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Section 1: 8-K/A (8-K/A)

Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
March 6, 2020
Steadfast Apartment REIT, Inc.
(Exact Name of Registrant as Specified in Charter)

 
 
 
 
 
Maryland
 
000-55428
 
36-4769184
(State or Other Jurisdiction
 
(Commission File Number)
 
(IRS Employer
of Incorporation)
 
 
 
Identification No.)
18100 Von Karman Avenue, Suite 500
Irvine, California 92612
(Address of Principal Executive Offices, including Zip Code)
Registrant’s telephone number, including area code: (949) 852-0700
Not applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 
 
 
 
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
 
 
 
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
 
 
 
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
 
 
 
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act: None
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
N/A
N/A
N/A
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
 





Item 9.01
Financial Statements and Exhibits.
As previously disclosed in the Current Report on Form 8-K of Steadfast Apartment REIT, Inc. (the “Company”) filed with the Securities and Exchange Commission (“SEC”) on March 6, 2020, Steadfast Income REIT, Inc. (“SIR”) and Steadfast Apartment REIT III, Inc. (“STAR III”) each merged with and into a wholly-owned subsidiary of the Company (the “Mergers”). The Company is filing this Current Report on Form 8-K/A to amend the Current Report on Form 8-K filed with the SEC on March 6, 2020, to provide the required financial information related to the Mergers.
This Current Report on Form 8-K/A hereby amends the Company’s Current Report on Form 8-K relating to the Mergers, filed with the SEC on March 6, 2020.
(a)
Financial Statements of Businesses Acquired.
The audited financial statements of SIR and STAR III as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 are included in this Current Report on Form 8-K/A as Exhibits 99.1 and 99.2, respectively.
(b)
Pro Forma Financial Information.
Steadfast Apartment REIT, Inc.
 
 
Page
 
 
 
 



2



UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION OF
STEADFAST APARTMENT REIT, INC.
As of and For the Year Ended December 31, 2019

Overview
The unaudited pro forma condensed combined consolidated financial information included herein sets forth:
the historical consolidated financial information of Steadfast Apartment REIT, Inc. (“STAR”) as of and for the year ended December 31, 2019, derived from STAR’s audited consolidated financial statements;
the historical financial information of Steadfast Income REIT, Inc. (“SIR”) as of and for the year ended December 31, 2019, derived from SIR’s audited consolidated financial statements;
the historical financial information of Steadfast Apartment REIT III, Inc. (“STAR III”) as of and for the year ended December 31, 2019, derived from STAR III’s audited consolidated financial statements;
pro forma adjustments to give effect to STAR’s merger with SIR and STAR III on STAR’s consolidated balance sheet as of December 31, 2019, as if the mergers closed on December 31, 2019 (collectively, the “Mergers”);
pro forma adjustments to give effect to the Mergers on STAR’s consolidated statements of operations for the year ended December 31, 2019, as if the Mergers closed on January 1, 2019.
The unaudited pro forma condensed combined consolidated financial statements contained herein are prepared for informational purposes only and are based on assumptions and estimates considered appropriate by STAR’s management; however, they are not necessarily indicative of what STAR’s consolidated financial condition or results of operations actually would have been assuming the Mergers with SIR and STAR III had been consummated as of the dates previously indicated, nor do they purport to represent the consolidated financial position or results of operations for future periods. During the period from January 1, 2019 to December 31, 2019, STAR disposed of Randall Highlands Apartments and Club at Summer Valley and STAR III disposed of Carriage House Apartment Homes, none of which exceeded the significance level that requires the presentation of pro forma financial information pursuant to Regulation S-X, Article 11. As such, the following Pro Forma Statements of Operations for the year ended December 31, 2019, do not include pro forma adjustments to present the impact of these insignificant dispositions as if they occurred on January 1, 2019. These unaudited pro forma condensed combined consolidated financial statements do not include the impact of any synergies that may be achieved through the Mergers nor any strategies that STAR’s management may consider in order to continue to efficiently manage its operations. The pro forma condensed combined consolidated financial information should be read in conjunction with:
STAR’s audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2019, included in STAR's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 12, 2020;
SIR’s audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2019, included herein as Exhibit 99.1;
STAR III’s audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2019, included herein as Exhibit 99.2.
STAR’s mergers with SIR and STAR III will be accounted for as asset acquisitions under Accounting Standards Codification (“ASC”) 805: Business Combinations. The total purchase price will be allocated to the individual assets acquired and liabilities assumed based upon their relative fair values. Intangible assets will be recognized at their relative fair values in accordance with ASC 350: Intangibles — Goodwill and Other. The allocation of the purchase price reflected in these unaudited pro forma condensed combined consolidated financial statements has not been finalized and is based upon preliminary estimates of these fair values, which is the best available information at the current time. A final determination of the fair values of the individual assets acquired and liabilities assumed will be based on actual valuations as of the date the Mergers closed. Consequently, amounts preliminarily allocated to the tangible and intangible assets acquired and liabilities assumed could change significantly from those used in the unaudited pro forma condensed combined consolidated financial statements and could result in a material change in depreciation and amortization of tangible and intangible assets and liabilities as well as revenues and expenses. The completion of the valuations, the impact of ongoing integration activities, and other changes in tangible and intangible assets and liabilities that occur could cause material differences in the information presented.

F-1



The outbreak of the COVID-19, declared by the World Health Organization as a global pandemic on March 11, 2020, is causing heightened uncertainty in both local and global market conditions. The effect COVID-19 will have on the real estate markets generally, and in which the Company owns and operates assets, is currently unknown and will depend in part on both the scale and longevity of the pandemic. While market activity is being impacted in most sectors, at this stage hospitality and retail sectors have been most significantly impacted due to the increased response by local and global authorities, including shelter in place orders, restriction of travel and growing international concern. A prolonged pandemic could have a significant (and is yet unknown or quantifiable) impact on other sectors of the property market including multifamily real estate. The changing responses to COVID-19 create an unprecedented set of circumstances on which to base a judgment.


F-2

STEADFAST APARTMENT REIT, INC.
UNAUDITED PRO FORMA BALANCE SHEETS

As of December 31, 2019
 
STAR Historical (A)
 
SIR
Historical (A)
 
STAR III Historical (A)
 
Merger Adjustments
 
Pro Forma Total
Assets:
 
 
 
 
 
 
 
 
 
Real Estate:
 
 
 
 
 
 
 
 
 
Land
$
151,294,208

 
$
89,822,014

 
$
45,015,505

 
$
36,724,051

B
$
322,855,778

Building and improvements
1,369,256,465

 
808,000,954

 
356,833,766

 
197,612,678

B
2,731,703,863

Tenant origination and absorption costs

 

 

 
36,880,985

B
36,880,985

Total real estate held for investment, cost
1,520,550,673

 
897,822,968

 
401,849,271

 
271,217,714

 
3,091,440,626

Less accumulated depreciation and amortization
(277,033,046
)
 
(199,069,845
)
 
(35,758,230
)
 
234,828,075

C
(277,033,046
)
Total real estate held for investment, net
1,243,517,627

 
698,753,123

 
366,091,041

 
506,045,789

 
2,814,407,580

Real estate held for development
5,687,977

 

 

 

 
5,687,977

Real estate held for sale
21,665,762

 

 

 

 
21,665,762

Total real estate, net
1,270,871,366

 
698,753,123

 
366,091,041

 
506,045,789

 
2,841,761,319

Cash and cash equivalents
74,806,649

 
120,283,764

 
21,663,316

 
(30,182,671
)
D
186,571,058

Restricted cash
73,614,452

 
8,330,832

 
3,100,988

 

 
85,046,272

Investment in unconsolidated joint venture

 
14,086,641

 

 
8,129,734

B, E
22,216,375

Rents and other receivables
2,032,774

 
1,108,096

 
597,670

 

 
3,738,540

Assets related to real estate held for sale
118,570

 

 

 

 
118,570

Other assets
5,513,315

 
2,806,732

 
640,014

 

 
8,960,061

Total assets
$
1,426,957,126

 
$
845,369,188

 
$
392,093,029

 
$
483,992,852

 
$
3,148,412,195

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
30,265,713

 
$
21,437,667

 
$
7,602,535

 
$

 
$
59,305,915

Notes payable:
 
 
 
 
 
 
 
 
 
