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What changed in NexPoint Real Estate Finance, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NexPoint Real Estate Finance, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+411 added−417 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-31)

Top changes in NexPoint Real Estate Finance, Inc.'s 2023 10-K

411 paragraphs added · 417 removed · 280 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

52 edited+21 added−13 removed76 unchanged
Biggest changeNexPoint Real Estate Finance OP GP, LLC (the “OP GP”) is the sole general partner of the OP. In addition to OP Units, the Company holds all 2,000,000 of the issued and outstanding 8.50% Series A Cumulative Redeemable Preferred Units (liquidation preference $25.00 per unit) in our OP (the “Series A Preferred Units”).
Biggest changeIn addition to OP Units, the Company holds all 2,000,000 of the issued and outstanding 8.50% Series A Cumulative Redeemable Preferred Units (liquidation preference $25.00 per unit) in our OP (the “Series A Preferred Units”) and all 427,218 of the issued and outstanding 9.00% Series B Cumulative Redeemable Preferred Units (liquidation preference $25.00 per unit) in our OP (the “Series B Preferred Units”) as of December 31, 2023.
Under the terms of this agreement, our Manager will, among other things: • identify, evaluate and negotiate the structure of our investments (including performing due diligence); • find, present and recommend investment opportunities consistent with our investment policies and objectives; • structure the terms and conditions of our investments; 8 Table of Contents • review and analyze financial information for each investment in our overall portfolio; • close, monitor and administer our investments; and • identify debt and equity capital needs and procure the necessary capital.
Under the terms of this agreement, our Manager will, among other things: • identify, evaluate and negotiate the structure of our investments (including performing due diligence); • find, present and recommend investment opportunities consistent with our investment policies and objectives; • structure the terms and conditions of our investments; • review and analyze financial information for each investment in our overall portfolio; 8 Table of Contents • close, monitor and administer our investments; and • identify debt and equity capital needs and procure the necessary capital.
As of December 31, 2022, pursuant to the 2022 Equity Distribution Agreements, the Company had sold 531,728 shares of its common stock and zero shares of Series A Preferred Stock for total gross sales of $12.6 million. For additional information about the 2022 ATM Program, see Note 11 to our consolidated financial statements.
As of December 31, 2023, pursuant to the 2022 Equity Distribution Agreements, the Company had sold 531,728 shares of its common stock and zero shares of Series A Preferred Stock for total gross sales of $12.6 million. For additional information about the 2022 ATM Program, see Note 11 to our consolidated financial statements.
These notes are subordinate to any first mortgage and can be converted into common equity of the borrower. • Common Stock: We acquire common stock in the real estate sector, including through convertible notes that can provide a stable source of income through dividends, opportunities for capital appreciation, and a level of diversification to our Portfolio. • Multifamily Property: We make investments in multifamily properties with a value-add component in large cities and suburban submarkets of large cities primarily in the Southeastern and Southwestern United States.
These notes are subordinate to any first mortgage and can be converted into common equity or preferred equity of the borrower. • Common Stock: We acquire common stock in the real estate sector, including through convertible notes that can provide a stable source of income through dividends, opportunities for capital appreciation, and a level of diversification to our Portfolio. • Multifamily Property: We make investments in multifamily properties with a value-add component in large cities and suburban submarkets of large cities primarily in the Southeastern and Southwestern United States.
(2) Weighted-average life is determined using the maximum maturity date of the corresponding loans, assuming all extension options are exercised by the borrower. (3) CMBS are shown at fair value on an unconsolidated basis. 3 Table of Contents (4) In April 2020, three of our subsidiaries entered into a master repurchase agreement with Mizuho Securities (“Mizuho”).
(2) Weighted-average life is determined using the maximum maturity date of the corresponding loans, assuming all extension options are exercised by the borrower. (3) CMBS are shown at fair value on an unconsolidated basis. (4) In April 2020, three of our subsidiaries entered into a master repurchase agreement with Mizuho Securities (“Mizuho”).
On September 28, 2020, the Board authorized the expansion of the Share Repurchase Program to include the Company’s Series A Preferred Stock with the same period and repurchase limit.
On September 28, 2020, the Board authorized the expansion of the Prior Share Repurchase Program to include the Company’s Series A Preferred Stock with the same period and repurchase limit.
Share Repurchase Program On March 9, 2020, the Board authorized a share repurchase program (the “Share Repurchase Program”) through which the Company could repurchase an indeterminate number of shares of our common stock at an aggregate market value of up to $10.0 million in shares of its common stock, par value $0.01 per share, during a two-year period that expired on March 9, 2022.
Share Repurchase Program On March 9, 2020, the Board authorized a share repurchase program (the “Prior Share Repurchase Program”) through which the Company could repurchase an indeterminate number of shares of our common stock at an aggregate market value of up to $10.0 million in shares of its common stock, par value $0.01 per share (the "common stock"), during a two-year period that expired on March 9, 2022.
For additional information related to the diversification of the collateral associated with our portfolio, including with respect to interest rate category, underlying property type, investment structure and geography, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Portfolio. Primary Investment Objective Our primary investment objective is to generate attractive, risk-adjusted returns for stockholders over the long term.
For additional information related to the diversification of the collateral associated with our portfolio, including with respect to interest rate category, underlying property type, investment structure and geography, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Portfolio." Primary Investment Objective Our primary investment objective is to generate attractive, risk-adjusted returns for stockholders over the long term.
The Company could utilize various methods to affect the repurchases, and the timing and extent of the repurchases will depend upon several factors, including market and business conditions, regulatory requirements and other corporate considerations, including whether the Company’s common stock is trading at a significant discount to net asset value ("NAV") per share.
The Company could utilize various methods to affect the repurchases, and the timing and extent of the repurchases will depend upon several factors, including market and business conditions, regulatory requirements and other corporate considerations, including whether the Company’s common stock is trading at a significant discount to net asset value (“NAV”) per share.
Our Manager is wholly owned by our Sponsor. The members of our Manager’s investment committee are James Dondero, Matt McGraner, Matthew Goetz, and Brian Mitts. Our Management Agreement We pay our Manager an annual management fee. We do not pay any incentive fees to our Manager. We also reimburse our Manager for expenses it incurs on our behalf.
Our Manager is wholly owned by our Sponsor. The members of our Manager’s investment committee are James Dondero, Matt McGraner and Brian Mitts. Our Management Agreement We pay our Manager an annual management fee. We do not pay any incentive fees to our Manager. We also reimburse our Manager for expenses it incurs on our behalf.
Target Investments We invest primarily in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common stock investments, as well as multifamily CMBS securitizations (including CMBS B-Pieces and CMBS I/O Strips), MSCR Notes and mortgage-backed securities, with a focus on lending or investing in properties that are stabilized or have a light transitional business plan primarily in the multifamily, SFR, self-storage, hospitality and office real estate sectors predominantly in the top 50 MSAs.
Target Investments We invest primarily in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common equity investments, as well as multifamily and SFR CMBS securitizations (including CMBS B-Pieces and CMBS I/O Strips), MSCR Notes and mortgage backed securities, with a focus on lending or investing in properties that are stabilized or have a light transitional business plan primarily in the multifamily, SFR, self-storage, life science, hospitality and office real estate sectors predominantly in the top 50 MSAs.
These investment types are discussed below: • First-Lien Mortgage Loans: We make investments in senior loans that are secured by first priority mortgage liens on real estate properties. The loans may vary in duration, bear interest at a fixed or floating rate and amortize, typically with a balloon payment of principal at maturity.
These investment types are discussed below: • First-Lien Mortgage Loans: We make investments in senior loans that are secured by first priority mortgage liens on real estate properties. The loans may vary in duration, bear interest at a fixed or floating rate and amortize, 6 Table of Contents typically with a balloon payment of principal at maturity.
Prior to the closing of the IPO, the Company engaged in a series of transactions through which it acquired an initial portfolio consisting of senior pooled mortgage loans backed by single family rental (“SFR”) properties (the “SFR Loans”), the junior most bonds of multifamily CMBS securitizations (the “CMBS B-Pieces”), mezzanine loan and preferred equity investments in real estate companies and properties in other structured real estate investments within the multifamily, SFR and self-storage asset classes (the “Initial Portfolio”).
Prior to the closing of the IPO, the Company engaged in a series of transactions through which it acquired an initial portfolio consisting of senior pooled mortgage loans backed by SFR properties (the “SFR Loans”), the junior most bonds of multifamily CMBS securitizations (the “CMBS B-Pieces”), mezzanine loan and preferred equity investments in real estate companies and properties in other structured real estate investments within the multifamily, SFR and self-storage asset classes (the “Initial Portfolio”).
To qualify as a REIT, we must meet on a continuing basis, through our organization and actual investment and operating results, various requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of shares of our stock.
To qualify as a REIT, we must meet on a continuing basis, through our organization and actual investment and operating results, various requirements under the Code relating to, among other things, the sources of our gross income, the 10 Table of Contents composition and values of our assets, our distribution levels and the diversity of ownership of shares of our stock.
We may be a smaller reporting company even after we are no longer an “emerging growth company.” Human Capital Disclosure We are externally managed by our Manager pursuant to the Management Agreement between us and our Manager. All of our executive officers are employees of our Manager or its affiliates.
We may be a smaller reporting company even after we are no longer an “emerging growth company.” 11 Table of Contents Human Capital Disclosure We are externally managed by our Manager pursuant to the Management Agreement between us and our Manager. All of our executive officers are employees of our Manager or its affiliates.
MSCR Notes offer capital markets investors provide an innovative way to add U.S. multifamily housing market exposure while benefiting from Freddie Mac’s industry leading underwriting and credit risk management standards. • Mortgage Backed Securities: We make investments in mortgage-backed securities. Each mortgage-backed security consists of a bundle of home loans and other real estate debt bought from issuers.
MSCR Notes provide an innovative way to add U.S. multifamily housing market exposure while benefiting from Freddie Mac’s industry leading underwriting and credit risk management standards. • Mortgage Backed Securities: We make investments in mortgage backed securities. Each mortgage backed security consists of a bundle of home loans and other real estate debt bought from issuers.
As of December 31, 2022, we had one employee whose salary is 50% allocated to us for reimbursement to our Manager. This employee is an accounting employee.
As of December 31, 2023, we had one employee whose salary is 50% allocated to us for reimbursement to our Manager. This employee is an accounting employee.
The Management Agreement can 9 Table of Contents be terminated by us or our Manager 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 Management Agreement can be terminated by us or our Manager 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.
As of December 31, 2022, the Company held approximately 83.36% of the common limited partnership units in the OP (“OP Units”) which represents 100% of the Class A OP Units, and the OP owned all of the common limited partnership units (“SubOP Units”) of its three subsidiary partnerships (collectively, the “Subsidiary OPs”) (see Note 13 to our consolidated financial statements).
As of December 31, 2023, the Company held approximately 83.82% of the common limited partnership units in the OP (“OP Units”) which represents 100% of the Class A OP Units, and the OP owned all of the common limited partnership units (“SubOP Units”) of its three subsidiary partnerships (collectively, the “Subsidiary OPs”) (see Note 13 to our consolidated financial statements).
As of December 31, 2022, the outstanding balance on the Credit Facility was $628.6 million. Convertible Promissory Note On October 18, 2022, the Company, through a subsidiary, borrowed $6.5 million from NFRO REIT Sub, LLC (the “Holder”) and issued $6.5 million aggregate amount of a 7.50% note to the Holder maturing on October 18, 2027.
As of December 31, 2023, the outstanding balance on the Credit Facility was $590.3 million. Convertible Promissory Note On October 18, 2022, the Company, through a subsidiary, borrowed $6.5 million from NFRO REIT Sub, LLC (the “Holder”) and issued $6.5 million aggregate amount of a 7.50% note to the Holder maturing on October 18, 2027.
Repurchases under this program could be discontinued at any time. From inception through expiration, the Company repurchased 327,422 shares of its common stock, par value $0.01 per share, at a total cost of approximately $4.8 million, or $14.61 per share.
Repurchases under this program could be discontinued at any time. From inception through expiration, the Company repurchased 327,422 shares of its common stock, at a total cost of approximately $4.8 million, or $14.61 per share.
We intend to achieve this objective primarily by originating, structuring and investing in our target assets. We concentrate on investments in real estate sectors where our senior management team has operating expertise, including in the multifamily, SFR, self-storage, life science, hospitality and office sectors predominantly in the top 50 metropolitan statistical areas (“MSAs”).
We intend to achieve this objective primarily by originating, structuring and investing in our target assets. We concentrate on investments in real estate sectors where our senior management team has operating expertise, including in the multifamily, SFR, self-storage, life science, hospitality and office sectors predominantly in the top 50 MSAs.
The Company is focused on originating, structuring and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common stock investments, as well as multifamily commercial mortgage-backed securities securitizations (“CMBS securitizations”), multifamily structured credit risk notes (“MSCR Notes”) and mortgage-backed securities, or our target assets.
The Company is focused on originating, structuring and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common equity investments, as well as multifamily and single-family rental ("SFR") commercial mortgage backed securities securitizations (“CMBS securitizations”), multifamily structured credit risk notes (“MSCR Notes”) and mortgage backed securities, or our target assets.
Incorporated and Virtu Americas LLC (collectively, the “Sales Agents”), pursuant to which the Company could issue and sell from time to time shares of the Company's common stock and Series A Preferred Stock having an aggregate sales price of up to $100.0 million (the “2022 ATM Program”).
Baird & Co. Incorporated and Virtu Americas LLC (collectively, the “Sales Agents”), 4 Table of Contents pursuant to which the Company could issue and sell from time to time shares of the Company's common stock and Series A Preferred Stock having an aggregate sales price of up to $100.0 million (the “2022 ATM Program”).
As of December 31, 2022, there have been 510 Freddie Mac K-deal issuances for a combined $522.1 billion and 24,997 loans originated and securitized since 2009. • CMBS I/O Strips: We make investments in CMBS I/O Strips, which are interest only and inverse interest only CMBS securitization that represent the right to the interest component of the cash flow from a pool of mortgage loans of CMBS structured pass-through certificates. • MSCR Notes: We make investments in MSCR Notes, which are unguaranteed securities designed to transfer to investors a portion of the credit risk associated with eligible multifamily mortgages linked to a reference pool.
As of December 31, 2023, there have been 510 Freddie Mac K-deal issuances for a combined $557.5 billion and 26,246 loans originated and securitized since 2009. • CMBS I/O Strips: We make investments in CMBS I/O Strips, which are interest only and inverse interest only CMBS securitization that represent the right to the interest component of the cash flow from a pool of mortgage loans of CMBS structured pass-through certificates. • MSCR Notes: We make investments in MSCR Notes, which are unguaranteed securities designed to transfer to investors a portion of the credit risk associated with eligible multifamily mortgages linked to a reference pool.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” 7 Table of Contents Our Structure The following chart shows our ownership structure as of the date hereof: Our Manager We are externally managed by our Manager through the Management Agreement dated February 6, 2020 and amended as of July 17, 2020 and November 3, 2021, for an initial three-year term that expired on February 6, 2023 and successive one-year terms thereafter unless earlier terminated.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” 7 Table of Contents Our Structure The following chart shows our ownership structure as of the date hereof: Our Manager We are externally managed by our Manager through the Management Agreement dated February 6, 2020 and amended as of July 17, 2020 and November 3, 2021, that renewed on February 6, 2024 for a one-year term and is automatically renewed for successive one-year terms thereafter unless earlier terminated.
Our Portfolio Our portfolio consists of SFR Loans, CMBS B-Pieces, CMBS I/O Strips, mezzanine loans, preferred equity investments, common stock investments, multifamily properties, MSCR Notes and mortgage-backed securities with a combined unpaid principal balance of $2.0 billion at December 31, 2022 and assumes the assets and liabilities of the ten Freddie Mac K-Series securitization entities (the “CMBS Entities”) are not consolidated.
Our Portfolio Our portfolio consists of SFR Loans, CMBS B-Pieces, CMBS I/O Strips, mezzanine loans, preferred equity investments, common equity investments, multifamily properties, MSCR Notes and mortgage backed securities with a combined unpaid principal balance of $1.9 billion at December 31, 2023 and assumes the assets and liabilities of the ten 5 Table of Contents Freddie Mac K-Series securitization entities (the “CMBS Entities”) are not consolidated.
Our portfolio, based on total unpaid principal balance as of December 31, 2022, including the consolidation of the CMBS B-Pieces, is approximately 8.9% SFR Loans, approximately 86.7% multifamily CMBS B-Pieces, approximately 0.6% CMBS I/O Strips, approximately 2.1% mezzanine loans, approximately 1.2% preferred equity investments, approximately 0.1% MSCR Notes, and approximately 0.4% mortgage-backed securities.
Our portfolio, based on total unpaid principal balance as of December 31, 2023, including the consolidation of the CMBS B-Pieces, is approximately 9.6% SFR Loans, approximately 84.2% multifamily CMBS B-Pieces, approximately 0.6% CMBS I/O Strips, approximately 2.0% mezzanine loans, approximately 2.9% preferred equity investments, approximately 0.2% MSCR Notes, and approximately 0.6% mortgage backed securities.
The Company is externally managed through a management agreement dated February 6, 2020 and amended as of July 17, 2020 and November 3, 2021, for an initial three-year term that expired on February 6, 2023 and successive one-year terms thereafter unless earlier terminated (as amended, the “Management Agreement”), by and between the Company and the Manager.
The Company is externally managed through a management agreement dated February 6, 2020 and amended as of July 17, 2020 and November 3, 2021, that renewed on February 6, 2024 for a one-year term and is automatically renewed for successive one-year terms thereafter unless earlier terminated (as amended, the “Management Agreement”), by and between the Company and the Manager.
Our portfolio, based on net equity as of December 31, 2022, is approximately 14.8% SFR Loans, approximately 28.0% multifamily CMBS B-Pieces, approximately 3.1% CMBS I/O Strips, approximately 15.9% mezzanine loans, approximately 13.7% preferred equity investments, approximately 11.8% common stock investments, approximately 9.5% multifamily property real estate, approximately 0.7% MSCR Notes, and approximately 2.5% mortgage-backed securities.
Our portfolio, based on net equity as of December 31, 2023, is approximately 13.5% SFR Loans, approximately 21.4% multifamily CMBS B-Pieces, approximately 2.1% CMBS I/O Strips, approximately 11.9% mezzanine loans, approximately 30.5% preferred equity investments, approximately 9.6% common equity investments, approximately 2.3% preferred stock investments, approximately 4.8% multifamily property real estate, approximately 0.8% MSCR Notes, and approximately 2.9% mortgage backed securities.
As a whole, we believe our portfolio of investments have a relatively low risk profile: 92.9% of the underlying properties in our portfolio are stabilized and have a weighted average occupancy of 89.5%; the portfolio-wide weighted average debt service coverage ratio (“DSCR”) is 1.78; the weighted average loan to value (“LTV”) of our investments is 68.6%; and the weighted average maturity is 5.9 years as of December 31, 2022.
As a whole, we believe our portfolio of investments have a relatively low risk profile: 89.9% of the underlying properties in our portfolio are stabilized and have a weighted average occupancy of 91.4%; the portfolio-wide weighted average debt service coverage ratio (“DSCR”) is 1.72; the weighted average loan to value (“LTV”) of our investments is 68.8%; and the weighted average maturity is 5.2 years as of December 31, 2023.
Our portfolio, based on total unpaid principal balance as of December 31, 2022, excluding the consolidation of the CMBS B-Pieces, as described further below, is approximately 42.6% SFR Loans, approximately 36.0% multifamily CMBS B-Pieces, approximately 2.9% CMBS I/O Strips, approximately 10.1% mezzanine loans, approximately 5.7% preferred equity investments, approximately 0.6% MSCR Notes, and approximately 2.1% mortgage backed securities.
Our portfolio, based on total unpaid principal balance as of December 31, 2023, excluding the consolidation of the CMBS B-Pieces, as described further below, is approximately 41.6% SFR Loans, approximately 31.4% multifamily CMBS B-Pieces, approximately 2.7% CMBS I/O Strips, approximately 8.6% mezzanine loans, approximately 12.6% preferred equity investments, approximately 0.7% MSCR Notes, and approximately 2.6% mortgage backed securities.
Maintaining the Section 3(c)(5)(C) exclusion, however, will limit our ability to make certain investments. 11 Table of Contents Emerging Growth Company and Smaller Reporting Company Status Section 107 of the Jumpstart Our Business Startups Act (the “JOBS Act”) provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for complying with new or revised accounting standards applicable to public companies.
Emerging Growth Company and Smaller Reporting Company Status Section 107 of the Jumpstart Our Business Startups Act (the “JOBS Act”) provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for complying with new or revised accounting standards applicable to public companies.
Total liabilities, including the consolidation of the CMBS B-Pieces, with respect to each of the aforementioned investment structures in our portfolio are 5 Table of Contents approximately $628.6 million, approximately $6.2 billion, approximately $26.4 million, approximately $59.3 million, approximately $0.0 million, approximately $0.0 million and approximately $0.0 million, respectively.
Total liabilities, including the consolidation of the CMBS B-Pieces, with respect to each of the aforementioned investment structures in our portfolio are approximately $590.3 million, approximately $5.3 billion, approximately $27.5 million, approximately $59.3 million, approximately $0.0 million, approximately $0.0 million and approximately $0.0 million, respectively.
These metrics do not reflect our common stock investments in NSP and the Private REIT or our multifamily properties, shown as real estate investment, net on the Consolidated Balance Sheets, at December 31, 2022.
These metrics do not reflect our common equity investments in NSP and a private ground lease REIT (the "Private REIT"), our preferred stock investments in IQHQ Inc. or our multifamily properties, shown as real estate investments, net on the Consolidated Balance Sheets, at December 31, 2023.
Our and our Manager’s telephone number is (214) 276-6300. Our website is located at nref.nexpoint.com. Information contained on, or accessible through, our website is not incorporated by reference into and does not constitute a part of this annual report or any other report or documents we file with or furnish to the SEC.
Information contained on, or accessible through, our website is not incorporated by reference into and does not constitute a part of this Annual Report or any other report or documents we file with or furnish to the SEC.
Under the pooling and servicing agreements that govern these securitization pools, the loans are administered by a trustee and servicers, who act on behalf of all CMBS investors, distribute the underlying cash 6 Table of Contents flows to the different classes of securities in accordance with their seniority.
Under the pooling and servicing agreements that govern these securitization pools, the loans are administered by a trustee and servicers, who act on behalf of all CMBS investors, distribute the underlying cash flows to the different classes of securities in accordance with their seniority. Historically, a single investor acquires all of the below-investment grade securities that comprise each CMBS B-Piece.
