10-Q 1 steadfastincome331201310-q.htm 10-Q Steadfast Income 3.31.2013 10-Q
 
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 March 31, 2013
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 o
(Do not check if smaller reporting company)
Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of May 3, 2013, there were 30,534,766 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
 
March 31,
2013
 
December 31,
2012
 
(Unaudited)
 
 
ASSETS
Assets:
 
 
 
Real Estate:
 
 
 
Land
$
61,839,726

 
$
52,128,526

Building and improvements
610,303,017

 
512,420,903

Tenant origination and absorption costs
15,508,925

 
13,496,020

Other intangible assets
1,257,357

 

Total real estate, cost
688,909,025

 
578,045,449

Less accumulated depreciation and amortization
(26,796,918
)
 
(18,073,362
)
Total real estate, net
662,112,107

 
559,972,087

Cash and cash equivalents
13,279,150

 
9,528,664

Restricted cash
6,391,000

 
5,467,219

Rents and other receivables
2,570,011

 
1,414,875

Deferred financing costs and other assets, net
7,043,474

 
6,203,711

Total assets
$
691,395,742

 
$
582,586,556

LIABILITIES AND EQUITY
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
10,414,750

 
$
8,536,953

Below-market leases, net
192,025

 
301,349

Notes payable:
 
 
 
Mortgage notes payable, net
484,258,015

 
408,802,388

Revolving credit facility
5,000,000

 
5,000,000

Total notes payable, net
489,258,015

 
413,802,388

Distributions payable
1,636,331

 
1,343,399

Due to affiliates, net
5,106,648

 
3,471,796

Total liabilities
506,607,769

 
427,455,885

Commitments and contingencies (Note 9)

 

Redeemable common stock
4,346,254

 
3,049,521

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, 27,808,996 and 22,908,859 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively
278,089

 
229,086

Convertible stock, $0.01 par value per share; 1,000 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively
10

 
10

Additional paid-in capital
232,495,207

 
191,130,977

Cumulative distributions and net losses
(52,331,587
)
 
(39,278,923
)
Total stockholders’ equity
180,441,719

 
152,081,150

Total liabilities and stockholders' equity
$
691,395,742

 
$
582,586,556

See accompanying 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 March 31,
 
2013
 
2012
Revenues:
 
 
 
Rental income
$
16,799,429

 
$
3,600,802

Tenant reimbursements and other
1,791,327

 
292,018

Total revenues
18,590,756

 
3,892,820

Expenses:
 
 
 
Operating, maintenance and management
4,548,938

 
1,109,972

Real estate taxes and insurance
2,592,713

 
432,582

Fees to affiliates
4,186,126

 
1,653,434

Depreciation and amortization
8,723,557

 
1,934,024

Interest expense
4,302,013

 
758,582

General and administrative expenses
710,822

 
704,336

Acquisition costs
2,118,488

 
573,481

 
27,182,657

 
7,166,411

Net loss
(8,591,901
)
 
(3,273,591
)
Net loss per common share — basic and diluted
$
(0.34
)
 
$
(0.56
)
Weighted average number of common shares outstanding — basic and diluted
25,307,635

 
5,805,379

See accompanying notes to consolidated financial statements.

3


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




STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012
AND FOR THE THREE MONTHS ENDED MARCH 31, 2013 (Unaudited)
 
Common Stock
 
Convertible Stock
 
Additional Paid-
In Capital
 
Cumulative
Distributions &
Net Losses
 
Total Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
BALANCE, December 31, 2011
4,638,699

 
$
46,387

 
1,000

 
$
10

 
$
38,260,059

 
$
(8,082,838
)
 
$
30,223,618

Issuance of common stock
18,314,135

 
183,139

 

 

 
182,891,102

 

 
183,074,241

Commissions on sales of common stock and related dealer manager fees to affiliates

 

 

 

 
(17,154,479
)
 

 
(17,154,479
)
Transfers to redeemable common stock

 

 

 

 
(2,722,156
)
 

 
(2,722,156
)
Redemption of common stock
(43,975
)
 
(440
)
 

 

 
(417,293
)
 

 
(417,733
)
Other offering costs to affiliates

 

 

 

 
(9,820,681
)
 

 
(9,820,681
)
Distributions declared

 

 

 

 

 
(8,636,158
)
 
(8,636,158
)
Amortization of stock-based compensation

 

 

 

 
94,425

 

 
94,425

Net loss for the year ended December 31, 2012

 

 

 

 

 
(22,559,927
)
 
(22,559,927
)
BALANCE, December 31, 2012
22,908,859

 
229,086

 
1,000

 
10

 
191,130,977

 
(39,278,923
)
 
152,081,150

Issuance of common stock
4,929,306

 
49,293

 

 

 
50,241,739

 

 
50,291,032

Commissions on sales of common stock and related dealer manager fees to affiliates

 

 

 

 
(4,763,750
)
 

 
(4,763,750
)
Transfers to redeemable common stock

 

 

 

 
(1,347,953
)
 

 
(1,347,953
)
Redemption of common stock
(29,169
)
 
(290
)
 

 

 
(272,670
)
 

 
(272,960
)
Other offering costs to affiliates

 

 

 

 
(2,514,262
)
 

 
(2,514,262
)
Distributions declared

 

 

 

 

 
(4,460,763
)
 
(4,460,763
)
Amortization of stock-based compensation

 

 

 

 
21,126

 

 
21,126

Net loss for the three months ended March 31, 2013

 

 

 

 

 
(8,591,901
)
 
(8,591,901
)
BALANCE, March 31, 2013
27,808,996

 
$
278,089

 
1,000

 
$
10

 
$
232,495,207

 
$
(52,331,587
)
 
$
180,441,719

See accompanying 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)
 
Three Months Ended March 31,
 
2013
 
2012
Cash Flows from Operating Activities:
 
 
 
Net loss
$
(8,591,901
)
 
$
(3,273,591
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
8,723,557

 
1,934,024

Accretion of below-market leases
(258,326
)
 

Amortization of deferred financing costs
160,294

 
34,158

Amortization of stock-based compensation
117,626

 
8,349

Accretion of debt premium
(155,112
)
 
(6,271
)
Change in fair value of interest rate cap
64,617

 

Changes in operating assets and liabilities:
 
 
 
Restricted cash for operating activities
(1,056,227
)
 
(567,095
)
Rents and other receivables
(428,101
)
 
(1,769
)
Other assets
285,901

 
(236,679
)
Accounts payable and accrued liabilities
1,828,078

 
1,745,169

Due to affiliates, net
1,618,459

 
1,011,061

Net cash provided by operating activities
2,308,865

 
647,356

Cash Flows from Investing Activities:
 
 
 
Acquisition of real estate investments
(84,114,112
)
 
(26,372,560
)
Addition to real estate investments
(608,442
)
 
(195,131
)
Escrow deposits for pending real estate acquisitions
(1,405,100
)
 
(3,175,500
)
Restricted cash for investing activities
132,446

 
(566,534
)
Purchase of interest rate caps
(248,876
)
 
(295,870
)
Net cash used in investing activities
(86,244,084
)
 
(30,605,595
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of mortgage notes payable
51,021,000

 
7,000,000

Principal payments on mortgage notes payable
(526,182
)
 
(53,605
)
Borrowings from credit facility
5,000,000

 

Principal payments on credit facility
(5,000,000
)
 

Proceeds from issuance of common stock
47,846,875

 
24,650,247

Payments of commissions on sale of common stock and related dealer manager fees
(4,763,750
)
 
(2,360,296
)
Reimbursement of other offering costs to affiliates
(2,497,871
)
 
(1,291,102
)
Payment of deferred financing costs
(721,699
)
 
(314,719
)
Distributions to common stockholders
(2,399,708
)
 
(513,683
)
Redemptions of common stock
(272,960
)
 
(211,588
)
Net cash provided by financing activities
87,685,705

 
26,905,254

Net increase in cash and cash equivalents
3,750,486

 
(3,052,985
)
Cash and cash equivalents, beginning of period
9,528,664

 
12,200,681

Cash and cash equivalents, end of period
$
13,279,150

 
$
9,147,696


5


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




Supplemental Disclosures of Cash Flow Information:
 
