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What changed in NEXPOINT DIVERSIFIED REAL ESTATE TRUST's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of NEXPOINT DIVERSIFIED REAL ESTATE TRUST's 2023 and 2024 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 2024 report.

+746 added−427 removedSource: 10-K (2025-03-31) vs 10-K (2024-03-14)

Top changes in NEXPOINT DIVERSIFIED REAL ESTATE TRUST's 2024 10-K

746 paragraphs added · 427 removed · 367 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

45 edited+22 added−16 removed92 unchanged
Biggest changeReal Estate Equity Method Investments Ownership Percentage Investment Type Net Equity (1) Location VineBrook Homes Operating Partnership, L.P. 11.2 % Single-Family Rental $ 146,516 Various NexPoint Real Estate Finance Operating Partnership, L.P. 15.6 % Diversified 76,688 Various NexPoint Storage Partners, Inc. 52.9 % Self-Storage 68,187 Various 2 Table of Contents NexPoint SFR Operating Partnership, L.P. 30.8 % Single-Family Rental 49,383 Various NexPoint Storage Partners Operating Company, LLC. 30.0 % Self-Storage 37,157 Various NexPoint Real Estate Finance, Inc. 12.0 % (2) Diversified 33,075 Various AM Uptown Hotel, LLC 60.0 % Hospitality 23,158 Dallas, Texas Las Vegas Land Owner, LLC 76.8 % (3) Multifamily 12,312 Las Vegas, Nevada Sandstone Pasadena Apartments, LLC 50.0 % Multifamily 11,458 Pasadena, Texas SFR WLIF III, LLC 20.0 % Single-Family Rental 7,079 Various NexPoint Hospitality Trust 46.2 % Hospitality 4,886 Various LLV Holdco, LLC 26.8 % Land 2,242 Henderson, Nevada Total $ 472,141 Other Real Estate Common Equity Shares/Units Investment Type Net Equity (1) IQHQ Holdings Class A-1 1,939 (2) Life Science $ 49,109 IQHQ Holdings Class A-2 250 (2) Life Science 6,684 NexPoint Residential Trust, Inc. 92 (2) Multifamily 3,154 Other 1,764 (2) Real Estate Other 1,166 Total $ 60,113 Real Estate Convertible Notes Principal Amount Investment Type Net Equity (1) SFR OP Convertible Notes 21,457 Single-Family Rental $ 20,814 NHT OP Notes 24,927 Hospitality 21,437 Total $ 42,251 Real Estate Senior Loans Principal Amount Investment Type Net Equity (1) LLV Holdco, LLC Revolver 10,715 Land $ 9,837 Real Estate Promissory Notes Principal Amount Investment Type Net Equity (1) NSP OC Promissory Note 5,000 Self-Storage $ 5,000 SFR OP Promissory Note 500 Single-Family Rental 500 $ 5,500 Other Equity Method Investments Shares/Units Investment Type Net Equity (1) Location Perilune Aero Equity Holdings One, LLC 10,310,000 Aircraft $ 12,256 Aerospace Claymore Holdings, LLC 4,465,280 (4) Litigation Claims — N/A Allenby, LLC 970,379 (4) Litigation Claims — N/A Haygood, LLC. 31,170 (4) Litigation Claims — N/A 3 Table of Contents Total $ 12,256 Other Assets Net Equity (1) Preferred Shares $ 66,268 Common Equity 52,827 (2) Senior Loans 31,016 CLO 1,215 Rights and Warrants 3,993 Bonds 85 Total $ 155,404 (1) Net equity represents the carrying value of the investment.
Biggest changePetersburg, Florida Hospitality Hyatt Place Park City 2/15/2022 27,636 — 28,267 Park City, Utah Hospitality Bradenton Hampton Inn & Suites 2/22/2022 30,911 — 31,029 Bradenton, Florida Hospitality Total $ 410,289 $ 163,189 $ 265,800 Investment Real Estate Investment Date Value Debt Net Equity (1) Location Property Type Held-For-Sale Properties Addison Property (4) 5/4/2017 $ 8,250 $ — $ 8,250 Addison, Texas Hospitality Plano HomeWood Suites 5/4/2017 8,266 — 8,266 Plano, Texas Hospitality Las Colinas HomeWood Suites 5/4/2017 13,762 — 13,762 Las Colinas, Texas Hospitality Total $ 30,278 $ — $ 30,278 Real Estate Equity Method Investments Ownership Percentage Investment Type Net Equity (1) Location VineBrook Homes Operating Partnership, L.P. 11.4 % Single-Family Rental $ 151,706 Various NexPoint Real Estate Finance Operating Partnership, L.P. 15.6 % Diversified 76,396 Various NexPoint Storage Partners, Inc. 52.8 % Self-Storage 62,709 Various NexPoint SFR Operating Partnership, L.P. 30.8 % Single-Family Rental 37,953 Various NexPoint Storage Partners Operating Company, LLC 30.5 % Self-Storage 34,172 Various NexPoint Real Estate Finance, Inc. 12.0 % (2) Diversified 32,949 Various AM Uptown Hotel, LLC 60.0 % Hospitality 18,081 Dallas, Texas Las Vegas Land Owner, LLC 77.0 % (5) Multifamily 12,321 Las Vegas, Nevada Sandstone Pasadena Apartments, LLC 50.0 % Multifamily 10,055 Pasadena, Texas LLV Holdco, LLC 26.8 % Land 2,606 Henderson, Nevada Capital Acquisitions Partners, LLC 20.9 % Multifamily 407 Various Total $ 439,355 3 Table of Contents Other Real Estate Common Equity Shares/Units Investment Type Net Equity (1) IQHQ Holdings Class A-1 1,939 (2) Life Science $ 24,718 Other 1,764 (2) Real Estate Other 7,530 NexPoint Residential Trust, Inc. 96 (2) Multifamily 4,018 IQHQ Holdings Class A-2 250 (2) Life Science 3,188 Total $ 39,454 DSTs Shares/Units Investment Type Net Equity (1) NexPoint Semiconductor Manufacturing DST 2,297 Real Estate Other $ 20,959 NexPoint Life Sciences II DST 1,044 Life Science 9,600 Total $ 30,559 Real Estate Convertible Notes Principal Amount Investment Type Net Equity (1) SFR OP Convertible Notes 21,457 Single-Family Rental $ 20,846 Real Estate Senior Loans Principal Amount Investment Type Net Equity (1) LLV Holdco, LLC Revolver 4,967 Land $ 4,709 Real Estate Promissory Notes Principal Amount Investment Type Net Equity (1) NFRO SFR Promissory Note 08/15/2025 3,883 Self-Storage $ 3,883 NFRO SFR Promissory Note 06/15/2025 3,432 Single-Family Rental 3,432 NSP OC Promissory Note 2,776 Single-Family Rental 2,765 SFR OP Promissory Note 500 Single-Family Rental 500 Total $ 10,580 Other Equity Method Investments Shares/Units Investment Type Net Equity (1) Location Perilune Aero Equity Holdings One, LLC 10,310,000 Aircraft $ 13,565 Aerospace Claymore Holdings, LLC 5,054,376 (6) Litigation Claims — N/A Allenby, LLC 1,123,531 (6) Litigation Claims — N/A Haygood, LLC. 31,170 (6) Litigation Claims — N/A Total $ 13,565 Other Assets Net Equity (1) Preferred Shares $ 69,895 Common Equity 69,151 (2) 4 Table of Contents Senior Loans 35,720 Rights and Warrants 1,788 Bonds 114 Total $ 176,668 (1) Net equity represents the carrying value of the investment.
(3) The Company owns 100% of Las Vegas Land Owner, LLC ("Tivoli"), a tenants-in-common arrangement (the "TIC") that owns 77% of an 8.5 acre tract of land upon which Tivoli plans to develop a 300 unit multifamily apartment community in Las Vegas, Clark County, Nevada.
(5) The Company owns 100% of Las Vegas Land Owner, LLC ("Tivoli"), a tenants-in-common arrangement (the "TIC") that owns 77% of an 8.5 acre tract of land upon which Tivoli plans to develop a 300 unit multifamily apartment community in Las Vegas, Clark County, Nevada.
The property management agreement with NexVest for Cityplace Tower is dated August 15, 2018, and the management fee is calculated on 3% of gross revenues, with a minimum fee of $20,000 per month.
The property management agreement with NexVest for Cityplace is dated August 15, 2018, and the management fee is calculated on 3% of gross revenues, with a minimum fee of $20,000 per month.
The Adviser computes Managed Assets as of the end of each fiscal quarter and then computes each installment of the Fees as promptly as possible after the end of the month with respect to which such installment is payable. 7 Table of Contents Incentive compensation may be payable to our executive officers and certain other employees of our Adviser or its affiliates pursuant to a long-term incentive plan adopted by us and approved by our shareholders.
The Adviser computes Managed Assets as of the end of each fiscal quarter and then computes each installment of the Fees as promptly as possible after the end of the month with respect to which such installment is payable. 8 Table of Contents Incentive compensation may be payable to our executive officers and certain other employees of our Adviser or its affiliates pursuant to a long-term incentive plan adopted by us and approved by our shareholders.
Management of Operating Properties The Company’s operating properties, other than undeveloped land, are managed by NexVest Realty Advisors, LLC (“NexVest”), an affiliate of the Adviser. The property management agreement with NexVest for the retail property in Lubbock, Texas is dated January 1, 2014 and has a fixed fee of $1,200 per month.
Management of Operating Properties The Company’s operating properties in the NXDT segment, other than undeveloped land, are managed by NexVest Realty Advisors, LLC (“NexVest”), an affiliate of the Adviser. The property management agreement with NexVest for the retail property in Lubbock, Texas is dated January 1, 2014 and has a fixed fee of $1,200 per month.
Even if we qualify for taxation as a REIT, we may be subject to some U.S. federal, state and local taxes on our income or property or REIT “prohibited transactions” taxes with respect to certain of our activities.
Even if we qualify for taxation as a REIT, we may be subject to some U.S. federal, state and local taxes on our income or property or REIT “prohibited transaction” taxes with respect to certain of our activities.
Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. In addition, for the operating properties in our Portfolio, we could self-insure certain portions of our insurance program and therefore, use our own funds to satisfy those limits.
Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. In addition, for the 12 Table of Contents operating properties in our Portfolio, we could self-insure certain portions of our insurance program and therefore, use our own funds to satisfy those limits.
Operating and Regulatory Structure General Our operating properties are subject to various laws, ordinances and regulations, including those relating to fire and safety requirements, and affirmative and negative covenants and, in some instances, common area obligations. We believe that each of the operating properties in our Portfolio has the necessary permits and approvals.
Operating and Regulatory Structure General 10 Table of Contents Our operating properties are subject to various laws, ordinances and regulations, including those relating to fire and safety requirements, and affirmative and negative covenants and, in some instances, common area obligations. We believe that each of the operating properties in our Portfolio has the necessary permits and approvals.
In addition, with respect to our operating properties, we compete for tenants based on a number of factors, including location, rental rates, security, flexibility, and expertise to design space to meet prospective tenants’ needs and the manner in which the property is operated, maintained, and marketed.
In addition, with respect to the NXDT segment’s operating properties, we compete for tenants based on a number of factors, including location, rental rates, security, flexibility, and expertise to design space to meet prospective tenants’ needs and the manner in which the property is operated, maintained, and marketed.
Failure to comply with these laws or regulations could result in the imposition of fines or an award of damages to private litigants, as well as the incurrence of the costs of making modifications to attain compliance, and future legislation could impose additional 9 Table of Contents obligations or restrictions on our operating properties.
Failure to comply with these laws or regulations could result in the imposition of fines or an award of damages to private litigants, as well as the incurrence of the costs of making modifications to attain compliance, and future legislation could impose additional obligations or restrictions on our operating properties.
Our Portfolio As of December 31, 2023, the Company’s Portfolio includes real estate investments comprised of four operating properties, three of which are rented from the Company for retail, hospitality or office use and one which is undeveloped, two convertible note and two promissory note investments in businesses focused on SFR and hospitality real estate, and 13 equity investments in businesses primarily focused on investing in SFR, self-storage, hospitality, life science or undeveloped real estate, as well as investing in commercial mortgage loans or other structured investments with underlying properties types including single-family, multifamily, life science and self-storage.
Our Portfolio As of December 31, 2024, the Company’s NXDT Portfolio includes real estate investments comprised of four operating properties, three of which are rented from the Company for retail, hospitality or office use and one of which is undeveloped, two convertible note and two promissory note investments in businesses focused on single-family rental (“SFR”) and hospitality real estate, and 13 equity investments in businesses primarily focused on investing in SFR, self-storage, hospitality, life science or undeveloped real estate, as well as investing in commercial mortgage loans or other structured investments with underlying properties types including single-family, multifamily, life science and self-storage.
In general, we also expect, with regard to our subsidiaries relying on Section 3(c)(5)(C), to rely on other guidance published by the SEC staff and on our analyses of guidance published with respect to other types of assets to determine which assets are qualifying assets and real estate-related assets.
In general, we also expect, with regard to our subsidiaries relying on Section 3(c)(5)(C), to rely on other guidance published by the SEC staff and on our analyses of guidance published with respect to other types of assets to determine 13 Table of Contents which assets are qualifying assets and real estate-related assets.
Through the TIC, the Company shares control and as such accounts for this investment using the equity method. (4) The Company owns noncontrolling interests in three limited liability companies, Claymore Holdings, LLC, Allenby, LLC, and Haygood, LLC, created to hold litigation claims. The probability, timing, and potential amount of recovery, if any, are unknown as of December 31, 2023.
Through the TIC, the Company shares control and as such accounts for this investment using the equity method. (6) The Company owns noncontrolling interests in three limited liability companies, Claymore Holdings, LLC, Allenby, LLC, and Haygood, LLC, created to hold litigation claims. The probability, timing, and potential amount of recovery, if any, are unknown as of December 31, 2024.
Direct payment of operating expenses by us together with reimbursement of operating expenses to the Adviser, plus compensation expenses relating to equity awards granted under a long-term incentive plan and all other corporate general and administrative expenses of the Company, including the Fees (defined below) payable under the Advisory Agreement, may not exceed 1.5% (the “Expense Cap”) of Managed Assets (defined below), calculated as of the end of each quarter, for the twelve-month period following the Company’s receipt of the Deregistration Order.
Prior to June 30, 2023, direct payment of operating expenses by us together with reimbursement of operating expenses to the Adviser, plus compensation expenses relating to equity awards granted under a long-term incentive plan and all other corporate general and administrative expenses of the Company, including the Fees (defined below) payable under the Advisory Agreement, could not exceed 1.5% (the “Expense Cap”) of Managed Assets (defined below), calculated as of the end of each quarter, for the twelve-month period following the Company’s receipt of the Deregistration Order.
The Adviser manages the day-to-day operations of the Company and provides investment management services. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and the Company’s Board. The Adviser is wholly owned by our Sponsor.
The Adviser manages the day-to-day operations of the Company and provides investment management services. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and the Company’s Board. The Adviser is wholly owned by our Sponsor. The members of our Adviser’s investment committee are James Dondero and Matt McGraner.
