
Item 9.01 | Financial Statements and Exhibits. |
On July 21, 2017, Steadfast Apartment REIT III, Inc. (the “Company”), through its consolidated subsidiary, acquired a fee simple interest in Belmar Villas (“Belmar Villas”). The Company is filing this Current Report on Form 8-K/A to amend the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on July 26, 2017, to provide the required financial information related to the acquisition of Belmar Villas.
(a) Financial Statements of Real Estate Acquired.
Belmar Villas | ||
Report of Independent Auditors | ||
Statements of Revenues Over Certain Operating Expenses for the Six Months Ended June 30, 2017 (unaudited) and the Year Ended December 31, 2016 | ||
Notes to Statements of Revenues Over Certain Operating Expenses for the Six Months Ended June 30, 2017 (unaudited) and the Year Ended December 31, 2016 | ||
(b) Pro Forma Financial Information.
Steadfast Apartment REIT III, Inc. | ||
Summary of Unaudited Pro Forma Financial Statements | ||
Unaudited Pro Forma Balance Sheet as of June 30, 2017 | ||
Unaudited Pro Forma Statement of Operations for the Six Months Ended June 30, 2017 | ||
Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 2016 | ||
Report of Independent Auditors
To the Board of Directors and Stockholders of
Steadfast Apartment REIT III, Inc.
We have audited the accompanying statement of revenues over certain operating expenses of Belmar Villas (“Belmar Villas”) for the year ended December 31, 2016, and the related notes to the financial statement.
Management’s Responsibility for the Financial Statement
Management is responsible for the preparation and fair presentation of the statement of revenues over certain operating expenses in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the statement of revenues over certain operating expenses that is free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the statement of revenues over certain operating expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement of revenues over certain operating expenses. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the statement of revenues over certain operating expenses, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the statement of revenues over certain operating expenses in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses of Belmar Villas as described in Note 2 for the year ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
Basis of Accounting
As described in Note 2 to the financial statement, the statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, and is not intended to be a complete presentation of Belmar Villas’s revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ Ernst & Young LLP
Irvine, California
August 31, 2017
F-1
BELMAR VILLAS
STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
For the Six Months Ended June 30, 2017 | For the Year Ended December 31, 2016 | ||||||
(unaudited) | |||||||
Revenues: | |||||||
Rental income | $ | 2,287,846 | $ | 4,575,980 | |||
Tenant reimbursements and other | 374,911 | 656,212 | |||||
Total revenues | 2,662,757 | 5,232,192 | |||||
Expenses: | |||||||
Operating, maintenance and management | 772,789 | 1,515,885 | |||||
Real estate taxes and insurance | 183,163 | 362,042 | |||||
General and administrative expenses | 4,641 | 5,772 | |||||
Total expenses | 960,593 | 1,883,699 | |||||
Revenues over certain operating expenses | $ | 1,702,164 | $ | 3,348,493 | |||
See accompanying notes to statements of revenues over certain operating expenses.
F-2
BELMAR VILLAS
NOTES TO STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
For the Six Months Ended June 30, 2017 (unaudited)
and the Year Ended December 31, 2016
1. DESCRIPTION OF REAL ESTATE PROPERTY
On July 21, 2017, Steadfast Apartment REIT III, Inc. (the “Company”), through a consolidated subsidiary, acquired a fee simple interest in a multifamily property located in Lakewood, Colorado, commonly known as Belmar Villas (“Belmar Villas”) for a contract purchase price of $62,918,000, exclusive of closing costs. The Company financed the payment of the contract purchase price for Belmar Villas with a combination of (1) proceeds from the Company’s public offering and (2) a loan in the aggregate principal amount of $47,112,000.
Belmar Villas was constructed in 1974 and is composed of 17 three-story apartment buildings. Belmar Villas contains 318 apartments consisting of 84 one-bedroom apartments, 159 two-bedroom apartments and 75 three-bedroom apartments. The apartments range in size from 580 to 1,114 square feet and average 856 square feet.
The Company is a Maryland corporation formed to invest in and manage a diverse portfolio of real estate investments, primarily in the multifamily and senior-living sectors, located throughout the United States.
2. BASIS OF PRESENTATION
The accompanying statements of revenues over certain operating expenses have been prepared to comply with the rules and regulations of the Securities and Exchange Commission (“SEC”).
Belmar Villas is not a legal entity and the accompanying statements of revenues over certain operating expenses are not representative of the actual operations for the periods presented, as certain revenues and expenses have been excluded that may not be comparable to the revenues and expenses the Company expects to incur in the future operations of Belmar Villas. Excluded items include interest, depreciation and amortization, and general and administrative costs not directly comparable to the future operations of Belmar Villas.
