10-K 1 stariii1231201810-k.htm 10-K Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ý
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 For the fiscal year ended December 31, 2018
 
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 000-55772
STEADFAST APARTMENT REIT III, INC.
(Exact Name of Registrant as Specified in Its Charter) 
Maryland
 
47-4871012
(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
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
          Common Stock, $0.01 par value per share
 
 
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No ý
 
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 ý 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 ý No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
 
Indicate by check mark whether the registrant is a large accelerated filed, 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 o

Smaller reporting company x
 
 
Emerging growth company ý
 
 
 
 
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 pursuant to Section 13(a) of the Exchange Act. ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
 
There is no established market for the registrant’s shares of common stock. 
As of June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, there were approximately 3,152,067 shares of Class A common stock, 409,536 shares of Class R common stock and 4,174,826 shares of Class T common stock held by non-affiliates, for an aggregate market value of $187,418,829, assuming a market value of $25.00 per share of Class A common stock, $22.50 per share of Class R common stock and $23.81 per share of Class T common stock.
As of March 7, 2019, there were 3,506,298 shares of the Registrant’s Class A common stock issued and outstanding, 475,921 shares of the Registrant’s Class R common stock issued and outstanding and 4,651,563 shares of the Registrant’s Class T common stock issued and outstanding.





STEADFAST APARTMENT REIT III, INC.
INDEX
 
 
 
Page
 
 
 
 
 
PART I
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART III
 
 
 
 
 
 
 
 
 
 
 
 
PART IV
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 
Certain statements of Steadfast Apartment REIT III, Inc. (“we,” “our,” “us” or the “Company”) included in this Annual Report on Form 10-K (the “Annual Report”) that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (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 that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
•
the fact that we have a limited operating history and commenced operations on May 19, 2016;
•
the fact that we have had a net loss for each quarterly and annual period since inception;
•
changes in economic conditions generally and the real estate and debt markets specifically; 
•
our ability to successfully identify and acquire multifamily properties and independent senior-living properties on terms that are favorable to us; 
•
our ability to secure resident leases for our multifamily properties and independent senior-living properties at favorable rental rates; 
•
risks inherent in the real estate business, including resident defaults, potential liability relating to environmental matters and the lack of liquidity of real estate investments; 
•
the fact that we pay fees and expenses to our advisor and its affiliates that were not negotiated on an arm’s-length basis and the fact that 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 other affiliates of our advisor;
•
our ability to generate sufficient cash flows to pay distributions for our stockholders;
•
legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts (“REITs”)); 
•
the availability of capital; 
•
changes in interest rates; and 
•
changes to U.S. generally accepted accounting principles (“GAAP”).
Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this Annual Report. All forward-looking statements are made as of the date of this Annual Report and the risk that actual results will differ materially from the expectations expressed in this Annual Report 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 after the date of this Annual Report, 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 Annual Report, including, without limitation, the risks described under “Risk Factors,” 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 Annual Report will be achieved.

i

PART I
ITEM 1.                                                BUSINESS
Overview 
Steadfast Apartment REIT III, Inc. (which is referred to in this Annual Report, as context requires, as the “Company,” “we,” “us,” or “our”) was formed on July 29, 2015, as a Maryland corporation and elected to be taxed as, and currently qualifies as, a REIT, commencing with its taxable year ended December 31, 2016. We own and manage a portfolio of multifamily properties located in targeted markets throughout the United States. As of December 31, 2018, we owned ten multifamily properties comprised of a total of 2,775 apartment homes. For more information on our real estate portfolio, see “—Our Real Estate Portfolio.”
On February 5, 2016, we commenced our initial public offering to offer a maximum of $1,000,000,000 in shares of common stock for sale to the public in the primary offering (the “Primary Offering”). We initially offered Class A shares and Class T shares in the Public Offering at an initial price of $25.00 for each Class A share ($500,000,000 in Class A shares) and $23.81 for each Class T share ($500,000,000 in Class T shares), with discounts available for certain categories of purchasers. We also registered up to $300,000,000 in shares pursuant to our distribution reinvestment plan (the “DRP,” and together with the Primary Offering, the “Public Offering”) at an initial price of $23.75 for each Class A share and $22.62 for each Class T share.
Commencing on July 25, 2016, we revised the terms of our Public Offering to include Class R shares. From July 25, 2016 through August 31, 2018, the date we terminated our Primary Offering, we offered a maximum of $1,000,000,000 in shares of common stock for sale to the public at a price of $25.00 for each Class A share ($400,000,000 in Class A shares), $22.50 for each Class R share ($200,000,000 in Class R shares) and $23.81 for each Class T share ($400,000,000 in Class T shares), with discounts available for certain categories of purchasers. We also offered up to $300,000,000 in shares pursuant to our DRP at an initial price of $23.75 for each Class A share, $22.50 for each Class R share and $22.62 for each Class T share until our board determined an estimated value per share on October 9, 2018 (discussed below). We terminated the DRP on February 5, 2019.
As of August 31, 2018, the date we terminated our Primary Offering, we had sold 3,483,706 shares of Class A common stock, 474,357 shares of Class R common stock and 4,572,889 shares of Class T common stock in our Public Offering for gross proceeds of $85,801,001, $10,672,273 and $108,706,960, respectively, and $205,180,234 in the aggregate, including 111,922 shares of Class A common stock, 8,450 shares of Class R common stock and 145,838 shares of Class T common stock issued pursuant to our DRP for gross offering proceeds of $2,658,156, $190,125 and $3,298,847, respectively. As of December 31, 2018, we had sold 3,513,310 shares of Class A common stock, 477,684 shares of Class R common stock and 4,623,732 shares of Class T common stock in our Public Offering for gross proceeds of $86,485,589, $10,747,201 and $109,854,820, respectively, and $207,087,610 in the aggregate, including 141,524 shares of Class A common stock, 11,777 shares of Class R common stock and 196,681 shares of Class T common stock issued pursuant to our DRP for gross offering proceeds of $3,342,744, $265,053 and $4,446,707, respectively.
On October 9, 2018, our board of directors determined an estimated value per share for each of our Class A common stock, Class R common stock and Class T common stock of $22.54 as of June 30, 2018. In connection with the determination of an estimated value per share, our board of directors determined a price per share for the DRP for each of the Company’s Class A common stock, Class R common stock and Class T common stock of $22.54 effective November 1, 2018. Our board of directors elected to suspend the DRP with respect to distributions that accrue after February 1, 2019 and may, from time to time in its sole discretion, reinstate the DRP, although there is no assurance as to if or when this will happen.
As of March 7, 2019, we had sold 3,528,796 shares of Class A common stock, 479,529 shares of Class R common stock and 4,654,977 shares of Class T common stock in our Public Offering for gross proceeds of $86,834,672, $10,788,788 and $110,559,104, respectively, and $208,182,564 in the aggregate, including 157,012 shares of Class A common stock, 13,622 shares of Class R common stock and 227,925 shares of Class T common stock issued pursuant to our DRP for gross offering proceeds of $9,149,457.
We are externally managed by Steadfast Apartment Advisor III, LLC (the “Advisor”) pursuant to the Amended and Restated Advisory Agreement dated July 25, 2016, by and among us, Steadfast Apartment REIT III Operating Partnership, L.P. (the “Operating Partnership”) and the Advisor (as amended, the “Advisory Agreement”). Subject to certain restrictions and limitations, the Advisor manages our day-to-day operations and our portfolio of properties and real estate-related assets, sources and presents investment opportunities to our board of directors and provides investment management services on our behalf. The Advisor has also entered into an Advisory Services Agreement with Crossroads Capital Advisors, LLC (“Crossroads Capital Advisors”), whereby Crossroads Capital Advisors provides advisory services to us on behalf of the Advisor. Stira Capital Markets Group, LLC (formerly known as Steadfast Capital Markets Group, LLC) (the “Dealer

1

Manager”), an affiliate of the Advisor, served as the dealer manager for our Public Offering. The Advisor, along with the Dealer Manager, provides marketing, investor relations and other administrative services on our behalf.
Substantially all of our business is conducted through the Operating Partnership. We are the sole general partner of the Operating Partnership and own a 99.99% partnership interest in the Operating Partnership. The Advisor is the sole limited partner of and owns the remaining 0.01% partnership interest in the Operating Partnership. We entered into an Amended and Restated Agreement of Limited Partnership on July 25, 2016, with the Advisor (as amended, the “Partnership Agreement”). As we accepted subscriptions for shares of our common stock in our Public Offering, we transfered substantially all of the net offering proceeds to the Operating Partnership as a contribution in exchange for partnership interests and our percentage ownership in the Operating Partnership increased proportionately.
Our Structure
Our sponsor, Steadfast REIT Investments, LLC, a Delaware limited liability company (the “Sponsor”), is indirectly controlled by Rodney F. Emery, the chairman of our board of directors and our chief executive officer. We refer to each of our Sponsor, Advisor, Dealer Manager and their affiliates as “a Steadfast Companies affiliate” and collectively as “Steadfast Companies affiliates.”

2

The chart below shows the relationships among our Company and various Steadfast Companies affiliates. stariiiorgchart.jpg
_______________

(1)
Crossroads Capital Multifamily, LLC’s percentage interest in our Sponsor is contingent upon a net increase in book capitalization (as defined in our Sponsor’s limited liability company agreement). Crossroads Capital Multifamily, LLC (“Crossroads Capital Multifamily”) and Crossroads Capital Advisors are affiliated entities, each being wholly-owned subsidiaries of Crossroads Capital Group, LLC.
Objectives and Strategies
Our investment objectives are to:
•
realize capital appreciation in the value of our investments over the long term; and

3

•
pay attractive and stable cash distributions to stockholders.
We own and manage a portfolio of multifamily properties located in targeted markets throughout the United States, with the objective of generating stable rental income and maximizing the opportunity for future capital appreciation. A majority of our portfolio consists of established, well-positioned, institutional-quality apartment communities. Established apartments are typically older, more affordable apartments that cater to the middle-class segment of the workforce, with monthly rental rates that accommodate the generally accepted guidelines for housing costs as a percentage of gross income. As a result, we believe the demand for apartment housing at these properties is higher compared to other types of multifamily properties and is generally more consistent in all economic cycles. We intend to execute a value-enhancement strategy, invest additional capital and reposition under-managed assets in high-demand neighborhoods to increase both average rental rates and resale value with respect to approximately 50-70% of our portfolio. The properties targeted for value-enhancement typically are established, well-positioned, institutional-quality apartment communities with existing high occupancies and consistent rental revenue. However, these properties present an opportunity to increase rental revenue by expending incremental capital (typically approximately 4-7% of the original unit price) in aesthetic improvements such as new doors and lighting hardware, flooring, window coverings and appliances. Often such enhancements are cosmetic in nature and do not require building permits. This work does not constitute “reconstruction” or “remodeling” as those terms are commonly used, and we believe the properties targeted for value-enhancement would otherwise be accretive to and consistent with our greater portfolio regardless of whether any value-enhancement expenditures are made. These properties are deemed “under-managed” insofar as prior owners either failed to recognize the potential for, or did not have the capital to execute, a value-enhancement strategy.
2018 Highlights
During 2018, we:
•
acquired one multifamily property for an aggregate purchase price of $31,118,698, including closing costs;
•
reported net cash provided by financing activities of $54,279,898;
•
had a net loss of $15,365,609;
•
paid cash distributions of $2,918,723 to Class A common stockholders and distributed $1,901,022 in shares of our Class A common stock pursuant to our DRP, which constituted a 6.00% annualized distribution rate to our stockholders based on a purchase price of $25.00 per share;
•
paid cash distributions of $384,993 to Class R common stockholders and distributed $186,153 in shares of our Class R common stock pursuant to our DRP, subject to an annual distribution and shareholder fee of up to 0.67%, which constituted an up to 6.40% annualized distribution rate to our stockholders based on a purchase price of $22.50 per share;
•
paid cash distributions of $2,195,243 to Class T common stockholders and distributed $2,955,129 in shares of our Class T common stock pursuant to our DRP, subject to an annual distribution and shareholder servicing fee of up to 1.125%, which constituted an up to 5.30% annualized distribution rate to our stockholders based on a purchase price of $23.81 per share;
•
issued 645,919 of Class A common stock, 168,166 of Class R common stock and 1,252,854 shares of Class T common stock in our Public Offering, including shares issued pursuant to our DRP, resulting in gross offering proceeds of $15,967,850, $3,784,153 and $29,672,672, respectively, and $49,424,675 in the aggregate;
•
generated net operating income (“NOI”) of $20,477,716 (for further information on how we calculate NOI and a reconciliation of NOI to net loss, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Net Operating Income”);
•
generated funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), of $1,293,508 (for further information on how we calculate FFO and a reconciliation of FFO to net loss, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Funds From Operations and Modified Funds From Operations”); and
•
generated modified funds from operations (“MFFO”), as defined by the Institute for Portfolio Alternatives (formerly known as the Investment Program Association) (“IPA”), of $1,178,251 (for further information on how we calculate MFFO and a reconciliation of MFFO to net loss, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Funds From Operations and Modified Funds From Operations”).

4

Our Real Estate Portfolio
As of December 31, 2018, we owned the ten multifamily properties described below.
 
Property Name
 
Location
 
Number of Units
 
Average Monthly Occupancy(1)
 
Average Monthly Rent(2)
 
Purchase Date
 
Total Purchase Price
 
Mortgage Debt Outstanding(3)
 
Capitalization Rate(4)
1
Carriage House Apartment Homes
 
Gurnee, IL
 
136

 
86.8
%
 
$
818

 
5/19/2016
 
$
7,525,000

 
$
5,660,454

 
6.5%
2
Bristol Village Apartments
 
Aurora, CO
 
240

 
91.9
%
 
1,374

 
11/17/2016
 
47,400,000

 
34,883,417

 
5.6%
3
Canyon Resort at Great Hills Apartments
 
Austin, TX
 
256

 
94.3
%
 
1,313

 
12/29/2016
 
44,500,000

 
31,568,495

 
5.5%
4
Reflections on Sweetwater Apartments
 
Lawrenceville, GA
 
280

 
93.4
%
 
1,071

 
1/12/2017
 
33,288,337

 
22,822,158

 
5.8%
5
The Pointe at Vista Ridge Apartments
 
Lewisville, TX
 
300

 
92.6
%
 
1,228

 
5/25/2017
 
45,188,223

 
28,964,451

 
5.7%
6
Belmar Villas
 
Lakewood, CO
 
318

 
90.0
%
 
1,329

 
7/21/2017
 
64,503,255

 
46,892,398

 
5.8%
7
Ansley at Princeton Lakes
 
Atlanta, GA
 
306

 
91.4
%
 
1,146

 
8/31/2017
 
44,594,087

 
32,204,192

 
5.7%
8
Sugar Mill Apartments
 
Lawrenceville, GA
 
244

 
94.6
%
 
1,139

 
12/7/2017
 
36,305,492

 
24,636,684

 
5.6%
9
Avery Point Apartments
 
Indianapolis, IN
 
512

 
94.2
%
 
809

 
12/15/2017
 
45,829,836

 
31,060,671

 
5.9%
10
Cottage Trails at Culpepper Landing
 
Chesapeake, VA
 
183

 
90.6
%
 
1,338

 
5/31/2018
 
31,118,698

 
21,394,001

 
5.6%
 
 
 
 
 
2,775

 
92.4
%
 
$
1,136

 
 
 
$
400,252,928

 
$
280,086,921

 
 
________________
(1)
As of December 31, 2018, our portfolio was approximately 94.3% leased, calculated using the number of occupied and contractually leased units divided by total units. As of December 31, 2018, no single tenant accounted for greater than 10% of our 2018 gross annualized rental revenue.
(2)
Average monthly rent is based upon the effective rental income after considering the effect of vacancies, concessions and write-offs.
(3)
Mortgage debt outstanding is net of deferred financing costs associated with the loans for each individual property listed in the table.
(4)
The capitalization rate reflected in the table is as of the closing of the acquisition of the property. We calculate the capitalization rate for a real property by dividing the “net operating income” of the property by the purchase price of the property, excluding acquisition costs. Net operating income is calculated by deducting all operating expenses of a property, including property taxes and management fees but excluding debt service payments and capital expenditures, from gross operating revenues received from a property. For purposes of this calculation, net operating income is determined using the projected first year net operating income of the property based on in-place leases, potential rent increases or decreases for each unit and other revenues from late fees or services, adjusted for projected vacancies, tenant concessions, if any, and charges not collected.

We plan to invest approximately $4.4 million during the year ending December 31, 2019, for interior renovations at certain properties in our portfolio. These renovations are primarily to enhance the interior amenities of the apartment homes and will be performed initially on vacant units and thereafter on units vacated from time to time in the ordinary course.

The following information generally applies to all of our properties:
•
we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes;
•
except as noted above, we have no plans for any material renovations, improvements or developments with respect to
any of our properties; and
•
our properties face competition in attracting new residents and retaining current residents from other multifamily
properties in and around their respective submarkets.

5

Leverage
We use secured debt, and intend to use in the future secured and unsecured debt. At December 31, 2018, our debt was approximately 64% of the value of our properties as determined by the most recent valuations performed by an independent third-party appraiser as of June 30, 2018. We believe that the careful use of borrowings will help us achieve our diversification goals and potentially enhance the returns on our investments. After we have invested all of the net offering proceeds from our Public Offering, we expect our borrowings will be approximately 55% to 60% of the value of our properties (after debt amortization) and other real estate-related assets. For valuation purposes, the value of a property is determined by an independent third-party appraiser or qualified independent valuation expert. Under our Second Articles of Amendment and Restatement (as amended, the “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 unless such excess is approved by a majority of the 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 soon as practicable. Our aggregate borrowings are reviewed by our board of directors at least quarterly. At December 31, 2018, our aggregate borrowings were not in excess of 300% of the value of our net assets.
Employees
We have no paid employees. The employees of the Advisor and its affiliates provide management, acquisition, advisory and certain administrative services for us.
Competition
We are subject to significant competition in seeking real estate investments and residents. We compete with many third parties engaged in real estate investment activities, including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies and other entities. Many of our competitors have substantially greater financial and other resources than we have and may have substantially more operating experience than us. They may also enjoy significant competitive advantages that result from, among other things, a lower cost of capital.
The multifamily property market in particular is highly competitive. This competition could reduce occupancy levels and revenues at our multifamily properties, which would adversely affect our operations. We face competition from many sources, including from other multifamily properties in our target markets. In addition, overbuilding of multifamily properties may occur, which would increase the number of multifamily homes available and may decrease occupancy and unit rental rates. Furthermore, multifamily properties we acquire most likely compete, or will compete, with numerous housing alternatives in attracting residents, including owner occupied single- and multifamily homes available to rent or purchase. Competitive housing in a particular area and the increasing affordability of owner occupied single- and multifamily homes available to rent or buy could adversely affect our ability to retain our residents, lease apartment homes and increase or maintain rental rates.
We may also compete with Steadfast Income REIT, Inc. (“Steadfast Income REIT”) and Steadfast Apartment REIT, Inc. (“Steadfast Apartment REIT”), public, non-listed REITs sponsored by our Sponsor that also focus their investment strategy on multifamily properties located in the United States. Steadfast Apartment REIT terminated its primary offering on March 24, 2016, but continues to offer shares pursuant to its distribution reinvestment plan and may engage in future public offerings for its shares. Steadfast Income REIT terminated its initial public offering on December 20, 2013, but may engage in future public offerings for its shares, including, but not limited to, a public offering of shares pursuant to its distribution reinvestment plan. Even if Steadfast Income REIT and Steadfast Apartment REIT are no longer raising capital, they may have funds, including proceeds from the sale of assets or the refinancing of debt, available for investment. Although Steadfast Income REIT and Steadfast Apartment REIT are the only investment programs currently sponsored by or affiliated with our Sponsor that may directly compete with us for investment opportunities, our Sponsor may launch additional investment programs in the future that compete with us for investment opportunities. To the extent that we compete with Steadfast Income REIT, Steadfast Apartment REIT or any other program affiliated with our Sponsor for investments, our Sponsor will face potential conflicts of interest and there is a risk that our Sponsor will select investment opportunities for us that provide lower returns than the investments selected for other such programs, or that certain otherwise attractive investment opportunities will not be available to us. In addition, certain of our affiliates currently own or manage multifamily properties in geographical areas in which we own and expect to own multifamily properties. As a result of our potential competition with Steadfast Income REIT, Steadfast Apartment REIT and other affiliates of our Sponsor, certain investment opportunities that would otherwise be available to us may not in fact be available. Such competition may also result in conflicts of interest that are not resolved in our favor.

6

Regulations
Our investments are subject to various federal, state, and local laws, ordinances, and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution, and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments.
Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and have operated as such commencing with the taxable year ending December 31, 2016. 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 our 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 following the year we initially elected to be taxed as a REIT, 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 is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders.
Financial Information About Industry Segments
Our current business consists of owning, managing, operating, leasing, acquiring, developing, investing in, and disposing of real estate assets. We internally evaluate all of our real estate assets as one industry segment, and, accordingly, we do not report segment information.
Available Information
We are subject to the reporting requirements of the Exchange Act and, accordingly, we file Annual Reports, Quarterly Reports and other information with the Securities and Exchange Commission (“SEC”). Access to copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the SEC, including amendments to such filings, may be obtained free of charge from our website, http://www.steadfastreits.com. These filings are available promptly after we file them with, or furnish them to, the SEC. We are not incorporating our website or any information from the website into this Annual Report. The SEC also maintains a website, http://www.sec.gov, that contains our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Report on Form 8-K and other filings with the SEC. Access to these filings is free of charge.
ITEM 1A.                                       RISK FACTORS 
The following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. References to “shares” and “our common stock” refer to the shares of common stock of Steadfast Apartment REIT III, Inc.
General Investment Risks
We have limited prior operating history, and there is no assurance that we will be able to successfully achieve our investment objectives.
We commenced operations on May 19, 2016, with our acquisition of the Carriage House Apartment Homes. We and the Advisor have a limited operating history and may not be able to successfully operate our business or achieve our investment objectives. We cannot assure you that we will be profitable in the future or that we will recognize growth in our assets.
From inception through December 31, 2018, we have experienced quarterly and annual net losses and may experience similar losses in the future.
From inception through December 31, 2018, we incurred a cumulative net loss of $32,039,408. We cannot assure you that we will be profitable in the future or that we will recognize growth in the value of our assets.

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There is no public trading market for shares of our common stock and we are not required to effectuate a liquidity event by a certain date or at all. As a result, it will be difficult for you to sell your shares of common stock and, if you are able to sell your shares, you are likely to sell them at a substantial discount.
There is no public market for the shares of our common stock and we have no obligation to list our shares on any public securities market or provide any other type of liquidity to our stockholders by a particular date or at all. It will therefore be difficult for you to sell your shares of common stock. Even if you are able to sell your shares of common stock, the absence of a public market may cause the price received for any shares of our common stock sold to be less than what you paid or less than your proportionate value of the assets we own. We have adopted a share repurchase program but it is limited in terms of the amount of shares that stockholders may sell to us each quarter. Our board of directors can amend, suspend, or terminate our share repurchase program upon 30 days’ notice. Additionally, our Charter does not require that we consummate a transaction to provide liquidity to stockholders on any certain date. As a result, you should be prepared to hold your shares for an indefinite period of time.
You are limited in your ability to have your shares of common stock repurchased pursuant to our share repurchase program. You may not be able to sell any of your shares of our common stock back to us, and if you do sell your shares, you may not receive the price you paid.
Our share repurchase program may provide you with an opportunity to have your shares of common stock repurchased by us. No shares may be repurchased under our share repurchase program until after the first anniversary of the date of purchase of such shares. Prior to the first determination of our estimated value per share, we repurchased shares of our common stock pursuant to our share repurchase plan at a discount from the offering price per share of our common stock based upon how long such shares had been held. Following the first determination of our estimated value per share of our common stock, shares are repurchased at a price based upon such estimated value per share. Due to the fact that the per share amount paid by us to repurchase shares will typically exceed the net proceeds we received in connection with the sale of such shares, the repurchase of shares pursuant to our share repurchase program will have a dilutive effect on our existing stockholders.
Our share repurchase program contains certain limitations, including those relating to the number of shares of our common stock that we can repurchase at any given time and limiting the repurchase price. Specifically, the share repurchase program limits the number of shares to be repurchased during any calendar year to no more than (1) 5.0% of the weighted average number of shares of our common stock outstanding in the prior calendar year and (2) those that could be funded from the net proceeds from the sale of shares under our DRP in the prior calendar year plus such additional funds as may be borrowed or reserved for that purpose by our board of directors. Further, we have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. Our board of directors reserves the right to reject any repurchase request for any reason or no reason or to amend, suspend or terminate the share repurchase program at any time upon 30 days’ notice to our stockholders. Therefore, you may not have the opportunity to make a repurchase request prior to a potential termination or suspension of the share repurchase program and you may not be able to sell any of your shares of common stock back to us. If you do sell your shares of common stock back to us pursuant to the share repurchase program, you may be forced to do so at a discount to the purchase price you paid for your shares.
The actual value of shares that we repurchase under our share repurchase program may be substantially less than what we pay.
Under our share repurchase program, shares may be repurchased at varying prices depending on (1) the number of years the shares have been held, (2) the purchase price paid for the shares and (3) whether the repurchases are sought upon a stockholder’s death or disability. On October 12, 2018, we announced an estimated per share value of $22.54 as of June 30, 2018. This reported value is likely to differ from the price at which a stockholder could resell his or her shares. Thus, if we repurchase shares of our common stock based on this estimated share value, the actual value of the shares that we repurchase may be less, and the repurchase could be dilutive to our remaining stockholders. Even at lower repurchase prices, the actual value of the shares may be substantially less than what we pay and the repurchase may be dilutive to our remaining stockholders.
We have paid and it is likely we will continue to pay distributions from sources other than our cash flow from operations. To the extent that we pay distributions from sources other than our cash flow from operations, we will have reduced funds available for investment and the overall return to our stockholders may be reduced.
Our organizational documents permit us to pay, without limitation, distributions from any source, including net proceeds from our Public Offering, borrowings, advances from our Sponsor or Advisor and the deferral of fees and expense reimbursements by our Advisor, in its sole discretion. Since our inception, our cash flow from operations has not been sufficient to fund all of our distributions. To the extent that our cash flow from operations has been or is insufficient to fully

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cover our distributions, we have paid and it is likely we will continue to pay, distributions from the net proceeds from this offering or sources other than cash flow from operations.
If we are unable to consistently fund distributions to our stockholders entirely from our cash flow from operations, the value of your shares upon a listing of our common stock, the sale of our assets or any other liquidity event may be reduced. To the extent that we fund distributions from sources other than our cash flow from operations, our funds available for investment will be reduced relative to the funds available for investment if our distributions were funded solely from cash flow from operations, our ability to achieve our investment objectives will be negatively impacted and the overall return to our stockholders may be reduced. In addition, if we make a distribution in excess of our current and accumulated earnings and profits, the distribution will be treated first as a tax-free return of capital, which will reduce the stockholder’s tax basis in its shares of common stock. The amount, if any, of each distribution in excess of a stockholder’s tax basis in its shares of common stock will be taxable as gain realized from the sale or exchange of property.
For the year ended December 31, 2018, we paid aggregate distributions of $10,541,263, including $5,498,959 of distributions paid in cash and 219,833 shares of our common stock issued pursuant to our DRP for $5,042,304. For the year ended December 31, 2018, our net loss was $15,365,609, we had FFO of $1,293,508 and net cash provided by operations of $1,914,725. For the year ended December 31, 2018, we funded $1,914,725, or 18%, and $8,626,538, or 82%, of total distributions paid, including shares issued pursuant to our DRP, from net cash provided by operating activities and with proceeds from our Public Offering, respectively. Since inception, of the $16,804,856 in total distributions paid through December 31, 2018, including shares issued pursuant to our DRP, 15% of such amounts were funded from cash flow from operations and 85% were funded from public offering proceeds. For information on how we calculate FFO and the reconciliation of FFO to net loss, see “—Funds from Operations and Modified Funds from Operations.”
The amount of distributions we make is uncertain. It is likely that we will pay initial distributions from sources other than our cash flow from operations, and that such distributions will represent a return of capital. Any such actions could result in fewer funds available for investments and your overall return may be reduced.
Although our distribution policy is to use our cash flow from operations to make distributions, our organizational documents permit us to pay distributions from any source. We expect to have little, if any, cash flow from operations available for distribution until we make substantial investments. If we fund distributions from financings or the net proceeds of our Public Offering, we will have fewer funds available for investment in properties than if our distributions came solely from cash flow from operations and your overall return may be reduced. Further, because we may receive income at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund expenses, we expect that at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. In these instances, we may use third-party borrowings to fund our distributions. We may also fund such distributions with the deferral by the Advisor, in its sole discretion, of fees payable under the Advisory Agreement.
In addition, if the aggregate amount of cash we distribute to stockholders in any given year exceeds the amount of our “REIT taxable income” generated during the year, the excess amount will either be (1) a return of capital or (2) a gain from the sale or exchange of property to the extent that a stockholder’s basis in our common stock equals or is reduced to zero as the result of our current or prior year distributions, which could cause subsequent investors to experience dilution.
Our success is dependent on the performance of the Advisor and its affiliates and any adverse change in their financial health could cause our operations to suffer.
Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of the Advisor and its affiliates and any adverse change in their financial health could cause our operations to suffer. The Advisor and its affiliates are sensitive to trends in the general economy, as well as the commercial real estate and credit markets. The most recent economic recession and accompanying credit crisis negatively impacted the value of commercial real estate assets, contributing to a general slowdown in the real estate industry. The failure to achieve a sustained economic recovery or a renewed economic downturn could result in continued reductions in overall transaction volume and size of sales and leasing activities that the Advisor and its affiliates have recently experienced, and would put downward pressure on the Advisor’s and its affiliates’ revenues and operating results. To the extent that any decline in revenues and operating results impacts the performance of the Advisor and its affiliates, our financial condition and ability to pay distributions to our stockholders could also suffer.

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We pay substantial fees and expenses to the Advisor and its affiliates, including the Dealer Manager, for our Public Offering. These fees were not negotiated at arm’s length, may be higher than fees payable to unaffiliated third parties and may reduce cash available for investment.
A portion of the offering proceeds from the sale of our shares in our Public Offering was used to pay fees and expenses to the Advisor and its affiliates, including the Dealer Manager. These fees were not negotiated at arm’s-length and may be higher than fees payable to unaffiliated third parties, though the board of directors must approve the payment of certain fees. In addition, the full offering price paid by stockholders will not be invested in properties. As a result, stockholders will only receive a full return of their invested capital if we either (1) sell our assets or the Company for a sufficient amount in excess of the original purchase price of our assets or (2) the market value of the Company after we list our shares of common stock on a national securities exchange is substantially in excess of the original purchase price of our assets.
Financial regulatory reforms could have a significant impact on our business, financial condition and results of operations.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was signed into law. The Dodd-Frank Act represents a significant change in the U.S. financial regulatory environment and impacts nearly every aspect of the U.S. financial services industry. The Dodd-Frank Act requires various federal agencies to adopt hundreds of new rules to implement the Dodd-Frank Act and to deliver to Congress numerous studies and reports that may influence future legislation. The Dodd-Frank Act leaves significant discretion to federal agencies as to exactly how to implement the broad provisions of the Dodd-Frank Act. Some provisions of the Dodd-Frank Act are subject to rule making and will take effect over several years, making it difficult to anticipate the overall impact on us. The changes resulting from the Dodd-Frank Act may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business.
Disruptions in the financial markets and resulting economic conditions could adversely impact our ability to implement our investment strategy and achieve our investment objectives.
United States and global financial markets experienced extreme volatility and disruption from 2008 to 2010. There was a widespread tightening in overall credit markets, devaluation of the assets underlying certain financial contracts, and increased borrowing by governmental entities. The turmoil in the capital markets during the most recent recession resulted in constrained equity and debt capital available for investment in the real estate market, resulting in fewer buyers seeking to acquire properties, increases in capitalization rates and lower property values. During the subsequent economic recovery, capital has been more available and the overall economy has improved. However, the failure of a sustained economic recovery or future disruptions in the financial markets and deteriorating economic conditions could impact the value of our investments in properties. In addition, if potential purchasers of properties have difficulty obtaining capital to finance property acquisitions, capitalization rates could increase and property values could decrease. Current economic conditions greatly increase the risks of our investments. See “—Risks Related to Investments in Real Estate.”
A cybersecurity incident and other technology disruptions could negatively impact our business.
We use technology in substantially all aspects of our business operations. We also use mobile devices, social networking, outside vendors and other online activities to connect with our residents, suppliers and employees of our affiliates. Such uses give rise to potential cybersecurity risks, including security breach, espionage, system disruption, theft and inadvertent release of information. Our business involves the storage and transmission of numerous classes of sensitive and confidential information and intellectual property, including residents’ and suppliers’ personal information, private information about employees, and financial and strategic information about us. If we fail to assess and identify cybersecurity risks associated with our operations, we may become increasingly vulnerable to such risks. Additionally, the measures we have implemented to prevent security breaches and cyber incidents may not be effective. The theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, or interference with our information technology systems or the technology systems of third parties on which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of residents, potential liability and competitive disadvantage, any of which could result in a material adverse effect on our financial condition or results of operations.
Our board of directors determined an estimated value per share of $22.54 for each class of our shares of common stock as of June 30, 2018. You should not rely on the estimated value per share as being an accurate measure of the current value of our shares of common stock.
On October 12, 2018, our board of directors determined an estimated value per share of our common stock of $22.54 of each our Class A, Class T and Class R common stock as of June 30, 2018. Our board of directors’ objective in determining the estimated value per share was to arrive at a value, based on the most recent data available, that it believed was reasonable based on methodologies that it deemed appropriate after consultation with the Advisor. However, the market for commercial real estate can fluctuate quickly and substantially and the value of our assets is expected to change in the future and may decrease. Also, our board of directors did not consider certain other factors, such as a liquidity discount to reflect the fact that our shares

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are not currently traded on a national securities exchange and the limitations on the ability to redeem shares pursuant to our share repurchase plan.
As with any valuation methodology, the methodologies used to determine the estimated value per share were based upon a number of assumptions, estimates and judgments that may not be accurate or complete. Our assets have been valued based upon appraisal standards and the value of our assets using these methodologies are not required to be a reflection of market value under those standards and will not result in a reflection of fair value under GAAP. Further, different parties using different property-specific and general real estate and capital market assumptions, estimates, judgments and standards could derive a different estimated value per share, which could be significantly different from the estimated value per share determined by our board of directors. The estimated value per share does not represent the fair value of our assets less liabilities in accordance with United States GAAP as of June 30, 2018. The estimated value per share is not a representation or indication that: a stockholder would be able to realize the estimated value per share if he or she attempts to sell shares; a stockholder would ultimately realize distributions per share equal to the estimated value per share upon liquidation of assets and settlement of our liabilities or upon a sale of us; shares of our common stock would trade at the estimated value per share on a national securities exchange; a third party would offer the estimated value per share in an arms-length transaction to purchase all or substantially all of our shares of common stock; or the methodologies used to estimate the value per share would be acceptable to FINRA or compliant with the Employee Retirement Income Security Act of 1974 (“ERISA”), the Internal Revenue Code or other applicable law, or the applicable provisions of a retirement plan or individual retirement plan, or IRA, with respect to their respective requirements. Further, the estimated value per share was calculated as of a moment in time and the value of our shares will fluctuate over time as a result of, among other things, future acquisitions or dispositions of assets (including acquisitions and dispositions of real estate investments since June 30, 2018), developments related to individual assets and changes in the real estate and capital markets. For additional information on the calculation of our estimated value per share as of June 30, 2018, see Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities—Estimated Value Per Share.”
Because our Charter does not require our listing or liquidation by a specified date or at all, stockholders should be prepared to hold their shares for an indefinite period of time.
In the future, our board of directors will consider alternatives for providing liquidity to our stockholders, which we refer to as a liquidity event. A liquidity event may include the sale of our assets, a sale or merger of our company or a listing of our shares on a national securities exchange. It is anticipated that our board of directors will consider a liquidity event within five years after the completion of our offering stage; however, the timing of any such event will be significantly dependent upon economic and market conditions after completion of our offering stage. Because our Charter does not require us to pursue a liquidity event by a specified date or at all, you should be prepared to hold your shares for an indefinite period of time.
If we elect to be self-managed, we could incur other significant costs.
Our board of directors may elect in the future to be self-managed. If we do so, we may elect to negotiate to acquire the Advisor’s assets and hire the Advisor’s personnel, acquire a management company or develop a management function. Pursuant to the Advisory Agreement, we are not allowed to solicit or hire any of the Advisor’s personnel without the Advisor’s prior written consent. While we would no longer bear the costs of the various fees and expenses we expect to pay to the Advisor under the Advisory Agreement, our direct expenses would include general and administrative costs, including legal, accounting and other expenses related to corporate governance, SEC reporting and compliance. We would also be required to employ personnel and would be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances as well as incur the compensation and benefits costs of our officers and other employees and consultants that will be paid by the Advisor or its affiliates. We may issue equity awards to officers, employees and consultants, which awards would decrease net income and funds from operations and may further dilute your investment. We cannot reasonably estimate the amount of fees to the Advisor we would save or the costs we would incur if we became self-managed. If the expenses we assume as a result of self-management are higher than the expenses we avoid paying to the Advisor, our funds from operations would be lower than they otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders.
If we are delayed or unable to find suitable investments, we may not be able to achieve our investment objectives.
Delays in selecting, acquiring and developing multifamily properties could adversely affect investor returns. Our ability to commit to purchase specific assets will depend, in part, on the amount of capital we have available at a given time. If we are unable to access sufficient capital, we may suffer from delays in deploying the capital into suitable investments.

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We are uncertain of our sources for funding our future capital needs. If we do not have sufficient funds from operations to cover our expenses or to fund improvements to our real estate and cannot obtain debt or equity financing on acceptable terms, our ability to cover our expenses or to fund improvements to our real estate will be adversely affected.
We terminated our Public Offering on August 31, 2018. In the event that we develop a need for additional capital in the future for the repayment of maturing debt obligations, the improvement of our real properties or for any other reason, sources of funding may not be available to us. If we do not have sufficient funds from cash flow generated by our investments or out of net sale proceeds, or cannot obtain debt or equity financing on acceptable terms, our financial condition and ability to make distributions may be adversely affected.

We report MFFO, a non-GAAP financial measure.
We report MFFO, a non-GAAP financial measure, which we believe to be an appropriate supplemental measure to reflect our operating performance.
Not all public, non-listed REITs calculate MFFO the same way, so comparisons of our MFFO with that of other public, non-listed REITs may not be meaningful. MFFO is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) 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. 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 nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate MFFO. In the future, the SEC 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 MFFO accordingly. For further information on how we calculate MFFO and a reconciliation of MFFO to net loss, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Funds From Operations and Modified Funds From Operations.”
Risks Relating to Our Organizational Structure
Maryland law and our organizational documents limit your right to bring claims against our officers and directors.
Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in accordance with the applicable standard of conduct. In addition, our Charter provides that, subject to the applicable limitations set forth therein or under Maryland law, no director or officer will be liable to us or our stockholders for monetary damages. Our Charter also provides that we will generally indemnify our directors, our officers, the Advisor and its affiliates for losses they may incur by reason of their service in those capacities unless their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, they actually received an improper personal benefit in money, property or services or, in the case of any criminal proceeding, they had reasonable cause to believe the act or omission was unlawful. We have also entered into separate indemnification agreements with each of our directors and executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by these persons. However, our Charter provides that we may not indemnify our directors, the Advisor and its affiliates for loss or liability suffered by them or hold our directors or the Advisor and its affiliates harmless for loss or liability suffered by us unless they have determined that the course of conduct that caused the loss or liability was in our best interests, they were acting on our behalf or performing services for us, the liability was not the result of negligence or misconduct by our non-independent directors, the Advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification or agreement to hold harmless is recoverable only out of our net assets, including the proceeds of insurance, and not from the stockholders. As a result of these limitations on liability and indemnification provisions and agreements, we and our stockholders may be entitled to a more limited right of action than we would otherwise have if indemnification rights were not granted.
The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may benefit our stockholders.
Our Charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% in value of the aggregate of our then outstanding shares of capital stock (which includes common stock and any preferred stock we may issue)

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and no more than 9.8% in value or number of shares, whichever is more restrictive, of the aggregate of our then outstanding common stock unless exempted (prospectively or retroactively) by our board of directors. These restrictions may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease your ability to sell your shares of our common stock.
We may issue preferred stock or other classes of common stock, which issuance could adversely affect the holders of our common stock.
Our stockholders do not have preemptive rights to any shares issued by us in the future. We may issue, without stockholder approval, preferred stock or other classes of common stock with rights that could dilute the value of your shares of common stock. However, the issuance of preferred stock must also be approved by a majority of our independent directors not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or to independent legal counsel. Under our Charter, we have authority to issue a total of 1,300,000,000 shares of capital stock, of which 1,200,000,000 shares are classified as common stock with a par value of $0.01 per share and 100,000,000 shares are classified as preferred stock with a par value of $0.01 per share. Of the total shares of common stock authorized, 480,000,000 are classified as Class A shares, 240,000,000 are classified as Class R shares and 480,000,000 are classified as Class T shares. Our board of directors, with the approval of a majority of the entire board of directors and without any action by our stockholders, may amend our Charter from time to time to increase or decrease the aggregate number of shares of capital stock or the number of shares of capital stock of any class or series that we have authority to issue. If we ever create and issue preferred stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities, or the removal of incumbent management.
We may grant stock-based awards to our directors, employees and consultants pursuant to our long-term incentive plan, which will have a dilutive effect on your investment in us.
Our board of directors has adopted a long-term incentive plan, pursuant to which we are authorized to grant restricted stock, stock options, restricted or deferred stock units, performance awards or other stock-based awards to directors, employees and consultants selected by our board of directors for participation in the plan. We currently intend only to issue awards of restricted stock to our independent directors under our long-term incentive plan. Our executive officers, as key personnel of the Advisor, also may be entitled to receive rewards in the future under our long-term incentive plan. If we issue additional stock-based awards to eligible participants under our long-term incentive plan, the issuance of these stock-based awards will dilute your investment in our shares of common stock.
Certain features of our long-term incentive plan could have a dilutive effect on your investment in us, including (1) a lack of annual award limits, individually or in the aggregate (subject to the limit on the maximum number of shares which may be issued pursuant to awards granted under the plan), (2) the fact that the limit on the maximum number of shares which may be issued pursuant to awards granted under the plan is not tied to the amount of proceeds raised in our Public Offering and (3) share counting procedures which provide that shares subject to certain awards, including, without limitation, substitute awards granted by us to employees of another entity in connection with our merger or consolidation with such company or shares subject to outstanding awards of another company assumed by us in connection with our merger or consolidation with such company, are not subject to the limit on the maximum number of shares which may be issued pursuant to awards granted under the plan.
Our UPREIT structure may result in potential conflicts of interest with limited partners in our Operating Partnership whose interests may not be aligned with those of our stockholders.
Limited partners in our Operating Partnership have the right to vote on certain amendments to the Operating Partnership agreement, as well as on certain other matters. Persons holding such voting rights may exercise them in a manner that conflicts with the interests of our stockholders. As general partner of our Operating Partnership, we are obligated to act in a manner that is in the best interest of all partners of our Operating Partnership. Circumstances may arise in the future when the interests of limited partners in our Operating Partnership may conflict with the interests of our stockholders. These conflicts may be resolved in a manner stockholders do not believe are in their best interest.

