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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission File Number 001-32921
_____________________________________________________________________________________
NexPoint Diversified Real Estate Trust
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________________________________________________________
Delaware80-0139099
(State or other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
300 Crescent Court, Suite 700, Dallas, Texas
(Address of Principal Executive Offices)
75201
(Zip Code)
(214) 276-6300
(Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading SymbolName of each exchange on which registered
Common Shares, par value $0.001 per shareNXDTNew York Stock Exchange
5.50% Series A Cumulative Preferred Shares, par value
$0.001 per share ($25.00 liquidation preference per share)
NXDT-PANew York Stock Exchange

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 x No o
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, 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 FileroAccelerated Filero
Non-Accelerated FilerxSmaller reporting companyx
Emerging growth companyo 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 14, 2023, the registrant had 37,813,729.99 common shares, par value $0.001 per share, outstanding.



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NEXPOINT DIVERSIFIED REAL ESTATE TRUST
Form 10-Q
Quarter Ended September 30, 2023
INDEX
Page
i

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Cautionary Statement Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to our liquidity and capital resources, our performance and results of operations contain forward-looking statements. Furthermore, all of the statements regarding future financial performance (including market conditions and demographics) are forward-looking statements. We caution investors that any forward-looking statements presented in this quarterly report are based on management’s current beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “estimate,” “project,” “should,” “will,” “would,” “result,” "could," "future," "continue," "if," the negative version of these words and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.

Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

Unfavorable changes in economic conditions and their effects on the real estate industry generally and our operations and financial condition, including inflation, rising interest rates, tightening monetary policy or recession, which may limit our ability to access funding and generate returns for shareholders;

Our loans and investments expose us to risks similar to and associated with real estate investments generally;

Commercial real estate-related investments that are secured, directly or indirectly, by real property are subject to delinquency, foreclosure and loss, which could result in losses to us;

Risks associated with the ownership of real estate, including dependence on tenants and compliance with laws and regulations related to ownership of real property;

Risks associated with our investment in diverse issuers, industries and investment forms and classes, both in real estate and in non-real estate sectors, including common equity, preferred equity securities, options or other derivatives, short sale contracts, secured loans of securities, reverse repurchase agreements, structured finance securities, below investment grade senior loans, bonds, convertible instruments, joint ventures, and emerging markets;

Fluctuations in interest rate and credit spreads, could reduce our ability to generate income on our loans and other investments, which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments;

The use of leverage to finance our investments;

Risks associated with our loans and investments in debt instruments including, senior loans, mezzanine loans, collateralized loan obligations ("CLOs"), and structured finance securities;

Our loans and investments are concentrated in terms of type of interest, geography, asset types, industry and sponsors and may continue to be so in the future;

We have a substantial amount of indebtedness which may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs;

ii

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We have limited operating history as a standalone company and may not be able to operate our business successfully, find suitable investments, or generate sufficient revenue to make or sustain distributions to our shareholders;

We may not replicate the historical results achieved by other entities managed or sponsored by affiliates of NexPoint Advisors, L.P. (“NexPoint” or our “Sponsor”), members of the NexPoint Real Estate Advisors X, L.P. (our “Adviser”) management team or their affiliates.

We are dependent upon our Adviser and its affiliates to conduct our day-to-day operations; thus, adverse changes in their financial health or our relationship with them could cause our operations to suffer;

Our Adviser and its affiliates face conflicts of interest, including significant conflicts created by our Adviser’s compensation arrangements with us, including compensation which may be required to be paid to our Adviser if our advisory agreement is terminated, which could result in decisions that are not in the best interests of our shareholders;

We pay substantial fees and expenses to our Adviser and its affiliates, which payments increase the risk that you will not earn a profit on your investment;

If we fail to qualify as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes, cash available for distributions to be paid to our shareholders could decrease materially, which would limit our ability to make distributions to our shareholders; and

Any other risks included under Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this quarterly report. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.
iii

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)
September 30, 2023 (Unaudited)December 31, 2022
ASSETS 
Consolidated Real Estate Investments
Land$47,708 $47,708 
Buildings and improvements198,190 174,469 
Intangible lease assets10,979 10,979 
Construction in progress24,928 39,731 
Furniture, fixtures, and equipment362 354 
Total Gross Consolidated Real Estate Investments282,167 273,241 
Accumulated depreciation and amortization(17,673)(7,158)
Total Net Consolidated Real Estate Investments264,494 266,083 
Investments, at fair value ($540,161 and $576,419 with related parties, respectively)
714,186 754,910 
Equity method investments ($7,200 and $7,272 with related parties, respectively)
67,585 70,656 
Life insurance policies, at fair value— 67,711 
Cash and cash equivalents3,713 13,360 
Restricted cash34,121 35,289 
Accounts receivable, net1,853 1,903 
Prepaid and other assets9,726 6,441 
Accrued interest and dividends4,706 4,302 
Deferred tax asset, net651 2,247 
TOTAL ASSETS$1,101,035 $1,222,902 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities: 
Mortgages payable, net$142,561 $144,414 
Notes payable, net ($20,000 and $0 with related party, respectively)
35,000 24,250 
Prime brokerage borrowing1,760 2,624 
Accounts payable and other accrued liabilities9,207 13,865 
Income tax payable— 10,720 
Accrued real estate taxes payable3,389 254 
Accrued interest payable1,206 1,115 
Security deposit liability414 416 
Prepaid rents843 1,273 
Intangible lease liabilities, net4,913 6,027 
Due to affiliates112 112 
Total Liabilities$199,405 $205,070 
Shareholders' Equity: 
1

Preferred shares, $0.001 par value: 4,800,000 shares authorized; 3,359,593 shares issued and outstanding
Common shares, $0.001 par value: unlimited shares authorized; 37,682,699 and 37,171,807 shares issued and outstanding, respectively
38 37 
Additional paid-in capital1,005,364 999,845 
Accumulated earnings (loss)(103,775)17,947 
Total Shareholders' Equity901,630 1,017,832 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$1,101,035 $1,222,902 
See Notes to Consolidated Financial Statements
2

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended September 30,For the Three Months Ended September 30,For the Nine Months Ended September 30,
202320222023
Revenues 
Rental income$5,404 $4,603 $15,541 
Interest income ($573, $1,472 and $1,890 with related parties, respectively)
1,863 1,836 5,632 
Dividend income ($4,853, $6,371 and $17,717 with related parties, respectively)
5,000 34,306 19,809 
Other income97 18 128 
Total revenues12,364 40,763 41,110 
Expenses 
Property operating expenses1,527 1,756 5,553 
Property management fees191 166 553 
Real estate taxes and insurance1,360 1,502 4,057 
Advisory and administrative fees3,469 2,939 8,707 
Property general and administrative expenses833 858 2,601 
Corporate general and administrative expenses1,685 1,938 5,433 
Conversion expenses— — 1,444 
Depreciation and amortization3,820 3,561 10,928 
Total expenses12,885 12,720 39,276 
Operating income (loss)(521)28,043 1,834 
Interest expense(4,173)(2,541)(11,397)
Equity in income (losses) of unconsolidated equity method ventures ($286, $(1,155) and $498 with related parties, respectively)
(369)(1,581)(23)
Change in unrealized gains (losses) ($(82,240), $(43,785) and $(98,248) with related parties, respectively)
(61,626)(78,238)(89,598)
Realized gains (losses) (939)2,846(718)
Net income (loss) before income taxes(67,628)(51,471)(99,902)
Income tax expense(330)(7,516)(1,444)
Net income (loss)(67,958)(58,987)(101,346)
Net (income) loss attributable to preferred shareholders(1,155)(1,155)(3,465)
Net income (loss) attributable to common shareholders$(69,113)$(60,142)$(104,811)
Weighted average common shares outstanding - basic37,187 37,172 37,177 
Weighted average common shares outstanding - diluted37,187 37,172 37,177 
3

Earnings (loss) per share - basic$(1.86)$(1.62)$(2.82)
Earnings (loss) per share - diluted$(1.86)$(1.62)$(2.82)
See Notes to Consolidated Financial Statements
4

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Predecessor Basis)
(in thousands)
(Unaudited)
For the Six Months Ended June 30,
2022
Investment income:
Income:
Dividends from unaffiliated issuers$60,178 
Dividends from affiliated issuers15,025 
Interest from unaffiliated issuers991 
Interest from affiliated issuers3,002 
Total income79,196 
Expenses:
Investment advisory6,279 
Income tax expense2,000 
Legal fees987 
Interest expense and commitment fees696 
Conversion expense471 
Accounting services fees334 
Insurance185 
Reports to shareholders136 
Trustees fees109 
Audit and tax preparation fees77 
Transfer agent fees72 
Pricing fees68 
Registration fees56 
Other322 
Total operating expenses11,792 
Net investment income67,404 
Preferred dividend expenses(2,310)
Net realized and unrealized gain (loss) on investments
Realized gain on:
Investments from unaffiliated issuers28,893 
Securities sold short253 
Net change in unrealized gain on:
Investments from unaffiliated issuers(43,752)
Investments from affiliated issuers76,346 
Net realized and unrealized gain on investments61,740 
Total increase in net assets resulting from operations$126,834 
See Notes to Consolidated Financial Statements
5

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands, except share and per share amounts)
(Unaudited)
Preferred SharesCommon SharesAdditional
Paid-in
Capital
Accumulated
Earnings (Loss)
Total
Three Months Ended September 30, 2023Number of
Shares
AmountNumber of
Shares
Amount
Balances, June 30, 20233,359,593$37,171,807$37 $1,000,281 $(28,992)$971,329 
Stock-based compensation expense— — 477 — 477 
Shares issued to Advisor for admin and advisory fees— 14,589— 156 — 156 
Net loss attributable to common shareholders— — — (69,113)(69,113)
Net income attributable to preferred shareholders— — — 1,155 1,155 
Common share dividends declared ($0.15 per share)
— 496,3034,450 (5,670)(1,219)
Preferred share dividends declared ($0.34375 per share)
— — — (1,155)(1,155)
Balances, September 30, 20233,359,593$37,682,699$38 $1,005,364 $(103,775)$901,630 
6

 Preferred SharesCommon SharesAdditional
Paid-in
Capital
Accumulated
Earnings (Loss)
Total
Nine Months Ended September 30, 2023Number of
Shares
AmountNumber of
Shares
Amount
Balances, December 31, 20223,359,593$37,171,807$37 $999,845 $17,947 $1,017,832 
Stock-based compensation expense— — 913 — 913 
Shares issued to Advisor for admin and advisory fees— 14,589— 156 — 156 
Net loss attributable to common shareholders— — — (104,811)(104,811)
Net income attributable to preferred shareholders— — — 3,465 3,465 
Common share dividends declared ($0.45 per share)
— 496,3034,450 (16,911)(12,460)
Preferred share dividends declared ($1.03125 per share)
— — — (3,465)(3,465)
Balances, September 30, 20233,359,593$37,682,699$38 $1,005,364 $(103,775)$901,630 
See Notes to Consolidated Financial Statements
7

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (Predecessor Basis)
(in thousands, except share amounts)
(Unaudited)
For the Six Months Ended June 30,
2022
Increase (decrease) in net assets operations:
Net investment income$67,404 
Preferred dividend expenses(2,310)
Accumulated net realized gain (loss) on investments, securities sold short, written options, futures contracts, and foreign currency transactions29,146 
Net change in unrealized appreciation on investments, securities sold short, written options contracts and translation of assets and liabilities denominated in foreign currency32,594 
Net increase from operations126,834 
Distributions declared to common shareholders:
Distribution(11,139)
Total distributions declared to common shareholders:(11,139)
Increase in net assets from operations and distributions115,695 
Share transactions:
Value of distributions reinvested1,425 
Proceeds from sale of shares1,288 
Net increase from shares transactions2,713 
Total increase in net assets118,408 
Net assets
Beginning of period911,208 
End of period$1,029,616 
Change in Common Shares
Issued for distribution reinvested92
Net increase in common shares92
See Notes to Consolidated Financial Statements
8

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(in thousands, except share and per share amounts)
(Unaudited)

Preferred SharesCommon SharesAdditional
Paid-in
Capital
Accumulated
Earnings (Loss)
Total
Three Months Ended September 30, 2022Number of
Shares
AmountNumber of
Shares
Amount
Balances, June 30, 20223,359,593$37,171,807$37 $998,557 $114,271 $1,112,868 
Costs associated with Business Change— — (92)— (92)
Net loss attributable to common shareholders— — — (60,142)(60,142)
Net income attributable to preferred shareholders— — — 1,155 1,155 
Common stock dividends declared ($0.15 per share)
— — — (5,577)(5,577)
Preferred stock dividends declared ($0.34375 per share)
— — — — (1,155)(1,155)
Balances, September 30, 20223,359,593$37,171,807$37 $998,465 $48,552 $1,047,057 

See Notes to Consolidated Financial Statements
9

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the Nine Months Ended September 30,For the Three Months Ended September 30,
20232022
Cash flows from operating activities
Net loss$(101,346)$(58,987)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization10,928 3,643 
Amortization of intangible lease assets and liabilities(912)(371)
Amortization of deferred financing costs441 (25)
Paid-in-kind interest(3,444)(1,016)
Realized (gain) loss718 (2,846)
Net change in unrealized (gain) loss on investments held at fair value ($98,248 and $(43,785) with related parties, respectively)
89,598 78,238 
Equity in income (losses) of unconsolidated ventures ($498 and $(1,155) with related parties, respectively)
23 1,581 
Distributions of earnings from unconsolidated ventures ($570 and $110 with related parties, respectively)
3,048 1,692 
Stock-based compensation expense913 — 
Cash paid for life settlement premiums(3,355)(3,022)
Changes in operating assets and liabilities, net of effects of acquisitions:
Deferred tax asset1,596 — 
Income tax payable(10,720)— 
Real estate taxes payable3,135 — 
Operating assets(4,210)(3,795)
Operating liabilities(4,887)9,459 
Net cash provided by (used in) operating activities:(18,474)24,551 
Cash flows from investing activities
Proceeds from asset redemptions— 10,872 
Distributions from CLO investments— 18,100 
Proceeds from sale of investments29,490 — 
Purchases of investments ($4,034 and $(9,925) with related parties, respectively)
(3,579)(9,925)
Contributions to equity method investments— (1,382)
Additions to consolidated real estate investments(8,926)(1,317)
Acquisitions of consolidated real estate investments— (26,500)
Proceeds from life settlement policy maturities2,999 — 
Cash from deconsolidation of investment(3,993)— 
Net cash provided by (used in) investing activities15,991 (10,152)
Cash flows from financing activities
Proceeds received from notes payable20,000 13,250 
10

Mortgage payments(1,773)(591)
Prime brokerage borrowing11,892 2,567 
Credit facilities payments(8,999)(9,500)
Prime brokerage payments(12,756)(92)
Deferred financing costs paid(771)(379)
Dividends paid to preferred shareholders(3,465)(1,155)
Dividends paid to common shareholders(12,460)(5,577)
Net cash used in financing activities:(8,332)(1,477)
Net decrease in cash, cash equivalents and restricted cash(10,815)12,922 
Cash, cash equivalents and restricted cash, beginning of period48,649 50,776 
Cash, cash equivalents and restricted cash, end of period$37,834 $63,698 
Supplemental Disclosure of Cash Flow Information
Interest paid$11,306 $2,722 
Income tax paid$13,700 $— 
Supplemental Disclosure of Noncash Activities
Non-cash dividend payment$4,462 $— 
Fair value assets acquired from the sale of consolidated investments*$68,500 $— 
Non-cash advisory fee payment$156 $— 

*For more information about this transaction, refer to Note 10. Life Settlement Portfolio
See Notes to Consolidated Financial Statements
11

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Predecessor Basis)
(in thousands)
(Unaudited)
For the Six Months Ended June 30,
2022
Cash flows from operating activities:
Net increase in net assets resulting from operations$126,834 
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Purchases of investment securities from unaffiliated issuers(350,369)
Purchases of investment securities from affiliated issuers(105,674)
Proceeds from the disposition of investment securities from unaffiliated issuers428,007 
Proceeds from the disposition of investment securities from affiliated issuers2,135 
Purchases of securities sold short(177)
Amortization (accretion) of premiums(171)
Net realized (gain) loss on investments from unaffiliated issuers(28,893)
Net realized (gain) loss on securities sold short(253)
Net change in unrealized depreciation on unaffiliated investments43,752 
Net change in unrealized appreciation on investments in affiliated investments(76,346)
Changes in operating assets and liabilities
Dividends and interest receivable741 
Due from custodian192 
Prepaid expenses and other assets(1,583)
Reclaim receivable1,250 
Foreign tax reclaim receivable(1,274)
Due to broker(1,695)
Payable for administrative fees(11)
Payable for investment advisory fees49 
Due to custodian(110)
Payable for interest expense and commitment fees82 
Accrued expenses and other liabilities(150)
Net cash provided by operating activities36,336 
Cash flows from financing activities:
Payments on notes payable(26,500)
Distributions paid in cash(9,714)
Proceeds from shares sold1,288 
Proceeds from dividend reinvestment(44)
Net cash used in financing activities(34,970)
Net increase in cash1,366 
Cash, cash equivalents and restricted cash:
Beginning of period2,678 
12

End of period$4,044 
Supplemental disclosure of cash flow information
Reinvestment of distributions$1,425 
Cash paid during the period for interest expense and commitment fees$614 
See Notes to Consolidated Financial Statements
13

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
NexPoint Diversified Real Estate Trust (the "Company", "we", "us", or "our") was formed in Delaware and has elected to be taxed as a real estate investment trust (a “REIT”). Substantially all of the Company’s business is conducted through NexPoint Diversified Real Estate Trust Operating Partnership, L.P. (the "OP"), the Company’s operating partnership. The Company conducts its business (the "Portfolio") through the OP and its wholly owned taxable REIT subsidiaries ("TRSs"). The Company's wholly owned subsidiary, NexPoint Diversified Real Estate Trust OP GP, LLC (the "OP GP"), is the sole general partner of the OP. As of September 30, 2023, there were 2,000 partnership units of the OP (the “OP Units”) outstanding, of which 100.0% were owned by the Company.
On July 1, 2022 (the “Deregistration Date”), the Securities and Exchange Commission (the “SEC”) issued an order pursuant to Section 8(f) of the Investment Company Act of 1940 (the “Investment Company Act”) declaring that the Company has ceased to be an investment company under the Investment Company Act (the “Deregistration Order”). The issuance of the Deregistration Order enabled the Company to proceed with full implementation of its new business mandate to operate as a diversified REIT that focuses primarily on investing in various commercial real estate property types and across the capital structure, including but not limited to equity, mortgage debt, mezzanine debt and preferred equity (the “Business Change”).
The Company is externally managed by NexPoint Real Estate Advisors X, L.P. (the “Adviser”), through an agreement dated July 1, 2022, amended on October 25, 2022 and April 11, 2023, (the “Advisory Agreement”), by and among the Company and the Adviser for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated. The Adviser manages the day-to-day operations of the Company and provides investment management services. The Company had no employees as of September 30, 2023. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and our board of trustees (the “Board”). The Adviser is wholly owned by NexPoint Advisors, L.P. (the “Sponsor” or “NexPoint”).
As a diversified REIT, the Company’s primary investment objective is to provide both current income and capital appreciation. The Company seeks to achieve this objective through the Business Change. Target underlying property types primarily include, but are not limited to, single-family rentals, multifamily, self-storage, life science, office, industrial, hospitality, net lease and retail. The Company may, to a limited extent, hold, acquire or transact in certain non-real estate securities.
2. Summary of Significant Accounting Policies
Readers of this Quarterly Report on Form 10-Q ("Quarterly Report") should refer to the audited financial statements and notes to consolidated financial statements of the Company for the year ended December 31, 2022, which are included in our 2022 Annual Report on Form 10-K ("2022 Annual Report"), filed with the United States Securities and Exchange Commission (SEC) and also available on our website (nxdt.nexpoint.com), since we have omitted from this Quarterly Report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements. You should also refer to Note 2, Summary of Significant Accounting Policies, in the notes to consolidated financial statements in our 2022 Annual Report for further discussion of our significant accounting policies and estimates. Information contained on, or accessible through, our website is not incorporated by reference into and does not constitute a part of this Quarterly Report or any other report or documents we file or furnish with the SEC.
Income Taxes

As a REIT for U.S. federal income tax purposes, the Company may deduct earnings distributed to stockholders against the income generated by our REIT operations. The Company continues to be subject to income taxes on the income of its taxable REIT subsidiaries. Our consolidated net loss before income taxes was $67.6 million for the three months ended September 30, 2023 and $99.9 million for the nine months ended September 30, 2023. The Company’s consolidated balance sheet as of September 30, 2023 consists of a $2.2 million net deferred tax asset at NHF TRS, LLC and a $1.5 million net deferred tax liability at NREO TRS, Inc. for a consolidated net Deferred Tax asset of $0.7 million.