The table below provides additional details regarding borrowings under the master repurchase agreement as of December 31, 2022 (dollars in thousands): December 31, 2022 Facility Collateral Date issued Outstanding face amount Carrying value Final stated maturity Weighted average interest rate (1) Weighted average life (years) (2) Outstanding face amount Amortized cost basis Carrying value (3) Weighted average life (years) (2) Master Repurchase Agreements CMBS Mizuho (4) 4/15/2020 331,020 331,020 N/A (5) 5.83 % 0.2 974,440 543,919 539,736 7.0 (1) Weighted-average interest rate using unpaid principal balances.
The table below provides additional details regarding borrowings under the master repurchase agreement as of December 31, 2023 (dollars in thousands): 3 Table of Contents December 31, 2023 Facility Collateral Date issued Outstanding face amount Carrying value Final stated maturity Weighted average interest rate (1) Weighted average life (years) (2) Outstanding face amount Amortized cost basis Carrying value (3) Weighted average life (years) (2) Master Repurchase Agreements CMBS Mizuho (4) 4/15/2020 303,514 303,514 N/A (5) 7.26 % 0.0 931,296 470,761 464,888 6.4 (1) Weighted-average interest rate using unpaid principal balances.
The Management Agreement has an initial three-year term that expired on February 6, 2023 and successive one-year terms thereafter unless earlier terminated. We have the right to terminate the Management Agreement on 30 days’ written notice upon the occurrence of a cause event (as defined in the Management Agreement).
The Management Agreement was renewed on February 6, 2024 for a one-year term and is automatically renewed for successive one-year terms thereafter unless earlier terminated. We have the right to terminate the Management Agreement on 30 days’ written notice upon the occurrence of a cause event (as defined in the Management Agreement).
Total liabilities, excluding the consolidation of the CMBS B-Pieces, with respect to each of the aforementioned investment structures in our portfolio are approximately $628.6 million, approximately $283.9 million, approximately $26.4 million, approximately $59.3 million, approximately $0.0 million, approximately $0.0 million and approximately $0.0 million, respectively.
Total liabilities, excluding the consolidation of the CMBS B-Pieces, with respect to each of the aforementioned investment structures in our portfolio are approximately $590.3 million, approximately $251.1 million, approximately $27.5 million, approximately $59.3 million, approximately $0.0 million, approximately $0.0 million and approximately $0.0 million, respectively.
The Series A Preferred Units have economic terms that are substantially the same as the terms of our 8.50% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Units rank, as to distributions and upon liquidation, senior to OP Units.
The Series A Preferred Units have economic terms that are substantially the same as the terms of our 8.50% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”) and the Series B Preferred Units have economic terms that are substantially the same as the terms of our 9.00% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”).
Notes Offering On January 25, 2022, the Company issued $35.0 million in aggregate principal amount of 5.75% Senior Unsecured Notes due 2026 (the “5.75% Notes”) at a price equal to 100.9% of par value, including accrued interest, for proceeds of approximately $35.1 million after original issue discount and underwriting fees.
Notes Offering On November 15, 2023, the Company issued an additional $15.0 million in aggregate principal amount of its 5.75% Senior Unsecured Notes (the “5.75% Notes”) at a price equal to 92.0% par value, including accrued interest, for proceeds of approximately $13.6 million after original issue discount and underwriting fees.
Our Manager 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 Management Agreement will automatically terminate in the event of an Advisers Act Assignment (as defined in the Management Agreement) unless we provide written consent.
Our Manager 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.
On March 3, 2021, the Company cancelled 40,435 shares of common stock, reducing the total classified as treasury stock to 286,987. NexPoint Storage Partners, Inc. On December 8, 2022 and in connection with a restructuring of NexPoint Storage Partners, Inc.
On March 3, 2021, the Company cancelled 40,435 shares of common stock, reducing the total classified as treasury stock to 286,987.
Freddie Mac Credit Facility During 2022, the Company made payments under a Credit Facility (defined below) assumed by the Company as part of the Formation Transaction in the amount of $97.7 million.
As of December 31, 2023, the Company had not made any purchases under the Share Repurchase Program. Freddie Mac Credit Facility During 2023, the Company made payments under a Credit Facility (defined below) assumed by the Company as part of the Formation Transaction in the amount of $38.3 million.
At-the-Market-Program On March 15, 2022, the Company, the OP and the Manager entered into separate equity distribution agreements (the “2022 Equity Distribution Agreements”) with each of Raymond James & Associates, Inc. ("Raymond James"), Keefe, Bruyette & Woods, Inc., Robert W. Baird & Co.
As of December 31, 2023, there was $180.0 million in aggregate principal amount of the 5.75% Notes outstanding. At-the-Market-Program On March 15, 2022, the Company, the OP and the Manager entered into separate equity distribution agreements (the “2022 Equity Distribution Agreements”) with each of Raymond James & Associates, Inc. ('Raymond James'), Keefe, Bruyette & Woods, Inc., Robert W.
The Company commenced operations on February 11, 2020 upon the closing of its initial public offering of shares of its common stock (the “IPO”).
The Series A Preferred Units and the Series B Preferred Units rank, as to distributions and upon liquidation, senior to OP Units. The Company commenced operations on February 11, 2020 upon the closing of its initial public offering of shares of its common stock (the “IPO”).
Historically, a single investor acquires all of the below-investment grade securities that comprise each CMBS B-Piece. CMBS B-Pieces have been a successful and sought-after securitization program offering a wide-range of residential and multifamily products.
CMBS B-Pieces have been a successful and sought-after securitization program offering a wide-range of residential and multifamily products.
We operate in a competitive market for investment opportunities and future competition may limit our ability to acquire desirable investments in our target assets and could also affect the pricing of our securities. 10 Table of Contents Operating and Regulatory Structure REIT Qualification We have elected to be treated as a REIT for U.S. federal income tax purposes, beginning with our taxable year ended December 31, 2020.
Operating and Regulatory Structure REIT Qualification We have elected to be treated as a REIT for U.S. federal income tax purposes, beginning with our taxable year ended December 31, 2020.
As of December 31, 2022, the Company has issued 8,748,735 shares of the Company’s common stock to the redeeming unitholders. The OP also directly owns all of the membership interests of a limited liability company (the “Mezz LLC”) through which it owns a portfolio of mezzanine loans, as further discussed below.
The OP also directly owns all of the membership interests of a limited liability company (the “Mezz LLC”) through which it owns a portfolio of mezzanine loans, as further discussed below. NexPoint Real Estate Finance OP GP, LLC (the “OP GP”) is the sole general partner of the OP.
Our employee is fairly compensated, without regard to gender, race and ethnicity, and routinely recognized for outstanding performance.
Our employee is fairly compensated, without regard to gender, race and ethnicity, and routinely recognized for outstanding performance. Corporate Information Our and our Manager’s offices are located at 300 Crescent Court, Suite 700, Dallas, Texas 75201. Our and our Manager’s telephone number is (214) 276-6300. Our website is located at nref.nexpoint.com.
Substantially all of the Company’s business is conducted through NexPoint Real Estate Finance Operating Partnership, L.P. (the “OP”), the Company’s operating partnership.
We primarily focus on investments in real estate sectors where our senior management team has operating expertise, including in the multifamily, SFR, self-storage, life science, hospitality and office sectors predominantly in the top 50 metropolitan statistical areas (“MSAs”). Substantially all of the Company’s business is conducted through NexPoint Real Estate Finance Operating Partnership, L.P. (the “OP”), the Company’s operating partnership.
Removed
At the 2021 annual meeting of the Company, the Company's stockholders approved the potential issuance of 13,758,905.9 shares of the Company’s common stock to related parties in connection with the redemption of their OP Units or SubOP Units that may be redeemed for OP Units.
Added
Through active portfolio management we seek to take advantage of market opportunities to achieve a superior portfolio risk-mix that delivers attractive total returns. 1 Table of Contents 2023 Highlights Key highlights and transactions completed in 2023 include the following: Acquisitions and Originations The Company acquired or originated the following investments through the Subsidiary OPs in the year ended December 31, 2023.
Removed
Through active portfolio management we seek to take advantage of market opportunities to achieve a superior portfolio risk-mix that delivers attractive total returns. 1 Table of Contents 2022 Highlights Key highlights and transactions completed in 2022 include the following: Purchases and Investments We made the following purchases and investments in 2022: Investment Investment Date Tranche Outstanding Principal Amount Cost (% of Par Value) Coupon (4) Current Yield (4) Maturity Date Interest Rate Type Convertible Notes 1/12/2022 N/A $ 38,656,456 99.5 % 9.00 % 9.05 % 12/27/2023 Fixed Rate Preferred Equity 1/14/2022 N/A 19,594,241 (1) 99.5 % 10.00 % 10.05 % 9/29/2023 Fixed Rate FRESB 2019-SB64 2/3/2022 X1 27,106,367 (2) 8.0 % 1.25 % 15.57 % 5/25/2029 Interest Only FREMF 2017-K62 2/10/2022 D 10,000,000 71.0 % — % 7.03 % 12/31/2026 Zero-Coupon FRESB 2019-SB64 3/18/2022 X1 32,209,026 (2) 7.4 % 1.25 % 16.91 % 5/25/2029 Interest Only Bridge Loan 3/31/2022 N/A 13,500,000 99.5 % 9.00 % 5.03 % 10/1/2022 Floating Rate Preferred Equity 4/7/2022 N/A 4,000,000 (3) 99.0 % 13.77 % 10.86 % 9/1/2030 Floating Rate Common Stock 4/14/2022 N/A 25,000,000 100.0 % N/A N/A N/A N/A FRESB 2019-SB58 5/2/2022 B 40,727,072 92.6 % 4.35 % 4.70 % 11/25/2038 Fixed Rate MSCR 2022-MN4 5/25/2022 M2 4,000,000 125.0 % 10.03 % 10.03 % 5/25/2052 Floating Rate MSCR 2022-MN4 5/25/2022 B1 5,000,000 80.0 % 7.03 % 7.03 % 5/25/2052 Floating Rate STAR 2021-SFR1 6/1/2022 G 10,419,000 95.1 % 4.08 % 4.28 % 4/17/2026 Floating Rate AMSR 2020-SFR4 6/1/2022 G2 10,074,000 95.1 % 4.87 % 5.12 % 11/19/2025 Fixed Rate Preferred Equity 6/8/2022 N/A 4,000,000 99.0 % 9.99 % 10.09 % 9/1/2030 Floating Rate Mezzanine Loan 6/9/2022 N/A 4,500,000 99.0 % 11.50 % 11.61 % 6/9/2025 Floating Rate Mezzanine Loan 7/1/2022 N/A 9,000,000 99.0 % 11.00 % 11.10 % 7/1/2027 Fixed Rate PROG 2020-SFR 3 7/28/2022 H 575,000 98.3 % 6.23 % 6.33 % 10/17/2027 Fixed Rate AMSR 2021-SFR1 7/28/2022 F 1,057,000 84.3 % 3.60 % 4.23 % 6/20/2028 Fixed Rate FREMF 2022-KF140 7/28/2022 CS 70,480,514 100.0 % 8.29 % 8.29 % 7/25/2029 Floating Rate Preferred Equity 8/10/2022 B1 8,500,000 99.0 % 14.61 % 14.74 % 9/9/2025 Floating Rate FREMF 21K-F103 9/12/2022 CS 4,472,571 112.2 % 9.29 % 9.27 % 1/25/2031 Floating Rate MSCR 2021-MN 3 9/23/2022 B1 1,500,000 91.7 % 10.37 % 11.40 % 11/25/2051 Floating Rate JPMCC 2022-NXSS 9/29/2022 E 8,000,000 99.8 % 9.57 % 9.59 % 9/15/2027 Floating Rate Preferred Equity 9/30/2022 N/A 9,000,000 99.0 % 13.76 % 13.89 % 10/1/2025 Floating Rate Preferred Equity 10/5/2022 N/A 4,030,000 99.0 % 14.52 % 14.66 % 1/1/2028 Floating Rate Preferred Equity 10/19/2022 N/A 15,000,000 99.5 % 10.00 % 10.05 % 9/29/2023 Fixed Rate $ 380,401,247 (1) Includes investments made on January 14, 2022, January 19, 2022 and January 27, 2022.
Added
The amounts in the table below are as of the purchase or investment date unless otherwise specified: Investment Property Type Investment Date Outstanding Principal Amount Cost (% of Par Value) Coupon (1) Current Yield (1) Maturity Date Interest Rate Type Preferred Equity Multifamily 1/9/2023 $ 1,166,000 100.0 % 11.00 % 11.00 % 5/1/2030 Fixed Rate Preferred Equity Life Science 1/12/2023 1,005,025 99.8 % 10.00 % 10.02 % 9/29/2023 Fixed Rate Preferred Equity Multifamily 2/10/2023 14,000,000 99.0 % 11.00 % 11.11 % 2/10/2025 Fixed Rate Common Stock Multifamily 2/10/2023 500,000 100.0 % N/A N/A N/A N/A Preferred Equity Multifamily 2/24/2023 11,200,000 99.0 % 11.00 % 11.11 % 2/10/2025 Fixed Rate Common Stock Multifamily 2/24/2023 500,000 100.0 % N/A N/A N/A N/A Preferred Equity Life Science 3/3/2023 1,710,553 100.0 % 10.00 % 10.00 % 9/29/2023 Fixed Rate FREMF 2018-KF44 Multifamily 3/10/2023 5,746,955 99.8 % 13.07 % 13.10 % 2/25/2025 Floating Rate Preferred Equity Life Science 4/6/2023 21,105,528 100.0 % 10.00 % 17.50 % 9/29/2023 Fixed Rate Preferred Equity Multifamily 5/25/2023 228,365 100.0 % 11.00 % 11.00 % 5/1/2030 Fixed Rate Preferred Equity Single-family 6/12/2023 1,200,000 99.0 % 13.25 % 13.38 % 4/28/2027 Floating Rate Preferred Equity Life Science 6/14/2023 3,950,391 99.0 % 13.00 % 13.13 % 8/17/2024 Fixed Rate Preferred Equity Life Science 7/11/2023 241,528 99.0 % 13.00 % 13.13 % 6/1/2026 Fixed Rate Preferred Equity Single-family 7/14/2023 2,720,000 99.0 % 13.50 % 13.64 % 4/28/2027 Floating Rate Preferred Equity Multifamily 7/27/2023 6,900,000 99.0 % 11.00 % 11.11 % 2/10/2025 Floating Rate Preferred Equity Multifamily 8/16/2023 303,841 100.0 % 11.00 % 11.00 % 5/1/2030 Fixed Rate Preferred Equity Multifamily 8/24/2023 3,000,000 99.0 % 11.00 % 11.11 % 2/10/2025 Floating Rate Common Equity Multifamily 8/28/2023 500,000 100.0 % N/A N/A N/A N/A Common Equity Multifamily 8/28/2023 500,000 100.0 % N/A N/A N/A N/A Common Equity Multifamily 9/8/2023 846,511 66.7 % N/A N/A N/A N/A Preferred Equity Life Science 9/27/2023 3,173,932 99.5 % 10.00 % 10.05 % 9/29/2024 Fixed Rate Promissory Note Self-Storage 9/29/2023 5,000,000 100.0 % 11.00 % 11.00 % 9/29/2024 Fixed Rate Real Estate Multifamily 12/31/2021 590,817 (2) 100.0 % N/A N/A N/A N/A Preferred Equity Multifamily 1/14/2022 552,764 99.5 % 10.00 % 10.05 % 9/29/2024 Fixed Rate Preferred Equity Single-family 5/16/2023 3,230,000 (3) 99.0 % 13.50 % 13.64 % 4/28/2027 Floating Rate Preferred Stock Multifamily 11/9/2023 15,273,841 (4) 95.0 % 11.00 % 11.58 % N/A Fixed Rate Preferred Equity Multifamily 2/24/2023 5,000,000 (5) 99.0 % 11.00 % 11.11 % 2/10/2025 Fixed Rate Preferred Equity Multifamily 2/10/2023 6,000,000 (5) 99.0 % 11.00 % 11.11 % 2/10/2025 Fixed Rate Preferred Equity Life Science 10/19/2022 1,733,668 99.5 % 10.00 % 10.05 % 9/29/2024 Fixed Rate $ 117,879,719 (1) Current yield and coupon as of December 31, 2023.
Removed
(2) I/O Strips reflect initial notional value. (3) Includes investments made on April 7, 2022 and May 3, 2022. (4) Current yield and coupon as of December 31, 2022. 2 Table of Contents We acquired one property in 2022.
Added
(2) Includes additional investments made on October 2, 2023 (3) Includes additional investments made on October 10, 2023, November 27, 2023, and December 28, 2023. (4) Includes investments made on November 9, 2023, and December 27, 2023.
Removed
Details of the acquisition are in the table below (dollars in thousands): Property Name Location Date of Acquisition Purchase Price Mortgage Debt # Units Effective Ownership Elysian at Hughes Las Vegas, NV 2/1/2022 $ 184,100 $ 89,634 368 36.0 % Dispositions and Loan Payoffs The following investments were disposed of, sold, matured or redeemed in 2022: Investment Investment Date Disposition Date Amortized Cost Basis Disposition Proceeds Prepayment Penalties Net Gain (Loss) on Prepayment Preferred Equity 11/8/2021 1/11/2022 $ 6,574,994 $ 6,639,367 $ 544,796 $ 609,169 Preferred Equity 2/11/2020 1/12/2022 5,278,530 5,056,000 — (222,530) SFR Loan 2/11/2020 1/25/2022 7,967,571 7,438,341 1,687,146 1,157,916 SFR Loan 2/11/2020 1/25/2022 8,432,259 7,728,462 2,074,920 1,371,123 SFR Loan 2/11/2020 1/25/2022 18,573,187 16,969,898 4,579,526 2,976,237 Preferred Equity 11/8/2021 1/28/2022 16,439,352 16,598,416 1,280,543 1,439,607 Mezzanine Loan 1/21/2021 1/31/2022 1,513,720 1,540,798 — 27,078 SFR Loan 2/11/2020 2/25/2022 65,986,054 62,023,000 12,545,996 8,582,942 Convertible Notes 1/12/2022 4/14/2022 33,992,809 34,134,820 853,371 995,382 SFR Loan 2/11/2020 4/25/2022 6,644,645 6,052,385 1,335,603 743,343 Preferred Equity 11/8/2021 6/28/2022 6,845,200 6,912,217 216,699 283,716 FREMF 2020-K113 X2A 8/6/2020 7/19/2022 8,046,260 6,962,393 — (1,083,867) Bridge Loan 3/31/2022 8/9/2022 13,467,500 13,500,000 — 32,500 SFR Loan 2/11/2020 9/25/2022 4,895,376 4,596,169 643,833 344,625 Mezzanine Loan 10/20/2020 9/25/2022 1,116,983 1,082,000 10,820 (24,163) 205,774,441 197,234,265 25,773,254 17,233,078 Repurchase Agreement Financing As described further below, the Company entered into a master repurchase agreement in April 2020.
Added
(5) Includes additional investments made on October 13, 2023, November 15, 2023, and December 12, 2023. 2 Table of Contents We exercised our right to replace the manager of one property in the year ended December 31, 2023, and due to our preferred equity and common equity interests in the property, we are required to consolidate the property in our consolidated financial statements herein.
Removed
The proceeds of the issuance were used to purchase a preferred equity investment. During 2022, the Company purchased $5.0 million in aggregate principal amount of its 5.75% Notes which were cancelled upon settlement. As of December 31, 2022, there was $165.0 million in aggregate principal amount of the 5.75% Notes outstanding.
Added
Details of the property are in the table below (dollars in thousands): Property Name Location Date of Takeover Fair Value of Real Estate Fair Value of Mortgage Debt # Units Effective Ownership Alexander at the District Atlanta, GA 10/10/2023 $68,840 $ 63,500 280 100 % Redemptions and Sales The following investments were redeemed or sold during the year ended December 31, 2023: Investment Property Type Investment Date Disposition Date Amortized Cost Basis Redemption/Sales Proceeds Prepayment Penalties Net Gain (Loss) on Repayment (1) Preferred Equity Multifamily 12/28/2021 1/13/2023 $ 6,758,707 $ 6,758,707 $ — $ — Preferred Equity Multifamily 12/28/2021 2/16/2023 1,490,000 1,490,000 — — Preferred Equity Multifamily 12/28/2021 3/24/2023 3,206,618 3,206,618 — — Mezzanine Loan Multifamily 1/21/2021 3/24/2023 24,681,963 24,844,117 — 162,154 Preferred Equity Multifamily 12/28/2021 4/25/2023 1,292,054 1,292,054 — — Preferred Equity Multifamily 12/28/2021 5/17/2023 1,915,695 1,915,695 — — SFR Loan Single-family 2/11/2020 5/25/2023 5,543,934 5,148,347 457,889 62,302 SFR Loan Single-family 2/11/2020 6/25/2023 5,545,153 5,356,022 — (189,131) Preferred Equity Multifamily 12/28/2021 6/26/2023 3,000,000 3,000,000 — — Preferred Equity Multifamily 12/28/2021 8/4/2023 3,470,504 3,470,504 — — Preferred Equity Multifamily 12/28/2021 9/12/2023 64,635 64,635 — — CMBS B-Piece Multifamily 12/9/2021 9/27/2023 45,411,874 44,787,461 — (624,413) Preferred Equity Multifamily 12/28/2021 10/4/2023 977,895 977,895 — — Preferred Equity Multifamily 11/28/2021 10/10/2023 9,712,723 5,210,723 — (4,502,000) Preferred Equity Multifamily 12/28/2021 10/17/2023 238,781 238,781 — — Promissory Note Self-Storage 9/29/2023 10/27/2023 5,000,000 5,044,306 — 44,306 Preferred Equity Multifamily 12/28/2021 11/7/2023 1,749,667 1,749,667 — — Senior loan Single-family 2/11/2020 11/25/2023 6,091,460 6,093,723 — 2,263 Preferred Equity Multifamily 12/28/2021 12/6/2023 480,000 480,000 — — Senior loan Single-family 2/11/2020 12/26/2023 7,104,762 7,106,558 369,144 370,940 Senior loan Single-family 2/11/2020 12/26/2023 15,977,554 16,337,130 163,371 522,947 $ 149,713,980 $ 144,572,944 $ 990,404 $ (4,150,633) (1) Net Gains (Losses) on repayment are generally attributable to acceleration of premiums net of any prepayment penalties assessed.
Removed
OP Unit Redemption At the 2021 annual meeting of the Company, the Company's stockholders approved the potential issuance of 13,758,905.9 shares of the Company's common stock to related parties in connection with the redemption of their OP Units or SubOP Units that may be redeemed for OP Units.
Added
Repurchase Agreement Financing As described further below, the Company entered into a master repurchase agreement in April 2020.
Removed
During 2022, the Company issued 7,269,603 shares of the Company’s common stock to redeeming unitholders. As of December 31, 2022, the Company had issued 8,748,735 shares of the Company’s common stock to redeeming unitholders.
Added
Series B Preferred Stock Offering On November 2, 2023, the Company announced the launch of a continuous public offering of up to 16,000,000 shares of its newly designated Series B Preferred Stock at a price to the public of $25.00 per share, for gross proceeds of $400.0 million.