Mortgage notes payable, net
560,098,815

 
503,992,876

 
281,947,953

 
7,399,805

F
1,353,439,449

Credit facility, net
548,460,230

 

 

 

 
548,460,230

Notes payable total, net
1,108,559,045

 
503,992,876

 
281,947,953

 
7,399,805

 
1,901,899,679

Distributions payable
4,021,509

 
3,484,995

 
1,097,596

 

 
8,604,100

Due to affiliates
7,305,570

 
3,665,711

 
1,921,848

 

 
12,893,129

Liabilities related to real estate held for sale
788,720

 

 

 

 
788,720

Total liabilities
1,150,940,557

 
532,581,249

 
292,569,932

 
7,399,805

 
1,983,491,543

Commitments and contingencies
 
 
 
 
 
 
 
 


Redeemable common stock
1,202,711

 
717,416

 
3,830,833

 
(4,548,249
)
G
1,202,711

Stockholders’ equity:
 
 
 
 
 
 
 
 

Preferred stock

 

 

 

 

Common stock
526,077

 
739,106

 
85,731

 
(263,660
)
H
1,087,254

Convertible stock
10

 
10

 

 
(10
)
H
10

Additional paid-in capital
698,453,981

 
649,543,160

 
172,958,977

 
65,840,769

H
1,586,796,887

Cumulative distributions and net losses
(424,166,210
)
 
(338,211,753
)
 
(77,352,444
)
 
415,564,197

I
(424,166,210
)
Total stockholders’ equity
274,813,858

 
312,070,523

 
95,692,264

 
481,141,296

 
1,163,717,941

Total liabilities and stockholders’ equity
$
1,426,957,126

 
$
845,369,188

 
$
392,093,029

 
$
483,992,852

 
$
3,148,412,195




F-3



STEADFAST APARTMENT REIT, INC.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2019

 
 
 
SIR
 
 
 
 
 
 
 
STAR Historical (A)
 
Historical
(A)
 
Adjustments
(A.1)
 
Adjusted
 
STAR III Historical (A)
 
Merger Adjustments
 
Pro Forma Total
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
172,445,306

 
$
111,677,550

 
$
(6,503,660
)
 
$
105,173,890

 
$
40,331,890

 
$

 
$
317,951,086

Other income
1,090,373

 
1,621,564

 
(180,942
)
 
1,440,622

 
252,360

 

 
2,783,355

Total revenues
173,535,679

 
113,299,114

 
(6,684,602
)
 
106,614,512

 
40,584,250

 

 
320,734,441

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 

Operating, maintenance and management
43,473,179

 
28,374,657

 
(2,522,872
)
 
25,851,785

 
10,876,864

 

 
80,201,828

Real estate taxes and insurance
25,152,761

 
17,808,397

 
(805,655
)
 
17,002,742

 
5,624,202

 

 
47,779,705

Fees to affiliates
25,861,578

 
14,522,521

 
(668,720
)
 
13,853,801

 
7,225,913

 
4,117,413

B
51,058,705

Depreciation and amortization
73,781,883

 
34,523,271

 
(531,447
)
 
33,991,824

 
15,575,494

 
9,264,074

C
132,613,275

Interest expense
49,273,750

 
25,660,243

 
(970,389
)
 
24,689,854

 
13,027,700

 
(2,427,395
)
D
84,563,909

General and administrative expenses
7,440,680

 
8,318,587

 
(41,763
)
 
8,276,824

 
4,829,359

 
(6,177,764
)
E
14,369,099

Total expenses
224,983,831

 
129,207,676

 
(5,540,846
)
 
123,666,830

 
57,159,532

 
4,776,328

 
410,586,521

Loss before other income (expense)
(51,448,152
)
 
(15,908,562
)
 
(1,143,756
)
 
(17,052,318
)
 
(16,575,282
)
 
(4,776,328
)
 
(89,852,080
)
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 

Equity in loss of unconsolidated joint venture

 
(642,274
)
 

 
(642,274
)
 

 
219,216

F
(423,058
)
Gain on sales of real estate, net
11,651,565

 
86,800,659

 

 
86,800,659

 
1,130,723

 

 
99,582,947

Interest income
865,833

 
2,260,169

 

 
2,260,169

 
396,200

 

 
3,522,202

Insurance proceeds in excess of losses incurred
448,047

 
40,983

 

 
40,983

 

 

 
489,030

Legal settlement proceeds

 

 

 

 
875,000

 

 
875,000

Loss on debt extinguishment
(41,609
)
 
(3,432,058
)
 

 
(3,432,058
)
 
(257,705
)
 

G
(3,731,372
)
Total other income (expense)
12,923,836

 
85,027,479

 

 
85,027,479

 
2,144,218

 
219,216

 
100,314,749

Net income (loss)
$
(38,524,316
)
 
$
69,118,917

 
$
(1,143,756
)
 
$
67,975,161

 
$
(14,431,064
)
 
$
(4,557,112
)
 
$
10,462,669

Net income (loss) per common share – basic and diluted
$
(0.74
)
 
$
0.93

 
N/A
 
$
0.92

 
$
(1.68
)
 
N/A
 
$
0.10

Weighted-average number of common shares outstanding, basic and diluted
52,204,410

 
74,198,388

 
 
 
74,198,388

 
8,598,235

 
(26,419,423
)
H
108,581,610




F-4



STEADFAST APARTMENT REIT, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
As of December 31, 2019

NOTE 1 - BASIS OF PRO FORMA PRESENTATION
Steadfast Apartment REIT, Inc. (“STAR”) has elected to qualify as a real estate investment trust (“REIT”) that owns and operates a diverse portfolio of multifamily properties located in targeted markets throughout the United States.
On August 5, 2019, STAR entered into a definitive merger agreement (the “SIR Merger Agreement”) with Steadfast Income REIT, Inc. (“SIR”). The SIR Merger Agreement provided that SIR stockholders receive 0.5934 shares of STAR’s common stock in exchange for each share of SIR’s common stock. On March 6, 2020, subject to the terms and conditions of the SIR Merger Agreement, SIR merged with and into SI Subsidiary, LLC, a wholly owned subsidiary of STAR (“SIR Merger Sub”), with SIR Merger Sub surviving the merger (the “SIR Merger”), such that following the SIR Merger, SIR Merger Sub continues as a wholly owned subsidiary of STAR. In accordance with the applicable provisions of the Maryland General Corporation Law (the “MGCL”), the separate existence of SIR ceased.
On August 5, 2019, STAR entered into a definitive merger agreement (the STAR III Merger Agreement”, and together with the SIR Merger Agreement, the “Merger Agreements”) with Steadfast Apartment REIT III, Inc. (“STAR III”). The STAR III Merger Agreement provided that STAR III stockholders receive 1.43 shares of STAR’s common stock in exchange for each share of STAR III’s common stock. On March 6, 2020, subject to the terms and conditions of the STAR III Merger Agreement, STAR III merged with and into SIII Subsidiary, LLC, a wholly owned subsidiary of STAR (“STAR III Merger Sub”), with STAR III Merger Sub surviving the merger (the “STAR III Merger”, and together with the SIR Merger, the “Mergers”), such that following the STAR III Merger, STAR III Merger Sub continues as a wholly owned subsidiary of STAR. In accordance with the applicable provisions of the MGCL, the separate existence of STAR III ceased.
In connection with the Mergers, STAR and Steadfast Apartment Advisor, LLC (“STAR Advisor”) entered into the Amended and Restated STAR Advisory Agreement (the “Amended STAR Advisory Agreement”), which became effective at the effective time of the Mergers. The Amended STAR Advisory Agreement amended STAR’s existing advisory agreement, dated as of December 13, 2013, as amended, to lower certain fees and to change the form of consideration for the Investment Management Fee (as defined therein) so that such fees are paid 50% in cash and 50% in shares of common stock.
NOTE 2 - PRELIMINARY PURCHASE PRICE ALLOCATION
The total preliminary estimated purchase price for SIR of approximately $694.7 million was determined based on 0.5934 shares of STAR common stock per share of SIR common stock based on 73,910,568 of total shares of SIR common stock outstanding as of December 31, 2019.
The total preliminary estimated purchase price for STAR III of approximately $194.2 million was determined based on 1.430 shares of STAR common stock per share of STAR III common stock based on 8,572,832 total shares of STAR III common stock outstanding as of December 31, 2019.