Investment Company Act Exclusion 11 Table of Contents We, as well as our subsidiaries, intend to conduct our operations so that we are not required to register as an investment company under the Investment Company Act.
Investment Company Act Exclusion We, as well as our subsidiaries, intend to conduct our operations so that we are not required to register as an investment company under the Investment Company Act.
We are subject to significant competition in acquiring these investments. In particular, we will compete with a variety of institutional investors, including other REITs, specialty finance companies, public and private funds, commercial and investment banks, hedge funds, mortgage bankers, commercial finance and insurance companies, governmental bodies and other financial institutions, as well as developers, owners, and operators of real estate.
In particular, we will compete with a variety of institutional investors, including other REITs, specialty finance companies, public and private funds, commercial and investment banks, hedge funds, mortgage bankers, commercial finance and insurance companies, governmental bodies and other financial institutions, as well as developers, owners, and operators of real estate.
As of December 31, 2023, the Company’s Portfolio also includes other investments comprised of its ownership of common equity, loans, CLOs, rights and warrants, U.S. life settlement contracts, convertible notes and bonds from a number of diverse issuers and investment vehicles, including litigation claims and midband spectrum frequency licenses.
As of December 31, 2024, the Company’s Portfolio also includes other investments comprised of its ownership of common and preferred equity, loans, CLOs, rights and warrants, convertible notes and bonds from a number of diverse issuers and investment vehicles, including litigation claims and midband spectrum frequency licenses.
Share Repurchase Program On October 24, 2022, our Board of Trustees (our “Board”) authorized a share repurchase program (the “Share Repurchase Program”) through which we may repurchase an indeterminate number of common shares and our 5.50% Series A Cumulative Preferred Shares, liquidation preference $25.00 per share (the “Series A Preferred Shares”), at an aggregate market value of up to $20.0 million during a two-year period that is set to expire on October 24, 2024.
Share Repurchase Program On October 24, 2022, our Board of Trustees (our “Board”) authorized a share repurchase program (the “Prior Share Repurchase Program”) through which we could repurchase an indeterminate number of common shares and our 5.50% 1 Table of Contents Series A Cumulative Preferred Shares, liquidation preference $25.00 per share (the “Series A Preferred Shares”), at an aggregate market value of up to $20.0 million during a two-year period that expired on October 24, 2024.
The Advisory Agreement provides that the monthly installment of the fees shall be paid in cash unless the Adviser elects, in its sole discretion, to receive all or a portion of the monthly installment of the fees in common shares of the Company, subject to certain restrictions including that in no event shall the common shares issued to the Adviser under the Advisory Agreement exceed five percent of the number of common shares or five percent of the voting power of the Company outstanding prior to the first such issuance (the "Share Cap") and that in no event shall the Common Shares issued to the Adviser under the Advisory Agreement exceed 6,000,000 Common Shares; provided, however, that the Share Cap will not apply if the Company's shareholders have approved issuances in excess of the Share Cap.
The Advisory Agreement provides that the Administrative Fee shall be paid in cash and the monthly installment of the Advisory Fee shall be paid one-half in cash and one-half in common shares of the Company, subject to certain restrictions including that in no event shall the common shares issued to the Adviser under the Advisory Agreement exceed five percent of the number of common shares or five percent of the voting power of the Company outstanding prior to the first such issuance (the "Share Cap") and that in no event shall the common shares issued to the Adviser under the Advisory Agreement exceed 6,000,000 common shares; provided, however, that the Share Cap will not apply if the Company's shareholders have approved issuances in excess of the Share Cap.
Mortgage Debt: We expect that we may make investments in mortgage debt 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 investments may include whole loans or pari passu participations within such mortgage debt.
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 investments may include whole loans or pari passu participations within such mortgage debt. 5 Table of Contents Mezzanine Loans: We expect that we may originate or acquire mezzanine loans.
The Company focuses primarily on investing in various commercial real estate property types and across the capital structure, including but not limited to equity, mortgage debt, mezzanine debt and preferred equity. The Company is advised by the Adviser. The Company was formed in Delaware and has elected to be taxed as a REIT.
The Company focuses primarily on investing in various commercial real estate property types and across the capital structure, including but not limited to equity, mortgage debt, mezzanine debt and preferred equity. The Company is advised by the Adviser.
We are not presently aware of any material adverse indoor air quality issues at our operating properties. 10 Table of Contents Generally, the leases with respect to our office and retail operating properties require the lessee to comply with environmental law and provide that the lessee will indemnify us for any loss or expense we incur as a result of the lessee’s violation of environmental law or the presence, use or release of hazardous materials on our operating property attributable to the lessee.
Generally, the leases with respect to our office and retail operating properties require the lessee to comply with environmental law and provide that the lessee will indemnify us for any loss or expense we incur as a result of the lessee’s violation of environmental law or the presence, use or release of hazardous materials on our operating property attributable to the lessee.
Repurchases under this program may be discontinued at any time. As of December 31, 2023, we had not made any repurchases of our common shares or Series A Preferred Shares pursuant to the Share Repurchase Program.
Repurchases under this program may be discontinued at any time. As of December 31, 2024, we had not made any repurchases of our common shares or Series A Preferred Shares pursuant to the Share Repurchase Program. Reportable Segments The company has two reportable segments, NXDT and NHT.
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. 12 Table of Contents
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. From time to time, we may use our website as a distribution channel for material company information.
Although we believe we are well positioned to compete effectively, there can be no assurance that we will be able to achieve our business goals or expectations due to the extensive competition in our market sector.
We expect that these relationships will enable us to compete more efficiently and effectively for attractive investment opportunities. Although we believe we are well positioned to compete effectively, there can be no assurance that we will be able to achieve our business goals or expectations due to the extensive competition in our market sector.
Environmental laws also govern the presence, maintenance and removal of hazardous materials in building materials (e.g., asbestos and lead), and may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos).
Moreover, conditions identified in environmental assessments that did not appear material at that time, may in the future result in material liability. 11 Table of Contents Environmental laws also govern the presence, maintenance and removal of hazardous materials in building materials (e.g., asbestos and lead), and may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos).
The property management agreement with NexVest for Cityplace Tower also allows for the manager, as the agent of CP Tower Owner, LLC (“Owner”), to draw on the operating account when required in connection with the operation or maintenance of the property, the payment of certain expenses defined in the agreement, or as expressly approved in writing by Owner. 8 Table of Contents Competition Our profitability depends, in large part, on our ability to acquire investments in commercial real estate at attractive prices.
The property management agreement with NexVest for Cityplace also allows for the manager, as the agent of CP Tower 9 Table of Contents Owner, LLC (“Owner”), to draw on the operating account when required in connection with the operation or maintenance of the property, the payment of certain expenses defined in the agreement, or as expressly approved in writing by Owner.
Target underlying property types primarily include, but are not limited to, SFR, multifamily, self-storage, life science, office, industrial, hospitality, net lease and retail. The Company may, to a limited extent, hold, acquire or transact in certain non-real estate securities.
Target underlying property types primarily include real estate sectors where senior management has extensive operating expertise and experience including, SFR, multifamily, self-storage, life science, office, industrial, hospitality, net lease, retail and small bay industrial. The Company may, to a limited extent, hold, acquire or transact in certain non-real estate securities.
Target Investments We invest primarily in commercial real estate, including operating properties and common equity but also including, but not limited to, mortgage debt, mezzanine debt and preferred equity: Operating Properties: We make investments in operating properties with a value-add component, including but not limited to retail, hospitality, and office space rented from the Company and land for development. 4 Table of Contents Common Equity: We make investments in common equity in publicly traded companies and privately held entities focused on investment in real estate across a range of underlying property types.
Target Investments We invest primarily in commercial real estate, including operating properties and common equity but also including, but not limited to, mortgage debt, mezzanine debt and preferred equity: Operating Properties: We make investments in operating properties with a value-add component, including but not limited to retail, hospitality, and office space rented from the Company and land for development.
Material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances or regulations may impose material additional environmental liability. Moreover, conditions identified in environmental assessments that did not appear material at that time, may in the future result in material liability.
Material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances or regulations may impose material additional environmental liability.
These loans are not secured by the underlying real estate, but generally can be converted into preferred equity of the mortgage borrower or owner of a mortgage borrower, as applicable. Preferred Equity: We expect that we may make investments that are subordinate to any mortgage or mezzanine loan, but senior to the common equity of the borrower.
These loans are generally subordinate to the other mortgage debt on a property, but senior to the equity of the borrower. These loans are not secured by the underlying real estate, but generally can be converted into preferred equity of the mortgage borrower or owner of a mortgage borrower, as applicable.
In the face of this competition, we expect to have access to our Sponsor’s professionals and their industry experience, which we believe will provide us with a competitive advantage and help us assess investment risks and determine appropriate pricing for potential investments. We expect that these relationships will enable us to compete more efficiently and effectively for attractive investment opportunities.
Such competition may reduce occupancy rates and revenues of the NHT segment. In the face of this competition, we expect to have access to our Sponsor’s professionals and their industry experience, which we believe will provide us with a competitive advantage and help us assess investment risks and determine appropriate pricing for potential investments.
In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs.
In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our operating properties.
Our Adviser The Company is externally managed by the Adviser, through an agreement dated July 1, 2022, as amended on October 25, 2022 and April 11, 2023 (the “Advisory Agreement”), by and among the Company and the Adviser for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” 6 Table of Contents Our Structure The following chart shows our ownership structure as of the date hereof: Our Adviser The Company is externally managed by the Adviser, through an agreement dated July 1, 2022, as amended on October 25, 2022, April 11, 2023 and July 22, 2024 (the “Advisory Agreement”), by and among the Company and the Adviser for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated.
We also generally reimburse our Adviser for operating or offering expenses it incurs on our behalf or in connection with the services it performs for us.
Our Advisory Agreement 7 Table of Contents We pay our Adviser annual fees. We do not pay any incentive fees to our Adviser. We also generally reimburse our Adviser for operating or offering expenses it incurs on our behalf or in connection with the services it performs for us.
All of our executive officers are employees of our Adviser or its affiliates. As of December 31, 2023, we had no employees. Corporate Information Our and our Adviser’s offices are located at 300 Crescent Court, Suite 700, Dallas, Texas 75201. Our and our Adviser’s telephone number is (214) 276-6300. Our website is located at nxdt.nexpoint.com.
Human Capital Disclosure We are externally managed by our Adviser pursuant to the Advisory Agreement between us and our Adviser. All of our executive officers are employees of our Adviser or its affiliates. As of December 31, 2024, we had no employees. Corporate Information Our and our Adviser’s offices are located at 300 Crescent Court, Suite 700, Dallas, Texas 75201.
The Fees shall be payable independent of the performance of the Company or its investments. The Advisory Agreement also provides that the Administrative Fee shall be paid in cash.
The Fees shall be payable independent of the performance of the Company or its investments.
Substantially all of the Company’s business is conducted through NexPoint Diversified Real Estate Trust Operating Partnership, L.P. (the “OP”), the Company’s operating partnership and wholly owned subsidiary. The Company conducts its business (the “Portfolio”) through the OP and its wholly owned taxable REIT subsidiaries (“TRSs”).
(the “OP”), the Company’s operating partnership. As of December 31, 2024, the Company owned 100% of the issued and outstanding partnership units of the OP. The Company conducts its business (the “Portfolio”) through the OP and its wholly owned taxable REIT subsidiaries (“TRSs”).
Mezzanine Loans: We expect that we may originate or acquire mezzanine loans. These loans are generally subordinate to the other mortgage debt on a property, but senior to the equity of the borrower.
Preferred Equity: We expect that we may make investments that are subordinate to any mortgage or mezzanine loan, but senior to the common equity of the borrower.
Investment Real Estate Investment Date Value Debt Net Equity (1) Location Property Type Operating Properties Cityplace Tower 8/15/2018 $233,665 $142,305 $107,690 Dallas, Texas Office & Hospitality* NexPoint Dominion Land, LLC 8/9/2022 26,500 13,250 12,967 Plano, Texas Land White Rock Center 6/13/2013 13,485 — 12,893 Dallas, Texas Real Estate Other 5916 W Loop 289 7/23/2013 4,019 — 3,833 Lubbock, Texas Real Estate Other Total $277,669 $155,555 $137,383 * Cityplace is currently under development, and the Company is converting part of the property into a hotel, which was still under construction as of December 31, 2023.
See below for a table of our investments as of December 31, 2024 (dollars in thousands). 2 Table of Contents Investment Real Estate Investment Date Value Debt Net Equity (1) Location Property Type Operating Properties Cityplace Tower 8/15/2018 $ 231,393 $ 139,939 $ 105,688 Dallas, Texas Office, Multifamily & Hospitality (3) NexPoint Dominion Land, LLC 8/9/2022 26,500 13,250 13,269 Plano, Texas Land 5916 W Loop 289 (2) 7/23/2013 4,019 — 3,676 Lubbock, Texas Real Estate Other White Rock Center (2) 6/13/2013 13,716 10,000 2,097 Dallas, Texas Real Estate Other Dallas Hilton Garden Inn 12/31/2014 30,318 — 32,312 Dallas, Texas Hospitality St.
Maintaining the Section 3(c)(5)(C) exclusion, however, will limit our ability to make certain investments. Smaller Reporting Company Status Based on our annual revenues for 2023, we have transitioned from a "smaller reporting company" as defined in the Exchange Act.
Maintaining the Section 3(c)(5)(C) exclusion, however, will limit our ability to make certain investments. Smaller Reporting Company Status We are a “smaller reporting company” as defined in Regulation S-K under the Securities Act of 1933, as amended (the “Securities Act”), and may elect to take advantage of certain of the scaled disclosures available to smaller reporting companies.
Independent environmental consultants have conducted Phase I environmental site assessments at all of our operating properties, including undeveloped land, in our Portfolio. A Phase I environmental site assessment is a report that identifies potential or existing environmental contamination liabilities. Site assessments are intended to discover and evaluate information regarding the environmental condition of the assessed property and surrounding properties.
A Phase I environmental site assessment is a report that reviews various publicly available information and includes a site visit to identify recognized environmental conditions. Phase I Site assessments are intended to identify and evaluate known and reasonably ascertainable information regarding the environmental condition of the assessed property and surrounding properties.
The Company’s wholly owned subsidiary, NexPoint Diversified Real Estate Trust OP GP, LLC (the "OP GP"), is the sole general partner of the OP. 2023 Highlights Key highlights and transactions completed in 2023 include the following: Legacy CLOs For the year ended December 31, 2023, the Company received approximately $17.5 million in distributions from its legacy CLO positions, meaning CLO investments that were held prior to the Business Change (as defined below).
The Company’s wholly owned subsidiary, NexPoint Diversified Real Estate Trust OP GP, LLC (the "OP GP"), is the sole general partner of the OP. 2024 Highlights Key highlights and transactions completed in 2024 include the following: Investments in DSTs On July 26, 2024, the Company, through a subsidiary, contributed approximately $4.6 million to NexPoint Life Sciences II DST (“Life Sciences II DST”), in exchange for LLC interests.
The Company’s Portfolio, based on net equity, is comprised of 81.3% real estate investments and 18.7% other investments. See below for a table of our investments as of December 31, 2023 (dollars in thousands).