The Company’s tax provision for interim periods is determined using an estimate of its annual current and deferred effective tax rates, adjusted for discrete items. Our effective tax rates for the three and nine months ended September 30,
14

2023 were (0.49)% and (1.45)%, respectively. Our effective tax rate differs from the U.S. federal statutory corporate tax rate of 21.0% primarily due to our REIT operations generally not being subject to federal income taxes.
3. Business Change
As discussed in Note 1, on the Deregistration Date, the SEC issued an order pursuant to Section 8(f) of the Investment Company Act declaring that the Company has ceased to be an investment company under the Investment Company Act. The issuance of the Deregistration Order enabled the Company to proceed with full implementation of the Business Change. Upon the Deregistration Order, the Company discontinued the use of guidance in FASB ASC 946. To effectuate this change, the fair values of the Company’s investments became the July 1, 2022 cost basis. The change also required the consolidation of several investments that were previously not required to be consolidated under FASB ASC 946.
4. Investments in Real Estate Subsidiaries
The Company conducts its operations through the OP, which owns several real estate properties through single asset limited liability companies that are special purpose entities (“SPEs”). The Company consolidates the SPEs that it controls as well as any VIEs where it is the primary beneficiary. All of the properties the SPEs own are consolidated in the Company’s consolidated financial statements. The assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the Company.
As of September 30, 2023, the Company, through the OP, owned four properties through SPEs. The following table represents the Company’s ownership in each property by virtue of its 100% ownership of the SPEs that directly own the title to each property as of September 30, 2023:
Effective Ownership Percentage at
Property NameLocationYear AcquiredSeptember 30, 2023
White Rock CenterDallas, Texas2013100 %
5916 W Loop 289Lubbock, Texas2013100 %
Cityplace TowerDallas, Texas2018100 %
NexPoint Dominion Land, LLC(1)Plano, Texas2022100 %
(1)NexPoint Dominion Land, LLC owns 100% of 21.5 acres of undeveloped land in Plano, Texas.
5. Consolidated Real Estate Investments
As of September 30, 2023, the major components of the Company’s investments in real estate held by SPEs the Company consolidates, which are included in "Consolidated Real Estate Investments" on the Consolidated balance sheet, were as follows (in thousands):
Operating PropertiesLandBuildings and
Improvements
Intangible Lease AssetsIntangible Lease
Liabilities
Construction in ProgressFurniture, Fixtures, and
Equipment
Totals
White Rock Center$1,315 $10,345 $1,921 $(101)$— $$13,485 
5916 W Loop 2891,081 2,938 — — — — 4,019 
Cityplace Tower18,812 184,907 9,058 (6,669)24,928 357 231,393 
NexPoint Dominion Land, LLC26,500 — — — — — 26,500 
47,708 198,190 10,979 (6,770)24,928 362 275,397 
Accumulated depreciation and amortization— (11,295)(6,155)1,857 — (223)(15,816)
Total Operating Properties$47,708 $186,895 $4,824 $(4,913)$24,928 $139 $259,581 
15

As of December 31, 2022, the major components of the Company’s investments in real estate held by SPEs the Company consolidates, which are included in "Consolidated Real Estate Investments" on the Consolidated balance sheet, were as follows (in thousands):
Operating PropertiesLandBuildings and
Improvements
Intangible Lease AssetsIntangible Lease
Liabilities
Construction in ProgressFurniture, Fixtures, and
Equipment
Totals
White Rock Center$1,315 $10,314 $1,921 $(101)$— $$13,454 
5916 W Loop 2891,081 2,939 — — — — 4,020 
Cityplace Tower18,812 161,216 9,058 (6,669)39,731 349 222,497 
NexPoint Dominion Land, LLC26,500 — — — — — 26,500 
47,708 174,469 10,979 (6,770)39,731 354 266,471 
Accumulated depreciation and amortization— (4,114)(2,863)743 — (181)(6,415)
Total Operating Properties$47,708 $170,355 $8,116 $(6,027)$39,731 $173 $260,056 
Depreciation expense was $2.8 million and $7.2 million for the three and nine months ended September 30, 2023, respectively. Amortization expense related to the Company’s intangible lease assets was $0.8 million and $3.3 million for the three and nine months ended September 30, 2023, respectively. Amortization expense related to the Company's intangible lease liabilities was $0.4 million and $1.1 million for the three and nine months ended September 30, 2023, respectively. The net amount amortized as an increase to rental revenue for capitalized above and below-market lease intangibles was $0.3 million and $0.9 million for the three and nine months ended September 30, 2023, respectively.
Acquisitions
There were no acquisitions by the Company for the nine months ended September 30, 2023.
6. Debt
Cityplace Debt
The Company has debt on its real estate property pursuant to a Loan Agreement, originally dated August 15, 2018 and subsequently amended (the “Loan Agreement”). The debt is limited recourse to the Company and encumbers the property. The debt had an original maturity of September 8, 2022, and the Company deferred the maturity date with the lender to May 8, 2023, with the possibility to extend for an additional four months to September 8, 2023 provided certain metrics were met. On May 8, 2023, the lender agreed to defer the maturity of the Cityplace debt by four months to September 8, 2023. Also on May 8, 2023, the parties to the Loan Agreement agreed to convert the index upon which the interest rate is based to the one-month secured overnight financing rate ("SOFR") effective as of the first interest period beginning on or after May 8, 2023. On September 8, 2023, the lender agreed to defer the maturity of the Cityplace debt by six months to March 8, 2024. The debt restructuring per the terms of the Twelfth Omnibus Amendment Agreement is considered a debt modification. The purpose of the deferral was to allow for continued discussions around refinancing the debt. Management recognizes that finding an alternative source of funding is necessary to repay the debt by the maturity date. Management is evaluating multiple options to fund the repayment of the $142.9 million principal balance outstanding as of September 30, 2023, including refinancing the debt, securing additional equity or debt financing, selling a portion of the portfolio, or any combination thereof. Management believes that there is sufficient time before the maturity date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due. Due to the short term nature of the debt, the fair value of the debt is approximately the outstanding balance. The below table contains summary information related to the mortgages payable (dollars in thousands):
16

Outstanding principal as of
September 30, 2023
Interest RateMaturity Date
Note A-1$101,535 7.69 %3/8/2024
Note A-222,211 11.69 %3/8/2024
Note B-112,782 7.69 %3/8/2024
Note B-23,173 11.69 %3/8/2024
Mezzanine Note 12,796 11.69 %3/8/2024
Mezzanine Note 2399 11.69 %3/8/2024
Mortgages payable142,896 
Deferred financing costs, net(335)
Mortgages payable, net$142,561 
The weighted average interest rate of the Company’s debt related to its Cityplace investment was 8.5% as of September 30, 2023 and 7.3% as of December 31, 2022.
The Loan Agreement contains customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the documents evidencing the loan, defaults in payments under any other security instrument covering any part of the property, whether junior or senior to the loan, and bankruptcy or other insolvency events. As of September 30, 2023, the Company believes it is in compliance with all covenants.
Notes Payable
On August 9, 2022, the Company borrowed approximately $13.3 million from the seller, Gabriel Legacy, LLC to finance its acquisition of 21.5 acres of land in Plano, Texas held through NexPoint Dominion Land, LLC, a wholly owned subsidiary of the OP. Due to the short term nature of the note, the fair value of the note is approximately the outstanding balance. The note bears interest at an annual rate equal to the WSJ Prime Rate and matures on August 8, 2025.
Credit Facility
On January 8, 2021, the Company entered into a $30.0 million credit facility (the "Credit Facility") with Raymond James Bank, N.A. and drew the full balance. The Credit Facility, as amended, would have matured on November 6, 2023, (see Note 16 for information regarding the extension of the maturity date of the Credit Facility) and as of September 30, 2023, bore interest at the one-month SOFR plus 4.25%. During the nine months ended September 30, 2023, the Company paid down $9.0 million on the Credit Facility. As of September 30, 2023, the Credit Facility had an outstanding balance of $2.0 million. Due to the short term nature of the debt, the fair value of the debt is approximately the outstanding balance. Management believes that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due.
Revolving Credit Facility
On May 22, 2023, the Company entered into a $20.0 million revolving credit facility (the "NexBank Revolver") with NexBank, in the initial principal balance of $20.0 million, with the option for the Company to receive additional disbursements thereunder up to a maximum of $50.0 million. As of September 30, 2023, the NexBank Revolver bears interest at one-month SOFR plus 3.50% and matures on May 20, 2024, with the option to extend the maturity by one year, twice. Due to the short term nature of the debt, the fair value of the debt is approximately the outstanding balance. As of September 30, 2023, the NexBank Revolver had an outstanding balance of $20.0 million.
Deferred Financing Costs
The Company defers costs incurred in obtaining financing and amortizes the costs over the terms of the related loans using the straight-line method, which approximates the effective interest method. Deferred financing costs, net of amortization, are recorded as a reduction from the related debt on the Company’s consolidated balance sheet. Upon
17

repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to loss on extinguishment of debt and modification costs.
Prime Brokerage Borrowing
Effective July 2, 2022, the Company entered a prime brokerage account with Jefferies to hold securities owned by the Company. The Company from time to time borrows against the value of these securities. As of September 30, 2023, the Company had a margin balance of approximately $1.8 million outstanding with Jefferies bearing interest at the Overnight Bank Funding Rate plus 0.50%. Securities with a fair value of approximately $6.9 million are pledged as collateral against this margin balance. This arrangement has no stated maturity date. Due to the floating interest rate nature of the debt, the fair value of the debt is approximately the outstanding balance.
Schedule of Debt Maturities
The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to September 30, 2023 are as follows (in thousands):
Mortgages PayableNotes PayablePrime Brokerage BorrowingTotal
2023$— $2,000 $— $2,000 
2024142,896 20,000 — 162,896 
2025— 13,250 — 13,250 
2026— — — — 
2027— — — — 
Thereafter— — 1,760 1,760 
Total$142,896 $35,250 $1,760 $179,906 
18

7. Variable Interest Entities
As of September 30, 2023, the Company does not consolidate the investments below as it does not have a controlling financial interest in these investments:
EntitiesInstrumentAsset TypePercentage Ownership as of September 30, 2023Relationship as of September 30, 2023
Unconsolidated Entities:
NexPoint Storage Partners, Inc.Common stockSelf-storage53.0 %VIE
NexPoint Storage Partners Operating Company, LLCLLC interestSelf-storage29.7 %VIE
Perilune Aero Equity Holdings One, LLCLLC interestAircraft16.4 %VIE
SFR WLIF III, LLCLLC interestSingle-family rental20.0 %VIE
NexPoint Real Estate Finance Operating Partnership, L.P.LP interestMortgage16.0 %VIE
VineBrook Homes Operating Partnership, L.P.LP interestSingle-family rental11.1 %VIE
NexPoint SFR Operating Partnership, L.P.LP interestSingle-family rental30.8 %VIE
IQHQ Holdings, LPLP interestLife science1.1 %VIE
NexAnnuity Holdings, Inc.Preferred SharesAnnuities100.0 %(1)VIE
(1) The Company owns 100% of the preferred stock of NexAnnuity Holdings, Inc., but it does not own any of the outstanding common stock of NexAnnunity Holdings, Inc.
Consolidated VIEs
The Company did not have any consolidated VIEs for the period ended September 30, 2023.
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8. Equity Method Investments
Below is a summary of the Company’s equity method investments as of September 30, 2023 (dollars in thousands):
Investee NameInstrumentAsset TypeNXDT Percentage OwnershipInvestment BasisShare of Investee's Net Assets (1)Basis Difference (2)Share of Earnings (Loss)
Sandstone Pasadena Apartments, LLCLLC interestMultifamily50.0 %$11,815 $(9,590)$21,405 $(14)
AM Uptown Hotel, LLCLLC interestHospitality60.0 %(3)24,336 21,334 3,002 (111)
SFR WLIF III, LLCLLC interestSingle-family rental20.0 %7,200 7,466 (266)447 
Las Vegas Land Owner, LLCLLC interestLand77.0 %(4)12,312 12,312 — — 
Perilune Aero Equity Holdings One, LLCLLC interestAircraft16.4 %(7)11,922 9,990 1,932 1,081 
Claymore Holdings, LLCLLC interestN/A50.0 %(5)— (6)— — — 
Allenby, LLCLLC interestN/A50.0 %(5)— (6)— — — 
$67,585 $41,512 $26,073 $1,403 
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Below is a summary of the Company’s equity method investments as of December 31, 2022 (dollars in thousands):
Investee NameInstrumentAsset TypeNXDT Percentage OwnershipInvestment BasisShare of Investee's Net Assets (1)Basis Difference (2)Share of Earnings (Loss)
Sandstone Pasadena Apartments, LLCLLC interestMultifamily50.0 %$13,013 $— $13,013 $(217)
AM Uptown Hotel, LLCLLC interestHospitality60.0 %(3)27,136 21,334 5,802 (227)
SFR WLIF III, LLCLLC interestSingle-family rental20.0 %7,272 7,466 (194)280 
Las Vegas Land Owner, LLCLLC interestLand77.0 %(4)12,312 12,312 — — 
Perilune Aero Equity Holdings One, LLCLLC interestAircraft16.4 %(7)10,923 8,751 2,172 665 
Claymore Holdings, LLCLLC interestN/A50.0 %(5)— (6)— — — 
Allenby, LLCLLC interestN/A50.0 %(5)— (6)— — — 
$70,656 $49,863 $— $20,793 $501 
Below is a summary of the Company's investments as of September 30, 2023 that qualify for equity method accounting for which the Company has elected to account for using the fair value option. Amounts are included in "investments, at fair value" on the consolidated balance sheet.
Investee NameInstrumentAsset TypeNXDT Percentage OwnershipFair Value
NexPoint Real Estate Finance Operating Partnership, L.P.LP interestMortgage16.0 %(7)$79,658 
NexPoint Real Estate Finance, Inc.Common stockMortgage12.2 %(7)34,356 
VineBrook Homes Operating Partnership, L.P.LP interestSingle-family rental11.1 %(7)146,419 
NexPoint Storage Partners, Inc.Common stockSelf-storage53.0 %(3)69,484 
NexPoint Storage Partners Operating Company, LLCLLC interestSelf-storage29.7 %37,863 
NexPoint SFR Operating Partnership, L.P.LP interestSingle-family rental30.8 %49,568 
NexPoint Hospitality TrustCommon stockHospitality45.4 %9,500 
LLV Holdco, LLCLLC interestLand26.8 %3,267 
$430,115 
(1)Represents the Company’s percentage share of net assets of the investee per the investee’s books and records.
(2)Represents the difference between the basis at which the investments in unconsolidated ventures are carried by the Company and the Company's proportionate share of the equity method investee's net assets. To the extent
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that the Company’s cost basis is different from the basis reflected at the joint venture level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of equity in earnings of the joint venture.
(3)The Company owns greater than 50% of the outstanding common equity but is not deemed by the Company to be the primary beneficiary (for a VIE) or have a controlling financial interest of the investee and as such, accounts for the investee using the equity method.
(4)The Company owns 100% of Las Vegas Land Owner, LLC which owns 77% of a joint venture that owns an 8.5 acre tract of land (the "Tivoli North Property"). Through a tenants in common arrangement, the Company shares control and as such accounts for this investment using the equity method.
(5)The Company has a 50% non-controlling interest in Claymore Holdings, LLC (“Claymore”) and Allenby, LLC, (“Allenby”). The Company has determined it is not the primary beneficiary and does not consolidate these entities.
(6)The Company has elected the fair value option with respect to these investments. The basis in these investments is their September 30, 2023 fair value.
(7)The Company owns less than 20% of the investee but has significant influence due to members of the management team serving on the board of the investee or its parent and as such, accounts for the investee using the equity method.
Significant Equity Method Investments
The table below presents the unaudited summary balance sheets for the Company’s significant equity method investments as of September 30, 2023 (dollars in thousands). NexPoint Real Estate Finance, Inc. ("NREF"), NexPoint Storage Partners, Inc. ("NSP") and VineBrook Homes Trust, Inc. ("VineBrook") do not prepare standalone financials for their operating companies as all operations and investments are owned through their operating companies and are consolidated by the corporate entities. As such, only the financial information for NREF, NSP and VineBrook are presented below.
NREFVineBrookNSP
ASSETS
Investments$6,814,871 $2,500 $— 
Real estate assets58,563 3,359,816 1,205,678 
Cash and cash equivalents10,977 34,115 12,746 
Other assets1,942 208,109 191,441 
TOTAL ASSETS$6,886,353 $3,604,540 $1,409,865 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debt$1,212,740 $2,487,524 $890,508 
Other liabilities5,239,450 148,345 402,928 
Total Liabilities6,452,190 2,635,869 1,293,436 
Redeemable noncontrolling interests in the operating company89,148 482,149 211,082 
Noncontrolling interests in consolidated VIEs— 12,786 — 
Total Shareholders' Equity345,015 473,736 (94,653)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$6,886,353 $3,604,540 $1,409,865 
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The table below presents the unaudited summary statement of operations for the nine months ended September 30, 2023 for the Company’s significant equity method investments (dollars in thousands).
NREFVineBrookNSP
Revenues
Rental income$3,057 $259,121 $83,851 
Net interest income12,971 — 1,527 
Other income— 4,362 6,154 
Total revenues16,028 263,483 91,532 
Expenses
Total expenses16,950 368,968 103,968 
Gain (loss) on sales of real estate— (65,108)(8,276)
Other income (expense)1,727 (43,130)(77,006)
Unrealized gain (loss) on derivatives— 6,297 — 
Total comprehensive income (loss)$805 $(207,426)$(97,718)
9. Fair Value of Derivatives and Financial Instruments
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The table below summarizes the inputs used to value the Company’s assets carried at fair value on a recurring basis as of September 30, 2023 (in thousands):
Fair Value
Cost BasisLevel 1Level 2Level 3Total
Assets
Bond$17 $— $22 $— $22 
CLO34,958 — 563 18,251 18,814 
Common stock311,789 41,605 — 180,873 222,478 
Convertible notes46,260 — — 43,448 43,448 
LLC interest66,492 — — 41,148 41,148 
LP interest324,494 — 79,658 195,987 275,645 
Preferred Shares66,955 — — 66,955 66,955 
Rights and warrants3,937 — 3,751 — 3,751 
Senior loan41,428 — 58 41,867 41,925 
$896,330 $41,605 $84,052 $588,529 $714,186 
The table below summarizes the inputs used to value the Company’s assets carried at fair value on a recurring basis as of December 31, 2022 (in thousands):
Fair Value
Cost BasisLevel 1Level 2Level 3Total
Assets
Bond$17 $— $20 $— $20 
CLO34,958 — 563 6,412 6,975 
Common stock325,275 53,872 — 234,667 288,539 
Convertible notes54,802 — — 50,828 50,828 
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Life settlement64,267 — — 67,711 67,711 
LLC interest66,492 — — 60,836 60,836 
LP interest321,026 — 77,370 223,141 300,511 
Rights and warrants3,947 — 3,794 — 3,794 
Senior loan43,399 — 66 43,341 43,407 
$914,183 $53,872 $81,813 $686,936 $822,621 
The table below sets forth a summary of changes in the Company’s Level 3 assets (assets measured at fair value using significant unobservable inputs) for the nine months ended September 30, 2023 (in thousands):
December 31, 2022Contributions/
Purchases
Paid in-
kind
dividends
Redemptions/
Conversions
Return of capitalRealized
gain/(loss)
Unrealized gain/(loss)September 30, 2023
CLO$6,412 $— $— $— $— $— $11,839 $18,251 
Common stock234,667 — — — — — (53,794)180,873 
Convertible notes50,828 (8,542)— — — — 1,162 43,448 
Life settlement67,711 3,355 — (67,506)— (1,101)(2,459)— 
LLC interest60,836 70,222 — (68,500)— (1,722)(19,688)41,148 
LP interest223,141 3,467 — — — — (30,621)195,987 
Preferred Shares— 68,500 455 (2,000)— — — 66,955 
Senior loan43,341 — 2,989 (4,971)— 11 497 41,867 
Total$686,936 $137,002 $3,444 $(142,977)$— $(2,812)$(93,064)$588,529 
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The following is a summary of the significant unobservable inputs used in the fair valuation of assets categorized within Level 3 of the fair value hierarchy as of September 30, 2023.
CategoryValuation TechniqueSignificant Unobservable InputsInput Value(s)
(Arithmetic Mean)
Fair Value
CLODiscounted Net Asset ValueDiscount70%$18,251 
Common StockMarket ApproachUnadjusted Price/MHz-PoP$0.10$0.90$(0.48)180,873 
Discounted Cash FlowDiscount Rate7.75%12.50%(10.2)%
Market Rent (per sqft)$4.91$24.98$(14.95)
RevPAR$95.00$203.00$(127.78)
Capitalization Rates5.38%10%(8.88)%
NAV ApproachDiscount Rate10.00%
Multiples AnalysisMultiple of EBITDA
1.00x
4.25x
(2.43)x
Recent TransactionImplied Enterprise Value from Transaction Price ($mm)$841.00
N/A$25.31$28.00$(26.66)
Offer Price per Share$1.10
Convertible NotesDiscounted Cash FlowDiscount Rate8.00%10.25%(9.13)%43,448 
Option Pricing ModelVolatilty25.00%60.00%(47.86)%
LLC InterestDiscounted Cash FlowDiscount Rate7.75%30.00%(14.06)%41,148 
Market Rent (per sqft)$4.91$24.98$(14.95)
Capitalization Rate5.375%
LP InterestDiscounted Cash FlowCapitalization Rate3.90%6.90%5.51%195,987 
Discount Rate10%20.0%(15)%
Recent TransactionPrice per Share$22.88
Preferred SharesRecent TransactionCost ($mm)$66.95566,955 
Senior LoanDiscounted Cash FlowDiscount Rate12.30%20.00%(16.15)%41,867 
Total$588,529 
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10. Life Settlement Portfolio
As of June 30, 2023, the Company, through one of its TRSs, owned 100% of the outstanding equity and debt of Specialty Financial Products, Ltd. ("SFP"), an Ireland domiciled private company with limited liability and a Designated Activity Company. At the proposal of NexAnnuity Asset Management, L.P. ("NexAnnuity"), an affiliate of the Adviser, SFP was formed for the purpose of entering into acquisitions of U.S. life settlement policies approved by NexAnnuity and funded by the issuance of debt securities, or the Structured Note purchased by the Company. SFP utilizes proceeds from maturing life settlement contracts to repay the Structured Note and to further invest in life settlement contracts. On June 30, 2023, as the Company owned the outstanding ordinary shares of and Structured Note issued by SFP, the Company consolidated SFP in its entirety. On September 1, 2023, the Company, through one of its TRSs, entered into a contribution agreement to transfer the Structured Note in SFP and all its rights, title and interests to a related party NexAnnuity Holdings, Inc. ("NHI") and its wholly owned subsidiaries. The Company also transferred all of its ordinary shares in SFP to a separate share trustee. In exchange, the Company was issued 68,500 shares of Class A Preferred Stock in NHI. As a result, the Company now holds none of the outstanding equity and debt of SFP, and SFP no longer meets the requirements for consolidation under ASC 810 – Consolidation. The Company will have no continuing involvement with SFP. As such, SFP has been deconsolidated herein as of September 1, 2023. The Class A Preferred Stock in NexAnnuity Holdings, Inc. is accounted for as an investment in an equity security. However, management has elected to account for the investment using the fair value option and presented it as Investments, at fair value. The fair value of the Class A Preferred Stock is its original issue price of $1,000 per share due to the recent nature of the transaction. Dividends on the Class A Preferred Stock are cumulative and are payable quarterly on March 31, June 30, September 30, and December 31 at an annual rate of 8.0% for years one through seven, 9.5% for years eight through ten, 11.0% for years eleven through thirteen, and 12.0% for years fourteen through sixteen and thereafter.
The transfer of the Structured Note qualified as a sale under ASC 860 – Transfers and Servicing as (1) the transfer legally isolated the transferred assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to pledge or exchange the assets and provides more than a trivial benefit to the transferor, and (3) the transferor does not maintain effective control over the transferred assets.
11. Shareholders Equity
Common Shares
As of September 30, 2023, the Company had 37,682,699 common shares, par value $0.001 per share, issued and outstanding. 510,891.75 shares were issued during the nine months ended September 30, 2023.
During the nine months ended September 30, 2023, the Company paid a distribution of $0.15 per share on its common shares on March 31, 2023 to shareholders of record on March 15, 2023, June 30, 2023 to shareholders of record on June 15, 2023 and September 29, 2023 to shareholders of record on August 14, 2023. The dividend paid on September 29, 2023 consisted of a combination of cash and shares, with the cash component of the dividend (other than cash paid in lieu of fractional shares) comprising 20% of the dividend, with the balance being paid in the Company's common shares.
Preferred Shares
On January 8, 2021, the Company issued 3,359,593 5.50% Series A Cumulative Preferred Shares, par value $0.001 per share, liquidation preference $25.00 per share ("Series A Preferred Shares") with an aggregate liquidation preference of approximately $84.0 million. The Series A Preferred Shares were issued as part of the consideration for an exchange offer for a portion of the Company’s common shares. The Series A Preferred Shares are callable beginning on December 15, 2023 at a price of $25 per share. The Company may exercise its call option at the Company's discretion. As a result, these are included in permanent equity.
During the nine months ended September 30, 2023, the Company declared three distributions on its Series A Preferred Shares, each in the amount of $0.34375 per share, which were paid to holders of Series A Preferred Shares on March 31, 2023 to shareholders of record on March 24, 2023, on June 30, 2023 to shareholders of record on June 23, 2023 and on September 30, 2023 to shareholders of record on September 25, 2023.
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Dividends on the Series A Preferred Shares are cumulative from their original issue date at the annual rate of 5.5% of the $25 per share liquidation preference and are payable quarterly on March 31, June 30, September 30, and December 31 of each year, or in each case on the next succeeding business day.
Long Term Incentive Plan
On January 30, 2023, the Company’s shareholders approved a long-term incentive plan (the “2023 LTIP”) and the Company subsequently filed a registration statement on Form S-8 registering 2,545,000 common shares, par value $0.001 per share, which the Company may issue pursuant to the 2023 LTIP. The 2023 LTIP authorizes the compensation committee of the Board to provide equity-based compensation in the form of share options, appreciation rights, restricted shares, restricted share units, performance shares, performance units and certain other awards denominated or payable in, or otherwise based on, the Company’s common shares or factors that may influence the value of the Company’s common shares, plus cash incentive awards, for the purpose of providing the Company’s trustees, officers and other key employees (and those of the Adviser and the Company’s subsidiaries), and potentially certain nonemployees who perform employee-type functions, incentives and rewards for performance (the "participants").
Restricted Share Units. Under the 2023 LTIP, restricted share units may be granted to the participants and typically vest over a three to five-year period for officers, employees and certain key employees of the Adviser and annually for trustees. The most recent grant of restricted share units to officers, employees and certain key employees of the Adviser will vest over a four-year period. Beginning on the date of grant, restricted share units earn dividends that are payable in cash on the vesting date. On April 4, 2023, pursuant to the 2023 LTIP, the Company granted 37,313 restricted share units to its trustees, on April 4, 2023, the Company granted 566,169 restricted share units to its officers and other employees of the Adviser. The following table includes the number of restricted share units granted, vested, forfeited and outstanding as of September 30, 2023:
2023
Number of UnitsWeighted Average
Grant Date Fair Value
Outstanding January 1, 2023— $— 
Granted603,482 10.45 
Vested — — 
Forfeited— — 
Outstanding September 30, 2023603,482 $10.45 
The following table contains information regarding the vesting of restricted share units under the 2023 LTIP for the next five calendar years subsequent to September 30, 2023:
Shares Vesting
AprilTotal
2023— — 
2024178,856 178,856 
2025141,542 141,542 
2026141,542 141,542 
2027141,542 141,542 
Total603,482 603,482 
As of September 30, 2023, the Company had issued no common shares under the 2023 LTIP. For the three and nine months ended September 30, 2023, the Company recognized approximately $0.5 million and $0.9 million, respectively, of equity-based compensation expense related to grants of restricted share units. As of September 30, 2023, the Company had recognized a liability of approximately $0.2 million related to dividends earned on restricted share units that are payable in cash upon vesting.
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12. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of the Company’s common shares outstanding and excludes any unvested restricted share units issued pursuant to the 2023 LTIP.
Diluted earnings (loss) per share is computed by adjusting basic earnings per share for the dilutive effect of the assumed vesting of restricted share units. During periods of net loss, the assumed vesting of restricted share units is anti-dilutive and is not included in the calculation of earnings (loss) per share.