Removed
(“NSP”), the Company, through a subsidiary (“REIT Sub”), together with NexPoint Diversified Real Estate Trust, Highland Income Fund 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 REIT Sub and the Co- 4 Table of Contents 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.
Added
Beginning on the first day of the calendar month following the date of original issuance, the Series B Preferred Stock are redeemable at the option of the Holder at a redemption price per share equal to the liquidation preference of $25.00 per share, plus all accrued but unpaid cash dividends and less certain redemption fees.
Removed
The guaranties by REIT Sub and the Co-Guarantors are capped at $97.6 million, which cap amount will be reduced as the guaranteed obligations of NSP are paid.
Added
After the first day of the calendar month following the second anniversary of the original issue date, the Company also has the option to redeem, in whole or in part, subject to certain restrictions in the Company’s charter and the articles supplementary setting forth the terms of the Series B Preferred Stock, at a redemption price per share equal to the liquidation preference of $25.00 per share, plus any accrued but unpaid cash dividends.
Removed
Each of REIT Sub 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. The maximum liability of REIT Sub under the guaranties is approximately $83.8 million.
Added
In all optional redemptions, the Company has the right, in its sole discretion, to pay the redemption in cash or in equal value of shares of the Company’s common stock for so long as the common stock is listed or admitted to trading on the New York Stock Exchange (“NYSE”) or another national securities exchange or automated quotation system.
Removed
As of December 31, 2022, the Company owns approximately 25.8% of the total outstanding shares of common stock of NSP. Bridge Loan Financing On July 28, 2022, the Company entered into a $38.7 million bridge facility (the “July 2022 Bridge Facility”) with Raymond James Bank, N.A. and immediately drew $38.7 million.
Added
NexPoint Securities, Inc., an affiliate of the Manager, serves as the Company’s dealer manager (the "Dealer Manager") in connection with the offering.
Removed
The proceeds from the July 2022 Bridge Facility were used to financing the acquisition of the FREMF 2022-KF140 securitization. On July 29, 2022, the July Bridge Facility was repaid in full and is no longer outstanding.
Added
The Dealer Manager uses its reasonable best efforts to sell the shares of Series B Preferred Stock offered in the offering, and the Company pays the Dealer Manager, subject to the discounts and other special circumstances described or referenced therein, (i) selling commissions of 7.0% of the aggregate gross proceeds from sales of Series B Preferred Stock in the offering (“Selling Commissions”) and (ii) a dealer manager fee of 3.0% of the gross proceeds from sales of Series B Preferred Stock in the offering (the “Dealer Manager Fee”).
Removed
COVID-19 Pandemic Updates For information on the effects that the COVID-19 pandemic has had on our business, see Note 2 to our consolidated financial statements and “Risk Factors—The current COVID-19 pandemic or the future outbreak of other highly infectious or contagious diseases could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.” Corporate Information Our and our Manager’s offices are located at 300 Crescent Court, Suite 700, Dallas, Texas 75201.
Added
The Dealer Manager, subject to federal and state securities laws, will reallow all or any portion of the Selling Commissions and may reallow a portion of the Dealer Manager Fee to other securities dealers that the Dealer Manager may retain who sold the shares of Series B Preferred Stock as is described more fully in the agreements between such dealers and the Dealer Manager.
Added
The Company expects that the offering will terminate on the earlier of the date the Company sells all 16,000,000 shares of the Series B Preferred Stock in the offering or March 14, 2025 (which is the third anniversary of the effective date of the Company’s registration statement), which may be extended by Board in its sole discretion.
Added
The Board may elect to terminate this offering at any time. As of December 31, 2023, the Company has issued 427,218 shares of Series B Preferred Stock for gross proceeds of $10.5 million in this offering.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

131 edited+43 added−88 removed481 unchanged
Biggest changeYou should read this summary together with the more detailed description of each risk factor contained below. • 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 our stockholders, as well as the risk we make significant changes to our strategies in a market downturn, or fail to do so; • risks associated with ownership of real estate, including properties in transition, subjectivity of valuation, environmental matters and lack of liquidity in certain asset classes; 12 Table of Contents • the exposure of our loans and investments to risks similar to debt-oriented real estate investments generally, including the risk of delinquency, foreclosure and loss in any of our commercial real estate-related investments that are secured, directly or indirectly, by real property; • fluctuations in interest rate and credit spreads that could reduce our ability to generate income on our loans and investments; • competition for desirable loans and investments; • the concentration of our loans and investments in terms of type of interest, geography, asset types and sponsors; • the risk of downgrade of any credit ratings assigned to our loans and investments; • the risk that any distressed loans or investments we may make may subject us to bankruptcy risks; • risks associated with CMBS securitizations and with investments in synthetic form; • our dependence on information systems and risks associated with breaches of our data security; • costs associated with being a public company, including compliance with securities laws; • the risk of adverse impact to our business if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting; • risks associated with the COVID-19 pandemic or the future outbreak of other highly infectious or contagious diseases; • risks associated with the single material weakness that was identified in our internal control over financial reporting related to the Elysian at Hughes Center investment and the determination that our internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2022; • risks associated with our substantial current indebtedness and indebtedness we may incur in the future; • risks associated with insurance, derivatives or hedging activity, including counterparty risk; • risks associated with our limited operating history and the possibility that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Sponsor, members of our Manager’s management team or their affiliates; • our dependence on our Manager, its affiliates and personnel to conduct our day-to-day operations and identify and realize returns on our loans and investments within very broad investment guidelines and without fiduciary duties to us or a requirement to seek Board approval; • risks associated with the Manager’s ability to terminate the Management Agreement (as defined below) and risks associated with any potential internalization of our management functions; • conflicts of interest and competing demands for time faced by our Manager, our Sponsor and their respective affiliates, officers and employees, and other significant potential conflicts of interest including in connection with (i) substantial fees and expenses we pay to our Manager and its affiliates which may increase the risk that you will not earn a profit on your investment and (ii) competition with entities affiliated with our Manager and our Sponsor for investments; • the risk of failure to maintain our status as a REIT and make required distributions to maintain such status, failure of which may materially limit our cash available for distribution to our stockholders and the risk of failure to maintain our status if values of our real estate investments rapidly change; • the risk of failure of our OP to be taxable as a partnership for U.S. federal income tax purposes, possibly causing us to fail to qualify for or to maintain REIT status; • compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities; 13 Table of Contents • the risk that certain of our business activities are potentially subject to the prohibited transaction tax and that even if we qualify as a REIT we may be subject to other tax liabilities that may reduce our tax flows and distributions on our capital stock; • the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends; • the ability of our Board to revoke our REIT qualification without stockholder approval; • our ability to change our major policies, operations and targeted investments without stockholder consent and our Board’s issuance of and ability to further issue debt securities or equity securities that may adversely impact the value or priority of or have dilutive effect on shares of our capital stock or discourage a third-party acquisition; • risks associated with (i) provisions in our governing documents that may limit stockholders’ choice of forum for disputes with us or discourage an acquisition of our securities or a change in control, including stock ownership restrictions and limits and (ii) provisions of Maryland law, including the Maryland General Corporation Law (the “MGCL”), that may limit the ability for a third-party acquisition; • recent and potential legislative or regulatory changes or other actions with respect to tax, securitization, financial or other matters affecting REITs, the mortgage industry or debt-oriented real estate investments generally; • the general volatility of the capital and credit markets and the impact on the market for our capital stock; • the risk that we may not realize gains or income from our investments, that the repayments of our loans and investments may cause our financial performance and returns to investors to suffer or that we may experience a decline in the fair value of our assets; • risks associated with the Highland Bankruptcy (as defined below), including possible materially adverse consequences on our business, financial condition and results of operations; • risks associated with holding shares of the Series A Preferred Stock, including limited voting rights, possible volatility in price and trading volume, subordination to our debt, dilution upon future issuances, possible lack of conversion rights on a change of control and the lack of a rating on the Series A Preferred Stock; • risk of failure to generate sufficient cash flows to service outstanding indebtedness or pay distributions on our capital stock at expected levels, and the risk that we may borrow funds or use funds from other sources to pay distributions; and • risks associated with the concentration of our share ownership.
Biggest changeYou should read this summary together with the more detailed description of each risk factor contained below. • unfavorable changes in economic conditions and their effects on the real estate industry generally and our operations and financial condition, including inflation, high interest rates, tightening monetary policy or recession, which may limit our ability to access funding and generate returns for our stockholders, as well as the risk we make significant changes to our strategies in a market downturn, or fail to do so; • risks associated with ownership of real estate, including properties in transition, subjectivity of valuation, environmental matters and lack of liquidity in certain asset classes; • the exposure of our loans and investments to risks similar to debt-oriented real estate investments generally, including the risk of delinquency, foreclosure and loss in any of our commercial real estate-related investments that are secured, directly or indirectly, by real property; • fluctuations in interest rate and credit spreads that could reduce our ability to generate income on our loans and investments; • competition for desirable loans and investments; • the concentration of our loans and investments in terms of type of interest, geography, asset types and sponsors; • the risk of downgrade of any credit ratings assigned to our loans and investments; • the risk that any distressed loans or investments we may make may subject us to bankruptcy risks; • risks associated with CMBS securitizations and with investments in synthetic form; • our dependence on information systems and risks associated with breaches of our data security; • costs associated with being a public company, including compliance with securities laws; • the risk of adverse impact to our business if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting; 12 Table of Contents • risks associated with pandemics, including the future outbreak of other highly infectious or contagious diseases; • risks associated with our substantial current indebtedness and indebtedness we may incur in the future; • risks associated with insurance, derivatives or hedging activity, including counterparty risk; • risks associated with our limited operating history and the possibility that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Sponsor, members of our Manager’s management team or their affiliates; • our dependence on our Manager, its affiliates and personnel to conduct our day-to-day operations and identify and realize returns on our loans and investments within very broad investment guidelines and without fiduciary duties to us or a requirement to seek Board approval; • risks associated with the Manager’s ability to terminate the Management Agreement (as defined below) and risks associated with any potential internalization of our management functions; • conflicts of interest and competing demands for time faced by our Manager, our Sponsor and their respective affiliates, officers and employees, and other significant potential conflicts of interest including in connection with (i) substantial fees and expenses we pay to our Manager and its affiliates which may increase the risk that you will not earn a profit on your investment and (ii) competition with entities affiliated with our Manager and our Sponsor for investments; • the risk of failure to maintain our status as a REIT and make required distributions to maintain such status, failure of which may materially limit our cash available for distribution to our stockholders and the risk of failure to maintain our status if values of our real estate investments rapidly change; • the risk of failure of our OP to be taxable as a partnership for U.S. federal income tax purposes, possibly causing us to fail to qualify for or to maintain REIT status; • compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities; • the risk that certain of our business activities are potentially subject to the prohibited transaction tax and that even if we qualify as a REIT we may be subject to other tax liabilities that may reduce our tax flows and distributions on our capital stock; • the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends; • the ability of our Board to revoke our REIT qualification without stockholder approval; • our ability to change our major policies, operations and targeted investments without stockholder consent and our Board’s issuance of and ability to further issue debt securities or equity securities that may adversely impact the value or priority of or have dilutive effect on shares of our capital stock or discourage a third-party acquisition; • risks associated with (i) provisions in our governing documents that may limit stockholders’ choice of forum for disputes with us or discourage an acquisition of our securities or a change in control, including stock ownership restrictions and limits and (ii) provisions of Maryland law, including the Maryland General Corporation Law (the “MGCL”), that may limit the ability for a third-party acquisition; • recent and potential legislative or regulatory changes or other actions with respect to tax, securitization, financial or other matters affecting REITs, the mortgage industry or debt-oriented real estate investments generally; • the general volatility of the capital and credit markets and the impact on the market for our capital stock; • the risk that we may not realize gains or income from our investments, that the repayments of our loans and investments may cause our financial performance and returns to investors to suffer or that we may experience a decline in the fair value of our assets; • risks associated with the Highland Bankruptcy (as defined below), including possible materially adverse consequences on our business, financial condition and results of operations; 13 Table of Contents • risks associated with holding shares of the Series A Preferred Stock, including limited voting rights, possible volatility in price and trading volume, subordination to our debt, dilution upon future issuances, possible lack of conversion rights on a change of control and the lack of a rating on the Series A Preferred Stock; • risks associated with holding shares of the Series B Preferred Stock, including limited voting rights, subordination to our debt and dilution upon future issuances; • risk of failure to generate sufficient cash flows to service outstanding indebtedness or pay distributions on our capital stock at expected levels, and the risk that we may borrow funds or use funds from other sources to pay distributions; and • risks associated with the concentration of our share ownership.
Some of the factors that could affect our stock price or result in fluctuations in the price or trading volume of our common stock include: • actual or anticipated variations in our quarterly operating results, financial condition, cash flow and liquidity, or changes in investment strategy or prospects; • changes in our operations or earnings estimates or publication of research reports about us or the real estate industry; • loss of a major funding source or inability to obtain new favorable funding sources in the future; • our financing strategy and leverage; • actual or anticipated accounting problems; • changes in market valuations of similar companies; 49 Table of Contents • increases in interest rates that lead purchasers of our shares to demand a higher yield; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key management personnel; • actions by institutional stockholders; • speculation in the press or investment community; • the realization of any of the other risk factors presented in this annual report; • the extent of investor interest in our securities; • the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies; • our underlying asset value; • investor confidence and price and volume fluctuations in the stock and bond markets, generally; • changes in laws, regulatory policies or tax guidelines, or interpretations thereof, particularly with respect to REITs; • future equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur; • failure to meet income estimates; • failure to meet and maintain REIT qualifications or exclusion from Investment Company Act regulations or listing on the NYSE; and • general market and economic conditions.
Some of the factors that could affect our stock price or result in fluctuations in the price or trading volume of our common stock include: • actual or anticipated variations in our quarterly operating results, financial condition, cash flow and liquidity, or changes in investment strategy or prospects; • changes in our operations or earnings estimates or publication of research reports about us or the real estate industry; • loss of a major funding source or inability to obtain new favorable funding sources in the future; • our financing strategy and leverage; • actual or anticipated accounting problems; • changes in market valuations of similar companies; • increases in interest rates that lead purchasers of our shares to demand a higher yield; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key management personnel; • actions by institutional stockholders; 45 Table of Contents • speculation in the press or investment community; • the realization of any of the other risk factors presented in this Annual Report; • the extent of investor interest in our securities; • the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies; • our underlying asset value; • investor confidence and price and volume fluctuations in the stock and bond markets, generally; • changes in laws, regulatory policies or tax guidelines, or interpretations thereof, particularly with respect to REITs; • future equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur; • failure to meet income estimates; • failure to meet and maintain REIT qualifications or exclusion from Investment Company Act regulations or listing on the NYSE; and • general market and economic conditions.
The indenture governing the 5.75% Notes and the note purchase agreements governing the OP Notes restrict our operating flexibility and if we decide to issue additional debt securities or shares of our capital stock, including traded or non-traded preferred stock, expressly designated as ranking senior to the Series A Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up in the future, it is possible that those securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.
The indenture governing the 5.75% Notes and the note purchase agreements governing the OP Notes restrict our operating flexibility and if we decide to issue additional debt securities or shares of our capital stock, including traded or non-traded preferred stock, expressly designated as ranking senior to the Series A Preferred Stock and Series B Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up in the future, it is possible that those securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.
Because our decision to issue debt securities or shares of our capital stock expressly designated as ranking senior to the Series A Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
Because our decision to issue debt securities or shares of our capital stock expressly designated as ranking senior to the Series A Preferred Stock and Series B Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
Furthermore, we currently own one and may acquire additional direct or indirect interests in one or more entities that will elect to be taxed as REITs under the Code (each, a “Subsidiary REIT”). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us.
Furthermore, we currently own one and may acquire additional direct or indirect interests in one or more entities that have or will elect to be taxed as REITs under the Code (each, a “Subsidiary REIT”). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us.
The issuance of additional shares of Series A Preferred Stock or additional shares of our capital stock ranking on parity with the Series A Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up, would dilute the interests of the holders of Series A Preferred Stock, and the issuance of shares of any class or series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up or the incurrence of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on the Series A Preferred Stock.
The issuance of additional shares of Series A Preferred Stock, Series B Preferred Stock or additional shares of our capital stock ranking on parity with the Series A Preferred Stock and Series B Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up, would dilute the interests of the holders of Series A Preferred Stock and Series B Preferred Stock, and the issuance of shares of any class or series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock and Series B Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up or the incurrence of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on the Series A Preferred Stock and Series B Preferred Stock.
To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a domestic TRS.
To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS.
Our cash available for distribution may not be sufficient to pay dividends on the Series A Preferred Stock at expected levels, and we cannot assure you of our ability to pay dividends in the future. We may use borrowed funds or funds from other sources to pay dividends, which may adversely impact our operations.
Our cash available for distribution may not be sufficient to pay dividends on the Series A Preferred Stock and Series B Preferred Stock at expected levels, and we cannot assure you of our ability to pay dividends in the future. We may use borrowed funds or funds from other sources to pay dividends, which may adversely impact our operations.
Other than the limited circumstances described in the articles supplementary setting forth the terms of the Series A Preferred Stock, holders of Series A Preferred Stock do not have any voting rights. The market price and trading volume of the Series A Preferred Stock may fluctuate significantly and be volatile due to numerous circumstances beyond our control.
Other than the limited circumstances described in the articles supplementary setting forth the terms of the Series B Preferred Stock, holders of Series B Preferred Stock do not have any voting rights. The market price and trading volume of the Series A Preferred Stock may fluctuate significantly and be volatile due to numerous circumstances beyond our control.
Interest rate and currency hedging may fail to protect or could adversely affect us because, among other things: • interest rate and/or credit hedging can be expensive and may result in us generating less net income; • available interest rate hedges may not correspond directly with the interest rate for which protection is sought; • due to a credit loss, prepayment or asset sale, the duration of the hedge may not match the duration of the related asset or liability; • the amount of income that a REIT may earn from hedging transactions (other than hedging transactions that satisfy certain requirements of the Code or that are done through a TRS) to offset interest rate losses is limited by U.S. federal income tax provisions governing REITs; • the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; • the hedging counterparty owing money in the hedging transaction may default on its obligation to pay; • we may fail to recalculate, readjust and execute hedges in an efficient manner; and • legal, tax and regulatory changes could occur and may adversely affect our ability to pursue our hedging strategies and/or increase the costs of implementing such strategies.
Interest rate and currency hedging may fail to protect or could adversely affect us because, among other things: • interest rate and/or credit hedging can be expensive and may result in us generating less net income; • available interest rate hedges may not correspond directly with the interest rate for which protection is sought; • due to a credit loss, prepayment or asset sale, the duration of the hedge may not match the duration of the related asset or liability; • the amount of income that a REIT may earn from hedging transactions (other than hedging transactions that satisfy certain requirements of the Code or that are done through a TRS) to offset interest rate losses is limited by U.S. federal income tax provisions governing REITs; 29 Table of Contents • the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; • the hedging counterparty owing money in the hedging transaction may default on its obligation to pay; • we may fail to recalculate, readjust and execute hedges in an efficient manner; and • legal, tax and regulatory changes could occur and may adversely affect our ability to pursue our hedging strategies and/or increase the costs of implementing such strategies.
We will depend to a significant degree on the diligence, skill and network of business contacts of the management team and other key personnel of our Manager, including Messrs. Dondero, Goetz, Mitts, McGraner, Sauter, Richards and Willmore, all of whom may be difficult to replace.
We will depend to a significant degree on the diligence, skill and network of business contacts of the management team and other key personnel of our Manager, including Messrs. Dondero, Mitts, McGraner, Sauter, Richards and Willmore, all of whom may be difficult to replace.
Net operating income of an income-producing property can be affected by, among other things: • tenant mix and tenant bankruptcies; • success of tenant businesses; • property management decisions, including with respect to capital improvements, particularly in older building structures; • property location and condition; • competition from other properties offering the same or similar services; • changes in laws that increase operating expenses or limit rents that may be charged; • any need to address environmental contamination at the property; • changes in national, regional or local economic conditions and/or specific industry segments; • declines in regional or local real estate values; • declines in regional or local rental or occupancy rates; 15 Table of Contents • changes in interest rates and in the state of the debt and equity capital markets, including diminished availability or lack of debt financing for commercial real estate; • changes in real estate tax rates and other operating expenses; • changes in governmental rules, regulations and fiscal policies, including environmental legislation; • natural disasters, acts of war, terrorism, social unrest and civil disturbances, which may decrease the availability of or increase the cost of insurance or result in uninsured losses; and • adverse changes in zoning laws.
Net operating income of an income-producing property can be affected by, among other things: • tenant mix and tenant bankruptcies; • success of tenant businesses; • property management decisions, including with respect to capital improvements, particularly in older building structures; • property location and condition; • competition from other properties offering the same or similar services; • changes in laws that increase operating expenses or limit rents that may be charged; • any need to address environmental contamination at the property; • changes in national, regional or local economic conditions and/or specific industry segments; • declines in regional or local real estate values; • declines in regional or local rental or occupancy rates; • changes in interest rates and in the state of the debt and equity capital markets, including diminished availability or lack of debt financing for commercial real estate; • changes in real estate tax rates and other operating expenses; • changes in governmental rules, regulations and fiscal policies, including environmental legislation; • natural disasters, acts of war, terrorism, social unrest and civil disturbances, which may decrease the availability of or increase the cost of insurance or result in uninsured losses; and • adverse changes in zoning laws.
Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following: • require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on, indebtedness, thereby reducing the funds available for other purposes; • make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs; 30 Table of Contents • force us to dispose of one or more of our investments, possibly on unfavorable terms or in violation of certain covenants to which we may be subject; • subject us to increased sensitivity to interest rate increases; • make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events; • limit our ability to withstand competitive pressures; • limit our ability to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness; • reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or • place us at a competitive disadvantage to competitors that have relatively less debt than we have.
Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following: • require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on, indebtedness, thereby reducing the funds available for other purposes; • make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs; • force us to dispose of one or more of our investments, possibly on unfavorable terms or in violation of certain covenants to which we may be subject; • subject us to increased sensitivity to interest rate increases; • make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events; • limit our ability to withstand competitive pressures; • limit our ability to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness; • reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or • place us at a competitive disadvantage to competitors that have relatively less debt than we have.
Certain target assets such as first-lien mortgage loans, common stock investments, CMBS B-Pieces, CMBS I/O Strips, MSCR Notes, mortgage-backed securities, mezzanine and other loans (including participations) and preferred equity, in particular, are relatively illiquid investments.
Certain target assets such as first-lien mortgage loans, common equity investments, CMBS B-Pieces, CMBS I/O Strips, MSCR Notes, mortgage backed securities, mezzanine and other loans (including participations) and preferred equity, in particular, are relatively illiquid investments.
