10-Q 1 stariii6301810-qq2.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
 
 
þ     
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the quarterly period ended June 30, 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)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
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. (Check one):
 
 
Large Accelerated filer o
Accelerated filer o
 
 
Non-Accelerated filer o

Smaller reporting company þ
 
 
Emerging growth company þ
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of August 3, 2018, there were 3,366,499 shares of the Registrant’s Class A common stock issued and outstanding, 426,515 shares of the Registrant’s Class R common stock issued and outstanding and 4,337,259 shares of the Registrant’s Class T common stock issued and outstanding.
 



STEADFAST APARTMENT REIT III, INC.
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements



STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED BALANCE SHEETS

 
June 30, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
Assets:
 
 
 

Real Estate:
 
 
 
Land
$
45,908,171

 
$
42,059,897

Building and improvements
352,724,601

 
323,636,510

Tenant origination and absorption costs
456,431

 
4,214,078

Total real estate, cost
399,089,203

 
369,910,485

Less accumulated depreciation and amortization
(14,148,302
)
 
(9,425,010
)
Total real estate, net
384,940,901

 
360,485,475

Cash and cash equivalents
26,240,456

 
15,533,961

Restricted cash
3,384,492

 
4,344,992

Rents and other receivables
537,200

 
488,287

Other assets
1,124,467

 
702,130

Total assets
$
416,227,516

 
$
381,554,845

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
 
 
 

Accounts payable and accrued liabilities
$
5,736,354

 
$
5,726,298

Mortgage notes payable, net
279,965,461

 
258,470,441

Distributions payable
868,386

 
746,360

Due to affiliates
3,631,654

 
5,487,180

Total liabilities
290,201,855

 
270,430,279

Commitments and contingencies (Note 9)

 

Redeemable common stock
4,507,251

 
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, 3,276,197 and 2,887,731 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
32,764

 
28,878

Class R common stock, $0.01 par value per share; 240,000,000 shares authorized, 409,536 and 309,518 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
4,096

 
3,096

Class T common stock, $0.01 par value per share; 480,000,000 shares authorized, 4,174,825 and 3,369,991 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
41,749

 
33,700

Additional paid-in capital
157,467,255

 
131,822,585

Cumulative distributions and net losses
(36,027,454
)
 
(23,683,752
)
Total stockholders’ equity
121,518,410

 
108,204,507

Total liabilities and stockholders’ equity
$
416,227,516

 
$
381,554,845

 
See accompanying notes to consolidated financial statements.

2


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

STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
8,165,612

 
$
3,243,715

 
$
15,975,760

 
$
6,040,431

Tenant reimbursements and other
1,064,004

 
358,092

 
2,086,032

 
677,091

Total revenues
9,229,616

 
3,601,807

 
18,061,792

 
6,717,522

Expenses:
 
 
 
 
 
 
 
Operating, maintenance and management
2,554,111

 
908,380

 
4,878,029

 
1,613,585

Real estate taxes and insurance
1,240,072

 
557,570

 
2,643,426

 
1,039,025

Fees to affiliates
1,400,171

 
372,359

 
2,746,011

 
656,511

Depreciation and amortization
4,233,745

 
2,555,319

 
8,937,370

 
4,916,266

Interest expense
2,684,924

 
1,145,526

 
4,910,295

 
2,124,012

General and administrative expenses
642,959

 
710,291

 
1,397,861

 
1,338,152

Total expenses
12,755,982

 
6,249,445

 
25,512,992

 
11,687,551

Net loss attributable to common stockholders
$
(3,526,366
)
 
$
(2,647,638
)
 
$
(7,451,200
)
 
$
(4,970,029
)
 
 
 
 
 
 
 
 
 Net loss attributable to Class A common stockholders — basic and diluted
$
(1,475,758
)
 
$
(1,369,535
)
 
$
(3,162,222
)
 
$
(2,607,449
)
 Net loss per Class A common share — basic and diluted
$
(0.43
)
 
$
(0.64
)
 
$
(0.96
)
 
$
(1.41
)
 Weighted average number of Class A common shares outstanding — basic and diluted
3,168,666

 
2,051,047

 
3,077,174

 
1,772,569

 Distributions declared per Class A common share
$
0.374

 
$
0.374

 
$
0.744

 
$
0.744

 
 
 
 
 
 
 
 