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We may change our targeted investments and investment guidelines without our stockholders’ consent.
Our board of directors may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in this Annual Report on Form 10-K. A change in our targeted investments or investment guidelines may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our common stock and our ability to make distributions to our stockholders.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our stockholders.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that Court does not have jurisdiction, the U.S. District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on behalf of our Company, (2) any action asserting a claim of breach of any duty owed by any of our directors or officers or employees to us or to our stockholders, (3) any action asserting a claim against us or any of our directors or officers or employees arising pursuant to any provision of the Maryland General Corporation Law (the “MGCL”), or our Charter or bylaws or (4) any action asserting a claim against us or any of our directors or officers or employees that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring or holding any interest in our shares shall be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time. Our board of directors, without stockholder approval, adopted this provision of the bylaws so that we can respond to such litigation more efficiently and reduce the costs associated with our responses to such litigation, particularly litigation that might otherwise be brought in multiple forums. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or our directors, officers, agents or employees, if any, and may discourage lawsuits against us and our directors, officers, agents or employees, if any. Alternatively, if a court were to find this provision of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings notwithstanding that the MGCL expressly provides that the charter or bylaws of a Maryland corporation may require that any internal corporate claim be brought only in courts sitting in one or more specified jurisdictions, we may incur additional costs that we do not currently anticipate associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition and results of operations.
Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we are subject to registration under the Investment Company Act, we will not be able to continue our business.
Neither we, our Operating Partnership nor any of our subsidiaries intend to register as an investment company under the Investment Company Act. Our Operating Partnership’s and subsidiaries’ investments in real estate will represent the substantial majority of our total asset mix. In order for us not to be subject to regulation under the Investment Company Act, we engage, through our Operating Partnership and our wholly and majority-owned subsidiaries, primarily in the business of buying real estate. These investments must be made within a year after the termination of our Public Offering.
If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things:
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limitations on capital structure;
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restrictions on specified investments;
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prohibitions on transactions with affiliates; and
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compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.
Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
We expect that most of our assets will be held through wholly- or majority-owned subsidiaries of our Operating Partnership. We expect that most of these subsidiaries will be outside the definition of an “investment company” under

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Section 3(a)(1) of the Investment Company Act as they are generally expected to hold at least 60% of their assets in real property. We believe that we, our Operating Partnership and most of the subsidiaries of our Operating Partnership will not fall within either definition of investment company under Section 3(a)(1) of the Investment Company Act as we intend to invest primarily in real property, through our wholly- or majority-owned subsidiaries, the majority of which we expect to have at least 60% of their assets in real property. As these subsidiaries would be investing either solely or primarily in real property, they would be outside of the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. We are organized as a holding company that conducts its businesses primarily through our Operating Partnership, which in turn is a holding company conducting its business through its subsidiaries. Both we and our Operating Partnership intend to conduct our operations so that they comply with the 40% test. We will monitor our holdings to ensure continuing and ongoing compliance with this test. In addition, we believe that neither we nor our Operating Partnership will be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because neither we nor our Operating Partnership will engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our Operating Partnership’s wholly- or majority-owned subsidiaries, we and our Operating Partnership will be primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing or otherwise acquiring real property.
In the event that the value of investment securities held by a subsidiary of our Operating Partnership were to exceed 40% of the value of its total assets, we expect that subsidiary to be able to rely on the exception from the definition of “investment company” under Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exception generally requires that at least 55% of a subsidiary’s portfolio must be comprised of qualifying real estate assets and at least 80% of its portfolio must be comprised of qualifying real estate assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets). What we buy and sell is therefore limited by these criteria. How we determine to classify our assets for purposes of the Investment Company Act will be based in large measure upon no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate-related asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than twenty years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets and therefore investments in these types of assets may be limited. The SEC or its staff may not concur with our classification of our assets. Future revisions to the Investment Company Act or further guidance from the SEC or its staff may cause us to lose our exclusion from the definition of investment company or force us to re-evaluate our portfolio and our investment strategy. Such changes may prevent us from operating our business successfully.
In August 2011, the SEC solicited public comment on a wide range of issues relating to Section 3(c)(5)(C) of the Investment Company Act, including the nature of the assets that qualify for purposes of the exclusion. There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including more specific or different guidance regarding these exclusions that may be published by the SEC or its staff, will not change in a manner that adversely affects our operations. In addition, the SEC or its staff could take action that results in our or our subsidiary’s failure to maintain an exception or exemption from the Investment Company Act.
In the event that we, or our Operating Partnership, were to acquire assets that could make either entity fall within the definition of investment company under Section 3(a)(1) of the Investment Company Act, we believe that we would still qualify for the exception from the definition of investment company provided by Section 3(c)(6). Although the SEC or its staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that we and our Operating Partnership may rely on Section 3(c)(6) if 55% of the assets of our Operating Partnership consist of, and at least 55% of the income of our Operating Partnership is derived from, qualifying real estate assets owned by wholly- or majority-owned subsidiaries of our Operating Partnership.
To ensure that neither we nor any of our subsidiaries, including our Operating Partnership, are required to register as an investment company, each entity may be unable to sell assets that it would otherwise want to sell and may need to sell assets that it would otherwise wish to retain. In addition, we, our Operating Partnership or our subsidiaries may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire. Although we, our Operating Partnership and our subsidiaries intend to monitor our portfolio periodically and prior to each acquisition and disposition, any of these entities may not be able to remain outside the definition of investment company or maintain an exclusion from the definition of investment company. If we, our Operating Partnership or our subsidiaries are required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity. In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.

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Risks Related To Conflicts of Interest
We depend on the Advisor and its key personnel and if any such key personnel were to cease to be affiliated with the Advisor, our business could suffer.
Our ability to achieve our investment objectives is dependent upon the performance of the Advisor and, to a significant degree, upon the continued contributions of certain of the key personnel of the Advisor, each of whom would be difficult to replace. If the Advisor were to lose the benefit of the experience, efforts and abilities of any these individuals, our operating results could suffer.
The Advisor and its affiliates, including our officers and our affiliated directors, will face conflicts of interest caused by compensation arrangements with us, which could result in actions that are not in the best interests of our stockholders.
The Advisor and its affiliates receive substantial fees from us in return for their services and these fees could influence the advice provided to us. Among other matters, these compensation arrangements could affect their judgment with respect to:
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future public offerings of equity by us, which allow the Dealer Manager to earn additional dealer manager fees and allow the Advisor to earn increased acquisition fees, investment management fees and property management fees; and
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real property sales, since the investment management fees and property management fees payable to the Advisor and its affiliates will decrease.
Further, the Advisor may recommend that we invest in a particular asset or pay a higher purchase price for the asset than it would otherwise recommend if it did not receive an acquisition fee in connection with such transactions. Certain potential acquisition fees, investment management fees and property management fees will be paid irrespective of the quality of the underlying real estate or property management services. These fees may influence the Advisor to recommend transactions with respect to the sale of a property or properties that may not be in our best interest. The Advisor will have considerable discretion with respect to the terms and timing of our acquisition, disposition and leasing transactions. In evaluating investments and other management strategies, the opportunity to earn these fees may lead the Advisor to place undue emphasis on criteria relating to its compensation at the expense of other criteria, such as the preservation of capital, to achieve higher short-term compensation. This could result in decisions that are not in the best interests of our stockholders. In addition, we may be obligated to pay the Advisor a subordinated distribution upon termination or non-renewal of the Advisory Agreement, with or without cause, which may be substantial and therefore may discourage us from terminating the Advisor.
We may compete with Steadfast Income REIT, Steadfast Apartment REIT and other affiliates of our Sponsor for opportunities to acquire or sell investments, which may have an adverse impact on our operations.
We may compete for investment opportunities with Steadfast Income REIT and Steadfast Apartment REIT, public, non-listed REITs sponsored by our Sponsor that also focus their investment strategy on multifamily properties located in the United States. Steadfast Apartment REIT commenced its initial public offering on December 30, 2013 and terminated its primary offering on March 24, 2016, but continues to offer its shares pursuant to its distribution reinvestment plan and may engage in future public offerings for its shares. Steadfast Income REIT terminated its initial public offering on December 20, 2013, but may engage in future public offerings for its shares, including, but not limited to, a public offering of shares pursuant to its distribution reinvestment plan. Even if Steadfast Income REIT and Steadfast Apartment REIT are no longer raising capital, they may have funds, including proceeds from the sale of assets or the refinancing of debt, available for investment. Although Steadfast Income REIT and Steadfast Apartment REIT are the only investment programs currently sponsored by or affiliated with our Sponsor that may directly compete with us for investment opportunities, our Sponsor may launch additional investment programs in the future that compete with us for investment opportunities. To the extent that we compete with Steadfast Income REIT, Steadfast Apartment REIT or any other program affiliated with our Sponsor for investments, our Sponsor will face potential conflicts of interest and there is a risk that our Sponsor will select investment opportunities for us that provide lower returns than the investments selected for other such programs, or that certain otherwise attractive investment opportunities will not be available to us. In addition, certain of our affiliates currently own or manage multifamily properties in geographical areas in which we own and expect to own multifamily properties. As a result of our potential competition with Steadfast Income REIT, Steadfast Apartment REIT and other affiliates of our Sponsor, certain investment opportunities that would otherwise be available to us may not in fact be available. Such competition may also result in conflicts of interest that are not resolved in our favor.
The time and resources that our Sponsor and its affiliates could devote to us may be diverted to other investment activities, and we may face additional competition due to the fact that our Sponsor and its affiliates are not prohibited from raising money for, or managing, another entity that makes the same or other types of investments that we do.
Our Sponsor and its affiliates are not prohibited from raising money for, or managing, another investment entity that makes the same or other types of investments as we do. As a result, the time and resources they could devote to us may be diverted to other investment activities. Additionally, some of our directors and officers serve as directors and officers of investment entities

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sponsored by our Sponsor and its affiliates, including Steadfast Income REIT, Steadfast Apartment REIT and Stira Alcentra Global Credit Fund, a closed-end fund recently formed by affiliates of our Sponsor. We cannot currently estimate the time our officers and directors will be required to devote to us because the time commitment required of our officers and directors will vary depending upon a variety of factors, including, but not limited to, general economic and market conditions affecting us, and the Advisor’s ability to locate and acquire investments that meet our investment objectives. Since these professionals engage in and will continue to engage in other business activities on behalf of themselves and others, these professionals will face conflicts of interest in allocating their time among us, the Advisor, and its affiliates and other business activities in which they are involved. This could result in actions that are more favorable to affiliates of the Advisor than to us.
In addition, we may compete with affiliates of the Advisor for the same investors and investment opportunities. We may also co-invest with any such investment entity. Even though all such co-investments will be subject to approval by our independent directors, they could be on terms not as favorable to us as those we could achieve co-investing with a third party.
The Advisor may have conflicting fiduciary obligations if we acquire assets from affiliates of our Sponsor or enter into joint ventures with affiliates of our Sponsor. As a result, in any such transaction we may not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.
The Advisor may cause us to invest in a property owned by, or make an investment in equity securities in or real estate-related loans to, our Sponsor or its affiliates or through a joint venture with affiliates of our Sponsor. In these circumstances, the Advisor will have a conflict of interest when fulfilling its fiduciary obligation to us. In any such transaction, we would not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.
The fees we paid to affiliates in connection with our Public Offering and will continue to pay in connection with the acquisition and management of our investments were determined without the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.
The fees to be paid to the Advisor, our property managers, the Dealer Manager and other affiliates for services they provide for us were determined without the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties, may be in excess of amounts that we would otherwise pay to third parties for such services and may reduce the amount of cash that would otherwise be available for investments in real properties and distributions to our stockholders.
Risks Related To Investments in Real Estate
Our operating results will be affected by economic and regulatory changes that impact the real estate market in general.
Our investments in multifamily properties will be subject to risks generally attributable to the ownership of real property, including:
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changes in global, national, regional or local economic, demographic or real estate market conditions;
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changes in supply of or demand for similar properties in an area;
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increased competition for real property investments targeted by our investment strategy;
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bankruptcies, financial difficulties or lease defaults by our residents;
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changes in interest rates and availability of financing;
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changes in the terms of available financing, including more conservative loan-to-value requirements and shorter debt maturities;
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competition from other residential properties;
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the inability or unwillingness of residents to pay rent increases;
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changes in government rules, regulations and fiscal policies, including changes in tax, real estate, environmental and zoning laws;
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the severe curtailment of liquidity for certain real estate related assets; and
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rent restrictions due to government program requirements.
All of these factors are beyond our control. Any negative changes in these factors could affect our ability to meet our obligations and make distributions to stockholders.
We are unable to predict future changes in global, national, regional or local economic, demographic or real estate market conditions. For example, a recession or rise in interest rates could make it more difficult for us to lease or dispose of multifamily properties and could make alternative interest-bearing and other investments more attractive and therefore

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potentially lower the relative value of the real estate assets we acquire. These conditions, or others we cannot predict, may adversely affect our results of operations and returns to our stockholders. In addition, the value of the multifamily properties we acquire may decrease following the date we acquire such properties due to the risks described above or any other unforeseen changes in market conditions. If the value of our multifamily properties decreases, we may be forced to dispose of our properties at a price lower than the price we paid to acquire our properties, which could adversely impact the results of our operations and our ability to make distributions and return capital to our investors.
A concentration of our investments in the apartment sector may leave our profitability vulnerable to a downturn or slowdown in the sector or state or region.
We expect that our property portfolio will be comprised solely of multifamily properties. As a result, we will be subject to risks inherent in investments in a single type of property. If substantially all of our investments are in the apartment sector, the potential effects on our revenues, and as a result, on cash available for distribution to our stockholders, resulting from a downturn or slowdown in the apartment sector could be more pronounced than if we had more fully diversified our investments. If our investments are concentrated in a particular state or geographic region, and such state or geographic region experiences economic difficulty disproportionate to the nation as a whole, then the potential effects on our revenues, and as a result, on cash available for distribution to our stockholders, could be more pronounced than if we had more fully diversified our investments geographically.
The geographic concentration of our portfolio may make us particularly susceptible to adverse economic developments in the real estate markets of those areas.
In addition to general, regional and national economic conditions, our operating results are impacted by the economic conditions of the specific markets in which we have concentrations of properties. As of December 31, 2018, of the $400,252,928 purchase price of our real estate assets, 29% was located in the Atlanta, Georgia metropolitan statistical area, 28% was located in the Denver, Colorado metropolitan statistical area, 11% was located in the Austin, Texas metropolitan statistical area, 11% was located in the Dallas, Texas metropolitan statistical area and 11% was located in the Indianapolis, Indiana metropolitan statistical area. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for multifamily property space resulting from the local business climate, could adversely affect our property revenue resulting in a lower net operating income.
We depend on residents for our revenue, and therefore, our revenue and our ability to make distributions to our stockholders is dependent upon the ability of the residents of our properties to generate enough income to pay their rents in a timely manner. A substantial number of non-renewals, terminations or lease defaults could reduce our net income and limit our ability to make distributions to our stockholders. 
The underlying value of our properties and the ability to make distributions to our stockholders depend upon the ability of the residents of our properties to generate enough income to pay their rents in a timely manner, and the success of our investments depends upon the occupancy levels, rental income and operating expenses of our properties and the Company. Residents’ inability to timely pay their rents may be impacted by employment and other constraints on their personal finances, including debts, purchases and other factors. These and other changes beyond our control may adversely affect our residents’ ability to make rental payments. In the event of a resident default or bankruptcy, we may experience delays in enforcing our rights as landlord and may incur costs in protecting our investment and re-leasing our property. We may be unable to re-lease the property for the rent previously received. We may be unable to sell a property with low occupancy without incurring a loss. These events and others could cause us to reduce the amount of distributions we make to stockholders and the value of our stockholders’ investment to decline.
We may be unable to secure funds for future capital improvements, which could adversely impact our ability to make cash distributions to our stockholders.
In order to attract residents, we may be required to expend funds for capital improvements and apartment renovations when residents do not renew their leases or otherwise vacate their apartment homes. In addition, we may require substantial funds to renovate an apartment community in order to sell it, upgrade it or reposition it in the market. If we have insufficient capital reserves, we will have to obtain financing from other sources. We intend to establish capital reserves in an amount we, in our discretion, believe is necessary. A lender also may require escrow of capital reserves in excess of any established reserves. If these reserves or any reserves otherwise established are designated for other uses or are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. We cannot assure our stockholders that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Moreover, certain reserves required by lenders may be designated for specific uses and may not be available for capital purposes such as future capital improvements. Additional borrowing for capital needs and capital improvements will increase our interest expense, and therefore our financial condition and our ability to make cash distributions to our stockholders may be adversely affected.

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A property that experiences significant vacancy could be difficult to sell or re-lease.
A property may experience significant vacancy through the eviction of residents and/or the expiration of leases. Certain of the multifamily properties we acquire may have some level of vacancy at the time of our acquisition of the property and we may have difficulty obtaining new residents. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in lower cash distributions to stockholders. In addition, the resale value of the property could be diminished because the market value may depend principally upon the value of the leases of such property.
We will compete with numerous other persons and entities for real estate investments.
We are subject to significant competition in seeking real estate investments and residents. We compete with many third parties engaged in real estate investment activities, including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies and other entities. Many of our competitors may have substantially greater financial and other resources than we have and may have substantially more operating experience than us. They may also enjoy significant competitive advantages that result from, among other things, a lower cost of capital. There is no assurance that we will be able to acquire multifamily properties on favorable terms, if at all. These factors could adversely affect our results of operations, financial condition, value of our investments and ability to pay distributions to you.
Competition from other multifamily communities and housing alternatives for residents could reduce our profitability and the return on your investment.
The multifamily property market in particular is highly competitive. This competition could reduce occupancy levels and revenues at our multifamily properties, which would adversely affect our operations. We face competition from many sources, including from other multifamily properties in our target markets. In addition, overbuilding of multifamily properties may occur, which would increase the number of multifamily homes available and may decrease occupancy and unit rental rates. Furthermore, multifamily properties we acquire most likely compete, or will compete, with numerous housing alternatives in attracting residents, including owner occupied single- and multifamily homes available to rent or purchase. Competitive housing in a particular area and the increasing affordability of owner occupied single- and multifamily homes available to rent or buy (caused by declining mortgage interest rates and government programs to promote home ownership) could adversely affect our ability to retain our residents, lease apartment homes and increase or maintain rental rates.
Our strategy for acquiring value-enhancement multifamily properties involves greater risks than more conservative investment strategies. 
We expect to implement a “value-enhancement” strategy for approximately 50 - 70% of the conventional multifamily homes we acquired. Our value-enhancement strategy involves the acquisition of under-managed, stabilized apartment communities in high job and population growth neighborhoods and the investment of additional capital to make strategic upgrades of the interiors of the apartment homes. These opportunities will vary in degree based on the specific business plan for each asset, but could include new appliances, upgraded cabinets, countertops and flooring. Our strategy for value-enhancement projects involves greater risks than more conservative investment strategies. The risks related to these value-enhancement investments include risks related to delays in the repositioning or improvement process, higher than expected capital improvement costs, possible borrowings necessary to fund such costs, and ultimately that the repositioning process may not result in the higher rents and occupancy rates anticipated. Our value-enhancement properties may not produce revenue while undergoing capital improvements. Furthermore, we may also be unable to complete the improvements of these properties and may be forced to hold or sell these properties at a loss. For these and other reasons, we cannot assure you that we will realize growth in the value of our value-enhancement multifamily properties, and as a result, our ability to make distributions to our stockholders could be adversely affected.
Multifamily properties are illiquid investments, and we may be unable to adjust our portfolio in response to changes in economic or other conditions or sell a property if or when we decide to do so.
Multifamily properties are illiquid investments. We may be unable to adjust our portfolio in response to changes in economic or other conditions. In addition, the real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates, supply and demand, and other factors that are beyond our control. We cannot predict whether we will be able to sell any real property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a real property. Additionally, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements.

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In acquiring a real property, we may agree to restrictions that prohibit the sale of that real property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that real property. All these provisions would restrict our ability to sell a property, which could hinder our ability to adjust our portfolio in response to changes in economic and other conditions.
Short-term apartment leases expose us to the effects of declining market rent, which could adversely impact our ability to make cash distributions to our stockholders.
Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.
Increased construction of similar properties that compete with our apartment communities in any particular location could adversely affect the operating results of our properties and our cash available for distribution to our stockholders.
We may acquire apartment communities in locations that experience increases in construction of properties that compete with our apartment communities. This increased competition and construction could:
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make it more difficult for us to find residents to lease apartment homes in our apartment communities;
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force us to lower our rental prices in order to lease apartment homes in our apartment communities; or
•
substantially reduce our revenues and cash available for distribution to our stockholders.
Actions of joint venture partners could negatively impact our performance.
We may enter into joint ventures with third parties, including with entities that are affiliated with the Advisor. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with a direct investment in real estate, including, for example:
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the possibility that our venture partner or co-tenant in an investment might become bankrupt;
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that the venture partner or co-tenant may at any time have economic or business interests or goals which are, or which become, inconsistent with our business interests or goals;
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that such venture partner or co-tenant may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;
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the possibility that we may incur liabilities as a result of an action taken by such venture partner;
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that disputes between us and a venture partner may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business;
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the possibility that if we have a right of first refusal or buy/sell right to buy out a co-venturer, co-owner or partner, we may be unable to finance such a buy-out if it becomes exercisable or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so; or
•
the possibility that we may not be able to sell our interest in the joint venture if we desire to exit the joint venture.
Such investments may also have the potential risk of impasses on decisions because neither we nor the co-venturer would have full control over the joint venture, which might have a negative influence on the joint venture and decrease potential returns to you. In addition, to the extent our participation represents a minority interest, a majority of the participants may be able to take actions which are not in our best interests because of our lack of full control. Disputes between us and co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with co-venturers might result in subjecting properties owned by the joint venture to additional risk. In addition, to the extent that our venture partner or co-tenant is an affiliate of the Advisor, certain conflicts of interest will exist.
Our multifamily properties are subject to property taxes that may increase in the future, which could adversely affect our cash flow.
Our multifamily properties are subject to real and personal property taxes, as well as excise taxes, that may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. As the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale. In addition, we will generally be responsible for real property taxes related to any vacant space.

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Uninsured losses or costly premiums for insurance coverage relating to real property may adversely affect your returns.
We attempt to adequately insure all of our multifamily properties against casualty losses. The nature of the activities at certain properties we may acquire, may expose us and our operators to potential liability for personal injuries and property damage claims. In addition, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, tornadoes, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Mortgage lenders sometimes require commercial property owners to purchase specific coverage against acts of terrorism as a condition for providing mortgage loans. These policies may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. Changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, we cannot assure you that funding will be available to us for repair or reconstruction of damaged real property in the future.
Costs of complying with governmental laws and regulations related to environmental protection and human health and safety may be high.
All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.
Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such real property. These environmental laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties, may affect our properties. There are also various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of our properties, we may be exposed to these costs in connection with such regulations. The cost of defending against environmental claims, any damages or fines we must pay, compliance with environmental regulatory requirements or remediating any contaminated real property could materially and adversely affect our business and results of operations, lower the value of our assets and lower the amounts available for distribution to our stockholders.
The costs associated with complying with the Americans with Disabilities Act may reduce the amount of cash available for distribution to our stockholders. 
Investment in properties may also be subject to the Americans with Disabilities Act of 1990, as amended (the “ADA”). Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. We are committed to complying with the ADA to the extent to which it applies. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. With respect to the properties we acquire, the ADA’s requirements could require us to remove access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party, such as residents, to ensure compliance with the ADA. We cannot assure you that we will be able to acquire properties or allocate responsibilities in this manner. Any monies we use to comply with the ADA will reduce the amount of cash available for distribution to our stockholders.
To the extent we invest in age-restricted communities, we may incur liability by failing to comply with the the Fair Housing Act (“FHA”), Housing for Older Persons Act (“HOPA”), or certain state regulations, which may affect cash available for distribution to our stockholders.
To the extent we invest in age-restricted communities, any such properties must comply with FHA and HOPA. The FHA generally prohibits age-based housing discrimination; however certain exceptions exist for housing developments that qualify as housing for older persons. HOPA provides the legal requirements for such housing developments. In order for housing to

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qualify as housing for older persons, HOPA requires (1) all residents of such developments to be at least 62 years of age or (2) that at least 80% of the occupied apartment homes are occupied by at least one person who is at least 55 years of age and that the housing community publish and adhere to policies and procedures that demonstrate this required intent and comply with rules issued by the U.S. Department of Housing and Urban Development (“HUD”), for verification of occupancy. In addition, certain states require that age-restricted communities register with the state. Noncompliance with the FHA, HOPA or state registration requirements could result in the imposition of fines, awards of damages to private litigants, payment of attorneys’ fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation, all of which would reduce the amount of cash available for distribution to our stockholders.
Government housing regulations may limit the opportunities at some of the government-assisted housing properties we invest in, and failure to comply with resident qualification requirements may result in financial penalties or loss of benefits, such as rental revenues paid by government agencies.
To the extent that we invest in government-assisted housing, we may acquire properties that benefit from governmental programs intended to provide affordable housing to individuals with low or moderate incomes. These programs, which are typically administered by HUD or state housing finance agencies, typically provide mortgage insurance, favorable financing terms, tax credits or rental assistance payments to property owners. As a condition of the receipt of assistance under these programs, the properties must comply with various requirements, which typically limit rents to pre-approved amounts and impose restrictions on resident incomes. Failure to comply with these requirements and restrictions may result in financial penalties or loss of benefits. In addition, we will typically need to obtain the approval of HUD in order to acquire or dispose of a significant interest in or manage a HUD-assisted property.
Risks Associated With Debt Financing
We incur mortgage indebtedness and other borrowings that may increase our business risks and could hinder our ability to make distributions and decrease the value of your investment.
We have financed a portion of the purchase price of our multifamily properties by borrowing funds. Under our Charter, we are prohibited from borrowing in excess of 300% of the value of our net assets. Net assets for purposes of this calculation is defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debt or other non-cash reserves, less total liabilities. Generally speaking, the preceding calculation is expected to approximate 75% of the aggregate cost of our investments before depreciation and amortization. We may borrow in excess of these amounts if such excess is approved by a majority of the independent directors and is disclosed to stockholders in our next quarterly report, along with the justification for such excess. In addition, we may incur mortgage debt and pledge some or all of our investments as security for that debt to obtain funds to acquire additional investments or for working capital. We may also borrow funds as necessary or advisable to ensure we maintain our REIT tax qualification, including the requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the distribution paid deduction and excluding net capital gains).
Certain debt levels will cause us to incur higher interest charges, which would result in increased debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of your investment. For tax purposes, a foreclosure on any of our properties will generally be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. If any mortgage contains cross collateralization or cross default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders could be adversely affected.
Instability in the debt markets and our inability to find financing on attractive terms may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make to our stockholders.
If mortgage debt is unavailable on reasonable terms as a result of increased interest rates, underwriting standards, capital market instability or other factors, we may not be able to finance the initial purchase of properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flow would be

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reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing securities or by borrowing more money.
Changes in banks’ inter-bank lending rate reporting practices or the method pursuant to which LIBOR is determined may impact our variable rate debt and adversely affect our ability to manage and hedge our debt.
 Our variable rate debt is tied to the benchmark LIBOR.  LIBOR and other indices are the subject of recent national, international, and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past, or have other consequences which cannot be predicted. LIBOR is calculated by reference to a market for interbank lending that continues to shrink, as its based on increasingly fewer actual transactions. This increases the subjectivity of the LIBOR calculation process and increases the risk of manipulation. Actions by the regulators or law enforcement agencies, as well as ICE Benchmark Administration (the current administrator of LIBOR), may result in changes to the manner in which LIBOR is determined or the establishment of alternative reference rates. For example, on July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.
It is likely that, over time, U.S. Dollar LIBOR will be replaced by the Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York. However, the manner and timing of this shift is currently unknown. SOFR is an overnight rate instead of a term rate, making SOFR an inexact replacement for LIBOR. There is currently no perfect way to create robust, forward-looking, SOFR term rates. Market participants are still considering how various types of financial instruments and securitization vehicles should react to a discontinuation of LIBOR. It is possible that not all of our variable rate debt will transition away from LIBOR at the same time, and it is possible that not all of our variable rate debt will transition to the same alternative reference rate, in each case increasing the difficulty of hedging. Switching existing financial instruments and hedging transactions from LIBOR to SOFR requires calculations of a spread. Industry organizations are attempting to structure the spread calculation in a manner that minimizes the possibility of value transfer between counterparties, borrowers, and lenders by virtue of the transition, but there is no assurance that the calculated spread will be fair and accurate or that all asset types and all types of securitization vehicles will use the same spread. We and other market participants have less experience understanding and modeling SOFR-based assets and liabilities than LIBOR-based assets and liabilities, increasing the difficulty of investing, hedging, and risk management. The process of transition involves operational risks. It is also possible that no transition will occur for many financial instruments, meaning that those instruments would continue to be subject to the weaknesses of the LIBOR calculation process. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be implemented. If LIBOR ceases to exist, we may need to renegotiate with borrowers and financing institutions that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. As such, the potential effect of any such event on our cost of capital and interest income cannot yet be determined.
Increases in interest rates could increase the amount of our debt payments and negatively impact our operating results.
The interest we pay on our debt obligations reduces our cash available for distributions. Utilization of variable rate debt, combined with increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to make distributions to our stockholders. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times which may not permit realization of the maximum return on such investments.
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.
When providing financing, a lender may impose restrictions on us that affect our distributions and operating policies, and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage a property, discontinue insurance coverage, or replace the Advisor. In addition, loan documents may limit our ability to replace a property’s property manager or terminate certain operating or lease agreements related to a property. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.
The derivative financial instruments that we may use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on your investment. 
We use derivative financial instruments, such as interest rate cap or collar agreements and interest rate swap agreements, to hedge exposures to changes in interest rates on loans secured by our assets. However, no hedging strategy can protect us completely. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements and that these arrangements may not be effective in reducing our exposure to interest rate changes. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses. In addition, the use of such instruments may reduce the overall return on

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our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income tests.
Federal Income Tax Risks
Failure to qualify as a REIT would reduce our net earnings available for investment or distribution.
If we fail to qualify as a REIT for any taxable year and we do not qualify for certain statutory relief provisions, we will be subject to federal income tax and applicable state and local income taxes on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
You may have current tax liability on distributions you elect to reinvest in our common stock.
If you participated in our DRP, which is currently suspended, you will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, you will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the shares of common stock received.
Distributions payable by REITs generally are subject to a higher tax rate than regular corporate dividends under current law.
The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. stockholders that are individuals, trusts and estates generally is 20% (but under the Tax Act (as defined below), U.S. shareholders that are individuals, trusts and estates generally may deduct 20% of ordinary dividends from a REIT for taxable years beginning after December, 31 2017, and before January 1, 2026). Dividends payable by REITs, however, are generally subject to a higher tax rate when paid to such stockholders. The more favorable rates applicable to regular corporate dividends under current law could cause investors who are individuals, trusts and estates or are otherwise sensitive to these lower rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay distributions, which could adversely affect the value of the stock of REITs, including our shares of our common stock.
Even if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to you.
Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local taxes on our income or property. For example:
In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) to our stockholders. To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income and net capital gain, we will be subject to federal corporate income tax on the undistributed income or gain at regular ordinary or capital gains tax rates.
We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.
If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business and we do not qualify for a statutory safe harbor, our gain would be subject to the 100% “prohibited transaction” tax unless such sale were made by one of our taxable REIT subsidiaries.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) in order to qualify as a REIT. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income (including net capital gain), we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise

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tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. We intend to make distributions to our stockholders to comply with the REIT requirements of the Internal Revenue Code.
From time to time, we may generate taxable income greater than our net income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to stockholders. If we do not have other funds available in the latter situation we could be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. There is no assurance that outside financing will be available to us. Even if available, the use of outside financing or other alternative sources of funds to pay distributions could increase our costs or dilute our stockholders’ equity interests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
To maintain our REIT status, we may be forced to forgo otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and reduce your overall return. 
To maintain our REIT status, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of your investment.
Our gains from sales of our assets are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.
Our ability to dispose of property during the first few years following acquisition is restricted to a substantial extent as a result of our REIT status. We will be subject to a 100% tax on any gain realized on the sale or other disposition of any property (other than foreclosure property) we own, directly or through any subsidiary entity, including our Operating Partnership, but excluding our taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business unless we qualify for a statutory safe harbor. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a taxable REIT subsidiary, (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary other than a taxable REIT subsidiary, will be treated as a prohibited transaction or (3) structuring certain dispositions of our properties to comply with a safe harbor available under the Internal Revenue Code for properties held at least two years. However, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including our Operating Partnership, but excluding our taxable REIT subsidiaries, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
Complying with REIT requirements may force us to liquidate otherwise attractive investments.
To maintain our REIT status, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualifying real estate assets, including certain mortgage loans and mortgage-backed securities. Our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer. No more than 20% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries, and not more that 25% of the value of our assets may consist of “nonqualified publicly offered REIT debt instruments.”
If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
If our Operating Partnership fails to maintain its status as a partnership, its income may be subject to taxation, which would reduce the cash available for distribution to our stockholders and likely result in a loss of our REIT status.
We intend to maintain the status of the Operating Partnership as a partnership for U.S. federal income tax purposes. However, if the Internal Revenue Service were to successfully challenge the status of the Operating Partnership as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Operating Partnership could make to us. This would also likely result in our losing REIT status, and, if so, becoming subject to

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a corporate level tax on our own income. This would substantially reduce any cash available to pay distributions. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our status as a REIT.
Liquidation of assets may jeopardize our REIT status.
To maintain our REIT status, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.
Legislative or regulatory action could adversely affect investors.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect our taxation and our ability to continue to qualify as a REIT or the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Our stockholders are urged to consult with their tax advisor with respect to the impact of recent legislation on their investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.

Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a regular corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interests of our stockholders.

In addition, on December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act made significant changes to the U.S. federal income tax rules for taxation of individuals and businesses, generally effective for taxable years beginning after December 31, 2017. In addition to reducing corporate and individual tax rates, the Tax Act eliminates or restricts various deductions. Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017, and before January 1, 2026. The Tax Act made numerous large and small changes to the tax rules that do not affect the REIT qualification rules directly, but may otherwise affect us or our stockholders.

While the changes in the Tax Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisions in the Internal Revenue Code may have unanticipated effects on us or our stockholders. Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification and unintended consequences that will have to be revisited in subsequent tax legislation. At this point, it is not clear if or when Congress will address these issues or when the IRS will issue administrative guidance on the changes made in the Tax Act.

We urge our stockholders to consult with their own tax advisor with respect to the status of the Tax Act and other legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.
Non-U.S. investors may be subject to FIRPTA on the sale of shares of our common stock if we are unable to qualify as a “domestically controlled qualified investment entity.”
A non-U.S. person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to a tax under certain Internal Revenue Code provisions, known as “FIRPTA”, on the gain recognized on the disposition of such interest.
However, certain qualified foreign pension plans and certain foreign publicly traded entities are exempt from FIRPTA withholding. Further, FIRPTA does not apply to the disposition of stock in a REIT if the REIT is a “domestically controlled qualified investment entity.” A REIT is a domestically controlled qualified investment entity if, at all times during a specified testing period (the continuous five-year period ending on the date of disposition or, if shorter, the entire period of the REIT’s existence), less than 50% in value of its shares is held directly or indirectly by non-U.S. holders. We cannot assure you that we will qualify as a domestically controlled qualified investment entity. If we were to fail to so qualify, gain realized by a non-U.S.

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investor on a sale of our common stock would be subject to FIRPTA unless our common stock was traded on an established securities market and the non-U.S. investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock.
Retirement Plan Risks
If a stockholder that is a Benefit Plan or IRA fails to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, such stockholder could be subject to civil (and criminal, if the failure is willful) penalties.
There are special considerations that apply to employee benefit plans subject to ERISA (such as pension, stock bonus, profit-sharing or 401(k) plans), and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRAs or annuities described in Sections 408 or 408A of the Internal Revenue Code, annuities described in Sections 403(a) or (b) of the Internal Revenue Code, Archer MSAs described in Section 220(d) of the Internal Revenue Code, health savings accounts described in Section 223(d) of the Internal Revenue Code and Coverdell education savings accounts described in Section 530 of the Internal Revenue Code), including assets of an insurance company general account or entity whose assets are considered “plan assets” under ERISA (collectively, “Benefit Plans and IRAs”) whose assets are invested in our common stock. Stockholders that are Benefit Plans and IRAs should satisfy themselves that:

•
the investment is consistent with the fiduciary obligations under ERISA and the Internal Revenue Code applicable to the Benefit Plan or IRA, or any other applicable governing authority in the case of a plan not subject to ERISA or the Internal Revenue Code;
•
the investment is made in accordance with the documents and instruments governing the Benefit Plan or IRA, including any investment policy;
•
the investment satisfies the prudence, diversification and other requirements of Section 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA, the Internal Revenue Code and any other applicable law;
•
the investment will not produce unrelated business taxable income (referred to as “UBTI”) for the Benefit Plan or IRA;
•
the Benefit Plan or IRA will be able to value its assets annually (or more frequently) in accordance with ERISA, the Internal Revenue Code, and the applicable provisions of the Benefit Plan or IRA;
•
the investment will not constitute a prohibited transaction under Section 406 of ERISA, Section 4975 of the Internal Revenue Code or any similar rule under other applicable law; and
•
our assets will not be treated as “plan assets” of the Benefit Plan or IRA.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA, the Internal Revenue Code or other applicable statutory or common law may result in the imposition of civil and criminal (if the violation was willful) penalties and can subject responsible fiduciaries to claims for damages or for equitable remedies. In addition, if an investment in our common stock constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the “party-in-interest” (within the meaning of ERISA) or “disqualified person” (within the meaning of the Internal Revenue Code) who authorized or directed the investment may have to compensate the plan for any losses the plan suffered as a result of the transaction or restore to the plan any profits made by such person as a result of the transaction, or may be subject to excise taxes with respect to the amount involved. In the case of a prohibited transaction involving an IRA, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subject to tax.

In addition to considering their fiduciary responsibilities under ERISA and the prohibited transaction rules of ERISA and the Internal Revenue Code, stockholders that are Benefit Plans and IRAs should consider the effect of the plan assets regulation, U.S. Department of Labor Regulation Section 2510.3-101, as modified by ERISA Section 3(42). We cannot guarantee our stockholders that we will qualify for an exemption from the plan assets regulation. If we do not qualify for an exemption from the plan assets regulation, our underlying assets would be treated as “plan assets” of the investing Benefit Plan or IRA under the plan assets regulation and (i) we would be an ERISA fiduciary and subject to certain fiduciary requirements of ERISA with which it would be difficult for us to comply and (ii) we could be restricted from entering into favorable transactions if the transaction, absent an exemption, would constitute a prohibited transaction under ERISA or the Internal Revenue Code. Even if our assets are not considered to be “plan assets,” a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) of a Benefit Plan or IRA stockholder.


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Due to the complexity of these rules and the potential penalties that may be imposed, it is important that stockholders that are Benefit Plans and IRAs consult with their own advisors regarding the potential applicability of ERISA, the Internal Revenue Code and any similar applicable law.
Stockholders that are Benefit Plans and IRAs may be limited in their ability to withdraw required minimum distributions as a result of an investment in shares of our common stock.
If Benefit Plans or IRAs invest in our common stock, the Internal Revenue Code may require such plan or IRA to withdraw required minimum distributions from such plan or IRA in the future. Our stock will be highly illiquid, and our share repurchase program only offers limited liquidity. If a Benefit Plan or IRA requires liquidity, it may generally sell its shares, but such sale may be at a price less than the price at which such plan or IRA initially purchased its shares of our common stock. If a Benefit Plan or IRA fails to make required minimum distributions, it may be subject to certain taxes and tax penalties.
Specific rules apply to foreign, governmental and church plans.
As a general rule, certain employee benefit plans, including foreign pension plans, governmental plans established or maintained in the United States (as defined in Section 3(32) of ERISA), and certain church plans (as defined in Section 3(33) of ERISA), are not subject to ERISA’s requirements and are not “benefit plan investors” within the meaning of the plan asset regulations of the U.S. Department of Labor. Any such plan that is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Internal Revenue Code may nonetheless be subject to the prohibited transaction rules set forth in Section 503 of the Internal Revenue Code and, under certain circumstances in the case of church plans, Section 4975 of the Internal Revenue Code. Also, some foreign plans and governmental plans may be subject to foreign, state, or local laws which are, to a material extent, similar to the provisions of ERISA or Section 4975 of the Internal Revenue Code. Each fiduciary of a plan subject to any such similar law should make its own determination as to the need for and the availability of any exemption relief.
ITEM 1B.                                       UNRESOLVED STAFF COMMENTS
We have no unresolved staff comments.
ITEM 2.                                                PROPERTIES
As of December 31, 2018, we owned ten multifamily properties, consisting of an aggregate of 2,775 apartment homes. The total purchase price of our real estate portfolio as of December 31, 2018 was $400,252,928. For additional information on our real estate portfolio, see Part I, Item I. “Business—Our Real Estate Portfolio” of this Annual Report.
Our principal executive offices are located at 18100 Von Karman Avenue, Suite 500, Irvine, CA 92612. Our telephone number, general facsimile number and website address are (949) 852-0700, (949) 852-0143 and http://www.steadfastreits.com, respectively.
ITEM 3.                                               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 4.                                                MINE SAFETY DISCLOSURES
Not applicable.