Voting rights for holders of Series A Preferred Stock exist primarily with respect to 51 Table of Contents the ability to elect, together with holders of our capital stock having similar voting rights, two additional directors to our Board in the event that six quarterly dividends (whether or not consecutive) payable on the Series A Preferred Stock are in arrears, and with respect to voting on amendments to our charter or articles supplementary relating to the Series A Preferred Stock that materially and adversely affect the rights of the holders of Series A Preferred Stock or create additional classes or series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up.
Voting rights for holders of Series A Preferred Stock exist primarily with respect to the ability to elect, together with holders of our capital stock having similar voting rights, two additional directors to our Board in the event that six quarterly dividends (whether or not consecutive) payable on the Series A Preferred Stock are in arrears, and with respect to voting on amendments to our charter or articles supplementary relating to the Series A Preferred Stock that materially and adversely affect the rights of the holders of Series A Preferred Stock or create 47 Table of Contents additional classes or series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up.
These ownership limits may prevent a third party from acquiring control of us if our Board does not grant an exemption from the ownership limits, even if our stockholders believe the change in control is in their best interest.
These ownership limits may prevent a third party from acquiring control of us if our Board does not grant an exemption from the ownership limits, even if our stockholders believe such change of control is in their best interest.
To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, among other purposes, our charter, including the articles supplementary setting forth the terms of the Series A Preferred Stock, prohibits, with certain exceptions, any stockholder from beneficially or constructively owning, applying certain attribution rules under the Code, more than 6.2% by value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or more than 6.2% in value of the aggregate of the outstanding shares of our capital stock, including the Series A Preferred Stock.
To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, among other purposes, our charter, including the articles supplementary setting forth the terms of the Series A Preferred Stock, prohibits, with certain exceptions, any stockholder from beneficially or constructively owning, applying certain attribution rules under the Code, more than 6.2% by value or number of shares, whichever is more restrictive, of the aggregate of the outstanding shares of our common stock, or 6.2% by value of the aggregate of the outstanding shares of our capital stock, including the Series A Preferred Stock and Series B Preferred Stock.
Our Board granted James Dondero and his affiliates a waiver allowing them to collectively own up to 65% of our common stock, has granted waivers to others and may grant additional waivers in the future.
Our Board granted James Dondero and his affiliates a waiver allowing them to collectively own up to 65% of our outstanding common stock, has granted waivers to others and may grant additional waivers in the future.
The limitations described in the preceding two sentences will not apply, however, to the extent such damages are determined in a final binding non-appealable court or arbitration proceeding to result from the bad faith, fraud, willful misfeasance, intentional misconduct, gross negligence or reckless disregard of our Manager’s duties. 36 Table of Contents We may change our targeted investments without stockholder consent.
The limitations described in the preceding two sentences will not apply, however, to the extent such damages are determined in a final binding non-appealable court or arbitration proceeding to result from the bad faith, fraud, willful misfeasance, intentional misconduct, gross negligence or reckless disregard of our Manager’s duties. 33 Table of Contents We may change our targeted investments without stockholder consent.
Our current portfolio of investments consists SFR Loans, CMBS B-Pieces, CMBS I/O Strips, mezzanine loans, preferred equity investments, common stock investments, multifamily properties, MSCR Notes and mortgage-backed securities.
Our current portfolio of investments consists SFR Loans, CMBS B-Pieces, CMBS I/O Strips, mezzanine loans, preferred equity investments, common equity investments, multifamily properties, MSCR Notes and mortgage backed securities.
These rights are more fully set forth in the articles supplementary setting forth the terms of the Series A Preferred Stock, and include, but are not limited to: (i) the right to receive a liquidation preference, prior to any distribution of our assets to the holders of our common stock; and (ii) the right to convert into shares of our common stock upon the occurrence of a Change of Control (as defined in the articles supplementary setting forth the terms of the Series A Preferred Stock), which may be adjusted as set forth therein.
These rights are more fully set forth in the articles supplementary setting forth the terms of the Series A Preferred Stock and in the articles supplementary setting forth the terms of the Series B Preferred Stock, and include, but are not limited to: (i) the right to receive a liquidation preference, prior to any distribution of our assets to the holders of our common stock; and (ii) for the Series A Preferred Stock, the right to convert into shares of our common stock upon the occurrence of a Change of Control (as defined in the articles supplementary setting forth the terms of the Series A Preferred Stock), which may be adjusted as set forth therein.
The rights of our common stockholders are limited by and subordinate to the rights of the holders of Series A Preferred Stock and these rights may have a negative effect on the value of shares of our common stock.
The rights of our common stockholders are limited by and subordinate to the rights of the holders of Series A Preferred Stock and Series B Preferred Stock and these rights may have a negative effect on the value of shares of our common stock.
The holders of shares of our Series A Preferred Stock have rights and preferences generally senior to those of the holders of our common stock. The existence of these senior rights and preferences may have a negative effect on the value of shares of our common stock.
The holders of shares of our Series A Preferred Stock and Series B Preferred Stock have rights and preferences generally senior to those of the holders of our common stock. The existence of these senior rights and preferences may have a negative effect on the value of shares of our common stock.
Therefore, we may fail to qualify as a REIT if dividends from our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25% of our gross income with respect to such year. 45 Table of Contents Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.
Therefore, we may fail to qualify as a REIT if dividends from our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25% of our gross income with respect to such year. 41 Table of Contents Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.
We also cannot assure you that we will replicate the historical results achieved by members of the management team, and we caution you that our investment returns could be substantially lower than the returns achieved by them in prior periods. 35 Table of Contents Additionally, all or a portion of the prior results may have been achieved in particular market conditions which may never be repeated.
We also cannot assure you that we will replicate the historical results achieved by members of the management team, and we caution you that our investment returns could be substantially lower than the returns achieved by them in prior periods. 32 Table of Contents Additionally, all or a portion of the prior results may have been achieved in particular market conditions which may never be repeated.
Under rules implemented by the CFTC, operators of certain entities (including many mortgage REITs) may fall within the statutory 25 Table of Contents definition of commodity pool operator (“CPO”), and, absent an applicable exemption or other relief from the CFTC, may be required to register with the CFTC as a CPO.
Under rules implemented by the CFTC, operators of certain entities (including many mortgage REITs) may fall within the statutory definition of commodity pool operator (“CPO”), and, absent an applicable exemption or other relief from the CFTC, may 23 Table of Contents be required to register with the CFTC as a CPO.
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 that we may utilize for hedging purposes, such increases will result in higher debt service costs which will adversely affect our cash flows.
In addition, to the extent our exposure to increases in or high interest rates on any of our debt is not eliminated through interest rate swaps and interest rate protection agreements that we may utilize for hedging purposes, such increases will result in higher debt service costs which will adversely affect our cash flows.
In recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the 26 Table of Contents borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders.
In recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders.
However, a capital gain dividend will not be treated as effectively connected income if (1) the distribution is received with respect to a class of stock that is 48 Table of Contents regularly traded on an established securities market located in the United States and (2) the non-U.S. stockholder does not own more than 10% of the class of our stock at any time during the one-year period ending on the date the distribution is received.
However, a capital gain dividend will not be treated as effectively connected income if (1) the distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the United States and (2) the non-U.S. stockholder does not own more than 10% of the class of our stock at any time during the one-year period ending on the date the distribution is received.
Risks Related to the Ownership of Our Common Stock The concentration of our share ownership may limit your ability to influence corporate matters. Our Sponsor is the ultimate parent of our Manager and may be deemed to beneficially own approximately 16.8% of our outstanding voting securities as of December 31, 2022.
Risks Related to the Ownership of Our Common Stock The concentration of our share ownership may limit your ability to influence corporate matters. Our Sponsor is the ultimate parent of our Manager and may be deemed to beneficially own approximately 16.8% of our outstanding voting securities as of December 31, 2023.
Distributions declared by us will be authorized by our Board in its sole discretion out of assets legally available for distribution and will depend upon a number of factors, including our earnings, our financial condition, the requirements for qualification as a REIT, restrictions under applicable law, our need to comply with the terms of our existing financing arrangements, the capital requirements of the Company and other factors as our Board may deem relevant from time to time.
Distributions declared by us will be authorized by our Board in its sole discretion out of assets legally available for distribution and will depend upon a number of factors, including our earnings, our financial condition, the requirements for qualification as a REIT, restrictions under applicable law, our need to comply with the terms of our existing financing arrangements, the capital requirements of the Company and other factors as our Board 48 Table of Contents may deem relevant from time to time.
Under the JOBS Act, emerging growth companies are not required to, among other things, (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), (2) provide certain disclosures relating to executive compensation generally required for larger public companies or (3) hold stockholder advisory votes on executive compensation.
Under the JOBS Act, emerging growth companies are not required to, among other 26 Table of Contents things, (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), (2) provide certain disclosures relating to executive compensation generally required for larger public companies or (3) hold stockholder advisory votes on executive compensation.
For additional information on these fees and the fees paid to our Manager, see “Item 1. Business—Our Management Agreement” and Note 13 to our consolidated financial statements for more information. If we internalize our management functions, we may not achieve the perceived benefits of the internalization transaction.
For additional information on these fees and the fees paid to our Manager, see “Item 1. Business—Our Management Agreement” and Note 14 to our consolidated financial statements for more information. If we internalize our management functions, we may not achieve the perceived benefits of the internalization transaction.
In certain situations, we may: • acquire investments subject to rights of senior classes and servicers under intercreditor or servicing agreements; • acquire only a minority and/or a non-controlling participation in an underlying investment; • co-invest with others through partnerships, joint ventures or other entities, thereby acquiring non-controlling interests; or • rely on independent third-party management or servicing with respect to the management of an asset.
In certain situations, we may: • acquire investments subject to rights of senior classes and servicers under intercreditor or servicing agreements; 19 Table of Contents • acquire only a minority and/or a non-controlling participation in an underlying investment; • co-invest with others through partnerships, joint ventures or other entities, thereby acquiring non-controlling interests; or • rely on independent third-party management or servicing with respect to the management of an asset.
No assurance can be given, however, that one or more rating agencies might not independently determine to issue such a rating or that such a rating, if issued, would not adversely affect the market price of the Series A Preferred Stock.
No assurance can be given, however, that one or more rating agencies might not independently determine to issue such a rating or that such a rating, if issued, would not adversely affect the market price of the Series A Preferred Stock or Series B Preferred Stock (if any).
If any of these or similar events occurs, it may reduce our return from an affected property or investment and reduce or eliminate our ability to pay dividends to stockholders. 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.
If any of these or similar events occurs, it may reduce our return from an affected property or investment and reduce or eliminate our ability to pay dividends to stockholders. 14 Table of Contents 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.
These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our securities or otherwise be in the best interest of the stockholders. 46 Table of Contents Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
These ownership limits could also delay or prevent a transaction or a change in control that might involve a premium price for our securities or otherwise be in the best interest of the stockholders. 42 Table of Contents Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
The Series A Preferred Stock ranks junior to all of our existing and future indebtedness, any classes and series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up, and other non-equity claims on us and our assets available to satisfy claims against us, including claims in bankruptcy, liquidation or similar proceedings.
The Series A Preferred Stock and Series B Preferred Stock rank junior to all of our existing and future indebtedness, any classes and series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock and Series B Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up, and other non-equity claims on us and our assets available to satisfy claims against us, including claims in bankruptcy, liquidation or similar proceedings.
As the terms of such loans and investments are subject to contractual relationships among lenders, co-lending agents and others, they can vary significantly in their structural characteristics and other risks. For 20 Table of Contents example, the rights of holders of B-Notes to control the process following a borrower default may vary from transaction to transaction.
As the terms of such loans and investments are subject to contractual relationships among lenders, co-lending agents and others, they can vary significantly in their structural characteristics and other risks. For example, the rights of holders of B-Notes to control the process following a borrower default may vary from transaction to transaction.
Our Manager, our Sponsor and their respective affiliates, officers and employees are key personnel, general partners, sponsors, managers, owners and advisors of other real estate investment programs, including affiliate-sponsored investment products, some of which have investment objectives and legal and financial obligations similar to ours and may have other 38 Table of Contents business interests as well.
Our Manager, our Sponsor and their respective affiliates, officers and employees are key personnel, general partners, sponsors, managers, owners and advisors of other real estate investment programs, including affiliate-sponsored investment products, some of which have investment objectives and legal and financial obligations similar to ours and may have other business interests as well.
If the market in which the asset is located fails to improve according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management and/or the value of the asset, the borrower may not receive a sufficient 21 Table of Contents return on the asset to satisfy the transitional loan, and we bear the risk that we may not recover all or a portion of our investment.
If the market in which the asset is located fails to improve according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management and/or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the transitional loan, and we bear the risk that we may not recover all or a portion of our investment.
In addition, in the event that the applicable creditor files for bankruptcy or becomes insolvent, our loans may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets. Such an event could restrict our access to credit and increase our cost 33 Table of Contents of capital.
In addition, in the event that the applicable creditor files for bankruptcy or becomes insolvent, our loans may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets. Such an event could restrict our access to credit and increase our cost of capital.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stock will not constitute a USRPI so long as we are a “domestically-controlled” REIT.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stock will not 44 Table of Contents constitute a USRPI so long as we are a “domestically-controlled” REIT.
These floating rate loans are insulated from changes in value specifically due to changes in interest rates; however, the coupons they earn fluctuate based upon interest rates (again, typically one-month LIBOR or SOFR) and, in a declining and/or low interest rate environment, these loans would earn lower rates of interest and this would impact our operating performance.
These floating rate loans are insulated from changes in value specifically due to changes in interest rates; however, the coupons they earn fluctuate based upon interest rates (again, typically SOFR) and, in a declining and/or low interest rate environment, these loans would earn lower rates of interest and this would impact our operating performance.
The valuation of real estate, and therefore the valuation of any underlying security relating to loans and/or investments made by us, is inherently subjective due to, among other factors, the individual nature of each property, its location, the expected future rental revenues from that particular property and the valuation methodology adopted.
The valuation of real estate, and therefore the valuation of any underlying security relating to loans and/or investments made by us, is inherently subjective due to, among other factors, the individual nature of each property, its 21 Table of Contents location, the expected future rental revenues from that particular property and the valuation methodology adopted.
Consequently, such prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from prepayment or other such risks. In periods of declining interest rates, prepayment rates on loans generally increase, though prepayment rates on 18 Table of Contents loans are not guaranteed to remain the same or decrease in periods of increasing interest rates.
Consequently, such prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from prepayment or other such risks. In periods of declining interest rates, prepayment rates on loans generally increase, though prepayment rates on loans are not guaranteed to remain the same or decrease in periods of increasing interest rates.
As cyber-security threats and government and regulatory oversight of associated risks continue to evolve, we may be required to expend additional resources to enhance or expand upon the security measures we currently maintain. Any such actions may adversely impact our results of operations and financial condition.
As cyber-security threats and government and regulatory oversight of associated risks continue to evolve, we may be required to expend additional 50 Table of Contents resources to enhance or expand upon the security measures we currently maintain. Any such actions may adversely impact our results of operations and financial condition.
Other than the conversion right afforded to holders of Series A Preferred Stock that may become exercisable in connection with certain changes of control as described in the articles supplementary setting forth the terms of the Series A Preferred Stock, none of the provisions relating to the Series A Preferred Stock contain any terms relating to or limiting our indebtedness or affording the holders of Series A Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets, that might adversely affect the holders of Series A Preferred Stock, so long as the rights of the holders of Series A Preferred Stock are not materially and adversely affected.
Other than the conversion right afforded to holders of Series A Preferred Stock that may become exercisable in connection with certain changes of control as described in the articles supplementary setting forth the terms of the Series A Preferred Stock and the redemption right afforded to holders of Series B Preferred Stock, none of the provisions relating to the Series A Preferred Stock or Series B Preferred Stock contain any terms relating to or limiting our indebtedness or affording the holders of Series A Preferred Stock or Series B Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets, that might 49 Table of Contents adversely affect the holders of Series A Preferred Stock and Series B Preferred Stock, so long as the rights of the holders of Series A Preferred Stock and Series B Preferred Stock are not materially and adversely affected.
Moreover, many of the loans and securities we invest in will not be registered under the relevant securities laws, resulting in prohibitions against their transfer, sale, pledge or their disposition except in transactions that are exempt from registration requirements or are otherwise in accordance with such laws.
Moreover, many of the loans and securities we invest in will not be registered under the relevant securities laws, resulting in prohibitions against their transfer, sale, pledge or their disposition except in transactions that are exempt from registration requirements or are 18 Table of Contents otherwise in accordance with such laws.
The results of our operations will depend on several factors, including the availability of opportunities for the acquisition or origination of target assets, the level and volatility of interest rates, the availability of 34 Table of Contents equity capital as well as adequate short- and long-term financing, conditions in the financial markets and economic conditions.
The results of our operations will depend on several factors, including the availability of opportunities for the acquisition or origination of target assets, the level and volatility of interest rates, the availability of equity capital as well as adequate short- and long-term financing, conditions in the financial markets and economic conditions.
As a result, those individuals may face conflicts in the allocation of investment opportunities among us and other investment funds or accounts advised by or affiliated with our Manager and its affiliates. Our Manager will seek to allocate investment opportunities among eligible accounts in a manner consistent with its allocation policy.
As a result, those individuals may face conflicts in the allocation of investment opportunities among us and other investment funds or accounts advised by or affiliated with our Manager 34 Table of Contents and its affiliates. Our Manager will seek to allocate investment opportunities among eligible accounts in a manner consistent with its allocation policy.
In the event we own a mezzanine loan that does not meet 43 Table of Contents the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, we could fail to qualify as a REIT.
In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, we could fail to qualify as a REIT.
If exercisable, the change of control conversion feature of the Series A Preferred Stock may not adequately compensate 52 Table of Contents such holders, and the change of control conversion and redemption features of the Series A Preferred Stock may make it more difficult for a party to take over our company or discourage a party from taking over our company.
If exercisable, the change of control conversion feature of the Series A Preferred Stock may not adequately compensate such holders, and the change of control conversion and redemption features of the Series A Preferred Stock may make it more difficult for a party to take over our company or discourage a party from taking over our company.
The risk of nonperformance by the obligor on such an instrument may be greater, and the ease with which 27 Table of Contents we can dispose of or enter into closing transactions with respect to such an instrument may be less than in the case of an exchange-traded instrument.
The risk of nonperformance by the obligor on such an instrument may be greater, and the ease with which we can dispose of or enter into closing transactions with respect to such an instrument may be less than in the case of an exchange-traded instrument.
These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. If our OP failed to qualify as a partnership for U.S. federal income tax purposes, we would cease to qualify as a REIT.
These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. 40 Table of Contents If our OP failed to qualify as a partnership for U.S. federal income tax purposes, we would cease to qualify as a REIT.
For example, the management team of our Manager has, and will continue to have, management responsibilities for other investment funds, accounts or other investment vehicles managed or sponsored by our Manager and its affiliates. Our investment objectives may overlap with the investment objectives of such affiliated 37 Table of Contents investment funds, accounts or other investment vehicles.
For example, the management team of our Manager has, and will continue to have, management responsibilities for other investment funds, accounts or other investment vehicles managed or sponsored by our Manager and its affiliates. Our investment objectives may overlap with the investment objectives of such affiliated investment funds, accounts or other investment vehicles.
The war in Ukraine adds, and other international tensions or escalations of conflict may add, instability to the uncertainty driving socioeconomic forces, which may continue to have an impact on global trade and result in inflation or economic instability.
The war in Ukraine and the Israel-Hamas war add, and other international tensions or escalations of conflict may add, instability to the uncertainty driving socioeconomic forces, which may continue to have an impact on global trade and result in inflation or economic instability.
Therefore, additional common stock issuances, directly or through convertible or exchangeable securities (including common stock and convertible preferred stock), warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such issuances may reduce the market price of shares of our common stock.
Therefore, additional 46 Table of Contents common stock issuances, directly or through convertible or exchangeable securities (including common stock and convertible preferred stock), warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such issuances may reduce the market price of shares of our common stock.
In addition, a prolonged economic slowdown, a recession or declining real estate values, including, among other things, as a result of pandemics, inflation or rising interest rates, could impair the performance of our investments and harm our financial condition and results of operations, increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.
In addition, a prolonged economic slowdown, a recession or declining real estate values, including, among other things, as a result of pandemics, inflation or high interest rates, could impair the performance of our investments and harm our financial 22 Table of Contents condition and results of operations, increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.
We may also be subject to cross-default and acceleration rights in our other debt arrangements. Further, this could also make it difficult for us to satisfy the distribution requirements necessary to maintain our qualification as a REIT for U.S. federal income tax purposes.
We may also be subject to cross-default and acceleration rights in our other debt arrangements. Further, 28 Table of Contents this could also make it difficult for us to satisfy the distribution requirements necessary to maintain our qualification as a REIT for U.S. federal income tax purposes.
Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. If this occurs, the returns on our investments may suffer.
Because these persons have competing demands on their time and resources, they may have 35 Table of Contents conflicts of interest in allocating their time between our business and these other activities. If this occurs, the returns on our investments may suffer.
Similarly, we may be required to accrue interest income with respect to subordinate CMBS at their stated rate regardless of 47 Table of Contents whether corresponding cash payments are received or are ultimately collectable.
Similarly, we may be required to accrue interest income with respect to subordinate CMBS at their stated rate regardless of whether corresponding cash payments are received or are ultimately collectable.
Our charter currently authorizes the issuance of up to 100,000,000 shares of preferred stock in one or more classes or series, 11,300,000 of which have been classified as Series A Preferred Stock.
Our charter currently authorizes the issuance of up to 100,000,000 shares of preferred stock in one or more classes or series, 11,300,000 of which have been classified as Series A Preferred Stock and 16,000,000 of which have been classified as Series B Preferred Stock.
We may need to periodically access the capital markets to raise cash to fund new loans and investments. Unfavorable economic or capital market conditions may increase our funding costs, limit our access to the capital markets 31 Table of Contents or could result in a decision by our potential lenders not to extend credit.
We may need to periodically access the capital markets to raise cash to fund new loans and investments. Unfavorable economic or capital market conditions may increase our funding costs, limit our access to the capital markets or could result in a decision by our potential lenders not to extend credit.
Our ability to provide attractive risk-adjusted returns to our stockholders over the long term depends on our ability both to generate sufficient cash flow to pay an attractive dividend and to achieve capital appreciation, and we may not be able to do either.
Our ability to provide attractive risk-adjusted returns to our stockholders over the long term depends on our ability both to generate sufficient cash flow to pay an attractive dividend and to achieve capital appreciation, and we may not be able to do 31 Table of Contents either.
As a public company with listed equity securities, we are required to comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act, related regulations of the SEC, including compliance with the reporting requirements of the Exchange Act and the requirements of the New York Stock Exchange (the “NYSE”).
As a public company with listed equity securities, we are required to comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act, related regulations of the SEC, including compliance with the reporting requirements of the Exchange Act and the requirements of the NYSE.