 
 
Interest paid
$
3,674,996

 
$
584,634

Supplemental Disclosure of Noncash Transactions:
 
 
 
Increase in distributions payable
$
292,932

 
$
139,038

Assumption of mortgage notes payable to acquire real estate
$
23,539,956

 
$
37,975,786

Application of escrow deposits to acquire real estate
$
1,025,100

 
$
1,100,500

Premium on assumed mortgage notes payable
$
1,575,966

 
$

Distributions paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan
$
1,768,123

 
$
351,897


See accompanying 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
March 31, 2013
(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 qualify as a real estate investment trust (“REIT”). On June 12, 2009, the Company was initially capitalized pursuant to the sale of 22,223 shares of common stock to Steadfast REIT Investments, LLC (the “Sponsor”) at a purchase price of $9.00 per share for an aggregate purchase price of $200,007. On July 10, 2009, Steadfast Income 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 accepts subscriptions for shares of its common stock, the Company transfers 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 increases 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 March 31, 2013, the Company owned 34 multifamily properties comprising a total of 7,654 apartment homes and 25,675 square feet of rentable commercial space. For more information on the Company’s real estate portfolio, see Note 3.
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, 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 may 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 $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

7


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

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 new offering price of $10.24 per share. The Company’s board of directors may again, in its sole discretion, change the price at which the Company offers shares of common stock to the public in the Primary Offering or to its stockholders pursuant to the DRP to reflect future changes in the Company’s estimated value per share and other factors that the Company’s board of directors deems relevant.
From the commencement of the Public Offering on July 19, 2010 to March 31, 2013, the Company sold 27,173,646 shares of common stock in the Public Offering for gross proceeds of $272,615,901, including 575,190 shares of common stock issued pursuant to the DRP for gross offering proceeds of $5,539,778.
The Company intends to use substantially all of the net proceeds from the Public Offering to continue to invest in and manage a diverse portfolio of real estate investments, primarily in the multifamily sector, located throughout the United States. In addition to the Company’s focus on multifamily properties, the Company may also selectively invest in other types of commercial properties. The Company may also acquire or originate mortgage, mezzanine, bridge and other real estate loans and equity securities of other real estate companies.
The business of the Company is externally managed by the Advisor, pursuant to the Advisory Agreement (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 May 4, 2014. 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. The Company has retained Steadfast Capital Markets Group, LLC (the “Dealer Manager”), an affiliate of the Advisor, to serve as the dealer manager for the Public Offering. The Dealer Manager is 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 offering services, 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. In addition to the administrative and operating costs and expenses incurred by the Operating Partnership in acquiring and operating real properties, the Operating Partnership will pay all of the Company’s administrative costs and expenses, and such expenses will be treated as expenses of the Operating Partnership.
The Company commenced its operations on August 11, 2010 upon acquiring a fee simple interest in a multifamily property located in Springfield, Illinois.


8


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, the Operating Partnership and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The financial statements of the 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 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 months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. 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, 2012.
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.
Real Estate Assets
Depreciation and Amortization
Real estate costs related to the development, construction and improvement of properties are capitalized. Acquisition costs are expensed as incurred. Repair and maintenance and tenant turnover costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance and tenant turnover costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life and anticipates the estimated useful lives of assets by class to be generally as follows:
Buildings
 
25-40 years
Building improvements
 
5-25 years
Tenant improvements
 
Shorter of lease term or expected useful life
Tenant origination and absorption costs
 
Remaining term of related lease
Furniture, fixtures, and equipment
 
5-10 years
Other intangible assets
 
5-40 years

9


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

Real Estate Purchase Price Allocation
The Company records the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. Acquisition costs are generally expensed as incurred.
The Company assesses the acquisition-date fair values of all tangible assets, identifiable intangible assets and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant.
Intangible assets include the value of in-place leases, which represents the estimated value of the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up.
The Company estimates the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease-up periods, considering current market conditions. In estimating carrying costs, the Company estimates the amount of lost rentals using market rates during the expected lease-up periods.
The Company amortizes the value of in-place leases to expense over the remaining non-cancelable term of the respective leases. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.
The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) the Company’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining cancelable term of the lease. The Company amortizes any capitalized above-market or below-market lease values as a reduction or increase to rental income over the remaining non-cancelable terms of the respective leases.
The total amount of other lease-related intangible assets acquired will be further allocated to in-place lease values and customer relationship intangible values based on the Company’s evaluation of the specific characteristics of each tenant’s lease and its overall relationship with that respective tenant. Characteristics that the Company considers in allocating these values include the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with the tenant, and the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.
The total amount of non-lease-related intangible assets, including amenity access agreements, tax abatement agreements or other contract rights assumed as part of the acquisition of certain properties, will be allocated to other intangible assets based on the present value of the difference between contractual amounts to be paid pursuant to the contracts assumed and the Company's estimate of the fair market contract rates for corresponding contracts measured over a period equal to the remaining non-cancelable term of the contracts assumed. Other intangible assets are amortized using the straight-line method over the remaining non-cancelable term of the related contracts.

10


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

Estimates of the fair values of the tangible assets, identifiable intangible assets and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions could result in an incorrect valuation of acquired tangible assets, identifiable intangible assets and assumed liabilities, which could impact the amount of the Company’s net income (loss).
Impairment of Real Estate Assets
The Company will continually monitor events and changes in circumstances that could indicate that the carrying amounts of the Company’s real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability of the assets by estimating whether the Company will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. Based on this analysis, if the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company records an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. If any assumptions, projections or estimates regarding an asset changes in the future, the Company may have to record an impairment to reduce the net book value of such individual asset.
Rents and Other Receivables
The Company will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of tenants in developing these estimates. Due to the short-term nature of the operating leases, the Company does not maintain an allowance for deferred rent receivable related to the straight-lining of rents.
Revenue Recognition
The Company leases apartment and condominium units under operating leases with terms generally of one year or less. Generally, credit investigations are performed for prospective residents and security deposits are obtained. The Company will recognize minimum rent, including rental abatements, concessions and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related lease and amounts expected to be received in later years will be recorded as deferred rents. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.
The Company recognizes gains on sales of real estate either in total or deferred for a period of time, depending on whether a sale has been consummated, the extent of the buyer’s investment in the property being sold, whether the receivable is subject to future subordination, and the degree of the Company’s continuing involvement with the property after the sale. If the criteria for profit recognition under the full-accrual method are not met, the Company will defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery method, as appropriate, until the appropriate criteria are met.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value. As of March 31, 2013 and December 31, 2012, the Company had amounts in excess of federally insured limits in deposit accounts with a financial institution. The Company limits such deposits to financial institutions with high credit standing.

11


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

Restricted Cash
Restricted cash represents those cash accounts for which the use of funds is restricted by loan covenants. As of March 31, 2013 and December 31, 2012, the Company had a restricted cash balance of $6,391,000 and $5,467,219, respectively, which represents amounts set aside as impounds for future property tax payments, property insurance payments and tenant improvement payments as required by agreements with the Company’s lenders.
Deferred Financing Costs
The Company capitalizes deferred financing costs such as commitment fees, legal fees and other third party costs associated with obtaining commitments for financing that result in a closing of such financing. The Company amortizes these costs over the terms of the respective financing agreements using the interest method. The Company expenses unamortized deferred financing costs when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close.
Derivative Financial Instruments
The Company’s objective in using derivatives is to add stability to interest expense and to manage the Company’s exposure to interest rate movements or other identified risks. To accomplish these objectives, the Company may use various types of derivative instruments to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in the benchmark interest rate of LIBOR or other applicable benchmark rates. As of March 31, 2013, the Company’s derivative instruments include an interest rate cap based on the Securities Industry and Financial Markets Association (“SIFMA”) Municipal Swap Index and two interest rate caps based on LIBOR.
The Company measures its derivative instruments and hedging activities at fair value and records them as an asset or liability, depending on its rights or obligations under the applicable derivative contract. For derivatives designated as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged items are recorded in earnings. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For derivatives designated as cash flow hedges, the effective portions of changes in fair value of the derivatives are reported in other comprehensive income (loss) and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedges and ineffective portions of hedges are recognized in earnings in the affected period. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.
As of March 31, 2013, the Company did not have any derivatives designated as cash flow or fair value hedges, nor are derivatives being used for trading or speculative purposes.
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:

12


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.
When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and will classify such items in Level 1 or Level 2. In instances where the market is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and will establish a fair value by assigning weights to the various valuation sources.
The following describes the valuation methodologies used by the Company to measure fair value, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.
Interest rate caps - These derivatives did not qualify as fair value hedges. 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 caps. Therefore, the Company’s interest rate caps were classified within Level 2 of the fair value hierarchy and are included in deferred financing costs and other assets 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:
 
 
March 31, 2013
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Interest rate caps
 
$

 
$
317,368

 
$

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.