The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):
Three Months Ended September 30,Nine Months Ended September 30,
20232023
Numerator for loss per share:
Net income (loss) attributable to common shareholders$(69,113)$(104,811)
Denominator for loss per share:
Weighted average common shares outstanding37,18737,177
Denominator for basic and diluted loss per share37,18737,177
Weighted average unvested restricted share units603398
Denominator for diluted loss per share(1)37,18737,177
Loss per weighted average common share:
Basic$(1.86)$(2.82)
Diluted$(1.86)$(2.82)
(1)     For the three and nine months ended September 30, 2023, excludes approximately 397,900 and 603,482 shares, related to assumed vesting of RSUs as the effect would be anti-dilutive.
13. Related Party Transactions
Advisory and Administrative Fees
Prior to the Deregistration Date, the Company was party to an investment advisory agreement (the "Former Advisory Agreement") with an affiliate of the Adviser (the "Former Adviser") pursuant to which the Former Adviser provided investment advisory services to the Company and certain of its subsidiaries. The Company's contractual fee under the Former Advisory Agreement was an annual fee, payable monthly, in an amount equal to 1.00% an amount (the "Former Managed Assets”) equal to the total assets of the Company, including any form of investment leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Company’s investment objectives and policies, and/or (iv) any other means. The Former Adviser was permitted to waive a portion of its fees.
Prior to the Deregistration Date, the Company was also party to an administration services agreement (the “Administration Services Agreement”) pursuant to which the Former Adviser previously performed administrative functions for us in connection with our operation as a closed-end investment company. For its services, the Former Adviser received an annual fee, payable monthly, in an amount equal to 0.20% of the average weekly value of the Former Managed Assets.
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In connection with the Business Change and effective on the Deregistration Date, the Company terminated its investment advisory agreement and its administrative services agreement with the Former Adviser and entered into the Advisory Agreement with the Adviser, a subsidiary of NexPoint. The Company also terminated the investment advisory agreements between NexPoint and its wholly owned subsidiaries, NexPoint Real Estate Opportunities, LLC ("NREO") and NexPoint Real Estate Capital, LLC, effective on the Deregistration Date. Pursuant to the Advisory Agreement, subject to the overall supervision of our Board, the Adviser manages the day-to-day operations of the Company, and provides investment management services.
As of September 30, 2023, as consideration for the Adviser’s services under the Advisory Agreement, we pay our Adviser an annual fee (the "Advisory Fee") of 1.00% of Managed Assets and an annual fee (the "Administrative Fee" and, together with the Advisory Fee, the "Fees") of 0.20% of the Company’s Managed Assets (defined below).
On April 11, 2023, we entered into an amendment to the Advisory Agreement whereby the monthly installment of the Fees shall be paid in cash unless the Adviser elects, in its sole discretion, to receive all or a portion of the monthly installment of the Fees in common shares of the Company, subject to certain restrictions including that in no event shall the common shares issued to the Adviser under the Advisory Agreement exceed five percent of the number of common shares or five percent of the voting power of the Company outstanding prior to the first such issuance (the “Share Cap”) and that in no event shall the common shares issued to the Adviser under the Advisory agreement exceed 6,000,000 common shares; provided, however, that the Share Cap will not apply if the Company’s shareholders have approved issuances in excess of the Share Cap. At the Company’s annual meeting of shareholders, the Company’s shareholders did not approve issuances in excess of the Share Cap. During the three and nine months ended September 30, 2023, we issued 14,588.75 and 14,588.75 common shares, respectively, to the Advisor in payment of the Fees in an amount of $0.16 million and $0.16 million, respectively .
Under the Advisory Agreement, “Managed Assets” means an amount equal to the total assets of the Company, including any form of leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing to purchase or develop real estate or other investments, borrowing through a credit facility, or the issuance of debt securities), (ii) the issuance of preferred shares or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Company’s investment objectives and policies, and/or (iv) any other means. In the event the Company holds collateralized mortgage-backed securities ("CMBS") where the Company holds the controlling tranche of the securitization and is required to consolidate under GAAP all assets and liabilities of a specific CMBS trust, the consolidated assets and liabilities of the consolidated trust will be netted to calculate the allowable amount to be included as Managed Assets. In addition, in the event the Company consolidates another entity it does not wholly own as a result of owning a controlling interest in such entity or otherwise, Managed Assets will be calculated without giving effect to such consolidation and instead such entity’s assets, leverage, expenses, liabilities and obligations will, on a pro rata basis consistent with the Company’s percentage ownership, be considered those of the Company for purposes of calculation of Managed Assets. The Adviser computes Managed Assets as of the end of each fiscal quarter and then computes each installment of the Fees as promptly as possible after the end of the month with respect to which such installment is payable.
Revolving Credit Facility
On May 22, 2023, the Company entered into the NexBank Revolver pursuant to which the Company in the initial principal amount of $20.0 million, with the option for the Company to receive additional disbursements thereunder up to a maximum of $50.0 million, and bears interest at one-month SOFR plus 3.50% and matures on May 20, 2024. The Company drew the $20.0 million on May 22, 2023. The fair value of the revolving credit facility is equal to its carrying value as the Company has the ability to repay the outstanding principal at par value at any time. As of September 30, 2023, the NexBank Revolver had an outstanding balance of $20.0 million.
Reimbursement of Expenses; Expense Cap
The Company is required to pay directly or reimburse the Adviser for all of the documented “operating expenses” (all out-of-pocket expenses of the Adviser in performing services for us, including but not limited to the expenses incurred by the Adviser in connection with any provision by the Adviser of legal, accounting, financial, due diligence, investor relations or other services performed by the Adviser that outside professionals or outside consultants would otherwise perform and our pro rata share of rent, telephone, utilities, office furniture, equipment, machinery or other office, internal and overhead expenses of the Adviser required for our operations) and any and all expenses (other than underwriters'
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discounts) paid or to be paid by us in connection with an offering of our securities, including, without limitation, our legal, accounting, printing, mailing and filing fees and other documented offering expenses (collectively, "Offering Expenses"), paid or incurred by the Adviser or its affiliates in connection with the services it provides to us pursuant to the Advisory Agreement. Direct payment of operating expenses by us together with reimbursement of operating expenses to the Adviser, plus compensation expenses relating to equity awards granted under a long-term incentive plan and all other corporate general and administrative expenses of the Company, including the Fees payable under the Advisory Agreement, could not exceed 1.5% (the "Expense Cap") of Managed Assets, calculated as of the end of each quarter, for the twelve-month period which followed the Company’s receipt of the Deregistration Order; provided, however, that this limitation did not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions or other events outside the ordinary course of our business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of certain real estate-related investments; provided, further, in the event the Company consolidated another entity that it does not wholly own as a result of owning a controlling interest in such entity or otherwise, expenses would have been calculated without giving effect to such consolidation and instead such entity’s expenses would have been, on a pro rata basis consistent with the Company’s percentage ownership, be considered those of the Company for purposes of calculation of expenses. On occasion, the Adviser may waive additional fees to the extent assets are invested in certain affiliated investments. The Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket expenses paid on the Company’s behalf. Once waived, these expenses are considered permanently waived and become non-recoupable in the future. The Expense Cap expired on June 30, 2023.
The Advisory Agreement has an initial term of three years that will expire on July 1, 2025, and successive additional one-year terms thereafter unless earlier terminated. We have the right to terminate the Advisory Agreement on 30 days’ written notice upon the occurrence of a cause event (as defined in the Advisory Agreement). The Advisory Agreement can be terminated by us or the Adviser without cause upon the expiration of the then-current term with at least 180 days’ written notice to the other party prior to the expiration of such term. The Adviser may also terminate the agreement with 30 days’ written notice if we have materially breached the agreement and such breach has continued for 30 days before we are given such notice. In addition, the Advisory Agreement will automatically terminate in the event of Advisers Act Assignment (as defined in the Advisory Agreement) unless we provide written consent. A termination fee will be payable to the Adviser by us upon termination of the Advisory Agreement for any reason, including non-renewal, other than a termination by us upon the occurrence of a cause event or due to an Advisers Act Assignment. The termination fee will be equal to three times the Fees earned by the Adviser during the twelve month period immediately preceding the most recently completed calendar quarter prior to the effective termination date; provided, however, if the Advisory Agreement is terminated prior to the one year anniversary of the date of the Advisory Agreement, the Fees earned during such period will be annualized for purposes of calculating the Fees.
For the three and nine months ended September 30, 2023, the Company incurred Administrative Fees and Advisory Fees of $3.5 million and $10.7 million, which excludes $0 and $2.0 million, respectively, in fees that were waived to comply with the Expense Cap. Should the Fees and expenses and any other items subject to the Expense Cap have been less than the 1.5% limit for the twelve-month period subsequent to the Deregistration Date, some or all of the deferred expenses could be recouped by the Adviser up to the Expense Cap. No Advisory Fees were recouped by the Adviser as of September 30, 2023.
Guaranties of NexPoint Storage Partners, Inc. Debt
On September 14, 2022, the Company entered into guaranties (the “BS Guaranties”) for the benefit of JPMorgan Chase Bank, National Association (“JPM”) and any additional or subsequent lenders from time to time (collectively, “BS Lender”) under a loan agreement (the "BS Loan Agreement"), pursuant to which the Company guaranteed certain obligations of the borrowers (“BS Borrower”) under the BS Loan Agreement. The Company, through its ownership in NSP, owns an indirect interest in BS Borrower and entered into the BS Guaranties as a condition of BS Lender lending to BS Borrower under the BS Loan Agreement. Pursuant to the BS Guaranties, the Company guaranteed certain carrying obligations, including interest payments, of BS Borrower and certain recourse obligations of BS Borrower pertaining to exculpation or indemnification of BS Lender. The BS Guaranties also provide that the Company may be required to repay principal amounts upon the occurrence of certain events, including certain action or inaction by BS Borrower, but does not provide for a full guarantee of repayment in all circumstances. The BS Loan Agreement provides for a single initial advance of the loan in the amount of $221.8 million to BS Borrower on the closing date, and provides BS Borrower the right to request additional advances in connection with subsequently acquired properties. Amounts outstanding under the BS Loan Agreement are due and payable on March 9, 2024 which date may, at the option of BS Borrower, be extended for an additional six months upon the satisfaction of certain terms and conditions. Borrowings outstanding under the BS Loan
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Agreement are secured by mortgages on real property owned by one or more of the borrowers comprising BS Borrower and bear interest at the one-month SOFR, subject to a floor of 0.5%, plus an applicable spread of approximately 4.0% with respect to approximately $184.9 million of initial principal thereunder and approximately 5.4% with respect to approximately $36.9 million of initial principal thereunder.
On December 8, 2022 and in connection with a restructuring of NSP, the Company, together with NREF, Highland Opportunities and Income Fund ("HFRO") and NexPoint Real Estate Strategies Fund (collectively, the "Co-Guarantors"), as guarantors, entered into a Sponsor Guaranty Agreement in favor of Extra Space Storage, LP ("Extra Space") pursuant to which the Company and the Co-Guarantors guaranteed obligations of NSP with respect to NSP’s newly created Series D Preferred Stock and two promissory notes in an aggregate principal amount of approximately $64.2 million issued to Extra Space. The guaranties by the Company and the Co-Guarantors are capped at $97.6 million, which cap amount will be reduced as the guaranteed obligations of NSP are paid. Each of the Company and the Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP’s common stock. On February 15, 2023, NSP paid down approximately $15.0 million of these promissory notes, resulting in an aggregate principal amount of approximately $49.2 million. As of September 30, 2023, the maximum liability of the Company under the guaranties was approximately $71.0 million. The Company has not recorded a contingent liability due to NSP being current on all debt and preferred dividend payments and in compliance with all debt compliance provisions of the Sponsor Guaranty Agreement. As of September 30, 2023, the Company owns approximately 53.0% of the total outstanding shares of common stock of NSP.
Separately, on September 14, 2022, the Company entered into a Guaranty Agreement (Recourse Obligations), dated September 14, 2022 (the “CMBS Guaranty”) for the benefit of JPM and any additional or subsequent lenders from time to time (collectively, the “CMBS Lender”) under a loan agreement (the "CMBS Loan Agreement"), by and among the borrowers thereunder (collectively, “CMBS Borrower”) and the CMBS Lender. The Company, through its ownership in NSP, owns an indirect interest in CMBS Borrower and entered into the CMBS Guaranty as a condition of CMBS Lender lending to CMBS Borrower under the CMBS Loan Agreement. Pursuant to the CMBS Guaranty, the Company guaranteed certain recourse obligations of CMBS Borrower pertaining to exculpation or indemnification of CMBS Lender. The CMBS Guaranty also provides that the Company may be required to repay principal amounts upon the occurrence of certain events, including certain action or inaction by CMBS Borrower, but does not provide for a full guarantee of repayment in all circumstances. The CMBS Loan Agreement provides for a loan of $356.5 million to CMBS Borrower. Amounts outstanding under the CMBS Loan Agreement are due and payable on September 9, 2024 which date may, at the option of CMBS Borrower, be extended for three successive one-year terms upon the satisfaction of certain terms and conditions. Borrowings outstanding under the CMBS Loan Agreement are secured by mortgages on real property owned by one or more of the borrowers comprising CMBS Borrower and bear interest at one-month SOFR plus a spread of approximately 3.6%, which will increase by 0.1% upon a second extension of the loan maturity and by an additional approximately 0.15% upon a third extension of the loan maturity.
Subsidiary Investment Management Agreement
SFP is a party to a management agreement (the "SFP IMA") with NexAnnuity pursuant to which NexAnnuity provides investment management services to SFP. Mr. Dondero serves as President of NexAnnuity, which is indirectly owned by a trust of which Mr. Dondero is the primary beneficiary. As discussed in Note 10, the Company disposed of its interest in SFP on September 1, 2023. Prior to its disposition, the Company paid $0.1 million in management fees to NexAnnuity.
In exchange for its services, the SFP IMA provides that NexAnnuity will receive a management fee (the "SFP Management Fee") paid monthly in an amount equal to 1.0% of the average weekly value of an amount equal to the total assets of SFP, including any form of leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the investment objective, investment guidelines and policies under the SFP IMA, and/or (iv) any other means, plus any value added tax or any other applicable tax, if any, thereon. NexAnnuity may waive all or a portion of the SFP Management Fee.
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Other Related Party Transactions
The Company has in the past, and may in the future, utilize the services of affiliated parties. The Company holds multiple operating accounts at NexBank an affiliate of the Adviser through common beneficial ownership. The Company’s operating properties, other than undeveloped land, are managed by NexVest Realty Advisors, LLC ("NexVest"), an affiliate of the Adviser. For the nine months ended September 30, 2023, the Company through its subsidiaries has paid approximately $0.5 million in property management fees to NexVest. The property management agreement with NexVest for the retail property in Lubbock, Texas is dated January 1, 2014 and had a fixed fee of $750 per month. Effective January 1, 2023, the property management agreement was amended and the property management fee was increased to $1,200 per month. The property management agreement with NexVest for Cityplace Tower is dated August 15, 2018, and the management fee is calculated on 3% of gross revenues, with a minimum fee of $20,000 per month. The property management agreement with NexVest for the White Rock Center is dated June 1, 2013, and the management fee is calculated on 4% of gross receipts, payable monthly.
The Company is a limited guarantor and an indemnitor on one of NexPoint Hospitality Trust's ("NHTs") loans with an aggregate principal amount of $77.4 million as of September 30, 2023. NHT is a publicly traded hospitality REIT that is managed by an affiliate of the Adviser. The Company owns 45.4% of the outstanding common stock of NHT. The obligations include a customary environmental indemnity and a so-called "bad boy" guarantee, which is generally only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper. The Company has not recorded a contingent liability as NHT is current on all debt payments and in compliance with all debt compliance provisions.
On March 31, 2022, the Company, through an unconsolidated subsidiary, borrowed approximately $13.5 million from NREF, an entity advised by an affiliate of the Adviser, to finance its acquisition of a 77.0% interest in Tivoli North Property. The bridge note bore interest at an annual rate equal to the WSJ Prime Rate plus 1.5% and had a maturity date of October 1, 2022. The Company refinanced this bridge note with PNC Bank, N.A ("PNC Bank") on August 8, 2022. The new loan had a principal amount of $13.5 million and bears interest at an annual rate of daily simple SOFR plus 3.5%. Proceeds from the note with PNC Bank were used to repay in full the financing provided by NREF on August 9, 2022. On August 8, 2023, the Company elected to extend the maturity date of this loan to January 8, 2024.
On December 8, 2022, the Company, through NREO, entered into a Contribution Agreement pursuant to which NREO contributed all of its interests in the joint ventures (the "SAFStor Ventures") with SAFStor NREA GP – I, LLC, SAFStor NREA GP – II, LLC and NREA GP – III, LLC to NexPoint Storage Partners Operating Company, LLC (the "NSP OC") in exchange for approximately 47,064 newly created Class B Units of the NSP OC, representing 14.8% of the outstanding combined classes of common units of the NSP OC (the "NSP OC Common Units") immediately after NREO’s acquisition of Class B Units. The NSP OC is the operating company of NSP, of which the Company owns approximately 86,369 shares, or 53.0%, of the outstanding common stock as of September 30, 2023. In connection with the foregoing, the NSP OC acquired all of the other interests in the SAFStor Ventures from affiliates of the Adviser following which they were wholly owned by a subsidiary of the NSP OC. The SAFStor Ventures are invested, through subsidiaries, in various self-storage real estate development projects primarily located on the East Coast of the United States. As of September 30, 2023, the Company owns approximately 47,064 units, or 29.7%, of the outstanding NSP OC Common Units.
On December 23, 2022, the Company, through NREO, redeemed 2,100,000 common units of limited partnership (the "NREF OP Units") of NexPoint Real Estate Finance Operating Partnership, L.P. (the "NREF OP") for 2,100,000 shares of common stock of NREF. The NREF OP is the operating partnership of NREF, a publicly traded mortgage REIT managed by an affiliate of the Adviser.
On September 1, 2023, the Company, through one of its wholly owned TRSs, entered into a contribution agreement to transfer the Structured Note in SFP and all its rights, title and interests to related party NexAnnuity Holdings, Inc. and its wholly owned subsidiaries. The Company also transferred all of its ordinary shares in SFP to a separate share trustee. In exchange, the Company was issued 68,500 shares of Class A Preferred Stock in NexAnnuity Holdings, Inc. On September 28, 2023, the Company, through one of its wholly owned TRSs, redeemed 2,000 shares of Class A Preferred Stock in NexAnnuity Holdings, Inc.
Related Party Investments
The Company, from time to time, may invest in entities managed by affiliates of the Adviser. For the nine months ended and as of September 30, 2023, the Company has the following investments in entities managed or advised by, or directly or indirectly owned by entities managed or advised by, affiliates of the Adviser (in thousands).
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Related PartyInvestmentFair
Value/Carrying Value
Change in Unrealized
Gain/(Loss)
Realized
Gain/(Loss)
Equity in income (loss)Interest and
Dividends
Total Income
NexPoint Hospitality TrustCommon Stock$9,500 $(18,185)$— $— $— $(18,185)
NexPoint Real Estate Finance, Inc.Common Stock34,356 987 — — 4,316 5,303 
NexPoint Storage Partners, Inc.Common Stock69,484 (34,210)— — — (34,210)
NexPoint Residential Trust, Inc.Common Stock2,910 (1,027)— — 113 (914)
NexPoint SFR Operating Partnership, L.P.Convertible Notes21,275 468 — — 1,411 1,879 
NexPoint Hospitality TrustConvertible Notes22,173 694 — — 479 1,173 
NexPoint Storage Partners Operating Company, LLCLLC Units37,863 (18,642)— — — (18,642)
SFR WLIF III, LLCLLC Units7,200 — — 498 — 498 
Claymore Holdings, LLCLLC Units— — — — — — 
Allenby, LLCLLC Units— — — — — — 
VineBrook Homes Operating Partnership, L.P.Partnership Units146,419 (26,108)— — 2,866 (23,242)
NexPoint Real Estate Finance Operating Partnership, L.P.Partnership Units79,658 2,288 — — 8,764 — 11,052 
NexPoint SFR Operating Partnership, L.P.Partnership Units49,568 (4,513)— — 1,203 — (3,310)
NexAnnuity Holdings, Inc.Preferred Shares66,955 — — — 455 — 455 
Total$547,361 $(98,248)$— $498 $19,607 $(78,143)

