UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2019

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)

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer o	Accelerated filer o
Non-Accelerated filer þ	Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 6, 2019, there were 73,984,103 shares of the Registrant’s common stock issued and outstanding.

STEADFAST INCOME REIT, INC.

INDEX

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements	2
Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018	2
Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)	3
Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018 (unaudited)	4
Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)	6
Condensed Notes to Consolidated Financial Statements as of June 30, 2019 (unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3. Quantitative and Qualitative Disclosures About Market Risk	62
Item 4. Controls and Procedures	63
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	64
Item 1A. Risk Factors	64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3. Defaults Upon Senior Securities	66
Item 4. Mine Safety Disclosures	66
Item 5. Other Information	67
Item 6. Exhibits	67
Signatures	69

1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

STEADFAST INCOME REIT, INC.

CONSOLIDATED BALANCE SHEETS

	June 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Assets:
Real Estate:
Land	$	90,153,980		$	90,153,980
Building and improvements	799,967,673			795,383,423
Total real estate held for investment, cost	890,121,653			885,537,403
Less accumulated depreciation and amortization	(182,018,205		)	(165,112,070		)
Total real estate held for investment, net	708,103,448			720,425,333
Real estate held for sale, net	—			126,464,504
Total real estate, net	708,103,448			846,889,837
Cash and cash equivalents	124,685,084			142,078,166
Restricted cash	9,109,706			11,265,317
Investment in unconsolidated joint venture	13,869,450			14,085,399
Rents and other receivables	3,358,501			1,791,881
Assets related to real estate held for sale	—			848,960
Other assets	1,146,553			2,698,438
Total assets	$	860,272,742		$	1,019,657,998
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities	$	20,569,875		$	23,899,595
Notes payable:
Mortgage notes payable, net	480,842,343			566,900,461
Credit facility, net	9,926,410			52,363,460
Mortgage notes payable related to real estate held for sale, net	—			74,237,653
Total notes payable, net	490,768,753			693,501,574
Distributions payable	3,381,662			3,515,310
Due to affiliates	1,377,577			4,985,918
Liabilities related to real estate held for sale	—			2,994,267
Total liabilities	516,097,867			728,896,664
Commitments and contingencies (Note 11)
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, 74,206,848 and 74,650,139 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	742,069			746,502
Convertible stock, $0.01 par value per share; 1,000 shares authorized, issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	10			10
Additional paid-in capital	652,239,394			656,204,073
Cumulative distributions and net income	(308,806,598		)	(366,189,251		)
Total stockholders’ equity	344,174,875			290,761,334
Total liabilities and stockholders’ equity	$	860,272,742		$	1,019,657,998

See accompanying condensed notes to consolidated financial statements.

2

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Rental income	$	27,152,676		$	33,041,905		$	58,091,517		$	67,578,207
Other income	1,179,907			1,015,103			2,251,858			1,933,727
Total revenues	28,332,583			34,057,008			60,343,375			69,511,934
Expenses:
Operating, maintenance and management	6,771,405			9,059,224			14,848,950			18,478,862
Real estate taxes and insurance	3,790,757			6,809,156			9,344,570			12,672,478
Fees to affiliates	3,428,581			3,809,224			7,149,211			7,741,290
Depreciation and amortization	8,458,798			11,311,894			17,440,777			22,202,690
Interest expense	6,542,401			8,017,417			14,461,190			15,911,669
Loss on debt extinguishment	2,019,546			271,790			2,834,378			2,282,246
General and administrative expenses	1,691,410			1,570,715			3,118,092			3,340,732
Total expenses	32,702,898			40,849,420			69,197,168			82,629,967
Loss before other income (expense)	(4,370,315		)	(6,792,412		)	(8,853,793		)	(13,118,033		)
Other income (expense):
Equity in loss from unconsolidated joint venture	(210,642		)	(1,173,099		)	(199,149		)	(2,814,504		)
Gain on sales of real estate, net	46,487,211			—			86,888,796			81,247,054
Total other income (expense)	46,276,569			(1,173,099		)	86,689,647			78,432,550
Net income (loss)	$	41,906,254		$	(7,965,511	)	$	77,835,854		$	65,314,517
Income (loss) per common share — basic and diluted	$	0.56		$	(0.11	)	$	1.05		$	0.87
Weighted average number of common shares outstanding — basic	74,269,454			75,212,006			74,380,395			75,277,570
Weighted average number of common shares outstanding — diluted	74,280,704			75,223,881			74,391,645			75,289,445

See accompanying condensed notes to consolidated financial statements.

3

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 (Unaudited)

	Common Stock					Convertible Stock			Additional Paid- In Capital			Cumulative Distributions & Net Income			Total Stockholders’ Equity
	Shares		Amount			Shares	Amount
BALANCE, April 1, 2019	74,430,443		$	744,305		1,000	$	10	$	654,221,714		$	(340,446,308	)	$	314,519,721
Repurchase of common stock	(223,595	)	(2,236		)	—	—		(1,997,764		)	—			(2,000,000		)
Distributions declared	—		—			—	—		—			(10,266,544		)	(10,266,544		)
Amortization of stock-based compensation	—		—			—	—		15,444			—			15,444
Net income for the three months ended June 30, 2019	—		—			—	—		—			41,906,254			41,906,254
BALANCE, June 30, 2019	74,206,848		$	742,069		1,000	$	10	$	652,239,394		$	(308,806,598	)	$	344,174,875
	Common Stock					Convertible Stock			Additional Paid- In Capital			Cumulative Distributions & Net Income			Total Stockholders’ Equity
	Shares		Amount			Shares	Amount
BALANCE, January 1, 2019	74,650,139		$	746,502		1,000	$	10	$	656,204,073		$	(366,189,251	)	$	290,761,334
Repurchase of common stock	(443,291	)	(4,433		)	—	—		(3,995,567		)	—			(4,000,000		)
Distributions declared	—		—			—	—		—			(20,453,201		)	(20,453,201		)
Amortization of stock-based compensation	—		—			—	—		30,888			—			30,888
Net income for the six months ended June 30, 2019	—		—			—	—		—			77,835,854			77,835,854
BALANCE, June 30, 2019	74,206,848		$	742,069		1,000	$	10	$	652,239,394		$	(308,806,598	)	$	344,174,875

See accompanying condensed notes to consolidated financial statements.

4

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 (Unaudited)

	Common Stock					Convertible Stock			Additional Paid- In Capital			Cumulative Distributions & Net Losses			Total Stockholders’ Equity
	Shares		Amount			Shares	Amount
BALANCE, April 1, 2018	75,298,005		$	752,980		1,000	$	10	$	662,130,024		$	(274,258,488	)	$	388,624,526
Repurchase of common stock	(218,011	)	(2,180		)	—	—		(1,997,820		)	—			(2,000,000		)
Distributions declared	—		—			—	—		—			(86,819,112		)	(86,819,112		)
Amortization of stock-based compensation	—		—			—	—		17,295			—			17,295
Net income for the three months ended June 30, 2018	—		—			—	—		—			(7,965,511		)	(7,965,511		)
BALANCE, June 30, 2018	75,079,994		$	750,800		1,000	$	10	$	660,149,499		$	(369,043,111	)	$	291,857,198
	Common Stock					Convertible Stock			Additional Paid- In Capital			Cumulative Distributions & Net Losses			Total Stockholders’ Equity
	Shares		Amount			Shares	Amount
BALANCE, January 1, 2018	75,479,409		$	754,794		1,000	$	10	$	664,110,915		$	(334,217,946	)	$	330,647,773
Repurchase of common stock	(399,415	)	(3,994		)	—	—		(3,996,006		)	—			(4,000,000		)
Distributions declared	—		—			—	—		—			(100,139,682		)	(100,139,682		)
Amortization of stock-based compensation	—		—			—	—		34,590			—			34,590
Net income for the six months ended June 30, 2018	—		—			—	—		—			65,314,517			65,314,517
BALANCE, June 30, 2018	75,079,994		$	750,800		1,000	$	10	$	660,149,499		$	(369,043,111	)	$	291,857,198

5

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2019			2018
Cash Flows from Operating Activities:
Net income	$	77,835,854		$	65,314,517
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,440,777			22,202,690
Amortization of deferred financing costs	599,287			536,980
Amortization of stock-based compensation	30,888			34,590
Amortization of loan premiums	(48,562		)	(174,140		)
Change in fair value of interest rate cap agreements	161,297			(85,307		)
Gain on sales of real estate	(86,888,796		)	(81,247,054		)
Loss on debt extinguishment	2,834,378			2,282,246
Insurance claim recoveries	(32,032		)	—
Loss on disposal of building and improvements	11,684			—
Equity in loss from unconsolidated joint venture	199,149			2,814,504
Changes in operating assets and liabilities:
Rents and other receivables	(1,778,750		)	192,988
Other assets	1,305,776			1,706,699
Accounts payable and accrued liabilities	(4,574,706		)	(4,033,829		)
Due to affiliates	(3,610,160		)	(369,005		)
Net cash provided by operating activities	3,486,084			9,175,879
Cash Flows from Investing Activities:
Cash contribution to unconsolidated joint venture	(292,600		)	(2,521,078		)
Cash distribution from unconsolidated joint venture	309,400			530,100
Acquisition of real estate investments	—			(67,886,062		)
Additions to real estate investments	(5,139,455		)	(3,955,226		)
Escrow deposits for pending real estate acquisitions	—			(2,600,000		)
Purchase of interest rate cap agreements	(47,000		)	(203,300		)
Proceeds from sales of real estate, net	211,746,529			178,277,349
Proceeds from insurance claims	244,162			—
Net cash provided by investing activities	206,821,036			101,641,783
Cash Flows from Financing Activities:
Proceeds from issuance of mortgage notes payable	—			94,482,000
Principal payments on mortgage notes payable	(160,999,357		)	(148,490,527		)
Principal payments on credit facility	(42,656,750		)	(38,410,500		)
Payment of deferred financing costs	—			(1,248,916		)
Payment of debt extinguishment costs	(2,461,817		)	(1,526,431		)
Distributions to common stockholders	(20,586,849		)	(100,944,127		)
Repurchases of common stock	(4,000,000		)	(4,000,000		)
Net cash used in financing activities	(230,704,773		)	(200,138,501		)
Net decrease in cash, cash equivalents and restricted cash	(20,397,653		)	(89,320,839		)
Cash, cash equivalents and restricted cash, beginning of period	154,192,443			205,096,008
Cash, cash equivalents and restricted cash, end of period	$	133,794,790		$	115,775,169

6

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

	Six Months Ended June 30,
	2019		2018
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	14,551,962	$	15,771,076
Supplemental Disclosure of Noncash Transactions:
Distributions payable	$	3,381,662	$	3,790,856
Assumption of mortgage notes payable to acquire real estate	$	—	$	65,000,000
Application of escrow deposits to acquire real estate	$	—	$	2,600,000
Mortgage notes payable assumed by buyer in connection with property sales	$	—	$	(67,140,194	)
Assets and liabilities deconsolidated in connection with the Second Closing Properties:
Real estate, net	$	—	$	(98,350,076	)
Notes payable, net	$	—	$	76,336,778
Restricted cash	$	—	$	(913,408	)
Accounts payable and accrued liabilities	$	—	$	674,912
Accounts payable and accrued liabilities from additions to real estate investments	$	382,620	$	30,459
Due to affiliates from additions to real estate investments	$	6,461	$	2,570
Repurchases payable	$	2,000,000	$	2,000,000
Operating lease right-of-use asset, net	$	139,603	$	—
Operating lease liabilities, net	$	125,891	$	—

See accompanying condensed notes to consolidated financial statements.

7

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

1. Organization and Business

Steadfast Income REIT, Inc. (the “Company”) was formed on May 4, 2009, as a Maryland corporation that elected to be taxed as, and currently qualifies as, a real estate investment trust (“REIT”). On June 12, 2009, the Company was initially capitalized pursuant to the sale of 22,223 shares of common stock to Steadfast REIT Investments, LLC (the “Sponsor”) at a purchase price of $9.00 per share for an aggregate purchase price of $200,007. On July 10, 2009, Steadfast Income Advisor, LLC (the “Advisor”), a Delaware limited liability company formed on May 1, 2009, invested $1,000 in the Company in exchange for 1,000 shares of convertible stock (the “Convertible Stock”) as described in Note 7 (Stockholders’ Equity).

The Company owns a diverse portfolio of real estate investments, primarily in the multifamily sector, located throughout the United States. As of June 30, 2019, the Company owned 27 multifamily properties comprising a total of 7,527 apartment homes and a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes. On March 13, 2019, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $9.40 as of December 31, 2018.

Public Offering

On July 19, 2010, the Company commenced its initial public offering of up to 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 offered 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 Company terminated its Public Offering on December 20, 2013. Following termination of the Public Offering, the Company continued to offer shares of common stock pursuant to the DRP until the Company’s board of directors suspended the DRP effective with distributions earned beginning on December 1, 2014. Through December 1, 2014, the Company sold 76,095,116 shares of common stock in the Public Offering for gross offering proceeds of $769,573,363, including 4,073,759 shares of common stock issued pursuant to the DRP for gross offering proceeds of $39,580,847.

The business of the Company is externally managed by the Advisor, pursuant to the Advisory Agreement by and among the Company, Steadfast Income REIT Operating Partnership, L.P., a Delaware limited partnership formed on July 6, 2009 (the “Operating Partnership”) and the Advisor (as amended, the “Advisory Agreement”), which is subject to annual renewal by the Company’s board of directors. The current term of the Advisory Agreement expires on November 15, 2019. 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. Stira Capital Markets Group, LLC (formerly known as Steadfast Capital Markets Group, LLC) (the “Dealer Manager”), an affiliate of the Advisor, served as the dealer manager for the Public Offering. The Advisor, along with the Dealer Manager, also provides marketing, investor relations and other administrative services on the Company’s behalf.

Substantially all of the Company’s business is conducted through the Operating Partnership. The Company is the sole general partner of the Operating Partnership. The Company and Advisor entered into an Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”) on September 28, 2009. 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

8

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

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.

2. Summary of Significant Accounting Policies

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2018, other than Accounting Standards Update (“ASU”) 2016-02 and the Securities and Exchange Commission’s (“SEC”) Disclosure Update and Simplification rule (Release 33-10532), as further described below. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2019.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, the consolidated variable interest entity (“VIE”) that the Company controls and of which the Company is the primary beneficiary, and the Operating Partnership’s 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 Operating Partnership is a VIE as the limited partner lacks substantive kick-out rights and substantive participating rights. The Company is the primary beneficiary of, and consolidates, the Operating Partnership.

The accompanying unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary for a fair and consistent presentation of the results of such periods. Operating results for the three and six months endedJune 30, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018.

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.

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

9

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

• Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and will classify such items in Level 1 or Level 2. In instances where the market is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and will establish a fair value by assigning weights to the various valuation sources.

The following describes the valuation methodologies used by the Company to measure fair value, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.

Interest rate cap agreements - The Company has entered into certain interest rate cap agreements. These derivatives are recorded at fair value. Fair value was based on a model-driven valuation using the associated variable rate curve and an implied market volatility, both of which were observable at commonly quoted intervals for the full term of the interest rate cap agreements. Therefore, the Company’s interest rate cap agreements were classified within Level 2 of the fair value hierarchy and are included in other assets in the accompanying consolidated balance sheets. Changes in the fair value of the interest rate cap agreements are recorded as interest expense in the accompanying unaudited consolidated statements of operations.

The following table reflects the Company’s assets required to be measured at fair value on a recurring basis on the consolidated balance sheets:

	June 30, 2019
	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Assets:
Interest rate cap agreements	$	—	$	3,381	$	—
	December 31, 2018
	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Assets:
Interest rate cap agreements	$	—	$	117,678	$	—

10

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

Fair Value of Financial Instruments

The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, rents and other receivables, accounts payable and accrued liabilities, distributions payable, 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 distributions payable 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 notes payable is estimated using a discounted cash flow analysis using borrowing rates available to the Company for debt instruments with similar terms and maturities. As of June 30, 2019 and December 31, 2018, the fair value of the notes payable was $491,773,336 and $681,095,544, respectively, compared to the carrying value of $490,768,753 and $693,501,574, respectively. The Company has determined that its notes payable are classified as Level 3 within the fair value hierarchy.

Restricted Cash

Restricted cash represents those cash accounts for which the use of funds is restricted by loan covenants. As of June 30, 2019 and December 31, 2018, the Company had a restricted cash balance of $9,109,706 and $11,265,317, respectively, which represents impounds for future property tax payments, property insurance payments and tenant improvement payments as required by agreements with the Company’s lenders as of June 30, 2019 and December 31, 2018, respectively.

The following table represents the components of the cash, cash equivalents and restricted cash presented on the accompanying consolidated statements of cash flows for the six months ended June 30, 2019 and 2018:

	June 30,
	2019		2018
Cash and cash equivalents	$	124,685,084	$	91,588,750
Restricted cash	9,109,706		24,186,419
Total cash, cash equivalents and restricted cash	$	133,794,790	$	115,775,169

The beginning of period cash, cash equivalents and restricted cash balance for the six months ended June 30, 2019, includes $142,078,166 of cash and cash equivalents, $11,265,317 of restricted cash and $848,960 of restricted cash related to real estate held for sale as of December 31, 2018, on the accompanying consolidated balance sheet. In conjunction with property sales during the six months ended June 30, 2019, $848,960 of restricted cash related to real estate held for sale was disposed of during the period.

Investments in Unconsolidated Joint Ventures

The Company accounts for investments in unconsolidated joint venture entities in which it may exercise significant influence over, but does not control, using the equity method of accounting. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to reflect additional contributions or distributions and the Company’s proportionate share of equity in the joint venture’s earnings (loss). The Company recognizes its proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in earnings (loss) of unconsolidated joint venture on the consolidated statements of operations. On a quarterly basis, the Company evaluates its investment in an unconsolidated joint venture for

11

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

other-than-temporary impairments. The Company has elected the cumulative earnings approach to classify cash receipts from the unconsolidated joint venture on the accompanying consolidated statements of cash flows. 

Distribution Policy

The Company has elected to be taxed as, and qualifies as, a REIT commencing with the taxable year ended December 31, 2010. To continue to qualify as a REIT, the Company intends to make distributions each taxable year equal to at least 90% of its REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). Distributions declared during the three months ended June 30, 2019 and 2018 were based on daily record dates and calculated at a rate of $0.001519 and $0.001683 per share per day, respectively. Distributions were based on daily record dates and calculated at a rate of $0.001519 and $0.001964 per share per day during the six months ended June 30, 2019 and three months ended March 31, 2018, respectively. Each day during the six months ended June 30, 2019 and 2018, was a distribution record date.

Distributions to stockholders are determined by the board of directors of the Company and are dependent upon a number of factors relating to the Company, including funds available for the payment of distributions, financial condition, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order for the Company to qualify as a REIT under the Internal Revenue Code. During the three and six months endedJune 30, 2019, the Company declared aggregate distributions of $0.138 and $0.275 per common share, respectively. During the three and six months endedJune 30, 2018, the Company declared aggregate distributions of $1.153 and $1.330 per common share, respectively, including a special distribution the Company’s board of directors declared in the amount $1.00 per share of common stock to stockholders of record as of the close of business on April 20, 2018.

Per Share Data

Basic earnings (loss) per share attributable to common stockholders for all periods presented are computed by dividing net income by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings (loss) per share is 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 assume 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.