 Net loss attributable to Class R common stockholders — basic and diluted
$
(183,927
)
 
$
(116,698
)
 
$
(374,268
)
 
$
(223,476
)
 Net loss per Class R common share — basic and diluted
$
(0.45
)
 
$
(0.65
)
 
$
(0.99
)
 
$
(1.43
)
 Weighted average number of Class R common shares outstanding — basic and diluted
394,918

 
174,769

 
364,202

 
151,921

 Distributions declared per Class R common share
$
0.357

 
$
0.357

 
$
0.709

 
$
0.710

 
 
 
 
 
 
 
 
 Net loss attributable to Class T common stockholders — basic and diluted
$
(1,866,681
)
 
$
(1,161,405
)
 
$
(3,914,710
)
 
$
(2,139,104
)
 Net loss per Class T common share — basic and diluted
$
(0.50
)
 
$
(0.71
)
 
$
(1.09
)
 
$
(1.55
)
 Weighted average number of Class T common shares outstanding — basic and diluted
4,008,035

 
1,739,346

 
3,809,424

 
1,454,183

 Distributions declared per Class T common share
$
0.309

 
$
0.307

 
$
0.615

 
$
0.611

 
See accompanying notes to consolidated financial statements.

3


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

STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2017 AND
FOR THE SIX MONTHS ENDED JUNE 30, 2018 (Unaudited)
 
 
 
 
 
Common Stock
 
Additional
Paid-In Capital
 
Cumulative Distributions & Net Losses
 
Total
Stockholders’ Equity
 
 
Class A
 
Class R
 
Class T
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
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

Issuance of common stock
 
1,640,311

 
16,404

 
210,475

 
2,106

 
2,481,444

 
24,815

 
104,046,957

 

 
104,090,282

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

 

 

 

 

 

 
(9,034,341
)
 

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

 

 

 

 

 

 
(2,698,321
)
 

 
(2,698,321
)
Repurchase of common stock
 

 

 

 

 
(887
)
 
(9
)
 
(21,060
)
 

 
(21,069
)
Other offering costs to affiliates
 

 

 

 

 

 

 
(6,167,169
)
 

 
(6,167,169
)
Distributions declared
 

 

 

 

 

 

 

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

 

 

 

 

 

 
63,591

 

 
63,591

Net loss
 

 

 

 

 

 

 

 
(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

Issuance of common stock
 
403,065

 
4,032

 
103,626

 
1,036

 
806,151

 
8,062

 
31,432,433

 

 
31,445,563

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

 

 

 

 

 

 
(2,400,888
)
 

 
(2,400,888
)
Transfers to redeemable common stock
 

 

 

 

 

 

 
(1,563,270
)
 

 
(1,563,270
)
Repurchase of common stock
 
(14,599
)
 
(146
)
 
(3,608
)
 
(36
)
 
(1,317
)
 
(13
)
 
(446,644
)
 

 
(446,839
)
Other offering costs to affiliates
 

 

 

 

 

 

 
(1,404,887
)
 

 
(1,404,887
)
Distributions declared
 

 

 

 

 

 

 

 
(4,892,502
)
 
(4,892,502
)
Amortization of stock-based compensation
 

 

 

 

 

 

 
27,926

 

 
27,926

Net loss
 

 

 

 

 

 

 

 
(7,451,200
)
 
(7,451,200
)
BALANCE, June 30, 2018
 
3,276,197

 
$
32,764

 
409,536

 
$
4,096

 
4,174,825

 
$
41,749

 
$
157,467,255

 
$
(36,027,454
)
 
$
121,518,410

 

See accompanying notes to consolidated financial statements.

4


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

STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended June 30,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 

Net loss
$
(7,451,200
)
 
$
(4,970,029
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
8,937,370

 
4,916,266

Amortization of deferred financing costs
113,103

 
39,199

Amortization of stock-based compensation
27,926

 
18,549

Amortization of stock-based annual compensation
13,750

 
13,750

Change in fair value of interest rate cap agreements
(544,725
)
 
414,364

Changes in operating assets and liabilities:
 
 
 
Rents and other receivables
(47,271
)
 
(115,132
)
Other assets
122,388

 
(40,086
)
Accounts payable and accrued liabilities
124,063

 
1,887,082

Due to affiliates
(1,553,724
)
 
(1,161,052
)
Net cash (used in) provided by operating activities
(258,320
)
 