As of December 31, 2024, the Company’s NHT Portfolio includes real estate investments comprised of four operating properties, four of which are rented from the Company for hospitality use, and three properties which are held-for-sale. The Company’s Portfolio, based on net equity, is comprised of 81.6% real estate investments and 18.4% other investments.
Removed
The legacy CLO positions are in wind down, and the timing, and likelihood of any future distributions are uncertain. NexPoint SFR Operating Partnership, L.P. On October 25, 2023, the Company, contributed approximately $0.5 million to NexPoint SFR Operating Partnership, L.P.
Added
The Company was formed as a Delaware statutory trust on March 10, 2006 under the name “Highland Credit Strategies Fund” and changed its name to “NexPoint Diversified Real Estate Trust” in 2021, and the Company has elected to be taxed as a REIT. Substantially all of the Company’s business is conducted through NexPoint Diversified Real Estate Trust Operating Partnership, L.P.
Removed
(the "SFR OP") in exchange for a promissory note in the principal amount of $0.5 million made by the SFR OP (the "SFR OP Promissory Note"). The SFR OP Promissory Note has a maturity date of April 25, 2024 and accrues interest at a fixed rate of 8.80% per annum.
Added
On July 26, 2024, the Company, through a subsidiary, contributed $14.9 million to NexPoint Semiconductor Manufacturing DST (“Semiconductor DST”), in exchange for LLC interests. On September 11, 2024, the Company contributed an additional $6.1 million to Semiconductor DST in exchange for LLC interests. For further information on these transactions, see Note 10 to our consolidated financial statements.
Removed
The SFR OP is a subsidiary of NexPoint Homes Trust, Inc., a private single-family rental ("SFR") REIT managed by an affiliate of the Adviser.
Added
NHT Acquisition On April 10, 2024, the Company, through a subsidiary, acquired 2,176,257 units of NexPoint Hospitality Trust (“NHT”) (the “NHT Units”). As a result, the Company owned 53.65% of the outstanding NHT Units and was determined to hold the controlling financial interest in NHT. For further information on this transaction, see Note 2 to our consolidated financial statements.
Removed
Additionally, on April 18, 2023, the SFR OP paid down approximately $8.5 million of 7.50% convertible notes of the SFR OP ("SFR OP Convertible Notes") held by the Company or through one or more subsidiaries that are interest only during the term and mature on June 30, 2027.
Added
On November 22, 2024, the Company announced that it had entered into an Agreement and Plan of Merger pursuant to which it would acquire the remaining outstanding NHT Units in a merger transaction (the “NHT Merger”) for approximately $5.5 million, to be paid principally in common shares of the Company, with limited partnership interests of the OP paid for the equity interests of NHT Operating Partnership, LLC (“NHT OP”).
Removed
Subsequent to December 31, 2022 and through December 31, 2023, the Company, directly or through one or more subsidiaries, received approximately $1.8 million of additional common units of SFR OP (the "SFR OP Units") through continued participation in the SFR OP distribution reinvestment plan.
Added
On February 21, 2025, NHT’s unitholders voted to approve the NHT Merger. The NHT Merger is expected to close in the second quarter of 2025. SFR WLIF III On November 25, 2024, SFR WLIF III, LLC, redeemed all of the interests in SFR WLIF III, LLC. The Company received approximately $7.2 million for the redemption of its units.
Removed
As of December 31, 2023, the Company owns approximately 2,193,814, or 30.8%, of the outstanding SFR OP Units, $21.5 million in outstanding principal balance of SFR OP Convertible Notes and $0.5 million of the SFR OP Promissory Note.
Added
NREF OP IV On April 19, the OP loaned $6.5 million to NREF OP IV, L.P. (“NREF OP IV”), a subsidiary of NexPoint Real Estate Finance, Inc. (“NREF”).
Removed
NexPoint Storage Partners Operating Company, LLC On November 9, 2023, the Company, directly or through one or more subsidiaries contributed approximately $5.0 million to NexPoint Storage Partners Operating Company, LLC (the "NSP OC") in exchange for a promissory note in the principal amount of $5.0 million made by the NSP OC (the "NSP OC Promissory Note").
Added
In connection with the loan, NREF OP IV issued a promissory note to the OP in the initial principal amount of $6.5 million bearing interest at 7.535%, which is payable in kind, is interest only during its term and matures on April 19, 2029.
Removed
The NSP OC Promissory Note has a maturity date of May 8, 2024 and accrues interest at a fixed rate of 5.32% per annum. Specialty Financial Products, Ltd. On September 1, 2023, the Company, through one of its TRSs, entered into a contribution agreement to transfer a structured promissory note (the "Structured Note") issued by Specialty Financial Products, Ltd.
Added
We did not make any repurchases of our common shares of Series A Preferred Shares pursuant to the Prior Share Repurchase Program.
Removed
("SFP") and all its rights, title and interests to a related party NexAnnuity Holdings, Inc. ("NHI") and its wholly owned subsidiaries. The Company also transferred all of its ordinary shares in SFP to a separate share trustee. In exchange, the Company was issued 68,500 shares of Class A Preferred Stock in NHI.
Added
On October 28, 2024, the Board authorized a new share repurchase program (the “Share Repurchase Program”) through which the Company may repurchase an indeterminate number of common shares and Series A Preferred Shares, at an aggregate market value of up to $20.0 million during a two-year period that is set to expire on October 28, 2026.
Removed
On September 28, 2023, the Company redeemed 2,000 shares of Class A Preferred Stock of NHI for $2.0 million. On September 30, 2023, the Company elected to receive the quarterly distribution of approximately $0.5 million in Class A Preferred Stock instead of cash.
Added
NXDT represents the Company's primary reportable segment and represents a significant majority of the Company's consolidated portfolio (the "NXDT Portfolio"). The NXDT reportable segment is the legacy reportable segment and is focused on investing in various commercial real estate property types and across the capital structure, including but not limited to, equity, mortgage, debt, mezzanine debt and preferred equity.
Removed
On October 24, 2023, the Company redeemed 1,000 shares of Class A Preferred Stock of NHI for $1.0 million. On November 10, 2023, the Company redeemed 1,000 shares of Class A Preferred Stock of NHI for $1.0 million. On December 31, 2023, the Company elected to capitalize the 1 Table of Contents quarterly distribution of approximately $1.3 million.
Added
The NHT reportable segment represents a minority of the Company's consolidated portfolio (the "NHT Portfolio") and operations and is focused on exiting out of its remaining hospitality assets and repositioning the portfolio into other real estate sectors where management has extensive operating expertise and experience.
Removed
For further information on this transaction, see Note 10 to our consolidated financial statements. VineBrook Homes Operating Partnership, L.P. Subsequent to December 31, 2022 and through December 31, 2023, the Company, directly or through one or more subsidiaries, contributed approximately $4.3 million to VineBrook Homes Operating Partnership, L.P.
Added
(3) Cityplace Tower (“Cityplace”) is currently under development, and the Company is converting part of the property into a hotel with multifamily residential floors, which was still under construction as of December 31, 2024. (4) Effective December 19, 2024, the property ceased operating under the HomeWood Suites brand.
Removed
("VB OP") in exchange for common units of VB OP ("VB OP Units") through distribution reinvestments.
Added
Common Equity: We make investments in common equity in publicly traded companies and privately held entities focused on investment in real estate across a range of underlying property types. Mortgage Debt: We expect that we may make investments in mortgage debt on real estate properties.
Removed
For additional information on sources of and trends regarding our liquidity, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” 5 Table of Contents Our Structure The following chart shows our ownership structure as of the date hereof: (1) The Portfolio may be held directly or through one or more intermediate entities.
Added
Strategic Reallocation of NXDT’s Portfolio In the coming year, NXDT plans to re-focus its asset allocation across sectors in which our Sponsor has an extensive experience and expertise. This re-focusing will involve selling legacy assets that do not fall within our core investment strategy.
Removed
The members of our Adviser’s investment committee are James Dondero, Matt McGraner, and Brian Mitts. 6 Table of Contents Our Advisory Agreement We pay our Adviser annual fees. We do not pay any incentive fees to our Adviser.
Added
A more favorable capital market environment, with lower interest rates and increased liquidity, is expected to facilitate this process. The Company’s objective is to opportunistically sell $100 million to $150 million in assets to free up capital for reinvestment in target asset classes such as residential, self-storage, and life sciences.
Removed
For this Annual Report and in our definitive proxy statement on Schedule 14A for our 2024 Annual Meeting of Shareholders, we may elect to take advantage of certain of the scaled disclosures available to smaller reporting companies. Human Capital Disclosure We are externally managed by our Adviser pursuant to the Advisory Agreement between us and our Adviser.
Added
For additional information on sources of and trends regarding our liquidity, see “Item 7.
Added
The Company’s operating properties in the NHT segment are managed by affiliates of Aimbridge Hospitality Holdings, LLC (the “Manager”). The hotel management agreements generally require the Company to pay a base fee to the hotel manager calculated as a percentage of hotel revenues.
Added
In addition, the NHT segment’s hotel agreements generally provide that the hotel manager can earn an incentive fee for revenue or EBITDA over certain thresholds or based on a return over the required preferred return. The Company may employ other hotel managers in the future.
Added
The Company does not have any ownership or economic interest in the Manager or in any of the hotel management entities. Competition Our profitability depends, in large part, on our ability to acquire investments in commercial real estate at attractive prices. We are subject to significant competition in acquiring these investments.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

188 edited+241 added−14 removed461 unchanged
Biggest changeThese transactions include any: • merger or consolidation of the Company or any subsidiary of the Company with or into any Principal Shareholder; • issuance of any securities of the Company to any Principal Shareholder for cash (other than pursuant to any automatic dividend reinvestment plan); • sale, lease or exchange of all or any substantial part of the assets of the Company to any Principal Shareholder (except assets having an aggregate fair market value of less than 2% of the total assets of the Company, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period); or • sale, lease or exchange to the Company or any subsidiary thereof, in exchange for securities of the Company, of any assets of any Principal Shareholder (except assets having an aggregate fair market value of less than 2% of the total assets of the Company, aggregating for the purposes of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period). 38 Table of Contents The Principal Shareholder Requirements are not applicable if (i) 80% of our trustees approve by resolution a memorandum of understanding with the Principal Shareholder with respect to and substantially consistent with such transaction followed by, subject to a resolution of the trustees specifying a greater or lesser requirement with respect to the vote or quorum, the affirmative vote of a majority of our shares of beneficial interest present in person or represented by proxy and entitled to vote thereon, at a meeting where the holders of a majority of our shares of beneficial interest entitled to vote on the matter are present in person or by proxy, or (ii) the transaction is with an entity of which a majority of the outstanding shares of all classes and series of a stock normally entitled to vote in elections of directors is owned of record or beneficially by the Company and its subsidiaries.
Biggest changeThe Principal Shareholder Requirements are not applicable if (i) 80% of our trustees approve by resolution a memorandum of understanding with the Principal Shareholder with respect to and substantially consistent with such transaction followed by, subject to a resolution of the trustees specifying a greater or lesser requirement with respect to the vote or quorum, the affirmative vote of a majority of our shares of beneficial interest present in person or represented by proxy and entitled to vote thereon, at a meeting where the holders of a majority of our shares of beneficial interest entitled to vote on the matter are present in person or by proxy, or (ii) the transaction is with an entity of which a majority of the outstanding shares of all classes and series of shares normally entitled to vote in elections of directors is owned of record or beneficially by the Company and its subsidiaries.
Some of the factors that could affect our share price or result in fluctuations in the price or trading volume of our common shares 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; 46 Table of Contents • actual or anticipated accounting problems; • changes in market valuations of similar companies; • increases in or high 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 shareholders; • 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 shareholders, 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 share price or result in fluctuations in the price or trading volume of our common shares include: • actual or anticipated variations in our quarterly operating results, financial condition, cash flow and liquidity, or changes in investment strategy or prospects; 55 Table of Contents • 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 or high 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 shareholders; • 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 shares 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 shareholders, 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.
These events have and could in the future have an adverse effect on our business, results of operations, financial condition and liquidity in a number of ways, including, but not limited to: • The deterioration of global economic conditions as a result of such a crisis could ultimately decrease occupancy levels and pricing across our portfolio and/or increase concessions, reduce or defer tenants’ spending, result in changes in tenant preferences (including changes resulting from increased employer flexibility to work from home) or negatively impact tenants’ ability to pay their rent on time or at all; • Local and national authorities expanding or extending certain measures that impose restrictions on our, or the underlying property owners for our investments, ability to enforce tenants’ contractual rental obligations (such as eviction moratoriums or rental forgiveness) and limit our, or the underlying property owners for our investments, ability to raise rents or charge certain fees; • The risk of a prolonged outbreak and/or multiple waves of an outbreak could cause long-term damage to economic conditions, which in turn could diminish our access to capital at attractive terms and/or cause material declines in the fair value of our assets, leading to asset impairment charges; and • The potential inability to maintain adequate staffing at our properties and corporate/regional offices due to an outbreak and/or changes in employee preferences causing them to leave their jobs.
These events have and could in the future have an adverse effect on our business, results of operations, financial condition and liquidity in a number of ways, including, but not limited to: • The deterioration of global economic conditions as a result of such a crisis could ultimately decrease occupancy levels and pricing across our portfolio and/or increase concessions, reduce or defer tenants’ spending, result in 60 Table of Contents changes in tenant preferences (including changes resulting from increased employer flexibility to work from home) or negatively impact tenants’ ability to pay their rent on time or at all; • Local and national authorities expanding or extending certain measures that impose restrictions on our, or the underlying property owners for our investments, ability to enforce tenants’ contractual rental obligations (such as eviction moratoriums or rental forgiveness) and limit our, or the underlying property owners for our investments, ability to raise rents or charge certain fees; • The risk of a prolonged outbreak and/or multiple waves of an outbreak could cause long-term damage to economic conditions, which in turn could diminish our access to capital at attractive terms and/or cause material declines in the fair value of our assets, leading to asset impairment charges; and • The potential inability to maintain adequate staffing at our properties and corporate/regional offices due to an outbreak and/or changes in employee preferences causing them to leave their jobs.
In the past, class-action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have an adverse effect on our financial condition, results of operations, cash flow and trading price of our common shares.
In the past, class-action litigation has often been instituted against companies following periods of volatility in the price of their common shares. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have an adverse effect on our financial condition, results of operations, cash flow and trading price of our common shares.
If we borrow to fund dividends, our leverage ratios and future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. We may not be able to pay dividends in the future. In addition, some of our distributions may be considered a return of capital for income tax purposes.
If we borrow to fund distributions, our leverage ratios and future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. We may not be able to pay distributions in the future. In addition, some of our distributions may be considered a return of capital for income tax purposes.
We focus primarily on investing in various commercial real estate property types and across the capital structure, including but not limited to equity, mortgage debt, mezzanine debt and preferred equity. Our target underlying property types primarily include, but are not limited to, SFR, multifamily, self-storage, life science, office, industrial, hospitality, net lease and retail.
We focus primarily on investing in various commercial real estate property types and across the capital structure, including but not limited to mortgage debt, mezzanine debt, and common and preferred equity. Our target underlying property types primarily include, but are not limited to, SFR, multifamily, self-storage, life science, office, industrial, hospitality, net lease and retail.
