We operate under the direction of our Board of Directors. The Board of Directors oversees our operations and makes all major decisions concerning our business. The Board of Directors held sixseven meetings during the fiscal year ended December 31, 2018.2019. Each of our directors attended at least 75% of the aggregate of (a) the total number of meetings of the Board of Directors held during the period for which he or she served as a member of the Board of Directors and (b) the total number of meetings held by all committees of the Board of Directors on which he or she served during the periods in which he or she served.
Although we have no policy with regard to attendance by the members of the Board of Directors at our annual meetings, we invite and encourage the members of the Board of Directors to attend our annual meetings to foster communication between stockholders and the Board of Directors. All of our directors attended the 20182019 Annual Meeting of Stockholders.
Our Board of Directors provides a process for stockholders to send communications to the Board of Directors. Any stockholder who desires to contact members of the Board of Directors may do so by writing: c/o Steadfast Apartment REIT, Inc. Board of Directors, 18100 Von Karman Avenue, Suite 500,200, Irvine, California 92612, Attention: Corporate Secretary. Communications received will be distributed by our Corporate Secretary to such member or members of the Board of Directors as deemed appropriate by our Corporate Secretary, depending on the facts and circumstances outlined in the communication received. For example, if any questions regarding accounting, internal accounting controls and auditing matters are received, they will be forwarded by our Corporate Secretary to the Audit Committee for review.
Although our shares are not listed for trading on any national securities exchange, a majority of the members of our Board of Directors, and all of the members of the Audit Committee are “independent” as defined by the New York Stock Exchange. The New York Stock Exchange standards provide that to qualify as an independent director, in addition to satisfying certain bright-line criteria, the Board of Directors must affirmatively determine that a director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship
with us). The Board of Directors determined that Messrs. Vandell, Christie, Purcell, Brines and PurcellBowie each satisfies the bright-line criteria and that none has a relationship with us that would interfere with such person’s ability to exercise independent judgment as a member of the Board of Directors.
Rodney F. Emery serves as our Chairman of the Board of Directors and Chief Executive Officer. The independent directors have determined that the most effective leadership structure for us at the present time is for our Chief Executive Officer to also serve as Chairman of the Board of Directors. The independent directors believe that because our Chief Executive Officer is ultimately responsible for our day-to-day operations and for executing our business strategy, and because our performance is an integral part of the deliberations of our Board of Directors, our Chief Executive Officer is the director best qualified to act as Chairman of the Board of Directors. Our Board of Directors retains the authority to modify this structure to best address changes in our unique circumstances and to advance the best interests of all stockholders, as and when appropriate. Mr. Purcell serves as our lead independent director. The lead independent director is appointed to carry out the following responsibilities: (i) preside at executive sessions of independent directors; (ii) engage with other directors to identify discussion topics for executive sessions; (iii) facilitate communication between the independent directors and the Chairman of the Board of Directors and Chief Executive Officer; (iv) call meetings of the independent directors, as necessary; and (v) carry out any other responsibilities designated by the independent directors. Our Board of Directors believes that the current structure is appropriate as all of our independent directors are actively involved in board meetings.
Our Board of Directors has an active role in overseeing the management of risks applicable to us and our operations. We face a number of risks, including economic risks, environmental and regulatory risks, and other risks such as the impact of competition. How well we manage these and other risks can ultimately determine our success. The Board of Directors manages our risk through its approval of all property acquisitions, assumptions of debt and its oversight of our executive officers and our advisor.officers. The Board of Directors may also establish committees it deems appropriate to address specific areas in more depth than may be possible at a full Board of Directors meeting, provided
that the majority of the members of each committee are independent directors. To date, our Board of Directors established an Audit Committee, an Investment Committee, a Valuation Committee, a Special Committee, a Compensation Committee and a SpecialNominating and Corporate Governance Committee. The Audit Committee oversees management of accounting, financial, legal and regulatory risks. The Investment Committee reviews specific investments proposed by our advisor as well as our investment policies and procedures along with the inherent risks of our business. The Valuation Committee oversees the process of determining the Company’s estimated value per share of our common stock. The Special Committee was formed for the purpose of reviewing, considering, investigating, evaluating, proposing and if deemed appropriate by the Special Committee, negotiating the Company’s proposed mergers with each of Steadfast Income REITSIR and Steadfast Apartment REITSTAR III and, among other matters, determining whether the mergers arewere fair and in the best interests of the Company and its stockholders. The Special Committee also negotiated the Internalization Transaction (as defined herein). The Compensation Committee, among other responsibilities, reviews and recommends compensation of executive officers as well as any equity-based compensation. The Nominating and Corporate Governance Committee, among other responsibilities, identifies individuals qualified to serve on our Board of Directors and recommends that our Board of Directors select a slate of director nominees for election by our stockholders at the annual meeting of our stockholders.
Our Board of Directors established an Audit Committee. The Audit Committee’s function is to assist our Board of Directors in fulfilling its responsibilities by overseeing: (1) the systems of our internal accounting and financial controls; (2) our financial reporting processes; (3) the independence, objectivity and qualification of our independent auditors; (4) the annual audit of our financial statements; and (5) our accounting policies and disclosures. The current members of the Audit Committee are G. Brian Christie, Thomas H. Purcell and Kerry D. Vandell.Vandell and Ned W. Brines. All of the members of the Audit Committee are “independent” as defined by our Charter and the New York Stock Exchange. All members of the Audit Committee have significant financial and/or accounting experience. Our Board of Directors determined that Dr. Vandell satisfies the SEC’s requirements for our “audit committee financial expert” and also serves as the Chairman of the Audit Committee.
Our Board of Directors established an Investment Committee. Our Board of Directors delegated to the Investment Committee certain responsibilities with respect to investment in specific investments proposed by our advisor and the authority to review our investment policies and procedures on an ongoing basis. The Investment Committee must at all times be comprised of at least three members, a majority of whom must be independent directors. The current members of the Investment Committee are Rodney F. Emery, G. Brian Christie and Thomas H. Purcell, Kerry D. Vandell and Stephen R. Bowie, with Mr. EmeryBowie serving as the Chairman of the Investment Committee.
With respect to investments, the Investment Committee has the authority to approve all acquisitions, developments and dispositions of real estate and real estate-related assets consistent with our investment objectives for a purchase price, total project cost or sales price of up to 10% of the cost of our total assets as of the date of investment.
Our Board of Directors established a Valuation Committee. The Valuation Committee’s function, as recommended by the Institute for Portfolio Alternatives (formerly known as the Investment Program Association), is to perform the following functions in connection with the determination of an estimated per share value of our common stock: (1) ratify and approve the engagement of valuation advisory services, its scope of work and any amendments thereto; (2) review and approve the proposed valuation process and methodology to be used to determine the estimation of the per share value of our common stock; (3) review the reasonableness of the valuation or range of value resulting from the process; and (4) recommend the final proposed valuation for approval by the Board of Directors. The current members
of the Valuation Committee are Thomas H. Purcell, G. Brian Christie and Kerry D. Vandell, and Stephen R. Bowie, with Mr. Purcell serving as Chairman of the Valuation Committee.