The accompanying unaudited statement of revenues over certain operating expenses for the six months ended June 30, 2017, has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board Accounting Standards Codification and the rules and regulations of the SEC, including the instructions to Form 8-K and Article 3-14 of Regulation S-X. Accordingly, the unaudited statement of revenues over certain operating expenses does not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the statement of revenues over certain operating expenses for the unaudited interim period presented includes all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such period. Operating results for the six months ended June 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
An audited statement of revenues over certain operating expenses is being presented for the most recent year available instead of the three most recent years based on the following factors: (1) Belmar Villas was acquired from an unaffiliated party; and (2) based on due diligence of Belmar Villas conducted by the Company, management is not aware of any material factors relating to Belmar Villas that would cause this financial information not to be indicative of future operating results.
Square footage, occupancy and other measures used to describe real estate included in the notes to statements of revenues over certain operating expenses are presented on an unaudited basis.
3. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Belmar Villas leases residential apartment homes under operating leases generally with terms of one year or less. Rental revenue, including rental abatements, concessions and contractual fixed increases, is recognized on a straight-line basis over the term of the related lease. Tenant reimbursements and other income consist of charges billed to tenants for utilities, parking and application and other fees. Tenant reimbursements and other income are recognized when earned.
F-3
Use of Estimates
The preparation of financial statements, as described in Note 2 and in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
4. COMMITMENTS AND CONTINGENCIES
Litigation
Belmar Villas may become 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 probable or reasonably possible to have a material adverse effect on Belmar Villas’s results of operations or financial condition.
Other Matters
The Company is not aware of any material environmental liabilities relating to Belmar Villas that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations or other environmental conditions with respect to Belmar Villas could result in future environmental liabilities.
5. SUBSEQUENT EVENTS
The Company evaluates subsequent events through the date the statements of revenues over certain operating expenses are issued. The accompanying statements of revenues over certain operating expenses were issued on August 31, 2017.
F-4
STEADFAST APARTMENT REIT III, INC.
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following pro forma information should be read in conjunction with the Company’s historical consolidated financial statements and the notes thereto as filed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on March 16, 2017, and the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2017, which was filed with the SEC on August 10, 2017. In addition, this pro forma information should be read in conjunction with the statements of revenues over certain operating expenses and the notes thereto of Bristol Village Apartments (“Bristol Village”), which have been included in the Company’s Current Report on Form 8-K/A, filed with the SEC on January 9, 2017, the statements of revenues over certain operating expenses and the notes thereto of Canyon Resort at Great Hills Apartments (“Canyon Resort”) and Reflections on Sweetwater Apartments (“Reflections on Sweetwater”), which have been included in the Company’s Current Report on Form 8-K/A, filed with the SEC on February 13, 2017, the statements of revenues over certain operating expenses and the notes thereto of The Pointe at Vista Ridge Apartments (“Vista Ridge”), which have been included in the Company’s Current Report on Form 8-K/A, filed with the SEC on June 29, 2017, and the statements of revenues over certain operating expenses and the notes thereto of Belmar Villas, which are included herein.
The following unaudited pro forma balance sheet as of June 30, 2017, has been prepared to give effect to the acquisition of Belmar Villas, which occurred on July 21, 2017, as if such acquisition occurred on June 30, 2017. Bristol Village, Canyon Resort, Reflections on Sweetwater and Vista Ridge were acquired on November 17, 2016, December 29, 2016, January 12, 2017 and May 25, 2017, respectively, and are recorded in the Company’s historical balance sheet as of June 30, 2017.
The following unaudited pro forma statements of operations for the six months ended June 30, 2017, and for the year ended December 31, 2016, have been prepared to give effect to the acquisitions of Bristol Village, Canyon Resort, Reflections on Sweetwater, Vista Ridge and Belmar Villas (collectively referred to as the “Portfolio Properties”) as if the acquisitions occurred on January 1, 2016.
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisitions of the Portfolio Properties been consummated on January 1, 2016.
F-5
STEADFAST APARTMENT REIT III, INC.
