e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
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o |
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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 333-160748
STEADFAST INCOME REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
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27-0351641
(I.R.S. Employer
Identification No.) |
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18100 Von Karman Avenue, Suite 500
Irvine, California
(Address of Principal Executive Offices)
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92612
(Zip Code) |
(949) 852-0700
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filed, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large Accelerated filer o
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Accelerated filer o
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Non-Accelerated filer o
(Do not check if smaller reporting company)
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
As of May 10, 2011, there were 1,769,167 shares of the Registrants common stock issued and
outstanding.
STEADFAST INCOME REIT, INC.
INDEX
1
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements
STEADFAST INCOME REIT, INC.
CONSOLIDATED BALANCE SHEETS
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March 31, 2011 |
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December 31, 2010 |
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(Unaudited) |
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ASSETS |
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Assets: |
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Real Estate: |
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Land |
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$ |
758,600 |
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$ |
758,600 |
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Building and improvements |
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15,571,167 |
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15,569,680 |
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Tenant origination and absorption costs |
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1,224,044 |
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1,224,044 |
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Total real estate, cost |
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17,553,811 |
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17,552,324 |
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Less accumulated depreciation and amortization |
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(1,170,706 |
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(540,572 |
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Total real estate, net |
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16,383,105 |
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17,011,752 |
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Cash and cash equivalents |
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5,309,697 |
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2,858,197 |
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Rents and other receivables |
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114,887 |
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119,210 |
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Deferred financing costs and other assets, net |
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185,406 |
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182,523 |
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Total assets |
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$ |
21,993,095 |
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$ |
20,171,682 |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Accounts payable and accrued liabilities |
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$ |
1,035,658 |
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$ |
831,501 |
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Notes payable |
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11,650,000 |
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11,650,000 |
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Distributions payable |
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86,181 |
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63,566 |
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Due to affiliates, net |
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277,004 |
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381,910 |
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Total liabilities |
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13,048,843 |
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12,926,977 |
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Commitments and contingencies (Note 10) |
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Redeemable common stock |
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110,038 |
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57,827 |
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Equity: |
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Stockholders Equity: |
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Preferred stock, $0.01 par value per share;
100,000 shares authorized, no shares issued and outstanding |
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Common stock, $0.01 par value per share;
999,999,000 shares authorized, 1,536,002 and 1,184,283 shares
issued and outstanding at March 31, 2011 and December 31, 2010,
respectively |
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15,360 |
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11,843 |
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Convertible
stock, $0.01 par value per share;
1,000 shares issued and outstanding as of March 31, 2011 and
December 31, 2010 |
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10 |
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10 |
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Additional paid-in capital |
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12,500,531 |
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9,568,008 |
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Cumulative distributions and net losses |
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(3,681,687 |
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(2,392,983 |
) |
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Total stockholders equity |
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8,834,214 |
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7,186,878 |
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Noncontrolling interest |
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Total equity |
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8,834,214 |
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7,186,878 |
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Total liabilities and equity |
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$ |
21,993,095 |
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$ |
20,171,682 |
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See accompanying notes to consolidated financial statements.
2
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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Three Months Ended |
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March 31, 2011 |
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Revenues: |
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Rental income |
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$ |
769,892 |
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Tenant reimbursements and other |
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111,540 |
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Total revenues |
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881,432 |
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Expenses: |
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Operating, maintenance and management |
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357,897 |
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Real estate taxes and insurance |
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161,535 |
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Fees to affiliates |
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68,156 |
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Depreciation and amortization |
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630,134 |
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Interest expense |
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166,812 |
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General and administrative expenses |
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495,245 |
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Other acquisition costs |
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59,929 |
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1,939,708 |
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Net loss |
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(1,058,276 |
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Net loss attributable to noncontrolling interest |
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Net loss attributable to common stockholders |
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$ |
(1,058,276 |
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Net loss per common share basic and diluted |
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$ |
(0.79 |
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Weighted average number of common shares outstanding basic and diluted |
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1,339,273 |
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Distributions declared per common share |
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$ |
0.173 |
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See accompanying notes to consolidated financial statements.
3
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2010
AND THE THREE MONTHS ENDED MARCH 31, 2011
(Unaudited)
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Stockholders Equity |
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Cummulative |
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Common Stock |
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Convertible Stock |
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Additional Paid-In |
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Distributions & Net |
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Total Stockholders |
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Noncontrolling |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Losses |
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Equity |
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Interest |
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Total Equity |
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BALANCE, December 31, 2009 |
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22,223 |
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$ |
222 |
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1,000 |
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$ |
10 |
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$ |
200,775 |
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$ |
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$ |
201,007 |
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$ |
1,000 |
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$ |
202,007 |
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Issuance of common stock |
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1,162,060 |
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11,621 |
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10,893,889 |
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10,905,510 |
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10,905,510 |
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Commissions on sales of common
stock and related
dealer manager fees to affiliates |
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(927,042 |
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(927,042 |
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(927,042 |
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Transfers to redeemable common stock |
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(57,827 |
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(57,827 |
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(57,827 |
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Other offering costs to affiliates |
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(596,561 |
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(596,561 |
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(596,561 |
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Distributions declared |
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(230,402 |
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(230,402 |
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(230,402 |
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Amortization of stock-based
compensation |
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54,774 |
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54,774 |
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54,774 |
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Net loss for the year ended
December 31, 2010 |
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(2,162,581 |
) |
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(2,162,581 |
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(1,000 |
) |
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(2,163,581 |
) |
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BALANCE, December 31, 2010 |
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1,184,283 |
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$ |
11,843 |
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1,000 |
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$ |
10 |
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$ |
9,568,008 |
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$ |
(2,392,983 |
) |
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$ |
7,186,878 |
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$ |
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$ |
7,186,878 |
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Issuance of common stock |
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351,719 |
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3,517 |
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3,487,912 |
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3,491,429 |
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3,491,429 |
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Commissions on sales of common
stock and related
dealer manager fees to affiliates |
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(321,902 |
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(321,902 |
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(321,902 |
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Transfers to redeemable common stock |
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(52,211 |
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(52,211 |
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(52,211 |
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Other offering costs to affiliates |
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(189,292 |
) |
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(189,292 |
) |
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(189,292 |
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Distributions declared |
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(230,428 |
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(230,428 |
) |
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(230,428 |
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Amortization of stock-based
compensation |
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8,016 |
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8,016 |
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8,016 |
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Net loss for the three months ended
March 31, 2011 |
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(1,058,276 |
) |
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(1,058,276 |
) |
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(1,058,276 |
) |
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BALANCE, March 31, 2011 |
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1,536,002 |
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$ |
15,360 |
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1,000 |
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$ |
10 |
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$ |
12,500,531 |
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$ |
(3,681,687 |
) |
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$ |
8,834,214 |
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$ |
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$ |
8,834,214 |
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See accompanying notes to consolidated financial statements.
4
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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March 31, 2011 |
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Cash Flows from Operating Activities: |
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Net loss |
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$ |
(1,058,276 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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630,134 |
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Amortization of deferred finance costs |
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28,625 |
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Stock-based compensation |
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16,141 |
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Changes in operating assets and liabilities: |
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Rent and other receivables |
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(3,702 |
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Other assets |
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(6,508 |
) |
Accounts payable and accrued liabilities |
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204,157 |
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Due to affiliates, net |
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(103,052 |
) |
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Net cash used in operating activities |
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(292,481 |
) |
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Cash Flows from Investing Activities: |
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Addition to real estate investments |
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(1,487 |
) |
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Net cash used in investing activities |
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(1,487 |
) |
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Cash Flows from Financing Activities: |
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Proceeds from issuance of common stock |
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3,415,990 |
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Payments of commissions on sale of common stock and related dealer manager fees |
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(321,902 |
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Reimbursement of other offering costs to affiliates |
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(191,146 |
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Payment of deferred financing costs |
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(25,000 |
) |
Distributions to common stockholders |
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(132,474 |
) |
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Net cash provided by financing activities |
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2,745,468 |
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Net increase in cash and cash equivalents |
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2,451,500 |
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Cash and cash equivalents, beginning of period |
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2,858,197 |
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Cash and cash equivalents, end of period |
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$ |
5,309,697 |
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Supplemental Disclosures of Cash Flow Information: |
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Interest paid |
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$ |
142,041 |
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Supplemental Disclosure of Noncash Transactions: |
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Increase in distributions payable |
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$ |
22,615 |
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Distributions paid to common stockholders through common stock issuances
pursuant to the dividend reinvestment plan |
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$ |
75,339 |
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|
See accompanying notes to consolidated financial statements.
5
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
1. Organization and Business
Steadfast Income REIT, Inc. (the Company) was
formed on May 4, 2009, as a Maryland corporation that intends to qualify as a real estate
investment trust (REIT). On June 12, 2009, the Company was initially capitalized pursuant to the
sale of 22,223 shares of common stock to Steadfast REIT Investments, LLC (the Sponsor) at a
purchase price of $9.00 per share for an aggregate purchase price of $200,007. On July 10, 2009,
Steadfast Income Advisors, LLC, a Delaware limited liability company formed on May 1, 2009 (the
Advisor), invested $1,000 in the Company in exchange for 1,000 shares of convertible stock (the
Convertible Stock) as described in Note 7.
Substantially all of the Companys business is conducted through Steadfast Income REIT
Operating Partnership, L.P., a Delaware limited partnership formed on July 6, 2009 (the Operating
Partnership). The Company is the sole general partner of, and owns a 0.01% partnership interest
in, the Operating Partnership. The Company and Advisor entered into an Amended and Restated Limited
Partnership Agreement of the Operating Partnership (the Partnership Agreement) on September 28,
2009. Pursuant to the Partnership Agreement, the Company contributes funds as necessary to the
Operating Partnership.
Private Offering
On October 13, 2009, the Company commenced a private offering of up to $94,000,000 in shares
of the Companys common stock at a purchase price of $9.40 per share (with discounts available for
certain categories of purchasers) (the Private Offering). The Company offered its shares of
common stock for sale in the Private Offering pursuant to a confidential private placement
memorandum and only to persons that were accredited investors, as that term is defined under the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder. On July 9, 2010, the
Company terminated the Private Offering and on July 19, 2010 the Company commenced its registered
public offering described below. The Company sold 637,279 shares of common stock in the Private
Offering for gross proceeds of $5,844,325.
Public Offering
On July 23, 2009, the Company filed a registration statement on Form S-11 with the Securities
and Exchange Commission (the SEC) to offer a maximum of 150,000,000 shares of common stock for
sale to the public at an initial price of $10.00 per share (with discounts available for certain
categories of purchasers) (the Public Offering). The Company is also offering up to 15,789,474
shares of common stock pursuant to the Companys distribution reinvestment plan (the DRP) at an
initial price of $9.50 per share. The SEC declared the Companys registration statement effective
on July 9, 2010. The Company commenced its Public Offering on July 19, 2010. If the Company extends
the Public Offering beyond two years from the date the registration statement was declared
effective, the Companys 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 Public Offering or to its
stockholders pursuant to the DRP to reflect changes in the Companys estimated net asset value per
share and other factors that the Companys board of directors deems relevant. The Company may
reallocate the shares between the Public Offering and the DRP. As of March 31, 2011, the Company
had sold 855,824 shares of common stock in the Public Offering for gross proceeds of $8,502,618,
including 11,583 shares of common stock issued pursuant to the DRP for gross offering proceeds of
$110,038.
The Company intends to use substantially all of the net proceeds from the Public Offering to
invest in and manage a diverse portfolio of real estate investments, primarily in the multifamily
sector, located throughout the United States. In addition to the Companys focus on multifamily properties, the Company may
also selectively invest in industrial properties and other types of commercial properties. The
Company may also acquire or originate mortgage, mezzanine, bridge and other real estate loans and
equity securities of other real estate companies.
6
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
The business of the Company is externally managed by the Advisor, pursuant to the Advisory
Agreement, dated as of May 4, 2010, as amended by Amendment No. 1 to the Amended and Restated
Advisory Agreement (the Advisory Agreement), dated as of March 21, 2011. The Company has
retained Steadfast Capital Markets Group LLC (the Dealer Manager), an affiliate of the Company,
to serve as the dealer manager of the Public Offering. The Dealer Manager is responsible for
marketing the Companys shares of common stock being offered pursuant to the Public Offering.
Pursuant to the Partnership Agreement, the Company contributes funds as necessary to the
Operating Partnership. The Partnership Agreement provides that the Operating Partnership will be
operated in a manner that will enable the Company to (1) satisfy the requirements for being
classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability, and
(3) ensure that the Operating Partnership will not be classified as a publicly traded partnership
for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the Internal
Revenue Code), which classification could result in the Operating Partnership being taxed as a
corporation, rather than as a partnership. In addition to the administrative and operating costs
and expenses incurred by the Operating Partnership in acquiring and operating real properties, the
Operating Partnership will pay all of the Companys administrative costs and expenses, and such
expenses will be treated as expenses of the Operating Partnership.
The Company commenced its operations on August 11, 2010 upon acquiring a fee simple interest
in a multifamily property located in Springfield, Illinois.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, the Operating
Partnership and its subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation. The financial statements of the Companys subsidiaries are prepared
using accounting policies consistent with those of the Company.
The accompanying unaudited consolidated financial statements are prepared in accordance with
U.S. generally accepted accounting principles (GAAP) for interim financial information as
contained within the Financial Accounting Standards Board (FASB), Accounting Standards
Codification (ASC) and the rules and regulations of the SEC, including the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial
statements do not include all of the information and footnotes required by GAAP for audited
financial statements. In the opinion of management, the financial statements for the unaudited
interim periods presented include all adjustments, that are of a normal and recurring nature and
necessary for a fair and consistent presentation of the results of such periods. Operating results
for the three months ended March 31, 2011 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2011.
The consolidated financial statements herein should be read in conjunction with the
consolidated financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended December 31, 2010.
7
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
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.