Our Board of Directors established a Special Committee. The Special Committee was formed for the purpose of reviewing, considering, investigating, evaluating, proposing and if deemed appropriate by the Special Committee, negotiating the Company’s proposed mergers with each of Steadfast Income REITSIR and Steadfast Apartment REITSTAR III and, among other matters, determining whether the mergers arewere fair and in the best interests of
the Company and its stockholders. The Special Committee also negotiated the Internalization Transaction (as defined herein). The members of the Special Committee, arethrough March 2020, were Thomas H. Purcell, G. Brian Christie and Kerry D. Vandell, and after March 2020, Ned W. Brines and Stephen R. Bowie joined the Special Committee, with Mr. Purcell serving as the chairman of the Special Committee. Ned W. Brines and Stephen R. Bowie joined the Special Committee prior to the negotiation of the Internalization Transaction (as defined herein).
The Audit Committee Charter requires our Audit Committee to pre-approve all auditing services performed for us by our independent auditors as well as all permitted non-audit services in order to ensure that the provision of such services does not impair the auditors’ independence. In determining whether or not to pre-approve services, our Audit Committee will consider whether the service is a permissible service under the rules and regulations promulgated by the SEC. Our Audit Committee, may, in its discretion, delegate to one or more of its members the authority to pre-approve any audit or non-audit services to be performed by the independent auditors, provided any such approval is presented to and approved by the full Audit Committee at its next scheduled meeting.
The aggregate fees billed to us for professional accounting services, including the audit of our financial statements and the non-audit fees charged to us by Ernst & Young, all of which were pre-approved by the Audit Committee, are set forth in the table below:
For purposes of the preceding table, Ernst & Young’s professional fees are classified as follows:
We will not pay in excess of $4,000 for any one set of meetings attended on any given day. Further, directors may elect to receive any cash fees in fully-vested shares of common stock of the Company.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
The following describes all transactions during the six months ended June 30, 2019 and the year ended December 31, 2018,2019 and the eight months ended August 31, 2020, and currently proposed transactions, involving us, our directors, our former advisor, our former sponsor and any affiliate thereof. Our independent directors are specifically charged with and have examined the fairness of such transactions to our stockholders, and have determined that all such transactions are fair and reasonable to us.
Ownership Interests
On September 3, 2013, our sponsor, Steadfast REIT Investments, LLC,SRI, purchased 13,500 shares of our common stock for an aggregate purchase price of $202,500 and was admitted as our initial stockholder. Our sponsorSRI is majority owned and controlled indirectly by Rodney F. Emery, our Chairman of the Board of Directors and Chief Executive Officer, through Steadfast REIT Holdings, LLC (“Steadfast Holdings”).
The Mergers
On September 3, 2013, our former advisor, Steadfast Apartment Advisor, LLC, purchased 1,000 shares of our convertible stock for an aggregate purchase price of $1,000.$1,000 (the “Convertible Stock”). As of December 31, 2018,2019, our former advisor owned 100% of the outstanding Convertible Stock. In connection with the SIR Merger and STAR III Merger on March 6, 2020 (described below), our former advisor exchanged the Convertible Stock for new non-participating, non-voting Class A convertible stock (the “Class A Convertible Stock”). Prior to the closing of the Internalization Transaction, our former advisor owned 100% of the outstanding convertible stock. We areClass A Convertible Stock. Following the general partnerSIR Merger and the STAR III Merger, SRI owned directly and indirectly 950,593 shares of our operating partnership,common stock.
On August 5, 2019, we, SIR, STAR OP, our wholly-owned subsidiary, Steadfast ApartmentIncome REIT Operating Partnership, L.P. Steadfast Apartment REIT Limited Partner,, the operating partnership of SIR (“SIR OP”), and SI Subsidiary, LLC, our wholly-owned subsidiary has made a $1,000 capital contribution(“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, continued as our wholly-owned subsidiary. In accordance with the applicable provisions of the Maryland General Corporation Law (“MGCL”), the separate existence of SIR ceased.
On August 5, 2019, we, STAR III, the STAR OP, Steadfast Apartment REIT III Operating Partnership, L.P., the operating partnership of STAR III (the “STAR III OP”), and SIII Subsidiary, LLC, our wholly-owned subsidiary (“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 initial limited partner.surviving entity, continued as our wholly-owned subsidiary. In accordance with the applicable provisions of the MGCL, the separate existence of STAR III ceased.
Our convertible stock will convertEach of SIR and STAR III was sponsored by SRI and externally managed by affiliates of our former advisor.
Convertible Stock
Prior to completion of the Mergers on March 6, 2020, our then-outstanding Convertible Stock would have been converted into shares of our common stock if and when: (A) we havehad made total distributions on the then outstandingthen-outstanding shares of our 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) we listlisted our common stock for trading on a national securities exchange, or (C) our advisory agreement (defined below) isthe Amended and Restated Advisory Agreement, dated as of March 5, 2020 (the “Advisory Agreement”), was terminated or not renewed (other than for “cause” as defined in our advisory agreement)
the Advisory Agreement). In the event of a termination or non-renewal of our advisory agreementthe Advisory Agreement for cause, all of the shares of the convertible stock will be redeemedConvertible Stock would have been repurchased by us for $1.00. In general, each share of our convertible stock will convertConvertible Stock would have been converted into a number of shares of common stock equal to 1/1000 of the quotient of:of (A) 15% of the excess of (1) our “enterprise value” (as defined in our Charter) plus the aggregate value of distributions paid to date on the then outstanding shares of our 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) our 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. Shares
In connection with the Mergers, we and our former advisor exchanged the then-outstanding Convertible Stock for new Class A Convertible Stock. The Class A Convertible Stock would have been converted into shares of our convertiblecommon stock areif (1) we had made total distributions of money or other property to its stockholders (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 we refer to collectively as the “Class A Distributions,” equal to the original issue price of our 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) we listed our common stock for trading on a national securities exchange or entered into a merger whereby holders of our common stock received listed securities of another issuer or (3) the Advisory Agreement was 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 would have been converted into a number of shares of our 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 dividends andto date on the Common Equity exceeded (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 hereofof the Triggering Event, divided by (B) the Class A Enterprise Value divided by the number of our outstanding common shares on an as-converted basis as of the date of Triggering Event.
Pre-Internalization Operating Partnership Merger
On August 28, 2020, through a series of transactions, STAR OP and STAR III OP merged with and into SIR OP, with SIR OP surviving as our sole operating partnership. SIR OP’s name changed to “Steadfast Apartment REIT Operating Partnership, L.P.” following the operating partnership mergers.
Pre-Internalization Advisory Agreement Amendment and Joinder Agreement
On August 31, 2020, prior to the Closing, we, our former advisor and STAR OP entered into a Joinder Agreement (the “Joinder Agreement”) pursuant to which our operating partnership became a party to the Advisory Agreement. On August 31, 2020, prior to the Closing, we, our former advisor and our operating partnership entered into the First Amendment to the Amended and Restated Advisory Agreement in order to remove certain restrictions in the Advisory Agreement related to business combinations and to provide that any amounts accrued to our former advisor commencing on or after September 1, 2020 will be paid by our operating partnership in cash.
Internalization Transaction
On August 31, 2020, our operating partnership, as contributee, and the Company, as the general partner of the operating partnership, entered into a Contribution and Purchase Agreement (the “Contribution & Purchase Agreement”) with SRI, which provided for the internalization of the Company’s external management functions provided by our former advisor and its affiliates.The Internalization Transaction closed on August 31, 2020, and, as a result, we are now self-managed.
