UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to

Commission File Number 000-56274

VINEBROOK HOMES TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland	83-1268857
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)
300 Crescent Court, Suite 700, Dallas, Texas	75201
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (214) 276-6300

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
N/A	N/A	N/A

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 Filer	o	Accelerated Filer	o
Non-Accelerated Filer	x	Smaller reporting company	o
Emerging growth company	x

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 August 11, 2023, the registrant had 24,894,392 shares of its Class A Common Stock, par value $0.01 per share, and no shares of its Class I Common Stock, par value $0.01 per share, outstanding.

VineBrook Homes Trust, Inc.

Form 10-Q

Quarter Ended June 30, 2023

INDEX

	Page
Cautionary Note Regarding Forward-Looking Statements	ii
Part I
Item 1. Financial Statements
Consolidated Balance Sheets	1
Consolidated Unaudited Statements of Operations and Comprehensive Income (Loss)	2
Consolidated Unaudited Statements of Stockholders' Equity	3
Consolidated Unaudited Statements of Cash Flows	5
Notes to Consolidated Unaudited Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3. Quantitative and Qualitative Disclosures About Market Risk	72
Item 4. Controls and Procedures	72
Part II
Item 1. Legal Proceedings	74
Item 1A. Risk Factors	74
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 3. Defaults Upon Senior Securities	75
Item 4. Mine Safety Disclosures	75
Item 5. Other Information	75
Item 6. Exhibits	76
Signatures	77

i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) of VineBrook Homes Trust, Inc. (“we”, “us”, “our”, or the “Company”) other than historical facts may be considered forward-looking statements. In particular, statements relating to our business and investment strategies, plans or intentions, our liquidity and capital resources, our performance and results of operations, repayment of the Bridge Facility III (as defined below), and strategy to reobtain compliance with certain debt service coverage ratios in and expected growth of the NexPoint Homes (as defined below) reportable segment, contain forward-looking statements. Furthermore, all statements regarding future financial performance (including market conditions) are forward-looking statements. We caution investors that any forward-looking statements presented in this Form 10-Q are based on management’s beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “would,” “result,” the negative version of these words and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements.

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 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 our ability to access funding and generate returns for stockholders;

•risks associated with the COVID-19 pandemic, including unpredictable variants and future outbreak of other highly infectious or contagious diseases;

•risks associated with our limited operating history and the possibility that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of NexPoint Real Estate Advisors V, L.P. (our “Adviser”), members of our management team or their affiliates;

•our dependence on our Adviser and its affiliates and personnel to conduct our day-to-day operations and potential conflicts of interest with our Adviser and its affiliates and personnel;

•risks associated with the fluctuation in the net asset value (“NAV”) per share amounts;

•loss of our employees and key personnel of our Adviser;

•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 our assets;

•risks associated with acquisitions, including the risk of expanding our scale of operations and acquisitions, which could adversely impact anticipated yields;

•risks related to increasing property taxes, homeowner’s associations (“HOAs”) fees and insurance costs may negatively affect our financial results;

•risks associated with our ability to identify, lease to and retain quality residents;

•risks associated with leasing real estate, including the risks that rents do not increase sufficiently to keep pace with inflation and other rising costs of operations and loss of residents to competitive pressures from other types of properties or market conditions;

•risks related to governmental laws, executive orders, regulations and rules applicable to our properties or that may be passed in the future which may impact operations, costs, revenue, or growth;

ii

•risks relating to the timing and costs of the renovation of properties which has the potential to adversely affect our operating results and ability to make distributions;

•risks related to our ability to change our major policies, operations and targeted investments without stockholder consent;

•risks related to climate change and natural disasters;

•risks related to our use of leverage;

•risks associated with our substantial current indebtedness and indebtedness we may incur in the future, rising interest rates and the availability of sufficient financing;

•risks related to failure to maintain our status as a real estate investment trust (“REIT”);

•risks related to failure of our OP (defined below) 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;

•risks related to compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities;