In accordance with FASB ASC Topic 260-10-45, Earnings Per Share, the Company uses the two-class method to calculate earnings (loss) per share. Basic earnings (loss) per share is calculated based on dividends declared and the rights of common shares and participating securities in any undistributed earnings, which represents net income (loss) remaining after deduction of dividends declared during the period. The undistributed earnings (loss) are allocated to all outstanding common shares based on the relative percentage of each class of shares. The Company does not have any participating securities outstanding other than the shares of common stock and the unvested restricted common stock during the periods presented. Earnings (loss) attributable to the unvested restricted common stock are deducted from earnings (loss) in the computation of per share amounts where applicable.

Reclassifications

Certain amounts in the Company’s prior period consolidated financial statements were reclassified to conform to

the current period presentation. These reclassifications did not change the results of operations of those prior periods. On January 1, 2019, the Company adopted ASU 2016-02, as further described below. As a result, all income earned pursuant to tenant leases is reflected as one line item, “Rental Income,” in the consolidated statements of operations. To facilitate comparability, the Company has reclassified prior period’s lease and non-lease income consistently with the current year.

12

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

The table below provides a reconciliation of the prior period presentation of the income statement line items that were reclassified in our consolidated statements of operations to conform to the current period presentation, pursuant to the adoption of the new lease accounting standard and election of the single component practical expedient:

	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Rental income (presentation prior to January 1, 2019)	$	30,062,993	$	61,240,920
Tenant reimbursements(1) (presentation prior to January 1, 2019)	2,978,912		6,337,287
Rental income (presentation effective January 1, 2019)	$	33,041,905	$	67,578,207

_______________

(1) Tenants reimbursements include reimbursements for recoverable costs.

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.

Recent Accounting Pronouncements

In February 2016, the FASB established ASC Topic 842 , Leases (“ASC 842”), by issuing ASU 2016-02, which requires lessees to recognize right-of-use assets and lease liabilities for operating leases on the balance sheet and disclose key information about leasing arrangements. ASC 842 also makes targeted changes to lessor accounting. ASC 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842 (“ASU 2018-01”), ASU 2018-10, Codification Improvements to Topic 842 (“ASU 2018-10”), ASU 2018-11, Targeted Improvements (“ASU 2018-11”) and ASU 2018-20, Leases (Topic 842), Narrow-scope Improvements for Lessors (“ASU 2018-20”). ASC 842 requires a modified retrospective transition approach and was effective in the first quarter of 2019 and allowed for early adoption. The Company elected an optional transition method that allows entities to initially apply ASC 842 at the adoption date (January 1, 2019) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company evaluated the impact of ASC 842 on its leases both as it relates to the Company acting as a lessee and as a lessor. Based on its evaluation, as it relates to the former, the Company elected to apply each of the practical expedients described in ASC 842-10-65-1(f) that allowed the Company, among other things, to not reassess lease classification conclusions or initial direct cost accounting as of December 31, 2018, therefore these leases continue to be accounted for as operating leases. The Company also elected the practical expedient described in ASC 842-20-25-2 not to apply the recognition requirements in ASC 842 to short-term leases and instead, to recognize lease payments in the consolidated statement of operations on a straight-line basis over the lease term. The Company did not experience a material impact on the recognition of leases in the consolidated financial statements because the quantity of leased equipment by the Company is limited and immaterial to the consolidated financial statements. Upon adoption, the Company recognized an initial operating lease right-of-use asset, net, of $94,742 and an operating lease liability, net, of $87,862.

As it relates to the Company as lessor, the Company did not experience a material impact on the recognition of leases in the consolidated financial statements because under ASC 842, lessors continue to account for leases using an approach that is substantially equivalent to historical guidance for sales-type leases, direct financing leases, and operating leases. The Company elected a practical expedient which allows lessors to not separate non-lease components from the lease component when the timing and pattern of transfer for the lease components and non-lease components are the same and if the lease component is classified as an operating lease. As a result, on January 1, 2019, the Company began presenting all rentals and reimbursements from tenants as a single line item rental income within the consolidated statements of operations. As of January 1, 2019, the Company implemented changes to its business processes and controls related to accounting for and the presentation and

13

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

disclosure of leases, including the reclassification of tenant reimbursements, previously disclosed as part of tenant reimbursements and other, to rental income, in the consolidated statements of operations.

Under ASC 842, beginning on January 1, 2019, changes in the probability of collecting tenant rental income could result in direct adjustments of rental income and tenant receivables. The Company did not experience a material impact on its rental income and tenant receivables as of the adoption date.

The Company’s rental income consists of fixed rental payments from tenants under operating leases and is recognized on a straight-line basis over the respective operating lease terms. The Company recognizes minimum rent, including rental abatements, concessions and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the non-cancelable term of the related lease. The Company’s rental income that relates to variable lease payments consists of tenant reimbursements and includes reimbursements for recoverable costs, which are recognized as revenue in the period during which the applicable expenses are incurred and the tenant’s obligation to reimburse the Company arises. 

The Company recognized $27,152,676 and $58,091,517 of rental income related to operating lease payments of which $2,497,111 and $5,308,623 was for variable lease payments for the three and six months ended June 30, 2019, respectively.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”). ASU 2016-13 requires more timely recording of credit losses on loans and other financial instruments that are not accounted for at fair value through net income (loss), including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 require the Company to measure all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets and eliminates the “incurred loss” methodology in current GAAP. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (“ASU 2018-19”), which clarifies that operating lease receivables accounted for under ASC 842 Leases, are not in the scope of the new credit losses guidance. The effective date and transition requirements for this guidance are the same as for ASU 2016-13. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures and does not expect a material impact on its consolidated financial statements and related disclosures from its adoption.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The FASB issued ASU 2018-13 to improve the effectiveness of fair value measurement disclosures by adding, eliminating, and modifying certain disclosure requirements. The issuance of ASU 2018-13 is part of a disclosure framework project. The disclosure framework project’s objective and primary focus are to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of each entity’s financial statements. Achieving the objective of improving the effectiveness of the notes to financial statements includes: (1) the development of a framework that promotes consistent decisions by the FASB board about disclosure requirements and (2) the appropriate exercise of discretion by reporting entities. The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefit. ASU 2018-13 removed certain disclosure requirements under Topic 820 such as the disclosure requirements of the valuation process for level 3 fair value measurements and modified and added certain of the disclosure requirements in Topic 820. ASU 2018-13 requires prospective and retrospective application depending on the amendment and is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2018-13 will have on its consolidated financial statements and related disclosures and believes

14

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

that certain disclosures of interest rate cap agreements in its consolidated financial statements may be impacted by the adoption of ASU 2018-13.

The SEC’s Disclosure Update and Simplification rule (Release 33-10532) amends the interim financial statement requirements to require a reconciliation of changes in stockholder’ equity in the notes or as a separate statement. This analysis should reconcile the beginning balance to the ending balance of each caption in stockholders’ equity for each period for which an income statement is required to be filed and comply with the remaining content requirements of Rule 3-04 of Regulation S-X. As a result, registrants will have to provide the reconciliation for both the year-to-date and quarterly periods and comparable periods in Form 10-Q but only for the year-to-date periods in registration statements. The rule does not prescribe the format of the presentation as long as the appropriate periods are provided. Per a Compliance and Disclosure Interpretation (Q 105.09, Exchange Act Forms, 10-Q), “The amendments are effective for all filings made on or after November 5, 2018. In light of the timing of effectiveness of the amendments and proximity of effectiveness to the filing date for most filers’ quarterly reports, the staff would not object if the filer’s first presentation of the changes in the shareholders’ equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments.” This allows the Company to adopt the amendment for the Company’s first quarter 2019 filing. The Company has adopted this guidance in the six months ended June 30, 2019 by presenting a reconciliation of changes in stockholders’ equity for the current and prior period as a separate statement.

3. Real Estate

As of June 30, 2019, the Company owned 27 multifamily properties encompassing in the aggregate 7,527 residential apartment homes. The total purchase price of the Company’s real estate portfolio was $863,186,219. As of June 30, 2019 and December 31, 2018, the Company’s portfolio was approximately 95.1% and 94.3% occupied and the average monthly rent was $1,110 and $1,068, respectively.

As of June 30, 2019 and December 31, 2018, accumulated depreciation and amortization related to the Company’s consolidated real estate properties and related intangibles were as follows:

	June 30, 2019
	Assets
	Land		Building and Improvements			Total Real Estate Held for Investment			Real Estate Held for Sale
Investments in real estate	$	90,153,980	$	799,967,673		$	890,121,653		$	—
Less: Accumulated depreciation and amortization	—		(182,018,205		)	(182,018,205		)	—
Net investments in real estate and related lease intangibles	$	90,153,980	$	617,949,468		$	708,103,448		$	—

	December 31, 2018
	Assets
	Land		Building and Improvements			Total Real Estate Held for Investment			Real Estate Held for Sale
Investments in real estate	$	90,153,980	$	795,383,423		$	885,537,403		$	165,346,251
Less: Accumulated depreciation and amortization	—		(165,112,070		)	(165,112,070		)	(38,881,747		)
Net investments in real estate and related lease intangibles	$	90,153,980	$	630,271,353		$	720,425,333		$	126,464,504

Total depreciation and amortization expenses were $8,458,798 and $17,440,777 for the three and six months endedJune 30, 2019, and $11,311,894 and $22,202,690 for the three and six months endedJune 30, 2018, respectively.

15

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

Depreciation of the Company’s buildings and improvements was $8,457,713 and $17,425,950 for the three and six months endedJune 30, 2019, and $10,989,153 and $21,841,657 for the three and six months endedJune 30, 2018, respectively.

Amortization of the Company’s other intangible assets was $0 and $12,764 for the three and six months endedJune 30, 2019, and $38,292 and $76,584 for the three and six months endedJune 30, 2018, respectively.

Operating Leases

As of June 30, 2019, the Company’s real estate portfolio comprised 7,527 residential apartment homes and was 96.9% leased by a diverse group of residents. For each of the three and six months endedJune 30, 2019 and 2018, the Company’s real estate portfolio earned in excess of 99% and less than 1% of its rental income from residential tenants and commercial office tenants, respectively. The residential tenant lease terms consist of lease durations equal to 12 months or less.

Some residential 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. 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 $2,242,812 and $2,868,600 as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019 and December 31, 2018, no tenant represented over 10% of the Company’s annualized base rent.

Joint Venture Arrangement with Blackstone Real Estate Income Trust, Inc.

On November 10, 2017, the Company, BREIT Steadfast MF JV LP (the “Joint Venture”), BREIT Steadfast MF Parent LLC (“BREIT LP”) and BREIT Steadfast MF GP LLC (“BREIT GP”, and together with BREIT LP, “BREIT”), executed a Contribution Agreement (the “Contribution Agreement”) whereby the Company agreed to contribute a portfolio of 20 properties owned by the Company to the Joint Venture in exchange for a combination of cash and a 10% ownership interest in the Joint Venture (the “Transaction”). BREIT LP owns a 90% interest in the Joint Venture and BREIT GP serves as the general partner of the Joint Venture. Each of BREIT LP and BREIT GP is a wholly-owned subsidiary of Blackstone Real Estate Income Trust, Inc. SIR LANDS Holdings, LLC, a wholly-owned subsidiary of the Company, holds the Company’s 10% interest in the Joint Venture.

The 20 properties contributed by the Company to the Joint Venture consist of properties located in Austin, Dallas and San Antonio, Texas, Nashville, Tennessee and Louisville, Kentucky (the “LANDS Portfolio”). On November 15, 2017 (the “First Closing Date”), the Company, through certain indirect wholly-owned subsidiaries, contributed 12 apartment communities (the “First Closing Properties”) to indirect, wholly-owned subsidiaries of the Joint Venture. On January 31, 2018 (the “Second Closing Date”), the Company, through certain indirect wholly-owned subsidiaries, contributed eight apartment communities (the “Second Closing Properties”) to indirect, wholly-owned subsidiaries of the Joint Venture. For additional information on the Transaction, see Note 4 (Investment in Unconsolidated Joint Venture).

The aggregate purchase price of the First Closing Properties was $318,576,792, exclusive of closing costs. On the First Closing Date, the Company sold a 90% interest in the First Closing Properties for $335,430,000, resulting in a gain of $76,135,530, which includes reductions to the net book value of the properties due to historical depreciation and amortization expense. The aggregate purchase price of the Second Closing Properties was $117,240,032, exclusive of closing costs. On the Second Closing Date, the Company sold a 90% interest in the Second Closing Properties for $125,370,000, resulting in a gain of $38,523,427, which includes reductions to the net book value of the properties due to historical depreciation and amortization expense. The purchaser of the First Closing Properties and Second Closing Properties was the Joint Venture.

16

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

2019 Property Dispositions

Dawntree Apartments

On August 15, 2013, the Company, through an indirect wholly-owned subsidiary, acquired Dawntree Apartments, a multifamily property located in Carrollton, Texas, containing 400 apartment homes. The purchase price of Dawntree Apartments was $24,000,000, exclusive of closing costs. On March 8, 2019, the Company sold Dawntree Apartments for $46,200,000, resulting in a gain of $24,141,403, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Dawntree Apartments was not affiliated with the Company or the Advisor.

In connection with the disposition of Dawntree Apartments, the Company, through an indirect wholly-owned subsidiary, entered into an agreement to defease the remaining outstanding principal balance of $14,201,657 under the note payable. As a result of this agreement, the Company made a $903,564 defeasance payment (excluding expenses), the collateral was released, and the Company was released from all primary debtor obligations associated with the note payable. The Company recognized a $811,084 loss associated with the defeasance, which is included in loss on debt extinguishment on the consolidated statement of income.

Estancia Apartments

On June 29, 2012, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired Estancia Apartments, a multifamily property located in Tulsa, Oklahoma, containing 294 apartment homes. The purchase price of Estancia Apartments was $27,900,000, exclusive of closing costs. On March 22, 2019, the Company sold Estancia Apartments for $30,683,000, resulting in a gain of $6,892,244, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Estancia Apartments was not affiliated with the Company or the Advisor.

Sonoma Grande Apartments

On May 24, 2012, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired Sonoma Grande Apartments, a multifamily property located in Tulsa, Oklahoma, containing 336 apartment homes. The purchase price of Sonoma Grande Apartments was $32,200,000, exclusive of closing costs. On March 22, 2019, the Company sold Sonoma Grande Apartments for $35,067,000, resulting in a gain of $9,367,938, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Sonoma Grande Apartments was not affiliated with the Company or the Advisor.

EBT Lofts, Library Lofts East and Stuart Hall Lofts

On December 30, 2011, February 28, 2013 and August 27, 2013, the Company, through wholly-owned subsidiaries of the Operating Partnership, acquired EBT Lofts, Library Lofts East and Stuart Hall Lofts, respectively, multifamily properties located in Kansas City, Missouri, collectively containing 335 apartment homes. The combined purchase price of EBT Lofts, Library Lofts East and Stuart Hall Lofts was $38,175,000, exclusive of closing costs. On April 26, 2019, the Company sold EBT Lofts, Library Lofts East and Stuart Hall Lofts for $50,685,000, resulting in a gain of $19,120,514, which includes reductions to the net book value of the properties due to historical depreciation and amortization expense. The purchaser of EBT Lofts, Library Lofts East and Stuart Hall Lofts was not affiliated with the Company or the Advisor.

In connection with the disposition of Library Lofts East, the Company, through an indirect wholly-owned subsidiary, entered into an agreement to defease the remaining outstanding principal balance of $8,120,272 under the note payable. As a result of this agreement, the Company made a $95,417 defeasance payment (excluding expenses), the collateral was released, and the Company was released from all primary debtor obligations associated with the note payable. The Company recognized a

17

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

$160,080 loss associated with the defeasance, which is included in loss on debt extinguishment on the consolidated statement of income.

Waterford on the Meadow

On July 3, 2013, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired Waterford on the Meadow, a multifamily property located in Plano, Texas, containing 350 apartment homes. The purchase price of Waterford on the Meadow was $23,100,000, exclusive of closing costs. On May 14, 2019, the Company sold Waterford on the Meadow for $42,000,000, resulting in a gain of $20,315,545, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Waterford on the Meadow was not affiliated with the Company or the Advisor.

In connection with the disposition of Waterford on the Meadow, the Company, through an indirect wholly-owned subsidiary, entered into an agreement to defease the remaining outstanding principal balance of $12,484,478 under the note payable. As a result of this agreement, the Company made a $449,231 defeasance payment (excluding expenses), the collateral was released, and the Company was released from all primary debtor obligations associated with the note payable. The Company recognized a $517,294 loss associated with the defeasance, which is included in loss on debt extinguishment on the consolidated statement of income.

Truman Farm Villas

On December 22, 2011, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired Truman Farm Villas, a multifamily property located in Grandview, Missouri, containing 200 apartment homes. The purchase price of Truman Farm Villas was $9,100,000, exclusive of closing costs. On May 15, 2019, the Company sold Truman Farm Villas for $14,650,000, resulting in a gain of $7,051,452, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Truman Farm Villas was not affiliated with the Company or the Advisor.

18

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

The results of operations for the three and six months endedJune 30, 2019 and 2018, through the date of sale for all properties disposed of through June 30, 2019, including the properties contributed to the Joint Venture on the Second Closing Date, were included in continuing operations on the Company’s consolidated statements of operations and are as follows:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019			2018		2019		2018
Revenues:
Rental income	$	1,023,417		$	9,589,845	$	6,436,219	$	22,099,273
Tenant reimbursements and other	5,175			232,350		193,397		381,986
Total revenues	1,028,592			9,822,195		6,629,616		22,481,259
Expenses:
Operating, maintenance and management	574,144			3,044,633		2,573,007		6,851,154
Real estate taxes and insurance	(315,328		)	1,777,210		462,657		3,644,857
Fees to affiliates	59,866			363,346		299,464		838,432
Depreciation and amortization	—			2,970,065		531,447		6,203,946
Interest expense	211,448			1,827,904		954,160		4,320,468
Loss on debt extinguishment	981,701			825		1,796,532		2,011,282
General and administrative expenses	12,604			69,259		38,587		143,261
Total expenses	$	1,524,435		$	10,053,242	$	6,655,854	$	24,013,400

4. Investment in Unconsolidated Joint Venture

On November 10, 2017, the Company, the Joint Venture, BREIT LP and BREIT GP executed the Contribution Agreement whereby the Company agreed to contribute the LANDS Portfolio to the Joint Venture in exchange for a combination of cash and a 10% ownership interest in the Joint Venture. BREIT LP owns a 90% interest in the Joint Venture and BREIT GP serves as the general partner of the Joint Venture. Each of BREIT LP and BREIT GP is a wholly-owned subsidiary of Blackstone Real Estate Income Trust, Inc. SIR LANDS Holdings, LLC, a wholly-owned subsidiary of the Operating Partnership, holds the Company’s 10% interest in the Joint Venture.

The Company exercises significant influence, but does not control the Joint Venture. Accordingly, as of the First Closing Date and Second Closing Date, the Company deconsolidated the First Closing Properties and Second Closing Properties and has accounted for its investment in the Joint Venture under the equity method of accounting. Income, losses, contributions and distributions are generally allocated based on the members’ respective equity interests.