Real Estate Assets
Depreciation and Amortization
Real estate costs related to the development, construction and improvement of properties will
be capitalized. Acquisition costs are expensed as incurred. Repair and maintenance and tenant
turnover costs will be charged to expense as incurred and significant replacements and betterments
will be capitalized. Repair and maintenance and tenant turnover costs include all costs that do not
extend the useful life of the real estate asset. The Company considers the period of future benefit
of an asset to determine its appropriate useful life and anticipates the estimated useful lives of
assets by class to be generally as follows:
|
|
|
Buildings
|
|
25-40 years |
Building improvements
|
|
10-25 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
The Company records the acquisition of income-producing real estate or real estate that will
be used for the production of income as a business combination. All assets acquired and liabilities
assumed in a business combination are measured at their acquisition-date fair values. Acquisition
costs are expensed as incurred.
The Company assesses the acquisition-date fair values of all tangible assets, identifiable
intangibles 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 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 Companys estimate of fair market lease rates for the
corresponding in-place leases, measured over a period equal to the remaining cancelable term of the
lease. The Company amortizes any capitalized above-market or below market lease values as a
reduction or increase to rental income over the remaining non-cancelable terms of the respective
leases.
8
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
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 Companys evaluation of the
specific characteristics of each tenants 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 tenants credit quality and expectations of lease renewals
(including those existing under the terms of the lease agreement), among other factors.
The Company amortizes the value of in-place leases to expense over the remaining
non-cancelable term of the respective leases. The value of customer relationship intangibles will
be amortized to expense over the initial term and any renewal periods in the respective leases, but
in no event will the amortization periods for the intangible assets exceed the remaining
depreciable life of the building. 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.
Estimates of the fair values of the tangible assets, identifiable intangibles 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 intangibles and assumed liabilities, which could impact the amount of the Companys
net income.
Impairment of Real Estate Assets
The Company will continually monitor events and changes in circumstances that could indicate
that the carrying amounts of the Companys real estate and related intangible assets may not be recoverable.
When indicators of potential impairment suggest that the carrying value of real estate and related
intangible assets and liabilities may not be recoverable, the Company assesses the recoverability
of the assets by estimating whether the Company will recover the carrying value of the asset
through its undiscounted future cash flows and its eventual disposition. Based on this analysis, if
the Company does not believe that it will be able to recover the carrying value of the
real estate and related intangible assets and liabilities, the Company records an impairment loss
to the extent that the carrying value exceeds the estimated fair value of the real estate and
related intangible assets and liabilities. If any assumptions, projections or estimates regarding
an asset changes in the future, the Company may have to record an impairment to reduce the net book
value of such individual asset.
Rents and Other Receivables
The Company will periodically evaluate the collectibility 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 maintains an allowance for
deferred rent receivable that arises from the straight-lining of rents in accordance with ASC Topic
840, Leases. The Company exercises judgment in establishing these allowances and considers payment
history and current credit status of tenants in developing these estimates.
Revenue Recognition
The Company leases apartment and condominium units under operating leases with terms generally
of one year or less. Generally, credit investigations are performed for prospective residents and
security deposits are obtained. The Company will recognize minimum rent, including rental
abatements, concessions and contractual fixed increases attributable to operating leases, on a
straight-line basis over the term of the related lease and amounts expected to be received in later
years will be recorded as deferred rents. The Company records property operating expense
reimbursements due from tenants for common area maintenance, real estate taxes, and other
recoverable costs in the period the related expenses are incurred.
9
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
The Company recognizes gains on sales of real estate either in total or deferred for a period
of time, depending on whether a sale has been consummated, the extent of the buyers investment in
the property being sold, whether the receivable is subject to future subordination, and the degree
of the Companys continuing involvement with the property after the sale. If the criteria for
profit recognition under the full-accrual method are not met, the Company will defer gain
recognition and account for the continued operations of the property by applying the
percentage-of-completion, reduced profit, deposit, installment or cost recovery method, as
appropriate, until the appropriate criteria are met.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents may include cash and short-term
investments. Short-term investments are stated at cost, which approximates fair value. As of March
31, 2011 and December 31, 2010, 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.
Deferred Financing Costs
The Company capitalizes deferred financing costs such as commitment fees, legal fees and other
third party costs associated with obtaining commitments for financing that result in a closing of
such financing. The Company amortizes these costs over the terms of the respective financing
agreements using the interest method. The Company expenses unamortized deferred financing costs
when the associated debt is refinanced or repaid before maturity unless specific rules are met that
would allow for the carryover of such costs to the refinanced debt. Costs incurred in seeking
financing transactions that do not close are expensed in the period in which it is determined that
the financing will not close.
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
10
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
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.
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
The Company accounts for stock-based compensation in accordance with ASC Topic 718,
CompensationStock Compensation (ASC 718). ASC 718 established a fair value based method of
accounting for stock-based compensation. Accounting for stock-based compensation under ASC 718
requires the fair value of stock-based compensation awards to be amortized as an expense over the
vesting period and requires any dividend equivalents earned to be treated 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 intends to elect to be taxed as a REIT and to operate as a REIT beginning with its
taxable year ending December 31, 2010. To maintain its qualification as a REIT, the Company intends
to make distributions each taxable year equal to at least 90% of its REIT taxable income (which is
determined without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income
as calculated in accordance with GAAP). For the three months ended March 31, 2011, distributions
were based on daily record dates and calculated at a rate of $0.001917 per share per day. Each day
during the period from January 1, 2011 through March 31, 2011, was a record date for distributions.
Distributions to stockholders are determined by the board of directors of the Company and are
dependent upon a number of factors relating to the Company, including funds available for the
payment of distributions, financial condition, the timing of property acquisitions, capital
expenditure requirements, and annual distribution requirements in order for the Company to qualify
as a REIT under the Internal Revenue Code.
Organization and Offering Costs
Organization and offering expenses include all expenses (other than sales commissions and
related dealer manager fees) to be paid by the Company in connection with the Public Offering and
the Private Offering, including legal, accounting, printing, mailing and filing fees, charges of
the Companys transfer agent, expenses of organizing the Company, data processing fees, advertising
and sales literature costs, transfer agent costs, bona fide out-of-pocket due diligence costs and
amounts to reimburse the Advisor or its affiliates for the salaries of its employees and other
costs in connection with preparing supplemental sales materials and providing other administrative
services.
The Company may also reimburse costs of bona fide training and education meetings held by the
Company (primarily travel, meal and lodging costs of registered representatives of broker-dealers),
attendance and sponsorship fees and cost reimbursement of employees of the Companys affiliates to
attend seminars conducted by broker-dealers and, in special, cases, reimbursement to participating
broker-dealers for technology costs associated with the Public Offering, costs and expenses related
to such technology costs, and costs and expenses associated with the facilitation of the marketing
of the Companys shares and the ownership of the Companys shares by such broker-dealers
customers; provided, however, that the Company will not pay any of the foregoing costs to the
11
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
extent that such payment would cause total underwriting compensation to exceed 10% of the gross
proceeds of the Public Offering, as required by the rules of the Financial Industry Regulatory
Authority, Inc. (FINRA).
Pursuant to the Advisory Agreement and the dealer manager agreement (the Dealer Manager
Agreement) by and among the Company, the Operating Partnership and
the Dealer Manager,
the Company
is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for
organization and offering costs paid by them on behalf of the Company, provided that the Advisor
would be obligated to reimburse the Company to the extent selling commissions, dealer manager fees
and organization and offering costs incurred by the Company in the Public Offering exceed 15% of
gross offering proceeds of the Public Offering. Any reimbursement of expenses paid to Advisor will
not exceed actual expenses incurred by the Advisor.
Reimbursements to the Advisor, the Dealer Manager, or their affiliates, for offering costs
paid by them on behalf of the Company with respect to the Private Offering are not limited to 15%
of the gross offering proceeds of the Private Offering. However, the Company will not make
reimbursements of offering costs in excess of 15% of the gross offering proceeds of the Private
Offering unless approval is obtained from the Companys independent directors. The independent
directors have not approved the reimbursement of such excess costs from the Private Offering.
Accordingly, the Company has not accrued for the reimbursement of organization and offering costs
of the Private Offering in excess of the 15% of gross offering proceeds raised in the Private Offering.
Income Taxes
The Company intends to be taxed as a REIT under the Internal Revenue Code and intends to make
such election and operate as such upon filing the tax return for the tax year ending December 31,
2010. To qualify as a REIT, the Company must meet certain organizational and operational
requirements, including the requirement to distribute at least 90% of the Companys annual REIT
taxable income to stockholders (which is computed without regard to the dividends paid deduction or
net capital gain and which does not necessarily equal net income as calculated in accordance with
GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it
distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in
any taxable year after the taxable year in which the Company initially elects to be taxed as a
REIT, it will be subject to federal income tax on its taxable income at regular corporate income
tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income
tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief
under certain statutory provisions. Such an event could materially adversely affect the Companys
net income and net cash available for distribution to stockholders. However, the Company intends to
organize and operate in such a manner as to qualify for treatment as a REIT.
The Company follows ASC Topic 740, Income Taxes, to recognize, measure, present and disclose
in its accompanying consolidated financial statements uncertain tax positions that the Company has
taken or expects to take on a tax return. As of March 31, 2011 and December 31, 2010, the Company
did not have any liabilities for uncertain tax positions that it believes should be recognized in
its accompanying consolidated financial statements. The Company has not been assessed interest or
penalties by any major tax jurisdictions. The Companys evaluation was performed for tax year ended
December 31, 2010.
12
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
Per Share Data
The Company reports earnings (loss) per share in accordance to ASC Topic 260, Earnings per
Share. Basic earnings (loss) per share attributable for all periods presented are computed by
dividing net income (loss) attributable to controlling interest by the weighted average number of
shares of the Companys common stock outstanding during the period. Diluted earnings (loss) per
share are computed based on the weighted average number of shares of the Companys common stock and
all potentially dilutive securities, if any. Distribution declared per common share assumes each
share was issued and outstanding each day during the period. Nonvested shares of the Companys
restricted common stock give rise to potentially dilutive shares of the Companys common stock but
such shares were excluded from the computation of diluted earnings per share because such shares
were anti-dilutive during the period.
Segment Disclosure
ASC Topic 280, Segment Reporting, establishes standards for reporting financial and
descriptive information about a public entitys reportable segments. The Company has determined that we
have one reportable segment, with activities related to investing in multifamily properties. The
Companys investments in real estate are in different geographic regions, and management evaluates
operating performance on an individual asset level. However, as each of the Companys assets has
similar economic characteristics, tenants and products and services, its assets have been
aggregated into one reportable segment for the three months ended March 31, 2011.
Recently Issued Accounting Standards
In January 2011, the FASB issued Accounting Standards Update (ASU) 2011-01 (ASU No.
2011-01), Receivables (ASC Topic 310): Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update No. 2010-20 (ASU No. 2010-20) which delays the effective
date of the disclosure requirements for troubled debt restructurings in ASU No. 2010-20 for public
entities. Other disclosure requirements in ASU No. 2010-20 are not deferred by ASU 2011-01. This
guidance was effective immediately. The adoption of ASU No. 2011-01 did not have a material impact
on the Companys consolidated financial statements.
In April, 2011, the FASB issued ASU 2011-02 (ASU No. 2011-02), Receivables (ASC Topic 310):
A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring in Update
No. 2010-20 (ASU No. 2010-20) which addresses whether a creditor has granted a concession and
whether a debtor is experiencing financial difficulties for purposes of determining whether a
restructuring constitutes a troubled debt restructuring. An entity should disclose the total
amount of receivables and the allowance for credit losses as of the end of the period of adoption
related to those receivables that are newly considered impaired under ASC Topic 310 for which
impairment was previously measured under Contingencies (ASC Topic 450). ASU No. 2011-02 is
effective for annual periods ending on or after June 15, 2011. Early adoption is permitted for
public and nonpublic entities. The adoption of ASU 2011-02 is not expected to have a material
impact on the Companys consolidated financial statements.
3. Real Estate
Lincoln Tower Property Acquisition
On August 11, 2010, the Company acquired a fee simple interest in a multifamily property
located in Springfield, Illinois, commonly known as the Lincoln Tower Apartments (the Lincoln
Tower Property), through a wholly-owned subsidiary of the Operating Partnership.
The Company acquired the Lincoln Tower Property for an aggregate purchase price of
approximately $9,500,000, exclusive of closing costs. The Company financed the payment of the
purchase price for the Lincoln Tower Property with (1) proceeds from the Private Offering and
Public Offering and (2) a seller-financed loan in
13
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
the aggregate principal amount of $6,650,000. An acquisition fee of $192,858 was earned by the Advisor in connection with the acquisition of the
Lincoln Tower Property.
The Lincoln Tower Property is a 17-story apartment complex constructed in 1968 and contains
190 one-, two- and three-bedroom apartments ranging from approximately 750 to 1,800 square feet, as
well as underground parking facilities and various community amenities such as a night attendant, a
fitness center, a club room, laundry facilities and extra storage space. The Lincoln Tower
Propertys residential units were 95% leased as of March 31, 2011. The Lincoln Tower Property also includes approximately 8,800 square feet of commercial
office space, which was 83% occupied as of March 31, 2011.
Park Place Property Acquisition
On December 22, 2010, the Company acquired a fee simple interest in the Park Place
Condominiums located in Des Moines, Iowa (the Park Place Property), through a wholly-owned
subsidiary of the Operating Partnership.
The Company acquired the Park Place Property for an aggregate purchase price of $8,050,000,
exclusive of closing costs. The Company financed the payment of the purchase price for the Park
Place Property with (1) proceeds from the Public Offering and (2) a loan in the aggregate principal
amount of $5,000,000. An acquisition fee of $164,779 was earned by the Advisor in connection with
the acquisition of the Park Place Property.
The Park Place Property is comprised of 147 condominium units within a 16-story building
located in downtown Des Moines, Iowa. The building was constructed in 1986 and contains 158 total
condominium units. The Park Place Property contains 16 studio units (approximately 429 square feet
per unit), 91 one-bedroom units and 40 two-bedroom units (approximately 679 square feet per unit).