Pursuant to the Contribution & Purchase Agreement, SRI contributed (the “Contribution”) to our operating partnership all of the membership interests in STAR RS Holdings, LLC, a Delaware limited liability company, and the assets, properties and rights necessary to operate as a self-managed company in all material respects, and the Assumed Liabilities (as defined in the Contribution & Purchase Agreement) in exchange for $124,999,000, which was paid as follows: (i) $31,249,000 in cash and (ii) 6,155,613.92 Class B units of limited partnership interests in our operating partnership (the “Class B OP Units”) having the agreed value set forth in the Contribution & Purchase Agreement. In addition, we purchased all of the Class A Convertible Stock held by our former advisor for $1,000. Further, Steadfast Investment Properties, Inc. (“SIP”) granted to our operating partnership a five-year, non-exclusive, non-transferable, non-sublicenseable, royalty-free license to use the name, trademark, and service mark “Steadfast,” and certain domain names, as set forth and subject to the terms and conditions of a certain trademark license agreement. In connection with the Internalization Transaction, we also entered into the following agreements:
Transition Services Agreement
As a condition to the Closing, on August 31, 2020, we and SIP entered into a Transition Services Agreement (as amended, the “Transition Services Agreement”), pursuant to which, commencing on August 31, 2020 until March 31, 2021, unless earlier terminated pursuant to the Transition Services Agreement or extended by mutual consent, SIP will continue to provide certain operational and administrative support at cost plus 15% to us, which may include support relating to, without limitation, shared legal, and tax support as set forth in the Transition Services Agreement. Similarly, we agreed to provide certain services to SIP and its affiliates at cost plus 15%, which may include acquisition, disposition and financing support, legal support, shared information technology and human resources.
Property Management Agreements
In connection with the Internalization Transaction, we terminated our existing property-level property management agreements with our former property manager, an affiliate of SIP. On August 31, 2020, STAR REIT Services, LLC, a Delaware limited liability company and indirect subsidiary of the Company (“SRS”), entered into property management agreements (each, a “Property Management Agreement”) to provide property management services in connection with certain properties owned by SIP or its affiliates. Pursuant to each Property Management Agreement, SRS will receive a monthly management fee equal to 2.0% of each property’s gross collections for such month. Each Property Management Agreement has an initial one-year term and will continue thereafter on a month-to-month basis unless the owner of the property terminates the Property Management Agreement with 60 days’ prior written notice or upon the determination of gross negligence, willful misconduct or bad acts of SRS or its employees with 30 days’ prior written notice to SRS. After the first one-year term, either party may terminate the Property Management Agreement in the event of a material breach that remains uncured for a period of 30 days after written notification of such breach.
Registration Rights Agreement
As a condition to the Closing, on August 31, 2020, we, our operating partnership and SRI entered into a registration rights agreement (the “Registration Rights Agreement”). Upon the terms and conditions in a Third Amended and Restated Agreement of Limited Partnership of our operating partnership (the “Third A&R Partnership Agreement”), the Class B OP Units will be redeemable for shares of convertibleour common stock. Pursuant to the Registration Rights Agreement, SRI (or any successor holder) may not transfer the Class B OP Units until August 31, 2022 (the “Lock-Up Expiration”). Beginning on the fifth anniversary of the Closing, SRI (or any successor holder) may request us to register for resale under the Securities Act of 1933, as amended, shares of our common stock remained outstanding.issued or issuable to such holder. We agreed to use commercially reasonable efforts to file a registration statement on Form S-3 within 30 days of such request and within 60 days of such request in the case of a registration statement on Form S-11 or such other appropriate form. We will cause such registration statement to become effective as soon as
reasonably practicable thereafter. The Registration Rights Agreement also grants SRI (or any successor holder) certain “piggyback” registration rights after the Lock-Up Expiration.
Non-Competition Agreement
As a condition to the Closing, on August 31, 2020, we entered into a Non-Competition Agreement (the “Non-Competition Agreement”) with Rodney F. Emery, the majority indirect owner of SRI and our Chairman and Chief Executive Officer, providing that from the date of the Closing until the date that is 30 months from August 31, 2020 (the “Restricted Period”), in general, Mr. Emery shall not, directly or indirectly, (i) solicit certain employees or service providers of the Company, subject to certain exceptions, or (ii) solicit certain customers, vendors, suppliers, agents, partners or other similar parties with the purpose of causing such parties or their affiliates to cease doing business with us or otherwise interfere with our business relationships with third parties.
Further, during the Restricted Period, Mr. Emery, subject to limited exceptions provided in the Non-Competition Agreement, in general (i) shall not, and shall cause his respective affiliates not to, engage in the business of managing, operating, directing and supervising the operations and administration of multifamily assets of the class and type owned by us as of August 31, 2020 (the “Assets”) (such business activities described in this subsection (i) being the “Restricted Business”), (ii) shall, consistent with past practice, present each opportunity and investment fully and accurately to our Board of Directors prior to his or his affiliates acquisition of any Assets and only make such investment on behalf of himself or his affiliates if our Board of Directors declines the opportunity; and (iii) shall not engage with or otherwise acquire an interest in, directly or indirectly, any business or enterprise that primarily engage in the Restricted Business in an area within a two-mile radius of each Asset owned or managed by us as of the Closing.
Further, each of SRS, us and our operating partnership agreed that, in general, during the Restricted Period, each will not solicit any employee of SRI or its affiliates or attempt to assist any such employee to enter into any other consulting or business relationship with SRS, us and our operating partnership, subject to certain limitations.
Third A&R Partnership Agreement
As a condition to the Closing, on August 31, 2020, we, as the general partner and parent of our operating partnership, SRI and the other limited partners in the operating partnership entered into the Third A&R Partnership Agreement to restate the Second A&R Partnership Agreement in order to, among other things, remove references to the limited partner interests previously held by the SIR advisor and STAR III advisor, reflect the consummation of the Contribution, and designate Class B OP Units that were issued in the Internalization Transaction.
Employment Arrangements
On September 1, 2020, Rodney F. Emery accepted an offer letter of employment, which sets forth the terms and conditions of Mr. Emery’s service as our Chief Executive Officer (the “Offer Letter”). The Offer Letter provides that Mr. Emery’s employment with SRS will be at-will. Mr. Emery’s annual base salary will be $55,000, which will be subject to applicable deductions and withholdings and paid in accordance with our regular payroll practices. Mr. Emery will be eligible for the same benefit programs as we offer to similarly situated employees from time to time, subject to eligibility requirements and the terms of those programs.
On September 1, 2020, SRS entered into employment agreements (collectively, the “Employment Agreements”) with each of Messrs. Middleton, Stern and Bahn and Mses. Neyland and Stanley (the “Executives”).
Term
The Employment Agreements became effective as of the Closing and will continue in effect through the third anniversary of the Closing (the “Initial Term”), unless terminated sooner pursuant to the Employment Agreements. Commencing on the last day of the Initial Term and on each subsequent anniversary of such date, the term of the Employment Agreements shall be automatically extended for successive one-year periods; provided, however, that
either we or the Executive may elect not to extend the term of employment by giving at least 180 days prior written notice.
Compensation
The Employment Agreements provide that Messrs. Middleton, Stern and Bahn, and Mses. Neyland and Stanley will receive an annual base salary of $450,000, $400,000, $400,000, $450,000 and $300,000, respectively. Messrs. Middleton, Stern, Bahn and Mses. Neyland and Stanley will be eligible to receive an annual cash bonus with a target amount of at least 50% of his or her annual base salary (each, a “Target Annual Bonus”), based on criteria and goals established by the Board of Directors or a Board of Directors’ committee; provided that their 2020 annual bonuses will be not less than the full Target Annual Bonuses.