As of June 30, 2019 and December 31, 2018, the book value of the Company’s investment in the Joint Venture was $13,869,450 and $14,085,399, respectively, which includes $7,640,166 and $7,640,166 of outside basis difference. The outside basis difference represents the Company’s transaction costs related to entering into the Joint Venture. During the three and six months endedJune 30, 2019 and 2018, $60,294 and $120,588, and $216,042 and $474,298, respectively, of amortization of this basis difference was included in equity in losses from unconsolidated joint venture on the accompanying consolidated statements of operations. During the three and six months endedJune 30, 2019 and 2018, the Company received distributions of $109,400 and $309,400 and $263,500 and $530,100, respectively, related to its investment in the Joint Venture.

19

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

Unaudited financial information for the Joint Venture as of June 30, 2019 and December 31, 2018, and for the three and six months endedJune 30, 2019, is summarized below:

	June 30, 2019		December 31, 2018
Assets:
Real estate assets, net	$	492,595,078	$	493,776,142
Other assets	20,827,496		24,091,229
Total assets	$	513,422,574	$	517,867,371
Liabilities and equity:
Notes payable, net	$	340,447,375	$	340,840,505
Other liabilities	18,403,624		21,501,680
Company’s capital	15,457,152		15,552,513
Other partner’s capital	139,114,423		139,972,673
Total liabilities and equity	$	513,422,574	$	517,867,371

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Revenues	$	15,789,247		$	15,542,460		$	32,453,829		$	29,212,188
Expenses	17,292,724			25,113,025			33,239,439			52,614,244
Net loss	$	(1,503,477	)	$	(9,570,565	)	$	(785,610	)	$	(23,402,056	)
Company’s proportional net loss	$	(150,348	)	$	(957,057	)	$	(78,561	)	$	(2,340,206	)
Amortization of outside basis	(60,294		)	(216,042		)	(120,588		)	(474,298		)
Equity in losses of unconsolidated joint venture	$	(210,642	)	$	(1,173,099	)	$	(199,149	)	$	(2,814,504	)

5. Other Assets

As of June 30, 2019 and December 31, 2018, other assets consisted of:

	June 30, 2019		December 31, 2018
Prepaid expenses	$	480,461	$	1,866,024
Interest rate cap agreements (Note 11)	3,381		117,678
Deposits	523,108		714,736
Operating lease right-of-use assets, net	139,603		—
Other assets	$	1,146,553	$	2,698,438

20

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

Amortization of the Company’s operating lease right-of-use assets for the three and six months endedJune 30, 2019 were $1,085 and $2,063, respectively. Amortization of the Company’s operating lease right-of-use assets for the three and six months endedJune 30, 2018 were $0 and $0, respectively.

6. Debt

Mortgage Notes Payable

The following is a summary of mortgage notes payable secured by real property as of June 30, 2019 and December 31, 2018:

	June 30, 2019
			Interest Rate Range				Weighted Average Interest Rate
Type	Number of Instruments	Maturity Date Range	Minimum		Maximum				Principal Outstanding
Mortgage notes payable - fixed	14	1/1/2020 - 10/1/2056	3.19	%	4.63	%	3.90	%	$	280,421,166
Mortgage notes payable - variable(1)	6	7/1/2023 - 11/1/2027	1-Mo LIBOR + 1.77%		1-Mo LIBOR + 2.38%		4.51	%	203,349,767
Total mortgage notes payable, gross	20						4.16	%	483,770,933
Premium, net(2)									—
Deferred financing costs, net(3)									(2,928,590		)
Total mortgage notes payable, net									$	480,842,343

	December 31, 2018
			Interest Rate Range				Weighted Average Interest Rate
Type	Number of Instruments	Maturity Date Range	Minimum		Maximum				Principal Outstanding
Mortgage notes payable - fixed	20	5/1/2019 - 10/1/2056	3.19	%	5.48	%	3.95	%	$	361,723,899
Mortgage notes payable - variable(1)	10	7/1/2023 - 11/1/2027	1-Mo LIBOR + 1.77%		1-Mo LIBOR + 2.38%		4.69	%	283,046,390
Total mortgage notes payable, gross	30						4.27	%	644,770,289
Premium, net(2)									302,530
Deferred financing costs, net(3)									(3,934,705		)
Total mortgage notes payable, net									$	641,138,114

_____________________________

21

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

(1) See Note 11 (Derivative Financial Instruments) for a discussion of the interest rate cap agreements used to manage the exposure to interest rate movement on the Company’s variable rate loans.

(2) Accumulated amortization related to debt premiums as of June 30, 2019 and December 31, 2018 was $0 and $960,519, respectively.

(3) Accumulated amortization related to deferred financing costs as of June 30, 2019 and December 31, 2018 was $2,114,194 and $2,929,134, respectively.

Credit Facility

On July 29, 2016, nine wholly-owned subsidiaries of the Company entered into a credit agreement and a multifamily note with PNC Bank, National Association (“PNC Bank”) (as amended, the credit agreement, multifamily note, loan and security agreements, mortgages and guaranty are collectively referred to herein as the “Loan Documents”) that provide for a new credit facility (the “Credit Facility”) in an amount not to exceed $350,000,000 to refinance certain of the Company’s then existing mortgage loans. The Credit Facility has a maturity date of August 1, 2021, subject to extension, as further described in the credit agreement. Advances made under the Credit Facility are secured by the subsidiaries’ properties (the “Collateral Pool Property”), pursuant to a mortgage deed of trust with the Company’s subsidiaries party to the Credit Facility in favor of PNC Bank.

The Credit Facility accrues interest at the one-month London Inter-bank Offered Rate plus (1) the servicing spread of 0.05% and (2) the net spread, based on the debt service coverage ratio, of between 1.73% and 1.93%, as further described in the credit agreement. Interest only payments on the Credit Facility are payable monthly in arrears and are due and payable on the first day of each month. The entire outstanding principal balance and any accrued and unpaid interest on the Credit Facility are due on the maturity date. The Company’s subsidiaries may voluntarily prepay all or a portion of the amounts advanced under the Loan Documents. Notwithstanding the foregoing, in the event a Collateral Pool Property is released or the credit agreement is terminated, a termination fee is due and payable by the Company’s subsidiaries (as applicable). In certain instances of a breach of the credit agreement, the Company guarantees to PNC Bank the full and prompt payment and performance when due of all amounts for which the Company’s nine wholly-owned subsidiaries are personally liable under the Loan Documents, in addition to all costs and expenses incurred by PNC Bank in enforcing such guaranty. Between November 15, 2017 and May 31, 2018, seven of the Collateral Pool Properties were either disposed of or refinanced, with the advances made to each of the seven Collateral Pool Properties being repaid in full.

As of June 30, 2019 and December 31, 2018, the advances remaining outstanding under the Credit Facility are summarized in the following table:

	Amount of Advance as of
Collateralized Property(1)	June 30, 2019			December 31, 2018
Carrington Place	$	5,229,244		$	27,535,500
Carrington at Champion Forest	4,770,756			25,121,250
	10,000,000			52,656,750
Deferred financing costs, net on Credit Facility(2)	(73,590		)	(293,290		)
Credit Facility, net	$	9,926,410		$	52,363,460

___________

22

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

(1) Each property is pledged as collateral for repayment of all amounts advanced under the Credit Facility.

(2) Accumulated amortization related to deferred financing costs for the Credit Facility as of June 30, 2019 and December 31, 2018, was $513,949 and $294,250, respectively.

Maturity and Interest

The following is a summary of the Company’s aggregate maturities as of June 30, 2019:

			Remainder of 2019		Maturities During the Years Ending December 31,
Contractual Obligation	Total				2020		2021		2022		2023		Thereafter
Principal payments on outstanding debt obligations(1)	$	493,770,933	$	2,299,670	$	17,649,343	$	15,555,211	$	30,426,146	$	153,218,901	$	274,621,662

__________________

(1) Scheduled principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. Amounts exclude the amortization of the deferred financing costs associated with the notes payable.

The Company’s notes payable contain customary financial and non-financial debt covenants. As of June 30, 2019 and December 31, 2018, the Company was in compliance with all financial and non-financial debt covenants.

For the three and six months endedJune 30, 2019, the Company incurred interest expense of $6,542,401 and $14,461,190, respectively. Interest expense for the three and six months endedJune 30, 2019, includes amortization of deferred financing costs of $191,172 and $599,287, amortization of loan premiums of $4,204 and $48,562 and net unrealized loss from the change in fair value of interest rate cap agreements of $61,418 and $161,297, respectively.

For the three and six months endedJune 30, 2018, the Company incurred interest expense of $8,017,417 and $15,911,669, respectively. Interest expense for the three and six months endedJune 30, 2018 includes amortization of deferred financing costs of $256,743 and $536,980, amortization of loan premiums of $48,326 and $174,140 and net unrealized loss (gain) from the change in fair value of interest rate cap agreements of $41,953 and $(85,307), respectively.

Interest expense of $1,717,530 and $2,520,324 was payable as of June 30, 2019 and December 31, 2018, respectively, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.

7. Stockholders’ Equity

General

Under the Company’s Third Articles of Amendment and Restatement (the “Charter”), the total number of shares of capital stock authorized for issuance is 1,100,000,000 shares, consisting of 999,999,000 shares of common stock with a par value of $0.01 per share, 1,000 shares of convertible stock with a par value of $0.01 per share and 100,000,000 shares designated as preferred stock with a par value of $0.01 per share.

23

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(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. From inception to June 30, 2019, the Company had issued 76,732,395 shares of common stock in a private offering and the Public Offering for aggregate offering proceeds of $679,572,220, net of offering costs of $95,845,468, including 4,073,759 shares of common stock pursuant to the DRP, for total offering proceeds of $39,580,847. Offering costs primarily consisted of selling commissions and dealer manager fees. The Company terminated its Public Offering on December 20, 2013, but continued to offer shares pursuant to the DRP through November 30, 2014.

The issuance and vesting activity for the six months endedJune 30, 2019, and for the year ended December 31, 2018, for the restricted stock issued to the Company’s independent directors were as follows:

	For the Six Months Ended June 30, 2019	For the Year Ended December 31, 2018
Nonvested shares at the beginning of the period	11,250	11,875
Granted shares	—	7,500
Vested shares	—	(8,125	)
Nonvested shares at the end of the period	11,250	11,250

The weighted average fair value of restricted stock issued to the Company’s independent directors for the six months endedJune 30, 2019 and for the year ended December 31, 2018 is as follows:

Grant Year	Weighted Average Fair Value
2018	$	9.84
2019	n/a

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 death or disability or (2) a change in control of the Company and as otherwise provided in the Incentive Award Plan, (as defined below).

Included in general and administrative expenses is $15,444 and $30,888 for the three and six months endedJune 30, 2019, and $17,295 and $34,590 for the three and six months endedJune 30, 2018, respectively, for compensation expense related to the issuance of restricted common stock. The weighted average remaining term of the restricted common stock is 1.11 years as of June 30, 2019. As of June 30, 2019, the compensation expense related to the issuance of the restricted common stock not vested was $65,083.

24

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

Convertible Stock

During 2009, the Company issued 1,000 shares of Convertible Stock to the Advisor for $1,000. The Convertible Stock will convert into shares of the Company’s common stock if and when: (A) the Company has made total distributions on the then outstanding shares of common stock equal to the original issue price of those shares plus an 8.0% cumulative, non-compounded, annual return on the original issue price of those shares, (B) subject to specified conditions, the Company lists the common stock for trading on a national securities exchange or (C) the Advisory Agreement is terminated or not renewed by the Company (other than for “cause” as defined in the Advisory Agreement). A “listing” will also be deemed to have occurred on the effective date of any merger of the Company in which the consideration received by the holders of the Company’s common stock is the securities of another issuer that are listed on a national securities exchange. Upon conversion, each share of Convertible Stock will convert into a number of shares of common stock equal to 1/1000 of the quotient of (A) 10% of the amount, if any, by which (1) the Company’s “enterprise value” (as defined in the Charter) plus the aggregate value of distributions paid to date on the outstanding shares of common stock exceeds (2) the aggregate purchase price paid by the stockholders for those shares plus an 8.0% cumulative, non-compounded, annual return on the original issue price of those shares, divided by (B) the Company’s enterprise value divided by the number of outstanding shares of common stock, in each case calculated as of the date of the conversion. In the event of a termination or non-renewal of the Advisory Agreement by the Company for cause, the Convertible Stock will be redeemed by the Company for $1.00.

Preferred Stock

The Charter also provides the Company’s board of directors with the authority to issue one or more classes or series of preferred stock, and prior to the issuance of such shares of preferred stock, the board of directors shall have the power from time to time to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares of preferred stock. The Company’s board of directors is authorized to amend the Charter, without the approval of the stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue. As of June 30, 2019 and December 31, 2018, no shares of the Company’s preferred stock were issued and outstanding.

Distribution Reinvestment Plan

The Company’s board of directors had approved the DRP through which common stockholders could elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares of the Company’s common stock in lieu of receiving cash distributions. The initial purchase price per share under the DRP was $9.50. Effective September 10, 2012, shares of the Company’s common stock were issued pursuant to the DRP at a price of $9.73 per share. Effective with distributions earned beginning on December 1, 2014, the Company’s board of directors elected to suspend the DRP. As a result, all distributions are paid in cash and not reinvested in shares of the Company’s common stock. The Company’s board of directors may, in its sole discretion, from time to time, reinstate the DRP, although there is no assurance as to if or when this will happen, and change the DRP price based upon changes in the Company’s estimated value per share and other factors that the Company’s board of directors deems relevant.

No selling commissions or dealer manager fees were payable on shares sold through the DRP.

Share Repurchase Program

The Company’s share repurchase program may provide an opportunity for stockholders to have their shares of common stock repurchased by the Company, subject to certain restrictions and limitations. No shares can be repurchased under the Company’s share repurchase program until after the first anniversary of the date of purchase of such shares; provided, however, that this holding period does not apply to repurchases requested within two years after the death or disability of a stockholder.

25

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

The repurchase price for shares repurchased under the Company’s share repurchase program prior to April 28, 2018, was as follows:

Share Purchase Anniversary	Repurchase Price on Repurchase Date(1)
Less than 1 year	No Repurchase Allowed
1 year	92.5% of Estimated Value per Share(2)
2 years	95.0% of Estimated Value per Share(2)
3 years	97.5% of Estimated Value per Share(2)
4 years	100.0% of Estimated Value per Share(2)
In the event of a stockholder’s death or disability(3)	Average Issue Price for Shares(4)

________________

(1) As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock.

(2) The “Estimated Value per Share” equals the most recently determined estimated value per share determined by the Company’s board of directors.

(3) The required one-year holding period to be eligible to repurchase shares under the Company’s share repurchase program does not apply in the event of death or disability of a stockholder.

(4) The purchase price per share for shares repurchased 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.

The Company’s board of directors elected to suspend the Company’s share repurchase program, effective April 28, 2018. The board of directors of the Company subsequently determined to reinstate and amend the terms of the Company’s share repurchase program, effective May 20, 2018. Pursuant to the amended and reinstated share repurchase program, the revised repurchase price is equal to 93% of the most recently publicly disclosed estimated value per share. The current share repurchase price is $8.74 per share, which represents 93% of the estimated value per share of $9.40, as approved by the Company’s board of directors. The share repurchase price is further reduced based on how long the stockholder has held the shares as follows:

Share Purchase Anniversary	Repurchase Price on Repurchase Date(1)
Less than 1 year	No Repurchase Allowed
1 year	92.5% of the Share Repurchase Price(2)
2 years	95.0% of the Share Repurchase Price(2)
3 years	97.5% of the Share Repurchase Price(2)
4 years	100.0% of the Share Repurchase Price(2)
In the event of a stockholder’s death or disability(3)	Average Issue Price for Shares(4)

________________

26

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

(1) As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock.

(2) The “Share Repurchase Price” shall equal 93% of the Estimated Value per Share.

(3) The required one-year holding period to be eligible to repurchase shares under the Company’s share repurchase program does not apply in the event of death or disability of a stockholder.

(4) The purchase price per share for shares repurchased 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.

The purchase price per share for shares repurchased pursuant to the share repurchase program is further reduced by the aggregate amount of net proceeds per share, if any, distributed to the Company’s stockholders prior to the repurchase date as a result of the sale of one or more of the Company’s assets that constitutes a return of capital distribution as a result of such sales.

Repurchases of shares of the Company’s common stock are made quarterly upon written request to the Company at least 15 days prior to the end of the applicable quarter during which the share repurchase program is in effect. Repurchase requests are honored approximately 30 days following the end of the applicable quarter (the “Repurchase Date”). Stockholders may withdraw their repurchase request at any time up to three business days prior to the end of the applicable quarter.

The Company is not obligated to repurchase shares of the Company’s common stock under the share repurchase program. In no event shall repurchases under the share repurchase program exceed 5% of the weighted average number of shares of the Company’s common stock outstanding during the prior calendar year or the $2,000,000 limit for any quarter put in place by the Company’s board of directors. There is no fee in connection with a repurchase of shares of the Company’s common stock. As of June 30, 2019, the Company has recognized repurchases payable of $2,000,000, which is included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

During the three and six months endedJune 30, 2019, the Company repurchased a total of 223,595 and 443,291 shares with a total repurchase value of $2,000,000 and $4,000,000, respectively, and received requests for the repurchase of 1,052,789 and 1,983,629 shares with a total repurchase value of $9,252,075 and $17,431,742, respectively. During the three and six months endedJune 30, 2018, the Company repurchased a total of 218,011 and 399,415 shares with a total repurchase value of $2,000,000 and $4,000,000, respectively, and received requests for the repurchase of 955,293 and 1,571,654 shares with a total net repurchase value of $8,270,898 and $13,863,033. As of June 30, 2019 and 2018, the Company’s total outstanding repurchase requests received that were subject to the Company’s limitations on repurchases were 6,161,920 shares and 4,272,959 shares, respectively, with a total net repurchase value of $53,905,878 and $39,527,939, respectively.

The Company cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all repurchase requests made in any quarter. To the extent that the repurchase requests exceed the Company’s limitations on repurchases or 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 is given to repurchase requests in the case of the death or disability of a stockholder. If the Company repurchases less than all of the shares subject to a repurchase request in any quarter, with respect to any shares which have not been repurchased, the requesting stockholder could (1) withdraw the request for repurchase or (2) ask that the Company honor the request in a future quarter, if any, when such repurchases may be made pursuant to the limitations of the share repurchase program and when sufficient funds were available. Such pending requests are honored among all requests for repurchases in any given repurchase period as follows: first, pro rata as to repurchases sought upon a stockholder’s death or disability; and, next, pro rata as to other repurchase requests.

The Company’s board of directors may, in its sole discretion, amend, suspend or terminate the share repurchase program at any time upon 30 days’ notice to the Company’s stockholders if it determines that the funds available to fund the share

27

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

repurchase program are needed for other business or operational purposes or that amendment, suspension or termination of the share repurchase program is in the best interest of the Company’s stockholders. Therefore, stockholders may not have the opportunity to make a repurchase request prior to any potential termination of the Company’s share repurchase program.