On June 13, 2023, HFRO, a fund managed by an affiliate of the Adviser, loaned $11 million to NexPoint SFR Operating Partnership, L.P. (the "SFR OP") in exchange for $11 million of 7.50% convertible notes of the SFR OP (the "SFR OP Convertible Notes"). The SFR OP Convertible Notes bear interest at 7.50%, are interest only during the term of the SFR OP Convertible Note and mature on June 30, 2027. The SFR OP is a subsidiary of NexPoint Homes Trust, Inc. ("NXHT"), a single-family rental REIT managed by an affiliate of the Adviser. From August 1, 2022 through March 31,
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2027, the SFR OP Convertible Notes are convertible into SFR OP Units at the election of the holder at the then-current net asset value, subject to certain required approvals and limitations, including the SFR OP’s right to prohibit conversion if, among other things, conversion would negatively impact NXHT’s REIT status or cause NXHT to own less than 50.0% of the SFR OP.
14. Commitments and Contingencies
Commitments
On December 8, 2022 and in connection with a restructuring of NSP, the Company, together with the Co-Guarantors, as guarantors, entered into a Sponsor Guaranty Agreement in favor of Extra Space pursuant to which the Company and the Co-Guarantors guaranteed obligations of NSP with respect to NSP’s newly created Series D Preferred Stock and two promissory notes in an aggregate principal amount of approximately $64.2 million issued to Extra Space. The guaranties by the Company and the Co-Guarantors are capped at $97.6 million, which cap amount will be reduced as the guaranteed obligations of NSP are paid. Each of the Company and the Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP’s common stock. On February 15, 2023, NSP paid down approximately $15.0 million of these promissory notes, resulting in an aggregate principal amount of approximately $49.2 million. As of September 30, 2023, the maximum liability of the Company under the guaranties was approximately $71.0 million. The Company has not recorded a contingent liability due to NSP being current on all debt and preferred dividend payments and in compliance with all debt compliance provisions of the Sponsor Guaranty Agreement. As of September 30, 2023, the Company owns approximately 53.0% of the total outstanding shares of common stock of NSP. See Note 13 for additional information.
The Company is a limited guarantor and an indemnitor on one of NHT's loans with an aggregate principal amount of $77.4 million outstanding, as of September 30, 2023. The obligations include a customary environmental indemnity and a so-called "bad boy" guarantee, which is generally only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper. The Company has not recorded a contingent liability as NHT is current on all debt payments and in compliance with all debt compliance provisions.
Contingencies
In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of all such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated balance sheets or consolidated statements of operations and comprehensive income (loss) of the Company. The Company is not involved in any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company or its properties or subsidiaries.
Environmental liabilities could have a material adverse effect on the Company’s business, assets, cash flows or results of operations. As of September 30, 2023, the Company was not aware of any environmental liabilities. There can be no assurance that material environmental liabilities do not exist.
Claymore and Allenby are engaged in ongoing litigation that could result in a possible gain contingency to the Company. The probability, timing, and potential amount of recovery, if any, are unknown.

15. Operating Leases

Lessor Accounting
The following table summarizes the future minimum lease payments to the Company as the lessor under the operating lease obligations at September 30, 2023 (in thousands). These amounts do not reflect future rental revenues from renewal or replacement of existing leases. Reimbursements of operating expenses and variable rent increases are excluded from the table below.
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Year:Operating Leases
2023$2,939
20249,536
20259,227
20267,911
20277,097
Thereafter26,222
Total$62,932
The following table lists the tenants where the rental revenue from the tenants during the period presented represented 10% or more of total rental income in the Company’s consolidated statements of operations (in thousands):
For the Nine Months Ended September 30,
TenantRental Income
Hudson Advisors LLC$2,135
16. Subsequent Events
Dividends Declared
On November 6, 2023, the Board approved a quarterly dividend of $0.15 per common share, payable on December 29, 2023 to shareholders of record on November 17, 2023. The dividend on the Company’s common shares consists of a combination of cash and shares, with the cash component of the dividend (other than cash paid in lieu of fractional shares) not to exceed 20% in the aggregate, with the balance being paid in the Company’s common shares. Also on November 6, 2023, the Board approved a quarterly dividend of $0.34375 per Series A Preferred Share, payable on January 2, 2024 to shareholders of record on December 22, 2023.
Issuance of Common Shares to Adviser
On October 25, 2023, the Company issued 131,031.24 common shares to the Adviser as payment of a portion of the monthly Advisory Fees pursuant to the April 11, 2023 amendment to Advisory Agreement.
Redemption of Series A Preferred Stock in NexAnnuity Holdings, Inc.

On October 24, 2023, the Company, through one of its wholly owned TRSs, redeemed 1,000 shares of Class A Preferred Stock in NHI for $1.0 million .
Credit Facility Amendment

On October 20, 2023, Raymond James Bank, N.A. agreed to amend the terms of the Credit Facility, which, among other things, extended the maturity date to October 6, 2025 and increased the credit limit to $20 million. On October 23, 2023, the Company drew $7.0 million of the available balance.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion and analysis of our financial condition and our historical results of operations. The following should be read in conjunction with our financial statements and accompanying notes included herein and with our annual report on Form 10-K for the year ended December 31, 2022 (our "Annual Report"), filed with the Securities and Exchange Commission (the "SEC") on March 31, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this quarterly report. See Cautionary Statement Regarding Forward-Looking Statements in this report and "Risk Factors" in Part I, Item 1A, "Risk Factors" of our Annual Report.
Overview
As of September 30, 2023, our Portfolio consisted primarily of debt and equity investments in the single-family rental, self-storage, office, hospitality, life science and multifamily sectors. Substantially all of our business is conducted through the OP. The OP GP is the sole general partner of the OP and is owned 100% by the Company. As of September 30, 2023, there were 2,000 OP Units outstanding, of which 100% were owned by us.
On July 1, 2022, or the Deregistration Date, the SEC issued the Deregistration Order pursuant to Section 8(f) of the Investment Company Act declaring that the Company has ceased to be an investment company under the Investment Company Act. The issuance of the Deregistration Order enabled the Company to proceed with full implementation the Business Change. As a result of the Business Change, we have not provided a comparison of our financial statements to prior periods in which we were operating as a registered investment company because it would not be useful to our shareholders.
As a diversified REIT, the Company’s primary investment objective is to provide both current income and capital appreciation. The Company seeks to achieve this objective through the Business Change. Target underlying property types primarily include, but are not limited to, single-family rentals, multifamily, self-storage, life science, office, industrial, hospitality, net lease and retail. The Company may, to a limited extent, hold, acquire or transact in certain non-real estate securities. We are externally managed by the Adviser through the Advisory Agreement, by and among the Company and the Adviser. The Advisory Agreement was dated July 1, 2022, and amended on October 25, 2022 and April 11, 2023, for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated. The Adviser is wholly owned by our Sponsor.
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our shareholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through one or more TRS entities and are subject to applicable federal, state, and local income and margin taxes.
The macroeconomic environment remains challenging as central banks have continued to rapidly raise interest rates. The rising rate environment, coupled with large bank failures in early 2023 and ongoing economic uncertainty, has limited credit availability to commercial real estate. Less available and more expensive debt capital has had pronounced effects on the capital markets, making property acquisitions and other investments harder to finance. Similar factors also impact the timing of and proceeds generated from asset sales and our ability to obtain debt capital.
On October 15, 2021, Marc S. Kirschner, as litigation trustee of a litigation subtrust formed in connection with the bankruptcy proceedings of Highland, a former affiliate of our Sponsor, filed a lawsuit (the “Bankruptcy Trust Lawsuit”) against various persons and entities, including our Sponsor and James Dondero. In addition, on February 8, 2023, UBS Securities and its affiliate (collectively “UBS”) filed a lawsuit in the Supreme Court of the State of New York, County of New York against Mr. Dondero and a number of entities currently or previously affiliated with Mr. Dondero, seeking to collect on $1.3 billion in judgments UBS obtained against entities that were managed indirectly by Highland (the “UBS Lawsuit”). Neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit include claims related to our business or our assets.
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Our Sponsor and Mr. Dondero have informed us they believe the Bankruptcy Trust Lawsuit has no merit and Mr. Dondero has informed us he believes the UBS Lawsuit has no merit; we have been advised that the defendants named in each of the lawsuits intend to vigorously defend against the claims. We do not expect the Bankruptcy Trust Lawsuit or the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.
On February 22, 2023, as previously disclosed, the Board formed an independent special committee to oversee a review of the potential impact to the Company of the UBS Lawsuit and the Bankruptcy Trust Lawsuit. The special committee retained Reichman Jorgensen Lehman Feldberg LLP (“Reichman Jorgensen”) as independent legal counsel to advise the special committee on the review. Reichman Jorgensen has reported to the special committee that they have substantially completed their review and found no evidence that the Company engaged in any conduct that would expose it to liability from the UBS Lawsuit or the Bankruptcy Trust Lawsuit. On June 13, 2023, the special committee delivered these findings to the Board. Following the review of the special committee, we reaffirm our expectation that neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.
Macroeconomic trends, including increases in inflation and rising interest rates, may adversely impact our business, financial condition and results of operations. Inflation in the United States has recently accelerated and is currently expected to continue at an elevated level in the near-term. Rising inflation could have an adverse impact on our operating expenses and our floating rate mortgages and credit facilities, as these costs could increase at a rate higher than our rental and other revenue. There is no guarantee we will be able to mitigate the impact of rising inflation. The Federal Reserve has raised interest rates to combat inflation and restore price stability. In addition, to the extent our exposure to increases in interest rates on any of our debt is not eliminated through interest rate swaps and interest rate protection agreements, such increases will result in higher debt service costs which will adversely affect our cash flows. We cannot make assurances that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings. Such future constraints could increase our borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments, which could slow or deter future growth.
Components of Our Revenues and Expenses
Revenues
Rental income. Our rental income is primarily attributable to the rental revenue from our investment in Cityplace Tower, a 42-story, 1.35 million-square-foot, trophy office building acquired in 2018 as well as rental income from two retail properties. Our rental income also includes utility reimbursements, late fees, common area maintenance reimbursements, and other rental fees charged to tenants.
Interest income. Interest income includes interest earned from our debt investments.
Dividend income. Dividend income includes dividends from our equity investments.
Other income. Other income includes ancillary income earned from tenants such as non-refundable fees, parking fees, and other miscellaneous fees charged to tenants and income items.
Expenses
Property operating expenses. Property operating expenses include property maintenance costs, salary and employee benefit costs, utilities, casualty-related expenses and recoveries and other property operating costs of property owned directly or indirectly by us.
Property management fees. Property management fees include fees paid to NexVest, our property manager, for managing each property directly or indirectly owned by us (see Note 13 to our unaudited consolidated financial statements).
Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property owned directly or indirectly by us. Insurance includes the cost of commercial, general liability, and other needed insurance for each property owned directly or indirectly by us.
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Advisory and administrative fees. Advisory and administrative fees include the fees paid to our Adviser pursuant to the Advisory Agreement (see Note 13 to our unaudited consolidated financial statements).
Property general and administrative expenses. Property general and administrative expenses include the costs of marketing, professional fees, general office supplies, and other administrative related costs of each property owned directly or indirectly by us.
Corporate general and administrative expenses. Corporate general and administrative expenses include, but are not limited to, audit fees, legal fees, listing fees, board of trustee fees, investor relations costs and payments of reimbursements to our Adviser for operating expenses. Corporate general and administrative expenses and the Advisory Fees and Administrative Fees paid to our Adviser will not exceed the Expense Cap for the 12 months subsequent to the Deregistration Date, calculated in accordance with the Advisory Agreement. The Expense Cap does not limit the reimbursement by us of expenses related to securities offerings paid by our Adviser. The Expense Cap also does not apply to legal, accounting, financial, due diligence, and other service fees incurred in connection with mergers and acquisitions, extraordinary litigation, or other events outside our ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Additionally, in the sole discretion of the Adviser, the Adviser may elect to waive reimbursement for eligible out-of-pocket expenses paid on the Company’s behalf. Once waived, such expenses are considered permanently waived and become non-recoupable in the future.
Conversion expense - Conversion expenses include the costs of the Business Change in conjunction with the Deregistration Order, which primarily include legal fees and other fees incurred in preparation for or as a direct result of the conversion. These conversion expenses are included in the consolidated statement of operations and comprehensive income (loss) as conversion expenses.
Depreciation and amortization. Depreciation and amortization costs primarily include depreciation of our real properties and amortization of acquired in-place leases on property owned directly or indirectly by us.
Other Income and Expense
Interest Expense. Interest expense primarily includes the cost of interest expense on debt, the amortization of deferred financing costs, if any, and the related impact of interest rate derivatives, if any, used to manage our interest rate risk.
Equity in Earnings (Losses) of Unconsolidated Ventures. Equity in earnings (losses) of unconsolidated ventures represents the change in our basis in equity method investments resulting from our share of the investments’ income and expenses. Profit and loss from equity method investments for which we’ve elected the fair value option are classified in divided income, change in unrealized gains and realized gains as applicable.
Income Tax Expense. Income tax expense is primarily derived from taxable gains from asset sales and other income earned from investments held in our TRSs.
Unrealized Gain (Loss) on Investments. Unrealized gains and losses represent changes in fair value for equity method investments, CLO equity investments, bonds, common stock, convertible notes, LLC interests, LP interests, rights and warrants, and senior loans for which the fair value option has been elected.
Realized Gain (Loss) on Investments. The Company recognizes the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized gains or losses, respectively. The Company reverses cumulative, unrealized gains or losses previously reported in its Consolidated Statements of Operations on both the Successor and Predecessor basis with respect to the investment sold at the time of the sale.
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Real Estate Investments Statistics
As of September 30, 2023, the Company was invested in two retail properties and one office and hospitality property (excluding investments in undeveloped land), as listed below:
Average Effective Monthly
Occupied Rent Per Square Foot
(1) as of
% Occupied (2) as of
Property NameRentable Square
Footage
(in thousands)
Property TypeDate
Acquired
September 30,
2023
September 30,
2023
White Rock Center82,793 Retail6/13/2013$1.51 66.9 %
5916 W Loop 28930,140 Retail7/23/2013$0.40 100.0 %
Cityplace Tower1,353,087 Office & Hospitality(3)8/15/2018$2.13 60.2 %
1,466,020 
(1)Average effective monthly occupied rent per square foot is equal to the average of the contractual rent for commenced leases as of September 30, 2023, minus any tenant concessions over the term of the lease, divided by the occupied square footage of commenced leases as of September 30, 2023.
(2)Percent occupied is calculated as the rentable square footage occupied as of September 30, 2023, divided by the total rentable square footage, expressed as a percentage.
(3)Cityplace is currently under development and the Company is converting part of the property into a hotel, which was still under construction as of September 30, 2023.
Results of Operations for the Three Months Ended September 30, 2023 and June 30, 2023 and Nine Months Ended September 30, 2023
The following table sets forth a summary of our operating results for the three months ended September 30, 2023 and June 30, 2023 and nine months ended September 30, 2023 (in thousands):
For the Three Months Ended September 30,For the Three Months Ended June 30,For the Nine Months Ended September 30
202320232023
Total revenues$12,364$13,880$41,110
Total expenses(12,885)(13,853)(39,276)
Operating income(521)27 1,834 
Interest expense(4,173)(3,762)(11,397)
Equity in income (losses) of unconsolidated ventures(369)422 (23)
Income tax expense(330)(308)(1,444)
Change in unrealized gains (losses)(61,626)(9,332)(89,598)
Realized gains (losses)(939)(914)(718)
Net income (loss)(67,958)(13,867)(101,346)
Net income (loss) attributable to preferred shareholders(1,155)(1,155)(3,465)
Net income (loss) attributable to common shareholders$(69,113)$(15,022)$(104,811)
The change in our net income (loss) for the three months ended September 30, 2023 and June 30, 2023 and the net loss for the nine months ended September 30, 2023 primarily relates to mark-to-market losses on our investments accounted for at fair value partially offset by interest and dividends.
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Revenues
Rental income. Rental income was $5.4 million and $5.4 million for the three months ended September 30, 2023 and June 30, 2023, and $15.5 million for the nine months ended September 30, 2023. There was no change between the three months ended June 30, 2023 and the three months ended September 30, 2023. Rental income primarily consists of lease revenue from our investment in Cityplace Tower.
Interest and dividends. Interest and dividends totaled $6.9 million and approximately $8.4 million for the three months ended September 30, 2023 and June 30, 2023, and $25.4 million for the nine months ended September 30, 2023. There was a decrease of $1.6 million between the three months ended June 30, 2023, and the three months ended September 30, 2023, which was primarily due to a decrease in equity dividends.
Other income. Other income was approximately $97.0 thousand and $22.0 thousand for the three months ended September 30, 2023 and June 30, 2023, and $128.0 thousand for the nine months ended September 30, 2023. There was an increase of $75.0 thousand between the three months ended June 30, 2023 and the three months ended September 30, 2023, which was primarily due to an increase in asset management fees on a property.
Expenses
Property operating expenses. Property operating expenses were $1.5 million and $2.5 million for the three months ended September 30, 2023 and June 30, 2023, and $5.6 million for the nine months ended September 30, 2023. There was a decrease of $1.0 million between the three months ended June 30, 2023 and the three months ended September 30, 2023, which was primarily due to a decrease in one-time repair and maintenance expenses. Property operating expenses consist primarily of expenses from our investment in Cityplace Tower.
Property management fees. Property management fees were $191.0 thousand and $191.0 thousand for the three months ended September 30, 2023 and June 30, 2023, and $553.0 thousand nine months ended September 30, 2023. There was no change between the three months ended June 30, 2023 and the three months ended September 30, 2023. Property management fees are primarily based on gross revenues derived primarily from our investment in Cityplace Tower.
Real estate taxes and insurance. Real estate taxes and insurance costs were $1.4 million and $1.3 million for the three months ended September 30, 2023 and June 30, 2023, and $4.1 million for the nine months ended September 30, 2023. There was an increase of $20.0 thousand between the three months ended June 30, 2023 and the three months ended September 30, 2023, which was primarily due to an increase in property taxes at Cityplace Tower. Real estate taxes and insurance expenses consist primarily of expenses from our investment in Cityplace Tower.
Advisory and administrative fees. For the three months ended September 30, 2023 and June 30, 2023, the Company incurred Administrative Fees and Advisory Fees of $3.5 million and $3.7 million, which excludes $0 and $2.0 million in fees that were waived to comply with the Expense Cap, and $10.7 million for the nine months ended September 30, 2023, which excludes $(2.0) million in fees that were deferred to comply with the Expense Cap. There was an increase of approximately $1.8 million between the three months ended June 30, 2023 and the three months ended September 30, 2023. The decrease in periods was primarily due to the expiration of the Expense Cap on June 30, 2023. The fees that were deferred to comply with the Expense Cap have been waived and cannot be recouped by the Adviser.
Property general and administrative expenses. Property general and administrative expenses were $0.8 million and $1.0 million for the three months ended September 30, 2023 and June 30, 2023, and $2.6 million for the nine months ended September 30, 2023. There was a decrease of approximately $0.2 million between the three months ended June 30, 2023 and the three months ended September 30, 2023, which was primarily due to a decrease in professional fees. Property general and administrative expenses consist primarily of expenses from our investment in Cityplace Tower.
Corporate general and administrative expenses. Corporate general and administrative expenses were $1.7 million and $2.3 million for the three months ended September 30, 2023 and June 30, 2023, and approximately $5.4 million for the nine months ended September 30, 2023. There was a decrease of approximately $0.6 million between the three months ended June 30, 2023 and the three months ended September 30, 2023, which was primarily driven by a decrease in legal fees, tax prep fees and other professional fees.
Conversion expenses. Conversion expenses were $0.0 million and $1.3 million for the three months ended September 30, 2023 and June 30, 2023 and $1.4 million for the nine months ended September 30, 2023. There was a
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decrease of approximately $1.3 million between the three months ended June 30, 2023 and the three months ended September 30, 2023, which was primarily driven by a decrease in legal fees and audit related fees associated to the conversion of the predecessor.
Depreciation and amortization. Depreciation and amortization costs were $3.8 million and $3.6 million for the three months ended September 30, 2023 and June 30, 2023 and $10.9 million for the nine months ended September 30, 2023. There was an increase of approximately $0.2 million between the three months ended June 30, 2023 and the three months ended September 30, 2023, which was primarily due to a decrease in amortization of leases. Depreciation and amortization expenses consist primarily of expenses from our investment in Cityplace Tower. Due to the Business Change, the fair value of our real estate properties as of July 1, 2022 became the new cost basis for the Company. This change reset the depreciable basis of our properties as well as caused the recognition of new intangible lease assets.
Other Income and Expense
Interest expense. Interest expense was $4.2 million and approximately $3.8 million for the three months ended September 30, 2023 and June 30, 2023 and approximately $11.4 million for the nine months ended September 30, 2023. There was an increase of approximately $0.4 million between the three months ended June 30, 2023 and the three months ended September 30, 2023, which was primarily due to an increase in interest expense at Cityplace Tower attributed to an increase in interest rates and the NexBank Revolver.
Equity in income (losses) of unconsolidated ventures. Equity in income (losses) of unconsolidated ventures was $(0.4) million and $0.4 million for the three months ended September 30, 2023 and June 30, 2023 and $0.0 million for the nine months ended September 30, 2023. There was a decrease of approximately $0.8 million between the three months ended June 30, 2023 and the three months ended September 30, 2023, which was primarily driven by an increase in net income at Marriott Uptown, a 255 key upscale hotel located in Dallas, Texas which is owned by the Company.
Income tax expense. The Company has recorded income tax expense (benefit) of $0.3 million and $0.3 million for the three months ended September 30, 2023 and June 30, 2023, and $1.4 million associated with the TRSs for the nine months ended September 30, 2023. There was no change between the three months ended June 30, 2023 and the three months ended September 30, 2023. The tax expense is partially offset by the quarterly change in valuation allowance on a deferred tax asset of $(0.4) million for a net expense of $0.3 million for the three months ended September 30, 2023, that is recorded on the Consolidated Statement of Operations.
Change in unrealized gains (losses). Unrealized gains (losses) from our investments accounted for at fair value was $(61.6) million and $(9.3) million for the three months ended September 30, 2023 and June 30, 2023 and $(89.6) million for the nine months ended September 30, 2023. There was a decrease of $52.3 million between the three months ended June 30, 2023 and the three months ended September 30, 2023. The decrease is largely driven by mark-to-market losses on NSP common equity of $54.9 million and VineBrook LP interest of $20.9 million offset by mark-to-market gains on NREF OP Units of $3.7 million and mark-to-market gains on our legacy CLOs of $13.4 million.
Realized gains (losses). Realized gains (losses) were $(0.9) million and $(0.9) million for the three months ended September 30, 2023 and June 30, 2023, and $(0.7) million for the nine months ended September 30, 2023. There was a decrease of $0.0 million between the three months ended June 30, 2023 and the three months ended September 30, 2023. The decrease was primarily driven by realized losses on common stock of Elme Communities of $0.8 million, Whitestone REIT of $1.1 million, and realized losses on SFP of $1.3 million .
Non-GAAP Measurements
Net Operating Income and Same Store Net Operating Income
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 other comparable properties, to determine trends in earnings and to compute the fair value of our properties as NOI is calculated by adjusting net income (loss) to add back (1) interest expense, (2) Advisory Fees and Administrative Fees, (3) 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 (loss) computed in accordance with GAAP, (4) corporate general and administrative expenses, (5) income tax expenses, (6) conversion
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expenses, (7) non-operating property investment revenue, (8) realized and change in unrealized gains (losses) generated from non-real estate investments, and (9) equity in income (losses) of unconsolidated equity method ventures.
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. Corporate general and administrative expenses, advisory fees and administrative fees, conversion expenses, and income tax expenses are eliminated because they do not reflect continuing operating costs of the property. Depreciation and amortization expenses are eliminated because they may not accurately represent the actual change in value in our 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. Equity in income (losses) of unconsolidated equity method ventures are eliminated because they do not reflect continuing operating costs of the property. 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. Also, expenses that are incurred upon acquisition of a property do not reflect continuing operating costs of the property owner. 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. Non-operating property investment revenue and realized and unrealized gains (losses) from non-real estate investments are eliminated as they do not reflect continuing operating costs of the properties. We believe that eliminating these items from net income (loss) is useful because the resulting measure captures the actual ongoing 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 corporate general and administrative expenses, interest expense, Advisory Fees and Administrative Fees, conversion expenses, income tax expenses, depreciation and amortization expense, and gains and losses from the sale of operating real estate assets that are included in net income (loss) as determined under GAAP, non-operating property investment revenue and realized and change in unrealized gains and losses generated from non-real estate investments, and equity in income or losses of unconsolidated equity method ventures, all of which may be material values. 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.
We define “Same Store NOI” as NOI for our properties that are comparable between periods and that are stabilized. Please see below for a discussion of properties included as Same Store (defined below). We view Same Store NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions from the beginning of the compared period to the end of the current period.
NOI and Same Store NOI for the Three Months Ended September 30, 2023 and June 30, 2023 and the Nine Months Ended September 30, 2023
The following table, reconciles our NOI for the three months ended September 30, 2023 and June 30, 2023 and for the nine months ended September 30, 2023 to net income (loss), the most directly comparable GAAP financial measure (in thousands):
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For the Three Months Ended September 30For the Three Months Ended June 30For the Nine Months Ended September 30
202320232023
Net loss$(67,958)$(13,867)$(101,346)
Adjustments to reconcile net loss to NOI:
Advisory and administrative fees3,469 1,660 8,707 
Corporate general and administrative expenses1,685 2,252 5,433 
Conversion expenses— 1,281 1,444 
Income tax expense330 308 1,444 
Depreciation and amortization3,820 3,584 10,928 
Interest expense4,173 3,762 11,397 
Non-operating property investment revenue(6,863)(8,441)(25,441)
Realized gains (losses) from non-real estate investments939 914 718 
Change in unrealized gains (losses) from non-real estate investments61,626 9,332 89,598 
Equity in income (losses) of unconsolidated equity method ventures369 (422)23 
NOI$1,590 $363 $2,905 
Less Non-Same Store
Revenues$(5,097)$(5,064)$(14,543)
Operating expenses3,749 4,955 12,348 
Same Store NOI$242 $254 $710 
Net Operating Income for Our Same Store and Non-Same Store Properties for the Three Months Ended September 30, 2023 and June 30, 2023 and the Nine Months Ended September 30, 2023
There are two properties, White Rock Center and 5916 W Loop 289, in our same store pool for the three months ended September 30, 2023 and June 30, 2023, and the nine months ended September 30, 2023 (our "Same Store" properties). Our Same Store properties exclude Cityplace Tower as of September 30, 2023 and June 30, 2023, because it was not yet stabilized. Non-Same Store properties include properties not yet stabilized.