F-5



The following table summarizes the preliminary estimated purchase price of SIR and STAR III as of December 31, 2019:
 
December 31, 2019
 
SIR
 
STAR III
Class A common stock issued and outstanding

 
3,469,447

Class R common stock issued and outstanding

 
475,208

Class T common stock issued and outstanding

 
4,628,177

Common stock issued and outstanding
73,910,568

 

Total common stock issued and outstanding
73,910,568

 
8,572,832

Exchange ratio
0.5934

 
1.430

Implied STAR common stock issued as consideration
43,858,532

 
12,259,150

STAR’s most recently disclosed estimated value per share
$
15.84

 
$
15.84

Value of implied STAR common stock issued as consideration
$
694,719,147

 
$
194,184,936

The unaudited pro forma condensed combined financial information includes various assumptions, including those related to the purchase price allocation of the assets acquired and liabilities assumed by STAR, based on management’s best estimates of relative fair value. The final purchase price allocation may vary based on final analyses of the relative fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.

The following table shows the preliminary allocation of the purchase price of SIR and STAR III to the acquired identifiable assets and liabilities assumed as of December 31, 2019:
 
 
December 31, 2019
 
 
SIR
 
STAR III
Land
 
$
111,793,213

 
$
56,679,176

Building and improvements
 
937,851,726

 
401,732,683

Acquired intangible assets
 
26,420,140

 
9,800,113

Other assets, net
 
132,529,424

 
26,001,988

Investment in unconsolidated joint venture
 
21,500,000

 

Mortgage notes payable
 
(506,786,983
)
 
(289,407,045
)
Accounts payable due to affiliates
 
(3,665,711
)
 
(1,921,848
)
Accounts payable and other liabilities
 
(24,922,662
)
 
(8,700,131
)
Total estimated purchase price
 
$
694,719,147

 
$
194,184,936


NOTE 3 - PRO FORMA ADJUSTMENTS
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
Adjustments to the unaudited pro forma condensed combined balance sheets
A.
Reflects STAR’s, SIR’s and STAR III’s historical audited consolidated balance sheets as of December 31, 2019, derived from STAR’s Annual Report on Form 10-K for the period ended December 31, 2019, as filed with the Securities and Exchange Commission (“SEC”) on March 12, 2020, and SIR’s and STAR III’s audited financial statements for the period ended December 31, 2019, included herein as Exhibits 99.1 and 99.2, respectively.
B.
The acquired real estate related identifiable assets and liabilities assumed in connection with the Mergers are reflected in the unaudited pro forma condensed combined balance sheet at a preliminary relative fair value. The preliminary relative fair value is based, in part, on a valuation prepared by STAR’s management with assistance of a third-party valuation advisor. The acquired assets and assumed liabilities for an acquired property generally include, but are not limited to: land, buildings and improvements, identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, and value of acquired in-place leases.

F-6



The adjustments reflected in the unaudited condensed combined balance sheets for real estate assets, intangible assets and intangible liabilities represent the differences between the preliminary relative fair value of the properties to be acquired by STAR in connection with the Mergers on a combined basis and SIR’s and STAR III’s historical balances for such properties, which are presented as follows:
 
December 31, 2019
 
STAR Historical
 
SIR Historical
 
STAR III Historical
 
Preliminary Purchase Price Adjustment
 
Capitalized Transaction Costs(1)
 
Total Adjustment
 
Total Combined
Land
$
151,294,208

 
$
89,822,014

 
$
45,015,505

 
$
33,634,870

 
$
3,089,181

 
$
36,724,051

 
$
322,855,778

Building and improvements
1,369,256,465

 
808,000,954

 
356,833,766

 
174,749,689

 
22,862,989

 
197,612,678

 
2,731,703,863

Acquired intangible assets

 

 

 
36,220,253

 
660,732

 
36,880,985

 
36,880,985

Total real estate, cost
$
1,520,550,673

 
$
897,822,968

 
$
401,849,271

 
$
244,604,812

 
$
26,612,902

 
$
271,217,714

 
$
3,091,440,626

Investment in unconsolidated joint venture
$

 
$
14,086,641

 
$

 
$
7,413,359

 
$
716,375

 
$
8,129,734

 
$
22,216,375

________________
1.
From inception through December 31, 2019, STAR is expected to incur transaction costs totaling $31,475,100, of which $1,630,046 has been capitalized and is included in the historical total real estate, cost, $26,612,902 will be capitalized to real estate held for investment and $716,375 will be capitalized to investment in unconsolidated joint venture in the Mergers. A total of $24,119,661 will be paid to related parties upon consummation of the Mergers.
The preliminary allocation of the values of the real estate and real estate related assets and liabilities, exclusive of estimated capitalized transaction costs, is as follows:
 
December 31, 2019
 
SIR
 
STAR III
Assets:
 
 
 
Total real estate investments
$
1,049,644,939

 
$
458,411,859

Acquired intangibles
26,420,140

 
9,800,113

Investment in unconsolidated joint venture
21,500,000

 

Other assets
132,529,424

 
26,001,988

Total assets:
$
1,230,094,503

 
$
494,213,960

Liabilities:
 
 
 
Mortgage notes payable, net
$
506,786,983

 
$
289,407,045

Other liabilities
28,588,373

 
10,621,979

Total liabilities:
$
535,375,356

 
$
300,029,024

Estimated fair value of net assets acquired
$
694,719,147

 
$
194,184,936

The fair value of the tangible assets of an acquired property, which includes land and buildings and improvements, are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings and improvements based on management’s determination of the relative fair value of these assets.
The fair values of in-place leases 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 fair value of in-place leases are capitalized as intangible lease assets. These lease intangible assets are amortized to expense over the remaining terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.
C.
Removes accumulated depreciation and amortization of SIR’s and STAR III’s real estate assets, as applicable, as of December 31, 2019.

F-7



D.
Reflects the net change in cash and cash equivalents to consummate the Mergers, as applicable, assuming the Mergers occurred on December 31, 2019, which represents the payment of merger related transaction costs and loan assumption fees.
E.
Represents the difference between the preliminary fair value of SIR’s investment in an unconsolidated joint venture to be acquired by STAR in connection with the SIR Merger and SIR’s historical balances with respect to such unconsolidated joint venture. The investment in an unconsolidated joint venture represents a 10% interest in a joint venture that owns 20 multifamily properties with 4,584 apartment homes. Management estimated the fair value assigned to the 10% interest in the unconsolidated joint venture of $21,500,000 based on the general partner's indication of value. The investment in an unconsolidated joint venture also includes capitalized acquisition costs of $716,375, which are amortized to the statement of operations.
F.
Reflect adjustments to outstanding debt to consummate the Mergers whereby STAR assumed the entire balance of SIR’s and STAR III’s outstanding notes payable as of December 31, 2019:
 
 
December 31, 2019
 
 
SIR
 
STAR III
 
Combined
Write-off of deferred financing costs
 
$
4,185,597

 
$
1,657,047

 
$
5,842,644

Fair value debt adjustment
 
(1,391,490
)
 
5,802,045

 
4,410,555

SIR’s and STAR III’s estimated loan assumption costs
 
(1,848,071
)
 
(1,005,323
)
 
(2,853,394
)
Total
 
$
946,036

 
$
6,453,769

 
$
7,399,805

G.
Reflects the adjustment to remove the redeemable common stock of SIR and STAR III that was not assumed by STAR at the time of the closing of the Mergers pursuant to STAR’s amended and restated share repurchase plan.
H.
Represents an increase in STAR’s common stock of $438,585 for the issuance of approximately 43,858,532 shares of STAR common stock in the SIR Merger at an assumed value of $15.84 per share, STAR’s most recently disclosed estimated value per share, offset by the elimination of SIR’s common stock and convertible stock. Each of STAR’s and SIR’s 1,000 shares of non-participating, non-voting convertible stock with a par value of $0.01 per share was repurchased for no consideration by STAR and SIR, respectively, upon consummation of the merger and 1,000 shares of non-participating, non-voting class A convertible stock with a par value of $0.01 per share was issued by STAR to STAR Advisor upon consummation of the merger.
Also represents an increase in STAR’s common stock of $122,592 for the issuance of approximately 12,259,150 shares of STAR common stock in the STAR III Merger at an assumed value of $15.84 per share, STAR’s most recently disclosed estimated value per share, offset by the elimination of STAR III’s common stock.