1,002,911

Cash Flows from Investing Activities:
 
 
 
Acquisition of real estate investments
(30,118,698
)
 
(76,726,460
)
Additions to real estate investments
(2,350,819
)
 
(1,075,397
)
Escrow deposits for pending real estate acquisitions
(1,000,000
)
 
(2,850,000
)
Purchase of interest rate cap agreements

 
(222,790
)
Cash used in investing activities
(33,469,517
)
 
(80,874,647
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of mortgage notes payable
21,545,000

 
52,106,000

Proceeds from issuance of Class A common stock
9,003,182

 
25,059,691

Proceeds from issuance of Class R common stock
2,253,500

 
2,528,450

Proceeds from issuance of Class T common stock
17,891,622

 
27,637,433

Payments of commissions on sale of common stock and related dealer manager fees
(2,310,280
)
 
(3,825,141
)
Reimbursement of other offering costs to affiliates
(1,810,661
)
 
(4,329,824
)
Payment of deferred financing costs
(163,083
)
 
(403,652
)
Distributions to common stockholders
(2,488,609
)
 
(1,073,653
)
Repurchase of common stock
(446,839
)
 

Net cash provided by financing activities
43,473,832

 
97,699,304

Net increase in cash, cash equivalents and restricted cash
9,745,995

 
17,827,568

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

 
17,142,199

Cash, cash equivalents and restricted cash, end of period
$
29,624,948

 
$
34,969,767



5


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

STEADFAST APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
 
Six Months Ended June 30,
 
2018
 
2017
Supplemental Disclosures of Cash Flow Information:
 
 
 
Interest paid
$
5,016,918

 
$
1,422,014

Supplemental Disclosures of Noncash Flow Transactions:
 
 
 
Increase in distributions payable
$
122,026

 
$
255,869

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

 
$
1,750,100

Increase (decrease) in amounts receivable from transfer agent for Class A common stock
$
72,517

 
$
(57,125
)
(Decrease) increase in amounts receivable from transfer agent for Class T common stock
$
(70,875
)
 
$
149,782

Decrease in amounts payable to affiliates for other offering costs
$
(405,774
)
 
$
(1,013,681
)
Distributions paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan
$
2,281,867

 
$
985,244

Increase in redeemable common stock
$
1,563,270

 
$
985,244

Increase in stock-based annual compensation and meeting fees
$
13,750

 
$
13,750

Increase in redemptions payable
$

 
$
20,779

(Decrease) increase in accounts payable and accrued liabilities from additions to real estate investments
$
(90,085
)
 
$
39,136

Increase in due to affiliates from additions to real estate investments
$
13,364

 
$
30,297

Increase in due to affiliates from distribution and shareholder servicing fee
$
90,608

 
$
1,156,452


 
See accompanying notes to consolidated financial statements.

6


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)


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, and currently 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 intends to use substantially all of the net proceeds from the Public Offering (defined below) to invest in and manage a diverse portfolio of multifamily and independent senior-living properties located in targeted markets throughout the United States. In addition to the Company’s focus on multifamily and independent senior-living properties, the Company may also make selective strategic acquisitions of other types of commercial properties. The Company 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 June 30, 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 is currently offering 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 is currently being 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. The Company’s board of directors may, from time to time, in its sole discretion, change the price at which the Company offers shares to the public in the Primary Offering or pursuant to the DRP to reflect changes in the Company’s estimated value per share and other factors that the Company’s board of directors deems relevant. The Company may reallocate shares of common stock registered in the Public Offering among classes of shares and between the Primary Offering and the DRP.
Pursuant to the terms of the Public Offering, offering proceeds were held in an escrow account until the Company raised the minimum offering amount of $2,000,000. On May 16, 2016, the Company raised the minimum offering amount and the offering proceeds held in escrow were released to the Company. As of June 30, 2018, the Company had sold 3,269,906 shares of Class A common stock, 413,144 shares of Class R common stock and 4,177,029 shares of Class T common stock in the Public Offering for gross proceeds of $80,491,059, $9,295,741 and $99,307,948, respectively, and $189,094,748 in the aggregate, including 98,499 shares of Class A common stock, 7,027 shares of Class R common stock and 123,636 shares of Class T common stock issued pursuant to the DRP for gross offering proceeds of $2,339,343, $158,093 and $2,796,632, respectively. Pursuant to the terms of the Public Offering, the Company may continue to offer shares of the Company’s common stock on a continuous basis until the Public Offering terminates on or before the earlier of February 5, 2019, unless further extended as permitted under applicable law or earlier terminated by the Company’s board of directors. The Company’s board of directors determined to terminate the Public Offering effective on or about August 31, 2018.

