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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FileroAccelerated Filero
Non-Accelerated FilerxSmaller reporting companyx
Emerging growth companyo 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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



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

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

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

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

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

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

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

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

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

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

The use of leverage to finance our investments;

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

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

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

ii

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

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

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

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

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

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

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

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



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

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

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

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

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

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands, except share and per share amounts)
(Unaudited)
Preferred SharesCommon SharesAdditional
Paid-in
Capital
Accumulated
Earnings (Loss)
Total
Three Months Ended September 30, 2023Number of
Shares
AmountNumber of
Shares
Amount
Balances, June 30, 20233,359,593$3 37,171,807$37 $1,000,281 $(28,992)$971,329 
Stock-based compensation expense— — 477 — 477 
Shares issued to Advisor for admin and advisory fees— 14,589— 156 — 156 
Net loss attributable to common shareholders— — — (69,113)(69,113)
Net income attributable to preferred shareholders— — — 1,155 1,155 
Common share dividends declared ($0.15 per share)
— 496,3031 4,450 (5,670)(1,219)
Preferred share dividends declared ($0.34375 per share)
— — — (1,155)(1,155)
Balances, September 30, 20233,359,593$3 37,682,699$38 $1,005,364 $(103,775)$901,630 
6

 Preferred SharesCommon SharesAdditional
Paid-in
Capital
Accumulated
Earnings (Loss)
Total
Nine Months Ended September 30, 2023Number of
Shares
AmountNumber of
Shares
Amount
Balances, December 31, 20223,359,593$3 37,171,807$37 $999,845 $17,947 $1,017,832 
Stock-based compensation expense— — 913 — 913 
Shares issued to Advisor for admin and advisory fees— 14,589— 156 — 156 
Net loss attributable to common shareholders— — — (104,811)(104,811)
Net income attributable to preferred shareholders— — — 3,465 3,465 
Common share dividends declared ($0.45 per share)
— 496,3031 4,450 (16,911)(12,460)
Preferred share dividends declared ($1.03125 per share)
— — — (3,465)(3,465)
Balances, September 30, 20233,359,593$3 37,682,699$38 $1,005,364 $(103,775)$901,630 
See Notes to Consolidated Financial Statements
7

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

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

Preferred SharesCommon SharesAdditional
Paid-in
Capital
Accumulated
Earnings (Loss)
Total
Three Months Ended September 30, 2022Number of
Shares
AmountNumber of
Shares
Amount
Balances, June 30, 20223,359,593$3 37,171,807$37 $998,557 $114,271 $1,112,868 
Costs associated with Business Change— — (92)— (92)
Net loss attributable to common shareholders— — — (60,142)(60,142)
Net income attributable to preferred shareholders— — — 1,155 1,155 
Common stock dividends declared ($0.15 per share)
— — — (5,577)(5,577)
Preferred stock dividends declared ($0.34375 per share)
— — — — (1,155)(1,155)
Balances, September 30, 20223,359,593$3 37,171,807$37 $998,465 $48,552 $1,047,057 