Distributions Declared

Distributions declared (1) accrued daily to stockholders of record as of the close of business on each day, (2) were payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month and (3) were calculated at a rate of $0.001519 per share per day during the six months endedJune 30, 2019, which if paid each day over a 365-day period, is equivalent to a 6.0% annualized distribution rate based on a purchase price of $9.24 per share of common stock. Distributions were calculated at a rate of $0.001683 per share per day during the three months ended June 30, 2018, which if paid each day over a 365-day period, is equivalent to a 6.0% annualized distribution rate based on a purchase price of $10.24 per share of common stock and were calculated at a rate of $0.001964 per share per day during the three months ended March 31, 2018, 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. On April 16, 2018, the Company’s board of directors declared a special distribution in the amount of $1.00 per share, or $75,298,163 in the aggregate, to stockholders of record as of the close of business on April 20, 2018.

Distributions declared for the three and six months endedJune 30, 2019, were $10,266,544 and $20,453,201, respectively, all of which were attributable to cash distributions. Distributions declared for the three and six months endedJune 30, 2018, were $86,819,112 and $100,139,682, all of which were attributable to cash distributions.

As of June 30, 2019 and December 31, 2018, $3,381,662 and $3,515,310 in distributions declared were payable.

Distributions Paid

For the three and six months endedJune 30, 2019, the Company paid cash distributions of $10,390,783 and $20,586,849, which related to distributions declared for each day in the period from March 1, 2019 through May 31, 2019, and December 1, 2018 through May 31, 2019, respectively. All such distributions were paid in cash.

For the three and six months endedJune 30, 2018, the Company paid cash distributions of $87,612,706 and $100,944,127, which related to distributions declared for each day in the period from March 1, 2018 through May 31, 2018, and December 1, 2017 through May 31, 2018, respectively, inclusive of the special distribution in the amount of $75,298,163 paid on May 2, 2018, to stockholders of record as of the close of business on April 20, 2018. All such distributions were paid in cash.

8. Related Party Arrangements

The Company has entered into the Advisory Agreement with the Advisor. Pursuant to the Advisory Agreement, the Company is obligated to pay the Advisor specified fees upon the provision of certain services related to the investment of funds in real estate and real estate-related investments, the management of the Company’s investments and for other services (including, but not limited to, the disposition of investments). Subject to the limitations described below, the Company is 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.

28

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

Amounts attributable to the Advisor and its affiliates incurred for the three and six months endedJune 30, 2019 and 2018, and amounts that are payable (prepaid) to the Advisor and its affiliates as of June 30, 2019 and December 31, 2018, are as follows:

	Incurred (Received) For the				Incurred (Received) For the				Payable (Prepaid) as of
	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		June 30, 2019		December 31, 2018
Consolidated Statements of Operations:
Expensed
Investment management fees(1)	$	2,027,504	$	2,343,430	$	4,303,703	$	4,766,441	$	354,017	$	1,640,485
Due diligence costs(2)	—		25,438		—		223,317		—		211,188
Property management:
Fees(1)	817,754		978,620		1,725,825		2,003,352		289,946		334,577
Reimbursement of onsite personnel(3)	2,527,546		2,969,457		5,462,565		6,086,367		483,859		589,551
Reimbursements - other(1)	583,323		286,264		1,119,683		609,337		73,487		39,349
Reimbursements - property operations(3)	19,918		18,414		38,603		42,393		—		—
Reimbursements - G&A(2)	15,504		13,438		56,649		34,726		—		—
Other operating expenses(2)	418,600		291,236		846,602		675,749		171,758		115,212
Disposition fees(4)	1,610,025		—		3,289,275		3,841,050		—		2,052,750
Disposition transaction costs(4)	27,183		—		39,483		67,464		—		—
Loan coordination fee(1)	—		200,910		—		362,160		—		—
Property insurance(5)	450,215		314,077		850,583		628,181		—		(119,055		)
Insurance proceeds(6)	—		—		—		—		—		(75,000		)
Rental Revenue(7)	3,792		—		3,792		—		—		—
Consolidated Balance Sheets:
Capitalized
Construction management:
Fees(8)	135,922		59,328		155,402		65,473		3,224		2,608
Reimbursement of labor costs(8)	30,635		19,087		54,217		35,437		1,286		198
Capital expenditures(8)	—		11,178		—		38,180		—		—
Capitalized costs on investment in unconsolidated joint venture(9)	—		—		—		58,386		—		—
Acquisition expenses(10)	—		235,847		—		245,048		—		—
Acquisition fees(10)	—		705,722		—		705,722		—		—
	$	8,667,921	$	8,472,446	$	17,946,382	$	20,488,783	$	1,377,577	$	4,791,863

_____________________________

29

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

(1) Included in fees to affiliates in the accompanying consolidated statements of operations.

(2) Included in general and administrative expenses in the accompanying consolidated statements of operations.

(3) Included in operating, maintenance and management in the accompanying consolidated statements of operations.

(4) Included in gain on sales of real estate, net in the accompanying consolidated statements of operations.

(5) Property related insurance expense and the amortization of the prepaid insurance deductible account are included in general and administrative expenses in the accompanying consolidated statements of operations. The amortization of the prepaid property insurance is included in operating, maintenance and management expenses in the accompanying consolidated statements of operations. The prepaid insurance is included in other assets in the accompanying consolidated balance sheets upon payment.

(6) Included in other income in the accompanying consolidated statements of operations.

(7) Included in rental income in the accompanying consolidated statements of operations.

(8) Included in building and improvements in the accompanying consolidated balance sheets.

(9) Included in investment in unconsolidated joint venture in the accompanying consolidated balance sheets.

(10) Included in total real estate, cost in the accompanying consolidated balance sheets.

Investment Management Fee

The Company pays the Advisor a monthly investment management fee equal to one-twelfth of 0.80% of (1) the cost of real properties and real estate-related assets acquired directly by the Company or (2) the Company’s allocable cost of each real property or real estate-related asset acquired through a joint venture. The investment management fee is calculated including acquisition fees, acquisition expenses, cost of development, construction or improvement and any debt attributable to such investments, or the Company’s proportionate share thereof in the case of investments made through joint ventures. The cost of real properties and real estate-related assets that have been sold by the Company during the applicable month is excluded from the fee.

Acquisition Fees and Expenses

The Company pays the Advisor an acquisition fee equal to 2.0% of (1) the cost of investment, as defined in the Advisory Agreement, in connection with the investigation, selection and acquisition (by purchase, investment or exchange) of any type of real property or real estate-related asset; provided, however, that the total acquisition fee payable by the Company to the Advisor or its affiliates shall equal 0.5% of the cost of investment in the event that proceeds from a prior sale of an investment are used to fund the acquisition of an investment, or (2) the Company’s allocable cost of a real property or real estate-related asset acquired in a joint venture, in each case including purchase price, acquisition expenses and any debt attributable to such investments.

In addition to acquisition fees, the Company reimburses the Advisor for amounts directly incurred by the Advisor or its affiliates, including personnel-related costs for acquisition due diligence, legal and non-recurring management services, and amounts the Advisor pays to third parties in connection with the selection, acquisition or development of a property or acquisition of real estate-related assets, whether or not the Company ultimately acquires the property or the real estate-related assets.

The Charter limits the Company’s ability to pay acquisition fees if the total of all acquisition fees and expenses relating to the purchase would exceed 6.0% of the contract purchase price. Under the Charter, a majority of the Company’s board of directors, including a majority of the independent directors, is required to approve any acquisition fees (or portion thereof) that would cause the total of all acquisition fees and expenses relating to an acquisition to exceed 6.0% of the contract purchase price. In connection with the purchase of securities, the acquisition fee may be paid to an affiliate of the Advisor that is

30

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

registered as a Financial Industry Regulatory Authority, Inc. (“FINRA”) member broker-dealer if applicable FINRA rules would prohibit the payment of the acquisition fee to a firm that is not a registered broker-dealer.

Property Management Fees and Expenses

The Company has entered into Property Management Agreements (as amended from time to time, each a “Property Management Agreement”) with Steadfast Management Company, Inc., an affiliate of the Sponsor (the “Property Manager”), in connection with the acquisition of each of the Company’s properties (other than EBT Lofts, Library Lofts and Stuart Hall Lofts, which were managed by an unaffiliated third-party management company). As of June 30, 2019, the property management fee payable with respect to each property under each Property Management Agreement, ranged from 2.50% to 3.50% of the annual gross revenue collected, which is usual and customary for comparable property management services rendered to similar properties in similar geographic markets, as determined by the Advisor and approved by a majority of the members of the Company’s board of directors, including a majority of the independent directors. The Property Manager also received an oversight fee of 1% of gross revenues at certain of the properties at which it did not serve as a property manager. Generally, each Property Management Agreement has an initial one year term and will continue thereafter on a month-to-month basis unless either party gives 60-days’ prior notice of its desire to terminate the Property Management Agreement, provided that the Company may terminate the Property Management Agreement at any time upon a determination of gross negligence, willful misconduct or bad acts of the Property Manager or its employees or upon an uncured breach of the Property Management Agreement upon 30 days’ prior written notice to the Property Manager.

In addition to the property management fee, the Property Management Agreements also specify certain other reimbursements payable to the Property Manager or its affiliates, including reimbursements for benefit administration, information technology infrastructure, licenses, support and training services and capital expenditures. The Company also reimburses the Property Manager for the salaries and related benefits of on-site property management employees.

Construction Management

The Company has entered into Construction Management Agreements with Pacific Coast Land and Construction, Inc., an affiliate of the Sponsor (the “Construction Manager”), in connection with the planned capital improvements and renovation for certain of the Company’s properties. As of June 30, 2019, the construction management fee payable with respect to each property pursuant to the Construction Management Agreements (each a “Construction Management Agreement”) ranged from 6.0% to 12.0% of the costs of the improvements for which the Construction Manager has planning and oversight authority. Generally, each Construction Management Agreement can be terminated by either party with 30 days’ prior written notice to the other party. Construction management fees are capitalized to the respective real estate properties in the period in which they are incurred, as such costs relate to capital improvements and renovations for units taken out of service while they undergo the planned renovation.

The Company may also reimburse the Construction Manager for the salaries and related benefits of certain of its employees for time spent working on capital improvements and renovations at its properties.

Property Insurance

The Company deposits amounts with an affiliate of the Sponsor to fund a prepaid insurance deductible account to cover the cost of required insurance deductibles across all properties of the Company and other affiliated entities. Upon filing a major claim, proceeds from the insurance deductible account may be used by the Company or another affiliate of the Sponsor. In addition, the Company deposits amounts with an affiliate of the Sponsor to cover the cost of property insurance across certain properties of the Company.

31

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

Other Operating Expense Reimbursement

In addition to the various fees paid to the Advisor, the Company is obligated to pay directly or reimburse all expenses incurred by the Advisor in providing services to the Company, including the Company’s allocable share of the Advisor’s overhead, such as rent, employee costs, utilities and information technology costs. The Company will not reimburse the Advisor for employee costs in connection with services for which the Advisor or its affiliates receive acquisition fees or disposition fees or for the salaries the Advisor pays to the Company’s executive officers.

The Charter limits the Company’s total operating expenses during any four fiscal quarters to the greater of 2% of the Company’s average invested assets or 25% of the Company’s net income for the same period (the “2%/25% Limitation”). The Company may reimburse the Advisor, at the end of each fiscal quarter, for operating expenses incurred by the Advisor; provided, however, that the Company shall not reimburse the Advisor at the end of any fiscal quarter for operating expenses that exceed the 2%/25% Limitation unless the independent directors have determined that such excess expenses were justified based on unusual and non-recurring factors. The Advisor must reimburse the Company for the amount by which the Company’s operating expenses for the preceding four fiscal quarters then ended exceed the 2%/25% Limitation unless the independent directors have determined that such excess expenses were justified. For purposes of determining the 2%/25% Limitation, “average invested assets” means the average monthly book value of the Company’s assets invested directly or indirectly in equity interests and loans secured by real estate during the 12-month period before deducting depreciation, bad debts or other non-cash reserves. “Total operating expenses” means all expenses paid or incurred by the Company that are in any way related to the Company’s operation, including the Company’s allocable share of Advisor overhead, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, listing and registration of shares of the Company’s common stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain in the sale of the Company’s assets; (f) acquisition fees and acquisition expenses (including expenses relating to potential acquisitions that the Company does not close) and investment management fees; (g) real estate commissions on the resale of investments; and (h) other expenses connected with the acquisition, disposition, management and ownership of investments (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of real property).

At June 30, 2019, the Company’s total operating expenses, as defined above, did not exceed the 2%/25% Limitation.

Disposition Fee

The Company pays the Advisor a disposition fee in connection with a sale of a property or real estate-related asset and in the event of the sale of the entire Company (a “Final Liquidity Event”), in either case when the Advisor or its affiliates provides a substantial amount of services as determined by a majority of the Company’s independent directors. With respect to a sale of a property or real estate-related asset, the Company pays the Advisor a disposition fee equal to 1.5% of the contract sales price of the investment sold. With respect to a Final Liquidity Event, the Company will pay the Advisor a disposition fee equal to (i) 0.5% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is less than or equal to $9.00; (ii) 0.75% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is between $9.01 and $10.24; (iii) 1.00% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is between $10.25 and $11.24; (iv) 1.25% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is between $11.25 and $12.00; and (v) 1.50% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is greater than or equal to $12.01; provided, however, that the price per share paid to stockholders as listed in each of clauses (i) through (v) above shall be adjusted for any special distributions, stock splits, combinations, recapitalizations or any similar transaction with respect to our shares. To the extent the disposition fee is paid upon the sale of any assets other than real property, it will be included as an operating expense for purposes of the 2%/25% Limitation. In connection with the sale of securities, the disposition fee may be paid to an affiliate of the Advisor that is

32

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the disposition fee to a firm that is not a registered broker-dealer. The Charter limits the maximum amount of the disposition fees payable to the Advisor for the sale of any real property to the lesser of one-half of the brokerage commission paid or 3.0% of the contract sales price, but in no event shall the total real estate commissions paid, including any disposition fees payable to the Advisor, exceed 6.0% of the contract sales price.

Loan Coordination Fee

The Company pays the Advisor a loan coordination fee equal to 0.50% of the amount of debt financed or refinanced (in each case, other than at the time of the acquisition of a property or a real estate-related asset), or the Company’s proportionate share of the initial amount of new debt financed or refinanced or the amount of any debt refinanced in the case of investments made through a joint venture.

9. Incentive Award Plan and Independent Director Compensation

The Company has adopted an incentive plan (the “Incentive Award Plan”) that provides for the grant of equity awards to its employees, directors and consultants and those of the Company’s affiliates. The Incentive Award Plan authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards or cash-based awards. No awards have been granted under the Incentive Award Plan as of June 30, 2019 and December 31, 2018, except those awards granted to the independent directors as described below.

Under the Company’s independent directors’ compensation plan, which is a sub-plan of the Incentive Award Plan, each of the Company’s then independent directors was entitled to receive 5,000 shares of restricted common stock in connection with the initial meeting of the Company’s full board of directors. The Company’s initial board of directors, and each of the independent directors, agreed to delay the initial grant of restricted stock until the Company raised $2,000,000 in gross offering proceeds in a private offering that preceded the Public Offering. Each subsequent independent director that joins the Company’s board of directors would receive 5,000 shares of restricted common stock upon election to the Company’s board of directors. In addition, on the date following an independent director’s re-election to the Company’s board of directors, he or she receives 2,500 shares of restricted common stock. One-fourth of the shares of restricted common stock generally vest and become non-forfeitable upon issuance and the remaining portion will vest in three equal annual installments beginning on the first anniversary of the date of grant and ending on the third anniversary of the date of grant; provided, however, that the restricted stock will become fully vested and become non-forfeitable on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability or (2) a change in control of the Company and as otherwise provided in the Incentive Award Plan. These restricted stock awards entitle the holders to participate in distributions even if the shares are not fully vested.

The Company recorded stock-based compensation expense of $15,444 and $30,888 for the three and six months endedJune 30, 2019, and $17,295 and $34,590 for the three and six months endedJune 30, 2018, respectively.

33

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

10. Commitments and Contingencies

Economic Dependency

The Company is dependent on the Advisor and its affiliates for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase and disposition of real estate and real estate-related investments; management of the daily operations of the Company’s real estate and real estate-related investment portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.

Concentration of Credit Risk

The geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the Houston, Texas, Oklahoma City, Oklahoma, Columbus, Ohio, Atlanta, Georgia and Lexington, Kentucky apartment markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocations of businesses, increased competition from other apartment communities, decrease in demand for apartments or any other changes, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.

Legal Matters

From time to time, the Company is subject, or party, to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on the Company’s results of operations or financial condition nor is the Company aware of any such legal proceedings contemplated by government agencies.

34

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

11. Derivative Financial Instruments

The Company uses interest rate derivatives with the objective of managing exposure to interest rate movements thereby minimizing the effect of interest rate changes and the effect they could have on future cash flows. Interest rate cap agreements are used to accomplish this objective. The following table provides the terms of the Company’s interest rate derivative instruments that were in effect at June 30, 2019 and December 31, 2018:

June 30, 2019
Type	Maturity Date Range	Based on	Number of Instruments	Notional Amount		Variable Rate		Weighted Average Rate Cap		Fair Value
Interest rate cap	1/1/2020 - 7/1/2021	One-Month LIBOR	6	$	203,266,995	2.40	%	3.49	%	$	3,381

December 31, 2018
Type	Maturity Date Range	Based on	Number of Instruments	Notional Amount		Variable Rate		Weighted Average Rate Cap		Fair Value
Interest rate cap	6/1/2019 - 7/1/2021	One-Month LIBOR	10	$	283,654,000	2.52	%	2.81	%	$	117,678

The interest rate cap agreements are not designated as cash flow hedges. Accordingly, the Company records any changes in the fair value of the interest rate cap agreements as interest expense. The change in the fair value of the interest rate cap agreements for the three and six months endedJune 30, 2019, resulted in an unrealized loss of $61,418 and $161,297, respectively, which is included in interest expense in the accompanying consolidated statements of operations. During the three and six months endedJune 30, 2019, the Company acquired interest rate cap agreements of $47,000. During the three and six months endedJune 30, 2018, the Company acquired interest rate cap agreements of $203,300. The fair value of the interest rate cap agreements of $3,381 and $117,678 as of June 30, 2019 and December 31, 2018, respectively, is included in other assets on the accompanying consolidated balance sheets.

12. Subsequent Events

Distributions Paid

On July 1, 2019, the Company paid distributions of $3,381,662, which related to distributions declared for each day in the period from June 1, 2019 through June 30, 2019. All such distributions were paid in cash.

On August 1, 2019, the Company paid distributions of $3,494,044, which related to distributions declared for each day in the period from July 1, 2019 through July 31, 2019. All such distributions were paid in cash.

Shares Repurchased

On July 31, 2019, the Company repurchased 222,982 shares of its common stock for a total repurchase value of $2,000,000, or $8.97 per share, pursuant to the Company’s share repurchase program.

Distributions Declared

On August 7, 2019, the Company’s board of directors approved and authorized a daily distribution to stockholders of record as of the close of business on each day of the period commencing on October 1, 2019 and ending on December 31, 2019. The

35

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

distributions will be equal to $0.001519 per share of the Company’s common stock. The distributions for each record date in October 2019, November 2019 and December 2019 will be paid in November 2019, December 2019 and January 2020, respectively. The distributions will be payable to stockholders from legally available funds therefor.

Repayment of Credit Facility

On July 29, 2019, the Company made a principal payment in the amount of $10,000,000 on the Credit Facility with PNC Bank thereby terminating the facility.

Pending Merger with Steadfast Apartment REIT, Inc.