The Executives will also be eligible to receive equity and/or other long-term incentive awards, in the discretion of our Board of Directors or a committee of our Board of Directors.
Subject to each Executive’s continued employment through the grant date, in the first quarter of calendar year 2021, Messrs. Middleton, Stern and Bahn and Mses. Neyland and Stanley will receive an award of time-based restricted stock (the “Time-Based 2021 Award”) with a grant date fair value of $225,000, $200,000, $200,000, $225,000, and $120,000, respectively, each to be granted under and subject to the terms of our 2013 Amended and Restated Incentive Plan (the “Plan”) and award agreements. The Time-Based 2021 Awards will vest ratably over three years following the grant date, subject to the Executive’s continuous employment through the applicable vesting dates, with certain exceptions.
The Executives will also be eligible to participate in all employee benefit programs made available to our employees generally from time to time and to receive certain other perquisites, each as described in their respective Employment Agreement.
Severance
If the Executive’s employment is terminated by us without “cause” or by the Executive for “good reason” (as each term is defined in the Employment Agreements) and the Executive executes a release of claims, the Executive will be entitled to (1) a series of cash payments, payable monthly for 12 months, totaling a multiple of one if the termination does not occur within 12 months after a Change in Control of the Company (as defined in the Executive’s Employment Agreement) and one and one half, payable monthly for 18 months, if the termination occurs within 12 months after a Change in Control of the sum of his or her then-current base salary and Target Annual Bonus for the then-current calendar year (annualized if the termination occurs in 2020); (2) vesting of all outstanding equity-based awards that are subject solely to time-based vesting conditions and (3) if the Executive elects continuation of coverage under the Company’s group health plan, continuation of subsidized health care coverage for 12 months (or 18 months in the case of a Change of Control) or, if earlier, until the Executive becomes eligible for health care coverage from another employer or eligibility for continuation of coverage under any Company group health plan ends.
Each Employment Agreement also contains covenants relating to the treatment of confidential information and intellectual property matters and restrictions on the ability of each of the Executives on the one hand and the Company on the other hand to disparage the other.
Restricted Stock Grants
On September 1, 2020, the Executives and certain other key employees of the Company were issued restricted stock grants under the terms of the Plan, which grants had been approved by the Special Committee and our Board of Directors. The grants to the Executives were made pursuant to a Restricted Stock Grant Agreement. The grants vest 50% on the second anniversary of the Closing and 50% on the third anniversary of the Closing (collectively, the “2020 Restricted Stock Awards”).
The 2020 Restricted Stock Award agreements provide that vesting is subject to the Executive’s continued employment with the Company through each applicable vesting date, except in the event of the Executive’s death or disability, in which case, any unvested portion of the awards will become fully vested. In addition, the 2020 Restricted Stock Award agreements provide the Executive with rights as a stockholder in respect of the awards’ vested and unvested shares, including the right to vote and the right to dividends.
In the event of a termination of the Executive’s employment by the Company without “cause” or by the Executive for “good reason” within 12 months following a Change in Control, any unvested portion of the 2020 Restricted Stock Awards will become fully vested at the time of such termination, provided that if the 2020 Restricted Stock Awards are unvested at the time of a Change in Control of the Company and are not assumed or substituted for equivalent awards as part of the Change in Control transaction, the 2020 Restricted Stock Awards will become fully vested at the time of the Change in Control transaction.
The number of shares of restricted stock granted to each of the Executives, as set forth below, was determined by dividing the value of the 2020 Restricted Stock Award for the Executive as pursuant to the terms of his or her Employment Agreement by the most recent publicly disclosed estimated value per share as determined by our Board of Directors.
| | | | | | | | |
| Executive | | Number of Shares of 2020 Restricted Stock Awards vesting over 3 years |
| Ella Neyland | | 29,546.95 |
| Tim Middleton | | 29,546.95 |
| Gustav Bahn | | 19,697.96 |
| Jason Stern | | 13,131.98 |
| Tiffany Stanley | | 13,131.98 |
Our Prior Relationships with our Former Advisor and our Former Sponsor
Prior to the Closing and during the year ended December 31, 2019 and the eight months ended August 31, 2020, Steadfast Apartment Advisor, LLC iswas our advisor and, as such, supervisessupervised and managesmanaged our day-to-day operations and selectsselected our real property investments and real estate-related assets, subject to oversight by our Board of Directors. Our former advisor also providesprovided marketing, sales and client services on our behalf. Our former advisor iswas owned by SRI, our former sponsor. Mr. Emery, our Chairman of the Board of Directors and Chief Executive Officer, indirectly controlsowns an 86% interest in Steadfast Holdings, the parent of our former sponsor, our advisor and the dealer manager in our initial public offering, Stira Capital Markets Group, LLC. Ms. Ana Marie del Rio, our then Secretary and affiliated director, owns an indirecta 7% interest in our sponsor, advisor and dealer manager.Steadfast Holdings. Since 2014, Ms. Neyland earned an annual 5% profit interest from Steadfast Holdings. Crossroads Capital Multifamily, LLC (“Crossroads Capital Multifamily”), owns a 25% membership interest in our former sponsor. Pursuant to the Third Amended and Restated Operating Agreement of our former sponsor, effective as of January 1, 2014, as amended, distributions are allocated to each member of our former sponsor in an amount equal to such member’s accrued and unpaid 10% preferred return, as defined in the Third Amended and Restated Operating Agreement. Thereafter, all distributions to Crossroads Capital Multifamily arewere subordinated to distributions to the other member of our former sponsor, Steadfast Holdings, until Steadfast Holdings hashad received an amount equal to certain expenses, including certain organization and offering costs, incurred by Steadfast Holdings and its affiliates on our behalf.
AllDuring the year ended December 31, 2019 and eight months ended August 31, 2020, all of our other officers and directors, other than our independent directors, arewere officers of our former advisor and officers, limited partners and/or members of our former sponsor and other affiliates of our former advisor.
WePrior to the Closing, we and our operating partnership have entered intooperated pursuant to the advisory agreementAdvisory Agreement with our former advisor and our operating partnership which hashad a one-year term expiring December 13, 2019 (the “advisory agreement”), subject to an unlimited number March 6, 2021.
Services provided by our advisor under the terms of the advisory agreement includeAdvisory Agreement included the following:
•finding, presenting and recommending investment opportunities to us consistent with our investment policies and objectives;
•making investment decisions for us, subject to the limitations in our Charter and the direction and oversight of our Board of Directors;
•structuring the terms and conditions of our investments, sales and joint ventures;
•acquiring investments on our behalf in compliance with our investment objectives and policies;
•sourcing and structuring our loan originations;
•arranging for financing and refinancing of investments;
•entering into service agreements for our loans;
•supervising and evaluating each loan servicer’s and property manager’s performance;
•reviewing and analyzing the operating and capital budgets of the properties underlying our investments and the properties we may acquire;
•entering into leases and service contracts for our properties;
•assisting us in obtaining insurance;
•generating our annual budget;
•reviewing and analyzing financial information for each of our assets and our overall investment portfolio;
•formulating and overseeing the implementation of strategies for the administration, promotion, management, financing and refinancing, marketing, servicing and disposition of our investments;
•performing investor relations services;
•maintaining our accounting and other records and assisting us in filing all reports required to be filed with the SEC, the Internal Revenue Service and other regulatory agencies;
•engaging and supervising the performance of our agents, including our registrar and transfer agent; and
•performing any other services reasonably requested by us.