7


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)


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. (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, 2019. Subject to certain restrictions and limitations, the Advisor manages the Company’s day-to-day operations, manages the Company’s portfolio of properties and real estate-related assets, sources and presents investment opportunities to the Company’s board of directors and provides investment management services on the Company’s behalf. 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 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, to serve as the dealer manager for the Public Offering. The Dealer Manager is responsible for marketing the Company’s shares of common stock being offered pursuant to the Public Offering. The Advisor, along with the Dealer Manager, also provides offering services, marketing, investor relations and other administrative services on the Company’s behalf.
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 accepts subscriptions for shares of its common stock, the Company transfers 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 increases 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
There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2017, other than the adoption of Accounting Standards Update (“ASU”) 2016-18, as further described and defined below. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 16, 2018. 
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

8


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

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 unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary for a fair and consistent presentation of the results of such periods. Operating results for the three and six months ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The unaudited consolidated financial statements in this Quarterly Report on Form 10-Q (the “Quarterly Report”) should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
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.
Fair Value Measurements
Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other assets and liabilities at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.
When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and will classify such items in Level 1 or Level 2. In instances where the market is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions

9


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

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:
 
 
June 30, 2018
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
  Interest rate cap agreements
 
$

 
$
802,344

 
$

 
 
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.
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 June 30, 2018 and December 31, 2017, the fair value of the mortgage notes payable, net was $280,858,805 and $262,048,883, respectively, compared to the carrying value of $279,965,461 and $258,470,441, respectively.

10


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

Distribution Policy
The Company elected to be taxed as, and currently 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 January 1, 2018 to June 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%. Each day during the period from May 19, 2016, to June 30, 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 June 30, 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 three and six months ended June 30, 2018, the Company declared distributions totaling $0.374 and $0.744 per Class A share of common stock, $0.357 and $0.709 per Class R share of common stock and $0.309 and $0.615 per Class T share of common stock, respectively. During the three and six months ended June 30, 2017, the Company declared distributions totaling $0.374 and $0.744 per Class A share of common stock, $0.357 and $0.710 per Class R share of common stock and $0.307 and $0.611 per Class T share of common stock, respectively.
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

11


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

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 will result in the new guidance being effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied retrospectively. Early adoption is permitted, but can be no earlier than the original 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 with a cumulative effect recognized as of the date of adoption and adopted ASU 2014-09 effective 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 Company’s recognition of 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 is evaluating 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 the preliminary results of its evaluation, as it relates to the former, the Company does not expect any material impact on the recognition of leases in the consolidated financial statements because under ASU 2016-02, lessors will 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 does not expect a material impact on the recognition of leases in the consolidated financial statements because the quantity of leased equipment by the Company is limited. The Company is finalizing its evaluation of ASU 2016-02 and plans to adopt ASU 2016-02 on January 1, 2019.

12


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)


In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (“ASU 2016-18”)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 it was applied 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.
In January 2017, the FASB issued 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. ASU 2017-01 provides a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company adopted ASU 2017-01 as of January 1, 2017. The Company capitalized $7,069,053 of acquisition fees and expenses on the consolidated balance sheet as of June 30, 2018 related to its multifamily acquisitions in 2017. Acquisition fees and acquisition expenses were included in fees to affiliates and acquisition costs, respectively, on the consolidated statements of operations prior to the adoption of ASU 2017-01. Upon adoption of ASU 2017-01, all such costs are included in the purchase price that is allocated between land, buildings and improvements and tenant origination and absorption costs on the consolidated balance sheets.
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 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 January 1, 2018, the Company did not experience a material impact.
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 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

13


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

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.
3.          Real Estate
As of June 30, 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 June 30, 2018 and December 31, 2017, the Company’s portfolio was approximately 93.3% and 92.6% occupied and the average monthly rent was $1,117 and $1,089, respectively.
Current Year Acquisitions
During the six months ended June 30, 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

 
 
 
 
 
 
183

 
$
3,848,274

 
$
26,813,993

 
$
456,431

 
$
31,118,698


As of June 30, 2018 and December 31, 2017, accumulated depreciation and amortization related to the Company’s consolidated real estate properties and related intangibles were as follows:
 
 
June 30, 2018
 
 
Assets
 
 
Land
 
Building and Improvements
 
Tenant Origination and Absorption Costs
 
Total Real Estate
Investments in real estate
 
$
45,908,171

 
$
352,724,601

 
$
456,431

 
$
399,089,203

Less: Accumulated depreciation and amortization
 

 
(14,069,776
)
 
(78,526
)
 
(14,148,302
)
Net investments in real estate and related lease intangibles
 
$
45,908,171

 
$
338,654,825

 
$
377,905

 
$
384,940,901


14


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

 
 
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
)
Net investments in real estate and related lease intangibles
 
$
42,059,897

 
$
316,232,902

 
$
2,192,676

 
$
360,485,475

Depreciation and amortization expense was $4,233,745 and $8,937,370 for the three and six months ended June 30, 2018, and $2,555,319 and $4,916,266 for the three and six months ended June 30, 2017, respectively.
Depreciation of the Company’s buildings and improvements was $3,409,586 and $6,666,168 for the three and six months ended June 30, 2018, and $1,248,649 and $2,280,237 for the three and six months ended June 30, 2017, respectively.
Amortization of the Company’s tenant origination and absorption costs was $824,159 and $2,271,202 for the three and six months ended June 30, 2018, and $1,306,670 and $2,636,029 for the three and six months ended June 30, 2017, 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 June 30, 2018, the Company’s real estate portfolio comprised 2,775 apartment homes and was approximately 95.7% 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 $888,611 and $709,440 as of June 30, 2018 and December 31, 2017, respectively.

As of June 30, 2018 and 2017, no tenant represented over 10% of the Company’s annualized base rent.
4.          Other Assets
As of June 30, 2018 and December 31, 2017, other assets consisted of:
 
June 30, 2018
 
December 31, 2017
Prepaid expenses
$
59,916

 
$
287,958

Interest rate cap agreements
802,344

 
257,619

Other deposits
262,207

 
156,553

Other assets
$
1,124,467

 
$
702,130


15


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

5.          Debt
Mortgage Notes Payable
The following is a summary of mortgage notes payable, net secured by real property as of June 30, 2018 and December 31, 2017.
 
 
June 30, 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%

 
4.43%
 
$
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
 
 
 
 
 
 
 
4.25%
 
281,566,000

Deferred financing costs, net(2)
 
 
 
 
 
 
 
 
 
 
 
(1,600,539
)
Mortgage notes payable, net
 
 
 
 
 
 
 
 
 
 
 
$
279,965,461

 
 
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 June 30, 2018 and December 31, 2017, was $239,549 and $126,446, respectively.

16


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

Maturity and Interest
The following is a summary of the Company’s aggregate maturities as of June 30, 2018:
 
 
 
 
 
 
Maturities During the Years Ending December 31,
 
 
Contractual Obligations
 
Total
 
Remainder of 2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
Principal payments on outstanding debt obligations(1)
 
$
281,566,000

 
$

 
$
53,989

 
$
374,945

 
$
1,835,900

 
$
3,552,437

 
$
275,748,729

_________
(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 June 30, 2018, the Company was in compliance with all debt covenants.
For the three and six months ended June 30, 2018, the Company incurred interest expense of $2,684,924 and $4,910,295, respectively. Interest expense for the three and six months ended June 30, 2018, includes amortization of deferred financing costs of $57,488 and $113,103 and net unrealized gains from the change in fair value of interest rate cap agreements of $165,411 and $544,725, respectively.
For the three and six months ended June 30, 2017, the Company incurred interest expense of $1,145,526 and $2,124,012, respectively. Interest expense for the three and six months ended June 30, 2017, includes amortization of deferred financing costs of $25,515 and $39,199 and net unrealized losses from the change in fair value of interest rate cap agreements of $192,670 and $414,364, respectively.
Interest expense of $985,067 and $660,068 was payable as of June 30, 2018 and December 31, 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.