As of December 31, 2022, we had approximately $1.0 billion of indebtedness outstanding related to our portfolio, excluding indebtedness relating to the portion of the CMBS that we do not own, but are required to consolidate pursuant to applicable accounting standards.
As of December 31, 2023, we had approximately $1.3 billion of indebtedness outstanding related to our portfolio, excluding indebtedness relating to the portion of the CMBS that we do not own, but are required to consolidate pursuant to applicable accounting standards.
The Series A Preferred Stock is subordinate to our existing and future debt, and such interests could be diluted by the issuance of additional shares of preferred stock and by other transactions.
The Series A Preferred Stock and Series B Preferred Stock are subordinate to our existing and future debt, and such interests could be diluted by the issuance of additional shares of preferred stock and by other transactions.
We believe that our OP will be treated as a partnership for U.S. federal income tax purposes, and intends to take that position for all income tax reporting positions. As a partnership, our OP generally will not be subject to U.S. federal 44 Table of Contents income tax on its income.
We believe that our OP will be treated as a partnership for U.S. federal income tax purposes, and intends to take that position for all income tax reporting positions. As a partnership, our OP generally will not be subject to U.S. federal income tax on its income.
We intend to enter into agreements with various counterparties to finance our operations, which may include entering into credit facilities (including term loans and revolving facilities), repurchase agreements, warehouse facilities and securitizations and/or issuing debt securities.
We have and will continue to enter into agreements with various counterparties to finance our operations, which may include entering into credit facilities (including term loans and revolving facilities), repurchase agreements, warehouse facilities and securitizations and/or issuing debt securities.
Declines in the performance of the U.S. and global economies or in the real estate 14 Table of Contents debt markets could have a material adverse effect on our business, financial condition and results from operations.
Declines in the performance of the U.S. and global economies or in the real estate debt markets could have a material adverse effect on our business, financial condition and results of operations.
As of December 31, 2022, we had $165.0 million of our 5.75% Notes outstanding and our OP had $36.5 million of its 7.50% Senior Unsecured Notes due 2025 (the “OP Notes”) outstanding.
As of December 31, 2023, we had $180.0 million of our 5.75% Notes outstanding and our OP had $36.5 million of its 7.50% Senior Unsecured Notes due 2025 (the “OP Notes”) outstanding.
If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because: • we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at the corporate tax rate; • we could be subject to increased state and local taxes; and 42 Table of Contents • unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
However, we cannot assure you that we have qualified as a REIT, or that we will remain qualified as a REIT in the future. 38 Table of Contents If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because: • we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at the corporate tax rate; • we could be subject to increased state and local taxes; and • unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
In addition, regulatory requirements with respect to derivatives, including eligibility of counterparties, reporting, 32 Table of Contents recordkeeping, exchange of margin, financial responsibility or segregation of customer funds and positions are still under development and could impact our hedging transactions and how we and our counterparty must manage such transactions.
In addition, regulatory requirements with respect to derivatives, including eligibility of counterparties, reporting, recordkeeping, exchange of margin, financial responsibility or segregation of customer funds and positions are still under development and could impact our hedging transactions and how we and our counterparty must manage such transactions. We are subject to counterparty risk associated with our hedging activities.
We may originate mezzanine loans that do not meet all of the requirements of this safe harbor.
We may originate or invest in mezzanine loans that do not meet all of the requirements of this safe harbor.
In addition, we may elect in the future to obtain a rating of the Series A Preferred Stock, which could adversely impact the market price of the Series A Preferred Stock.
In addition, we may elect in the future to obtain a rating of the Series A Preferred Stock or Series B Preferred Stock, which could adversely impact the market price of the Series A Preferred Stock or Series B Preferred Stock (if any).
Macroeconomic trends including inflation, rising interest rates or recession may adversely affect our financial condition and results of operations. Macroeconomic trends, including increases in inflation and rising interest rates, may adversely impact our business, financial condition and results of operations.
Macroeconomic trends including inflation, high interest rates or recession may adversely affect our financial condition and results of operations. Macroeconomic trends, including high inflation and high interest rates, may adversely impact our business, financial condition and results of operations.
In the event that any of the properties or entities underlying or collateralizing our loans or investments experiences any of the foregoing events or occurrences, the value of, and return on, such investments, could adversely affect our results of operations and financial condition.
In the event that any of the properties or entities underlying or collateralizing our loans or investments experiences any of the foregoing events or occurrences, the value of, and return on, such investments, could adversely affect our results of operations and financial condition. Residential loans are subject to increased risks of loss.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders and provide that claims relating to causes of action under the Securities Act may only be brought in federal district courts, which could limit stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees and could discourage lawsuits against us and our directors, officers and employees. 39 Table of Contents Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that Court does not have subject matter jurisdiction, any state court located within the state of Maryland, or, if all such state courts do not have subject matter jurisdiction, the United States District Court for the District of Maryland, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, or any successor provision thereof, (b) any derivative action or proceeding brought on behalf of the Company, (c) any action asserting a claim of breach of any duty owed by any director or officer or other employee of the Company to the Company or to the stockholders of the Company, (d) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the MGCL, the charter or the bylaws, (e) any action or proceeding to interpret, apply, enforce or determine the validity of the charter or the bylaws of the Company (including any right, obligation, or remedy thereunder), (f) any action or proceeding as to which the MGCL confers jurisdiction on the Circuit Court for Baltimore City, Maryland, or (g) any action asserting a claim against the Company or any director or officer or other employee of the Company that is governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, except that the foregoing does not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that Court does not have subject matter jurisdiction, any state court located within the state 36 Table of Contents of Maryland, or, if all such state courts do not have subject matter jurisdiction, the United States District Court for the District of Maryland, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, or any successor provision thereof, (b) any derivative action or proceeding brought on behalf of the Company, (c) any action asserting a claim of breach of any duty owed by any director or officer or other employee of the Company to the Company or to the stockholders of the Company, (d) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the MGCL, the charter or the bylaws, (e) any action or proceeding to interpret, apply, enforce or determine the validity of the charter or the bylaws of the Company (including any right, obligation, or remedy thereunder), (f) any action or proceeding as to which the MGCL confers jurisdiction on the Circuit Court for Baltimore City, Maryland, or (g) any action asserting a claim against the Company or any director or officer or other employee of the Company that is governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, except that the foregoing does not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
If we were required to register with the U.S. Commodity Futures Trading Commission (the “ CFTC ” ) as a Commodity Pool Operator, it could materially adversely affect our business, financial condition and results of operations. Under Title VII of the Dodd-Frank Act, the CFTC was given jurisdiction over the regulation of swaps.
Commodity Futures Trading Commission (the “ CFTC ” ) as a Commodity Pool Operator, it could materially adversely affect our business, financial condition and results of operations. Under Title VII of the Dodd-Frank Act, the CFTC was given jurisdiction over the regulation of swaps.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company consolidated ownership of the Elysian at Hughes Center, which is a 368-unit multifamily property in Las Vegas, Nevada, as of December 31, 2022. The Company’s ownership is subject to mortgage debt with an outstanding principal balance of approximately $89.6 million as of December 31, 2022.
Biggest changeThe Company consolidated ownership of Alexander at the District, which is a 280-unit multifamily property in Atlanta, Georgia, as of December 31, 2023. The Company’s ownership is subject to mortgage debt with an outstanding principal balance of approximately $63.5 million as of December 31, 2023. For additional information regarding these properties, see Note 8 to our consolidated financial statements.
Item 2. Properties The Company owns the Hudson Montford, which is a 204-unit multifamily property in Charlotte, North Carolina. The Company’s ownership is subject to mortgage debt with an outstanding principal balance of approximately $32.5 million as of December 31, 2022. The Company owns the Hudson Montford indirectly through wholly owned subsidiaries.
Item 2. Properties The Company owns the Hudson Montford, which is a 204-unit multifamily property in Charlotte, North Carolina. The Company’s ownership is subject to mortgage debt with an outstanding principal balance of approximately $32.4 million as of December 31, 2023. The Company owns the Hudson Montford indirectly through wholly owned subsidiaries.
Removed
For additional information regarding these properties, see Note 8 to our consolidated financial statements. 55 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeManagement 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 4. Mine Safety Disclosures Not applicable. 56 Table of Contents PART II
Biggest changeManagement 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 4. Mine Safety Disclosures Not applicable. 53 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+1 added−0 removed0 unchanged
Biggest changeThe number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one record holder. Market Information Our common stock trades on the NYSE under the ticker symbol “NREF.” Item 6. [Reserved]
Biggest changeThe number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one record holder.
The number of record holders is based on the records of American Stock Transfer & Trust Company, LLC, who serves as our transfer agent.
The number of record holders is based on the records of Equiniti Trust Company, LLC, who serves as our transfer agent.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stockholder Information On March 31, 2023, we had 17,471,218 shares of common stock outstanding held by a total of seven record holders.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stockholder Information On March 20, 2024, we had 17,593,244 shares of common stock outstanding held by a total of eight record holders.
Added
Market Information Our common stock trades on the NYSE under the ticker symbol “NREF.” Item 6. [Reserved] 54 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

91 edited+66 added−35 removed67 unchanged
Biggest changeThe following table sets forth additional information relating to our portfolio as of December 31, 2022 (dollars in thousands): Investment (1) Investment Date Current Principal Amount Net Equity (2) Location Property Type Coupon Current Yield (3) Remaining Term (4) (years) SFR Loans 1 Senior loan 2/11/2020 $ 508,700 $ 73,291 Various Single-family 4.65 % 4.39 % 5.67 2 Senior loan 2/11/2020 10,143 1,536 Various Single-family 5.35 % 5.24 % 5.09 3 Senior loan 2/11/2020 5,396 675 Various Single-family 5.33 % 5.28 % 0.58 4 Senior loan 2/11/2020 10,179 1,473 Various Single-family 5.30 % 5.01 % 5.67 5 Senior loan 2/11/2020 5,458 787 Various Single-family 5.24 % 4.93 % 5.76 6 Senior loan 2/11/2020 51,304 6,944 Various Single-family 4.74 % 4.59 % 2.75 7 Senior loan 2/11/2020 9,494 1,362 Various Single-family 6.10 % 5.70 % 5.76 8 Senior loan 2/11/2020 36,762 5,175 Various Single-family 5.55 % 5.14 % 5.84 9 Senior loan 2/11/2020 5,760 827 Various Single-family 5.99 % 5.59 % 5.92 10 Senior loan 2/11/2020 5,177 755 Various Single-family 5.46 % 5.15 % 6.01 11 Senior loan 2/11/2020 8,779 1,293 Various Single-family 5.88 % 5.55 % 6.01 12 Senior loan 2/11/2020 6,309 870 Various Single-family 4.83 % 4.77 % 1.09 13 Senior loan 2/11/2020 7,480 1,105 Various Single-family 5.34 % 5.07 % 6.09 14 Senior loan 2/11/2020 6,582 974 Various Single-family 5.46 % 5.19 % 6.17 15 Senior loan 2/11/2020 10,523 1,509 Various Single-family 4.72 % 4.60 % 3.17 Total 688,046 98,576 4.81 % 4.55 % 5.36 CMBS B-Piece 1 CMBS B-Piece 2/11/2020 24,348 (5) 9,154 Various Multifamily 8.95 % 8.96 % 3.16 66 Table of Contents 2 CMBS B-Piece 2/11/2020 29,596 (5) 11,429 Various Multifamily 9.80 % 9.79 % 3.90 3 CMBS B-Piece 4/23/2020 81,999 (5) 27,424 Various Multifamily 3.50 % 5.39 % 7.16 4 CMBS B-Piece 7/30/2020 21,342 (5) 9,459 Various Multifamily 12.80 % 12.80 % 4.48 5 CMBS B-Piece 8/6/2020 108,643 (5) 24,603 Various Multifamily 0.00 % 8.22 % 7.49 6 CMBS B-Piece 4/20/2021 43,340 (5) 14,866 Various Multifamily 9.29 % 9.29 % 8.16 7 CMBS B-Piece 6/30/2021 108,305 (5) 30,299 Various Multifamily 0.00 % 9.13 % 4.00 8 CMBS B-Piece 12/9/2021 57,289 (5) 22,231 Various Multifamily 8.29 % 8.29 % 1.82 9 CMBS B-Piece 5/2/2022 35,811 (5) 10,214 Various Multifamily 4.22 % 4.55 % 15.91 10 CMBS B-Piece 7/28/2022 70,481 (5) 26,899 Various Multifamily 8.29 % 8.29 % 6.57 Total 581,154 186,578 4.61 % 8.14 % 6.22 CMBS I/O Strips 1 CMBS I/O Strip 5/18/2020 17,590 (6) 495 Various Multifamily 2.02 % 14.56 % 23.75 2 CMBS I/O Strip 8/6/2020 108,643 (6) 6,268 Various Multifamily 2.98 % 15.98 % 7.49 3 CMBS I/O Strip 4/28/2021 (7) 64,768 (6) 1,409 Various Multifamily 1.59 % 15.52 % 7.07 4 CMBS I/O Strip 5/27/2021 20,000 (6) 1,024 Various Multifamily 3.39 % 15.73 % 7.40 5 CMBS I/O Strip 6/7/2021 4,266 (6) 127 Various Multifamily 2.31 % 18.91 % 5.91 6 CMBS I/O Strip 6/11/2021 (8) 115,523 (6) 1,872 Various Multifamily 1.19 % 13.34 % 6.40 7 CMBS I/O Strip 6/24/2021 26,191 (6) 435 Various Multifamily 1.18 % 16.77 % 7.40 8 CMBS I/O Strip 8/10/2021 25,000 (6) 635 Various Multifamily 1.89 % 15.87 % 7.32 9 CMBS I/O Strip 8/11/2021 6,942 (6) 440 Various Multifamily 3.10 % 13.74 % 8.57 10 CMBS I/O Strip 8/24/2021 1,625 (6) 250 Various Multifamily 2.61 % 14.44 % 8.07 11 CMBS I/O Strip 9/1/2021 34,625 (6) 3,726 Various Multifamily 1.92 % 15.03 % 7.49 12 CMBS I/O Strip 9/11/2021 20,902 (6) 3,822 Various Multifamily 2.95 % 13.70 % 8.74 Total 446,075 20,503 2.04 % 15.01 % 7.83 Mezzanine Loan 1 Mezzanine 6/12/2020 7,500 7,500 Houston, TX Multifamily 11.00 % 11.00 % 0.50 2 Mezzanine 10/20/2020 5,470 2,267 Wilmington, DE Multifamily 7.50 % 7.31 % 6.34 3 Mezzanine 10/20/2020 10,380 4,320 White Marsh, MD Multifamily 7.42 % 7.22 % 8.50 4 Mezzanine 10/20/2020 14,253 5,929 Philadelphia, PA Multifamily 7.59 % 7.38 % 6.42 5 Mezzanine 10/20/2020 3,700 1,531 Daytona Beach, FL Multifamily 7.83 % 7.63 % 5.76 6 Mezzanine 10/20/2020 12,000 4,993 Laurel, MD Multifamily 7.71 % 7.50 % 8.25 7 Mezzanine 10/20/2020 3,000 1,249 Temple Hills, MD Multifamily 7.32 % 7.12 % 8.59 8 Mezzanine 10/20/2020 1,500 624 Temple Hills, MD Multifamily 7.22 % 7.02 % 8.59 9 Mezzanine 10/20/2020 5,540 2,296 Lakewood, NJ Multifamily 7.33 % 7.14 % 6.34 10 Mezzanine 10/20/2020 6,829 2,828 Rosedale, MD Multifamily 7.53 % 7.34 % 6.01 11 Mezzanine 10/20/2020 3,620 1,507 North Aurora, IL Multifamily 7.42 % 7.22 % 8.50 12 Mezzanine 10/20/2020 9,610 4,000 Cockeysville, MD Multifamily 7.42 % 7.22 % 8.50 13 Mezzanine 10/20/2020 7,390 3,076 Laurel, MD Multifamily 7.42 % 7.22 % 8.50 14 Mezzanine 10/20/2020 2,135 884 Tyler, TX Multifamily 7.74 % 7.54 % 5.76 15 Mezzanine 10/20/2020 1,190 493 Las Vegas, NV Multifamily 7.71 % 7.51 % 6.17 16 Mezzanine 10/20/2020 3,310 1,372 Atlanta, GA Multifamily 6.91 % 6.73 % 6.50 17 Mezzanine 10/20/2020 2,880 1,192 Des Moines, IA Multifamily 7.89 % 7.69 % 5.84 18 Mezzanine 10/20/2020 4,010 1,660 Urbandale, IA Multifamily 7.89 % 7.69 % 5.84 19 Mezzanine 1/21/2021 24,844 24,644 Los Angeles, CA Multifamily 17.00 % 17.14 % 1.06 20 Mezzanine 11/18/2021 12,600 12,491 Irving, TX Multifamily 14.77 % 14.90 % 5.92 21 Mezzanine 12/29/2021 7,760 7,695 Rogers, AR Multifamily 14.77 % 14.90 % 2.03 22 Mezzanine 6/9/2022 4,500 4,462 Rogers, AR Multifamily 14.45 % 14.57 % 2.44 23 Mezzanine 7/1/2022 9,000 8,918 Medley, FL Self-Storage 11.00 % 11.10 % 4.50 Total 163,021 105,931 10.42 % 10.34 % 5.39 Preferred Equity 1 Preferred Equity 5/29/2020 10,000 10,000 Houston, TX Multifamily 11.00 % 11.00 % 7.34 2 Preferred Equity 9/29/2021 7,606 7,591 Holly Springs, NC Life Science 10.00 % 10.02 % 0.75 3 Preferred Equity 10/26/2021 9,750 9,687 Atlanta, GA Multifamily 11.00 % 11.07 % 1.85 4 Preferred Equity 1/14/2022 19,496 19,509 Vacaville, CA Life Science 10.00 % 9.99 % 0.75 5 Preferred Equity 4/7/2022 (9) 4,000 3,963 Beaumont, TX Self-Storage 13.77 % 13.90 % 7.67 67 Table of Contents 6 Preferred Equity 6/8/2022 4,000 3,962 Temple, TX Self-Storage 13.05 % 13.17 % 7.67 7 Preferred Equity 8/10/2022 8,500 8,423 Plano, TX Multifamily 14.61 % 14.74 % 2.69 8 Preferred Equity 9/30/2022 9,000 8,915 Fort Worth, TX Multifamily 13.76 % 13.89 % 2.75 9 Preferred Equity 10/5/2022 4,030 3,991 Kirkland, WA Multifamily 14.52 % 14.66 % 5.01 10 Preferred Equity 10/19/2022 15,000 14,925 Woodbury, MN Life Science 10.00 % 10.05 % 0.75 Total 91,382 90,966 11.51 % 11.57 % 2.76 Common Stock 1 Common Stock 11/6/2020 N/A 50,380 N/A Self-Storage N/A N/A N/A 2 Common Stock 4/14/2022 N/A 27,884 N/A Ground Lease N/A N/A N/A Total 78,264 Real Estate 1 Real Estate 12/31/2021 (10) N/A 27,267 Charlotte, NC Multifamily N/A N/A N/A 2 Real Estate 2/1/2022 (11) N/A 36,283 Las Vegas, NV Multifamily N/A N/A N/A Total 63,550 MSCR Notes 1 MSCR Note 5/25/2022 4,000 2,021 Various Multifamily 13.02 % 13.02 % 29.42 2 MSCR Note 5/25/2022 5,000 2,315 Various Multifamily 10.02 % 10.02 % 29.42 3 MSCR Note 9/23/2022 1,500 637 Various Multifamily 10.37 % 11.40 % 28.92 Total 10,500 4,973 11.21 % 11.36 % 29.35 Mortgage Backed Securities 1 Mortgage Backed Securities 6/1/2022 10,074 3,102 Various Single-family 4.87 % 5.08 % 2.89 2 Mortgage Backed Securities 6/1/2022 10,419 3,425 Various Single-family 7.08 % 7.39 % 3.30 3 Mortgage Backed Securities 7/28/2022 575 261 Various Single-family 6.23 % 6.33 % 4.80 4 Mortgage Backed Securities 7/28/2022 1,057 403 Various Single-family 3.60 % 4.23 % 5.47 5 Mortgage Backed Securities 9/12/2022 4,473 1,789 Various Single-family 9.29 % 9.27 % 8.07 6 Mortgage Backed Securities 9/29/2022 8,000 7,906 Various Single-family 9.57 % 9.59 % 4.71 Total 34,598 16,886 7.18 % 7.36 % 4.21 (1) Our total portfolio represents the current principal amount of the consolidated SFR Loans, CMBS I/O Strips, mezzanine loans, preferred equity, multifamily properties, MSCR Notes and mortgage backed securities as well as the net equity of our CMBS B-Piece investments.