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PART II
ITEM 5.                                                MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stockholder Information
As of March 7, 2019, we had approximately 8,633,782 shares of common stock outstanding held by a total of approximately 5,000 stockholders. The number of stockholders is based on the records of DST Systems, Inc., who serves as our transfer agent.
Market Information
No public trading market currently exists for our shares of common stock and we currently have no plans to list our shares on a national securities exchange. Until our shares are listed, if ever, our stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase requirements. In addition, our Charter prohibits the ownership of more than 9.8% in value of the aggregate of our outstanding shares of capital stock (which includes common stock and preferred stock we may issue) and more than 9.8% in value or number of shares, whichever is more restrictive, of the aggregate of our outstanding shares of common stock, unless exempted (prospectively or retroactively) by our board of directors. Consequently, there is the risk that our stockholders may not be able to sell their shares at a time or price acceptable to them.
Estimated Value Per Share
In August 2018, our board of directors initiated a process to determine an estimated value per share of our Class A common stock, Class R common stock and Class T common stock. We are providing an estimated value per share to assist broker-dealers that participated in the Public Offering in meeting their customer account statement reporting obligations under National Association of Securities Dealers Conduct Rule 2340, as required by FINRA. This valuation was performed in accordance with Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Institute for Portfolio Alternatives (formerly known as the Investment Program Association), (the “IPA”), in April 2013, (the “IPA Valuation Guidelines”). Our board of directors formed a valuation committee, comprised solely of independent directors, to oversee the process of determining the estimated value per share. Upon approval of our board of directors, we engaged CBRE Capital Advisors, Inc., or CBRE Cap, a FINRA registered broker dealer firm that specializes in providing real estate financial services, to provide property-level and aggregate valuation analyses and a range for the estimated value per share of each class of our common stock as of June 30, 2018.
From the date of CBRE Cap’s engagement, through the issuance of its valuation report on October 9, 2018, CBRE Cap held discussions with the Advisor and our senior management and conducted or commissioned such investigations, research, review and analyses as it deemed necessary. CBRE Cap based its calculation of the range for the estimated value per share of our common stock upon appraisals of all of our real properties performed by CBRE, Inc., or CBRE, an affiliate of CBRE Cap and an independent third party appraisal firm, and valuations performed by the Advisor with respect to our other assets and liabilities. The valuation committee, upon its receipt and review of the valuation report, concluded that the range between $21.04 and $24.14 for our estimated value per share proposed in the valuation report was reasonable and recommended that the board of directors adopt $22.54 as the estimated value per share of each class of our common stock as of June 30, 2018. The estimated value per share represents the weighted average of the range reflecting the effect of using differing discount rates and terminal capitalization rates in the sensitivity analysis. On October 9, 2018, our board of directors accepted the valuation committee’s recommendation and approved $22.54 as the estimated value per share of each class of our common stock as of June 30, 2018. CBRE Cap is not responsible for the determination of the estimated value per share of our common stock as of June 30, 2018.
Valuation Methodology
In preparing the valuation report, CBRE Cap, among other things:
•
reviewed financial and operating information requested from or provided by our advisor and us;
•
reviewed and discussed with us and the Advisor the historical and anticipated future financial performance of our multifamily properties, including forecasts prepared by us and the Advisor;
•
reviewed appraisals commissioned by us that contained analysis on each of our multifamily properties and performed analyses and studies for each property;
•
conducted or reviewed CBRE Cap proprietary research, including market and sector capitalization rate surveys;

29

•
reviewed third-party research, including equity reports and online data;
•
compared our financial information to similar information of companies that CBRE Cap deemed to be comparable;
•
reviewed our reports filed with the SEC, including our Quarterly Report on Form 10-Q for the period ended June 30, 2018, and the unaudited financial statements therein; and
•
reviewed our audited financial statements as of December 31, 2017.
The appraisals were performed in accordance with Uniform Standards of Professional Appraisal Practice and were all Member of Appraisal Institute, or MAI, appraisals. The appraisals were prepared by CBRE and personnel who are members and hold the MAI designation. CBRE Cap reviewed and took into consideration the appraisals, and described the results of the appraisals in its valuation report. Discreet values were assigned to each property in our portfolio.
The valuation committee and board of directors considered the following valuation methodology with respect to each multifamily property, which was applied by CBRE Cap in its valuation report. Unlevered, ten-year discounted cash flow analyses from appraisals were created for our fully operational properties. For non-stabilized properties, lease-up discounts were applied to discounted cash flow to arrive at an “As Is” value. The “terminal capitalization rate” method was used to calculate terminal value of the assets, with such rates varying based on the specific geographic location and other relevant factors.
Valuation Summary: Material Assumptions
The valuation process we used to determine an estimated value per share of each class of our common stock was designed to follow the recommendations of the IPA Valuation Guidelines.
The following table summarizes the key assumptions that were employed by CBRE Cap in the discounted cash flow models to estimate the value of our real estate assets:
 
 
Range
 
Weighted-Average
Terminal capitalization rate
 
5.62% - 5.91%
 
5.77%
Discount rate
 
6.85% - 7.20%
 
7.02%
While we believe that CBRE’s assumptions and inputs are reasonable, a change in these assumptions and inputs may significantly impact the appraised value of the real estate properties and our estimated value per share. The table below illustrates the impact on the estimated value per share if the terminal capitalization rates or discount rates were adjusted by 2.5% in either direction, which represents a 5% sensitivity analysis, in accordance with the IPA Valuation Guidelines, assuming all other factors remain unchanged:
 
 
Increase (Decrease) on the Estimated Value per Share due to
 
 
Decrease of 2.5%
 
Increase of 2.5%
Terminal capitalization rate
 
$
0.86

 
$
(0.79
)
Discount rate
 
$
0.75

 
$
(0.71
)
In its valuation report, CBRE Cap included an estimate of the June 30, 2018, value of our assets, including cash and selected other assets net of payables, and accruals and other liabilities including notes payable. The estimated values of our notes payable are equal to GAAP fair values for the period ended June 30, 2018, but do not equal the book value of the loans in accordance with GAAP. The GAAP fair values of our notes payable were determined using a discounted cash flow analysis. The discounted cash flow analysis was based on projected cash flow over the remaining loan terms and on management’s estimates of current market interest rates for instruments with similar characteristics. The carrying values of a majority of our other assets and liabilities are considered to equal their fair value due to their short term maturities or liquid nature. Certain balances, such as lease intangible assets and liabilities related to real estate investments and deferred financing costs, have been eliminated for the purpose of the valuation since the value of those balances was already considered in the appraisals.
Our estimated value per share takes into consideration any potential liability related to an incentive fee the Advisor is entitled to upon meeting certain stockholder return thresholds in accordance with the Charter. For purposes of determining the estimated value per share, our advisor calculated the potential liability related to this incentive fee based on a hypothetical liquidation of our assets and liabilities at their estimated fair values, without considering the impact of any potential closing costs and fees related to the disposition of real estate properties, and determined that there would no liability related to the incentive fee.

30

Taking into consideration the reasonableness of the valuation methodology, assumptions and conclusions contained in the valuation report, the board of directors determined the estimated value of our equity interest in our real estate portfolio to be in the range of $425,282,296 to $449,778,605 and our estimated net asset value to range between $165,473,712 and $189,912,032, or between $21.04 and $24.14 per share, based on a share count of 7,860,558 shares issued and outstanding as of June 30, 2018.
As with any valuation methodology, the methodologies considered by the valuation committee and the board of directors in reaching an estimate of the value of our shares are based upon all of the foregoing estimates, assumptions, judgments and opinions that may, or may not, prove to be correct. The use of different estimates, assumptions, judgments or opinions may have resulted in significantly different estimates of the value of our shares.
The following table summarizes the material components of our estimated value and estimated value per share as of June 30, 2018.
 
 
Components of Share Value
 
 
Estimated Value
 
Estimated Value per Share
Real estate properties
 
$
437,110,000

 
$
55.60

Cash
 
26,240,456

 
3.33

Other assets
 
5,046,159

 
0.64

Mortgage debt
 
(280,858,805
)
 
(35.73
)
Other liabilities
 
(10,236,394
)
 
(1.30
)
Total estimated value
 
$
177,301,416

 
$
22.54

The estimated value of the real estate properties as of June 30, 2018, was $437,110,000, while the total cost of the real estate properties was $407,192,836 (comprised of the aggregate purchase price of $400,252,928, and capital expenditures subsequent to acquisition of $6,939,908).
The following table summarizes the total cost and estimated value of our real estate properties based on the length of our ownership of the real estate properties as of June 30, 2018.
 
 
Total Cost
 
Estimated Value
 
% Increase
Properties owned > 1 year
 
$
182,872,077

 
$
200,110,000

 
9.4
%
Properties owned < 1 year
 
224,320,759

 
237,000,000

 
5.7
%
 
 
$
407,192,836

 
$
437,110,000

 
7.3
%
Additional Information Regarding the Valuation, Limitations of Estimated Value per Share and the Engagement of CBRE Cap
In accordance with the IPA Valuation Guidelines, the valuation committee reviewed, confirmed and approved the processes and methodologies employed by CBRE Cap, their consistency with real estate industry standards and best practices and the reasonableness of the assumptions utilized in the valuation.
The valuation report issued on October 9, 2018, was based upon market, economic, financial and other information, circumstances and conditions existing prior to June 30, 2018, and any material change in such information, circumstances and/or conditions may have a material effect on the estimated value per share. CBRE Cap’s valuation materials were addressed solely to the board of directors to assist it in establishing an estimated value of our common stock. CBRE Cap’s valuation materials were restricted, were not addressed to the public and should not be relied upon by any other person to establish an estimated value of our common stock. The valuation report does not constitute a recommendation by CBRE Cap to purchase or sell any shares of our common stock and should not be represented as such.
Each of CBRE Cap and CBRE reviewed the information supplied or otherwise made available to it by us or the Advisor for reasonableness, and assumed and relied upon the accuracy and completeness of all such information and of all information supplied or otherwise made available to it by any other party, and did not undertake any duty or responsibility to verify independently any of such information. With respect to operating or financial forecasts and other information and data provided to or otherwise reviewed by or discussed with CBRE Cap and CBRE, CBRE Cap and CBRE assumed that such forecasts and other information and data were reasonably prepared in good faith reflecting our and the Advisor’s best currently available estimates and judgments and other subjective judgments, and relied upon us and the Advisor to advise CBRE Cap and CBRE promptly if any information previously provided became inaccurate or was required to be updated during the period of its review. CBRE Cap assumes no obligation to update or otherwise revise these materials. In preparing its valuation materials,

31

CBRE Cap did not, and was not requested to, solicit third-party indications of interest for us in connection with possible purchases of our securities or the acquisition of all or any part of us.
In performing its analyses, CBRE Cap made numerous assumptions as of various points in time with respect to industry performance, general business, economic and regulatory conditions, current and future rental market for our operating properties and other matters, many of which are necessarily subject to change and beyond the control of CBRE Cap and us. The analyses performed by CBRE Cap are not necessarily indicative of actual values, trading values or actual future results of our common stock that might be achieved, all of which may be significantly more or less favorable than suggested by the valuation report. The analyses do not purport to be appraisals or to reflect the prices at which the properties may actually be sold, and such estimates are inherently subject to uncertainty. The actual value of our common stock may vary significantly depending on numerous factors that generally impact the price of securities, our financial condition and the state of the real estate industry more generally. Accordingly, with respect to the estimated value per share of our common stock, neither us nor CBRE Cap can give any assurance that:
•
a stockholder would be able to resell shares at this estimated value;
•
a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of us;
•
another independent third-party appraiser or third-party valuation firm would agree with our estimated value per share;
•
a third party would offer the estimated value per share in an arm’s-length transaction to purchase all or substantially all of our shares of common stock;
•
our shares would trade at a price equal to or greater than the estimated value per share if we listed them on a national securities exchange; or
•
the methodology used to estimate our value per share would be acceptable to FINRA or the reporting requirements under the ERISA, the Internal Revenue Code or other applicable law, or the applicable provisions of a Benefit Plan or IRA.
Similarly, the amount a stockholder may receive upon repurchase of his or her shares pursuant to our share repurchase program, may be greater or less than the amount a stockholder paid for the shares, regardless of any increase in the underlying value of assets owned by us.
The June 30, 2018 estimated value per share was reviewed and recommended by the valuation committee and approved by the board of directors at meetings held on October 9, 2018. The value of our common stock will fluctuate over time as a result of, among other things, developments related to individual assets and responses to the real estate and capital markets. We expect to utilize an independent valuation firm to update the estimated value per share as of December 31, 2019, in accordance with the IPA Valuation Guidelines.
The estimated value per share does not reflect a discount for the fact that we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The estimated value per share does not take into account estimated disposition costs and fees for real estate properties that are not under contract to sell or debt prepayment penalties that could apply upon the prepayment of certain of our debt obligations or the impact of restrictions on the assumption of debt.
CBRE Cap is a FINRA registered broker-dealer and is an investment banking firm that specializes in providing real estate financial services. CBRE is actively engaged in the business of appraising commercial real estate properties similar to those owned by us in connection with public securities offerings, private placements, business combinations and similar transactions. We commissioned CBRE to deliver an appraisal report relating to our real estate properties and CBRE received fees upon delivery of such report. In addition, we agreed to indemnify CBRE Cap against certain liabilities arising out of this engagement. Each of CBRE Cap and CBRE is an affiliate of CBRE Group, Inc., or the CBRE Group, a Fortune 500 and S&P 500 company headquartered in Los Angeles, California, one of the world’s largest commercial real estate services and investment firms (in terms of 2018 revenue) and a parent holding company of affiliated companies that are engaged in the ordinary course of business in many areas related to commercial real estate and related services. CBRE Cap and its affiliates possess substantial experience in the valuation of assets similar to those owned by us and regularly undertake the valuation of securities in connection with public offerings, private placements, business combinations and similar transactions. For the preparation of the valuation report, we paid CBRE Cap a customary fee for services of this nature, no part of which was contingent relating to the provision of services or specific findings. We did not engage CBRE Cap for any other services. During the past three years, certain of our affiliates engaged affiliates of CBRE primarily for various real estate-related services and these affiliates of CBRE received fees in connection with such services. We anticipate that affiliates of CBRE will continue to provide similar or other real estate-related services in the future for us and our affiliates. In addition, we may in our discretion engage CBRE Cap to assist the board of directors in future determinations of our estimated value per share. We are

32

not affiliated with CBRE, CBRE Cap or any of their affiliates. CBRE Cap and CBRE and their affiliates may from time to time in the future perform other commercial real estate appraisal, valuation and financial advisory services for us and our affiliates in transactions related to the properties that are the subjects of the appraisals, so long as such other services do not adversely affect the independence of the applicable CBRE appraiser. While we and affiliates of the Advisor have engaged and may engage CBRE Cap or its affiliates in the future for commercial real estate services of various kinds, we believe that there are no material conflicts of interest with respect to our engagement of CBRE Cap.
In the ordinary course of their business, each of CBRE Cap and CBRE, and their respective affiliates, directors and officers may structure and effect transactions for their own accounts or for the accounts of their customers in commercial real estate assets of the same kind and in the same markets as our assets.
Distribution Information
We elected to qualify as a REIT for federal income tax purposes, commencing with our taxable year ended December 31, 2016. To qualify as a REIT, we are required to distribute 90% of our annual taxable income, determined without regard to the dividends-paid deduction and by excluding net capital gains, to our stockholders. If the aggregate amount of cash distributions in any given year exceeds the amount of our “REIT taxable income” generated during the year, the excess amount will either be (1) a return on capital or (2) gain from the sale or exchange of property to the extent that a stockholder’s basis in our common stock equals or is reduced to zero as the result of our current or prior year distributions.
 Distributions declared during the years ended December 31, 2018 and 2017, aggregated by quarter, are as follows:


 
2018 (1)

 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
 
Total
Total Distributions Declared
 
$
2,325,053

 
$
2,567,449

 
$
2,823,452

 
$
3,248,764

 
$
10,964,718

Total Per Class A Share Distribution
 
$
0.370

 
$
0.374

 
$
0.378

 
$
0.378

 
$
1.500

Total Per Class R Share Distribution
 
$
0.352

 
$
0.357

 
$
0.361

 
$
0.378

 
$
1.448

Total Per Class T Share Distribution
 
$
0.306

 
$
0.309

 
$
0.313

 
$
0.378

 
$
1.307

Daily Distribution per Class A share (2)(3)
 
$
0.004110

 
$
0.004110

 
$
0.004110

 
$
0.004110

 
$
0.016440

Daily Distribution per Class R share (2)(3)(4)(6) 
 
$
0.00394521

 
$
0.00394521

 
$
0.00394521

 
$
0.004110

 
$
0.01594563

Daily Distribution per Class T share (2)(3)(5)(6)
 
$
0.003376

 
$
0.003376

 
$
0.003376

 
$
0.004110

 
$
0.014238

Annualized Rate Based on Purchase Price:
 

 

 

 

 

Per Class A share
 
6.00
%
 
6.00
%
 
6.00
%
 
6.00
%
 


Per Class R share
 
6.40
%
 
6.40
%
 
6.40
%
 
6.67
%
 


Per Class T share
 
5.17
%
 
5.17
%
 
5.17
%
 
6.30
%
 




2017 (1)


1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Total
Total Distributions Declared

$
952,632


$
1,362,134


$
1,772,470


$
2,102,017


$
6,189,253

Total Per Class A Share Distribution

$
0.370


$
0.374


$
0.378


$
0.378


$
1.500

Total Per Class R Share Distribution

$
0.353


$
0.357


$
0.363


$
0.352


$
1.425

Total Per Class T Share Distribution

$
0.304


$
0.307


$
0.320


$
0.310


$
1.241

Daily Distribution per Class A share (2)(3)

$
0.004110


$
0.004110


$
0.004110


$
0.004110


$
0.016440

Daily Distribution per Class R share (2)(3)(4)(6) 

$
0.00394521


$
0.00394521


$
0.00394521


$
0.00394521


$
0.01578084

Daily Distribution per Class T share (2)(3)(5)(6)

$
0.003376


$
0.003376


$
0.003457


$
0.003376


$
0.013585

Annualized Rate Based on Purchase Price:










Per Class A share

6.00
%

6.00
%

6.00
%

6.00
%



Per Class R share

6.40
%

6.40
%

6.40
%

6.40
%



Per Class T share

5.17
%

5.17
%

5.30
%

5.17
%



_________________
(1)
Our board of directors approved a cash distribution that accrued at the above rates per day for each share of our Class A common stock, Class R common stock and Class T common stock, which if paid each day over a 365-day period during fiscal years 2018 and 2017, respectively, is equivalent to the per share annualized rates reflected above based on a purchase

33

price of $25.00 per share of Class A common stock, $22.50 per share of Class R common stock and $23.81 per share of Class T common stock.
(2)
Our board of directors approved a cash distribution that began to accrue on May 19, 2016, at the above rates per day for each share of our Class A common stock and Class T common stock. Our board of directors also approved a cash distribution that began to accrue on August 2, 2016, at the above rates per day for each share of our Class R common stock.
(3)
The distributions declared accrued daily to stockholders of record as of the close of business on each day and are payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month. There is no guarantee that we will continue to pay distributions at these rates or at all.
(4)
Distributions during the fiscal year 2018, were based on daily record dates and calculated at a rate of $0.00394521 per share of Class R common stock per day for Class R common stock subject to an annual distribution and shareholder servicing fee of 0.27%. In some instances during the three months ended March 31, 2017, and the three months ended December 31, 2017, we paid distributions at a rate of $0.00369863 per share of Class R common stock per day for Class R common stock subject to an annual distribution and shareholder servicing fee of 0.67%.
(5)
Distributions during the three months ended September 30, 2017, were based on daily record dates and calculated at a rate of $0.003457 per share of Class T common stock per day for Class T common stock subject to an annual distribution and shareholder servicing fee of 1.0%. In some instances during the three months ended September 30, 2017, and the three months ended December 31, 2017, we paid distributions at a rate of $0.003376 subject to an annual distribution and shareholder fee of 1.125%.
(6)
In connection with the determination of an estimated value per share, our board of directors determined a price per share for the DRP for each of our Class A common stock, Class R common stock and Class T common stock of $22.54 effective November 1, 2018.
The tax composition of our distributions declared for the years ended December 31, 2018 and 2017, was as follows:
 
 
December 31,
 
 
2018
 
2017
Ordinary income
 
0.18
%
 
—
%
Return of capital
 
99.82
%
 
100.00
%
Total
 
100.00
%
 
100.00
%
Generally, our policy is to pay distributions from cash flow from operations. Because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period, and we expect to pay these distributions in advance of our actual receipt of these funds. In these instances, our board of directors has the authority under our organizational documents, to the extent permitted by Maryland law, to fund distributions from sources such as borrowings, offering proceeds or the deferral of fees and expense reimbursements by the Advisor in its sole discretion. If we pay distributions from sources other than cash flow from operations, we will have fewer funds available for investments and our stockholders’ overall return on their investment in us may be reduced. Since inception, through December 31, 2018, 85% of all distributions, including shares issued pursuant to our DRP, have been funded from offering proceeds.
Until the termination of the DRP on February 5, 2019, stockholders could elect to have the cash distributions reinvested in the same class of shares of our common stock at an initial price of $23.75 per Class A share, $22.50 per Class R share and $22.62 per Class T share pursuant to the DRP. On October 9, 2018, our board of directors determined a price per Class A, Class R and Class T share of common stock for DRP of $22.54. No selling commissions or dealer manager fees are payable on shares sold through our DRP. Following the termination of the DRP, all subsequent distributions to stockholders will be made in cash.
For additional information on our distributions, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Distributions.”
Unregistered Sales of Equity Securities
On August 9, 2018 and 2017, we granted 1,000 shares of restricted common stock to each of our three independent directors pursuant to our independent directors compensation plan as compensation for services in connection with their re-election to the board of directors at our annual meeting of stockholders.

34

On March 31, 2017, June 30, 2017, September 29, 2017, December 29, 2017, March 29, 2018 and June 30, 2018, we issued 275 shares of Class A common stock to our independent directors pursuant to our independent directors compensation plan at a value of $25.00 per share as base annual compensation. During the years ended December 31, 2018 and 2017, we issued 550 and 1,100 shares of Class A common stock, respectively, to our independent directors pursuant to our independent directors compensation plan at a value of $25.00 per share as base annual compensation and compensation for attending meetings of our board of directors. The shares issued pursuant to our independent directors compensation plan were issued in transactions exempt from registration pursuant to Section 4a(2) of the Securities Act.
Use of Proceeds from Sales of Registered Securities
Our Registration Statement on Form S-11 (File No. 333-207952), registering a Public Offering of up to $1,300,000,000 in shares of our common stock, was declared effective under the Securities Act and we commenced our Public Offering on February 5, 2016. We initially offered a maximum of $1,000,000,000 in shares of our common stock to the public in our Primary Offering at $25.00 for each Class A share ($500,000,000 in Class A shares) and $23.81 for each Class T share ($500,000,000 in Class T shares), and $300,000,000 in shares of our common stock pursuant to our DRP at $23.75 for each Class A share and $22.62 for each Class T share. Commencing on July 25, 2016, we revised the terms of our Public Offering to include Class R shares. From July 25, 2016 through August 31, 2018, the date we terminated the Public Offering, we offered a maximum of $1,000,000,000 in shares of common stock for sale to the public at an initial price of $25.00 for each Class A share ($400,000,000 in Class A shares), $22.50 for each Class R share ($200,000,000 in Class R shares) and $23.81 for each Class T share ($400,000,000 in Class T shares). Up to $300,000,000 in shares pursuant to our DRP was offered at an initial price of $23.75 for each Class A share, $22.50 for each Class R share and $22.62 for each Class T share. In connection with the determination of an estimated value per share, our board of directors determined a price per share for the DRP of $22.54 for each of our Class A common stock, Class R common stock and Class T common stock effective November 1, 2018.
As of December 31, 2018, we had sold 3,513,310, 477,684 and 4,623,732 shares of our Class A, Class R and Class T common stock in our Public Offering, respectively, for gross offering proceeds of $86,485,589, $10,747,201 and $109,854,820, respectively, or $207,087,610 in the aggregate, including 141,524 shares of Class A common stock, 11,777 shares of Class R common stock and 196,681 shares of Class T common stock issued pursuant to our DRP for gross offering proceeds of $3,342,744, $265,053 and $4,446,707, respectively, or $8,054,504 in the aggregate.
From inception through December 31, 2018, we recognized selling commissions, dealer manager fees, distribution and shareholder servicing fees and organization and other offering costs in our Public Offering in the amounts set forth below. The dealer manager for our Public Offering reallowed all of the selling commissions, a portion of the dealer manager fees and distribution and shareholder servicing fees to participating broker-dealers.
Type of Expense Amount
 
Amount
 
Estimated/Actual
 
Percentage of Offering Proceeds
Selling commissions and dealer manager fees
 
$
13,041,427

 
Actual
 
6.55
%
Other organization and offering costs
 
14,609,826

 
Actual
 
7.34
%
Total expenses
 
$
27,651,253

 
Actual
 
13.89
%
Total public offering proceeds (excluding DRP proceeds)
 
$
199,033,106

 
Actual
 
100.00
%
Percentage of public offering proceeds used to pay for organization and offering costs
 
13.89
%
 
Actual
 
13.89
%
 
 
 
 
 
 
 
Distribution and shareholder servicing fees(1)
 
1,334,800

 
Actual
 
 
Total expenses including the distribution and shareholder servicing fees
 
$
28,986,053

 
Actual
 
 
Organization and offering costs incurred since inception as a
percentage of public offering proceeds
 
14.56
%
 
Actual
 
 
_____________________
(1)
Includes the distribution and shareholder servicing fee incurred from inception through December 31, 2018, for Class R shares and Class T shares of up to 0.67% and up to 1.125%, respectively, of the purchase price per share sold in our Public Offering. From inception through December 31, 2018, the distribution and shareholder servicing fees incurred with respect to Class R shares and Class T shares were $32,963 and $1,301,837, respectively. The distribution and shareholder servicing fees are paid from sources other than Public Offering proceeds.

35

From the commencement of our Public Offering through December 31, 2018, the net offering proceeds to us, after deducting the total expenses incurred as described above, were $179,436,357, including net offering proceeds from our DRP of $8,054,504. For the period from inception through December 31, 2018, the ratio of the cost of raising equity capital to the gross amount of equity capital raised was approximately 13.89%.
The net proceeds from our Public Offering have been used to invest in and manage a portfolio of multifamily properties properties located in our targeted markets throughout the United States. In addition to our focus on multifamily properties properties, we may also make selective strategic acquisitions of other types of commercial properties. We may also selectively acquire debt collateralized by multifamily and independent senior-living properties and securities of other companies owning multifamily and independent senior-living properties. As of December 31, 2018, we had invested in ten multifamily properties for a total purchase price of $400,252,928. These property acquisitions were funded from proceeds of our Public Offering and $281,566,000 in secured financings.
Share Repurchase Program
Our share repurchase program may provide an opportunity for our stockholders to have their shares of common stock repurchased by us, subject to certain restrictions and limitations. No shares can be repurchased under our share repurchase program until after the first anniversary of the date of purchase of such shares; provided, however, that this holding period shall not apply to repurchases requested within 270 days after the death or disability of a stockholder.
Prior to the date we published an estimated value per share of our common stock, the purchase price for shares repurchased under our share repurchase program was as follows:
Share Purchase Anniversary
 
Repurchase Price
on Repurchase Date(1)
Less than 1 year
 
No Repurchase Allowed
1 year
 
92.5% of Purchase Price
2 years
 
95.0% of Purchase Price
3 years
 
97.5% of Purchase Price
4 years
 
100.0% of Purchase Price
In the event of a stockholder’s death or disability
 
Average Issue Price for Shares(2)
Following the date we published an estimated value per share of our common stock, the purchase price for shares repurchased under our share repurchase program is as follows:
Share Purchase Anniversary
 
Repurchase Price
on Repurchase Date(1)(3)(4)
Less than 1 year
 
No Repurchase Allowed
1 year
 
92.5% of the Lesser of Purchase Price or Estimated Value per Share
2 years
 
95.0% of the Lesser of Purchase Price or Estimated Value per Share
3 years
 
97.5% of the Lesser of Purchase Price or Estimated Value per Share
4 years
 
100.0% of the Lesser of Purchase Price or Estimated Value per Share
In the event of a stockholder’s death or disability
 
Average Issue Price for Shares(2)
_______________
(1)  As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock. Repurchase price includes the full amount paid for each share, including all sales commissions and dealer manager fees.
(2)  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 required one-year holding period does not apply to repurchases requested within 270 days after the death or disability of a stockholder.
(3)   For purposes of the share repurchase program, until the day we publicly disclosed a new estimated value per share, the purchase price for shares purchased under the share repurchase program equaled, exclusively, the purchase price paid for the shares. Thereafter, the repurchase price will be a graduated percentage of the lesser of the purchase price or the estimated value per share in effect at the time of repurchase. The estimated value per share is determined by our board of directors, based on periodic valuations by independent third-party appraisers or qualified independent valuation experts selected by the Advisor.

36

(4)   For purposes of the share repurchase program, the “Estimated Value per Share” will equal the most recent publicly disclosed estimated value per share determined by our board of directors. On October 12, 2018, we publicly disclosed an estimated value per share of $22.54 for each class of shares of our common stock based on valuations by independent third-party appraisers or qualified valuation experts.

The purchase price per share for shares repurchased pursuant to our share repurchase program will be further reduced by the aggregate amount of net proceeds per share, if any, distributed to our stockholders prior to the repurchase date as a result of the sale of one or more of our assets that constitutes a return of capital distribution as a result of such sales.
Repurchases of shares of our common stock will be made quarterly upon written request to us at least 15 days prior to the end of the applicable quarter. Repurchase requests will be honored approximately 30 days following the end of the applicable quarter (the “Repurchase Date”). Stockholders may withdraw their repurchase request at any time up to three business days prior to the Repurchase Date.
We cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all repurchase requests made in any quarter. In the event that we do not have sufficient funds available to repurchase all of our shares of common stock for which repurchase requests have been submitted in any quarter, such outstanding repurchase requests will automatically roll over to the subsequent quarter and priority will be given to redemption requests in the case of the death or disability of a stockholder. If we repurchase less than all of the shares subject to a repurchase request in any quarter, with respect to any shares which have not been repurchased, a stockholder can (1) withdraw the stockholder’s request for repurchase or (2) ask that we honor the stockholder’s request in a future quarter, if any, when such repurchases can be made pursuant to the limitations of the share repurchase program and when sufficient funds are available. Such pending requests will be 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. Shares repurchased under the share repurchase program to satisfy the required minimum distribution requirements under the Internal Revenue Code applicable to Benefit Plans and IRAs will be repurchased on or after the first anniversary of the date of purchase of such shares at 100% of the purchase price or at 100% of the estimated value per share, as applicable.
We are not obligated to repurchase shares of our common stock under the share repurchase program. The share repurchase program limits the number of shares to be repurchased in any calendar year to (1) 5% of the weighted average number of shares of common stock outstanding during the prior calendar year and (2) those that could be funded from the net proceeds from the sale of shares under the DRP in the prior calendar year, plus such additional funds as may be reserved for that purpose by our board of directors. Such sources of funds could include cash on hand, cash available from borrowings and cash from liquidations of securities investments as of the end of the applicable month, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, cash distributions to stockholders or purchases of real estate assets. There is no fee in connection with a repurchase of shares of our common stock pursuant to our share repurchase program.
Our board of directors may, in its sole discretion, amend, suspend or terminate the share repurchase program at any time upon 30 days’ notice to its stockholders if it determines that the funds available to fund the share repurchase program are needed for other business or operational purposes or that amendment, suspension or termination of the share repurchase program is in the best interest of our stockholders. Therefore, a stockholder may not have the opportunity to make a repurchase request prior to any potential termination or suspension of our share repurchase program. The share repurchase program will terminate in the event that a secondary market develops for our shares of common stock.

37

During the year ended December 31, 2018, we fulfilled repurchase requests and repurchased shares of our common stock pursuant to our share repurchase program as follow:
 
 
Total Number of Shares Requested to be Repurchased(1)
 
Total Number of Shares Repurchased
 
Average Price Paid per Share(2)(3)
 
Approximate Dollar Value of Shares Available That May Yet Be Repurchased Under the Program
January 2018
 
3,608

 
3,044

 
$
23.35

 
(4) 
February 2018
 
4,748

 
—

 
—

 
(4) 
March 2018
 
8,124

 
—

 
—

 
(4) 
April 2018
 
1,271

 
—

 
—

 
(4) 
May 2018
 
769

 
16,481

 
22.80

 
(4) 
June 2018
 
—

 
—

 
—

 
(4) 
July 2018
 
911

 
2,964

 
22.68

 
(4) 
August 2018
 
2,399

 
—

 
—

 
(4) 
September 2018
 
1,458

 
—

 
—

 
(4) 
October 2018
 
20,777

 
3,857

 
21.19

 
(4) 
November 2018
 
4,800

 
—

 
—

 
(4) 
December 2018
 
600

 
—

 
—

 
(4) 
 
 
49,465

 
26,346

 
 
 
 
____________________
(1)
We generally repurchase shares approximately 30 days following the end of the applicable quarter in which requests were received. At December 31, 2018, we had $595,821, representing outstanding and unfulfilled repurchase requests of 26,177 Class A shares, all of which were fulfilled on January 31, 2019.
(2)
We currently repurchase shares at prices determined as follows:
•
92.5% of the lesser of Purchase Price or Estimated Value per Share for stockholders who have held their shares for at least one year;
•
95.0% of the lesser of Purchase Price or Estimated Value per Share for stockholders who have held their shares for at least two years;
•
97.5% of the lesser of Purchase Price or Estimated Value per Share for stockholders who have held their shares for at least three years; and
•
100% of the lesser of Purchase Price or Estimated Value per Share for stockholders who have held their shares for at least four years.
Notwithstanding the above, the repurchase price for repurchases sought upon a stockholder’s death or disability will be equal to the average issue price per share for all of the stockholder’s shares. The required one-year holding period does not apply to repurchases requested within 270 days after the death or disability of a stockholder.
(3)
We have funded repurchases exclusively from the net proceeds we received from the sale of shares under the DRP.
(4)
The number of shares that may be repurchased pursuant to the share repurchase program during any calendar year is limited to: (1) 5% of the weighted-average number of shares of our common stock outstanding during the prior calendar year and (2) those that can be funded from the net proceeds we received from the sale of shares under the distribution reinvestment plan during the prior calendar year, plus such additional funds as may be reserved for that purpose by our board of directors.
ITEM 6.                                                SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 2018, 2017, 2016 and 2015, for the years ended December 31, 2018, 2017 and 2016 and for the period from July 29, 2015 (Inception) to December 31, 2015, should be read in conjunction with the accompanying consolidated financial statements and related notes thereto and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

38

Our results of operations for the periods presented below are not indicative of those expected in future periods. During the period from July 29, 2015 (Inception) to May 18, 2016, we were in existence and commenced our Public Offering, but had not yet commenced real estate operations, as we had not yet acquired any real estate investments. As a result, we had no material results of operations for that period. We terminated our Public Offering on August 31, 2018.
 
As of December 31,
 
2018
 
2017
 
2016
 
2015
Balance sheet data
 
 
 

 
 
 
 
Total real estate, net
$
380,301,823

 
$
360,485,475

 
$
98,947,503

 
$
—

Total assets
421,082,401

 
381,554,845

 
117,448,401

 
200,000

Mortgage notes payable, net
280,086,921

 
258,470,441

 
72,016,933

 
—

Total liabilities
293,676,343

 
270,430,279

 
77,241,609

 
—

Redeemable common stock
6,570,093

 
2,920,059

 
292,818

 
—

Total stockholders’ equity
120,835,965

 
108,204,507

 
39,913,974

 
200,000

 
For the Year Ended December 31,
 
For the Period from July 29, 2015 (Inception) to December 31, 2015
 
2018
 
2017
 
2016
 
Operating data
 
 
 

 
 
 
 
Total revenues
$
37,909,630

 
$
19,591,577

 
$
1,264,906

 
$
—

Net loss
(15,365,609
)
 
(11,753,187
)
 
(4,920,712
)
 
—

Net loss attributable to non-controlling interest
—

 
—

 
(100
)
 
—

Net loss attributable to common stockholders
(15,365,609
)
 
(11,753,187
)
 
(4,920,612
)
 
—

Net loss attributable to Class A common stockholders - basic and diluted
(6,401,649
)
 
(5,726,887
)
 
(3,160,451
)
 
—

Net loss attributable to Class R common stockholders - basic and diluted
(806,620
)
 
(534,790
)
 
(165,258
)
 
—

Net loss attributable to Class T common stockholders - basic and diluted
(8,157,340
)
 
(5,491,510
)
 
(1,594,903
)
 
—

Net loss per Class A common share - basic and diluted
(1.86
)
 
(2.49
)
 
(8.36
)
 
—

Net loss per Class R common share - basic and diluted
(1.91
)
 
(2.55
)
 
(8.42
)
 
—

Net loss per Class T common share - basic and diluted
(2.05
)
 
(2.75
)
 
(8.62
)
 
—

Other data
 
 
 

 
 
 
 
Cash flows provided by (used in) operating activities
1,914,725

 
5,941,399

 
(1,784,706
)
 
—

Cash flows used in investing activities
(36,715,267
)
 
(273,486,909
)
 
(100,824,607
)
 
—

Cash flows provided by financing activities
54,279,898

 
270,282,264

 
119,551,512

 
200,000

Total distributions declared to Class A common stockholders
4,903,884

 
3,286,288

 
560,327

 
—

Total distributions declared to Class R common stockholders
597,062

 
295,072

 
27,997

 
—

Total distributions declared to Class T common stockholders
5,463,772

 
2,607,893

 
232,376

 
—

Distributions declared per Class A common share(1)
1.500

 
1.500

 
0.930

 
—

Distributions declared per Class R common share(1)
1.448

 
1.425

 
0.598

 
—

Distributions declared per Class T common share(1)
1.307

 
1.241

 
0.764

 
—

Weighted average number of Class A common shares outstanding - basic and diluted
3,266,046

 
2,190,070

 
374,595

 
—

Weighted average number of Class R common shares outstanding - basic and diluted
411,528

 
204,514

 
19,587

 
—

Weighted average number of Class T common shares outstanding - basic and diluted
4,161,778

 
2,100,058

 
189,037

 
—

FFO(2)
1,293,508

 
735,644

 
(4,094,977
)
 
—

MFFO(2)
1,178,251

 
1,340,468

 
(1,076,205
)
 
—

_________________

39

(1)
For information on our distributions, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Distributions.”
(2)
GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets the Board of Governors of NAREIT established the measurement tool of FFO. Since its introduction, FFO has become a widely used non-GAAP financial measure among REITs. Additionally, we use MFFO, as defined by 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 an alternative to net loss or other measurements under GAAP as indicators of our operating performance, nor should they be considered as an alternative 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 loss, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Funds From Operations and Modified Funds From Operations.”
ITEM 7.                                                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the “Selected Financial Data” above and our accompanying consolidated financial statements and the notes thereto included in this Annual Report. As used herein, the terms “we,” “our” and “us” refer to Steadfast Apartment REIT III, Inc., a Maryland corporation, and, as required by context, Steadfast Apartment REIT III Operating Partnership, L.P., a Delaware limited partnership, which we refer to as our “Operating Partnership,” and to their subsidiaries. Also see “Cautionary Note Regarding Forward Looking Statements” preceding Part I of this Annual Report.
Overview
We were formed on July 29, 2015, as a Maryland corporation that has elected to be taxed as, and currently qualifies as, a REIT. We own and manage a portfolio of multifamily properties located in targeted markets throughout the United States. As of December 31, 2018, we owned ten multifamily properties comprised of a total of 2,775 apartment homes.
On February 5, 2016, we commenced our Public Offering to offer a maximum of $1,000,000,000 in shares of common stock for sale to the public at an initial price of $25.00 for each Class A share (up to $500,000,000 in Class A shares) and $23.81 for each Class T share (up to $500,000,000 in Class T shares), with discounts available for certain categories of purchasers. We also offered up to $300,000,000 in shares of common stock pursuant to our DRP at an initial price of $23.75 for each Class A share and $22.62 for each Class T share. 
Commencing on July 25, 2016, we revised the terms of the Public Offering to include Class R Shares. We subsequently offered a maximum of $1,000,000,000 in shares of common stock for sale to the public at an initial price of $25.00 for each Class A share ($400,000,000 in Class A shares), $22.50 for each Class R share ($200,000,000 in Class R shares) and $23.81 for each Class T share ($400,000,000 in Class T shares), with discounts available for certain categories of purchasers. We also offerred up to $300,000,000 in shares pursuant to our DRP at an initial price of $23.75 for each Class A share, $22.50 for each Class R share and $22.62 for each Class T share. On August 31, 2018, we terminated our Primary Offering but continued to offer shares of common stock pursuant to the DRP through February 5, 2019. We terminated the DRP on February 5, 2019.
As of August 31, 2018, we had sold 3,483,706 shares of Class A common stock, 474,357 shares of Class R common stock and 4,572,889 shares of Class T common stock in our Public Offering for gross proceeds of $85,801,001, $10,672,273 and $108,706,960, respectively, and $205,180,234 in the aggregate, including 111,922 shares of Class A common stock, 8,450 shares of Class R common stock and 145,838 shares of Class T common stock issued pursuant to our DRP for gross offering proceeds of $2,658,156, $190,125 and $3,298,847, respectively. As of December 31, 2018, we had sold 3,513,310 shares of Class A common stock, 477,684 shares of Class R common stock and 4,623,732 shares of Class T common stock in our Public Offering for gross proceeds of $86,485,589, $10,747,201 and $109,854,820, respectively, and $207,087,610 in the aggregate, including 141,524 shares of Class A common stock, 11,777 shares of Class R common stock and 196,681 shares of Class T common stock issued pursuant to our DRP for gross offering proceeds of $3,342,744, $265,053 and $4,446,707, respectively.
On October 9, 2018, our board of directors determined an estimated value per share for each of our Class A common stock, Class R common stock and Class T common stock of $22.54 as of June 30, 2018. In connection with the determination of an estimated value per share, our board of directors determined a price per share for the DRP for each of our Class A common stock, Class R common stock and Class T common stock of $22.54 effective November 1, 2018. The DRP was suspended with respect to distributions that accrue after February 1, 2019. Our board of directors may, from time to time in its sole discretion, reinstate the DRP, although there is no assurance as to if or when this will happen.