The above summary is provided to illustrate the material functions that our former advisor performsperformed for us as an advisor and is not intended to include all of the services that may bewere provided to us by our former advisor, its affiliates or third parties.
Our former advisor also entered into an Advisory Services Agreement with Crossroads Capital Advisors, LLC (“Crossroads Capital Advisors”), an affiliate of Crossroads Capital Multifamily, wherebypursuant to which Crossroads Capital Advisors providesprovided certain advisory services to us on behalf of our former advisor.
Fees and Expense Reimbursements Paid to ourOur Former Advisor
Pursuant to the terms of our advisory agreement,Advisory Agreement, we paypaid our former advisor the fees described below.below during the year ended December 31, 2019 and eight months ended August 31, 2020:
We pay•Prior to the completion of the Mergers on March 6, 2020, we paid our former advisor an acquisition fee of 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. Following the completion of the Mergers on March 6, 2020 and until the Closing, we paid our former 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 our common stock. For the year ended December 31, 2018, we did not incur or pay acquisition fees to our advisor. For the six months ended June 30, 2019, we incurred and paid $48,343 of acquisition fees to our advisorformer advisor. For the eight months ended August 31, 2020, we incurred $17,717,639 and paid $17,717,639 of acquisition fees to our former advisor, which includes an acquisition fee of $48,343.$16,281,487 following the completion of the Mergers on March 6, 2020.
We pay•Prior to the completion of the Mergers on March 6, 2020, we paid our former advisor 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 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), we paypaid our former advisor or its affiliate a loan coordination fee equal to 0.75% of the amount of debt financed or refinanced. In some instances, we and our former advisor may reduceagreed to a loan coordination fee of $100,000 per loan refinanced.
Following the completion of the Mergers on March 6, 2020 and until the Closing, we paid our former advisor or one of its affiliates, in cash, the loan coordination fee equal to $100,000 per0.5% 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) our 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, we paid our former advisor a loan refinanced. coordination fee of $7,910,205.
Following the completion of the Mergers on March 6, 2020 and until the Closing, 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), we also paid our former 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 our proportionate share of the amount refinanced in the case of investments made through a joint venture.
For the year ended December 31, 2018,2019, we incurred $3,562,595$942,833 and paid $4,290,695$342,833 of loan coordination fees to our former advisor. For the sixeight months ended June 30, 2019,August 31, 2020, we incurred $10,417,723 and paid no$11,017,723, of loan coordination fees to our advisor.former advisor, which includes loan coordination fees of $1,116,700 paid in shares of our common stock.
We pay•Prior to the completion of the Mergers on March 6, 2020, we paid our former advisor a monthly investment management fee equal to one-twelfth of 1.0% of (1) the cost of our investments in real properties and real estate-related assets acquired directly by the Companyus or (2) the Company’sour allocable cost of each investment in real property or real estate-relatedestate related asset acquired through a joint venture. The investment management fee was 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 our proportionate share thereof in the case of investments made through joint ventures. Following the completion of the Mergers on March 6, 2020 and until the Closing, we paid our former advisor a monthly investment management fee, which was calculated on the same basis as described above, and payable 50% in cash and 50% in shares of our common stock. For the year ended December 31, 2018,2019, we incurred investment management fees to our former advisor of $15,743,185.$16,722,860. During the same period we
paid $15,687,320$12,632,561 of investment management fees to our former advisor. For the sixeight months ended June 30, 2019,August 31, 2020, we incurred $8,334,328$19,795,674 and paid $7,442,762$22,487,669 of investment management fees to our former advisor. Investment management fees of $6,953,092 pertaining to the 50% payable in shares of our common stock were paid for the eight months ended August 31, 2020.
We will pay•Prior to the completion of the Mergers on March 6, 2020, if our former advisor or its affiliates provided a dispositionsubstantial amount of services in connection with the sale of a property or real estate-related asset as determined by a majority of our independent directors, we paid our former advisor or its affiliates a fee of upequivalent to one-half of the brokerage commissions paid, but in no event to exceed 1.0% of the sales price of each property or real estate-related asset sold ifsold. Following the completion of the Mergers on March 6, 2020 and until the Closing, the disposition fee payable to our former advisor or its affiliates provides a substantial amountwas one-half of services, as determined by a majoritythe brokerage commissions paid, but in no event to exceed 0.5% of our independent directors, in connection with the salesales price of a realeach property or real estate-related asset.asset sold. To the extent the disposition fee iswas paid upon the sale of any assets other than real property, it will bewas included as an operating expense for purposes of the 2%/25% Guidelines (discussed below). With respectLimitation. In connection with the sale of securities, the disposition fee could have been paid to an affiliate of our former advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the disposition fee to a property held infirm that is not a joint venture, the foregoing commission will be reduced to a percentage of such amounts reflecting our economic interest in the joint venture.registered broker-dealer. For the year ended December 31, 2018 and2019, we incurred disposition fees to our former advisor of $591,000. For the sixeight months ended June 30, 2019,August 31, 2020, we did not incur or payincurred $594,750 and paid $1,185,750 of disposition fees to our advisor any disposition fees.former advisor.
In addition to the fees we paypaid to our former advisor pursuant to the advisory agreement,Advisory Agreement, we also reimbursereimbursed our former advisor and its affiliates for the costs and expenses described below.
•We reimbursed our former advisor and its affiliates for organization and offering expenses, for actual legal, accounting, tax, printing, mailing and filing fees, charges of our transfer agent, expenses of organizing the company, data processing fees, advertising and sales literature costs, out-of-pocket due diligence costs, and amounts to reimburse our former advisor or its affiliates for the salaries of its employees and other costs in connection with preparing supplemental sales materials and providing other administrative services in connection with our initial public offering. Any such reimbursement did not exceed actual expenses incurred by our former advisor.
For the year ended December 31, 2018,2019, we incurred $0 and paid $262,387$228,665 to our former advisor for the reimbursement of organization and offering expenses. For the sixeight months ended June 30, 2019,August 31, 2020, we incurred $0 and paid $113,998$50,017 to our former advisor for the reimbursement of organization and offering expenses. Following the termination of our initial public offering, our former advisor had an obligation to reimburse us to the extent total organization and offering expenses (including sales commissions and dealer manager fees) borne by us exceeded 15% of the gross proceeds raised in the initial public offering. Total organization and offering expenses borne by us did not exceed 15% of the gross offering proceeds in our public offering.
•Subject to the 2%/25% Guidelines discussed below, we reimbursereimbursed our former advisor for all expenses incurred by our former advisor in providing services to us, including our allocable share of our former advisor’s overhead such as rent, employee costs, utilities and information technology costs; provided, however, that no reimbursement shall bewas made for costs of such personnel to the extent that personnel arewere used in transactions for which our former advisor receivesreceived an acquisition fee, investment management fee, loan coordination fee or disposition fee or for the employee costs our former advisor payspaid to our executive officers. For the year ended December 31, 2018,2019, we incurred and reimbursed our former advisor $1,175,061$1,826,725 and $1,157,836$1,457,164 for administrative services.services, respectively. For the sixeight months ended June 30, 2019,August 31, 2020, we incurred and reimbursed $828,151$2,509,590 and $748,384,$3,129,722, respectively, for administrative services to our former advisor.