Biggest changeThe following table sets forth additional information relating to our portfolio as of December 31, 2023 (dollars in thousands): Investment (1) Investment Date Current Principal Amount Net Equity (2) Location Property Type Coupon Current Yield (3) Remaining Term (4) (years) SFR Loans 1 Senior loan 2/11/2020 $ 508,700 $ 68,452 Various Single-family 4.65 % 4.43 % 4.67 2 Senior loan 2/11/2020 9,316 1,374 Various Single-family 5.35 % 5.25 % 4.09 3 Senior loan 2/11/2020 10,015 1,345 Various Single-family 5.30 % 5.05 % 4.67 4 Senior loan 2/11/2020 5,361 720 Various Single-family 5.24 % 4.98 % 4.76 5 Senior loan 2/11/2020 34,967 4,331 Various Single-family 4.74 % 4.64 % 1.75 6 Senior loan 2/11/2020 9,473 1,254 Various Single-family 6.10 % 5.75 % 4.76 7 Senior loan 2/11/2020 36,164 4,649 Various Single-family 5.55 % 5.20 % 4.84 8 Senior loan 2/11/2020 5,645 751 Various Single-family 5.99 % 5.64 % 4.92 9 Senior loan 2/11/2020 8,641 1,199 Various Single-family 5.88 % 5.60 % 5.01 10 Senior loan 2/11/2020 6,473 911 Various Single-family 5.46 % 5.23 % 5.17 11 Senior loan 2/11/2020 10,522 1,430 Various Single-family 4.72 % 4.64 % 2.17 Total 645,277 86,416 4.79 % 4.57 % 4.49 CMBS B-Piece 1 CMBS B-Piece 2/11/2020 21,024 (5) 6,611 Various Multifamily 9.76 % 9.76 % 2.16 2 CMBS B-Piece 2/11/2020 28,581 (5) 9,585 Various Multifamily 10.59 % 10.58 % 2.90 3 CMBS B-Piece 4/23/2020 81,999 (5) 26,582 Various Multifamily 3.50 % 5.11 % 6.16 64 Table of Contents 4 CMBS B-Piece 7/30/2020 16,349 (5) 5,536 Various Multifamily 14.43 % 14.43 % 3.48 5 CMBS B-Piece 8/6/2020 108,643 (5) 21,877 Various Multifamily — % 9.12 % 6.49 6 CMBS B-Piece 4/20/2021 25,751 (5) 6,435 Various Multifamily 11.57 % 11.57 % 7.16 7 CMBS B-Piece 6/30/2021 108,305 (5) 27,358 Various Multifamily 0.00 % 10.19 % 3.00 8 CMBS B-Piece 5/2/2022 32,556 (5) 10,708 Various Multifamily 4.43 % 4.76 % 14.91 9 CMBS B-Piece 7/28/2022 63,397 (5) 21,945 Various Multifamily 10.57 % 10.57 % 5.57 Total 486,605 136,637 4.40 % 9.00 % 5.64 CMBS I/O Strips 1 CMBS I/O Strip 5/18/2020 17,590 (6) 504 Various Multifamily 2.02 % 14.64 % 22.75 2 CMBS I/O Strip 8/6/2020 108,643 (6) 5,538 Various Multifamily 2.98 % 17.98 % 6.49 3 CMBS I/O Strip 4/28/2021 (7) 64,550 (6) 1,382 Various Multifamily 1.59 % 17.68 % 6.07 4 CMBS I/O Strip 5/27/2021 20,000 (6) 1,172 Various Multifamily 3.39 % 17.79 % 6.40 5 CMBS I/O Strip 6/7/2021 4,266 (6) 122 Various Multifamily 2.31 % 22.31 % 4.91 6 CMBS I/O Strip 6/11/2021 (8) 104,471 (6) 1,335 Various Multifamily 1.18 % 14.57 % 5.40 7 CMBS I/O Strip 6/24/2021 25,387 (6) 296 Various Multifamily 1.17 % 18.07 % 6.40 8 CMBS I/O Strip 8/10/2021 25,000 (6) 721 Various Multifamily 1.89 % 17.98 % 6.32 9 CMBS I/O Strip 8/11/2021 6,942 (6) 421 Various Multifamily 3.10 % 15.24 % 7.57 10 CMBS I/O Strip 8/24/2021 1,625 (6) 70 Various Multifamily 2.61 % 16.15 % 7.07 11 CMBS I/O Strip 9/1/2021 34,625 (6) 1,015 Various Multifamily 1.92 % 17.01 % 6.49 12 CMBS I/O Strip 9/11/2021 20,902 (6) 1,113 Various Multifamily 2.95 % 15.14 % 7.74 Total 434,001 13,689 2.06 % 16.75 % 6.87 Mezzanine Loans 1 Mezzanine 6/12/2020 7,500 7,500 Houston, TX Multifamily 11.00 % 11.00 % 1.50 2 Mezzanine 10/20/2020 5,470 2,249 Wilmington, DE Multifamily 7.50 % 7.33 % 5.34 3 Mezzanine 10/20/2020 10,380 4,294 White Marsh, MD Multifamily 7.42 % 7.23 % 7.50 4 Mezzanine 10/20/2020 14,253 5,879 Philadelphia, PA Multifamily 7.59 % 7.41 % 5.42 5 Mezzanine 10/20/2020 3,700 1,518 Daytona Beach, FL Multifamily 7.83 % 7.66 % 4.76 6 Mezzanine 10/20/2020 12,000 4,963 Laurel, MD Multifamily 7.71 % 7.52 % 7.25 7 Mezzanine 10/20/2020 3,000 1,241 Temple Hills, MD Multifamily 7.32 % 7.14 % 7.59 8 Mezzanine 10/20/2020 1,500 621 Temple Hills, MD Multifamily 7.22 % 7.04 % 7.59 9 Mezzanine 10/20/2020 5,540 2,277 Lakewood, NJ Multifamily 7.33 % 7.17 % 5.34 10 Mezzanine 10/20/2020 6,829 2,804 Rosedale, MD Multifamily 7.53 % 7.36 % 5.01 11 Mezzanine 10/20/2020 3,620 1,498 North Aurora, IL Multifamily 7.42 % 7.23 % 7.50 12 Mezzanine 10/20/2020 9,610 3,976 Cockeysville, MD Multifamily 7.42 % 7.23 % 7.50 13 Mezzanine 10/20/2020 7,390 3,057 Laurel, MD Multifamily 7.42 % 7.23 % 7.50 14 Mezzanine 10/20/2020 2,135 876 Tyler, TX Multifamily 7.74 % 7.57 % 4.76 15 Mezzanine 10/20/2020 1,190 489 Las Vegas, NV Multifamily 7.71 % 7.54 % 5.17 16 Mezzanine 10/20/2020 3,310 1,361 Atlanta, GA Multifamily 6.91 % 6.75 % 5.50 17 Mezzanine 10/20/2020 2,880 1,182 Des Moines, IA Multifamily 7.89 % 7.72 % 4.84 18 Mezzanine 10/20/2020 4,010 1,646 Urbandale, IA Multifamily 7.89 % 7.72 % 4.84 19 Mezzanine 11/18/2021 12,600 12,506 Irving, TX Multifamily 16.33 % 16.45 % 4.92 20 Mezzanine 12/29/2021 7,760 7,749 Rogers, AR Multifamily 16.33 % 16.35 % 1.03 21 Mezzanine 6/9/2022 4,500 4,477 Rogers, AR Multifamily 16.03 % 16.11 % 1.44 22 Mezzanine 10/5/2022 (9) 4,030 3,998 Kirkland, WA Multifamily 16.03 % 16.16 % 4.01 Total 133,207 76,161 9.61 % 9.50 % 5.36 Preferred Equity 1 Preferred Equity 5/29/2020 (10) 11,698 11,698 Houston, TX Multifamily 11.00 % 11.00 % 6.34 2 Preferred Equity 9/29/2021 9,505 9,492 Holly Springs, NC Life Science 10.00 % 10.01 % 0.75 3 Preferred Equity 12/28/2021 (11) 11,377 11,377 Las Vegas, NV Multifamily 10.50 % 10.50 % 8.17 4 Preferred Equity 1/14/2022 23,956 23,955 Vacaville, CA Life Science 10.00 % 10.00 % 0.75 65 Table of Contents 5 Preferred Equity 4/7/2022 (12) 4,000 3,967 Beaumont, TX Self-Storage 15.33 % 15.46 % 6.67 6 Preferred Equity 6/8/2022 4,000 3,967 Temple, TX Self-Storage 14.61 % 14.73 % 6.67 7 Preferred Equity 7/1/2022 (13) 9,000 8,935 Medley, FL Self-Storage 11.00 % 11.08 % 3.50 8 Preferred Equity 8/10/2022 8,500 8,450 Plano, TX Multifamily 16.12 % 16.22 % 1.69 9 Preferred Equity 9/30/2022 9,000 8,943 Fort Worth, TX Multifamily 15.03 % 15.13 % 1.75 10 Preferred Equity 10/19/2022 19,908 19,923 Woodbury, MN Life Science 10.00 % 9.99 % 0.75 11 Preferred Equity 2/10/2023 28,685 28,562 Forney, TX Multifamily 11.00 % 11.05 % 1.12 12 Preferred Equity 2/24/2023 20,464 20,373 Richmond, VA Multifamily 11.00 % 11.05 % 1.12 13 Preferred Equity 4/6/2023 23,957 23,971 Temecula, CA Life Science 17.50 % 17.49 % 0.75 14 Preferred Equity 5/16/2023 (14) 7,150 7,083 Phoenix, AZ Single-family 13.50 % 13.63 % 3.33 15 Preferred Equity 5/17/2023 (15) 4,192 4,151 Houston, TX Life Science 13.00 % 13.13 % 2.98 Total 195,392 194,847 12.20 % 12.24 % 2.21 Common Equity 1 Common Stock 11/6/2020 N/A 33,129 N/A Self-Storage N/A N/A N/A 2 Common Stock 4/14/2022 N/A 28,400 N/A Ground Lease N/A N/A N/A 3 Common Equity 2/10/2023 N/A — Forney, TX Multifamily N/A N/A N/A 4 Common Equity 2/24/2023 N/A — Richmond, VA Multifamily N/A N/A N/A 5 Common Equity 9/8/2023 N/A — Atlanta, GA Multifamily N/A N/A N/A Total 61,529 Preferred Stock 1 Preferred Stock 11/9/2023 N/A 14,776 Various Life Science 10.50 % N/A 5.00 Real Estate 1 Real Estate 12/31/2021 (16) N/A 25,989 Charlotte, NC Multifamily N/A N/A N/A 2 Real Estate 10/10/2023 (17) N/A 4,905 Atlanta, GA Multifamily N/A N/A N/A Total 30,894 MSCR Notes 1 MSCR Note 5/25/2022 4,000 2,020 Various Multifamily 14.83 % 14.83 % 28.42 2 MSCR Note 5/25/2022 5,000 2,248 Various Multifamily 11.83 % 11.83 % 28.42 3 MSCR Note 9/23/2022 1,500 676 Various Multifamily 12.18 % 13.38 % 27.92 Total 10,500 4,944 13.02 % 13.19 % 28.35 Mortgage Backed Securities 1 Mortgage Backed Securities 6/1/2022 10,074 3,410 Various Single-family 4.87 % 5.01 % 1.89 2 Mortgage Backed Securities 6/1/2022 10,419 3,524 Various Single-family 8.64 % 8.91 % 2.30 3 Mortgage Backed Securities 7/28/2022 575 275 Various Single-family 6.23 % 6.31 % 3.80 4 Mortgage Backed Securities 7/28/2022 1,057 361 Various Single-family 3.60 % 4.12 % 4.47 5 Mortgage Backed Securities 9/12/2022 3,927 1,325 Various Multifamily 11.57 % 11.55 % 7.07 6 Mortgage Backed Securities 9/29/2022 8,000 7,960 Various Self-Storage 11.10 % 11.12 % 3.71 7 Mortgage Backed Securities 3/10/2023 5,747 1,987 Various Multifamily 13.93 % 13.95 % 1.16 Total 39,799 18,842 9.06 % 9.19 % 2.86 (1) Our total portfolio represents the current principal amount of the consolidated SFR Loans, CMBS I/O Strips, mezzanine loans, preferred equity, multifamily properties, MSCR Notes and mortgage backed securities as well as the net equity of our CMBS B-Piece investments.
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.
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.
Direct payment of operating expenses by us, which includes compensation expense relating to equity awards granted under the 2020 LTIP, together with reimbursement of operating expenses to our Manager, plus the Annual Fee, may not exceed 2.5% of equity book value determined in accordance with GAAP, for any calendar year or portion thereof, 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 and 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.
Direct payment of operating expenses by us, which includes compensation expense relating to equity awards granted under the LTIP, together with reimbursement of operating expenses to our Manager, plus the Annual Fee, may not exceed 2.5% of equity book value determined in accordance with GAAP, for any calendar year or portion thereof, 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 and 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.
(8) The Company, through the Subsidiary OPs, purchased approximately $80.0 million, $35.0 million, $40.0 million ad $50.0 million aggregate notional amount of the X1 interest-only tranche of the FRESB 2019-SB64 CMBS I/O Strip on June 11, 2021 and September 29, 2021, February 3, 2022 and March 18, 2022, respectively.
(8) The Company, through the Subsidiary OPs, purchased approximately $80.0 million, $35.0 million, $40.0 million and $50.0 million aggregate notional amount of the X1 interest-only tranche of the FRESB 2019-SB64 CMBS I/O Strip on June 11, 2021 and September 29, 2021, February 3, 2022 and March 18, 2022, respectively.
We intend to make regular quarterly dividend payments of all or substantially all of our taxable income, which is not used to pay a dividend on the Series A Preferred Stock, to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our Board.
We intend to make regular quarterly dividend payments of all or substantially all of our taxable income, which is not used to pay a dividend on the Series A Preferred Stock and Series B Preferred Stock, to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our Board.
The year ended December 31, 2022 as compared to the year ended December 31, 2021 The following table presents the components of net interest income for the years ended December 31, 2022 and 2021 (dollars in thousands): For the Year Ended December 31, 2022 2021 Interest income/ (expense) Average Balance (1) Yield (2) Interest income/ (expense) Average Balance (1) Yield (2) $ Change % Change Interest income SFR Loans, held-for-investment $ 43,946 $ 746,111 5.89 % $ 37,652 $ 890,009 4.23 % $ 6,294 16.7 % Mezzanine loans, held-for-investment 15,464 157,789 9.80 % 11,754 129,968 8.81 % 3,710 31.6 % Preferred equity, held-for-investment 9,263 102,471 9.04 % 2,586 27,711 9.04 % 11,405 441.0 % Convertible bond, held-for-investment 2,545 47,821 5.32 % 26 224 9.33 % 2,519 9688.5 % CMBS structured pass through certificates, at fair value 4,682 66,442 7.05 % 3,453 55,225 11.61 % 1,229 35.6 % Bridge loan 346 6,787 5.10 % 356 4,039 6.25 % (10) (2.8) % MSCR notes 590 4,385 13.46 % — — N/A 590 N/A Mortgage backed securities 1,152 11,025 10.45 % — — N/A 1,152 N/A Total interest income $ 77,988 $ 1,142,830 6.82 % $ 55,827 $ 1,107,176 6.72 % $ 26,889 48.2 % Interest expense Repurchase agreements (11,280) (147,850) 7.63 % (4,294) (147,850) 2.90 % (6,986) 162.7 % Long-term seller financing (15,817) (822,820) 1.92 % (18,991) (822,820) 2.31 % 3,174 (16.7) % Bridge financing — — — % (101) (55) 183.64 % 101 (100.0) % Unsecured Notes (13,158) (201,697) 6.52 % (6,386) (91,733) 6.96 % (6,772) 106.0 % Total interest expense $ (40,255) $ (1,172,367) 3.43 % $ (29,772) $ (1,062,458) 2.80 % $ (10,483) 35.2 % Net interest income (3) $ 37,733 $ 26,055 $ 16,406 63.0 % (1) Average balances for the SFR Loans, the mezzanine loan and preferred equity are calculated based upon carrying values.
(3) Net interest income is calculated as the difference between total interest income and total interest expense. 56 Table of Contents The year ended December 31, 2022 as compared to the year ended December 31, 2021 The following table presents the components of net interest income for the years ended December 31, 2022 and 2021 (dollars in thousands): For the Year Ended December 31, 2022 2021 Interest income/ (expense) Average Balance (1) Yield (2) Interest income/ (expense) Average Balance (1) Yield (2) $ Change % Change Interest income SFR Loans, held-for-investment $ 43,946 $ 746,111 5.89 % $ 37,652 $ 890,009 4.23 % $ 6,294 16.7 % Mezzanine loans, held-for-investment 15,464 157,789 9.80 % 11,754 129,968 8.81 % 3,710 31.6 % Preferred equity, held-for-investment 9,263 102,471 9.04 % 2,586 27,711 9.04 % 11,405 441.0 % Convertible bond, held-for-investment 2,545 47,821 5.32 % 26 224 9.33 % 2,519 9688.5 % CMBS structured pass through certificates, at fair value 4,682 66,442 7.05 % 3,453 55,225 11.61 % 1,229 35.6 % Bridge loan 346 6,787 5.10 % 356 4,039 6.25 % (10) (2.8) % MSCR notes 590 4,385 13.46 % — — N/A 590 N/A Mortgage backed securities 1,152 11,025 10.45 % — — N/A 1,152 N/A Total interest income $ 77,988 $ 1,142,830 6.82 % $ 55,827 $ 1,107,176 6.72 % $ 26,889 48.2 % Interest expense Repurchase agreements (11,280) (147,850) 7.63 % (4,294) (147,850) 2.90 % (6,986) 162.7 % Long-term seller financing (15,817) (822,820) 1.92 % (18,991) (822,820) 2.31 % 3,174 (16.7) % Bridge financing — — — % (101) (55) 183.64 % 101 (100.0) % Unsecured Notes (13,158) (201,697) 6.52 % (6,386) (91,733) 6.96 % (6,772) 106.0 % Total interest expense $ (40,255) $ (1,172,367) 3.43 % $ (29,772) $ (1,062,458) 2.80 % $ (10,483) 35.2 % Net interest income (3) $ 37,733 $ 26,055 $ 16,406 63.0 % (1) Average balances for the SFR Loans, the mezzanine loan and preferred equity are calculated based upon carrying values.
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. We had no significant taxes associated with our TRS for the years ended December 31, 2022 and December 31, 2021.
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. We had no significant taxes associated with our TRS for the years ended December 31, 2023 and December 31, 2022.
EAD is defined as the net income (loss) attributable to our common stockholders computed in accordance with GAAP, including realized gains and losses not otherwise included in net income (loss), excluding any unrealized gains or losses or other similar non-cash items that are included in net income (loss) for the applicable reporting period, regardless of whether such items are included in other comprehensive income (loss), or in net income (loss) and adding back amortization of stock-based compensation.
EAD is defined as the net income (loss) attributable to our common stockholders computed in accordance with GAAP, including realized gains and losses not otherwise included in net income (loss), excluding any unrealized gains or losses or other similar non-cash items that are included in net income (loss) for the applicable reporting period, regardless of whether such items are included in other comprehensive income (loss), or in net income (loss) and adding back provision for (reversal of) credit losses and amortization of stock-based compensation.
Includes unrealized gain (loss) based on changes in the fair value of the CMBS I/O Strips. See Note 6 to our consolidated financial statements for additional information. Change in unrealized gain on common stock investments. Includes unrealized gain (loss) based on changes in the fair value of our common stock investments in NSP and the Private REIT.
Includes unrealized gain (loss) based on changes in the fair value of the CMBS I/O Strips. See Note 7 to our consolidated financial statements for additional information. Change in unrealized gain on common stock investments. Includes unrealized gain (loss) based on changes in the fair value of our common stock investments in NSP and the Private REIT.
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. We had no significant taxes associated with our TRS for the year ended December 31, 2022.
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. We had no significant taxes associated with our TRS for the year ended December 31, 2023.
Our strategy is to originate, structure and invest in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common stock investments, as well as multifamily CMBS securitizations, MSCR Notes and mortgage-backed securities, or our target assets.
Our strategy is to originate, structure and invest in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common equity investments, as well as multifamily and SFR CMBS securitizations, MSCR Notes and mortgage backed securities, or our target assets.
Additionally, prepayment penalties related to early paydowns offset by accelerated premium amortization contribute to the increase between the periods. As of December 31, 2022 we own 83 discrete investments compared to 74 as of December 31, 2021. Other income (loss).
Additionally, prepayment penalties related to early paydowns offset by accelerated premium amortization contribute to the increase between the periods. As of December 31, 2022 we owned 83 discrete investments compared to 74 as of December 31, 2021. Other income (loss).
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, borrowing restrictions imposed by lenders, general market conditions for REITs and our operating performance and liquidity.
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, 67 Table of Contents borrowing restrictions imposed by lenders, general market conditions for REITs and our operating performance and liquidity.
See Note 5 to our consolidated financial statements for additional information. Change in unrealized gain (loss) on MSCR notes. Includes unrealized gain (loss) based on changes in the fair value of our MSCR Notes. See Note 6 to our consolidated financial statements for additional information. Change in unrealized gain on mortgage-backed securities.
See Note 5 to our consolidated financial statements for additional information. Change in unrealized gain (loss) on MSCR notes. Includes unrealized gain (loss) based on changes in the fair value of our MSCR Notes. See Note 7 to our consolidated financial statements for additional information. Change in unrealized gain on mortgage backed securities.
As of December 31, 2022, pursuant to the 2022 Equity Distribution Agreements, the Company had sold 531,728 shares of its common stock and zero shares of Series A Preferred Stock for total gross sales of $12.6 million. For additional information about the 2022 ATM Program, see Note 11 to our consolidated financial statements.
As of December 31, 2023, pursuant to the 2022 Equity Distribution Agreements, the Company has sold 531,728 shares of its common stock and zero shares of Series A Preferred Stock for total gross sales of $12.6 million. For additional information about the 2022 ATM Program, see Note 11 to our consolidated financial statements.
Under the Credit Facility, these entities borrowed approximately $788.8 million in connection with their acquisition of senior pooled mortgage loans backed by SFR properties (the “Underlying Loans”). No additional borrowings can be made under the Credit Facility, and our obligations will be secured by the Underlying Loans.
Under the Credit Facility, these entities borrowed approximately $788.8 million in connection with their acquisition of senior pooled mortgage loans backed by SFR properties (the “Underlying Loans”). No additional borrowings can be made under the Credit Facility, and our obligations will be secured by the 68 Table of Contents Underlying Loans.
Asset Metrics Debt Metrics Investment Fixed/Floating Rate Interest Rate Maturity Date Fixed/Floating Rate Interest Rate Maturity Date Net Spread SFR Loans Senior loan Fixed 4.65% 9/1/2028 Fixed 2.24% 9/1/2028 2.41% Senior loan Fixed 5.35% 2/1/2028 Fixed 3.51% 2/1/2028 1.84% Senior loan Fixed 5.33% 8/1/2023 Fixed 2.48% 8/1/2023 2.85% Senior loan Fixed 5.30% 9/1/2028 Fixed 2.79% 9/1/2028 2.51% Senior loan Fixed 5.24% 10/1/2028 Fixed 2.64% 10/1/2028 2.60% Senior loan Fixed 4.74% 10/1/2025 Fixed 2.14% 10/1/2025 2.60% Senior loan Fixed 6.10% 10/1/2028 Fixed 3.30% 10/1/2028 2.80% Senior loan Fixed 5.55% 11/1/2028 Fixed 2.70% 11/1/2028 2.85% Senior loan Fixed 5.99% 12/1/2028 Fixed 3.14% 12/1/2028 2.85% Senior loan Fixed 5.46% 1/1/2029 Fixed 2.97% 1/1/2029 2.49% Senior loan Fixed 5.88% 1/1/2029 Fixed 3.14% 1/1/2029 2.74% Senior loan Fixed 4.83% 2/1/2024 Fixed 2.40% 2/1/2024 2.43% Senior loan Fixed 5.34% 2/1/2029 Fixed 2.98% 2/1/2029 2.36% Senior loan Fixed 5.46% 3/1/2029 Fixed 2.99% 3/1/2029 2.47% Senior loan Fixed 4.72% 3/1/2026 Fixed 2.45% 3/1/2026 2.27% Mezzanine Loans Mezzanine Fixed 7.50% 5/1/2029 Fixed 0.30% 5/1/2029 7.20% Mezzanine Fixed 7.42% 7/1/2031 Fixed 0.30% 7/1/2031 7.12% Mezzanine Fixed 7.59% 6/1/2029 Fixed 0.30% 6/1/2029 7.29% Mezzanine Fixed 7.83% 10/1/2028 Fixed 0.30% 10/1/2028 7.53% Mezzanine Fixed 7.71% 4/1/2031 Fixed 0.30% 4/1/2031 7.41% Mezzanine Fixed 7.32% 8/1/2031 Fixed 0.30% 8/1/2031 7.02% Mezzanine Fixed 7.22% 8/1/2031 Fixed 0.30% 8/1/2031 6.92% Mezzanine Fixed 7.33% 5/1/2029 Fixed 0.30% 5/1/2029 7.03% Mezzanine Fixed 7.53% 7/1/2031 Fixed 0.30% 7/1/2031 7.23% Mezzanine Fixed 7.42% 1/1/2029 Fixed 0.30% 1/1/2029 7.12% Mezzanine Fixed 7.42% 7/1/2031 Fixed 0.30% 7/1/2031 7.12% Mezzanine Fixed 7.42% 4/1/2031 Fixed 0.30% 4/1/2031 7.12% Mezzanine Fixed 7.74% 10/1/2028 Fixed 0.30% 10/1/2028 7.44% Mezzanine Fixed 7.71% 3/1/2029 Fixed 0.30% 3/1/2029 7.41% Mezzanine Fixed 6.91% 7/1/2029 Fixed 0.30% 7/1/2029 6.61% Mezzanine Fixed 7.89% 11/1/2028 Fixed 0.30% 11/1/2028 7.59% Mezzanine Fixed 7.89% 11/1/2028 Fixed 0.30% 11/1/2028 7.59% Our primary sources of liquidity and capital resources to date consist of cash generated from our operating results and the following: Freddie Mac Credit Facilities Prior to the Formation Transaction, two of our subsidiaries entered into a loan and security agreement, dated July 12, 2019, with Freddie Mac (the “Credit Facility”).