13


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

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 March 31, 2013 and December 31, 2012, the fair value of the mortgage notes payable was $471,293,134 and $410,709,202, respectively, compared to the carrying value of $484,258,015 and $408,802,388, respectively. The Company has determined that its mortgage notes payable are classified as Level 3 within the fair value hierarchy.
Accounting for Stock-Based Compensation
The Company amortizes the fair value of stock-based compensation awards to expense over the vesting period and records any dividend equivalents earned as dividends for financial reporting purposes. Stock-based compensation awards are valued at the fair value on the date of grant and amortized as an expense over the vesting period.
Distribution Policy
The Company has elected to be taxed as a REIT and to operate as a REIT beginning with its taxable year ending December 31, 2010. To maintain its qualification as a REIT, the Company intends to make distributions each taxable year equal to at least 90% of its REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). For the period from January 1, 2012 to September 9, 2012, distributions were based on daily record dates and calculated at a rate of $0.001917 per share per day and $0.001964 per share per day beginning September 10, 2012. Each day during the period from January 1, 2013 through March 31, 2013 was a record date for distributions.
Distributions to stockholders are determined by the board of directors of the Company and are dependent upon a number of factors relating to the Company, including funds available for the payment of distributions, financial condition, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order for the Company to qualify as a REIT under the Internal Revenue Code.
Organization and Offering Costs
Organization and offering expenses include all expenses (other than sales commissions and related dealer manager fees) to be paid by the Company in connection with the Public Offering and the Private Offering, including legal, accounting, printing, mailing and filing fees, charges of the 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.
The Company may also reimburse costs of bona fide training and education meetings held by the Company (primarily travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees and cost reimbursement of employees of the Company’s affiliates to attend seminars conducted by broker-dealers and, in certain cases, reimbursement to participating broker-dealers for technology costs associated with the Public Offering, costs and expenses

14


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the Company’s shares of common stock and the ownership of the Company’s shares of common stock by such broker-dealers’ customers; provided, however, that the Company will not pay any of the foregoing costs to the extent that such payment would cause total underwriting compensation for the Public Offering to exceed 10% of the gross proceeds of the Public Offering, as required by the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
Pursuant to the Advisory Agreement and the dealer manager agreement by and among the Company, the Operating Partnership and the Dealer Manager (the “Dealer Manager Agreement”), the Company is obligated to reimburse the Advisor, the Dealer Manager, or their affiliates, as applicable, for organization and offering costs paid by them on behalf of the Company, provided that, within 60 days of the end of the month in which the Public Offering terminates, the Advisor is obligated to reimburse the Company to the extent selling commissions, dealer manager fees and organization and offering costs incurred by the Company in the completed Public Offering exceed 15% of gross offering proceeds of the completed Public Offering. Any reimbursement of expenses paid to Advisor will not exceed actual expenses incurred by the Advisor.
Reimbursements to the Advisor, the Dealer Manager, or their affiliates for offering costs paid by them on behalf of the Company with respect to the Private Offering are not limited to 15% of the gross offering proceeds of the Private Offering. However, the Company will not make reimbursements of offering costs in excess of 15% of the gross offering proceeds of the Private Offering unless approval is obtained from the Company’s independent directors. The independent directors have not approved the reimbursement of such excess costs from the Private Offering. Accordingly, the Company has not accrued for the reimbursement of organization and offering costs of the Private Offering in excess of 15% of the gross offering proceeds raised in the Private Offering until such time as the reimbursement of such costs are approved by the independent directors of the Company.
Operating Expenses
Pursuant to the Advisory Agreement, the Company is limited in the amount of certain operating expenses it may record on a rolling four-quarter basis to the greater of 2% of average invested assets and 25% of net income. Operating expenses include all costs and expenses incurred by the Company, as determined under GAAP, that in any way are related to the operation of the Company, excluding expenses of raising capital, interest payments, taxes, property operating expenses, non-cash expenditures, incentive fees, acquisition fees and expenses and investment management fees.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue Code beginning with the tax year ending December 31, 2010. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including the requirement to distribute at least 90% of the Company’s annual REIT taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company believes it is organized and operates in such a manner as to qualify for treatment as a REIT.

15


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

The Company follows the Income Taxes Topic of the ASC to recognize, measure, present and disclose in its accompanying consolidated financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. As of March 31, 2013 and December 31, 2012, the Company had no liabilities for uncertain tax positions that it believes should be recognized in its accompanying consolidated financial statements. The Company has not been assessed interest or penalties by the Internal Revenue Service. The Company’s evaluation was performed for the tax years ended December 31, 2012 and 2011. As of March 31, 2013, the Company’s tax returns for calendar years 2009 through 2012 remain subject to examination by the Internal Revenue Service.
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. Nonvested shares of the Company’s restricted common stock give rise to potentially dilutive shares of the Company’s common stock but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during the period.
Segment Disclosure
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.


16


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

3. Real Estate
As of March 31, 2013, the Company owned 34 multifamily properties. The following table provides summary information regarding the Company’s property portfolio:
 
Property Name
 
Location
 
Purchase Date
 
Number
of Units
 
Contract Purchase Price
 
Mortgage Debt
Outstanding
 
Average Occupancy
as of
 
Average Monthly Rent as of
 
 
 
 
 
 
 