The one-bedroom units at the Park Place Property consist of units of approximately 471, 570 and 668
square feet per unit. Amenities at the Park Place Property include a fitness center, an
approximately 6,000 square foot rooftop terrace, a community room with Wi-Fi and library, a
computer room, a guest suite, a secure access entry and onsite laundry. In addition to the units
noted above, the Park Place Property also includes 101 onsite garage parking spaces and a nearby
surface lot containing 40 parking spaces. As of March 31, 2011, the Park Place Property was
approximately 84% occupied and leased.
The purchase price for the Lincoln Tower Property and the Park Place Property was allocated as
follows as of the closing date:
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|
Tenant |
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Building and |
|
|
Origination and |
|
|
Total Purchase |
|
Property Name |
|
City |
|
|
State |
|
|
Acquisition Date |
|
|
Land |
|
|
Improvements |
|
|
Absorption |
|
|
Price |
|
Lincoln Tower Property |
|
Springfield |
|
IL |
|
|
08/11/2010 |
|
|
$ |
258,600 |
|
|
$ |
8,741,736 |
|
|
$ |
499,664 |
|
|
$ |
9,500,000 |
|
Park Place Property |
|
Des Moines |
|
IA |
|
|
12/22/2010 |
|
|
|
500,000 |
|
|
|
6,825,620 |
|
|
|
724,380 |
|
|
|
8,050,000 |
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$ |
758,600 |
|
|
$ |
15,567,356 |
|
|
$ |
1,224,044 |
|
|
$ |
17,550,000 |
|
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14
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
As of March 31, 2011, the Companys real estate portfolio was solely comprised of the
Lincoln Tower Property and the Park Place Property. The following table provides summary
information regarding the properties owned by the Company as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real |
|
|
Depreciation and |
|
|
Total Real Estate, |
|
Property Name |
|
City |
|
|
State |
|
|
Acquisition Date |
|
|
Property Type |
|
|
Estate at Cost |
|
|
Amortization |
|
|
Net |
|
Lincoln Tower Property |
|
Springfield |
|
IL |
|
|
08/11/2010 |
|
|
Apartment |
|
$ |
9,502,324 |
|
|
$ |
(686,283 |
) |
|
$ |
8,816,041 |
|
Park Place Property |
|
Des Moines |
|
IA |
|
|
12/22/2010 |
|
|
Condominium Rental |
|
|
8,051,487 |
|
|
|
(484,423 |
) |
|
|
7,567,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,553,811 |
|
|
$ |
(1,170,706 |
) |
|
$ |
16,383,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses were $166,868 and $463,266, respectively, for the
three months ended March 31, 2011. The Company commenced its operation on August 11, 2010 and
therefore did not have such expenses for the three months ended March 31, 2010.
Operating Leases
As of March 31, 2011, the Companys real estate portfolio was 90% leased by a diverse group of
tenants, comprised of 304 residential tenants and ten commercial tenants. For the three month ended
March 31, 2011, the Companys real estate portfolio earned approximately 94% and 6% of its rental
income from residential tenants and commercial office tenants, respectively. The residential tenant
lease terms consist of lease durations equal to twelve months or less. The commercial office tenant
leases consist of lease durations varying from three to five years. The Company commenced its
operation on August 11, 2010 consequentially it did not have rental income for the three months
ended March 31, 2010.
Some residential and commercial leases contain provisions to extend the lease agreements,
options for early termination after paying a specified penalty, rights of first refusal to purchase
the property at competitive market rates, and other terms and conditions as negotiated. The Company
retains substantially all of the risks and benefits of ownership of the real estate assets leased
to tenants. Generally, upon the execution of a lease, the Company requires security deposits from
tenants in the form of a cash deposit and/or a letter of credit for commercial tenants. Amounts
required as security deposits vary depending upon the terms of the respective leases and the
creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to
credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security
deposit. Security deposits received in cash related to tenant leases are included in accounts
payables and accrued liabilities in the accompanying consolidated balance sheets and totaled
$172,947 and $173,775 as of March 31, 2011 and December 31, 2010, respectively.
The future minimum rental receipts from the Companys properties under non-cancelable
operating leases attributable to commercial office tenants as of March 31, 2011 and thereafter is
as follows:
|
|
|
|
|
2011 |
|
$ |
161,314 |
|
2012 |
|
|
144,473 |
|
2013 |
|
|
74,366 |
|
2014 |
|
|
11,008 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
391,161 |
|
|
|
|
|
15
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
As of March 31, 2011, no tenant represented over 10% of the Companys annualized base rent and
there were no significant industry concentrations with respect to its commercial leases.
4. Tenant Origination and Absorption Costs
As of March 31, 2011, the Companys tenant origination and absorption costs were as
follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Cost |
|
$ |
1,224,044 |
|
|
$ |
1,224,044 |
|
Accumulated amortization |
|
|
(853,910 |
) |
|
|
(390,644 |
) |
|
|
|
|
|
|
|
Tenant origination and abosorption costs, net |
|
$ |
370,134 |
|
|
$ |
833,400 |
|
|
|
|
|
|
|
|
The decrease in net income as a result of amortization of the Companys tenant
origination and absorption costs for the three months ended March 31, 2011 was $463,266. Tenant
origination and absorption costs had a weighted-average amortization period as of the date of
acquisition of less than one year.
As of March 31, 2011 and December 31, 2010, none of the Companys properties had above-market
lease assets or below-market lease liabilities.
5. Deferred Financing Costs and Other Assets
As of March 31, 2011 and December 31, 2010, deferred financing costs and other assets, net of
accumulated amortization, consisted of:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Deferred financing costs |
|
$ |
72,500 |
|
|
$ |
72,500 |
|
Prepaid expenses |
|
|
57,958 |
|
|
|
57,447 |
|
Other assets |
|
|
59,683 |
|
|
|
53,686 |
|
|
|
|
|
|
|
|
|
|
|
190,141 |
|
|
|
183,633 |
|
Less; accumulated amortization |
|
|
(4,735 |
) |
|
|
(1,110 |
) |
|
|
|
|
|
|
|
Deferred financing costs and other assets, net |
|
$ |
185,406 |
|
|
$ |
182,523 |
|
|
|
|
|
|
|
|
As of March 31, 2011 and December 31, 2010, the Companys net deferred financing costs
were $67,765 and $71,390, respectively.
6. Notes Payable
As of March 31, 2011 and December 31, 2010, the Companys notes payable principal amount
totaled $11,650,000, and comprised of $6,650,000 issued by the seller of the Lincoln Tower Property
in connection with the acquisition of the Lincoln Tower Property on August 11, 2010 (the Lincoln
Tower Note) and $5,000,000 issued by a regional bank in connection with the Companys acquisition
of the Park Place Property on December 22, 2010 (the Park Place Note).
The Lincoln Tower Note requires interest only payments during the term and has a term of 60
months, ending September 1, 2015 with the option to extend the maturity date for up to two
successive periods of 12 months each,
16
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
subject to customary and market rate extension provisions. Interest on the Lincoln Tower Note accrues at a rate of 6% per annum through September 1, 2015.
The Park Place Note requires interest only payments during the term and has a term of 36
months, ending December 22, 2013 with the option to extend the maturity date for up to two
successive periods of 12 months each, subject to customary and market rate extension provisions.
Interest on the Park Place Note accrues at a rate of 5.25% per annum through December 22, 2013.
The
Companys notes payable contain customary non-financial and financial debt covenants. As of March
31, 2011 and December 31, 2010, the Company was in compliance with all financial debt covenants.
For the three months ended March 31, 2011, the Company incurred and recorded $166,812 of
interest expense. As of March 31, 2011 and December 31, 2010, $54,396 and $33,250 of interest
expense was payable, respectively, which are included in accounts payable and accrued liabilities
in the accompanying consolidated balance sheets. Included in interest expense for the three months
ended March 31, 2011 was $3,625 of amortization of deferred financing costs.
7. Stockholders Equity
General
Under the Companys Second Articles of Amendment and Restatement (the Charter:), the total
number of shares of capital stock authorized for issuance is 1,100,000,000 shares, consisting of
999,999,000 shares of common stock with a par value of $0.01 per share, 1,000 shares of convertible
stock with a par value of $0.01 per share and 100,000,000 shares designated as preferred stock with
a par value of $0.01 per share.
Common Stock
The shares of 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 Companys board of directors in accordance with the Maryland General Corporation Law and to all
rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no
preferences or preemptive, conversion or exchange rights.
During 2009, the Company issued 22,223 shares of common stock to the Sponsor for $200,007. As
of March 31, 2011, the Company had issued 1,481,521 shares of common stock in its Private Offering
and Public Offering for offering proceeds of $12,202,107, net of offering costs of $2,034,797.
These offering costs primarily consist of selling commissions and dealer manager fees. Offering
proceeds include $85,500 of amounts receivable from the Companys transfer agent as of March 31,
2011. As of March 31, 2011, the Company also had issued 11,583 shares of common stock at $9.50
per share pursuant to its DRP plan for total proceeds of $110,038.
During 2010, the Company granted 15,000 shares of restricted common stock to its independent
directors at a fair value of $8.55 as compensation for services. The shares vest and become
non-forfeitable in four equal annual installments beginning on the date of grant and ending on the
third anniversary of the date of grant and will become fully vested and become non-forfeitable on
the earlier to occur of (1) the termination of the independent directors service as a director due
to his or her death or disability, or (2) a change in control. In addition, on the date following
an independent directors re-election to the board of directors, he or she will receive 2,500
shares of restricted common stock.
17
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
Included in general and administrative expenses is $8,016 for the three months ended March 31,
2011 for compensation expense related to issuance of restricted common stock. The weighted average
remaining term of the restricted common stock is 2.04 years.
In addition, during the year ended December 31, 2010, the Company issued 4,782 shares of
common stock to an independent director as compensation, in lieu of cash, at a weighted average
fair value of $8.76. Included in general and administrative expenses is $41,872 of compensation
expense for independent director compensation issued as common stock in lieu of cash compensation.
For the three months ended March 31, 2011, the Company issued 893 shares of common stock to an
independent director as compensation, in lieu of cash, at a weighted average fair value of $9.10.
Included in general and administrative expenses is $8,125 of compensation expense for independent
director compensation issued as common stock in lieu of cash compensation.
Convertible Stock
The Company has issued 1,000 shares of Convertible Stock to the Advisor for $1,000. The
Convertible Stock will convert into shares of the Companys common stock if and when: (A) the
Company has made total distributions on the then outstanding shares of common stock equal to the
original issue price of those shares plus an 8.0% cumulative, non- compounded, annual return on the
original issue price of those shares, (B) subject to specified conditions, the Company lists the common stock for trading on a national securities
exchange or (C) the Advisory Agreement is terminated or not renewed by the Company (other than for
cause as defined in the Advisory Agreement). A listing will be deemed to have occurred on the
effective date of any merger of the Company in which the consideration received by the holders of
the Companys common stock is the securities of another issuer that are listed on a national
securities exchange. Upon conversion, each share of Convertible Stock will convert into a number of
shares of common stock equal to 1/1000 of the quotient of (A) 10% of the amount, if any, by which
(1) the Companys enterprise value (as defined in the Charter) plus the aggregate value of
distributions paid to date on the outstanding shares of common stock exceeds the (2) aggregate
purchase price paid by the stockholders for those shares plus an 8.0% cumulative, non-compounded,
annual return on the original issue price of those shares, divided by (B) the Companys enterprise
value divided by the number of outstanding shares of common stock, in each case calculated as of
the date of the conversion. In the event of a termination or non-renewal of the Advisory Agreement
by the Company for cause, the Convertible Stock will be redeemed by the Company for $1.00.
Preferred Stock
The Charter also provides the Companys 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, 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. The
Companys board of directors is authorized to amend the Charter, without the approval of the
stockholders, to increase the aggregate number of authorized shares of capital stock or the number
of shares of any class or series that the Company has authority to issue. As of March 31, 2011 and
December 31, 2010, no shares of the Companys preferred stock were issued and outstanding.
Distribution Reinvestment Plan
The Companys 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 Companys common stock in lieu of receiving cash distributions. The
initial purchase price per share under the DRP is $9.50. If the Company extends the Public Offering
beyond two years from the date of its commencement, the Companys board of directors may, in its
sole discretion, from time to time, change this price based upon changes in the Companys estimated
net asset value per share, the then current public offering price of shares of the Companys common
stock and other factors that the Companys board of directors deems relevant.
18
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
No sales commissions or dealer manager fees are payable on shares sold through the DRP. The
Companys board of directors may terminate the DRP at its discretion at any time upon ten days
notice to the Companys stockholders. Following any termination of the DRP, all subsequent
distributions to stockholders will be made in cash.
Share Repurchase Plan and Redeemable Common Stock
There is no market for the Companys common stock and, as a result, there is risk that a
stockholder may not be able to sell the Companys stock at a time or price acceptable to the
stockholder. To allow stockholders to sell their shares of common stock in limited circumstances,
the Companys board of directors has approved a share repurchase plan.
Unless shares of common stock are being redeemed in connection with a stockholders death or
disability, the Company may not redeem shares until they have been outstanding for one year. In
addition, the Company has limited the number of shares redeemed pursuant to the share repurchase
plan during any calendar year to: (1) 5% of the weighted-average number of shares outstanding
during the prior calendar year and (2) those than can be funded from the net proceeds the Company
received from the sale of shares under the DRP during the prior calendar year plus such additional
funds as may be reserved for that purpose by the Companys board of directors.