Asset Metrics Debt Metrics Investment Fixed/Floating Rate Interest Rate Maturity Date Fixed/Floating Rate Interest Rate Maturity Date Net Spread SFR Loans Senior loan Fixed 4.65% 9/1/2028 Fixed 2.24% 9/1/2028 2.41% Senior loan Fixed 5.35% 2/1/2028 Fixed 3.51% 2/1/2028 1.84% Senior loan Fixed 5.30% 9/1/2028 Fixed 2.79% 9/1/2028 2.51% Senior loan Fixed 5.24% 10/1/2028 Fixed 2.64% 10/1/2028 2.60% Senior loan Fixed 4.74% 10/1/2025 Fixed 2.14% 10/1/2025 2.60% Senior loan Fixed 6.10% 10/1/2028 Fixed 3.30% 10/1/2028 2.80% Senior loan Fixed 5.55% 11/1/2028 Fixed 2.70% 11/1/2028 2.85% Senior loan Fixed 5.99% 12/1/2028 Fixed 3.14% 12/1/2028 2.85% Senior loan Fixed 5.88% 1/1/2029 Fixed 3.14% 1/1/2029 2.74% Senior loan Fixed 5.46% 3/1/2029 Fixed 2.99% 3/1/2029 2.47% Senior loan Fixed 4.72% 3/1/2026 Fixed 2.45% 3/1/2026 2.27% Mezzanine Loans Mezzanine Fixed 7.50% 5/1/2029 Fixed 0.30% 5/1/2029 7.20% Mezzanine Fixed 7.42% 7/1/2031 Fixed 0.30% 7/1/2031 7.12% Mezzanine Fixed 7.59% 6/1/2029 Fixed 0.30% 6/1/2029 7.29% Mezzanine Fixed 7.83% 10/1/2028 Fixed 0.30% 10/1/2028 7.53% Mezzanine Fixed 7.71% 4/1/2031 Fixed 0.30% 4/1/2031 7.41% Mezzanine Fixed 7.32% 8/1/2031 Fixed 0.30% 8/1/2031 7.02% Mezzanine Fixed 7.22% 8/1/2031 Fixed 0.30% 8/1/2031 6.92% Mezzanine Fixed 7.33% 5/1/2029 Fixed 0.30% 5/1/2029 7.03% Mezzanine Fixed 7.53% 7/1/2031 Fixed 0.30% 7/1/2031 7.23% Mezzanine Fixed 7.42% 1/1/2029 Fixed 0.30% 1/1/2029 7.12% Mezzanine Fixed 7.42% 7/1/2031 Fixed 0.30% 7/1/2031 7.12% Mezzanine Fixed 7.42% 4/1/2031 Fixed 0.30% 4/1/2031 7.12% Mezzanine Fixed 7.74% 10/1/2028 Fixed 0.30% 10/1/2028 7.44% Mezzanine Fixed 7.71% 3/1/2029 Fixed 0.30% 3/1/2029 7.41% Mezzanine Fixed 6.91% 7/1/2029 Fixed 0.30% 7/1/2029 6.61% Mezzanine Fixed 7.89% 11/1/2028 Fixed 0.30% 11/1/2028 7.59% Mezzanine Fixed 7.89% 11/1/2028 Fixed 0.30% 11/1/2028 7.59% Our primary sources of liquidity and capital resources to date consist of cash generated from our operating results and the following: Freddie Mac Credit Facilities Prior to the Formation Transaction, two of our subsidiaries entered into a loan and security agreement, dated July 12, 2019, with Freddie Mac (the “Credit Facility”).
(2) Net equity represents the carrying value less borrowings collateralized by the investment. (3) Current yield is the annualized income earned divided by the cost basis of the investment. (4) The weighted-average life is weighted on current principal balance and assumes no prepayments.
(2) Net equity represents the carrying value less borrowings collateralized by the investment. (3) Current yield is the annualized income earned divided by the cost basis of the investment. 66 Table of Contents (4) The weighted-average life is weighted on current principal balance and assumes no prepayments.
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, potential obligations to purchase up to $3.7 million of the Preferred Units (defined below) and dividend requirements for the twelve-month period following December 31, 2022.
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, potential obligations to purchase up to $3.6 million of the Preferred Units (defined below) and dividend requirements for the twelve-month period following December 31, 2023.
For non-impaired loans with no specific allowance, the Company determines an allowance for loan losses in accordance with ASC 450-20, Loss Contingencies (“ASC 450-20”), which represents management’s best estimate of incurred losses inherent in the portfolio at the balance sheet date, excluding impaired loans and loans carried at fair value.
For non-impaired loans with no specific allowance the Company determined an allowance for loan losses in accordance with ASC 450-20, Loss Contingencies (“ASC 450-20”), which represented management’s best estimate of incurred losses inherent in the portfolio at the balance sheet date, excluding impaired loans and loans carried at fair value.
Results of Operations for the Years Ended December 31, 2022, 2021, and 2020 The year ended December 31, 2022 as compared to the year ended December 31, 2021 60 Table of Contents The following table sets forth a summary of our operating results for the years ended December 31, 2022 and 2021 (in thousands): For the Year Ended December 31, 2022 2021 $ Change % Change Net interest income $ 37,733 $ 26,055 $ 11,678 44.8 % Other income (loss) 2,661 71,263 (68,602) (96.3) % Operating expenses (26,180) (13,846) (12,334) 89.1 % Net income 14,214 83,472 (69,258) (83.0) % Net (income) attributable to preferred shareholders (3,512) (3,508) (4) 0.1 % Net (income) attributable to redeemable noncontrolling interests (4,969) (40,387) 35,418 (87.7) % Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries (2,499) — (2,499) N/A Net income attributable to common stockholders $ 3,234 $ 39,577 $ (36,343) (91.8) % The change in our net income for the year ended December 31, 2022 as compared to the net income for the year ended December 31, 2021 primarily relates to an increase in operating expenses and a decrease in other income including changes in net assets related to consolidated CMBS VIEs partially offset by increases in net interest income.
The increase between the periods was primarily due to an increase in Equity as defined by the Management Agreement. 59 Table of Contents Results of Operations for the Years Ended December 31, 2022 and 2021 The following table sets forth a summary of our operating results for the years ended December 31, 2022 and 2021 (in thousands): For the Year Ended December 31, 2022 2021 $ Change % Change Net interest income $ 37,733 $ 26,055 $ 11,678 44.8 % Other income (loss) 2,661 71,263 (68,602) (96.3) % Operating expenses (26,180) (13,846) (12,334) 89.1 % Net income 14,214 83,472 (69,258) (83.0) % Net (income) attributable to preferred shareholders (3,512) (3,508) (4) 0.1 % Net (income) attributable to redeemable noncontrolling interests (4,969) (40,387) 35,418 (87.7) % Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries (2,499) — (2,499) N/A Net income attributable to common stockholders $ 3,234 $ 39,577 $ (36,343) (91.8) % The change in our net income for the year ended December 31, 2022 as compared to the net income for the year ended December 31, 2021 primarily relates to an increase in operating expenses and a decrease in other income including changes in net assets related to consolidated CMBS VIEs partially offset by increases in net interest income.
However, our Manager is responsible, and we will not reimburse our Manager or its affiliates, for the salaries or benefits to be paid to personnel of our Manager or its affiliates who serve as our officers, except that 50% of the salary of our VP of Finance is allocated to us and we may grant equity awards to our officers under the NexPoint Real Estate Finance, Inc. 2020 Long Term Incentive Plan (the “2020 LTIP”).
However, our Manager is responsible, and we will not reimburse our Manager or its affiliates, for the salaries or benefits to be paid to personnel of our Manager or its affiliates who serve as our officers, except that 50% of the salary of our VP of Finance is allocated to us and we may grant equity awards to our officers under the NexPoint Real Estate Finance, Inc. 2020 Long Term Incentive Plan (as amended and restated, the “LTIP”).
Commitments and Contingencies Except as otherwise disclosed in Note 15 to our consolidated financial statements, the Company is not aware of any contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our consolidated financial statements.
Commitments and Contingencies Except as otherwise disclosed below, the Company is not aware of any contractual obligations, legal proceedings or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our consolidated financial statements.
Management considers quantitative factors likely to cause estimated credit losses, including default rate and loss severity rates. The Company also evaluates qualitative factors such as macroeconomic conditions, evaluations of underlying collateral, trends in delinquencies and non-performing assets.
Management considered quantitative factors likely to cause estimated credit losses, including default rate and loss severity rates. The Company also evaluated qualitative factors such as macroeconomic conditions, evaluations of underlying collateral, trends in delinquencies and non-performing assets.
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.
Unless we were entitled to relief under certain Code 71 Table of Contents 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.
These inputs are reflective of public company comparables, but are assumptions and estimates. As a result, the determination of fair value involves significant estimation uncertainty because it involves subjective judgments and estimates that are based on unobservable inputs. For the year ended December 31, 2022, the unrealized loss related to the change in fair value estimate is $8.1 million.
These inputs are reflective of public company comparables, but are assumptions and estimates. As a result, the determination of fair value involves significant estimation uncertainty because it involves subjective judgments and estimates that are based on unobservable inputs. For the year ended December 31, 2023, the unrealized loss related to the change in fair value estimate is $17.3 million.
These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be 75 Table of Contents reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates.
These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates.
In addition, our Sponsor, together with its affiliates, including NexBank, is one of the most experienced global alternative credit managers managing approximately $19.8 billion of loans and debt or credit related investments as of December 31, 2022 and has managed credit investments for over 25 years.
In addition, our Sponsor, together with its affiliates, including NexBank, is one of the most experienced global alternative credit managers managing approximately $26.0 billion of loans and debt or credit related investments as of December 31, 2023 and has managed credit investments for over 25 years.
On a quarterly basis, the Company, with the assistance of an independent third-party valuation firm, determines the fair value for subsequent measurement absent a readily available market price. The valuation is determined using widely accepted valuation techniques consistent with the principles of ASC 820.
The Company elected the fair-value option in accordance with ASC 825-10-10. On a quarterly basis, the Company, with the assistance of an independent third-party valuation firm, determines the fair value for subsequent measurement absent a readily available market price. The valuation is determined using widely accepted valuation techniques consistent with the principles of ASC 820.
Off-Balance Sheet Arrangements As of December 31, 2022, we had one 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.
Off-Balance Sheet Arrangements As of December 31, 2023, we had one off balance sheet arrangement that has or is 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.
The increase between the periods was primarily due to an increase in equity as defined by the Management Agreement and the number of days in operation compared to the prior period. 62 Table of Contents Key Financial Measures and Indicators As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, EAD, CAD and book value per share.
The increase between the periods was primarily due to an increase in equity as defined by the Management Agreement. 60 Table of Contents Key Financial Measures and Indicators As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, EAD, CAD and book value per share.
G&A expenses include, but are not limited to, audit fees, legal fees, listing fees, Board fees, equity-based and other compensation expenses, investor-relations costs and payments of reimbursements to our Manager. The Manager will be reimbursed for expenses it incurs on behalf of the Company.
Includes exit fees, placement fees and other miscellaneous income items. Operating Expenses G&A expenses. G&A expenses include, but are not limited to, audit fees, legal fees, listing fees, Board fees, equity-based and other compensation expenses, investor-relations costs and payments of reimbursements to our Manager. The Manager will be reimbursed for expenses it incurs on behalf of the Company.
As discussed in Note 9 to our consolidated financial statements, in connection with our recent CMBS acquisitions, we, through the OP and the Subsidiary OPs, have borrowed approximately $331.0 million under our repurchase agreements and posted approximately $974.4 million par value of our CMBS B-Piece, CMBS I/O Strip, MSCR Notes and mortgage backed security investments as collateral.
As discussed in Note 9 to our consolidated financial statements, in connection with our CMBS acquisitions, we, through the OP and the Subsidiary OPs, have borrowed approximately $303.5 million under our repurchase agreements and posted approximately $931.3 million par value of our CMBS B-Piece, CMBS I/O Strip, MSCR Notes and mortgage backed security investments as collateral.
The increase between the periods was primarily due to a $1.5 million increase in stock compensation expense and a $0.8 million increase in legal fees compared to the prior period. Loan servicing fees .
The increase between the periods was primarily due to a $1.1 million increase in stock compensation expense, a $0.6 million increase in legal fees, and a $0.7 million increase in audit fees compared to the prior period. Loan servicing fees.
At-The-Market Offering On March 31, 2021, the Company, the OP and the Manager entered into separate equity distribution agreements (the "2021 Equity Distribution Agreements") with the Sales Agents, pursuant to which the Company could issue and sell from time to time shares of the Company’s common stock and Series A Preferred Stock having an aggregate sales price of up to $100.0 million (the "2021 ATM Program").
At-The-Market Offering On March 15, 2022, the Company, the OP and the Manager separately entered into the 2022 Equity Distribution Agreements with the 2022 Sales Agents, pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock and Series A Preferred Stock having an aggregate sales price of up to $100.0 million in the 2022 ATM Program.
Neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit include claims related to our business or our assets or operations. Our Sponsor and Mr. Dondero have informed us they believe the Bankruptcy Trust Lawsuit has no merit, and Mr.
Dondero and a number of other persons and entities. Neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit include claims related to our business or our assets or operations. Our Sponsor and Mr. Dondero have informed us they believe the Bankruptcy Trust Lawsuit has no merit, and Mr.
Emerging Growth Company and Smaller Reporting Company Status Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Exchange Act, for complying with new or revised accounting standards applicable to public companies.
This increase was primarily driven by distributions to bondholders of VIEs. Emerging Growth Company and Smaller Reporting Company Status Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Exchange Act, for complying with new or revised accounting standards applicable to public companies.
The guaranties by REIT Sub and the Co-Guarantors are capped at $97.6 million, which amount will be reduced as the guaranteed obligations of NSP are paid. Each of REIT Sub 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.
The guaranties by 72 Table of Contents REIT Sub and the Co-Guarantors are capped at $97.6 million, and each of REIT Sub 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.
Our Board declared our fourth quarterly dividend of 2022 to common stockholders of $0.50 per share on October 24, 2022, which was paid on December 30, 2022 to common stockholders of record as of December 15, 2022.
Our Board declared the fourth regular quarterly dividend to common stockholders of $0.50 per share on October 30, 2023, which was paid on December 29, 2023, to stockholders of record as of December 15, 2023.
On December 15, 2022, our Board declared a preferred stock dividend of $0.53125 per share, which was paid on January 25, 2023 to preferred stockholders of record as of January 13, 2023.
On December 12, 2023, our Board declared a Series A Preferred Stock dividend to Series A Preferred stockholders of $0.53125 per share, which was paid on January 25, 2024, to Series A Preferred stockholders of record as of January 12, 2024.
Business—2022 Highlights.” We are externally managed by our Manager, a subsidiary of our Sponsor, an SEC-registered investment advisor, which has extensive real estate experience, having completed as of December 31, 2022 approximately $18.4 billion of gross real estate transactions since the beginning of 2012.
We are externally managed by our Manager, a subsidiary of our Sponsor, an SEC-registered investment advisor, which has extensive real estate experience, having completed as of December 31, 2023 approximately $21.7 billion of gross real estate transactions since the beginning of 2012.
On December 8, 2022 and in connection with a restructuring of NSP, the Company, through REIT Sub, together with the Co-Guarantors, as guarantors, entered into a Sponsor Guaranty Agreement in favor of Extra Space pursuant to which REIT Sub 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.
On December 8, 2022 and in connection with a restructuring of NSP, the Company, through REIT Sub, together with NexPoint Diversified Real Estate Trust, Highland Income Fund and NexPoint Real Estate Strategies Fund (collectively, the "Co-Guarantors"), as guarantors, entered into a sponsor guaranty agreement (the "NSP Sponsor Guaranty Agreement") in favor of Extra Space Storage, LP ("Extra Space") pursuant to which REIT Sub and the Co-Guarantors guaranteed obligations of NSP with respect to accrued dividends on 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.
If we consider a loan to be impaired, we will establish an allowance for loan losses, through a valuation provision in earnings that reduces carrying value of the loan to the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral.
If a loan was considered to be impaired, the Company would establish an allowance for loan losses, through a valuation provision in earnings that reduced carrying value of the loan to the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment was expected solely from the collateral.
Includes unrealized gain (loss) based on changes in the fair value of our mortgage backed securities. See Note 6 to our consolidated financial statements for additional information. 59 Table of Contents Loan loss benefit (provision). Loan loss benefit (provision) represents the change in our allowance for loan losses. See Note 2 to our consolidated financial statements for additional information.
Includes unrealized gain (loss) based on changes in the fair value of our mortgage backed securities. See Note 7 to our consolidated financial statements for additional information. 57 Table of Contents Provision for (reversal of) credit losses, net. Provision for (reversal of) credit losses, net represents the change in our allowance for loan losses.
Management fees . Management fees were $2.3 million for the year ended December 31, 2021 compared to $1.6 million for the year ended December 31, 2020 which was an increase of approximately $0.7 million.
Management fees were $3.3 million for the year ended December 31, 2023 compared to $3.2 million for the year ended December 31, 2022 which was an increase of approximately $0.1 million.
During the year ended December 31, 2022, net cash provided by investing activities was $950.6 million compared to net cash provided by investing activities of $517.9 million for the year ended December 31, 2021. This increase was primarily driven by proceeds received from payments on mortgage loans held in VIEs. Cash flows from financing activities.
Cash flows from investing activities. During the year ended December 31, 2023, net cash provided by investing activities was $741.3 million, compared to net cash provided by operating activities of $950.6 million for the year ended December 31, 2022. This decrease was primarily driven by the increase in proceeds from payments on mortgage loans held in VIEs.
Dividends We intend to make regular quarterly dividend payments to holders of our common stock. We also intend to make the accrued dividend payments on the Series A Preferred Stock, which are payable quarterly in arrears as provided in the articles supplementary setting forth the terms of the Series A Preferred Stock.
We also intend to make the accrued dividend payments on the Series A Preferred Stock, which are payable quarterly in arrears as provided in the articles supplementary setting forth the terms of the Series A Preferred Stock and the Series B Preferred Stock, which are payable monthly as provided in the articles supplementary setting forth the terms of the Series B Preferred Stock.
During the year ended December 31, 2022, net cash provided by operating activities was $65.8 million compared to net cash provided by operating activities of $49.3 million for the year ended December 31, 2021. This increase was primarily due to the interest income generated by our investments. Cash flows from investing activities.
This increase was primarily due to the interest income generated by our investments. Cash flows from investing activities. During the year ended December 31, 2022, net cash provided by investing activities was $950.6 million compared to net cash provided by investing activities of $517.9 million for the year ended December 31, 2021.
Cash Flows The following table presents selected data from our Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020 (in thousands): For the Year Ended December 31, 2022 2021 2020 Net cash provided by (used in) operating activities $ 65,801 $ 49,298 $ 32,902 Net cash provided by (used in) investing activities 950,578 517,878 (68,261) Net cash provided by (used in) financing activities (1,029,264) (567,415) 68,830 Net increase (decrease) in cash, cash equivalents and restricted cash (12,885) (239) 33,471 Cash, cash equivalents and restricted cash, beginning of period 33,232 33,471 — Cash, cash equivalents and restricted cash, end of period $ 20,347 $ 33,232 $ 33,471 The year ended December 31, 2022 as compared to the year ended December 31, 2021 Cash flows from operating activities.
Cash Flows The following table presents selected data from our Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021 (in thousands): For the Year Ended December 31, 2023 2022 2021 Net cash provided by operating activities $ 31,556 $ 65,801 $ 49,298 Net cash provided by investing activities 741,342 950,578 517,878 Net cash (used in) financing activities (776,596) (1,029,264) (567,415) Net increase (decrease) in cash, cash equivalents, and restricted cash (3,698) (12,885) (239) Cash, cash equivalents and restricted cash, beginning of year 20,347 33,232 33,471 Cash, cash equivalents and restricted cash, end of year $ 16,649 $ 20,347 $ 33,232 The year ended December 31, 2023 as compared to the year ended December 31, 2022 70 Table of Contents Cash flows from operating activities.
Repurchase agreements will effectively allow us to borrow against loans and securities that we own in an amount equal to (1) the market value of such loans and/or securities multiplied by (2) the applicable advance rate.
Repurchase Agreements From time to time, we may enter into repurchase agreements to finance the acquisition of our target assets. Repurchase agreements will effectively allow us to borrow against loans and securities that we own in an amount equal to (1) the market value of such loans and/or securities multiplied by (2) the applicable advance rate.
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 stockholders.
REIT Tax Election We elected to be treated 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 stockholders.
Net income (loss) attributable to common stockholders may also be adjusted for the effects of certain GAAP adjustments and transactions that may not be indicative of our current operations, in each case after discussions between the Manager and the independent directors of our Board and approved by a majority of the independent directors of our Board.
For the purpose of calculating EAD for the management fee, net income (loss) attributable to common stockholders may be adjusted for the effects of certain GAAP adjustments and transactions that may not be indicative of our current operations, in each case after discussions between the Manager and the independent directors of our Board and approved by a majority of the independent directors of our Board. 61 Table of Contents CAD is a non-GAAP financial measure.
We believe that our various sources of capital, which may include future debt or equity issuances, net cash provided by operations and other secured and unsecured borrowings, will provide sufficient funds for our operations, 69 Table of Contents anticipated debt service payments, potential obligations to purchase Preferred Units and dividend requirements for the long-term.
We believe that our various sources of capital, which may include future debt or equity issuances, net cash provided by operations and other secured and unsecured borrowings, will provide sufficient funds for our operations, anticipated debt service payments, potential obligations to purchase investments under the Company's commitments noted in Note 15 to our consolidated financial statements and dividend requirements for the long-term.