40

On May 16, 2016, we raised the minimum offering amount and the offering proceeds held in escrow were released to us. As of March 7, 2019, we had sold 3,528,796 shares of Class A common stock, 479,529 shares of Class R common stock and 4,654,977 shares of Class T common stock in our Public Offering for gross proceeds of $86,834,672, $10,788,788 and $110,559,104, respectively, and $208,182,564 in the aggregate, including 157,012 shares of Class A common stock, 13,622 shares of Class R common stock and 227,925 shares of Class T common stock issued pursuant to our DRP for gross offering proceeds of $9,149,457. 
Steadfast Apartment Advisor III, LLC is our advisor. Subject to certain restrictions and limitations, the Advisor manages our day-to-day operations and our portfolio of properties and real estate-related assets. The Advisor sources and presents investment opportunities to our board of directors and provides investment management, marketing, investor relations and other administrative services on our behalf.
Substantially all of our business is conducted through our Operating Partnership. We are the sole general partner of our Operating Partnership and the Advisor is the only limited partner of our Operating Partnership. As we accepted subscriptions for shares of common stock, we transfered substantially all of the net proceeds of the Public Offering to our Operating Partnership as a capital contribution. The 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 federal income 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, which classification could result in our Operating Partnership being taxed as a corporation, rather than as a disregarded entity. In addition to the administrative and operating costs and expenses incurred by our Operating Partnership in acquiring and operating our investments, 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 will experience a relative increase in liquidity as additional subscriptions for shares of our common stock are received and a relative decrease in liquidity as offering proceeds are used to acquire and operate our assets.
We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31, 2016. As a REIT, we generally will not be subject to federal income tax to the extent that we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT, 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 lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Failing to qualify as a REIT could materially and adversely affect our net income and results of operations.
Market Outlook
The economy in the United States has improved since the last recession; however, there is no assurance that economic conditions will continue to improve or will not worsen in the future. We believe economic and demographic trends will benefit our existing portfolio and that we have unique investment opportunities, particularly 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 to $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.

41


Our Real Estate Portfolio
As of December 31, 2018, we owned the ten multifamily apartment communities listed below:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Monthly Occupancy(2) 
 
Average Monthly Rent(3) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
December 31,
 
 
Property Name
 
Location
 
Purchase Date
 
Number of Units
 
Total Purchase Price
 
Mortgage Debt Outstanding(1) 
 
2018
 
2017
 
2018
 
2017
1
 
Carriage House Apartment Homes
 
Gurnee, IL
 
5/19/2016
 
136

 
$
7,525,000

 
$
5,660,454

 
86.8
%
 
89.7
%
 
$
818

 
$
699

2
 
Bristol Village Apartments
 
Aurora, CO
 
11/17/2016
 
240

 
47,400,000

 
34,883,417

 
91.9
%
 
95.0
%
 
1,374

 
1,319

3
 
Canyon Resort at Great Hills Apartments
 
Austin, TX
 
12/29/2016
 
256

 
44,500,000

 
31,568,495

 
94.3
%
 
91.0
%
 
1,313

 
1,254

4
 
Reflections on Sweetwater Apartments
 
Lawrenceville, GA
 
1/12/2017
 
280

 
33,288,337

 
22,822,158

 
93.4
%
 
92.9
%
 
1,071

 
1,024

5
 
The Pointe at Vista Ridge Apartments
 
Lewisville, TX
 
5/25/2017
 
300

 
45,188,223

 
28,964,451

 
92.6
%
 
91.7
%
 
1,228

 
1,223

6
 
Belmar Villas
 
Lakewood, CO
 
7/21/2017
 
318

 
64,503,255

 
46,892,398

 
90.0
%
 
91.2
%
 
1,329

 
1,310

7
 
Ansley at Princeton Lakes
 
Atlanta, GA
 
8/31/2017
 
306

 
44,594,087

 
32,204,192

 
91.4
%
 
91.2
%
 
1,146

 
1,168

8
 
Sugar Mill Apartments
 
Lawrenceville, GA
 
12/7/2017
 
244

 
36,305,492

 
24,636,684

 
94.6
%
 
97.1
%
 
1,139

 
1,094

9
 
Avery Point Apartments
 
Indianapolis, IN
 
12/15/2017
 
512

 
45,829,836

 
31,060,671

 
94.2
%
 
93.2
%
 
809

 
776

10
 
Cottage Trails at Culpepper Landing
 
Chesapeake, VA
 
5/31/2018
 
183

 
31,118,698

 
21,394,001

 
90.6
%
 
—
%
 
1,338

 
—

 
 
 
 
 
 
 
 
2,775

 
$
400,252,928

 
$
280,086,921

 
92.4
%
 
92.6
%
 
$
1,136

 
$
1,089

________________

(1)
Mortgage debt outstanding is net of deferred financing costs associated with the loans for the properties listed above.
(2)
At December 31, 2018, our portfolio was approximately 94.3% leased, calculated using the number of occupied and contractually leased units divided by total units.
(3)
Average monthly rent is based upon the effective rental income after considering the effect of vacancies, concessions and write-offs.
Review of our Policies
Our board of directors, including our independent directors, has reviewed our policies described in this Annual Report, including policies regarding our investments, leverage and conflicts of interests, and determined that they are in the best interests of our stockholders.
Liquidity and Capital Resources
We use secured borrowings, and intend to use in the future secured and unsecured borrowings. At December 31, 2018, our debt was approximately 64% of the value of our properties as determined by the most recent valuation performed by an independent third-party appraiser as of June 30, 2018. We expect that our overall borrowings will be approximately 55% to 60% of the value of our properties (after debt amortization) plus the value of our other investments. For valuation purposes, the value of a property is determined by an independent third-party appraiser or qualified independent valuation expert. Under our Charter, we are prohibited from 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.
In addition to making investments in accordance with our investment objectives, we use our capital resources to make certain payments to the Advisor and Dealer Manager. During our organization and offering stage, these payments included

42

payments to the Dealer Manager for sales commissions, the dealer manager fee and the distribution and shareholder servicing fees, and payments to the Advisor for reimbursement of certain organization and offering expenses. Through the termination of the Public Offering, total organization and offering expenses incurred by us did not exceed 15% of the gross offering proceeds raised in the Primary Offering. During our operating stage, we make payments to the Advisor in connection with the acquisition of investments, the management of our assets and costs incurred by the Advisor in providing services to us.
Our principal demand for funds will be to acquire investments in accordance with our investment strategy, to pay operating expenses and interest on our outstanding indebtedness and to make distributions to our stockholders. Over time, we intend to generally fund our cash needs for items, other than asset acquisitions, from operations. We expect that our principal sources of working capital will include:
•
current unrestricted cash balance, which was $35,628,660 as of December 31, 2018;
•
various forms of secured and unsecured financing;
•
borrowings under master repurchase agreements;
•
equity capital from joint venture partners; and
•
cash from operations.
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 same sources of capital we will rely on to meet our short-term liquidity requirements, we may conduct additional public or private offerings of securities. We expect these resources will be adequate to fund our operating activities, debt service and distributions, and will be sufficient to fund our ongoing acquisition activities as well as providing capital for investment in future development and other joint ventures along with potential forward purchase commitments.
We may, but are not required to, establish working capital reserves from offering proceeds out of cash flow generated by our investments or out of proceeds from the sale of our investments. We do not anticipate establishing a general working capital reserve; however, we may establish capital reserves with respect to particular investments. We also may, but are not required to, establish reserves out of cash flow generated by investments or out of net sale proceeds in non-liquidating sale transactions. Our lenders also may require working capital reserves.
To the extent that the working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash generated from operations or through short-term borrowing. In addition, subject to certain limitations described in our Charter, we may incur indebtedness in connection with the acquisition of any real estate asset, refinance the debt thereon, arrange for the leveraging of any previously unfinanced property or reinvest the proceeds of financing or refinancing in additional properties.
Cash Flows Provided by Operating Activities
 We commenced real estate operations with the acquisition of our first multifamily property on May 19, 2016. As of December 31, 2018, we owned ten multifamily properties. During the year ended December 31, 2018, net cash provided by operating activities was $1,914,725, compared to net cash provided by operating activities of $5,941,399 for the year ended December 31, 2017. The change in net cash provided by operating activities is primarily due to an increase in net loss, increase in depreciation and amortization, partially offset by a decrease accounts payable and accrued liabilities and a decrease in amounts due to affiliates. We expect to generate cash flows from operations as we expand our property portfolio and stabilize its operations.
Cash Flows Used in Investing Activities
Our cash used in investing activities varied based on how quickly we raised funds in our Public Offering and how quickly we invested those funds towards acquisitions of real estate and real-estate related investments. During the year ended December 31, 2018, net cash used in investing activities was $36,715,267, compared to $273,486,909 during the year ended December 31, 2017. The decrease in net cash used in investing activities was primarily the result of our acquisition of one multifamily property during the year ended December 31, 2018, compared to our acquisition of six multifamily properties during the year ended December 31, 2017. Net cash used in investing activities during the year ended December 31, 2018, consisted of the following:
•
$30,118,698 of cash used related to the acquisition of one multifamily property;

43

•
$5,596,569 of cash used for improvements to real estate investments; and
•
$1,000,000 of cash used for deposits for potential real estate investments.
Cash Flows Provided by Financing Activities
During the year ended December 31, 2018, net cash provided by financing activities was $54,279,898, compared to $270,282,264 during the year ended December 31, 2017. The decrease in net cash provided by financing activities is due primarily to decreased net proceeds from our Public Offering and the issuance of notes payable. Net cash provided by financing activities during the year ended December 31, 2018, consisted of the following:
•
$38,992,707 of cash provided by offering proceeds related to our Public Offering, net of (1) payments of commissions on sales of common stock, related dealer manager fees and distribution and shareholder servicing fees in the amount of $3,640,878 and (2) the reimbursement of other offering costs to affiliates in the amount of $1,810,661;
•
$21,381,918 of proceeds from the issuance of mortgage notes payable, net of deferred financing costs in the amount of $163,082;
•
$595,768 of cash paid for the repurchase of common stock; and
•
$5,498,959 of net cash distributions, after giving effect to distributions reinvested by stockholders of $5,042,304. 
Contractual Commitments and Contingencies
We use secured debt, and intend to use in the future secured and unsecured debt. At December 31, 2018, our debt was approximately 64% of the value of our properties as determined by the most recent valuation performed by an independent third-party appraiser as of June 30, 2018. We believe that the careful use of borrowings will help us achieve our diversification goals and potentially enhance the returns on our investments. We expect that our borrowings will be approximately 55% to 60% of the value of our properties (after debt amortization) and other real estate-related assets. For valuation purposes, the value of a property is determined by an independent third party appraiser or qualified independent valuation expert. 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 unless such excess is approved by a majority of the 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 December 31, 2018, 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 use our capital resources to make certain payments to the Advisor and the Dealer Manager. During our organization and offering stage, these payments included payments to the Dealer Manager for selling commissions, dealer manager fees and distribution and shareholder servicing fees and payments to the Dealer Manager and the Advisor for reimbursement of certain organization and other offering expenses. Through the termination of the Public Offering, total organization and offering expenses incurred by us did not exceed 15% of the gross offering proceeds raised in the Primary Offering. During our acquisition and development stage, we make payments to the Advisor in connection with the selection and origination or purchase of real estate and real estate-related investments, the management of our asset portfolio and costs incurred by the Advisor in providing services to us.
As of December 31, 2018, we had indebtedness totaling an aggregate principal amount of $280,086,921, including net deferred financing costs of $1,479,079. The following is a summary of our contractual obligations as of December 31, 2018:
 
 
 
 
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)
 
$
95,252,178

 
$
12,786,436

 
$
25,598,265

 
$
25,124,069

 
$
31,743,408

Principal payments on outstanding debt obligations(2)
 
281,566,000

 
53,989

 
2,210,845

 
7,865,616

 
271,435,550

Total
 
$
376,818,178

 
$
12,840,425

 
$
27,809,110

 
$
32,989,685

 
$
303,178,958

________________
(1)
Projected interest payments on outstanding debt obligations are based on the outstanding principal amounts and interest rates in effect at December 31, 2018. We incurred interest expense of $11,657,873 during the year ended December 31, 2018, including amortization of deferred financing costs totaling $234,562 and net unrealized gains from the change in fair value of interest rate cap agreements of $119,837.

44

(2)
Projected principal payments on outstanding debt obligations are based on the terms of the mortgage note agreements. Amounts exclude the net deferred financing costs associated with the mortgage notes payable.
Our debt obligations contain customary financial or non-financial debt covenants. As of December 31, 2018 and 2017, we were in compliance with all financial and non-financial debt covenants.
Results of Operations
Overview
The discussion that follows is based on our consolidated results of operations for the years ended December 31, 2018, 2017 and 2016. We commenced real estate operations on May 19, 2016, in connection with the acquisition of our first investment, Carriage House Apartment Homes. We owned nine multifamily properties as of December 31, 2017, and subsequently acquired one additional multifamily property during the year ended December 31, 2018. Our results of operations for the year ended December 31, 2018, are not indicative of those expected in future periods. The increase in the number of properties in our portfolio is the primary cause of the increase in our operating income and expenses, as further discussed below. 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 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 NOI. For more information on NOI and a reconciliation of NOI (a non-GAAP financial measure) to net loss, see “—Net Operating Income.”
Consolidated Results of Operations for the Year Ended December 31, 2018, Compared to the Year Ended December 31, 2017
The following table summarizes the consolidated results of operations for the years ended December 31, 2018 and 2017:
 
 
For the Years Ended December 31,
 
 
 
 
 
 
2018
 
2017
 
Change $
 
Change %
Total revenues
 
$
37,909,630

 
$
19,591,577

 
$
18,318,053

 
93
 %
Operating, maintenance and management
 
(10,429,818
)
 
(5,163,724
)
 
(5,266,094
)
 
(102
)%
Real estate taxes and insurance
 
(5,237,606
)
 
(2,763,816
)
 
(2,473,790
)
 
(90
)%
Fees to affiliates
 
(5,799,201
)
 
(2,402,297
)
 
(3,396,904
)
 
(141
)%
Depreciation and amortization
 
(16,659,117
)
 
(12,488,831
)
 
(4,170,286
)
 
(33
)%
Interest expense
 
(11,657,873
)
 
(5,898,156
)
 
(5,759,717
)
 
(98
)%
General and administrative expenses
 
(3,491,624
)
 
(2,627,940
)
 
(863,684
)
 
(33
)%
Net loss
 
$
(15,365,609
)
 
$
(11,753,187
)
 
$
(3,612,422
)
 
(31
)%
 
 
 
 
 
 
 
 
 
NOI(1)
 
$
20,477,716

 
$
10,915,679

 
$
9,562,037

 
88
 %
FFO(2)
 
$
1,293,508

 
$
735,644

 
$
557,864

 
76
 %
MFFO(2)
 
$
1,178,251

 
$
1,340,468

 
$
(162,217
)
 
(12
)%
______________
(1)
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 significant economic costs. For additional information on how we calculate NOI and a reconciliation of NOI to net loss, see “—Net Operating Income.”
(2)
GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets the Board of Governors of NAREIT established the measurement tool of FFO. Since its introduction, FFO has become a widely used non-GAAP financial measure among REITs. Additionally, we use MFFO as defined by 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 loss or other measurements under GAAP as indicators of our

45

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 loss, see “— Funds From Operations and Modified Funds From Operations.”
Net loss
For the year ended December 31, 2018, we had a net loss of $15,365,609, compared to a net loss of $11,753,187 for the year ended December 31, 2017. The increase in net loss of $3,612,422 over the comparable prior year period was primarily due to the increase in depreciation and amortization expense of $4,170,286, the increase in interest expense of $5,759,717, the increase in operating, maintenance and management expenses of $5,266,094, the increase in real estate taxes and insurance of $2,473,790, the increase in fees to affiliates of $3,396,904 and the increase in general and administrative expenses of $863,684, partially offset by the increase in total revenues of $18,318,053. The increase in these expenses was primarily due to the acquisition of nine multifamily properties during the year ended December 31, 2017, which experienced a full year of operations during the year ended December 31, 2018, and the increase in our property portfolio from nine multifamily properties at December 31, 2017, to 10 multifamily properties at December 31, 2018.
Total revenues
Total revenues were $37,909,630 for the year ended December 31, 2018, compared to $19,591,577 for the year ended December 31, 2017. The increase of $18,318,053 was primarily due to owning ten multifamily properties at December 31, 2018, compared to nine multifamily properties at December 31, 2017. Our total units increased by 183 from 2,592 at December 31, 2017 to 2,775 at December 31, 2018. We expect rental income and tenant reimbursements to increase in future periods as a result of ordinary monthly rent increases, improved occupancy and the implementation of our value-enhancement strategy.
Operating, maintenance and management expenses
Operating, maintenance and management expenses were $10,429,818 for the year ended December 31, 2018, compared to $5,163,724 for the year ended December 31, 2017. The increase of $5,266,094 was primarily due to operating ten multifamily properties at December 31, 2018, compared to nine multifamily properties at December 31, 2017. We expect these amounts to increase in future periods as a result of the realization of operating expenses for an entire period for all properties, but to decrease as a percentage of total revenues as we implement operational efficiencies at our multifamily properties.
Real estate taxes and insurance
Real estate taxes and insurance expenses were $5,237,606 for the year ended December 31, 2018, compared to $2,763,816 for the year ended December 31, 2017. The increase of $2,473,790 was primarily due to the acquisition of one multifamily property since December 31, 2017, and real estate taxes and insurance expenses for a full reporting period on the properties acquired during the year ended December 31, 2017. We expect these amounts may increase in future periods as a result of municipal property tax rate increases as well as increases in the assessed value of our property portfolio.
Fees to affiliates
Fees to affiliates were $5,799,201 for the year ended December 31, 2018, compared to $2,402,297 for the year ended December 31, 2017. The increase of $3,396,904 was primarily due to the increase in investment management fees and property management fees as a result of the growth in our portfolio. We expect fees to affiliates to increase in future periods as a result of increases in the cost of investments and increased property management fees from anticipated increases in future rental income.
Depreciation and amortization
Depreciation and amortization expenses were $16,659,117 for the year ended December 31, 2018, compared to $12,488,831 for the year ended December 31, 2017. The increase of $4,170,286 was primarily due to the net increase in depreciable and amortizable assets of $27,930,076 since December 31, 2017. We expect these amounts to increase in future periods as a result of anticipated future enhancements to our real estate portfolio.
Interest expense
Interest expense for the year ended December 31, 2018, was $11,657,873 compared to $5,898,156 for the year ended December 31, 2017. The increase of $5,759,717 was primarily due to the increase in mortgage notes payable, net of $21,616,480 since December 31, 2017, due to financing incurred in connection with the acquisition of one multifamily property since December 31, 2017. Included in interest expense is the amortization of deferred financing costs of $234,562 and $119,514 and the unrealized (gain) loss on derivative instruments of $(119,837) and $444,252 for the years ended December 31, 2018 and 2017, respectively. Our interest expense in future periods will vary based on the changes to LIBOR and its impact on our

46

variable rate debt and our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives.
General and administrative expense
General and administrative expenses for the year ended December 31, 2018, were $3,491,624 compared to $2,627,940 for the year ended December 31, 2017. These general and administrative costs consisted primarily of legal fees, insurance premiums, audit fees, other professional fees and independent directors’ compensation. The increase of $863,684 was primarily due to the acquisition of one multifamily property since December 31, 2017, expenses related to the determination of our estimated value per share and the increase in director meeting fees as a result of an increase in the number of meetings compared to the prior year. We expect general and administrative expenses to decrease as a percentage of total revenue.
Consolidated Results of Operations for the Year Ended December 31, 2017, Compared to the Year Ended December 31, 2016
The following table summarizes the consolidated results of operations for the years ended December 31, 2017 and 2016:
 
 
For the Years Ended December 31,
 
 
 
 
 
 
2017
 
2016
 
Change $
 
Change %
Total revenues
 
$
19,591,577

 
$
1,264,906

 
$
18,326,671

 
1,449
 %
Operating, maintenance and management
 
(5,163,724
)
 
(376,536
)
 
(4,787,188
)
 
(1,271
)%
Real estate taxes and insurance
 
(2,763,816
)
 
(160,707
)
 
(2,603,109
)
 
(1,620
)%
Fees to affiliates
 
(2,402,297
)
 
(2,221,052
)
 
(181,245
)
 
(8
)%
Depreciation and amortization
 
(12,488,831
)
 
(825,735
)
 
(11,663,096
)
 
(1,412
)%
Interest expense
 
(5,898,156
)
 
(281,031
)
 
(5,617,125
)
 
(1,999
)%
General and administrative expenses
 
(2,627,940
)
 
(1,426,575
)
 
(1,201,365
)
 
(84
)%
Acquisition costs
 
—

 
(893,982
)
 
893,982

 
100
 %
Net loss
 
$
(11,753,187
)
 
$
(4,920,712
)
 
$
(6,832,475
)
 
(139
)%
 
 
 
 
 
 
 
 
 
NOI(1)
 
$
10,915,679

 
$
666,864

 
$
10,248,815

 
1,537
 %
FFO(2)
 
$
735,644

 
$
(4,094,977
)
 
$
4,830,621

 
118
 %
MFFO(2)
 
$
1,340,468

 
$
(1,076,205
)
 
$
2,416,673

 
225
 %
______________
(1)
See “—Net Operating Income” below for a reconciliation of NOI to net loss.
(2)
See “— Funds From Operations and Modified Funds From Operations” below for a reconciliation of FFO and MFFO to net loss.
Net loss
For the year ended December 31, 2017 we had a net loss of $11,753,187, compared to a net loss of $4,920,712 for the year ended December 31, 2016. The increase in net loss of $6,832,475 over the comparable prior year period was primarily due to the increase in depreciation and amortization expense of $11,663,096, the increase in interest expense of $5,617,125, the increase in operating, maintenance and management expenses of $4,787,188, the increase in real estate taxes and insurance of $2,603,109, the increase in fees to affiliates of $181,245 and the increase in general and administrative expenses of $1,201,365, partially offset by the increase in total revenues of $18,326,671 and a decrease in acquisition costs of $893,982. The increase in these expenses was primarily due to the increase in our property portfolio from three multifamily properties at December 31, 2016 to nine multifamily properties at December 31, 2017.
Total revenues
Total revenues were $19,591,577 for the year ended December 31, 2017, compared to $1,264,906 for the year ended December 31, 2016. The increase of $18,326,671 was primarily due to owning nine multifamily properties at December 31, 2017, compared to three multifamily properties at December 31, 2016. Our total units increased by 1,960 from 632 at December 31, 2016 to 2,592 at December 31, 2017.



47

Operating, maintenance and management expenses
Operating, maintenance and management expenses were $5,163,724 for the year ended December 31, 2017, compared to $376,536 for the year ended December 31, 2016. The increase of $4,787,188 was primarily due to operating nine multifamily properties at December 31, 2017, compared to three multifamily properties at December 31, 2016.
Real estate taxes and insurance
Real estate taxes and insurance expenses were $2,763,816 for the year ended December 31, 2017, compared to $160,707 for the year ended December 31, 2016. The increase of $2,603,109 was primarily due to the acquisition of six multifamily properties since December 31, 2016, and real estate taxes and insurance expenses for a full reporting period on the properties acquired during the year ended December 31, 2016.
Fees to affiliates
Fees to affiliates were $2,402,297 for the year ended December 31, 2017, compared to $2,221,052 for the year ended December 31, 2016. The increase of $181,245 was primarily due to the increase in investment management fees and property management fees as a result of the growth in our portfolio, partially offset by the decrease in acquisition fees and as a result of the adoption of ASU 2017-01, Business Combinations (Topic 805): clarifying the definition of a business (“ASU 2017-01”) on January 1, 2017, resulting in the capitalization of previously expensed fees to affiliates in the accompanying consolidated balance sheet in this Annual Report.
Depreciation and amortization
Depreciation and amortization expenses were $12,488,831 for the year ended December 31, 2017, compared to $825,735 for the year ended December 31, 2016. The increase of $11,663,096 was primarily due to the net increase in depreciable and amortizable assets of $240,297,356 since December 31, 2016.
Interest expense
Interest expense for the year ended December 31, 2017, was $5,898,156 compared to $281,031 for the year ended December 31, 2016. The increase of $5,617,125 was primarily due to the increase in mortgage notes payable, net of $186,453,508 since December 31, 2016, due to financing incurred in connection with the acquisition of six multifamily properties since December 31, 2016. Included in interest expense is the amortization of deferred financing costs of $119,514 and $6,931 and the unrealized loss on derivative instruments of $444,252 and $24,989 for the years ended December 31, 2017 and 2016, respectively.
General and administrative expense
General and administrative expenses for the year ended December 31, 2017, were $2,627,940 compared to $1,426,575 for the year ended December 31, 2016. These general and administrative costs consisted primarily of legal fees, insurance premiums, audit fees, other professional fees and independent directors’ compensation. The increase of $1,201,365 was primarily due to the acquisition of six multifamily properties since December 31, 2016, and the continuing operation of the properties owned as of December 31, 2016.
Acquisition costs
Acquisition costs for the year ended December 31, 2017, were $0, compared to $893,982 for the year ended December 31, 2016. The decrease of $893,982 was due to the adoption of ASU 2017-01 as of January 1, 2017, resulting in the capitalization of acquisition costs in the accompanying consolidated balance sheets in this Annual Report.
Property Operations for the Year Ended December 31, 2018, Compared to the Year Ended December 31, 2017
For purposes of evaluating comparative operating performance, we categorize our properties as “same-store” or “non-same-store.” A “same-store” property is a property that was owned at January 1, 2017. A “non-same-store” property is a property that was acquired, placed into service or disposed of after January 1, 2017. As of December 31, 2018, three properties were categorized as same-store properties.

48

The following table presents the same-store and non-same-store results from operations for the years ended December 31, 2018 and 2017:
 
 
For the Year Ended December 31,
 
 
 
 
 
 
2018
 
2017
 
Change $
 
Change %
Same-store property:
 
 
 
 
 
 
 
 
Revenues
 
$
9,457,447

 
$
9,289,735

 
$
167,712

 
2
 %
Operating expenses
 
4,567,371

 
4,389,263

 
178,108

 
4
 %
NOI
 
4,890,076

 
4,900,472

 
(10,396
)
 
—
 %
 
 
 
 
 
 
 
 
 
Non-same-store properties:
 
 
 
 
 
 
 
 
NOI
 
15,587,640

 
6,015,207

 
9,572,433

 
 
 
 
 
 
 
 
 
 
 
Total NOI(1)
 
$
20,477,716

 
$
10,915,679

 
$
9,562,037

 
 
________________
(1)
See “—Net Operating Income” below for a reconciliation of NOI to net loss.
Net Operating Income
Same-store net operating income was $4,890,076 for the year ended December 31, 2018, compared to $4,900,472 for the year ended December 31, 2017. The decrease in same-store net operating income was a result of a 2% increase in same-store rental revenues and a 4% increase in same-store operating expenses.
Revenues
Same-store revenues were $9,457,447 for the year ended December 31, 2018, compared to $9,289,735 for the year ended December 31, 2017. The 2% increase in same-store revenues was primarily due to average rent increases at the same-store property from $1,166 as of December 31, 2017, to $1,248 as of December 31, 2018 and the completion of value-enhancement projects, offset by a decrease in the occupancy rate from 92.2% as of December 31, 2017, to 91.8% as of December 31, 2018.
Operating Expenses
Same-store operating expenses were $4,567,371 for the year ended December 31, 2018, compared to $4,389,263 for the year ended December 31, 2017. The increase in same-store operating expenses was primarily attributable to increases in salaries and utilities at the properties.
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, 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 (loss) 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 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

49

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.
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 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 (loss) as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere in “—Results of Operations” regarding the components of net income (loss) 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.
The following is a reconciliation of our NOI to net loss for the three months ended December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016, computed in accordance with GAAP:
 
 
For the Three Months Ended December 31,
 
For the Year Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
2016
Net loss
 
$
(4,358,151
)
 
$
(3,698,150
)
 
$
(15,365,609
)
 
$
(11,753,187
)
 
$
(4,920,712
)
Fees to affiliates(1)
 
1,075,282

 
818,540

 
4,167,442

 
1,655,649

 
2,160,253

Depreciation and amortization
 
3,854,972

 
4,317,671

 
16,659,117

 
12,488,831

 
825,735

Interest expense
 
3,748,802

 
2,032,189

 
11,657,873

 
5,898,156

 
281,031

General and administrative expenses
 
1,054,310

 
590,212

 
3,491,624

 
2,627,940

 
1,426,575

Acquisition costs(2)
 
—

 
—

 
—

 
—

 
893,982

Other gains(3)
 
(132,731
)
 
(755
)
 
(132,731
)
 
(1,710
)
 
—

NOI
 
$
5,242,484

 
$
4,059,707

 
$
20,477,716

 
$
10,915,679

 
$
666,864

____________________
(1)
Fees to affiliates for the three months and year ended December 31, 2018, exclude property management fees of $309,294 and $1,179,534 and other fees of $139,842 and $452,225, respectively, that are included in NOI. Fees to affiliates for the three months and year ended December 31, 2017, exclude property management fees of $184,397 and $572,575 and other fees of $64,000 and $174,073, respectively, that are included in NOI. Fees to affiliates for the year ended December 31, 2016, exclude property management fees of $47,884 and other fees of $12,915 that are included in NOI.
(2)
There were no acquisition costs for the three months and years ended December 31, 2018 and 2017. Acquisition costs for the year ended December 31, 2016 of $893,982 did not meet the criteria for capitalization under ASU 2017-01 and is recorded in acquisition costs in the accompanying consolidated statements of operations. Acquisition expenses for the three months and years ended December 31, 2018 and 2017, of $2,293, $(1,603), $4,580 and $160,572, respectively, did not meet the criteria for capitalization under ASU 2017-01 and are recorded in general and administrative expenses in the accompanying consolidated statements of operations.
(3)
Other gains for the three months and years ended December 31, 2018 and 2017, include non-recurring insurance claim recoveries and interest income that are not included in NOI. There were no other gains for the year ended December 31, 2016.
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 FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income (loss) 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 February 2004 (“White Paper”). The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and non-cash

50

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 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. 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. Our board of directors will determine to pursue a liquidity event when it believes that the then-current market conditions are favorable. However, our board of directors does not anticipate evaluating a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of our company or another similar transaction) until five years after the completion of our offering stage. Thus, as a limited life REIT, we will not continuously purchase assets and will have a limited life.
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 our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by

51

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 (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 the 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 are characterized as operating expenses in determining operating net income. However, following the recent publication of ASU 2017-01, acquisition fees and expenses are capitalized and depreciated under certain conditions. On January 1, 2017, we elected to early adopt ASU 2017-01 resulting in a substantial part of our 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. 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 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

52

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 (loss) or income (loss) 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 years ended December 31, 2018, 2017 and 2016:
 
 
For the Year Ended December 31,
 
 
2018
 
2017
 
2016
 
 
 
 
 
 
 
Reconciliation of net loss to MFFO:
 
 
 
 
 
 
Net loss
 
$
(15,365,609
)
 
$
(11,753,187
)
 
$
(4,920,712
)
  Depreciation of real estate assets
 
14,010,010

 
7,045,959

 
357,649

  Amortization of lease-related costs
 
2,649,107

 
5,442,872

 
468,086

FFO
 
1,293,508

 
735,644

 
(4,094,977
)
  Acquisition fees and expenses(1)(2)
 
4,580

 
160,572

 
2,993,783

  Unrealized (gain) loss on derivative instruments
 
(119,837
)
 
444,252

 
24,989

MFFO
 
$
1,178,251

 
$
1,340,468

 
$
(1,076,205
)
 
 
 
 
 
 
 
FFO per share - basic and diluted
 
$
0.17

 
$
0.16

 
$
(7.02
)
MFFO per share - basic and diluted
 
0.15

 
0.30

 
(1.85
)
Loss per common share - basic and diluted
 
(1.96
)
 
(2.61
)
 
(8.44
)
Weighted average number of common shares outstanding - basic and diluted
 
7,839,352

 
4,494,642

 
583,220

________________
(1)
By excluding expensed acquisition costs that are not capitalized, 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 fees and expenses include payments to the Advisor or third parties. Acquisition fees and expenses under GAAP were historically considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. Following the publication of ASU 2017-01, acquisition fees and expenses are capitalized and depreciated under certain conditions. We have elected to early adopt ASU 2017-01 resulting in a substantial part of our acquisition fees and 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 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 properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. 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 its stockholders.
(2)
Acquisition expenses for the years ended December 31, 2018 and 2017, of $4,580 and $160,572, respectively, did not meet the criteria for capitalization under ASU 2017-01 and are recorded in general and administrative expenses in the accompanying consolidated statements of operations. All acquisition fees for the years ended December 31, 2018 and 2017, were capitalized pursuant to ASU 2017-01 and therefore were not recorded in the statements of operations impacting net loss and MFFO. Acquisition fees and expenses for the year ended December 31, 2016, include

53

acquisition fees of $2,099,801 and acquisition expenses of $893,982 and are recorded in fees to affiliates and acquisition costs, respectively, in the accompanying consolidated 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.
Inflation
Substantially all of our multifamily property leases with residents are 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 residents to leave at the end of the lease term and therefore will expose us to the effect 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.
As of December 31, 2018, we had not entered into any material leases as a lessee.
REIT Compliance
To maintain our qualification 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 operations and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year following the year we initially elected to be taxed as a REIT, we would be subject to federal income tax on our taxable income at regular corporate rates.
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 FFO. As a result, our distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income” each year. For information on distribution rates paid during the year ended December 31, 2018 and 2017, see Note 6 (Stockholders’ Equity) to the consolidated financial statements included in the Annual Report.
The distributions declared and paid during each of the four quarters of fiscal year 2018, along with the amount of distributions reinvested pursuant to the DRP were as follows:
 
 
 
 
 
 
 
 
 
 
Distributions Paid(2)
 
Sources of Distributions Paid
 
 
Period
 
Distributions Declared(1)
 
Distributions Declared Per Class A Share(1)
 
Distributions Declared Per Class R Share(1)
 
Distributions Declared Per Class T Share(1)
 
Cash
 
Reinvested
 
Total
 
Cash Flow From Operations
 
Offering Proceeds
 
Net Cash (Used In) Provided by Operating Activities
First Quarter 2018
 
$
2,325,053

 
$
0.370

 
$
0.352

 
$
0.306

 
$
1,165,331

 
$
1,075,644

 
$
2,240,975

 
$
—

 
$
2,240,975

 
$
(1,383,549
)
Second Quarter 2018
 
2,567,449

 
0.374

 
0.357

 
0.309

 
1,323,278

 
1,206,223

 
2,529,501

 
1,125,229

 
1,404,272

 
1,125,229

Third Quarter 2018
 
2,823,452

 
0.378

 
0.361

 
0.313

 
1,430,468

 
1,308,687

 
2,739,155

 
556,721

 
2,182,434

 
556,721

Fourth Quarter 2018
 
3,248,764

 
0.378

 
0.378

 
0.378

 
1,579,882

 
1,451,750

 
3,031,632

 
1,616,324

 
1,415,308

 
1,616,324

 
 
$
10,964,718

 
$
1.500

 
$
1.448

 
$
1.306

 
$
5,498,959

 
$
5,042,304

 
$
10,541,263

 
$
3,298,274

 
$
7,242,989

 
$
1,914,725

____________________
(1)
Assumes each share was issued and outstanding each day during the periods presented.
(2)
Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid approximately three days following month end.

54

For the year ended December 31, 2018, we paid aggregate distributions of $10,541,263, including $5,498,959 of distributions paid in cash and 219,833 shares of our common stock issued pursuant to our DRP for $5,042,304. For the year ended December 31, 2018, our net loss was $15,365,609, we had FFO of $1,293,508 and net cash provided by operations of $1,914,725. For the year ended December 31, 2018, we funded $1,914,725, or 18%, and $8,626,538, or 82%, of total distributions paid, including shares issued pursuant to our DRP, from net cash provided by operating activities and with proceeds from our Public Offering, respectively. Since inception, of the $16,804,856 in total distributions paid through December 31, 2018, including shares issued pursuant to our DRP, 15% of such amounts were funded from cash flow from operations and 85% were funded from public offering proceeds. For information on how we calculate FFO and the reconciliation of FFO to net loss, see “—Funds from Operations and Modified Funds from Operations.”
Our long-term policy is to pay distributions solely from cash flow from operations. However, we expect to have insufficient cash flow from operations available for distribution until we make substantial investments. Further, because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period, and we expect to pay these distributions in advance of our actual receipt of these funds. In these instances, our board of directors has the authority under our organizational documents, to the extent permitted by Maryland law, to fund distributions from sources such as borrowings, offering proceeds or advances and the deferral of fees and expense reimbursements by the Advisor, in its sole discretion. We have not established a limit on the amount of proceeds we may use from this offering to fund distributions. If we pay distributions from sources other than cash flow from operations, we will have fewer funds available for investments and your overall return on your investment in us may be reduced.
We elected to be taxed as a REIT for federal income tax purposes commencing with the taxable year ending December 31, 2016. To continue to qualify as a REIT, we must make aggregate annual distributions to our stockholders of 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). If we meet the REIT qualification requirements, we generally will not be subject to federal income tax on the income that we distribute to our stockholders each year. We have not established a minimum distribution level and our Charter does not require that we make distributions to our stockholders.
Off-Balance Sheet Arrangements
As of December 31, 2018 and 2017, 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 the Advisor and its affiliates, including the Dealer Manager, whereby we pay or have paid certain fees to, or reimbursed certain expenses of, the Advisor or its affiliates for acquisition and advisory fees and expenses, financing coordination fees, organization and offering costs, selling commissions, dealer manager fees, distribution and shareholder servicing fees, asset and property management fees and expenses, leasing fees and reimbursement of certain operating costs as well as make certain distributions in connection with our liquidation or listing on a national stock exchange. See Item 13. “Certain Relationships and Related Transactions, and Director Independence” and Note 7 (Related Party Arrangements) to the consolidated financial statements included in this Annual Report for a discussion of the various related-party transactions, agreements and fees.
Critical Accounting Policies
Below is a discussion of the accounting policies that we believe are critical because they involve significant judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. 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. Other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires us 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.