If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties, that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company, and that we would be subject to limitations on corporate leverage that would have an adverse impact on our investment returns. 30 Table of Contents If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act) and Portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration and other matters.
If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties, that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company, and that we would be subject to limitations on corporate leverage that would have an adverse impact on our investment returns. 34 Table of Contents If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act) and Portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration and other matters.
Prospective investors should consult their tax advisors regarding the application and effect of state and local income and other tax laws on an investment in our stock. Foreign investors may be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon disposition of our common shares.
Prospective investors should consult their tax advisors regarding the application and effect of state and local income and other tax laws on an investment in our shares. Foreign investors may be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon disposition of our common shares.
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 Adviser, including Messrs. Dondero, Mitts, McGraner, Sauter, Norris, 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 Adviser, including Messrs. Dondero, McGraner, Sauter, Norris, 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; • 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; 17 Table of Contents • 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; • 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 increases in or high interest rates; • make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events; 31 Table of Contents • 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 increases in or high interest rates; • 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.
In addition, these actions by the Federal Reserve, as well as efforts by other central banks globally to combat inflation and restore price stability and other global events, may raise the prospect or severity of a recession.
In addition, actions by the Federal Reserve, as well as efforts by other central banks globally to combat inflation and restore price stability and other global events, may raise the prospect or severity of a recession.
The Advisory Agreement may be terminated by (a) us, upon a cause event (as defined in the Advisory Agreement), on 30 days ’ written notice, (b) either party, 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, (c) our Adviser, upon 30 days ’ written notice if we materially breach the agreement and such breach continues for 30 days before we are given such notice or (d) automatically in the event of an Advisers Act Assignment unless we provide written consent.
The Advisory Agreement may be terminated by (a) us, upon a cause event (as defined in the Advisory Agreement), on 30 days’ written notice, (b) either party, 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, (c) our Adviser, upon 30 days’ written notice if we materially breach the agreement and such breach continues for 30 days before we are given such notice or (d) automatically in the event of an Advisers Act Assignment unless we provide written consent.
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.
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 shareholders.
As a result, we cannot predict the percentage of our equity that will be invested in any commercial real estate property types at any given time. 28 Table of Contents If we fail to develop, enhance and implement strategies to adapt to changing conditions in the real estate industry and capital markets, our financial condition and results of operations may be materially and adversely affected.
As a result, we cannot predict the percentage of our equity that will be invested in any commercial real estate property types at any given time. 32 Table of Contents If we fail to develop, enhance and implement strategies to adapt to changing conditions in the real estate industry and capital markets, our financial condition and results of operations may be materially and adversely affected.
As a result, we could have “excess inclusion income.” Certain categories of stockholders, such as non-U.S. stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to any such excess inclusion income.
As a result, we could have “excess inclusion income.” Certain categories of shareholders, such as non-U.S. shareholders eligible for treaty or other benefits, shareholders with net operating losses, and certain tax-exempt shareholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to any such excess inclusion income.
Real estate investments are subject to various risks, including: • acts of nature, including extreme weather, earthquakes, floods and other natural disasters, as result of climate change or otherwise, which may result in uninsured losses; • acts of war, terrorism, social unrest or civil disturbances, including the consequences of such acts; • adverse changes in national and local economic and market conditions; • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations and ordinances; • costs of remediation and liabilities associated with environmental conditions including, but not limited to, indoor mold; and • the potential for uninsured or under-insured property losses.
Real estate investments are subject to various risks, including: • acts of nature, including extreme weather, earthquakes, floods and other natural disasters, as result of climate change or otherwise, which may result in uninsured losses; • acts of war, terrorism, social unrest or civil disturbances, including the consequences of such acts; • adverse changes in national and local economic and market conditions; 16 Table of Contents • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations and ordinances; • costs of remediation and liabilities associated with environmental conditions including, but not limited to, indoor mold; and • the potential for uninsured or under-insured property losses.
To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities, stock in REITs and other qualifying real estate assets, including certain mortgage loans and certain kinds of CMBS and debt instruments of publicly offered REITs.
To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities, shares in REITs and other qualifying real estate assets, including certain mortgage loans and certain kinds of CMBS and debt instruments of publicly offered REITs.
Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or accumulated earnings and profits.
Subject to certain exceptions, distributions received from us will be treated as distributions of ordinary income to the extent of our current or accumulated earnings and profits.
Other than the right to vote on matters which are submitted to a vote of our common shareholders, none of the provisions relating to the Series A Preferred Shares contain any terms relating to or limiting our indebtedness or affording the holders of Series A Preferred Shares 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 Shares.
Other than the right to vote on matters which are submitted to a vote of our common shareholders, none of the provisions relating to the Series A Preferred Shares or Series B Preferred Shares contain any terms relating to or limiting our indebtedness or affording the holders of Series A Preferred Shares or Series B Preferred Shares 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 Shares and Series B Preferred Shares.
However, we can offer no assurance that such opportunities will be allocated to us fairly or equitably in the short-term or over time. The Chapter 11 bankruptcy filing by Highland Capital Management, L.P. ( “ Highland ” ) may have materially adverse consequences on our business, financial condition and results of operations.
However, we can offer no assurance that such opportunities will be allocated to us fairly or equitably in the short-term or over time. The Chapter 11 bankruptcy filing by Highland Capital Management, L.P. (“Highland”) may have materially adverse consequences on our business, financial condition and results of operations.
If the IRS were successful in treating our OP or any other such subsidiary partnership as an entity taxable as a corporation for U.S. federal income tax purposes (including by reason of being classified as a publicly traded partnership, unless at least 90% of its income was qualifying income as defined in the Code, or a “taxable mortgage pool” for U.S. federal income tax purposes), we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT, unless we qualified for certain statutory savings provisions.
If the IRS were successful in treating our OP or any other such subsidiary partnership as an entity taxable as a corporation for U.S. federal income tax purposes (including by reason of being classified as a publicly traded partnership, unless at least 90% of its income was qualifying income as defined in the 48 Table of Contents Code, or a “taxable mortgage pool” for U.S. federal income tax purposes), we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT, unless we qualified for certain statutory savings provisions.
Those fees include management fees and obligations to reimburse our Adviser and its affiliates for expenses they incur in connection with their providing services to us, including certain personnel services. Additionally, on January 30, 2023, our shareholders approved a long-term incentive plan that provides us the ability to grant awards to employees of our Adviser and its affiliates.
Those fees include management fees and obligations to reimburse our Adviser and its affiliates for expenses they incur in connection with their providing services to us, including certain personnel services. Additionally, in January 2023, our shareholders approved a long-term incentive plan that provides us the ability to grant awards to employees of our Adviser and its affiliates.
Kirschner, as litigation trustee of a litigation subtrust formed pursuant to the Plan, filed a lawsuit (the “Bankruptcy Trust Lawsuit”) against various persons and entities, including our Sponsor and James Dondero. The Bankruptcy Trust Lawsuit does not include claims related to our business or our assets or operations. On March 27, 2023, Marc S.
Kirschner, as litigation trustee of a litigation subtrust formed pursuant to the Plan, filed a lawsuit (the “Bankruptcy Trust Lawsuit”) against various persons and entities, including our Sponsor and James Dondero. The Bankruptcy Trust Lawsuit does not include claims related to our business or our assets or operations. On March 24, 2023, Marc S.
There can be no assurance that we will be successful in entering into such replacement repurchase agreements on the same terms as the repurchase agreements that were terminated or at all. Any losses that we incur on our repurchase agreements could adversely affect our earnings and thus our cash available for distribution to stockholders.
There can be no assurance that we will be successful in entering into such replacement repurchase agreements on the same terms as the repurchase agreements that were terminated or at all. Any losses that we incur on our repurchase agreements could adversely affect our earnings and thus our cash available for distribution to shareholders.
In order to qualify and maintain our qualification as a REIT, we must distribute annually to our shareholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain.
In order to qualify and maintain our qualification as a REIT, we must distribute annually to our shareholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for distributions paid and excluding net capital gain.
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 shareholders. Because we primarily invest in the real estate industry, our investments expose us to risks similar to and associated with real estate investments generally.
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 distributions to shareholders. Because we primarily invest in the real estate industry, our investments expose us to risks similar to and associated with real estate investments generally.
In addition, certain U.S. stockholders may be subject to a 3.8% Medicare tax on dividends payable by REITs. The share ownership restrictions of the Code for REITs and the 9.8% share ownership limits in our declaration of trust may inhibit market activity in our shares and restrict our business combination opportunities.
In addition, certain U.S. shareholders may be subject to a 3.8% Medicare tax on dividends payable by REITs. The share ownership restrictions of the Code for REITs and the 9.8% share ownership limits in our declaration of trust may inhibit market activity in our shares and restrict our business combination opportunities.
If we cannot defer the taxable gain resulting from the sales of certain properties, our business, financial condition, results of operations and cash flow, the market price per share of our securities and our ability to satisfy our debt service obligations and make distributions to our stockholders could be materially and adversely affected.
If we cannot defer the taxable gain resulting from the sales of certain properties, our business, financial condition, results of operations and cash flow, the market price per share of our securities and our ability to satisfy our debt service obligations and make distributions to our shareholders could be materially and adversely affected.
Pursuant to the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), capital gain distributions attributable to sales or exchanges of “U.S. real property interests” (“USRPIs”), generally will be taxed to a non-U.S. stockholder as if such gain were effectively connected with a U.S. trade or business.
Pursuant to the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), capital gain distributions attributable to sales or exchanges of “U.S. real property interests” (“USRPIs”), generally will be taxed to a non-U.S. shareholder as if such gain were effectively connected with a U.S. trade or business.
Any federal or state taxes we pay will reduce our cash available for distribution to you. Prospective investors are urged to consult their tax advisors regarding the effect of other U.S. federal, state, local and non-U.S. tax laws on an investment in our stock.
Any federal or state taxes we pay will reduce our cash available for distribution to you. Prospective investors are urged to consult their tax advisors regarding the effect of other U.S. federal, state, local and non-U.S. tax laws on an investment in our shares.
If we cease to be a REIT, we will not be allowed a deduction for dividends paid to shareholders in computing our taxable income and will be subject to U.S. federal income tax at corporate rates and state and local taxes, which may have adverse consequences on our total return to our shareholders.
If we cease to be a REIT, we will not be allowed a deduction for distributions paid to shareholders in computing our taxable income and will be subject to U.S. federal income tax at corporate rates and state and local taxes, which may have adverse consequences on our total return to our shareholders.
In the future, we may issue debt or equity securities or incur other financial obligations, including share dividends and shares that may be issued in exchange for common shares. Upon liquidation, holders of our debt securities and other loans and preferred shares will receive a distribution of our available assets before common shareholders.
In the future, we may issue debt or equity securities or incur other financial obligations, including share distributions and shares that may be issued in exchange for common shares. Upon liquidation, holders of our debt securities and other loans and preferred shares will receive a distribution of our available assets before common shareholders.
Many of the costs and expenses associated with our investments, such as taxes, insurance, loan payments, and maintenance generally will or may not be reduced if a property is not fully occupied or other circumstances cause revenues to decrease, which could have a material adverse effect on our financial condition, results of operations, cash flow, cash available for distribution, and ability to service our debt obligations.
Many of the costs and expenses associated with our investments, such as taxes, insurance, loan payments, and maintenance generally will or may not be reduced if a property is not fully occupied or other circumstances cause revenues to decrease, which could have a material adverse effect on our 19 Table of Contents financial condition, results of operations, cash flow, cash available for distribution, and ability to service our debt obligations.
To qualify for this deduction, the U.S. shareholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property.
To qualify for this deduction, the U.S. shareholder receiving such dividends must hold the dividend-paying REIT shares for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the share becomes ex-dividend and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property.
Investments in securities of other companies or issuers, including debt and equity instruments such as bonds, preferred or common stock, or convertible instruments, could cause us to incur losses or other expenses which could adversely affect our financial position, results of operations, and cash flows.
Investments in securities of other companies or issuers, including debt and equity instruments such as bonds, preferred or common shares, or convertible instruments, could cause us to incur losses or other expenses which could adversely affect our financial position, results of operations, and cash flows.
If we write a covered call option, we forgo, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retains the risk of loss should the price of the underlying security decline.
If we write a covered call option, we forgo, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retain the risk of loss should the price of the underlying security decline.
Our declaration of trust authorizes us to issue an unlimited number of shares of beneficial interest. The statement of preferences of the Series A Preferred Shares designates a series of 4,800,000 preferred shares as Series A Preferred Shares, of which 3,359,593 are issued and outstanding as of December 31, 2023.
Our declaration of trust authorizes us to issue an unlimited number of shares of beneficial interest. The statement of preferences of the Series A Preferred Shares designates a series of 4,800,000 preferred shares as Series A Preferred Shares, of which 3,359,593 are issued and outstanding as of December 31, 2024.
If we were to fail to so qualify, gain realized by foreign investors on a sale of shares of our stock would be subject to FIRPTA tax, unless the shares of our stock were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common shares.
If we were to fail to so qualify, gain realized by foreign investors on a sale of shares of our shares beneficial interests would be subject to FIRPTA tax, unless the shares of our beneficial interests shares were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common shares.
Our ownership of interests in TRSs raises certain tax risks. A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS.
Our ownership of interests in TRSs raises certain tax risks. A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds shares, and that has made a joint election with such REIT to be treated as a TRS.
Future offerings of debt securities or our shares, including future offerings of traded or non-traded preferred shares, expressly designated as ranking senior to the Series A Preferred Shares as to distribution rights and rights upon our liquidation, dissolution or winding up may adversely affect the market price of the Series A Preferred Shares.
Future offerings of debt securities or our shares, including future offerings of traded or non-traded preferred shares, expressly designated as ranking senior to the Series A Preferred Shares as to distribution rights and rights upon our liquidation, dissolution, termination, cancellation or winding up may adversely affect the market price of the Series A Preferred Shares.
If we decide to issue debt securities or additional shares, including traded or non-traded preferred shares, expressly designated as ranking senior to the Series A Preferred Shares 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.
If we decide to issue debt securities or additional shares, including traded or non-traded preferred shares, expressly designated as ranking senior to the Series A Preferred Shares and Series B Preferred Shares as to distribution rights and rights upon our liquidation, dissolution, termination, cancellation 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.
Subject to qualifying and maintaining our REIT qualification and our exclusion from regulation under the Investment Company Act, our Adviser has significant latitude within the broad investment guidelines in determining the 34 Table of Contents types of investments it makes for us, and how such investments are financed or hedged, which could result in investment returns that are substantially below expectations or losses, which could materially and adversely affect us.
Subject to qualifying and maintaining our REIT qualification and our exclusion from regulation under the Investment Company Act, our Adviser has significant latitude within the broad investment guidelines in determining the types of investments it makes for us, and how such investments are financed or hedged, which could result in investment returns that are substantially below expectations or losses, which could materially and adversely affect us.
Our ability to provide attractive risk-adjusted returns to our shareholders 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 shareholders over the long term depends on our ability both to generate sufficient cash flow to pay an attractive distribution and to achieve capital appreciation, and we may not be able to do either.