•We reimbursereimbursed our former advisor for acquisition expenses incurred related to the selection, evaluation, acquisition and development of real property investments and real estate-related investments as long as total acquisition fees and expenses (including any loan coordination fees)fees at acquisition) relating to the purchase of an investment dodid not exceed 4.5% of the contract price of the property unless such excess iswas approved by our Board of Directors. For the year ended December 31, 2018, we incurred and reimbursed our advisor acquisition expenses of $26,113 and $24,507, respectively. For the six months ended June 30, 2019, we incurred and reimbursed our former advisor acquisition expenses of $311,373$650,041 and $292,980,$651,648, respectively. For the eight months ended August 31, 2020, we incurred and reimbursed our former advisor acquisition expenses of $408,155 and $408,155, respectively.
2%/25% Guidelines
As described above, prior to the Closing, our former advisor and its affiliates arewere entitled to reimbursement of actual expenses incurred for administrative and other services provided to us for which they do not otherwise receive a fee. However, we willwere not required to reimburse our former advisor or its affiliates at the end of any fiscal quarter for “total operating expenses” that for the four consecutive fiscal quarters then ended, or the expense year, exceeded the greater of (1) 2% of our average invested assets or (2) 25% of our net income, which we refer to as the “2%/25% Guidelines,” and our former advisor musthad an obligation to reimburse us quarterly for any amounts by which our total operating expenses exceed the 2%/25% Guidelines in the expense year, unless our independent directors have determined that such excess expenses were justified based on unusual and non-recurring factors.
For purposes of the 2%/25% Guidelines, “total operating expenses” means all costs and expenses paid or incurred by us, as determined by GAAP, that are in any way related to our operation or to corporate business, including our allocable share of our advisor’s overhead,advisory fees, but excluding (a)(1) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and listing and registration of our shares of our common stock; (b)(2) interest payments; (c)(3) taxes; (d)(4) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable(5) incentive fees based on the gain in the sale of our assets; (f)fees; (6) acquisition fees and acquisition expenses (including expenses relating to potential acquisitions that we do not close) and investment management fees; (g)(7) real estate commissions on the resalesale of investments;a real property; and (h)(8) other expenses connected with the acquisition, disposition, management and ownership of investmentsreal estate interests, mortgage loans or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair, and improvement of real property). At each of December 31, 20182019 and June 30, 2019,August 31, 2020, our total operating expenses, as defined above, did not exceed the 2%/25% Guidelines.
Selling Commissions and Fees Paid to our Dealer Manager
The dealer manager for our initial public offering of common stock was Stira Capital Markets Group, LLC (formerly Steadfast Capital Markets Group, LLC), an affiliate of our former sponsor. Our dealer manager is a licensed broker-dealer registered with Financial Industry Regulatory Authority, Inc. As the dealer manager for our initial public offering, Stira Capital Markets Group, LLC was entitled to certain selling commissions, dealer manager fees and reimbursements relating to raising capital. The dealer manager agreement with our dealer manager provided for the following compensation:
•We paid our dealer manager selling commissions of up to 7% of the gross offering proceeds from the sale of our shares, all of which could be reallowed to participating broker-dealers. We allowed a participating broker-dealer to elect to receive the 7% selling commission at the time of sale or elect to have the selling commission paid on a trailing basis. A participating broker-dealer electing to receive a trailing selling commission will beis 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. For the year ended December 31, 2018,2019, we paid $262,387$228,665 in trailing selling commissions to our dealer manager. For the sixeight months ended June 30, 2019,August 31, 2020, we paid $113,998$50,017 in trailing selling commissions to our dealer manager.
•We paid our dealer manager a dealer manager fee of 3% of the gross offering proceeds from the sale of our shares (a portion of which could be reallowed to participating broker-dealers). No dealer manager fees were paid to our dealer manager during the year ended December 31, 2018,2019, and the sixeight months ended June 30, 2019.August 31, 2020.
Fees and Reimbursements Paid to our Property Manager
We have entered into•Prior to the Closing, we were a party to property management agreements, as amended from time to time, with Steadfast Management Company, Inc., which was an affiliate of our former sponsor, in connection with the management of our multifamily properties. Pursuant to theeach property management agreements,agreement, we paypaid the property manager a monthly management fee equal to a range from 2.5% to 3.0%3.5% of each property’s gross revenues (as defined in the respective property management agreements) for each month. Each property management agreement has an initial one-year term and will continue thereafter on a month-to-month basis unless either party gives 60 days’ prior notice of its desire to terminate the property management agreement, provided that we may terminate the property management agreement at any time upon the determination of gross negligence, willful misconduct or bad acts of the property manager or its employees or upon an uncured breach of the agreement upon 30 days’ prior written notice to the property manager. For the year ended December 31, 2018, we incurred and paid property management fees of $4,886,436 and $4,872,734, respectively, to the property manager. For the six months ended June 30, 2019, we incurred and paid property management fees of $2,479,427$5,016,845 and $2,473,367,$5,009,096, respectively, to the property manager. For the eight months ended August 31, 2020, we incurred and paid property management fees of $5,484,466 and $5,135,452, respectively, to the property manager.
•The property management agreements specifyspecified that we arewere to reimburse the property manager for the salaries and related benefits of on-site personnel. For the year ended December 31, 2018, we incurred and reimbursed on-site personnel costs of $14,959,964 and $14,958,751, respectively, to the property manager. For the six months ended June 30, 2019, we incurred and reimbursed on-site personnel costs of $7,504,136$15,230,722 and $7,540,194,$15,155,066, respectively, to the property manager. For the eight months ended August 31, 2020, we incurred and reimbursed on-site personnel costs of $17,652,548 and $16,983,165, respectively, to our property manager.
•The property management agreements also specifyspecified certain other fees payable to the property manager for benefit administration, information technology infrastructure, licenses, support and training services and capital expenditures.expenditures supervision. For the year ended December 31, 2018,2019, we incurred and reimbursed other fees of $1,916,387$3,478,456 and $1,916,348,$3,451,202, respectively, and incurred and paid capital expenditures of $7,295$107,576 to the property manager. For the sixeight months ended June 30, 2019,August 31, 2020, we incurred and reimbursed other fees of $1,629,425$4,259,015 and $1,567,441,$4,168,387, respectively, to the property manager. No capital expenditures were incurred or paid during the sixeight months ended June 30, 2019.
August 31, 2020.
Payments to our Construction Manager
We have entered into•Prior to the Closing, we were a party to construction management agreements with Pacific Coast Land and Construction, Inc., or our construction manager, an affiliate of our former sponsor, in connection with capital improvements and renovation or value-enhancement projects for certain of our properties. The construction management fee payable with respect to each property under the construction management agreement rangesranged from 8.0%6.0% to 12.0% of the costs of the improvements for which the construction manager hashad 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. For the year ended December 31, 2018, we incurred and paid construction management fees of $585,532 and $700,410, respectively, to the construction manager. For the six months ended June 30, 2019, we incurred and paid construction management fees of $461,417$1,340,387 and $427,467,$1,306,911, respectively, to the construction manager. For the eight months ended August 31, 2020, we incurred and paid construction management fees of $536,097 and $629,533, respectively, to the construction manager.
•The construction management agreements also specifyspecified that we arewere to reimburse the construction manager for the salaries and related benefits of certain of its employees for time spent working on capital improvements and renovations. We may also reimburse the construction manager for the salaries and related benefits of certain of its employees for time spent working on capital improvements and renovations. For the year ended December 31, 2018, we incurred and reimbursed labor costs of $908,206 and $941,879, respectively, to the construction manager. For the six months ended June 30, 2019, we incurred and reimbursed labor costs of $261,305$467,295 and $279,297,$487,973, respectively, to the construction manager. For the eight months ended August 31, 2020, we incurred and reimbursed labor costs of $236,780 and $243,418, respectively, to the construction manager.