On August 5, 2019, the Company, Steadfast Apartment REIT, Inc. (“STAR”), Steadfast Apartment REIT Operating Partnership, L.P., STAR’s operating partnership (“STAR Operating Partnership”), the Operating Partnership, and SI Subsidiary, LLC, a wholly-owned subsidiary of STAR (“SIR Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, the Company will merge with and into SIR Merger Sub (the “Merger”), with SIR Merger Sub surviving the Merger, such that following the Merger, the surviving entity will continue as a wholly-owned subsidiary of STAR. In accordance with the applicable provisions of the Maryland General Corporation Law (the “MGCL”), the separate existence of the Company shall cease.

At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of the Company’s common stock (or a fraction thereof), $0.01 par value per share (“SIR Common Stock”), will be converted into the right to receive 0.5934 shares of STAR’s common stock, $0.01 par value per share.

The obligation of each party to consummate the Merger is subject to a number of conditions, including receipt of the approval of the Merger by the holders of a majority of the outstanding shares of SIR Common Stock (the “SIR Stockholder Approval”) and of an amendment to the Charter to delete certain provisions regarding roll-up transactions.

The Company (with the prior approval of its special committee) may terminate the Merger Agreement in order to enter into an “Alternative Acquisition Agreement” with respect to a “Superior Proposal” (each as defined in the Merger Agreement) at any time prior to receipt by the Company of the SIR Stockholder Approval pursuant to the terms of the Merger Agreement. STAR may terminate the Merger Agreement at any time prior to the receipt of the SIR Stockholder Approval, in certain limited circumstances, including upon an “Adverse Recommendation Change” (as defined in the Merger Agreement).

If the Merger Agreement is terminated in connection with the Company’s acceptance of a Superior Proposal or making an Adverse Recommendation Change, then the Company must pay to STAR a termination fee of (i)(A) $8,694,218 if such termination occurs no later than seven business days after (x) 11:59 p.m. New York City time on September 5, 2019 (the “SIR Go Shop Period End Time”) or (y) the end of the specified period for negotiations with STAR following notice (received within five business days of the SIR Go Shop Period End Time) that the Company intends to enter into a Superior Proposal or (B) $20,866,122 if it occurred thereafter and (ii) up to $2,000,000 as reimbursement for STAR’s Expenses (as defined in the Merger Agreement).

On August 5, 2019, STAR, Steadfast Apartment REIT III Inc., (“STAR III”), STAR Operating Partnership, Steadfast Apartment REIT III Operating Partnership, L.P., the operating partnership of STAR III, and SIII Subsidiary, LLC, a wholly-owned subsidiary of STAR (“STAR III Merger Sub”), entered into an Agreement and Plan of Merger (the “STAR III Merger Agreement”). Subject to the terms and conditions of the STAR III Merger Agreement, STAR III will merge with and into STAR III Merger Sub (the “STAR III Merger”), with STAR III Merger Sub surviving the STAR III Merger, such that following the STAR III Merger, the surviving entity will continue as a wholly-owned subsidiary of STAR. In accordance with the applicable provisions of the MGCL, the separate existence of STAR III shall cease.

36

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(unaudited)

The consummation of the Company’s merger with STAR is not contingent upon the completion of the merger between STAR and STAR III, and the consummation of the merger between STAR and STAR III is not contingent upon the completion of the Company’s merger with STAR.

The combined company after the mergers (the “Combined Company”) will retain the name “Steadfast Apartment REIT, Inc.” Each merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code. If the mergers were to occur today, the Combined Company’s portfolio would consist of 71 properties in 14 states with an average effective rent of $1,158. Based on occupancy as of June 30, 2019, the Combined Company’s portfolio would have an occupancy rate of 94%, an average age of 20 years and gross real estate assets of $3.3 billion.

Amended and Restated Share Repurchase Plan

In connection with the proposed SIR Merger, on August 5, 2019, the Company’s board of directors approved the Amended and Restated Share Repurchase Plan (the “Amended & Restated SRP”), which will become effective September 5, 2019, and will apply beginning with repurchases made on the repurchase date (as defined in the Amended & Restated SRP) with respect to the third quarter of 2019. Under the Amended & Restated SRP, the Company will only repurchase shares of common stock in connection with the death or qualifying disability (as determined by the Company’s board in its sole discretion) of a stockholder, subject to certain terms and conditions specified in the Amended & Restated SRP. Repurchases pursuant to the Amended and Restated SRP will continue to be limited to $2,000,000 per quarter.

Termination Agreement

Concurrently with the entry into the SIR Merger Agreement, the Company and the Advisor entered into a termination letter agreement (the “Termination Agreement”), effective as of August 5, 2019. Pursuant to the Termination Agreement, the Advisory Agreement will be terminated at the effective time of the SIR Merger. Also pursuant to the Termination Agreement, the Advisor agreed to waive any disposition fee it otherwise would be entitled to pursuant to the Advisory Agreement related to the SIR Merger and confirmed the disposition fee payable to the Advisor in the event the SIR Merger Agreement is terminated and the Company consummates a different transaction that would entitle the Advisor to a disposition fee.

Amendment to Bylaws

Effective August 5, 2019, the Company’s board of directors amended the Company’s Bylaws to add new Article XIV designating the Circuit Court for Baltimore City, Maryland (or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division) as the exclusive forum for certain proceedings relating to the Company, as set forth in the new article.

37

PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying financial statements of Steadfast Income REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Steadfast Income REIT, Inc., a Maryland corporation, and, as required by context, Steadfast Income REIT Operating Partnership, L.P., a Delaware limited partnership, which we refer to as our “operating partnership,” and to their subsidiaries.

Certain statements regarding future estimates and expectations may not be applicable to the extent the Merger (as defined herein) is completed.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

• changes in economic conditions generally and the real estate and debt markets specifically;

• risks inherent in the real estate business, including tenant defaults, tenant vacancies, potential liability relating to environmental matters and liquidity of real estate investments;

• our ability to secure resident leases at favorable rental rates;

• our ability to execute on our value-enhancement strategy;

• risks related to owning investments with joint venture partners;

• our ability to identify and acquire multifamily properties;

• changes to our share repurchase program, distribution rate and other decisions;

• the fact we pay fees and expenses to our advisor and its affiliates that were not negotiated on an arm’s length basis and the payment of these fees and expenses increases the risk that our stockholders will not earn a profit on their investment in us;

• our ability to retain our executive officers and other key personnel of our advisor, our property manager and our affiliates;

• legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts, or REITs);

• our ability to generate sufficient cash flows to pay distributions to our stockholders;

• the availability of capital;

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

• changes in interest rates; and

• changes to generally accepted accounting principles, or GAAP.

Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed on any forward-looking statements included herein. All forward-looking statements are made as of the date this quarterly report is filed with the Securities and Exchange Commission, or SEC, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements made herein, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this quarterly report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this quarterly report will be achieved.

All forward-looking statements included herein should be read in light of the factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 15, 2019.

Overview

We were formed on May 4, 2009, as a Maryland corporation that elected to be taxed as, and currently qualifies as, a real estate investment trust, or REIT. We own and manage a diverse portfolio of real estate investments, primarily in the multifamily sector, located throughout the United States. As of June 30, 2019, we owned (1) 27 multifamily properties located within the greater midwest and southern geographic regions of the United States that comprised of a total of 7,527 apartment homes and (2) a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes. The total purchase price of our real estate portfolio was $863,186,219. At June 30, 2019, our portfolio was approximately 96.9% leased.

On July 19, 2010, we commenced our initial public offering of up to a maximum of 150,000,000 shares of common stock and up to 15,789,474 shares of common stock pursuant to our distribution reinvestment plan. Upon termination of our public offering on December 1, 2014, we had sold 76,095,116 shares of common stock for gross offering proceeds of $769,573,363, including 4,073,759 shares of common stock issued pursuant to our distribution reinvestment plan for gross offering proceeds of $39,580,847. Following the termination of our initial public offering, we continued to offer shares of our common stock pursuant to our distribution reinvestment plan until our board of directors determined to suspend our distribution reinvestment plan effective with distributions earned beginning on December 1, 2014. Our board of directors may, in its sole discretion, reinstate the distribution reinvestment plan and change the price at which we offer shares of common stock to our stockholders pursuant to the distribution reinvestment plan based upon changes in the estimated value per share and other factors our board of directors deems relevant. On March 13, 2019, our board of directors approved an estimated value per share of our common stock of $9.40 as of December 31, 2018.

Steadfast Income Advisor, LLC is our advisor. Subject to certain restrictions and limitations, our advisor manages our day-to-day operations and our portfolio of properties and real estate-related assets. Our advisor sources and presents investment opportunities to our board of directors. Our advisor also provides investment management, marketing, investor relations and other administrative services on our behalf.

Substantially all of our business is conducted through Steadfast Income REIT Operating Partnership, L.P., our operating partnership. We are the sole general partner of our operating partnership. The initial limited partner of our operating partnership is our advisor. The limited partnership agreement of our operating partnership provides that our operating partnership will be operated in a manner that will enable us to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that our operating partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, which classification could result in our operating partnership being taxed as a corporation, rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by our operating partnership in acquiring and operating

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

real properties, our operating partnership will pay all of our administrative costs and expenses, and such expenses will be treated as expenses of our operating partnership.

We elected to be taxed as a REIT under the Internal Revenue Code commencing with the taxable year ended December 31, 2010. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate rates and would not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied. Failing to qualify as a REIT could materially and adversely affect our net income.  

Market Outlook

We believe economic and demographic trends will benefit our existing portfolio and that we have unique future investment opportunities in the multifamily sector. Home ownership rates are near all-time lows. Demographic and economic factors favor the flexibility of rental housing and discourage the potential financial burden associated with home ownership. Additionally, Millennials and Baby Boomers, the two largest demographic groups comprising roughly half of the total population in the United States, are increasingly choosing rental housing over home ownership. Demographic studies suggest that Baby Boomers are downsizing their suburban homes and relocating to multifamily apartments. Millennials are renting multifamily apartments due to high levels of student debt and increased credit standards in order to qualify for a home mortgage. According to the Federal Reserve Bank of New York, aggregate student debt has surpassed automotive, home equity lines of credit and credit card debt. Millennials are also getting married and having children later and are choosing to live in apartment communities until their mid-30s. Today, 30% of Millennials are still living with their parents or are still in school. When they get a job, Millennials will likely rent moderate income apartments based upon an average income of $45,000 - $65,000. Our plan is to provide rental housing for these generational groups as they age. We believe these factors will continue to contribute to the demand for multifamily housing.

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Our Real Estate Portfolio

As of June 30, 2019, we owned the 27 multifamily properties listed below:

				Number of Units	Total Purchase Price		Mortgage Debt Outstanding at June 30, 2019		Average Occupancy(1) as of				Average Monthly Rent(2) as of
	Property Name	Location	Purchase Date						Jun 30, 2019		Dec 31, 2018		Jun 30, 2019		Dec 31, 2018
1	Clarion Park Apartments	Olathe, KS	6/28/2011	220	$	11,215,000	$	11,934,741	96.3	%	96.4	%	$	852	$	841
2	Spring Creek Apartments	Edmond, OK	3/9/2012	252	19,350,000		17,134,502		94.9	%	94.0	%	851		848
3	Montclair Parc Apartment Homes	Oklahoma City, OK	4/26/2012	360	35,750,000		—		96.1	%	94.4	%	869		857
4	Hilliard Park Apartments	Columbus, OH	9/11/2012	201	19,800,000		12,245,897		95.2	%	94.5	%	1,138		1,120
5	Sycamore Terrace Apartments	Terre Haute, IN	9/20/2012 & 3/5/2014	250	23,174,157		17,859,791		90.8	%	94.0	%	1,186		1,138
6	Hilliard Summit Apartments	Columbus, OH	9/28/2012	208	24,100,000		14,862,200		94.8	%	95.7	%	1,238		1,217
7	Forty 57 Apartments	Lexington, KY	12/20/2012	436	52,500,000		35,175,916		96.0	%	93.1	%	938		912
8	Riverford Crossing Apartments	Frankfort, KY	12/28/2012	300	30,000,000		20,012,243		96.8	%	97.3	%	977		933
9	Montecito Apartments	Austin, TX	12/31/2012	268	19,000,000		12,672,215		96.3	%	95.1	%	1,028		1,008
10	Hilliard Grand Apartments	Dublin, OH	12/31/2012	314	40,500,000		28,204,036		96.1	%	96.5	%	1,277		1,290
11	Deep Deuce at Bricktown	Oklahoma City, OK	3/28/2013	294	38,271,000		32,081,240		96.2	%	93.9	%	1,260		1,235
12	Retreat at Quail North	Oklahoma City, OK	6/12/2013	240	25,250,000		16,159,016		96.2	%	92.9	%	983		954
13	Tapestry Park Apartments	Birmingham, AL	8/13/2013 & 12/1/2014	354	50,285,000		43,740,843		94.0	%	92.9	%	1,330		1,311
14	BriceGrove Park Apartments	Canal Winchester, OH	8/29/2013	240	20,100,000		—		97.2	%	95.8	%	905		879
15	Retreat at Hamburg Place	Lexington, KY	9/5/2013	150	16,300,000		—		97.5	%	96.0	%	998		897
16	Villas at Huffmeister	Houston, TX	10/10/2013	294	37,600,000		26,875,979		94.5	%	93.9	%	1,221		1,209
17	Villas of Kingwood	Kingwood, TX	10/10/2013	330	40,150,000		34,917,287		94.9	%	94.8	%	1,252		1,282
18	Waterford Place at Riata Ranch	Cypress, TX	10/10/2013	228	23,400,000		—		94.2	%	93.9	%	1,135		1,104
19	Carrington Place	Houston, TX	11/7/2013	324	32,900,000		5,191,424		92.5	%	91.7	%	1,099		1,076
20	Carrington at Champion Forest	Houston, TX	11/7/2013	284	33,000,000		4,734,986		94.9	%	94.0	%	1,135		1,106
21	Carrington Park at Huffmeister	Cypress, TX	11/7/2013	232	25,150,000		19,462,013		91.9	%	94.4	%	1,194		1,198

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

				Number of Units	Total Purchase Price		Mortgage Debt Outstanding at June 30, 2019		Average Occupancy(1) as of				Average Monthly Rent(2) as of
	Property Name	Location	Purchase Date						Jun 30, 2019		Dec 31, 2018		Jun 30, 2019		Dec 31, 2018
22	Heritage Grand at Sienna Plantation	Missouri City, TX	12/20/2013	240	$	27,000,000	$	16,710,861	95.0	%	95.8	%	$	1,151	$	1,147
23	Mallard Crossing Apartments	Loveland, OH	12/27/2013	350	39,800,000		—		96.4	%	93.7	%	1,122		1,095
24	Reserve at Creekside	Chattanooga, TN	3/28/2014	192	18,875,000		14,253,879		94.8	%	96.4	%	1,056		1,040
25	Oak Crossing Apartments	Fort Wayne, IN	6/3/2014	222	24,230,000		20,225,132		98.5	%	95.9	%	1,005		1,002
26	Double Creek Flats	Plainfield, IN	5/7/2018	240	31,852,079		21,888,370		95.3	%	93.8	%	1,045		1,063
27	Jefferson at Perimeter Apartments	Dunwoody, GA	6/11/2018	504	103,633,983		64,426,182		92.7	%	89.3	%	1,412		1,331
				7,527	$	863,186,219	$	490,768,753	95.1	%	94.3	%	$	1,110	$	1,068

________________

(1) At June 30, 2019 and December 31, 2018, our portfolio was approximately 96.9% and 95.5% leased, respectively.

(2) Average monthly rent is based upon the effective rental income after considering the effect of vacancies, concessions and write-offs.

Joint Venture Arrangement with Blackstone Real Estate Income Trust, Inc.

On November 10, 2017, we, BREIT Steadfast MF JV LP, or the joint venture, BREIT Steadfast MF Parent LLC, or BREIT LP, and BREIT Steadfast MF GP LLC, or BREIT GP, executed a Contribution Agreement whereby we agreed to contribute a portfolio of 20 properties owned by us to the joint venture in exchange for a combination of cash and a 10% ownership interest in the joint venture. BREIT LP owns a 90% interest in the joint venture and BREIT GP serves as the general partner of the joint venture. Each of BREIT LP and BREIT GP is a wholly-owned subsidiary of Blackstone Real Estate Income Trust, Inc. SIR LANDS Holdings, LLC, or SIR LP, a wholly-owned subsidiary, holds our 10% interest in the joint venture.

The transaction closed in two stages. The first closing occurred November 15, 2017, and included those properties for which the existing debt was prepaid at closing. The second closing occurred January 31, 2018, and included those properties for which the joint venture assumed the existing loans.

2019 Property Dispositions

Dawntree Apartments

On August 15, 2013, we, through a wholly-owned subsidiary of the Operating Partnership, acquired Dawntree Apartments, a multifamily property located in Carrollton, Texas, containing 400 apartment homes. The purchase price of Dawntree Apartments was $24,000,000, exclusive of closing costs. On March 8, 2019, we sold Dawntree Apartments for $46,200,000, resulting in a gain of $24,141,403, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Dawntree Apartments was not affiliated with us or our advisor.

Estancia Apartments

On June 29, 2012, we, through a wholly-owned subsidiary of the Operating Partnership, acquired Estancia Apartments, a multifamily property located in Tulsa, Oklahoma, containing 294 apartment homes. The purchase price of Estancia Apartments was $27,900,000, exclusive of closing costs. On March 22, 2019, we sold Estancia Apartments for $30,683,000, resulting in a gain of $6,892,244, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Estancia Apartments was not affiliated with us or our advisor.

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Sonoma Grande Apartments

On May 24, 2012, we, through a wholly-owned subsidiary of the Operating Partnership, acquired Sonoma Grande Apartments, a multifamily property located in Tulsa, Oklahoma, containing 336 apartment homes. The purchase price of Sonoma Grande Apartments was $32,200,000, exclusive of closing costs. On March 22, 2019, we sold Sonoma Grande Apartments for $35,067,000, resulting in a gain of $9,367,938, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Sonoma Grande Apartments was not affiliated with us or our advisor.

EBT Lofts, Library Lofts East and Stuart Hall Lofts

On December 30, 2011, February 28, 2013 and August 27, 2013, we, through wholly-owned subsidiaries of the Operating Partnership, acquired EBT Lofts, Library Lofts East and Stuart Hall Lofts, respectively, multifamily properties located in Kansas City, Missouri, collectively containing 335 apartment homes. The combined purchase price of EBT Lofts, Library Lofts East and Stuart Hall Lofts was $38,175,000, exclusive of closing costs. On April 26, 2019, we sold EBT Lofts, Library Lofts East and Stuart Hall Lofts for $50,685,000, resulting in a gain of $19,120,514, which includes reductions to the net book value of the properties due to historical depreciation and amortization expense. The purchaser of EBT Lofts, Library Lofts East and Stuart Hall Lofts was not affiliated with us or our advisor.

Waterford on the Meadow

On July 3, 2013, we, through a wholly-owned subsidiary of the Operating Partnership, acquired Waterford on the Meadow, a multifamily property located in Plano, Texas, containing 350 apartment homes. The purchase price of Waterford on the Meadow was $23,100,000, exclusive of closing costs. On May 14, 2019, we sold Waterford on the Meadow for $42,000,000, resulting in a gain of $20,315,545, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Waterford on the Meadow was not affiliated with us or our advisor.