55

Real Estate Assets
Depreciation and Amortization
Real estate costs related to the development, construction and improvement of properties will be capitalized. Acquisition costs related to business combinations are expensed as incurred. Acquisition costs related to asset acquisitions are capitalized. On January 1, 2017, we early adopted ASU 2017-01, that clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. All of our real estate investments acquired in fiscal years 2018 and 2017, qualified as asset acquisitions, and as such, acquisition costs are capitalized. Repair and maintenance and tenant turnover costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance and tenant turnover costs include all costs that do not extend the useful life of the real estate asset.
The Company considers the period of future benefit of an asset to determine its appropriate useful life and anticipates the estimated useful lives of assets by class to be generally as follows:
Buildings
 
30 years
Building improvements
 
5-25 years
Resident improvements
 
Shorter of lease term or expected useful life
Resident origination and absorption costs
 
Remaining term of related lease
Furniture, fixtures, and equipment
 
5-10 years
Real Estate Purchase Price Allocation
Prior to the adoption of ASU 2017-01, we recorded the acquisition of income-producing real estate or real estate that are used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. Acquisition costs are expensed as incurred. Upon adoption of ASU 2017-01, we record the acquisition of income-producing real estate or real estate that are used for the production of income as an asset acquisition. All assets acquired and liabilities assumed in an asset acquisition are measured at their acquisition-date fair values. Acquisition costs are capitalized and allocated between land, buildings and improvements and tenant origination and associated costs on the consolidated balance sheet.
We assess the acquisition-date fair values of all tangible assets, identifiable intangible assets and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant.
Intangible assets include the value of in-place leases, which represents the estimated value of the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up.
We estimate the value of resident origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease-up periods, considering current market conditions. In estimating carrying costs, we estimate the amount of lost rentals using market rates during the expected lease-up periods.
We amortize the value of in-place leases to expense over the remaining non-cancelable term of the respective leases. Should a resident terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.
We record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) our estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any capitalized above-market or below-market lease values as a reduction or increase to rental income over the remaining non-cancelable terms of the respective leases.
The total amount of other intangible assets acquired are further allocated to in-place lease values and customer relationship intangible values based on our evaluation of the specific characteristics of each tenant’s lease and its overall relationship with that respective tenant. Characteristics that we consider in allocating these values include the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with the tenant, and the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

56

Estimates of the fair values of the tangible assets, identifiable intangible assets and assumed liabilities require us to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions could result in an incorrect valuation of acquired tangible assets, identifiable intangible assets and assumed liabilities, which could impact the amount of our net income (loss).
Impairment of Real Estate Assets 
We account for our real estate assets in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”). ASC 360 requires us to continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, we assess the recoverability of the assets by estimating whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. Based on this analysis, if we do not believe that we will be able to recover the carrying value of the real estate and related intangible assets and liabilities, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. If any assumptions, projections or estimates regarding an asset changes in the future, we may have to record an impairment to reduce the net book value of such individual asset.
Rents and Other Receivables
We periodically evaluate the collectability of amounts due from residents and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of residents to make required payments under lease agreements. We exercise judgment in establishing these allowances and consider payment history and current credit status of residents in developing these estimates. Due to the short-term nature of the operating leases, we do not maintain a deferred rent receivable related to the straight-lining of rents. Other receivables include amounts due from the transfer agent for stock subscription net proceeds.
Revenue Recognition
On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers, (“ASC 606”), which
establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers
and supersedes most of the existing revenue recognition guidance. This standard requires us to recognize, for certain
of our revenue sources, transfer of promised goods or services to customers in an amount that reflects the consideration we are entitled to in exchange for those goods or services. We selected the modified retrospective transition method but had no cumulative effect adjustment to recognize as of the date of adoption on January 1, 2018. Our revenue consists of rental revenues and tenant reimbursements and other. There was no impact to our recognition of rental revenue from leasing arrangements as this was specifically excluded from ASC 606. We identified limited sources of revenues from non-lease components but did not experience a material impact on our revenue recognition in the consolidated financial statements upon adoption. We lease apartment and condominium units under operating leases with terms generally of one year or less. Generally, credit investigations are performed for prospective residents and security deposits are obtained. We will recognize minimum rent, including rental abatements, concessions and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the non-cancellable term of the related lease and amounts expected to be received in later years will be recorded as deferred rents. We record property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred in accordance with ASC 840, Leases.
Fair Value Measurements
Under GAAP, we are required to measure certain financial instruments at fair value on a recurring basis. In addition, we are required to measure other assets and liabilities at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
Level 1:
unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2:
quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3:
prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

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When available, we utilize 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 non-binding quoted market price, observable inputs might not be relevant and could require us 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 we determine the market for a financial instrument we own to be illiquid or when market transactions for similar instruments do not appear orderly, we will use several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and we will establish a fair value by assigning weights to the various valuation sources.
Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.
Accounting for Stock-Based Compensation 
We amortize the fair value of stock-based compensation awards to expense over the vesting period and record any dividend equivalents earned as dividends for financial reporting purposes. Stock-based compensation awards are valued at the fair value on the date of grant and amortized as an expense over the vesting period.
Organization and Offering Costs
Organization and offering expenses include all expenses to be paid by us in connection with our Public Offering, including legal, accounting, tax, printing, mailing and filing fees, charges of our escrow holder and transfer agent, expenses of organizing our Company, data processing fees, advertising and sales literature costs, transfer agent costs, information technology costs, bona fide out-of-pocket due diligence costs and amounts to reimburse the Advisor or its affiliates for the salaries of its employees and other costs in connection with preparing sales materials and providing other administrative services in connection with our Public Offering. Any such reimbursement will not exceed actual expenses incurred by the Advisor. Following the termination of our Public Offering, the Advisor had an obligation to reimburse us to the extent total organization and offering expenses (including selling commissions, dealer manager fees and the distribution and shareholder servicing fees) borne by us exceeded 15% of the gross proceeds raised in our Primary Offering. Total organization and offering expenses borne by us did not exceed 15% of the gross offering proceeds in our Public Offering.
To the extent we did not pay the full selling commissions or dealer manager fee for shares sold in our Public Offering, we were able to reimburse costs of bona fide training and education meetings held by us (primarily the travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees and cost reimbursement of employees of our affiliates to attend seminars conducted by broker-dealers and, in certain cases, reimbursement to participating broker-dealers for technology costs associated with our Public Offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of our shares and the ownership of our shares by such broker-dealers’ customers; provided, however, that we did not pay any of the foregoing costs to the extent that such payment would cause total underwriting compensation to exceed 10% of the gross offering proceeds of our Primary Offering, as required by the rules of the FINRA.
When recognized, organization costs are expensed as incurred. Offering costs, including selling commissions, dealer manager fees and the distribution and shareholder servicing fee, are deferred and charged to stockholders’ equity. All such amounts are reimbursed to the Advisor, the Dealer Manager or their affiliates from gross offering proceeds, except for the distribution and shareholder servicing fees, which are paid from sources other than Public Offering proceeds.
Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code and have operated as such commencing with the taxable year ended December 31, 2016. 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 our 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 would 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 following the year we initially elect to be taxed as a REIT, 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 is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. However, we intend to organize 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 December 31, 2018, 2017, and

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2016, we did not have any liabilities for uncertain tax positions that we believe should be recognized in our consolidated financial statements. We have not been assessed interest or penalties by any major tax jurisdictions. Our evaluations were performed for all open tax years through December 31, 2018.
Subsequent Events
Distributions Paid
Class A
On January 2, 2019, we paid distributions of $448,040, which related to distributions declared for each day in the period from December 1, 2018 through December 31, 2018 and consisted of cash distributions paid in the amount of $272,851 and $175,189 in shares issued pursuant to the DRP.
On February 1, 2019, we paid distributions of $448,950, which related to distributions declared for each day in the period from January 1, 2019 through January 31, 2019 and consisted of cash distributions paid in the amount of $275,056 and $173,894 in shares issued pursuant to the DRP.
On March 1, 2019, we paid cash distributions of $403,504, which related to distributions declared for each day in the period from February 1, 2019 through February 28, 2019.
Class R
On January 2, 2019, we paid distributions of $62,323, which related to distributions declared for each day in the period from December 1, 2018 through December 31, 2018 and consisted of cash distributions paid in the amount of $41,232 and $21,091 in shares issued pursuant to the DRP.
On February 1, 2019, we paid distributions of $60,517, which related to distributions declared for each day in the period from January 1, 2019 through January 31, 2019 and consisted of cash distributions paid in the amount of $40,020 and $20,497 in shares issued pursuant to the DRP.
On March 1, 2019, we paid cash distributions of $54,767, which related to distributions declared for each day in the period from February 1, 2019 through February 28, 2019.
Class T
On January 2, 2019, we paid distributions of $659,453, which related to distributions declared for each day in the period from December 1, 2018 through December 31, 2018 and consisted of cash distributions paid in the amount of $287,729 and $371,723 in shares issued pursuant to the DRP.
On February 1, 2019, we paid distributions of $590,710, which related to distributions declared for each day in the period from January 1, 2019 through January 31, 2019 and consisted of cash distributions paid in the amount of $258,149 and $332,562 in shares issued pursuant to the DRP.
On March 1, 2019, we paid cash distributions of $535,334, which related to distributions declared for each day in the period from February 1, 2019 through February 28, 2019.
Advisory Agreement Renewal
On February 1, 2019, we entered into Amendment No. 3 to the Advisory Agreement, which is effective on February 5, 2019, to renew the term of the Advisory Agreement for an additional one year term ending February 5, 2020.
Suspension of DRP
As previously disclosed, on August 31, 2018, we terminated the Primary Offering of up to $1,000,000,000 in shares of our common stock, but continued to offer shares of Class A, Class T and Class R common stock pursuant to the DRP. We decided to not renew state registrations of the DRP for an additional year, and, therefore, suspended the DRP with respect to distributions that accrued after February 1, 2019. Our board of directors may in the future reinstate the DRP, although there is no assurance as to if or when this will happen, and such reinstatement will not happen unless and until we register the DRP in every state in which it offers or sells its shares of common stock.
ITEM 7A.                                       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.

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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 intend to manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept to an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, collars, 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 December 31, 2018, the fair value of our fixed rate debt was $119,979,594 and the carrying value of our fixed rate debt was $123,983,755. 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 loan was originated at December 31, 2018. 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 will change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums will result in changes in the fair value of floating rate instruments. At December 31, 2018, the fair value of our variable rate debt was $159,966,065 and the carrying value of our variable rate debt was $156,103,166. At December 31, 2018, we were exposed to market risks related to fluctuations in interest rates on $156,103,166 of our outstanding variable rate debt. Based on interest rates as of December 31, 2018, if interest rates are 100 basis points higher during the 12 months ending December 31, 2019, interest expense on our variable rate debt would increase by $1,590,634 and if interest rates are 100 basis points lower during the 12 months ending December 31, 2019, interest expense on our variable rate debt would decrease by $1,590,634.
At December 31, 2018, the weighted-average interest rate of our fixed rate debt and variable rate debt was 4.02% and 4.86%, respectively. The weighted-average interest rate of our blended fixed and variable rates was 4.49% at December 31, 2018. The weighted-average interest rate represents the actual interest rate in effect at December 31, 2018 (consisting of the contractual interest rate), using interest rate indices as of December 31, 2018, where applicable.
We will also be exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the 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 December 31, 2018, we did not have counterparty risk on our interest rate cap agreements as the underlying variable rates for our interest rate cap agreements as of December 31, 2018, were not in excess of the capped rates. See also Note 10 (Derivative Financial Instruments) of our consolidated financial statements included in this Annual Report.
ITEM 8.                                                FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and supplementary data can be found beginning at page F-1 of this Annual Report.
ITEM 9.                                                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.                                       CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). 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 were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

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Based upon, and as of the date of, the evaluation, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Annual Report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. In connection with the preparation of this Annual Report, our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making that assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on its assessment, our management believes that, as of December 31, 2018, our internal control over financial reporting was effective based on those criteria. There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.                                       OTHER INFORMATION
None.

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PART III
ITEM 10.                                         DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our directors and executive officers and their respective positions and offices are as follows:
Name
 
Age
 
Position
Rodney F. Emery
 
68
 
Chairman of the Board and Chief Executive Officer
Ella S. Neyland
 
64
 
Affiliated Director and President
Kevin J. Keating
 
56
 
Chief Financial Officer and Treasurer
Ana Marie del Rio
 
64
 
Secretary
Stephen R. Bowie
 
68
 
Independent Director
Ned W. Brines
 
57
 
Independent Director
Janice M. Munemitsu
 
61
 
Independent Director
Rodney F. Emery has served as a director since July 2015, as our Chief Executive Officer since August 2015 and as Chairman of the Board since January 2016. Mr. Emery also serves as Chairman of the Board and Chief Executive Officer of Steadfast Income REIT and Steadfast Apartment REIT, positions he has held since each entity’s inception. Mr. Emery is the founder of Steadfast Companies and is responsible for the corporate vision, strategy and overall guidance of the operations of Steadfast Companies. Mr. Emery chairs the Steadfast Executive Committee, which establishes policy and strategy and acts as the general oversight committee of Steadfast Companies. Mr. Emery also serves on the Steadfast Companies Investment Committee and is a member of the Board of Managers of Stira Capital Markets Group, LLC (formerly known as Steadfast Capital Markets Group, LLC). Prior to founding Steadfast Companies in 1994, Mr. Emery served for 17 years as the President of Cove Properties, a diversified commercial real estate firm specializing in property management, construction and development with a specialty in industrial properties. Mr. Emery received a Bachelor of Science in Accounting from the University of Southern California and serves on the board of directors of several non-profit organizations.
Our board of directors, excluding Mr. Emery, has determined that Mr. Emery is qualified to serve as one of our directors due to the leadership positions previously and currently held by Mr. Emery and Mr. Emery’s 40 years of experience acquiring, financing, developing and managing multifamily, hotel, office, industrial and retail real estate assets throughout the country.
 Ella S. Neyland has served as our President since August 2015 and an affiliated director since January 2016. Ms. Neyland also serves as President and an affiliated director of Steadfast Income REIT, positions she has held since October 2012, and serves as President and an affiliated director of Steadfast Apartment REIT, positions she has held since September 2013 and August 2013, respectively. Ms. Neyland served as an independent director of Steadfast Income REIT from October 2011 to September 2012. Ms. Neyland was a founder of Thin Centers MD (“TCMD”), which provides medically supervised weight loss programs, and served as its Chief Financial Officer from February 2011 to October 2011. Prior to founding TCMD, Ms. Neyland was a founder of Santa Barbara Medical Innovations, LLC, a privately owned company that owns and leases low-level lasers to medical groups, and served as its Chief Financial Officer from December 2008 to February 2011. From October 2004 to December 2008, Ms. Neyland was a financial advisor of Montecito Medical Investment Company, a private real estate acquisition and development company headquartered in Santa Barbara, California. From April 2001 to September 2004, Ms. Neyland served as the Executive Vice President, Treasurer and Investor Relations Officer of United Dominion Realty Trust, Inc., where she was responsible for capital market transactions, banking relationships and presentations to investors and Wall Street analysts. Prior to working at United Dominion Realty Trust, Inc., Ms. Neyland served as the Chief Financial Officer at Sunrise Housing, Ltd., from November 1999 to March 2001, and served as Executive Director of CIBC World Markets, from November 1997 to October 1999. From July 1990 to October 1997, Ms. Neyland served as the Senior Vice President of Finance and the Vice President of Troubled Debt Restructures/Finance for the Lincoln Property Company, a commercial real estate development and management company. From November 1989 to July 1990, Ms. Neyland was the Vice President/Portfolio Manager at Bonnet Resources Corporation, a subsidiary of BancOne. Prior to her employment at Bonnet Resources Corporation, Ms. Neyland served on the board of directors and as the Senior Vice President/Director of Commercial Real Estate Lending at Commerce Savings Association, a subsidiary of the publicly held American Century Corporation, from May 1983 to March 1989. Ms. Neyland received a Bachelor of Science in Finance from Trinity University in San Antonio, Texas.
Our board of directors, excluding Ms. Neyland, has determined that Ms. Neyland is qualified to serve as one of our directors due to Ms. Neyland’s prior service as a director and as chief financial officer.
 Stephen R. Bowie has served as one of our independent directors since January 2016. Mr. Bowie currently is a partner with Pacific Development Group, a position he has held since 1987, specializing in the development and management of neighborhood and community shopping centers throughout California, with a primary responsibility in the development of new

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projects. From 1979 to 1987, Mr. Bowie served as president of Bowie Development Company, Inc., a California corporation. In addition, since 2009 Mr. Bowie has served as an investor in, and an advisor to, Alta Equities, Inc., a company that invests in and rehabs single family residential properties in southern California. Mr. Bowie earned a Bachelor of Science degree in business administration from the University of Southern California. Mr. Bowie is a member of the International Council of Shopping Centers and a licensed real estate broker in California, and serves on multiple boards, including the Northrise University Initiative 501(c)(3) and the Northrise University Board of Trustees.
Our board of directors, excluding Mr. Bowie, has determined that Mr. Bowie is qualified to serve as one of our directors due to Mr. Bowie’s prior experience in the real estate industry.
 Ned W. Brines has served as one of our independent directors since January 2016. Mr. Brines also serves as an independent director of Steadfast Income REIT, a position he has held since October 2012, and as an independent trustee of Stira Alcentra Global Credit Fund since March 2017. Mr. Brines is presently the Director of Investments for Arnel & Affiliates where he oversees the management of the assets of a private family with significant and diversified holdings. From 2012 to 2016, Mr. Brines served as the Chief Investment Officer for the Citizen Trust Wealth Management and Trust division of Citizens Business Bank, where he was responsible for the investment management discipline, process, products and related sources. In addition, in September 2008 Mr. Brines founded Montelena Asset Management, a California based registered investment adviser firm. From June 2010 to July 2012, Mr. Brines served as a portfolio manager for Andell Holdings, a private family office with significant and diversified holdings. From May 2001 to September 2008, Mr. Brines served as a Senior Vice President and senior portfolio manager with Provident Investment Counsel in Pasadena, managing its Small Cap Growth Fund with $1.6 billion in assets under management. Mr. Brines was with Roger Engemann & Associate in Pasadena from September 1994 to March 2001 where he served as both an analyst and portfolio manager for their mid cap mutual fund and large cap Private Client business as the firm grew from $3 billion to over $19 billion in assets under management. Mr. Brines earned a Master of Business Administration degree from the University of Southern California and a Bachelor of Science degree from San Diego State University. Mr. Brines also holds the Chartered Financial Analyst designation and is involved in various community activities including serving on the investment committee of City of Hope, as well as the Orange County Regional Counsel for San Diego State University.
Our board of directors, excluding Mr. Brines, has determined that Mr. Brines is qualified to serve as one of our directors due to Mr. Brines’ prior investment management experience.
Janice M. Munemitsu has served as one of our independent directors since January 2016. Since 2002, Ms. Munemitsu has operated an independent corporate consultancy in the areas of strategic planning, branding and project management. From 1995 to 1999, Ms. Munemitsu was Vice President of Marketing/Brands for ConAgra Foods, where she was responsible for a food-brand business portfolio of $250 million. Brands under her purview included Hunt’s Tomato Products, Manwich, La Choy, Wolf Brand Chili and Healthy Choice. During the prior eight years, Ms. Munemitsu was a Brand Manager at ConAgra, with responsibilities that spanned advertising, consumer promotions, marketing research, product development and sales planning for food businesses, which included: Hunt's, Manwich and Fisher Nuts. From 1982 to 1985, Ms. Munemitsu held positions in brand marketing and management with Mars, Inc. and The Clorox Company. Ms. Munemitsu holds both Bachelor of Science and Master of Business Administration degrees from the University of Southern California.
Our board of directors, excluding Ms. Munemitsu, has determined that Ms. Munemitsu is qualified to serve as one of our directors due to Ms. Munemitsu’s prior experience as an executive and manager in Fortune 500 companies.
 Kevin J. Keating has served as our Chief Financial Officer and Treasurer since November 2017 and August 2015, respectively and as our Advisor’s Chief Financial Officer and Chief Accounting Officer since November 2017 and September 2013, respectively where he focuses on the accounting function and compliance responsibilities for us and our Advisor. Mr. Keating also serves as Chief Financial Officer and Treasurer of Steadfast Income REIT, positions he has held since November 2017 and April 2011, respectively, and as Chief Financial Officer and Treasurer of Steadfast Apartment REIT, positions he has held since November 2017 and September 2013, respectively. Mr. Keating served as the controller of Steadfast Income REIT from January 2011 to March 2011. Mr. Keating served as Senior Audit Manager with BDO USA, LLP (formerly BDO Seidman, LLP), an accounting and audit firm, from June 2006 to January 2011. From June 2004 to June 2006, Mr. Keating served as Vice President and Corporate Controller of Endocare, Inc., a medical device manufacturer. Mr. Keating has over 18 years of experience working with public companies and served as Assistant Controller and Audit Manager for Ernst & Young LLP from 1988 to 1999. Mr. Keating holds a Bachelor of Science in Accounting from St. John’s University in New York, New York and is a certified public accountant.
 Ana Marie del Rio has served as our Secretary since August 2015 and our Compliance Officer since January 2016. Ms. del Rio also serves as Secretary and Compliance Officer of Steadfast Apartment REIT, positions she has held since September 2013, and Secretary and Compliance Officer of Steadfast Income REIT, positions she has held since its inception in May 2009. Ms. del Rio also serves as the Chief Legal Officer for Steadfast Companies and manages the Risk Management and Legal Services Departments for Steadfast Companies. Ms. del Rio also works closely with Steadfast Management Company, Inc. in

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the management and operation of Steadfast Companies’ residential apartment homes. Prior to joining Steadfast Companies in April 2003, Ms. del Rio was a partner in the public finance group at Orrick, Herrington & Sutcliffe, LLP, where she practiced from September 1993 to April 2003, representing both issuers and underwriters in financing single-family and multifamily housing and other types of public-private and redevelopment projects. From 1979 to 1993, Ms. del Rio co-owned and operated a campaign consulting and research company specializing in local campaigns and ballot measures. Ms. del Rio received a Juris Doctor from the University of the Pacific, McGeorge School of Law, and received a Master of Public Administration and a Bachelor of Arts from the University of Southern California. Ms. del Rio serves on the Board of Directors of Project Access and is a lecturer for the University of California, Irvine, School of Law.
Audit Committee
Our board of directors has established an audit committee. The audit committee’s function is to assist our board of directors in fulfilling its responsibilities by overseeing: (1) the systems of our internal accounting and financial controls; (2) our financial reporting processes; (3) the independence, objectivity and qualification of our independent auditors; (4) the annual audit of our financial statements; and (5) our accounting policies and disclosures. The members of the audit committee are Stephen R. Bowie, Ned W. Brines and Janice M. Munemitsu. All of the members of the audit committee are “independent” as defined by our Charter. Our shares are not listed for trading on any national securities exchange and therefore our audit committee members are not subject to the independence requirements of the New York Stock Exchange (“NYSE”) or any other national securities exchange. However, each member of our audit committee is “independent” as defined by the NYSE. All members of the audit committee have significant financial and/or accounting experience. Our board of directors has determined that Ned W. Brines satisfies the SEC’s requirements for and serves as our “audit committee financial expert.”
Investment Committee
Our board of directors has established an investment committee. Our board of directors has delegated to the investment committee: (1) certain responsibilities with respect to investment in specific investments proposed by the Advisor and (2) the authority to review our investment policies and procedures on an ongoing basis. The investment committee must at all times be comprised of at least three members, a majority of whom must be independent directors. The current members of the investment committee are Rodney F. Emery, Stephen R. Bowie and Janice M. Munemitsu, with Rodney F. Emery serving as the chairman of the investment committee.
With respect to investments, the investment committee has the authority to approve all acquisitions, developments and dispositions of real estate and real estate-related assets consistent with our investment objectives, for a purchase price, total project cost or sales price of up to 10% of the cost of our total assets as of the date of investment.
Valuation Committee

Our board of directors has established a valuation committee. The valuation committee’s function, as recommended by the
IPA, is to perform the following functions in connection with the determination of an estimated per share value of our common
stock: (1) ratify and approve the engagement of valuation advisory services, its scope of work and any amendments thereto, (2)
review and approve the proposed valuation process and methodology to be used to determine the estimation of the per share
value of our common stock, or valuation, (3) review the reasonableness of the valuation or range of value resulting from the
process and (4) recommend the final proposed valuation for approval by the board of directors. The members of the valuation
committee are Ned Brines, Janice Munemitsu, and Stephen Bowie, with Mr. Brines serving as the chairman of the valuation committee.

Special Committee

Our board of directors has established a special committee. The special committee’s function is limited to the evaluation,
negotiation and approval of (1) any agreement, arrangement or other transaction by and between our company, our advisor or
any other affiliate of our sponsor related to compensation payable by our company to our advisor any other affiliate of our
sponsor in connection with the pursuit of strategic alternatives; (2) any strategic alternatives in which a counter party has
expressed an interest in the contemporaneous or subsequent purchase of any other transaction related to Steadfast Companies;
and (3) any other transaction which our board of directors specifically identifies and delegates authority to the special committee. The members of the special committee are Ned Brines, Janice Munemitsu, and Stephen Bowie, with Mr. Bowie
serving as the chairman of the special committee.


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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires each director, officer and individual beneficially owning more than 10% of our common stock to file with the SEC, within specified time frames, initial statements of beneficial ownership (Form 3) of our common stock and statements of changes in beneficial ownership (Forms 4 and 5) of our common stock. These specified time frames require the reporting of changes in ownership within two business days of the transaction giving rise to the reporting obligation. Reporting persons are required to furnish us with copies of all Section 16(a) forms filed with the SEC. Based solely on a review of the copies of such forms furnished to us during and with respect to the fiscal year ended December 31, 2018 or written representations that no additional forms were required, we believe that all required Section 16(a) filings were timely and correctly made by reporting persons during the year ended December 31, 2018.
Code of Conduct and Ethics
We have adopted a Code of Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer, principal financial officer and principal accounting officer. Our Code of Ethics can be found at our website: http://www.steadfastreits.com.
ITEM 11.                                        EXECUTIVE COMPENSATION
Compensation of Executive Officers
Our executive officers do not receive compensation directly from us for services rendered to us and we do not intend to pay any compensation to our executive officers. We do not reimburse the Advisor directly or indirectly for the salary or other compensation paid to any of our executive officers. As a result, we do not, nor has our board of directors considered, a compensation policy for our executive officers. Accordingly, we have not included a Compensation Discussion and Analysis in this Annual Report or other related disclosures pursuant to Item 402 of Regulation S-K and paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K with respect to our executive officers. Our executive officers are officers and/or employees of, or hold an indirect ownership interest in, the Advisor and/or its affiliates, and our executive officers are compensated by these entities, in part, for their services to us. See Item 13. “Certain Relationships and Related Transactions, and Director Independence—Certain Transactions with Related Persons” for a discussion of the fees paid to the Advisor and its affiliates.
Compensation of Directors
If a director is also one of our executive officers or an affiliate of the Advisor, we do not pay any compensation to that person for services rendered as a director. The amount and form of compensation payable to our independent directors for their service to us is determined by our board of directors, based upon recommendations from the Advisor. Four of our executive officers, Messrs. Rodney F. Emery and Kevin Keating and Mses. Ana Marie del Rio and Ella Neyland, manage, control or are affiliated with the Advisor, and through the Advisor, they are involved in recommending the compensation to be paid to our independent directors.
We have provided below certain information regarding compensation earned by or paid to our directors during the fiscal year ended December 31, 2018.
Name
 
Fees Earned or Paid in Cash in 2018(1)
 
Stock Awards(2)
 
Option Awards
 
Non-Equity Incentive Plan Compensation
 
Change in Pension Value and Nonqualified Deferred Compensation
 
All Other Compensation
 
Total
Stephen R. Bowie(3)(4)
 
$
151,500

 
$
25,000

 
$
—

 
$
—

 
$
—

 
$
—

 
$
176,500

Ned W. Brines(3)(4)
 
131,500

 
25,000

 
—

 
—

 
—

 
—

 
156,500

Janice M. Munemitsu(3)(4)
 
146,500

 
25,000

 
—

 
—

 
—

 
—

 
171,500

Ella S. Neyland(5)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Rodney F. Emery(5)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
$
429,500

 
$
75,000

 
$
—

 
$
—

 
$
—

 
$
—

 
$
504,500

_________________
(1)
The amounts shown in this column include payments made to members of the special committee, which was formed during the year ended December 31, 2018. The members of the special committee are our independent directors. It

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was agreed that each independent director will receive retainers between $30,000 and $60,000. In addition, each member receives $1,000 for each meeting attended.
(2)
The amounts shown in this column reflect the aggregate fair value of shares of restricted stock granted under our independent directors compensation plan computed as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718.
(3)
Independent Directors.
(4)
On August 9, 2018, each of our three independent directors was granted 1,000 shares of restricted Class A common stock in connection with their re-election to the board of directors pursuant to our Independent Directors Compensation Plan described below. The grant date fair value of the stock was $25.00 per share for an aggregate amount of $25,000 for each independent director. Of these shares of restricted common stock granted in 2018, each independent director had 750 shares of restricted Class A common stock that remained unvested as of December 31, 2018.
(5)
Directors who are also our executive officers or executive officers of our affiliates do not receive compensation for services rendered as a director.
Cash Compensation
We pay each of our independent directors:
•
annual compensation of $55,000 (the audit committee chairperson receives an additional $10,000 in annual compensation);
•
$2,500 for each in-person board of directors meeting attended; 
•
$1,500 for each in-person committee meeting attended; and 
•
$1,000 for each teleconference meeting of the board of directors or committee. 
We will not pay in excess of $4,000 for any one set of meetings attended within a 48-hour period.
Equity Plan Compensation
Our board of directors has adopted a long-term incentive plan, the Steadfast Apartment REIT III, Inc. Independent Directors Compensation Plan, or the Plan, which operates as a sub-plan of our Steadfast Apartment REIT III, Inc. 2016 Incentive Plan, or the Incentive Plan. Under the Plan and subject to such Plan’s conditions and restrictions, each of our current independent directors was entitled to receive 2,000 shares of restricted Class A common stock once we raised $2,000,000 in gross offering proceeds in our Public Offering. Each subsequent independent director that joins our board of directors receives 2,000 shares of restricted Class A common stock upon election to our board of directors. In addition, on the date following an independent director’s re-election to our board of directors, he or she receives 1,000 shares of restricted Class A common stock. Grants of restricted stock are subject to share availability under the Incentive Plan. The shares of restricted Class A common stock generally vest in four equal annual installments beginning on the date of grant and ending on the third anniversary of the date of grant; provided, however, that the restricted stock will become fully vested and become non-forfeitable on the earlier to occur of: (1) the termination of the independent director’s service as a director due to his or her death or “disability,” or (2) a “change in control” of the Company (as such terms are defined in the Incentive Plan). These awards entitle the holders to participate in distributions immediately upon issuance.
Compensation Committee Interlocks and Insider Participation
We currently do not have a compensation committee of our board of directors because we do not pay, or plan to pay, any compensation to our officers. There are no interlocks or insider participation as to compensation decisions required to be disclosed pursuant to SEC regulations.

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ITEM 12.                                         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table provides information about our common stock that may be issued upon the exercise of options, warrants and rights under our Incentive Plan as of December 31, 2018.
Plan Category
 
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
 
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
 
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
Equity compensation plans approved by security holders:
 
—

 
—

 
388,000

Equity compensation plans not approved by security holders:
 
N/A

 
N/A

 
N/A

Total
 
—

 
—

 
388,000

Security Ownership of Certain Beneficial Owners
The following table shows, as of March 7, 2019, the amount of our common stock beneficially owned (unless otherwise indicated) by: (1) any person who is known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock, (2) our directors, (3) our executive officers, and (4) all of our directors and executive officers as a group.
Name and Address of Beneficial Owner(1)
 
Amount and Nature of
Beneficial Ownership(2)
 
Percentage
Rodney F. Emery(3)
 
27,857

 
*
Ned W. Brines
 
5,800

 
*
Janice M. Munemitsu
 
7,572

 
*
Stephen R. Bowie
 
7,904

 
*
Ella S. Neyland
 
1,111

 
*
Kevin J. Keating
 
—

 
*
Ana Marie del Rio
 
2,808

 
*
All officers and directors as a group (seven persons)
 
53,052

 
*
_________________
*     Less than 1% of the outstanding common stock.
(1)
The address of each named beneficial owner is c/o Steadfast Apartment REIT III, Inc., 18100 Von Karman Avenue, Suite 500, Irvine, CA, 92612.
(2)
None of the shares are pledged as security.
(3)
Includes 8,000 shares owned by the Advisor, which is primarily indirectly owned and controlled by Rodney F. Emery.
ITEM 13.                                          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Transactions with Related Persons
The following describes all transactions during the period from January 1, 2017 to December 31, 2018 involving us, our directors, the Advisor, our Sponsor and any affiliate thereof and all such proposed transactions. See also Note 7 (Related Party Arrangements) to the consolidated financial statements included in this Annual Report. Our independent directors are specifically charged with and have examined the fairness of such transactions to our stockholders, and have determined that all such transactions are fair and reasonable to us.
Ownership Interests
On August 24, 2015, the Advisor purchased 8,000 shares of our Class A common stock at a purchase price of $25.00 per share for an aggregate purchase price of $200,000 and was admitted as our initial stockholder. We are the sole general partner

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of our Operating Partnership, and own a 99.99% partnership interest in our Operating Partnership. The Advisor is the sole limited partner of and owns the remaining 0.01% partnership interest in our Operating Partnership. We entered into the Partnership Agreement with the Advisor on July 25, 2015. As we accepted subscriptions for shares of our common stock, we transferred substantially all of the net offering proceeds from our Public Offering to our Operating Partnership as a contribution in exchange for partnership interests and our percentage ownership in our Operating Partnership increased proportionately.

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Our Relationships with the Advisor and our Sponsor 
Steadfast Apartment Advisor III, LLC is our advisor and, as such, manages our day-to-day operations, manages our portfolio of properties and real estate-related assets, sources and presents investment opportunities to our board of directors and provides investment management services on our behalf. The Advisor also provides offering services, marketing, investor relations and other administrative services on our behalf. The Advisor is 99% owned by our Sponsor. Mr. Emery, our chairman of the board and chief executive officer, indirectly controls our Sponsor, the Advisor and our Dealer Manager. Ms. Ana Marie del Rio, our Secretary, owns an indirect 7% interest in our Sponsor, Advisor and Dealer Manager. Crossroads Capital Multifamily currently owns a 25% membership interest in our Sponsor that will increase upon a net increase in our book capitalization. Pursuant to the Third Amended and Restated Operating Agreement of our Sponsor, effective as of January 1, 2014, as amended, distributions are allocated to each member of our Sponsor in an amount equal to such member’s accrued and unpaid 10% preferred return, as defined in the Third Amended and Restated Operating Agreement. Thereafter, all distributions to Crossroads Capital Multifamily are subordinated to distributions to the other member of our Sponsor, Steadfast REIT Holdings, LLC (“Steadfast Holdings”), until Steadfast Holdings has received an amount equal to certain expenses, including certain organization and offering costs, incurred by Steadfast Holdings and its affiliates on our behalf. Steadfast Holdings owns the remaining 1% partnership interest in the Advisor.
All of our other officers and directors, other than our independent directors, are officers of the Advisor and officers, limited partners and/or members of our sponsor and other affiliates of the Advisor.
We and our Operating Partnership have entered into the Advisory Agreement with the Advisor and our Operating Partnership, which has a one-year term expiring February 5, 2020, subject to an unlimited number of successive one-year renewals upon mutual consent of the parties. We may terminate the Advisory Agreement without cause or penalty upon 60 days’ written notice and immediately upon fraud, criminal conduct, willful misconduct, gross negligence or material breach of the Advisory Agreement by the Advisor or the Advisor’s bankruptcy. If we terminate the Advisory Agreement, we will pay the Advisor all unpaid advances for operating expenses and all earned but unpaid fees.
Services provided by the Advisor under the terms of the Advisory Agreement include the following:
•
finding, presenting and recommending investment opportunities to us consistent with our investment policies and objectives;
•
making investment decisions for us, subject to the limitations in our Charter and the direction and oversight of our board of directors;
•
structuring the terms and conditions of our investments, sales and joint ventures;
•
acquiring investments on our behalf in compliance with our investment objectives and policies;
•
sourcing and structuring our loan originations;
•
arranging for financing and refinancing of investments;
•
entering into service agreements for our loans;
•
supervising and evaluating each loan servicer’s and property manager’s performance;
•
reviewing and analyzing the operating and capital budgets of the properties underlying our investments and the properties we may acquire;
•
entering into leases and service contracts for our properties;
•
assisting us in obtaining insurance;
•
generating our annual budget;
•
reviewing and analyzing financial information for each of our assets and our overall investment portfolio;
•
formulating and overseeing the implementation of strategies for the administration, promotion, management, financing and refinancing, marketing, servicing and disposition of our investments;
•
performing investor relations services;
•
maintaining our accounting and other records and assisting us in filing all reports required to be filed with the SEC, the Internal Revenue Service and other regulatory agencies;
•
engaging and supervising the performance of our agents, including our registrar and transfer agent;
•
performing services for us in connection with a listing of our shares on a securities exchange or a sale or merger of our company; and

69

•
performing any other services reasonably requested by us.
The above summary is provided to illustrate the material functions that the Advisor performs for us as an advisor and is not intended to include all of the services that may be provided to us by the Advisor, its affiliates or third parties. The Advisor has also entered into an Advisory Services Agreement with Crossroads Capital Advisors whereby Crossroads Capital Advisors provides advisory services to us on behalf of the Advisor.
Fees and Expense Reimbursements Paid to the Advisor
Pursuant to the terms of our Advisory Agreement, we pay the Advisor the fees described below.
•
We pay the Advisor an acquisition fee of 2.0% of the cost of investment, which includes the amount actually paid or budgeted to fund the acquisition, origination, development, construction or improvement (i.e., value-enhancement) of any real property or real estate-related asset acquired. For the period from January 1, 2017 to December 31, 2018, we incurred acquisition fees of $6,200,271 in connection with the acquisition of seven multifamily properties. During the same period, we paid $7,149,402 in acquisition fees.
•
We paid the Advisor a monthly investment management fee in an amount equal to one-twelfth of 0.5% of the value of our investments in properties and real estate-related assets until the aggregate value of our investments in properties and real estate-related assets equaled $300,000,000, which occurred in August 2017. Thereafter, we pay the Advisor a monthly investment management fee equal to one-twelfth of 1.0% of the value of our investments in properties and real estate-related assets. For the purposes of the investment management fee, the value of our investments in properties were equal to their costs, until our investments were valued by an independent third-party appraiser. “Costs” are calculated by including acquisition fees, acquisition expenses, renovations and upgrades, and any debt attributable to such investments, or our proportionate share thereof in the case of investments made through joint ventures. For the period from January 1, 2017 to December 31, 2018, we incurred $5,823,091 and paid $5,152,116 of investment management fees to the Advisor.
•
We will pay the Advisor a loan coordination fee if our independent directors determine that the Advisor provided a substantial amount of services in connection with the origination or refinancing of any debt financing obtained by us that is used to refinance properties or other permitted investments or financing in connection with the recapitalization of the Company. The loan coordination fee equals 0.75% of the amount available under such financing. For the period from January 1, 2017 to December 31, 2018, we did not incur any loan coordination fees.
•
We will pay the Advisor or its affiliate a disposition fee if, as determined by a majority of the independent directors, the Advisor or its affiliate provide a substantial amount of services in connection with the sale of a property or real estate-related asset, including pursuant to a sale of the entire company, which we refer to as a “liquidity event,” equal to (1) 1.5% of the sales price of each property or real estate-related asset sold or (2) 1.0%, which may be increased to 1.5% in the sole discretion of our independent directors, of the total consideration paid in a liquidity event. In the event of a final liquidity event, this fee will be reduced by the amount of any previous disposition fee paid on properties previously exchanged under Section 1031 of the Internal Revenue Code. For the period from January 1, 2017 to December 31, 2018, we did not incur any disposition fees.
•
We will pay the Advisor (in its capacity as special limited partner of the Operating Partnership) a subordinated participation in net sale proceeds (payable only if we are not listed on an exchange), equal to 15.0% of the remaining net sale proceeds after return of the total investment amount, which is the amount equal to the original issue price paid by the stockholders in the Public Offering multiplied by the number of shares issued in the Public Offering, reduced by the weighted average original issue price of the shares sold in the Primary Offering multiplied by the total number of shares repurchased by us, plus payment to investors of an amount equal to a 6.0% annual cumulative, non-compounded return of the total investment amount, less amounts previously distributed to stockholders, including distributions that may constitute a return of capital for federal income tax purposes. For the period from January 1, 2017 to December 31, 2018, we did not incur any such fees.
“Net sale proceeds” means the net cash proceeds realized from the sale of the Company or all of our assets after deduction of all expenses incurred in connection with a sale or disposition of the Company or of our assets, including disposition fees paid to the Advisor, or from the prepayment, maturity, workout or other settlement of any loan or other investment. For purposes of calculating the 6.0% annual cumulative, non-compounded return of the total investment amount, the aggregate of all investors’ capital shall be deemed to have been invested collectively on one date—the aggregate average investment date, being a day of a month determined by the average weighted month of all shares sold on a monthly basis. In addition, the Advisor (in its capacity as special limited partner of the Operating Partnership) will receive a distribution similar to the subordinated participation in net sale proceeds in the event we undertake an issuer tender offer that results in the tendering stockholders receiving a return of the total investment amount of the tendering stockholders plus payment to those investors of an amount equal to a 6.0% annual cumulative, non-compounded return

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of the total investment amount of the tendering stockholders, less amounts previously distributed to stockholders, including distributions that may constitute a return of capital for federal income tax purposes.
•
We will pay the Advisor (in its capacity as special limited partner of the Operating Partnership), upon our listing on a national securities exchange, a subordinated incentive listing distribution equal to 15.0% of the amount by which the sum of our adjusted market value plus distributions paid by us to stockholders from inception until the date the adjusted market value is determined, including distributions that may constitute a return of capital for federal income tax purposes, exceeds the sum of the total investment amount plus an amount equal to a 6.0% annual cumulative, non-compounded return to investors of the total investment amount. For purposes of calculating the 6.0% annual cumulative, non-compounded return of the total investment amount, the aggregate of all investors’ capital shall be deemed to have been invested collectively on one date—the aggregate average investment date, being a day of a month determined by the average weighted month of all shares sold on a monthly basis.
The adjusted market value of our common stock will be calculated based on the average market value of the shares of common stock issued and outstanding at listing over the 30 consecutive trading days beginning 180 days after the shares are first listed or included for quotation. We have the option to pay the subordinated incentive listing distribution in the form of stock, cash, a promissory note or any combination thereof. Any previous payments of the subordinated participation in net sales proceeds will offset the amounts due pursuant to the subordinated listing distribution. For the period from January 1, 2017 to December 31, 2018, we did not incur any such fees.
•
We will pay the Advisor (in its capacity as special limited partner of the Operating Partnership), upon termination or nonrenewal of the Advisory Agreement with or without cause, a subordinated distribution, which will entitle the Advisor to receive distributions from our Operating Partnership equal to 15.0% of the amount by which the sum of our appraised market value plus distributions exceeds the sum of the total investment amount plus an amount equal to a 6.0% annual cumulative, non-compounded return of the total investment amount to investors. For purposes of calculating the 6.0% annual cumulative, non-compounded return of the total investment amount, the aggregate of all investors’ capital shall be deemed to have been invested collectively on one date—the aggregate average investment date, being a day of a month determined by the average weighted month of all shares sold on a monthly basis. If we do not provide this return, the Advisor will not receive this distribution. In addition, the Advisor may elect to defer its right to receive a subordinated distribution upon termination until either shares of our common stock are listed and traded on a national securities exchange or another liquidity event occurs. For the period from January 1, 2017 to December 31, 2018, we did not incur any such fees.
In addition to the fees we pay to the Advisor pursuant to the Advisory Agreement, we also reimburse the Advisor and its affiliates for the costs and expenses described below.
•
We reimburse the Advisor and its affiliates for organization and offering expenses it may incur on our behalf, other than underwriting compensation such as sales commissions, the dealer manager fee and the distribution and shareholder servicing fee, in connection with our Public Offering, including legal, accounting, tax, printing, mailing and filing fees, charges of our escrow holder and transfer agent, expenses of organizing us, data processing fees, advertising and sales literature costs, transfer agent costs, information technology costs, bona fide out-of-pocket due diligence costs and amounts to reimburse the Advisor or its affiliates for the salaries of its employees and other costs in connection with preparing sales materials and providing other administrative services in connection with the Public Offering. Any such reimbursement will not exceed actual expenses incurred by the Advisor. After the termination of the Public Offering, the Advisor will reimburse us to the extent total organization and offering expenses (including selling commissions, dealer manager fees and the distribution and shareholder servicing fees) borne by us exceed 15% of the gross proceeds raised in the Primary Offering. Through the termination of the primary offering, total organizational expenses incurred by us did not exceed 15% of the gross offering proceeds raised in the primary offering. To the extent we did not pay the full selling commissions, dealer manager fee or distribution and shareholder servicing fee for shares sold in the Public Offering, we also reimbursed costs of bona fide training and education meetings held by us (primarily the travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees and cost reimbursement of employees of our affiliates to attend seminars conducted by broker-dealers and, in certain cases, reimbursement to participating broker-dealers for technology costs associated with our Public Offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of our shares and the ownership of our shares by such broker-dealers’ customers; provided, however, that we did not pay any of the foregoing costs to the extent that such payment would cause total underwriting compensation to exceed 10% of the gross offering proceeds of the Primary Offering, as required by the rules of FINRA. For the period from January 1, 2017 to December 31, 2018, we incurred $20,659,583 of organization and offering expenses reimbursements. During the same period, we paid the Advisor $18,595,254.
•
Subject to the 2%/25% Guidelines discussed below, we reimburse the Advisor for other operating expenses incurred in providing services to us, including our allocable share of the Advisor’s overhead such as rent, employee costs, benefit

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administration costs, utilities and information technology costs; provided, however, that no reimbursement shall be made for costs of such personnel to the extent that personnel are used in transactions for which the Advisor receives an acquisition fee, investment management fee, loan coordination fee or disposition fee or for the employee costs the Advisor pays to our executive officers. For the period from January 1, 2017 to December 31, 2018, we incurred $2,200,324 and paid the Advisor $2,404,207 for administrative services.
•
We reimburse the Advisor for acquisition expenses incurred related to the selection, evaluation, acquisition and development of a property or acquisition of real estate-related assets (including expenses relating to potential investments that we do not close) as long as total acquisition fees and expenses (including any loan coordination fee) relating to the purchase of an investment do not exceed 6.0% of the contract price of the property unless such excess is approved by our board of directors, including a majority of the independent directors. For the period from January 1, 2017 to December 31, 2018, we incurred and paid the Advisor $1,120,515 for acquisition expenses.
2%/25% Guidelines
As described above, the Advisor and its affiliates are entitled to reimbursement of actual expenses incurred for administrative and other services provided to us for which they do not otherwise receive a fee. However, we will not reimburse the Advisor or its affiliates at the end of any fiscal quarter for “total operating expenses” that for the four consecutive fiscal quarters then ended, or the expense year, exceeded the greater of (1) 2% of our average invested assets or (2) 25% of our net income, which we refer to as the “2%/25% Guidelines,” and the Advisor must reimburse us at least annually for any amounts by which our total operating expenses exceed the 2%/25% Guidelines in the expense year, unless our independent directors have determined that such excess expenses were justified based on unusual and non-recurring factors.
For purposes of the 2%/25% Guidelines, “Average invested assets” means the average monthly book value of our assets invested directly or indirectly in equity interests and loans secured by real estate during the 12-month period before deducting depreciation, reserves for bad debts or other noncash reserves. “Total operating expenses” means all costs and expenses paid or incurred by us, as determined under GAAP, that are in any way related to our operation, including advisor fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and the listing of our shares of common stock, (b) interest payments, (c) taxes, (d) non-cash expenditures such as depreciation, amortization and bad debt reserves, (e) reasonable incentive fees, (f) acquisition fees and acquisition expenses (including expenses relating to potential acquisitions that do not close), (g) real estate commissions on the sale of a real property, 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). Within 60 days after the end of any fiscal quarter for which there are excess expenses which the independent directors conclude were justified and reimbursable to the Advisor, we will send written notice of such fact to our stockholders, together with an explanation of the factors the independent directors considered in determining that such excess expenses were justified. Any such finding and the reasons in support thereof shall be reflected in the minutes of the meetings of the board of directors.
Selling Commissions and Fees Paid to our Dealer Manager
The Dealer Manager for our Public Offering of common stock was Stira Capital Markets Group, LLC (formerly known as Steadfast Capital Markets Group, LLC), an affiliate of our Sponsor. Our Dealer Manager is a licensed broker-dealer registered with FINRA. The Dealer Manager for our Public Offering was entitled to certain selling commissions, dealer manager fees and reimbursements relating to raising capital. Our Dealer Manager Agreement with the Dealer Manager provides for the following compensation:
•
Selling commissions of up to 7% of gross offering proceeds from the sale of Class A shares in the Primary Offering and up to 3% of gross offering proceeds from the sale of Class T shares in the Primary Offering (all of which will be reallowed to participating broker-dealers), subject to reductions based on volume and for certain categories of purchasers. No sales commissions were paid for sales of Class R shares or for sales pursuant to our DRP. The total amount of all items of compensation from any source payable to the Dealer Manager and the participating broker-dealers may not exceed 10.0% of the gross proceeds from our Primary Offering on a per class basis. For the period from January 1, 2017 to December 31, 2018, we incurred and paid $3,182,545 and $2,529,842 in selling commissions to our Dealer Manager in connection with the sale of Class A shares and Class T shares in the Primary Offering, respectively. 
•
A dealer manager fee of up to 3% of the gross offering proceeds from the sale of Class A shares and 2.5% of gross offering proceeds from the sale of Class T shares (a portion of which will be reallowed to participating broker-dealers). No dealer manager fee was paid for sales of Class R shares or for sales pursuant to our DRP. For the period from January 1, 2017 to December 31, 2018, we incurred and paid $1,586,125 and $2,108,199 in dealer manager fees to our Dealer Manager in connection with the sale of Class A shares and Class T shares in the Primary Offering, respectively.