UNAUDITED PRO FORMA BALANCE SHEET
As of June 30, 2017
Steadfast Apartment REIT III, Inc. Historical (a) | Pro forma Adjustments | ||||||||||||||
Belmar Villas (b) | Offering Proceeds (c) | Pro Forma Total | |||||||||||||
Assets: | |||||||||||||||
Real Estate: | |||||||||||||||
Land | $ | 21,671,651 | $ | 7,105,266 | (d) | $ | — | $ | 28,776,917 | ||||||
Building and improvements | 153,833,422 | 56,203,707 | (d) | — | 210,037,129 | ||||||||||
Tenant origination and absorption costs | 1,789,212 | 1,194,282 | (d) | — | 2,983,494 | ||||||||||
Total real estate, cost | 177,294,285 | 64,503,255 | — | 241,797,540 | |||||||||||
Less accumulated depreciation and amortization | (3,641,658 | ) | — | — | (3,641,658 | ) | |||||||||
Total real estate, net | 173,652,627 | 64,503,255 | — | 238,155,882 | |||||||||||
Cash and cash equivalents | 33,257,061 | (15,559,700 | ) | 5,522,202 | 23,219,563 | ||||||||||
Restricted cash | 1,712,706 | 833,125 | — | 2,545,831 | |||||||||||
Rents and other receivables | 335,722 | — | — | 335,722 | |||||||||||
Other assets | 2,179,178 | (1,235,800 | ) | — | 943,378 | ||||||||||
Total assets | $ | 211,137,294 | $ | 48,540,880 | $ | 5,522,202 | $ | 265,200,376 | |||||||
Liabilities: | |||||||||||||||
Accounts payable and accrued liabilities | $ | 2,938,682 | $ | 363,865 | $ | — | $ | 3,302,547 | |||||||
Mortgage notes payable, net | 123,758,480 | 46,825,276 | — | 170,583,756 | |||||||||||
Distributions payable | 497,127 | — | — | 497,127 | |||||||||||
Due to affiliates | 3,003,749 | 1,351,739 | (e) | — | 4,355,488 | ||||||||||
Total liabilities | 130,198,038 | 48,540,880 | — | 178,738,918 | |||||||||||
Commitments and Contingencies | |||||||||||||||
Redeemable common stock | 1,257,283 | — | — | 1,257,283 | |||||||||||
Stockholders’ equity: | |||||||||||||||
Preferred stock, $0.01 par value per share; 100,000,000 shares authorized, no shares issued and outstanding | — | — | — | — | |||||||||||
Class A common stock, $0.01 par value per share; 480,000,000 shares authorized, 2,284,355 shares issued and outstanding and 2,347,727 pro forma shares as of June 30, 2017 | 22,844 | — | 633 | 23,477 | |||||||||||
Class R common stock, $0.01 par value per share; 240,000,000 shares authorized, 212,578 shares issued and outstanding and 218,685 pro forma shares as of June 30, 2017 | 2,126 | — | 61 | 2,187 | |||||||||||
Class T common stock, $0.01 par value per share; 480,000,000 shares authorized, 2,077,398 shares issued and outstanding and 2,235,147 pro forma shares as of June 30, 2017 | 20,774 | — | 1,577 | 22,351 | |||||||||||
Additional paid-in capital | 92,662,336 | — | 5,519,931 | 98,182,267 | |||||||||||
Cumulative distributions and net losses | (13,026,107 | ) | — | — | (13,026,107 | ) | |||||||||
Total stockholders’ equity | 79,681,973 | — | 5,522,202 | 85,204,175 | |||||||||||
Total liabilities and stockholders’ equity | $ | 211,137,294 | $ | 48,540,880 | $ | 5,522,202 | $ | 265,200,376 | |||||||
F-6
STEADFAST APARTMENT REIT III, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
As of June 30, 2017
(a) | Historical financial information as of June 30, 2017, derived from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2017. |
(b) | Represents adjustments to the balance sheet of the Company to give effect to the acquisition of Belmar Villas and related cash, other assets and liabilities as if the acquisition had occurred on June 30, 2017. The contract purchase price of Belmar Villas, exclusive of closing and other acquisition costs, was approximately $62.9 million, and was funded with proceeds from the Company’s public offering and with financing in the amount of approximately $47.1 million. The Company recorded the cost of tangible assets and identifiable intangible assets acquired based on their estimated fair values. |
(c) | The pro forma adjustments assume the actual net proceeds raised in the Company’s public offering during the period from July 1, 2017 through July 21, 2017, were raised as of June 30, 2017. |
(d) | The Company adopted Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), issued in January 2017, beginning with real estate investments acquired on or after January 1, 2017. Acquisitions that do not meet the definition of a business under this guidance are accounted for as asset acquisitions. The acquisition of Belmar Villas did not meet the definition of a business and consequently was accounted for as an asset acquisition. As a result, the Company capitalized approximately $1.6 million in acquisition fees and acquisition costs related to the acquisition of Belmar Villas on the unaudited pro forma balance sheet. Prior to the adoption of ASU 2017-01, acquisition fees and acquisition costs were included in fees to affiliates and acquisition costs, respectively, on the consolidated statements of operations. Upon adoption of this guidance, all such costs are included in the purchase price that are allocated between land, buildings and improvements and tenant origination and absorption costs on the consolidated balance sheet. |