Mar 31, 2013
 
Dec 31, 2012
 
Mar 31, 2013
 
Dec 31, 2012
1
Lincoln Tower Apartments
 
Springfield, IL
 
8/11/2010
 
190
 
$
9,500,000

 
$
8,597,909

 
97.4
%
 
96.8
%
 
$
856

 
$
848

2
Park Place Condominiums
 
Des Moines, IA
 
12/22/2010
 
149
 
8,158,500

 
5,000,000

 
96.6
%
 
88.6
%
 
867

 
859

3
Arbor Pointe Apartments
 
Louisville, KY
 
5/5/2011
 
130
 
6,500,000

 
5,066,333

 
97.7
%
 
95.4
%
 
777

 
775

4
Clarion Park Apartments
 
Olathe, KS
 
6/28/2011
 
220
 
11,215,000

 
8,741,138

 
98.2
%
 
95.5
%
 
698

 
697

5
Cooper Creek Village
 
Louisville, KY
 
8/24/2011
 
123
 
10,420,000

 
6,713,555

 
94.3
%
 
95.1
%
 
941

 
938

6
Truman Farm Villas
 
Grandview, MO
 
12/22/2011
 
200
 
9,100,000

 
5,896,631

 
97.5
%
 
96.5
%
 
659

 
654

7
Prairie Walk Apartments
 
Kansas City, MO
 
12/22/2011
 
128
 
6,100,000

 
3,952,607

 
97.7
%
 
95.3
%
 
627

 
615

8
EBT Lofts
 
Kansas City, MO
 
12/30/2011
 
102
 
8,575,000

 
5,572,752

 
97.1
%
 
98.0
%
 
883

 
876

9
Windsor on the River Apartments
 
Cedar Rapids, IA
 
1/26/2012
 
424
 
33,000,000

 
23,500,000

 
93.2
%
 
88.0
%
 
724

 
728

10
Renaissance St. Andrews Apartments
 
Louisville, KY
 
2/17/2012
 
216
 
12,500,000

 
9,084,000

 
91.2
%
 
93.5
%
 
693

 
699

11
Spring Creek Apartments
 
Edmond, OK
 
3/9/2012
 
252
 
19,350,000

 
14,154,068

 
94.4
%
 
92.9
%
 
853

 
850

12
Montclair Parc Apartments
 
Oklahoma City, OK
 
4/26/2012
 
360
 
35,750,000

 
24,649,920

 
90.8
%
 
88.6
%
 
927

 
926

13
Sonoma Grande Apartments
 
Tulsa, OK
 
5/24/2012
 
336
 
32,200,000

 
22,540,000

 
93.2
%
 
91.4
%
 
949

 
945

14
Estancia Apartments
 
Tulsa, OK
 
6/29/2012
 
294
 
27,900,000

 
22,113,944

 
92.9
%
 
95.2
%
 
959

 
950

15
Montelena Apartments
 
Round Rock, TX
 
7/13/2012
 
232
 
18,350,000

 
12,781,204

 
96.1
%
 
94.0
%
 
881

 
869

16
Valley Farms Apartments
 
Louisville, KY
 
8/30/2012
 
160
 
15,100,000

 
10,370,072

 
95.0
%
 
94.4
%
 
881

 
883

17
Hilliard Park Apartments
 
Columbus, OH
 
9/11/2012
 
201
 
19,800,000

 
13,860,000

 
91.5
%
 
92.0
%
 
994

 
992


17


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

 
Property Name
 
Location
 
Purchase Date
 
Number
of Units
 
Contract Purchase Price
 
Mortgage Debt
Outstanding
 
Average Occupancy
as of
 
Average Monthly Rent as of
 
 
 
 
 
 
 
Mar 31, 2013
 
Dec 31, 2012
 
Mar 31, 2013
 
Dec 31, 2012
18
Sycamore Terrace Apartments
 
Terre Haute, IN
 
9/20/2012
 
178
 
$
16,500,000

 
$
11,496,707

 
98.3
%
 
95.5
%
 
$
1,016

 
$
1,015

19
Hilliard Summit Apartments
 
Columbus, OH
 
9/28/2012
 
208
 
24,100,000

 
16,800,000

 
92.8
%
 
93.8
%
 
1,077

 
1,063

20
Springmarc Apartments
 
San Marcos, TX
 
10/19/2012
 
240
 
21,850,000

 
15,470,000

 
84.6
%
 
88.8
%
 
912

 
974

21
Renaissance at St. Andrews Condominiums
 
Louisville, KY
 
10/31/2012
 
29
 
1,375,000

 

 
72.4
%
 
58.6
%
 
687

 
704

22
Ashley Oaks Apartments
 
San Antonio, TX
 
11/29/2012
 
462
 
30,790,000

 
21,712,000

 
91.3
%
 
91.1
%
 
745

 
745

23
Arrowhead Apartments
 
Palatine, IL
 
11/30/2012
 
200
 
16,750,000

 
12,562,000

 
96.0
%
 
96.5
%
 
996

 
997

24
The Moorings Apartments
 
Roselle, IL
 
11/30/2012
 
216
 
20,250,000

 
15,187,000

 
96.8
%
 
97.7
%
 
1,016

 
1,010

25
Forty 57 Apartments
 
Lexington, KY
 
12/20/2012
 
436
 
52,500,000

 
38,500,000

 
90.1
%
 
87.2
%
 
856

 
866

26
Keystone Farms Apartments
 
Nashville, TN
 
12/28/2012
 
90
 
8,400,000

 
6,200,000

 
95.6
%
 
97.8
%
 
965

 
952

27
Riverford Crossing Apartments
 
Frankfort, KY
 
12/28/2012
 
300
 
30,000,000

 
21,900,000

 
92.7
%
 
92.7
%
 
862

 
861

28
South Pointe at Valley Farms
 
Louisville, KY
 
12/28/2012
 
32
 
5,275,000

 
2,275,000

 
96.9
%
 
93.8
%
 
980

 
969

29
Montecito Apartments
 
Austin, TX
 
12/31/2012
 
268
 
19,000,000

 
14,250,000

 
95.9
%
 
91.8
%
 
805

 
752

30
Hilliard Grand Apartments
 
Dublin, OH
 
12/31/2012
 
314
 
40,500,000

 
29,205,981

 
91.7
%
 
92.0
%
 
1,202

 
1,190

31
The Hills at Fair Oaks
 
Fair Oaks Ranch, TX
 
1/31/2013
 
288
 
34,560,000

 
24,767,000

 
91.3
%
 
 
 
953

 
 
32
Library Lofts East
 
Kansas City, MO
 
2/28/2013
 
118
 
12,750,000

 
9,224,000

 
98.3
%
 
 
 
886

 
 
33
The Trails at Buda Ranch
 
Buda, TX
 
3/28/2013
 
264
 
23,000,000

 
17,030,000

 
97.4
%
 
 
 
936

 
 
34
Deep Deuce at Bricktown
 
Oklahoma City, OK
 
3/28/2013
 
294
 
38,220,000

 
25,084,194

 
96.9
%
 
 
 
1,089

 
 
 
 
 
 
 
 
 
7,654
 
$
679,338,500

 
$
484,258,015

 
93.8
%
 
92.4
%
 
$
887

 
$
873



18


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

First Quarter Acquisitions
The Hills at Fair Oaks
On January 31, 2013, the Company acquired a fee simple interest in the The Hills at Fair Oaks located in Fair Oaks Ranch, Texas (the “Fair Oaks Property”), through a wholly-owned subsidiary of the Operating Partnership, for a purchase price of $34,560,000, exclusive of closing costs. The Fair Oaks Property consists of 14 three-story buildings and contains 288 apartment homes consisting of 120 one-bedroom apartments, 120 two-bedroom apartments and 48 three-bedroom apartments. The apartment homes range in size from 597 to 1,150 square feet and average 875 square feet. An acquisition fee of $700,007 was earned by Advisor in connection with the acquisition of the Fair Oaks Property.
Library Lofts East
On February 28, 2013, the Company acquired a fee simple interest in the Library Lofts East located in Kansas City, Missouri (the “Library Lofts Property”), through a wholly-owned subsidiary of the Operating Partnership, for a purchase price of $12,750,000, exclusive of closing costs. The Library Lofts Property consists of a six-story building and a ten-story building and contains 118 apartment homes consisting of one studio apartment, 89 one-bedroom apartments and 28 two-bedroom apartments. The apartment homes range in size from 610 to 1,240 square feet and average 863 square feet. The Library Lofts Property also contains 16,680 rentable square feet of commercial space. An acquisition fee of $260,984 was earned by Advisor in connection with the acquisition of the Library Lofts Property.
Trails at Buda Ranch
On March 28, 2013, the Company acquired a fee simple interest in the Trails at Buda Ranch located in Buda, Texas (the “Buda Ranch Property”), through a wholly-owned subsidiary of the Operating Partnership, for a purchase price of $23,000,000, exclusive of closing costs. The Buda Ranch Property consists of 14 three-story buildings and contains 264 apartment homes consisting of 96 one-bedroom apartments, 120 two-bedroom apartments and 48 three-bedroom apartments. The apartment homes range in size from 597 to 1,150 square feet and average 888 square feet. An acquisition fee of $465,601 was earned by Advisor in connection with the acquisition of the Buda Ranch Property.
Deep Deuce at Bricktown
On March 28, 2013, the Company acquired a fee simple interest in the Deep Deuce at Bricktown Apartments located in Oklahoma City, Oklahoma (the “Deep Deuce Property”), through a wholly-owned subsidiary of the Operating Partnership, for a purchase price of $38,220,000, exclusive of closing costs. The Deep Deuce Property consists of 26 two- and three-story buildings and contains 294 apartment homes consisting of 132 one-bedroom apartments and 162 two-bedroom apartments. The apartment homes range in size from 711 to 1,141 square feet and average 925 square feet. An acquisition fee of $772,404 was earned by Advisor in connection with the acquisition of the Deep Deuce Property.