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•
A distribution and shareholder servicing fee of up to (1) 0.27%, annualized, of the purchase price per Class R share (or, once reported, the amount of our estimated value per share) for each Class R share purchased in the Primary Offering from a registered investment advisor that does not participate on an alternative investment platform; (2) 0.67%, annualized, of the purchase price per Class R share (or, once reported, the amount of our estimated value per share) for each Class R share purchased in the Primary Offering from a registered investment advisor that participates on an alternative investment platform; and (3) 1.125%, annualized, of the purchase price per Class T share (or, once reported, the amount of our estimated value per share) for each Class T share purchased in the Primary Offering. The distribution and shareholder servicing fee accrued daily and was paid monthly in arrears. We amended our Charter on August 8, 2017, to authorize and pay different distributions to different holders of Class T and/or Class R shares. Prior to amending the Charter to allow for distributions at different rates on the same class of shares, of the 0.67% distribution and shareholder servicing fee payable with respect to sales of Class R shares by registered investment advisors that participate on an alternative investment platform, 0.27% was paid from the current distribution and shareholder servicing fee on Class R shares, which was payable out of amounts that otherwise would have been distributed to holders of Class R shares, and 0.40% was an additional expense for us.
Effective October 1, 2018, we ceased paying the distribution and shareholder servicing fee because total underwriting compensation had reached 10% of the total gross investment amount in the Primary Offering.
Fees and Reimbursements Paid to Our Property Manager
•
We have entered into property management agreements (each a “Property Management Agreement”) with Steadfast Management Company, Inc., an affiliate of our Sponsor (the “Property Manager”), in connection with the management of each of our properties. The property management fee payable with respect to each property under the Property Management Agreements, ranges from 2.75% to 3.0% of the gross revenue of the property (as defined in the Property Management Agreement). In addition, the Property Manager may also earn an incentive management fee equal to 1.0% of total collections based on performance metrics of the property. The Property Manager may subcontract with third-party property managers and will be responsible for supervising and compensating those third-party property managers and will be paid an oversight fee equal to 1.0% of the gross revenues of the property managed for providing such supervisory services. In no event will we pay our Property Manager or any affiliate both a property management fee and an oversight fee with respect to any particular property. 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 we 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 the event of a termination of the Property Management Agreement by us without cause, we will pay a termination fee to the Property Manager equal to three months of the monthly management fee based on the average gross collections for the three months preceding the date of termination. For the period from January 1, 2017 to December 31, 2018, we incurred and paid property management fees of $1,752,109 and $1,596,668 to our Property Manager, respectively.
•
The Property Management Agreements specify that we are to reimburse the Property Manager for the salaries and related benefits of onsite personnel. For the period from January 1, 2017 to December 31, 2018, we incurred and reimbursed on-site property management personnel costs of $5,130,738 and $4,963,967 to our Property Manager, respectively.
•
The Property Management Agreements also specify certain other fees payable to the Property Manager or its affiliates, including fees for benefit administration, information technology infrastructure, licenses and support, training services and capital expenditures. For the period from January 1, 2017 to December 31, 2018, we incurred and paid other fees of $722,542 and $712,815 to our Property Manager, respectively.
Payments to our Construction Manager
•
We have entered into Construction Management Agreements (each a “Construction Management Agreement”) with Pacific Coast Land & Construction, Inc., an affiliate of the Sponsor (the “Construction Manager”), in connection with capital improvements and renovation or value-enhancement projects for certain properties we acquire. The construction management fee payable with respect to each property under the Construction Management Agreements is equal to 6.0% of the costs of the improvements from 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 apartment homes taken out of service while they undergo the planned renovation. For the period from January 1, 2017 to December 31,

73

2018, we incurred and paid construction management fees of $351,731 and $347,810 to our Construction Manager, respectively.
•
We 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. For the period from January 1, 2017 to December 31, 2018, we incurred and reimbursed $612,071 and $595,184 to our Construction Manager, respectively.
Other Transactions
•
We deposit amounts with an affiliate of our Sponsor to fund a prepaid insurance deductible account to cover the cost of required insurance deductibles across all properties owned by us and other affiliated entities of our Sponsor. Upon filing a major claim, proceeds from the insurance deductible account may be used by us or another affiliate of our Sponsor. In addition, we deposit amounts with an affiliate of our Sponsor to cover the cost of property and property related insurance across certain of our properties. For the period from January 1, 2017 to December 31, 2018, we funded $489,630 and incurred $450,368 of the prepaid deductible account and property insurance accounts to an affiliate of our Sponsor.
Currently Proposed Transactions
Other than as described above, there are no currently proposed material transactions with related persons other than those covered by the terms of the agreements described above.
Policies and Procedures for Transactions with Related Persons
In order to reduce or eliminate certain potential conflicts of interest, our Charter and our Advisory Agreement contain restrictions and conflict resolution procedures relating to transactions we enter into with the Advisor, our directors or their respective affiliates. Each of the restrictions and procedures that apply to transactions with the Advisor and its affiliates will also apply to any transaction with any entity or real estate program controlled by the Advisor and its affiliates. As a general rule, any related party transaction must be approved by a majority of the directors (including a majority of independent directors) not otherwise interested in the transaction. In determining whether to approve or authorize a particular related party transaction, these persons will consider whether the transaction between us and the related party is fair and reasonable to us and has terms and conditions no less favorable to us than those available from unaffiliated third parties.
We have also adopted a Code of Ethics that applies to each of our officers and directors, which we refer to as “covered persons.”  The Code of Ethics sets forth certain conflicts of interest policies that limit and govern certain matters among us, the covered persons, the Advisor and their respective affiliates.
Director Independence
Although our shares are not listed for trading on any national securities exchange, a majority of the members of our board of directors and all of the members of the audit committee are “independent” as defined by the NYSE. The NYSE standards provide that to qualify as an independent director, in addition to satisfying certain bright-line criteria, the board of directors must affirmatively determine that a director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us). In addition, we have determined that these directors are independent pursuant to the definition of independence in our Charter, which is based on the definition included in the North American Securities Administrators Association, Inc.’s Statement of Policy Regarding Real Estate Investment Trusts, as revised and adopted on May 7, 2007. Our board of directors has determined that Stephen R. Bowie, Ned W. Brines and Janice M. Munemitsu each satisfies the bright-line criteria and that none has a relationship with us that would interfere with such person’s ability to exercise independent judgment as a member of our board of directors. None of these directors has ever served as (or is related to) an employee of ours or any of our predecessors or acquired companies or received any compensation from us or any such other entities except for compensation directly related to service as a director. Therefore, we believe that all of these directors are independent directors.
ITEM 14.                                         PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Registered Public Accounting Firm
During the years ended December 31, 2018 and 2017, Ernst & Young LLP, or Ernst & Young, served as our independent registered public accounting firm and provided us with certain tax and other services. Ernst & Young has served as our independent auditor since June 8, 2016.

74

Pre-Approval Policies
The audit committee charter imposes a duty on our audit committee to pre-approve all auditing services performed for us by our independent auditors as well as all permitted non-audit services in order to ensure that the provision of such services does not impair the auditors’ independence. In determining whether or not to pre-approve services, our audit committee will consider whether the service is a permissible service under the rules and regulations promulgated by the SEC. Our audit committee, may, in its discretion, delegate to one or more of its members the authority to pre-approve any audit or non-audit services to be performed by the independent auditors, provided any such approval is presented to and approved by the full audit committee at its next scheduled meeting.
All services rendered by Ernst & Young for the years ended December 31, 2018 and 2017, were pre-approved in accordance with the policies and procedures described above.
Principal Independent Registered Public Accounting Firm Fees
Our audit committee reviewed the audit and non-audit services performed by Ernst & Young, as well as the fees charged by Ernst & Young for such services. In its review of the non-audit service fees, our audit committee considered whether the provision of such services is compatible with maintaining the independence of Ernst & Young.
The aggregate fees billed to us for professional accounting services, including the audit of our annual financial statements by Ernst & Young for the years ended December 31, 2018 and 2017, are set forth in the table below.
 
2018
 
2017
Audit fees
$
483,075

 
$
640,188

Audit-related fees
—
 
60,000

Tax fees
65,147

 
47,400

All other fees
1,720

 
—

Total
$
549,942

 
$
747,588

 For purposes of the preceding table, Ernst & Young’s professional fees are classified as follows:
•
Audit fees - These are fees for professional services performed for the audit of our annual financial statements and the required review of quarterly financial statements and other procedures performed by Ernst & Young in order for them to be able to form an opinion on our consolidated financial statements. These fees also cover services that are normally provided by independent auditors in connection with statutory and regulatory filings or engagements.
•
Audit-related fees - These are fees for assurance and related services that traditionally are performed by independent auditors that are reasonably related to the performance of the audit or review of the financial statements, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews and consultation concerning financial accounting and reporting standards.
•
Tax fees - These are fees for all professional services performed by professional staff in our independent auditor’s tax division, except those services related to the audit of our financial statements. These include fees for tax compliance, tax planning and tax advice, including federal, state and local issues. Services may also include assistance with tax audits and appeals before the Internal Revenue Service and similar state and local agencies, as well as federal, state and local tax issues related to due diligence.
•
All other fees - These are fees for any services not included in the above-described categories.

75

PART IV
ITEM 15.                                         EXHIBITS, FINANCIAL STATEMENT SCHEDULES
a.              Financial Statement Schedules
See the Index to Financial Statements at page F-1 of this report.
The following financial statement schedule is included herein at page F-43 of this report:
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization
b.              Exhibits
The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended December 31, 2018 (and are numbered in accordance with Item 601 of Regulation S-K).
EXHIBIT LIST
Exhibit
 
Description
3.1

 
 
 
 
3.2

 
 
 
 
3.3

 
 
 
 
4.1

 
 
 
 
4.2

 
 
 
 
4.3

 
 
 
 
4.4

 
 
 
 
10.1

 
 
 
 
10.2

 
 
 
 
10.3

 
 
 
 
10.4

 
 
 
 
10.5

 

76

 
 
 
10.6

 

 
 
 
10.7

 
 
 
 
10.8

 
 
 
 
10.9

 
 
 
 
10.10

 
 
 
 
10.11

 
 
 
 
10.12

 
 
 
 
10.13

 
 
 
 
10.14

 
 
 
 
10.15

 
 
 
 
10.16

 
 
 
 
10.17

 
 
 
 
10.18

 
 
 
 
10.19

 
 
 
 
10.20

 

77

 
 
 
10.21

 
 
 
 
10.22

 
 
 
 
10.23

 
 
 
 
10.24

 
 
 
 
10.25

 
 
 
 
10.26

 
 
 
 
10.27

 
 
 
 
10.28

 
 
 
 
10.29

 
 
 
 
10.30

 
 
 
 
10.31

 
 
 
 
10.32

 
 
 
 
10.33

 
 
 
 
10.34

 
 
 
 

78

10.35

 
 
 
 
10.36

 
 
 
 
10.37

 
 
 
 
10.38

 
 
 
 
10.39

 
10.40

 
 
 
 
10.41

 
 
 
 
10.42

 
 
 
 
10.43

 
 
 
 
10.44

 
 
 
 
10.45

 
 
 
 
10.46

 
 
 
 
10.47

 
 
 
 
10.48

 
 
 
 

79

10.49

 
 
 
 
10.50

 
 
 
 
10.51

 
 
 
 
10.52

 
 
 
 
10.53

 
 
 
 
10.54

 
 
 
 
10.55

 
 
 
 
10.56

 

 
 
 
10.57

 

 
 
 
10.58

 

 
 
 
10.59

 

 
 
 
10.60

 

 
 
 
10.61

 

 
 
 
10.62

 

 
 
 
10.63

 

 
 
 
10.64

 

 
 
 

80

10.65

 

 
 
 
10.66

 

 
 
 
10.67

 


 
 
 
10.68

 

 
 
 
10.69

 

 
 
 
10.70

 


 
 
 
10.71

 

 
 
 
10.72

 

 
 
 
10.73

 

 
 
 
10.74

 

 
 
 
10.75

 

 
 
 
10.76

 

 
 
 
10.77

 

 
 
 
10.78

 

 
 
 
10.79

 

 
 
 
10.80

 

 
 
 

81

10.81

 

 
 
 
10.82

 

 
 
 
10.83

 
 
 
 
10.84

 

 
 
 
10.85

 

 
 
 
10.86

 

 
 
 
10.87

 

 
 
 
10.88

 

 
 
 
10.89

 

 
 
 
10.90

 

 
 
 
10.91

 

 
 
 
10.92

 

 
 
 
10.93

 

 
 
 
10.94

 

 
 
 
10.95

 

 
 
 
10.96

 


82

 
 
 
10.97

 
 
 
 
10.98

 

 
 
 
10.99

 

 
 
 
10.100

 

 
 
 
10.101

 

 
 
 
10.102

 

 
 
 
10.103

 

 
 
 
10.104

 
 
 
 
10.105

 
 
 
 
10.106

 
 
 
 
21.1*

 
 
 
 
31.1*

 
 
 
 
31.2*

 
 
 
 
32.1**

 
 
 
 
32.2**

 
 
 
 
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.
________________________ 

83

*
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.

ITEM 16.                                         FORM 10-K SUMMARY
The Company has elected not to provide summary information.


84
STEADFAST APARTMENT REIT III, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
Steadfast Apartment REIT III, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Steadfast Apartment REIT III, Inc. (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a), Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Adoption of ASU No. 2017-01

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses in 2017 due to the adoption of Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Irvine, California
March 15, 2019

STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED BALANCE SHEETS
 
 
December 31,
 
2018

2017
ASSETS
Assets:
 
 
 

Real Estate:
 
 
 
Land
$
45,908,171

 
$
42,059,897

Building and improvements
355,780,664

 
323,636,510

Tenant origination and absorption costs
—

 
4,214,078

Total real estate, cost
401,688,835

 
369,910,485

Less accumulated depreciation and amortization
(21,387,012
)
 
(9,425,010
)
Total real estate, net
380,301,823

 
360,485,475

Cash and cash equivalents
35,628,660

 
15,533,961

Restricted cash
3,729,649

 
4,344,992

Rents and other receivables
515,569

 
488,287

Other assets
906,700

 
702,130

Total assets
$
421,082,401

 
$
381,554,845

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
 
 
 

Accounts payable and accrued liabilities
$
7,520,803

 
$
5,726,298

Mortgage notes payable, net
280,086,921

 
258,470,441

Distributions payable
1,169,815

 
746,360

Due to affiliates
4,898,804

 
5,487,180

Total liabilities
293,676,343

 
270,430,279

Commitments and contingencies (Note 9)

 

Redeemable common stock
6,570,093

 
2,920,059

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

 
—

Class A common stock, $0.01 par value per share; 480,000,000 shares authorized, 3,516,990 and 2,887,731 shares issued and outstanding at December 31, 2018 and 2017, respectively
35,171

 
28,878

Class R common stock, $0.01 par value per share; 240,000,000 shares authorized, 474,076 and 309,518 shares issued and outstanding at December 31, 2018 and 2017, respectively
4,742

 
3,096

Class T common stock, $0.01 par value per share; 480,000,000 shares authorized, 4,620,317 and 3,369,991 shares issued and outstanding at December 31, 2018 and 2017, respectively
46,204

 
33,700

Additional paid-in capital
170,763,927

 
131,822,585

Cumulative distributions and net losses
(50,014,079
)
 
(23,683,752
)
Total stockholders’ equity
120,835,965

 
108,204,507

Total liabilities and stockholders’ equity
$
421,082,401

 
$
381,554,845

 
See accompanying notes to consolidated financial statements.

F-3
STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Year Ended December 31,
 
2018
 
2017
 
2016
Revenues:
 
 
 
 
 
Rental income
$
33,451,624

 
$
17,550,160

 
$
1,152,304

Tenant reimbursements and other
4,458,006

 
2,041,417

 
112,602

Total revenues
37,909,630

 
19,591,577

 
1,264,906

Expenses:
 
 
 
 
 
Operating, maintenance and management
10,429,818

 
5,163,724

 
376,536

Real estate taxes and insurance
5,237,606

 
2,763,816

 
160,707

Fees to affiliates
5,799,201

 
2,402,297

 
2,221,052

Depreciation and amortization
16,659,117

 
12,488,831

 
825,735

Interest expense
11,657,873

 
5,898,156

 
281,031

General and administrative expenses
3,491,624

 
2,627,940

 
1,426,575

Acquisition costs
—

 
—

 
893,982

Total expenses
53,275,239

 
31,344,764

 
6,185,618

Net loss
(15,365,609
)
 
(11,753,187
)
 
(4,920,712
)
   Net loss attributable to non-controlling interest
—

 
—

 
(100
)
Net loss attributable to common stockholders
$
(15,365,609
)
 
$
(11,753,187
)
 
$
(4,920,612
)
 
 
 
 
 
 
Net loss attributable to Class A common stockholders — basic and diluted
$
(6,401,649
)
 
$
(5,726,887
)
 
$
(3,160,451
)
Net Loss per Class A common share — basic and diluted
$
(1.86
)
 
$
(2.49
)
 
$
(8.36
)
Weighted average number of Class A common shares outstanding — basic and diluted
3,266,046

 
2,190,070

 
374,595

 
 
 
 
 
 
Net loss attributable to Class R common stockholders — basic and diluted
$
(806,620
)
 
$
(534,790
)
 
$
(165,258
)
Net loss per Class R common share — basic and diluted
$
(1.91
)
 
$
(2.55
)
 
$
(8.42
)
Weighted average number of Class R common shares outstanding — basic and diluted
411,528

 
204,514

 
19,587

 
 
 
 
 
 
Net loss attributable to Class T common stockholders — basic and diluted
$
(8,157,340
)
 
$
(5,491,510
)
 
$
(1,594,903
)
Net loss per Class T common share — basic and diluted
$
(2.05
)
 
$
(2.75
)
 
$
(8.62
)
Weighted average number of Class T common shares outstanding — basic and diluted
4,161,778

 
2,100,058

 
189,037

 
See accompanying notes to consolidated financial statements.

F-4
STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
 
 
Stockholders’ Equity
 
 
 
 
 
 
Common Stock
 
Additional
Paid-In Capital
 
Cumulative Distributions & Net Losses
 
Total
Stockholders’ Equity
 
Noncontrolling Interest
 
Total Equity
 
 
Class A
 
Class R
 
Class T
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
BALANCE, December 31, 2015
 
8,000

 
$
80

 
—

 
$
—

 
—

 
$
—

 
$
199,920

 
$
—

 
$
200,000

 
$
—

 
$
200,000

Issuance of common stock
 
1,239,420

 
12,394

 
99,043

 
990

 
889,434

 
8,894

 
53,633,875

 
—

 
53,656,153

 
—

 
53,656,153

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

 
—

 
—

 
—

 
—

 
—

 
(4,639,146
)
 
—

 
(4,639,146
)
 
—

 
(4,639,146
)
Transfers to redeemable common stock
 
—

 
—

 
—

 
—

 
—

 
—

 
(292,818
)
 
—

 
(292,818
)
 
—

 
(292,818
)
Other offering costs to affiliates
 
—

 
—

 
—

 
—

 
—

 
—

 
(3,329,974
)
 
—

 
(3,329,974
)
 
—

 
(3,329,974
)
Distributions declared
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(820,700
)
 
(820,700
)
 
—

 
(820,700
)
Amortization of stock-based compensation
 
—

 
—

 
—

 
—

 
—

 
—

 
61,071

 
—

 
61,071

 
—

 
61,071

Contribution from noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
100

 
100

Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,920,612
)
 
(4,920,612
)
 
(100
)
 
(4,920,712
)
BALANCE, December 31, 2016
 
1,247,420

 
12,474

 
99,043

 
990

 
889,434

 
8,894

 
45,632,928

 
(5,741,312
)
 
39,913,974

 
—

 
39,913,974

Issuance of common stock
 
1,640,311

 
16,404

 
210,475

 
2,106

 
2,481,444

 
24,815

 
104,046,957

 
—

 
104,090,282

 
—

 
104,090,282

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

 
—

 
—

 
—

 
—

 
—

 
(9,034,341
)
 
—

 
(9,034,341
)
 
—

 
(9,034,341
)
Transfers to redeemable common stock
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,698,321
)
 
—

 
(2,698,321
)
 
—

 
(2,698,321
)
Repurchase of common stock
 
—

 
—

 
—

 
—

 
(887
)
 
(9
)
 
(21,060
)
 
—

 
(21,069
)
 
—

 
(21,069
)
Other offering costs to affiliates
 
—

 
—

 
—

 
—

 
—

 
—

 
(6,167,169
)
 
—

 
(6,167,169
)
 
—

 
(6,167,169
)
Distributions declared
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6,189,253
)
 
(6,189,253
)
 
—

 
(6,189,253
)
Amortization of stock-based compensation
 
—

 
—

 
—

 
—

 
—

 
—

 
63,591

 
—

 
63,591

 
—

 
63,591

Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(11,753,187
)
 
(11,753,187
)
 
—

 
(11,753,187
)
BALANCE, December 31, 2017
 
2,887,731

 
28,878

 
309,518

 
3,096

 
3,369,991

 
33,700

 
131,822,585

 
(23,683,752
)
 
108,204,507

 
—

 
108,204,507

Issuance of common stock
 
649,469

 
6,495

 
168,166

 
1,682

 
1,252,853

 
12,529

 
49,417,719

 
—

 
49,438,425

 
—

 
49,438,425

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

 
—

 
—

 
—

 
—

 
—

 
(702,740
)
 
—

 
(702,740
)
 
—

 
(702,740
)
Transfers to redeemable common stock
 
—

 
—

 
—

 
—

 
—

 
—

 
(4,174,775
)
 
—

 
(4,174,775
)
 
—

 
(4,174,775
)
Repurchase of common stock
 
(20,210
)
 
(202
)
 
(3,608
)
 
(36
)
 
(2,527
)
 
(25
)
 
(595,505
)
 
—

 
(595,768
)
 
—

 
(595,768
)
Other offering costs to affiliates
 
—

 
—

 
—

 
—

 
—

 
—

 
(5,085,703
)
 
—

 
(5,085,703
)
 
—

 
(5,085,703
)
Distributions declared
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,964,718
)
 
(10,964,718
)
 
—

 
(10,964,718
)
Amortization of stock-based compensation
 
—

 
—

 
—

 
—

 
—

 
—

 
82,346

 
—

 
82,346

 
—

 
82,346

Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(15,365,609
)
 
(15,365,609
)
 
—

 
(15,365,609
)
BALANCE, December 31, 2018
 
3,516,990

 
$
35,171

 
474,076

 
$
4,742

 
4,620,317

 
$
46,204

 
$
170,763,927

 
$
(50,014,079
)
 
$
120,835,965

 
$
—

 
$
120,835,965

 
See accompanying notes to consolidated financial statements.

F-5
STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Year Ended December 31,
 
2018
 
2017
 
2016
Cash Flows from Operating Activities:
 
 
 

 
 
Net loss
$
(15,365,609
)
 
$
(11,753,187
)
 
$
(4,920,712
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
 
Depreciation and amortization
16,659,117

 
12,488,831

 
825,735

Loss on disposal of buildings and improvements
315,472

 


 
—

Amortization of deferred financing costs
234,562

 
119,514

 
6,931

Amortization of stock-based compensation
82,346

 
63,591

 
61,071

Amortization of stock-based annual compensation and meeting fees
13,750

 
27,500

 
56,000

Change in fair value of interest rate cap agreements
(119,837
)
 
444,252

 
24,989

Changes in operating assets and liabilities:
 
 
 
 
 
Rents and other receivables
(89,157
)
 
(396,922
)
 
(29,490
)
Other assets
(84,733
)
 
(276,976
)
 
(167,535
)
Accounts payable and accrued liabilities
1,197,194

 
4,503,526

 
956,181

Due to affiliates
(928,380
)
 
721,270

 
1,402,124

Net cash provided by (used in) operating activities
1,914,725

 
5,941,399

 
(1,784,706
)
Cash Flows from Investing Activities:
 
 
 
 
 
Acquisition of real estate investments
(30,118,698
)
 
(264,059,130
)
 
(96,775,000
)
Additions to real estate investments
(5,596,569
)
 
(4,139,039
)
 
(311,387
)
Escrow deposits for pending real estate acquisitions
(1,000,000
)
 
(5,000,000
)
 
(3,300,100
)
Purchase of interest rate cap agreements
—

 
(288,740
)
 
(438,120
)
Cash used in investing activities
(36,715,267
)
 
(273,486,909
)
 
(100,824,607
)
Cash Flows from Financing Activities:
 
 
 
 
 
Proceeds from issuance of mortgage notes payable
21,545,000

 
187,595,000

 
72,426,000

Contributions from noncontrolling interest
—

 
—

 
100

Proceeds from issuance of Class A common stock
14,057,829

 
39,154,393

 
29,930,624

Proceeds from issuance of Class R common stock
3,597,999

 
4,661,050

 
2,223,100

Proceeds from issuance of Class T common stock
26,788,418

 
57,564,527

 
21,055,168

Payments of commissions on sale of common stock and related dealer manager fees
(3,640,878
)
 
(7,067,978
)
 
(3,667,371
)
Reimbursement of other offering costs to affiliates
(1,810,661
)
 
(7,377,882
)
 
(1,713,487
)
Payment of deferred financing costs
(163,082
)
 
(1,261,006
)
 
(415,998
)
Distributions to common stockholders
(5,498,959
)
 
(2,964,771
)
 
(286,624
)
Repurchase of common stock
(595,768
)
 
(21,069
)
 
—

Net cash provided by financing activities
54,279,898

 
270,282,264

 
119,551,512

Net increase in cash, cash equivalents and restricted cash
19,479,356

 
2,736,754

 
16,942,199

Cash, cash equivalents and restricted cash, beginning of year
19,878,953

 
17,142,199

 
200,000

Cash, cash equivalents and restricted cash, end of year
$
39,358,309

 
$
19,878,953

 
$
17,142,199


F-6
STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 
Year Ended December 31,
 
2018
 
2017
 
2016
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
 
Interest paid
$
11,138,568

 
$
4,781,715

 
$
141,718

Supplemental Disclosures of Noncash Flow Transactions:
 
 
 
 
 
Increase in distributions payable
$
423,455

 
$
505,102

 
$
241,258

Application of escrow deposits to acquire real estate
$
1,000,000

 
$
5,650,100

 
$
2,650,000

Increase (decrease) in amounts receivable from transfer agent for Class A common stock
$
9,000

 
$
(82,400
)
 
$
73,400

(Decrease) increase in amounts receivable from transfer agent for Class T common stock
$
(70,875
)
 
$
45,832

 
$
25,043

Increase (decrease) in amounts payable to affiliates for other offering costs
$
3,275,042

 
$
(1,210,713
)
 
$
1,616,487

Distributions paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan
$
5,042,304

 
$
2,719,380

 
$
292,818

Increase in redeemable common stock
$
4,174,775

 
$
2,698,321

 
$
292,818

Increase in redemption payable
$
524,741

 
$
71,080

 
$
—

Increase in accounts payable and accrued liabilities from additions to real estate investments
$
72,570

 
$
160,007

 
$
35,504

Increase in due to affiliates from additions to real estate investments
$
3,100

 
$
18,527

 
$
1,347

(Decrease) increase in due to affiliates from distribution and shareholder servicing fee
$
(2,938,138
)
 
$
1,966,363

 
$
971,775

 
See accompanying notes to consolidated financial statements.

F-7
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018


1.         Organization and Business
Steadfast Apartment REIT III, Inc. (the “Company”) was formed on July 29, 2015, as a Maryland corporation that elected to be taxed as, and qualifies, as a real estate investment trust (“REIT”) commencing with the taxable year ended December 31, 2016. On August 24, 2015, the Company was initially capitalized with the sale of 8,000 shares of Class A common stock to Steadfast Apartment Advisor III, LLC (the “Advisor”), a Delaware limited liability company, at a purchase price of $25.00 per share for an aggregate purchase price of $200,000.
The Company owns and operates a portfolio of multifamily properties located in targeted markets throughout the United States. As of December 31, 2018, the Company owned ten multifamily properties comprising a total of 2,775 apartment homes. For more information on the Company’s real estate portfolio, see Note 3 (Real Estate).
Public Offering
On February 5, 2016, the Company commenced its initial public offering to offer a maximum of $1,000,000,000 in shares of common stock for sale to the public in the primary offering (the “Primary Offering”). The Company initially offered Class A shares and Class T shares in the Public Offering at an initial price of $25.00 for each Class A share ($500,000,000 in Class A shares) and $23.81 for each Class T share ($500,000,000 in Class T shares), with discounts available for certain categories of purchasers. The Company also registered up to $300,000,000 in shares pursuant to the Company’s distribution reinvestment plan (the “DRP,” and together with the Primary Offering, the “Public Offering”) at an initial price of $23.75 for each Class A share and $22.62 for each Class T share.
Commencing on July 25, 2016, the Company revised the terms of its Public Offering to include Class R shares. The Company subsequently offered a maximum of $1,000,000,000 in shares of common stock for sale to the public at an initial price of $25.00 for each Class A share ($400,000,000 in Class A shares), $22.50 for each Class R share ($200,000,000 in Class R shares) and $23.81 for each Class T share ($400,000,000 in Class T shares), with discounts available for certain categories of purchasers. Up to $300,000,000 in shares were offered pursuant to the DRP at an initial price of $23.75 for each Class A share, $22.50 for each Class R share and $22.62 for each Class T share.
As of August 31, 2018, the date the Company terminated its Primary Offering, it had sold 3,483,706 shares of Class A common stock, 474,357 shares of Class R common stock and 4,572,889 shares of Class T common stock in the Public Offering for gross proceeds of $85,801,001, $10,672,273 and $108,706,960, respectively, and $205,180,234 in the aggregate, including 111,922 shares of Class A common stock, 8,450 shares of Class R common stock and 145,838 shares of Class T common stock issued pursuant to the DRP for gross offering proceeds of $2,658,156, $190,125 and $3,298,847, respectively. As of December 31, 2018, the Company had sold 3,513,310 shares of Class A common stock, 477,684 shares of Class R common stock and 4,623,732 shares of Class T common stock in the Public Offering for gross proceeds of $86,485,589, $10,747,201 and $109,854,820, respectively, and $207,087,610 in the aggregate, including 141,524 shares of Class A common stock, 11,777 shares of Class R common stock and 196,681 shares of Class T common stock issued pursuant to the DRP for gross offering proceeds of $3,342,744, $265,053 and $4,446,707, respectively.
On October 9, 2018, the Company’s board of directors determined an estimated value per share for each of the Company’s Class A common stock, Class R common stock and Class T common stock of $22.54 as of June 30, 2018. In connection with the determination of an estimated value per share, the Company’s board of directors determined a price per share for the DRP for each of the Company’s Class A common stock, Class R common stock and Class T common stock of $22.54 effective November 1, 2018. The Company’s board of directors elected to suspend the DRP with respect to distributions that accrue after February 1, 2019 and may, from time to time in its sole discretion, reinstate the DRP, although there is no assurance as to if or when this will happen.
The business of the Company is externally managed by the Advisor, pursuant to the Amended and Restated Advisory Agreement dated July 25, 2016, by and among the Company, Steadfast Apartment REIT III Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), and the Advisor (as amended, the “Advisory Agreement”). The Advisory Agreement is subject to annual renewal by the Company’s board of directors. The current term of the Advisory Agreement expires on February 5, 2020. Subject to certain restrictions and limitations, the Advisor manages the Company’s day-to-day operations, manages the Company’s portfolio of properties and real estate-related assets, sources and presents investment opportunities to the Company’s board of directors and provides investment management services on the Company’s behalf. The Advisor has also entered into an Advisory Services Agreement with Crossroads Capital Advisors, LLC

F-8
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

(“Crossroads Capital Advisors”), whereby Crossroads Capital Advisors provides advisory services to the Company on behalf of the Advisor. The Company has retained Stira Capital Markets Group, LLC (formerly known as Steadfast Capital Markets Group, LLC) (the “Dealer Manager”), an affiliate of the Advisor, which 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 and owns a 99.99% partnership interest in the Operating Partnership. The Advisor is the sole limited partner of and owns the remaining 0.01% partnership interest in the Operating Partnership. The Company and the Advisor entered into an amended and Restated Agreement of Limited Partnership on July 25, 2016 (as amended, the “Partnership Agreement”). As the Company accepted subscriptions for shares of its common stock in the Public Offering, the Company transferred substantially all of the net offering proceeds from the Public Offering to the Operating Partnership as a contribution in exchange for partnership interests and the Company’s percentage ownership in the Operating Partnership increased proportionately.
The Partnership Agreement provides that the Operating Partnership is operated in a manner that will enable the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the Operating Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), which classification could result in the Operating Partnership being taxed as a corporation. In addition to the administrative and operating costs and expenses incurred by the Operating Partnership in acquiring and operating real properties, the Operating Partnership pays all of the Company’s administrative costs and expenses, and such expenses are treated as expenses of the Operating Partnership.
The Company commenced its real estate operations on May 19, 2016, upon acquiring a fee simple interest in Carriage House Apartment Homes, a multifamily property located in Gurnee, Illinois.
2.         Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, the 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 because the Advisor, 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 consolidated financial statements are prepared in accordance with U.S. GAAP as contained within the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC.
Square footage, occupancy and certain other measures used to describe real estate included in the notes to the consolidated financial statements are presented on an unaudited basis.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Reclassifications
Certain 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 prior periods. On January 1, 2018, the Company adopted ASU 2016-18. As a result, the Company no longer presents transfers between cash and restricted cash in the consolidated statements of cash flows. Instead, restricted cash is included with cash and cash equivalents when reconciling the beginning of the period and end of the period total amounts shown on the consolidated statements of cash flows.


F-9
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Real Estate Assets
Depreciation and Amortization
Real estate costs related to the development, construction and improvement of properties are capitalized. Acquisition costs related to business combinations are expensed as incurred. Acquisition costs related to asset acquisitions are capitalized. On January 1, 2017, the Company early adopted ASU 2017-01, Business Combinations (Topic 805): clarifying the definition of a business (“ASU 2017-01”), that clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. All of the Company’s real estate investments acquired in fiscal years 2018 and 2017, qualify as asset acquisitions, and as such, acquisition costs are capitalized.
Repair and maintenance and tenant turnover costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance and tenant turnover costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life and anticipates the estimated useful lives of assets by class to be generally as follows:
Buildings
 
30 years
Building improvements
 
5-25 years
Tenant improvements
 
Shorter of lease term or expected useful life
Tenant origination and absorption costs
 
Remaining term of related lease
Furniture, fixtures, and equipment
 
5-10 years
Real Estate Purchase Price Allocation
Prior to the adoption of ASU 2017-01, the Company recorded the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. Acquisition costs are expensed as incurred. Upon adoption of ASU 2017-01, the Company records the acquisition of income-producing real estate or real estate that are used for the production of income as an asset acquisition. All assets acquired and liabilities assumed in the asset acquisition are measured at their acquisition date fair values. Acquisition costs are capitalized and allocated between land, buildings and improvements and tenant origination and associated costs on the consolidated balance sheet.
The Company assesses the acquisition-date fair values of all tangible assets, identifiable intangible assets and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant.
Intangible assets include the value of in-place leases, which represents the estimated value of the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up.
 The Company estimates the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease-up periods, considering current market conditions. In estimating carrying costs, the Company estimates the amount of lost rentals using market rates during the expected lease-up periods.
 The Company amortizes the value of in-place leases to expense over the remaining non-cancelable term of the respective leases. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.
 The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) the Company’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortizes any capitalized above-market or below-market lease values as a reduction or increase to rental income over the remaining non-cancelable terms of the respective leases.

F-10
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

 The total amount of other intangible assets acquired will be further allocated to in-place lease values and customer relationship intangible values based on the Company’s evaluation of the specific characteristics of each tenant’s lease and its overall relationship with that respective tenant. Characteristics that the Company considers in allocating these values include the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with the tenant, and the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.
 Estimates of the fair values of the tangible assets, identifiable intangible assets and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions could result in an incorrect valuation of acquired tangible assets, identifiable intangible assets and assumed liabilities, which could impact the amount of the Company’s net income (loss).
 Impairment of Real Estate Assets
 The Company accounts for its real estate assets in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”). ASC 360 requires the Company to continually monitor events and changes in circumstances that could indicate that the carrying amounts of the Company’s real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability of the assets by estimating whether the Company will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. Based on this analysis, if the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company records an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. If any assumptions, projections or estimates regarding an asset changes in the future, the Company may have to record an impairment to reduce the net book value of such individual asset. The Company did not record any impairment loss on its real estate assets during the years ended December 31, 2018 , 2017 and 2016.
Rents and Other Receivables
The Company will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of tenants in developing these estimates. Due to the short-term nature of the operating leases, the Company does not maintain a deferred rent receivable related to the straight-lining of rents. Other receivables include amounts due from the transfer agent for stock subscription net proceeds.
Revenue Recognition
On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, (“ASC 606”), which
establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers
and supersedes most of the existing revenue recognition guidance. This standard requires the Company to recognize, for certain
of its revenue sources, transfer of promised goods or services to customers in an amount that reflects the consideration the Company is entitled to in exchange for those goods or services. The Company selected the modified retrospective transition method but had no cumulative effect adjustment to recognize as of the date of adoption and adopted ASC 606 effective January 1, 2018. The Company’s revenue consists of rental revenues and tenant reimbursements and other. There was no impact to the Company’s recognition of rental revenue from leasing arrangements as this was specifically excluded from ASC 606. The Company identified limited sources of revenues from non-lease components but did not experience a material impact on its revenue recognition in the consolidated financial statements upon adoption. The Company leases apartment and condominium units under operating leases with terms generally of one year or less. Generally, credit investigations are performed for prospective residents and security deposits are obtained. The Company will recognize minimum rent, including rental abatements, concessions and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the non-cancellable term of the related lease and amounts expected to be received in later years will be recorded as deferred rents. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred in accordance with ASC 840, Leases.