Under the share repurchase plan, prior to the completion of the Offering Stage (as defined
below), the purchase price for shares repurchased by the Company under the plan will be as follows:
|
|
|
|
|
Repurchase Price |
Share Purchase Anniversary |
|
on Repurchase Date(1) |
Less than 1 year
|
|
No Repurchase Allowed |
1 year
|
|
92.5% of Primary Offering Price |
2 years
|
|
95.0% of Primary Offering Price |
3 years
|
|
97.5% of Primary Offering Price |
4 years
|
|
100.0% of Primary Offering Price |
In the event of a stockholders 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. |
|
(2) |
|
The purchase price per share for shares redeemed upon the death or disability of a
stockholder will be equal to the average issue price per share for all of the stockholders
shares. |
The purchase price per share for shares repurchased pursuant to the share repurchase plan will
be further reduced by the aggregate amount of net proceeds per share, if any, distributed to the
Companys stockholders prior to the repurchase date as a result of the sale of one or more of the
Companys assets that constitutes a return of capital distribution as a result of such sales.
Notwithstanding the foregoing, following the completion of the Offering Stage, shares of
the Companys common stock will be repurchased at a price equal to a price based upon the Companys
most recently established estimated net asset value per share, which the Company will publicly
disclose every six months beginning no later than six months following the completion of the
Offering Stage based on periodic valuations by independent third party appraisers and qualified
independent valuation experts selected by the Advisor. The Offering Stage will be considered
complete on the first date that the Company is no longer publicly offering equity securities that
are not listed on a national securities exchange, whether through the Public Offering or follow-on
public equity offerings, provided the Company has not filed a registration statement for a
follow-on public equity offering as of such date.
19
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
The Companys board of directors may, in its sole discretion, amend, suspend or terminate the
share repurchase plan at any time if it determines that the funds available to fund the share
repurchase plan are needed for other business or operational purposes or that amendment, suspension
or termination of the share repurchase plan is in the best interest of the Companys stockholders.
The share repurchase plan will terminate if the shares of the Companys common stock are listed on
a national securities exchange. The Company did not redeem any shares for the three months ended
March 31, 2011 and 2010.
Pursuant
to the share repurchase plan, the Company has an obligation to redeem shares which
is outside the Companys control, in an amount of future redemptions, which is reclassified from
permanent equity to temporary equity in the accompanying consolidated statements of equity as
transfers to redeemable common stock. For the three months ended March 31, 2011, the Company
reclassified $52,211 from permanent equity to temporary equity, which is included as redeemable
common stock on the accompanying consolidated balance sheets. The redeemable common stock balance
at any given time will consist of (a) DRP proceeds from the prior year plus (b) DRP proceeds from
the current year through the current period less (c) actual current year redemptions paid or
pending redemption. Any remaining redeemable common stock balances initially reclassified to
temporary equity before the prior year (representing excess proceeds not used for redemption in the
prior calendar year) is reclassified back to permanent equity, as such amounts are no longer
subject to redemption. For the three months ended March 31, 2010, there was no redeemable common
stock as there were no DRP proceeds.
Distributions
The Companys long-term policy will be to pay distributions from cash flow from operations.
However, the Company expects to have insufficient cash flow from operations available for
distribution until it makes substantial investments. In order to provide additional available funds
to pay distributions, under certain circumstances the Companys obligation to pay all fees due to
the Advisor from the Company pursuant to the Advisory Agreement will be deferred up to an aggregate
amount of $5,000,000 during the Offering Stage. If, during any calendar quarter during the offering
stage, the distributions paid by the Company exceed FFO, plus (1) any acquisition expenses and
acquisition fees expensed that are related to any property, loan or other investment acquired or
expected to be acquired, and (2) any non-operating, non-cash charges incurred, such as impairments
of property or loans, any other than temporary impairments of marketable securities, or other
similar charges, for the quarter, which is defined in the Advisory Agreement as Adjusted Funds
From Operations, the payment of fees the Company is obligated to pay the Advisor will be deferred
in an amount equal to the amount by which distributions paid to stockholders for the quarter exceed
Adjusted Funds From Operations for such quarter up to an amount equal to a 7.0% cumulative
non-compounded annual return on stockholders invested capital, pro-rated for such quarter. For
purposes of this calculation, if Adjusted Funds From Operations is negative, Adjusted Funds From
Operations shall be deemed to be zero. As of March 31, 2011, $202,602
fees had been deferred pursuant to the Advisory Agreement.
The Company is only obligated to pay the Advisor for these deferred fees if and to the extent
that cumulative Adjusted Funds From Operations for the period beginning on the date of the
commencement of the Private Offering through the date of any such payment exceed the lesser of (1)
the cumulative amount of any distributions paid to stockholders as of the date of such payment or
(2) distributions (including the value of shares issued pursuant to the distribution reinvestment
plan) equal to a 7.0% cumulative, non-compounded, annual return on invested capital for
the period from the commencement of the Public Offering through the date of such payment. The
Companys obligation to pay the deferred fees will survive the termination of the Advisory
Agreement and will continue to be subject to the repayment conditions above. The Company will not
pay interest on the deferred fees if and when such fees are paid to the Advisor.
Distributions Declared
In connection with the acquisition of the Lincoln Tower Property, the Companys board of
directors declared a cash distribution to stockholders. Distributions (1) accrue daily to
stockholders of record as of the close of business on each day commencing on August 12, 2010, (2)
are payable in cumulative amounts on or before the 15th day of
20
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
each calendar month with respect to
the prior month, and (3) are calculated at a rate of $0.001917 per share of common stock per day,
which if paid each day over a 365-day period is equivalent to an 7.0% annualized distribution rate
based on a purchase price of $10.00 per share of common stock. Stockholders may elect to receive
cash distributions or purchase additional shares through the DRP.
The distributions declared for the three months ended March 31, 2011 were $230,428, including
$83,012, or 8,738 shares of common stock attributable to the DRP.
As of March 31, 2011 and December 31, 2010, $86,181 and $63,566 distributions declared were
payable, which includes $30,801 and $23,127 of distributions that have been reinvested through the
DRP.
Distributions Paid
For the three months ended March 31, 2011, the Company paid cash distributions of $132,474,
which related to distributions declared for each day in the period from December 1, 2010 through
February 28, 2011. Additionally, 7,930 shares of common stock were issued pursuant to the DRP for
gross offering proceeds of $75,339 for the three months ended March 31, 2011.
8. Related Party Arrangements
The Company has entered into the Advisory Agreement with the Advisor and a Dealer Manager
Agreement with the Dealer Manager with respect to the Public Offering. Pursuant to the Advisory
Agreement and Dealer Manager Agreement, the Company is obligated to pay the Advisor and the Dealer
Manager specified fees upon the provision of certain services related to the Public Offering, the
investment of funds in real estate and real estate-related investment and the management of the
Companys investments and for other services (including, but not limited to, the disposition of
investments). Subject to the limitations described below, the Company is also obligated to
reimburse the Advisor and its affiliates for organization and offering costs incurred by the
Advisor and its affiliates on behalf of the Company, and the Company is obligated to reimburse the
Advisor and its affiliates for acquisition and origination expenses and certain operating expenses
incurred on behalf of the Company or incurred in connection with providing services to the Company.
In certain circumstances, the Companys obligation to pay some or all of the fees due to the
Advisor pursuant to the Advisory Agreement will be deferred up to an aggregate amount of
$5,000,000.
On March 21, 2011, the Company entered into an amendment to the Advisory Agreement with
Advisor to (1) renew the Advisory Agreement for an additional one-year term expiring on May 4,
2012, and (2) make certain clarifications with respect to the terms and conditions of the deferral
of the payment of fees to Advisor. In particular, the amendment to the Advisory Agreement clarifies
that for purposes of calculating the amount of fees that may be deferred pursuant to the Advisory
Agreement, the amount of distributions paid during a fiscal quarter shall include the value of
shares of the Companys common stock distributed pursuant to the DRP. Additionally, for purposes of
calculating the difference between Adjusted Funds From Operations, and the amount of distributions
paid during a measurement period, if Adjusted Funds From Operations during such period is negative,
Adjusted Funds From Operations shall be deemed to be zero.
Amounts attributable to the Advisor and its affiliates incurred and paid (received) for the
three months ended March 31, 2011 and 2010 are as follows:
21
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Incurred |
|
|
Paid (Received) |
|
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2011 |
|
Consolidated Statements of Operations |
|
|
|
|
|
|
|
|
Expensed |
|
|
|
|
|
|
|
|
Organizational cost reimbursement |
|
$ |
|
|
|
$ |
|
|
Investment management fees |
|
|
35,766 |
(1) |
|
|
|
|
Acquisition fees |
|
|
|
|
|
|
222,642 |
|
Property management |
|
|
|
|
|
|
|
|
Fees |
|
|
32,390 |
(1) |
|
|
28,439 |
|
Reimbursement of onsite personnel |
|
|
102,952 |
(1) |
|
|
89,277 |
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
Additional paid-in-capital |
|
|
|
|
|
|
|
|
Advances for operating expenses |
|
|
59,929 |
|
|
|
47,085 |
|
Other offering costs reimbursement |
|
|
189,293 |
|
|
|
191,146 |
|
Selling commissions |
|
|
202,953 |
|
|
|
202,953 |
|
Dealer management fees |
|
|
118,949 |
|
|
|
118,949 |
|
Due to affiliates |
|
|
|
|
|
|
|
|
Due from Advisor |
|
|
|
|
|
|
(53,353 |
) |
|
|
|
|
|
|
|
|
|
$ |
742,232 |
|
|
$ |
847,138 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in the $68,156 of fees to affiliates in the accompanying
consolidated statement of operations are the following: investment management fees of $35,766 and
property management fees of $32,390 for the three months ended March 31, 2011. Property management
reimbursement of onsite personnel of $102,952 is included in general and administrative expenses of
the three months ended March 31, 2011. |
Amounts outstanding to the Advisor and its affiliates as of March 31, 2011 and December 31,
2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Payable (Receivable) as of |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Consolidated Statements of Operations |
|
|
|
|
|
|
|
|
Expensed |
|
|
|
|
|
|
|
|
Organizational cost reimbursement |
|
$ |
|
|
|
$ |
|
|
Investment management fees |
|
|
67,607 |
(1) |
|
|
31,841 |
(1) |
Acquisition fees |
|
|
134,995 |
(2) |
|
|
357,637 |
(2) |
Property management |
|
|
|
|
|
|
|
|
Fees |
|
|
10,965 |
|
|
|
7,014 |
|
Reimbursement of onsite personnel |
|
|
13,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
Additional paid-in-capital |
|
|
|
|
|
|
|
|
Advances for operating expenses |
|
|
44,399 |
|
|
|
31,555 |
|
Other offering costs reimbursement |
|
|
5,363 |
|
|
|
7,216 |
|
Selling commissions |
|
|
|
|
|
|
|
|
Dealer management fees |
|
|
|
|
|
|
|
|
Due to affiliates |
|
|
|
|
|
|
|
|
Due from Advisor |
|
|
|
|
|
|
(53,353 |
) |
|
|
|
|
|
|
|
|
|
$ |
277,004 |
|
|
$ |
381,910 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investment management fees of $67,607 and $31,841 earned by the Advisor have been deferred
as of March 31, 2011 and December 31, 2010, respectively, pursuant to the terms of the
Advisory Agreement. |
22
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
|
|
|
(2) |
|
Payment of $134,995 of acquisition fees earned by the advisor had been deferred as of March
31, 2011 and December 31, 2010 pursuant to the terms of the
Advisory Agreement. The remaining amount of acquisition fees of $222,642, subsequently paid in
February 2011, was due and payable and included in due to affiliates in the accompanying
balance sheet at December 31, 2010. |
Organizational and Offering Costs
Organization and offering costs (other than selling commissions and dealer manager fees) of
the Company are initially being paid by the Advisor or its affiliates on behalf of the Company.
These organization and other offering costs include all expenses to be paid by the Company in
connection with the Public Offering and Private Offering, including legal, accounting, printing,
mailing and filing fees, charges of the Companys transfer agent, expenses of organizing the
Company, data processing fees, advertising and sales literature costs, transfer agent costs, bona
fide out-of-pocket due diligence costs and amounts to reimburse the Advisor or its affiliates for
the salaries of its employees and other costs in connection with preparing supplemental sales
materials and providing other administrative services in connection with the Public Offering and
the Private Offering. Any reimbursement of expenses paid to the Advisor will not exceed actual
expenses incurred by the Advisor. Organization costs include all expenses to be incurred by the
Company in connection with the formation of the Company, including but not limited to legal fees
and other costs to incorporate the Company.
Pursuant to the Advisory Agreement, the Company is obligated to reimburse the Advisor or its
affiliates, as applicable, for organization and offering costs paid by them on behalf of the
Company in connection with the Public Offering, provided that the Advisor is obligated to reimburse
the Company to the extent selling commissions, dealer manager fees and organization and offering
costs incurred by the Company in the Public Offering exceed 15% of gross offering proceeds raised
in the Public Offering.
Reimbursements to the Advisor or its affiliates for offering costs paid by them on behalf of
the Company with respect to the Private Offering is not limited to 15% of the gross offering
proceeds of the Private Offering. However, the Company will not make reimbursements of organization
and offering costs in excess of 15% of the gross offering proceeds of the Private Offering unless
approval is obtained from the independent directors. The independent directors have not approved
the reimbursement of excess private offering costs. Accordingly, the Company has not accrued for
the reimbursement of organization and offering costs of the Private Offering in excess of the 15%
of gross offering proceeds raised through the Private Offering.
The amount of organization and offering (O&O) costs that is reimbursable or was paid from
inception through March 31, 2011 is as follows:
23
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
|
|
|
|
|
Gross offering proceeds: |
|
$ |
14,236,905 |
|
O&O limitation |
|
|
15 |
% |
|
|
|
|
Total O&O costs available to be paid/reimbursed |
|
$ |
2,135,536 |
|
|
|
|
|
|
|
|
|
|
O&O expenses recorded |
|
|
|
|
Sales commissions paid |
|
$ |
787,915 |
|
Broker dealer fees paid |
|
|
461,029 |
|
Private offering costs reimbursements |
|
|
423,707 |
|
Public offering costs reimbursements |
|
|
356,784 |
|
Public offering costs reimbursement accrual |
|
|
5,363 |
|
Organizational costs reimbursements |
|
|
100,738 |
|
|
|
|
|
Total O&O costs reimbursements recorded by the company |
|
$ |
2,135,536 |
|
|
|
|
|
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
Companys affiliates to attend seminars conducted by broker-dealers and, in special, cases,
reimbursement to participating broker-dealers for technology costs associated with the Public
Offering, costs and expenses related to such technology costs, and costs and expenses associated
with the facilitation of the marketing of the Companys shares and the ownership of the Companys
shares by such broker-dealers customers; provided, however, that the Company will not pay any of
the foregoing costs to the extent that such payment would cause total underwriting compensation to
exceed 10% of the gross proceeds of the Public Offering, as required by the rules of FINRA.