19


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

The purchase price for the Company’s acquisitions during the three months ended March 31, 2013 was allocated as follows as of the respective closing dates of each acquisition:
Property Name
 
Purchase Date
 
Land
 
Building and
Improvements
 
Tenant
Origination and
Absorption Costs
 
Other Intangible Assets
 
Below-Market Leases
 
Premium on Assumed Liabilities(1)
 
Total Purchase
Price
The Hills at Fair Oaks
 
1/31/2013
 
$
3,008,363

 
$
31,074,847

 
$
625,792

 
$

 
$
(149,002
)
 
$

 
$
34,560,000

Library Lofts East
 
2/28/2013
 
1,669,405

 
9,617,271

 
205,967

 
1,257,357

 

 

 
12,750,000

The Trails at Buda Ranch
 
3/28/2013
 
2,504,114

 
19,989,816

 
506,070

 

 

 

 
23,000,000

Deep Deuce at Bricktown
 
3/28/2013
 
2,529,318

 
36,591,572

 
675,076

 

 

 
(1,575,966
)
 
38,220,000

 
 
 
 
$
9,711,200

 
$
97,273,506

 
$
2,012,905

 
$
1,257,357

 
$
(149,002
)
 
$
(1,575,966
)
 
$
108,530,000

________________
(1)
Loan premiums are accreted to interest expense over the remaining term of the assumed loan.

20


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

As of March 31, 2013 and December 31, 2012, accumulated depreciation and amortization related to the Company’s consolidated real estate properties and related intangibles were as follows:
 
 
March 31, 2013
 
 
Assets
 
Liabilities
 
 
Land
 
Building and Improvements
 
Tenant Origination and Absorption
 
Other Intangible Assets
 
Total Real Estate
 
Below-Market Leases
Investments in real estate
 
$
61,839,726

 
$
610,303,017

 
$
15,508,925

 
$
1,257,357

 
$
688,909,025

 
$
(589,054
)
Less: Accumulated depreciation and amortization
 

 
(14,908,734
)
 
(11,882,293
)
 
(5,891
)
 
(26,796,918
)
 
397,029

Net investments in real estate and related lease intangibles
 
$
61,839,726

 
$
595,394,283

 
$
3,626,632

 
$
1,251,466

 
$
662,112,107

 
$
(192,025
)
 
 
December 31, 2012
 
 
Assets
 
Liabilities
 
 
Land
 
Building and Improvements
 
Tenant Origination and Absorption
 
Other Intangible Assets
 
Total Real Estate
 
Below-Market Leases
Investments in real estate
 
$
52,128,526

 
$
512,420,903

 
$
13,496,020

 
$

 
$
578,045,449

 
$
(440,052
)
Less: Accumulated depreciation and amortization
 

 
(9,515,773
)
 
(8,557,589
)
 

 
(18,073,362
)
 
138,703

Net investments in real estate and related lease intangibles
 
$
52,128,526

 
$
502,905,130

 
$
4,938,431

 
$

 
$
559,972,087

 
$
(301,349
)
Depreciation and amortization expense was $8,723,557 and $1,934,024 for the three months ended March 31, 2013 and 2012, respectively.
The increase in net loss as a result of amortization of the Company’s tenant origination and absorption costs for the three months ended March 31, 2013 and 2012 was $3,324,704 and $1,002,762, respectively. Tenant origination and absorption costs had a weighted-average amortization period as of the date of acquisition of less than one year.
The increase in net loss as a result of amortization of the Company’s other intangible assets for the three months ended March 31, 2013 and 2012 was $5,891 and $0, respectively. Other intangible assets had a weighted-average amortization period as of the date of acquisition of 20.23 years.
The increase in rental income as a result of the accretion of the Company’s below-market lease intangible liabilities for the three months ended March 31, 2013 and 2012 was $258,326 and $0. The Company’s below-market lease intangible liabilities had a weighted-average accretion period as of the date of acquisition of less than one year.
Operating Leases
As of March 31, 2013, the Company’s real estate portfolio comprised 7,654 residential apartment homes and was 95.9% leased by a diverse group of residents. For the three months ended March 31, 2013, the Company’s real estate portfolio earned approximately 99% and 1% of its rental income from residential tenants and commercial office tenants, respectively. For the three months ended March 31, 2012, the Company’s real estate portfolio earned approximately 99% and 1% of its rental income from residential tenants and commercial office tenants, respectively. The residential tenant lease terms consist of lease

21


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

durations equal to 12 months or less. The commercial office tenant leases consist of lease durations varying from three to five years.
Some residential and commercial leases contain provisions to extend the lease agreements, options for early termination after paying a specified penalty 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 $2,096,787 and $1,809,508 as of March 31, 2013 and December 31, 2012, respectively.
The future minimum rental receipts from the Company’s properties under non-cancelable operating leases attributable to commercial office tenants as of March 31, 2013 and thereafter is as follows:
April 1 through December 31, 2013
$
263,710

2014
256,847

2015
217,198

2016
188,789

2017
187,680

Thereafter
31,280

 
$
1,145,504

As of March 31, 2013 and December 31, 2012, 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.
4. Deferred Financing Costs and Other Assets
As of March 31, 2013 and December 31, 2012, deferred financing costs and other assets, net of accumulated amortization, consisted of:
 
March 31,
2013
 
December 31, 2012
Deferred financing costs
$
4,511,290

 
$
3,789,591

Less: accumulated amortization
(419,982
)
 
(259,688
)
 
4,091,308

 
3,529,903

Prepaid expenses
563,962

 
975,843

Interest rate caps
317,368

 
133,109

Escrow deposits for pending real estate acquisitions
1,555,100

 
1,175,100

Deposits
515,736

 
389,756

 
$
7,043,474

 
$
6,203,711


22


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

5.
Debt
Mortgage Notes Payable
The following is a summary of mortgage notes payable secured by real property as of March 31, 2013 and December 31, 2012:
 
 
 
 
 
 
 
 
 
Principal Outstanding at
 
Property Name
 
Payment
Type
 
Maturity
Date
 
Interest
Rate(1)
 
March 31, 2013
 
December 31, 2012
1
Lincoln Tower Property
 
Principal and interest
 
May 1, 2019
 
3.66%
 
$
8,597,909

 
$
8,652,963

2
Park Place Property
 
Interest only
 
December 31, 2013(2)
 
5.25%
 
5,000,000

 
5,000,000

3
Arbor Pointe Property
 
Principal and interest
 
June 1, 2018
 
4.86%
 
5,066,333

 
5,087,013

4
Clarion Park Property
 
Principal and interest
 
July 1, 2018
 
4.58%
 
8,741,138

 
8,778,412

5
Cooper Creek Property
 
Principal and interest(3)
 
September 1, 2018
 
3.89%
 
6,713,555

 
6,743,782

6
Prairie Walk Property
 
Principal and interest(3)
 
January 1, 2019
 
3.74%
 
3,952,607

 
3,965,000

7
Truman Farm Villas Property
 
Principal and interest(3)
 
January 1, 2019
 
3.78%
 
5,896,631

 
5,915,000

8
EBT Lofts Property
 
Principal and interest(3)
 
January 1, 2019
 
3.82%
 
5,572,752

 
5,590,000

9
Windsor Property
 
Interest only
 
May 1, 2042
 
Variable(4)(5)
 
23,500,000

 
23,500,000

10
Renaissance Property(6)
 
Principal and interest(3)
 
January 1, 2023
 
3.85%
 
9,084,000

 
9,084,000

11
Spring Creek Property(7)
 
Principal and interest
 
February 1, 2018
 
4.88%
 
14,154,068

 
14,236,229

12
Montclair Parc Property
 
Principal and interest
 
May 1, 2019
 
3.70%
 
24,649,920

 
24,766,709

13
Sonoma Grande Property
 
Principal and interest(8)
 
June 1, 2019
 
3.31%
 
22,540,000

 
22,540,000

14
Estancia Property(9)
 
Interest only
 
October 1, 2017(10)
 
5.94%
 
22,113,944

 
22,203,718

15
Montelena Property(11)
 
Principal and interest(12)
 