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The following table reflects the revenues, property operating expenses and NOI for the three months ended September 30, 2023 and June 30, 2023 for our Same Store and Non-Same Store properties (dollars in thousands):
For the Three Months Ended September 30For the Three Months Ended June 30
20232023$ Change% Change
Revenues
Same Store
Rental income$404 $374 $30 8.0 %
Same Store revenues404374308.0 %
Non-Same Store
Rental income5,0005,042(42)(0.8)%
Other income972275N/M
Non-Same Store revenues5,0975,064330.7 %
Total revenues5,5025,438641.2 %
Operating expenses
Same Store
Property operating expenses3426930.8 %
Real estate taxes and insurance79631625.4 %
Property management fees201915.3 %
Property general and administrative expenses301317130.8 %
Same Store operating expenses1621214234.7 %
Non-Same Store
Property operating expenses1,4932,493(1,000)(40.1)%
Real estate taxes and insurance1,2811,27740.3 %
Property management fees171173(2)(1.2)%
Property general and administrative expenses8031,012(209)(20.7)%
Non-Same Store operating expenses3,7494,955(1,207)(24.4)%
Total operating expenses3,9115,076(1,165)(23.0)%
NOI
Same Store243 254 (13)(5.1)%
Non-Same Store1,349 109 1,240 N/M
Total NOI$1,590 $363 $1,227 N/M
See reconciliation of net income (loss) to NOI above under “NOI and Same Store NOI for the Three Months Ended September 30, 2023 and June 30, 2023 and the Nine Months Ended September 30, 2023.”
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The following table reflects the revenues, property operating expenses and NOI for the nine months ended September 30, 2023 for our Same Store and Non-Same Store properties (dollars in thousands):
For the Nine Months Ended September 30
2023
Revenues
Same Store
Rental income$1,126 
Same Store revenues1,126 
Non-Same Store
Rental income14,415 
Other income128 
Non-Same Store revenues14,543 
Total revenues15,669 
Operating expenses
Same Store
Property operating expenses85 
Real estate taxes and insurance223 
Property management fees55 
Property general and administrative expenses53 
Same Store operating expenses416 
Non-Same Store
Property operating expenses5,468 
Real estate taxes and insurance3,834 
Property management fees498 
Property general and administrative expenses2,548 
Non-Same Store operating expenses12,348 
Total operating expenses12,764 
NOI
Same Store710 
Non-Same Store2,195 
Total NOI$2,905 
See reconciliation of net income (loss) to NOI above under “NOI and Same Store NOI for the Three Months Ended September 30, 2023 and June 30, 2023 and Nine Months Ended September 30, 2023.”
Same Store Results of Operations for the Three Months Ended September 30, 2023 and June 30, 2023 and the Nine Months Ended September 30, 2023
As of September 30, 2023, our Same Store properties were approximately 75.7% leased with a weighted average monthly effective occupied rent per square foot of $1.21. As of June 30, 2023, our Same Store properties were approximately 75.4% leased with a weighted average monthly effective rent per square foot of $1.21. For our Same Store
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properties, we recorded the following operating results for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023 and for the nine months ended September 30, 2023.
Revenues
Rental Income. Rental income was $404.5 thousand and $374.0 thousand for the three months ended September 30, 2023 and June 30, 2023, and $1.1 million for the nine months ended September 30, 2023. There was an increase of approximately $30.5 thousand between the three months ended June 30, 2023 and three months ended September 30, 2023, which was primarily related to an increase in rental revenue at White Rock Center.
Expenses
Property operating expenses. Property operating expenses were $34.5 thousand and $25.8 thousand for the three months ended September 30, 2023 and June 30, 2023, and $84.8 thousand for the nine months ended September 30, 2023. There was an increase of approximately $8.7 thousand, or approximately 30.8%, between the three months ended June 30, 2023 and the three months ended September 30, 2023. The majority of the increase is related to an increase in repair and maintenance costs.
Real estate taxes and insurance. Real estate taxes and insurance costs were $78.5 thousand and $62.8 thousand for the three months ended September 30, 2023 and June 30, 2023, and approximately $223.3 thousand for the nine months ended September 30, 2023. There was an increase of approximately $16.0 thousand, or approximately 25.4%, between the three months ended June 30, 2023 and the three months ended September 30, 2023. The majority of the increase is related to a decrease in recoverable taxes.
Property management fees. Property management fees were $19.6 thousand and $18.5 thousand for the three months ended September 30, 2023 and June 30, 2023, and approximately $55.3 thousand for the nine months ended September 30, 2023. There was an increase of approximately $1.0 thousand, or approximately 5.3%, between the three months ended June 30, 2023 and the three months ended September 30, 2023. The majority of the increase is related to an increase in gross receipts upon which property management fees are calculated.
Property general and administrative expenses. Property general and administrative expenses were $29.6 thousand and $13.5 thousand for the three months ended September 30, 2023 and June 30, 2023, and $52.8 thousand for the nine months ended September 30, 2023. There was an increase of $17.0 thousand, or approximately 130.8% between the three months ended June 30, 2023 and the three months ended September 30, 2023. The majority of the increase is related to an increase in miscellaneous legal fees.
FFO and AFFO
We believe that net income (loss), as defined by GAAP, is the most appropriate earnings measure. We also believe that funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and adjusted funds from operations (“AFFO”) are important non-GAAP supplemental measures of operating performance for a REIT.
Since the historical cost accounting convention used for real estate assets requires depreciation except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income (loss), as defined by GAAP. FFO is defined by NAREIT as net income (loss) computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization. We compute FFO attributable to common shareholders in accordance with NAREIT’s definition.
AFFO makes certain adjustments to FFO in order to arrive at a more refined measure of the operating performance of our Portfolio. There is no industry standard definition of AFFO and practice is divergent across the industry. AFFO adjusts FFO to remove items such as equity based compensation expense and the amortization of deferred financing costs incurred in connection with obtaining long-term debt financing, and change in unrealized gains (losses). We believe AFFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.
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We believe that the use of FFO and AFFO, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and makes comparisons of operating results among such companies more meaningful. While FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income (loss) as defined by GAAP and should not be considered as an alternative or substitute to those measures in evaluating our liquidity or operating performance. FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO and AFFO may not be comparable to FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define AFFO differently than we do.
The following table reconciles our calculations of FFO and AFFO to net income (loss), the most directly comparable GAAP financial measure, for the three months ended September 30, 2023 and June 30, 2023 and nine months ended September 30, 2023 (in thousands, except per share amounts):
For the Three Months Ended September 30,For the Three Months Ended June 30,For the Nine Months Ended September 30,
202320232023
Net income (loss)$(67,958)$(13,867)$(101,346)
Depreciation and amortization3,820 3,584 10,928 
Realized gains (losses)939 914 718 
FFO(63,199)(9,369)(89,700)
Distributions to preferred shareholders(1,155)(1,155)(3,465)
FFO attributable to common shareholders(64,354)(10,524)(93,165)
FFO per share - basic$(1.73)$(0.29)$(2.51)
FFO per share - diluted$(1.71)$(0.28)$(2.48)
Equity-based compensation expense 477 436 913 
Amortization of deferred financing costs - long term debt(197)230 (441)
Change in unrealized losses61,626 9,332 89,598 
AFFO attributable to common shareholders(2,448)(526)(3,095)
AFFO per share - basic$(0.07)$(0.02)$(0.08)
AFFO per share - diluted$(0.06)$(0.02)$(0.08)
Weighted average common shares outstanding - basic37,187 37,172 $37,177 
Weighted average common shares outstanding - diluted(1)37,790 37,755 37,575 
Dividends declared per common share$0.15 $0.15 $0.45 
FFO Coverage - diluted(2)-11.4x-1.85x-5.51x
AFFO Coverage - diluted(2)-0.43x-0.16x-0.18x
Net income (loss) coverage(2)-12.18x-2.49x-6.06x

(1) The Company uses actual diluted weighted average common shares outstanding when in a dilutive position for FFO and AFFO.
(2) Indicates coverage ratio of FFO/AFFO/net income (loss) per common share (diluted) over dividends declared per common share during the period.
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The three months ended September 30, 2023 and June 30, 2023 and nine months ended September 30, 2023
FFO was $(63.2) million and $(9.4) million for the three months ended September 30, 2023 and June 30, 2023 and $(89.7) million for the nine months ended September 30, 2023, which was an increase of approximately $(53.8) million between the three months ended June 30, 2023 and the three months ended September 30, 2023. The change in our FFO between the periods primarily relates to an increase in unrealized losses.
AFFO was $(2.4) million and $(0.5) million for the three months ended September 30, 2023 and June 30, 2023 and $(3.1) million for the nine months ended September 30, 2023, which was a decrease of approximately $(1.9) million between the three months ended June 30, 2023 and the three months ended September 30, 2023. The change in our AFFO between the periods primarily relates to an increase in interest expense.
Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of funds necessary to pay for debt maturities, operating expenses and other expenditures including:
capital expenditures to continue the ongoing development of Cityplace Tower;
interest expense and scheduled principal payments on outstanding indebtedness (see “—Obligations and Commitments” below);
recurring maintenance necessary to maintain our properties;
distributions necessary to qualify for taxation as a REIT;
income taxes for taxable income generated by TRS entities;
acquisition of additional properties or investments;
advisory and administrative fees payable to our Adviser;
general and administrative expenses;
reimbursements to our Adviser; and
property management fees.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations and existing cash balances. As of September 30, 2023, we had $3.7 million of cash available to meet our short-term liquidity requirements. As of September 30, 2023, we also had $34.1 million of restricted cash held in reserve by the lender on the Cityplace debt. These reserves include escrows for property taxes and insurance, reserves for tenant improvements as well as required excess collateral.
Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional properties, make additional accretive investments pursuant to our investment strategy, renovations and other capital expenditures to improve our properties and scheduled debt payments and distributions. We expect to meet our long-term liquidity requirements through various sources of capital, which may include a revolving credit facility and future debt or equity issuances, existing working capital, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings, and property and non-real estate asset dispositions. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity, market perceptions about us and restrictions on sales of properties under the Code. The success of our business strategy will depend, in part, on our ability to access these various capital sources.
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In addition to our ongoing renovation of Cityplace, our other properties will require periodic capital expenditures and renovation to remain competitive. We estimate an additional $190 million to $210 million of capital expenditures to complete the Cityplace renovation. Also, acquisitions, redevelopments, or expansions of our properties will require significant capital outlays. Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions, or redevelopment through retained earnings long-term is limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects could be materially and adversely affected.
The macroeconomic environment remains challenging as central banks have continued to rapidly raise interest rates. The rising rate environment, coupled with large bank failures in early 2023 and ongoing economic uncertainty, has limited credit availability to commercial real estate. Less available and more expensive debt capital has had pronounced effects on the capital markets, making property acquisitions and other investments harder to finance. Similar factors also impact the timing of and proceeds generated from asset sales and our ability to obtain debt capital.
We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month period following September 30, 2023.
Cash Flows
The following table presents selected data from our consolidated statements of cash flows for the nine months ended September 30, 2023 (in thousands):
For the Nine Months Ended September 30
2023
Net cash provided by (used in) operating activities$(18,474)
Net cash provided by (used in) investing activities15,991 
Net cash provided by (used in) used in financing activities(8,332)
Net decrease in cash, cash equivalents and restricted cash(10,815)
Cash, cash equivalents and restricted cash, beginning of period48,649 
Cash, cash equivalents and restricted cash, end of period$37,834
Cash flows from operating activities. During the nine months ended September 30, 2023, net cash provided by (used in) operating activities was $(18.5) million. Cash flows from operating activities was primarily driven by an income tax payment of $10.7 million.
Cash flows from investing activities. During the nine months ended September 30, 2023, net cash provided by (used in) investing activities was $16.0 million. Cash flows from investing activities was primarily driven by proceeds from the sale of several equities and senior loans.
Cash flows from financing activities. During the nine months ended September 30, 2023, net cash provided by (used in) financing activities was $(8.3) million. Cash flows from financing activities was primarily driven by notes payable borrowings of $20.0 million, offset by credit facility repayments of $9.0 million, and dividends paid to common shareholders of $16.9 million.
Debt
Mortgage Debt
As of September 30, 2023, our consolidated subsidiaries had aggregate mortgage debt outstanding to third parties of approximately $142.9 million at a weighted average interest rate of 8.5%. See Note 7 to our unaudited consolidated financial statements for additional information.
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We intend to invest in additional real estate investments as suitable opportunities arise and adequate sources of equity and debt financing are available. We expect that future investments in properties, including any improvements or renovations of current or newly acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, future borrowings and the proceeds from additional issuances of common shares or other securities or investment and property dispositions.
Although we expect to be subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common shares or other debt or equity securities, on terms that are acceptable to us or at all.
Furthermore, following the completion of our renovation and development programs and depending on the interest rate environment at the applicable time, we may seek to refinance our floating rate debt into longer-term fixed rate debt at lower leverage levels.
Credit Facility
On January 8, 2021, the Company entered into the Credit Facility with Raymond James Bank, N.A. and drew the full balance. The Credit Facility, as amended, matures on November 6, 2023 and as of September 30, 2023, bore interest at the one-month SOFR plus 4.25%. During the three and nine months ended September 30, 2023, the Company paid down $3.0 million and $9.0 million, respectively on the Credit Facility. As of September 30, 2023, the Credit Facility had an outstanding balance of $2.0 million. For additional information regarding our Credit Facility, see Note 6.
Revolving Credit Facility
On May 22, 2023, the Company entered into the NexBank Revolver with NexBank , with the option for the Company to receive additional disbursements thereunder up to a maximum amount of $50.0 million. As of September 30, 2023, the NexBank Revolver bears interest at one-month SOFR plus 3.50% and matures on May 20, 2024, with the option to extend the maturity by one year, twice. As of September 30, 2023, the NexBank Revolver had an outstanding balance of $20.0 million.
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Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of September 30, 2023 for the next five calendar years subsequent to September 30, 2023.
Payments Due by Period (in thousands)
Total20232024202520262027Thereafter
Property Level Debt
Principal payments$156,146 $— $142,896 $13,250 $— $— $— 
Interest expense7,350 3,334 3,357 659 — — — 
Total$163,496 $3,334 $146,253 $13,909 $— $— $— 
Prime Brokerage Borrowing
Principal payments$1,760 $— $— $— $— $— $1,760 (1)
Interest expense511 102 103 102 102 102 — (1)
Total$2,271 $102 $103 $102 $102 $102 $1,760 
Preferred Shares
Dividend paymentsN/A(2)$1,155 $4,620 $4,620 $4,620 $4,620 N/A(2)
Credit Facility
Principal payments$22,000 $2,000 $20,000 $— $— $— $— 
Interest expense1,152 465 687 — — — — 
Total$23,152 $2,465 $20,687 $— $— $— $— 
Total contractual obligations and commitments$188,919 $7,056 $171,663 $18,631 $4,722 $4,722 $1,760 
(1)Assumes no additional borrowings or repayments. The Prime Brokerage balance has no stated maturity date.
(2)The Series A Preferred Shares are perpetual.
Credit Facility
The Credit Facility will mature on November 6, 2023 and is subject to monthly amortization payments through the maturity date. We believe we will have adequate liquidity to pay these obligations when they come due.
Revolving Credit Facility
The NexBank Revolver will mature on May 20, 2024, with the option to extend the maturity by one year, twice, and is subject to monthly interest payments through the maturity date, with the remaining principal being due on the maturity date. We believe we will have adequate liquidity to pay these obligations when they come due.
Cityplace Debt
On May 8, 2023, we received lender consent to defer the maturity of the Cityplace debt to September 8, 2023. Also on May 8, 2023, the parties to the loan agreement agreed to convert the index upon which the interest rate is based to one-month SOFR effective as of the first interest period beginning on or after May 8, 2023. On September 8, the lender agreed
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to defer the maturity of the Cityplace debt by six months to March 8, 2024. The purpose of the deferral was to allow for continued discussions around refinancing the debt. Management recognizes that finding an alternative source of funding is necessary to repay the debt by the maturity date. Management believes that there is sufficient time before the maturity date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due.
Advisory Agreement
As consideration for the Adviser’s services under the Advisory Agreement, we pay our Adviser the Fees, which includes the Advisory Fee equal to 1.00% of Managed Assets and the Administrative Fee equal to 0.20% of the Company’s Managed Assets. The Advisory Agreement provides that the Fees shall be paid in cash, unless the Adviser, in its sole discretion, elects to have all or a portion of the monthly installment of the Fees paid in common shares of the Company, subject to certain restrictions. For additional information, see Notes 14 and 17 to our unaudited consolidated financial statements.
We also generally reimburse our Adviser for operating or offering expenses it incurs on our behalf or in connection with the services it performs for us. Direct payment of operating expenses by us together with reimbursement of operating expenses to the Adviser, plus compensation expenses relating to equity awards granted under a long-term incentive plan and all other corporate general and administrative expenses of the Company, including the Fees payable under the Advisory Agreement, may not exceed the Expense Cap of 1.5% of Managed Assets, calculated as of the end of each quarter, for the twelve-month period following the Company’s receipt of the Deregistration Order; provided, however, that this limitation will not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions or other events outside the ordinary course of our business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of certain real estate-related investments; provided, further, in the event the Company consolidates another entity that it does not wholly own as a result of owning a controlling interest in such entity or otherwise, expenses will be calculated without giving effect to such consolidation and instead such entity’s expenses will, on a pro rata basis consistent with the Company’s percentage ownership, be considered those of the Company for purposes of calculation of expenses. The Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket expenses paid on the Company’s behalf. Once waived, these expenses are considered permanently waived and become non-recoupable in the future. The Expense Cap expired on June 30, 2023.
As of September 30, 2023, a total of $3.1 million in Fees to the Adviser have been waived to comply with the Expense Cap. Should the Company’s Fees and expenses subject to the Expense Cap be less than the 1.5% limit for the twelve month period subsequent to the Deregistration Date, some or all of the deferred expenses could be recouped by the Adviser up to the Expense Cap. No Advisory Fees were recouped by the Adviser as of September 30, 2023, and all such deferred fees were waived.
Income Taxes
We anticipate that we will continue to qualify to be taxed as a REIT for U.S. federal income tax purposes, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. However, we can give no assurance that we will maintain REIT qualification. 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”, as defined by the Code, to stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. The Company has recorded a current income tax expense of $1.4 million associated with the TRSs for the nine months ended September 30, 2023, which is largely driven by income from the Company’s legacy CLO investments and investments in debt instruments not secured by mortgages on real property. The tax expense is partially increased by the quarterly change in valuation allowance on a deferred tax asset of $1.6 million and partially offset by a return-to-provision adjustment of $1.5 million for a net expense of $1.4 million for the nine months ended September 30, 2023, that is recorded on the Consolidated Statement of Operations.
If we fail to qualify as a REIT in any taxable year, we could be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our shareholders would not be deductible by us in
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computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income (loss) and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT. As of September 30, 2023, we believe we are in compliance with all applicable REIT requirements.
We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50% probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. As of September 30, 2023 and to our knowledge, we have no examinations in progress and none are expected at this time.
We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.
We had no material unrecognized tax benefit or expense, accrued interest or penalties as of September 30, 2023. We and our subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2021, 2020 and 2019 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our consolidated statements of operations and comprehensive income (loss).
Dividends
We intend to make regular quarterly dividend payments to holders of our common shares. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income to holders of our common shares out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.
We will make dividend payments based on our estimate of taxable earnings per common share, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, investments held through our TRSs, book/tax differences on income derived from partnerships, and non-deductible general and administrative expenses. Our quarterly dividends per share may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared a dividend on our common shares of $0.15 per share which was paid on September 29, 2023 to shareholders of record on August 15, 2023. Our Board declared a dividend on our Series A Preferred Shares of $0.34375 per share which was paid on September 30, 2023 to shareholders of record on September 25, 2023. We expect that dividends on our common shares, when, if and as declared by our Board, will be declared on a quarterly basis.
Through September 30, 2023, the Company has not generated sufficient cash flow from operations, as disclosed on the Consolidated Statement of Cash Flows, to cover the dividend authorized for payment on December 29, 2023. The purpose of paying the dividend partially in shares and partially in cash is to alleviate the cash outflow to the Company. The Company may revert to paying the dividend in cash at some point in the future when cash flow from operations supports such a cash dividend. However, there can be no assurance that cash flow from operations will be able to support a cash dividend in the future.
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Off-Balance Sheet Arrangements
As of September 30, 2023, we had the following 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.
Commitments
The Company is the guarantor on three secured loans to, and dividend payments with respect to Series D Preferred Stock of NSP, an affiliate of the Adviser, with the secured loans having an aggregate principal amount of approximately $563.3 million outstanding as of September 30, 2023. NSP is current on all debt and dividend payments and in compliance with all debt compliance provisions. See Note 13 for additional information.
The Company is a limited guarantor and an indemnitor on one of NHT's loans with an aggregate principal amount of $77.4 million as of September 30, 2023. The obligations include a customary environmental indemnity and a so-called "bad boy" guarantee, which is generally only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper. NHT is current on all debt payments and in compliance with all debt compliance provisions.
Critical Accounting Policies and Estimates
During the nine months ended September 30, 2023, there have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report.
Inflation
The real estate market has not been directly affected by inflation in the past several years due to increases in rents nationwide. Our lease terms are generally for a period of one year or more and rental rates reset to market if renewed. The majority of our leases also contain protection provisions applicable to reimbursement billings for utilities.
Inflation may also affect the overall cost of debt, as the implied cost of capital increases. The Federal Reserve has recently started raising interest rates to combat inflation and restore price stability and is expected to continue to raising interest rates in response to or in anticipation of continued inflation concerns. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate hedges.
REIT Tax Election
We have elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our “REIT taxable income,” as defined by the Code, to our shareholders. Taxable income from certain non-REIT activities are managed through one or more TRS entities and is subject to applicable federal, state, and local income and margin taxes. The Company has recorded a current income tax expense of $1.4 million associated with the TRSs for the nine months ended September 30, 2023, which is largely driven by income from the Company’s legacy CLO investments and investments in debt investments not secured by mortgages on real property. The tax expense increased primarily as a result of the quarterly change in the valuation allowance on a deferred tax asset of $1.6 million and was partially offset by a return-to-provision adjustment of $1.5 million for a net expense of $1.4 million for the nine months ended September 30, 2023, that is recorded on the Consolidated Statement of Operations. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and Chief Financial Officer, evaluated, as of September 30, 2023, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
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
There have been no material changes to the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Resignation