Truman Farm Villas

On December 22, 2011, we, through a wholly-owned subsidiary of the Operating Partnership, acquired Truman Farm Villas, a multifamily property located in Grandview, Missouri, containing 200 apartment homes. The purchase price of Truman Farm Villas was $9,100,000, exclusive of closing costs. On May 15, 2019, we sold Truman Farm Villas for $14,650,000, resulting in a gain of $7,051,452, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Truman Farm Villas was not affiliated with us or our advisor.

Pending Merger with Steadfast Apartment REIT, Inc.

On August 5, 2019, we, Steadfast Apartment REIT, Inc., or STAR, Steadfast Apartment REIT Operating Partnership, L.P., STAR’s operating partnership, our operating partnership, and SI Subsidiary, LLC, a wholly-owned subsidiary of STAR, or Merger Sub, entered into an Agreement and Plan of Merger, or the Merger Agreement. 

Subject to the terms and conditions of the Merger Agreement, we will merge with and into Merger Sub with Merger Sub surviving the merger, or the Merger, such that following the Merger, the surviving entity will continue as a wholly-owned subsidiary of STAR. In accordance with the applicable provisions of the Maryland General Corporation Law, our separate existence shall cease.

At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of our common stock (or a fraction thereof), $0.01 par value per share, will be converted into the right to receive 0.5934 shares of STAR’s common stock, $0.01 par value per share.

Pursuant to the terms of the Merger Agreement, during the period beginning on the date of the Merger Agreement and continuing until 11:59 p.m. New York City time on September 5, 2019, we and our subsidiaries and representatives may initiate, solicit, provide information and enter into discussions concerning proposals relating to alternative business combination transactions.

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

On August 5, 2019, STAR also entered into an Agreement and Plan of Merger to acquire Steadfast Apartment REIT III, Inc., or STAR III. STAR’s proposed merger with STAR III is also a stock-for-stock transaction whereby STAR III will be merged into a wholly-owned subsidiary of STAR. The consummation of STAR’s merger with us is not contingent upon the completion of STAR’s merger with STAR III, and the consummation of STAR’s merger with STAR III is not contingent upon the completion of STAR’s merger with us.

The combined company after the mergers will retain the name “Steadfast Apartment REIT, Inc.” Each merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code.

For additional information on the Merger, see the Company’s Current Report on Form 8-K filed with the SEC on August 6, 2019.

Critical Accounting Policies

The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant changes to our accounting policies during the period covered by this report other than described in Note 2 (Summary of Significant Accounting Policies) to our condensed consolidated unaudited financial statements in this Quarterly Report on Form 10-Q.

Income Taxes

We elected to be taxed as, and currently qualify as, a REIT under the Internal Revenue Code and have operated as such commencing with the taxable year ended December 31, 2010. To continue to qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate income tax rates and generally would 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 was lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. However, we believe we are organized and operate in such a manner as to qualify for treatment as a REIT.

We follow the income tax guidance under GAAP to recognize, measure, present and disclose in our consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of June 30, 2019 and December 31, 2018, we did not have any liabilities for uncertain tax positions that we believe should be recognized in our consolidated financial statements. Due to uncertainty regarding the realization of certain deferred tax assets, we have established valuation allowances, primarily in connection with the net operating loss carryforward related to the REIT. We have not been assessed material interest or penalties by any major tax jurisdictions. Our evaluation was performed for all open tax years through December 31, 2018.

Distributions

Our board of directors has declared daily distributions that are paid on a monthly basis. We expect to continue paying monthly distributions unless our results of operations, our general financial condition, general economic conditions or other factors prohibit us from doing so. We may declare distributions in excess of our cash flow from operations. As a result, our

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income” each year.

Distributions declared (1) accrue daily to our stockholders of record as of the close of business on each day, (2) are payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month and (3) are calculated at a rate of $0.001519 per share per day during the six months ended June 30, 2019.

The distributions declared and paid during the first and second quarters of 2019 were as follows:

Period	Distributions Declared(1)		Distributions Declared Per Share(1)(2)		Distributions Paid(3)		Sources of Distributions Paid				Net Cash (Used in) Provided By Operating Activities
							Cash Flow From Operations		Cash and Cash Equivalents
First Quarter 2019	$	10,186,657	$	0.137	$	10,196,066	$	—	$	10,196,066	$	(2,306,329	)
Second Quarter 2019	10,266,544		0.138		10,390,783		5,792,413		4,598,370		5,792,413
	$	20,453,201	$	0.275	$	20,586,849	$	5,792,413	$	14,794,436	$	3,486,084

________________

(1) Distributions are based on daily record dates and calculated at a rate of $0.001519 per share per day during the three and six months ended June 30, 2019.

(2) Assumes each share was issued and outstanding each day during the periods presented.

(3) Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid approximately three days following month end. All distributions were paid in cash.

For the three and six months endedJune 30, 2019, we paid aggregate distributions of $10,390,783 and $20,586,849, respectively. All such distributions were paid in cash. For the three and six months endedJune 30, 2019, our net income was $41,906,254 and $77,835,854, we had funds from operations, or FFO, of $4,473,925 and $9,495,121 and net cash provided by operating activities of $5,792,413 and $3,486,084, respectively. For the three and six months endedJune 30, 2019, of the $10,390,783 and $20,586,849 in total distributions paid, all of which were paid in cash, we funded $5,792,413 and $5,792,413, or 56% and 28%, of distributions paid with net cash provided by operating activities and $4,598,370 and $14,794,436, or 44% and 72%, with existing cash and cash equivalents, respectively. Since inception, of the $395,820,536 in total distributions paid through June 30, 2019, including shares issued pursuant to our distribution reinvestment plan, 59% of such amounts were funded from cash flow from operations, 19% of such amounts were funded from the sales of real estate investments, 9% of such amounts were funded from offering proceeds, 2% of such amounts were funded from credit facilities and 11% of such amounts were funded from cash and cash equivalents. For information on how we calculate FFO and the reconciliation of FFO to net income (loss), see “—Funds from Operations and Modified Funds from Operations.”

Over the long-term, we expect that our distributions will be paid from cash flow from operations (except with respect to distributions related to sales of our real estate and real estate-related investments). However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward-Looking Statements,” and “Results of Operations” herein. In the event our cash flow from operations decreases in the future, the level of our distributions may also decrease.

Inflation

Substantially all of our multifamily property leases will be for a term of one year or less. In an inflationary environment, this may allow us to realize increased rents upon renewal of existing leases or the beginning of new leases. Short-term leases generally will minimize our risk from the adverse effects of inflation, although these leases generally permit tenants to leave at the end of the lease term and therefore will expose us to the effects of a decline in market rents. In a deflationary rent environment, we may be exposed to declining rents more quickly under these shorter term leases.

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

With respect to our commercial properties, we include in our leases future provisions designed to protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases annual reimbursement of operating expenses above a certain allowance. We believe that shorter term lease contracts on commercial properties lessen the impact of inflation due to the ability to adjust rental rates to market levels as leases expire.

As of June 30, 2019, we had not entered into any material leases as a lessee.

REIT Compliance

To qualify as a REIT for tax purposes, we are required to distribute at least 90% of our REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP) to our stockholders. We must also meet certain asset and income tests, as well as other requirements. We will monitor the business and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates.

Liquidity and Capital Resources

We use secured borrowings, and intend to use in the future secured and unsecured borrowings. At June 30, 2019, our debt was approximately 49% of the value of our properties, as determined by the most recent valuations performed by an independent third-party appraiser as of December 31, 2018. Going forward, we expect that our borrowings will be approximately 65% of the value of our properties, as determined by an independent third-party appraiser or qualified independent valuation expert. Under our Third Articles of Amendment and Restatement, or our charter, we have a limitation on borrowing in excess of 300% of the value of our net assets, which generally approximates to 75% of the aggregate cost of our assets, though we may exceed this limit under certain circumstances. As of June 30, 2019, our aggregate borrowings were not in excess of 300% of the value of our net assets.

Our principal demand for funds will be to acquire investments in accordance with our investment strategy, fund value-enhancement and other capital improvement projects at our properties, pay operating expenses and interest on our outstanding indebtedness and to make distributions to our stockholders. In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our advisor in connection with the acquisition and disposal of investments, the management of our assets and costs incurred by our advisor in providing services to us.

We intend to generally fund our cash needs for items, other than asset acquisitions, from operations. Otherwise, we expect that our principal sources of working capital will include:

• current unrestricted cash balances, which was $124,685,084 as of June 30, 2019;

• various forms of secured and unsecured financing, including the financing of our unencumbered properties; and

• equity capital from joint venture partners.

Over the short term, we believe that our sources of capital, specifically our cash balances, cash flow from operations, our ability to raise equity capital from joint venture partners and our ability to obtain various forms of secured and unsecured financing will be adequate to meet our liquidity requirements and capital commitments.

Over the longer term, in addition to the sources of capital noted above, which we will rely on to meet our short term liquidity requirements, we may also utilize proceeds from the sale of our properties. We may also conduct additional public or private securities offerings. We expect these resources to be adequate to fund our operating activities, debt service and distributions, and will be sufficient to fund our ongoing operating activities as well as providing capital for investment in future development and other joint ventures.

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

On July 29, 2016, we entered into a credit agreement and a multifamily note with PNC Bank, National Association, or PNC Bank, that provide for a credit facility in an amount not to exceed $350,000,000 to refinance certain of our then-existing mortgage loans. The credit facility has a maturity date of August 1, 2021, subject to extension. Advances made under the credit facility are secured by certain of our properties. See Note 6 (Debt) of the accompanying condensed consolidated unaudited financial statements. During 2017 and 2018, seven of the collateralized properties, were either disposed or refinanced, with the advances made to each of the collateralized properties being repaid in full. As of June 30, 2019, approximately $10,000,000 was outstanding on our credit facility.

Cash Flows Provided by Operating Activities

During the six months endedJune 30, 2019, net cash provided by operating activities was $3,486,084, compared to net cash provided by operating activities of $9,175,879 for the six months endedJune 30, 2018. The decrease in net cash provided by operating activities was primarily due to the disposition of 12 multifamily properties subsequent to June 30, 2018 in addition to changes in net income, investment in unconsolidated joint venture, rents and other receivables, and due to affiliates compared to the six months ended June 30, 2018.

Cash Flows Provided by Investing Activities

During the six months endedJune 30, 2019, net cash provided by investing activities was $206,821,036, compared to $101,641,783 during the six months endedJune 30, 2018. The increase in net cash provided by investing activities was primarily due to the disposition of eight multifamily properties during the six months ended June 30, 2019 compared to disposition of 11 multifamily properties including the contribution of eight multifamily properties to the joint venture in exchange for cash and a 10% interest in the joint venture, partially offset by the acquisition of two multifamily properties during the the six months ended June 30, 2018. Net cash provided by investing activities during the six months endedJune 30, 2019, consisted of the following:

• $16,800 of cash provided by the investment in an unconsolidated joint venture, net of contributions paid to the unconsolidated joint venture of $292,600;

• $5,139,455 of cash used for improvements to real estate investments;

• $47,000 of cash used for the purchase of interest rate cap agreements;

• $211,746,529 of cash provided by the sales of real estate investments; and

• $244,162 of cash provided by insurance claims.

Cash Flows Used in Financing Activities

During the six months endedJune 30, 2019, net cash used in financing activities was $230,704,773, compared to $200,138,501 during the six months endedJune 30, 2018. The increase in cash flows used in financing activities is due primarily to the increase in principal repayments on mortgage notes payable, the increase in principal repayments on our credit facility and the payment of debt extinguishment costs, partially offset by the decrease in proceeds from issuance of notes payable and the reduction in the amount of cash distributions paid to our stockholders. Net cash used in financing activities during the six months endedJune 30, 2019, consisted of the following:

• $160,999,357 of net cash used for principal payments mortgage notes payable;

• $42,656,750 of cash used for principal payments of the credit facility;

• $2,461,817 of cash paid for the extinguishment of debt;

• $20,586,849 of cash distributions; and

• $4,000,000 of cash paid for the repurchase of common stock.

Contractual Commitments and Contingencies

We use secured borrowings, and intend to use secured and unsecured borrowings in the future. We believe that the careful use of borrowings will help us achieve our diversification goals and potentially enhance the returns on our investments. At June 30, 2019, our debt was approximately 49% of the value of our properties, as determined by the most recent valuations performed by an independent third-party appraiser as of December 31, 2018. Going forward, we expect that our borrowings

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

will be approximately 65% of the value of our properties. Under our charter, we are prohibited from borrowing in excess of 300% of our net assets, which generally approximates to 75% of the aggregate cost of our assets. We may borrow in excess of this amount if such excess is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report, along with a justification for such excess. In such event, we will monitor our debt levels and take action to reduce any such excess as practicable. Our aggregate borrowings are reviewed by our board of directors at least quarterly. As of June 30, 2019, our aggregate borrowings were not in excess of 300% of the value of our net assets.

In addition to using our capital resources for investing purposes and meeting our debt obligations, we expect to use our capital resources to make certain payments to our advisor or its affiliates in connection with the selection and origination or purchase of real estate and real estate-related investments, the management of our assets, the management of the development or improvement of our assets and costs incurred by our advisor in providing services to us.

As of June 30, 2019, we had indebtedness totaling $490,768,753, comprised of an aggregate principal amount of $493,770,933, and net deferred financing costs of $3,002,180. For more information on our outstanding indebtedness, see Note 6 (Debt) to the unaudited consolidated financial statements. The following is a summary of our contractual obligations as of June 30, 2019:

			Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Interest payments on outstanding debt obligations(1)	$	155,724,350	$	10,412,414	$	40,074,664	$	33,610,455	$	71,626,817
Principal payments on outstanding debt obligations(2)	493,770,933		2,299,670		33,204,554		183,645,047		274,621,662
Total	$	649,495,283	$	12,712,084	$	73,279,218	$	217,255,502	$	346,248,479

_____________________________

(1) Projected interest payments on outstanding debt obligations are based on the outstanding principal amounts and interest rates in effect at June 30, 2019. We incurred interest expense of $6,542,401 and $14,461,190 during the three and six months endedJune 30, 2019, including amortization of deferred financing costs totaling $191,172 and $599,287, amortization of loan premiums of $4,204 and $48,562 and net unrealized losses from the change in fair value of interest rate cap agreements of $61,418 and $161,297.

(2) Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. Amounts exclude the amortization of the deferred financing costs associated with the notes payable.

Our debt obligations contain customary financial or non-financial debt covenants. As of June 30, 2019 and December 31, 2018 we were in compliance with all of our financial and non-financial debt covenants.

Results of Operations

Overview

The discussion that follows is based on our consolidated results of operations for the three and six months endedJune 30, 2019 and 2018. The ability to compare one period to another is affected by the acquisitions and dispositions made during those periods and our value-enhancement strategy. The number of multifamily properties wholly owned by us decreased to 27 as of June 30, 2019, from 39 as of June 30, 2018. Our results of operations were primarily affected by (1) the disposition of three multifamily properties and the contribution of eight multifamily properties to the joint venture in exchange for cash and a proportionate 10% interest in the joint venture during the six months ended June 30, 2018, (2) the acquisition of two multifamily properties during the six months ended June 30, 2018, (3) the disposition of 12 multifamily properties subsequent to June 30, 2018 and (4) and our value-enhancement activity completed through June 30, 2019, as further discussed below.

Throughout this “Results of Operations” discussion, for the six months ended June 30, 2018, references to the disposition of 11 multifamily properties includes the contribution of eight multifamily properties to the joint venture.

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Our results of operations for the three and six months ended June 30, 2019, are not indicative of those expected in future periods. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of organic rent increases and, to a lesser extent, anticipated value-enhancement projects.

To provide additional insight into our operating results, we are also providing a detailed analysis of same-store versus non-same-store net operating income, or NOI. For more information on NOI and a reconciliation of NOI (a non-GAAP measure) to net income (loss), see “—Net Operating Income.”

Consolidated Results of Operations for the Three Months Ended June 30, 2019 and 2018

The following table summarizes the consolidated results of operations for the three months ended June 30, 2019 and 2018:

	For the Three Months Ended June 30,											$ Change Due to Acquisitions and Dispositions(1)			$ Change Due to Properties Held Throughout Both Periods(2)
	2019			2018			Change $			Change %
Total revenues	$	28,332,583		$	34,057,008		$	(5,724,425	)	(17	)%	$	(6,741,812	)	$	1,017,387
Operating, maintenance and management	(6,771,405		)	(9,059,224		)	2,287,819			25	%	2,101,906			185,913
Real estate taxes and insurance	(3,790,757		)	(6,809,156		)	3,018,399			44	%	1,713,203			1,305,196
Fees to affiliates	(3,428,581		)	(3,809,224		)	380,643			10	%	533,255			(152,613		)
Depreciation and amortization	(8,458,798		)	(11,311,894		)	2,853,096			25	%	2,396,516			456,580
Interest expense	(6,542,401		)	(8,017,417		)	1,475,016			18	%	936,949			538,067
Loss on debt extinguishment	(2,019,546		)	(271,790		)	(1,747,756		)	(643	)%	(980,876		)	(766,880		)
General and administrative expenses	(1,691,410		)	(1,570,715		)	(120,695		)	(8	)%	12,077			(132,772		)
Equity in loss from unconsolidated joint venture	(210,642		)	(1,173,099		)	962,457			82	%	962,457			—
Gain on sales of real estate, net	46,487,211			—			46,487,211			100.0%		46,487,212			—
Net income	$	41,906,254		$	(7,965,511	)	$	49,871,765		626	%
NOI(3)	$	16,343,746		$	17,235,069		$	(891,323	)	(5	)%
FFO(4)	$	4,473,925		$	4,908,722		$	(434,797	)	(9	)%
MFFO(4)	$	6,554,889		$	5,324,783		$	1,230,106		23	%

________________

(1) Represents the favorable (unfavorable) dollar amount change for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, related to multifamily properties acquired or disposed of on or after April 1, 2018.

(2) Represents the favorable (unfavorable) dollar amount change for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, related to multifamily properties owned by us throughout both periods presented.

(3) NOI is a non-GAAP financial measure used by investors and our management to evaluate and compare the performance of our properties and to determine trends in earnings. However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest income and other expense, acquisition costs, certain fees to affiliates, depreciation and amortization expense and gains or losses from the sale of our properties and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs, all of which are

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

significant economic costs. For additional information on how we calculate NOI and a reconciliation of NOI to net income (loss), see “—Net Operating Income.”

(4) GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, established the measurement tool of FFO. Since its introduction, FFO has become a widely used non-GAAP financial measure among REITs. Additionally, we use modified funds from operations, or MFFO, as defined by the Institute for Portfolio Alternatives (formerly known as the Investment Program Association), or the IPA, as a supplemental measure to evaluate our operating performance. MFFO is based on FFO but includes certain adjustments we believe are necessary due to changes in accounting and reporting under GAAP since the establishment of FFO. Neither FFO nor MFFO should be considered as alternatives to net income (loss) or other measurements under GAAP as indicators of our operating performance, nor should they be considered as alternatives to cash flow from operating activities or other measurements under GAAP as indicators of liquidity. For additional information on how we calculate FFO and MFFO and a reconciliation of FFO and MFFO to net income (loss), see “—Funds From Operations and Modified Funds From Operations.”