F-8



The table below summarizes the pro forma adjustments related to common stock and additional paid-in capital related to pro forma adjustment H:
 
 
December 31, 2019
 
 
SIR
 
STAR III
 
Combined
Common stock:
 
 
 
 
 
 
Historical common stock
 
$
739,106

 
$
85,731

 
$
824,837

Pro forma adjustment
 
(300,521
)
 
36,861

 
(263,660
)
Total pro forma common stock issued in the SIR Merger and the STAR III Merger
 
$
438,585

 
$
122,592

 
$
561,177

Additional paid-in capital:
 
 
 
 
 
 
Historical additional paid-in capital
 
$
649,543,160

 
$
172,958,977

 
$
822,502,137

Pro forma adjustment
 
44,737,402

 
21,103,367

 
65,840,769

Total pro forma additional paid-in capital issued in the SIR Merger and the STAR III Merger
 
$
694,280,562

 
$
194,062,344

 
$
888,342,906

I.
Reflects the adjustment to remove SIR’s and STAR III’s cumulative distributions and net losses that were not transferred to STAR at the time of the closing of the Mergers.

F-9



STEADFAST APARTMENT REIT, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 2019

Adjustments to the unaudited pro forma condensed combined statements of operations

A.
Reflects STAR’s, SIR’s and STAR III’s audited historical consolidated statements of operations for the year ended December 31, 2019, derived from STAR’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 12, 2020, and SIR’s and STAR III’s audited financial statements for the year ended December 31, 2019 included herein as Exhibits 99.1 and 99.2, respectively.
A.1
Reflects adjustments for properties disposed of by SIR during the year ended December 31, 2019, to reflect their results as if they had been disposed on January 1, 2019.
B.
Represents adjustments made to fees to affiliates for the year ended December 31, 2019, to include the fees to affiliates (not reflected in the historical statements of operations of STAR) for the year ended December 31, 2019, that would be due to affiliates and to exclude the fees to affiliates (reflected in the historical statements of operations of SIR and STAR III) that would not have been due to affiliates for the year ended December 31, 2019, had the Mergers occurred on January 1, 2019. The pro forma adjustments to fees to affiliates are calculated as follows:
Investment Management Fees: Investment management fees are payable to the STAR Advisor, based on an annual fee, payable monthly 50% in cash and 50% in shares of STAR common stock, of 1.0% of the acquisition cost of each of SIR and STAR III, including acquisition fees, acquisition expenses, budgeted amounts for future development and construction and any debt attributable to the acquisitions of SIR and STAR III, as set out in the Amended STAR Advisory Agreement. Historically, SIR’s investment management fees were based on an annual fee, payable monthly, of 0.80% of the cost of investments of the SIR real estate properties, including acquisition fees, acquisition expenses, cost of development, construction or improvement and any debt attributable to the acquisition of SIR real estate properties, as set out in the SIR advisory agreement and STAR III’s investment management fees were based on an annual fee, payable monthly, of 1.0% of the fair value of the STAR III real estate properties, including acquisition fees, acquisition expenses and any debt attributable to the acquisition of STAR III real estate properties, as set out in the STAR III advisory agreement.
The table below summarizes the pro forma adjustment related to investment management fees:
 
 
Fees to affiliates
 
 
For the Year Ended December 31, 2019
 
 
SIR
 
STAR III
 
Combined
Remove historical investment management fees 
 
$
(7,886,353
)
 
$
(4,439,258
)
 
$
(12,325,611
)
Add investment management fees based on Amended STAR Advisory Agreement
 
11,589,274

 
4,853,750

 
16,443,024

 
 
$
3,702,921

 
$
414,492

 
$
4,117,413

C.
Represents the estimated depreciation and amortization of real estate assets assuming the Mergers occurred on January 1, 2019, using the relative fair values calculated as of December 31, 2019. Depreciation expense on the purchase price of SIR’s and STAR III’s building, building improvements and furniture and fixtures is recognized using the straight-line method over an estimated useful life of 27.5 years, 10 years and 5 years, respectively.

F-10



The following table summarizes the pro forma adjustments to depreciation and amortization by asset category for the properties acquired in the SIR Merger and the STAR III Merger that would have been recorded for the year ended December 31, 2019:
 
Depreciation and Amortization Expense
 
For the Year Ended December 31, 2019
 
SIR
 
STAR III
 
Combined
Buildings and improvements
$
41,692,073

 
$
17,139,319

 
$
58,831,392

Less: historical depreciation and amortization
(33,991,824
)
 
(15,575,494
)
 
(49,567,318
)
Adjustment to depreciation and amortization
$
7,700,249

 
$
1,563,825

 
$
9,264,074

D.
Represents the estimated interest expense assuming the Mergers had occurred on January 1, 2019.
The following table summarizes the pro forma adjustments to interest expense associated with the debt assumed in the SIR Merger and the STAR III Merger that would have been recorded for the year ended December 31, 2019:
 
Interest Expense
 
For the Year Ended December 31, 2019
 
SIR
 
STAR III
 
Combined
Amortization of loan premium
$
(1,065,326
)
 
$
(648,672
)
 
$
(1,713,998
)
Amortization of deferred financing costs associated with debt assumed by STAR(1)
258,886

 
119,358

 
378,244

Less: historical amortization of loan premium and deferred financing costs
(829,181
)
 
(262,460
)
 
(1,091,641
)
Adjustment to interest expense
$
(1,635,621
)
 
$
(791,774
)
 
$
(2,427,395
)
 
 
 
 
 
 
(1) In assuming the existing notes payable of SIR and STAR III, STAR incurred loan assumption and transfer fees paid to the various lenders totaling $2,853,394.
E.
Represents the reversal of historical general and administrative expenses incurred by STAR, SIR and STAR III related to the Mergers as they reflect nonrecurring charges directly attributable to the transactions.
The management of STAR expects that the Mergers will create general and administrative cost savings, including costs associated with corporate administrative functions. There can be no assurance that STAR as a combined company will be successful in achieving these anticipated costs savings. Since these savings are not currently factually supportable, no adjustments to historical general and administrative expenses have been included.
F.
Represents adjustments to equity in loss of unconsolidated joint venture to remove historical amortization of outside basis difference and add amortization of outside basis difference resulting from the SIR Merger.
G.
The following material nonrecurring items are not reflected in the unaudited pro forma statement of operations for the year ended December 31, 2019, that otherwise would have been if the Mergers occurred on January 1, 2019:
Loss on debt extinguishment:
 
For the Year Ended December 31, 2019
 
SIR
 
STAR III
 
Combined
Write off of deferred financing costs, net associated with notes payable
$
(4,185,597
)
 
$
(1,657,047
)
 
$
(5,842,644
)
Loss on debt extinguishment
$
(4,185,597
)
 
$
(1,657,047
)
 
$
(5,842,644
)


F-11



H.
Reflects the adjustment in weighted-average basic and diluted common stock issued to SIR and STAR III stockholders, as applicable, in accordance with the exchange ratios set forth in the applicable Merger Agreement as consideration, assuming the mergers closed on January 1, 2019.
The following table summarizes the pro forma weighted-average basic and diluted common stock adjustment related to the Mergers that would have been recorded for the year ended December 31, 2019:
 
For the Year Ended December 31, 2019
 
SIR
 
STAR III
 
Combined
Historical weighted-average basic and diluted common stock
(74,198,388
)
 
(8,598,235
)
 
(82,796,623
)
Implied STAR common stock issued as consideration
43,858,532

 
12,259,150

 
56,117,682

 
(30,339,856
)
 
3,660,915

 
(26,678,941
)
Average common stock issued upon payment of investment management fees(1)
182,912

 
76,606

 
259,518

Adjustment to weighted-average basic and diluted common stock
(30,156,944
)
 
3,737,521

 
(26,419,423
)
 
 
 
 
 
 
(1) Represents 50% of the average investment management fees based on the Amended STAR Advisory Agreement (see Note B above), divided by STAR’s estimated value per share of $15.84.

F-12



(d)
Exhibits.
Exhibit
Description
99.1
99.2


F-13



SIGNATURE
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 hereunto duly authorized.
 
 
STEADFAST APARTMENT REIT, INC.
 