On November 9, 2023 (the “Separation Date”), Matt Goetz resigned from his position as Senior VP-Investments and Asset Management of the Company. Mr. Goetz’s resignation is not a result of any disagreement with the Company on any matter relating to its operations, policies or practices.

In connection with his resignation from the Company and its affiliates, Mr. Goetz and the Company, the Adviser, NexPoint Advisors, L.P. (“NREA”), NexPoint Residential Trust, Inc. (“NXRT”), NexPoint Real Estate Advisors, L.P., NREF, NexPoint Real Estate Advisors VII, L.P., VineBrook, and NexPoint Real Estate Advisors V, L.P. entered into a Separation Agreement, dated November 9, 2023 (the “Separation Agreement”). Pursuant to the Separation Agreement, NREA will subsidize Mr. Goetz’s COBRA premium for a period of twelve months and 11,300 restricted share units granted to Mr. Goetz by the Company will immediately vest as of the Separation Date and will settle on the original scheduled vesting dates, subject to Mr. Goetz’s continued compliance with existing restrictive covenants. In addition, pursuant to the Separation Agreement, 11,453 restricted stock units granted to Mr. Goetz by NXRT, 72,675 restricted stock units granted to Mr. Goetz by NREF and 4,279 restricted stock units granted to Mr. Goetz by VineBrook will immediately vest as of the Separation Date and will settle on the original scheduled vesting dates, subject to Mr. Goetz’s continued compliance with existing restrictive covenants. The approximate value of the restricted share units of the Company that are vesting on the Separation Date is $113,000 and the approximate value of the aggregate restricted stock units of the Company, NXRT, NREF and VineBrook that are vesting on the Separation Date is $2 million.

The Severance Agreement additionally contains, among other things, mutual non-disparagement provisions and a mutual release of claims by Mr. Goetz and the Company.

In connection with the Separation Agreement, Mr. Goetz, the Company, NXRT, NREF and VineBrook entered into a vesting agreement pursuant to which, among other things, the award agreements between Mr. Goetz and the Company relating to his restricted share unit grants were amended to account for his separation and accelerated vesting of a portion of his outstanding restricted share unit grants pursuant to the Separation Agreement.

The foregoing summary of the Separation Agreement does not purport to be complete and is qualified in its entirety by reference to the Separation Agreement, a copy of which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
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Item 6. Exhibits
EXHIBIT INDEX
Exhibit
Number
Description
10.1
10.2
10.3*
10.4*
31.1*
31.2*
32.1+
101.INS*Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)
101.SCH*Inline XBRL Taxonomy Extension Schema
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
_______________________
*Filed herewith.
+    Furnished herewith.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


NEXPOINT DIVERSIFIED REAL ESTATE TRUST
SignatureTitleDate
/s/ Jim DonderoPresident and TrusteeNovember 14, 2023
Jim Dondero(Principal Executive Officer)
/s/ Brian MittsChief Financial Officer, Executive VP-Finance,
Treasurer, Assistant Secretary and Trustee
November 14, 2023
Brian Mitts(Principal Financial Officer and Principal
Accounting Officer)

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LIMITED CONSENT AND TWELFTH OMNIBUS AMENDMENT AGREEMENT – Page 1 59940-201/Cityplace Tower Loan Modification LIMITED CONSENT AND TWELFTH OMNIBUS AMENDMENT AGREEMENT This Limited Consent and Twelfth Omnibus Amendment Agreement (this “Agreement”), dated as of September 8, 2023 (the “Effective Date”), is made and entered into by and among (i) CP TOWER OWNER, LLC, a Delaware limited liability company (“CP Tower Mortgage Borrower”), and CP LAND OWNER, LLC, a Delaware limited liability company (“CP Land Mortgage Borrower,” and together with CP Tower Mortgage Borrower, collectively, “Mortgage Borrower”), (ii) CP EQUITY OWNER, LLC, a Delaware limited liability company, and CP EQUITY LAND OWNER, LLC, a Delaware limited liability company (collectively, “Mezzanine Borrower”, and together with the Mortgage Borrower, collectively, the “Borrower”), (iii) NEXPOINT DIVERSIFIED REAL ESTATE TRUST f/k/a NEXPOINT STRATEGIC OPPORTUNITIES FUND, a Delaware statutory trust, and NEXPOINT REAL ESTATE PARTNERS, LLC, a Delaware limited liability company (formerly known as HCRE PARTNERS, LLC, a Delaware limited liability company) (collectively, “Guarantor,” and together with Borrower, the “Obligors”), (iv) DELPHI CRE FUNDING LLC, a Delaware limited liability company (“Delphi Initial Lender”), and (v) ACORE CREDIT IV CLO ISSUER 2018-1, LLC, a Delaware limited liability company (“ACORE CLO Onshore,” and together with Delphi Initial Lender, and the other Lenders from time to time party to the Loan Agreement (defined below), and their respective successors and assigns and participants, “Lender”), and (vii) ACORE CAPITAL MORTGAGE, LP, a Delaware limited partnership, as administrative agent for and on behalf of Lender (in such capacity, together with its successors and assigns, the “Administrative Agent”). All capitalized terms that are used without being defined herein shall have the meanings given to such terms in the Loan Agreement (as defined herein). BACKGROUND A. Mortgage Borrower, Administrative Agent, Delphi Initial Lender, and AC IV CA MORTGAGE LLC, a Delaware limited liability company (“AC IV Initial Lender,” and together with Delphi Initial Lender, collectively, the “Initial Lenders”) entered into that certain Loan Agreement dated as of August 15, 2018 (the “Original Mortgage Loan Agreement”), pursuant to which the Lender made a loan (the “Mortgage Loan”) to Mortgage Borrower in the original principal amount of $153,683,400.00, which Mortgage Loan is evidenced by the Mortgage Loan Agreement and the other Loan Documents (as defined in the Mortgage Loan Agreement), which Original Mortgage Loan Agreement was thereafter amended by that certain Limited Consent and Omnibus Amendment Agreement dated as of November 10, 2020, but effective as of September 8, 2020, by and between Mortgage Borrower, Administrative Agent, and the Initial Lenders (the “First Limited Consent”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Limited Consent and Second Omnibus Amendment Agreement dated as of February 1, 2021, but effective as of December 30, 2020, by and between Mortgage Borrower, Administrative Agent, and the Initial Lenders (the “Second Limited Consent”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Limited Consent and Third Omnibus Amendment Agreement dated as of March 19, 2021, by and between Mortgage Borrower, Guarantor, Administrative Agent, and the Initial Lenders (the “Third Limited Consent”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Fourth Amendment to Loan Agreement dated as of September 8, 2021, by and between Mortgage Borrower, Guarantor, Administrative Agent, and


 
LIMITED CONSENT AND TWELFTH OMNIBUS AMENDMENT AGREEMENT – Page 2 59940-201/Cityplace Tower Loan Modification the Initial Lenders (the “Fourth Mortgage Loan Amendment”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Limited Consent and Fifth Omnibus Amendment Agreement dated as of March 8, 2021, by and between Borrower, Guarantor, Administrative Agent, and the Initial Lenders (the “Fifth Limited Consent”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Limited Consent and Sixth Omnibus Amendment Agreement dated as of June 8, 2022, by and between Borrower, Guarantor, Administrative Agent, and the Initial Lenders (the “Sixth Limited Consent”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Limited Consent and Seventh Omnibus Amendment Agreement dated as of August 8, 2022, by and between Borrower, Guarantor, Administrative Agent, and the Initial Lenders (the “Seventh Limited Consent”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Eighth Omnibus Amendment Agreement dated as of September 22, 2022, by and between Borrower, Guarantor, Administrative Agent, and the Initial Lenders (the “Eighth Omnibus Amendment”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Limited Consent and Ninth Omnibus Amendment Agreement dated as of November 8, 2022, by and between Borrower, Guarantor, Administrative Agent, and the Initial Lenders (the “Ninth Omnibus Amendment”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Limited Consent and Tenth Omnibus Amendment Agreement dated as of February 8, 2023, by and between Borrower, Guarantor, Administrative Agent, and the Initial Lenders (the “Tenth Omnibus Amendment”), which Original Mortgage Loan Agreement was thereafter further amended by that certain Limited Consent and Eleventh Omnibus Amendment Agreement dated as of May 8, 2023, by and between Borrower, Guarantor Administrative Agent, Delphi Initial Lender, ACORE CREDIT IV REIT II SPV, LLC, a Delaware limited liability company, as lender, and ACORE CREDIT IF (OFFSHORE) SPV II, LLC, a Delaware limited liability company, as lender (the “Eleventh Omnibus Amendment,” and together with the Original Mortgage Loan Agreement, the First Limited Consent, the Second Limited Consent, the Third Limited Consent, the Fourth Mortgage Loan Amendment, the Fifth Limited Consent, the Sixth Limited Consent, the Seventh Limited Consent, the Eighth Omnibus Amendment, the Ninth Omnibus Amendment, and the Tenth Amendment, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, collectively, the “Mortgage Loan Agreement”). B. The Mortgage Loan is evidenced by that certain Promissory Note A-1 dated as of August 15, 2018, made by Borrower to the order of Delphi Initial Lender in the amount of $95,027,762.00 (“Note A-1”), that certain Promissory Note A-1F dated as of August 15, 2018, made by Borrower to the order of Delphi Initial Lender in the amount of $16,972,238.00 (“Note A-1F”), that certain Promissory Note A-2 dated as of August 15, 2018, made by Borrower to the order of AC IV Initial Lender in the amount of $11,962,638.00 (“Note A-2”), that certain Promissory Note A-2F dated as of August 15, 2018, made by Borrower to the order of AC IV Initial Lender in the amount of $2,136,562.00 (“Note A-2F”), that certain Promissory Note B-1 dated as of August 15, 2018, made by Borrower to the order of Delphi Initial Lender in the amount of $20,256,941.00 (“Note B-1”), that certain that certain Promissory Note B-1F dated as of August 15, 2018, made by Borrower to the order of Delphi Initial Lender in the amount of $4,243,059.00 (“Note B-1F”), that certain Promissory Note B-2 dated as of August 15, 2018, made by Borrower to the order of AC IV Initial Lender in the amount of $2,550,059.00 (“Note B-2”), and that certain Promissory Note B-2F dated as of August 15, 2018, made by Borrower to the order of AC IV Initial Lender in the amount of $534,141.00 (“Note B-2F”).


 
LIMITED CONSENT AND TWELFTH OMNIBUS AMENDMENT AGREEMENT – Page 3 59940-201/Cityplace Tower Loan Modification C. Mezzanine Borrower, Administrative Agent, and the Initial Lenders are parties to that certain Mezzanine Loan Agreement dated as of August 15, 2018 (the “Original Mezzanine Loan Agreement”), pursuant to which the Lender made a loan (the “Mezzanine Loan”, and collectively, with the Mortgage Loan, the “Loan”) to Mezzanine Borrower in the original principal amount of $3,940,600.00, which Mezzanine Loan is evidenced by the Mezzanine Loan Agreement and the other Loan Documents (as defined in the Mezzanine Loan Agreement), which Original Mezzanine Loan Agreement was thereafter amended by the First Limited Consent, the Second Limited Consent, the Third Limited Consent, that certain Fourth Amendment to Mezzanine Loan Agreement dated as of September 8, 2021, by and between Mezzanine Borrower, Guarantor, Administrative Agent, and the Initial Lenders (the “Fourth Mezzanine Loan Amendment”), the Fifth Limited Consent, the Sixth Limited Consent, the Seventh Limited Consent, the Eighth Omnibus Amendment, the Ninth Omnibus Amendment, the Tenth Omnibus Amendment, and the Eleventh Omnibus Amendment (such First Limited Consent, Second Limited Consent, Third Limited Consent, Fourth Mezzanine Loan Amendment, Fifth Limited Consent, Sixth Limited Consent, Seventh Limited Consent, Eighth Omnibus Amendment, Ninth Omnibus Amendment, Tenth Omnibus Amendment, and Eleventh Omnibus Consent, together with the Original Mezzanine Loan Agreement, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, collectively, the “Mezzanine Loan Agreement,” and together with the Mortgage Loan Agreement, as and where applicable, the “Loan Agreement”). D. The Mezzanine Loan is evidenced by that certain Mezzanine Promissory Note 1 dated as of August 15, 2018, made by Borrower to the order of Delphi Initial Lender in the amount of $3,500,000.00 (“Mezz Note 1,” and together with Note A-1, Note A-1F, Note B-1, and Note B-1F, collectively, the “Series 1 Notes”) and that certain Mezzanine Promissory Note 2 dated as of August 15, 2018, made by Borrower to the order of AC IV Initial Lender in the amount of $440,600.00 (“Mezz Note 2,” and together with Note A-2, Note A-2F, Note B-2, and Note B-2F, collectively, the “Series 2 Notes”). E. The Series 2 Notes where there after assigned and participated such that ACORE CLO Onshore thereafter acquired and currently owns a 95.777% participation interest in the Series 2 Notes and is the holder of the Series 2 Notes, and ACORE CREDIT IV CLO ISSUER 2018-1, LLC, a Delaware limited liability company, thereafter acquired and currently owns a 4.223% participation interest in the Series 2 Notes. F. Delphi Initial Lender remains the holder and sole owner of the Series 1 Notes. G. Guarantor executed (a) in connection with the Mortgage Loan, each of that certain Guaranty of Recourse Obligations, Completion Guaranty, Guaranty of Required Equity, Required Pay Down and Master Lease, each dated as of August 15, 2018 (collectively, the “Mortgage Loan Guaranties”), and (b) in connection with the Mezzanine Loan, each of that certain Mezzanine Guaranty of Recourse Obligations, Mezzanine Completion Guaranty, Mezzanine Guaranty of Required Equity, Required Pay Down and Master Lease, each dated as of August 15, 2018 (collectively, the “Mezzanine Loan Guaranties,” and together with the Mortgage Loan Guaranties, collectively, the “Guaranty”).


 
LIMITED CONSENT AND TWELFTH OMNIBUS AMENDMENT AGREEMENT – Page 4 59940-201/Cityplace Tower Loan Modification H. Borrower has requested a deferral of the Maturity Date occurring on the Payment Date in September, 2023, under and pursuant to (and as defined in) each of the Mortgage Loan Agreement and the Mezzanine Loan Agreement. I. Administrative Agent is willing to provide its limited consent to defer the Maturity Date under and pursuant to (and as defined in) each of the Mortgage Loan Agreement and the Mezzanine Loan Agreement, subject to the terms and conditions of this Agreement, including the amendments of the Loan Documents as set forth herein (provided that, for purposes of this Agreement, the use of “Maturity Date” shall mean each of or either of the “Maturity Date” under and as defined in the Mortgage Loan Agreement and the “Maturity Date” under and as defined in the Mezzanine Loan Agreement). I. Administrative Agent and Obligors have executed a Reservation of Rights and Pre-Negotiation Letter (“PNL”) dated September 18, 2020, but effective as of November 10, 2020, in connection with the Loan. NOW, THEREFORE, in consideration of the promises and mutual agreements herein contained and incorporating the above Background by reference herein, Obligors, Administrative Agent, and Lender, intending to be legally bound hereby, agree as follows: ARTICLE I LIMITED CONSENT 1.1 Limited Consent. Upon satisfaction of the conditions set forth in this Agreement, Administrative Agent hereby consents to the deferral of the Maturity Date as set forth herein. The consent contained in this Section 1.1 is a one-time limited consent and (a) shall only be relied upon and used solely for the specific purposes set forth herein, (b) shall not constitute nor be deemed to constitute a waiver of (1) any Default or Event of Default, or (2) any other term or condition of the Loan Agreement and the other Loan Documents, (c) shall not constitute nor be deemed to constitute a consent by Administrative Agent to, or a waiver by Administrative Agent of, anything other than as expressly set forth herein, and (d) shall not constitute a custom or course of dealing among the parties hereto. Upon the failure by any Obligor whatsoever to perform any obligation or condition in this Agreement (beyond any applicable notice and cure period, if any), Obligors shall immediately and automatically (without any notice or demand from Administrative Agent) cease to be entitled to any privileges set forth in this Agreement and Administrative Agent shall have the right to pursue all rights and remedies hereunder, and under the Loan Documents and/or applicable law and equity, as if no such privileges were ever provided (such that an Event of Default shall be deemed to exist as of the date upon which Obligors were first provided with such privileges hereunder (i.e., as of September 8, 2020) (the “Deferral Commencement Date”), and such rights and remedies shall include, without limitation, charging interest at the Default Rate retroactively from and after the Deferral Commencement Date). 1.2 Deferral of Maturity Date. Borrower acknowledges and agrees that it has not satisfied the Extension Conditions (under and as defined in each of the Mortgage Loan Agreement and the Mezzanine Loan Agreement). Notwithstanding anything to the contrary in


 
LIMITED CONSENT AND TWELFTH OMNIBUS AMENDMENT AGREEMENT – Page 5 59940-201/Cityplace Tower Loan Modification the Loan Agreement, and subject to the terms and conditions of this Agreement, and without waiving any of the Borrower’s obligations in the Loan Documents except as expressly set forth herein, Administrative Agent hereby agrees to defer of the Maturity Date occurring on the Payment Date in September, 2023 (the “September 2023 Maturity Date”), until no later than the Payment Date in March, 2024 (the “Deferred Maturity Date”). Notwithstanding anything to the contrary in the Loan Agreement, Borrower shall not otherwise be required as of the September 2023 Maturity Date to either (i) extend or maintain an Interest Rate Cap Agreement or (ii) achieve a Debt Yield of at least ten percent (10.0%), in each case, as a condition to Administrative Agent’s agreement to defer the September 2023 Maturity Date. 1.3 Amendments to Loan Documents. (a) Obligors acknowledge and agree that Section 5.1 of each Loan Agreement (Affirmative Covenants) is hereby amended to insert all of the covenants set forth in Schedule 1 to this Agreement as additional affirmative covenants under such section. (b) Obligors acknowledge and agree that the Loan Documents are further amended as set forth in Schedule 2 to this Agreement. 1.4 Prohibition on Construction and Alterations. Notwithstanding anything to the contrary in the Loan Agreement or other Loan Documents, unless or until otherwise agreed in writing by Administrative Agent in its sole and absolute discretion, Obligors shall not cause or permit any alterations to any of the Improvements, or any work related to the Project or any other construction work on the Property; provided that, the forgoing limitations shall not apply to (a) tenant improvement work performed pursuant to any Lease approved in accordance with the Loan Agreement, (b) a Restoration required under the Loan Agreement, or (c) any such alterations or construction work approved in writing by Administrative Agent in its sole and absolute discretion. 1.5 Modification Endorsements to Title Insurance Policies. Not later than ten (10) Business Days after the Effective Date, Borrower shall deliver to Administrative Agent at no cost to Administrative Agent an endorsement to each Title Insurance Policy in form and substance acceptable to Administrative Agent insuring the continued priority of the lien of each applicable Security Instrument. ARTICLE II - CONDITIONS PRECEDENT The effectiveness of this Agreement and Administrative Agent’s obligations hereunder are conditioned upon the fulfillment by Obligors of all of the following conditions precedent, in addition to Obligors’ compliance with all other obligations set forth in this Agreement: 2.1 Documents to be Delivered to Administrative Agent. Obligors shall deliver, or cause to be delivered to Administrative Agent, all of the following: (a) this Agreement in form and substance satisfactory to Administrative Agent, duly executed by all of Obligors; and