F-11
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value. As of December 31, 2018 and 2017, the Company had amounts in excess of federally insured limits in deposit accounts with a financial institution. The Company limits such deposits to financial institutions with high credit standing.
Restricted Cash
Restricted cash represents those cash accounts for which the use of funds is restricted by loan covenants. As of December 31, 2018 and 2017, the Company had a restricted cash balance of $3,729,649 and $4,344,992, respectively, which represents amounts set aside as impounds for future property tax payments, property insurance payments and tenant improvement payments as required by agreements with the Company’s lenders.
Deferred Financing Costs
The Company capitalizes deferred financing costs such as commitment fees, legal fees and other third party costs associated with obtaining commitments for financing that result in a closing of such financing, as a contra liability against the respective outstanding debt balance. The Company amortizes these costs over the terms of the respective financing agreements using the effective interest method. The Company expenses unamortized deferred financing costs when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close.
Derivative Financial Instruments
The Company accounts for its derivative instruments in accordance with ASC 815, Derivatives and Hedges. The Company’s objective in using derivatives is to add stability to interest expense and to manage the Company’s exposure to interest rate movements or other identified risks. To accomplish these objectives, the Company may use various types of derivative instruments to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in the benchmark interest rate of London Interbank Offered Rate (“LIBOR”) or other applicable benchmark rates.
 The Company measures its derivative instruments and hedging activities at fair value and records them as an asset or liability, depending on its rights or obligations under the applicable derivative contract. For derivatives designated as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged items are recorded in earnings. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For derivatives designated as cash flow hedges, the effective portions of changes in fair value of the derivatives are reported in other comprehensive income (loss) and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedges and ineffective portions of hedges are recognized in earnings in the affected period. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.
As of December 31, 2018 and 2017, the Company did not have any derivatives designated as cash flow or fair value hedges, nor are derivatives being used for trading or speculative purposes.
Fair Value Measurements
Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other assets and liabilities at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
•
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

F-12
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

•
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 consolidated statements of operations.
The following tables reflect the Company’s assets required to be measured at fair value on a recurring basis on the consolidated balance sheets:
 
 
December 31, 2018
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
  Interest rate cap agreements
 
$
—

 
$
377,456

 
$
—

 
 
December 31, 2017
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
  Interest rate cap agreements
 
$
—

 
$
257,619

 
$
—

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.
Fair Value of Financial Instruments
The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, rents and other receivables, accounts payable and accrued liabilities, due to affiliates, distributions payable, and mortgage notes payable, net.
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 Company has determined that its mortgage notes payable, net are classified as Level 3 within the fair value hierarchy.

F-13
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

The fair value of the mortgage notes payable, net 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 December 31, 2018 and 2017, the fair value of the mortgage notes payable, net was $279,945,659 and $262,048,883, respectively, compared to the carrying value of $280,086,921 and $258,470,441, respectively.
Accounting for Stock-Based Compensation
The Company amortizes the fair value of stock-based compensation awards to expense over the vesting period and records any dividend equivalents earned as dividends for financial reporting purposes. Stock-based compensation awards are valued at the fair value on the date of grant and amortized as an expense over the vesting period.
Distribution Policy
The Company elected to be taxed as, and qualifies as, a REIT commencing with the Company’s taxable year ended December 31, 2016. To maintain its qualification as a REIT, the Company intends to make distributions each taxable year equal to at least 90% of its REIT taxable income (which is determined without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). The Company’s board of directors declared a distribution to the holders of Class A shares and Class T shares which began to accrue on May 19, 2016. The Company’s board of directors also declared a distribution to the holders of Class R shares which began to accrue on August 2, 2016.
Distributions declared during the period from January 1, 2017 to March 31, 2017, were based on daily record dates and calculated at a rate of $0.004110 per Class A share per day, $0.00394521 per Class R share per day subject to an annual distribution and shareholder servicing fee of 0.27%, and in some instances, $0.00369863 per Class R share per day subject to an annual distribution and shareholder servicing fee of 0.67% and $0.003376 per Class T share per day. Distributions declared during the period from April 1, 2017 to June 30, 2017, were based on daily record dates and calculated at a rate of $0.004110 per Class A share per day, $0.00394521 per Class R share per day subject to an annual distribution and shareholder servicing fee of 0.27%, and in some instances, $0.00369863 per Class R share per day subject to an annual distribution and shareholder servicing fee of 0.67% and $0.003376 per Class T share per day. Distributions declared during the period from July 1, 2017 to September 30, 2017, were based on daily record dates and calculated at a rate of $0.004110 per Class A share per day, $0.00394521 per Class R share per day and $0.003457 per Class T share per day. Distributions declared during the period from October 1, 2017 to September 30, 2018, were based on daily record dates and calculated at a rate of $0.004110 per Class A share per day, $0.00394521 per Class R share per day subject to an annual distribution and shareholder servicing fee of 0.27%, and in some instances, $0.00369863 per Class R share per day subject to an annual distribution and shareholder servicing fee of 0.67%, $0.003376 per Class T share per day subject to an annual distribution and shareholder servicing fee of 1.125%, and in some instances, $0.003457 per Class T share per day subject to an annual distribution and shareholder servicing fee of 1.0%. Distributions declared during the period from October 1, 2018 to December 31, 2018, were based on daily record dates and calculated at a rate of $0.004110 per Class A share, Class R share and Class T share per day. Each day during the period from May 19, 2016 to December 31, 2018, was a distribution record date with respect to Class A shares and Class T shares. Each day during the period from August 2, 2016 to December 31, 2018, was a distribution record date with respect to Class R shares.
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 years ended December 31, 2018 and 2017, the Company declared distributions totaling $1.500 and $1.500 per Class A share of common stock, $1.448 and $1.425 per Class R share of common stock and $1.307 and $1.241 per Class T share of common stock, respectively.
Organization and Offering Costs
Organization and offering expenses include all expenses to be paid by the Company in connection with the Public Offering, including legal, accounting, tax, printing, mailing and filing fees, charges of the Company’s escrow holder and transfer agent, expenses of organizing the Company, data processing fees, advertising and sales literature costs, transfer agent costs, information technology costs, bona fide out-of-pocket due diligence costs and amounts to reimburse the Advisor or its affiliates for the salaries of its employees and other costs in connection with preparing sales materials and providing other administrative services in connection with the Public Offering. Any such reimbursement will not exceed actual expenses incurred by the Advisor. Following the termination of the Public Offering, the Advisor had an obligation to reimburse the Company to the extent total organization and offering expenses (including sales commissions, dealer manager fees and the distribution and

F-14
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

shareholder servicing fees) borne by the Company exceeded 15% of the gross proceeds raised in our Primary Offering. Total organization and offering expenses borne by the Company did not exceed 15% of the gross offering proceeds in the Public Offering.
To the extent the Company does not pay the full sales commissions, dealer manager fee or distribution and shareholder servicing fee for shares sold in the Public Offering, the Company may also reimburse costs of bona fide training and education meetings held by the Company (primarily the travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees and cost reimbursement of employees of the Company’s affiliates to attend seminars conducted by broker-dealers and, in certain cases, reimbursement to participating broker-dealers for technology costs associated with the offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the Company’s shares and the ownership of the Company’s shares by such broker-dealers’ customers; provided, however, that the Company did not pay any of the foregoing costs to the extent that such payment would cause total underwriting compensation to exceed 10% of the gross offering proceeds of the Primary Offering, as required by the rules of Financial Industry Regulatory Authority, Inc. (“FINRA”).
When recognized, organization costs are expensed as incurred. Offering costs, including selling commissions, dealer manager fees and the distribution and shareholder servicing fees, are deferred and charged to stockholders’ equity. All such amounts are reimbursed to the Advisor, the Dealer Manager or their affiliates from gross offering proceeds, except for the distribution and shareholder servicing fees, which are paid from sources other than Public Offering proceeds.
Operating Expenses
Pursuant to the Company’s Second Articles of Amendment and Restatement (as amended, the “Charter”), the Company is limited in the amount of certain operating expenses it may record on a rolling four-quarter basis to the greater of 2% of average invested assets and 25% of net income. Operating expenses include all costs and expenses incurred by the Company, as determined under GAAP, that in any way are related to the operation of the Company, excluding expenses of raising capital, interest payments, taxes, property operating expenses, non-cash expenditures, incentive fees, acquisition fees and acquisition expenses, real estate commissions on the resale of investments and other expenses connected with the acquisition, disposition, management and ownership of investments. During the four quarters ended December 31, 2018, the Company recorded operating expenses of $2,942,145, which include $1,176,246 incurred by the Advisor on behalf of the Company, none of which were in excess of the 2%/25% limitation, and are included in general and administrative expenses in the accompanying consolidated statements of operations. Operating expenses of $105,491 remain payable and are included in due to affiliates in the accompanying consolidated balance sheet as of December 31, 2018. 
Income Taxes
The Company elected to be taxed as, and qualifies as, a REIT under the Internal Revenue Code and has operated as such commencing with the taxable year ended December 31, 2016. To maintain its qualification as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year following the year it initially elects to be taxed as a REIT, it would be subject to federal income tax on its 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 is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to its stockholders. The Company believes it is organized and operates in such a manner as to qualify for treatment as a REIT.
The Company follows ASC 740, Income Taxes, to recognize, measure, present and disclose in its consolidated financial statements uncertain tax positions that it has taken or expects to take on a tax return. As of December 31, 2018 and 2017, the Company had no liabilities for uncertain tax positions that it believes should be recognized in its accompanying consolidated financial statements. Due to uncertainty regarding the realization of certain deferred tax assets, the Company has established valuation allowances, primarily in connection with the net operating loss carryforwards related to the Company. The Company has not been assessed interest or penalties by any major tax jurisdictions. The Company’s evaluations were performed for all open tax years through December 31, 2018. As of December 31, 2018, the Company’s tax return for calendar year 2017, 2016 and 2015 remains subject to examination by major tax jurisdictions.

F-15
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Per Share Data
Basic loss per share attributable to common stockholders for all periods presented are computed by dividing net loss by the weighted average number of shares of the Company’s common stock outstanding for each class of shares outstanding during the period. Diluted 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 but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during the period.
In accordance with FASB ASC Topic 260-10-45, Earnings Per Share, the Company uses the two-class method to calculate earnings per share. Basic earnings 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 remaining after deduction of dividends declared during the period. The undistributed earnings are allocated to all outstanding common shares based on the relative percentage of each class of shares to the total number of outstanding shares. The Company does not have any participating securities outstanding but does have multiple classes of common stock with different dividend rates and an unvested portion of restricted Class A common stock. Earnings attributable to the unvested restricted Class A common stock are deducted from earnings in the computation of per share amounts where applicable.
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 May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), which delayed the effective date of the new guidance by one year, which resulted in ASU 2014-09 being effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied retrospectively. Early adoption is permitted, but can be no earlier than the original public entity effective date of fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company selected the modified retrospective transition method but had no cumulative effect adjustment to recognize as of the date of adoption of ASU 2014-09 on January 1, 2018. The Company identified limited sources of revenues from non-lease components, and the Company did not experience a material impact on its revenue recognition in the consolidated financial statements upon adoption. Additionally, there was no impact to the recognition of its rental revenue, as rental revenue from leasing arrangements is specifically excluded from ASU 2014-09.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 requires a modified retrospective transition approach. ASU 2016-02 will be effective in the first quarter of 2019 and allows for early adoption. The Company has selected the modified retrospective transition method with a cumulative effect recognized as of the date of adoption and adopted the new standard effective January 1, 2019. The Company evaluated the impact of ASU 2016-02 on its leases both as it relates to the Company acting as a lessor and as a lessee. Based on its evaluation, as it relates to the former, the Company did not experience any material impact on the recognition of leases in the consolidated financial statements because under ASU 2016-02, lessors continue to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. As it relates to the latter, 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.
In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). The FASB issued ASU 2018-11 to clarify ASU 2016-02. The amendments in ASU 2018-11 provide entities with an additional (and

F-16
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies ASU 2016-02 at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 also provides lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met: (1) the timing and pattern of transfer of the nonlease components and associated lease component are the same, and (2) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with Topic 606. Otherwise, the entity must account for the combined component as an operating lease in accordance with Topic 842. For entities that have not adopted Topic 842 before the issuance of ASU 2018-11, the effective date and transition requirements for ASU 2018-11 related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02. In its capacity as a lessee, the
Company elected to adopt the new transition method offered by ASU 2018-11 and initially applied ASU 2016-02 on January
1, 2019 and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
In its capacity as a lessor and based on its evaluation of the components of its lease contracts, the Company also elected to
use the practical expedient provided by ASU 2018-11 and does not separate nonlease components from the associated lease
components and instead accounts for those components as a single component.
In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), Narrow-scope Improvements for Lessors (“ASU 2018-20”). The FASB issued ASU 2018-20 to allow lessors to make an accounting policy election not to evaluate whether sales taxes and other similar taxes imposed by a governmental authority on a specific lease revenue-producing transaction are the primary obligation of the lessor as the owner of the underlying leased asset. The amendments also clarify that when lessors allocate variable payments to lease and non-lease components they are required to follow the recognition guidance in ASU 2016-02 for the lease component and other applicable guidance, such as the new revenue standard, for the non-lease component. The amendments have the same effective date and transition requirements as ASU 2016-02 for entities that have not yet adopted ASU 2016-02. The amendments may be applied either retrospectively or prospectively. The Company is currently evaluating the impact of ASU 2018-20 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 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 November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, that requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company adopted ASU 2016-18 on January 1, 2018, and applied it retrospectively. As a result of adopting ASU 2016-18, the Company began presenting restricted cash along with cash and cash equivalents in its consolidated statements of cash flows.

F-17
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (“Subtopic 610-20”): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”), that clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset and defines the term in substance nonfinancial asset. ASU 2017-05 also clarifies that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. Subtopic 610-20, which was issued in May 2014 as part of ASU 2014-09 (discussed above), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity is required to apply amendments in ASU 2017-05 at the same time it applies the amendments in ASU 2014-09 (discussed above). ASU 2017-05 requires retrospective application and is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those fiscal years. Early adoption is permitted. Upon adoption of ASU 2017-05 on January 1, 2018, the Company did not experience a material impact.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The FASB issued ASU 2017-09 to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU No. 2017-09 requires prospective application and is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Upon adoption of ASU 2017-09 on January 1, 2018, the Company did not experience a material impact.
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 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 benefits. 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 that certain disclosures of interest rate cap agreements in its consolidated financial statements may be impacted by the adoption of ASU 2018-13.
3.          Real Estate
As of December 31, 2018, the Company owned ten multifamily properties, comprised of a total of 2,775 apartment homes. The total acquisition price of the Company’s real estate portfolio was $400,252,928. As of December 31, 2018 and 2017, the Company’s portfolio was approximately 92.4% and 92.6% occupied and the average monthly rent was $1,136 and $1,089, respectively.
Current Year Acquisitions
During the year ended December 31, 2018, the Company acquired the following property:
 
 
 
 
 
 
 
 
Purchase Price Allocation
Property Name
 
Location
 
Purchase Date
 
Units
 
Land
 
Buildings and Improvements
 
Tenant Origination and Absorption Costs
 
Total Purchase Price
Cottage Trails at Culpepper Landing
 
Chesapeake, VA
 
5/31/2018
 
183

 
$
3,848,274

 
$
26,813,993

 
$
456,431

 
$
31,118,698



F-18
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

As of December 31, 2018 and 2017, accumulated depreciation and amortization related to the Company’s consolidated real estate properties and related intangibles were as follows:
 
 
December 31, 2018
 
 
Assets
 
 
Land
 
Building and Improvements
 
Tenant Origination and Absorption Costs
 
Total Real Estate
Investments in real estate
 
$
45,908,171

 
$
355,780,664

 
$
—

 
$
401,688,835

Less: Accumulated depreciation and amortization
 
—

 
(21,387,012
)
 
—

 
(21,387,012
)
Total real estate, net
 
$
45,908,171

 
$
334,393,652

 
$
—

 
$
380,301,823

 
 
December 31, 2017
 
 
Assets
 
 
Land
 
Building and Improvements
 
Tenant Origination and Absorption Costs
 
Total Real Estate
Investments in real estate
 
$
42,059,897

 
$
323,636,510

 
$
4,214,078

 
$
369,910,485

Less: Accumulated depreciation and amortization
 
—

 
(7,403,608
)
 
(2,021,402
)
 
(9,425,010
)
Total real estate, net
 
$
42,059,897

 
$
316,232,902

 
$
2,192,676

 
$
360,485,475

Depreciation and amortization expense was $16,659,117, $12,488,831, and $825,735 for the years ended December 31, 2018, 2017 and 2016, respectively.
Depreciation of the Company’s buildings and improvements was $14,010,010, $7,045,959, and $357,649 for the years ended December 31, 2018, 2017 and 2016, respectively.
Amortization of the Company’s tenant origination and absorption costs was $2,649,107, $5,442,872, and $468,086 for the years ended December 31, 2018, 2017 and 2016, respectively. Tenant origination and absorption costs had a weighted-average amortization period as of the date of acquisition of less than one year.
Operating Leases
As of December 31, 2018, the Company’s real estate portfolio comprised 2,775 apartment homes and was 94.3% leased by a diverse group of residents. The residential lease terms consist of lease durations equal to twelve 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 payables and accrued liabilities in the accompanying consolidated balance sheets and totaled $1,015,187 and $709,440 as of December 31, 2018 and 2017, respectively.

As of December 31, 2018 and 2017, no tenant represented over 10% of the Company’s annualized base rent.

F-19
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

4.          Other Assets
As of December 31, 2018 and 2017, other assets consisted of:
 
December 31,
 
2018
 
2017
Prepaid expenses
$
262,850

 
$
287,958

Interest rate cap agreements
377,456

 
257,619

Other deposits
266,394

 
156,553

Other assets
$
906,700

 
$
702,130

5.          Debt
Mortgage Notes Payable
The following is a summary of mortgage notes payable, net secured by real property as of December 31, 2018 and 2017.
 
 
December 31, 2018
 
 
 
 
 
 
Interest Rate Range
 
Weighted Average Interest Rate
 
 
Type
 
Number of Instruments
 
Maturity Date Range
 
Minimum
 
Maximum
 
 
Principal Outstanding
Variable rate(1)
 
6
 
6/1/2026 - 9/1/2027
 
1-Mo LIBOR + 2.195%
 
1-Mo LIBOR + 2.52%
 
4.86%
 
$
156,892,000

Fixed rate
 
4
 
8/1/2024 - 6/1/2028
 
3.82%
 
4.66%
 
4.02%
 
124,674,000

Mortgage notes payable, gross
 
10
 
 
 
 
 
 
 
4.49%
 
281,566,000

Deferred financing costs, net(2)
 
 
 
 
 
 
 
 
 
 
 
(1,479,079
)
Mortgage notes payable, net
 
 
 
 
 
 
 
 
 
 
 
$
280,086,921


 
 
December 31, 2017
 
 
 
 
 
 
Interest Rate Range
 
Weighted Average Interest Rate
 
 
Type
 
Number of Instruments
 
Maturity Date Range
 
Minimum
 
Maximum
 
 
Principal Outstanding
Variable rate(1)
 
6
 
6/1/2026 - 9/1/2027
 
1-Mo LIBOR + 2.195%
 
1-Mo LIBOR + 2.52%
 
3.90%
 
$
156,892,000

Fixed rate
 
3
 
8/1/2024 - 1/1/2025
 
3.82%
 
3.92%
 
3.89%
 
103,129,000

Mortgage notes payable, gross
 
9
 
 
 
 
 
 
 
3.90%
 
260,021,000

Deferred financing costs, net(2)
 
 
 
 
 
 
 
 
 
 
 
(1,550,559
)
Mortgage notes payable, net
 
 
 
 
 
 
 
 
 
 
 
$
258,470,441

_________
(1)
See Note 10 (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 deferred financing costs, net as of December 31, 2018 and 2017 was $361,008 and $126,446, respectively.


F-20
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Maturity and Interest
The following is a summary of the Company’s aggregate maturities as of December 31, 2018:
 
 
 
 
Maturities During the Years Ending December 31,
 
 
Contractual Obligations
 
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Principal payments on outstanding debt obligations(1)
 
$
281,566,000

 
$
53,989

 
$
374,945

 
$
1,835,900

 
$
3,552,437

 
$
4,313,179

 
$
271,435,550

__________
(1)
Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. Amounts exclude the deferred financing costs, net associated with the notes payable.
The Company’s mortgage notes payable contain customary financial and non-financial debt covenants. As of December 31, 2018 and 2017, the Company was in compliance with all debt covenants.
For the years ended December 31, 2018, 2017 and 2016, the Company incurred interest expense of $11,657,873, $5,898,156 and $281,031, respectively. Interest expense for the years ended December 31, 2018, 2017 and 2016, includes amortization of deferred financing costs of $234,562, $119,514 and $6,931 and net unrealized (gains) losses from the change in fair value of interest rate cap agreements of $(119,837), $444,252 and $24,989, respectively.
Interest expense of $1,064,648 and $660,068 was payable as of December 31, 2018 and 2017, respectively, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.
6.         Stockholders’ Equity
 General
Under the Company’s Second Articles of Amendment and Restatement (the “Charter”), the total number of shares of capital stock authorized for issuance is 1,300,000,000, consisting of 1,200,000,000 shares of common stock, $0.01 par value per share, of which 480,000,000 shares are classified as Class A common stock, 240,000,000 shares are classified as Class R common stock and 480,000,000 shares are classified as Class T common stock, and 100,000,000 shares of preferred stock, $0.01 par value per share. The Company’s board of directors may amend the Charter from time to time to increase or decrease the aggregate number of shares of capital stock or the number of shares of capital stock of any class or series that it has authority to issue.
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.
On August 24, 2015, the Company issued 8,000 shares of Class A common stock for $200,000 to the Advisor.

F-21
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

The following table reflects information regarding shares of common stock sold in the Public Offering from inception through December 31, 2018:
 
 
December 31, 2018
 
 
Class A
 
Class R
 
Class T
 
Total
Shares of common stock issued - Primary Offering
 
3,371,786

 
465,907

 
4,427,051

 
8,264,744

Shares of common stock issued - DRP
 
141,524

 
11,777

 
196,681

 
349,982

Total shares of common stock issued - Public Offering
 
3,513,310

 
477,684

 
4,623,732

 
8,614,726

Gross offering proceeds - Primary Offering
 
$
83,142,845

 
$
10,482,148

 
$
105,408,113

 
$
199,033,106

Gross offering proceeds - DRP
 
3,342,744

 
265,053

 
4,446,707

 
8,054,504

Total offering proceeds - Public Offering
 
$
86,485,589

 
$
10,747,201

 
$
109,854,820

 
$
207,087,610

Offering costs before distribution and shareholder servicing fees
 
 
 
 
 
 
 
(27,624,273
)
Offering proceeds, net of offering costs
 
 
 
 
 
 
 
$
179,463,337

Offering proceeds include $0 and $61,875 of amounts due from the Company’s transfer agent as of December 31, 2018 and 2017, respectively, which are included in rents and other receivables in the accompanying consolidated balance sheets.
For the years ended December 31, 2018, 2017 and 2016, the Company issued 550, 1,100, and 2,240 shares of Class A common stock to its independent directors pursuant to the Company’s independent directors’ compensation plan at a value of $25.00 per share as base annual compensation and compensation for attending meetings of the Company’s board of directors. See Note 8 (Long-Term Incentive Award Plan and Independent Director Compensation) for additional information. The shares of common stock vest and become non-forfeitable immediately upon the date of grant. Included in general and administrative expenses is $13,750, $27,500 and $56,000 for the years ended December 31, 2018, 2017 and 2016, respectively, for compensation expense related to the issuance of common stock to the Company’s independent directors.
On August 9, 2018 and 2017, the Company granted 1,000 shares of restricted Class A common stock to each of its three independent directors pursuant to the Company’s independent directors’ compensation plan at a fair value of $25.00 per share in connection with their re-election to the board of directors at the Company’s annual meeting of stockholders. 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; provided, however, that the shares of restricted common stock will become fully vested 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.
The issuance and vesting activity for the years ended December 31, 2018, 2017 and 2016 for the restricted stock issued to the Company’s independent directors as compensation for services in connection with the Company raising $2,000,000 in the Public Offering and the independent directors’ re-election to the board of directors at the Company’s annual meeting is as follows:
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Nonvested shares at the beginning of the period
 
5,250

 
4,500

 
—

Granted shares
 
3,000

 
3,000

 
6,000

Vested shares
 
(3,000
)
 
(2,250
)
 
(1,500
)
Nonvested shares at the end of the period
 
5,250

 
5,250

 
4,500

Included in general and administrative expenses is $82,346, $63,591 and $61,071 for the years ended December 31, 2018, 2017 and 2016 respectively, for compensation expense related to the issuance of restricted common stock. As of December 31, 2018, the compensation expense related to the issuance of the restricted common stock not yet recognized was $93,002. The weighted average remaining term of the restricted common stock was 1.11 years as of December 31, 2018. As of December 31, 2018, no shares of restricted common stock issued to the independent directors have been forfeited.

F-22
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

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 December 31, 2018 and 2017, no shares of the Company’s preferred stock were issued and outstanding.
Distribution Reinvestment Plan
The Company’s board of directors has approved the DRP through which common stockholders may elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares of the Company’s common stock in lieu of receiving cash distributions. The purchase price per Class A, Class R and Class T share of common stock under the DRP was initially $23.75, $22.50 and $22.62, respectively. On October 9, 2018, the Company’s board of directors determined a price per Class A, Class R and Class T share of common stock for the DRP of $22.54, effective November 1, 2018. The Company’s board of directors elected to suspend the DRP with respect to distributions that accrue after February 1, 2019. As a result, all distributions that accrued beginning in February 2019 were paid in cash and not reinvested in shares of the Company’s common stock. The Company’s board of directors may, from time to time in its sole discretion, reinstate the DRP, although there is no assurance as to if or when this will happen.
No sales commissions or dealer manager fees were payable on shares sold through the DRP. The Company’s board of directors may amend, suspend or terminate the DRP at its discretion at any time upon ten days’ notice to the Company’s stockholders. Following any termination of the DRP, subsequent distributions to stockholders will be made in cash.
Share Repurchase Program and Redeemable Common Stock
The Company’s share repurchase program may provide an opportunity for stockholders to have their shares of common stock repurchased by the Company, subject to certain restrictions and limitations. No shares can be repurchased under the Company’s share repurchase program until after the first anniversary of the date of purchase of such shares; provided, however, that this holding period shall not apply to repurchases requested within 270 days after the death or disability of a stockholder.
Prior to the date the Company announced an estimated value per share of its common stock, the purchase price for shares repurchased under the Company’s share repurchase program was as follows:
Share Purchase Anniversary
 
Repurchase Price on Repurchase Date(1)
Less than 1 year
 
No Repurchase Allowed
1 year
 
92.5% of Purchase Price
2 years
 
95.0% of Purchase Price
3 years
 
97.5% of Purchase Price
4 years
 
100.0% of Purchase Price
In the event of a stockholder’s death or disability
 
Average Issue Price for Shares(2)
Beginning October 12, 2018, the date the Company first published its estimated value per share of its common stock, the purchase price for shares repurchased under the Company’s share repurchase program is as follows:
Share Purchase Anniversary
 
Repurchase Price on Repurchase Date(1)(3)(4)
Less than 1 year
 
No Repurchase Allowed
1 year
 
92.5% of the Lesser of Purchase Price or Estimated Value per Share
2 years
 
95.0% of the Lesser of Purchase Price or Estimated Value per Share
3 years
 
97.5% of the Lesser of Purchase Price or Estimated Value per Share
4 years
 
100.0% of the Lesser of Purchase Price or Estimated Value per Share
In the event of a stockholder’s death or disability
 
Average Issue Price for Shares(2)

F-23
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

_______________
(1)  As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock. Repurchase price includes the full amount paid for each share, including all sales commissions and dealer manager fees.
(2) 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 required one-year holding period does not apply to repurchases requested within 270 days after the death or disability of a stockholder.
(3) For purposes of the share repurchase program, until the day the Company publicly disclosed a new estimated value per share, the purchase price for shares purchased under the share repurchase program equaled, exclusively, the purchase price paid for the shares. Thereafter, the repurchase price will be a graduated percentage of the lesser of the purchase price or the estimated value per share in effect at the time of repurchase. The estimated value per share will be determined by the Company’s board of directors, based on periodic valuations by independent third-party appraisers or qualified independent valuation experts selected by the Advisor.
(4) For purposes of the share repurchase program, the “Estimated Value per Share” will equal the most recent publicly disclosed estimated value per share determined by the Company’s board of directors. On October 12, 2018, the Company publicly disclosed an estimated value per share of $22.54 for each class of shares of its common stock based on valuations by independent third-party appraisers or qualified valuation experts.
The purchase price per share for shares repurchased pursuant to the Company’s share repurchase program will be further reduced by the aggregate amount of net proceeds per share, if any, distributed to the Company’s stockholders prior to the repurchase date as a result of the sale of one or more of the Company’s assets that constitutes a return of capital distribution as a result of such sales.
Repurchases of shares of the Company’s common stock will be made quarterly upon written request to the Company at least 15 days prior to the end of the applicable quarter. Repurchase requests will be honored approximately 30 days following the end of the applicable quarter (the “Repurchase Date”). Stockholders may withdraw their repurchase request at any time up to three business days prior to the Repurchase Date.
The following table reflects repurchase activity for the years ended December 31, 2018 and 2017:
 
 
Year Ended December 31, 2018
 
 
Class A
 
Class R
 
Class T
 
Total
Repurchase requests (in shares)
 
43,329

 
3,608

 
2,528

 
49,465

Repurchase requests (value)
 
$
988,099

 
$
75,097

 
$
57,002

 
$
1,120,198

Repurchases fulfilled (in shares)
 
20,209

 
3,608

 
2,528

 
26,345

Repurchase requests fulfilled (value)
 
$
463,669

 
$
75,097

 
$
57,002

 
$
595,768

 
 
Year Ended December 31, 2017
 
 
Class A
 
Class R
 
Class T
 
Total
Repurchase requests (in shares)
 
3,044

 
—

 
887

 
3,931

Repurchase requests (value)
 
$
71,080

 
$
—

 
$
21,069

 
$
92,149

Repurchases fulfilled (in shares)
 
—

 
—

 
887

 
887

Repurchase requests fulfilled (value)
 
$
—

 
$
—

 
$
21,069

 
$
21,069

As of December 31, 2018 and 2017, the Company had outstanding and unfulfilled repurchase requests of 26,177 and 3,044 Class A shares and recorded $595,821 and $71,080 in accounts payable and accrued liabilities on the accompanying consolidated balance sheets related to these unfulfilled repurchase requests. The Company repurchased the outstanding repurchase requests as of December 31, 2018 and 2017 of $595,821 and $71,080 on the January 31, 2019 and 2018 Repurchase Dates.
The Company cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all repurchase requests made in any quarter. In the event that the Company does not have sufficient funds available to repurchase all of the shares of the Company’s common stock for which repurchase requests have been submitted in any quarter,

F-24
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

such outstanding repurchase requests will automatically roll over to the subsequent quarter and priority will be given to redemption requests in the case of the death or disability of a stockholder. If the Company repurchases less than all of the shares subject to a repurchase request in any quarter, with respect to any shares which have not been repurchased, a stockholder can (1) withdraw the stockholder’s request for repurchase or (2) ask that the Company honor the stockholder’s request in a future quarter, if any, when such repurchases can be made pursuant to the limitations of the share repurchase program and when sufficient funds are available. Such pending requests will be honored among all requests for redemptions 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. Shares repurchased under the share repurchase program to satisfy the required minimum distribution requirements under the Internal Revenue Code applicable to retirement Benefit Plans and IRAs will be repurchased on or after the first anniversary of the date of purchase of such shares at 100% of the purchase price or at 100% of the estimated value per share, as applicable.
The Company is not obligated to repurchase shares of its common stock under the share repurchase program. The share repurchase program limits the number of shares to be repurchased in any calendar year to (1) 5% of the weighted average number of shares of common stock outstanding during the prior calendar year and (2) those that could be funded from the net proceeds from the sale of shares under the DRP in the prior calendar year, plus such additional funds as may be reserved for that purpose by the Company’s board of directors. Such sources of funds could include cash on hand, cash available from borrowings and cash from liquidations of securities investments as of the end of the applicable month, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, cash distributions to stockholders or purchases of real estate assets. There is no fee in connection with a repurchase of shares of the Company’s common stock pursuant to the Company’s share repurchase program.
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 its stockholders if it determines that the funds available to fund the share repurchase program are needed for other business or operational purposes or that amendment, suspension or termination of the share repurchase program is in the best interest of the Company’s stockholders. Therefore, a stockholder may not have the opportunity to make a repurchase request prior to any potential termination of the Company’s share repurchase program. The share repurchase program will terminate in the event that a secondary market develops for the Company’s shares of common stock.

Pursuant to the share repurchase plan, for the years ended December 31, 2018 and 2017, the Company reclassified $4,174,775 and $2,698,321, net of $595,768 and $21,069 of fulfilled repurchase requests, respectively, from permanent equity to temporary equity, which is included as redeemable common stock on the accompanying consolidated balance sheets.
Distributions
The Company’s long-term policy is to pay distributions solely from cash flow from operations. However, the Company expects to have insufficient cash flow from operations available for distribution until it makes substantial investments. Further, because the Company may receive income from interest or rents at various times during the Company’s fiscal year and because the Company may need cash flow from operations during a particular period to fund capital expenditures and other expenses, the Company expects that at least during the early stages of the Company’s development and from time to time during the Company’s operational stage, the Company will declare distributions in anticipation of cash flow that the Company expects to receive during a later period, and the Company expects to pay these distributions in advance of its actual receipt of these funds. In these instances, the Company’s board of directors has the authority under its organizational documents, to the extent permitted by Maryland law, to fund distributions from sources such as borrowings, offering proceeds or advances and the deferral of fees and expense reimbursements by the Advisor, in its sole discretion. If the Company pays distributions from sources other than cash flow from operations, the Company will have fewer funds available for investments and stockholders’ overall return on their investment in the Company may be reduced.
The Company elected to be taxed as, and qualifies, as a REIT for federal income tax purposes commencing with the taxable year ended December 31, 2016. To qualify as a REIT, the Company must make aggregate annual distributions to its stockholders of at least 90% of the Company’s 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). If the Company meets the REIT qualification requirements, the Company generally will not be subject to federal income tax on the income that the Company distributes to its stockholders each year.


F-25
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018


Distributions Declared and Paid
The following table reflects per share daily distribution rates and annualized distribution rates for the four fiscal quarters of 2018 and 2017:
 
 
2018 (1)
 
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Daily Distribution per Class A share (2)
 
$
0.004110

 
$
0.004110

 
$
0.004110

 
$
0.004110

Daily Distribution per Class R share (2)(3)
 
$
0.00394521

 
$
0.00394521

 
$
0.00394521

 
$
0.004110

Daily Distribution per Class T share (2)(4)
 
$
0.003376

 
$
0.003376

 
$
0.003376

 
$
0.004110

Annualized Rate Based on Purchase Price:
 
 
 
 
 
 
 
 
Per Class A share
 
6.00
%
 
6.00
%
 
6.00
%
 
6.00
%
Per Class R share
 
6.40
%
 
6.40
%
 
6.40
%
 
6.67
%
Per Class T share
 
5.17
%
 
5.17
%
 
5.17
%
 
6.30
%
 
 
2017 (1)
 
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Daily Distribution per Class A share (2)
 
$
0.004110

 
$
0.004110

 
$
0.004110

 
$
0.004110

Daily Distribution per Class R share (2)(3)
 
$
0.00394521

 
$
0.00394521

 
$
0.00394521

 
$
0.00394521

Daily Distribution per Class T share (2)(4)
 
$
0.003376

 
$
0.003376

 
$
0.003457

 
$
0.003376

Annualized Rate Based on Purchase Price:
 
 
 
 
 
 
 
 
Per Class A share
 
6.00
%
 
6.00
%
 
6.00
%
 
6.00
%
Per Class R share
 
6.40
%
 
6.40
%
 
6.40
%
 
6.40
%
Per Class T share
 
5.17
%
 
5.17
%
 
5.30
%
 
5.17
%
_________________
(1)
The Company’s board of directors approved a cash distribution that accrued at the above rates per day for each share of the Company’s Class A common stock, Class R common stock and Class T common stock, which if paid each day over a 365-day period during fiscal years 2018 and 2017, respectively, is equivalent to the per share annualized rates reflected above based on a purchase price of $25.00 per share of Class A common stock, $22.50 per share of Class R common stock and $23.81 per share of Class T common stock.
(2)
The distributions declared accrue daily to stockholders of record as of the close of business on each day and are payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month. There is no guarantee that the Company will continue to pay distributions at these rates or at all.
(3)
Distributions during the fiscal years 2018 and 2017, were based on daily record dates and calculated at a rate of $0.00394521 per share of Class R common stock per day for Class R common stock subject to an annual distribution and shareholder servicing fee of 0.27%. In some instances during the year ended December 31, 2018, three months ended March 31, 2017 and the three months ended December 31, 2017, the Company paid distributions at a rate of $0.00369863 per share of Class R common stock per day for Class R common stock subject to an annual distribution and shareholder servicing fee of 0.67%.
(4)
Distributions during the three months ended September 30, 2017, were based on daily record dates and calculated at a rate of $0.003457 per share of Class T common stock per day for Class T common stock subject to an annual distribution and shareholder servicing fee of 1.0%. In some instances during the year ended December 31, 2018, three months ended September 30, 2017, and the three months ended December 31, 2017, the Company paid distributions at a rate of $0.003376 subject to an annual distribution and shareholder fee of 1.125%.

F-26
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

The following tables reflect distributions declared and paid to Class A common stockholders, Class R common stockholders and Class T common stockholders for the years ended December 31, 2018 and 2017:
 
 
Year Ended December 31, 2018
 
 
Class A
 
Class R
 
Class T
 
Total
DRP distributions declared (in shares)
 
82,435

 
8,689

 
138,442

 
229,566

DRP distributions declared (value)
 
$
1,929,937

 
$
195,619

 
$
3,128,060

 
$
5,253,616

Cash distributions declared
 
2,973,947

 
401,443

 
2,335,712

 
5,711,102

Total distributions declared
 
$
4,903,884

 
$
597,062

 
$
5,463,772

 
$
10,964,718

 
 
 
 
 
 
 
 
 
DRP distributions paid (in shares)
 
80,821

 
8,270

 
130,738

 
219,829

DRP distributions paid (value)
 
$
1,901,022

 
$
186,153

 
$
2,955,129

 
$
5,042,304

Cash distributions paid
 
2,918,723

 
384,993

 
2,195,243

 
5,498,959

Total distributions paid
 
$
4,819,745

 
$
571,146

 
$
5,150,372

 
$
10,541,263

 
 
Year Ended December 31, 2017
 
 
Class A
 
Class R
 
Class T
 
Total
DRP distributions declared (in shares)
 
55,934

 
3,654

 
68,424

 
128,012

DRP distributions declared (value)
 
$
1,328,426

 
$
82,207

 
$
1,547,760

 
$
2,958,393

Cash distributions declared
 
1,957,862

 
212,865

 
1,060,133

 
3,230,860

Total distributions declared
 
$
3,286,288

 
$
295,072

 
$
2,607,893

 
$
6,189,253

 
 
 
 
 
 
 
 
 
DRP distributions paid (in shares)
 
52,490

 
3,267

 
61,857

 
117,614

DRP distributions paid (value)
 
$
1,246,638

 
$
73,524

 
$
1,399,218

 
$
2,719,380

Cash distributions paid
 
1,824,122

 
195,955

 
944,694

 
2,964,771

Total distributions paid
 
$
3,070,760

 
$
269,479

 
$
2,343,912

 
$
5,684,151

As of December 31, 2018, $1,169,815 of distributions declared were payable and are included in distributions payable in the accompanying consolidated balance sheets, which included $448,039, $62,322 and $659,454 of Class A common stock, Class R common stock and Class T common stock, respectively, of which, $175,189, $21,090 and $371,724 or 7,772, 936 and 16,492 shares of Class A common stock, Class R common stock and Class T common stock are attributable to the DRP, respectively.
As of December 31, 2017, $746,360 of distributions declared were payable and included in distributions payable in the accompanying consolidated balance sheets, which included $363,900, $36,405 and $346,055 of Class A common stock, Class R common stock and Class T common stock, respectively, of which $146,273, $11,624 and $198,794, or 6,158, 517 and 8,788 shares of Class A common stock, Class R common stock and Class T common stock, are attributable to the DRP, respectively.
As reflected in the table above, for the year ended December 31, 2018, the Company paid total distributions of $10,541,263, which related to distributions declared for each day in the period from December 1, 2017 through November 30, 2018, respectively.
For the year ended December 31, 2017, the Company paid total distributions of $5,684,151, which related to distributions declared for each day in the period from December 1, 2016 through November 30, 2017, respectively.

F-27
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

7.          Related Party Arrangements
The Company entered into the Advisory Agreement with the Advisor and a Dealer Manager Agreement with the Dealer Manager. Pursuant to the Advisory Agreement and Dealer Manager Agreement, the Company paid the Advisor and the Dealer Manager specified fees upon the provision of certain services related to the Public Offering, the investment of funds in real estate and real estate-related investments and the management of the Company’s investments and for other services (including, but not limited to, the disposition of investments) as well as make certain distributions in connection with the Company’s liquidation or listing on a national stock exchange. Subject to the limitations described below, the Company also reimbursed the Advisor and its affiliates for organization and offering costs incurred by the Advisor and its affiliates on behalf of the Company, as well as acquisition and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company.

F-28
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Amounts attributable to the Advisor and its affiliates incurred (earned) for the years ended December 31, 2018, 2017 and 2016 are as follows:
 
 
Incurred (Earned) For The Year Ended December 31,
 
 
2018
 
2017
 
2016
Consolidated Statements of Operations:
 
 
 
 
 
 
Expensed
 
 
 
 
 
 
Organization costs(1)
 
$
—

 
$
—

 
$
26,980

Investment management fees(2)
 
4,167,442

 
1,655,649

 
60,452

Acquisition fees(3)
 
—

 
—

 
2,099,801

Acquisition expenses(3)
 
2,474

 
105,105

 
572,722

Property management:
 
 
 
 
 
 
Fees(2)
 
1,179,534

 
572,575

 
47,884

Reimbursement of onsite personnel(4)
 
3,481,479

 
1,649,259

 
157,121

Other fees(2)
 
452,225

 
174,073

 
12,915

Other fees - property operations(4)
 
27,336

 
20,040

 
—

Other fees - G&A(1)
 
36,828

 
12,040

 
1,463

Other operating expenses(1)
 
1,176,246

 
1,024,078

 
861,164

Rental revenue(5)
 
(10,026
)
 
—

 
—

Property insurance(6)
 
375,478

 
74,890

 
1,014

Insurance proceeds(7)
 
(75,000
)
 
—

 
—

Consolidated Balance Sheets:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Property escrow deposits(8)
 
—

 
—

 
234,000

Capitalized
 
 
 
 
 
 
Acquisition fees(9)
 
624,854

 
5,575,417

 
—

Acquisition expenses(9)
 
161,242

 
851,694

 
—

  Construction management:
 
 
 
 
 
 
Fees(10)
 
178,756

 
172,975

 
14,163

Reimbursements of labor costs(10)
 
385,876

 
226,195

 
494

Capital expenditures(10)
 
21,538

 
50,990

 
12,589

Additional paid-in capital
 
 
 
 
 
 
Other offering costs reimbursement
 
5,085,703

 
6,167,169

 
3,329,974

Selling commissions:
 
 
 
 
 
 
   Class A
 
926,929

 
2,255,616

 
1,635,300

   Class T
 
801,531

 
1,728,311

 
632,407

Dealer manager fees:
 
 
 
 
 
 
   Class A
 
422,055

 
1,164,070

 
840,004

   Class T
 
667,939

 
1,440,260

 
527,005

Distribution and shareholder servicing fee:
 
 
 
 
 
 
   Class R(11)
 
(164,429
)
 
141,570

 
55,821

   Class T(11)
 
(1,951,285
)
 
2,304,514

 
948,609

 
 
$
17,974,725

 
$
27,366,490

 
$
12,071,882

____________________

F-29
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018


(1)
Included in general and administrative expenses in the accompanying consolidated statements of operations.
(2)    Included in fees to affiliates in the accompanying consolidated statements of operations.
(3)
Prior to the adoption of ASU 2017-01 as of January 1, 2017, acquisition fees and acquisition expenses were included in fees to affiliates and acquisition costs, respectively, in the accompanying consolidated statements of operations.
(4)
Included in operating, maintenance and management in the accompanying consolidated statements of operations.
(5)
Included in rental income in the accompanying consolidated statements of operations.
(6)
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.
(7)
Included in tenant reimbursements and other in the accompanying consolidated statements of operations.
(8)
Escrow deposits paid on behalf of the Company by an affiliate of the Advisor in connection with the acquisition of Carriage House Apartment Homes.
(9)
Included in total real estate, cost in the accompanying consolidated balance sheets following the adoption of ASU 2017-01, as of January 1, 2017.
(10)
Included in building and improvements in the accompanying consolidated balance sheets.
(11)
Included in additional paid-in capital as commissions on sales of common stock and related dealer manager fees to affiliates in the accompanying consolidated statements of stockholders’ equity.