 
 
 
 
 
 
 
Date:
April 24, 2020
By:
/s/ Kevin Keating
 
 
 
Kevin Keating
 
 
 
Chief Financial Officer and Treasurer



F-14
(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Table of Contents

Exhibit 99.1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




1

Table of Contents


REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Steadfast Apartment REIT, Inc.

We have audited the accompanying consolidated financial statements of Steadfast Income REIT, Inc. (the Company), which comprise the consolidated balance sheets as of December 31, 2019 and 2018, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for the three years in the period ended December 31, 2019 in conformity with U.S. generally accepted accounting principles.

Ernst & Young LLP


Irvine, California
April 24, 2020


2

Table of Contents
STEADFAST INCOME REIT, INC.

CONSOLIDATED BALANCE SHEETS
 
December 31,
 
2019
 
2018
ASSETS
Assets:
 
 
 
Real Estate:
 
 
 
Land
$
89,822,014

 
$
90,153,980

Building and improvements
808,000,954

 
795,383,423

Total real estate held for investment, cost
897,822,968

 
885,537,403

Less accumulated depreciation and amortization
(199,069,845
)
 
(165,112,070
)
Total real estate held for investment, net
698,753,123

 
720,425,333

Real estate held for sale, net

 
126,464,504

Total real estate, net
698,753,123

 
846,889,837

Cash and cash equivalents
120,283,764

 
141,316,753

Restricted cash
8,330,832

 
12,114,277

Investment in unconsolidated joint venture
14,086,641

 
14,085,399

Rents and other receivables
1,108,096

 
1,791,881

Assets related to real estate held for sale

 
761,413

Other assets
2,806,732

 
2,698,438

Total assets
$
845,369,188

 
$
1,019,657,998

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
21,437,667

 
$
23,899,595

Notes payable:
 
 
 
Mortgage notes payable, net
503,992,876

 
566,848,984

Credit facility, net

 
52,363,460

Notes payable related to real estate held for sale, net

 
74,289,130

Total notes payable, net
503,992,876

 
693,501,574

Distributions payable
3,484,995

 
3,515,310

Due to affiliates
3,665,711

 
4,985,918

Liabilities related to real estate held for sale

 
2,994,267

Total liabilities
532,581,249

 
728,896,664

Commitments and contingencies (Note 10)

 

Redeemable common stock
717,416

 

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

 

Common stock $0.01 par value per share; 999,999,000 shares authorized, 73,910,568 and 74,650,139 shares issued and outstanding at December 31, 2019 and 2018, respectively
739,106

 
746,502

Convertible stock, $0.01 par value per share; 1,000 shares authorized, issued and outstanding as of December 31, 2019 and 2018, respectively
10

 
10

Additional paid-in capital
649,543,160

 
656,204,073

Cumulative distributions and net income
(338,211,753
)
 
(366,189,251
)
Total stockholders’ equity
312,070,523

 
290,761,334

Total liabilities and stockholders’ equity
$
845,369,188

 
$
1,019,657,998

See accompanying notes to consolidated financial statements.


3

Table of Contents
STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the year ended December 31,

2019

2018

2017
Revenues:





Rental income
$
111,677,550


$
138,090,247


$
208,497,233

Other income
1,621,564


2,050,300


3,256,228

Total revenues
113,299,114


140,140,547


211,753,461

Expenses:
 
 
 
 
 
Operating, maintenance and management
28,374,657


38,528,087


58,361,883

Real estate taxes and insurance
17,808,397


24,230,326


35,114,937

Fees to affiliates
14,522,521


15,879,702


21,960,145

Depreciation and amortization
34,523,271


46,109,794


67,755,152

Interest expense
25,660,243


33,158,759


44,114,130

General and administrative expenses
8,318,587


6,185,374


6,298,868

Total expenses
129,207,676


164,092,042


233,605,115

Loss before other (expense) income
(15,908,562
)

(23,951,495
)

(21,851,654
)
Other income (expense):
 
 
 
 
 
Equity in loss of unconsolidated joint venture
(642,274
)
 
(3,339,202
)
 
(663,896
)
Gain on sales of real estate, net
86,800,659

 
118,215,618

 
96,573,171

Loss on debt extinguishment
(3,432,058
)

(3,621,665
)

(2,380,051
)
Interest income
2,260,169

 
1,562,078

 
680,593

Insurance proceeds in excess of losses incurred
40,983

 
218,218

 
115,704

Total other income
85,027,479

 
113,035,047

 
94,325,521

Net income
$
69,118,917


$
89,083,552


$
72,473,867

Income per common share — basic and diluted
$
0.93


$
1.19


$
0.96

Weighted average number of common shares outstanding — basic
74,185,540

 
75,049,667

 
75,794,705

Weighted average number of common shares outstanding — diluted
74,198,388

 
75,062,053

 
75,807,710

See accompanying notes to consolidated financial statements.




4

Table of Contents
STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
 
Common Stock
 
Convertible Stock
 
Additional Paid-
In Capital
 
Cumulative
Distributions &
Net Income
 
Total Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
BALANCE, December 31, 2016
76,202,862

 
$
762,029

 
1,000

 
$
10

 
$
672,018,194

 
$
(352,351,990
)
 
$
320,428,243

Issuance of common stock
7,500

 
75

 

 

 
(75
)
 

 

Repurchase of common stock
(730,953
)
 
(7,310
)
 

 

 
(7,992,690
)
 

 
(8,000,000
)
Distributions declared

 

 

 

 

 
(54,339,823
)
 
(54,339,823
)
Amortization of stock-based compensation

 

 

 

 
85,486

 

 
85,486

Net income for the year ended December 31, 2017

 

 

 

 

 
72,473,867

 
72,473,867

BALANCE, December 31, 2017
75,479,409

 
754,794

 
1,000

 
10

 
664,110,915

 
(334,217,946
)
 
330,647,773

Issuance of common stock
7,500

 
75

 

 

 
(75
)
 

 

Repurchase of common stock
(836,770
)
 
(8,367
)
 

 

 
(7,991,633
)
 

 
(8,000,000
)
Distributions declared

 

 

 

 

 
(121,054,857
)
 
(121,054,857
)
Amortization of stock-based compensation

 

 

 

 
84,866

 

 
84,866

Net income for year ended December 31, 2018

 

 

 

 

 
89,083,552

 
89,083,552

BALANCE, December 31, 2018
74,650,139

 
746,502

 
1,000

 
10

 
656,204,073

 
(366,189,251
)
 
290,761,334

Issuance of common stock
7,500

 
75

 

 

 
(75
)
 

 

Repurchase of common stock
(747,071
)
 
(7,471
)
 

 

 
(6,734,362
)
 

 
(6,741,833
)
Distributions declared

 

 

 

 

 
(41,141,419
)
 
(41,141,419
)
Amortization of stock-based compensation

 

 

 

 
73,524

 

 
73,524

Net income for the year ended December 31, 2019

 

 

 

 

 
69,118,917

 
69,118,917

BALANCE, December 31, 2019
73,910,568

 
$
739,106

 
1,000

 
$
10

 
$
649,543,160

 
$
(338,211,753
)
 
$
312,070,523

See accompanying notes to consolidated financial statements.