Pending Mergers
Payments for Development Services
•We are a party to a development services agreement with Steadfast Income REITMultifamily Development, Inc., an affiliate of our former advisor (the “Developer”), in connection with certain development projects, pursuant to which the developer receives a development fee and Steadfast Apartment REIT III
On August 5, 2019, wereimbursement for certain expenses for overseeing the development project. We entered into merger agreementsa Development Services Agreement with the Developer in connection with the Garrison Station, the Arista at Broomfield and the Flatirons development projects that provided for a development fee equal to acquire each of Steadfast Income REIT and Steadfast Apartment REIT III. Both mergers are stock-for-stock transactions whereby each of Steadfast Income REIT and Steadfast Apartment REIT III will be merged into one of our wholly-owned subsidiaries. The consummation of our merger with Steadfast Income REIT is not contingent upon the completion4% of the merger with Steadfast Apartment REIT III,hard and the consummationsoft costs of the merger with Steadfast Apartment REIT III is not contingent upon the completion of the Company’s merger with Steadfast Income REIT. Steadfast Income REIT is externally advised by Steadfast Income Advisor, LLC (“SIR Advisor”) and Steadfast Apartment REIT III is externally advised by Steadfast Apartment Advisor III, LLC (“STAR III Advisor”). Each of SIR Advisor and STAR III Advisor is an indirect subsidiary of our sponsor. For additional information on our pending merger with Steadfast Income REIT and Steadfast Apartment REIT III, see our Current Report on Form 8-K filed with the SEC on August 6, 2019.
Amended and Restated Advisory Agreement
Concurrently with the entry into the merger agreements, we and our advisor entered into the Amended and Restated STAR Advisory Agreement (the “Amended STAR Advisory Agreement”), which will become effective at the effective time of the earlier of the merger with Steadfast Income REIT and the merger with Steadfast Apartment REIT. The Amended STAR Advisory Agreement amends our existing advisory agreement to lower certain fees and to change the form of consideration for the investment management fee so that such fees are paid 50% in cash and 50% in STAR common stock. In addition, the Amended STAR Advisory Agreement provides for a Subordinated Incentive Listing Fee and Subordinated Share of Net Sales Proceeds (each asdevelopment project (as defined in the Amended STAR Advisory Agreement) toapplicable development services agreement) as specified in the development services agreement. 75% of the development fee will be payable to our advisor.
Pursuantpaid in 14 monthly installments and the remaining 25% will be paid upon delivery of a certificate of occupancy by the Developer to the merger agreements, our advisor may request to receive a new classCompany. For the year ended December 31, 2019, we incurred and paid development fees of convertible stock in exchange for our convertible stock owned by the advisor in lieu of the incentive$151,071 and performance fees provided for
in the Amended STAR Advisory Agreement; provided that such request must be made prior$100,714, respectively, to the consummationDeveloper. For the eight months ended August 31, 2020, we incurred and paid development fees of either of$402,857 to the mergers.Developer.
Other Transactions
•We depositdeposited amounts with an affiliate of our sponsorSRI to fund a prepaid insurance deductible account to cover the cost of required insurance deductibles across all properties owned by us and other affiliated entities of our former sponsor. Upon filing a major claim, proceeds from the insurance deductible account may be used by us or another affiliate of our former sponsor. In addition, we deposit amounts with an affiliate of our former sponsor to cover the cost of property and property related insurance across certain of our properties. For the year ended December 31, 2018,2019, we incurred $1,394,218$2,301,972 and funded $1,323,074$2,742,723 into the prepaid insurance deductible and property insurance accounts to an affiliate of our sponsor and earned $150,000 and received $75,000 in insurance proceeds from an affiliate of our sponsor upon filing claims. For the six months ended June 30, 2019, we incurred $641,978 and funded $540,405 into the prepaid insurance deductible and property insurance accounts to an affiliate of ourformer sponsor and earned $0 and received $75,000 in insurance proceeds from an affiliate of our former sponsor upon filing claims. For the eight months ended August 31, 2020, we incurred $2,449,861 and funded $1,502,206 into the prepaid insurance deductible and property insurance accounts to an affiliate of our former sponsor and earned $150,000 and received $162,282 in insurance proceeds from an affiliate of our former sponsor related to the filing of any claims.
•We rentrented apartment homes to an affiliate of our sponsorSRI for use as regional offices. For the year ended December 31, 2018,2019, we earned and received $21,589$58,980 of rental revenue from our affiliates. For the sixeight months ended June 30, 2019,August 31, 2020, we earned and received $29,490$53,161 of rental revenue from our affiliates.
Currently Proposed Transactions
Other than as described above, there are no currently proposed material transactions with related persons other than those covered by the terms of the agreements described above.
Policies and Procedures for Transactions with Related Persons
In order to reduce or eliminate certain potential conflicts of interest, our Charter and(and our advisory agreementprevious Advisory Agreement) contain restrictions and conflict resolution procedures relating to transactions we enter into with our advisor, our directors or their respective affiliates. Each of the restrictions and procedures that apply to transactions with our advisor and its affiliates will also apply to any transaction with any entity or real estate program controlled by our advisor and its affiliates.related party transactions. As a general rule, any related party transaction must be approved by a majority of the directors (including a majority of independent directors) not otherwise interested in the transaction. In determining whether to approve or authorize a particular related party transaction, these persons will consider whether the transaction between us and the related party is fair and reasonable to us and has terms and conditions no less favorable to us than those available from unaffiliated third parties.
We have also adopted a Code of Ethics (as defined herein) that applies to each of our officers and directors, which we refer to as “covered persons.” The Code of Ethics sets forth certain conflicts of interest policies that limit and govern certain matters among us, the covered persons, our advisor and their respective affiliates. Our Code of Ethics is available on our website at www.steadfastreits.comwww.steadfastliving.com. For more information on our Code of Ethics, see “Code of Business Conduct and Ethics.”
ANNUAL REPORT
Our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019, was mailed to stockholders on or about April 22, 2019.23, 2020. Our Annual Report on Form 10-K is incorporated in this proxy statement and is deemed a part of the proxy soliciting material.
ANY STOCKHOLDER WHO DID NOT RECEIVE A COPY OF OUR MOST RECENT ANNUAL REPORT ON FORM 10-K OR WOULD LIKE ADDITIONAL COPIES, INCLUDING THE FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES, AS FILED WITH THE SEC, SHALL BE FURNISHED A COPY WITHOUT CHARGE UPON WRITTEN REQUEST TO: STEADFAST APARTMENT REIT, INC., 18100 VON KARMAN AVENUE, SUITE 500,200, IRVINE, CALIFORNIA 92612, ATTENTION: CORPORATE SECRETARY.
CODE OF BUSINESS CONDUCT AND ETHICS
We have adopted a Code of Business Conduct and Ethics (the “Code of Ethics”), which contains general guidelines for conducting our business and is designed to help directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. The Code of Ethics applies to all of our officers, including our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions and all members of our Board of Directors. The Code of Ethics covers topics including, but not limited to, conflicts of interest, record keeping and reporting, payments to foreign and U.S. government personnel and compliance with laws, rules and regulations. Our Code of Ethics is available on our website at www.steadfastreits.comwww.steadfastliving.com. We will also provide to any person without charge a copy of our Code of Ethics, including any amendments or waivers, upon written request delivered to our principal executive office at Steadfast Apartment REIT, Inc., 18100 Von Karman Avenue, Suite 500,200, Irvine, California 92612, Attention: Corporate Secretary.