As of March 31, 2011 and December 31, 2010, the Advisor had incurred $6,866,556 and
$5,713,747, respectively, of organizational and offering costs on behalf of the Company, of which
$4,731,021 and $4,089,406, respectively, have been deferred as of that date, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred |
|
|
|
|
|
|
Deferred as of |
|
|
Incurred for the |
|
|
|
|
|
|
Deferred as of |
|
|
|
through |
|
|
|
|
|
|
December 31, |
|
|
Three Months |
|
|
|
|
|
|
March 31, |
|
|
|
December 31, 2010 |
|
|
Amounts Recognized |
|
|
2010 |
|
|
Ended March 31, 2011 |
|
|
Amounts Recognized |
|
|
2011 |
|
Organizational
expenses |
|
$ |
100,738 |
|
|
$ |
100,738 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Private Offering
costs |
|
|
2,301,719 |
|
|
|
876,649 |
|
|
|
1,425,070 |
|
|
|
|
|
|
|
|
|
|
|
1,425,070 |
|
Public Offering
costs |
|
|
3,311,290 |
|
|
|
646,954 |
|
|
|
2,664,336 |
|
|
|
1,152,809 |
|
|
|
511,194 |
|
|
|
3,305,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,713,747 |
|
|
$ |
1,624,341 |
|
|
$ |
4,089,406 |
|
|
$ |
1,152,809 |
|
|
$ |
511,194 |
|
|
$ |
4,731,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organization costs are expensed as incurred. Offering costs, including selling
commissions and dealer manager fees, are deferred and charged to stockholders equity as such
amounts are reimbursed to the Advisor, the Dealer Manager or their affiliates from gross offering
proceeds. For the three months ended March 31, 2011, the Company incurred, and reimbursed, $0 of
offering costs to the Advisor that were attributable to the Private Offering. From
inception through March 31, 2011, the Company incurred $100,738 of organizational costs of
which $100,738 was reimbursed to the Advisor. For the three month ended March 31, 2011, the Company
reimbursed the Advisor $511,194 for offering and organization costs incurred resulting in
$2,135,536 of reimbursements for offering and organizational costs from inception through March 31,
2011.
During the three months ended March 31, 2011, the Company, the Advisor and its affiliates
incurred $0 of organizational costs, $0 of offering costs in connection with the Private Offering,
and $189,293 of offering costs in connection with the Public Offering. After reimbursing offering
costs associated with the Private Offering up to the 15% limitation of $876,649 ($1,425,070 of
which remains potentially reimbursable to the Advisor subject to the
24
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
approval of the independent
directors), the Company began reimbursing the Advisor for organization costs. After reimbursing
organization costs, the Company commenced reimbursing the Advisor for offering costs incurred in
connection with the Public Offering. The Company accrued $5,363 and $7,216 for the reimbursement of
offering costs in the financial statements as of March 31, 2011 and December 31, 2010,
respectively.
Investment Management Fee
With respect to investments in real estate, the Company pays the Advisor a monthly investment
management fee equal to one-twelfth of 0.80% of (1) the cost of real properties and real
estate-related assets acquired directly by the Company or (2) the Companys allocable cost of each
real property or real estate-related asset acquired through a joint venture. Such fee will be
calculated including acquisition fees, acquisition expenses and any debt attributable to such
investments, or the Companys proportionate share thereof in the case of investments made through
joint ventures. For the three months ended March 31, 2011, the Company incurred $35,766 of
investment management fees to the Advisor, which amount was included in due to affiliates in the
accompanying balance sheet as of March 31, 2011. Payment of $67,607 of investment management fees
due to the Advisor as of March 31, 2011 has been deferred pursuant to the terms of the Advisory
Agreement.
Acquisition Fees
The Company pays the Advisor an acquisition fee equal to 2.0% of (1) the purchase price in
connection with the acquisition or origination of any type of real property or real estate-related
asset acquired directly by the Company or (2) the Companys allocable portion of the purchase price
in connection with the acquisition or origination of any type of real property or real
estate-related asset acquired through a joint venture, including any acquisition and origination
expenses and any debt attributable to such investments. As of December 31, 2010, $357,637 of
acquisition fees attributable to the Advisor was earned by the Advisor in connection with the
acquisitions of the Lincoln Tower Property and the Park Place Property. During the year ended
December 31, 2010, the distributions the Company paid exceeded the Companys Adjusted Funds From
Operations; therefore, in accordance with the Advisory Agreement the acquisition and investment
management fees the Company was obligated to pay the Advisor have been deferred in an amount equal
to distributions paid to the Companys stockholders during the year in excess of the Companys
Adjusted Funds From Operations up to an amount equal to a 7.0% cumulative, non-compounded, annual
return on invested capital pro-rated for such quarter.
For the three months ended March 31, 2011, the Company paid distributions of $207,813. As of
March 31, 2011, $202,602 of fees earned by the Advisor have been deferred, comprising of $134,995
of acquisition fees and $67,607 of investment management fees. These amounts have been deferred
until the Companys cumulative Adjusted Funds From Operations exceed the lesser of (1) the
cumulative amount of any distributions paid to the Companys stockholders as of the date of
reimbursement of the deferred fee or (2) distributions (including the value of shares issued
pursuant to the DRP) equal to a 7.0% cumulative, non-compounded, annual return on invested capital
to the Companys stockholders as of the date of reimbursement. Acquisition fees of $222,642 were
due and payable and included due to affiliates in the accompanying balance sheets at December 31,
2010.
In addition to acquisition fees, the Company reimburses the Advisor for amounts it pays to
third parties in connection with the selection, acquisition or development of a property or
acquisition of real estate-related assets, whether or not the Company ultimately acquires the
property or the real estate-related assets. For the three months ended March 31, 2011, the Advisor
incurred $59,929 of acquisition costs paid to third parties.
The Charter limits the Companys 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
25
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
Companys 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.
Property Management Fees and Expenses
The Company has entered into Property Management Agreements with Steadfast Management Company,
Inc., an affiliate of the Sponsor (the Property Manager) in connection with the acquisition of
the Lincoln Tower Property and the Park Place Property. The property management fee payable with
respect to each property under the Property Management Agreements is equal to 3.5% of the annual
gross revenue collected which is usual and customary for comparable property management services
rendered to similar properties in the geographic market of the property, as determined by the
Advisor and approved by a majority of our board of directors, including a majority of our
independent directors. Each Property Management Agreement has an initial one year term and will
continue thereafter on a month-to-month basis unless either party gives prior notice of its desire
to terminate the Property Management Agreement, provided that the Company may terminate the Property
Management Agreement at any time without cause upon 30 days prior written notice to the Property
Manager. For the three months ended March 31, 2011, the Company incurred $32,390 of property
management fees payable to the Property Manager.
In addition, the Company reimburses the Property Manager for the salaries and related benefits
of on-site property management employees. For the three months ended March 31, 2011, the Company
incurred $102,952 of salaries and related benefits of on-site property management employees, of
which $13,674 are payable to the Property Manager at March 31, 2011.
Advances for Operating Expenses and Due from Advisor
As of March 31, 2011, the Advisor and its affiliates incurred $59,929 of the Companys direct
operating expenses, comprising of independent director fees and insurance and acquisition expenses,
of which $44,399 is included in due to affiliates, net on the accompanying consolidated balance
sheets.
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 in providing services to the Company, including the Companys
allocable share of the Advisors overhead, such as rent, employee costs, utilities and information
technology costs. The Company will not reimburse the Advisor for employee costs in connection with
services for which the Advisor or its affiliates receive acquisition fees or disposition fees or
for the salaries the Advisor pays to its executive officers.
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 greater of 2% of
the Companys average invested assets, or 25% of the Companys net income (the 2% 25%
Guidelines), unless the independent directors have determined that such
excess expenses were justified based on unusual and non-recurring factors. Commencing upon the
fourth fiscal quarter following the fiscal quarter ended March 31, 2010, and at least annually
thereafter, the Advisor must reimburse the Company for the amount by which the Companys operating
expenses for the preceding four fiscal quarters then ended exceed the greater of 2%/25% Guidelines.
Average invested assets means the average monthly book value of the Companys assets invested
directly or indirectly in equity interests and loans secured by real estate during the 12-month
period before deducting depreciation, bad debts or other non-cash reserves. Total operating
expenses means all expenses paid or incurred by the Company, as determined under GAAP that are in
26
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
any way related to the Companys operation, including investment management 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 Companys 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 Companys 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).
The Company has not recorded an accrual for any portion of the operating expenses incurred by
the Advisor in providing services to the Company. The Company will accrue for the reimbursement of
the Advisors operating expenses up to the greater of the amount allowed by the 2%/25% Guidelines
or the amount approved by the independent directors.
Disposition Fee
If the Advisor or its affiliates provides a substantial amount of services, as determined by
the Companys independent directors, in connection with the sale of a property or real
estate-related asset, the Company will pay the Advisor or its affiliates 1.5% of the sales price of
each property or real estate-related asset sold.
No disposition fee will be paid for securities traded on a national securities exchange. 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% Guidelines.
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.
The Charter limits the maximum amount of the disposition fees payable to the Advisor for the
sale of any real property to the lesser of one-half of the brokerage commission paid or 3.0% of the
contract sales price.
As of March 31, 2011, the Company has not sold or otherwise disposed of property or real
estate-related assets. Accordingly, the Company has not incurred any disposition fees as of March
31, 2011.
Selling Commissions and Dealer Manager Fees
The Company pays the Dealer Manager up to 6.5% and 3.5% of the gross offering proceeds from
the primary offering as selling commissions and dealer manager fees, respectively. A reduced sales
commission and dealer manager fee is paid in connection with volume discounts and certain other
categories of sales. No sales commission or dealer manager fee is paid with respect to shares of
common stock issued through the DRP. The Dealer Manager will reallow 100% of sales commissions
earned to participating broker-dealers. The Dealer Manager may also reallow to any participating
broker-dealer a portion of the dealer manager fee that is attributable to that participating
broker-dealer to defray the marketing costs of that participating broker-dealer. The Dealer Manager
will negotiate the reallowance of the dealer manager fee on a case-by-case basis with each participating broker-dealer
subject to various factors associated
with the cost of the marketing program. For the three months ended March 31, 2011, the Company
paid $202,953 of selling commissions, and $118,949 of dealer manager fees from the proceeds
received from the sale of the Companys common stock, which were recorded as a reduction of
additional paid in capital.
27
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
9. Incentive Award Plan and Independent Director Compensation
The Company has adopted an incentive plan (the Incentive Award Plan) that provides for the
grant of equity awards to its employees, directors and consultants and those of the Companys
affiliates. The Incentive Award Plan authorizes the grant of non-qualified and incentive stock
options, restricted stock awards, restricted stock units, stock appreciation rights, dividend
equivalents and other stock-based awards or cash-based awards. No awards have been granted under
such plan as of March 31, 2011 and December 31, 2010, except those awards granted to the
independent directors as described below.
Under
the Companys independent directors compensation plan
which is a sub-plan of the Incentive Award Plan, each of the Companys current
independent directors was entitled to receive 5,000 shares of restricted common stock in connection
with the initial meeting of the Companys full board of directors. The Companys board of
directors, and each of the independent directors, agreed to delay the initial grant of restricted
stock until the Company raised $2,000,000 in gross offering proceeds in the Private Offering. In
addition, on the date following an independent directors re-election to the Companys board of
directors, he or she will receive 2,500 shares of restricted common stock. One-fourth of the shares
of restricted common stock will generally vest and become non-forfeitable upon issuance and the
remaining portion will vest in three 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 directors service as a director due to his or her death or disability, or (2) a
change in control.
On April 15, 2010, after raising $2,000,000 in gross offering proceeds in the Private
Offering, the Company granted each of the three independent directors 5,000 shares of restricted
common stock. The Company recorded stock-based compensation expense of $8,016 for the three months
ended March 31, 2011.
10. Commitments and Contingencies
Economic Dependency
The Company is dependent on the Advisor and the Dealer Manager for certain services that are
essential to the Company, including the sale of the Companys shares of common and preferred stock
available for issue; the identification, evaluation, negotiation, purchase, and disposition of real
estate and real estate-related investments; management of the daily operations of the Companys
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
As of March 31, 2011, the Company owned two real estate properties the Lincoln Tower Property
located in Springfield, Illinois and the Park Place Property located in Des Moines, Iowa. As a
result of these acquisitions, the geographic concentration of the Companys portfolio makes it
particularly susceptible to adverse economic developments in the Springfield, Illinois and Des
Moines, Iowa 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 Companys 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. Although there can be no assurance, 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
28
PART I FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STEADFAST INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(unaudited)
Companys 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 Companys results of
operations or financial condition or is the Company aware of any such legal proceedings
contemplated by government agencies.
11. Subsequent Events
Distributions Paid
On April 14, 2011, the Company paid distributions of $86,181, which related to distributions
declared for each day in the period from March 1, 2011 through March 31, 2011 and consisted of cash
distributions paid in the amount of $55,380 and additional shares issued pursuant to the DRP in the
amount of $30,801.