We anticipate income tax obligations in connection with our ownership of interests in TRSs for fiscal year 2023. As a REIT, the value of our interests in our TRSs generally may not exceed 20% of the total value of our total assets at the end of any calendar quarter.
We anticipate income tax obligations in connection with our ownership of interests in TRSs for fiscal year 2024. As a REIT, the value of our interests in our TRSs generally may not exceed 20% of the total value of our total assets at the end of any calendar quarter.
Our declaration of trust gives our Board the authority to authorize and issue such securities as they determine to be necessary desirable or appropriate, and the Board has authorized the issuance of up to 4,800,000 Series A Preferred Shares.
Our declaration of trust gives our Board the authority to authorize and issue such securities as they determine to be necessary desirable or appropriate, and the Board has authorized the issuance of up to 4,800,000 Series A Preferred Shares and 16,000,000 Series B Preferred Shares.
A decline in the fair value of our assets may require us to recognize an “other-than-temporary” impairment against such assets under GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the original acquisition cost of such assets.
A decline in the fair value of our assets may require us to recognize an impairment against such assets under GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the original acquisition cost of such assets.
Commercial real estate investments, including investments in debt secured by commercial property, are subject to risks of delinquency and foreclosure and risks of loss that are greater than similar risks associated with investments in or loans made on the security of single-family residential property.
Commercial real estate investments, including investments in debt secured by commercial property, are subject to risks of delinquency and foreclosure and risks of loss that are greater than similar risks associated with investments in or loans made on single-family residential property.
There is a lack of clear authority governing the characterization of our subordinated debt or preferred equity investments for REIT qualification purposes. There is limited case law and administrative guidance addressing whether instruments similar to any mezzanine loans or preferred equity investments that we may acquire will be treated as equity or debt for U.S. federal income tax purposes.
There is a lack of clear authority governing the characterization of our subordinated debt or preferred equity investments for REIT qualification purposes. 47 Table of Contents There is limited case law and administrative guidance addressing whether instruments similar to any mezzanine loans or preferred equity investments that we may acquire will be treated as equity or debt for U.S. federal income tax purposes.
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 Shares.
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 Shares or Series B Preferred Shares (if any).
Because our decision to issue debt securities or shares expressly designated as ranking senior to the Series A Preferred Shares 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 expressly designated as ranking senior to the Series A Preferred Shares and Series B Preferred Shares as to distribution rights and rights upon our liquidation, dissolution, termination, cancellation 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.
The Series A Preferred Shares rank junior to all of our existing and future indebtedness, any classes and series of our shares of beneficial interest expressly designated as ranking senior to the Series A Preferred Shares 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 Shares and Series B Preferred Shares rank junior to all of our existing and future indebtedness, any classes and series of our shares of beneficial interest expressly designated as ranking senior to the Series A Preferred Shares and Series B Preferred Shares as to distribution rights and rights upon our liquidation, dissolution, termination, cancellation 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.
You 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 shareholders; • 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; • risks associated with our investment in diverse issuers, industries and investment forms and classes, both in real estate and in non-real estate sectors, including common equity, preferred equity securities, options or other derivatives, short sale contracts, secured loans of securities, reverse repurchase agreements, structured finance securities, below investment grade senior loans, bonds, convertible instruments, joint ventures, and emerging markets; • risks associated with our loans and investments in debt instruments including senior loans, CLOs, and structured finance securities; • the exposure of our loans and investments to risks similar to real estate investments generally, including the risk of delinquency, dependence on tenants, compliance with laws and regulations related to ownership of real property, and 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; • the use of leverage to finance our investments; • competition for desirable loans and investments; • the concentration of loans and investments in terms of type of interest, geography, asset types, industry 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; • 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 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; 13 Table of Contents • risks associated with our limited operating history as a REIT 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 Adviser’s management team or their affiliates; • our dependence on our Adviser, its affiliates and personnel to conduct our day-to-day operations and identify and realize returns on our investments within very broad investment guidelines and without fiduciary duties to us or a requirement to seek Board approval; • risks associated with the Adviser’s ability to terminate the Advisory Agreement and risks associated with any potential internalization of our management functions; • conflicts of interest and competing demands for time faced by our Adviser, 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 Adviser 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 Adviser 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 shareholders 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 associated with investments in synthetic form; • 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 cash flows and distributions on our shares; • 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 shareholder approval; • our ability to change our major policies, operations and targeted investments without shareholder 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 our shares 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 our governing documents 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 shares; • 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 Shares, including volatility in price and trading volume, subordination to our debt, dilution upon future issuances and lack of, or a low, rating on the Series A Preferred Shares; 14 Table of Contents • risk of failure to generate sufficient cash flows to service outstanding indebtedness or pay distributions on our shares 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.
You 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 shareholders; • 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; • risks associated with our investment in diverse issuers, industries and investment forms and classes, both in real estate and in non-real estate sectors, including common equity, preferred equity securities, options or other derivatives, short sale contracts, secured loans of securities, reverse repurchase agreements, structured finance securities, below investment grade senior loans, bonds, convertible instruments, joint ventures, and emerging markets; • risks associated with our loans and investments in debt instruments including senior loans, CLOs, and structured finance securities; • the exposure of our loans and investments to risks similar to real estate investments generally, including the risk of delinquency, dependence on tenants, compliance with laws and regulations related to ownership of real property, and foreclosure and loss in any of our commercial real estate-related investments that are secured, directly or indirectly, by real property; 14 Table of Contents • fluctuations in interest rate and credit spreads that could reduce our ability to generate income on our loans and investments; • the use of leverage to finance our investments; • competition for desirable loans and investments; • the concentration of loans and investments in terms of type of interest, geography, asset types, industry 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; • 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 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 as a REIT 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 Adviser’s management team or their affiliates; • our dependence on our Adviser, its affiliates and personnel to conduct our day-to-day operations and identify and realize returns on our investments within very broad investment guidelines and without fiduciary duties to us or a requirement to seek Board approval; • risks associated with the Adviser’s ability to terminate the Advisory Agreement and risks associated with any potential internalization of our management functions; • conflicts of interest and competing demands for time faced by our Adviser, 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 Adviser 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 Adviser 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 shareholders 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 associated with investments in synthetic form; 15 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 cash flows and distributions on our shares; • 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 shareholder approval; • our ability to change our major policies, operations and targeted investments without shareholder 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 our shares or discourage a third-party acquisition; • risks associated with (i) provisions in our governing documents that may limit shareholders’ choice of forum for disputes with us or discourage an acquisition of our securities or a change in control, including share ownership restrictions and limits and (ii) provisions of our governing documents 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 shares; • 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; • non-completion of the NHT Merger may have an adverse effect on our business and results of operations; • risks associated with holding shares of the Series A Preferred Shares, including volatility in price and trading volume, subordination to our debt, dilution upon future issuances and lack of, or a low, rating on the Series A Preferred Shares; • risks associated with holdings shares of the 9.00% Series B Cumulative Redeemable Preferred Shares, par value $0.001 per share, liquidation preference $25.00 per share (“Series B Preferred Shares”), including limited voting rights, subordination to our debt and dilution from future issuances; • risk of failure to generate sufficient cash flows to service outstanding indebtedness or pay distributions on our shares 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.
Conversely, if the assets are purchased at a discount 23 Table of Contents to either the principal balance of the loans or the par value of the loans underlying the securities, when borrowers prepay their mortgage loans slower than expected, the decrease in corresponding prepayments on the mortgage-related securities may reduce the expected yield on such securities because the related discount will not accrete as quickly as originally anticipated.
Conversely, if the assets are purchased at a discount to either the principal balance of the loans or the par value of the loans underlying the securities, when borrowers prepay their mortgage loans slower than expected, the decrease in corresponding prepayments on the mortgage-related securities may reduce the expected yield on such securities because the related discount will not accrete as quickly as originally anticipated.
Preferred stock, which may include preferred stock in real estate transactions, represents an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common stock in the payment of dividends.
Preferred shares, which may include preferred shares in real estate transactions, represents an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common shares in the payment of dividends.
Significant losses related to such loans or investments could adversely affect our results of operations and financial condition. Investments in subordinated debt and preferred equity also bear a greater risk of 25 Table of Contents default than senior debt and may receive payments after the holders on the more senior tranches of debt instruments with respect to an issuer.
Significant losses related to such loans or investments could adversely affect our results of operations and financial condition. Investments in subordinated debt and preferred equity also bear a greater risk of default than senior debt and may receive payments after the holders on the more senior tranches of debt instruments with respect to an issuer.
In addition to our commercial real estate focus, our investments may be concentrated in terms of property type (e.g. retail vs. office), geography, asset type, industry and sponsors, as we are not required to observe specific diversification criteria, except as may be set forth in the investment guidelines adopted by our Board.
In addition to our commercial real 24 Table of Contents estate focus, our investments may be concentrated in terms of property type (e.g. retail vs. office), geography, asset type, industry and sponsors, as we are not required to observe specific diversification criteria, except as may be set forth in the investment guidelines adopted by our Board.
Treasury fails to inject new capital as needed or if Fannie Mae and Freddie Mac are released from conservatorship, the market value of the CMBS securitizations they guaranteed could significantly decline, making it difficult to obtain repurchase agreement financing and could force holders of CMBS securitizations to sell assets at substantial losses.
Treasury fails to 33 Table of Contents inject new capital as needed or if Fannie Mae and Freddie Mac are released from conservatorship, the market value of the CMBS securitizations they guaranteed could significantly decline, making it difficult to obtain repurchase agreement financing and could force holders of CMBS securitizations to sell assets at substantial losses.
If the option is exercised, we could incur a loss if it is required to purchase the stock underlying the put option at a price greater than the market price of the stock at the time of exercise plus the put premium we received when we wrote the option.
If the option is exercised, we could incur a loss if it is required to purchase the shares underlying the put option at a price greater than the market price of the shares at the time of exercise plus the put premium we received when we wrote the option.
To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, among other purposes, our declaration of trust, including the statement of preferences setting forth the terms of the Series A Preferred Shares, prohibits, with certain exceptions, any shareholder from beneficially or constructively owning, applying certain attribution rules under the Code, more than 9.8% by value or number of shares, whichever is more restrictive, of the aggregate of our outstanding common shares, or 9.8% by value or number of shares, whichever is more restrictive, of the aggregate of our outstanding shares of any class or series, including the Series A Preferred Shares.
To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, among other purposes, our declaration of trust, including the statements of preferences setting forth the terms of the Series A Preferred Shares and the Series B Preferred Shares, prohibits, with certain exceptions, any shareholder from beneficially or constructively owning, applying certain attribution rules under the Code, more than 9.8% by value or number of shares, whichever is more restrictive, of the aggregate of our outstanding common shares, or 9.8% by value or number of shares, whichever is more restrictive, of the aggregate of our outstanding shares of any class or series, including the Series A Preferred Shares and Series B Preferred Shares.
We and our subsidiaries and stockholders may be subject to state, local or foreign tax filing and payment obligations taxation in various jurisdictions including those in which we or they transact business, own property or reside.
We and our subsidiaries and shareholders may be subject to state, local or foreign tax filing and payment obligations taxation in various jurisdictions including those in which we or they transact business, own property or reside.
However, the aggregate maximum amount that 35 Table of Contents our Adviser may be liable to us pursuant to the Advisory Agreement will, to the extent not prohibited by law, never exceed the amount of the management fees received by our Adviser under the Advisory Agreement prior to the date that the acts or omissions giving rise to a claim for indemnification or liability have occurred.
However, the aggregate maximum amount that our Adviser may be liable to us pursuant to the Advisory Agreement will, to the extent not prohibited by law, never exceed the amount of the management fees received by our Adviser under the Advisory Agreement prior to the date that the acts or omissions giving rise to a claim for indemnification or liability have occurred.
Our Portfolio may include properties leased to tenants that operate in multiple locations, and in the future we may own multiple properties operated by the same tenant. 16 Table of Contents At any given time, any tenant may experience a decline in its business that may weaken its operating results or the overall financial condition of individual properties or its business as a whole.
Our Portfolio may include properties leased to tenants that operate in multiple locations, and in the future we may own multiple properties operated by the same tenant. At any given time, any tenant may experience a decline in its business that may weaken its operating results or the overall financial condition of individual properties or its business as a whole.
Should we incur realized losses on liquidating these investments, our financial position, results of operations and cash flows would be adversely impacted. Our investments in the securities of 18 Table of Contents companies or issuers which are engaged in the real estate industry are also subject to risks associated with the investment in real estate generally.
Should we incur realized losses on liquidating these investments, our financial position, results of operations and cash flows would be adversely impacted. Our investments in the securities of companies or issuers which are engaged in the real estate industry are also subject to risks associated with the investment in real estate generally.
In addition, as regulatory capital requirements imposed on our lenders are increased, they may be required to limit, or increase the cost of, financing they provide to us. In general, this could potentially increase our financing costs 32 Table of Contents and reduce our liquidity or require us to sell assets at an inopportune time or price.
In addition, as regulatory capital requirements imposed on our lenders are increased, they may be required to limit, or increase the cost of, financing they provide to us. In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell assets at an inopportune time or price.
Our Adviser and its affiliates will face conflicts of interest, including significant conflicts created by our Adviser ’ s compensation arrangements with us, including compensation which may be required to be paid to our Adviser if the Advisory Agreement is terminated, which could result in actions that are not necessarily in the long-term best interest of our shareholders.
Our Adviser and its affiliates will face conflicts of interest, including significant conflicts created by our Adviser’s compensation arrangements with us, including compensation which may be required to be paid to our Adviser if the Advisory Agreement is terminated, which could result in actions that are not necessarily in the long-term best interest of our shareholders.
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.
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 shares that is regularly traded on an established securities market located in the United States and (2) the non-U.S. shareholder does not own more than 10% of the class of our shares at any time during the one-year period ending on the date the distribution is received.
We currently own interests in multiple TRS entities and may acquire securities in additional TRSs in the future. As of December 31, 2023, the Company wholly owned and consolidated two TRSs, NREO TRS, LLC and NHF TRS, LLC.
We currently own interests in multiple TRS entities and may acquire securities in additional TRSs in the future. As of December 31, 2024, the Company wholly owned and consolidated two TRSs, NREO TRS, LLC and NHF TRS, LLC.
If we are required to sell assets to fund dividends, such asset sales may occur at a time or in a manner that is not consistent with our disposition strategy.
If we are required to sell assets to fund distributions, such asset sales may occur at a time or in a manner that is not consistent with our disposition strategy.
To the extent joint venture partners do not meet their obligations to the joint venture or they take action inconsistent with the interests of the joint venture, we could be adversely affected. 22 Table of Contents If we acquire investments through joint ventures, we may be required to make decisions jointly with the other investors who have interests in the respective joint ventures.
To the extent joint venture partners do not meet their obligations to the joint venture or they take action inconsistent with the interests of the joint venture, we could be adversely affected. If we acquire investments through joint ventures, we may be required to make decisions jointly with the other investors who have interests in the respective joint ventures.
Accordingly, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the stock of REITs, including the per share trading price of our securities.
Accordingly, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the shares of REITs, including the per share trading price of our securities.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common shares generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common shares will not constitute a USRPI so long as we are a “domestically-controlled” REIT.