The pro forma acquisition fees and acquisition costs that have been capitalized and included in the purchase price of Belmar Villas are as follows:
• | Acquisition Fees: Acquisition fees are payable to Steadfast Apartment Advisor III, LLC (“Advisor”) based on 2.0% of the acquisition costs of Belmar Villas including acquisition expenses (with the total acquisition fees and acquisition expenses payable to the Advisor being subject to a limitation of 6.0% of the contract purchase price), as set out in the Advisory Agreement by and among the Company, its operating partnership and Advisor (the “Advisory Agreement”). |
• | Acquisition Costs: Those amounts incurred by the Company or its affiliates that were attributable to the acquisition of Belmar Villas. |
The Company allocated the purchase price (including acquisition fees and acquisition costs) to the individual assets and liabilities acquired on a relative fair value basis, as follows:
As of June 30, 2017 | ||||||||||||||||
Contract Purchase Price | Acquisition Fee | Acquisition Costs | Total Real Estate, Cost | |||||||||||||
Land | $ | 6,930,888 | $ | 144,505 | $ | 29,873 | $ | 7,105,266 | ||||||||
Building and improvements | 54,824,535 | 1,142,905 | 236,267 | 56,203,707 | ||||||||||||
Tenant origination and absorption costs | 1,162,577 | 26,274 | 5,431 | 1,194,282 | ||||||||||||
Total real estate, cost | $ | 62,918,000 | $ | 1,313,684 | $ | 271,571 | $ | 64,503,255 | ||||||||
(e) Represents the pro forma effect of acquisition fees and acquisition costs payable to affiliates of the Company in connection with the acquisition of Belmar Villas.
F-7
STEADFAST APARTMENT REIT III, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2017
Steadfast Apartment REIT III, Inc. Historical (a) | Vista Ridge (b) | Belmar Villas (b) | Pro Forma Adjustments | Pro Forma Total | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Rental income | $ | 6,040,431 | $ | 976,932 | $ | 2,287,846 | $ | 693,561 | (c) | $ | 9,998,770 | |||||||||
Tenant reimbursements and other | 677,091 | 101,242 | 374,911 | 73,743 | (c) | 1,226,987 | ||||||||||||||
Total revenues | 6,717,522 | 1,078,174 | 2,662,757 | 767,304 | 11,225,757 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Operating, maintenance and management | 1,613,585 | 287,214 | 772,789 | 14,145 | (d) | 2,687,733 | ||||||||||||||
Real estate taxes and insurance | 1,039,025 | 271,988 | 183,163 | 344,267 | (e) | 1,838,443 | ||||||||||||||
Fees to affiliates | 656,511 | — | — | 394,564 | (f) | 1,051,075 | ||||||||||||||
Depreciation and amortization | 4,916,266 | — | — | 1,822,537 | (g) | 6,738,803 | ||||||||||||||
Interest expense | 2,124,012 | — | — | 1,369,551 | (h) | 3,493,563 | ||||||||||||||
General and administrative expenses | 1,338,152 | 32,343 | 4,641 | 21,665 | (i) | 1,396,801 | ||||||||||||||
Total expenses | 11,687,551 | 591,545 | 960,593 | 3,966,729 | 17,206,418 | |||||||||||||||
Net (loss) income | $ | (4,970,029 | ) | $ | 486,629 | $ | 1,702,164 | $ | (3,199,425 | ) | $ | (5,980,661 | ) | |||||||
Net loss attributable to Class A common stockholders — basic and diluted | $ | (2,607,449 | ) | $ | (2,924,250 | ) | ||||||||||||||
Net loss per Class A common share — basic and diluted | $ | (1.41 | ) | $ | (1.16 | ) | ||||||||||||||
Weighted average number of Class A common shares outstanding — basic and diluted | 1,772,569 | 2,347,727 | (j) | |||||||||||||||||
Net loss attributable to Class R common stockholders — basic and diluted | $ | (223,476 | ) | $ | (272,387 | ) | ||||||||||||||
Net loss per Class R common share — basic and diluted | $ | (1.43 | ) | $ | (1.22 | ) | ||||||||||||||
Weighted average number of Class R common shares outstanding — basic and diluted | 151,921 | 218,685 | (j) | |||||||||||||||||
Net loss attributable to Class T common stockholders — basic and diluted | $ | (2,139,104 | ) | $ | (2,784,024 | ) | ||||||||||||||
Net loss per Class T common share — basic and diluted | $ | (1.55 | ) | $ | (1.34 | ) | ||||||||||||||
Weighted average number of Class T common shares outstanding — basic and diluted | 1,454,183 | 2,235,147 | (j) | |||||||||||||||||
F-8
STEADFAST APARTMENT REIT III, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2017
(a) | Historical financial information for the six months ended June 30, 2017, derived from the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2017. |
(b) | Represents the historical operations of Vista Ridge and Belmar Villas under the previous owners as reported in the statements of revenues over certain operating expenses. |