5

Table of Contents
STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
For the year ended December 31,
 
 
2019
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
 
 
 
Net income
 
$
69,118,917

 
$
89,083,552

 
$
72,473,867

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 
 
 
Depreciation and amortization
 
34,523,271

 
46,109,794

 
67,755,152

Amortization of deferred financing costs
 
877,743

 
1,056,249

 
1,839,952

Amortization of stock-based compensation
 
73,524

 
84,866

 
85,486

Amortization of loan premiums
 
(48,562
)
 
(270,792
)
 
(1,129,960
)
Change in fair value of interest rate cap agreements
 
164,394

 
157,268

 
604,545

Loss on debt extinguishment
 
3,432,058

 
3,621,665

 
2,380,051

Gain on sales of real estate
 
(86,800,659
)
 
(118,215,618
)
 
(96,573,171
)
Insurance claim recoveries
 
(98,319
)
 
(1,394
)
 
(352,497
)
Loss on disposal of buildings and improvements
 
65,971

 
25,892

 
147,085

Unrealized gain on short-term investments
 

 

 
(278,883
)
Equity in loss from unconsolidated joint venture
 
642,274

 
3,339,202

 
663,896

Changes in operating assets and liabilities:
 
 

 
 
 
 
Rents and other receivables
 
471,655

 
945,919

 
(333,347
)
Other assets
 
(337,984
)
 
626,178

 
960,983

Accounts payable and accrued liabilities
 
(2,725,202
)
 
(461,309
)
 
(3,106,834
)
Due to affiliates
 
(1,330,952
)
 
969,963

 
(1,372,025
)
Net cash provided by operating activities
 
18,028,129

 
27,071,435

 
43,764,300

Cash Flows from Investing Activities:
 
 
 
 
 
 
Short-term investments
 

 

 
30,363,633

Cash contribution to unconsolidated joint venture
 
(1,852,416
)
 
(3,435,411
)
 
(3,854,197
)
Cash distribution from unconsolidated joint venture
 
1,208,900

 
530,100

 

Acquisition of real estate investments
 

 
(67,886,062
)
 

Additions to real estate investments
 
(13,532,763
)
 
(9,564,647
)
 
(16,401,961
)
Escrow deposits for pending real estate acquisitions
 

 
(2,600,000
)
 

Purchase of interest rate cap agreements
 
(47,000
)
 
(223,300
)
 
(37,350
)
Proceeds from sales of real estate, net
 
211,990,358

 
310,434,652

 
124,918,577

Proceeds from insurance claims
 
310,449

 
1,394

 
352,497

Net cash provided by investing activities
 
198,077,528

 
227,256,726

 
135,341,199

Cash Flows from Financing Activities:
 
 
 
 
 
 
Proceeds from issuance of mortgage notes payable
 
241,834,000

 
106,482,000

 
17,638,751

Principal payments on mortgage notes payable
 
(378,425,818
)
 
(239,272,864
)
 
(22,745,424
)
Principal payments on credit facilities
 
(52,656,750
)
 
(38,410,500
)
 

Payment of deferred financing costs
 
(1,532,385
)
 
(1,323,128
)
 
(310,819
)
Payment of debt extinguishment costs
 
(2,988,984
)
 
(2,572,386
)
 

Distributions to common stockholders
 
(41,171,734
)
 
(122,134,848
)
 
(54,369,877
)
Repurchases of common stock
 
(6,741,833
)
 
(8,000,000
)
 
(8,000,000
)
Net cash used in financing activities
 
(241,683,504
)
 
(305,231,726
)
 
(67,787,369
)
Net (decrease) increase in cash, cash equivalents and restricted cash
 
(25,577,847
)
 
(50,903,565
)
 
111,318,130

Cash, cash equivalents and restricted cash, beginning of year
 
154,192,443

 
205,096,008

 
93,777,878

Cash, cash equivalents and restricted cash, end of year
 
$
128,614,596

 
$
154,192,443

 
$
205,096,008



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STEADFAST INCOME REIT, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
 
 
For the year ended December 31,
 
 
2019
 
2018
 
2017
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
 
 
Interest paid
 
$
25,548,080

 
$
32,461,746

 
$
43,477,719

Supplemental Disclosure of Noncash Transactions:
 
 
 
 
 
 
Distributions payable
 
$
3,484,995

 
$
3,515,310

 
$
4,595,301

Assumption of mortgage notes payable to acquire real estate
 
$

 
$
65,000,000

 
$

Application of escrow deposits to acquire real estate
 
$

 
$
2,600,000

 
$

Redeemable common stock
 
$
717,416

 
$

 
$

Non-cash contribution to unconsolidated joint venture
 
$

 
$

 
$
(3,281,298
)
Mortgage notes payable assumed by buyer in connection with property sales
 
$

 
$
(67,140,194
)
 
$

Assets and liabilities deconsolidated in connection with property sales:
 
 
 
 
 
 
Real estate, net
 
$

 
$
(98,350,076
)
 
$
(382,696,431
)
Notes payable, net
 
$

 
$
76,336,778

 
$
337,214,942

Restricted cash
 
$

 
$
(913,408
)
 
$
(7,699,698
)
Rents and other receivables
 
$

 
$

 
$
(346,067
)
Accounts payable and accrued liabilities
 
$

 
$
674,912

 
$
11,330,808

Accounts payable and accrued liabilities from additions to investment in unconsolidated joint venture
 
$

 
$

 
$
398,817

Accounts payable and accrued liabilities from additions to real estate investments
 
$
96,637

 
$
550,636

 
$
204,467

Due to affiliates from additions to real estate investments
 
$
15,387

 
$
4,642

 
$
8,566

Repurchases payable
 
$
1,282,584

 
$
2,000,000

 
$
2,000,000

Operating lease right-of-use asset, net
 
$
96,826

 
$

 
$

Operating lease liabilities, net
 
$
104,204

 
$

 
$


See accompanying notes to consolidated financial statements.


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STEADFAST INCOME REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019


1.
Organization and Business
Steadfast Income REIT, Inc. (the “Company”) was formed on May 4, 2009, as a Maryland corporation that elected to be taxed as, and qualifies as, a real estate investment trust (“REIT”). On June 12, 2009, the Company was initially capitalized pursuant to the sale of 22,223 shares of common stock to Steadfast REIT Investments, LLC (the “Sponsor”) at a purchase price of $9.00 per share for an aggregate purchase price of $200,007. On July 10, 2009, Steadfast Income Advisor, LLC (the “Advisor”), a Delaware limited liability company formed on May 1, 2009, invested $1,000 in the Company in exchange for 1,000 shares of convertible stock (the “Convertible Stock”) as described in Note 7 (Stockholders’ Equity).
As of December 31, 2019, the Company owned 27 multifamily properties comprising a total of 7,527 apartment homes and a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes. On March 13, 2019, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $9.40 as of December 31, 2018.
Private Offering
On October 13, 2009, the Company commenced a private offering of up to $94,000,000 in shares of the Company’s common stock at a purchase price of $9.40 per share (with discounts available for certain categories of purchasers) (the “Private Offering”). The Company offered its shares of common stock for sale in the Private Offering pursuant to a confidential private placement memorandum and only to persons that were “accredited investors,” as that term is defined under the Securities Act of 1933, as amended (the “Securities Act”), 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 (defined and described below). The Company sold 637,279 shares of common stock in the Private Offering for gross offering proceeds of $5,844,325.
Public Offering
On July 19, 2010, the Company commenced its initial public offering of up to a maximum of 150,000,000 shares of common stock for sale to the public at an initial price of $10.00 per share (with discounts available for certain categories of purchasers) (the “Primary Offering”). The Company also offered up to 15,789,474 shares of common stock for sale pursuant to the Company’s distribution reinvestment plan (the “DRP,” and together with the Primary Offering, the “Public Offering”) at an initial price of $9.50 per share.
The Company terminated its Public Offering on December 1, 2014. Following termination of the Public Offering, the Company continued to offer shares of common stock pursuant to the DRP until the Company’s board of directors suspended the DRP effective beginning with distributions earned on December 1, 2014. Through December 1, 2014, the Company issued 76,095,116 shares of common stock in the Public Offering for gross offering proceeds of $769,573,363, including 4,073,759 shares of common stock issued pursuant to the DRP for gross offering proceeds of $39,580,847.
On March 10, 2015, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $10.35 as of December 31, 2014. On February 25, 2016, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $11.44 as of December 31, 2015. On February 15, 2017, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $11.65 as of December 31, 2016. On March 13, 2018, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $10.84 as of December 31, 2017. On May 9, 2018, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $9.84, which represents the estimated value per share of the Company’s common stock of $10.84 as of December 31, 2017, less the special distribution of $1.00 per share of common stock that was paid to stockholders of record as of the close of business on April 20, 2018. On March 13, 2019, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $9.40 as of December 31, 2018.
Prior to the effective time of the SIR Merger (defined below), the business of the Company was externally managed by the Advisor, pursuant to the Advisory Agreement by and among the Company, Steadfast Income REIT Operating Partnership, L.P., a Delaware limited partnership formed on July 6, 2009 (the “Operating Partnership”), and the Advisor (as amended, the


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STEADFAST INCOME REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2019