August 1, 2018
 
4.82%
 
12,781,204

 
12,817,796

16
Valley Farms Property
 
Principal and interest
 
January 1, 2020
 
4.25%
 
10,370,072

 
10,400,000

17
Hilliard Park Property
 
Principal and interest(3)
 
October 1, 2022
 
3.62%
 
13,860,000

 
13,860,000

18
Sycamore Terrace Property
 
Principal and interest
 
December 1, 2019
 
LIBOR + 3.44%
 
11,496,707

 
11,550,000


23


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

 
 
 
 
 
 
 
 
 
Principal Outstanding at
 
Property Name
 
Payment
Type
 
Maturity
Date
 
Interest
Rate(1)
 
March 31, 2013
 
December 31, 2012
19
Hilliard Summit Property
 
Principal and interest(3)
 
October 1, 2022
 
3.56%
 
$
16,800,000

 
$
16,800,000

20
Springmarc Property
 
Principal and interest(3)
 
November 1, 2019
 
3.69%
 
15,470,000

 
15,470,000

21
Ashley Oaks Property(13)
 
Principal and interest(3)
 
November 1, 2021
 
LIBOR + 2.35%
 
21,712,000

 
21,712,000

22
Arrowhead Property
 
Principal and interest(3)
 
December 1, 2019
 
3.38%
 
12,562,000

 
12,562,000

23
The Moorings Property
 
Principal and interest(3)
 
December 1, 2019
 
3.37%
 
15,187,000

 
15,187,000

24
Forty-57 Property
 
Principal and interest(14)
 
January 1, 2023
 
3.73%
 
38,500,000

 
38,500,000

25
Keystone Farms Property
 
Principal and interest(3)
 
January 1, 2023
 
3.86%
 
6,200,000

 
6,200,000

26
Riverford Crossing Property
 
Principal and interest(14)
 
January 1, 2023
 
3.78%
 
21,900,000

 
21,900,000

27
South Pointe Property
 
Interest only
 
June 3, 2013
 
6.00%
 
2,275,000

 
2,275,000

28
Montecito Property
 
Principal and interest(3)
 
January 1, 2020
 
3.47%
 
14,250,000

 
14,250,000

29
Hilliard Grand Property
 
Principal and interest
 
August 1, 2052
 
5.59%
 
29,205,981

 
29,255,766

30
The Hills at Fair Oaks
 
Principal and interest(14)
 
February 1, 2023
 
4.02%
 
24,767,000

 
 
31
Library Lofts
 
Principal and interest
 
April 1, 2020
 
3.66%
 
9,224,000

 
 
32
Trails at Buda Ranch(15)
 
Principal and interest(3)
 
April 1, 2023
 
LIBOR + 2.42%
 
17,030,000

 
 
33
Deep Deuce at Bricktown Apartments(16)
 
Principal and interest
 
April 1, 2018
 
5.04%
 
25,084,194

 
 
 
 
 
 
 
 
 

 
$
484,258,015

 
$
408,802,388

_______________
(1)
Except as otherwise noted, interest on the notes accrues at a fixed rate per annum.
(2)
The Company has the option to extend the maturity date for up to two successive periods of 12 months each, subject to customary and market rate extension provisions.
(3)
A monthly payment of interest only is due and payable for twelve months from the loan date, after which, a monthly payment of principal and interest is due and payable until the maturity date.
(4)
The loan was originally funded with proceeds from the issuance of Iowa Finance Authority Variable Rate Demand Multifamily Housing Revenue Bonds (Windsor on the River, LLC Project), Series 2007A in the original aggregate principal amount of $24,000,000 (the “Bonds”) pursuant to an Indenture of Trust dated May 1, 2007 (the “Indenture”)

24


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

by and between the issuer and The Bank of New York Mellon Trust Company, N.A. (the “Bond Trustee”), as trustee for the holders of the Bonds. The Company is required to pay, or cause to be paid, to the Bond Trustee on each date on which any payment of the principal of, premium, if any, or interest on the Bonds is due (whether on an interest payment date, at maturity or upon redemption or acceleration), an amount which, together with the funds held by the Bond Trustee in a bond fund, will be sufficient to enable the Bond Trustee to pay the principal of, premium, if any, and interest on the Bonds due on such date. The loan will bear interest at a rate equal to the interest rate borne from time to time by the Bonds, calculated on the same basis and to be paid by the Company at the same time as interest on the Bonds is calculated and paid from time to time. Interest on the Bonds is calculated by the remarketing agent and is equal to the interest rate per annum, which in the professional judgment of the remarketing agent having due regard for prevailing market conditions, would be the minimum interest rate necessary to cause the sale of the Bonds on the first day of an interest period at a price equal to 100% of the principal amount of the Bonds plus accrued interest. The Bonds currently bear interest at a weekly rate.
(5)
The Company entered into an interest rate cap that limits the SIFMA portion of the interest rate to 3% through January 31, 2017 and 5% thereafter until January 31, 2019.
(6)
On December 27, 2012, the Company refinanced the existing mortgage loan secured by the Renaissance St. Andrews Property with the proceeds of a new mortgage loan in the aggregate principal amount of $9,084,000. A portion of the proceeds from the new loan were used to retire $7,000,000 of principal and accrued interest outstanding on the existing mortgage loan.
(7)
The principal balance at March 31, 2013 includes the unamortized portion of the debt premium of $491,147. During the three months ended March 31, 2013, the Company recorded amortization of debt premiums of $25,357 as an offset to interest expense in the accompanying consolidated statements of operations.
(8)
A monthly payment of interest only is due and payable through June 1, 2014, after which, a monthly payment of principal and interest is due and payable until the maturity date.
(9)
The principal balance at March 31, 2013 includes the unamortized portion of the debt premium of $1,613,944. During the three months ended March 31, 2013, the Company recorded amortization of debt premiums of $89,774 as an offset to interest expense in the accompanying consolidated statements of operations.
(10)
The Company has the option to extend the maturity date to October 1, 2018, subject to customary and market rate extension provisions.
(11)
The principal balance at March 31, 2013 includes the unamortized portion of the debt premium of $781,204. During the three months ended March 31, 2013, the Company recorded amortization of debt premiums of $36,592 as an offset to interest expense in the accompanying consolidated statements of operations.
(12)
A monthly payment of interest only is due and payable through August 1, 2013, after which, a monthly payment of principal and interest is due and payable until the maturity date.
(13)
The Company entered into an interest rate cap that limits the London Interbank Offered Rate (“LIBOR”) portion of the interest rate to 5% through November 1, 2016.
(14)
A monthly payment of interest only is due and payable for 24 months from the loan date, after which, a monthly payment of principal and interest is due and payable until the maturity date.
(15)
The Company entered into an interest rate cap that limits the LIBOR portion of the interest rate to 2% through April 1, 2018.

25


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

(16)
The principal balance at March 31, 2013 includes the unamortized portion of the debt premium of $1,572,577. During the three months ended March 31, 2013, the Company recorded amortization of debt premiums of $3,389 as an offset to interest expense in the accompanying consolidated statements of operations.
Revolving Credit Facility
On October 22, 2012, the Company entered into an unsecured revolving line of credit with PNC Bank, N.A. to borrow up to $5,000,000. Each advance under the facility is due within 180 days from the date of the advance and all unpaid principal and interest is due and payable in full on October 22, 2013.
For each advance, the Company has 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 credit agreement), (B) the sum of the Federal Funds Rate (as defined in the credit agreement) plus 0.50%, and (C) LIBOR plus 1.0% or (2) LIBOR plus 3.0%. For each advance wherein one of the LIBOR options is selected by the Company, the Company may select either the one-month LIBOR, three-month LIBOR or six-month LIBOR. As of March 31, 2013, $5,000,000 was outstanding bearing interest at the Prime Rate plus 2.0%.
The following is a summary of the Company’s aggregate maturities as of March 31, 2013:
 
 
 
 
 
 
Maturities During the Years Ending December 31,
 
 
Contractual Obligation
 
Total
 
Remainder of 2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
Principal payments on outstanding debt obligations(1)
 