Gain recognized by a non-U.S. shareholder upon the sale or exchange of our common shares generally will not be subject to U.S. federal income taxation unless such shares constitutes a USRPI under FIRPTA. Our common shares will not constitute a USRPI so long as we are a “domestically-controlled” REIT.
Our cash available for distribution may not be sufficient to pay dividends on the Series A Preferred Shares 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 distributions on the Series A Preferred Shares and Series B Preferred Shares at expected levels, and we cannot assure you of our ability to pay distributions in the future. We may use borrowed funds or funds from other sources to pay distributions, which may adversely impact our operations.
Subject to limitations prescribed by Delaware law and our declaration of trust and the statement of preferences setting forth the terms of the Series A Preferred Shares, our Board is authorized to issue preferred shares in such classes or series as our Board may determine and to establish from time to time the number of preferred shares to be included in any such class or series.
Subject to limitations prescribed by Delaware law and our declaration of trust and the statements of preferences setting forth the terms of the Series A Preferred Shares and Series B Preferred Shares, our Board is authorized to issue preferred shares in such classes or series as our Board may determine and to establish from time to time the number of preferred shares to be included in any such class or series.
In the event an issuer of preferred stock is liquidated or declares bankruptcy, the claims of creditors and owners of debt take precedence over the claims of those who own preferred and common stock. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline.
In the event an issuer of preferred shares is liquidated or declares bankruptcy, the claims of creditors and owners of debt take precedence over the claims of those who own preferred and common shares. If interest rates rise, the fixed dividend on preferred shares may be less attractive, causing the price of preferred shares to decline.
Furthermore, any costs or delays involved in the foreclosure of the loan and/or investment or a liquidation of the underlying property will further reduce the net proceeds and, thus, increase the loss. Liability relating to environmental matters may impact the value of properties that we may acquire or the properties underlying our investments.
Furthermore, any costs or delays involved in the foreclosure of the loan and/or investment or a liquidation of the underlying property will further reduce the net proceeds and, thus, increase the loss. 31 Table of Contents Liability relating to environmental matters may impact the value of properties that we may acquire or the properties underlying our investments.
The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and place additional demands on management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
Although we are a smaller reporting company, the requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and place additional demands on management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
Payments of principal and interest on borrowings may leave us with insufficient cash resources to acquire additional investments or pay the dividends necessary to maintain our REIT qualification.
Payments of principal and interest on borrowings may leave us with insufficient cash resources to acquire additional investments or pay the distributions necessary to maintain our REIT qualification.
We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them. We may acquire debt instruments, including but not limited to SFR mortgage loans and CMBS, in the secondary market for less than their face amount.
We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them. 50 Table of Contents We may acquire debt instruments, including but not limited to SFR mortgage loans and CMBS, in the secondary market for less than their face amount.
Legislative or other actions affecting REITs could have a negative effect on our shareholders or us. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury.
Legislative or other actions affecting REITs could have a negative effect on our shareholders or us. 51 Table of Contents The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeHowever, the risk of cybersecurity threats could be significant if the cyber-attack disrupts the Company’s critical operations, service or financial systems. See “Risk Factors - We depend on information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect our ability to pay dividends to our stockholders”.
Biggest changeSee “Risk Factors - We are highly dependent on information technology and security breaches or systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our securities and our ability to pay distributions”.
As one of the critical elements of the Company’s overall risk management, our Adviser’s cybersecurity program is focused on the following key areas: Governance: The Board’s oversight of cybersecurity risk management is supported by the Audit Committee of the Board (the “Audit Committee”), which interacts with our Adviser’s Director of Information Technology and Chief Compliance Officer and other members of management of our Adviser that implement and oversee our Adviser’s cybersecurity program.
As one of the critical elements of the Company’s overall risk management, our cybersecurity program is focused on the following key areas: Governance: The Board’s oversight of cybersecurity risk management is supported by the Audit Committee of the Board (the “Audit Committee”), which interacts with our Adviser’s Director of Information Technology and other members of management of our Adviser that implement and oversee our Adviser’s cybersecurity program.
Our Adviser engages in the periodic assessment and testing of our Adviser’s policies, standards, processes and practices that are designed to address the Company’s cybersecurity threats and incidents. These efforts include a wide range of activities, including annual penetration and third-party compliance testing and ongoing internal testing and creation and modification of policies and procedures.
Our Adviser engages in the periodic assessment and testing of our Adviser’s policies, standards, processes and practices that are designed to address the Company’s cybersecurity threats and incidents. These efforts include a wide range of activities, including annual penetration and third-party compliance testing and ongoing internal testing and 67 Table of Contents creation and modification of policies and procedures.
Item 1C. Cybersecurity 51 Table of Contents The Company’s Board recognizes the critical importance of maintaining the trust and confidence of our customers, clients, business partners and employees. The Board is actively involved in oversight of the Company’s risk management program, and cybersecurity represents an important component of the Company’s overall approach to risk management.
Item 1C. Cybersecurity The Company’s Board recognizes the critical importance of maintaining the trust and confidence of our customers, clients, business partners and employees. The Board is actively involved in oversight of the Company’s risk management program, and cybersecurity represents an important component of the Company’s overall approach to risk management.
Incident Response and Recovery Planning: Our Adviser has established and maintains comprehensive business continuity plans that address potential impacts should the information or technology systems become compromised, and such plans are tested and evaluated on a regular basis.
Incident Response and Recovery Planning: Our Adviser has established and maintains comprehensive business continuity plans that address potential impacts should the information or technology systems become compromised, and the technological components of such plans are tested and evaluated on a regular basis.
The Audit Committee also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed.
The Audit Committee also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. On an annual basis, the Board and the Audit Committee discuss the Company’s approach to cybersecurity risk management with our Adviser, including the Adviser’s Director of Information Technology.
Combined, our Adviser’s information technology team has over 50 years of experience covering all major aspects of network architecture and management. Cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected and are not reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition.
Risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected and we do not believe are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition.
Removed
On an annual 52 Table of Contents basis, the Board and the Audit Committee discuss the Company’s approach to cybersecurity risk management with our Adviser, including the Adviser’s Director of Information Technology.
Added
Combined, our Adviser’s information technology team has over 50 years of experience covering all major aspects of network architecture and management.
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However, the risk of cybersecurity threats could be significant if the cyber-attack disrupts the Company’s critical operations, service or financial systems.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties The following table provides a summary of the Company’s physical properties as of December 31, 2023: Average Effective Monthly Occupied Rent Per Square Foot (1) as of % Occupied (2) as of Property Name Rentable Square Footage (in thousands) Property Type Date Acquired December 31, 2023 December 31, 2023 White Rock Center 82,793 Retail 6/13/2013 $ 1.51 67.7 % 5916 W Loop 289 30,140 Retail 7/23/2013 $ — — % (3) Cityplace Tower 1,365,711 Office & Hospitality 8/15/2018 $ 2.14 51.3 % 1,478,644 (1) Average effective monthly occupied rent per square foot is equal to the average of the contractual rent for commenced leases as of December 31, 2023, minus any tenant concessions over the term of the lease, divided by the occupied square footage of commenced leases as of December 31, 2023.
Biggest changeProperties The following tables provide a summary of the Company’s physical properties as of December 31, 2024: NXDT Segment: 68 Table of Contents Average Effective Monthly Occupied Rent Per Square Foot (1) as of % Occupied (2) as of Property Name Rentable Square Footage (in thousands) Property Type Date Acquired December 31, 2024 December 31, 2024 White Rock Center 82,793 Retail 6/13/2013 $ 1.50 71.1 % 5916 W Loop 289 30,140 Retail 7/23/2013 $ — — % (3) Cityplace 1,365,711 Office, Multifamily & Hospitality 8/15/2018 $ 2.16 46.4 % 1,478,644 (1) Average effective monthly occupied rent per square foot is equal to the average of the contractual rent for commenced leases as of December 31, 2024, minus any tenant concessions over the term of the lease, divided by the occupied square footage of commenced leases as of December 31, 2024.
(2) Percent occupied is calculated as the rentable square footage occupied as of December 31, 2023, divided by the total rentable square footage, expressed as a percentage. (3) The property's tenant vacated in the fourth quarter of 2023.
(2) Percent occupied is calculated as the rentable square footage occupied as of December 31, 2024, divided by the total rentable square footage, expressed as a percentage. (3) The property's tenant vacated in the fourth quarter of 2023. The Company is currently looking into leasing out the property.
The Company is currently looking into leasing out the property. 53 Table of Contents The Company's ownership of Cityplace Tower is subject to mortgage debt with an outstanding principal balance of approximately $142.3 million as of December 31, 2023. For further information on the Company’s owned real properties, see Notes 4, 5 and 6 to our consolidated financial statements.
The Company's ownership of Cityplace is subject to mortgage debt with an outstanding principal balance of approximately $139.9 million as of December 31, 2024. For further information on the Company’s owned real properties, see Notes 4, 5 and 6 to our consolidated financial statements.
Added
NHT Segment: Brand Location Name Chain Scale Service Scale Year Built/Last Renovation Rooms Hilton Garden Inn Dallas, Texas HGI Property Upscale Select-Service 1995/2016 240 Hyatt Park City, Utah Park City Upscale Full-Service 2016 122 Hampton Inn & Suites Bradenton, Florida Bradenton Upscale Select-Service 1926/2016 119 Homewood Suites (1) Plano, Texas HWS Plano Upscale Extended Stay 1996/2018 99 N/A (1) Addison, Texas Addison Property Upscale Extended Stay 1990/2018 120 Homewood Suites (1) Irving, Texas HWS Las Colinas Upscale Extended Stay 1990/2018 136 Marriott St.
Added
Petersburg, Florida St. Pete Property Upper Upscale Full-Service 2001/2021 209 Total Rooms: 1,045 (1) As of December 31, 2024 this property was held-for-sale. Each of the hotel properties in the NHT segment is encumbered by a mortgage securing the payment of debt of $112.2 million by NHT.
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For further information on the Company’s owned real properties, see Notes 4, 5 and 6 to our consolidated financial statements. 69 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. 54 Table of Contents PART II — OTHER INFORMATION
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. 70 Table of Contents PART II — OTHER INFORMATION

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common shares trade on the NYSE under the ticker symbol “NXDT.” Shareholder Information On March 13, 2024, we had 38,559,520.61 common shares outstanding held by a total of approximately 870 record holders.
Biggest changeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common shares trade on the New York Stock Exchange (“NYSE”) under the ticker symbol “NXDT.” Shareholder Information On March 31, 2025, we had 44,517,013.24 common shares outstanding held by a total of approximately 838 record holders.
The 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. Repurchase of Shares On October 24, 2022, our Board authorized the Share Repurchase Program. For more information, see “Item 1.
The 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. Repurchase of Shares On October 28, 2024, our Board authorized the Share Repurchase Program. For more information, see “Item 1.
Business—2023 Highlights—Share Repurchase Program.” As of December 31, 2023, we have not repurchased any of our common shares or Series A Preferred Shares under the Share Repurchase Program. Item 6 . [Reserved] 55 Table of Contents
Business—2024 Highlights—Share Repurchase Program.” As of December 31, 2024, we have not repurchased any of our common shares or Series A Preferred Shares under the Share Repurchase Program. Item 6. [Reserved] 71 Table of Contents

Item 7. Management's Discussion & Analysis

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

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Biggest changeNOI and Same Store NOI for the Year Ended December 31, 2023 and the Six Months Ended December 31, 2022 The following table, reconciles our NOI for the year ended December 31, 2023 and for the six months ended December 31, 2022 to net income (loss), the most directly comparable GAAP financial measure (in thousands): 62 Table of Contents For the Year Ended December 31 For the Six Months Ended December 31 2023 2022 Net loss $ (117,241) $ (81,573) Adjustments to reconcile net loss to NOI: Advisory and administrative fees 11,740 5,514 Corporate general and administrative expenses 7,981 3,080 Conversion expenses 1,203 1,615 Income tax expense 2,731 9,975 Depreciation and amortization 13,937 7,175 Interest expense 15,902 5,759 Property general and administrative expenses (1) — (824) Non-operating property investment revenue ¹ (42,667) (45,061) Realized gains (losses) from non-real estate investments 1,634 2,323 Change in unrealized (gains) losses from non-real estate investments 108,249 92,031 Equity in (income) losses of unconsolidated equity method ventures 306 2,257 NOI $ 3,775 $ 2,270 Less Non-Same Store Revenues $ (19,147) $ (9,258) Operating expenses 16,310 7,497 Same Store NOI $ 938 $ 509 (1) Non-operating property investment revenue is defined as revenue included in the consolidated financial statements, that are from non-operating properties such as dividend income and interest income.
Biggest changeConsolidated NOI and Same Store NOI for the Years Ended December 31, 2024 and 2023 The following table, which has not been adjusted for the effects of noncontrolling interest (“NCI”), reconciles our consolidated NOI for the years ended December 31, 2024 and 2023 to net income (loss), the most directly comparable GAAP financial measure (in thousands): For the Year Ended December 31 2024 2023 Net loss $ (56,573) $ (117,241) Adjustments to reconcile net loss to NOI: Advisory and administrative fees 14,165 11,740 Corporate general and administrative expenses 12,803 7,981 Conversion expenses — 1,203 Income tax expense 1,372 2,731 Depreciation and amortization 15,600 13,937 Interest expense 28,352 15,902 Non-operating property investment revenue ¹ (39,281) (42,667) Realized (gains) losses from non-real estate investments 21,479 1,634 Change in unrealized (gains) losses from non-real estate investments 1,348 108,249 Equity in (income) losses of unconsolidated equity method ventures (129) 306 Impairment loss 7,110 — NOI $ 6,246 $ 3,775 Less Non-Same Store Revenues $ (42,795) $ (19,147) Operating expenses 37,057 16,310 Same Store NOI $ 508 $ 938 (1) Non-operating property investment revenue is defined as revenue included in the consolidated financial statements that are from non-operating properties such as dividend income and interest income. 79 Table of Contents The following table, which has not been adjusted for the effects of NCI, reconciles our NOI for each of our segments for the year ended December 31, 2024 to net income (loss), the most directly comparable GAAP financial measure by reportable segment (in thousands): For the Year Ended December 31, 2024 2023 NexPoint Diversified Real Estate Trust NexPoint Hospitality Trust Total NexPoint Diversified Real Estate Trust ¹ Net income (loss) $ (35,337) $ (21,236) $ (56,573) $ (117,241) Adjustments to reconcile net income (loss) to NOI: Advisory and administrative fees 13,286 879 14,165 11,740 Corporate general and administrative expenses 9,947 2,856 12,803 7,981 Conversion expenses — — — 1,203 Income tax expense 1,441 (69) 1,372 2,731 Depreciation and amortization 11,698 3,902 15,600 13,937 Interest expense 17,443 10,909 28,352 15,902 Non-operating property investment revenue ² (34,300) (4,981) (39,281) (42,667) Realized (gains) losses from non-real estate investments 21,479 — 21,479 1,634 Change in unrealized (gains) losses from non-real estate investments 1,348 — 1,348 108,249 Equity in (income) losses of unconsolidated equity method ventures (129) — (129) 306 Impairment loss — 7,110 7,110 — NOI $ 6,876 $ (630) $ 6,246 $ 3,775 Less Non-Same Store Revenues $ (24,705) $ (18,090) $ (42,795) $ (19,147) Operating expenses 14,326 22,731 37,057 16,310 Same Store NOI $ (3,503) $ 4,011 $ 508 $ 938 (1) As of December 31, 2023, there was only one reporting segment.