17


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

The following table reflects information regarding shares of common stock sold in the Public Offering from inception through June 30, 2018:
 
 
June 30, 2018
 
 
Class A
 
Class R
 
Class T
 
Total
Shares of common stock issued - Primary Offering
 
3,171,407

 
406,117

 
4,053,393

 
7,630,917

Shares of common stock issued - DRP
 
98,499

 
7,027

 
123,636

 
229,162

Total shares of common stock issued - Public Offering
 
3,269,906

 
413,144

 
4,177,029

 
7,860,079

Gross offering proceeds - Primary Offering
 
$
78,151,716

 
$
9,137,648

 
$
96,511,316

 
$
183,800,680

Gross offering proceeds - DRP
 
2,339,343

 
158,093

 
2,796,632

 
5,294,068

Total offering proceeds - Public Offering
 
$
80,491,059

 
$
9,295,741

 
$
99,307,948

 
$
189,094,748

Offering costs, before distribution and shareholder servicing fees
 
 
 
 
 
 
 
(22,972,069
)
Offering proceeds, net of offering costs
 
 
 
 
 
 
 
$
166,122,679

Offering proceeds include $63,517 and $61,875 of amounts due from the Company’s transfer agent as of June 30, 2018 and December 31, 2017, respectively, which are included in rents and other receivables in the accompanying consolidated balance sheets.
For the three months ended June 30, 2018 and 2017, the Company issued 275 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. 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 $6,875 and $13,750 for the three and six months ended June 30, 2018 and 2017, respectively, for compensation expense related to the issuance of common stock to the Company’s independent directors.
On August 9, 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 2017 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 six months ended June 30, 2018, and year ended December 31, 2017, for the restricted common 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 2017 annual meeting is as follows:


Six Months Ended June 30, 2018

Year Ended December 31, 2017
Nonvested shares at the beginning of the period

5,250


4,500

Granted shares



3,000

Vested shares

(1,500
)

(2,250
)
Nonvested shares at the end of the period

3,750


5,250



18


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

Included in general and administrative expenses is $14,015 and $27,926 for the three and six months ended June 30, 2018, and $9,327 and $18,549 for the three and six months ended June 30, 2017, respectively, for compensation expense related to the issuance of restricted common stock. As of June 30, 2018, the compensation expense related to the issuance of the restricted common stock not yet recognized was $72,417. The weighted average remaining term of the restricted common stock was 1.01 years as of June 30, 2018. As of June 30, 2018, no shares of restricted common stock issued to the independent directors have been forfeited.
Preferred Stock
The Charter also provides the Company’s board of directors with the authority to issue one or more classes or series of preferred stock, and prior to the issuance of such shares of preferred stock, the board of directors shall have the power from time to time to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares of preferred stock. The Company’s board of directors is authorized to amend the Charter without the approval of the stockholders to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue. As of June 30, 2018 and December 31, 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 is $23.75, $22.50 and $22.62, respectively. The Company’s board of directors may, in its sole discretion, from time to time, change these prices based upon changes in the Company’s estimated value per share, the then current price of shares of the Company’s common stock offered in the Public Offering and other factors that the Company’s board of directors deems relevant.
No sales commissions or dealer manager fees are payable on shares sold through the DRP. The Company’s board of directors may 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.

19


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

Prior to the date the Company publishes an 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)
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 the Company publishes an estimated value per share of its common stock, the purchase price for shares repurchased under the Company’s share repurchase program will be 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 the Company publicly discloses a new estimated value per share, the purchase price for shares purchased under the share repurchase program will equal, 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, and other factors the Company’s board of directors deems relevant.
(4) The Company’s board of directors will determine an estimated value per share of its common stock based on valuations by independent third-party appraisers or qualified valuation experts no later than 150 days following the second anniversary of breaking escrow in its Public Offering, or October 13, 2018, or such earlier time as required by any regulatory requirement regarding the timing of a valuation.
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.