Status of the Offering
The Company commenced its Public Offering on July 19, 2010. As of May 10, 2011, the Company had
sold 1,088,989 shares of common stock in the Public Offering for gross proceeds of $10,810,617,
including 14,867 shares of common stock issued pursuant to the DRP for gross offering proceeds of
$141,239. Total shares sold as of May 10, 2011 in the Private Offering and Public Offering were
1,726,268, shares representing gross proceeds of $16,654,942, including 14,867 shares of common
stock issued pursuant to the DRP for gross offering proceeds of $141,239.
Arbor Pointe Property Acquisition
On May 5, 2011, the Company acquired a fee simple interest in a 130-unit multifamily
residential property located at 2405 Pointe Arbor Drive in Louisville, Kentucky commonly known as
the Arbor Pointe Apartments (the Arbor Pointe Property).
The Company acquired the Arbor Pointe Property for an aggregate purchase price of $6,500,000,
exclusive of closing costs. The Company financed the payment of the purchase price for the Arbor
Pointe Property with a combination of (1) proceeds from the Public Offering and (2) a
loan in the aggregate principal amount of $5,200,000 from PNC Bank, National Association, evidenced
by a promissory note dated May 4, 2011. An acquisition fee of approximately $135,000 was earned by
the Advisor in connection with the acquisition of the Arbor Pointe Property.
The Arbor Pointe Property was constructed in 1995 and consists of 60 two-bedroom, garden style
apartments and 70 three-bedroom townhouses. The apartment units at the Arbor Pointe Property
average approximately 1,150 square feet and each apartment unit includes two bathrooms, central
heat and air conditioning, a full set of kitchen appliances, washer and dryer connections and
private patios or balconies. Common area amenities at the Arbor Pointe Property include an on-site
management office, swimming pool, playground and community room. The Arbor Pointe Property is
located in the Hurstbourne Acres submarket of downtown Louisville, Kentucky, which enjoys
convenient access to employment centers, large national retailers, several institutions of higher
learning and Louisvilles downtown medical research campus. The Arbor Pointe Property operates
under the Low Income
Housing Tax Credit (LIHTC) program, which requires that 100% of the units at the Arbor Pointe
Property be rented to tenants earning no more than 60% of the areas median income. As of April 28,
2011, the Arbor Pointe Property was approximately 97.0% occupied.
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PART I FINANCIAL INFORMATION (CONTINUED)
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Item 2. |
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Managements Discussion and Analysis of Financial Condition And Results of Operations |
The following discussion and analysis should be read in conjunction with the accompanying
financial statements of Steadfast Income REIT, Inc. and the notes thereto. As used herein, the
terms we, our and us refer to Steadfast Income REIT, Inc., a Maryland corporation, and, as
required by context, Steadfast Income REIT Operating Partnership, L.P., a Delaware limited
partnership, which we refer to as our operating partnership, and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q that are not historical
facts (including any statements concerning investment objectives, other plans and objectives of
management for future operations or economic performance, or assumptions or forecasts related
thereto) are forward-looking statements. These statements are only predictions. We caution that
forward-looking statements are not guarantees. Actual events or our investments and results of
operations could differ materially from those expressed or implied in any forward-looking
statements. Forward-looking statements are typically identified by the use of terms such as may,
should, expect, could, intend, plan, anticipate, estimate, believe, continue,
predict, potential or the negative of such terms and other comparable terminology.
The forward-looking statements included herein are based upon our current expectations, plans,
estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions
relating to the foregoing involve judgments with respect to, among other things, future economic,
competitive and market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. Although we believe that
the expectations reflected in such forward-looking statements are based on reasonable assumptions,
our actual results and performance could differ materially from those set forth in the
forward-looking statements. Factors which could have a material adverse effect on our operations
and future prospects include, but are not limited to:
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the fact that we have a limited operating history due to the fact that our operations
commenced on August 11, 2010; |
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our ability to effectively deploy the proceeds raised in our private and public
offerings of common stock; |
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changes in economic conditions generally and the real estate and debt markets
specifically; |
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our ability to successfully identify and acquire real estate and real estate-related
assets on terms that are favorable to us; |
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risks inherent in the real estate business, including tenant defaults, potential
liability relating to environmental matters and liquidity of real estate investments; |
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legislative or regulatory changes (including changes to the laws governing the taxation
of real estate investment trusts, or REITs); |
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the availability of capital; |
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interest rates; and |
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changes to generally accepted accounting principles, or GAAP. |
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PART I FINANCIAL INFORMATION (continued)
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Managements Discussion and Analysis of Financial Condition And Results of Operations (continued) |
Any of the assumptions underlying the forward-looking statements included herein could be
inaccurate, and undue reliance should not be placed on any forward-looking statements included
herein. All forward-looking statements are made as of the date this quarterly report is filed with
the Securities and Exchange Commission, or SEC, and the risk that actual results will differ
materially from the expectations expressed herein will increase with the passage of time. Except as
otherwise required by the federal securities laws, we undertake no obligation to publicly update or
revise any forward-looking statements made herein, whether as a result of new information, future
events, changed circumstances or any other reason.
All forward-looking statements included herein should be read in light of the factors
identified in the Risk Factors section of our Annual Report on Form 10-K filed with the SEC on
March 21, 2011.
Overview
We are a Maryland corporation formed in May 2009 that commenced operations on August 11, 2010.
We are dependent upon proceeds received from our private and public offerings of common stock to
conduct our proposed investment activities as described below. The capital required to purchase our
investments will be obtained from our securities offerings and from any indebtedness that we may
incur in connection with the investment or thereafter. We have initially been capitalized with
$202,007; $200,007 of which was contributed by our sponsor, Steadfast Commercial Investments, LLC,
on June 12, 2009 in exchange for 22,223 shares of our common stock and $1,000 of which was
contributed by Steadfast Income Advisor, LLC, which we refer to as our advisor, on July 10, 2009
in exchange for 1,000 shares of our convertible stock. In addition, our advisor has invested $1,000
in our operating partnership in exchange for limited partnership interests.
On October 13, 2009, we commenced a private offering of up to $94,000,000 in shares of our
common stock at a purchase price of $9.40 per share (with discounts available for certain
categories of purchasers), which we refer to as the private offering. We offered shares of our
common stock for sale in the private offering pursuant to a confidential private placement
memorandum and only to persons that were accredited investors, as that term is defined under the
Securities Act of 1933, as amended, or the Securities Act, and Regulation D promulgated thereunder.
On or about July 9, 2010, we terminated our private offering, at
which time we had raised gross proceeds of $5,844,325 from the sale of 637,279 shares of our common stock.
On July 23, 2009, we filed a registration statement on Form S-11 with the SEC to offer a
maximum of 150,000,000 shares of common stock for sale to the public at an initial price of $10.00
per share, which we refer to as our initial public offering. We are also offering up to
15,789,474 shares of common stock pursuant to our distribution reinvestment plan at an initial
price of $9.50 per share. The SEC declared our registration statement effective on July 9, 2010 and
we commenced the initial public offering on July 19, 2010. If we extend the initial public offering
beyond two years from the date our registration statement was declared effective, our board of
directors may, from time to time, in its sole discretion, change the price at which we offer shares
to the public in the initial public offering or to our stockholders pursuant to the distribution
reinvestment plan to reflect changes in our estimated net asset value per share and other factors
that our board of directors deems relevant. We may reallocate the shares registered for the initial
public offering and those shares registered pursuant to the distribution reinvestment plan. As of
March 31, 2011, we had sold 855,824 shares of common stock in
our initial public offering for gross
proceeds of $8,502,618, including 11,583 shares of common stock issued pursuant to our distribution
reinvestment plan for gross offering proceeds of $110,038.
We intend to use substantially all of the net proceeds from our initial public offering to
invest in a diverse portfolio of real estate and real estate-related assets, primarily in the
multifamily sector. In addition to our focus on multifamily properties, we may also selectively
invest in industrial properties and other types of commercial properties and real estate-related
assets. 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.
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PART I FINANCIAL INFORMATION (continued)
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Managements Discussion and Analysis of Financial Condition And Results of Operations (continued) |
As of March 31, 2011, we owned two multi-family properties, the Lincoln Tower Apartments, or
the Lincoln Tower property, located in Springfield, Illinois and the Park Place Condominiums, or
the Park Place property, located in Des Moines, Iowa, consisting of an aggregate of 337 rentable
multifamily units. The Lincoln Tower property also includes approximately 8,800 square feet of
commercial office space. The total cost of our real estate portfolio was $17,550,000, exclusive of
closing costs. At March 31, 2011 our portfolio was approximately 90% leased.
Steadfast Income Advisor, LLC is our advisor. Subject to certain restrictions and limitations,
our advisor manages our day-to-day operations and will manage our portfolio of properties and real
estate-related assets. Our advisor sources and presents investment opportunities to our board of
directors. Our advisor also provides investment management, marketing, investor relations and other
administrative services on our behalf. The dealer manager for our initial public offering is
Steadfast Capital Markets Group, LLC. Which we refer to as the dealer manager.
Substantially all of our business is conducted through Steadfast Income REIT Operating
Partnership, L.P., our operating partnership. We are the sole general partner of our operating
partnership. The initial limited partner of our operating partnership is our advisor. As we accept
subscriptions for shares, we will transfer substantially all of the net proceeds of our offering to
our operating partnership as a capital contribution. The limited partnership agreement of our
operating partnership provides that our operating partnership will be operated in a manner that
will enable us to (1) satisfy the requirements for being classified as a REIT, for tax purposes,
(2) avoid any federal income or excise tax liability and (3) ensure that our operating partnership
will not be classified as a publicly traded partnership for purposes of Section 7704 of the
Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, which classification could
result in our operating partnership being taxed as a corporation, rather than as a partnership. In
addition to the administrative and operating costs and expenses incurred by our operating
partnership in acquiring and operating real properties, our operating partnership will pay all of
our administrative costs and expenses, and such expenses will be treated as expenses of our
operating partnership.
We intend to qualify as a REIT for federal income tax purposes commencing with the tax year
ending December 31, 2010, which means as a REIT we generally will not be subject to federal income
tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any
taxable year after the taxable year in which we initially elect to be taxed as a REIT, we will be
subject to federal income tax on our taxable income at regular corporate rates and will not be
permitted to qualify for treatment as a REIT for federal income tax purposes for four years
following the year in which qualification is denied. Failing to qualify as a REIT could materially
and adversely affect our net income.
Real Estate Acquisitions
On
May 4, 2011, we acquired a fee simple interest in the Arbor Pointe Apartments, or the Arbor Pointe property, through a
wholly-owned subsidiary of our operating partnership for an aggregate purchase price of
approximately $6,500,000, exclusive of closing costs. We financed the payment of the purchase price
for the Arbor Pointe property with (1) proceeds from our private and public offerings and (2) the
proceeds of a secured loan in the aggregate principal amount of $5,200,000 from the seller of the
Arbor Pointe property.
Critical Accounting Policies
The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These
judgments affect the reported amounts of assets and liabilities and our disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported amounts of revenue
and expenses during the reporting periods. With different estimates or assumptions, materially
different amounts could be reported in our financial statements. Additionally, other companies may
utilize different estimates that may impact the comparability of our results of operations to those
of companies in similar businesses. A discussion of the accounting policies that management
considers critical in that they involve
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PART I FINANCIAL INFORMATION (continued)
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Managements Discussion and Analysis of Financial Condition And Results of Operations (continued) |
significant management judgments, assumptions and estimates
is included in our annual Report on Form 10-K for the year ended December 31, 2010 filed with the
SEC. There have been no significant changes to our policies during 2011.
Organization and Offering Costs
Organization and offering expenses include all expenses (other than sales commissions and the
dealer manager fee) to be paid by us in connection with our initial public offering and our private
offering, including legal, accounting, 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, bona fide out-of-pocket due diligence costs and amounts to
reimburse our advisor or its affiliates for the salaries of its employees and other costs in
connection with preparing supplemental sales materials and providing other administrative services.
Any reimbursement of expenses paid to our advisor will not exceed expenses actually incurred by our
advisor.
After the termination of our initial public offering, our advisor will reimburse us to the
extent total organization and offering expenses plus sales commissions and dealer manager fees
borne by us in connection with the initial public offering exceed 15% of the gross proceeds raised
in our initial public offering. We may also 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 special, cases, reimbursement to
participating broker-dealers for technology costs associated with our initial 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 will not pay any of the foregoing costs to the extent that
such payment would cause total underwriting compensation to exceed 10% of the gross proceeds of our
initial public offering, as required by the rules of the Financial Industry Regulatory Authority,
Inc. or FINRA.
Reimbursements to our advisor or its affiliates for offering costs paid by them on our behalf
with respect to our private offering is not limited to 15% of the gross offering proceeds of the
private offering. However, we will not make reimbursements of organization and offering costs in
excess of 15% of the gross offering proceeds of the private offering unless approval is obtained
from the independent directors. The independent directors have not approved the reimbursement of
excess private offering costs. Accordingly, we have not accrued for the reimbursement of
organization and offering costs of the private offering in excess of the 15% of gross offering
proceeds raised in our private offering.
Income Taxes
We intend to elect to be taxed as a REIT under the Internal Revenue Code and believe we have operated
as such beginning with the taxable year ending December 31, 2010. To qualify as a REIT, we must
meet certain
organizational and operational requirements, including a requirement to distribute at least
90% of our annual REIT taxable income to stockholders (which is computed without regard to the
dividends paid deduction or net capital gain and which does not necessarily equal net income as
calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income
tax to the extent we distribute qualifying dividends to our stockholders. If we fail to qualify as
a REIT in any taxable year after the taxable year in which we initially elect to be taxed as a
REIT, we will be subject to federal income tax on our taxable income at regular corporate income
tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income
tax purposes for the four taxable years following the year during which qualification is lost,
unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an
event could materially adversely affect our net income and net cash available for distribution to
stockholders.
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PART I FINANCIAL INFORMATION (continued)
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Managements Discussion and Analysis of Financial Condition And Results of Operations (continued) |
Distributions
As described below, 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. During the early stages of our operations, we may declare distributions in excess of
funds from operations. 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.