Macroeconomic trends, including increases in or high inflation and rising or high interest rates, may adversely impact our business, financial condition and results of operations. Rising inflation could have an adverse impact on our operating expenses, as these costs could increase at a rate higher than our rental and other revenue.
Macroeconomic trends, including increases in or high inflation and rising or high interest rates, may adversely impact our business, financial condition and results of operations. Inflation could have an adverse impact on our operating expenses, as these costs could increase at a rate higher than our rental and other revenue.
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.
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.
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, such increases or elevated rates will result in higher debt service costs which will adversely affect our cash flows.
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, such increases or elevated rates will result in higher debt service costs which will adversely affect our cash flows.
This limitation ended on June 30, 2023 and did not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions or other events outside the ordinary course of our business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of certain real estate-related investments; provided, in the event the Company consolidates another entity that it does not wholly own as a result of owning a controlling interest in such entity or otherwise, expenses will be calculated without giving effect to such consolidation and instead such entity’s expenses will, on a pro rata basis consistent with the Company’s percentage ownership, be considered those of the Company for purposes of calculation of expenses.
This limitation ended on 90 Table of Contents June 30, 2023 and did not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions or other events outside the ordinary course of our business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of certain real estate-related investments; provided, in the event the Company consolidates another entity that it does not wholly own as a result of owning a controlling interest in such entity or otherwise, expenses will be calculated without giving effect to such consolidation and instead such entity’s expenses will, on a pro rata basis consistent with the Company’s percentage ownership, be considered those of the Company for purposes of calculation of expenses.
Advisory Agreement As consideration for the Adviser’s services under the Advisory Agreement, we pay our Adviser the Fees, which includes the Advisory Fee equal to 1.00% of Managed Assets and the Administrative Fee equal to 0.20% of the Company’s Managed Assets.
NXDT Advisory Agreement As consideration for the Adviser’s services under the Advisory Agreement, we pay our Adviser the Fees, which includes the Advisory Fee equal to 1.00% of Managed Assets and the Administrative Fee equal to 0.20% of the Company’s Managed Assets.
Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains.
Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for distributions paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains.
However, the usefulness of NOI is limited because it excludes corporate general and administrative expenses, interest expense, Advisory Fees and Administrative Fees, conversion expenses, income tax expenses, depreciation and amortization expense, non-operating property investment revenue and realized and change in unrealized gains and losses generated from non-real estate investments, and equity in income or losses of unconsolidated equity method ventures, all of which may be material values.
However, the usefulness of NOI is limited because it excludes corporate general and administrative expenses, interest expense, advisory fees and administrative fees, conversion expenses, income tax expenses, depreciation and amortization expense, non-operating property investment revenue and realized and change in unrealized gains and losses generated from non-real estate investments, equity in income or losses of unconsolidated equity method ventures, and impairment loss, all of which may be material values.
The obligations include a completion guarantee, which is generally only applicable if and when the borrower, which is a subsidiary of the Company, directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily terminates construction services prior to the completion of the project, files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper.
The obligations include guarantees, which are generally only applicable if and when the borrower, which is a subsidiary of the Company, directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily terminates construction services prior to the completion of the project, files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper.
Impairment Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and capitalization rates.
Impairment Real estate assets held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and capitalization rates.
Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, investments held through our TRSs, book/tax differences on income derived from partnerships, and non-deductible general and administrative expenses.
Our distributions and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, investments held through our TRSs, book/tax differences on income derived from partnerships, and non-deductible general and administrative expenses.
NOI is used by investors and our management to evaluate and compare the performance of our properties to other comparable properties, to determine trends in earnings and to compute the fair value of our properties as NOI is calculated by adjusting net income (loss) to add back (1) interest expense, (2) Advisory Fees and Administrative Fees, (3) the impact of depreciation and amortization, (4) corporate general and administrative expenses, (5) income tax expenses, (6) conversion expenses, (7) non-operating property investment revenue, (8) realized and change in unrealized gains (losses) generated from non-real estate investments, and (9) equity in income (losses) of unconsolidated equity method ventures.
NOI is used by investors and our management to evaluate and compare the performance of our properties between segments and to other comparable properties, to determine trends in earnings and to compute the fair value of our properties as NOI is calculated by adjusting net income (loss) to add back (1) interest expense, (2) advisory fees and administrative fees, (3) the impact of depreciation and amortization, (4) corporate general and administrative expenses, (5) income tax expenses, (6) conversion expenses, (7) non-operating property investment revenue, (8) realized and change in unrealized gains (losses) generated from non-real estate investments, (9) equity in income (losses) of unconsolidated equity method ventures, and (10) impairment loss.
(2) Percent occupied is calculated as the rentable square footage occupied as of December 31, 2023, divided by the total rentable square footage, expressed as a percentage. (3) Cityplace is currently under development and the Company is converting part of the property into a hotel, which was still under construction as of December 31, 2023.
(2) Percent occupied is calculated as the rentable square footage occupied as of December 31, 2024, divided by the total rentable square footage, expressed as a percentage. (3) Cityplace is currently under development and the Company is converting part of the property into a hotel, which was still under construction as of December 31, 2024.
As of December 31, 2023 , we also had $31.7 million of restricted cash held in reserve by the lender on the Cityplace debt. These reserves include escrows for property taxes and insurance, reserves for tenant improvements as well as required excess collateral.
As of December 31, 2024 , we also had $31.7 million of restricted cash held in reserve by the lender on the Cityplace debt. These reserves include escrows for property taxes and insurance, reserves for tenant improvements as well as required excess collateral.
If we fail to qualify as a REIT in any taxable year, we could be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our shareholders would not be deductible by us in computing taxable income.
If we fail to qualify as a REIT in any taxable year, we could be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and distributions paid to our shareholders would not be deductible by us in computing taxable income.
As of December 31, 2023 , we also had $0.9 million of restricted cash held in reserve by the lender on the NexBank Revolver. These reserves are to be used for future interest payments on the debt facility.
As of December 31, 2024 , we also had $0.9 million of restricted cash held in reserve by the lender on the NexBank Revolver. These reserves are to be used for future interest payments on the debt facility.
Additionally, in the sole discretion of the Adviser, the Adviser may elect to waive reimbursement for eligible out-of-pocket expenses paid on the Company's behalf. Once waived, such expenses are considered permanently waived and become non-recoupable in the future.
Additionally, in the sole discretion of the Adviser, the Adviser may elect to waive reimbursement for eligible out-of-pocket expenses paid on the Company's behalf. Once waived, such expenses are considered permanently waived and become non-recoupable in the future. Conversion expense.
U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains.
U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for distributions paid and excluding net capital gains.
We intend to make regular quarterly dividend payments of all or substantially all of our taxable income to holders of our common shares out of assets legally available for this purpose, if and to the extent authorized by our Board.
We intend to make regular quarterly distribution payments of all or substantially all of our taxable income to holders of our common shares out of assets legally available for this purpose, if and to the extent authorized by our Board.
As of December 31, 2023 and to our knowledge, we have no examinations in progress and none are expected at this time. We recognize our tax positions and evaluate them using a two-step process.
As of December 31, 2024 and to our knowledge, we have no examinations in progress and none are expected at this time. We recognize our tax positions and evaluate them using a two-step process.
We had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2023. We and our subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions.
We had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2024. We and our subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions.
Depreciation and amortization expenses are eliminated because they may not accurately represent the actual change in value in our properties that result from use of the properties or changes in market conditions.
Depreciation and amortization expenses and impairment loss are eliminated because they may not accurately represent the actual change in value in our properties that result from use of the properties or changes in market conditions.
Conversion expense - Conversion expenses include the costs of the Business Change in conjunction with the Deregistration Order, which primarily include legal fees and other fees incurred in preparation for or as a direct result of the conversion. These conversion expenses are included in the consolidated statement of operations and comprehensive income (loss) as conversion expenses. Depreciation and amortization.
Conversion expenses include the costs of the Business Change in conjunction with the Deregistration Order, which primarily include legal fees and other fees incurred in preparation for or as a direct result of the conversion. These conversion expenses are included in the Consolidated Statements of Operations and Comprehensive Income (Loss) as conversion expenses. Depreciation and amortization.
Liquidity and Capital Resources Our short-term liquidity requirements consist primarily of funds necessary to pay for debt maturities, operating expenses and other expenditures including: • capital expenditures to continue the ongoing development of Cityplace Tower; • interest expense and scheduled principal payments on outstanding indebtedness (see “—Obligations and Commitments” below); • recurring maintenance necessary to maintain our properties; • distributions necessary to qualify for taxation as a REIT; • income taxes for taxable income generated by TRS entities; • acquisition of additional properties or investments; • advisory and administrative fees payable to our Adviser; • general and administrative expenses; • reimbursements to our Adviser; and • property management fees.
Liquidity and Capital Resources Our short-term liquidity requirements consist primarily of funds necessary to pay for debt maturities, operating expenses and other expenditures including: • capital expenditures to continue the ongoing development of Cityplace; • capital expenditures necessary to maintain the NHT hotel properties; • interest expense and scheduled principal payments on outstanding indebtedness (see “—Obligations and Commitments” below); • recurring maintenance necessary to maintain our properties; • distributions necessary to qualify for taxation as a REIT; • income taxes for taxable income generated by TRS entities; • acquisition of additional properties or investments; 85 Table of Contents • advisory and administrative fees payable to our Adviser; • general and administrative expenses; • reimbursements to our Adviser; and • property management fees.
On an annual basis, the Company hires independent third-party valuation firms to provide updated fair values for subsequent measurement absent a readily available market price. The valuation is determined using widely accepted valuation techniques. See Note 9, “Fair Value of Derivatives and Financial Instruments”, for further discussion of our valuation techniques of level 3 investments.
On an annual basis, the Company hires independent third-party valuation firms to provide updated fair values for subsequent measurement absent a readily available market price. The valuation is determined using widely accepted valuation techniques. See Note 9 to our consolidated financial statements, “Fair Value Financial Instruments”, for further discussion of our valuation techniques of level 3 investments.
Our rental income is primarily attributable to the rental revenue from our investment in Cityplace Tower, a 42-story, 1.36 million-square-foot, trophy office building acquired in 2018 as well as rental income from two retail properties. Our rental income also includes utility reimbursements, late fees, common area maintenance reimbursements, and other rental fees charged to tenants. Interest income.
Our rental income is primarily attributable to the rental revenue from our investment in Cityplace, a 42-story, 1.36 million-square-foot, trophy office building acquired in 2018 as well as rental income from two retail properties. Our rental income also includes utility reimbursements, late fees, common area maintenance reimbursements, and other rental fees charged to tenants. Food and beverage revenue.
Also on May 8, 2023, the parties to the loan agreement agreed to convert the index upon which the interest rate is based to one- 70 Table of Contents month SOFR effective as of the first interest period beginning on or after May 8, 2023.
Also on May 8, 2023, the parties to the loan agreement agreed to convert the index upon which the interest rate is based to one-month SOFR effective as of the first interest period beginning on or after May 8, 2023.
We will make dividend payments based on our estimate of taxable earnings per common share, but not earnings calculated pursuant to GAAP.
We will make distribution payments based on our estimate of taxable earnings per common share, but not earnings calculated pursuant to GAAP.
Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do. We define “Same Store NOI” as NOI for our properties that are comparable between periods and that are stabilized.
Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do. 78 Table of Contents We define “Same Store NOI” as NOI for our properties that are comparable between periods and that are stabilized.
Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. See Note 2, “Summary of Significant Accounting Policies”, for further discussion of our accounting estimates and policies.
Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. See Note 3 to our consolidated financial statements, “Summary of Significant Accounting Policies”, for further discussion of our accounting estimates and policies.
We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month period following December 31, 2023.
We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments and distribution requirements for the twelve-month period following December 31, 2024.
Income tax expense is primarily derived from taxable gains from asset sales and other income earned from investments held in our TRSs. Unrealized Gain (Loss) on Investments .
Income tax expense is primarily derived from taxable gains from asset sales and other income earned from investments held in NXDT's TRSs and NHT's TRSs. Unrealized Gain (Loss) on Investments .
If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.
If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash distributions or we may make a portion of the required distribution in the form of a taxable distribution of shares or debt securities.
Valuation of Level 3 Fair Valued Investments As of December 31, 2023, approximately 51.7% of the total assets owned by the Company are comprised of fair valued level 3 investments. The Company elected the fair-value option in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 825-10-10.
Valuation of Level 3 Fair Valued Investments As of December 31, 2024, approximately 42.3% of the total assets owned by the Company are comprised of fair valued level 3 investments. The Company elected the fair-value option in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 825-10-10.
We expect to meet our short-term liquidity requirements generally through our investment income, existing cash balance and, if necessary, future debt or equity issuances. As of December 31, 2023 , we had $20.6 million of cash available to meet our short-term liquidity requirements.
We expect to meet our short-term liquidity requirements generally through our investment income, existing cash balance and, if necessary, future debt or equity issuances. As of December 31, 2024 , we had $8.8 million of cash available to meet our short-term liquidity requirements.
The Company is a limited guarantor and an indemnitor on one of NHT's loans with an aggregate principal amount of $77.4 million as of December 31, 2023.
The Company is a limited guarantor and an indemnitor on one of NHT's loans with an aggregate principal amount of $74.4 million as of December 31, 2024.
On November 20, 2023, the Company drew the remaining $13.0 million of the available balance. As of December 31, 2023, the Credit Facility bore interest at the one-month SOFR plus 4.25%. During the twelve months ended months ended December 31, 2023, the Company paid down $10.0 million on the Credit Facility.
On November 20, 2023, the Company drew the remaining $13.0 million of the available balance. As of December 31, 2024, the Credit Facility bore interest at the one-month SOFR plus 4.25%. During the year ended December 31, 2024, the Company paid down $9.0 million on the Credit Facility.
NHT is current on all debt payments and in compliance with all debt compliance provisions. The Company is a guarantor and an indemnitor on one of Cityplace’s loans with an aggregate principal amount of $142.3 million as of December 31, 2023.
NHT is current on all debt payments and in compliance with all debt compliance provisions. The Company is a guarantor and an indemnitor on one of Cityplace’s loans with an aggregate principal amount of $139.9 million as of December 31, 2024.
The losses for the year ended December 31, 2023 were primarily driven by realized losses on common stock of Elme Communities of $0.8 million, Whitestone REIT of $1.1 million, and realized losses on SFP of $1.3 million.
The losses for the year ended December 31, 2023 were primarily driven by realized losses on common stock of Elme Communities of $0.8 million, Whitestone REIT of $1.1 million, and realized losses on Specialty Financial Products, Ltd. (“SFP”) of $1.3 million.
Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable.
Before we make any distribution 93 Table of Contents payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable.
AFFO adjusts FFO to remove items such as equity based compensation expense and the amortization of deferred financing costs incurred in connection with obtaining long-term debt financing, and change in unrealized gains (losses).