PROPOSALS FOR 20202021 ANNUAL MEETING OF STOCKHOLDERS
Under SEC regulations, any stockholder desiring to make a proposal to be acted upon at the 20202021 Annual Meeting of Stockholders must cause such proposal to be received at our principal executive offices located at 18100 Von Karman Avenue, Suite 500,200, Irvine, California 92612, Attention: Corporate Secretary, no later than May 20, 2020,June 11, 2021, in order for the proposal to be considered for inclusion in our proxy statement for that meeting; provided, however, that in the event that the date of the 20202021 Annual Meeting of Stockholders is advanced or delayed by more than thirty days from the first anniversary of the date of the 20192020 Annual Meeting, the deadline for the delivery of such stockholder proposal will be a reasonable time prior to the date we begin to print and send our proxy materials. Stockholders also must follow the procedures prescribed in Rule 14a-8 promulgated under the Exchange Act.
Pursuant to Article II, Section 11(a)(2) of our bylaws, if a stockholder wishes to present a proposal at the 20202021 Annual Meeting of Stockholders, whether or not the proposal is intended to be included in the proxy statement for that meeting, the stockholder must give advance written notice thereof to our Corporate Secretary at our principal executive offices, no earlier than April 20, 2020May 12, 2021 and no later than 5:00 p.m., Eastern Time, on May 20, 2020;June 11, 2021; provided, however, that in the event that the date of the 20202021 Annual Meeting of Stockholders is advanced or delayed by more than thirty days from the first anniversary of the date of the 20192020 Annual Meeting of Stockholders, written notice of a stockholder proposal must be delivered not earlier than the 150th day prior to the date of the 20202021 Annual Meeting of Stockholders and not later than 5:00 p.m., Eastern Time, on the later of the 120th day prior to the date of the 20202021 Annual Meeting of Stockholders as originally convened, or the tenth day following the day on which public announcement of the date of the 20202021 Annual Meeting of Stockholders is first made. Any stockholder proposals not received by us by the applicable date in the previous sentence will be considered untimely. Rule 14a-4(c) promulgated under the Exchange Act permits our management to exercise discretionary voting authority under proxies it solicits with respect to such untimely proposals. We presently anticipate holding the 20202021 Annual Meeting of Stockholders in November 2020.December 2021.
OTHER MATTERS
Mailing of Materials; Other Business
We are mailing a proxy card together with this proxy statement to all stockholders of record on or about September 17, 2019.October 9, 2020. The only business to come before the 20192020 Annual Meeting of which management is aware is set forth in this proxy statement. If any other business does properly come before the 20192020 Annual Meeting or any postponement or adjournment thereof, the proxy holders will vote in regard thereto according to their discretion insofar as such proxies are not limited to the contrary.
It is important that proxies be returned promptly. Therefore, stockholders are urged to date, sign and return the accompanying proxy card in the accompanying return envelope. Investors may also vote by telephone by calling (866) 858-9505 or by internet by following the instructions provided on the accompanying proxy card.
Legal Proceedings
We are not aware of any current legal proceedings involving any of our directors or executive officers and either the Company or any of its subsidiaries.
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STEADFAST APARTMENT REIT, INC.
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 5, 2019DECEMBER 2, 2020
Solicited by the Board of Directors
Please Vote by November 4, 2019December 2, 2020
The undersigned stockholder of Steadfast Apartment REIT, Inc., a Maryland corporation, hereby appoints Rodney F. Emery and Ana Marie del Rio,Gustav Bahn, and each of them as proxies, for the undersigned with full power of substitution in each of them, to attend the 20192020 Annual Meeting of Stockholders of Steadfast Apartment REIT, Inc. to be held on Tuesday, November 5, 2019Wednesday, December 2, 2020 at 3:30 p.m. local time, at 18100 Von Karman Avenue, Suite 500, Irvine, California 92612,10:00 a.m. Pacific Time, virtually via www.proxydocs.com/STAR, and any and all adjournments and postponements thereof, to cast, on behalf of the undersigned, all votes that the undersigned is entitled to cast, and otherwise to represent the undersigned, at such meeting and all adjournments and postponements thereof, with all power possessed by the undersigned as if personally present and to vote in their discretion on such other matters as may properly come before the meeting. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and of the accompanying proxy statement, which is hereby incorporated by reference, and revokes any proxy heretofore given with respect to such meeting.
This proxy is solicited on behalf of the Steadfast Apartment REIT, Inc.’s Board of Directors. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the 20192020 Annual Meeting, including matters incident to its conduct.
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| When shares are held by joint tenants or tenants in common, the signature of one shall bind all unless the Secretary of the company is given written notice to the contrary and furnished with a copy of the instrument or order which so provides. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by an authorized officer. If a partnership, please sign in partnership name by an authorized person. | | | | | |
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| Stock Owner sign here | | | | | |
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| Co-Owner sign here | | | | | |
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| Date | | | | Scan code for mobile voting | |
PLEASE BE SURE TO SIGN AND DATE THIS CARD AND MARK ON THE REVERSE SIDE
EVERY STOCKHOLDER’S VOTE IS IMPORTANT!
This communication presents only an overview of the more complete proxy materials that are available to you in this packet and on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.
The Proxy Statement and Annual Report are available at: www.proxypush.com/www.proxydocs.com/STAR
PLEASE AUTHORIZE YOUR PROXY TODAY!
PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK. Example: n
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR ALL” FIVEEIGHT NOMINEES TO THE BOARD OF DIRECTORS NAMED BELOW AND “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2019.2020. IF NO SPECIFICATIONS ARE MADE, SUCH PROXY WILL BE VOTED “FOR” BOTH PROPOSALS.
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| 1. | The election of Rodney F. Emery, Ella S. Neyland, Ana Marie del Rio, Kerry D. Vandell, G. Brian Christie, and Thomas H. Purcell, Ned W. Brines and Stephen R. Bowie to serve as Directors until the Annual Meeting of Stockholders of Steadfast Apartment REIT, Inc. to be held in the year 20202021 and until each of their successors is duly elected and qualifies. | | | | | FOR ALL
o | WITHHOLD ALL
o |
| | | | | | To vote on each nominee individually, please vote below: |
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| Nominees: | | | | | FOR | WITHHOLD |
| (1) Rodney F. Emery | | | | | o | o |
| (2) Ella S. Neyland | | | | | o | o |
| (3) Kerry D. VandellAna Marie del Rio | | | | | o | o |
| (4) G. Brian ChristieKerry D. Vandell | | | | | o | o |
| (5) Thomas H. PurcellG. Brian Christie | | | | | o | o |
| (6) Thomas H. Purcell | | | | | o | o |
| (7) Ned W. Brines | | | | | o | o |
| (8) Stephen R. Bowie | | | | | o | o |
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| | | | | FOR | AGAINST | ABSTAIN |
| 2. | Ratification of the appointment of Ernst & Young LLP to act as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2019.2020. | | | | o | o | o |
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YOUR VOTE IS IMPORTANT! PLEASE BE SURE TO SIGN, DATE AND RETURN YOUR PROXY CARD TODAY!