 
LIMITED CONSENT AND TWELFTH OMNIBUS AMENDMENT AGREEMENT – Page 6 59940-201/Cityplace Tower Loan Modification (b) such other Obligor-related or Property-related information and/or documentation as may be required by Administrative Agent in its sole discretion. 2.2 Liability for Payment of Fees and Expenses; Indemnification for Losses. Borrower must pay Administrative Agent on the Effective Date all out-of-pocket costs and expenses, including, without limitation, all costs and expenses of outside legal counsel, incurred by Administrative Agent in conjunction with the preparation, negotiation, and closing of this Agreement. Additionally, Borrower shall pay all fees, costs, expenses and penalties, if any, to the extent charged by any third parties. 2.3 Administrative Agent Processing Fee. Obligors shall pay to Administrative Agent by the Effective Date a processing fee in the amount of $2,500.00 in connection with the negotiation and execution of this Agreement. 2.4 Extension Fee. Obligors shall pay to Administrative Agent by the Effective Date an extension fee in the amount of $357,731.58 in connection with the extension of the Maturity Date in accordance with this Agreement. ARTICLE III - REPRESENTATIONS AND WARRANTIES To induce Administrative Agent, for and on behalf of Lender, to enter into this Agreement and as consideration for the terms and conditions contained herein, Obligors make the following representations and warranties, each and all of which shall survive the execution and delivery of this Agreement and all of the other documents executed in connection herewith: 3.1 Approvals and Authority from Third Parties. Obligors have obtained the necessary approvals and authorizations from all applicable third-parties to execute this Agreement, including, without limitation, any and all franchisors, management companies, governmental authorities, ground lessors, and labor unions, as and to the extent applicable to Obligors and the Property. 3.2 Exclusive and First Priority Perfected Lien. Administrative Agent has, as of the Effective Date, and shall continue to have, until all of the Obligations are paid and satisfied in full, first priority, valid perfected liens upon and security interests in all of the collateral under the Loan Documents to secure the payment and performance of all of the Obligations. 3.3 No Untrue or Misleading Statements. Neither this Agreement nor any other document executed in connection herewith contains any untrue statement of a material fact or omits any material fact necessary in order to make the statement made, in light of the circumstances under which it was made, accurate in all material respects. ARTICLE IV - RELEASE BY OBLIGORS EACH OBLIGOR, FOR AND ON BEHALF OF SUCH OBLIGOR AND ALL PERSONS AND/OR ENTITIES CLAIMING BY, THROUGH AND/OR UNDER SUCH OBLIGOR INCLUDING, BUT NOT LIMITED TO, ALL OF SUCH OBLIGOR’S PAST AND PRESENT PARTNERS, DIRECTORS, SHAREHOLDERS, OFFICERS, EMPLOYEES, ATTORNEYS, ACCOUNTANTS, ADMINISTRATORS, AGENTS,


 
LIMITED CONSENT AND TWELFTH OMNIBUS AMENDMENT AGREEMENT – Page 7 59940-201/Cityplace Tower Loan Modification SUBSIDIARIES, AFFILIATES, REPRESENTATIVES, PREDECESSORS, SUCCESSORS AND ASSIGNS (COLLECTIVELY REFERRED TO HEREIN, JOINTLY AND SEVERALLY, AS THE “OBLIGOR GROUP RELEASORS”) HEREBY UNCONDITIONALLY REMISES, RELEASES, ACQUITS AND FOREVER DISCHARGES THE ADMINISTRATIVE AGENT AND LENDER AND ALL OF THEIR RESPECTIVE PAST AND PRESENT PARTNERS, DIRECTORS, SHAREHOLDERS, MEMBERS, MANAGERS, OFFICERS, EMPLOYEES, ATTORNEYS, ACCOUNTANTS, ADMINISTRATORS, AGENTS, PARENT CORPORATIONS, SUBSIDIARIES, AFFILIATES, REPRESENTATIVES, PREDECESSORS, SUCCESSORS, AND ASSIGNS (COLLECTIVELY REFERRED TO HEREIN AS THE “LENDER GROUP RELEASEES”) OF, FROM AND WITH RESPECT TO ANY AND ALL GRIEVANCES, DISPUTES, MANNER OF ACTIONS, CAUSES OF ACTION, SUITS, OBLIGATIONS, LIABILITIES, LOSSES, DEBTS, DAMAGES, DUES, SUMS OF MONEY, ACCOUNTS, RECKONINGS, CONTROVERSIES, AGREEMENTS, CLAIMS, DEMANDS, COUNTERCLAIMS AND CROSSCLAIMS, INCLUDING, BUT NOT LIMITED TO ALL CLAIMS AND CAUSES OF ACTION ARISING OUT OF OR RELATED TO THIS AGREEMENT AND THE LOAN DOCUMENTS AND/OR ALL TRANSACTIONS RELATED THERETO, WHETHER KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, DIRECT, INDIRECT OR CONTINGENT, ARISING IN LAW OR EQUITY, WHICH OBLIGOR GROUP RELEASORS (OR ANY OF THEM) EVER HAD, NOW HAVE, OR MAY EVER HAVE AGAINST ANY ONE OR MORE OF LENDER GROUP RELEASEES, FROM THE BEGINNING OF TIME THROUGH THE EFFECTIVE DATE. ARTICLE V - MISCELLANEOUS 5.1 Integration. This Agreement supersedes all oral negotiations and prior and other writings with respect to the subject matter hereof, and is intended by the parties as the final expression of the agreement with respect to the terms and conditions set forth in this Agreement, except that the Loan Agreement and the other Loan Documents remain valid and enforceable. Except as expressly modified pursuant hereto, no other changes or modifications to the Loan Agreement or any other Loan Document are intended or implied by this Agreement, and in all other respects the Loan Agreement and the other Loan Documents hereby are ratified, reaffirmed and confirmed by all parties hereto as of the Effective Date. To the extent of any conflict between the terms of this Agreement, the Loan Agreement, and other Loan Documents, the terms of this Agreement shall govern and control. This Agreement shall constitute a Loan Document for purposes of the Loan Agreement. NOTWITHSTANDING ADMINISTRATIVE AGENT AND LENDER CONSENTING TO ANY PRIOR AMENDMENT TO THE LOAN AGREEMENT, NEITHER ADMINISTRATIVE AGENT NOR ANY LENDER IS MAKING ANY COMMITMENT, EXPRESS OR IMPLIED, AND HAS NO OBLIGATION TO ENTER INTO ANY FURTHER AGREEMENT, TO FURTHER DEFER THE MATURITY DATE OR TO PROVIDE ANY OTHER CONSENT, WAIVER OR ACCOMMODATION IN FAVOR OF OBLIGORS. 5.2 Cooperation; Other Documents. At all times following the execution of this Agreement, Obligors shall execute and deliver to the Administrative Agent, or shall cause to be executed and delivered to Administrative Agent and shall do or cause to be done all such other


 
LIMITED CONSENT AND TWELFTH OMNIBUS AMENDMENT AGREEMENT – Page 8 59940-201/Cityplace Tower Loan Modification acts and things as the Administrative Agent deems to be necessary or desirable to assure the Administrative Agent of the benefit of this Agreement and the documents comprising or relating to this Agreement. 5.3 Written Agreement Contemplated by PNL. This Agreement is a written agreement as contemplated by the PNL. 5.4 Amendment and Waiver. No amendment of this Agreement, and no waiver, discharge or termination of any one or more of the provisions thereof, shall be effective unless set forth in writing and signed by all of the parties hereto. 5.5 Severability. If any provision of this Agreement shall be held invalid under any applicable law, such invalidity shall not affect any other provision of this Agreement that can be given effect without such invalid provision. 5.6 Successors and Assigns. This Agreement (a) shall be binding upon the parties hereto, thereto and upon their respective successors or assigns, and (b) shall inure to the benefit of the parties hereto, thereto and their respective successors or assigns; provided, however, that Obligors may not assign or delegate any rights hereunder or thereunder or any interest herein or therein without obtaining the prior written consent of the Administrative Agent, as applicable, and any such assignment or attempted assignment shall be void and of no effect. 5.7 Counterparts; Effectiveness. This Agreement may be executed by electronic signatures and in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. This Agreement shall be deemed to have been executed and delivered when the Administrative Agent has received electronic counterparts hereof executed by all parties listed on the signature pages hereto. 5.8 Notices. Any notices or other communications sent or transmitted pursuant to this Agreement by any of Obligors to Administrative Agent shall be by electronic email sent to notices@acorecapital.com and to Kimberly May at kmay@acorecapital.com. 5.9 Singular/Plural. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


 


 


 


 


 


 
SCHEDULE 1, Additional Affirmative Covenants – Solo Page 59940-201/Cityplace Tower Loan Modification SCHEDULE 1 ADDITIONAL AFFIRMATIVE COVENANTS Notwithstanding the anything set forth in this Agreement to the contrary, Borrower shall perform all of the below covenants, each of which is a “Deferred Maturity Date Covenant”: 1. Continue to comply with all covenants under the Loan Agreement, except as specifically modified pursuant to this Agreement. For avoidance of doubt, except as expressly set forth in this Agreement, this Agreement does not modify or suspend any requirement under any Loan Document to pay any carrying costs associated with the Property, including, without limitation, any (a) real estate taxes, (b) insurance premiums for the Required Policies, and (c) any amounts due under the Master Lease.


 
SCHEDULE 2, Additional Loan Document Modifications – Solo Page 59940-201/Cityplace Tower Loan Modification SCHEDULE 2 ADDITIONAL LOAN DOCUMENT MODIFICATIONS 1. The term “Event of Default” as used in each Loan Agreement shall be expanded to include Borrower’s breach of any of its covenants under this Agreement, including, without limitation, any Deferred Maturity Date Covenant. For the avoidance of doubt, Administrative Agent shall not be required to provide Obligors with notice of any such Event(s) of Default stemming from any breach of any Deferred Maturity Date Covenant or other obligation of Obligors set forth in this Agreement. 4874-7611-5070v.2 59940-201 9/7/2023


 
Execution Copy
Exhibit 10.4
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (the “Agreement”) is made and entered into as of November 9, 2023 by and among (i) NexPoint Advisors, L.P. (the “Adviser”), (ii) NexPoint Residential Trust, Inc. (“NXRT”), (iii) NexPoint Real Estate Advisors, L.P. (the “NXRT Adviser”), (iv) NexPoint Real Estate Finance, Inc. (“NREF”), (v) NexPoint Real Estate Advisors VII, L.P. (the “NREF Adviser”), (vi) NexPoint Diversified Real Estate Trust (“NXDT”), (vii) NexPoint Real Estate Advisors X, L.P. (the “NXDT Adviser”), (viii) VineBrook Homes Trust, Inc. (“VB” and, together with NXRT, NREF and NXDT, the “REITs”), and (ix) NexPoint Real Estate Advisors V, L.P. (the “VB Adviser” and, together with the NXRT Adviser, the NREF Adviser and the NXDT Adviser, the “REIT Advisers”) and Matthew Goetz (“Executive”).
WHEREAS, Executive has served as (i) Director of the Adviser, (ii) Senior VP Investments and Asset Management of NXRT, (iii) Senior VP Investments and Asset Management of NREF and (iv) Senior VP Investments and Asset Management of NXDT;
WHEREAS, Executive shall be deemed to have resigned from such positions, effective as of November 9, 2023 (the “Separation Date”), at which time Executive’s employment with the Adviser, the REITs and the REIT Advisers (collectively, the “Employer Parties”) terminated (the “Separation”); and
WHEREAS, in connection with the Separation, the Employer Parties and Executive desire to enter into this Agreement in order to set forth the respective rights and obligations of the parties.
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth in this Agreement, the sufficiency of which the parties acknowledge, it is agreed as follows:
1.Separation. Effective as of the Separation Date, Executive ceased to serve as (i) Director of the Adviser, (ii) Senior VP Investments and Asset Management of NXRT, (ii) Senior VP Investments and Asset Management of NREF, (iii) Senior VP Investments and Asset Management of NXDT and (iv) all officer, director, or employment positions held by the Executive with the Employer Parties or any respective subsidiary or affiliate thereof.
2.Compensation; Treatment of LTIP Awards. In connection with Executive’s Separation from the Employer Parties, subject to and conditioned on Executive’s compliance with the terms and conditions set forth in this Agreement, including, without limitation, Executive’s execution of this Agreement and the general release of claims set forth in Section 4 hereof (the “General Release”), Executive shall receive the following “Separation Benefits,” less applicable taxes and withholdings:
(a)Executive’s Separation will be treated as a qualifying termination without cause for purposes of outstanding awards issued pursuant to (i) NXRT’s 2016 Long Term Incentive Plan, (ii) NREF’s 2020 Long Term Incentive Plan, (iii) NXDT’s 2023 Long Term Incentive Plan, (iv) VB’s 2018 Long Term Incentive Plan and (v) VB’s 2023 Long Term Incentive Plan.
(b)All outstanding awards issued pursuant to the foregoing plans will vest and become nonforfeitable, or will be forfeited and cancelled, as set forth on Exhibit A hereto. Any outstanding award not otherwise included as vested and nonforfeitable in Exhibit A shall be forfeited and cancelled, even if not expressly addressed in Exhibit A. Following the Separation Date, vested awards will settle and delivery will be made to Executive on the dates set forth in Exhibit A, provided that such settlement and delivery will be conditioned on Executive complying with the terms of this Agreement through each settlement and delivery date.
(c)The Adviser will subsidize, by payment directly to Discovery Benefits, the actual cost of COBRA medical and dental insurance for Executive for a period of twelve (12) months following the termination of their employer-sponsored benefits as officially recorded in the Executive’s COBRA Specific Rights Notification, December 1, 2023 – November 30, 2024 (the “COBRA Subsidy”). Executive retains sole responsibility for enrolling in COBRA in order to accept such subsidy within thirty (30) calendar days of the termination of their employer-sponsored benefits as officially recorded in


Executive's COBRA Specific Rights Notification. Failure to enroll in COBRA will forfeit Executive's right to the COBRA Subsidy.

(d)The Separation Benefits is a gross amount, subject to all deductions that are deemed necessary by Executive to comply with state or federal laws on withholding. Executive agrees that he otherwise is responsible for paying all state, federal, and local taxes owed in connection with these payments.

(e)Executive agrees that, other than Separation Benefits set forth in this Section 2 or identified on Exhibit A, or as otherwise expressly set forth in this Agreement, Executive shall not be entitled to any additional or further consideration or payments from any Employer Party, or any of their respective affiliates, including, but not limited to, any vested, unvested, contingent or deferred salary, bonuses, stock or stock equivalents, equity grants, or other compensation in whatever form.

3.Accrued Obligations. As soon as practicable following the Separation Date, the Adviser shall provide reimbursement to Executive for any business expenses that he submits to the Adviser in accordance with its expense reimbursement policy. In addition, Executive shall be entitled to vested benefits under the applicable employee benefit plans maintained by the Employer Parties in accordance with the terms and conditions of such plans.
4.Release of Claims.
(a)In exchange for the Separation Benefits, and in consideration of the further agreements and promises set forth herein, Executive agrees unconditionally and forever to release and discharge the Employer Parties, including, without limitation, any of the Employer Parties respective current and former officers, directors, members, managers, employees, representatives, attorneys and agents, as well as all of their predecessors, parents, subsidiaries, affiliates, successors in interest and assigns (collectively, the “Releasees”) from any and all claims, actions, causes of action, demands, rights, or damages of any kind or nature which Executive may now have, or ever have, whether known or unknown, including any claims, causes of action or demands of any nature arising out of or in any way relating to Executive’s employment with, or termination from employment with any Employer Parties on or before the date Executive signs this Agreement.
(b)This release specifically includes any and all claims relating to or arising from Executive’s employment with any Employer Parties, the terms and conditions of that employment, and the termination of that employment relationship, without limitation: any and all claims for fraud; breach of contract; breach of implied covenant of good faith and fair dealing; inducement of breach; interference with contract; wrongful or unlawful discharge or demotion; violation of public policy; assault and battery; invasion of privacy; intentional or negligent infliction of emotional distress; intentional or negligent misrepresentation; conspiracy; failure to pay wages, benefits, vacation pay, severance pay, attorneys’ fees, or other compensation of any sort; wrongful termination; retaliation; wrongful demotion; discrimination or harassment on any basis protected by federal, state or local law including, but not limited to race, color, sex, gender identity, national origin, ancestry, religion, disability, handicap, medical condition, marital status, and sexual orientation; any claim under Title VII of the Civil Rights Act of 1964, the Civil Rights Acts of 1866, 1870 and 1991, the Family and Medical Leave Act, the Americans with Disabilities Act, the Employee Retirement Income Security Act, the Genetic Information Nondiscrimination Act, Section 1981 of Title 42 of the United States Code, the Rehabilitation Act of 1973, the Equal Pay Act, the Worker Adjustment and Retraining Notification Act, the Uniform Services Employment and Reemployment Rights Act, the Texas Payday Act, Chapter 21 of the Texas Labor Code, and all other federal, state, or local statutes, ordinances and laws; violation of any safety and health laws, statutes or regulations; or any other wrongful conduct, based upon events occurring prior to the date of execution of this release (“Released Claims”). The Released Claims, however, shall not include any claims, rights or benefits arising under this Agreement, for vested benefits under the applicable employee benefit plans maintained by the REITs in accordance with the terms and conditions of such plans, or any claims for indemnification (including advancement of expenses) arising under any written indemnification agreement between the REITs and Executive (including, but not limited to, (i) that certain Indemnification Agreement, dated as of March 15, 2015, between NXRT and Executive (the “NXRT Indemnification Agreement”), (ii) that certain Indemnification Agreement, dated as of February 6, 2020,
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between NREF and Executive (the “NREF Indemnification Agreement”) and (iii) that certain Indemnification Agreement, dated as of July 1, 2023, between NXDT and Executive (the “NXDT Indemnification Agreement” and, together with the NXRT Indemnification Agreement and the NREF Indemnification Agreement, the “Indemnification Agreements”)) or pursuant to the bylaws of the REITs, as applicable, or pursuant to applicable law.
(c)Executive further understands, acknowledges, and agrees to waive Executive’s rights under any other statute or regulation, state or federal, that provides that a general release does not extend to claims that Executive does not know or suspect to exist in Executive’s favor at the time of executing this Agreement and Release, which if known to Executive must have materially affected Executive’s settlement with the Employer Parties.
(d)The Employer Parties, on behalf of themselves and the Releasees, agree to unconditionally and forever release and discharge Executive from any and all claims, actions, causes of action, demands, right or damages of any kind or nature which they may now have, or ever had, whether known or unknown, arising out of or in any way related to Executive’s employment with or termination from employment on or before the date Executive signs this Agreement.
(e)The parties intend this mutual release to be a full and comprehensive general release waiving and releasing all claims, demands, and causes of action, known or unknown, to the fullest extent permitted by law except as otherwise expressly provided herein. Nothing in this Agreement is intended to nor shall it be interpreted to release any claim which, by law, may not be released. This Agreement is not intended to and does not affect any rights or claims arising after the date this Agreement is executed by Executive. Further, this Agreement shall not limit or prohibit any party’s ability to bring a claim to enforce this Agreement nor shall it waive or limit Executive’s right to indemnification (including with respect to any right to receive advancement of expenses and to be held harmless) pursuant to any applicable directors and officers liability insurance coverage, any written indemnification agreement between any of the Employer Parties and Executive (including, but not limited to, the Indemnification Agreements) or pursuant to the bylaws of the REITs, as applicable, or pursuant to applicable law.
5.Additional Representations and Warranties.
(a)Executive represents that Executive has no pending complaints or charges against the Releasees, or any of them, with any state or federal court, or any local, state or federal agency, division, or department based on any event(s) occurring prior to the date Executive signs this Agreement. Executive further represents that Executive will not in the future file, participate in, encourage, instigate or assist in the prosecution of any claim, complaints, charges or in any lawsuit by any party in any state or federal court against the Releasees, or any of them, unless such aid or assistance is ordered by a court or government agency or sought by compulsory legal process, claiming that the Releasees, or any of them, have violated any local, state or federal laws, statutes, ordinances or regulations based upon events occurring prior to the execution of this Agreement. This prohibition applies only in situations where Executive may legally waive the ability to bring or participate in a legal action against his former employer as a matter of law. Nothing in this Agreement shall be construed as prohibiting Executive from making a future claim with the Equal Employment Opportunity Commission or any similar state agency; provided, however, that should Executive pursue such an administrative action against the Releasees, or any of them, to the maximum extent allowed by law, Executive agrees and acknowledges that Executive will not seek, nor shall Executive be entitled to recover, any monetary damages from any such proceeding.
(b)Each Employer Parties represents that neither it nor any of its parents, subsidiaries or affiliated companies has any pending complaints or charges filed by any of them, or on behalf of any of them, against Executive with any state or federal court, or any local, state or federal agency, division, or department based on any act, omission or event(s) occurring prior to the date such Employer Parties signs this Agreement.
6.No Admission of Liability. By entering into this Agreement, none of the Employer Parties or Executive suggests or admits to any liability to one another or that they violated any law or any duty or obligation to one another, or that they committed any wrongdoing whatsoever.
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7.Blue Penciling. If, at any time after the date of the execution of this Agreement, any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect. However, the illegality or unenforceability of such provision shall have no effect upon, and shall not impair the enforceability of, any other provision of this Agreement; provided, however, that if the General Release contained in this Agreement is deemed void or unenforceable, Executive agrees to promptly execute a valid general release and waiver in favor of the Releasees.
8.Sole and Exclusive Benefits. This Agreement provides for the sole and exclusive benefits for which Executive is eligible as a result of his separation of service with the Employer Parties, except as otherwise required by law, and Executive shall not be eligible for any contractual benefits under any other agreement or arrangement providing for benefits upon a separation from service, including, but not limited to, any payments any severance plan, policy or program of any Employer Party.
9.Other Executive Representations and Covenants. Executive and the Employer Parties agree to and make the following representations and covenants, as applicable:
(a)On or prior to the Separation Date, unless otherwise agreed upon with the Adviser, Executive shall promptly return to each Employer Party any property of such Employer Party in his possession, custody or control, including, but not limited to, computers, or other electronic devices, files, identification card, data storage devices, office keys, documents (hard copy or electronic files), email communications or other business communications or records, and any sources of confidential information, unless otherwise agreed by the Executive and the Adviser.
(b)Executive agrees that he will not defame or disparage any Employer Party, their respective affiliates, and any of their directors, officers, agents, employees and representatives and/or any Employer Party’s products or services. Each Employer Party agrees that such Employer Party’s officers and directors shall not defame or disparage Executive or his performance as an officer, director or employee of the Employer Parties. Notwithstanding anything to the contrary herein, nothing in this Agreement prohibits Executive or any Employer Party’s officers or directors from truthfully testifying in any legal proceeding or providing truthful information to any governmental, regulatory or administrative agency or in connection with any action to enforce the rights of this Agreement.
(c)Each of NXRT, NREF and NXDT shall maintain a directors and officers liability insurance policy that covers Executive to the same extent that it covers its directors and officers for a period of six years following the Separation Date with respect to any acts, omissions or events that occurred during Executive’s employment with such REIT. Each of NXRT, NREF and NXDT shall also continue to provide Executive with indemnification (including advancement of fees and expenses) in accordance with the terms and conditions of the Indemnification Agreements. Notwithstanding anything to contrary herein or in any other agreement between Executive and any of the Employer Parties, Executive shall not be entitled to indemnification or advancement of any legal fees or expenses for any dispute between Executive and any of the Employer Parties or any of their affiliates.
10.Consultation and Cooperation. In consideration of the Severance Benefits, for a period of twelve (12) months after the Separation Date Executive agrees to reasonably cooperate with any of the Employer Parties, at their reasonable request, to consult, and provide such information as may from time to time be requested by any of the Employer Parties in connection with various legal or business matters in which Executive was involved in connection with his relationship(s) with the Employer Parties, or about which Executive has knowledge or information, and to take any other action reasonably required by any of the Employer Parties relating to legal or business matters in which Executive was involved in connection with his relationship(s) with the Employer Parties, including cooperation with any of the Employer Parties, in all pending and future litigation, claims, investigations, examinations, or audits by any federal, state, or local governmental agencies involving any of the Employer Parties, in which any of the Employer Parties reasonably believes that Executive may have relevant knowledge or information.