(c) | Represents additional revenues (not reflected in the historical operations of the Company) for the six months ended June 30, 2017, based on management estimates as if Reflections on Sweetwater and Vista Ridge were acquired on January 1, 2016, as follows: |
Property name | Rental Income For the Six Months Ended June 30, 2017 | Tenant Reimbursement and Other For the Six Months Ended June 30, 2017 | Total | |||||||||
Reflections on Sweetwater | $ | 96,547 | $ | 11,873 | $ | 108,420 | ||||||
Vista Ridge | 597,014 | 61,870 | 658,884 | |||||||||
Total | $ | 693,561 | $ | 73,743 | $ | 767,304 | ||||||
(d) | Represents additional operating and maintenance expenses of Reflections on Sweetwater and Vista Ridge (not reflected in the historical operations of the Company) for the six months ended June 30, 2017, and the exclusion of property management fees recorded in the historical operations of the previous owners of Vista Ridge and Belmar Villas that are not comparable to the expenses the Company expects to incur in the future operations of Vista Ridge and Belmar Villas, as follows: |
Property name | Operating and Maintenance Expenses For the Six Months Ended June 30, 2017 | Property Management Fees For the Six Months Ended June 30, 2017 | Total | |||||||||
Reflections on Sweetwater | $ | 34,222 | $ | — | $ | 34,222 | ||||||
Vista Ridge | 148,831 | (43,672 | ) | 105,159 | ||||||||
Belmar Villas | — | (125,236 | ) | (125,236 | ) | |||||||
Total | $ | 183,053 | $ | (168,908 | ) | $ | 14,145 | |||||
(e) | Represents additional real estate taxes and insurance expense of Reflections on Sweetwater, Vista Ridge and Belmar Villas (not reflected in the historical operations of the Company) for the six months ended June 30, 2017, based on management estimates as if Reflections on Sweetwater, Vista Ridge and Belmar Villas were acquired on January 1, 2016, as follows: |
Property name | Real Estate Taxes and Insurance For the Six Months Ended June 30, 2017 | |||
Reflections on Sweetwater | $ | 17,579 | ||
Vista Ridge | 257,364 | |||
Belmar Villas | 69,324 | |||
Total | $ | 344,267 | ||
(f) | Represents adjustments made to fees to affiliates for the six months ended June 30, 2017, to include the fees to affiliates (not reflected in the historical statement of operations of the Company) for the six months ended June 30, 2017, that would be due to affiliates had Reflections on Sweetwater, Vista Ridge and Belmar Villas been acquired on January 1, 2016. The pro forma total fees to affiliates are as follows: |
• | Investment Management Fees: Investment management fees are payable to Advisor based on an annual fee, payable monthly, of 0.50% of the acquisition cost of Reflections on Sweetwater, Vista Ridge and Belmar Villas, including acquisition fees, acquisition expenses and any debt attributable to Reflections on Sweetwater, Vista Ridge and Belmar Villas, as set out in the Advisory Agreement. |
F-9
• | Property Management Fees: Property management fees are payable to the Company’s affiliated property manager based on 3.0% of the monthly gross revenues of Reflections on Sweetwater and 2.75% of the monthly gross revenues of Vista Ridge and Belmar Villas as set out in the Property Management Agreement for each property (each a “Property Management Agreement”). |
The investment management fees that would have been payable to the Advisor and the property management fees that would have been payable to the affiliated property manager were:
For the Six Months Ended June 30, 2017 | ||||||||||||
Property name | Investment Management Fees | Property Management Fees | Total | |||||||||
Reflections on Sweetwater | $ | 5,945 | $ | 3,253 | $ | 9,198 | ||||||
Vista Ridge | 96,876 | 47,769 | 144,645 | |||||||||
Belmar Villas | 167,495 | 73,226 | 240,721 | |||||||||
Total | $ | 270,316 | $ | 124,248 | $ | 394,564 | ||||||
(g) | Represents depreciation and amortization expense (not reflected in the historical statement of operations of the Company) for the six months ended June 30, 2017, as if Reflections on Sweetwater, Vista Ridge and Belmar Villas were acquired on January 1, 2016, as follows: |
Property name | Depreciation and Amortization Expense For the Six Months Ended June 30, 2017 | |||
Reflections on Sweetwater | $ | 33,244 | ||
Vista Ridge | 776,327 | |||
Belmar Villas | 1,012,966 | |||
Total | $ | 1,822,537 | ||
Depreciation expense on the purchase price (including acquisition fees and acquisition costs) of building and furniture and fixtures is recognized using the straight-line method over an estimated useful life of 30 years and 5 years, respectively. Depreciation expense on the purchase price (including acquisition fees and acquisition costs) of tenant improvements is recognized using the straight-line method over the life of the lease. Amortization expense on lease intangible costs is recognized using the straight-line method over the life of the lease.