Our net income attributable to common stockholders for the year ended December 31, 2021 was approximately $39.6 million.
Our net income attributable to common stockholders for the year ended December 31, 2023 was approximately $10.4 million.
Components of Our Revenues and Expenses Net Interest Income for the Years Ended December 31, 2022, 2021 and 2020 Interest income . Our earnings are primarily attributable to the interest income from mortgage loans, mezzanine loan and preferred equity investments. Loan premium/discount amortization and prepayment penalties are also included as components of interest income. Interest expense.
Our earnings are primarily attributable to the interest income from mortgage loans, mezzanine loan and preferred equity investments. Loan premium/discount amortization and prepayment penalties are also included as components of interest income. Interest expense.
Cash flows from investing activities. During the year ended December 31, 2021, net cash provided by investing activities was $517.9 million compared to net cash used in investing activities of $68.3 million for the year ended December 31, 2020. This increase was primarily driven by proceeds received from payments on mortgage loans held in VIEs. Cash flows from financing activities.
This increase was primarily driven by proceeds received from payments on mortgage loans held in VIEs. Cash flows from financing activities. During the year ended December 31, 2022, net cash used in financing activities was $1.0 billion compared to net cash used in financing activities of $567.4 million for the year ended December 31, 2021.
The table below provides additional details regarding recent borrowings under the master repurchase agreements (dollars in thousands): December 31, 2022 Facility Collateral Date issued Outstanding face amount Carrying value Final stated maturity Weighted average interest rate (1) Weighted average life (years) (2) Outstanding face amount Amortized cost basis Carrying value (3) Weighted average life (years) (2) Master Repurchase Agreements CMBS Mizuho (4) 4/15/2020 331,020 331,020 N/A (5) 5.83 % 0.20 974,440 543,919 539,736 7.0 (1) Weighted-average interest rate using unpaid principal balances.
The table below provides additional details regarding recent borrowings under the master repurchase agreements (dollars in thousands): December 31, 2023 Facility Collateral Date issued Outstanding face amount Carrying value Final stated maturity Weighted average interest rate (1) Weighted average life (years) (2) Outstanding face amount Amortized cost basis Carrying value (3) Weighted average life (years) (2) Master Repurchase Agreements CMBS Mizuho (4) 4/15/2020 303,514 303,514 N/A (5) 7.26 % 0.0 931,296 470,761 464,888 6.4 (1) Weighted-average interest rate using unpaid principal balances.
If we deem that it is probable that we will be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan is indicated.
If the Company determined that it was probable that it would be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan was indicated.
In our calculation of Equity, we will adjust our calculation of EAD to remove the compensation expense relating to awards granted under one or more of our long-term incentive plans that is added back in our calculation of EAD.
In our calculation of Equity, we will adjust our calculation of EAD to remove the compensation expense relating to awards granted under one or more of our long-term incentive plans that is added back in our calculation of EAD. Additionally, for the avoidance of doubt, Equity does not include the assets contributed to us in the Formation Transaction.
We believe that our organization and current and proposed method of operation will allow us to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. 76 Table of Contents Item 7A.
We believe that our organization and current and proposed method of operation will allow us to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies.
On October 15, 2021, the Bankruptcy Trust Lawsuit was filed by a litigation subtrust formed in connection with the Highland Bankruptcy against various persons and entities, including our Sponsor and James Dondero. In addition, on 57 Table of Contents February 8, 2023, the UBS Lawsuit was filed against Mr. Dondero and a number of other persons and entities.
On October 15, 2021, a lawsuit (the “Bankruptcy Trust Lawsuit”) was filed by a litigation subtrust formed in connection with Highland’s bankruptcy against various persons and entities, including our Sponsor and James Dondero. In addition, on February 8, 2023, a lawsuit (the “UBS Lawsuit”) was filed by UBS Securities LLC and its affiliate against Mr.
Other income was $71.3 million for the year ended December 31, 2021 compared to $25.8 million for the year ended December 31, 2020 which was an increase of approximately $45.5 million. This was primarily due to an increase in net assets related to consolidated CMBS VIEs and an increase in fair value marks between the periods. Expenses G&A expenses .
Other income was $25.3 million for the year ended December 31, 2023 compared to $2.7 million for the year ended December 31, 2022 which was an increase of approximately $22.6 million. This was primarily due to an increase in unrealized gains related to consolidated CMBS VIEs and an increase in fair value marks between the periods. Expenses G&A expenses.
Second, we will determine the amount of benefit to recognize and 74 Table of Contents 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 December 31, 2022.
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 December 31, 2023 . Dividends We intend to make regular quarterly dividend payments to holders of our common stock.
See Notes 5 and 10 for additional disclosures regarding the valuation of NSP. As of December 31, 2022, the Company owns approximately 6.36% of the total outstanding shares of the Private REIT. The Company records the Private REIT at fair value in accordance with ASC 321.
See Notes 5 and 10 to our consolidated financial statements for additional disclosures regarding the valuation of NSP. As of December 31, 2023, the Company owns approximately 6.36% of the total outstanding common equity of the Private REIT. The Company records the Private REIT at fair value in accordance with ASC 321. The valuation is determined using a market approach.
We believe this flexibility will enable us to efficiently manage risk and deliver attractive risk-adjusted returns under a variety of market conditions and economic cycles. For highlights of our acquisition, financing and other activity during 2022, see “Item 1.
We believe this flexibility will enable us to efficiently manage risk and deliver attractive risk-adjusted returns under a variety of market conditions and economic cycles.
G&A expenses were $6.4 million for the year ended December 31, 2021 compared to $3.4 million for the year ended December 31, 2020 which was an increase of approximately $3.0 million.
G&A expenses were $9.2 million for the year ended December 31, 2023 compared to $7.2 million for the year ended December 31, 2022 which was an increase of approximately $2.0 million.
Allowance for Loan Losses The Company performs a quarterly evaluation of loans classified as held for investment for impairment on a loan-by-loan basis in accordance with ASC 310-10-35, Receivables, Subsequent Measurement (“ASC 310-10-35”).
Allowance for Credit Losses In periods ending on or prior to December 31, 2022, the Company, with the assistance of an independent valuations firm, performed a quarterly evaluation of loans classified as held for investment for impairment on a loan-by-loan basis in accordance with ASC 310-10-35, Receivables, Subsequent Measurement (“ASC 310-10-35”).
(3) We have modified our calculation of EAD and CAD to exclude any add back of loan loss (benefit) provision beginning with our fiscal year 2021. 65 Table of Contents Book Value per Share / Unit The following table calculates our book value per share (in thousands, except per share data): December 31, 2022 December 31, 2021 Common stockholders' equity $ 346,474 $ 200,503 Shares of common stock outstanding at period end 17,080 9,164 Book value per share of common stock $ 20.29 $ 21.88 Due to the large noncontrolling interest in the OP and formerly the Subsidiary OPs (see Note 13 to our consolidated financial statements, for more information), we believe it is useful to also look at book value on a combined basis as shown in the table below (in thousands, except per share data): December 31, 2022 December 31, 2021 Common stockholders' equity $ 346,474 $ 200,503 Redeemable noncontrolling interests in the OP 96,501 261,423 Total equity $ 442,975 $ 461,926 Redeemable OP Units and SubOP Units at period end 5,038 12,308 Shares of common stock outstanding at period end 17,080 9,164 Combined shares of common stock and redeemable OP Units and SubOP Units 22,118 21,472 Combined book value per share / unit $ 20.03 $ 21.51 Our Portfolio Our portfolio consists of SFR Loans, CMBS B-Pieces, CMBS I/O Strips, mezzanine loans, preferred equity investments, common stock investments, multifamily properties, MSCR Notes and mortgage backed securities with a combined unpaid principal balance of $2.0 billion at December 31, 2022 and assumes the CMBS Entities’ assets and liabilities are not consolidated.
(2) Unrealized gains are the net change in unrealized loss on investments held at fair value applicable to common stockholders. 63 Table of Contents Book Value per Share / Unit The following table calculates our book value per share (in thousands, except per share data): December 31, 2023 December 31, 2022 Common stockholders' equity $ 309,832 $ 346,474 Shares of common stock outstanding at period end 17,232 17,080 Book value per share of common stock $ 17.98 $ 20.29 Due to the large noncontrolling interest in the OP (see Note 13 to our consolidated financial statements for more information), we believe it is useful to also look at book value on a combined basis as shown in the table below (in thousands, except per share data): December 31, 2023 December 31, 2022 Common stockholders' equity $ 309,832 $ 346,474 Redeemable noncontrolling interests in the OP 89,471 96,501 Total equity $ 399,303 $ 442,975 Redeemable OP Units at period end 5,038 5,038 Shares of common stock outstanding at period end 17,232 17,080 Combined shares of common stock and redeemable OP Units 22,270 22,118 Combined book value per share / unit $ 17.93 $ 20.03 Our Portfolio Our portfolio consists of SFR Loans, CMBS B-Pieces, CMBS I/O Strips, mezzanine loans, preferred equity investments, common equity investments, multifamily properties, MSCR Notes and mortgage backed securities with a combined unpaid principal balance of $1.6 billion as of December 31, 2023 and assumes the CMBS Entities’ assets and liabilities are not consolidated.
Loan servicing fees were $5.2 million for the year ended December 31, 2021 compared to $4.3 million for the year ended December 31, 2020 which was an increase of approximately $0.9 million. The increase between the periods was primarily due to an increase in loans in the portfolio and the number of days in operation compared to the prior period.
Loan servicing fees were $4.2 million for the year ended December 31, 2023 compared to $4.4 million for the year ended December 31, 2022 which was a decrease of approximately $0.2 million. The decrease between the periods was primarily due to a decrease in SFR Loans and mezzanine loans in the portfolio compared to the prior period. Management fees.
We earned approximately $26.1 million in net interest income, $71.3 million in other income, incurred operating expenses of $13.8 million, allocated $3.5 million of income to preferred stockholders and allocated $40.4 million of income to redeemable noncontrolling interests for the year ended December 31, 2021. Revenues Net interest income.
We earned approximately $16.8 million in net interest income, generated income of $25.3 million in other income, incurred operating expenses of $23.4 million, allocated $3.5 million of income to Series A Preferred stockholders, allocated $0.1 million of income to Series B Preferred stockholders, and allocated $4.8 million of income to redeemable non-controlling interests for the year ended December 31, 2023.
As of December 31, 2022, our cash and cash equivalents were $20.3 million.
As of December 31, 2023, our cash and cash equivalents were $16.6 million.
Realized losses. Realized losses include the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized losses. The Company reverses cumulative unrealized gains or losses previously reported in its Consolidated Statements of Operations with respect to the investment sold at the time of the sale. Revenues from consolidated real estate owned (Note 8).
The Company reverses cumulative unrealized gains or losses previously reported in its Consolidated Statements of Operations with respect to the investment sold at the time of the sale. Revenues from consolidated real estate owned (Note 8). Reflects the total revenues for our multifamily properties. Revenues include rental income from the multifamily properties. Equity in Income (Losses) of Equity Method Investments.
During the year ended December 31, 2021, net cash used in financing activities was $567.4 million compared to net cash provided by financing activities of $68.8 million for the year ended December 31, 2020. This increase was primarily driven by distributions to bondholders of VIEs.
Cash flows from financing activities. During the year ended December 31, 2023, net cash used in financing activities was $776.6 million, compared to net cash used in financing activities of $1.0 billion for the year ended December 31, 2022. This decrease was primarily driven by the increase in distributions to bondholders of VIEs.
Earnings Per Share and Dividends Declared The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share (in thousands, except per share data): For the Year Ended December 31, 2022 2021 2020 Net income (loss) attributable to redeemable noncontrolling interests $ 4,969 $ 40,387 $ 21,323 Net income attributable to common stockholders 3,233 39,577 11,099 Weighted-average number of shares of common stock outstanding Basic 14,686 6,601 5,206 Diluted 14,686 20,366 18,648 Net income per share, basic $ 0.22 $ 6.00 $ 2.13 Net income per share, diluted $ 0.22 $ 3.93 $ 1.74 Dividends declared per share $ 2.0000 $ 1.9000 $ 1.4198 Earnings Available for Distribution and Cash Available for Distribution EAD is a non-GAAP financial measure.
Earnings Per Share and Dividends Declared The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share (in thousands, except per share data): For the Year Ended December 31, 2023 2022 2021 Net income attributable to common stockholders $ 10,399 $ 3,234 $ 39,577 Net income attributable to redeemable noncontrolling interests 4,765 4,969 40,387 Weighted-average number of shares of common stock outstanding Basic 17,199 14,686 6,601 Diluted (1) 17,199 22,476 22,366 Net income per share, basic $ 0.60 $ 0.22 $ 6.00 Net income per share, diluted $ 0.60 $ 0.22 $ 3.93 Dividends declared per share $ 2.7400 $ 2.0000 $ 1.9000 (1) Diluted EPS calculations were higher than basic EPS and thus anti-dilutive for the years ended December 31, 2023 and 2022, respectively.
The following table provides a reconciliation of EAD and CAD to GAAP net income attributable to common stockholders for the years ended December 31, 2022, 2021, and 2020 (in thousands, except per share amounts): For the Year Ended December 31, 2022 2021 2020 % Change 2022 - 2021 % Change 2021 - 2020 Net income attributable to common stockholders $ 3,234 $ 39,577 $ 11,099 (91.8) % 256.6 % Adjustments Amortization of stock-based compensation 3,286 2,023 548 62.4 % 269.2 % Unrealized (gains) or losses (1) 33,539 (23,811) (2,263) (240.9) % 952.2 % One-time non-cash item (2) — — (1,053) N/A N/A Loan loss (benefit) provision (3) — — 94 N/A N/A EAD attributable to common stockholders $ 40,059 $ 17,789 $ 8,425 125.2 % 111.1 % EAD per Diluted Weighted-Average Share $ 2.63 $ 2.53 $ 1.57 4.0 % 61.1 % Adjustments Amortization of premiums $ 16,397 $ 5,408 $ 2,160 203.2 % 150.4 % Accretion of discounts (10,655) (5,587) (1,053) (90.7) % 430.6 % Depreciation and amortization of real estate investment 2,280 — — N/A N/A Amortization of deferred financing costs 38 — — N/A N/A Stock dividends received — — (538) N/A N/A CAD attributable to common stockholders $ 48,119 $ 17,610 $ 8,994 173.2 % 95.8 % CAD per Diluted Weighted-Average Share $ 3.15 $ 2.50 $ 1.67 26.0 % 49.7 % Weighted-average common shares outstanding - basic 14,686 6,601 5,206 122.5 % 26.8 % Weighted-average common shares outstanding - diluted (4) 15,257 7,045 5,378 116.6 % 31.0 % (1) Unrealized gains are the net change in unrealized loss on investments held at fair value (2) One-time non-cash item is the make-whole premium in the Jernigan Capital, Inc.
The following table provides a reconciliation of EAD and CAD to GAAP net income (loss) attributable to common stockholders for the years ended December 31, 2023, 2022 and 2021 (in thousands, except per share amounts): For the Year Ended December 31, 2023 2022 2021 % Change 2023 - 2022 % Change 2022 - 2021 Net income attributable to common stockholders $ 10,399 $ 3,234 $ 39,577 221.6 % (91.8) % Adjustments Amortization of stock-based compensation 4,411 3,286 2,023 34.2 % 62.4 % Provision for (reversal of) credit losses 3,603 — — N/A N/A Equity in (income) losses of equity method investments (1) 2,149 — — N/A N/A Unrealized (gains) or losses (2) 14,098 33,539 (23,811) (58.0) % 240.9 % EAD attributable to common stockholders $ 34,660 $ 40,059 $ 17,789 (13.5) % 125.2 % EAD per Diluted Weighted-Average Share $ 1.93 $ 2.63 $ 2.53 (26.6) % 4.0 % Adjustments Amortization of premiums $ 12,825 $ 16,397 $ 5,408 (21.8) % 203.2 % Accretion of discounts (11,631) (10,655) (5,587) 9.2 % 90.7 % Depreciation and amortization of real estate investments 2,066 2,280 — (9.4) % N/A Amortization of deferred financing costs (38) 38 — (199.3) % N/A CAD attributable to common stockholders $ 37,882 $ 48,119 $ 17,610 (21.3) % 173.2 % CAD per Diluted Weighted-Average Share $ 2.11 $ 3.15 $ 2.50 (33.0) % 26.0 % Weighted-average common shares outstanding - basic 17,199 14,686 6,601 17.1 % 122.5 % Weighted-average common shares outstanding - diluted (3) 17,939 15,257 7,045 17.6 % 116.6 % (1) Starting in the third quarter of 2023, the Company has adjusted EAD to remove the (income) / loss from equity method investments as it does not represent distributable earnings.
Our borrowings under the Credit Facility will mature on July 12, 2029; however, if an Underlying Loan matures prior to July 12, 2029, we will be required to repay the portion of the Credit Facility that is allocated to that loan (see Note 9 to our consolidated 70 Table of Contents financial statements for additional information).
Our borrowings under the Credit Facility will mature on July 12, 2029; however, if an Underlying Loan matures prior to July 12, 2029, we will be required to repay the portion of the Credit Facility that is allocated to that loan. As of December 31, 2023, the outstanding balance on the Credit Facility was $590.3 million.
During the year ended December 31, 2021, net cash provided by operating activities was $49.3 million compared to net cash provided by operating activities of $32.9 million for the year ended December 31, 2020. This increase was primarily due to the interest income generated by our investments and the change in unrealized loss on investments held at fair value.
During the year ended December 31, 2023, net cash provided by operating activities was $31.6 million, compared to net cash provided by operating activities of $65.8 million for the year ended December 31, 2022. This decrease was due to an increase in provision for credit losses and an increase in unrealized gains on investments held at fair value.
Company Notes Offering On April 20, 2021, the Company issued $75.0 million in aggregate principal amount of its 5.75% Notes at a price equal to 99.5% of par value for proceeds of approximately $73.1 million after original issue discount and underwriting fees.
Company Notes Offering In 2022 and 2023, the Company issued a total of $35 million and $15 million in aggregate principal amount, respectively, of its 5.75% Notes for proceeds of approximately $35.1 million and $13.6 million, respectively, after original issue discount and underwriting fees.
(9) The Company, through the Subsidiary OPs, invested $2.7 million and $1.3 million in this preferred equity investment on April 7, 2022 and May 3, 2022, respectively. (10) Real Estate is a 204-unit multifamily property.
(12) The Company, through the Subsidiary OPs, invested $2.7 million and $1.3 million in this preferred equity investment on April 7, 2022 and May 3, 2022, respectively. (13) The Company reclassified this investment from a mezzanine loan to preferred equity effective January 1, 2023.
(3) We have modified our calculation of EAD and CAD to exclude any add back of loan loss (benefit) provision beginning with our fiscal year 2021. 64 Table of Contents (4) Weighted-average diluted shares outstanding does not include dilutive effect of redeemable non-controlling interests The following table provides a reconciliation of EAD and CAD to GAAP net income including the dilutive effect of non-controlling interests for the years ended December 31, 2022, 2021, and 2020 (in thousands, except per share amounts): For the Year Ended December 31, 2022 2021 2020 % Change 2022 - 2021 % Change 2021 - 2020 Net income attributable to common stockholders $ 3,234 $ 39,577 $ 11,099 (91.8) % 256.6 % Net income attributable to redeemable noncontrolling interests 4,969 40,387 21,323 (81.9) % 89.4 % Adjustments Amortization of stock-based compensation 3,286 2,023 548 62.4 % 269.2 % Unrealized (gains) or losses (1) 44,765 (43,503) (3,981) 202.9 % 992.8 % One-time non-cash item (2) — — (2,094) N/A N/A Loan loss (benefit) provision (3) — — 320 N/A N/A EAD attributable to common stockholders $ 56,254 $ 38,484 $ 27,215 52.3 % 41.4 % EAD $ 2.50 $ 1.89 $ 1.46 38.1 % 29.5 % Adjustments Amortization of premiums $ 20,840 $ 15,769 $ 8,280 32.2 % 90.4 % Accretion of discounts (13,312) (9,196) (3,160) (44.8) % 191.0 % Depreciation and amortization of real estate investment 2,895 — — N/A N/A Amortization of deferred financing costs 48 — — N/A N/A Stock dividends received — — (1,254) N/A N/A CAD $ 66,725 $ 45,057 $ 31,081 53.3 % 45.0 % CAD per Diluted Weighted-Average Share $ 2.97 $ 2.21 $ 1.67 38.9 % 32.3 % Weighted-average common shares outstanding - basic 14,686 6,601 5,206 122.5 % 26.8 % Weighted-average common shares outstanding - diluted 22,476 20,366 18,648 10.4 % 9.2 % (1) Unrealized gains are the net change in unrealized loss on investments held at fair value (2) One-time non-cash item is the make-whole premium in the JCAP preferred stock investment conversion to common stock.
The following table provides a reconciliation of EAD and CAD to GAAP net income including the dilutive effect of non-controlling interests for the years ended December 31, 2023, 2022 and 2021 (in thousands, except per share amounts): For the Year Ended December 31, 2023 20 2022 2021 % Change 2023 - 2022 % Change 2022 - 2021 Net income (loss) attributable to common stockholders $ 10,399 $ 3,234 $ 39,577 221.6 % (91.8) % Net income (loss) attributable to redeemable noncontrolling interests 4,765 4,969 40,387 (4.1) % (87.7) % Adjustments Amortization of stock-based compensation 4,411 3,286 2,023 34.2 % 62.4 % Provision for (reversal of) credit losses 4,299 — — N/A N/A Equity in (income) losses of equity method investments (1) 2,564 — — N/A N/A Unrealized (gains) or losses (2) 16,820 44,765 (43,503) (62.4) % 202.9 % EAD $ 43,258 $ 56,254 $ 38,484 (23.1) % 46.2 % EAD per Diluted Weighted-Average Share $ 1.88 $ 2.50 $ 1.89 (24.8) % 32.3 % Adjustments Amortization of premiums $ 15,301 $ 20,840 $ 15,769 (26.6) % 32.2 % Accretion of discounts (13,877) (13,312) (9,196) 4.2 % 44.8 % Depreciation and amortization of real estate investments 2,465 2,895 — (14.9) % N/A Amortization of deferred financing costs (45) 48 — (193.8) % N/A CAD $ 47,102 $ 66,725 $ 45,057 (29.4) % 48.1 % CAD per Diluted Weighted-Average Share $ 2.05 $ 2.97 $ 2.21 (31.0) % 34.4 % Weighted-average common shares outstanding - basic 17,199 14,686 6,601 17.1 % 122.5 % Weighted-average common shares outstanding - diluted 23,001 22,476 20,366 2.3 % 10.4 % (1) Starting in the third quarter of 2023, the Company has adjusted EAD to remove the (income) / loss from equity method investments as it does not represent distributable earnings.

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