“Advisory Agreement”), which was subject to annual renewal by the Company’s board of directors. The term of the Advisory Agreement was set to expire on November 15, 2020, subject to the terms of the Termination Agreement discussed below. Subject to certain restrictions and limitations, the Advisor managed the Company’s day-to-day operations, managed the Company’s portfolio of properties and real estate-related assets, sourced and presented investment opportunities to the Company’s board of directors and provided investment management services on the Company’s behalf. Stira Capital Markets Group, LLC (formerly known as Steadfast Capital Markets Group, LLC) (the “Dealer Manager”), an affiliate of the Advisor, served as the dealer manager for the Public Offering. The Advisor, along with the Dealer Manager, also provided marketing, investor relations and other administrative services on the Company’s behalf.
Substantially all of the Company’s business was conducted through the Operating Partnership. The Company was the sole general partner of the Operating Partnership. The Company and Advisor entered into an Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”) on September 28, 2009.
The Partnership Agreement provided that the Operating Partnership operated in a manner that enabled 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 paid all of the Company’s administrative costs and expenses, and such expenses were treated as expenses of the Operating Partnership.
Merger with Steadfast Apartment REIT, Inc.
On August 5, 2019, the Company, Steadfast Apartment REIT, Inc. (“STAR”), a public non-traded REIT sponsored by the Sponsor, Steadfast Apartment REIT Operating Partnership, L.P., STAR’s operating partnership (“STAR Operating Partnership”), the Operating Partnership and SI Subsidiary, LLC, a wholly-owned subsidiary of STAR (“SIR Merger Sub”) entered into an Agreement and Plan of Merger (the “SIR Merger Agreement”). Pursuant to the terms and conditions of the SIR Merger Agreement, on March 6, 2020, the Company merged with and into SIR Merger Sub with SIR Merger Sub surviving as a direct, wholly-owned subsidiary of STAR (the “SIR Merger”). At such time, in accordance with the applicable provisions of the Maryland General Corporation Law (“MGCL”) and the Maryland Limited Liability Company Act, the separate existence of the Company ceased.
At the effective time of the SIR Merger, each issued and outstanding share of the Company’s common stock (or a fraction thereof), $0.01, par value per share converted into 0.5934 shares of STAR’s common stock, $0.01 par value per share (“STAR Common Stock”).
Merger with Steadfast Apartment REIT III, Inc.
On August 5, 2019, Steadfast Apartment REIT III, Inc. (“STAR III”), STAR, the STAR Operating Partnership, Steadfast Apartment REIT III Operating Partnership, L.P., the operating partnership of STAR III (“STAR III Operating Partnership”) and SIII Subsidiary, LLC, a wholly-owned subsidiary of STAR (“STAR III Merger Sub”) entered into an Agreement and Plan of Merger (the “STAR III Merger Agreement”). Pursuant to the terms and conditions of the STAR III Merger Agreement, on March 6, 2020, STAR III merged with and into STAR III Merger Sub with STAR III Merger Sub surviving as a direct, wholly- owned subsidiary of STAR (the “STAR III Merger”, and together with the SIR Merger, the “Mergers”). At such time, in accordance with the applicable provisions of the MGCL and the Maryland Limited Liability Company Act, the separate existence of STAR III ceased.
At the effective time of the STAR III Merger, each issued and outstanding share of STAR III’s common stock (or a fraction thereof), $0.01 par value per share was converted into 1.430 shares of STAR’s Common Stock.


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STEADFAST INCOME REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2019

Combined Company
The combined company after the Mergers (the “Combined Company”) retained the name “Steadfast Apartment REIT, Inc.” Each merger was intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code.
As of the closing of the Mergers, the Combined Company’s portfolio (unaudited) consisted of (1) 70 properties (including one property held for development) in 14 states, with an average effective rent of $1,144 and (2) a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes. Based on occupancy as of December 31, 2019, the Combined Company’s portfolio had an occupancy rate of 94.9%, an average age of 20 years and a preliminary gross real estate assets value of $3.4 million (unaudited).
The financial information included in these consolidated audited financial statements reflects only the Company’s stand-alone, historical financial results as of December 31, 2019.

Concurrently with the entry into the SIR Merger Agreement, the Company and the Advisor entered into a termination letter agreement (the “Termination Agreement”), effective as of August 5, 2019. Pursuant to the Termination Agreement, the Advisory Agreement terminated on March 6, 2020, the effective time of the SIR Merger. Also pursuant to the Termination Agreement, the Advisor agreed to waive any disposition fee it otherwise would have been entitled to pursuant to the Advisory Agreement related to the SIR Merger and agreed to reimburse the Company for its costs if the Company’s stockholders rejected the SIR Merger at the meeting of stockholders.




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STEADFAST INCOME REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2019

2.
Summary of Significant Accounting Policies
There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2018, other than the adoption of Accounting Standards Update (“ASU”) 2016-02, as further described below.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, the consolidated variable interest entity (“VIE”) that the Company controlled and of which the Company was the primary beneficiary, and the Operating Partnership’s subsidiaries. All significant intercompany balances and transactions were eliminated in consolidation. The financial statements of the Company’s subsidiaries were prepared using accounting policies consistent with those of the Company. The Operating Partnership was a VIE as the limited partner lacks substantive kick-out rights and substantive participating rights. The Company was the primary beneficiary of, and consolidated, the Operating Partnership.
The accompanying consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Square footage, occupancy and certain other measures used to describe real estate included in the notes to the consolidated financial statements were presented on an unaudited basis.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Real Estate Assets
Depreciation and Amortization
Real estate costs related to the development, construction and improvement of properties were capitalized. Acquisition costs related to business combinations were expensed as incurred. Acquisition costs related to asset acquisitions were capitalized. On January 1, 2017, the Company early adopted ASU 2017-01, Business Combinations (Topic 805): clarifying the definition of a business (“ASU 2017-01”), that clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. ASU 2017-01 now forms part of ASC 805, Business Combinations (“ASC 805”). Repair and maintenance and tenant turnover costs were charged to expense as incurred and significant replacements and betterments were capitalized. Repair and maintenance and tenant turnover costs included all costs that do not extend the useful life of the real estate asset. The Company considered 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
 
27.5 years
Building improvements
 
5-25 years
Tenant improvements
 
Shorter of lease term or expected useful life
Tenant origination and absorption costs
 
Remaining term of related lease
Furniture, fixtures, and equipment
 
5-10 years


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STEADFAST INCOME REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2019

Real Estate Purchase Price Allocation
Prior to its adoption of ASU 2017-01, which now forms part of ASC 805, the Company recorded the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination were measured at their acquisition-date fair values. Acquisition costs were expensed as incurred. Upon adoption of ASU 2017-01, the Company recorded the acquisition of income-producing real estate or real estate that is used for the production of income as an asset acquisition. All assets acquired and liabilities assumed in the asset acquisition were measured at their acquisition date fair values. Acquisition costs were capitalized and allocated between land, buildings and improvements and tenant origination and associated costs on the consolidated balance sheet.
The Company assessed the acquisition-date fair values of all tangible assets, identifiable intangible assets and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows were 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 represented 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 estimated 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 estimated the amount of lost rentals using market rates during the expected lease-up periods.
 The Company amortized the value of in-place leases to expense over the remaining non-cancelable term of the respective leases. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles was charged to expense in that period.
 The Company recorded above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) the Company’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortized any capitalized above-market or below-market lease values as a reduction or increase to rental income over the remaining non-cancelable terms of the respective leases.
 The total amount of other intangible assets acquired was further allocated to in-place lease values based on the Company’s evaluation of the specific characteristics of each tenant’s lease and its overall relationship with that respective tenant. Characteristics that the Company considered in allocating these values included the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.
 Estimates of the fair values of the tangible assets, identifiable intangible assets and assumed liabilities required the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property were held for investment. The use of inappropriate assumptions could result in an incorrect valuation of acquired tangible assets, identifiable intangible assets and assumed liabilities, which could have impacted the amount of the Company’s net income (loss).
Sale of Real Estate Assets
The Company recorded property sales or dispositions when title transfers to unrelated third parties, contingencies have been removed and sufficient cash consideration was received by the Company. Upon disposition, the related costs and accumulated depreciation were removed from the respective accounts. Any gain or loss on sale was recognized in accordance with GAAP.
Gains and losses on the sale of real estate were recognized pursuant to ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets. The Company recognized a gain (loss) on sale of real estate when the criteria for an asset to be derecognized were met, which included when: (i) a contract exists, (ii) the buyer obtains control of the asset, and (iii) it is