In order to provide additional available funds for us to pay distributions, under certain
circumstances our obligation to pay all fees due to our advisor pursuant to the advisory agreement
by and among us, our operating partnership and our advisor will be deferred up to an aggregate
amount of $5 million during our offering stage. If, during any calendar quarter during our offering
stage, the distributions we pay exceed our funds from operations, or FFO, (as defined by the
National Association of Real Estate Investment Trusts, or NAREIT), plus (1) any acquisition
expenses and acquisition fees expensed by us that are related to any property, loan or other
investment acquired or expected to be acquired by us and (2) any non-operating, non-cash charges
incurred by us, such as impairments of property or loans, any other than temporary impairments of
marketable securities, or other similar charges, for the quarter, which is defined in the advisory agreement as
adjusted funds from operations, the payment of fees we are obligated to pay our advisor will be
deferred in an amount equal to the amount by which the distributions paid to our stockholders for
the quarter exceed our adjusted funds from operations up to an amount equal to a 7.0% cumulative
non-compounded annual return on stockholders invested capital, prorated for such quarter. For
purposes of this calculation, if our adjusted funds from operations is negative, adjusted funds
from operations shall be deemed to be zero. As of March 31, 2011 we had deferred $202,602 in fees
payable to our advisor pursuant to the terms of the advisory agreement.
We are only obligated to pay our advisor for these deferred fees if and to the extent that our
cumulative adjusted funds from operations for the period beginning on the date of the commencement
of our private offering through the date of any such payment exceed the lesser of (1) the
cumulative amount of any distributions paid to our stockholders as of the date of such payment or
(2) an amount that is equal to a 7.0% cumulative, non-compounded, annual return on invested capital
for our stockholders for the period from the commencement of our initial public offering through
the date of such payment. Our obligation to pay the deferred fees will survive the termination of
the advisory agreement and will continue to be subject to the repayment conditions above. We will
not pay interest on the deferred fees if and when such fees are paid to our advisor. The amount of
fees that may be deferred as described above is limited to an aggregate of $5 million.
We accrue the probable and estimable amount of deferred fees and the deferred fees continue to
accrue until the fees are either paid or it becomes remote that the fees will be paid to our
advisor. We anticipate that any deferred fees will ultimately be paid and therefore will be accrued
when incurred.
In connection with our acquisition of the Lincoln Tower property on August 11, 2010, our
board of directors declared a cash distribution to our stockholders. Distributions (1) accrue daily
to our stockholders of record as of the close of business on each day commencing on August 12,
2010, (2) are payable in cumulative amounts on or before the 15th day of each calendar month with
respect to the prior month commencing in September 2010 and (3) are calculated at a rate of
$0.001917 per share of common stock per day, which, if paid each day over a 365-day period, is
equivalent to an 7.0% annualized distribution rate based on a purchase price of $10.00 per share of
common stock.
For the three months ended March 31, 2011, we paid aggregate distributions of $207,813,
including $132,474 of distributions paid in cash and 7,930 shares of our common stock issued
pursuant to the distribution reinvestment plan for $75,339. For for the three months ended March
31, 2011 net loss was $1,058,276, FFO was $(428,142) and cash flow used in operations was $292,481.
We funded our total distributions paid, which includes net cash distributions and dividends
reinvested by stockholders, with funds from proceeds of our private and public offerings. For
information on how we calculate FFO and the reconciliation of FFO to net loss, see Funds from
Operations.
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PART I FINANCIAL INFORMATION (continued)
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Managements Discussion and Analysis of Financial Condition And Results of Operations (continued) |
Over the long-term, we expect that a percentage of our distributions will be paid from cash
flow from operations and FFO (except with respect to distributions related to sales of our real
estate and real estate-related investments). However, our operating performance cannot be
accurately predicted and may deteriorate in the future due to numerous factors, including those
discussed under Forward-Looking Statements, and Results of Operations herein. Those factors
include: the future operating performance of our investments in existing real estate and financial
environment; our ability to identify investments that are suitable to execute our investment
objectives; the success and economic viability of our tenants; and the level of participation in
our distribution reinvestment plan. In the event our FFO and/or cash flow from operations decrease
in the future, the level of our distributions may also decrease. In addition, future distributions
declared and paid may exceed FFO and/or cash flow from operations.
Liquidity and Capital Resources
If we raise substantially less funds in our initial public offering than the maximum offering
amount, we will make fewer investments resulting in less diversification in terms of the type,
number and size of investments we make and the value of an investment in us will fluctuate with the
performance of the specific assets we acquire. Further, we will have certain fixed operating
expenses, including certain expenses as a public REIT, regardless of whether we are able to raise
substantial funds in our initial public offering. Our inability to raise substantial funds would
increase our fixed operating expenses as a percentage of gross income, reducing our net income and
limiting our ability to make distributions.
We use, and intend to use in the future, secured and unsecured borrowings for the acquisition
of properties. Once we have fully invested the proceeds of our initial public offering, we expect
that our overall borrowings will be 65% or less of the cost of our investments, although we expect
to exceed this level during our offering stage in order to enable us to quickly build a diversified
portfolio. Under the Second Articles of Amendment and Restatement, or our charter, we have a limitation on borrowing which precludes us 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 only under certain circumstances. As
of March 31, 2011, our borrowings were not in excess of 300% of the value of our net assets.
In addition to making investments in accordance with our investment objectives, we expect to
use our capital resources to make certain payments to our advisor and dealer manager. During our
organization and offering stage,
these payments include payments to the dealer manager for sales commissions and dealer manager
fees and payments to our advisor for reimbursement of certain organization and offering expenses.
However, our advisor has agreed to reimburse us to the extent that sales commissions, the dealer
manager fee and other organization and offering expenses incurred by us exceed 15% of the gross
offering proceeds of our initial public offering. During our operating stage, we expect to pay fees
and expenses to our advisor in connection with the acquisition of investments, the management of
our assets and costs incurred by our advisor in providing services to us.
Our principal demand for funds will be to acquire properties and real estate-related assets,
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. Otherwise, we expect that our principal sources of working capital
will include:
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current cash balances; |
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sales of shares of common stock in our public offering; |
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various forms of secured financing; |
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equity capital from joint venture partners; |
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proceeds from our operating partnerships private placements, if any; and |
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proceeds from our distribution reinvestment plan. |
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PART I FINANCIAL INFORMATION (continued)
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Managements Discussion and Analysis of Financial Condition And Results of Operations (continued) |
Over the short term, we believe that our sources of capital, specifically our cash balances,
cash flow from operations, proceeds from our initial public offering, our ability to raise equity capital from joint venture partners, our
ability to obtain various forms of secured financing and proceeds from our operating partnerships
private placement, if any, will be adequate to meet our liquidity requirements and capital
commitments.
Over the longer term, in addition to the sources of capital noted above which we will rely on
to meet our short term liquidity requirements, we may also utilize additional secured and unsecured
financings. We may also conduct additional public or private offerings. We expect these resources
will be adequate to fund our operating activities, debt service and distributions, which we
presently anticipate will grow over time, 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. As of March 31, 2011, we had not
identified any sources for these types of financings; however, we continue to evaluate possible
sources for these types of financings and a credit facility. There can be no assurance that we will
be able to obtain any such financings or credit facility on favorable terms, if at all.
Our advisor may, but is 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. Working capital reserves are typically utilized to
fund tenant improvements, leasing commissions and major capital expenditures. 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 Used in Operating Activities
As of March 31, 2011, we owned two real estate properties which we acquired on August 11, 2010
and December 22, 2010. During the three months ended March 31, 2011, net cash used in operating
activities was $292,481, which primarily comprised of general and administrative expenses offset by
net cash from real estate rental activities. We expect that our cash flows from operating
activities will increase in future periods as a result of anticipated future acquisitions of real
estate and real estate-related investments.
Cash Flows Used in Investing Activities
During the three months ended March 31, 2011, net cash used in investing activities was $1,487
and primarily consisted of the acquisition of computer equipment. Our cash used in investing
activities will vary based on how quickly we raise funds in our ongoing initial public offering and
how quickly we invest those funds towards acquisitions of real estate and real-estate related
investments.
Cash Flows from Financing Activities
Our cash flows from financing consist primarily of proceeds from our ongoing initial public
offering and distributions paid to our stockholders. During the three months ended March 31, 2011,
net cash provided by financing activities was $2,745,468 and primarily consisted of the following:
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PART I FINANCIAL INFORMATION (continued)
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Managements Discussion and Analysis of Financial Condition And Results of Operations (continued) |
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$2,902,942 of cash provided by offering proceeds related to our initial public offering,
net of (1) payments of commissions on sales of common stock and related dealer manager fees
in the amount of $321,902 and (2) the reimbursement of other offering costs to affiliates
in the amount of $191,146; and |
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$132,474 of net cash distributions, after giving effect to distributions reinvested by
stockholders of $75,339. |
Contractual Commitments and Contingencies
We use, and intend to use in the future, secured and unsecured debt as a means of providing additional funds for the
acquisition of our properties and our real estate-related assets. 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 65% of the cost of our real
properties (before deducting depreciation and amortization) plus the value of our other
investments, after we have invested substantially all of the net offering proceeds. In order to
facilitate investments in the early stages of our operations, we expect to temporarily borrow in
excess of our long-term targeted debt level. Under our charter, we have a limitation on borrowing
which precludes us from borrowing in excess of 300% of our net assets which generally approximates
to 75% of the aggregate cost of our assets. We may borrow in excess of this amount if such excess
is approved by a majority of our independent directors and disclosed to stockholders in our next
quarterly report, along with a justification for such excess. In such event, we will monitor our
debt levels and take action to reduce any such excess as practicable. We do not intend to exceed
our charters leverage limit except in the early stages of our operations when the costs of our
investments are most likely to substantially exceed our net offering proceeds. Our aggregate
borrowings are reviewed by our board of directors at least quarterly. As of March 31, 2011, our
borrowings were not in excess of 300% of the value of our net assets.
In addition to using our capital resources for investing purposes and meeting our debt
obligations, we expect to use our capital resources to make certain payments to our advisor and the
dealer manager. During our organization and offering stage, these payments will include payments to
the dealer manager for selling commissions and dealer manager fees and payments to the dealer
manager and our advisor for reimbursement of certain organization and other offering expenses.
However, our advisor has agreed to reimburse us to the extent that selling commissions, dealer
manager fees and organization and other offering expenses incurred by us exceed 15% of our gross
offering proceeds. During our acquisition and development stage, we expect to make payments to our
advisor in connection with the selection and origination or purchase of real estate and real
estate-related investments, the management of our assets and costs incurred by our advisor in
providing services to us.
As of March 31, 2011, we had a note payable in the principal amount of $6,650,000, or the
Lincoln Tower Note, issued by the seller of the Lincoln Tower property in connection with our
acquisition of the Lincoln Tower property on August 11, 2010. For more information on the Lincoln
Tower Note, see Note 6 to our consolidated financial statements included herein.
As of March 31, 2011, we had a note payable in the principal amount of $5,000,000, or the Park
Place Note, issued by Ames Community Bank in connection with our acquisition of the Park Place
property on December 22, 2010. For more information on the Park Place Note, see Note 6 to our
consolidated financial statements included herein.
The following is a summary of our contractual obligations as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due During the Years Ending December 31, |
|
|
|
|
|
|
|
Remainder of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligation |
|
Total |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
Interest payments on
outstanding debt obligations (1) |
|
$ |
2,484,125 |
|
|
$ |
496,125 |
|
|
$ |
661,500 |
|
|
$ |
661,500 |
|
|
$ |
399,000 |
|
|
$ |
266,000 |
|
Principal payments on outstanding
debt obligations (2) |
|
$ |
11,650,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,000,000 |
|
|
$ |
|
|
|
$ |
6,650,000 |
|
37
PART I FINANCIAL INFORMATION (continued)
Item 2. |
|
Managements Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|
|
|
(1) |
|
Projected interest payments on outstanding debt obligations are based on the outstanding
principal amounts and interest rates in effect at March 31, 2011. We incurred interest expense
of $163,187 during the three months ended March 31, 2011, excluding amortization of deferred
financing costs totaling $3,625. |
|
(2) |
|
Projected principal payments on outstanding debt obligations are based on the terms of the
Lincoln Tower Note and Park Place Note whereby no principal payments are required until the
maturity of the Lincoln Tower Note and the Park Place Note on September 1, 2015 and December
22, 2013, respectively. |
Results of Operations
Overview
During the period from May 4, 2009 (inception) to August 11, 2010, we had been formed and
had commenced and completed our private offering and commenced our
initial 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. On August 11, 2010, we acquired our first real estate investment and,
accordingly, commenced operations on that date.
Our results of operations for the three months ended March 31, 2011 are not indicative of
those expected in future periods. We have not yet invested all of the
proceeds from our offering
received to date and expect to continue to raise additional capital, increase our borrowings and
make future acquisitions, which would have a significant impact on our future results of
operations. We commenced real estate operations on August 11, 2010 in connection with the
acquisition of our first investment, the Lincoln Tower property, which is one of two properties we
own as of March 31, 2011. In general, we expect that our income and expenses related to our
portfolio will increase in future periods as a result of anticipated future acquisitions of real
estate and real estate-related investments.
38
PART I FINANCIAL INFORMATION (continued)
Item 2. |
|
Managements Discussion and Analysis of Financial Condition And Results of Operations (continued) |
Net loss
For the three months ended March 31, 2011, we had a net loss of $1,058,276, primarily due to
the costs associated with our operating and offering costs and the fact that we did not commence
operations until August 11, 2010.
Total revenues
Rental income and tenant reimbursements and other was $881,432 for the three months ended
March 31, 2011, which was primarily from rental revenue from the Lincoln Tower property and the
Park Place property. We expect rental income and tenant reimbursements to increase in future
periods as a result of anticipated future acquisitions of real estate.
Operating expenses
Operating, maintenance and management expenses were $357,897 for the three months ended March
31, 2011. Real estate taxes and insurance were $161,535 for the three months ended March 31, 2011.