F-30
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Amounts attributable to the Advisor and its affiliates paid (received) for the years ended December 31, 2018, 2017 and 2016 are as follows:
 
 
Paid (Received) During The Year Ended December 31,
 
 
2018
 
2017
 
2016
Consolidated Statements of Operations:
 
 
 
 
 
 
Expensed
 
 
 
 
 
 
Organization costs
 
$
—

 
$
—

 
$
26,980

Investment management fees
 
3,509,826

 
1,642,290

 
20,402

Acquisition fees
 
—

 
—

 
1,150,670

Acquisition expenses
 
2,474

 
105,105

 
516,531

Property management:
 
 
 
 
 
 
Fees
 
1,093,795

 
502,873

 
23,117

Reimbursement of onsite personnel
 
3,436,176

 
1,527,791

 
135,956

Other fees
 
448,684

 
167,887

 
11,469

Other fees - property operations
 
27,336

 
20,040

 
—

Other fees - G&A
 
36,828

 
12,040

 
1,463

Other operating expenses
 
1,173,364

 
1,230,843

 
551,790

Rental revenue
 
(10,026
)
 
—

 
—

     Property insurance
 
399,692

 
89,938

 
2,028

Consolidated Balance Sheets:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Property escrow deposits
 
—

 
—

 
234,000

Capitalized
 
 
 
 
 
 
Acquisition fees
 
2,347,495

 
4,801,907

 
—

Acquisition expenses
 
161,242

 
907,885

 
—

  Construction management:
 
 
 
 
 
 
Fees
 
180,267

 
167,543

 
12,828

Reimbursements of labor costs
 
382,085

 
213,099

 
482

Capital expenditures
 
21,538

 
50,990

 
12,589

Additional paid-in capital
 
 
 
 
 
 
Other offering costs reimbursement
 
1,810,661

 
7,377,882

 
1,713,487

Selling commissions:
 
 
 
 
 
 
   Class A
 
926,929

 
2,255,616

 
1,635,300

   Class T
 
801,531

 
1,728,311

 
632,407

Dealer manager fees:
 
 
 
 
 
 
   Class A
 
422,055

 
1,164,070

 
840,004

   Class T
 
667,939

 
1,440,260

 
527,005

Distribution and shareholder servicing fee:
 
 
 
 
 
 
   Class R
 
19,866

 
13,095

 
—

   Class T
 
802,558

 
466,625

 
32,655

 
 
$
18,662,315

 
$
25,886,090

 
$
8,081,163


F-31
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Amounts attributable to the Advisor and its affiliates that are payable (receivable/prepaid) as of December 31, 2018 and 2017, are as follows:
 
 
Payable (Receivable/Prepaid) as of December 31,
 
 
2018
 
2017
Consolidated Statements of Operations:
 
 
 
 
Expensed
 
 
 
 
Investment management fees
 
$
711,025

 
$
53,409

Property management:
 
 
 
 
Fees
 
180,208

 
94,469

Reimbursement of onsite personnel
 
187,936

 
142,633

Other fees
 
11,173

 
7,632

Other operating expenses
 
105,491

 
102,609

 Property insurance
 
(40,276
)
 
(16,062
)
Insurance proceeds
 
(75,000
)
 
—

Consolidated Balance Sheets:
 
 
 
 
Capitalized
 
 
 
 
Acquisition fees
 
—

 
1,722,641

  Construction management:
 
 
 
 
Fees
 
5,256

 
6,767

Reimbursements of labor costs
 
16,899

 
13,108

Additional paid-in capital
 
 
 
 
Other offering costs reimbursement
 
3,680,816

 
405,774

Distribution and shareholder servicing fee:
 
 
 
 
   Class R
 
—

 
184,295

   Class T
 
—

 
2,753,843

 
 
$
4,783,528

 
$
5,471,118

Organization and Offering Costs
Organization and offering expenses include all expenses (other than sales commissions, the dealer manager fee and the distribution and shareholder servicing fee) to be paid by the Company in connection with the Public Offering, including legal, accounting, tax, printing, mailing and filing fees, charges of the Company’s escrow holder and transfer agent, expenses of organizing the Company, data processing fees, advertising and sales literature costs, transfer agent costs, information technology costs, bona fide out-of-pocket due diligence costs and amounts to reimburse the Advisor or its affiliates for the salaries of its employees and other costs in connection with preparing sales materials and providing other administrative services in connection with the Public Offering. Any such reimbursement will not exceed actual expenses incurred by the Advisor. After the termination of the Public Offering, the Advisor had an obligation to reimburse the Company to the extent total organization and offering expenses (including sales commissions, dealer manager fees and the distribution and shareholder servicing fees) incurred by the Company exceed 15% of the gross proceeds raised in the Primary Offering. Total organization and offering expenses incurred by the Company did not exceed 15% of the gross offering proceeds raised in the Primary Offering.
The Company may also reimburse costs of bona fide training and education meetings held by the Company (primarily the travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees and cost reimbursement of employees of the Company’s affiliates to attend seminars conducted by broker-dealers and, in certain cases, reimbursement to participating broker-dealers for technology costs associated with the offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the Company’s shares and the ownership of the Company’s shares by such broker-dealers’ customers; provided, however, that the Company did not pay any of the foregoing costs to the extent that such payment would cause total underwriting compensation to exceed 10% of the gross offering proceeds of the Primary Offering, as required by the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

F-32
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Organization and offering costs include payments made to Crossroads Capital Advisors, whose parent company indirectly owns 25% of the Steadfast REIT Investments, LLC (the “Sponsor”), for certain specified services provided to the Company on behalf of the Advisor, including, without limitation, establishing operational and administrative processes; engaging and negotiating with vendors; providing recommendations and advice for the development of marketing materials and ongoing communications with investors; and assisting in public relations activities and the administration of the DRP and share repurchase program. From the commencement of the Public Offering through December 31, 2018 and 2017, the Advisor had incurred on the Company’s behalf $1,127,576 and $1,828,156, respectively, of costs attributable to Crossroads Capital Advisors for the services described above, all of which was recorded by the Company as offering costs during the applicable periods.
The amount of reimbursable organization and offering (“O&O”) costs that have been paid or recognized from inception through December 31, 2018 is as follows: 
 
 
Amount
 
Percentage of Gross Offering Proceeds
Gross offering proceeds:
 
$
199,033,106

 
100.00
%
O&O limitation
 
15.00
%
 
 
Total O&O costs available to be paid/reimbursed
 
$
29,854,966

 
15.00
%
 
 
 
 
 
O&O expenses recorded:
 
 
 
 
Sales commissions
 
$
7,980,090

 
4.01
%
Broker dealer fees(1)
 
5,061,337

 
2.54
%
Distribution and shareholder servicing fees(2)
 
1,334,800

 
0.67
%
Offering cost reimbursements
 
14,582,846

 
7.33
%
Organizational costs reimbursements
 
26,980

 
0.01
%
Total O&O cost reimbursements recorded by the Company
 
$
28,986,053

 
14.56
%
_____________________
(1)
Includes $1,903,127 of marketing reallowance paid to participating broker dealers.
(2)
Includes the distribution and shareholder servicing fees paid from inception through December 31, 2018, for Class R shares of 0.27% and 0.67%, and Class T shares up to 1.125% of the purchase price per share sold in the Public Offering. The distribution and shareholder servicing fees were paid from sources other then Public Offering proceeds.
When recognized, organization costs are expensed as incurred. From inception through December 31, 2018, the Advisor incurred $26,980 of organizational costs on the Company’s behalf, all of which was reimbursed to the Advisor.
Offering costs, including selling commissions and dealer manager fees and the distribution and shareholder servicing fees, are deferred and charged to stockholders’ equity. All such amounts are reimbursed to the Advisor, the Dealer Manager or their affiliates from gross offering proceeds except for the distribution and shareholder servicing fees, which were paid from sources other than Public Offering proceeds. For the years ended December 31, 2018, 2017 and 2016, the Advisor incurred $4,394,430, $9,976,583 and $11,114,533 of offering costs related to the Public Offering, respectively. The Advisor has incurred total offering costs related to the Public Offering of $25,485,548 from inception through December 31, 2018, of which $7,610,035 is deferred and may be reimbursable, subject to the limitations described above and the approval of the independent directors.
The Company accrued $3,680,816 and $405,774 for the reimbursement of offering costs in the accompanying consolidated balance sheets as of December 31, 2018 and 2017, respectively. The deferred offering costs of $7,610,035 are not included in the consolidated financial statements of the Company because these costs were not a Company liability as they exceeded the 15% limitation described above.

F-33
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Investment Management Fee
The Company paid the Advisor a monthly investment management fee equal to one-twelfth of 0.50% of the value of the Company’s investments in properties and real estate-related assets until the aggregate value of the Company’s investments in properties and real estate-related assets equaled $300,000,000, which occurred on August 31, 2017. Thereafter, the Company pays the Advisor a monthly investment management fee equal to one-twelfth of 1.0% of the value of the Company’s investments in properties and real estate-related assets. For the purposes of the investment management fee, the value of the Company’s investments in properties will equal their costs, until the investments are valued by an independent third-party appraiser or qualified independent valuation expert. “Costs” are calculated by including acquisition fees, acquisition expenses, renovations and upgrades, and any debt attributable to such investments, or the Company’s proportionate share thereof in the case of investments made through joint ventures.
Acquisition Fees and Expenses
The Company pays the Advisor an acquisition fee equal to 2.0% of the cost of the investment which includes the amount actually paid or budgeted to fund the acquisition, origination, development, construction or improvement (i.e. value-enhancement) of any real property or real estate-related asset acquired. In addition to acquisition fees, the Company reimburses the Advisor for amounts directly incurred by the Advisor and amounts the Advisor pays to third parties in connection with the selection, evaluation, acquisition and development of a property or acquisition of real estate-related assets, whether or not the Company ultimately acquires the property or the real estate-related assets.
The Charter limits the Company’s ability to pay acquisition fees if the total of all acquisition fees and expenses relating to the purchase would exceed 6.0% of the contract purchase price. Under the Charter, a majority of the Company’s board of directors, including a majority of the independent directors, is required to approve any acquisition fees (or portion thereof) that would cause the total of all acquisition fees and expenses relating to an acquisition to exceed 6.0% of the contract purchase price. In connection with the purchase of securities, the acquisition fee may be paid to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the acquisition fee to a firm that is not a registered broker-dealer. 
Loan Coordination Fee
Subject to the determination by a majority of the independent directors that the Advisor provides a substantial amount of services in connection with the origination or refinancing of any debt financing obtained by the Company that is used to refinance properties or other permitted investments or financing in connection with a recapitalization of the Company, the Company pays the Advisor a loan coordination fee equal to 0.75% of the amount available under such financing.
Property Management Fees and Expenses
The Company has entered into Property Management Agreements (each, as amended from time to time, a “Property Management Agreement”) with Steadfast Management Company, Inc., an affiliate of the Sponsor (the “Property Manager”) in connection with the management of each of the Company’s properties. The property management fee payable with respect to each property under the Property Management Agreements at December 31, 2018, ranges from 2.75% to 3.0% of the gross revenue of the property (as defined in the Property Management Agreement). In addition, the Property Manager may also earn an incentive management fee equal to 1.0% of total collections based on performance metrics of the property. The Property Manager may subcontract with third-party property managers and will be responsible for supervising and compensating those third-party property managers and will be paid an oversight fee equal to 1.0% of the gross revenues of the property managed for providing such supervisory services. In no event will the Company pay its Property Manager or any affiliate both a property management fee and an oversight fee with respect to any particular property. Each Property Management Agreement has an initial one-year term and will continue thereafter on a month-to-month basis unless either party gives a 60-day prior notice of its desire to terminate the Property Management Agreement, provided that the Company may terminate the Property Management Agreement at any time 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 the event of a termination of the Property Management Agreement by the Company without cause, the Company will pay a termination fee to the Property Manager equal to three months of the monthly management fee based on the average gross collections for the three months preceding the date of termination.

F-34
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

In addition to the property management fee, the Property Management Agreements also specify certain other fees payable to the Property Manager or its affiliates, including fees for benefit administration, 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 Fees
The Company has entered into Construction Management Agreements (each a “Construction Management Agreement”) with Pacific Coast Land & Construction, Inc., an affiliate of the Sponsor (the “Construction Manager”), in connection with capital improvements and renovation or value-enhancement projects for certain properties the Company acquires. The construction management fee payable with respect to each property under the Construction Management Agreements is equal to 6.0% 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 apartment homes 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.
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 and property related insurance across certain properties of the Company.
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, benefit administration 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, investment management fees, loan coordination fees and disposition fees or for the employee costs 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 approved by the independent directors. 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, reserves for bad debts or other non-cash reserves. “Total operating expenses” means all expenses paid or incurred by the Company, as determined by GAAP, that are in any way related to the Company’s operation including advisor fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, listing and registration of shares of the Company’s common stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain in the sale of the Company’s assets; (f) acquisition fees and acquisition expenses (including expenses relating to potential acquisitions that the Company does not close); (g) real estate commissions on the resale of investments; and (h) other expenses connected with the acquisition, disposition, management and ownership of investments (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of real property).

F-35
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

For the year ended December 31, 2018, the Advisor and its affiliates incurred $1,176,246 of the Company’s operating expenses, including the allocable share of the Advisor’s overhead expenses of $944,340, none of which were in excess of the 2%/25% Limitation and are included in the $3,491,624 of general and administrative expenses recognized by the Company. As of December 31, 2018, the Company’s total operating expenses were 0.29% of its average invested assets and 7.66% of its net loss.
As of December 31, 2018 , the Company’s total operating expenses, as defined above, did not exceed the 2%/25% Limitation.
For the year ended December 31, 2017, the Advisor and its affiliates incurred $1,024,078 of the Company’s operating expenses, including the allocable share of the Advisor’s overhead expenses of $834,966, none of which were in excess of the 2%/25% Limitation and are included in the $2,627,940 of general and administrative expenses recognized by the Company. As of December 31, 2017, total operating expenses were 0.28% of its average invested assets and 8.71% of its net loss.
For the year ended December 31, 2016, the Advisor and its affiliates incurred $861,164 of the Company’s operating expenses, including the allocable share of the Advisor’s overhead expenses of $560,930, none of which were in excess of the 2%/25% Limitation and are included in the $560,930 of general and administrative expenses recognized by the Company. As of December 31, 2016, total operating expenses were 0.86% of its average invested assets and 17.50% of its net loss.
Disposition Fee
If the Advisor or its affiliates provide a substantial amount of services in connection with the sale of a property or real estate-related asset, including pursuant to a sale of the entire Company, as determined by a majority of the Company’s independent directors, the Advisor or its affiliates will earn a disposition fee equal to (1) 1.5% of the sales price of each property or real estate-related asset sold or (2) 1.0%, which may be increased to 1.5% in the sole discretion of the Company’s independent directors, of the total consideration paid in connection with the sale of the Company. In the event of a final liquidity event, this fee will be reduced by the amount of any previous disposition fee paid on properties previously exchanged under Section 1031 of the Internal Revenue Code.
To the extent the disposition fee is paid upon the sale of any assets other than real property, it will be included as an operating expense for purposes of the 2%/25% Limitation. In connection with the sale of securities, the disposition fee may be paid to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the disposition fee to a firm that is not a registered broker-dealer. As of December 31, 2018 the Company had not sold or otherwise disposed of property or any real estate-related assets. Accordingly, the Company had not incurred any disposition fees as of December 31, 2018. 
Sales Commissions
The Company paid the Dealer Manager up to 7.0% of gross offering proceeds from the sale of Class A shares in the Primary Offering and up to 3.0% of gross offering proceeds from the sale of Class T shares in the Primary Offering (all of which was reallowed to participating broker-dealers), subject to reductions based on volume and for certain categories of purchasers. No sales commissions were paid for sales of Class R shares or for sales pursuant to the DRP. The total amount of all items of compensation from any source payable to the Dealer Manager and the participating broker-dealers may not exceed 10.0% of the gross proceeds from the Primary Offering on a per class basis.
Dealer Manager Fees
The Company paid the Dealer Manager up to 3.0% of gross offering proceeds from the sale of Class A shares and up to 2.5% of gross offering proceeds from the sale of Class T shares (a portion of which was reallowed to participating broker-dealers). No dealer manager fee was paid for sales of Class R shares or for sales pursuant to the Company’s DRP.
Distribution and Shareholder Servicing Fees
The Company paid the Dealer Manager up to (1) 0.27%, annualized, of the purchase price per Class R share (or, once reported, the amount of the Company’s estimated value per share) for each Class R share purchased in the Primary Offering from a registered investment advisor that does not participate on an alternative investment platform; (2) 0.67%, annualized, of the purchase price per Class R share (or, once reported, the amount of the Company’s estimated value per share) for each Class R share purchased in the Primary Offering from a registered investment advisor that participates on an alternative

F-36
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

investment platform; and (3) 1.125%, annualized, of the purchase price per Class T share (or, once reported, the amount of the Company’s estimated value per share) for each Class T share purchased in the Primary Offering. The distribution and shareholder servicing fee accrues daily and is paid monthly in arrears. The Company amended its Charter on August 8, 2017, to authorize and pay different distributions to different holders of Class T and/or Class R shares. Prior to amending the Charter to allow for distributions at different rates on the same class of shares, of the 0.67% distribution and shareholder servicing fee payable with respect to sales of Class R shares by registered investment advisors that participate on an alternative investment platform, 0.27% was paid from the current distribution and shareholder servicing fee on Class R shares, which was payable out of amounts that otherwise would have been distributed to holders of Class R shares, and 0.40% was an additional expense of the Company.
Effective October 1, 2018, we ceased paying the distribution and shareholder servicing fee because total underwriting compensation had reached 10% of the total gross investment amount in the Primary Offering.
Subordinated Participation in Net Sale Proceeds (payable only if the Company’s shares are not listed on an exchange)
The Advisor (in its capacity as special limited partner of the Operating Partnership) would receive 15.0% of the remaining net sale proceeds after return of the total investment amount, which is the amount equal to the original issue price paid by the stockholders in the Public Offering multiplied by the number of shares issued in the Public Offering, reduced by the weighted average original issue price of the shares sold in the Primary Offering multiplied by the total number of shares repurchased by the Company, plus payment to investors of an amount equal to a 6.0% annual cumulative, non-compounded return of the total investment amount, less amounts previously distributed to stockholders, including distributions that may constitute a return of capital for federal income tax purposes.
“Net sale proceeds” means the net cash proceeds realized from the sale of the Company or all of the Company’s assets after deduction of all expenses incurred in connection with a sale or disposition of the Company or of the Company’s assets, including disposition fees paid to the Advisor, or from the prepayment, maturity, workout or other settlement of any loan or other investment. For purposes of calculating the 6.0% annual cumulative, non-compounded return of the total investment amount, the aggregate of all investors’ capital shall be deemed to have been invested collectively on one date—the aggregate average investment date, being a day of a month determined by the average weighted month of all shares sold on a monthly basis. In addition, the Advisor (in its capacity as special limited partner of the Operating Partnership) will receive a distribution similar to the subordinated participation in net sale proceeds in the event the Company undertakes an issuer tender offer that results in the tendering stockholders receiving a return of the total investment amount of the tendering stockholders plus payment to those investors of an amount equal to a 6.0% annual cumulative, non-compounded return of the total investment amount of the tendering stockholders, less amounts previously distributed to stockholders, including distributions that may constitute a return of capital for federal income tax purposes.
Subordinated Incentive Listing Distribution (payable only if the Company’s shares are listed on an exchange)
Upon the listing of the Company’s shares on a national securities exchange, the Advisor (in its capacity as special limited partner of the Operating Partnership) will receive 15.0% of the amount by which the sum of the Company’s adjusted market value plus distributions paid by the Company to stockholders from inception until the date the adjusted market value is determined, including distributions that may constitute a return of capital for federal income tax purposes, exceeds the sum of the total investment amount plus an amount equal to a 6.0% annual cumulative, non-compounded return to investors of the total investment amount, less amounts previously distributed to stockholders, including distributions that may constitute a return of capital for federal income tax purposes. For purposes of calculating the 6.0% annual cumulative, non-compounded return of the total investment amount, the aggregate of all investors’ capital shall be deemed to have been invested collectively on one date, the aggregate average investment date, being a day of a month determined by the average weighted month of all shares sold on a monthly basis.
The adjusted market value of the Company’s common stock will be calculated based on the average market value of the shares of common stock issued and outstanding at listing over the 30 trading days beginning 180 days after the shares are first listed or included for quotation. The Company has the option to pay the subordinated incentive listing distribution in the form of stock, cash, a promissory note or any combination thereof. Any previous payments of the subordinated participation in net sales proceeds will offset the amounts due pursuant to the subordinated listing distribution.

F-37
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

Subordinated Distribution Upon Termination of the Advisory Agreement
Upon termination or non-renewal of the Advisory Agreement with or without cause, the Advisor (in its capacity as special limited partner of the Operating Partnership), would be entitled to receive distributions from the Operating Partnership equal to 15.0% of the amount by which the sum of the Company’s appraised market value plus distributions exceeds the sum of the total investment amount plus an amount equal to a 6.0% annual cumulative, non-compounded return of the total investment amount to investors, less amounts previously distributed to stockholders, including distributions that may constitute a return of capital for federal income tax purposes. For purposes of calculating the 6.0% annual cumulative, non-compounded return of the total investment amount, the aggregate of all investors’ capital shall be deemed to have been invested collectively on one date, the aggregate average investment date, being a day of a month determined by the average weighted month of all shares sold on a monthly basis. If the Company does not provide this return, the Advisor will not receive this distribution. In addition, the Advisor may elect to defer its right to receive a subordinated distribution upon termination until either shares of the Company’s common stock are listed and traded on a national securities exchange or another liquidity event occurs.
8.          Long-Term Incentive Award Plan and Independent Director Compensation
The Company adopted a long-term incentive plan, the Incentive Plan, which the Company uses to attract and retain qualified directors, officers, employees and consultants. The Incentive Award Plan authorizes the granting of restricted stock, stock options, restricted or deferred stock units, performance awards and other stock-based awards to the Company’s directors, officers, employees and consultants selected by its board of directors for participation in the Incentive Award Plan. Stock options granted under the Incentive Award Plan will not exceed an amount equal to 10% of the outstanding shares of the Company’s common stock allocated to the Incentive Award Plan on the date of grant of any such stock options. Any stock options granted under the Incentive Award Plan will have an exercise price or base price that is not less than fair market value of the Company’s common stock on the date of grant.
Under the Company’s independent directors compensation plan, which is a sub-plan of the Incentive Award Plan, each of the Company’s independent directors was entitled to receive 2,000 shares of restricted Class A common stock once the Company raised $2,000,000 in gross offering proceeds in the Public Offering. Each subsequent independent director that joins the Company’s board of directors will receive 2,000 shares of restricted Class A 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 1,000 shares of restricted Class A common stock. Grants of restricted stock are subject to share availability under the Incentive Plan. The shares of restricted Class A common stock generally vest in four equal annual installments beginning on the date of grant and ending on the third anniversary of the date of grant; provided, however, that the restricted stock will become fully vested and become non-forfeitable on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or “disability” or (2) a “change in control” of the Company (as such terms are defined in the Incentive Plan). These awards entitle the holders to participate in distributions.
The Company recorded stock-based compensation expense of $82,346, $63,591 and $61,071 for the years ended December 31, 2018, 2017 and 2016 related to the independent directors’ restricted common stock, respectively.
In addition to the stock awards, the Company pays each of its independent directors annual compensation of $55,000, prorated for any partial term (the audit committee chairperson receives an additional $10,000 annually, prorated for any partial term). In addition, the independent directors are paid for attending meetings as follows: (1) $2,500 for each board meeting attended in person, (2) $1,500 for each committee meeting attended in person in such director’s capacity as a committee member and (3) $1,000 for each board meeting attended via teleconference (not to exceed $4,000 for any one set of meetings attended within a 48-hour period). All directors also receive reimbursement of reasonable out of pocket expenses incurred in connection with attendance at meetings of the board of directors. Director compensation is an operating expense of the Company that is subject to the operating expense reimbursement obligation of the Advisor discussed in Note 7 (Related Party Arrangements). The Company recorded operating expenses of $429,500, $230,000 and $241,000 for the years ended December 31, 2018, 2017 and 2016, respectively, related to the independent directors’ restricted common stock, the independent directors’ annual compensation and the value of shares issued for annual compensation and attending board meetings, which is included in general and administrative expenses in the accompanying consolidated statements of operations. As of December 31, 2018 and 2017, $251,750 and $51,875 is included in accounts payable and accrued liabilities, respectively, and $13,750 and $27,500 is included in additional paid-in capital on the consolidated balance sheets, respectively.

F-38
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

9.          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 Atlanta, Georgia, Austin, Texas, Dallas, Texas, Denver, Colorado and Indianapolis, Indiana 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.
10.          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 tables provide the terms of the Company’s interest rate derivative instruments that were in effect at December 31, 2018 and 2017:
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 - 12/1/2020
 
One-Month LIBOR
 
6
 
$
156,892,000

 
2.52%
 
2.59%
 
$
377,456

December 31, 2017
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 - 12/1/2020
 
One-Month LIBOR
 
6
 
$
156,892,000

 
1.56%
 
2.59%
 
$
257,619

The interest rate cap agreements are not designated as effective 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 years ended December 31, 2018, 2017 and 2016, resulted in an unrealized (gain) loss of $(119,837), $444,252 and $24,989, respectively, which is included in interest expense in the accompanying consolidated statements of

F-39
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

operations. During the years ended December 31, 2018 and 2017, the Company acquired interest rate cap agreements of $0 and $288,740, respectively. The fair value of the interest rate cap agreements of $377,456 and $257,619 as of December 31, 2018 and 2017, respectively, is included in other assets on the accompanying consolidated balance sheets.
11.          Pro Forma Information (unaudited)
Following the adoption of ASU 2017-01 as of January 1, 2017, all of the Company’s acquisitions in fiscal years 2018 and 2017 have been accounted for as asset acquisitions, therefore, no pro forma information is required.

The following table summarizes, on an unaudited basis, the consolidated pro forma results of operations of the Company for the years ended December 31, 2016 and 2015. The Company acquired three properties during the year ended December 31, 2016. These properties contributed $1,264,906 of revenues and $969,543 of net loss, including $825,735 of depreciation and amortization, to the Company’s results of operations from the date of acquisition to December 31, 2016. The following unaudited pro forma information for the years ended December 31, 2016 and 2015, has been provided to give effect to the acquisitions of the properties as if they had occurred on January 1, 2015. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had these acquisitions occurred on this date, nor does it purport to predict the results of operations for future periods.


 
Year Ended December 31,
 
 
2016
 
2015
Revenues
 
$
9,068,309

 
$
9,068,309

Net loss
 
$
(10,548,934
)
 
$
(12,094,696
)
Net loss attributable to noncontrolling interest
 
$
(100
)
 
$
(100
)
Net loss attributable to common stockholders
 
$
(10,548,834
)
 
$
(12,094,596
)
 
 
 
 
 
Net loss per Class A share:
 
 
 
 
Net loss attributable to Class A common stockholders - basic and diluted
 
$
(6,775,391
)
 
$
(7,768,215
)
Weighted average number of Class A common shares outstanding - basic and diluted
 
374,595

 
374,595

Net loss per Class A common share - basic and diluted
 
(22.14
)
 
(24.79
)
Net loss per Class R share:
 
 
 
 
Net loss attributable to Class R common stockholders - basic and diluted
 
$
(354,281
)
 
$
(406,195
)
Weighted average number of Class R common shares outstanding - basic and diluted
 
19,587

 
19,587

Net loss per Class R common share - basic and diluted
 
(21.38
)
 
(24.03
)
 
 
 
 
 
Net loss per Class T share:
 
 
 
 
Net loss attributable to Class T common stockholders - basic and diluted
 
$
(3,419,162
)
 
$
(3,920,186
)
Weighted average number of Class T common shares outstanding - basic and diluted
 
189,037

 
189,037

Net loss per Class T common share - basic and diluted
 
(21.18
)
 
(23.83
)
The pro forma information reflects adjustments for actual revenues and expenses of the property acquired during the year ended December 31, 2016, for the respective period prior to acquisition by the Company. Net loss has been adjusted as follows: (1) interest expense has been adjusted to reflect the additional interest expense that would have been charged had the Company acquired the properties on January 1, 2015 under the same financing arrangements as existed as of the acquisition date; (2) depreciation and amortization has been adjusted based on the Company’s basis in the properties; and (3) transaction costs have been adjusted for the acquisition of the properties.

F-40
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

12.          Selected Quarterly Results (unaudited)
Presented below is a summary of the Company’s unaudited quarterly financial information for the years ended December 31, 2018 and 2017:
 
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
2018
 
 
 
 
 
 
 
 
 
Revenues
 
$
8,832,176


$
9,229,616


$
9,905,011


$
9,942,827

 
Net loss
 
(3,924,834
)

(3,526,366
)

(3,556,258
)

(4,358,151
)
 
   Net loss attributable to common stockholders
 
(3,924,834
)

(3,526,366
)

(3,556,258
)

(4,358,151
)
 
 
 







 
 Net loss attributable to Class A common stockholders — basic and diluted
 
(1,690,784
)

(1,475,758
)

(1,464,767
)

(1,779,440
)
 
Loss per Class A common share — basic and diluted
 
(0.53
)

(0.43
)

(0.40
)

(0.51
)
 
Distributions declared per Class A common share
 
0.370


0.374


0.378


0.378

 
 
 







 
 Net loss attributable to Class R common stockholders — basic and diluted
 
(188,592
)

(183,927
)

(190,984
)

(240,227
)
 
 Net loss per Class R common share — basic and diluted
 
(0.55
)

(0.45
)

(0.41
)

(0.51
)
 
 Distributions declared per Class R common share
 
0.352


0.357


0.361


0.378

 
 
 







 
 Net loss attributable to Class T common stockholders— basic and diluted
 
(2,045,458
)

(1,866,681
)

(1,900,505
)

(2,338,484
)
 
 Net loss per Class T common share — basic and diluted
 
(0.60
)

(0.50
)

(0.46
)

(0.51
)
 
 Distributions declared per Class T common share
 
0.306


0.309


0.313


0.378


 
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
2017
 
 
 
 
 
 
 
 
 
Revenues
 
$
3,115,715

 
$
3,601,807

 
$
5,744,118

 
$
7,129,937

 
Net loss
 
(2,322,391
)
 
(2,647,638
)
 
(3,085,008
)
 
(3,698,150
)
 
   Net loss attributable to common stockholders
 
(2,322,391
)
 
(2,647,638
)
 
(3,085,008
)
 
(3,698,150
)
 
 
 
 
 
 
 
 
 
 
 
 Net loss attributable to Class A common stockholders — basic and diluted
 
(1,236,453
)
 
(1,369,535
)
 
(1,478,634
)
 
(1,675,829
)
 
Loss per Class A common share — basic and diluted
 
(0.81
)
 
(0.64
)
 
(0.58
)
 
(0.57
)
 
Distributions declared per Class A common share
 
0.370

 
0.374

 
0.378

 
0.378

 
 
 
 
 
 
 
 
 
 
 
 Net loss attributable to Class R common stockholders — basic and diluted
 
(118,117
)
 
(116,698
)
 
(139,604
)
 
(171,219
)
 
 Net loss per Class R common share — basic and diluted
 
(0.81
)
 
(0.65
)
 
(0.59
)
 
(0.59
)
 
 Distributions declared per Class R common share
 
0.353

 
0.357

 
0.363

 
0.352

 
 
 
 
 
 
 
 
 
 
 
 Net loss attributable to Class T common stockholders— basic and diluted
 
(967,821
)
 
(1,161,405
)
 
(1,466,769
)
 
(1,851,102
)
 
 Net loss per Class T common share — basic and diluted
 
(0.87
)
 
(0.71
)
 
(0.64
)
 
(0.64
)
 
 Distributions declared per Class T common share
 
0.304

 
0.307

 
0.320

 
0.310


F-41
STEADFAST APARTMENT REIT III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2018

13.          Subsequent Events
Distributions Paid
Class A
On January 2, 2019, the Company paid distributions of $448,040, which related to distributions declared for each day in the period from December 1, 2018 through December 31, 2018 and consisted of cash distributions paid in the amount of $272,851 and $175,189 in shares issued pursuant to the DRP.
On February 1, 2019, the Company paid distributions of $448,950, which related to distributions declared for each day in the period from January 1, 2019 through January 31, 2019 and consisted of cash distributions paid in the amount of $275,056 and $173,894 in shares issued pursuant to the DRP.
On March 1, 2019, the Company paid distributions of $403,504, which related to distributions declared for each day in the period from February 1, 2019 through February 28, 2019 and consisted of cash distributions paid in the amount of $403,504 and $0 in shares issued pursuant to the DRP.
Class R
On January 2, 2019, the Company paid distributions of $62,323, which related to distributions declared for each day in the period from December 1, 2018 through December 31, 2018 and consisted of cash distributions paid in the amount of $41,232 and $21,091 in shares issued pursuant to the DRP.
On February 1, 2019, the Company paid distributions of $60,517, which related to distributions declared for each day in the period from January 1, 2019 through January 31, 2019 and consisted of cash distributions paid in the amount of $40,020 and $20,497 in shares issued pursuant to the DRP.
On March 1, 2019, the Company paid distributions of $54,767, which related to distributions declared for each day in the period from February 1, 2019 through February 28, 2019 and consisted of cash distributions paid in the amount of $54,767 and $0 in shares issued pursuant to the DRP.
Class T
On January 2, 2019, the Company paid distributions of $659,453, which related to distributions declared for each day in the period from December 1, 2018 through December 31, 2018 and consisted of cash distributions paid in the amount of $287,729 and $371,723 in shares issued pursuant to the DRP.
On February 1, 2019, the Company paid distributions of $590,710, which related to distributions declared for each day in the period from January 1, 2019 through January 31, 2019 and consisted of cash distributions paid in the amount of $258,149 and $332,562 in shares issued pursuant to the DRP.
On March 1, 2019, the Company paid distributions of $535,334, which related to distributions declared for each day in the period from February 1, 2019 through February 28, 2019 and consisted of cash distributions paid in the amount of $535,334 and $0 in shares issued pursuant to the DRP.
Advisory Agreement Renewal
On February 1, 2019, the Company entered into Amendment No. 3 to the Advisory Agreement, which became effective on February 5, 2019, to renew the term of the Advisory Agreement for an additional one year term ending February 5, 2020.




F-42
STEADFAST APARTMENT REIT III, INC.
SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION

DECEMBER 31, 2018


 
 
 
 
 
 
 
 
Initial Cost of Company
 
 
 
Gross Amount at which Carried at Close of Period
 
 
 
 
 
 
Description
 
Location
 
Ownership Percent
 
Encumbrances(1)
 
Land
 
Building and Improvements(2)
 
Total
 
Cost Capitalized Subsequent to Acquisition
 
Land
 
Building and Improvements(2)
 
Total(3)
 
Accumulated Depreciation
 
Original Date of Construction
 
Date Acquired
Carriage House Apartment Homes
 
Gurnee, IL
 
100
%
 
$
5,660,454

 
$
892,666

 
$
6,632,334

 
$
7,525,000

 
$
913,836

 
$
892,666

 
$
7,003,588

 
$
7,896,254

 
$
(856,007
)
 
1970
 
5/19/2016
Bristol Village Apartments
 
Aurora, CO
 
100
%
 
34,883,417

 
4,234,471

 
43,165,529

 
47,400,000

 
1,341,099

 
4,234,471

 
43,595,893

 
47,830,364

 
(3,508,924
)
 
2003
 
11/17/2016
Canyon Resort at Great Hills Apartments
 
Austin, TX
 
100
%
 
31,568,495

 
6,892,366

 
37,607,634

 
44,500,000

 
834,399

 
6,892,366

 
37,452,927

 
44,345,293

 
(2,901,640
)
 
1997
 
12/29/2016
Reflections on Sweetwater Apartments
 
Lawrenceville, GA
 
100
%
 
22,822,158

 
5,041,375

 
28,246,962

 
33,288,337

 
1,894,066

 
5,041,375

 
29,265,827

 
34,307,202

 
(2,343,277
)
 
1996
 
1/12/2017
The Pointe at Vista Ridge
 
Lewisville, TX
 
100
%
 
28,964,451

 
4,610,773

 
40,577,450

 
45,188,223

 
1,451,446

 
4,610,773

 
41,114,886

 
45,725,659

 
(2,702,958
)
 
2003
 
5/25/2017
Belmar Villas
 
Lakewood, CO
 
100
%
 
46,892,398

 
7,105,266

 
57,397,989

 
64,503,255

 
1,966,462

 
7,105,266

 
58,170,169

 
65,275,435

 
(3,451,754
)
 
1974
 
7/21/2017
Ansley at Princeton Lakes
 
Atlanta, GA
 
100
%
 
32,204,192

 
3,067,897

 
41,526,190

 
44,594,087

 
202,205

 
3,067,897

 
40,616,624

 
43,684,521

 
(2,051,058
)
 
2009
 
8/31/2017
Sugar Mill Apartments
 
Lawrenceville, GA
 
100
%
 
24,636,684

 
5,706,010

 
30,599,482

 
36,305,492

 
718,723

 
5,706,010

 
30,527,940

 
36,233,950

 
(1,247,293
)
 
1997
 
12/7/2017
Avery Point Apartments
 
Indianapolis, IN
 
100
%
 
31,060,671

 
4,509,073

 
41,320,763

 
45,829,836

 
892,112

 
4,509,073

 
41,095,115

 
45,604,188

 
(1,754,853
)
 
1986
 
12/15/2017
Cottage Trails at Culpepper Landing
 
Chesapeake, VA
 
100
%
 
21,394,001

 
3,848,274

 
27,270,425

 
31,118,698

 
123,703

 
3,848,274

 
26,937,695

 
30,785,969

 
(569,248
)
 
2012/2015
 
5/31/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
280,086,921

 
$
45,908,171

 
$
354,344,758

 
$
400,252,928

 
$
10,338,051

 
$
45,908,171

 
$
355,780,664

 
$
401,688,835

 
$
(21,387,012
)
 
 
 
 
______________
(1) Encumbrances are net of deferred financing costs associated with the loans for each individual property listed above.
(2) Building and improvements include tenant origination and absorption costs.
(3) The aggregate cost of real estate for federal income tax purposes was $413.0 million (unaudited) as of December 31, 2018.
 

F-43
STEADFAST APARTMENT REIT III, INC.
SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION

DECEMBER 31, 2018

A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2018, 2017 and 2016:
Real Estate:
 
2018
 
2017
 
2016
Balance at the beginning of the year
 
$
369,910,485

 
$
99,572,735

 
$
—

Acquisitions
 
31,118,698

 
269,709,230

 
99,425,000

Improvements
 
5,672,239

 
4,317,573

 
348,238

Write-off of fully depreciated and amortized assets
 
(5,012,587
)
 
(3,689,053
)
 
(200,503
)
Balance at the end of the year
 
$
401,688,835

 
$
369,910,485

 
$
99,572,735

 
 
 
 
 
 
 
Accumulated depreciation:
 
 
 
 
 
 
Balance at the beginning of the year
 
$
9,425,010

 
$
625,232

 
$
—

Depreciation expense
 
16,659,117

 
12,488,831

 
825,735

Write-off of fully depreciated and amortized assets
 
(4,697,115
)
 
(3,689,053
)
 
(200,503
)
Balance at the end of the year
 
$
21,387,012

 
$
9,425,010

 
$
625,232


F-44

SIGNATURES 
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Irvine, State of California, on March 15, 2019. 
 
Steadfast Apartment REIT III, Inc.
 
 
 
 
 
By:
/s/ Rodney F. Emery
 
Rodney F. Emery
 
Chief Executive Officer and Chairman of the Board
 
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Name
 
Title
 
Date
 
 
 
 
 
 
 
Chief Executive Officer and
 
 
/s/ Rodney F. Emery
 
Chairman of the Board
 
 
Rodney F. Emery
 
(Principal Executive Officer)
 
March 15, 2019
 
 
 
 
 
 
 
 
 
 
/s/ Kevin J. Keating
 
Chief Financial Officer and Treasurer
 
March 15, 2019
Kevin J. Keating
 
(Principal Financial Officer and Accounting Officer)
 
 
 
 
 
 
 
/s/ Ella S. Neyland
 
President and Director
 
 
Ella S. Neyland
 
 
 
March 15, 2019
 
 
 
 
 
/s/ Stephen R. Bowie
 
Director
 
 
Stephen R. Bowie
 
 
 
March 15, 2019
 
 
 
 
 
/s/ Ned W. Brines
 
Director
 
 
Ned W. Brines
 
 
 
March 15, 2019
 
 
 
 
 
/s/ Janice M. Munemitsu
 
Director
 
 
Janice M. Munemitsu
 
 
 
March 15, 2019