See Notes to Consolidated Financial Statements
9

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

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

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

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

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

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

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

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

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

As of December 31, 2022, the major components of the Company’s investments in real estate held by SPEs the Company consolidates, which are included in "Consolidated Real Estate Investments" on the Consolidated balance sheet, were as follows (in thousands):
Operating PropertiesLandBuildings and
Improvements
Intangible Lease AssetsIntangible Lease
Liabilities
Construction in ProgressFurniture, Fixtures, and
Equipment
Totals
White Rock Center$1,315 $10,314 $1,921 $(101)$ $5 $13,454 
5916 W Loop 2891,081 2,939     4,020 
Cityplace Tower18,812 161,216 9,058 (6,669)39,731 349 222,497 
NexPoint Dominion Land, LLC26,500      26,500 
47,708 174,469 10,979 (6,770)39,731 354 266,471 
Accumulated depreciation and amortization (4,114)(2,863)743  (181)(6,415)
Total Operating Properties$47,708 $170,355 $8,116 $(6,027)$39,731 $173 $260,056 
Depreciation expense was $2.8 million and $7.2 million for the three and nine months ended September 30, 2023, respectively. Amortization expense related to the Company’s intangible lease assets was $0.8 million and $3.3 million for the three and nine months ended September 30, 2023, respectively. Amortization expense related to the Company's intangible lease liabilities was $0.4 million and $1.1 million for the three and nine months ended September 30, 2023, respectively. The net amount amortized as an increase to rental revenue for capitalized above and below-market lease intangibles was $0.3 million and $0.9 million for the three and nine months ended September 30, 2023, respectively.
Acquisitions
There were no acquisitions by the Company for the nine months ended September 30, 2023.
6. Debt
Cityplace Debt
The Company has debt on its real estate property pursuant to a Loan Agreement, originally dated August 15, 2018 and subsequently amended (the “Loan Agreement”). The debt is limited recourse to the Company and encumbers the property. The debt had an original maturity of September 8, 2022, and the Company deferred the maturity date with the lender to May 8, 2023, with the possibility to extend for an additional four months to September 8, 2023 provided certain metrics were met. On May 8, 2023, the lender agreed to defer the maturity of the Cityplace debt by four months to September 8, 2023. Also on May 8, 2023, the parties to the Loan Agreement agreed to convert the index upon which the interest rate is based to the one-month secured overnight financing rate ("SOFR") effective as of the first interest period beginning on or after May 8, 2023. On September 8, 2023, the lender agreed to defer the maturity of the Cityplace debt by six months to March 8, 2024. The debt restructuring per the terms of the Twelfth Omnibus Amendment Agreement is considered a debt modification. The purpose of the deferral was to allow for continued discussions around refinancing the debt. Management recognizes that finding an alternative source of funding is necessary to repay the debt by the maturity date. Management is evaluating multiple options to fund the repayment of the $142.9 million principal balance outstanding as of September 30, 2023, including refinancing the debt, securing additional equity or debt financing, selling a portion of the portfolio, or any combination thereof. Management believes that there is sufficient time before the maturity date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due. Due to the short term nature of the debt, the fair value of the debt is approximately the outstanding balance. The below table contains summary information related to the mortgages payable (dollars in thousands):
16

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

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

7. Variable Interest Entities
As of September 30, 2023, the Company does not consolidate the investments below as it does not have a controlling financial interest in these investments:
EntitiesInstrumentAsset TypePercentage Ownership as of September 30, 2023Relationship as of September 30, 2023
Unconsolidated Entities:
NexPoint Storage Partners, Inc.Common stockSelf-storage53.0 %VIE
NexPoint Storage Partners Operating Company, LLCLLC interestSelf-storage29.7 %VIE
Perilune Aero Equity Holdings One, LLCLLC interestAircraft16.4 %VIE
SFR WLIF III, LLCLLC interestSingle-family rental20.0 %VIE
NexPoint Real Estate Finance Operating Partnership, L.P.LP interestMortgage16.0 %VIE
VineBrook Homes Operating Partnership, L.P.LP interestSingle-family rental11.1 %VIE
NexPoint SFR Operating Partnership, L.P.LP interestSingle-family rental30.8 %VIE
IQHQ Holdings, LPLP interestLife science1.1 %VIE
NexAnnuity Holdings, Inc.Preferred SharesAnnuities100.0 %(1)VIE
(1) The Company owns 100% of the preferred stock of NexAnnuity Holdings, Inc., but it does not own any of the outstanding common stock of NexAnnunity Holdings, Inc.
Consolidated VIEs
The Company did not have any consolidated VIEs for the period ended September 30, 2023.
19