(h) | Represents interest expense (not reflected in the historical statement of operations of the Company) for the six months ended June 30, 2017, as if the borrowings attributable to Reflections on Sweetwater, Vista Ridge and Belmar Villas were borrowed on January 1, 2016, as follows: |
Property name | Initial Mortgage Debt | Interest Expense For the Six Months Ended June 30, 2017 | ||||||
Reflections on Sweetwater | $ | 23,000,000 | $ | 22,932 | ||||
Vista Ridge | 29,106,000 | 394,865 | ||||||
Belmar Villas | 47,112,000 | 951,754 | ||||||
Total | $ | 99,218,000 | $ | 1,369,551 | ||||
F-10
(i) | Represents additional general and administrative expense (not reflected in the historical statement of operations of the Company) for the six months ended June 30, 2017, as if Reflections on Sweetwater, Vista Ridge and Belmar Villas were acquired on January 1, 2016, as follows: |
Property name | General and Administrative Expenses For the Six Months Ended June 30, 2017 | |||
Reflections on Sweetwater | $ | 1,900 | ||
Vista Ridge | 19,765 | |||
Belmar Villas | — | |||
Total | $ | 21,665 | ||
(j) | Represents the actual number of shares of the Company’s common stock outstanding as of July 21, 2017. The calculation assumes that these shares were issued and the related proceeds were raised on January 1, 2016. |
F-11
STEADFAST APARTMENT REIT III, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 2016
Steadfast Apartment REIT III, Inc. Historical (a) | Bristol Village (b) | Canyon Resort (b) | Reflections on Sweetwater (b) | Vista Ridge (b) | Belmar Villas (b) | Pro Forma Adjustments | Pro Forma Total | |||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Rental income | $ | 1,152,304 | $ | 2,551,043 | $ | 2,775,039 | $ | 2,172,300 | $ | 3,923,980 | $ | 4,575,980 | $ | 2,082,905 | (c) | $ | 19,233,551 | |||||||||||||||
Tenant reimbursements and other | 112,602 | 337,135 | 382,329 | 267,137 | 412,206 | 656,212 | 273,759 | (c) | 2,441,380 | |||||||||||||||||||||||
Total revenues | 1,264,906 | 2,888,178 | 3,157,368 | 2,439,437 | 4,336,186 | 5,232,192 | 2,356,664 | 21,674,931 | ||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||
Operating, maintenance and management | 376,536 | 693,048 | 954,309 | 854,652 | 1,040,514 | 1,515,885 | (161,100 | ) | (d) | 5,273,844 | ||||||||||||||||||||||
Real estate taxes and insurance | 160,707 | 219,180 | 671,037 | 251,274 | 969,200 | 362,042 | 984,292 | (e) | 3,617,732 | |||||||||||||||||||||||
Fees to affiliates | 2,221,052 | — | — | — | — | — | 1,790,916 | (f) | 4,011,968 | |||||||||||||||||||||||
Depreciation and amortization | 825,735 | — | — | — | — | — | 11,876,609 | (g) | 12,702,344 | |||||||||||||||||||||||
Interest expense | 281,031 | — | — | — | — | — | 5,224,084 | (h) | 5,505,115 | |||||||||||||||||||||||
General and administrative expenses | 1,426,575 | 50,519 | 45,874 | 42,746 | 138,542 | 5,772 | 38,164 | (i) | 1,748,192 | |||||||||||||||||||||||
Acquisition costs | 893,982 | — | — | — | — | — | — | (j) | 893,982 | |||||||||||||||||||||||
Total expenses | 6,185,618 | 962,747 | 1,671,220 | 1,148,672 | 2,148,256 | 1,883,699 | 19,752,965 | 33,753,177 | ||||||||||||||||||||||||
Net income (loss) | (4,920,712 | ) | 1,925,431 | 1,486,148 | 1,290,765 | 2,187,930 | 3,348,493 | (17,396,301 | ) | (12,078,246 | ) | |||||||||||||||||||||
Net loss attributable to noncontrolling interest | (100 | ) | — | — | — | — | — | — | (100 | ) | ||||||||||||||||||||||
Net income (loss) attributable to common stockholders | $ | (4,920,612 | ) | $ | 1,925,431 | $ | 1,486,148 | $ | 1,290,765 | $ | 2,187,930 | $ | 3,348,493 | $ | (17,396,301 | ) | $ | (12,078,146 | ) | |||||||||||||
Net loss attributable to Class A common stockholders — basic and diluted | $ | (3,160,451 | ) | $ | (5,905,621 | ) | ||||||||||||||||||||||||||
Net loss per Class A common share — basic and diluted | $ | (8.36 | ) | $ | (2.36 | ) | ||||||||||||||||||||||||||
Weighted average number of Class A common shares outstanding — basic and diluted | 374,595 | 2,347,727 | (k) | |||||||||||||||||||||||||||||
Net loss attributable to Class R common stockholders — basic and diluted | $ | (165,258 | ) | $ | (550,094 | ) | ||||||||||||||||||||||||||
Net loss per Class R common share — basic and diluted | $ | (8.42 | ) | $ | (2.47 | ) | ||||||||||||||||||||||||||
Weighted average number of Class R common shares outstanding — basic and diluted | 19,587 | 218,685 | (k) | |||||||||||||||||||||||||||||
Net loss attributable to Class T common stockholders — basic and diluted | $ | (1,594,903 | ) | $ | (5,622,431 | ) | ||||||||||||||||||||||||||
Net loss per Class T common share — basic and diluted | $ | (8.62 | ) | $ | (2.68 | ) | ||||||||||||||||||||||||||
Weighted average number of Class T common shares outstanding — basic and diluted | 189,037 | 2,235,147 | (k) | |||||||||||||||||||||||||||||
F-12
STEADFAST APARTMENT REIT III, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 2016
(a) | Historical financial information for the year ended December 31, 2016, derived from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. |
(b) | Represents the historical operations of each of the Portfolio Properties under the previous owners as reported in the statements of revenues over certain operating expenses. |
(c) | Represents additional revenues (not reflected in the historical operations of the previous owners or the Company) for the year ended December 31, 2016, based on management estimates as if Bristol Village, Canyon Resort and Reflections on Sweetwater were acquired on January 1, 2016, as follows: |
Property name | Rental Income For the Year Ended December 31, 2016 | Tenant Reimbursement and Other For the Year Ended December 31, 2016 | Total | |||||||||
Bristol Village | $ | 444,070 | $ | 58,686 | $ | 502,756 | ||||||
Canyon Resort | 914,735 | 126,027 | 1,040,762 | |||||||||
Reflections on Sweetwater | 724,100 | 89,046 | 813,146 | |||||||||
Total | $ | 2,082,905 | $ | 273,759 | $ | 2,356,664 | ||||||
(d) | Represents additional operating and maintenance expenses (not reflected in the historical operations of the previous owners of the Portfolio Properties or the Company) and the exclusion of property management fees recorded in the historical operations of the previous owners of the Portfolio Properties that are not comparable to the expense the Company expects to incur in the future operations of the Portfolio Properties, as follows: |
Operating and Maintenance Expenses | Property Management Fees | |||||||||||
Property name | For the Year Ended December 31, 2016 | For the Year Ended December 31, 2016 | Total | |||||||||
Bristol Village | $ | 102,371 | $ | (108,682 | ) | $ | (6,311 | ) | ||||
Canyon Resort | 251,599 | (188,331 | ) | 63,268 | ||||||||
Reflections on Sweetwater | 262,367 | (84,662 | ) | 177,705 | ||||||||
Vista Ridge | — | (151,310 | ) | (151,310 | ) | |||||||
Belmar Villas | — | (244,452 | ) | (244,452 | ) | |||||||
Total | $ | 616,337 | $ | (777,437 | ) | $ | (161,100 | ) | ||||
(e) | Represents additional real estate taxes and insurance expense (not reflected in the historical operations of the previous owners of the Portfolio Properties) for the year ended December 31, 2016, based on management estimates as if the Portfolio Properties were acquired on January 1, 2016, as follows: |
Real Estate Taxes and Insurance | ||||
Property name | For the Year Ended December 31, 2016 | |||
Bristol Village | $ | 134,567 | ||
Canyon Resort | 341,191 | |||
Reflections on Sweetwater | 276,098 | |||
Vista Ridge | 89,504 | |||
Belmar Villas | 142,932 | |||
Total | $ | 984,292 | ||
(f) | Represents fees to affiliates (not reflected in the historical statement of operations of the Company) for the year ended December 31, 2016 that would be due to affiliates had the Portfolio Properties been acquired on January 1, 2016. The pro forma total fees to affiliates are as follows: |
• | Investment Management Fees: Investment management fees are payable to Advisor based on an annual fee, payable monthly, of 0.5% of the acquisition cost of the Portfolio Properties, including acquisition fees, acquisition expenses and any debt attributable to the Portfolio Properties, as set out in the Advisory Agreement. |
F-13
• | Property Management Fees: Property management fees are payable to the Company’s affiliated property manager based on 3.0% of the monthly gross revenues of Bristol Village and Reflections on Sweetwater and 2.75% of the monthly gross revenues of Canyon Resort, Vista Ridge and Belmar Villas as set out in the Property Management Agreement for each property. |
Acquisition fees reflected in fees to affiliates in the historical financial information of the Company for the year ended December 31, 2016, represent fees related to the acquisitions of Bristol Village and Canyon Resort prior to the adoption of ASU 2017-01. Following the adoption of ASU 2017-01, acquisition fees and acquisition costs are capitalized on the balance sheet.
The investment management fees that would be due to Advisor and the property management fees that would be due to the affiliated property manager had the Portfolio Properties been acquired on January 1, 2016 were:
For the Year Ended December 31, 2016 | ||||||||||||
Property name | Investment Management Fees | Property Management Fees | Total | |||||||||
Bristol Village | $ | 218,738 | $ | 101,728 | $ | 320,466 | ||||||
Canyon Resort | 240,437 | 115,448 | 355,885 | |||||||||
Reflections on Sweetwater | 178,350 | 97,577 | 275,927 | |||||||||
Vista Ridge | 240,519 | 119,245 | 359,764 | |||||||||
Belmar Villas | 334,989 | 143,885 | 478,874 | |||||||||
Total | $ | 1,213,033 | $ | 577,883 | $ | 1,790,916 | ||||||
(g) | Represents depreciation and amortization expense (not reflected in the historical statement of operations of the Company) for the year ended December 31, 2016, as if the Portfolio Properties were acquired on January 1, 2016, as follows: |
Depreciation and Amortization Expense | ||||
Property name | For the Year Ended December 31, 2016 | |||
Bristol Village | $ | 2,024,285 | ||
Canyon Resort | 2,292,927 | |||
Reflections on Sweetwater | 1,872,521 | |||
Vista Ridge | 2,466,663 | |||
Belmar Villas | 3,220,213 | |||
Total | $ | 11,876,609 | ||
Depreciation expense on the purchase price (including acquisition related fees and expenses) of building and furniture and fixtures is recognized using the straight-line method over an estimated useful life of 30 years and 5 years, respectively. Depreciation expense on the purchase price (including acquisition related fees and expenses) of tenant improvements is recognized using the straight-line method over the life of the lease. Amortization expense on lease intangible costs is recognized using the straight-line method over the life of the lease.
(h) | Represents interest expense (not reflected in the historical statement of operations of the Company) for the year ended December 31, 2016, as if the borrowings attributable to the Portfolio Properties were borrowed on January 1, 2016, as follows: |
Interest Expense | ||||||||
Property name | Initial Mortgage Debt | For the Year Ended December 31, 2016 | ||||||
Bristol Village | $ | 35,016,000 | $ | 931,410 | ||||
Canyon Resort | 31,710,000 | 893,299 | ||||||
Reflections on Sweetwater | 23,000,000 | 691,661 | ||||||
Vista Ridge | 29,106,000 | 793,973 | ||||||
Belmar Villas | 47,112,000 | 1,913,741 | ||||||
Total | $ | 165,944,000 | $ | 5,224,084 | ||||
F-14
(i) | Represents general and administrative expense (not reflected in the historical statement of operations of the Company) for the year ended December 31, 2016, as if Bristol Village, Canyon Resort and Reflections on Sweetwater were acquired on January 1, 2016, as follows: |
Property name | General and Administrative Expenses For the Year Ended December 31, 2016 | |||
Bristol Village | $ | 8,794 | ||
Canyon Resort | 15,121 | |||
Reflections on Sweetwater | 14,249 | |||
Total | $ | 38,164 | ||
(j) | Acquisition costs reflected in the historical financial information of the Company for the year ended December 31, 2016 represent costs related to the acquisitions of Bristol Village and Canyon Resort prior to the adoption of ASU 2017-01. Following the adoption of ASU 2017-01, acquisition fees and acquisition costs are capitalized on the balance sheet. |
(k) | Represents the actual number of shares of the Company’s common stock outstanding as of July 21, 2017. The calculation assumes that these shares were issued and the related proceeds were raised on January 1, 2016. |
F-15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
STEADFAST APARTMENT REIT III, INC. | |||
Date: | August 31, 2017 | By: | /s/ Kevin J. Keating |
Kevin J. Keating | |||
Treasurer | |||
(Principal Financial Officer and Accounting Officer) | |||