$
489,258,015

 
$
15,385,973

 
$
6,612,224

 
$
8,588,505

 
$
8,866,577

 
$
29,653,290

 
$
420,151,446

________________
(1)
Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements.
The Company’s notes payable contain customary financial and non-financial debt covenants. As of March 31, 2013 and 2012, the Company was in compliance with all financial and non-financial debt covenants.
For the three months ended March 31, 2013 and 2012, the Company incurred interest expense of $4,302,013 and $758,582. Interest expense for the three months ended March 31, 2013 and 2012 includes amortization of deferred financing costs of $160,294 and $34,158, accretion of loan premiums of $155,112 and $6,271, and net unrealized losses from the change in fair value of interest rate caps of $64,617 and $0, respectively. Interest expense of $1,409,323 and $852,105 was payable as of March 31, 2013 and December 31, 2012, respectively, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.
As of March 31, 2013, the Company’s weighted-average interest rate on its outstanding debt was 3.95%.
6.
Stockholders’ Equity
General
Under the Company’s Second Articles of Amendment and Restatement (the “Charter”), the total number of shares of capital stock authorized for issuance is 1,100,000,000 shares, consisting of 999,999,000 shares of common stock with a par value of $0.01 per share, 1,000 shares of convertible stock with a par value of $0.01 per share and 100,000,000 shares designated as preferred stock with a par value of $0.01 per share.

26


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

Common Stock
The shares of the Company’s common stock entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the Company’s board of directors in accordance with the Maryland General Corporation Law and to all rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no preferences or preemptive, conversion or exchange rights.
During 2009, the Company issued 22,223 shares of common stock to the Sponsor for $200,007. As of March 31, 2013, the Company had issued 27,810,925 shares of common stock in its Private Offering and Public Offering for offering proceeds of $237,622,897, net of offering costs of $40,837,329, including 575,190 shares of common stock pursuant to the DRP, for total proceeds of $5,539,778. The offering costs primarily consist of selling commissions and dealer manager fees. Offering proceeds include $1,317,890 and $590,856 of amounts receivable from the Company’s transfer agent as of March 31, 2013 and December 31, 2012, respectively, which are included in rents and other receivables in the accompanying consolidated balance sheets.
During the year ended December 31, 2012, the Company granted 17,500 shares of restricted stock to its independent directors at a weighted average fair value of $9.23 as compensation for services in connection with their initial election or re-election to the board of directors at the Company’s annual meeting. During the year ended December 31, 2011, the Company granted 7,500 shares of restricted common stock to its independent directors pursuant to the Company’s independent directors’ compensation plan at a fair value of $9.10 per share in connection with their re-election to the board of directors at the Company’s annual meeting and 5,000 shares of restricted common stock to one of its then independent directors at a fair value of $9.10 per share in connection with her initial election to the board of directors. During 2010, the Company granted 15,000 shares of restricted common stock to its independent directors pursuant to the Company’s independent directors’ compensation plan at a fair value of $8.55 per share in connection with the Company raising $2,000,000 in the Private Offering. 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.
Included in general and administrative expenses is $21,126 and $8,349 for the three months ended March 31, 2013 and 2012, respectively, for compensation expense related to the issuance of restricted common stock. The weighted average remaining term of the restricted common stock is 1.54 years as of March 31, 2013.
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

27


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

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 March 31, 2013 and December 31, 2012, no shares of the Company’s preferred stock were issued and outstanding.
Distribution Reinvestment Plan
The Company’s board of directors has approved the DRP through which common stockholders may elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares of the Company’s common stock in lieu of receiving cash distributions. The initial purchase price per share under the DRP was $9.50. Effective September 10, 2012, shares of the Company’s common stock are issued pursuant to the DRP at a price of $9.73 per share or 95% of the new offering price of $10.24 per share. The Company’s board of directors may, in its sole discretion, from time to time, change this price based upon changes in the Company’s estimated value per share, the then current price of shares of the Company’s common stock in the Public Offering and other factors that the Company’s board of directors deems relevant.
No sales commissions or dealer manager fees are payable on shares sold through the DRP. The Company’s board of directors may terminate the DRP at its discretion at any time upon ten days notice to the Company’s stockholders. Following any termination of the DRP, all subsequent distributions to stockholders will be made in cash.
Share Repurchase Plan and Redeemable Common Stock
The Company’s repurchase plan 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 plan 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.
Prior to the completion of the Company’s Offering Stage, the purchase price for shares repurchased under the Company’s share repurchase plan will be as follows:
Share Purchase Anniversary
 
Repurchase Price
on Repurchase Date(1)
Less than 1 year
 
No Repurchase Allowed
1 year
 
92.5% of Purchase Price
2 years
 
95.0% of Purchase Price
3 years
 
97.5% of Purchase Price
4 years
 
100.0% of Purchase Price
In the event of a stockholder’s death or disability(2)
 
Average Issue Price for Shares(3)

28


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

After the completion of the Company’s Offering Stage (as defined below), the purchase price for shares repurchased under the Company’s share repurchase plan will be 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(4)
2 years
 
95.0% of Estimated Value per Share(4)
3 years
 
97.5% of Estimated Value per Share(4)
4 years
 
100.0% of Estimated Value per Share(4)
In the event of a stockholder’s death or disability(2)
 
Average Issue Price for Shares(3)
________________
(1)
As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock.
(2)
The required one year holding period to be eligible to redeem shares under the Company’s share repurchase plan does not apply in the event of death or disability of a stockholder. For purposes of the Company’s share repurchase plan a “disability” means (a) the stockholder has received a determination of disability based upon a physical or mental condition or impairment arising after the date the stockholder acquired the shares to be redeemed, and (b) the determination of such disability was made by the governmental agency responsible for reviewing and awarding the disability retirement benefits that the stockholder could be eligible to receive, which the Company refers to as the “applicable governmental agency.” The applicable governmental agencies are limited to the following: (i) the Social Security Administration; (ii) the U.S. Office of Personnel Management with respect to disability benefits under the Civil Service Retirement System (“CSRS”); or (iii) the Veteran’s Administration; and in each case, the agency charged with administering disability benefits at that time on behalf of one of the applicable governmental agencies. Disability determinations by governmental agencies other than those listed above, including, but not limited to, worker’s compensation insurance or the administration or enforcement of the Rehabilitation Act of 1973, as amended, or the Americans with Disabilities Act, will not entitle a stockholder to the terms available for the repurchase of shares. Repurchase requests following an award by the applicable governmental agency of disability Social Security Administration Notice of Award, a U.S. Office of Personnel Management determination of disability under CSRS, a Veteran’s Administration record of disability-related discharge, as the case may be, or such other documentation issued by the applicable governmental agency that the Company deems acceptable and demonstrates an award of the disability benefits. As the following disabilities generally do not entitle a worker to Social Security or related disability benefits, they will not qualify as a “disability” for purposes of our share repurchase plan: (a) disabilities occurring after the legal retirement age; (b) temporary disabilities; and (c) disabilities that do not render a worker incapable of performing substantial gainful activity. However, where a stockholder requests the repurchase of shares due to a disability and the stockholder does not have a disability that meets the definition described above, but is subject to similar circumstances, the Company’s board of directors may repurchase the stockholder’s shares, in its sole discretion.
(3)
The purchase price per share for shares redeemed upon the death or disability of a stockholder will be equal to the average issue price per share for all of the stockholder’s shares.
(4)
For purposes of the share repurchase plan, the “Estimated Value per Share” will equal the purchase price until the day the Company publicly discloses, subsequent to completion of the Offering Stage, a new Estimated Value per Share.