Net income (loss)

For the three months ended June 30, 2019, we had a net income of $41,906,254, compared to a net loss of $7,965,511 for the three months ended June 30, 2018. The increase in net income of $49,871,765 over the comparable prior year period was primarily due to the increase in gain on sales of real estate, net of $46,487,211, the decrease in operating, maintenance and management expenses of $2,287,819, the decrease in real estate taxes and insurance of $3,018,399, the decrease in fees to affiliates of $380,643, the decrease in depreciation and amortization expense of $2,853,096, the decrease in interest expense of $1,475,016 and the decrease in equity in losses of unconsolidated joint venture of $962,457, partially offset by the decrease in total revenues of $5,724,425, the increase in loss on debt extinguishment of $1,747,756 and the increase in general and administrative expenses of $120,695. Our results of operations were primarily impacted by the disposition of 12 multifamily properties since June 30, 2018.

Total revenues

Rental income and other income for the three months ended June 30, 2019, were $28,332,583, compared to $34,057,008 for the three months ended June 30, 2018. The decrease of $5,724,425 was primarily due to our total number of units decreasing by 3,095 from 10,622 at June 30, 2018, to 7,527 at June 30, 2019, as a result of the disposition of 12 multifamily properties, partially offset by the average occupancy increasing from 94.8% at June 30, 2018 to 95.1% at June 30, 2019, and the average monthly rent increasing from $1,049 at June 30, 2018 to $1,110 at June 30, 2019. We expect rental income and tenant reimbursements to increase in future periods as a result of ordinary monthly rent increases and any value-enhancement projects.

Operating, maintenance and management expenses

Operating, maintenance and management expenses for the three months ended June 30, 2019, were $6,771,405, compared to $9,059,224 for the three months ended June 30, 2018. The decrease of $2,287,819 was primarily due to a decrease of $2,101,906 as a result of the decrease in the number of properties in our portfolio subsequent to June 30, 2018, in addition to a decrease of $185,913 at the multifamily properties held throughout both periods. We expect that these amounts will decrease as a percentage of total revenues as we continue to implement operational efficiencies at our multifamily properties.

Real estate taxes and insurance

Real estate taxes and insurance expenses for the three months ended June 30, 2019, were $3,790,757, compared to $6,809,156 for the three months ended June 30, 2018. The decrease of $3,018,399 was due primarily to a decrease of $1,713,203 as a result of the decrease in the number of properties in our portfolio subsequent to June 30, 2018, in addition to the decrease of $1,305,196 at the properties held throughout both periods as a result of successful challenges to assessed real

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

estate tax values. These amounts may increase in future periods as a result of municipal property tax rate increases and/or increases in the assessed value of our properties.

Fees to affiliates

Fees to affiliates for the three months ended June 30, 2019, were $3,428,581 compared to $3,809,224, for the three months ended June 30, 2018. The decrease of $380,643 was primarily due to the decrease of investment management fees and property management fees as a result of the decrease in the number of properties in our portfolio subsequent to June 30, 2018. We expect fees to affiliates to decrease in future periods as a result of continued lower property management fees and investment management fees incurred on a smaller portfolio.

Depreciation and amortization

Depreciation and amortization expenses for the three months ended June 30, 2019, were $8,458,798, compared to $11,311,894 for the three months ended June 30, 2018. The decrease of $2,853,096 was primarily due to the decrease in the number of properties in our portfolio subsequent to June 30, 2018. We expect these amounts to increase in future periods as a result of anticipated capital expenditures to our real estate portfolio.

Interest expense

Interest expense for the three months ended June 30, 2019, was $6,542,401, compared to $8,017,417 for the three months ended June 30, 2018. The decrease of $1,475,016 was primarily due to a net decrease of $280,873,289 in our total notes payable balance as a result of the decrease in the number of properties in our portfolio subsequent to June 30, 2018 and the repayment of notes payable related to four properties we still own, partially offset by increases in the London Interbank Offered Rate, or LIBOR, from June 30, 2018, to June 30, 2019, that impacts the interest on our variable rate loans. Our interest expense in future periods will vary based on the impact changes to LIBOR, or the adoption of a replacement to LIBOR, will have on our variable rate debt and our level of borrowings, which will depend on the availability and cost of debt financing, the opportunity to acquire real estate and real estate-related investments meeting our investment objectives and the opportunity to sell real estate properties and real estate-related investments.

Loss on debt extinguishment

Loss on debt extinguishment for the three months ended June 30, 2019, was $2,019,546 compared to $271,790 for the three months ended June 30, 2018. These expenses consisted of prepayment penalties and the expense of the deferred financing costs, net related to the repayment and extinguishment of the debt in conjunction with the sale of three multifamily properties and repayment of notes payable at four multifamily properties during the three months ended June 30, 2019, compared to the repayment of notes payable at two multifamily properties and the refinancing of two multifamily properties during the three months ended June 30, 2018. The loss on debt extinguishment will vary in future periods if we repay the remaining outstanding principal prior to the scheduled maturity dates of the mortgage notes payable.

General and administrative expenses

General and administrative expenses for the three months ended June 30, 2019, were $1,691,410 compared to $1,570,715 for the three months ended June 30, 2018. These general and administrative costs consisted primarily of legal fees, insurance premiums, audit fees, other professional fees, independent director compensation and certain state taxes. The net increase of $120,695 was primarily due to an increase in legal fees and the increase in director meeting fees as a result of an increase in the number of meetings compared to the prior year period. We expect general and administrative expenses to decrease as a percentage of total revenues in future periods.

Equity in loss from unconsolidated joint venture

Equity in loss from unconsolidated joint venture for the three months ended June 30, 2019, was $210,642 compared to $1,173,099 for the three months ended June 30, 2018. Our investment in the joint venture has been accounted for as an unconsolidated joint venture under the equity method of accounting. The decrease in equity in loss from unconsolidated joint

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

venture of $962,457 primarily was due to the eight multifamily properties contributed to the joint venture in January 2018 experiencing a full period of operations during the three months ended June 30, 2019 in addition to tenant origination and absorption costs that were fully amortized prior to the three months ended June 30, 2019. Equity in loss from unconsolidated joint venture will vary in the future based on the operating results of the joint venture.

Gain on sales of real estate

Gain on sales of real estate for the three months ended June 30, 2019, was $46,487,211 compared to $0 for the three months ended June 30, 2018. The increase in gain on sales of real estate of $46,487,211 was due to the gain recognized on the disposition of five multifamily properties during the three months ended June 30, 2019, compared to no dispositions of multifamily properties during the three months ended June 30, 2018. Our gain on sales of real estate in future periods will vary based on the opportunity to sell real properties and real estate-related investments.

Consolidated Results of Operations for the Six Months EndedJune 30, 2019 and 2018

The following table summarizes the consolidated results of operations for the six months endedJune 30, 2019 and 2018:

	For the Six Months Ended June 30,											$ Change Due to Acquisitions and Dispositions(1)			$ Change Due to Properties Held Throughout Both Periods(2)
	2019			2018			Change $			Change %
Total revenues	$	60,343,375		$	69,511,934		$	(9,168,559	)	(13	)%	$	(10,945,544	)	$	1,776,985
Operating, maintenance and management	(14,848,950		)	(18,478,862		)	3,629,912			20	%	3,353,881			276,031
Real estate taxes and insurance	(9,344,570		)	(12,672,478		)	3,327,908			26	%	2,235,542			1,092,366
Fees to affiliates	(7,149,211		)	(7,741,290		)	592,079			8	%	825,377			(233,298		)
Depreciation and amortization	(17,440,777		)	(22,202,690		)	4,761,913			21	%	3,892,509			869,404
Interest expense	(14,461,190		)	(15,911,669		)	1,450,479			9	%	1,712,629			(262,150		)
Loss on debt extinguishment	(2,834,378		)	(2,282,246		)	(552,132		)	(24	)%	214,750			(766,882		)
General and administrative expenses	(3,118,092		)	(3,340,732		)	222,640			7	%	49,271			173,369
Equity in loss from unconsolidated joint venture	(199,149		)	(2,814,504		)	2,615,355			93	%	2,615,355			—
Gain on sales of real estate, net	86,888,796			81,247,054			5,641,742			7	%	5,641,742			—
Net income	$	77,835,854		$	65,314,517		$	12,521,337		19	%
NOI(3)	$	33,420,120		$	36,297,996		$	(2,877,876	)	(8	)%
FFO(4)	$	9,495,121		$	9,836,858		$	(341,737	)	(3	)%
MFFO(4)	$	12,490,796		$	12,334,929		$	155,867		1	%

________________

(1) Represents the favorable (unfavorable) dollar amount change for the six months endedJune 30, 2019, compared to the six months endedJune 30, 2018, related to multifamily properties acquired or disposed of on or after January 1, 2018.

(2) Represents the favorable (unfavorable) dollar amount change for the six months endedJune 30, 2019, compared to the six months endedJune 30, 2018, related to multifamily properties owned by us throughout both periods presented.

(3) See “—Net Operating Income” below for a reconciliation of NOI to net income.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

(4) See “—Funds From Operations and Modified Funds From Operations” below for a reconciliation FFO and MFFO to net income (loss).

Net income

For the six months endedJune 30, 2019, we had net income of $77,835,854 compared to a net income of $65,314,517 for the six months endedJune 30, 2018. The increase in net income of $12,521,337 over the comparable prior year period was primarily due to the increase in gain on sales of real estate, net of $5,641,742, the decrease in operating, maintenance and management expenses of $3,629,912, the decrease in real estate taxes and insurance of $3,327,908, the decrease in fees to affiliates of $592,079, the decrease in depreciation and amortization expense of $4,761,913, the decrease in interest expense of $1,450,479, the decrease in general and administrative expenses of $222,640 and the decrease in equity in loss of unconsolidated joint venture partner of $2,615,355, partially offset by the decrease in total revenues of $9,168,559 and the increase in loss on debt extinguishment of $552,132. Our results of operations were primarily impacted by the disposition of 12 multifamily properties since June 30, 2018.

Total revenues

Rental income and other income for the six months endedJune 30, 2019, were $60,343,375, compared to $69,511,934 for the six months endedJune 30, 2018. The decrease of $9,168,559 was primarily due to our total number of units decreasing by 3,095 from 10,622 at June 30, 2018, to 7,527 at June 30, 2019, as a result of the disposition of 12 multifamily properties, partially offset by the average occupancy increasing from 94.8% at June 30, 2018 to 95.1% at June 30, 2019, and the average monthly rent increasing from $1,049 at June 30, 2018 to $1,110 at June 30, 2019. We expect rental income and tenant reimbursements to increase in future periods as a result of ordinary monthly rent increases and any value-enhancement projects.

Operating, maintenance and management expenses

Operating, maintenance and management expenses for the six months endedJune 30, 2019, were $14,848,950 compared to $18,478,862 for the six months endedJune 30, 2018. The decrease of $3,629,912 was primarily due to a net decrease of $3,353,881 as a result of the decrease in the number of properties in our portfolio subsequent to June 30, 2018, in addition to a decrease of $276,031 at the multifamily properties held throughout both periods. We expect that these amounts will decrease as a percentage of total revenues as we continue to implement operational efficiencies at our multifamily properties.

Real estate taxes and insurance

Real estate taxes and insurance expenses for the six months endedJune 30, 2019, were $9,344,570, compared to $12,672,478 for the six months endedJune 30, 2018. The decrease of $3,327,908 was primarily due to a decrease of $2,235,542 related to the decrease in the number of properties in our portfolio subsequent to June 30, 2018, in addition to the decrease of $1,092,366 at the properties held throughout both periods as a result of successful challenges to assessed real estate tax values. These amounts may increase in future periods as a result of municipal property tax rate increases and/or increases in the assessed value of our properties.

Fees to affiliates

Fees to affiliates for the six months endedJune 30, 2019, were $7,149,211 compared to $7,741,290 for the six months endedJune 30, 2018. The net decrease of $592,079 was primarily due to the decrease of investment management fees and property management fees as a result of the decrease in the number of properties in our portfolio subsequent to June 30, 2018. We expect fees to affiliates to increase in future periods as a result of higher property management fees from anticipated increases in future rental income.

Depreciation and amortization

Depreciation and amortization expenses for the six months endedJune 30, 2019, were $17,440,777 compared to $22,202,690 for the six months endedJune 30, 2018. The decrease of $4,761,913 was primarily due to the decrease in the

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

number of properties in our portfolio subsequent to June 30, 2018. We expect these amounts to increase in future periods as a result of anticipated capital expenditures to our real estate portfolio.

Interest expense

Interest expense for the six months ended June 30, 2019, was $14,461,190 compared to $15,911,669 for the six months ended June 30, 2018. The decrease of $1,450,479 was primarily due to a net decrease of $280,873,289 in our total notes payable balance as a result of the disposition of 11 multifamily properties during the six months ended June 30, 2018, partially offset by the acquisition of two multifamily properties during the six months June 30, 2018, and a reduction in our portfolio of 12 multifamily properties subsequent to June 30, 2018, partially offset by an increase of $262,150 at the properties held throughout both periods as a result of increases in the London Interbank Offered Rate, or LIBOR, from June 30, 2018, to June 30, 2019, that impact the interest on our variable rate loans. Our interest expense in future periods will vary based on the impact changes to LIBOR, or the adoption of a replacement to LIBOR, will have on our variable rate debt and our level of borrowings, which will depend on the availability and cost of debt financing, the opportunity to acquire real estate and real estate-related investments meeting our investment objectives and the opportunity to sell real estate properties and real estate-related investments.

Loss on debt extinguishment

Loss on debt extinguishment for the six months endedJune 30, 2019, was $2,834,378, compared to $2,282,246 for the six months endedJune 30, 2018. These expenses consisted of prepayment penalties and the expense of the deferred financing costs, net related to the repayment and extinguishment of the debt in conjunction with the sale of 5 multifamily properties and repayment of notes payable at four multifamily properties during the six months endedJune 30, 2019, compared to the prepayment penalties and the expense of the deferred financing costs, net related to the repayment and extinguishment of the debt in conjunction with the sale of 10 multifamily properties, the refinancing of three multifamily properties and the repayment of notes payable at two multifamily properties during the six months endedJune 30, 2018. The loss on debt extinguishment will vary in future periods if we repay the remaining outstanding principal prior to the scheduled maturity dates of the mortgage notes payable.

General and administrative expenses

General and administrative expenses for the six months endedJune 30, 2019, were $3,118,092 compared to $3,340,732 for the six months endedJune 30, 2018. These general and administrative costs consisted primarily of legal fees, insurance premiums, audit fees, other professional fees, independent director compensation and certain state taxes. The net decrease of $222,640 primarily was due to acquisition expenses incurred in six months ended June 30, 2018 that did not meet the criteria for capitalization under ASU 2017-01, none of which were incurred in the six months ended June 30, 2019. We expect general and administrative expenses incurred by our advisor to decrease as a percentage of total revenue.

Equity in loss from unconsolidated joint venture

Equity in loss from unconsolidated joint venture for the six months endedJune 30, 2019, was $199,149 compared to $2,814,504 for the six months endedJune 30, 2018. Our investment in the joint venture has been accounted for as an unconsolidated joint venture under the equity method of accounting. The decrease in equity in loss from unconsolidated joint venture of $2,615,355 primarily was due to the eight multifamily properties contributed to the joint venture in January 2018 experiencing a full period of operations during the six months ended June 30, 2019, a reduction of amortization expense related to tenant origination and absorption costs that were fully amortized prior to the six months ended June 30, 2019, and non-recurring insurance proceeds recognized during the six months ended June 30, 2019. Equity in loss from unconsolidated joint venture will vary in the future based on the operating results of the joint venture.

Gain on sales of real estate

Gain on sales of real estate for the six months endedJune 30, 2019, was $86,888,796, compared to $81,247,054 for the six months endedJune 30, 2018. The increase in gain on sales of real estate of $5,641,742 is due to the gain recognized on the

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

disposition of eight multifamily properties during the six months ended June 30, 2019, compared to the disposition of 11 multifamily properties during the six months ended June 30, 2018. Our gain on sales of real estate in future periods will vary based on the opportunity to sell real properties and real estate-related investments.

Property Operations for the Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

For purposes of evaluating comparative operating performance, we categorize properties as “same-store” or “non-same-store.” A “same-store” property is a property that was owned at April 1, 2018 and June 30, 2019. A “non-same-store” property is a property that was acquired, placed into service or disposed of after April 1, 2018 and properties accounted for under the equity method. As of June 30, 2019, 25 properties were categorized as same-store properties.

The following table presents the same-store and non-same-store results from operations for the three months ended June 30, 2019 and 2018:

	For the Three Months Ended June 30,
	2019		2018		Change $			Change %
Same-store properties:
Revenues	$	23,578,860	$	22,896,701	$	682,159		3	%
Operating expenses	10,461,101		11,611,971		(1,150,870		)	(10	)%
NOI	13,117,759		11,284,730		1,833,029			16	%
Non-same-store properties:
NOI	3,225,988		5,950,339		(2,724,351		)
Total NOI(1)	$	16,343,747	$	17,235,069	$	(891,322	)

________________

(1) See “—Net Operating Income” below for a reconciliation of NOI to net income.

Net Operating Income

Same-store net operating income for the three months ended June 30, 2019, was $13,117,759 compared to $11,284,730 for the three months ended June 30, 2018. The 16%increase in same-store net operating income was primarily due to a 3%increase in same-store rental revenues in addition to a 10%decrease in same-store operating expenses over the comparable prior year period.

Revenues

Same-store revenues for the three months ended June 30, 2019, were $23,578,860 compared to $22,896,701 for the three months ended June 30, 2018. The 3%increase in same-store revenues was primarily due to the average rent increases at the same-store properties from $1,058 as of June 30, 2018, to $1,090 as of June 30, 2019, primarily attributable to ordinary monthly rent increases and an increase in occupancy at the same-store properties from 95.1% as of June 30, 2018, to 95.3% as of June 30, 2019.

Operating Expenses

Same-store operating expenses for the three months ended June 30, 2019, were $10,461,101 compared to $11,611,971 for the three months ended June 30, 2018. The 10%decrease in same-store operating expenses was primarily a result of successful

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

challenges to assessed real estate tax values in the three months ended June 30, 2019, relative to the comparable prior year period.

Net Operating Income

NOI is a non-GAAP financial measure of performance. NOI is used by investors and our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by (1) the cost of funds, (2) acquisition costs, (3) non-operating fees to affiliates, (4) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP or (5) general and administrative expenses and other gains and losses that are specific to us. The cost of funds is eliminated from net income because it is specific to our particular financing capabilities and constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future. Acquisition costs (those that did not meet the criteria for capitalization under ASU 2017-01) and non-operating fees to affiliates are eliminated because they do not reflect continuing operating costs of the property owner.

Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our multifamily properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating these costs from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.

The usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest income and other expense, acquisition costs (those that did not meet the criteria for capitalization under ASU 2017-01), certain fees to affiliates, depreciation and amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income which further limits its usefulness.

NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in “—Results of Operations” regarding the components of net income that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The following is a reconciliation of our NOI to net income (loss) for the three and six months endedJune 30, 2019 and 2018, computed in accordance with GAAP:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	41,906,254		$	(7,965,511	)	$	77,835,854		$	65,314,517
Fees to affiliates(1)	2,027,504			2,544,340			4,303,703			5,128,601
Depreciation and amortization	8,458,798			11,311,894			17,440,777			22,202,690
Interest expense	6,542,401			8,017,417			14,461,190			15,911,669
Loss on debt extinguishment	2,019,546			271,790			2,834,378			2,282,246
General and administrative expenses	1,691,410			1,570,715			3,118,092			3,340,732
Gain on sales of real estate, net	(46,487,211		)	—			(86,888,796		)	(81,247,054		)
Adjustments for investment in unconsolidated joint venture(2)	939,033			1,917,326			1,663,376			4,234,502
Other gains(3)	(753,989		)	(432,902		)	(1,348,454		)	(869,907		)
Net operating income	$	16,343,746		$	17,235,069		$	33,420,120		$	36,297,996

________________

(1) Fees to affiliates for the three and six months endedJune 30, 2019, exclude property management fees of $817,754 and $1,725,825 and other reimbursements of $583,323 and $1,119,683, respectively, that are included in NOI. Fees to affiliates for the three and six months endedJune 30, 2018, exclude property management fees of $978,620 and $2,003,352 and other reimbursements of $286,264 and $609,337, respectively, that are included in NOI.

(2) Reflects adjustments to add back our noncontrolling interest share of the adjustments to reconcile our net income attributable to common stockholders to NOI for our equity investment in the unconsolidated joint venture, which principally consists of depreciation, amortization and interest expense incurred by the joint venture.

(3) Other gains for the three and six months endedJune 30, 2019 and 2018 include non-recurring insurance proceeds and interest income that are not included in NOI.

Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, NAREIT, an industry trade group, has promulgated the measure of FFO which we believe to be an appropriate supplemental measure to reflect the operating performance of a real estate investment trust, or REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income as determined under GAAP.

We define FFO, a non-GAAP financial measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in December 2018, or the White Paper. The White Paper defines FFO as net income computed in accordance with GAAP, excluding gains or losses from sales of property and non-cash impairment charges of real estate related investments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. We adopted ASU 2016-02, Leases, or ASU 2016-02 on January 1, 2019, which requires us, as a lessee, to recognize a liability for obligations under a lease contract and a right-of-use asset. The carrying amount of the right-of-use asset is amortized over the term of the lease. Because we have no ownership rights (current or residual) in the underlying asset, NAREIT concluded that the amortization of the right-of-use asset should not be added back to GAAP net income (loss) in calculating FFO. This amortization expense is included in FFO. However, FFO, and MFFO as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that public, non-listed REITs, like us, are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases.

Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA, an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a public, non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that are not capitalized, as discussed below, and affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering has been completed and

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP financial measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we rely on our advisor for managing interest rate, hedge and foreign exchange risk, we do not retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such non-recurring gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations.

Our MFFO calculation complies with the IPA’s Practice Guideline described above, except with respect to certain acquisition fees and expenses as discussed below. In calculating MFFO, we exclude acquisition related expenses that are not capitalized, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Historically, under GAAP, acquisition fees and expenses were characterized as operating expenses in determining operating net income. However, following the recent publication of ASU 2017-01, Business Combinations (Topic 805): Clarifying the definition of business, or ASU 2017-01, acquisition fees and expenses are capitalized and depreciated under certain conditions. We elected to early adopt ASU 2017-01, resulting in a substantial part of acquisition fees and expenses being capitalized and therefore not excluded from the calculation of MFFO but captured as depreciation in calculating FFO. However, these expenses are paid in cash by us. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. In the event that operational earnings and cash flow are not available to fund our reimbursement of acquisition fees and expenses incurred by our advisor, such fees and expenses will need to be reimbursed to our advisor from other sources, including debt, net proceeds from the sale of properties, or from ancillary cash flows. The acquisition of properties, and the corresponding acquisition fees and expenses, is the key operational feature of our business plan to generate operational income and cash flow to fund distributions to our stockholders. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance.

Our management uses MFFO and the adjustments used to calculate MFFO in order to evaluate our performance against other public, non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate MFFO allow us to present our performance in a manner that reflects certain characteristics that are unique to public, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. By excluding expensed acquisition costs that are not capitalized, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance to that of other public, non-listed REITs, although it should be noted that not all public, non-listed REITs calculate FFO and MFFO the same way, so comparisons with other public, non-listed REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income or income from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with GAAP measurements as an indication of our performance. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. MFFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and in response to such standardization we may have to adjust our calculation and characterization of FFO or MFFO accordingly.

Our calculation of FFO and MFFO is presented in the following table for the three and six months endedJune 30, 2019 and 2018:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Reconciliation of net income (loss) to MFFO:	2019			2018			2019			2018
Net income (loss)	$	41,906,254		$	(7,965,511	)	$	77,835,854		$	65,314,517
Depreciation of real estate assets	8,457,713			10,989,153			17,425,950			21,841,657
Amortization of lease-related costs(1)	—			322,741			12,764			361,033
Gain on sales of real estate, net	(46,487,211		)	—			(86,888,796		)	(81,247,054		)
Adjustments for investment in unconsolidated joint venture(2)	597,169			1,562,339			1,109,349			3,566,705
FFO	4,473,925			4,908,722			9,495,121			9,836,858
Acquisition expenses(3)(4)	—			102,318			—			301,132
Unrealized loss (gain) on derivative instruments	61,418			41,953			161,297			(85,307		)
Loss on debt extinguishment	2,019,546			271,790			2,834,378			2,282,246
MFFO	$	6,554,889		$	5,324,783		$	12,490,796		$	12,334,929

________________

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PART I — FINANCIAL INFORMATION (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

(1) Amortization of lease-related costs for the three and six months ended June 30, 2019, excludes amortization of operating lease right-of-use assets of $1,085 and $2,063 that are included in FFO, respectively. There was no amortization of operating lease right-of-use assets during the three and six months ended June 30, 2018.

(2) Reflects adjustments to add back our noncontrolling interest share of the adjustments to reconcile our net income attributable to common stockholders to FFO for our equity investment in the unconsolidated joint venture, which principally consists of depreciation and amortization incurred by the joint venture.

(3) By excluding acquisition expenses, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition expenses include payments to our advisor or third parties. Historically, acquisition expenses under GAAP were considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. Following the recent publication of ASU 2017-01, acquisition expenses are capitalized and depreciated under certain conditions. We elected to early adopt ASU 2017-01 resulting in a substantial part of our acquisition expenses being capitalized and therefore not excluded from the calculation of MFFO but are captured as depreciation in calculating FFO. All paid and accrued acquisition expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these expenses and other costs related to the property. In the event that operational earnings and cash flow are not available to fund our reimbursement of acquisition expenses incurred by our advisor, such expenses will need to be reimbursed to the advisor from other sources, including debt, operational earnings or cash flow, net proceeds from the sale of properties, or from ancillary cash flows.

(4) No acquisition expenses were incurred for each of the three and six months endedJune 30, 2019. Acquisition expenses for the three and six months endedJune 30, 2018 of $102,318 and $301,132 did not meet the criteria for capitalization under ASU 2017-01 and are recorded in general and administrative expenses in the accompanying condensed consolidated unaudited statements of operations.

FFO and MFFO may be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.

Off-Balance Sheet Arrangements

As of June 30, 2019, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Related-Party Transactions and Agreements

We have entered into agreements with our advisor and its affiliates whereby we have paid, and may continue to pay, certain fees to, or reimburse certain expenses of, our advisor or its affiliates for acquisition and advisory fees and expenses, financing coordination fees, organization and offering costs, asset and property management fees and expenses, leasing fees and reimbursement of certain operating costs. Refer to Note 8 (Related Party Arrangements) to our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q for a discussion of the various related-party transactions, agreements and fees.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We may be exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. We may be also exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We have managed and will continue to manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we have, and may in the future, utilize a variety of financial instruments, including interest rate caps, floors and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in the instruments.

We borrow funds and make investments at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. At June 30, 2019, the fair value of our fixed rate debt was $279,209,582 and the carrying value of our fixed rate debt was $278,768,381. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated at June 30, 2019. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on our variable rate debt would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. At June 30, 2019, the fair value of our variable rate debt was $212,563,754 and the carrying value of our variable rate debt was $212,000,372. Based on interest rates as of June 30, 2019, if interest rates were 100 basis points higher during the 12 months ending June 30, 2020, interest expense on our variable rate debt would increase by $2,178,567 and if interest rates were 100 basis points lower during the 12 months ending June 30, 2020, interest expense on the variable rate debt would decrease by $2,174,610.

At June 30, 2019, the weighted-average interest rate of our fixed rate debt and variable rate debt was 3.90% and 4.50%, respectively. The weighted-average interest rate of our blended fixed and variable rates was 4.16% at June 30, 2019. The weighted-average interest rate represents the actual interest rate in effect at June 30, 2019 (consisting of the contractual interest rate), using interest rate indices as of June 30, 2019 where applicable.

We will also be exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of a derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. As of June 30, 2019, we did not have counterparty risk on our interest rate cap agreements as the underlying variable rates for each of our interest rate cap agreements as of June 30, 2019 were not in excess of the capped rates. See also Note 11 (Derivative Financial Instruments) to our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q.

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PART I — FINANCIAL INFORMATION (continued)

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily are required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of June 30, 2019, was conducted under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures, as of June 30, 2019, were effective at the reasonable assurance level.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ending June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes to the risk factors contained in Part 1, Item 1A set forth in our Annual Report on Form 10-K filed with the SEC on March 15, 2019.

There may be unexpected delays in the completion of the Merger, or the Merger may not be completed at all.

The Merger is currently expected to close in the first quarter of 2020, assuming that all of the conditions in the Merger Agreement are satisfied or waived. The Merger Agreement provides that either we or STAR may terminate the Merger Agreement if the Merger has not occurred by April 30, 2020. Certain events may delay the completion of the Merger or result in a termination of the Merger Agreement. Some of these events are outside the control of either party. In particular, completion of the Merger requires the affirmative vote of holders of not less than a majority of all outstanding shares of our common stock as of the record date for the special meeting of our stockholders to approve the Merger and an amendment to our charter to delete certain provisions regarding roll-up transactions. We cannot assure our stockholders that the conditions to the completion of the Merger will be satisfied or waived, or that any adverse change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the Merger Agreement will not occur, and we cannot provide any assurances as to whether or when the Merger will be completed.

Failure to complete the Merger in a timely manner or at all could negatively impact the value of our common stock and the future value of our business and financial results.

The completion of the Merger is subject to various conditions, including, among other things, the approval by our stockholders, the absence of any governmental order prohibiting the consummation of the Merger, the accuracy of the representations and warranties contained in the Merger Agreement (subject to certain materiality qualifications), compliance with the covenants and agreements in the Merger Agreement in all material respects, and the absence of any material adverse effect on us. If the Merger is not completed, our ongoing business could be adversely affected, and we will be subject to several risks, including being required, under certain circumstances, to pay (i)(A) up to $8,694,218 in termination fee to STAR if such termination occurs no later than seven business days after (x) the Go Shop Period End Time (as defined in the Merger Agreement) or (y) the end of the specified period for negotiations with STAR following notice (received within five business days of the Go Shop Period End Time) that we intend to enter into a Superior Proposal, as defined in the Merger Agreement, or (B) up to $20,866,122 in termination fee to STAR if it occurred thereafter and (ii) up to $2,000,000 as reimbursement for STAR’s Expenses, as defined in the Merger Agreement.

In addition, whether or not the Merger is completed, we are subject to several risks, including but not limited to:

• having to pay certain costs relating to the proposed Merger, such as legal, accounting, financial advisory, filing, printing and mailing fees; and

• diverting management attention and resources from operational matters and other strategic opportunities toward implementing the Merger.

If the Merger is not completed, these risks could negatively impact the estimated value of our common stock, the future value of our business and our financial results.

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PART II—OTHER INFORMATION (continued)

The announcement and pendency of the Merger could adversely affect our business and operations.

Due to operating covenants in the Merger Agreement, we may have difficulty, during the pendency of the Merger, to pursue certain strategic transactions, acquire new properties, undertake certain significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions that are not in the ordinary course of business, even if such actions could prove beneficial.

We have not identified another opportunity to provide liquidity to our stockholders other than the Merger. If we do not complete the Merger, our stockholders’ ability to sell or otherwise dispose of their shares would continue to be limited.

If the Merger is not completed, our stockholders will not receive the right to receive 0.5934 shares of STAR’s common stock for each share of our common stock. In addition, if the Merger is not completed, we may continue as an operating company, or our board of directors may pursue other alternatives for a liquidity event, which may not occur in the near term or on terms as attractive as the terms of the Merger. In addition, there currently is no public market for shares of our common stock and there is no assurance that a public market may develop. Our charter also prohibits the ownership of more than 9.8% of our common stock, in value or number of shares (whichever is more restrictive), by a single investor, unless exempted by our board of directors, which may further limit our stockholders’ ability to sell or otherwise dispose of their shares of our common stock. Furthermore, our board of directors limited our share repurchase program in connection with the Merger, and we do not anticipate that our board of directors will fully resume our share repurchase program while the Merger is pending. As a result, if we do not complete the Merger, our stockholders may have to hold their shares for an indefinite period of time or, if a stockholder is able to sell its shares, it likely would have to sell them at a substantial discount to the price paid for the shares. If our share repurchase program would be opened up to all stockholders, the program would contain numerous restrictions that would limit our stockholders’ ability to sell their shares of our common stock, including those relating to the number of shares that we can repurchase at any time and limiting the funds we will use to repurchase shares pursuant to the program.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of us or could result in a competing acquisition proposal being at a lower price than it might otherwise be.

Except for a go-shop period that expires on September 5, 2019, the Merger Agreement contains provisions that, subject to limited exceptions, restrict our ability to solicit, initiate or knowingly facilitate, encourage or assist any acquisition proposal. With respect to any written, bona fide acquisition proposal that we receive, STAR generally has an opportunity to offer to modify the terms of the Merger Agreement in response to such proposal before our board of directors may change, withdraw, or modify its recommendation to our stockholders in response to such acquisition proposal or terminate the Merger Agreement to enter into a definitive agreement with respect to such acquisition proposal. Upon termination of the Merger Agreement under circumstances relating to an acquisition proposal, we may be required to pay a termination fee of approximately $8.7 million in connection with a transaction initiated during the go-shop process, or approximately $21.1 million in connection with a transaction initiated after the go-shop process. In addition, our advisor agreed to waive its right to receive a disposition fee in connection with the Merger. In the event the Merger Agreement is not consummated, we would be responsible for paying a disposition fee in connection with any other competing transaction.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of our business from considering or making a competing acquisition proposal, even if the potential competing acquirer was prepared to pay consideration with a higher per share cash value than that market value proposed to be received or realized in the Merger, or might cause a potential competing acquirer to propose to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the Merger Agreement.

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PART II—OTHER INFORMATION (continued)

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended June 30, 2019, we fulfilled repurchase requests and repurchased shares of our common stock pursuant to our share repurchase program as follows:

	Total Number of Shares Requested to be Repurchased(1)	Total Number of Shares Repurchased(2)	Average Price Paid per Share(3)(4)		Approximate Dollar Value of Shares Available That May Yet Be /Repurchased Under the Program
April 2019	191,389	—	$	—	(5)
May 2019	227,811	223,595	8.94		(5)
June 2019	633,588	—	—		(5)
	1,052,788	223,595	$	8.94

____________________

(1) We generally repurchase shares on the last business day of the month following the end of each fiscal quarter in which requests were received. At June 30, 2019, we had $2,000,000, representing 222,982 shares of outstanding and unfulfilled repurchase requests, all of which were fulfilled on July 31, 2019.

(2) We are not obligated to repurchase shares under the share repurchase program.

(3) Pursuant to the program, as amended, we currently repurchase shares at prices determined as follows:

• 92.5% of the share repurchase price for stockholders who have held their shares for at least one year;

• 95.0% of the share repurchase price for stockholders who have held their shares for at least two years;

• 97.5% of the share repurchase price for stockholders who have held their shares for at least three years; and

• 100.0% of the share repurchase price for stockholders who have held their shares for at least four years.

The “share repurchase price” is equal to 93% of the estimated value per share less reductions due to the holding period for shares and other events specified in the share repurchase program. Notwithstanding the above, the repurchase price for repurchases sought upon a stockholder’s death or “qualifying disability” will be equal to the average issue price per share for all of the stockholder’s shares purchased from us.

(4) For the three months ended June 30, 2019, the sources of the cash used to repurchase shares were 100% from existing cash and cash equivalents.

(5) The number of shares that may be repurchased pursuant to the share repurchase program during any calendar year is limited to 5% of the weighted-average number of shares outstanding during the prior calendar year and the value of the shares repurchased shall not exceed $2,000,000 in any quarter.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II—OTHER INFORMATION (continued)

Item 5. Other Information

None.

Item 6. Exhibits

Effective February 1, 2010, Steadfast Secure Income REIT, Inc., Steadfast Secure Income Advisor, LLC and Steadfast Secure Income REIT Operating Partnership, L.P. changed their names to Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC and Steadfast Income REIT Operating Partnership, L.P., respectively. With respect to documents executed prior to the name change, the following Exhibit Index refers to the entity names used prior to the name changes in order to accurately reflect the names of the entities that appear on such documents.

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the three months ended June 30, 2019 (and are numbered in accordance with Item 601 of Regulation S-K).

2.1 Agreement and Plan of Merger, dated as of August  5, 2019, by and among Steadfast Apartment REIT, Inc., Steadfast Apartment REIT Operating Partnership, L.P., SI Subsidiary, LLC, Steadfast Income REIT, Inc. and Steadfast Income REIT Operating Partnership, L.P. (included as Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 000-54674) filed with the SEC on August 6, 2019, and incorporated herein by reference).

3.1 Third Articles of Amendment and Restatement of Steadfast Income REIT, Inc. (included as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 6, 2014 and incorporated herein by reference).

3.2 Bylaws of Steadfast Income REIT, Inc. (included as Exhibit 3.2 to the Company’s Registration Statement on Form S-11 (File No. 333-160748) filed July 23, 2009 and incorporated herein by reference).

3.3 Amendment No. 1 to Bylaws of Steadfast Income REIT, Inc. (included as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-54674) filed with the SEC on August 9, 2019, and incorporated herein by reference).

4.1 Form of Subscription Agreement (incorporated by reference to Appendix B to the prospectus, dated July 9, 2010 of the Registrant).

10.1 Termination Agreement, dated as of August 5, 2019, by and between Steadfast Income REIT, Inc. and Steadfast Income Advisor, LLC (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-54674) filed with the SEC on August 6, 2019, and incorporated herein by reference).

99.1 Amended and Restated Share Repurchase Program (included as Exhibit 99.3 to the Company’s Current Report on Form 8-K (SEC File No. 000-54674) filed with the SEC on August 6, 2019, and incorporated herein by reference).

31.1* Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2* Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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PART II—OTHER INFORMATION (continued)

32.1** Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2** Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS* XBRL Instance Document.

101.SCH* XBRL Taxonomy Extension Schema Document.

101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB* XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.

____________

* Filed herewith.

** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Steadfast Income REIT, Inc.
Date:	August 13, 2019	By:	/s/ Rodney F. Emery
			Rodney F. Emery
			Chief Executive Officer and Chairman of the Board (Principal Executive Officer)
Date:	August 13, 2019	By:	/s/ Kevin J. Keating
			Kevin J. Keating
			Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)