We incurred these expenses in connection with the operations of our two multifamily properties. We
expect these amounts to increase in future periods as a result of anticipated future acquisitions
of real estate.
Fees to affiliates
Fees to affiliates owed pursuant to our advisory agreement were $68,156 for the three months ended
March 31, 2011. We expect fees to affiliate to increase in future periods as a result of
anticipated future acquisitions of real estate and real estate-related investments.
Depreciation and amortization
Depreciation and amortization expenses were $630,134 for the three months ended March 31, 2011
and related to the Lincoln Tower property and the Park Place property. We expect these amounts to
increase in future periods as a result of anticipated future acquisitions of real estate.
Interest expense
Interest expense was $166,812 for the three months ended March 31, 2011. Included in interest
expense is the amortization of deferred financing costs of $3,625 for the three months ended March
31, 2011. Our interest expense in future periods will vary based on our level of future borrowings,
which will depend on the amount of proceeds
raised in our ongoing initial public offering, 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 were $495,245 for the three months ended March 31, 2011.
These general and administrative costs consisted primarily of legal fees, audit fees, transfer
agent fees and other professional fees. We expect general and administrative expenses to increase
in future periods as we acquire additional real estate and real estate-related investments but to
decrease as a percentage of total revenue.
Other Acquisition Costs
Acquisition costs were $59,929 for the three months ended March 31, 2011 and relate to the
prospective acquisition of real estate.
39
PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And
Results of Operations (continued)
Inflation
Substantially all of our multifamily property leases will be for a term of one year or less.
In an inflationary environment, this may allow us to realize increased rents upon renewal of
existing leases or the beginning of new leases. Short-term leases generally will minimize our risk
from the adverse effects of inflation, although these leases generally permit tenants to leave at
the end of the lease term and therefore will expose us to the effects of a decline in market rents.
In a deflationary rent environment, we may be exposed to declining rents more quickly under these
shorter term leases.
With respect to other commercial properties, we include in our leases future provisions
designed to protect us from the impact of inflation. These provisions will include reimbursement
billings for operating expense pass-through charges, real estate tax and insurance reimbursements,
or in some cases annual reimbursement of operating expenses above a certain allowance. We believe
that shorter term lease contracts on commercial properties lessen the impact of inflation due to
the ability to adjust rental rates to market levels as leases expire.
As of March 31, 2011, we had not entered into any leases as a lessee.
REIT Compliance
To qualify as a REIT for tax purposes, we will be required to distribute at least 90% of our
REIT taxable income (which is computed without regard to the dividends paid deduction or net
capital gain and which does not necessarily equal net income as calculated in accordance with GAAP)
to our stockholders. We must also meet certain asset and income tests, as well as other
requirements. We will monitor the business and transactions that may potentially impact our REIT
status. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income
tax (including any applicable alternative minimum tax) on our taxable income at regular corporate
rates.
Funds from Operations
Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined
by NAREIT is presented in the following table for the three months ended March 31, 2011:
|
|
|
|
|
Reconciliation of net loss of FFO: |
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(1,058,276 |
) |
Add: |
|
|
|
|
Depreciation of real estate assets |
|
|
166,868 |
|
Amortization of lease-related costs |
|
|
463,266 |
|
Less: |
|
|
|
|
Net loss attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
FFO |
|
$ |
(428,142 |
) |
|
|
|
|
Set forth below is additional information related to certain items included in net loss and
FFO above which may be helpful in assessing our operating results. Please see the accompanying
consolidated statement of cash flows for details of our operating, investing, and financing cash
activities. There were no acquisitions for the three months ended March 31, 2011 and therefore no
acquisition fees and expenses related to the purchase of real estate.
Significant items included in net loss and FFO were interest expense from the amortization of deferred financing costs related to notes
payable of approximately $3,625 for the three months ended March 31, 2011.
40
PART I FINANCIAL INFORMATION (continued)
Item 2. Managements Discussion and Analysis of Financial Condition And
Results of Operations (continued)
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 funds from operations, or FFO. Since its introduction, FFO has
become a widely used non-GAAP financial measure among REITs. We believe that FFO is helpful to
investors as an additional measure of the performance of an equity REIT. We intend to compute FFO
in accordance with standards established by the Board of Governors of NAREIT in its April 2002
White Paper, which we refer to as the White Paper, and related implementation guidance, which may
differ from the methodology for calculating FFO utilized by other equity REITs, and, accordingly,
may not be comparable to such other REITs. The White Paper defines FFO as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from sales, plus real estate
related depreciation and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. While FFO is a relevant and widely used measure of operating performance for REITs,
it should not be considered as an alternative to net income (determined in accordance with GAAP) as
an indication of financial performance, or to cash flows from operating activities (determined in
accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to
fund our cash needs, including our ability to make distributions.
Operating cash flow and FFO may also be used to fund all or a portion of certain capitalizable
items that are excluded from FFO, such as tenant improvements, building improvements and deferred
leasing costs.
Off-Balance Sheet Arrangements
As of March 31, 2011, we had no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial conditions, changes in financial
conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources.
Related-Party Transactions and Agreements
We have entered into agreements with our advisor and its affiliates, whereby we agree to pay
certain fees to, or reimburse certain expenses of, our advisor or its affiliates for acquisition
fees and expenses, organization and offering costs, sales commissions, dealer manager fees, asset
and property management fees and reimbursement of operating costs. Refer to Note 8 to our condensed
consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q for a
discussion of the various related-party transactions, agreements and fees.
41
PART I FINANCIAL INFORMATION (continued)
Item 3. Qualitative and Quantitative Disclosure About Market Risk.
We may be exposed to the effects of interest rate changes as a result of borrowings used to
maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate
investment portfolio and operations. We may be also exposed to the effects of changes in interest
rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other
loans. Our profitability and the value of our investment portfolio may be adversely affected during
any period as a result of interest rate changes. Our interest rate risk management objectives are
to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and
to lower overall borrowing costs. We have managed and will continue to manage interest rate risk by
maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an
acceptable level. In addition, we may utilize a variety of financial instruments, including
interest rate caps, floors and swap agreements, in order to limit the effects of changes in
interest rates on our operations. When we use these types of derivatives to hedge the risk of
interest-earning assets or interest-bearing liabilities, we may be subject to certain risks,
including the risk that losses on a hedge position will reduce the funds available for payments to
holders of our common stock and that the losses may exceed the amount we invested in the
instruments.
We have borrowed funds at fixed rates and have not borrowed funds at variable rates. We intend
to continue to do so for the foreseeable future. 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 March 31, 2011, the fair value of our fixed rate debt was $12,039,026 and the
carrying value of our fixed rate debt was $11,650,000. The fair value estimate of our fixed rate
debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for
debt of a similar type and remaining maturity if the loans were originated at March 31, 2011. 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.
The weighted-average interest rate of our fixed rate debt was 5.68% at March 31, 2011. The
weighted-average interest rate represents the actual interest rate in effect at March 31, 2011
(consisting of the contractual interest rate), using interest rate indices as of March 31, 2011
where applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
As of the end of the period covered by this report, our management, including our chief
executive officer and our principal financial officer, evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based upon
and as of the date of the evaluation, our chief executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of the end of the period
covered by this 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
chief executive officer and our principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during
our last fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
42
PART IIOTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended March 31, 2011,
we did not sell any equity securities that were not registered under
the Securities Act of 1933, or the Securities Act.
On July 9, 2010 our
Registration Statement on Form S-11 (File No. 333-160748), registering a public offering of up to
$1,650,000,000 in shares of our common stock, was declared effective under the Securities Act
and we commenced our initial public offering on July 19,
2010. We are offering up to 150,000,000 shares of our common stock to the public in our primary
offering at $10.00 per share and up to 15,789,474 shares of our common stock pursuant to our
distribution reinvestment plan at $9.50 per share. Steadfast Capital Markets Group, LLC, an
affiliate of our sponsor, is serving as the dealer manager for our
initial public offering. As of March 31,
2011, we had sold 1,493,104 shares of our common stock, including 11,583 shares issued pursuant to
the distribution reinvestment plan, for gross offering proceeds of $14,346,943 in the private
offering and public offering.
As of March 31, 2011, we had incurred selling commissions, dealer manager fees and
organization and other offering costs in our public offering in the amounts set forth below. The
dealer manager reallowed all of the selling commissions and a portion of the dealer manager fees to
participating broker-dealers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated/ |
|
Type of Expense Amount |
|
Amount |
|
|
Actual |
|
Selling commissions and dealer manager fees |
|
$ |
796,002 |
|
|
Actual |
Other organization and offering costs |
|
|
462,885 |
|
|
Actual |
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
1,258,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total public offering proceeds (excluding DRP
proceeds) |
|
$ |
8,392,580 |
|
|
Actual |
|
|
|
|
|
|
|
|
Percentage of public offering proceeds used to
pay for organization and offering costs |
|
|
15 |
% |
|
Actual |
|
|
|
|
|
|
|
|
From the commencement of our initial public offering through March 31, 2011, the net
offering proceeds to us, after deducting the total expenses incurred as described above, were
$7,243,731, including net offering proceeds from our DRP of $110,038. For the period from
inception through March 31, 2011, the ratio of the cost of raising capital was approximately 15%.
We
intend to use substantially all of the net proceeds from our initial public offering
to invest in and manage a diverse portfolio of real estate investments, primarily in the
multifamily sector, located throughout the United States. In addition to our focus on multifamily
properties, we may also selectively invest in industrial properties and other types of commercial
properties. We may also acquire or originate mortgage, bridge and other real estate loans and
equity securities of other real estate companies. As of March 31, 2011, we had invested in two
multifamily properties, the Lincoln Tower property located in Springfield, Illinois, and the Park
Place property located in Des Moines, Iowa, which we purchased for an aggregate purchase price of
$9,500,000 and $8,050,000, respectively. The acquisition of the Lincoln Tower property was funded
from proceeds of our private and public offerings and $6,650,000 in seller financing. The acquisition of the Park
Place property was funded from proceeds of our public offering and a secured loan in the aggregate
principal amount of $5,000,000 from Ames Community Bank.
During the three months ended March 31, 2011, we did not repurchase any of our securities, or
redeem any shares of our common stock pursuant to our share redemption plan.
43
PART IIOTHER INFORMATION (continued)
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Reserved and Removed.
Item 5. Other Information.
None.
Item 6. Exhibits.
Effective February 1, 2010, Steadfast Secure Income REIT, Inc., Steadfast Secure Income
Advisor, LLC and Steadfast Secure Income REIT Operating Partnership, L.P. changed their names to
Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC and Steadfast Income REIT Operating
Partnership, L.P., respectively. With respect to documents executed prior to the name change, the
following Exhibit List refers to the entity names used prior to the name changes in order to
accurately reflect the names of the entities that appear on such documents.
|
3.1 |
|
Second Articles of Amendment and Restatement of Steadfast Income REIT, Inc. (filed as Exhibit 3.1 to
Pre-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748)
and incorporated herein by reference). |
|
3.2 |
|
Bylaws of Steadfast Secure Income REIT, Inc. (filed as Exhibit 3.2 to the Companys Registration
Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). |
|
4.1 |
|
Form of Subscription Agreement (included as Appendix B to prospectus, incorporated by reference to
Exhibit 4.1 to Post-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No.
333-160748)). |
|
4.2 |
|
Steadfast Income REIT, Inc. Distribution Reinvestment Plan (included as Appendix C to prospectus,
incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 4 to the Companys
Registration Statement on Form S-11 (No. 333-160748)). |
|
10.1 |
|
Amendment No. 1 to the Amended and Restated Advisory Agreement, dated as of March 21, 2011, by and
among Steadfast Income REIT, Inc., Steadfast Income REIT Operating Partnership, L.P. and Steadfast
Income Advisor, LLC (filed as Exhibit 10.2 to the Companys Annual Report on Form 10-K filed with the
SEC on March 22, 2011 and incorporated herein by reference). |
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Steadfast Income REIT, Inc.
|
|
Date: May 16, 2011 |
By: |
/s/ Rodney F. Emery
|
|
|
|
Rodney F. Emery |
|
|
|
Chief Executive Officer, President and
Chairman of the Board
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
Date: May 16, 2011 |
By: |
/s/ Kevin J. Keating
|
|
|
|
Kevin J. Keating
Treasurer
(Principal Financial and Accounting Officer) |
|
|
|
|
|
EXHIBIT INDEX
Effective February 1, 2010, Steadfast Secure Income REIT, Inc., Steadfast Secure Income
Advisor, LLC and Steadfast Secure Income REIT Operating Partnership, L.P. changed their names to
Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC and Steadfast Income REIT Operating
Partnership, L.P., respectively. With respect to documents executed prior to the name change, the
following Exhibit List refers to the entity names used prior to the name changes in order to
accurately reflect the names of the entities that appear on such documents.
|
3.1 |
|
Second Articles of Amendment and Restatement of Steadfast Income REIT, Inc. (filed as Exhibit 3.1 to
Pre-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748)
and incorporated herein by reference). |
|
3.2 |
|
Bylaws of Steadfast Secure Income REIT, Inc. (filed as Exhibit 3.2 to the Companys Registration
Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). |
|
4.1 |
|
Form of Subscription Agreement (included as Appendix B to prospectus, incorporated by reference to
Exhibit 4.1 to Pre-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11 (No.
333-160748) and incorporated herein by reference). |
|
4.2 |
|
Steadfast Income REIT, Inc. Distribution Reinvestment Plan (included as Appendix C to prospectus,
incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 5 to the Companys
Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). |
|
10.1 |
|
Amendment No. 1 to the Amended and Restated Advisory Agreement, dated as of March 21, 2011, by and
among Steadfast Income REIT, Inc., Steadfast Income REIT Operating Partnership, L.P. and Steadfast
Income Advisor, LLC (filed as Exhibit 10.2 to the Companys Annual Report on Form 10-K filed with the
SEC on March 22, 2011 and incorporated herein by reference). |
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |