Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)




☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended	March 31, 2020




☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from	to

Commission file number 000-55428

STEADFAST APARTMENT REIT, INC.

(Exact Name of Registrant as Specified in Its Charter)




Maryland		36-4769184
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)




18100 Von Karman Avenue		Suite 500
Irvine	California	92612
(Address of Principal Executive Offices)		(Zip Code)

(949) 852-0700

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

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




Large Accelerated filer	☐	Accelerated filer	☐

Non-Accelerated filer	☒	Smaller reporting company	☐

Emerging growth company	☒

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

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

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

As of May 6, 2020, there were 108,979,095 shares of the Registrant’s common stock issued and outstanding.

Table of Contents

STEADFAST APARTMENT REIT, INC.

INDEX



			Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			2
Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019			2
Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited)			3
Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (unaudited)			4
Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)			5
Condensed Notes to Consolidated Financial Statements as of March 31, 2020 (unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			42
Item 3. Quantitative and Qualitative Disclosures About Market Risk			66
Item 4. Controls and Procedures			67

PART II — OTHER INFORMATION
Item 1. Legal Proceedings			68
Item 1A. Risk Factors			68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			70
Item 3. Defaults Upon Senior Securities			71
Item 4. Mine Safety Disclosures			71
Item 5. Other Information			71
Item 6. Exhibits			72
Signatures			73

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

STEADFAST APARTMENT REIT, INC.

CONSOLIDATED BALANCE SHEETS



	March 31, 2020			December 31, 2019
	(Unaudited)
ASSETS
Assets:
Real Estate:
Land	$	336,766,137		$	151,294,208
Building and improvements	2,832,836,151			1,369,256,465
Tenant origination and absorption costs	39,716,257			—
Total real estate held for investment, cost	3,209,318,545			1,520,550,673
Less accumulated depreciation and amortization	(305,599,544		)	(277,033,046		)
Total real estate held for investment, net	2,903,719,001			1,243,517,627
Real estate held for development	15,870,392			5,687,977
Real estate held for sale, net	—			21,665,762
Total real estate, net	2,919,589,393			1,270,871,366
Cash and cash equivalents	215,105,801			74,806,649
Restricted cash	18,635,695			73,614,452
Investment in unconsolidated joint venture	21,975,498			—
Rents and other receivables	4,922,665			2,032,774
Assets related to real estate held for sale	—			118,570
Other assets	7,597,827			5,513,315
Total assets	$	3,187,826,879		$	1,426,957,126

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities	$	52,782,874		$	30,265,713
Notes Payable, net:
Mortgage notes payable, net	1,388,449,438			560,098,815
Credit facility, net	588,344,120			548,460,230
Total notes payable, net	1,976,793,558			1,108,559,045
Distributions payable	8,356,638			4,021,509
Due to affiliates	8,022,867			7,305,570
Liabilities related to real estate held for sale	—			788,720
Total liabilities	2,045,955,937			1,150,940,557
Commitments and contingencies (Note 10)
Redeemable common stock	1,889,463			1,202,711
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; 999,998,000 shares authorized, 108,898,231 and 52,607,695 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	1,088,982			526,077
Convertible stock, $0.01 par value per share; 1,000 shares authorized, zero and 1,000 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	—			10
Class A Convertible stock, $0.01 par value per share; 1,000 shares authorized, 1,000 and zero shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	10			—
Additional paid-in capital	1,588,131,358			698,453,981
Cumulative distributions and net losses	(449,238,871		)	(424,166,210		)
Total stockholders’ equity	1,139,981,479			274,813,858
Total liabilities and stockholders’ equity	$	3,187,826,879		$	1,426,957,126

See accompanying notes to consolidated financial statements.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended March 31,
	2020			2019
Revenues:
Rental income	$	53,266,672		$	42,316,920
Other income	447,267			268,307
Total revenues	53,713,939			42,585,227
Expenses:
Operating, maintenance and management	12,496,559			10,058,274
Real estate taxes and insurance	8,743,446			6,581,189
Fees to affiliates	8,427,296			6,065,648
Depreciation and amortization	28,575,896			18,282,293
Interest expense	14,390,954			12,233,295
General and administrative expenses	2,430,299			1,864,269
Total expenses	75,064,450			55,084,968
Loss before other income (expenses)	(21,350,511		)	(12,499,741		)
Other income (expenses):
Gain on sale of real estate, net	11,384,599			—
Interest income	253,254			178,678
Insurance proceeds in excess of losses incurred	66,723			3,400
Equity in loss from unconsolidated joint venture	(35,193		)	—
Loss on debt extinguishment	—			(41,609		)
Total other income	11,669,383			140,469
Net loss	$	(9,681,128	)	$	(12,359,272	)
Loss per common share — basic and diluted	$	(0.14	)	$	(0.24	)
Weighted average number of common shares outstanding — basic and diluted	68,180,512			51,873,832

See accompanying notes to consolidated financial statements.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2020 (Unaudited)



	Common Stock					Convertible Stock					Class A Convertible Stock			Additional Paid-In Capital			Cumulative Distributions & Net Losses			Total Stockholders’ Equity
	Shares		Amount			Shares		Amount			Shares	Amount		Additional Paid-In Capital			Cumulative Distributions & Net Losses			Total Stockholders’ Equity
BALANCE, December 31, 2019	52,607,695		$	526,077		1,000		$	10		—	$	—	$	698,453,981		$	(424,166,210	)	$	274,813,858
Issuance of common stock	327,635		3,277			—		—			—	—		5,080,878			—			5,084,155
Issuance of common stock in connection with the SIR Merger	43,775,314		437,753			—		—			—	—		692,963,221			—			693,400,974
Issuance of common stock in connection with the STAR III Merger	12,240,739		122,407			—		—			—	—		193,770,898			—			193,893,305
Exchange of convertible common stock into Class A convertible common stock	—		—			(1,000	)	(10		)	1,000	10		—			—			—
Transfers to redeemable common stock	—		—			—		—			—	—		(1,383,318		)	—			(1,383,318		)
Repurchase of common stock	(53,152	)	(532		)	—		—			—	—		(796,757		)	—			(797,289		)
Distributions declared ($0.224 per share of common stock)	—		—			—		—			—	—		—			(15,391,533		)	(15,391,533		)
Amortization of stock-based compensation	—		—			—		—			—	—		42,455			—			42,455
Net loss	—		—			—		—			—	—		—			(9,681,128		)	(9,681,128		)
BALANCE, March 31, 2020	108,898,231		$	1,088,982		—		$	—		1,000	$	10	$	1,588,131,358		$	(449,238,871	)	$	1,139,981,479

STEADFAST APARTMENT REIT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2019 (Unaudited)

	Common Stock					Convertible Stock					Class A Convertible Stock			Additional Paid-In Capital			Cumulative Distributions & Net Losses			Total Stockholders’ Equity
	Shares		Amount			Shares		Amount			Shares	Amount		Additional Paid-In Capital			Cumulative Distributions & Net Losses			Total Stockholders’ Equity
BALANCE, December 31, 2018	51,723,801		$	517,238		1,000		$	10		—	$	—	$	684,140,823		$	(338,670,111	)	$	345,987,960
Issuance of common stock	354,319		3,544			—		—			—	—		5,375,022			—			5,378,566
Repurchase of common stock	(138,961	)	(1,390		)	—		—			—	—		(1,998,610		)	—			(2,000,000		)
Distributions declared ($0.222 per share of common stock)	—		—			—		—			—	—		—			(11,511,537		)	(11,511,537		)
Amortization of stock-based compensation	—		—			—		—			—	—		13,896			—			13,896
Net loss	—		—			—		—			—	—		—			(12,359,272		)	(12,359,272		)
BALANCE, March 31, 2019	51,939,159		$	519,392		1,000		$	10		—	$	—	$	687,531,131		$	(362,540,920	)	$	325,509,613

See accompanying notes to consolidated financial statements.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited)



	Three Months Ended March 31,
	2020			2019
Cash Flows from Operating Activities:
Net loss	$	(9,681,128	)	$	(12,359,272	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	28,575,896			18,282,293
Loss on disposal of buildings and improvements	68,846			2,198
Amortization of deferred financing costs	327,470			247,773
Amortization of stock-based compensation	42,455			13,896
Amortization of below market leases	922			—
Change in fair value of interest rate cap agreements	2,251			179,616
Gain on sale of real estate	(11,384,599		)	—
Amortization of loan premium	(144,457		)	—
Amortization of loan discount	29,875			—
Loss on debt extinguishment	—			41,609
Equity in loss from unconsolidated joint venture	35,193			—
Insurance claim recoveries	(228,380		)	(10,092		)
Changes in operating assets and liabilities:
Rents and other receivables	58,590			53,653
Other assets	818,320			540,887
Accounts payable and accrued liabilities	(3,927,637		)	(5,117,094		)
Due to affiliates	598,136			400,596
Net cash provided by operating activities	5,191,753			2,276,063
Cash Flows from Investing Activities:
Acquisition of real estate investments	(69,196,179		)	—
Cash acquired in connection with the Mergers, net of transaction costs	98,283,732			—
Acquisition of real estate held for development	(6,287,613		)	—
Additions to real estate investments	(1,221,453		)	(4,210,470		)
Additions to real estate held for development	(670,071		)	—
Escrow deposits for pending real estate acquisitions	(2,500,000		)	(1,200,200		)
Net proceeds from sale of real estate investment	32,962,285			—
Proceeds from insurance claims	86,892			85,092
Cash distribution from unconsolidated joint venture	118,000			—
Net cash provided by (used in) investing activities	51,575,593			(5,325,578		)
Cash Flows from Financing Activities:
Principal payments on mortgage notes payable	(313,032		)	(244,458		)
Borrowings from credit facilities	40,468,000			—
Payments of commissions on sale of common stock	(46,995		)	(55,651		)
Payment of loan financing deposits	(80,000		)	—
Payment of deferred financing costs	(4,079,493		)	—
Distributions to common stockholders	(6,716,712		)	(6,116,456		)
Repurchase of common stock	(797,289		)	(2,000,000		)
Net cash provided by (used in) financing activities	28,434,479			(8,416,565		)
Net increase (decrease) in cash, cash equivalents and restricted cash	85,201,825			(11,466,080		)
Cash, cash equivalents and restricted cash, beginning of the period	148,539,671			72,738,775
Cash, cash equivalents and restricted cash, end of the period	$	233,741,496		$	61,272,695

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)



	Three Months Ended March 31,
	2020		2019
Supplemental Disclosures of Cash Flow Information:
Interest paid (net of capitalized interest of $69,569 and $0, respectively)	$	11,429,429	$	11,762,392
Supplemental Disclosures of Noncash Flow Transactions:
Distributions payable	$	8,356,638	$	3,970,014
Investment management fees payable in shares	$	1,187,351	$	—
Assumption of mortgage notes payable to acquire real estate	$	36,515,122	$	—
Premiums on assumed mortgage notes payable	$	14,899,631	$	—
Discount on assumed mortgage notes payable	$	10,489,075	$	—
Distributions paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan	$	5,084,155	$	5,378,566
Redeemable common stock	$	1,889,463	$	—
Redemptions payable	$	2,110,537	$	2,000,000
Accounts payable and accrued liabilities from additions to real estate investments	$	2,843,487	$	327,788
Due to affiliates from additions to real estate investments	$	267,567	$	47,123
Accounts payable & accrued liabilities from capitalized acquisition costs related to the mergers with SIR and STAR III	$	1,548,054	$	—
Accounts payable & accrued liabilities from additions to real estate held for development	$	1,816,203	$	—
Due to affiliates from additions to real estate held for development	$	93,213	$	—
Due to affiliates for commissions on sale of common stock	$	24,293	$	244,300
Fair value of real estate acquired in the SIR merger	$	1,100,742,973	$	—
Fair value of real estate acquired in the STAR III merger	$	479,559,505	$	—
Fair value of equity issued to SIR shareholders in the SIR merger	$	693,400,974	$	—
Fair value of equity issued to STAR III shareholders in the STAR III merger	$	193,893,305	$	—
Fair value of debt assumed in the SIR merger	$	506,023,982	$	—
Fair value of debt assumed in the STAR III merger	$	289,407,045	$	—
Fair value of unconsolidated joint venture assumed in the SIR merger	$	22,128,691	$	—
Net assets assumed in the SIR merger	$	3,553,868	$	—
Net assets assumed in the STAR III merger	$	2,060,898	$	—
Net liabilities assumed in the SIR merger	$	21,782,302	$	—
Net liabilities assumed in the STAR III merger	$	7,334,616	$	—
Operating lease right-of-use asset, net	$	151,336	$	6,768
Operating lease liabilities, net	$	163,491	$	6,833

See accompanying notes to consolidated financial statements.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

1. Organization and Business

Steadfast Apartment REIT, Inc. (the “Company”) was formed on August 22, 2013, as a Maryland corporation that elected to qualify as a real estate investment trust (“REIT”) commencing with the taxable year ended December 31, 2014. On September 3, 2013, the Company was initially capitalized with the sale of 13,500 shares of common stock to Steadfast REIT Investments, LLC (the “Sponsor”) at a purchase price of $15.00 per share for an aggregate purchase price of $202,500. Steadfast Apartment Advisor, LLC (the “Advisor”), a Delaware limited liability company formed on August 22, 2013, invested $1,000 in the Company in exchange for 1,000 shares of non-participating, non-voting convertible stock (the “Convertible Stock”). In connection with the SIR Merger and STAR III Merger (described below), the Advisor exchanged the Convertible Stock for new non-participating, non-voting Class A convertible stock (the “Class A Convertible Stock”), see Note 7 (Stockholders’ Equity).

The Company owns and operates a diverse portfolio of multifamily properties located in targeted markets throughout the United States. As of March 31, 2020, the Company owned 69 multifamily properties comprising a total of 21,525 apartment homes, two parcels of land held for the development of apartment homes and a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes. The Company may acquire additional multifamily properties or pursue multifamily developments in the future. For more information on the Company’s real estate portfolio, see Note 3 (Real Estate).

Public Offering

On December 30, 2013, the Company commenced its initial public offering to offer a maximum of 66,666,667 shares of common stock for sale to the public at an initial price of $15.00 per share (with discounts available for certain categories of purchasers) (the “Primary Offering”). The Company also registered up to 7,017,544 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 $14.25 per share. The Company terminated its Public Offering on March 24, 2016, but continues to offer shares of common stock pursuant to the DRP. As of the termination of the Primary Offering on March 24, 2016, the Company had sold 48,625,651 shares of common stock in the Public Offering for gross proceeds of $724,849,631, including 1,011,561 shares of common stock issued pursuant to the DRP for gross offering proceeds of $14,414,752. As of March 31, 2020, the Company had issued 110,613,259 shares of common stock for gross offering proceeds of $1,701,940,788, including 6,983,179 shares of common stock issued pursuant to the DRP for gross offering proceeds of $104,211,630.

On April 17, 2020, the Company’s board of directors determined an estimated value per share of the Company’s common stock of $15.23 as of March 6, 2020. Additional information on the Company’s estimated value per share can be found on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on April 20, 2020. In connection with the determination of an estimated value per share, the Company’s board of directors determined a price per share for the DRP of $15.23, effective May 1, 2020. The Company’s board of directors may again, from time to time, in its sole discretion, change the price at which the Company offers shares pursuant to the DRP to reflect changes in the Company’s estimated value per share and other factors that the Company’s board of directors deems relevant.

Merger with Steadfast Income REIT, Inc.

On August 5, 2019, the Company, Steadfast Income REIT, Inc. (“SIR”), Steadfast Apartment REIT Operating Partnership, L.P., a wholly-owned subsidiary of the Company (the “STAR Operating Partnership”), Steadfast Income REIT Operating Partnership, L.P., the operating partnership of SIR (“SIR OP”), and SI Subsidiary, LLC, a wholly-owned subsidiary of the Company (“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, SIR merged with and into SIR Merger Sub with SIR Merger Sub surviving the merger (the “SIR Merger”). Following the SIR Merger, SIR Merger Sub, as the surviving entity, continues as the Company’s wholly-owned subsidiary. In accordance with the applicable provisions of the Maryland General Corporation Law (“MGCL”), the separate existence of SIR ceased.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

At the effective time of the SIR Merger, each issued and outstanding share of SIR common stock (or a fraction thereof), $0.01 par value per share, converted into 1.430 shares of the Company’s common stock.

Merger with Steadfast Apartment REIT III, Inc.

On August 5, 2019, the Company, Steadfast Apartment REIT III, Inc. (“STAR III”), the STAR Operating Partnership, Steadfast Apartment REIT III Operating Partnership, L.P., the operating partnership of STAR III (the “STAR III OP”), and SIII Subsidiary, LLC, a wholly-owned subsidiary of the Company (“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 the merger (the “STAR III Merger”, and together with the SIR Merger, the “Mergers”). Following the STAR III Merger, STAR III Merger Sub, as the surviving entity, continues as a wholly-owned subsidiary of the Company. In accordance with the applicable provisions of the MGCL, the separate existence of STAR III ceased.

At the effective time of the STAR III Merger, each issued and outstanding share of STAR III common stock (or a fraction thereof), $0.01 par value per share was converted into 0.5934 shares of the Company’s common stock.

Combined Company

The Combined Company after the Mergers retained the name “Steadfast Apartment REIT, Inc.” Each merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). For more information on the Mergers, see Note 3 (Real Estate).

The Advisor and Operating Partnership

The business of the Company is externally managed by the Advisor, pursuant to the Amended and Restated Advisory Agreement dated March 6, 2020, by and between the Company and the Advisor (as may be amended, the “Advisory Agreement”). The current term of the Advisory Agreement expires on March 6, 2021, and is subject to annual renewal by the Company’s board of directors. Subject to certain restrictions and limitations, the Advisor manages the Company’s day-to-day operations, manages the Company’s portfolio of properties, sources and presents investment opportunities to the Company’s board of directors and provides investment management services on the Company’s behalf. The Advisor has also entered into an Advisory Services Agreement with Crossroads Capital Advisors, LLC (“Crossroads Capital Advisors”), whereby Crossroads Capital Advisors provides certain advisory services to the Company on behalf of the Advisor. 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 Dealer Manager was responsible for marketing the Company’s shares of common stock offered pursuant to the Public Offering. The Advisor, along with the Dealer Manager, provides marketing, investor relations and other administrative services on the Company’s behalf.

Substantially all of the Company’s business is conducted through the STAR Operating Partnership, SIR OP and STAR III OP. The Company is the sole general partner of STAR Operating Partnership and SIR Merger Sub and STAR III Merger Sub is the sole general partner of SIR OP and STAR III OP, respectively. The Company and Steadfast Apartment REIT Limited Partner, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company, entered into the Limited Partnership Agreement of Steadfast Apartment REIT Operating Partnership, L.P. on September 3, 2013 (as amended, the “STAR OP Partnership Agreement”). Each of SIR OP and STAR III OP are party to partnership agreements with SIR Merger Sub and STAR III Merger Sub, respectively, that have substantially the same terms as the STAR OP Partnership Agreement. As the context requires, in this quarterly report references to the “Operating Partnership” refer to SIR OP, STAR OP and STAR III OP collectively and references to the “Operating Partnership Agreement” refer to the STAR OP Partnership Agreement and the SIR OP and STAR III OP partnership agreements collectively.

As the Company accepted subscriptions for shares of its common stock, the Company transferred substantially all of the net offering proceeds from its Public Offering to the STAR Operating Partnership as a contribution in exchange for partnership interests and the Company’s percentage ownership in the STAR Operating Partnership increased proportionately.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

The Partnership Agreement provides that the Operating Partnership is operated in a manner that will enable the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the Operating Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code, which classification could result in the Operating Partnership being taxed as a corporation. In addition to the administrative and operating costs and expenses incurred by the Operating Partnership in acquiring and operating real properties, the Operating Partnership pays all of the Company’s administrative costs and expenses, and such expenses are treated as expenses of the Operating Partnership.

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, 2019. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2020.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, the STAR Operating Partnership and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The financial statements of the Company’s subsidiaries are prepared using accounting policies consistent with those of the Company.

The 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, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The unaudited consolidated financial statements herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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

Real Estate Purchase Price Allocation

Upon the acquisition of real estate properties or other entities owning real estate properties, the Company evaluates whether the acquisition is a business combination or an asset acquisition under ASC 805, Business Combinations (“ASC 805”). For both business combinations and asset acquisitions the Company allocates the purchase price of real estate properties to acquired tangible assets, consisting of land, buildings and improvements, and acquired intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases. For asset acquisitions, the Company capitalizes transaction costs and allocates the purchase price using a relative fair value method allocating all accumulated costs. For business combinations, the Company expenses transaction costs incurred and allocates the purchase price based on the estimated fair value of each separately identifiable asset and liability. Acquisition fees and costs associated with transactions determined to be asset acquisitions are capitalized in total real estate, net in the accompanying consolidated balance sheets. For the three months ended March 31, 2020, all of the Company’s acquisitions were determined to be asset acquisitions.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

The fair values of the tangible assets of an acquired property (which includes land, 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. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market conditions.

The fair values of above-market and below-market in-place leases are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an 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 including any fixed rate bargain renewal periods, with respect to a below-market lease. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities. Above-market lease values are amortized as an adjustment of rental revenue over the remaining terms of the respective leases. Below-market leases are amortized as an adjustment of rental revenue over the remaining terms of the respective leases, including any fixed rate bargain renewal periods. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above-market and below-market in-place lease values related to that lease would be recorded as an adjustment to rental revenue.

The fair values of in-place leases include an estimate of direct costs associated with obtaining a new resident and opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new resident include commissions, resident improvements, and other direct costs and are estimated based on management’s consideration of current market costs to execute a similar lease. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These lease intangibles are amortized to depreciation and amortization 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.

Impairment of Real Estate Assets

The Company accounts for its real estate assets in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”). ASC 360 requires the Company to continually monitor events and changes in circumstances that could indicate that the carrying amounts of the Company’s real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability of the assets by estimating whether the Company will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. Based on this analysis, if the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company records an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. If any assumptions, projections or estimates regarding an asset changes in the future, the Company may have to record an impairment to reduce the net book value of such individual asset. The Company continues to monitor events in connection with the recent outbreak of the novel Coronavirus (“COVID-19”) and evaluates any potential indicators that could suggest that the carrying value of its real estate investments and related intangible assets and liabilities may not be recoverable. The Company did not record any impairment loss on its real estate assets during the three months ended March 31, 2020 and 2019.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Revenue recognition - operating leases

The majority of the Company’s revenue is derived from rental revenue, which is accounted for in accordance with ASC 842, Leases (“ASC 842”). The Company leases apartment homes under operating leases with terms generally of one year or less. Generally, credit investigations are performed for prospective residents and security deposits are obtained. In accordance with ASC 842, the Company recognizes 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 is probable and records amounts expected to be received in later years as deferred rent receivable. For lease arrangements when it is not probable that the Company will collect all or substantially all of the remaining lease payments under the term of the lease, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis (as applicable) or the lease payments that have been collected from the lessee. Differences between rental revenue recognized and amounts contractually due under the lease agreements are credited or charged to straight-line rent receivable or straight-line rent liability, as applicable. Tenant reimbursements for common area maintenance and other recoverable expenses, are recognized when the services are provided and the performance obligations are satisfied. Tenant reimbursements for common area maintenance are accounted for as variable lease payments and are recorded as rental income on the Company’s statement of operations.

Rents and Other receivables

In accordance with ASC 842, the Company makes a determination of whether the collectibility of the lease payments in an operating lease is probable. If the Company determines the lease payments are not probable of collection, the Company would fully reserve for any contractual lease payments, deferred rent receivable, and variable lease payments and would recognize rental income only if cash is received. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of residents in developing these estimates. Due to the short-term nature of the operating leases, the Company does not maintain a deferred rent receivable related to the straight-lining of rents. Any changes to the Company’s collectibility assessment are reflected as an adjustment to rental income.

Residents’ payment plans due to COVID-19

On April 10, 2020, the FASB issued a Staff Q&A to respond to some frequently asked questions about accounting for lease concessions related to the effects of the COVID-19 pandemic. Under ASC 842, subsequent changes to lease payments that are not stipulated in the original lease contract are generally accounted for as lease modifications, which may affect the economics of the lease for the remainder of the lease term. Some contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. If a lease contract provides enforceable rights and obligations for concessions in the contract and no changes are made to that contract, the concessions are not accounted for under the lease modification guidance in ASC 842. If concessions granted by lessors are beyond the enforceable rights and obligations in the contract, entities would generally account for those concessions in accordance with the lease modification guidance in ASC 842.

The FASB staff has been made aware that, given the unprecedented and global nature of the COVID-19 pandemic, it may be exceedingly challenging for entities to determine whether existing contracts provide enforceable rights and obligations for lease concessions and, if so, whether those concessions are consistent with the terms of the contract or are modifications to a contract.

Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance under ASC 842 to those contracts. Entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (e.g., deferrals of lease payments, reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. In addition to that, for concessions that provide a deferral of payments with no substantive changes to the consideration in the original contract, the FASB allows entities to account for the concessions as if no changes to the lease contract were made. Under this method, a lessor would increase its lease receivable and continue to recognize income.

As of March 31, 2020, no lease concessions were granted to the Company’s residents; however, subsequent to March 31, 2020, the Company began working with residents impacted by the COVID-19 pandemic to determine an appropriate rent relief

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

program. For the month of April 2020, the Company allowed qualifying residents to defer their April 2020 rent, which will be collected by the Company in monthly installment payments over the duration of the current lease or renewal term (which may not exceed twelve months) (the “April 2020 COVID-19 Payment Plan”). For the month of May 2020, the Company began providing certain qualifying residents with a one-time concession to incentivize their performance under the payment plan (the “May 2020 COVID-19 Payment Plan” and together with the April 2020 COVID-19 Payment Plan, the “COVID-19 Payment Plans”). If the qualifying resident fails to make payments pursuant to the May 2020 COVID-19 Payment Plan, the concession is immediately terminated, and the qualifying resident is required to immediately repay the amount of the concession. Qualifying residents for the COVID-19 Payment Plans were required to provide support to demonstrate their financial hardship.The Company continues to evaluate the impact of its rent relief programs and the appropriate accounting policy elections to be applied to the COVID-19 Payment Plans.

Investments in Unconsolidated Joint Ventures

The Company accounts for investments in unconsolidated joint venture entities in which it may exercise significant influence over, but does not control, using the equity method of accounting. Under the equity method, the investment is initially recorded at cost including an outside basis difference, which represents the Company’s transaction costs related to the joint venture, and subsequently adjusts it 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 recognizes its proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in earnings (loss) of unconsolidated joint venture on the consolidated statements of operations. On a quarterly basis, the Company evaluates its investment in an unconsolidated joint venture for other-than-temporary impairments. The Company has elected the cumulative earnings approach to classify cash receipts from the unconsolidated joint venture on the accompanying consolidated statements of cash flows.

Fair Value Measurements

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other assets and liabilities at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:


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


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


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

When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and will classify such items in Level 1 or Level 2. In instances where the market is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions 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.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

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

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

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



	March 31, 2020
	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Assets:
Interest rate cap agreements	$	—	$	3,991	$	—



	December 31, 2019
	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Assets:
Interest rate cap agreements	$	—	$	132	$	—

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

Fair Value of Financial Instruments

The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, rents and other receivables, accounts payable and accrued liabilities, distributions payable, due to affiliates and notes payable.

The Company considers the carrying value of cash and cash equivalents, restricted cash, rents and other receivables, accounts payable and accrued liabilities and distributions payable to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. The fair value of amounts due to affiliates is not determinable due to the related party nature of such amounts. The Company has determined that its notes payable, net are classified as Level 3 within the fair value hierarchy.

The fair value of the notes payable, net is estimated using a discounted cash flow analysis using borrowing rates available to the Company for debt instruments with similar terms and maturities. As of March 31, 2020 and December 31, 2019, the fair value of the notes payable was $2,036,958,231 and $1,153,445,768, respectively, compared to the carrying value of $1,976,793,558 and $1,108,559,045, respectively.

Restricted Cash

Restricted cash represents those cash accounts for which the use of funds is restricted by loan covenants and cash is placed with a qualified intermediary for reinvestment under Section 1031 of the Internal Revenue Code. As of March 31, 2020, the

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Company had a restricted cash balance of $18,635,695, 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, the Company had a restricted cash balance of $73,614,452, which included $36,740,983 in allocated loan amounts held by the lender of the Company’s master credit facility as collateral for two properties sold during the year ended December 31, 2019, $24,720,969 of cash proceeds from the sale of two properties that were being held by qualified intermediaries as of December 31, 2019, and $12,152,500 related to amounts set aside as impounds for future property tax payments, property insurance payments and tenant improvement payments as required by agreements with the Company lenders.

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 three months ended March 31, 2020 and 2019:



	March 31,
	2020		2019
Cash and cash equivalents	$	215,105,801	$	52,802,102
Restricted cash	18,635,695		8,470,593
Total cash, cash and cash equivalents and restricted cash	$	233,741,496	$	61,272,695

Distribution Policy

The Company elected to be taxed, and currently qualifies, as a REIT commencing with the taxable year ended December 31, 2014. 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). Distributions declared during the three months ended March 31, 2020, were based on daily record dates and calculated at a rate of $0.002459 per share per day during the period from January 1, 2020, through March 31, 2020.

Distributions to stockholders are determined by the board of directors of the Company and are dependent upon a number of factors relating to the Company, including funds available for the payment of distributions, financial condition, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order for the Company to qualify as a REIT under the Internal Revenue Code. During the three months ended March 31, 2020 and 2019, the Company declared distributions totaling $0.224 and $0.222 per share of common stock, respectively.

Per Share Data

Basic loss per share attributable to common stockholders for all periods presented are computed by dividing net loss by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted loss per share is computed based on the weighted average number of shares of the Company’s common stock and all potentially dilutive securities, if any. Distributions declared per common share assume each share was issued and outstanding each day during the period. Nonvested shares of the Company’s restricted common stock and convertible stock give rise to potentially dilutive shares of the Company’s common stock but such shares were excluded from the computation of diluted earnings per share because such shares were anti-dilutive during the period.

Segment Disclosure

The Company has determined that it has one reportable segment with activities related to investing in multifamily properties. The Company’s investments in real estate are in different geographic regions, and management evaluates operating performance on an individual asset level. However, as each of the Company’s assets has similar economic characteristics, residents and products and services, its assets have been aggregated into one reportable segment.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), and subsequent amendments to the guidance including, ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, ASUs 2019-10 and 2019-11 in November 2019, and ASU 2020-02 in February 2020 (as amended “ASU 2016-13”). ASU 2016-13 requires more timely recording of credit losses on loans and other financial instruments that are not accounted for at fair value through net income (loss), including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 require the Company to measure all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets and eliminates the “incurred loss” methodology in current GAAP. This guidance does not apply to operating lease receivables arising from operating leases, which are within the scope of ASC 842. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2016-13 on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The FASB issued ASU 2018-13 to improve the effectiveness of fair value measurement disclosures by adding, eliminating, and modifying certain disclosure requirements. The issuance of ASU 2018-13 is part of a disclosure framework project. The disclosure framework project’s objective and primary focus are to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of each entity’s financial statements. Achieving the objective of improving the effectiveness of the notes to financial statements includes: (1) the development of a framework that promotes consistent decisions by the FASB board about disclosure requirements and (2) the appropriate exercise of discretion by reporting entities. The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. ASU 2018-13 removed certain disclosure requirements under Topic 820 such as the disclosure requirements of the valuation process for level 3 fair value measurements and modified and added certain of the disclosure requirements in Topic 820. ASU 2018-13 requires prospective and retrospective application depending on the amendment and is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. The Company adopted ASU 2016-13 on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815, (“ASU 2020-01”), which clarifies the interaction between the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2020-01 should be applied prospectively. The Company is currently assessing the impact of ASU 2020-01 on its consolidated financial statements and does not expect a material impact on its consolidated financial statements and related disclosures from the adoption of ASU 2020-01.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provided practical expedients to address existing guidance on contract modifications and hedge accounting due to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates (together “IBORs”) to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). In July 2017, the Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Company refers to this transition as reference

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

rate reform. The first practical expedient allows companies to elect to not apply certain modification accounting requirements to debt, derivative and lease contracts affected by reference rate reform if certain criteria are met. These criteria include the following: (i) the contract referenced an IBOR rate that is expected to be discontinued; (ii) the modified terms directly replace or have the potential to replace the IBOR rate that is expected to be discontinued; and (iii) any contemporaneous changes to other terms that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the IBOR rate. If the contract meets all three criteria, there is no requirement for remeasurement of the contract at the modification date or reassessment of the previous accounting determination. The second practical expedient allows companies to change the reference rate and other critical terms related to the reference rate reform in derivative hedge documentation without having to de-designate the hedging relationship. This allows for companies to continue applying hedge accounting to existing cash flow and net investment hedges. ASU 2020-04 was effective upon issuance on a prospective basis beginning January 1, 2020 and may be elected over time as reference rate reform activities occur. The Company is currently evaluating the impact ASU 2020-04 has on its debt, derivative and lease contracts that are eligible for modification relief and may apply those elections as needed. The Company does not expect a material impact on its consolidated financial statements and related disclosures from the adoption of ASU 2020-04.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

3. Real Estate

Current period acquisitions

During the three months ended March 31, 2020, the Company purchased 39 real estate properties, all of which were determined to be asset acquisitions, including 36 real estate properties acquired in the Mergers, one parcel of land for the development of apartment homes and two real estate properties, both acquired through Section 1031 exchanges under the Internal Revenue Code.

The following is a summary of real estate properties acquired during the three months ended March 31, 2020:



					Purchase Price Allocation
Property Name	Location	Purchase Date	Properties	Units	Land		Buildings and Improvements		Tenant Origination and Absorption Costs		Below Market Leases			Discount (Premium) on Assumed Liabilities			Total Purchase Price
Eleven10 at Farmers Market	Dallas, TX	1/28/2020	1	313	$	10,574,569	$	50,026,284	$	1,463,076	$	—		$	—		$	62,063,929
Patina Flats at the Foundry	Loveland, CO	2/11/2020	1	155	2,463,617		41,537,960		1,184,050		(61,845		)	—			45,123,782
SIR Merger⁽¹⁾	Various	3/6/2020	27	7,527	114,377,468		959,337,747		27,027,759		—			1,391,489			1,102,134,463
STAR III Merger ⁽¹⁾	Various	3/6/2020	9	2,639	58,056,275		411,461,858		10,041,373		—			(5,802,045		)	473,757,461
Arista at Broomfield	Broomfield, CO	3/13/2020	1	—	7,562,689		—		—		—			—			7,562,689
			39	10,634	$	193,034,618	$	1,462,363,849	$	39,716,258	$	(61,845	)	$	(4,410,556	)	$	1,690,642,324

____________________

(1)

In connection with the Mergers, the Company capitalized transaction costs on the accompanying consolidated balance sheets of $28,145,708 under ASC 805 using a relative fair value method (the “Capitalized Transaction Costs”). $26,515,662 and $628,691 of the Capitalized Transaction Costs were incurred upon the completion of the Mergers on March 6, 2020, and were allocated to the real estate acquired and investment in unconsolidated joint venture, respectively, and $1,630,046 of the Capitalized Transaction Costs, which were incurred and initially capitalized to buildings and improvements on the Company’s consolidated balance sheets as of December 31, 2019, were reallocated to the real estate acquired in the Mergers upon the completion of the Mergers.

As of March 31, 2020, the Company owned 69 multifamily properties comprising a total of 21,525 apartment homes and two parcels of land held for the development of apartment homes.

The total acquisition price of the Company’s real estate portfolio was $3,121,216,775, including land held for the development of apartment homes of $15,870,392. As of March 31, 2020 and December 31, 2019, the Company’s portfolio was approximately 94.1% and 94.6% occupied and the average monthly rent was $1,181 and $1,200, respectively.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

As of March 31, 2020 and December 31, 2019, investments in real estate and accumulated depreciation and amortization related to the Company’s consolidated real estate properties was as follows:



	March 31, 2020
	Assets
	Land		Building and Improvements⁽¹⁾			Tenant Origination and Absorption Costs			Total Real Estate Held for Investment			Real Estate Under Development		Real Estate Held for Sale
Investments in real estate	$	336,766,137	$	2,832,836,151		$	39,716,257		$	3,209,318,545		$	15,870,392	$	—
Less: Accumulated depreciation and amortization	—		(299,776,739		)	(5,822,805		)	(305,599,544		)	—		—
Net investments in real estate and related lease intangibles	$	336,766,137	$	2,533,059,412		$	33,893,452		$	2,903,719,001		$	15,870,392	$	—



	December 31, 2019
	Assets
	Land		Building and Improvements⁽¹⁾			Tenant Origination and Absorption Costs		Total Real Estate Held for Investment			Real Estate Under Development		Real Estate Held for Sale
Investments in real estate	$	151,294,208	$	1,369,256,465		$	—	$	1,520,550,673		$	5,687,977	$	27,285,576
Less: Accumulated depreciation and amortization	—		(277,033,046		)	—		(277,033,046		)	—		(5,619,814		)
Net investments in real estate and related lease intangibles	$	151,294,208	$	1,092,223,419		$	—	$	1,243,517,627		$	5,687,977	$	21,665,762

____________________


(1)	During the year ended December 31, 2019, the Company capitalized $1,630,046 of costs related to the Mergers, included in building and improvements in the accompanying consolidated balance sheets.

Total depreciation and amortization expenses were $28,575,896 and $18,282,293 for the three months ended March 31, 2020, and 2019, respectively.

Depreciation of the Company’s buildings and improvements was $22,751,822 and $18,282,293 for the three months ended March 31, 2020, and 2019, respectively.

Amortization of the Company’s intangible assets was $5,824,074 and $0 for the three months ended March 31, 2020, and 2019, respectively.

Amortization of the Company’s tenant origination and absorption costs was $5,822,805 and $0 for the three months ended March 31, 2020, and 2019, respectively. Tenant origination and absorption costs had a weighted-average amortization period as of the date of acquisition of less than one year.

Amortization of the Company’s right-of-use-assets was $1,269 and $0 for the three months ended March 31, 2020, and 2019, respectively.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Amortization of the Company’s other intangible assets was $922 and $0 for the three months ended March 31, 2020 and 2019, respectively, and is included as an increase to rental income in the accompanying consolidated condensed statements of operations. Other intangible assets had a weighted-average amortization period as of the date of acquisition of 10 years.

Operating Leases

As of March 31, 2020, the Company’s real estate portfolio comprised 21,525 residential apartment homes and was 95.5% leased by a diverse group of residents. For the three months ended March 31, 2020 and 2019, the Company’s real estate portfolio earned in excess of 99% and less than 1% of its rental income from residential tenants and commercial tenants, respectively. The residential tenant lease terms consist of lease durations equal to 12 months or less. The commercial tenant leases consist of remaining lease durations varying from 0.75 to 9.71 years.

Some residential leases contain provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to residents. Generally, upon the execution of a lease, the Company requires security deposits from residents in the form of a cash deposit. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in accounts payables and accrued liabilities in the accompanying consolidated balance sheets and totaled $8,032,985 and $4,351,837 as of March 31, 2020 and December 31, 2019, respectively.

The future minimum rental receipts from the Company’s properties under non-cancelable operating leases attributable to commercial tenants as of March 31, 2020, and thereafter is as follows:



April 1 through December 31, 2020	$	129,514
2021	146,573
2022	150,960
2023	155,518
2024	160,161
Thereafter	684,598
	$	1,427,324

As of March 31, 2020 and December 31, 2019, no tenant represented over 10% of the Company’s annualized base rent and there were no significant industry concentrations with respect to its commercial leases.

Real Estate Under Development

During the three months ended March 31, 2020, the Company owned the following parcels of land held for the development of apartment homes:



Development Name	Location	Purchase Date	Land Held for Development		Construction in Progress		Total Carrying Value
Arista at Broomfield	Broomfield, CO	3/13/2020	$	7,283,802	$	278,887	$	7,562,689
Garrison Station	Murfreesboro, TN	5/30/2019	2,469,183		5,838,520		8,307,703
			$	9,752,985	$	6,117,407	$	15,870,392

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Property Dispositions

Terrace Cove Apartment Homes

On August 28, 2014, the Company, through an indirect wholly-owned subsidiary, acquired Terrace Cove Apartment Homes, a multifamily property located in Austin, Texas, containing 304 apartment homes. The purchase price of Terrace Cove Apartment Homes was $23,500,000, exclusive of closing costs. On February 5, 2020, the Company sold Terrace Cove Apartment Homes for $33,875,000, resulting in a gain of $11,384,599, which includes reductions to the net book value of the property due to historical depreciation and amortization expense. The purchaser of Terrace Cove Apartment Homes is not affiliated with the Company or the Advisor.

The results of operations for the three months ended March 31, 2020 and 2019, through the dates of sale for all properties disposed of through March 31, 2020 were included in continuing operations on the Company’s consolidated statements of operations and are as follows:



	For the Three Months Ended March 31,
	2020		2019
Revenues:
Rental income	$	317,982	$	2,344,487
Other income	3,527		14,794
Total revenues	321,509		2,359,281
Expenses:
Operating, maintenance and management	168,494		635,211
Real estate taxes and insurance	82,557		548,609
Fees to affiliates	25,943		114,985
Depreciation and amortization	—		912,796
General and administrative expenses	3,837		19,062
Total expenses	280,831		2,230,663
Income before other income	40,678		128,618
Other income:
Interest income	—		2,029
Gain on sales of real estate, net	11,384,599		—
Total other income	11,384,599		2,029
Net income	$	11,425,277	$	130,647

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Completion of Mergers

On March 6, 2020, pursuant to the terms and conditions of the SIR Merger Agreement and STAR III Merger Agreement (together the “Merger Agreements”), SIR Merger Sub and STAR III Merger Sub, the surviving entities, continued as wholly-owned subsidiaries of the Company. In accordance with the applicable provisions of the MGCL, the separate existence of SIR and STAR III ceased. The Combined Company retained the name “Steadfast Apartment REIT, Inc.” At the effective time of the Mergers, each issued and outstanding share of SIR and STAR III’s common stock (or a fraction thereof), $0.01 par value per share, was converted into 0.5934 and 1.430 shares of the Company’s common stock, respectively.

The following table summarizes the preliminary estimated purchase price of SIR and STAR III as of the date of the Mergers:



	SIR		STAR III
Class A common stock issued and outstanding	—		3,458,807
Class R common stock issued and outstanding	—		475,207
Class T common stock issued and outstanding	—		4,625,943
Common stock issued and outstanding	73,770,330		—
Total common stock issued and outstanding	73,770,330		8,559,957
Exchange ratio	0.5934		1.430
STAR common stock issued as consideration⁽¹⁾	43,775,314		12,240,739
STAR’s estimated value per share at the time of Mergers	15.84		15.84
Value of STAR’s common stock issued as consideration	$	693,400,974	$	193,893,305

____________________


(1)	Represents the number of shares of common stock of SIR and STAR III converted into STAR shares upon consummation of the Mergers.

The following table shows the purchase price allocation of SIR’s and STAR III’s identifiable assets and liabilities assumed as of the date of the Mergers:



	SIR			STAR III
Assets:
Land	$	114,377,468		$	58,056,275
Buildings and improvements	959,337,747			411,461,858
Acquired intangibles	27,027,759			10,041,373
Other assets	122,688,608			21,438,855
Investment in unconsolidated joint venture	22,128,691			—
Total assets:	$	1,245,560,273		$	500,998,361
Liabilities:
Mortgage notes payable, net	$	(506,023,981	)	$	(289,407,045	)
Other liabilities	(46,135,318		)	(17,698,011		)
Total liabilities:	$	(552,159,299	)	$	(307,105,056	)
Fair value of net assets acquired	$	693,400,974		$	193,893,305

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Capitalized Acquisition Costs Related to the Then-Pending Mergers with SIR and STAR III

The SIR Merger and STAR III Merger were each accounted for as an asset acquisition. In accordance with the asset acquisition method of accounting, costs incurred to acquire the respective asset each were capitalized as part of the acquisition price. Upon signing each of the SIR Merger Agreement and the STAR III Merger Agreement on August 5, 2019, the SIR Merger and STAR III Merger were considered probable of occurring, at which point the Company began to capitalize the merger related acquisition costs to building and improvements in the accompanying consolidated balance sheets. Upon the consummation of the Mergers on March 6, 2020, the capitalized costs were reallocated to the real estate acquired and investment in unconsolidated joint venture, respectively, using a relative fair value method. Prior to such date, the merger related acquisition costs were expensed to general and administrative expenses in the accompanying consolidated statements of operations.


4.	Investment in Unconsolidated Joint Venture

On March 6, 2020, upon consummation of the SIR Merger, the Company acquired a 10% interest in BREIT Steadfast MF JV LP (the “Joint Venture”). The Joint Venture owns 20 multifamily properties with a total of 4,584 apartment homes. The Company does not exercise significant influence, nor does it control the Joint Venture and has accounted for its investment in the Joint Venture under the equity method of accounting. Income, losses, contributions and distributions are generally allocated based on the members’ respective equity interests.

As of March 31, 2020, the book value of the Company’s investment in the Joint Venture was $21,975,498, which includes $8,523,811, primarily consisting of an accounting outside basis difference and capitalized transaction costs. The accounting outside basis difference relates to the difference between the purchase price the Company paid for its investment in the Joint Venture in connection with the SIR Merger and the book value of the Company’s equity in the Joint Venture as of March 31, 2020, as presented on the accompanying consolidated balance sheets. The capitalized transaction costs relate to acquiring the Joint Venture through the consummation of the SIR Merger.

During the three months ended March 31, 2020, $6,476 of amortization of this basis difference was included in equity in losses from unconsolidated joint venture on the accompanying consolidated statements of operations. During the three months ended March 31, 2020, the Company received distributions of $118,000 related to its investment in the Joint Venture.

Unaudited financial information for the Joint Venture as of March 31, 2020 and for the three months ended March 31, 2020, is summarized below:



	March 31, 2020
Assets:
Real estate assets, net	$	486,879,194
Other assets	8,782,008
Total assets	$	495,661,202
Liabilities and equity:
Notes payable, net	$	347,380,477
Other liabilities	13,763,700
Company’s capital	13,451,687
Other partner’s capital	121,065,338
Total liabilities and equity	$	495,661,202

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)



	Three Months Ended March 31, 2020
Revenues	$	4,634,604
Expenses	(4,921,775		)
Net loss	$	(287,171	)

Company’s proportional net loss	$	(28,717	)
Amortization of outside basis	(6,476		)
Equity in loss of unconsolidated joint venture	$	(35,193	)

5. Other Assets

As of March 31, 2020 and December 31, 2019, other assets consisted of:



	March 31, 2020		December 31, 2019
Prepaid expenses	$	3,189,417	$	1,521,084
Interest rate cap agreements	3,991		132
Escrow deposits for pending real estate acquisitions	2,500,000		2,600,300
Other deposits	1,715,874		1,342,615
Operating lease right-of-use assets, net	188,545		49,184
Other assets	$	7,597,827	$	5,513,315

Amortization of the Company’s operating lease right-of-use assets for the three months ended March 31, 2020, and 2019 were $1,269 and $0, respectively.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

6. Debt

Mortgage Notes Payable

The following is a summary of mortgage notes payable, net secured by real property as of March 31, 2020 and December 31, 2019:



	March 31, 2020
			Interest Rate Range				Weighted Average Interest Rate
Type	Number of Instruments	Maturity Date Range	Minimum		Maximum		Weighted Average Interest Rate	Principal Outstanding
Variable rate⁽¹⁾	4	1/1/2025 - 9/1/2027	1-Mo LIBOR + 1.88%		1-Mo LIBOR + 2.31%		3.14%	$	139,740,000
Fixed rate	42	10/1/2022 - 10/1/2056	3.19	%	4.66	%	3.85%	1,251,957,948
Mortgage notes payable, gross	46						3.78%	1,391,697,948
Premiums, net⁽²⁾								4,295,974
Deferred financing costs, net⁽³⁾								(7,544,484		)
Mortgage notes payable, net								$	1,388,449,438



	December 31, 2019
			Interest Rate Range				Weighted Average Interest Rate
Type	Number of Instruments	Maturity Date Range	Minimum		Maximum		Weighted Average Interest Rate	Principal Outstanding
Variable rate⁽¹⁾	2	1/1/2025 - 9/1/2025	1-Mo LIBOR + 1.88%		1-Mo LIBOR + 2.28%		3.82%	$	75,670,000
Fixed rate	14	7/1/2025 - 5/1/2054	3.36	%	4.60	%	3.96%	488,805,387
Mortgage notes payable, gross	16						3.94%	564,475,387
Deferred financing costs, net⁽³⁾								(4,376,572		)
Mortgage notes payable, net								$	560,098,815

___________


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

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)


(2)	The following table summarizes debt premiums and discounts as of March 31, 2020, including the unamortized portion included in the principal balance as well as amounts amortized included in interest expense in the accompanying consolidated statements of operations:



Unamortized Portion of Net Debt Premium (Discount) as of January 1, 2020			Amortization of Debt (Premium) Discount During the Three Months Ended March 31, 2020			Amortized Net Debt Premium (Discount) as of March 31, 2020
$	14,899,631		$	(144,457	)	$	14,755,174
(10,489,075		)	29,875			(10,459,200		)
$	4,410,556		$	(114,582	)	$	4,295,974


(3)	Accumulated amortization related to deferred financing costs as of March 31, 2020 and December 31, 2019, was $2,432,884 and $2,215,461, respectively.

Construction loan

On October 16, 2019, the Company entered into an agreement with PNC Bank, National Association (“PNC Bank”) for a construction loan related to the development of a multifamily property known as Garrison Station in an aggregate principal amount not to exceed $19,800,000 for a thirty-six month initial term and two twelve month mini-perm extensions. The rate of interest will be at the one-month LIBOR plus 2.00%, which then reduces to one-month LIBOR plus 1.80% upon achieving completion as defined in the construction loan agreement and at debt service coverage ratio of 1.15x. The loan includes a 0.4% fee at closing, a 0.1% fee upon exercising the mini-perm and a 0.1% fee upon extending the mini-perm, each payable to PNC Bank. There is an exit fee of 1% which will be waived if permanent financing is secured through PNC Bank or one of their affiliates. No amounts were outstanding on this construction loan at March 31, 2020.

Credit Facility

Master Credit Facility

On July 31, 2018, (the “Closing Date”), 16 indirect wholly-owned subsidiaries of the Company terminated the existing mortgage loans with their lenders for an aggregate principal amount of $479,318,649 and entered into a Master Credit Facility Agreement (“MCFA”) with Berkeley Point Capital, LLC (“Facility Lender”) for an aggregate principal amount of $551,669,000. On February 11, 2020, in connection with the financing of Patina Flats at the Foundry (see Note 3 Real Estate), the Company and the Facility Lender amended the MCFA to substitute Patina Flats at the Foundry and Fielders Creek, the then-unencumbered multifamily property owned by the Company as collateral for the three multifamily properties disposed of and released from the agreement. The Company also increased its outstanding borrowings pursuant to the MCFA by $40,468,000, a portion of which was attributable to the acquisition of Patina Flats at the Foundry. The MCFA provides for four tranches: (i) a fixed rate loan in the aggregate principal amount of $331,001,400 that accrues interest at 4.43% per annum; (ii) a fixed rate loan in the aggregate principal amount of $137,917,250 that accrues interest at 4.57%; (iii) a variable rate loan in the aggregate principal amount of $82,750,350 that accrues interest at the one-month LIBOR plus 1.70%; and (iv) a fixed rate loan in the aggregate principal amount of $40,468,000 that accrues interest at 3.34%. The first three tranches described herein have a maturity date of August 1, 2028, and the fourth tranche described herein has a maturity date of March 1, 2030, unless the maturity date is accelerated in accordance with the terms of the loan documents. Interest only payments are payable monthly through August 1, 2025 and April 1, 2027 on the first three tranches and fourth tranche, respectively, with interest and principal payments due monthly thereafter. The Company paid $2,072,480 in the aggregate in loan origination fees to the Facility Lender in connection with the refinancings, and paid the Advisor a loan coordination fee of $3,061,855.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

As of March 31, 2020 and December 31, 2019, the advances obtained and certain financing costs incurred under the MCFA, which is included in credit facilities, net, in the accompanying consolidated balance sheets, are summarized in the following table.



	Amount of Advance as of
	March 31, 2020			December 31, 2019
Principal balance on master credit facility, gross	$	592,137,000		$	551,669,000
Deferred financing costs, neton master credit facility⁽¹⁾	(3,792,880		)	(3,208,770		)
Master Credit facility, net	$	588,344,120		$	548,460,230

___________


(1)	Accumulated amortization related to deferred financing costs in respect of the MCFA as of March 31, 2020 and December 31, 2019, was $942,234 and $832,187, respectively.

Assumed Debt as a result of the Completion of Mergers

On March 6, 2020, upon consummation of the Mergers, the Company assumed all of SIR’s and STAR III’s obligations under the outstanding mortgage loans secured by 29 of the SIR and STAR III’s properties. The Company recognized the fair value of the assumed notes payable in the Mergers of $795,431,027, which consists of the assumed principal balance of $791,020,471 and a net premium of $4,410,556.

The following is a summary of the terms of the assumed loans on the date of the Mergers:

Interest Rate Range

Type

Number of Instruments

Maturity Date Range

Minimum

Maximum

Principal Outstanding At Merger Date

Variable rate

1/1/2027 - 9/1/2027

1-Mo LIBOR + 2.195%

1-Mo LIBOR + 2.31%

64,070,000

Fixed rate

10/1/2022 - 10/1/2056

3.19%

4.66%

726,950,471

Assumed Principal Mortgage Notes Payable

791,020,471

Maturity and Interest

The following is a summary of the Company’s aggregate maturities as of March 31, 2020:



					Maturities During the Years Ending December 31,
Contractual Obligations	Total		Remainder of 2020		2021		2022		2023		2024		Thereafter
Principal payments on outstanding debt⁽¹⁾	$	1,983,834,948	$	4,145,140	$	8,299,989	$	33,952,990	$	60,152,835	$	57,651,144	$	1,819,632,850

___________


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

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

The Company’s notes payable and credit facility documents contain customary financial and non-financial debt covenants. As of March 31, 2020, the Company was in compliance with all debt covenants.

For the three months ended March 31, 2020 and 2019, the Company incurred interest expense of $14,390,954 and $12,233,295, respectively. Interest expense for the three months ended March 31, 2020 and 2019, includes amortization of deferred financing costs of $327,470 and $247,773, net unrealized losses from the change in fair value of interest rate cap agreements of $2,251 and $179,616, amortization of net debt premiums of ($114,582) and $0, Master Credit Facility commitment fees of $0 and $2,137 and costs associated with the refinancing of debt of $31,397 and $0, net of capitalized interest of $69,569 and $0, respectively. The capitalized interest is included in real estate held for development on the consolidated balance sheets.

Interest expense of $6,701,072 and $3,954,686 was payable as of March 31, 2020 and December 31, 2019, respectively, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.

7. Stockholders’ Equity

General

Pursuant to the Company’s Articles of Amendment and Restatement (as supplemented, the “Charter”), the total number of shares of capital stock authorized for issuance is 1,100,000,000 shares, consisting of 999,998,000 shares of common stock with a par value of $0.01 per share, 1,000 shares of Class A non-participating, non-voting convertible stock with a par value of $0.01 per share, 1,000 shares of non-participating, non-voting convertible stock with a par value of $0.01 per share and 100,000,000 shares of preferred stock with a par value of $0.01 per share.

Common Stock

The shares of the Company’s common stock entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the Company’s board of directors in accordance with the MGCL and to all rights of a stockholder pursuant to the MGCL. The common stock has no preferences or preemptive, conversion or exchange rights.

On September 3, 2013, the Company issued 13,500 shares of common stock to the Sponsor for $202,500. From inception through March 24, 2016, the date of the termination of the Primary Offering, the Company had issued 48,625,651 shares of common stock in its Public Offering for offering proceeds of $640,012,497, including 1,011,561 shares of common stock issued pursuant to the DRP for total proceeds of $14,414,752, net of offering costs of $84,837,134. Following the termination of the Public Offering, the Company continues to offer shares pursuant to the DRP. As of March 31, 2020, the Company had issued 110,613,259 shares of common stock for offering proceeds of $1,617,103,654, including 6,983,179 shares of common stock issued pursuant to the DRP for total proceeds of $104,211,630, net of offering costs of $84,837,134. The offering costs primarily consisted of selling commissions and dealer manager fees paid in the Primary Offering. On March 6, 2020, the Company issued 43,775,314 shares of its common stock to SIR’s stockholders and 12,240,739 shares of its common stock to STAR III’s stockholders in connection with the Mergers.

As further discussed in Note 9 (Incentive Award Plan and Independent Director Compensation), the shares of restricted common stock vest and become non-forfeitable in four equal annual installments beginning on the date of grant and ending on the third anniversary of the date of grant or will become fully vested and become non-forfeitable on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability, or (2) a change in control of the Company.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

The issuance and vesting activity for the three months ended March 31, 2020, and year ended December 31, 2019, for the restricted stock issued to the Company’s independent directors were as follows:



	Three Months Ended March 31, 2020		Year Ended December 31, 2019
Nonvested shares at the beginning of the period	7,497		7,497
Granted shares	6,666		4,998
Vested shares	(1,666	)	(4,998	)
Nonvested shares at the end of the period	12,497		7,497

Additionally, the weighted average fair value of restricted common stock issued to the Company’s independent directors for the three months ended March 31, 2020, and year ended December 31, 2019, was as follows:



Grant Year	Weighted Average Fair Value
2019	$	15.84
2020	15.84

Included in general and administrative expenses is $42,455 and $13,896 for the three months ended March 31, 2020 and 2019, respectively, for compensation expense related to the issuance of restricted common stock. As of March 31, 2020, the compensation expense related to the issuance of the restricted common stock not yet recognized was $161,311. The weighted average remaining term of the restricted common stock was approximately 1.5 years as of March 31, 2020. As of March 31, 2020, no shares of restricted common stock issued to the independent directors have been forfeited.

Beginning at the closing of the Mergers on March 6, 2020, and pursuant to the Advisory Agreement, the Company pays the Advisor a monthly investment management fee, payable 50% in cash and 50% in shares of the Company’s common stock at the estimated value per share at the time of issuance. Pursuant to the Advisory Agreement, the shares of common stock fully vest and become non-forfeitable upon payment of the monthly investment management fee. As of March 31, 2020, an investment management fee of $1,187,351 was payable to the Advisor in shares of the Company’s common stock and was included in due to affiliates in the accompanying consolidated balance sheets. The fair value of the vested common stock at the date of issuance, using the most recent publicly disclosed estimated value per share, will be recorded in stockholders’ equity in the accompanying consolidated balance sheets. As of March 31, 2020, no payments of investment management fees were made and no shares were yet issued to the Advisor.

Class A Convertible Stock

Prior to the Mergers on March 6, 2020, the Company’s then-outstanding Convertible Stock would convert into shares of the Company’s common stock if and when: (A) the Company had made total distributions on the then-outstanding shares of the Company’s common stock equal to the original issue price of those shares plus an aggregate 6.0% cumulative, non-compounded, annual return on the original issue price of those shares, (B) the Company listed its common stock for trading on a national securities exchange, or (C) the Company’s then advisory agreement was terminated or not renewed (other than for “cause” as defined in the Advisory Agreement). In the event of a termination or non-renewal of the advisory agreement for cause, all of the shares of the Convertible Stock would have been repurchased by us for $1.00. In general, each share of Convertible Stock would convert into a number of shares of common stock equal to 1/1000 of the quotient of (A) 15% of the excess of (1) the Company’s “enterprise value” plus the aggregate value of distributions paid to date on the then outstanding shares of the Company’s common stock over (2) the aggregate purchase price paid by stockholders for those outstanding shares of common stock plus an aggregated 6.0% cumulative, non-compounded, annual return on the original issue price of those outstanding shares, divided by (B) the Company’s enterprise value divided by the number of outstanding shares of common stock on an as-converted basis, in each case calculated as of the date of the conversion.

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

In connection with the Mergers, the Company and the Advisor exchanged the then-outstanding Convertible Stock for new Class A Convertible Stock. The Class A Convertible Stock will be converted into shares of the Company’s common stock if (1) the Company has made total distributions of money or other property to its stockholders or by SIR and STAR III to their respective holders of common shares (with respect to SIR and STAR III, including in each case distributions paid to SIR and STAR III stockholders prior to the closing of the Mergers), which the Company refers to collectively as the “Class A Distributions,” equal to the original issue price of the Company’s shares of common stock, shares of common stock of SIR and shares of common stock of STAR III (the “Common Equity”), plus an aggregate 6.0% cumulative, non-compounded, annual return on the original issue price of those shares, (2) the Company lists its common stock for trading on a national securities exchange or enters into a merger whereby holders of the Company’s common stock receive listed securities of another issuer or (3) the Company’s Advisory Agreement is terminated or not renewed (other than for “cause” as defined in the Advisory Agreement), each of the above is referred to as a “Triggering Event.” Upon any of these Triggering Events, each share of Class A Convertible Stock will be converted into a number of shares of the Company’s common stock equal to 1/1000 of the quotient of (A) 15% of the amount, if any, by which (i) the “Class A Enterprise Value” plus the aggregate value of the Class A Distributions paid to date on the Common Equity exceeds (ii) the aggregate purchase price paid by stockholders for the Common Equity plus an aggregated 6.0% cumulative, non-compounded, annual return on the original issue price of the Common Equity as of the date of the Triggering Event, divided by (B) the Class A Enterprise Value divided by the number of the Company’s outstanding common shares on an as-converted basis as of the date of Triggering Event. In the event of a termination or non-renewal of the Advisory Agreement for cause, all of the shares of the Class A Convertible Stock will be repurchased by the Company for $1.00.

Preferred Stock

The Charter provides the Company’s board of directors with the authority to issue one or more classes or series of preferred stock, and prior to the issuance of such shares of preferred stock, the board of directors shall have the power from time to time to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares of preferred stock. The Company’s board of directors is authorized to amend the Charter without the approval of the stockholders to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue. As of March 31, 2020 and December 31, 2019, no shares of the Company’s preferred stock were issued and outstanding.

Distribution Reinvestment Plan

The Company’s board of directors has approved the DRP through which common stockholders may elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares of the Company’s common stock in lieu of receiving cash distributions. The purchase price per share under the DRP initially was $14.25. On April 17, 2020, March 12, 2019, March 14, 2018 and February 14, 2017, the Company’s board of directors approved a price per share for the DRP of $15.23, $15.84, $15.18 and $14.85, effective May 1, 2020, April 1, 2019, April 1, 2018 and March 1, 2017, respectively, in connection with the determination of an estimated value per share of the Company’s common stock.

The Company’s board of directors may again, in its sole discretion, from time to time, change this price based upon changes in the Company’s estimated value per share and other factors that the Company’s board of directors deems relevant.

No sales commissions or dealer manager fees are payable on shares sold through the DRP. The Company’s board of directors may amend, suspend or terminate the DRP at its discretion at any time upon ten days’ notice to the Company’s stockholders. Following any termination of the DRP, all subsequent distributions to stockholders will be made in cash.

Share Repurchase Plan and Redeemable Common Stock

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

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

From March 29, 2016, the date the Company first published an estimated value per share, until April 14, 2018, the purchase price for shares repurchased under the Company’s share repurchase plan was as follows:



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

________________


(1)	As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock. Repurchase price includes the full amount paid for each share, including all sales commissions and dealer manager fees.

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


(3)	The required one-year holding period does not apply to repurchases requested within two years after the death or disability of a stockholder.


(4)	The purchase price per share for shares repurchased upon the death or disability of a stockholder will be equal to the average issue price per share for all of the stockholder’s shares.

On March 14, 2018, the board of directors of the Company determined to amend the terms of the Company’s share repurchase plan effective as of April 15, 2018, to (1) limit the amount of shares repurchased pursuant to the Company’s share repurchase plan each quarter to $2,000,000 and (2) revise the repurchase price to an amount equal to 93% of the estimated value per share. Prior to the March 3, 2020 amendments (discussed below), the share repurchase price was further reduced based on how long the stockholder had held the shares.

In connection with the announcement of the then-proposed SIR Merger and STAR III Merger, on August 5, 2019, the Company’s board of directors approved the Amended and Restated Share Repurchase Plan (the “Amended & Restated SRP”), which became effective September 5, 2019, and applied to repurchases made on the Repurchase Dates (defined below) subsequent to the effective date of the Amended & Restated SRP. Under the Amended & Restated SRP, the Company only repurchased shares of common stock in connection with the death or qualifying disability (as defined in the Amended and Restated SRP) of a stockholder. Repurchases pursuant to the Amended & Restated SRP continued to be limited to $2,000,000 per quarter. On March 3, 2020, in connection with the closing of the SIR Merger and the STAR III Merger, the Company’s board of directors amended its share repurchase plan to: (1) allow all stockholders to request repurchases (as opposed to death and disability only), (2) limit the amount of shares repurchased pursuant to the share repurchase plan each quarter to $4,000,000 and (3) set the repurchase price in all instances (including death and disability) to an amount equal to 93% of the most recent publicly disclosed estimated value per share. The $4,000,000 quarterly limit was first in effect on the repurchase date at April 30, 2020, with respect to repurchases for the three months ended March 31, 2020, but was limited to death and disability only. The Amended & Restated SRP will be open to all repurchase requests beginning April 1, 2020. The current share repurchase price is $14.16 per share, which represents 93% of the most recently published estimated value per share of $15.23.

The purchase price per share for shares repurchased pursuant to the Company’s share repurchase plan will be further reduced by the aggregate amount of net proceeds per share, if any, distributed to the Company’s stockholders prior to the

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Repurchase Date as a result of the sale of one or more of the Company’s assets that constitutes a return of capital as a result of such sales.

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

The Company is not obligated to repurchase shares of its common stock under the share repurchase plan. In no event shall repurchases under the share repurchase plan exceed 5% of the weighted average number of shares of common stock outstanding during the prior calendar year or the $2,000,000 limit for any quarter put in place by the Company’s board of directors, which has increased to $4,000,000 beginning in the second quarter of 2020. There is no fee in connection with a repurchase of shares of the Company’s common stock pursuant to the Company’s share repurchase plan. As of March 31, 2020 and December 31, 2019, the Company had recorded $2,110,537 and $2,000,000, respectively, which represents 149,049 (pursuant to the Amended & Restated SRP) and 135,886 shares of common stock, respectively, in accounts payable and accrued liabilities on the accompanying consolidated balance sheets related to these unfulfilled repurchase requests, all of which were repurchased on the April 30, 2020 and May 1, 2019 repurchase dates.

During the three months ended March 31, 2020, the Company repurchased a total of 53,152 shares with a total repurchase value of $797,289 and received requests for repurchases of 149,049 shares with a total repurchase value of $2,110,537. During the three months ended March 31, 2019, the Company repurchased a total of 138,961 shares with a total repurchase value of $2,000,000 and received requests for the repurchase of 440,908 shares with a total repurchase value of $6,413,834, respectively.

The Company cannot guarantee that the funds set aside for the share repurchase plan will be sufficient to accommodate all repurchase requests made in any quarter. In the event that the Company does not have sufficient funds available to repurchase all of the shares of the Company’s common stock for which repurchase requests have been submitted in any quarter, priority will be given to repurchase requests in the case of the death or disability of a stockholder. If the Company repurchases less than all of the shares subject to a repurchase request in any quarter, with respect to any shares which have not been repurchased, the Company will treat the shares that have not been repurchased as a request for repurchase in the following quarter pursuant to the limitations of the share repurchase plan and when sufficient funds are available, unless the stockholder withdraws the request for repurchase. Such pending requests will be honored among all requests for repurchases in any given repurchase period as follows: first, pro rata as to repurchases sought upon a stockholder’s death or disability; next in exigent circumstances as determined by the Company’s board of directors in its sole discretion and finally, pro rata as to other repurchase requests.

The Company’s board of directors may, in its sole discretion, amend, suspend or terminate the share repurchase plan at any time upon 30 days’ notice to its stockholders 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 Company’s stockholders. Therefore, a stockholder may not have the opportunity to make a repurchase request prior to any potential termination or suspension of the Company’s share repurchase plan. The share repurchase plan will terminate in the event that a secondary market develops for the Company’s shares of common stock.

For the three months ended March 31, 2020, the Company reclassified $1,383,318, net of $797,289 of fulfilled repurchase requests, from permanent equity to temporary equity, which is included as redeemable common stock on the accompanying consolidated balance sheets. For the three months ended March 31, 2019, the Company had no amounts to reclassify from permanent equity to temporary equity.

Distributions

The Company’s long-term goal is to pay distributions solely from cash flow from operations. However, because the Company may receive income from interest or rents at various times during the Company’s fiscal year and because the Company may need cash flow from operations during a particular period to fund capital expenditures and other expenses, the Company expects that at times during the Company’s operational stage, the Company will declare distributions in anticipation of cash flow that the Company expects to receive during a later period, and the Company expects to pay these distributions in

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

advance of its actual receipt of these funds. The Company’s board of directors has the authority under its organizational documents, to the extent permitted by Maryland law, to fund distributions from sources such as borrowings, offering proceeds or advances and the deferral of fees and expense reimbursements by the Advisor, in its sole discretion. The Company has not established a limit on the amount of proceeds it may use to fund distributions from sources other than cash flow from operations. If the Company pays distributions from sources other than cash flow from operations, the Company will have fewer funds available and stockholders’ overall return on their investment in the Company may be reduced.

To maintain the Company’s qualification as a REIT, the Company must make aggregate annual distributions to its stockholders of at least 90% of its REIT taxable income (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). If the Company meets the REIT qualification requirements, the Company generally will not be subject to federal income tax on the income that the Company distributes to its stockholders each year.

Distributions Declared

The Company’s board of directors approved a cash distribution that accrued at a rate of $0.002459 and $0.002466 per day for each share of the Company’s common stock during each of the three months ended March 31, 2020 and 2019, which, if paid over a 366-day period and a 365-day period, respectively, is equivalent to a 6.0% annualized distribution rate based on the Public Offering price of $15.00 per share of the Company’s common stock. The distributions declared accrue daily to stockholders of record as of the close of business on each day and are payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month. There is no guarantee that the Company will continue to pay distributions at this rate or at all.

Distributions declared for the three months ended March 31, 2020 and 2019 were $15,391,533 and $11,511,537, including $5,135,895 and $5,343,926, or 324,236 shares and 352,037 shares, respectively, of common stock attributable to the DRP. Included within distributions payable in the accompanying consolidated balance sheets is $744,461 of distributions payable assumed by the Company in the Mergers.

As of March 31, 2020 and December 31, 2019, $8,356,638 and $4,021,509 of distributions declared were payable, which included $1,795,980 and $1,744,240, or 113,383 shares and 110,116 shares of common stock attributable to the DRP, respectively.

Distributions Paid

For the three months ended March 31, 2020 and 2019, the Company paid cash distributions of $6,716,712 and $6,116,456, which related to distributions declared for each day in the period from December 1, 2019, through February 29, 2020, and December 1, 2018, through February 28, 2019, respectively. Additionally, for the three months ended March 31, 2020 and 2019, 320,969 and 354,319 shares of common stock were issued pursuant to the DRP for gross offering proceeds of $5,084,155 and $5,378,566, respectively. For the three months ended March 31, 2020 and 2019, the Company paid total distributions of $11,800,867 and $11,495,022, respectively.

8. Related Party Arrangements

The Company entered into the Advisory Agreement with the Advisor. Pursuant to the Advisory Agreement, the Company is obligated to pay the Advisor specified fees upon the provision of certain services, the investment of funds in real estate and real estate-related investments and the management of the Company’s investments and for other services (including, but not limited to, the disposition of investments). Subject to the limitations described below, the Company is also obligated to reimburse the Advisor and its affiliates for organization and offering costs incurred by the Advisor and its affiliates on behalf of the Company, as well as acquisition and origination expenses and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Amounts attributable to the Advisor and its affiliates incurred (received) for the three months ended March 31, 2020 and 2019 and amounts attributable to the Advisor and its affiliates that are payable (prepaid) as of March 31, 2020 and December 31, 2019 are as follows:



	Incurred (Received) For The Three Months Ended March 31,						Payable (Prepaid) as of
	2020			2019			March 31, 2020			December 31, 2019
Consolidated Statements of Operations:
Expensed
Investment management fees⁽¹⁾	$	5,354,437		$	4,160,152		$	2,322,652		$	4,120,353
Acquisition expenses⁽²⁾	1,111			—			—			—
Loan coordination fees⁽¹⁾	488,952			—			—			600,000
Disposition fees⁽³⁾	338,750			—			—			591,000
Disposition transaction costs⁽³⁾	5,144			—			—			—
Property management:
Fees⁽¹⁾	1,496,370			1,234,277			744,134			418,173
Reimbursement of on-site personnel⁽⁴⁾	4,695,047			3,727,705			3,163,298			843,763
Reimbursement of other⁽¹⁾	1,087,537			671,219			105,579			50,778
Reimbursement of property operations⁽⁴⁾	79,011			23,142			—			11,465
Reimbursement of property G&A⁽³⁾	32,405			34,987			—			7,000
Other operating expenses⁽³⁾	710,172			415,108			571,064			463,301
Property insurance⁽⁵⁾	924,936			282,315			(924,881		)	(542,324		)
Rental revenue⁽⁶⁾	(17,747		)	(14,745		)	—			—
Consolidated Balance Sheets:
Capitalized
Acquisition fees⁽⁷⁾	17,376,268			—			824,059			—
Acquisition expenses⁽⁷⁾	256,224			64,235			22,410			—
Loan coordination fees⁽⁷⁾	8,588,071			—			—			—
Capitalized development services fee⁽⁸⁾	151,071			—			42,235			50,357
Capitalized investment management fees⁽⁸⁾	81,214			—			25,429			25,811
Capitalized development costs⁽⁸⁾	595			—			—			—
Construction management:
Fees⁽⁹⁾	122,763			157,899			158,762			43,757
Reimbursement of labor costs⁽⁹⁾	70,547			150,360			18,953			8,525
Additional paid-in capital
Selling commissions	—			—			24,292			71,287
	$	41,842,878		$	10,906,654		$	7,097,986		$	6,763,246

_____________________


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


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

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)


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


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

(5)

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


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


(7)	Included in total real estate, net in the accompanying consolidated balance sheets.


(8)	Included in real estate held for development in the accompanying consolidated balance sheets.


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

Investment Management Fee

Prior to the completion of the Mergers on March 6, 2020, the Company paid the Advisor a monthly investment management fee equal to one-twelfth of 1.0% of (1) the cost of real properties and real estate related assets acquired directly by the Company or (2) the Company’s allocable cost of each investment in real property or real estate related asset acquired through a joint venture. The investment management fee is calculated including the amount actually paid or budgeted to fund acquisition fees, acquisition expenses, cost of development, construction or improvement and any debt attributable to such investments, or the Company’s proportionate share thereof in the case of investments made through joint ventures. Following the completion of the Mergers on March 6, 2020, the Company pays the Advisor a monthly investment management fee, which is calculated on the same basis as described above, and payable 50% in cash and 50% in shares of the Company’s common stock. Investment management fees of $1,187,351 pertain to the 50% payable in shares of the Company common stock as of March 31, 2020.

Acquisition Fees and Expenses

Prior to the completion of the Mergers on March 6, 2020, the Company paid the Advisor an acquisition fee equal to 1.0% of the cost of investment, which includes the amount actually paid or budgeted to fund the acquisition, origination, development, construction or improvement (i.e. value-enhancement) of any real property or real estate-related asset acquired. In addition to acquisition fees, the Company reimburses the Advisor for amounts directly incurred by the Advisor and amounts the Advisor pays to third parties in connection with the selection, evaluation, acquisition and development of a property or acquisition of real estate-related assets, whether or not the Company ultimately acquires the property or the real estate-related assets. Following the completion of the Mergers on March 6, 2020, the Company pays the Advisor an acquisition fee of 0.5%, which is calculated on the same basis as above. In connection with the Mergers, the Company paid the Advisor an acquisition fee of $16,281,487, which was capitalized to the acquired real estate and investment in unconsolidated joint venture in the accompanying consolidated balance sheets.

The Charter limits the Company’s ability to pay acquisition fees if the total of all acquisition fees and expenses relating to the purchase would exceed 4.5% of the contract purchase price. Under the Charter, a majority of the Company’s board of directors, including a majority of the independent directors, is required to approve any acquisition fees (or portion thereof) that would cause the total of all acquisition fees and expenses relating to an acquisition to exceed 4.5% 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 Financial Industry Regulatory Authority, Inc. (“FINRA”) member broker-dealer if applicable FINRA rules would prohibit the payment of the acquisition fee to a firm that is not a registered broker-dealer.

Loan Coordination Fee

Prior to the completion of the Mergers on March 6, 2020, the Company paid the Advisor or its affiliate a loan coordination fee equal to 1.0% of the initial amount of the new debt financed or outstanding debt assumed in connection with the acquisition, development, construction, improvement or origination of a property or a real estate-related asset. In addition, in connection with

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

any financing or the refinancing of any debt (in each case, other than identified at the time of the acquisition of a property or a real estate-related asset), the Company paid the Advisor or its affiliate a loan coordination fee equal to 0.75% of the amount of debt financed or refinanced. In some instances, the Company and the Advisor agreed to a loan coordination fee of $100,000 per loan refinanced.

Following the completion of the Mergers on March 6, 2020, the Company pays the Advisor or one of its affiliates, in cash, the loan coordination fee equal to 0.5% of (1) the initial amount of new debt financed or outstanding debt assumed in connection with the acquisition, development, construction, improvement or origination of any type of real estate asset or real estate-related asset acquired directly or (2) the Company’s allocable portion of the purchase price and therefore the related debt in connection with the acquisition or origination of any type of real estate asset or real estate-related asset acquired through a joint venture. In connection with the Mergers, the Company paid the Advisor a loan coordination fee of $7,910,205, which was capitalized to the acquired real estate and investment in unconsolidated joint venture in the accompanying consolidated balance sheets.

As compensation for services rendered in connection with any financing or the refinancing of any debt (in each case, other than at the time of the acquisition of a property), the Company also pays the Advisor or one of its affiliates, in the form of shares equal to such amount, a loan coordination fee equal to 0.5% of the amount refinanced or the Company’s proportionate share of the amount refinanced in the case of investments made through a joint venture.

Property Management Fees and Expenses

The Company entered into property management agreements (each, as amended from time to time, a “Property Management Agreement”) with Steadfast Management Company, Inc., an affiliate of the Sponsor (the “Property Manager”), in connection with the management of each of the Company’s properties. The property management fee payable with respect to each property under the Property Management Agreements at March 31, 2020, ranged from 2.50% to 3.5% of the annual gross revenue collected at the property, as determined by the Advisor and approved by a majority of the Company’s board of directors, including a majority of the independent directors. Each Property Management Agreement has an initial one-year term and continues thereafter on a month-to-month basis unless either party gives 60-days’ prior notice of its desire to terminate the Property Management Agreement, provided that the Company may terminate the Property Management Agreement at any time upon a determination of gross negligence, willful misconduct or bad acts of the Property Manager or its employees or upon an uncured breach of the Property Management Agreement upon 30 days’ prior written notice to the Property Manager.

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

Construction Management Fees and Expenses

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

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

Table of Contents

PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Development Services

In some instances, the Company may enter into a Development Services Agreement with Steadfast Multifamily Development, Inc., an affiliate of the Advisor, (the “Developer”), in connection with a development project, pursuant to which the Developer will receive a development fee and reimbursement for certain expenses for overseeing the development project. The Company entered into a Development Services Agreement with the Developer in connection with the Garrison Station development project that provided for a development fee equal to 4% of the hard and soft costs of the development project as specified in the Development Services Agreement. 75% of the development fee will be paid in 14 monthly installments and the remaining 25% will be paid upon delivery by the Developer to the Company of a certificate of occupancy.

Property Insurance

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

Other Operating Expense Reimbursement

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

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

As of March 31, 2020, the Company’s total operating expenses, as defined above, did not exceed the 2%/25% Limitation.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

Disposition Fee

Prior to the completion of the Mergers on March 6, 2020, if the Advisor or its affiliates provide a substantial amount of services in connection with the sale of a property or real estate-related asset as determined by a majority of the Company’s independent directors, the Company paid the Advisor or its affiliates a fee equivalent to one-half of the brokerage commissions paid, but in no event to exceed 1% of the sales price of each property or real estate-related asset sold. Following the completion of the Mergers on March 6, 2020, the disposition fee payable to the Advisor remains one-half of the brokerage commissions paid, but in no event to exceed 0.5% of the sales price of each property or real estate-related asset sold.

To the extent the disposition fee is paid upon the sale of any assets other than real property, it will be included as an operating expense for purposes of the 2%/25% Limitation. In connection with the sale of securities, the disposition fee may be paid to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the disposition fee to a firm that is not a registered broker-dealer.

Selling Commissions and Dealer Manager Fees

The Company entered into the Dealer Manager Agreement with the Dealer Manager in connection with the Public Offering. The Company paid the Dealer Manager up to 7% and 3% of the gross offering proceeds from the Primary Offering as selling commissions and dealer manager fees, respectively. The Dealer Manager reallowed 100% of sales commissions earned to participating broker-dealers. The Dealer Manager could also reallow to any participating broker-dealer a portion of the dealer manager fee that was attributable to that participating broker-dealer for certain marketing costs of that participating broker-dealer. The Dealer Manager negotiated 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. The Company allowed a participating broker-dealer to elect to receive the 7% selling commissions at the time of sale or elect to have the selling commission paid on a trailing basis. A participating broker-dealer that elected to receive a trailing selling commission is paid as follows: 3% at the time of sale and the remaining 4% paid ratably (1% per year) on each of the first four anniversaries of the sale. A reduced selling commission and dealer manager fee was paid in connection with volume discounts and certain other categories of sales. No selling commissions or dealer manager fee was paid with respect to shares of common stock issued pursuant to the DRP. The Company terminated the Public Offering on March 24, 2016, and as of March 31, 2020 and December 31, 2019, expects to pay trailing selling commissions of $24,292 and $71,287, respectively, which were charged to additional paid-in capital and included within amounts due to affiliates in the accompanying consolidated balance sheets.

Class A Convertible Stock

In connection with the Mergers, the Company and the Advisor exchanged the then outstanding Convertible Stock for the new Class A Convertible Stock. The Class A Convertible Stock will be converted into shares of the Company’s common stock if (1) the Company has made total Class A Distributions equal to the original issue price of the Common Equity, plus an aggregate 6.0% cumulative, non-compounded, annual return on the original issue price of those shares, (2) the Company lists its common stock for trading on a national securities exchange or enters into a merger whereby holders of the Company’s common stock receive listed securities of another issuer or (3) the Company’s Advisory Agreement is terminated or not renewed (other than for “cause” as defined in the Advisory Agreement). Upon any of these Triggering Events, each share of Class A Convertible Stock will be converted into a number of shares of the Company’s common stock equal to 1/1000 of the quotient of (A) 15% of the amount, if any, by which (i) the Class A Enterprise Value plus the aggregate value of the Class A Distributions paid to date on the Common Equity exceeds (ii) the aggregate purchase price paid by stockholders for the Common Equity plus an aggregated 6.0% cumulative, non-compounded, annual return on the original issue price of the Common Equity as of the date of the Triggering Event, divided by (B) the Class A Enterprise Value divided by the number of the Company’s outstanding common shares on an as-converted basis as of the date of Triggering Event. In the event of a termination or non-renewal of the Advisory Agreement for cause, all of the shares of the Class A Convertible Stock will be repurchased by the Company for $1.00.

Proposed Transactions

The Advisor notified the Company that it intends to present a proposal to the Company’s special committee within 60 days of the closing of the Mergers regarding a possible internalization of management, whereby the Advisor would sell, and the Company would acquire, the Advisor or certain assets of the Advisor and its affiliates. Such a transaction, if consummated, likely would

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

include an amendment to the Advisory Agreement with the Advisor to permit the Advisor or its affiliates to receive consideration for internalization. The Company cannot reasonably estimate the form of or amount of consideration that may be paid as consideration in exchange for the sale and the impact it would have on funds available to distribute to the Company’s stockholders.

9. Incentive Award Plan and Independent Director Compensation

The Company adopted an incentive award plan (the “Incentive Award Plan”) that provides for the grant of equity awards to its employees, directors and consultants and those of the Company’s affiliates. The Incentive Award Plan authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards or cash-based awards.

Under the Company’s independent directors’ compensation plan, which is a sub-plan of the Incentive Award Plan, each of the Company’s independent directors received 3,333 shares of restricted common stock once the Company raised $2,000,000 in gross offering proceeds in the Public Offering. Each subsequent independent director that joins the Company’s board of directors receives 3,333 shares of restricted common stock upon election to the Company’s board of directors. In addition, on the date following an independent director’s re-election to the Company’s board of directors, he or she receives 1,666 shares of restricted common stock. One-fourth of the shares of restricted common stock generally vest and become non-forfeitable upon issuance and the remaining portion will vest in three equal annual installments beginning on the date of grant and ending on the third anniversary of the date of grant; provided, however, that the restricted stock will become fully vested and become non-forfeitable on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability, or (2) a change in control of the Company. These restricted stock awards entitle the holders to participate in distributions even if the shares are not fully vested.

On March 6, 2020, the Company granted 3,333 shares of restricted shares of common stock to each of its two elected independent directors pursuant to the independent directors’ compensation plan in connection with their election to the board of directors.

The Company recorded stock-based compensation expense of $42,455 and $13,896 for the three months ended March 31, 2020 and 2019, respectively, related to the independent directors’ restricted common stock.

In addition to the stock awards, the Company pays each of its independent directors an annual retainer of $55,000, prorated for any partial term (the audit committee chairperson receives an additional $10,000 annual retainer, prorated for any partial term). The independent directors are also paid for attending meetings as follows: (i) $2,500 for each board meeting attended in person, (ii) $1,500 for each committee meeting attended in person in such director’s capacity as a committee member, (iii) $1,000 for each board meeting attended via teleconference (not to exceed $4,000 for any one set of meetings attended on any given day). In connection with meetings of the special committee, the independent directors received $1,000 for each teleconference meeting and $1,500 for each in-person meeting. The chairman of the special committee also received a $50,000 retainer and the other special committee members received a $42,500 retainer. All directors also receive reimbursement of reasonable out of pocket expenses incurred in connection with attendance at meetings of the board of directors. Director compensation is an operating expense of the Company that is subject to the operating expense reimbursement obligation of the Advisor discussed in Note 8 (Related Party Arrangements). For the three months ended March 31, 2020 and 2019, the Company recorded an operating expense of $71,750 and $152,250, respectively, which is included in general and administrative expenses in the accompanying consolidated statements of operations As of March 31, 2020 and December 31, 2019, $71,750 and $61,750, respectively, related to the independent directors’ annual retainer and board meetings attendance is included in accounts payable and accrued liabilities in the consolidated balance sheets.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

10. Commitments and Contingencies

Economic Dependency

The Company is dependent on the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase and disposition of real estate and real estate-related investments; management of the daily operations of the Company’s real estate and real estate-related investment portfolio; and other general and administrative responsibilities. In the event that the Advisor is unable to provide such services, the Company will be required to obtain such services from other sources. The Company may not be able to retain services from such other sources on favorable terms or at all.

Concentration of Credit Risk

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

Environmental

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

Legal Matters

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

11. Derivative Financial Instruments

The Company uses interest rate derivatives with the objective of managing exposure to interest rate movements thereby minimizing the effect of interest rate changes and the effect they could have on future cash flows. Interest rate cap agreements are used to accomplish this objective. The following table provides the terms of the Company’s interest rate derivative instruments that were in effect at March 31, 2020 and December 31, 2019:

March 31, 2020

Type

Maturity Date Range

Based on

Number of Instruments

Notional Amount

Variable Rate

Weighted Average Rate Cap

Fair Value

Interest Rate Cap

6/1/2020 - 1/1/2023

One-Month LIBOR

631,866,345

0.99%

3.31%

3,991

December 31, 2019

Type

Maturity Date Range

Based on

Number of Instruments

Notional Amount

Variable Rate

Weighted Average Rate Cap

Fair Value

Interest Rate Cap

1/1/2020 - 8/1/2021

One-Month LIBOR

343,017,350

1.76%

3.45%

132

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

The interest rate cap agreements are not designated as effective cash flow hedges. Accordingly, the Company records any changes in the fair value of the interest rate cap agreements as interest expense. The change in the fair value of the interest rate cap agreements for the three months ended March 31, 2020 and 2019, resulted in an unrealized loss of $2,251 and $179,616, respectively, which is included in interest expense in the accompanying consolidated statements of operations. During the three months ended March 31, 2020 and 2019, the Company assumed through the Mergers interest rate cap agreements of $6,110 and $0, respectively. The fair value of the interest rate cap agreements of $3,991 and $132 as of March 31, 2020 and December 31, 2019, respectively, is included in other assets on the accompanying consolidated balance sheets.

12. Subsequent Events

Shares Repurchased

On April 30, 2020, the Company repurchased 149,049 shares of its common stock for a total repurchase value of $2,110,537, or $14.16 per share, pursuant to the Company’s share repurchase program.

Distributions Paid

On April 1, 2020, the Company paid distributions of $8,346,406, which related to distributions declared for each day in the period from March 1, 2020, through March 31, 2020, and consisted of cash distributions paid in the amount of $6,550,426, which includes $734,229 related to distributions for the former SIR and STAR III stockholders for the period from March 1, 2020 through March 5, 2020, and $1,795,980 in shares issued pursuant to the DRP.

On May 1, 2020, the Company paid distributions of $8,042,145, which related to distributions declared for each day in the period from April 1, 2020 through April 30, 2020 and consisted of cash distributions paid in the amount of $6,267,962 and $1,774,183 in shares issued pursuant to the DRP.

COVID-19 Outbreak

The outbreak of 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 responses by local, national 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.

Appointment of Messrs. Brines and Bowie to the Audit, Investment and Valuation Committees

On April 6, 2020, the Company’s board of directors appointed Ned W. Brines and Stephen R. Bowie to each of the Company’s Audit Committee, Investment Committee and Valuation Committee. In appointing Messrs. Brines and Bowie to the Audit Committee, the Company’s board of directors determined that each is financially literate and (i) satisfies all criteria for independence established by the SEC and (ii) is otherwise free from any relationship that, in the opinion of the board of directors, would interfere with the exercise of his independent judgment as a member of the Audit Committee.

Acquisition of VV&M Apartments

The Company, through its indirect subsidiary STAR III OP, agreed to acquire a 310-unit multifamily property located in Dallas, Texas known as VV&M Apartments (“VV&M”) for an aggregate purchase price of $59,250,000, pursuant to the terms of a Contribution Agreement, dated as of March 20, 2020 (the “Contribution Agreement”), by and among STAR III OP, as Purchaser, and Wellington VVM, LLC and Copans VVM, LLC (collectively, the “Contributors”). The closing of the acquisition of VV&M by the Company was subject to certain closing conditions, including obtaining lender consent for the Company to assume approximately $44,800,000 in existing mortgage debt secured by VV&M.

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PART I — FINANCIAL INFORMATION (continued)

Item 1. Financial Statements (continued)

STEADFAST APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(unaudited)

On April 21, 2020 (the “Closing Date”), all of the closing conditions had been satisfied or waived and the Contributors contributed VV&M to STAR III OP and STAR III OP issued 948,785 Class A-2 operating partnership units (“Class A-2 OP Units”) valued at $14,450,000 in the aggregate to the Contributors, all in accordance with the Contribution Agreement.

On the Closing Date, STAR III OP and the Contributors entered into the Second Amended and Restated Agreement of Limited Partnership of STAR III OP (“STAR III OP Agreement”). The STAR III OP Agreement provides for the Contributors to request STAR III OP to: (i) repurchase the outstanding Class A-2 OP Units after five years from the Closing Date and (ii) convert the Class A-2 OP Units into shares of common stock of the Company. STAR III OP has the right to repurchase the Class A-2 OP Units after five years from the Closing Date. STAR III OP can exercise its repurchase right in cash and may be able to settle the repurchase in shares of common stock of the Company. The Class A-2 OP Units will receive distributions at the same rate paid to holders of the Company’s common stock.

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PART I — FINANCIAL INFORMATION (continued)

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

The following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements of Steadfast Apartment REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Steadfast Apartment REIT, Inc., a Maryland corporation.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

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


•	the fact that we have had a net loss for each quarterly and annual period since inception;


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


•	the spread of coronavirus, or COVID-19, and its impact on the health and well-being of our residents and employees of our advisor and property manager;


•	the impact of COVID-19 on the U.S. economy and our results of operations;


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


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


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


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


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


•	our level of indebtedness following our mergers with Steadfast Income REIT, Inc., or SIR, and Steadfast Apartment REIT III, Inc., or STAR III, which we collectively refer to as the “Mergers”;


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


•	the availability of capital;


•	changes in interest rates; and


•	changes to generally accepted accounting principles, or GAAP.

Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this quarterly report. All forward-looking statements are made as of the date of this quarterly report and the risk that actual results will differ materially from the expectations expressed in this quarterly report will increase with the passage of time. Except as otherwise required by the federal securities laws, we

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PART I — FINANCIAL INFORMATION (continued)

undertake no obligation to publicly update or revise any forward-looking statements after the date of this quarterly report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this quarterly report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this quarterly report will be achieved.

All forward looking statements included herein should be read in connection with the risks identified in the “Risk Factors” section of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission, or the SEC, on March 12, 2020.

Overview

We were formed on August 22, 2013, as a Maryland corporation that elected to be taxed as, and qualifies as, a REIT. As of March 31, 2020, we owned and managed a diverse portfolio of 69 multifamily properties comprising a total of 21,525 apartment homes, two parcels of land held for the development of apartment homes and a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes. We may acquire additional multifamily properties or pursue multifamily development projects in the future.

COVID-19 Impact

We are carefully monitoring the COVID-19 pandemic and its impact on our business. For the month of April 2020, we allowed qualifying residents to defer their April 2020 rent, which will be collected by us in monthly installment payments over the duration of the current lease or renewal term (which may not exceed twelve months), or the April 2020 COVID-19 Payment Plan. For the month of May 2020, we began providing certain qualifying residents with a one-time concession to incentivize their performance under the payment plan, or the May 2020 COVID-19 Payment Plan and together with the April 2020 COVID-19 Payment Plan, the “COVID-19 Payment Plans.” If the qualifying resident fails to make payments pursuant to the May 2020 COVID-19 Payment Plan, the concession is immediately terminated, and the qualifying resident is required to immediately repay the amount of the concession. Qualifying residents for the COVID-19 Payment Plans were required to provide support to demonstrate their financial hardship. The COVID-19 pandemic could lead to increased rent delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, or reduced rental rates to maintain occupancies. As of May 8, 2020, we collected 94.6% and 91.9% of rent charged for the month of April 2020 and May 2020, respectively. As of May 8, 2020, the number of qualifying residents who opted for the COVID-19 Payment Plans in the month of April 2020 and May 2020, respectively, were 1,007 and 121. Our operations could be materially negatively affected if the economic downturn is prolonged, which could adversely affect our operating results, ability to pay our distributions, our ability to repay or refinance our debt, and the value of our shares.

We expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. For instance, recent government action to provide substantial financial support could provide helpful mitigation for us; its ultimate impact, however, is not yet clear. While we are not able at this time to estimate the impact of the COVID-19 pandemic on our financial and operational results, it could be material.

Public Offering

On December 30, 2013, we commenced our initial public offering of up to 66,666,667 shares of common stock at an initial price of $15.00 per share and up to 7,017,544 shares of common stock pursuant to our distribution reinvestment plan at an initial price of $14.25 per share. On March 24, 2016, we terminated our initial public offering. As of March 24, 2016, we had sold 48,625,651 shares of common stock for gross offering proceeds of $724,849,631, including 1,011,561 shares of common stock issued pursuant to our distribution reinvestment plan for gross offering proceeds of $14,414,752. Following the termination of our initial public offering, we continue to offer shares of our common stock pursuant to our distribution reinvestment plan. As of March 31, 2020, we had sold 110,613,259 shares of common stock for gross offering proceeds of $1,701,940,788, including 6,983,179 shares of common stock issued pursuant to our distribution reinvestment plan for gross offering proceeds of $104,211,630.

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PART I — FINANCIAL INFORMATION (continued)

On April 17, 2020, our board of directors determined an estimated value per share of our common stock of $15.23 as of March 6, 2020. Additional information on our estimated value per share can be found on our Current Report in Form 8-K filed with the SEC on April 20, 2020. In connection with the determination of an estimated value per share, our board of directors determined a purchase price per share for the distribution reinvestment plan of $15.23, effective May 1, 2020.

Merger with Steadfast Income REIT, Inc.

On August 5, 2019, we, SIR, Steadfast Apartment REIT Operating Partnership, L.P., our operating partnership, or the STAR Operating Partnership, Steadfast Income REIT Operating Partnership, L.P., the operating partnership of SIR, or the SIR OP, and SI Subsidiary, LLC, or SIR Merger Sub, entered into an Agreement and Plan of Merger, or the SIR Merger Agreement. Pursuant to the terms and conditions of the SIR Merger Agreement, on March 6, 2020, SIR merged with and into SIR Merger Sub with SIR Merger Sub surviving the SIR Merger. Following the SIR Merger, SIR Merger Sub, as the surviving entity, continues as our wholly-owned subsidiary. In accordance with the applicable provisions of the Maryland General Corporation Law, or MGCL, the separate existence of SIR ceased.

At the effective time of the SIR Merger, each issued and outstanding share of SIR common stock (or a fraction thereof), $0.01 par value per share, converted into 0.5934 shares of our common stock.

Merger with Steadfast Apartment REIT III, Inc.

On August 5, 2019, we, STAR III, STAR Operating Partnership, Steadfast Apartment REIT III Operating Partnership, L.P., the operating partnership of STAR III, or the STAR III OP, and SIII Subsidiary, or STAR III Merger Sub, entered into an Agreement and Plan of Merger, or 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 the STAR III Merger. Following the STAR III Merger, STAR III Merger Sub, as the surviving entity, continues as our wholly-owned subsidiary. In accordance with the applicable provisions of the MGCL, the separate existence of STAR III ceased.

At the effective time of the STAR III Merger, each issued and outstanding share of STAR III common stock (or a fraction thereof), $0.01 par value per share, was converted into 1.430 shares of our common stock.

Combined Company

Through the Mergers, we acquired 36 multifamily properties with 10,166 apartment homes and a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes, all of which had a gross real estate value of approximately $1.5 billion. The combined company after the Mergers retained the name “Steadfast Apartment REIT, Inc.” Each merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.

Our Advisor and Operating Partnership

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

Substantially all of our business is conducted through STAR Operating Partnership, SIR OP and STAR III OP. We are the sole general partner of STAR Operating Partnership and SIR Merger Sub and STAR III Merger Sub is the general partner of SIR OP and STAR III OP, respectively. As we accepted subscriptions for shares of common stock in our initial public offering, we transferred substantially all of the net proceeds to STAR Operating Partnership as a capital contribution. Each of STAR Operating Partnership, SIR OP and STAR III OP are party to limited partnership agreements with its respective general partner. These partnership agreements contain substantially the same terms. As the context requires, in this quarterly report references to “operating partnership” refer to STAR OP, SIR OP and STAR III OP collectively and references to “limited partnership agreement” means the limited partnership agreements of STAR Operating Partnership, SIR OP and STAR III OP collectively.

The limited partnership agreement of the operating partnership provides that it will be operated in a manner that will enable us to (1) satisfy the requirements for being classified as a REIT for federal income tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the operating partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code, which classification could result in the operating partnership being taxed as a corporation, rather than as a disregarded entity. In addition to the administrative and operating costs and expenses incurred by the operating partnership in acquiring and operating our investments, the operating partnership will pay all of our administrative costs and expenses, and such expenses will be treated as expenses of the operating partnership.

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We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31, 2014. As a REIT, we generally will not be subject to federal income tax to the extent that we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate rates and would not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Failing to qualify as a REIT could materially and adversely affect our net income and results of operations.

Market Outlook

The global COVID-19 pandemic and resulting shut down of large parts of the U.S. economy has created significant uncertainty and enhanced investment risk across many asset classes, including real estate. We expect that the disruptions in the U.S. economy as a result of COVID-19 will have an adverse impact on our results of operations for the remainder of 2020 as we expect to experience lower occupancies and higher default rates. The degree to which our business is impacted by the COVID-19 pandemic will depend on a number of variables, including access to testing, the lifting of “shelter in place” orders and the timing on the reopening of society. It was recently announced that the U.S. economy contracted at an annualized rate of 4.8% in the first quarter of 2020, the steepest contraction since the last recession. There is no assurance as to when and to what extent the U.S. economy will improve.

While all property classes will be adversely impacted by the current economic downturn, we believe we are well positioned to navigate this unprecedented period. We believe multifamily properties will be less adversely impacted than hospitality and retail properties, and our portfolio of moderate-income apartments should outperform other classes of multifamily properties. We also believe that long-run economic and demographic trends will benefit our existing portfolio. Home ownership rates should remain at near all-time lows given the current economic situation. Additionally, Millennials and Baby Boomers, the two largest demographic groups comprising roughly half of the total population in the United States, will continue to increasingly choose rental housing over home ownership. Baby Boomers are downsizing their suburban homes and relocating to multifamily apartments while Millennials are renting multifamily apartments due to high levels of student debt and increased credit standards in order to qualify for a home mortgage. These factors should lead to mitigating the effects of the current economic downturn and continued growth as the economy recovers.

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PART I — FINANCIAL INFORMATION (continued)

Our Real Estate Portfolio

As of March 31, 2020, we owned the 69 multifamily apartment communities and two parcels of land held for the development of apartment homes listed below:



								Average Monthly Occupancy⁽¹⁾				Average Monthly Rent⁽²⁾
	Property Name	Location	Purchase Date	Number of Homes	Purchase Price		Mortgage Debt Outstanding⁽³⁾	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
1	Villages at Spring Hill Apartments	Spring Hill, TN	5/22/2014	176	$	14,200,000	⁽⁴⁾	94.9	%	96.0	%	$	1,103	$	1,120
2	Harrison Place Apartments	Indianapolis, IN	6/30/2014	307	27,864,250		⁽⁴⁾	93.5	%	94.1	%	988		992
3	The Residences on McGinnis Ferry	Suwanee, GA	10/16/2014	696	98,500,000		⁽⁴⁾	94.3	%	96.0	%	1,345		1,344
4	The 1800 at Barrett Lakes	Kennesaw, GA	11/20/2014	500	49,000,000		40,623,103	93.8	%	92.4	%	1,104		1,076
5	The Oasis	Colorado Springs, CO	12/19/2014	252	40,000,000		39,501,433	95.2	%	94.8	%	1,393		1,424
6	Columns on Wetherington	Florence, KY	2/26/2015	192	25,000,000		⁽⁴⁾	91.1	%	91.7	%	1,164		1,220
7	Preston Hills at Mill Creek	Buford, GA	3/10/2015	464	51,000,000		⁽⁴⁾	93.3	%	91.6	%	1,198		1,192
8	Eagle Lake Landing Apartments	Speedway, IN	3/27/2015	277	19,200,000		⁽⁴⁾	93.9	%	96.8	%	914		905
9	Reveal on Cumberland	Fishers, IN	3/30/2015	220	29,500,000		20,836,170	92.3	%	95.0	%	1,104		1,144
10	Heritage Place Apartments	Franklin, TN	4/27/2015	105	9,650,000		8,583,381	96.2	%	97.1	%	1,175		1,145
11	Rosemont at East Cobb	Marietta, GA	5/21/2015	180	16,450,000		13,252,421	95.6	%	96.7	%	1,030		1,100
12	Ridge Crossings Apartments	Hoover, AL	5/28/2015	720	72,000,000		57,667,079	93.8	%	92.8	%	1,022		1,012
13	Bella Terra at City Center	Aurora, CO	6/11/2015	304	37,600,000		⁽⁴⁾	96.1	%	96.1	%	1,208		1,221
14	Hearthstone at City Center	Aurora, CO	6/25/2015	360	53,400,000		⁽⁴⁾	94.7	%	95.0	%	1,267		1,257
15	Arbors at Brookfield	Mauldin, SC	6/30/2015	702	66,800,000		⁽⁴⁾	92.7	%	92.7	%	948		923
16	Carrington Park	Kansas City, MO	8/19/2015	298	39,480,000		⁽⁴⁾	94.6	%	95.3	%	1,035		1,011
17	Delano at North Richland Hills	North Richland Hills, TX	8/26/2015	263	38,500,000		31,824,771	95.1	%	95.8	%	1,486		1,486
18	Meadows at North Richland Hills	North Richland Hills, TX	8/26/2015	252	32,600,000		26,589,575	93.3	%	94.4	%	1,396		1,392
19	Kensington by the Vineyard	Euless, TX	8/26/2015	259	46,200,000		33,845,427	95.8	%	95.8	%	1,508		1,507
20	Monticello by the Vineyard	Euless, TX	9/23/2015	354	52,200,000		41,237,404	92.7	%	96.3	%	1,310		1,344
21	The Shores	Oklahoma City, OK	9/29/2015	300	36,250,000		23,578,311	94.3	%	94.7	%	998		1,016
22	Lakeside at Coppell	Coppell, TX	10/7/2015	315	60,500,000		47,894,445	94.9	%	96.8	%	1,716		1,716
23	Meadows at River Run	Bolingbrook, IL	10/30/2015	374	58,500,000		42,268,044	90.1	%	90.1	%	1,407		1,364
24	PeakView at T-Bone Ranch	Greeley, CO	12/11/2015	224	40,300,000		⁽⁴⁾	93.8	%	93.3	%	1,332		1,373

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PART I — FINANCIAL INFORMATION (continued)



									Average Monthly Occupancy⁽¹⁾				Average Monthly Rent⁽²⁾
	Property Name	Location	Purchase Date	Number of Homes	Purchase Price		Mortgage Debt Outstanding⁽³⁾		March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
25	Park Valley Apartments	Smyrna, GA	12/11/2015	496	$	51,400,000	$	48,591,724	93.1	%	94.4	%	$	1,071	$	1,068
26	PeakView by Horseshoe Lake	Loveland, CO	12/18/2015	222	44,200,000		38,016,053		93.7	%	93.7	%	1,397		1,396
27	Stoneridge Farms	Smyrna, TN	12/30/2015	336	47,750,000		45,343,106		92.9	%	95.2	%	1,227		1,196
28	Fielder’s Creek	Englewood, CO	3/23/2016	217	32,400,000		⁽⁴⁾		93.5	%	96.3	%	1,156		1,219
29	Landings of Brentwood	Brentwood, TN	5/18/2016	724	110,000,000		^—		96.4	%	96.8	%	1,264		1,262
30	1250 West Apartments	Marietta, GA	8/12/2016	468	55,772,500		⁽⁴⁾		92.9	%	93.6	%	1,071		1,061
31	Sixteen50 @ Lake Ray Hubbard	Rockwall, TX	9/29/2016	334	66,050,000		⁽⁴⁾		95.8	%	96.4	%	1,482		1,492
32	Garrison Station (Victory)⁽⁵⁾	Murfreesboro, TN	5/30/2019	—	8,307,703		—		—	%	—	%	—		—
33	Eleven10 @ Farmers Market	Dallas, TX	1/28/2020	313	62,063,929		36,057,912		92.7	%	—	%	1,489		—
34	Patina Flats at the Foundry	Loveland, CO	2/11/2020	155	45,123,782		⁽⁴⁾		94.8	%	—	%	1,332		—
35	Arista at Broomfield⁽⁶⁾	Broomfield, CO	3/13/2020	—	7,562,689		—		—	%	—	%	—		—
36	Clarion Park Apartments⁽⁷⁾	Olathe, KS	3/6/2020	220	21,121,795		12,751,604		95.0	%	—	%	896		—
37	Spring Creek Apartments⁽⁷⁾	Edmond, OK	3/6/2020	252	28,186,894		17,376,026		94.0	%	—	%	874		—
38	Montclair Parc Apartment Homes⁽⁷⁾	Oklahoma City, OK	3/6/2020	360	40,352,125		—		96.1	%	—	%	896		—
39	Hilliard Park Apartments⁽⁷⁾	Columbus, OH	3/6/2020	201	28,599,226		12,099,917		97.0	%	—	%	1,139		—
40	Sycamore Terrace Apartments⁽⁷⁾	Terre Haute, IN	3/6/2020	250	34,419,259		23,007,293		94.8	%	—	%	1,112		—
41	Hilliard Summit Apartments⁽⁷⁾	Columbus, OH	3/6/2020	208	31,087,442		14,626,313		95.7	%	—	%	1,249		—
42	Forty 57 Apartments⁽⁷⁾	Lexington, KY	3/6/2020	436	63,030,832		34,502,298		95.0	%	—	%	969		—
43	Riverford Crossing Apartments⁽⁷⁾	Frankfort, KY	3/6/2020	300	38,139,145		19,692,179		96.3	%	—	%	974		—
44	Montecito Apartments⁽⁷⁾	Austin, TX	3/6/2020	268	36,461,171		19,358,732		94.8	%	—	%	1,059		—
45	Hilliard Grand Apartments⁽⁷⁾	Dublin, OH	3/6/2020	314	50,549,232		24,069,708		95.2	%	—	%	1,291		—
46	Deep Deuce at Bricktown⁽⁷⁾	Oklahoma City, OK	3/6/2020	294	52,519,974		33,543,436		93.5	%	—	%	1,236		—
47	Retreat at Quail North⁽⁷⁾	Oklahoma City, OK	3/6/2020	240	31,945,161		13,635,722		93.8	%	—	%	967		—
48	Tapestry Park Apartments⁽⁷⁾	Birmingham, AL	3/6/2020	354	68,840,770		48,691,113		93.8	%	—	%	1,386		—
49	BriceGrove Park Apartments⁽⁷⁾	Canal Winchester, OH	3/6/2020	240	27,854,617		—		96.3	%	—	%	929		—
50	Retreat at Hamburg Place⁽⁷⁾	Lexington, KY	3/6/2020	150	21,341,085		—		94.7	%	—	%	1,041		—
51	Villas at Huffmeister⁽⁷⁾	Houston, TX	3/6/2020	294	41,720,117		27,266,693		93.9	%	—	%	1,215		—
52	Villas of Kingwood⁽⁷⁾	Kingwood, TX	3/6/2020	330	54,428,707		34,691,256		94.5	%	—	%	1,264		—

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PART I — FINANCIAL INFORMATION (continued)



									Average Monthly Occupancy⁽¹⁾				Average Monthly Rent⁽²⁾
	Property Name	Location	Purchase Date	Number of Homes	Purchase Price		Mortgage Debt Outstanding⁽³⁾		March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
53	Waterford Place at Riata Ranch⁽⁷⁾	Cypress, TX	3/6/2020	228	$	28,278,261	$	—	95.2	%	—	%	$	1,144	$	—
54	Carrington Place⁽⁷⁾	Houston, TX	3/6/2020	324	42,258,525		—		93.2	%	—	%	1,113		—
55	Carrington at Champion Forest⁽⁷⁾	Houston, TX	3/6/2020	284	37,280,704		—		93.0	%	—	%	1,148		—
56	Carrington Park at Huffmeister⁽⁷⁾	Cypress, TX	3/6/2020	232	33,032,451		21,029,371		93.5	%	—	%	1,174		—
57	Heritage Grand at Sienna Plantation⁽⁷⁾	Missouri City, TX	3/6/2020	240	32,796,346		14,262,372		93.3	%	—	%	1,154		—
58	Mallard Crossing Apartments⁽⁷⁾	Loveland, OH	3/6/2020	350	52,002,345		—		94.3	%	—	%	1,128		—
59	Reserve at Creekside⁽⁷⁾	Chattanooga, TN	3/6/2020	192	24,522,910		15,048,790		94.8	%	—	%	1,055		—
60	Oak Crossing Apartments⁽⁷⁾	Fort Wayne, IN	3/6/2020	222	32,391,033		21,761,140		96.4	%	—	%	1,043		—
61	Double Creek Flats⁽⁷⁾	Plainfield, IN	3/6/2020	240	35,490,439		23,818,176		94.2	%	—	%	1,048		—
62	Jefferson at Perimeter Apartments⁽⁷⁾	Dunwoody, GA	3/6/2020	504	113,483,899		72,898,387		94.0	%	—	%	1,418		—
63	Bristol Village Apartments⁽⁷⁾	Aurora, CO	3/6/2020	240	62,019,009		35,087,538		95.4	%	—	%	1,421		—
64	Canyon Resort at Great Hills Apartments⁽⁷⁾	Austin, TX	3/6/2020	256	48,319,857		31,628,786		93.8	%	—	%	1,378		—
65	Reflections on Sweetwater Apartments⁽⁷⁾	Lawrenceville, GA	3/6/2020	280	47,727,470		30,930,831		91.4	%	—	%	1,135		—
66	The Pointe at Vista Ridge⁽⁷⁾	Lewisville, TX	3/6/2020	300	51,625,394		31,145,628		96.0	%	—	%	1,284		—
67	Belmar Villas⁽⁷⁾	Lakewood, CO	3/6/2020	318	79,351,924		47,662,631		94.0	%	—	%	1,381		—
68	Ansley at Princeton Lakes⁽⁷⁾	Atlanta, GA	3/6/2020	306	51,564,357		32,039,853		93.1	%	—	%	1,240		—
69	Sugar Mill Apartments⁽⁷⁾	Lawrenceville, GA	3/6/2020	244	42,784,645		25,088,034		91.0	%	—	%	1,188		—
70	Avery Point Apartments⁽⁷⁾	Indianapolis, IN	3/6/2020	512	55,706,852		31,601,009		92.4	%	—	%	819		—
71	Cottage Trails at Culpepper Landing⁽⁷⁾	Chesapeake, VA	3/6/2020	183	34,657,951		23,424,243		96.2	%	—	%	1,334		—
				21,525	$	3,121,216,775	$	1,388,449,438	94.1	%	94.6	%	$	1,181	$	1,200

_____________________


(1)	As of March 31, 2020, our portfolio was approximately 95.5% leased, calculated using the number of occupied and contractually leased apartment homes divided by total apartment homes.


(2)	Average monthly rent is based upon the effective rental income for the month of March 2020 after considering the effect of vacancies, concessions and write-offs.


(3)	Mortgage debt outstanding is net of deferred financing costs, net and premiums and discounts, net associated with the loans for each individual property listed above but excludes the principal balance of $592,137,000 and associated deferred financing costs of $3,792,880 related to the refinancings pursuant to our Master Credit Facility Agreement, or MCFA.


(4)	Properties secured under the terms of the MCFA.

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PART I — FINANCIAL INFORMATION (continued)


(5)	We acquired the Garrison Station property on May 30, 2019, which included unimproved land, currently zoned as a planned unit development, or PUD. The current zoning permits the development of the property into a multifamily community including 176 apartment homes of 1, 2 and 3-bedrooms with a typical mix for this market.


(6)	We acquired the Arista at Broomfield property on March 13, 2020, which included unimproved land, currently zoned as a PUD. The current zoning permits the development of the property into a multifamily community including 325 apartment homes of 1, 2 and 3-bedrooms with a typical mix for this market.


(7)	We acquired 36 real estate properties in the Mergers on March 6, 2020, for an aggregate purchase price of $1,575,891,924, which represents the fair value of the acquired real estate assets including capitalized transaction costs.

Critical Accounting Policies

The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 12, 2020. There have been no significant changes to our accounting policies during the period covered by this report.

Real Estate Purchase Price Allocation

Upon the acquisition of real estate properties, we evaluate whether the acquisition is a business combination or an asset acquisition under ASC 805, Business Combinations, or ASC 805. For both business combinations and asset acquisitions we allocate the purchase price of properties to acquired tangible assets, consisting of land, buildings and improvements, and acquired intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases. For asset acquisitions, we capitalize transaction costs and allocate the purchase price using a relative fair value method allocating all accumulated costs. For business combinations, we expense transaction costs incurred and allocate the purchase price based on the estimated fair value of each separately identifiable asset and liability. Acquisition fees and costs associated with transactions determined to be asset acquisitions are capitalized in total real estate, net in the accompanying consolidated balance sheets. For the three months ended March 31, 2020, all of our acquisitions were determined to be asset acquisitions.

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PART I — FINANCIAL INFORMATION (continued)

These lease intangibles are amortized to depreciation and amortization 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.

Impairment of Real Estate Assets

We account for our real estate assets in accordance with ASC 360, Property, Plant and Equipment, or ASC 360. ASC 360 requires us to continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, we assess the recoverability of the assets by estimating whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. Based on this analysis, if we do not believe that we will be able to recover the carrying value of the real estate and related intangible assets and liabilities, we record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. If any assumptions, projections or estimates regarding an asset changes in the future, we may have to record an impairment to reduce the net book value of such individual asset. We continue to monitor events in connection with the recent outbreak of the COVID-19 pandemic and evaluate any potential indicators that could suggest that the carrying value of our real estate investments and related intangible assets and liabilities may not be recoverable. We did not record any impairment loss on our real estate assets during the three months ended March 31, 2020 and 2019.

Revenue recognition - operating leases

The majority of our revenue is derived from rental revenue, which is accounted for in accordance with ASC 842, Leases, or ASC 842. We lease apartment homes under operating leases with terms generally of one year or less. Generally, credit investigations are performed for prospective residents and security deposits are obtained. In accordance with ASC 842, we recognize 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 is probable and records amounts expected to be received in later years as deferred rent receivable. For lease arrangements when it is not probable that we will collect all or substantially all of the remaining lease payments under the term of the lease, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis (as applicable) or the lease payments that have been collected from the lessee. Differences between rental revenue recognized and amounts contractually due under the lease agreements are credited or charged to straight-line rent receivable or straight-line rent liability, as applicable. Tenant reimbursements for common area maintenance and other recoverable expenses, are recognized when the services are provided and the performance obligations are satisfied. Tenant reimbursements for common area maintenance are accounted for as variable lease payments and are recorded as rental income on our statement of operations

Rents and Other receivables

In accordance with ASC 842, we make a determination of whether the collectibility of the lease payments in an operating lease is probable. If we determine the lease payments are not probable of collection, we would fully reserve for any contractual lease payments, deferred rent receivable, and variable lease payments and would recognize rental income only if cash is received. We exercise judgment in establishing these allowances and considers payment history and current credit status of residents in developing these estimates. Due to the short-term nature of the operating leases, we do not maintain a deferred rent receivable related to the straight-lining of rents. Any changes to our collectibility assessment are reflected as an adjustment to rental income.

Residents’ payment plans due to COVID-19

On April 10, 2020, the Financial Accounting Standards Board, or FASB, issued a Staff Q&A to respond to some frequently asked questions about accounting for lease concessions related to the effects of the COVID-19 pandemic. Under ASC 842, subsequent changes to lease payments that are not stipulated in the original lease contract are generally accounted for as lease modifications, which may affect the economics of the lease for the remainder of the lease term. Some contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. If a lease contract provides enforceable rights and obligations for concessions in the contract and no changes are made to that contract, the concessions are not accounted for under the lease modification guidance in ASC 842. If concessions granted by lessors are beyond the enforceable rights and obligations in the contract, entities would generally account for those concessions in accordance with the lease modification guidance in ASC 842.

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PART I — FINANCIAL INFORMATION (continued)

As of March 31, 2020, no lease concessions were granted to our residents; however, subsequent to March 31, 2020, we began working with residents impacted by the COVID-19 pandemic to determine an appropriate rent relief program.

We have been carefully monitoring the COVID-19 pandemic and its impact on our business. For the month of April 2020, we allowed qualifying residents to defer their April 2020 rent, which will be collected by us in monthly installment payments over the duration of the current lease or renewal term (which may not exceed twelve months). For the month of May 2020, we began providing certain qualifying residents with a one-time concession to incentivize their performance under the May 2020 COVID-19 Payment Plan. If the qualifying resident fails to make payments pursuant to the May 2020 COVID-19 Payment Plan, the concession is immediately terminated, and the qualifying resident is required to immediately repay the amount of the concession. Qualifying residents for the COVID-19 Payment Plans were required to provide support to demonstrate their financial hardship. We continue to evaluate the impact of our rent relief programs and the appropriate accounting policy elections to be applied to the COVID-19 Payment Plans.

Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code and have operated as such commencing with the taxable year ended December 31, 2014. To continue to qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to our stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate income tax rates and generally would not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe we are organized and operate in such a manner as to qualify for treatment as a REIT.

We follow the income tax guidance under GAAP to recognize, measure, present and disclose in our consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of March 31, 2020 and December 31, 2019, we did not have any liabilities for uncertain tax positions that we believe should be recognized in our consolidated financial statements. We have not been assessed material interest or penalties by any major tax jurisdictions. Our evaluation was performed for all open tax years through December 31, 2019.

Distributions

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

Distributions declared (1) accrued daily to our stockholders of record as of the close of business on each day, (2) are payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month and (3) were calculated at a rate of $0.002459 and $0.002466 per share per day during the three months ended March 31, 2020 and 2019, which if paid each day over a 366-day period and 365-day period, respectively, is equivalent to a 6.0% annualized distribution rate based on our initial public offering price of $15.00 per share of common stock.

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PART I — FINANCIAL INFORMATION (continued)

The distributions declared and paid during the fiscal quarter ended March 31, 2020, along with the amount of distributions reinvested pursuant to the distribution reinvestment plan were as follows:



					Distributions Paid⁽³⁾						Sources of Distributions Paid
Period	Distributions Declared⁽¹⁾		Distributions Declared Per Share⁽¹⁾⁽²⁾		Cash		Reinvested		Total		Cash Flow From Operations		Funds Equal to Amounts Reinvested in our Distribution Reinvestment Plan		Net Cash Provided by Operating Activities
First Quarter 2020	$	15,391,533	$	0.224	$	6,716,712	$	5,084,155	$	11,800,867	$	5,191,753	$	6,609,114	$	5,191,753

____________________


(1)	Distributions during the first quarter of 2020 were based on daily record dates and calculated at a rate of $0.002459 per share per day. Beginning on March 6, 2020 through March 31, 2020, distributions for the former SIR and STAR III stockholders were based on daily record dates and calculated at a rate of $0.002459 per share per day.


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


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

For the three months ended March 31, 2020, we paid aggregate distributions of $11,800,867, which was comprised of $6,716,712 of distributions paid in cash and 320,969 shares of our common stock issued pursuant to our distribution reinvestment plan for $5,084,155. For the three months ended March 31, 2020, our net loss was $9,681,128, we had funds from operations, or FFO, of $7,678,383 and net cash provided by operations of $5,191,753. For the three months ended March 31, 2020, we funded $5,191,753, or 44%, of total distributions paid, including shares issued pursuant to our distribution reinvestment plan, from net cash provided by operating activities and $6,609,114, or 56%, from funds equal to our distribution reinvestment plan. Since inception, of the $210,393,368 in total distributions paid through March 31, 2020, including shares issued pursuant to our distribution reinvestment plan, 70% of such amounts were funded from cash flow from operations, 20% were funded from funds equal to amounts reinvested in our distribution reinvestment plan and 10% were funded from net public offering proceeds. For information on how we calculate FFO and the reconciliation of FFO to net loss, see “—Funds from Operations and Modified Funds from Operations.”

Our long-term policy is to pay distributions solely from cash flow from operations. Because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period, and we expect to pay these distributions in advance of our actual receipt of these funds. In these instances, our board of directors has the authority under our organizational documents, to the extent permitted by Maryland law, to fund distributions from sources such as borrowings, offering proceeds or advances and the deferral of fees and expense reimbursements by our advisor, in its sole discretion.

We continue to monitor the outbreak of the COVID-19 pandemic and its impact on our liquidity. The magnitude and duration of the pandemic and its impact on our operations and liquidity is uncertain as of the filing date of this quarterly report as this continues to evolve globally. However, if the outbreak continues on its current trajectory, such impacts could grow and become material. Our operations could be materially negatively affected if the economic downturn is prolonged, which could adversely affect our operating results and therefore our ability to pay our distributions. We have not established a limit on the amount of proceeds we may use from sources other than cash flow from operations to fund distributions. If we pay distributions from sources other than cash flow from operations, we will have fewer funds available for investments.

Inflation

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

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PART I — FINANCIAL INFORMATION (continued)

With respect to other commercial properties, we expect in the future to include provisions in our leases designed to protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases annual reimbursement of operating expenses above a certain allowance.

As of March 31, 2020, we had not entered into any material leases as a lessee.

REIT Compliance

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

Liquidity and Capital Resources

We use secured borrowings, and intend to use in the future secured and unsecured borrowings. At March 31, 2020, our debt was approximately 57% of the value of our properties, as determined by the most recent valuations performed by an independent third-party appraiser. Going forward, we expect that our borrowings (after debt amortization) will be approximately 55% to 65% of the value of our properties and other real estate-related assets. Under our charter, we are prohibited from borrowing in excess of 300% of the value of our net assets, which generally approximates to 75% of the aggregate cost of our assets, though we may exceed this limit only under certain circumstances.

In addition to making investments in accordance with our investment objectives, we use our capital resources to make certain payments to our advisor and its affiliates. Currently, we make payments to our advisor in connection with the acquisition and disposal of investments, the management of our assets and costs incurred by our advisor in providing services to us.

Our principal demand for funds will be to fund value-enhancement and other capital improvement projects, 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, other than asset acquisitions, from operations. Otherwise, we expect that our principal sources of working capital will include:


•	unrestricted cash balance, which was $215,105,801 as of March 31, 2020;


•	various forms of secured and unsecured financing;


•	equity capital from joint venture partners; and


•	proceeds from our distribution reinvestment plan.

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

Over the longer term, in addition to the same sources of capital we will rely on to meet our short-term liquidity requirements, we may also conduct additional public or private offerings of our securities, refinance debt or dispose of assets to fund our operating activities, debt service, distributions and future property acquisitions and development projects. We expect these resources will be adequate to fund our ongoing operating activities as well as providing capital for investment in future development and other joint ventures along with potential forward purchase commitments.

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PART I — FINANCIAL INFORMATION (continued)

Credit Facility

Master Credit Facility

On July 31, 2018, or the Closing Date, 16 of our indirect wholly-owned subsidiaries terminated the existing mortgage loans with their lenders for an aggregate principal amount of $479,318,649 and entered into the MCFA with Berkeley Point Capital, LLC, or the Facility Lender, for an aggregate principal amount of $551,669,000. On February 11, 2020, in connection with the financing of Patina Flats at the Foundry (see Note 3 Real Estate), we and the Facility Lender amended the MCFA to include Patina Flats at the Foundry and an unencumbered multifamily property owned by us as collateral. We also increased our outstanding borrowings pursuant to the MCFA by $40,468,000, a portion of which was attributable to the acquisition of Patina Flats at the Foundry. The MCFA provides for four tranches: (i) a fixed rate loan in the aggregate principal amount of $331,001,400 that accrues interest at 4.43% per annum; (ii) a fixed rate loan in the aggregate principal amount of $137,917,250 that accrues interest at 4.57%; (iii) a variable rate loan in the aggregate principal amount of $82,750,350 that accrues interest at the one-month London Interbank Offered Rate, or LIBOR, plus 1.70%; and (iv) a fixed rate loan in the aggregate principal amount of $40,468,000 that accrues interest at 3.34%. The first three tranches described herein have a maturity date of August 1, 2028, and the fourth tranche described herein has a maturity date of March 1, 2030, unless the maturity date is accelerated in accordance with the terms of the loan documents. Interest only payments are payable monthly through August 1, 2025 and April 1, 2027 on the first three tranches and fourth tranche, respectively, with interest and principal payments due monthly thereafter. We paid $2,072,480 in the aggregate in loan origination fees to the Facility Lender in connection with the refinancings, and paid our advisor a loan coordination fee of $3,061,855.



	Amount of Advance as of
	March 31, 2020			December 31, 2019
Principal balance on master credit facility, gross	$	592,137,000		$	551,669,000
Deferred financing costs, neton master credit facility⁽¹⁾	(3,792,880		)	(3,208,770		)
Master Credit facility, net	$	588,344,120		$	548,460,230

___________


(1)	Accumulated amortization related to deferred financing costs in respect of the MCFA as of March 31, 2020 and December 31, 2019, was $942,234 and $832,187, respectively.

Construction loan

On October 16, 2019, we entered into an agreement with PNC Bank, National Association, or PNC Bank, for a construction loan related to the development of Garrison Station in an aggregate principal amount not to exceed $19,800,000 for a thirty-six month initial term and two twelve month mini-perm extensions. The rate of interest will be at the one-month LIBOR plus 2.00%, which then reduces to the one-month LIBOR plus 1.80% upon achieving completion as defined in the construction loan agreement and at debt service coverage ratio of 1.15x. The loan includes a 0.4% fee at closing, a 0.1% fee upon exercising the mini-perm and a 0.1% fee upon extending the mini-perm, each payable to PNC Bank. There is an exit fee of 1% which will be waived if permanent financing is secured through PNC Bank or one of their affiliates. No amounts were outstanding on this construction loan at March 31, 2020.

Assumed Debt as a result of the Completion of Mergers

On March 6, 2020, upon consummation of the Mergers, we assumed all of SIR’s and STAR III’s obligations under the outstanding mortgage loans secured by 29 of the SIR and STAR III’s properties. We recognized the fair value of the assumed notes payable in the Mergers of $795,431,027, which consists of the assumed principal balance of $791,020,471 and a net premium of $4,410,556.

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PART I — FINANCIAL INFORMATION (continued)

The following is a summary of the terms of the assumed loans on the date of the Mergers:



			Interest Rate Range
Type	Number of Instruments	Maturity Date Range	Minimum	Maximum	Principal Outstanding At Merger Date
Variable rate	2	1/1/2027 - 9/1/2027	1-Mo LIBOR + 2.195%	1-Mo LIBOR + 2.31%	$	64,070,000
Fixed rate	27	10/1/2022 - 10/1/2056	3.19%	4.66%	726,950,471
Assumed Principal Mortgage Notes Payable	29				$	791,020,471

Cash Flows Provided by Operating Activities

During the three months ended March 31, 2020, net cash provided by operating activities was $5,191,753 compared to cash provided by operating activities of $2,276,063 for the three months ended March 31, 2019. The increase in our net cash provided by operating activities is primarily due to a decrease in our net loss due to an increase in rental revenues from the acquisition of 38 multifamily properties, inclusive of 36 multifamily properties acquired in the Mergers, and a decrease in accounts payable and accrued liabilities, compared to the same prior year period.

Cash Flows Provided by (Used in) Investing Activities

During the three months ended March 31, 2020, net cash provided by investing activities was $51,575,593 compared to net cash used in investing activities of $5,325,578 during the three months ended March 31, 2019. The increase in net cash provided by investing activities was primarily due to the net proceeds received from the sale of a real estate property during the three months ended March 31, 2020, and the cash and restricted cash acquired in connection with the Mergers, net of transaction costs, partially offset by the acquisition of two multifamily properties, the acquisition of land held for the development of apartment homes and a decrease in capital projects during the three months ended March 31, 2020, compared to the same prior year period. Net cash provided by investing activities during the three months ended March 31, 2020, consisted of the following:


•	$98,283,732 of cash and restricted cash acquired in Mergers, net of transaction costs;


•	$69,196,179 of cash used for the acquisition of real estate investments;


•	$6,287,613 of cash used for the acquisition of real estate held for development;


•	$1,221,453 of cash used for improvements to real estate investments;


•	$670,071 of cash used for additions to real estate held for development;


•	$2,500,000 of cash used for escrow deposits for pending real estate acquisitions;


•	$32,962,285 of net proceeds from the sale of a real estate investment;


•	$86,892 of cash provided by proceeds from insurance claims; and


•	$118,000 of cash provided by the investment in an unconsolidated joint venture.

Cash Flows Provided by (Used in) Financing Activities

During the three months ended March 31, 2020, net cash provided by financing activities was $28,434,479 compared to net cash used in financing activities of $8,416,565 during the three months ended March 31, 2019. The increase in net cash provided by financing activities was primarily due to proceeds received from borrowing on our MCFA and a decrease in repurchases of our common stock during the three months ended March 31, 2020 compared to the three months ended March 31, 2019, partially offset by an increase in payment of deferred financing costs and an increase in distributions paid to common stockholders during the three months ended March 31, 2020, compared to the same prior year period. Net cash provided by financing activities during the three months ended March 31, 2020, consisted of the following:


•	$40,468,000 of proceeds received from borrowings on our MCFA;


•	$4,472,525 of cash used to pay for deferred financing costs, after a payment of $313,032 of principal payments on mortgage notes payable and a payment of $80,000 of cash deposited to finance loans;


•	$46,995 of payments of commissions on sales of common stock;

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PART I — FINANCIAL INFORMATION (continued)


•	$6,716,712 of net cash distributions to our stockholders, after giving effect to distributions reinvested by stockholders of $5,084,155; and


•	$797,289 of cash paid for the repurchase of common stock.

Contractual Commitments and Contingencies

We use secured debt, and intend to use in the future secured and unsecured debt. We believe that the careful use of borrowings will help us achieve our diversification goals and potentially enhance the returns on our investments. At March 31, 2020, our debt was approximately 57% of the value of our properties, as determined by the most recent valuations performed by an independent third-party appraiser. Going forward, we expect that our borrowings will be approximately 55% to 65% of the value of our properties (after debt amortization) and other real estate-related assets. Under our charter, we are prohibited from borrowing in excess of 300% of our net assets, which generally approximates to 75% of the aggregate cost of our assets unless such excess is approved by a majority of the independent directors and disclosed to stockholders, along with a justification for such excess, in our next quarterly report. In such event, we will monitor our debt levels and take action to reduce any such excess as practicable. Our aggregate borrowings are reviewed by our board of directors at least quarterly. As of March 31, 2020, our aggregate borrowings were not in excess of 300% of the value of our net assets.

In addition to using our capital resources for investing purposes and meeting our debt obligations, we expect to use our capital resources to make certain payments to our advisor in connection with the management of our asset portfolio and costs incurred by our advisor in providing services to us.

As of March 31, 2020, we had indebtedness totaling $1,976,793,558, comprised of an aggregate principal amount of $1,983,834,948 net deferred financing costs of $11,337,364 and net premiums of $4,295,974. The following is a summary of our contractual obligations as of March 31, 2020:



			Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Interest payments on outstanding debt obligations⁽¹⁾	$	653,303,764	$	59,146,008	$	155,919,552	$	148,756,520	$	289,481,684
Principal payments on outstanding debt obligations⁽²⁾	1,983,834,948		4,145,140		42,252,979		117,803,979		1,819,632,850
Total	$	2,637,138,712	$	63,291,148	$	198,172,531	$	266,560,499	$	2,109,114,534

________________

(1)

Scheduled interest payments on outstanding debt obligations are based on the outstanding principal amounts and interest rates in effect at March 31, 2020. We incurred interest expense of $14,390,954 during the three months ended March 31, 2020, including amortization of deferred financing costs totaling $327,470, net unrealized loss from the change in fair value of interest rate cap agreements of $2,251, amortization of net loan premiums and discounts of $(114,582), and loan fees associated with mortgage notes refinancing of $31,397, net of capitalized interest of $69,569, respectively.


(2)	Scheduled principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. Amounts exclude net deferred financing costs and any loan premiums or discounts associated with certain notes payable.

Our debt obligations contain customary financial and non-financial debt covenants. As of March 31, 2020 and 2019, we were in compliance with all debt covenants.

Results of Operations

Overview

The discussion that follows is based on our consolidated results of operations for three months ended March 31, 2020 and 2019. The ability to compare one period to another is primarily affected by the acquisition of 38 multifamily properties, inclusive of 36 multifamily properties acquired in the Mergers and the disposition of three multifamily properties since March 31, 2019. The number of multifamily properties wholly-owned by us increased to 69 as of March 31, 2020, from 34 as of March 31, 2019. As of March 31, 2020, we owned 69 multifamily properties, two parcels of land held for the development of apartment homes and a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of

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PART I — FINANCIAL INFORMATION (continued)

4,584 apartment homes. Our results of operations were primarily affected by (1) the acquisition of 38 multifamily properties, 36 of which were acquired in the Mergers, (2) the disposition of three multifamily properties subsequent to March 31, 2019, (3) the increase in rents and (4) our value-enhancement activity completed through March 31, 2020, as further discussed below.

Our results of operations for the three months ended March 31, 2020 and 2019 are not indicative of those expected in future periods. For the three months ended March 31, 2020, we continued to perform value-enhancement projects, which may have an impact on our future results of operations. Due to the recent outbreak of COVID-19 in the U.S. and globally, our residents ability to pay rent has been impacted, which in turn could impact our future revenues and expenses. The impact of COVID-19 on our future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information, which may emerge concerning the severity of COVID-19, the success of actions taken to contain or treat COVID-19 and reactions by consumers, companies, governmental entities and capital markets.

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

Consolidated Results of Operations for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

The following table summarizes the consolidated results of operations for the three months ended March 31, 2020 and 2019:



	For the Three Months Ended March 31,											$ Change Due to Acquisitions or Dispositions⁽¹⁾			$ Change Due to Properties Held Throughout Both Periods⁽²⁾
	2020			2019			Change $			Change %		$ Change Due to Acquisitions or Dispositions⁽¹⁾			$ Change Due to Properties Held Throughout Both Periods⁽²⁾
Total revenues	$	53,713,939		$	42,585,227		$	11,128,712		26	%	$	9,490,035		$	1,638,677
Operating, maintenance and management	(12,496,559		)	(10,058,274		)	(2,438,285		)	(24	)%	(2,322,655		)	(115,630		)
Real estate taxes and insurance	(8,743,446		)	(6,581,189		)	(2,162,257		)	(33	)%	(1,797,306		)	(364,951		)
Fees to affiliates	(8,427,296		)	(6,065,648		)	(2,361,648		)	(39	)%	(1,603,275		)	(758,373		)
Depreciation and amortization	(28,575,896		)	(18,282,293		)	(10,293,603		)	(56	)%	(9,412,797		)	(880,806		)
Interest expense	(14,390,954		)	(12,233,295		)	(2,157,659		)	(18	)%	(2,343,906		)	186,247
General and administrative expenses	(2,430,299		)	(1,864,269		)	(566,030		)	(30	)%	(221,454		)	(344,576		)
Gain on sale of real estate, net	11,384,599			—			11,384,599			100	%	11,384,599			—
Interest income	253,254			178,678			74,576			42	%	45,534			29,042
Insurance proceeds in excess of losses incurred	66,723			3,400			63,323			1,862	%	—			63,323
Equity in loss from unconsolidated joint venture	(35,193		)	—			(35,193		)	100%		(35,193		)	—
Loss on debt extinguishment	—			(41,609		)	41,609			(100	)%	—			41,609
Net loss	$	(9,681,128	)	$	(12,359,272	)	$	2,678,144		22	%

NOI⁽³⁾	$	30,125,025		$	24,040,268		$	6,084,757		25	%
FFO⁽⁴⁾	$	7,678,383		$	5,923,021		$	1,755,362		30	%
MFFO⁽⁴⁾	$	7,692,860		$	6,503,003		$	1,189,857		18	%

______________


(1)	Represents the favorable (unfavorable) dollar amount change for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, related to multifamily properties acquired or disposed of on or after January 1, 2019.


(2)	Represents the favorable (unfavorable) dollar amount change for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, related to multifamily properties owned by us throughout both periods presented.

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PART I — FINANCIAL INFORMATION (continued)

(3)

NOI is a non-GAAP financial measure used by investors and our management to evaluate and compare the performance of our properties and to determine trends in earnings. However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest income and other expense, acquisition costs, certain fees to affiliates, depreciation and amortization expense and gains or losses from the sale of our properties and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs, all of which are significant economic costs. For additional information on how we calculate NOI and a reconciliation of NOI to net loss, see “—Net Operating Income.”

(4)

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

Net loss

For the three months ended March 31, 2020, we had a net loss of $9,681,128 compared to $12,359,272 for the three months ended March 31, 2019. The decrease in net loss of $2,678,144 over the comparable prior year period was primarily due to an increase in total revenues of $11,128,712 and an increase in gain on sale of real estate, net of $11,384,599 and, to a lesser extent, the increases in interest income of $74,576, insurance proceeds in excess of losses incurred of $63,323 and the decrease in loss on debt extinguishment of $41,609, partially offset by increases in operating, maintenance and management expenses of $2,438,285, real estate taxes and insurance of $2,162,257, fees to affiliates of $2,361,648, depreciation and amortization expense of $10,293,603, interest expense of $2,157,659, general and administrative expenses of $566,030 and equity in loss from unconsolidated joint venture of $35,193.

Total revenues

Total revenues were $53,713,939 for the three months ended March 31, 2020, compared to $42,585,227 for the three months ended March 31, 2019. The increase of $11,128,712 was primarily due to the increase in total revenues of $9,490,035 due to the increase in the number of properties in our portfolio subsequent to March 31, 2019, as a result of the acquisition of 38 multifamily properties, 36 of which were acquired through the Mergers on March 6, 2020, partially offset by the disposition of three multifamily properties subsequent to March 31, 2019. In addition, we experienced an increase of $1,638,677 in total revenues at the multifamily properties held throughout both periods as a result of ordinary monthly rent increases and the completion of value-enhancement projects.

Operating, maintenance and management expenses

Operating, maintenance and management expenses were $12,496,559 for the three months ended March 31, 2020, compared to $10,058,274 for the three months ended March 31, 2019. The increase of $2,438,285 was primarily due to the increase in the number of properties in our portfolio subsequent to March 31, 2019, as a result of the acquisition of 38 multifamily properties, 36 of which were acquired through the Mergers on March 6, 2020, partially offset by the disposition of three multifamily properties subsequent to March 31, 2019. In addition, we experienced an increase of $115,630 in operating, maintenance and management expenses at the multifamily properties held throughout both periods.

Real estate taxes and insurance

Real estate taxes and insurance expenses were $8,743,446 for the three months ended March 31, 2020, compared to $6,581,189 for the three months ended March 31, 2019. The increase of $2,162,257 was primarily due to the increase in the number of properties in our portfolio subsequent to March 31, 2019, as a result of the acquisition of 38 multifamily properties, 36 of which were acquired through the Mergers on March 6, 2020, partially offset by the disposition of three multifamily properties subsequent to March 31, 2019. In addition, we experienced an increase of $364,951 in real estate taxes and insurance expenses at the multifamily properties held throughout both periods.

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PART I — FINANCIAL INFORMATION (continued)

Fees to affiliates

Fees to affiliates were $8,427,296 for the three months ended March 31, 2020, compared to $6,065,648 for the three months ended March 31, 2019. The increase of $2,361,648 was primarily due to an increase in investment management fees, property management fees and the reimbursement of software costs during the three months ended March 31, 2020, due to the increase in the number of properties in our portfolio subsequent to March 31, 2019, predominately as a result of the acquisition of 38 multifamily properties, 36 of which were acquired through the Mergers on March 6, 2020, partially offset by the disposition of three multifamily properties subsequent to March 31, 2019. In addition, we experienced an increase of $758,373 in fees to affiliates at the multifamily properties held throughout both periods.

Depreciation and amortization

Depreciation and amortization expenses were $28,575,896 for the three months ended March 31, 2020, compared to $18,282,293 for the three months ended March 31, 2019. The increase of $10,293,603 was primarily due to the net increase in depreciable assets of $1,417,933,698, in addition to the increase in tenant origination and absorption costs of $39,716,257 subsequent to March 31, 2019. This is due to the increase in the number of properties in our portfolio subsequent to March 31, 2019 predominately as a result of the acquisition of 38 multifamily properties, 36 of which were acquired through the Mergers on March 6, 2020, partially offset by the disposition of three multifamily properties subsequent to March 31, 2019. In addition, we experienced an increase of $880,806 in depreciation expenses at the properties held throughout both periods. We expect these amounts to increase slightly in future periods as a result of anticipated future enhancements to our real estate portfolio.

Interest expense

Interest expense for the three months ended March 31, 2020, was $14,390,954 compared to $12,233,295 for the three months ended March 31, 2019. The increase of $2,157,659 was primarily due to the increase in the notes payable, net, of $926,592,891 since March 31, 2019. The increase in notes payable, net consists of the following: (1) $792,739,079 which relates to the assumption of notes payable, net, through the Mergers on March 6, 2020, (2) $59,883,000 which relates to the refinancings that occured subsequent to March 31, 2019, experiencing a full quarter of interest expense in the three months ended March 31, 2020, (3) $36,515,122 which relates to the debt assumed on the acquisition of one multifamily property during three months ended March 31, 2020, (4) $40,468,000 which relates to the increase in our MCFA associated with the acquisition of one multifamily property and the refinancing of an existing multifamily property during the three months ended March 31, 2020, (5) $3,037,228.61 which relates to deferred financing costs associated with refinancing of notes payable since March 31, 2019 and the increase in the MCFA, (6) $1,060,438.84 which relates to the amortization of deferred financing costs since March 31, 2019, and (7) $1,035,520.31 which relates to the payment of principal on existing debt since March 31, 2019.

Included in interest expense is the amortization of deferred financing costs of $327,470 and $247,773, net, unrealized loss on derivative instruments of $2,251 and $179,616, amortization of net debt premiums of $(114,582) and $0, credit facility commitment fees of $0 and $2,137, and closing costs associated with the refinancing of debt of $31,397 and $0, net of capitalized interest of $69,569 and $0, for the three months ended March 31, 2020 and 2019, respectively. The capitalized interest is included in real estate held for development on the consolidated balance sheets. Our interest expense in future periods will vary based on the impact of changes to LIBOR or the adoption of a replacement to LIBOR, our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives.

General and administrative expenses

General and administrative expenses for the three months ended March 31, 2020, were $2,430,299 compared to $1,864,269 for the three months ended March 31, 2019. These general and administrative expenses consisted primarily of legal fees, insurance premiums, audit fees, other professional fees and independent director compensation. The increase of $566,030 was partially due to an increase of $221,454 due to the increase in the number of properties in our portfolio subsequent to March 31, 2019, as a result of the acquisition of 38 multifamily properties, 36 of which were acquired through the Mergers on March 6, 2020, partially offset by the disposition of three multifamily properties subsequent to March 31, 2019. In addition, we experienced an increase of $344,576 in general and administrative expenses at the properties held throughout both periods.

Gain on sale of real estate

Gain on sale of real estate for the three months ended March 31, 2020, was $11,384,599 compared to $0 for the three months ended March 31, 2019. The gain on sale of real estate consisted of the gain recognized on the disposition of one multifamily property during the three months ended March 31, 2020. No multifamily property dispositions occurred during the

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three months ended March 31, 2019. Our gain on sales of real estate in future periods will vary based on the opportunity to sell properties and real estate-related investments.

Interest income

Interest income for the three months ended March 31, 2020, was $253,254 compared to $178,678 for the three months ended March 31, 2019. Interest income consisted of interest earned on our cash, cash equivalents and restricted cash deposits. In general, we expect interest income to fluctuate with the change in our cash, cash equivalents and restricted cash deposits.

Insurance proceeds in excess of losses incurred

Insurance proceeds in excess of losses incurred for the three months ended March 31, 2020, was $66,723 compared to $3,400 for the three months ended March 31, 2019.

Equity in loss from unconsolidated joint venture

Equity in loss from unconsolidated joint venture for the three months ended March 31, 2020, was $35,193 compared to $0 for the three months ended March 31, 2019. Upon consummation of the SIR Merger on March 6, 2020, we acquired a 10% interest in a joint venture. Our investment in the joint venture has been accounted for as an unconsolidated joint venture under the equity method of accounting. Equity in loss from unconsolidated joint venture will vary in the future based on the operating results of the joint venture.

Loss on debt extinguishment

Loss on debt extinguishment for the three months ended March 31, 2020, was $0 compared to $41,609 for the three months ended March 31, 2019. The expenses incurred during the three months ended March 31, 2019 consisted of deferred financing costs, net related to the termination of the line of credit during the three months ended March 31, 2019. The loss on debt extinguishment will vary in future periods if we repay the remaining outstanding principal prior to the scheduled maturity dates of the notes payable.

For information on our results of operations for the three months ended March 31, 2019, compared to the three months ended March 31, 2018, see our Quarterly Report on Form 10-Q filed with the SEC on May 10, 2019.

Property Operations for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

For purposes of evaluating comparative operating performance, we categorize our properties as “same-store” or “non-same-store.” A “same-store” property is a property that was owned at January 1, 2019. A “non-same-store” property is a property that was acquired, placed into service or disposed of after January 1, 2019. As of March 31, 2020, 31 of our properties were categorized as same-store properties.

The following table presents the same-store results from operations for the three months ended March 31, 2020 and 2019:



	For the Three Months Ended March 31,
	2020		2019		Change $		Change %
Same-store properties:
Revenues	$	41,864,622	$	40,225,945	$	1,638,677	4.1	%
Operating expenses⁽¹⁾	17,942,636		17,246,152		696,484		4.0	%
Net operating income	23,921,986		22,979,793		942,193		4.1	%

Non-same-store properties:
Net operating income	6,203,039		1,060,475		5,142,564

Total net operating income⁽²⁾	$	30,125,025	$	24,040,268	$	6,084,757

________________


(1)	Same-store operating expenses include operating, maintenance and management expenses, real estate taxes and insurance, certain fees to affiliates and property-level general and administrative expenses.

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

Net Operating Income

Same-store net operating income for the three months ended March 31, 2020, was $23,921,986 compared to $22,979,793 for the three months ended March 31, 2019. The 4.1% increase in same-store net operating income was a result of a 4.1% increase in same-store rental revenues partially offset by a 4.0% increase in same-store operating expenses.

Revenues

Same-store revenues for the three months ended March 31, 2020, were $41,864,622 compared to $40,225,945 for the three months ended March 31, 2019. The 4.1% increase in same-store revenues was primarily due to average rent increases at the same-store properties from $1,175 as of March 31, 2019, to $1,206 as of March 31, 2020, as a result of ordinary monthly rent increases and the completion of value-enhancement projects.

Operating Expenses

Same-store operating expenses for the three months ended March 31, 2020, were $17,942,636 compared to $17,246,152 for the three months ended March 31, 2019. The 4.0% increase in same-store operating expenses was primarily attributable to increases in property taxes and insurance and general and administrative expenses during the three months ended March 31, 2020, compared to the three months ended March 31, 2019.

Net Operating Income

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

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

However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest income and other expense, acquisition costs, certain fees to affiliates, depreciation and amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income which further limits its usefulness.

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

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The following is a reconciliation of our NOI to net loss for the three months ended March 31, 2020 and 2019 computed in accordance with GAAP:



	For the Three Months Ended March 31,
	2020			2019
Net loss	$	(9,681,128	)	$	(12,359,272	)
Fees to affiliates⁽¹⁾	5,843,389			4,160,152
Depreciation and amortization	28,575,896			18,282,293
Interest expense	14,390,954			12,233,295
Loss on debt extinguishment	—			41,609
General and administrative expenses	2,430,299			1,864,269
Gain on sale of real estate	(11,384,599		)	—
Other gains⁽²⁾	(319,977		)	(182,078		)
Adjustments for investment in unconsolidated joint venture⁽³⁾	270,191			—
Net operating income	$	30,125,025		$	24,040,268

________________


(1)	Fees to affiliates for the three months ended March 31, 2020 and 2019, exclude property management fees of $1,496,370 and $1,234,277 and other reimbursements of $1,087,537 and $671,219, respectively, that are included in NOI.


(2)	Other gains for the three months ended March 31, 2020 and 2019, include non-recurring insurance claim recoveries and interest income that are not included in NOI.

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

Funds from Operations and Modified Funds from Operations

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

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

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending,

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presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. We adopted Accounting Standards Update, or ASU, 2016-02, Leases, or ASU 2016-02 on January 1, 2019, which requires us, as a lessee, to recognize a liability for obligations under a lease contract and a right-of-use asset. ASU 2017-01 now forms part of Accounting Standards Codification, or ASC 805, Business Combinations, or ASC 805. The carrying amount of the right-of-use asset is amortized over the term of the lease. Because we have no ownership rights (current or residual) in the underlying asset, NAREIT concluded that the amortization of the right-of-use asset should not be added back to GAAP net income (loss) in calculating FFO. This amortization expense is included in FFO. However, FFO, and MFFO as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

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

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

We define MFFO, a non-GAAP financial measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation

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from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we rely on our advisor for managing interest rate, hedge and foreign exchange risk, we do not retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such non-recurring gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations.

Our MFFO calculation complies with the IPA’s Practice Guideline described above, except with respect to certain acquisition fees and expenses as discussed below. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Historically under GAAP, acquisition fees and expenses were characterized as operating expenses in determining operating net income. However, following the publication of ASU 2017-01, which now forms part of ASC 805, acquisition fees and expenses are capitalized and depreciated under certain conditions. These expenses are paid in cash by us. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. The acquisition of properties, and the corresponding acquisition fees and expenses, is the key operational feature of our business plan to generate operational income and cash flow to fund distributions to its stockholders. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance.

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

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

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

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Our calculation of FFO and MFFO is presented in the following table for the three months ended March 31, 2020 and 2019:



	For the Three Months Ended March 31,
	2020			2019
Reconciliation of net loss to MFFO:
Net loss	$	(9,681,128	)	$	(12,359,272	)
Depreciation of real estate assets	22,751,822			18,282,293
Amortization of lease-related costs⁽¹⁾	5,822,805			—
Gain on sales of real estate, net	(11,384,599		)	—
Adjustments for investment in unconsolidated joint venture⁽²⁾	169,483			—
FFO	7,678,383			5,923,021
Acquisition fees and expenses⁽³⁾⁽⁴⁾	13,148			358,757
Unrealized loss on derivative instruments	2,251			179,616
Loss on debt extinguishment	—			41,609
Amortization of below market leases	(922		)	—
MFFO	$	7,692,860		$	6,503,003

________________


(1)	Amortization of lease-related costs for the three months ended March 31, 2020 and 2019, exclude amortization of operating lease right-of-use assets of $1,269 and $0 that is included in FFO, respectively.


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

(3)

By excluding expensed acquisition costs that are not capitalized, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Historically under GAAP, acquisition fees and expenses were considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. Following the publication of ASU 2017-01, which now forms part of ASC 805, acquisition fees and expenses are capitalized and depreciated under certain conditions. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. The acquisition of properties, and the corresponding acquisition fees and expenses, is the key operational feature of our business plan to generate operational income and cash flow to fund distributions to its stockholders.

(4)

Acquisition fees and expenses for the three months ended March 31, 2020 and 2019, include acquisition expenses of $13,148 and $358,757, respectively, that did not meet the criteria for capitalization under ASU 2017-01, which now forms part of ASC 805, and were recorded in general and administrative expenses in the accompanying consolidated statements of operations. These expenses largely pertained to the then-proposed SIR Merger and STAR III Merger and were incurred and expensed through the date of the Merger Agreement. Upon signing the Merger Agreement, merger related acquisition expenses met the definition of capitalized expenses and were therefore capitalized in the accompanying consolidated balance sheets thereby not impacting MFFO. Also included in expensed acquisition expenses are acquisition expenses related to real estate projects that did not come to fruition.

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

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Off-Balance Sheet Arrangements

As of March 31, 2020, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Related-Party Transactions and Agreements

We have entered into agreements with our advisor and its affiliates, whereby we pay certain fees to, or reimburse certain expenses of, our advisor or its affiliates for acquisition and advisory fees and expenses, financing coordination fees, organization and offering costs, sales commissions, dealer manager fees, asset and property management fees and expenses, leasing fees and reimbursement of certain operating costs. Refer to Note 8 (Related Party Arrangements) to the unaudited consolidated financial statements included in this quarterly report for a discussion of the various related-party transactions, agreements and fees.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

We borrow funds and make investments at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. At March 31, 2020, the fair value of our fixed rate debt was $1,818,695,053 and the carrying value of our fixed rate debt was $1,755,821,787. 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, 2020. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on our variable rate debt will change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums will result in changes in the fair value of floating rate instruments. At March 31, 2020, the fair value of our variable rate debt was $218,263,178 and the carrying value of our variable rate debt was $220,971,771. Based on interest rates as of March 31, 2020, if interest rates are 100 basis points higher during the 12 months ending March 31, 2021, interest expense on our variable rate debt would increase by $2,261,860 and if interest rates are 100 basis points lower during the 12 months ending March 31, 2021, interest expense on our variable rate debt would decrease by $2,245,631.

At March 31, 2020, the weighted-average interest rate of our fixed rate debt and variable rate debt was 4.00% and 2.97%, respectively. The weighted-average interest rate of our blended fixed and variable rates was 3.89% at March 31, 2020. The weighted-average interest rate represents the actual interest rate in effect at March 31, 2020 (consisting of the contractual interest rate), using interest rate indices as of March 31, 2020, where applicable.

We may also be exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. As of March 31, 2020, we did not have counterparty risk on our interest rate cap agreements as the underlying variable rates for

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PART I — FINANCIAL INFORMATION (continued)

each of our interest rate cap agreements as of March 31, 2020 were not in excess of the capped rates. See also Note 11 (Derivative Financial Instruments) to our unaudited consolidated financial statements included in this quarterly report.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of March 31, 2020, was conducted under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures, as of March 31, 2020, were effective at the reasonable assurance level.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

PART II

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Except as noted below, there have been no material changes to the risk factors contained in Part I, Item 1A set forth in our Annual Report on Form 10-K filed with the SEC on March 12, 2020.

The current outbreak of COVID-19 has caused severe disruptions in the U.S. and global economy and will likely have an adverse impact on our financial condition and results of operations. This impact could be materially adverse to the extent the current COVID-19 outbreak, or future pandemics, cause residents to be unable to pay their rent, or cause other impacts described below.

In December 2019, a novel strain of COVID-19 was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 100 countries, including the United States. COVID-19 has also spread to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

The outbreak of COVID-19 in many countries, including the United States, continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting shelter in place orders, quarantines and restrictions on travel.

Nearly all U.S. cities and states, including cities and states where our properties are located, have also reacted by instituting quarantines, restrictions on travel, shelter in place orders, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that may continue. There can be no assurances as to the length of time these restrictions will remain in place. The COVID-19 outbreak has had, and future pandemics could have, a significant adverse impact on economic and market conditions of economies around the world, including the United States, and has triggered a period of global economic slowdown or global recession.

The effects of COVID-19 or another pandemic could adversely affect us and/or our residents due to, among other factors:

•

the unavailability of personnel, including executive officers and other leaders that are part of the management team, and the inability to recruit, attract and retain skilled personnel, to the extent management or personnel are impacted in significant numbers by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work-business and operating results may be negatively impacted;

•

difficulty accessing debt and equity capital on attractive terms, or at all, a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our ability to access capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities, any of which could affect our ability to meet liquidity and capital expenditure requirements or have a material adverse effect on our business, financial condition, results of operations and cash flows;


•	an inability to operate in affected areas, or delays in the supply of products or services from the vendors that are needed to operate effectively;

•

residents’ inability to pay rent on their leases or our inability to re-lease space that is or becomes vacant, which inability, if extreme, could cause us to: (i) no longer be able to pay distributions at our current rates or at all in order to preserve liquidity and (ii) be unable to meet our debt obligations to lenders, which could cause us to lose title to the properties securing such debt, trigger cross-default provisions, or could cause us to be unable to meet debt covenants, which could cause us to have to sell properties or refinance debt on unattractive terms;


•	an inability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during a disruption;

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PART II — OTHER INFORMATION (continued)


•	our inability to deploy capital due to slower transaction volume which may be dilutive to shareholders; and


•	our inability to satisfy repurchase requests and preserve liquidity, if demand for repurchases exceeds the limits of our share repurchases program or ability to fund repurchases.

Because our property investments are located in the United States, COVID-19 has begun and will continue to impact our properties and operating results given its continued spread within the United States, leading to potential reductions in occupancy, increases in costs of operation and limited hours or closure of such properties. In addition, quarantines, states of emergencies and other measures taken to curb the spread of COVID-19 may negatively impact the ability of such properties to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our properties and operating results.

Residents and potential residents of the properties we own operate in industries that are being adversely affected by the disruption to business caused by this global outbreak. Residents or operators have been, and may in the future be, required to suspend operations at our properties for what could be an extended period of time. For residents impacted by COVID-19, we have agreed to provide certain rent relief. For the month of April 2020, we allowed qualifying residents to defer their April 2020 rent, which will be collected by us in monthly installment payments over the duration of the current lease or renewal term (which may not exceed twelve months). For the month of May 2020, we began providing certain qualifying residents with a one-time concession to incentivize their performance under the May 2020 COVID-19 Payment Plan. If the qualifying resident fails to make payments pursuant to the May 2020 COVID-19 Payment Plan, the concession is immediately terminated, and the qualifying resident is required to immediately repay the amount of the concession. Qualifying residents for the COVID-19 Payment Plans were required to provide support to demonstrate their financial hardship. We continue to evaluate the impact of our rent relief programs and the appropriate accounting policy elections to be applied to the COVID-19 Payment Plans.

The ongoing impact of COVID-19 could lead to further increased rent delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, and/or tenant improvement expenditures, or reduced rental rates to maintain occupancies. Our operations could be materially negatively affected if the economic downturn is prolonged, which could adversely affect our operating results, ability to pay our distributions, our ability to repay or refinance our debt, and the value of our shares.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate impact of COVID-19. The full extent of the impact and effects of COVID-19 on our future financial performance, as a whole, and, specifically, on our real estate investments are uncertain at this time. The impact will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories and restrictions and the uncertainty with respect to the duration of the global economic slowdown. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our performance, financial condition, results of operations, cash flows, and value of our shares.

The current outbreak of COVID-19 and resulting impacts on the U.S. economy and financial markets has created extreme uncertainty and volatility with respect to the current and future values of real estate, and therefore our estimated value per share, as well as the market value of our debt. As a result, our estimated value per share may not reflect the actual realizable value of our underlying properties at any given time or the market value of our debt.

The current outbreak of COVID-19 and the resulting impacts on the U.S. economy and financial markets have created extreme uncertainty and volatility with respect to the current and future values of real estate and real estate-related assets, borrowings and hedges. The recent COVID-19 pandemic is expected to continue to have a significant impact on local, national and global economies and has resulted in a world-wide economic slowdown. The fallout from the ongoing pandemic on our investments is uncertain; however, it is expected to have a negative impact on the overall real estate market. In addition, slower transaction volume may result in less data for assessing real estate values. This increases the risk that our estimated value per share may not reflect the actual realizable value of our underlying properties at any given time, as valuations and appraisals of our properties and real estate-related assets are only estimates of market value as of March 6, 2020, and may not reflect the changes in values resulting from the COVID-19 pandemic, as this impact is occurring rapidly and is not immediately quantifiable. To the extent real estate values decline after the date we disclose our estimated value, whether due to the COVID-19 outbreak or otherwise, (i) we may overpay to repurchase our shares, and (ii) investors investing in our distribution reinvestment plan may overpay for their investment in our common stock, which would heighten their risk of loss. Furthermore, because we generally do not mark to market our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity or our associated interest rate cap agreements that are intended to be held to maturity, the realizable value of our company or our assets that are encumbered by debt may be higher or lower than the value used in the calculation of our

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PART II — OTHER INFORMATION (continued)

estimated net assets value. This risk may be exacerbated by the current market volatility, which can lead to large and sudden swings in the fair value of our assets and liabilities.

Legislative or regulatory action could adversely affect the returns to our investors.

In recent years, numerous legislative, judicial and administrative changes have been made to the U.S. federal income tax laws applicable to investments in real estate and REITs, including the passage of the Tax Cuts and Jobs Act of 2017. Federal legislation intended to ameliorate the economic impact of the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, has been enacted that makes technical corrections to, or modifies on a temporary basis, certain of the provisions of the Tax Cut and Jobs Act of 2017, and it is possible that additional such legislation may be enacted in the future. The full impact of the Tax Cuts and Jobs Act of 2017 and the CARES Act may not become evident for some period of time. In addition, there can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results. The REIT rules are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results.

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

We urge you to consult with your own tax advisor with respect to the status of any legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

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

On March 6, 2020, we granted 3,333 shares of restricted shares of common stock to each of our recently appointed two independent directors pursuant to our independent directors’ compensation plan in connection with their election to the board of directors. The above shares issued pursuant to our independent directors’ compensation plan were issued in transactions exempt from registration pursuant to Section 4(a)(2) of the Securities Act.

During the three months ended March 31, 2020, we fulfilled repurchase requests and repurchased shares of our common stock pursuant to our share repurchase plan as follows:



	Total Number of Shares Requested to be Repurchased⁽¹⁾	Total Number of Shares Repurchased	Average Price Paid per Share⁽²⁾⁽³⁾		Approximate Dollar Value of Shares Available That May Yet Be Repurchased Under the Program
January 2020	54,120	53,152	$	15.00	⁽⁴⁾
February 2020	51,068	—	—		⁽⁴⁾
March 2020	43,861	—	—		⁽⁴⁾
	149,049	53,152

____________________


(1)	We generally repurchase shares approximately 30 days following the end of the applicable quarter in which requests were received. At March 31, 2020, we had $2,110,537, representing 149,049 shares of outstanding and unfulfilled repurchase requests, all of which were fulfilled on April 30, 2020.


(2)	Our board of directors amended the share repurchase plan on March 3, 2020 in connection with the Mergers. Prior to the March 3, 2020 amendments, we repurchased shares at prices determined as follows:

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PART II — OTHER INFORMATION (continued)


•	92.5% of the Share Repurchase Price (defined below) for stockholders who have held their shares for at least one year;


•	95.0% of the Share Repurchase Price for stockholders who have held their shares for at least two years;


•	97.5% of the Share Repurchase Price for stockholders who have held their shares for at least three years; and


•	100% of the Share Repurchase Price for stockholders who have held their shares for at least four years.

The “Share Repurchase Price” is 93% of the most recently determined estimated value per share. Notwithstanding the above, the repurchase price for repurchases sought upon a stockholder’s death, “qualifying disability” or “determination of incompetence” was the average issue price the respective stockholder paid to acquire the shares from us.

In connection with the announcement of the SIR Merger and STAR III Merger, on August 5, 2019, our board of directors approved the Amended and Restated Share Repurchase Plan, or the Amended & Restated SRP, which became effective September 5, 2019, and applied with repurchases made on the repurchase dates subsequent to the effective date of the Amended & Restated SRP. Under the Amended & Restated SRP, we only repurchased shares of common stock in connection with the death or qualifying disability (as determined by our board of directors in its sole discretion) of a stockholder, subject to certain terms and conditions specified in the Amended & Restated SRP.

On March 3, 2020, in connection with the closing of the SIR Merger and the STAR III Merger, our board of directors amended our share repurchase plan to allow all stockholders to request repurchases (as opposed to death and disability only) beginning with the second quarter repurchases date. The Share Repurchase Price will be 93% of the most recently disclosed estimated value per share regardless of the holding period.


(3)	From inception through March 31, 2020, our share repurchases have been funded exclusively from the net proceeds we received from the sale of shares under our distribution reinvestment plan.

(4)

We are not obligated to repurchase shares of our common stock under the share repurchase plan. In no event will repurchases under the share repurchase plan exceed 5% of the weighted average number of shares of common stock outstanding during the prior calendar year or the $2,000,000 limit for any quarter, which increased to $4,000,000 beginning with April 30, 2020 repurchase date and set the repurchase price in all instances (ordinary and qualifying death or disability) to an amount equal to 93% of the most recent publicly disclosed estimated value per share.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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PART II — OTHER INFORMATION (continued)

Item 6. Exhibits

EXHIBITS



Exhibit			Description
3.1			Articles of Amendment and Restatement of Steadfast Apartment REIT, Inc. (incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form S-11, filed December 16, 2013, Commission File No. 333-191049)
3.2			Bylaws of Steadfast Apartment REIT, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11, filed September 6, 2013, Commission File No. 333-191049)
3.3			Articles Supplementary of Steadfast Apartment REIT, Inc. (included as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 000-55428) filed with the SEC on March 6, 2020, and incorporated herein by reference)
4.1			Form of Distribution Reinvestment Plan (incorporated by reference to Appendix C to the prospectus, dated April 15, 2015, of the Registrant)
4.2			Form of Redemption Request Form (incorporated by reference to Appendix D to the prospectus, dated April 15, 2015, of the Registrant)
4.3			Form of Application for Transfer (incorporated by reference to Appendix E to the prospectus, dated April 15, 2015, of the Registrant)
4.5			Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Exhibit 4.1 to Post-Effective Amendment No. 12 to Form S-11 on Form S-3, filed April 5, 2016, Commission File No. 333-191049)
4.6			Account Update Form (incorporated by reference to Appendix A to Post-Effective Amendment No. 12 to Form S-11 on Form S-3, filed April 5, 2016, Commission File No. 333-191049)
10.1			Amended and Restated STAR Advisory Agreement, dated as of March 5, 2020, by and between Steadfast Apartment REIT, Inc. and Steadfast Apartment Advisor, LLC. (included as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-55428) filed with the SEC on March 6, 2020, and incorporated herein by reference)
10.2			Second Amended and Restated Agreement of Limited Partnership of Steadfast Apartment REIT III Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-55428) filed with the SEC on April 27, 2020, and incorporated herein by reference
10.3*			Amended and Restated Limited Partnership Agreement of Steadfast Income REIT Operating Partnership, L.P.
31.1*			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**			Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32.2**			Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
99.1			Share Repurchase Plan (included as Exhibit 99.2 to the Registrant’s Current Report on Form 8-K (File No. 000-55428) filed with the SEC on March 6, 2020, and incorporated herein by reference)

____________________________



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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		Steadfast Apartment REIT, Inc.


Date:	May 14, 2020	By:	/s/ Rodney F. Emery
			Rodney F. Emery
			Chief Executive Officer and Chairman of the Board
			(Principal Executive Officer)

Date:	May 14, 2020	By:	/s/ Kevin J. Keating
			Kevin J. Keating
			Chief Financial Officer and Treasurer
			(Principal Financial and Accounting Officer)