AFFO adjusts FFO to remove items such as equity based compensation expense and the amortization of deferred financing costs incurred in connection with obtaining long-term debt financing, non-controlling interests (as described above) related to these items, and change in unrealized gains (losses).
Our quarterly dividends per share may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared a dividend on our common shares of $0.15 per share which was paid on December 29, 2023 to shareholders of record on November 17, 2023.
Our quarterly dividends per share may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared a distribution on our common shares of $0.15 per share which was paid on December 31, 2024 to shareholders of record on November 15, 2024.
Also, acquisitions, redevelopments, or expansions of our properties will require 67 Table of Contents significant capital outlays.
Also, acquisitions, redevelopments, or expansions of our properties will require significant capital outlays.
The Company has recorded a current income tax expense of $2.7 million associated with the TRSs for the year ended December 31, 2023, which is largely driven by income from the Company’s legacy CLO investments and investments in debt instruments not secured by mortgages on real property.
The Company has recorded a current income tax expense of $1.4 million associated with the TRSs for the year ended December 31, 2024, which is largely driven by income from the Company’s preferred stock investments and investments in debt instruments not secured by mortgages on real property.
Depreciation and amortization costs primarily include depreciation of our real properties and amortization of acquired in-place leases on property owned directly or indirectly by us. Other Income and Expense Interest Expense.
Depreciation and amortization costs primarily include depreciation of our real properties and amortization of acquired in-place leases on property owned directly or indirectly by us. Impairment loss.
Revolving Credit Facility On May 22, 2023, the Company entered into the revolving credit facility with NexBank (the "NexBank Revolver"), with the option for the Company to receive additional disbursements thereunder up to a maximum amount of $50.0 million.
Revolving Credit Facility On May 22, 2023, the Company entered into the revolving credit facility with NexBank (the "NexBank Revolver"), with the option for the Company to receive additional disbursements thereunder up to a maximum amount of $50.0 million, and with the option to extend the maturity two times by six months.
As of December 31, 2023, we believe we are in compliance with all applicable REIT requirements. We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50% probability) of being sustained by the applicable tax authority.
We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50% probability) of being sustained by the applicable tax authority.
The Company has recorded income tax expense (benefit) of $2.7 million associated with the TRSs for the year ended December 31, 2023 and $10.7 million associated with the TRSs for the six months ended December 31, 2022.
The Company has recorded income tax expense (benefit) of $1.4 million associated with the TRSs for the year ended December 31, 2024 and $2.7 million associated with the TRSs for the year ended December 31, 2023.
Income Taxes We anticipate that we will continue to qualify to be taxed as a REIT for U.S. federal income tax purposes, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. However, we can give no assurance that we will maintain REIT qualification.
U.S REIT Status We anticipate that we will continue to qualify to be taxed as a REIT for U.S. federal income tax purposes, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT.
The tax expense for the year ended December 31, 2023 is partially offset by the annual change in valuation allowance on a deferred tax asset of $0.6 million and increased by a 2022 return-to-provision adjustment of $1.5 million for a net expense of $3.3 million for the year ended December 31, 2023, that is recorded on the Consolidated Statement of Operations.
The tax expense is increased by the annual change in valuation allowance on a deferred tax asset of $0.3 million and offset by a return-to-provision adjustment of $0.2 million and income tax refund of $0.7 million for a net expense of $1.4 million for the year ended December 31, 2024, that is recorded on the Consolidated Statement of Operations and Comprehensive Income (Loss).
The Adviser is wholly owned by our Sponsor. We have elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our shareholders.
We have elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year ended December 31, 2021. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our shareholders.
Furthermore, following the completion of our renovation and development programs and depending on the interest rate environment at the applicable time, we may seek to refinance our floating rate debt into longer-term fixed rate debt at lower leverage levels.
Furthermore, following the completion of our renovation and development programs and depending on the interest rate environment at the applicable time, we may seek to refinance our floating rate debt into longer-term fixed rate debt at lower leverage levels. 87 Table of Contents Cityplace Debt On May 8, 2023, we received lender consent to defer the maturity of the Cityplace debt to September 8, 2023.
Inflation may also affect the overall cost of debt, as the implied cost of capital increases. The Federal Reserve has raised interest rates to combat inflation and restore price stability. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate hedges. Item 7A.
Inflation may also affect the overall cost of debt, as the implied cost of capital increases. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate hedges.
Unless we were entitled to relief under certain 71 Table of Contents 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 provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT. As of December 31, 2024, we believe we are in compliance with all applicable REIT requirements.
We are externally managed by the Adviser through the Advisory Agreement, by and among the Company and the Adviser. The Advisory Agreement was dated July 1, 2022, and amended on October 25, 2022 and April 11, 2023, for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated.
The Advisory Agreement was dated July 1, 2022, and amended on October 25, 2022, April 11, 2023 and July 22, 2024, for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated. The Adviser is wholly owned by our Sponsor.
Our calculation of FFO differs slightly from NAREIT's definition of FFO because we exclude realized gains (losses). We believe the exclusion of realized gains (losses) is appropriate because these realized gains (losses) are not related to our real estate properties.
We believe the exclusion of realized gains (losses) is appropriate because these realized gains (losses) are not related to our real estate properties.
To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual “REIT taxable income”, as defined by the Code, to stockholders.
However, we can 92 Table of Contents give no assurance that we will maintain REIT qualification. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual “REIT taxable income”, as defined by the Code, to stockholders.
The tax expense is decreased by the annual change in valuation allowance on a deferred tax asset of $0.6 million and partially offset by a return-to-provision adjustment of $1.5 million for a net expense of $2.7 million for the year ended December 31, 2023, that is recorded on the Consolidated Statement of Operations.
The tax expense for the year ended December 31, 2024 is partially increased by the annual change in valuation allowance on a deferred tax asset of $(0.3) million, and offset by a return-to-provision adjustment of $0.2 million and an income tax refund of $0.7 million for a net expense of $1.4 million for the year ended December 31, 2024, that is recorded on the Consolidated Statements of Operations and Comprehensive Income (Loss).
As of December 31, 2023, the NexBank Revolver bears interest at one-month SOFR plus 3.50% and matures on May 21, 2024, with the option to extend the maturity up to two times, each by six months.
As of December 31, 2024, the NexBank Revolver bears interest at one-month SOFR plus 3.50% and matures on May 21, 2025. On May 21, 2024, the Company elected to use one of the two extension options to extend the maturity by six months to November 21, 2024.
In addition, on February 8, 2023, UBS Securities and its affiliate (collectively “UBS”) filed a lawsuit in the Supreme Court of the State of New York, County of New York against Mr. Dondero and a number of entities currently or previously affiliated with Mr.
In addition, on February 8, 2023, UBS Securities LLC and its affiliate (collectively “UBS”) filed a lawsuit in the Supreme Court of the State of New 72 Table of Contents York, County of New York against Mr.
Less available and more expensive debt capital has had pronounced effects on the capital markets, making property acquisitions and other investments harder to finance. Similar factors also impact the timing of and proceeds generated from asset sales and our ability to obtain debt capital. On October 15, 2021, Marc S.
The high rate environment and ongoing economic uncertainty has limited credit availability to commercial real estate. Less available and more expensive debt capital has had pronounced effects on the capital markets, making property acquisitions and other investments harder to finance. Similar factors also impact the timing of and proceeds generated from asset sales and our ability to obtain debt capital.
For the year ended December 31, 2023, the Company incurred Administrative Fees and Advisory Fees of $11.7 million, inclusive of $2.0 million in fees that were waived to comply with the Expense Cap.
For the year ended December 31, 2023, the Company incurred administrative fees and advisory fees of $11.7 million, inclusive of $2.0 million in expenses that were waived and cannot be recouped by the Adviser. The Expense Cap expired on June 30, 2023.
Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income (loss), as defined by GAAP. We compute FFO attributable to common shareholders as net income (loss), excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization and realized gains (losses).
Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income (loss), as defined by GAAP.
For the year ended December 31, 2023, the unrealized loss related to the 73 Table of Contents change in fair value of level 3 investments is $110.6 million. See Note 9 for additional disclosures regarding the valuation of level 3 fair valued investments.
For the year ended December 31, 2024, the unrealized gains (loss) related to the change in fair value of level 3 investments is $(4.2) million. See Note 9 to our consolidated financial statements for additional disclosures regarding the valuation of level 3 fair valued investments.
See Note 6 to our consolidated financial statements for additional information. 68 Table of Contents We intend to invest in additional real estate investments as suitable opportunities arise and adequate sources of equity and debt financing are available.
We intend to invest in additional real estate investments as suitable opportunities arise and adequate sources of equity and debt financing are available.
Property management fees include fees paid to NexVest, our property manager, for managing each property directly or indirectly owned by us (see Note 13 to our consolidated financial statements). Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property owned directly or indirectly by us.
Property management fees. Property management fees include fees paid to NexVest, our property manager, for managing each property directly or indirectly owned by us (see Note 14 to our consolidated financial statements) and other property managers for managing the day-to-day operations of our hotels. 73 Table of Contents Real estate taxes and insurance.
The Advisory Agreement provides that the Fees shall be paid in cash, unless the Adviser, in its sole discretion, elects to have all or a portion of the monthly installment of the Fees paid in common shares of the Company, subject to certain restrictions. For additional information, see Note 13 to our consolidated financial statements.
The Advisory Agreement provides that the Administrative Fees shall be paid in cash and the monthly installment of the Advisory Fees shall be paid one-half in cash and one-half in common shares of the Company, subject to certain restrictions. For additional information, see Note 14 to our consolidated financial statements.
As of December 31, 2023, there were 2,000 OP Units outstanding, of which 100% were owned by us. On July 1, 2022, or the Deregistration Date, the SEC issued an order pursuant to Section 8(f) of the Investment Company Act declaring that the Company has ceased to be an investment company under the Investment Company Act (the "Deregistration Order").
On July 1, 2022, or the Deregistration Date, the SEC issued an order pursuant to Section 8(f) of the Investment Company Act declaring that the Company has ceased to be an investment company under the Investment Company Act (the "Deregistration Order").
("NSP") common equity of $35.5 million, VB OP Units of $27.5 million, NSP OC Common Units of $19.3 million offset by mark-to-market gains on and mark-to-market gains on our IQHQ, Inc. Class A-1 shares of $3.4 million.
The losses for the year ended December 31, 2023 were primarily driven by mark-to-market losses on NSP common equity of $35.5 million and VB OP Units of $27.5 million, NSP OC common units of $19.3 million offset by mark-to-market gains on and mark-to-market gains on our IQHQ Holdings, LP. Class A-1 limited partnership units of $3.4 million.
Dondero, seeking to collect on $1.3 billion in judgments UBS obtained against entities that were managed indirectly by Highland (the "UBS Lawsuit"). Neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit include claims related to our business or our assets. Our Sponsor and Mr. Dondero have informed us they believe the Bankruptcy Trust Lawsuit has no merit and Mr.
Neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit include claims related to our business or our assets. Our Sponsor and Mr. Dondero have informed us they believe the Bankruptcy Trust Lawsuit has no merit and Mr.
The Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket expenses paid on the Company’s behalf. Once waived, those expenses were considered permanently waived and became non-recoupable. The Expense Cap expired on June 30, 2023.
The Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket expenses paid on the Company’s behalf. Once waived, those expenses are considered permanently waived and became non-recoupable. As of December 31, 2024, a total of $3.1 million in Fees to the Adviser have been waived to comply with the Expense Cap.
If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects could be materially and adversely affected.
If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects could be materially and adversely affected. In the coming year, NXDT plans to re-focus its asset allocation across sectors in which our Sponsor has an extensive experience and expertise.
The 2022, 2021 and 2020 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our consolidated statements of operations and comprehensive income (loss). Dividends We intend to make regular quarterly dividend payments to holders of our common shares.
The 2023, 2022 and 2021 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our Consolidated Statements of Operations and Comprehensive Income (Loss). II. Canadian mutual fund status NHT is a mutual fund trust pursuant to the Tax Act.
The Company may revert to paying the dividend solely in cash at some point in the future when cash flow from operations supports such a cash dividend. However, there can be no assurance that cash flow from operations will be able to support a cash dividend in the future.
However, there can be no assurance that cash flow from operations will be able to support a cash distribution in the future.
Cash Flows The following table presents selected data from our consolidated statements of cash flows for the year ended December 31, 2023 and the six months ended December 31, 2022 (in thousands): For the Year Ended December 31 For the Six Months Ended December 31 2023 2022 Net cash provided by (used in) operating activities $(24,266) $31,431 Net cash provided by (used in) investing activities 21,990 (14,418) Net cash provided by (used in) used in financing activities 6,796 (19,140) Net decrease in cash, cash equivalents and restricted cash 4,520 (2,127) Cash, cash equivalents and restricted cash, beginning of period 48,649 50,776 Cash, cash equivalents and restricted cash, end of period $53,169 $48,649 Cash flows from operating activities.
See “—Debt” for additional details regarding our indebtedness and related liquidity requirements. 86 Table of Contents Cash Flows The following table presents selected data from our consolidated statements of cash flows for the year ended December 31, 2024 and 2023 (in thousands): For the Year Ended December 31 2024 2023 Net cash used in operating activities $(11,665) $(24,266) Net cash provided by investing activities 25,974 21,990 Net cash provided by (used in) financing activities (18,577) 6,796 Net decrease in cash, cash equivalents and restricted cash (4,268) 4,520 Cash, cash equivalents and restricted cash, beginning of period 53,169 48,649 Cash, cash equivalents and restricted cash, end of period $48,901 $53,169 Cash flows from operating activities.
The Company seeks to achieve this objective through the Business Change. Target underlying property types primarily include, but are not limited to, single-family rentals, multifamily, self-storage, life science, office, industrial, hospitality, net lease and retail. The Company may, to a limited extent, hold, acquire or transact in certain non-real estate securities.
As a diversified REIT, the Company’s primary investment objective is to provide both current income and capital appreciation. The Company seeks to achieve this objective through the Business Change. Target underlying property types primarily include, but are not limited to, single-family rentals, multifamily, self-storage, life science, office, industrial, hospitality, net lease and retail.
Property operating expenses include property maintenance costs, salary and employee benefit costs, utilities, casualty-related expenses and recoveries and other property operating costs of property owned directly or indirectly by us. Property management fees.
Other income includes ancillary income earned from tenants such as non-refundable fees, parking fees, and other miscellaneous fees charged to tenants and income items. Expenses Property operating expenses. Property operating expenses include property maintenance costs, salary and employee benefit costs, utilities, casualty-related expenses and recoveries and other property operating costs of property owned directly or indirectly by us.
There is no guarantee we will be able to mitigate the impact of rising or high inflation. In response to high inflation, the Federal Reserve raised interest rates to combat inflation and restore price stability.
There is no guarantee we will be able to mitigate the impact of rising or high inflation.
Dondero has informed us he believes the UBS Lawsuit has no merit; we have been advised that the defendants named in each of the 56 Table of Contents lawsuits intend to vigorously defend against the claims.
Dondero has informed us he believes the UBS Lawsuit has no merit; we have been advised that the defendants named in each of the lawsuits intend to vigorously defend against the claims. We do not expect the Bankruptcy Trust Lawsuit or the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.

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