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STEADFAST INCOME REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2019

probable that the Company will receive substantially all of the consideration to which it is entitled. These criteria are generally satisfied at the time of sale. For partial sale of real estate resulting in transfer of control, the Company measured any noncontrolling interest retained at fair value and recognized a gain or loss on the difference between fair value and the carrying amount of the real estate assets retained. The Company classified real estate assets as real estate held for sale once the criteria, as defined by GAAP, have been met.
Impairment of Real Estate Assets
The Company accounted for its real estate assets in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”). ASC 360 required the Company to continually monitor events and changes in circumstances that could indicate that the carrying amounts of the Company’s real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assessed 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 did not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company recorded an impairment loss to the extent that the carrying value exceeded the estimated fair value of the real estate and related intangible assets and liabilities. The Company did not record any impairment loss on its real estate assets during the years ended December 31, 2019, 2018 and 2017.
Investments in Unconsolidated Joint Ventures
The Company accounted for investments in unconsolidated joint venture entities in which it exercised significant influence over, but did not control, using the equity method of accounting. Under the equity method, the investment was initially recorded at cost including an outside basis difference, which represented the Company’s transaction costs related to the joint venture and subsequently adjusted to reflect additional contributions or distributions, the Company’s proportionate share of equity in the joint venture’s earnings (loss) and amortization of the outside basis difference. The Company recognized its proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in earnings (loss) of unconsolidated joint venture on the consolidated statements of operations. On a quarterly basis, the Company evaluated its investment in an unconsolidated joint venture for other-than-temporary impairments. The Company elected the cumulative earnings approach to classify cash receipts from the unconsolidated joint venture on the accompanying consolidated statements of cash flows. 
Rents and Other Receivables
In accordance with ASC 842 (defined below), the Company made a determination of whether the collectibility of the lease payments in an operating lease was probable. If the Company determined the lease payments were not probable of collection, the Company would have fully reserved for any contractual lease payments, deferred rent receivable, and variable lease payments and would have recognized rental income only if cash was received. The Company exercised judgment in establishing these allowances and considered payment history and current credit status of tenants in developing these estimates. Due to the short-term nature of the operating leases, the Company did not maintain a deferred rent receivable related to the straight-lining of rents.
Revenue Recognition - Operating Leases
On January 1, 2019, the Company adopted the lease accounting standards under ASC 842, Leases (“ASC 842”), including the package of practical expedients for all leases that commenced before the effective date of January 1, 2019. The Company did not elect the practical expedient related to using hindsight to reevaluate the lease term. Accordingly, the Company (i) did not reassess whether any expired or existing contracts are or contain leases, (ii) did not reassess the lease classification for any expired or existing lease, and (iii) did not reassess initial direct costs for any existing leases.
In addition, ASC 842 provides an optional transition method to allow entities to apply the new lease accounting standards at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. The Company adopted this transition method upon its adoption of the lease accounting standards of ASC 842, which did not result in a


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STEADFAST INCOME REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2019

cumulative effect adjustment to the opening balance of retained earnings on January 1, 2019. The Company’s comparative periods presented in the financial statements continued to be reported under the lease accounting standards of ASC 840, Leases.
In accordance with ASC 842, tenant reimbursements are included in the single lease component of the lease contract (the right of the lessee to use the leased space) and therefore were accounted for as variable lease payments and were recorded as rental income on the Company’s statement of operations beginning January 1, 2019. In addition, the Company adopted the practical expedient available under ASC 842 to not separate nonlease components from the associated lease component and instead to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue recognition standard ASC 606, Revenue from Contracts with Customers, and if certain conditions are met, specifically related to tenant reimbursements for common area maintenance which would otherwise be accounted for under the revenue recognition standard. The Company believed the two conditions were met for tenant reimbursements for common area maintenance as (i) the timing and pattern of transfer of the nonlease components and associated lease components are the same and (ii) the lease component would be classified as an operating lease. Accordingly, tenant reimbursements for common area maintenance were also accounted for as variable lease payments and were recorded as rental income on the Company’s statement of operations beginning January 1, 2019. The Company recognized $111,677,550 of rental income related to operating lease payments of which $10,485,126 was for variable lease payments for the year ended December 31, 2019, respectively.
The Company leased apartment homes under operating leases with terms generally of one year or less. Generally, credit investigations were performed for prospective residents and security deposits were obtained. The Company recognized minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectibility was probable and recorded amounts expected to be received in later years as deferred rent receivable.
Cash and Cash Equivalents
The Company considered all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value. As of December 31, 2019 and 2018, the Company had amounts in excess of federally insured limits in deposit accounts with a financial institution. The Company limited such deposits to financial institutions with high credit standing.
Restricted Cash
Restricted cash represented those cash accounts for which the use of funds was restricted by loan covenants. As of December 31, 2019 and 2018, the Company had a restricted cash balance of $8,330,832 and $12,114,277, respectively, which represented amounts set aside as impounds for future property tax payments, property insurance payments and tenant improvement payments as required by agreements with the Company’s lenders as of December 31, 2019 and 2018, respectively.
The following table represents the components of the cash, cash equivalents and restricted cash presented on the accompanying consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017:
 
 
December 31,
 
 
2019
 
2018
 
2017
Cash and cash equivalents
 
$
120,283,764

 
$
141,316,753

 
$
171,228,485

Restricted cash
 
8,330,832

 
12,114,277

 
28,959,004

Assets related to real estate held for sale
 

 
761,413

 
4,908,519

Total cash, cash equivalents and restricted cash
 
$
128,614,596

 
$
154,192,443

 
$
205,096,008



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STEADFAST INCOME REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2019

Deferred Financing Costs
The Company capitalized deferred financing costs such as commitment fees, legal fees and other third party costs associated with obtaining commitments for financing that resulted in a closing of such financing, as a contra liability against the respective outstanding debt balances. The Company amortized these costs over the terms of the respective financing agreements using the effective interest method. The Company expensed unamortized deferred financing costs when the associated debt was refinanced or repaid before maturity unless specific rules were met that allowed for the carryover of such costs to the refinanced debt. Costs incurred in seeking financing transactions that did not close were expensed in the period in which it was determined that the financing will not close.
Derivative Financial Instruments
The Company accounted for its derivative financial instruments in accordance with ASC 815—Derivatives and Hedging. The Company’s objective in using derivatives was to add stability to interest expense and to manage the Company’s exposure to interest rate movements or other identified risks. To accomplish these objectives, the Company used various types of derivative instruments to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in the benchmark interest rate of the London Interbank Offered Rate (“LIBOR”) or other applicable benchmark rates.
The Company measured its derivative instruments and hedging activities at fair value and recorded them as an asset or liability, depending on its rights or obligations under the applicable derivative contract. For derivatives designated as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged items were recorded in earnings. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, were considered cash flow hedges. For derivatives designated as cash flow hedges, the effective portions of changes in fair value of the derivatives were reported in other comprehensive income (loss) and were subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedges and ineffective portions of hedges were recognized in earnings in the affected period. The Company assessed the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.
As of December 31, 2019, the Company did not have any derivatives designated as cash flow or fair value hedges, nor are derivatives being used for trading or speculative purposes.
Fair Value Measurements
Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other assets and liabilities at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements were 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 utilized quoted market prices from an independent third-party source to determine fair value and classified such items in Level 1 or Level 2. In instances where the market was not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not have been relevant and could have required the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an


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STEADFAST INCOME REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2019

independent third party may rely more on models with inputs based on information available only to that independent third party.
The following describes the valuation methodologies used by the Company to measure fair value, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.
Interest rate cap agreements - The Company entered into certain interest rate cap agreements. These derivatives were recorded at fair value. Fair value was based on a model-driven valuation using the associated variable rate curve and an implied market volatility, both of which were observable at commonly quoted intervals for the full term of the interest rate cap agreements. Therefore, the Company’s interest rate cap agreements were classified within Level 2 of the fair value hierarchy and were included in other assets in the accompanying consolidated balance sheets. Changes in the fair value of the interest rate cap agreements were recorded as interest expense in the accompanying consolidated statements of operations.
The following table reflects the Company’s assets required to be measured at fair value on a recurring basis on the consolidated balance sheets:
 
 
December 31, 2019
 
 
Fair Value Measurements Using