20


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

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 three and six months ended June 30, 2018 and 2017:
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
Class A
 
Class R
 
Class T
 
Total
 
Class A
 
Class R
 
Class T
 
Total
Repurchase requests (in shares)
2,039

 

 

 
2,039

 
13,595

 
3,608

 
1,317

 
18,520

Repurchase requests (value)
$
47,161

 
$

 
$

 
$
47,161

 
$
316,554

 
$
75,097

 
$
31,269

 
$
422,920

Repurchases fulfilled (in shares)
11,556

 
3,608

 
1,317

 
16,481

 
14,600

 
3,608

 
1,317

 
19,525

Repurchase requests fulfilled (value)
$
269,393

 
$
75,097

 
$
31,269

 
$
375,759

 
$
340,474

 
$
75,097

 
$
31,269

 
$
446,840

 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
 
Class A
 
Class R
 
Class T
 
Total
 
Class A
 
Class R
 
Class T
 
Total
Repurchase requests (in shares)




874


874






874


874

Repurchase requests (value)
$

 
$

 
$
20,779

 
$
20,779

 
$

 
$

 
$
20,779

 
$
20,779

Repurchases fulfilled (in shares)

 

 

 

 

 

 

 

Repurchase requests fulfilled (value)
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

As of June 30, 2018 and 2017, the Company had outstanding and unfulfilled repurchase requests of 2,039 and 874 shares of common stock and recorded $47,161 and $20,779 in accounts payable and accrued liabilities on the accompanying consolidated balance sheets related to these unfulfilled repurchase requests, all of which were repurchased on the July 31, 2018 and October 30, 2017 repurchase dates, respectively.
The Company cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all repurchase requests made in any quarter. 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, 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 pro rata required minimum distribution of shares held in a qualified retirement account 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.

21


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

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 three and six months ended June 30, 2018, the Company reclassified $830,463 and $1,563,270, net of $375,759 and $446,839 of fulfilled repurchase requests and for the three and six months ended June 30, 2017, $589,433 and $985,244, net of $0 and $0 of fulfilled repurchase requests, respectively, from permanent equity to temporary equity, which are 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. The Company has not established a limit on the amount of proceeds it may use from the Public Offering to fund distributions. 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 currently 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.
Distributions Declared and Paid
The following table reflects per share daily distribution rates and annualized distribution rates for the three and six months ended June 30, 2018 and 2017 :
 
 
2018(1)
 
2017(1)
 
 
1st Quarter
 
2nd Quarter
 
1st Quarter
 
2nd 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

 
$
0.003376

 
$
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
%
 
5.17
%
 
5.17
%

22


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

_________________
(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 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 three and six months ended June 30, 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 three and six months ended June 30, 2018 and 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%.
(4)
Distributions during the three and six months ended June 30, 2018, 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 and six months ended June 30, 2018, we paid distributions at a rate of $0.003376 subject to an annual distribution and shareholder fee of 1.125%.
The following tables reflect distributions declared and paid to Class A common stockholders, Class R common stockholders and Class T common stockholders for the three and six months ended June 30, 2018 and 2017:
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
Class A
 
Class R
 
Class T
 
Total
 
Class A
 
Class R
 
Class T
 
Total
DRP distributions declared (in shares)
19,456

 
2,045

 
31,640

 
53,141

 
38,128

 
3,710

 
59,689

 
101,527

DRP distributions declared (value)
$
462,058

 
$
46,009

 
$
715,713

 
$
1,223,780

 
$
905,534

 
$
83,470

 
$
1,350,181

 
$
2,339,185

Cash distributions declared
724,077

 
94,896

 
524,696

 
1,343,669

 
1,385,369

 
175,027

 
992,921

 
2,553,317

Total distributions declared
$
1,186,135

 
$
140,905

 
$
1,240,409

 
$
2,567,449

 
$
2,290,903

 
$
258,497

 
$
2,343,102

 
$
4,892,502

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DRP distributions paid (in shares)
19,474

 
1,961

 
30,928

 
52,363

 
37,794

 
3,519

 
57,695

 
99,008

DRP distributions paid (value)
$
462,532

 
$
44,145

 
$
699,546

 
$
1,206,223

 
$
897,622

 
$
79,193

 
$
1,305,052

 
$
2,281,867

Cash distributions paid
714,645

 
91,557

 
517,076

 
1,323,278

 
1,358,520

 
167,824

 
962,265

 
2,488,609

Total distributions paid
$
1,177,177

 
$
135,702

 
$
1,216,622

 
$
2,529,501

 
$
2,256,142

 
$
247,017

 
$
2,267,317

 
$
4,770,476


23


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
 
Class A
 
Class R
 
Class T
 
Total
 
Class A
 
Class R
 
Class T
 
Total
DRP distributions declared (in shares)
12,764

 
722

 
14,487

 
27,973

 
22,296

 
1,283

 
24,060

 
47,639

DRP distributions declared (value)
$
303,145

 
$
16,241

 
$
327,703

 
$
647,089

 
$
529,535

 
$
28,847

 
$
544,237

 
$
1,102,619

Cash distributions declared
464,155

 
46,183

 
204,707

 
715,045

 
787,558

 
81,314

 
343,275

 
1,212,147

Total distributions declared
$
767,300

 
$
62,424

 
$
532,410

 
$
1,362,134

 
$
1,317,093

 
$
110,161

 
$
887,512

 
$
2,314,766

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DRP distributions paid (in shares)
11,806

 
675

 
12,991

 
25,472

 
20,456

 
1,160

 
20,925

 
42,541

DRP distributions paid (value)
$
280,397

 
$
15,189

 
$
293,847

 
$
589,433

 
$
485,835

 
$
26,094

 
$
473,315

 
$
985,244

Cash distributions paid
426,108

 
42,428

 
180,941

 
649,477

 
706,277

 
72,010

 
295,366

 
1,073,653

Total distributions paid
$
706,505

 
$
57,617

 
$
474,788

 
$
1,238,910

 
$
1,192,112

 
$
98,104

 
$
768,681

 
$
2,058,897

As of June 30, 2018, $868,386 of distributions declared were payable and are included in distributions payable in the accompanying consolidated balance sheets, which included $398,663, $47,885 and $421,838 of Class A common stock, Class R common stock and Class T common stock, respectively, of which, $154,187, $15,901 and $243,921, or 19,455, 2,045 and 31,640 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 three and six months ended June 30, 2018, the Company paid total distributions of $2,529,501 and $4,770,476, which related to distributions declared for each day in the period from March 1, 2018 through May 31, 2018 and December 1, 2017 through May 31, 2018, respectively.
For the three and six months ended June 30, 2017, the Company paid total distributions of $1,238,910 and $2,058,897, which related to distributions declared for each day in the period from March 1, 2017 through May 31, 2017 and December 31, 2016 through May 31, 2017, respectively.
7.          Related Party Arrangements
The Company has 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 is obligated to pay the Advisor and the Dealer Manager specified fees upon the provision of certain services related to the Public Offering, the investment of funds in real estate and real estate-related investments and the management of the Company’s investments and for other services (including, but not limited to, the disposition of investments) 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 is also obligated to reimburse the Advisor and its affiliates for organization and offering costs incurred by the Advisor and its affiliates on behalf of the Company, as well as acquisition and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company.

24


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

STEADFAST APARTMENT REIT III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(unaudited)

Amounts attributable to the Advisor and its affiliates incurred for the three and six months ended June 30, 2018 and 2017, and amounts outstanding to the Advisor and its affiliates as of June 30, 2018 and December 31, 2017, are as follows:
 
Incurred For the
 
Incurred For the
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Payable (Prepaid) as of
 
2018
 
2017
 
2018
 
2017
 
June 30, 2018
 
December 31, 2017
Consolidated Statements of Operations:
 
 
 
 
 
 
 
 
 
 
 
Expensed
 
 
 
 
 
 
 
 
 
 
 
Investment management fees(1)
$
1,022,265

 
$
204,660

 
$
2,013,825

 
$
378,639

 
$
371

 
$
53,409

Property management:
 
 
 
 
 
 
 
 
 
 
 
Fees(1)
291,302

 
134,292

 
557,909

 
221,192

 
131,094

 
94,469

Reimbursement of onsite personnel(2)
832,881

 
288,977

 
1,597,102

 
532,779

 
287,623

 
142,633

Other fees(1)
86,604

 
33,407

 
174,277

 
56,680

 
9,435

 
7,632

      Other fees - property operations(2)
5,257

 
2,862

 
13,865

 
5,087

 

 

Other fees - G&A(3)
13,944

 
2,552

 
18,274

 
3,827

 

 

Other operating expenses(3)
261,231

 
268,888

 
576,371

 
502,560

 
141,146

 
102,609

Property insurance(4)
79,356

 
507

 
111,306

 
1,014

 

 
(16,062
)
Consolidated Balance Sheets:
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Capitalized
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees(5)
624,854

 
943,211

 
624,854

 
1,642,623

 

 
1,722,641

Acquisition expenses(5)
161,703

 
215,716

 
161,423

 
373,279

 

 

  Construction management:
 
 
 
 
 
 
 
 
 
 
 
Fees(6)
39,021

 
25,558