(a)Limitations. While performing services following the Separation Date pursuant to this Agreement, Executive acknowledges and agrees that his relationship to any of the Employer Parties will be that of an independent contractor, that none of the Employer Parties will exercise any control or
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direction over the methods by which he performs services pursuant to this Agreement, and that he will not be, nor will he represent to anyone, that he is an agent or active Executive of any of the Employer Parties. Notwithstanding the foregoing, at no time following the date of this Agreement shall Executive have, and Executive agrees not to purport to have or exercise any actual or apparent authority to enter into contracts, commitments, or obligations of any kind, or to make any representations, on behalf of any of the Employer Parties, unless expressly authorized to do so in writing by an authorized representative of the Employer Parties. Executive also will not have, and agree not to purport to have or exercise, the authority to supervise or direct the activities of any Executive of any of the Employer Parties. Executive further acknowledges and agrees that, during such period when he is providing consulting services to any of the Employer Parties and thereafter, he will not be eligible to participate in any of the rights and benefits afforded to Executives of any of the Employer Parties
(b)Hold Harmless/Indemnification. Each Employer Party agrees, on its own behalf and not jointly, to hold harmless and indemnify Executive for any claim, reasonable expense, loss or damage, including without limitation Executive’s costs and reasonable attorney's’ fees, arising out of, or in connection with, any such cooperation Executive undertakes for such Employer Party pursuant to this Section.

(c)Providing Testimony. Executive further agrees that upon the reasonable request of any Employer Party, Executive will provide testimony in court or upon deposition and other information (whether by testimony or otherwise) that is truthful, accurate, and complete, according to information known to Executive, in connection with the prosecution or defense of any of the Employer Parties in any pending or future litigation, claims, investigations, examinations, or audits. Executive acknowledges that he shall not be paid a Consulting Fee for any time spent providing testimony and/or responding to a subpoena issued to Executive individually, but he shall be reimbursed for any reasonable out-of-pocket expenses he incurs providing such testimony. Notwithstanding anything herein to the contrary, in no event shall Executive be entitled to any payments or reimbursements hereunder with respect to any matter regarding which Executive is directly or indirectly adverse to any of the Employer Parties, including, without limitation being called or subpoenaed by an Employer Party as an adverse witness to any Employer Party.     

11.Assignment of Work Product / Works for Hire. Executive acknowledges and agrees that any work product prepared, conceived, or developed by Executive during the term of their relationship with any of the Employer Parties, including but not limited to all written documents and electronic data pertaining thereto, is and shall remain the exclusive property of such Employer Party, and will be considered confidential information subject to the terms of this Agreement. Executive agrees that when appropriate, and upon written request of any Employer Party, Executive will acknowledge that their work product constitutes "works for hire" and will cooperate in the filing for patents or copyrights with regard to any or all such work product and will sign documentation necessary to evidence ownership by such Employer Party of such work product.

12.Voluntary Agreement. Executive represents that Executive has carefully read this Agreement and fully understands it and that in signing this document, Executive understands that Executive is releasing the Employer Parties from the Released Claims that Executive has or may have against the Employer Parties as of the date Executive signs this Agreement. Executive has been advised of Executive’s right to consult with an attorney of Executive’s choice, and Executive freely and voluntarily agrees to the terms set forth in this Agreement, and knowingly and willingly intends to be legally bound by them.

13.This Agreement Governs. Executive acknowledges and agrees that the Employer Parties have made no promises, commitments or representations to Executive other than those contained in this Agreement and that Executive has not relied upon any statement or representation made by any Employer Party with respect to the basis or effect of this Agreement or otherwise.
14.Binding Agreement. This Agreement shall bind Executive, Executive’s heirs, beneficiaries, trustees, administrators, executors, and legal representatives, and shall inure to the benefit of the Releasees, and their respective beneficiaries, trustees, administrators, executors, assigns and legal representatives. Executive may not assign any of Executive’s rights or obligations under this Agreement.
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Without limiting the foregoing, an Employer Party may assign its rights and delegate its duties hereunder in whole or in part to any affiliate of the Employer Parties or to any transferee of all or a portion of an Employer Party’s assets or business.
15.Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, except that the Indemnification Agreements, Executive’s equity award agreements (except as modified in Section 2 above), post appointment restrictive covenants, including any noncompete or non-solicit agreements, and any existing post-employment obligations Executive has with respect to confidentiality under any agreement entered into between Executive and an Employer Party shall remain in full force and effect. This Agreement may not be changed orally, and no modification, amendment or waiver of any of the provisions contained in this Agreement, nor any future representation, promise or condition in connection with the subject matter hereof, shall be binding upon any party unless made in writing and signed by such party.
16.Counterparts; Electronic Signature. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. The facsimile, email or other electronically delivered signatures of the parties shall be deemed to constitute original signatures, and facsimile or electronic copies hereof shall be deemed to constitute duplicate originals.
17.Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any principles of conflicts of law. Any dispute related to or arising out of this Agreement exclusively and solely shall be adjudicated in the state and federal courts of Dallas County, Texas. All parties hereto agree to submit themselves to the personal jurisdiction of the state and federal courts of Dallas County, Texas in connection with any dispute related to or arising out of this Agreement.
18.Successors and Assigns. This Agreement shall be binding on each Employer Party and Executive and upon their respective heirs, representatives, successors and assigns.
19.Interpretation. Should any provision of this Agreement require interpretation or construction, it is agreed by the parties that the entity interpreting or construing the Agreement shall not apply a presumption against one party by reason of the rule of construction that a document is to be construed more strictly against the party who prepared the document.

[Signatures appear on following page]
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IN WITNESS WHEREOF, the undersigned have executed this Separation Agreement as of the date first above written.



NEXPOINT ADVISORS, L.P.

                            
                            By: /s/ James Dondero    ____________________
                            Name: James Dondero
                            Title: President


NEXPOINT RESIDENTIAL TRUST, INC.

                            
                            By: /s/ Brian Mitts    ____________________
                            Name: Brian Mitts
                            Title: Authorized Signatory


NEXPOINT REAL ESTATE ADVISORS, L.P.

                            
                            By: /s/ Brian Mitts    ____________________
                            Name: Brian Mitts
                            Title: Authorized Signatory


NEXPOINT REAL ESTATE FINANCE, INC.


                            
                            By: /s/ Brian Mitts    ____________________
                            Name: Brian Mitts
                            Title: Authorized Signatory


NEXPOINT REAL ESTATE ADVISORS VII, L.P.


                            
                            By: /s/ Brian Mitts    ____________________
                            Name: Brian Mitts
                            Title: Authorized Signatory






NEXPOINT DIVERSIFIED REAL ESTATE TRUST


                            
                            By: /s/ Brian Mitts    ____________________
                            Name: Brian Mitts
                            Title: Authorized Signatory




NEXPOINT REAL ESTATE ADVISORS X, L.P.


                            
                            By: /s/ Brian Mitts    ____________________
                            Name: Brian Mitts
                            Title: Authorized Signatory


VINEBROOK HOMES TRUST, INC.


                            
                            By: /s/ Brian Mitts    ____________________
                            Name: Brian Mitts
                            Title: Authorized Signatory


NEXPOINT REAL ESTATE ADVISORS V, L.P.


                            
                            By: /s/ Brian Mitts    ____________________
                            Name: Brian Mitts
                            Title: Authorized Signatory


EXECUTIVE



/s/ Matthew Goetz_________________________
Matthew Goetz








EXHIBIT A

TREATMENT OF LTIP AWARDS

Vested RSU Awards

The following restricted stock unit awards granted pursuant to the following award agreements, each as amended, shall immediately vest and become nonforfeitable on the Separation Date and each such award shall be delivered and settled in Shares (as defined under the applicable award agreement) or cash on the dates set forth below; provided that, such settlement and delivery will be conditioned on Executive complying with the terms of the Agreement through each settlement and delivery date.

RSU Award Agreements

3,136 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of February 21, 2019
1,528 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of February 20, 2020
1,061 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of May 11, 2020
1,864 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of February 18, 2021
1,394 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of February 17, 2022
2,469 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of March 28, 2023

11,300 RSU Awards granted pursuant to the NexPoint Diversified Real Estate Trust, Form of Restricted Shares Units Agreement, dated as of April 4, 2023

11,922 RSU Awards granted pursuant to the NexPoint Real Estate Finance, Inc. Restricted Stock Units Agreement, dated as of June 24, 2020
16,340 RSU Awards granted pursuant to the NexPoint Real Estate Finance, Inc. Restricted Stock Units Agreement, dated as of February 22, 2021
19,876 RSU Awards granted pursuant to the NexPoint Real Estate Finance, Inc. Restricted Stock Units Agreement, dated as of February 21, 2022
24,536 RSU Awards granted pursuant to the NexPoint Real Estate Finance, Inc. Restricted Stock Units Agreement, dated as of April 4, 2023

899 RSU Awards granted pursuant to the VineBrook Homes Trust, Inc. Restricted Stock Units Agreement, dated as of May 11, 2020
1,566 RSU Awards granted pursuant to the VineBrook Homes Trust, Inc. Restricted Stock Units Agreement, dated as of February 15, 2021
1,048 RSU Awards granted pursuant to the VineBrook Homes Trust, Inc. Restricted Stock Units Agreement, dated as of February 17, 2022
765 RSU Awards granted pursuant to the VineBrook Homes Trust, Inc. Restricted Stock Units Agreement, dated as of April 11, 2023




Vested RSU Award – Settlement Schedule



NexPoint Residential Trust, Inc. Awards:

Initial Grant DateTotal Awards Vesting on the Separation DateFirst Settlement DateAmount SettlingSecond Settlement DateAmount Settling
2/21/193,1362/21/243,136
2/20/201,5282/20/248412/20/25687
5/11/201,0615/11/245845/11/25477
2/18/211,8642/18/241,0262/18/25838
2/17/221,3942/17/247672/17/25627
3/28/232,4693/28/241,3593/28/251,110

NexPoint Diversified Real Estate Trust Awards:

Initial Grant DateTotal Awards Vesting on the Separation DateFirst Settlement DateAmount SettlingSecond Settlement DateAmount Settling
4/4/2311,3004/4/246,2194/4/255,081







NexPoint Real Estate Finance, Inc. Awards:

Initial Grant DateTotal Awards Vesting on the Separation DateFirst Settlement DateAmount SettlingSecond Settlement DateAmount Settling
6/24/2011,9225/8/2411,922
2/22/2116,3402/22/248,9932/22/257,347
2/21/2219,8762/21/2410,9392/21/258,937
4/4/2324,5364/4/2413,5044/4/2511,033

VineBrook Homes Trust, Inc. Awards:

Initial Grant DateTotal Awards Vesting on the Separation DateFirst Settlement DateAmount SettlingSecond Settlement DateAmount Settling
5/11/208992/20/24899
2/15/211,5662/18/248622/18/25704
2/17/221,0482/17/245772/17/25471
4/11/237654/11/244214/11/25344





Forfeited RSU Awards

The following restricted stock unit awards granted pursuant to the following award agreements, each as amended, shall immediately be forfeited and cancelled on the Separation Date.

154 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of February 20, 2020
107 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of May 11, 2020
1,214 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of February 18, 2021
1,675 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of February 17, 2022
4,326 RSU Awards granted pursuant to the NexPoint Residential Trust, Inc. Restricted Stock Units Agreement, dated as of March 28, 2023

13,576 RSU Awards granted pursuant to the NexPoint Diversified Real Estate Trust, Form of Restricted Shares Units Agreement, dated as of April 4, 2023

1,646 RSU Awards granted pursuant to the NexPoint Real Estate Finance, Inc. Restricted Stock Units Agreement, dated as of February 22, 2021
12,941 RSU Awards granted pursuant to the NexPoint Real Estate Finance, Inc. Restricted Stock Units Agreement, dated as of February 21, 2022
29,479 RSU Awards granted pursuant to the NexPoint Real Estate Finance, Inc. Restricted Stock Units Agreement, dated as of April 4, 2023

3,597 RSU Awards granted pursuant to the VineBrook Homes Trust, Inc. Restricted Stock Units Agreement, dated as of May 11, 2020
3,604 RSU Awards granted pursuant to the VineBrook Homes Trust, Inc. Restricted Stock Units Agreement, dated as of February 15, 2021
2,993 RSU Awards granted pursuant to the VineBrook Homes Trust, Inc. Restricted Stock Units Agreement, dated as of February 17, 2022
2,606 RSU Awards granted pursuant to the VineBrook Homes Trust, Inc. Restricted Stock Units Agreement, dated as of April 11, 2023



Execution Copy
VESTING AGREEMENT

This VESTING AGREEMENT (the “Vesting Agreement”) is made and entered into as of November 9, 2023 (the “Effective Date”) by and among (i) NexPoint Residential Trust, Inc. (“NXRT”), (ii) NexPoint Real Estate Finance, Inc. (“NREF”), (iii) NexPoint Diversified Real Estate Trust (“NXDT”), and (iv) VineBrook Homes Trust, Inc. (together with NXRT, NREF and NXDT, the “REITs”), and Matthew Goetz (“Grantee”).
WHEREAS, NXRT, NREF, NXDT and VB maintain the following equity plans, respectively: (i) NXRT’s 2016 Long Term Incentive Plan, (ii) NREF’s 2020 Long Term Incentive Plan, (iii) NXDT’s 2023 Long Term Incentive Plan and (iv) VB’s 2018 Long Term Incentive Plan (together, the “Plans”);
WHEREAS, Sections 17 and 18, 17 and 18, 18 and 19 and 18 and 19 of the NXRT Plan, NREF Plan, NXDT Plan and VB Plan, respectively, authorize the Compensation Committee (the “Committee”) of each REIT’s Board of Directors to amend awards granted under the plans, including to restate the awards’ vesting schedules and to comply with the deferred compensation rules of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”);
WHEREAS, Grantee has entered into a separation agreement, dated as of the Effective Date, in connection with Grantee’s separation from service as an employee of NexPoint Advisors, L.P. (the “Adviser”), the REITs and any respective affiliates (the “Separation”) on the Effective Date (the “Separation Agreement”); and
WHEREAS, each REIT’s Committee has determined that it would be advisable and in the best interest of the REIT and its stockholders to amend the terms of Grantee’s outstanding restricted stock units or restricted share units (both, “RSUs”) awarded under the Plans and the award agreements, each as set forth on Exhibit A to the Separation Agreement, in connection with the Grantee’s Separation.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:
1.Each RSU award agreement set forth on Exhibit A to the Separation Agreement shall be amended to:
(a)Remove all references to the defined term “Retirement” and make any related conforming changes so the RSU award agreements read as if the term had never been included in the award agreement, retroactive to the RSU award’s grant date.
(b)Add the following language to a new section at the end of the RSU award agreement:
Impact of Vesting Agreement
Notwithstanding anything in this Agreement to the contrary, as of the effective date of that certain vesting agreement made and entered into as of November 9, 2023 (the “Separation Effective Date”) by and among (i) NexPoint Residential Trust, Inc. (“NXRT”), (ii) NexPoint Real Estate Finance, Inc. (“NREF”), (iii) NexPoint Diversified Real Estate Trust (“NXDT”), and (iv) VineBrook Homes Trust, Inc. (together with NXRT, NREF and NXDT, the “REITs”), and [Grantee / Participant] (the “Vesting Agreement”), any outstanding RSUs under this Agreement shall vest and become nonforfeitable, or will be forfeited and cancelled, as set forth on Exhibit A to the Separation Agreement (as defined in the Vesting Agreement) and generally within the Separation Agreement, and all other vesting and settlement schedules with respect to the RSUs under this Agreement shall be null and void.


2.Add the following language to a new section at the end of the RSU award agreement after the amendment set forth in Section 1(b) hereof:
Application of Section 409A of the Code.
(a)    Exemption or Compliance. The Agreement and RSUs vesting and settling in connection with it are intended to be exempt from or otherwise comply with Section 409A of the Code, including the exceptions for short-term deferrals, separation pay arrangements, reimbursements, and in-kind distributions, and shall be administered, construed and interpreted in accordance with such intent. Any RSUs that fail to qualify for the exemptions under Section 409A of the Code shall be paid or provided in accordance with the requirements of Section 409A of the Code. Notwithstanding the foregoing, the Company cannot guarantee that the RSUs provided under the Agreement will satisfy all applicable provisions of Section 409A of the Code and the [Grantee / Participant] shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or for the account of the Participant in connection with this Agreement (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its subsidiaries or affiliates shall have any obligation to indemnify or otherwise hold the [Grantee / Participant] (or any beneficiary) harmless from any or all of such taxes or penalties.
(b)    Payments and Reimbursements. Each payment with respect to the RSUs settling under this Agreement is intended to be treated as one of a series of separate payments for purposes of Section 409A of the Code. To the extent any reimbursements or in-kind benefit payments under the Agreement are subject to Section 409A of the Code, such reimbursements and in-kind benefit payments will be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) (or any similar or successor provisions).
(c)    Specified Employees. Notwithstanding anything in the Agreement to the contrary, to the extent the [Grantee / Participant] is considered a “specified employee” (as defined in Section 409A of the Code) and would be entitled to a payment during the six-month period beginning on the [Grantee’s / Participant’s] separation from service (as defined in Section 409A of the Code) that is not otherwise excluded under Section 409A of the Code under the exception for short-term deferrals, separation pay arrangements, reimbursements, in-kind distributions, or any otherwise applicable exemption, the payment will not be made to the [Grantee / Participant] until the earlier of the six-month anniversary of the [Grantee / Participant’s] separation from service or the [Grantee / Participant’s] death and will be accumulated and paid on the first day of the seventh month following the separation from service.
(d)    Amendment. The Company may amend the Agreement to the minimum extent necessary to satisfy the applicable provisions of Section 409A of the Code.
3.For the avoidance of doubt, the amendment at Section 1(a) hereof will be deemed to occur a moment in time prior to the amendments at Sections 1(b) and (c) hereof.
4.All other terms of the RSU award agreements remain the same and are in full force and effect unless contrary to the intent of this Vesting Agreement. This Vesting Agreement contains the entire understanding of the parties with respect to the subject matter hereof, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, expect with respect to the Separation Agreement where its terms would not contradict the Vesting Agreement. This Vesting Agreement may not be changed orally, and no modification, amendment or waiver of any of the provisions contained in this Vesting Agreement, nor any future representation, promise or condition in connection with the subject matter hereof, shall be binding upon any party unless made in writing and signed by such party.
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5.This Vesting Agreement will be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any principles of conflicts of law. Any dispute related to or arising out of this Vesting Agreement exclusively and solely shall be adjudicated in the state and federal courts of Dallas County, Texas. All parties hereto agree to submit themselves to the personal jurisdiction of the state and federal courts of Dallas County, Texas in connection with any dispute related to or arising out of this Vesting Agreement.
6.This Vesting Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. The facsimile, email or other electronically delivered signatures of the parties shall be deemed to constitute original signatures, and facsimile or electronic copies hereof shall be deemed to constitute duplicate originals.
[Signature Page Follows]

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IN WITNESS WHEREOF, the parties have executed this Vesting Agreement as of the day and year first above written.
NEXPOINT RESIDENTIAL TRUST, INC.

By: /s/ Brian Mitts                
Name: Brian Mitts
Title: Authorized Signatory

NEXPOINT REAL ESTATE FINANCE, INC.

By: /s/ Brian Mitts                
Name: Brian Mitts
Title: Authorized Signatory

NEXPOINT DIVERSIFIED REAL ESTATE TRUST

By: /s/ Brian Mitts                
Name: Brian Mitts
Title: Authorized Signatory

VINEBROOK HOMES TRUST, INC.

By: /s/ Brian Mitts                
Name: Brian Mitts
Title: Authorized Signatory

GRANTEE

By: /s/ Matthew Goetz            
Name: Matthew Goetz


[Signature Page of Vesting Agreement]

Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jim Dondero, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of NexPoint Diversified Real Estate Trust;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 14, 2023
/s/ Jim Dondero
Jim Dondero
President
(Principal Executive Officer)


Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian Mitts, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of NexPoint Diversified Real Estate Trust;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 14, 2023
/s/ Brian Mitts
Brian Mitts
Chief Financial Officer, Executive VP-
Finance, Treasurer and Assistant Secretary
(Principal Financial Officer)


Exhibit 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of NexPoint Diversified Real Estate Trust (the “Company”) for the period ending September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jim Dondero, President of the Company, and Brian Mitts, Chief Financial Officer, Executive VP-Finance, Treasurer and Assistant Secretary of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 14, 2023/s/ Jim Dondero
Jim Dondero
President
(Principal Executive Officer)
Dated: November 14, 2023/s/ Brian Mitts
Brian Mitts
Chief Financial Officer, Executive VP-
Finance, Treasurer and Assistant Secretary
(Principal Financial Officer)