8. Equity Method Investments
Below is a summary of the Company’s equity method investments as of September 30, 2023 (dollars in thousands):
Investee NameInstrumentAsset TypeNXDT Percentage OwnershipInvestment BasisShare of Investee's Net Assets (1)Basis Difference (2)Share of Earnings (Loss)
Sandstone Pasadena Apartments, LLCLLC interestMultifamily50.0 %$11,815 $(9,590)$21,405 $(14)
AM Uptown Hotel, LLCLLC interestHospitality60.0 %(3)24,336 21,334 3,002 (111)
SFR WLIF III, LLCLLC interestSingle-family rental20.0 %7,200 7,466 (266)447 
Las Vegas Land Owner, LLCLLC interestLand77.0 %(4)12,312 12,312   
Perilune Aero Equity Holdings One, LLCLLC interestAircraft16.4 %(7)11,922 9,990 1,932 1,081 
Claymore Holdings, LLCLLC interestN/A50.0 %(5) (6)   
Allenby, LLCLLC interestN/A50.0 %(5) (6)   
$67,585 $41,512 $26,073 $1,403 
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Below is a summary of the Company’s equity method investments as of December 31, 2022 (dollars in thousands):
Investee NameInstrumentAsset TypeNXDT Percentage OwnershipInvestment BasisShare of Investee's Net Assets (1)Basis Difference (2)Share of Earnings (Loss)
Sandstone Pasadena Apartments, LLCLLC interestMultifamily50.0 %$13,013 $ $13,013 $(217)
AM Uptown Hotel, LLCLLC interestHospitality60.0 %(3)27,136 21,334 5,802 (227)
SFR WLIF III, LLCLLC interestSingle-family rental20.0 %7,272 7,466 (194)280 
Las Vegas Land Owner, LLCLLC interestLand77.0 %(4)12,312 12,312   
Perilune Aero Equity Holdings One, LLCLLC interestAircraft16.4 %(7)10,923 8,751 2,172 665 
Claymore Holdings, LLCLLC interestN/A50.0 %(5) (6)   
Allenby, LLCLLC interestN/A50.0 %(5) (6)   
$70,656 $49,863 $— $20,793 $501 
Below is a summary of the Company's investments as of September 30, 2023 that qualify for equity method accounting for which the Company has elected to account for using the fair value option. Amounts are included in "investments, at fair value" on the consolidated balance sheet.
Investee NameInstrumentAsset TypeNXDT Percentage OwnershipFair Value
NexPoint Real Estate Finance Operating Partnership, L.P.LP interestMortgage16.0 %(7)$79,658 
NexPoint Real Estate Finance, Inc.Common stockMortgage12.2 %(7)34,356 
VineBrook Homes Operating Partnership, L.P.LP interestSingle-family rental11.1 %(7)146,419 
NexPoint Storage Partners, Inc.Common stockSelf-storage53.0 %(3)69,484 
NexPoint Storage Partners Operating Company, LLCLLC interestSelf-storage29.7 %37,863 
NexPoint SFR Operating Partnership, L.P.LP interestSingle-family rental30.8 %49,568 
NexPoint Hospitality TrustCommon stockHospitality45.4 %9,500 
LLV Holdco, LLCLLC interestLand26.8 %3,267 
$430,115 
(1)Represents the Company’s percentage share of net assets of the investee per the investee’s books and records.
(2)Represents the difference between the basis at which the investments in unconsolidated ventures are carried by the Company and the Company's proportionate share of the equity method investee's net assets. To the extent
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that the Company’s cost basis is different from the basis reflected at the joint venture level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of equity in earnings of the joint venture.
(3)The Company owns greater than 50% of the outstanding common equity but is not deemed by the Company to be the primary beneficiary (for a VIE) or have a controlling financial interest of the investee and as such, accounts for the investee using the equity method.
(4)The Company owns 100% of Las Vegas Land Owner, LLC which owns 77% of a joint venture that owns an 8.5 acre tract of land (the "Tivoli North Property"). Through a tenants in common arrangement, the Company shares control and as such accounts for this investment using the equity method.
(5)The Company has a 50% non-controlling interest in Claymore Holdings, LLC (“Claymore”) and Allenby, LLC, (“Allenby”). The Company has determined it is not the primary beneficiary and does not consolidate these entities.
(6)The Company has elected the fair value option with respect to these investments. The basis in these investments is their September 30, 2023 fair value.
(7)The Company owns less than 20% of the investee but has significant influence due to members of the management team serving on the board of the investee or its parent and as such, accounts for the investee using the equity method.
Significant Equity Method Investments
The table below presents the unaudited summary balance sheets for the Company’s significant equity method investments as of September 30, 2023 (dollars in thousands). NexPoint Real Estate Finance, Inc. ("NREF"), NexPoint Storage Partners, Inc. ("NSP") and VineBrook Homes Trust, Inc. ("VineBrook") do not prepare standalone financials for their operating companies as all operations and investments are owned through their operating companies and are consolidated by the corporate entities. As such, only the financial information for NREF, NSP and VineBrook are presented below.
NREFVineBrookNSP
ASSETS
Investments$6,814,871 $2,500 $