29


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

Thereafter, the Estimated Value per Share is determined by the board of directors, based on periodic valuations by independent third-party appraisers and qualified independent valuation experts selected by the Advisor.
The purchase price per share for shares repurchased pursuant to the share repurchase plan will be further reduced by the aggregate amount of net proceeds per share, if any, distributed to the 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.
The Company will consider the Company’s Offering Stage complete on the first date that the Company is no longer publicly offering equity securities that are not listed on a national securities exchange, whether through the Public Offering or follow-on public equity offerings, provided the Company has not filed a registration statement for a follow-on public equity offering as of such date (for purposes of this definition, the Company does not consider “public equity offerings” to include offerings on behalf of selling stockholders or offerings related to a distribution reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership).
Repurchases of shares of the Company’s common stock will be made quarterly upon written request to the Company at least 15 days prior to the end of the applicable quarter. Repurchase requests will be 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 the Repurchase Date. During the three months ended March 31, 2013, the Company redeemed a total of 29,169 shares with a total redemption value of $272,960 and received requests for the redemption of 35,596 shares with a total redemption value of $350,901. During the three months ended March 31, 2012, the Company received requests for the redemption of 4,773 shares with a total redemption value of $45,144, all of which were redeemed during the year ended December 31, 2012.
As of March 31, 2013, the Company had 35,596 shares of outstanding and unfulfilled redemption requests and recorded $350,901 in accounts payable and accrued liabilities on the accompanying consolidated balance sheet related to these unfulfilled redemption requests. The Company redeemed 29,454 of the outstanding redemption requests as of March 31, 2013 totaling $291,286 on the April 30, 2013 redemption date.
The Company cannot guarantee that the funds set aside for the share repurchase plan 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 will be 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 may (1) withdraw the request for repurchase or (2) ask that the Company honor the request in a future quarter, if any, when such repurchases can be made pursuant to the limitations of the share repurchase plan and when sufficient funds are available. Such pending requests will 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 plan. The Company presently intends to limit the number of shares to be repurchased in any calendar year to those that could be funded from the net proceeds from the sale of shares pursuant to the DRP and in no event shall the shares redeemed in any calendar year 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 plan 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

30


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

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.
In addition, the Company’s board of directors may, in its sole discretion, amend, suspend, or terminate the share repurchase plan at any time upon 30 days notice to the Company’s stockholders if it determines that the funds available to fund the share repurchase plan are needed for other business or operational purposes or that amendment, suspension or termination of the share repurchase plan is in the best interest of the Company’s stockholders. Therefore, stockholders may not have the opportunity to make a repurchase request prior to any potential termination of the Company’s share repurchase plan.
Pursuant to the share repurchase plan, for the three months ended March 31, 2013 and 2012, the Company reclassified $1,347,953 and $352,125, net of $272,960 and $211,588 of fulfilled redemption requests, respectively, from permanent equity to temporary equity, which is included as redeemable common stock on the accompanying consolidated balance sheets. The redeemable common stock balance at any given time will consist of (1) DRP proceeds from the prior year plus (2) DRP proceeds from the current year through the current period less (3) actual current year redemptions paid or pending redemption.
Distributions
The Company’s long-term policy is to pay distributions from cash flow from operations. However, the Company expects to have insufficient cash flow from operations available for distribution until it makes substantial investments. In order to provide additional available funds to pay distributions, under certain circumstances the Company’s obligation to pay all fees due to the Advisor from the Company pursuant to the Advisory Agreement will be deferred up to an aggregate amount of $5,000,000 during the Offering Stage. If, during any calendar quarter during the Offering Stage, the distributions paid by the Company exceed funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts, plus (1) any acquisition expenses and acquisition fees expensed that are related to any property, loan or other investment acquired or expected to be acquired, and (2) any non-operating, non-cash charges incurred, such as impairments of property or loans, any other than temporary impairments of marketable securities, or other similar charges, for the quarter, which is defined in the Advisory Agreement as “Adjusted Funds From Operations,” the payment of fees the Company is obligated to pay the Advisor will be deferred in an amount equal to the amount by which distributions paid to stockholders for the quarter exceed Adjusted Funds From Operations for such quarter up to an amount equal to a 7.0% cumulative non-compounded annual return on stockholders’ invested capital, pro-rated for such quarter. As of March 31, 2013 and December 31, 2012, $2,399,153 and $2,399,153, respectively, of fees had been deferred pursuant to the Advisory Agreement.
For purposes of calculating the amount of fees that may be deferred pursuant to the Advisory Agreement, the amount of distributions paid during a fiscal quarter shall include the value of shares of the Company’s common stock distributed pursuant to the DRP. Additionally, for purposes of calculating the difference between Adjusted Funds From Operations and the amount of distributions paid during a measurement period, if Adjusted Funds From Operations during such period is negative, Adjusted Funds From Operations shall be deemed to be zero.
The Company is only obligated to pay the Advisor its deferred fees if and to the extent that cumulative Adjusted Funds From Operations for the period beginning on the date of the commencement of the Private Offering through the date of any such payment exceed the lesser of (1) the cumulative amount of any distributions paid to stockholders as of the date of such payment or (2) distributions (including the value of shares issued pursuant to the DRP) equal to a 7.0% cumulative, non-compounded, annual return on invested capital for the period from the commencement of the Public Offering through the date of such payment. The Company’s obligation to pay the deferred fees will survive the termination of the Advisory Agreement

31


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

and will continue to be subject to the repayment conditions above. The Company will not pay interest on the deferred fees if and when such fees are paid to the Advisor.
Distributions Declared
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. Prior to September 10, 2012, distributions were calculated at a rate of $0.001917 per share of common stock per day, which was equivalent to a 7.0% annualized distribution rate based on a purchase price of $10.00 per share of common stock. Stockholders may elect to receive cash distributions or purchase additional shares through the DRP.
Distributions declared for the three months ended March 31, 2013 and 2012 were $4,460,763 and $1,004,618, including $1,896,912 and $413,147, or 194,955 shares and 43,489 shares, respectively, of common stock attributable to the DRP.
As of March 31, 2013 and December 31, 2012, $1,636,331 and $1,343,399 distributions declared were payable, which included $695,629 and $566,840 of distributions reinvested pursuant to the DRP, respectively.
Distributions Paid
For the three months ended March 31, 2013 and 2012, the Company paid cash distributions of $2,399,708 and $513,683, which related to distributions declared for each day in the period from December 1, 2012 through February 28, 2013 and December 1, 2011 through February 28, 2012, respectively. Additionally, for the three months ended March 31, 2013 and 2012, 181,719 and 37,042 shares of common stock were issued pursuant to the DRP for gross offering proceeds of $1,768,123 and $351,897, respectively. For the three months ended March 31, 2013 and 2012, the Company paid total distributions of $4,167,831 and $865,580.
7.
Related Party Arrangements
The Company has entered into the Advisory Agreement with the Advisor and a Dealer Manager Agreement with the Dealer Manager with respect to the Public Offering. Pursuant to the Advisory Agreement and Dealer Manager Agreement, the Company is obligated to pay the Advisor and the Dealer Manager specified fees upon the provision of certain services related to the Public Offering, the investment of funds in real estate and real estate-related investments and the management of the 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. As discussed in Note 6, in certain circumstances, the Company’s obligation to pay some or all of the fees due to the Advisor pursuant to the Advisory Agreement will be deferred up to an aggregate amount of $5,000,000.

32


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

STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)

Amounts attributable to the Advisor and its affiliates incurred and paid for the three months ended March 31, 2013 and 2012 are as follows:
 
Incurred For the Three Months Ended March 31,
 
Paid (Received) For the Three Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
Consolidated Statements of Operations:
 
 
 
 
 
 
 
Expensed
 
 
 
 
 
 
 
Investment management fees(1)
$
1,256,596

 
$
215,020

 
$
1,256,596

 
$

Acquisition fees(1)
2,222,318

 
1,312,377

 
1,932,660

 
855,594

Acquisition expenses(2)
1,671,768

 
229,698

 
422,461

 
107,302

Property management
 
 
 
 
 
 
 
Fees(1)
548,853

 
126,037

 
516,451

 
96,535

Reimbursement of onsite personnel(3)
1,456,994

 
360,172

 
1,395,827

 
352,667

Other fees(1)
158,359

 

 
136,721

 

Other operating expenses(4)
187,738

 
697,186

 
223,449

 
517,332

Consolidated Balance Sheets:
 
 
 
 
 
 
 
Additional paid-in-capital
 
 
 
 
 
 
 
Other offering costs reimbursement
2,514,262

 
1,298,984

 
2,497,871

 
1,291,102

Selling commissions
3,065,168

 
1,511,148