•the risk that the Internal Revenue Service (“IRS”) may consider certain sales of properties to be prohibited transactions, resulting in a 100% penalty tax on any taxable gain;

•the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends;

•risks associated with the stock ownership restrictions of the Internal Revenue Code of 1986, as amended (the “Code”) for REITs and the stock ownership limit imposed by our charter;

•recent and potential legislative or regulatory tax changes or other actions affecting REITs;

•failure to generate sufficient cash flows to service our outstanding indebtedness or pay distributions at expected levels;

•risks associated with the Highland Capital Management, L.P. (“Highland”) bankruptcy, including related litigation and potential conflicts of interest; and

•any of the other risks included under Item 1A, “Risk Factors,” in our Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 30, 2023 (our “Annual Report”).

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 Form 10-Q. 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

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	June 30, 2023		December 31, 2022
	(unaudited)
ASSETS
Operating real estate investments
Land	$	602,224	$	632,278
Buildings and improvements	3,042,553		3,098,258
Intangible lease assets	15		6,319
Total gross operating real estate investments	3,644,792		3,736,855
Accumulated depreciation and amortization	(224,545)		(171,648)
Total net operating real estate investments	3,420,247		3,565,207
Real estate held for sale, net	68,906		3,360
Total net real estate investments	3,489,153		3,568,567
Investments, at fair value	2,500		2,500
Cash	27,009		76,751
Restricted cash	35,738		37,998
Accounts and other receivables	20,790		13,292
Prepaid and other assets	25,337		65,466
Interest rate derivatives, at fair value	76,171		70,813
TOTAL ASSETS	$	3,676,698	$	3,835,387
LIABILITIES AND EQUITY
Liabilities:
Notes payable, net	$	952,456	$	947,499
Credit facilities, net	1,582,334		1,580,108
Bridge facility, net	57,521		73,622
Accounts payable and other accrued liabilities	37,042		46,055
Due to Manager (see Note 13)	2,345		3,110
Accrued real estate taxes payable	35,250		34,992
Accrued interest payable	20,168		14,945
Security deposit liability	25,846		25,605
Prepaid rents	5,081		5,936
Total Liabilities	2,718,043		2,731,872
Redeemable Series A preferred stock, $0.01 par value: 16,000,000 shares authorized; 5,000,000 and 5,000,000 shares issued and outstanding, respectively	121,873		121,662
Redeemable noncontrolling interests in the OP	239,312		240,647
Redeemable noncontrolling interests in consolidated VIEs	105,735		112,972
Stockholders' Equity:
Class A Common stock, $0.01 par value: 300,000,000 shares authorized; 24,894,319 and 24,615,364 shares issued and outstanding, respectively	250		248
Additional paid-in capital	731,937		737,129
Distributions in excess of retained earnings	(302,370)		(160,048)
Accumulated other comprehensive income	49,213		43,999
Total Stockholders' Equity	479,030		621,328
Noncontrolling interests in consolidated VIEs	12,705		6,906
TOTAL LIABILITIES AND EQUITY	$	3,676,698	$	3,835,387

See Accompanying Notes to Consolidated Financial Statements

1

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

(Unaudited)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Revenues
Rental income	$	87,414	$	59,442	$	171,911	$	110,422
Other income	1,229		1,523		2,837		2,860
Total revenues	88,643		60,965		174,748		113,282
Expenses
Property operating expenses	17,731		12,357		35,713		21,044
Real estate taxes and insurance	16,920		10,914		32,095		20,456
Property management fees	4,830		3,408		11,125		6,519
Advisory fees	5,802		3,844		10,648		6,930
Corporate general and administrative expenses	7,409		2,478		10,305		4,640
Property general and administrative expenses	6,590		4,625		12,220		7,498
Depreciation and amortization	32,080		24,207		64,920		40,163
Interest expense	31,456		11,155		66,779		20,775
Total expenses	122,818		72,988		243,805		128,025
Loss on extinguishment of debt	(89)		(1,001)		(112)		(1,001)
(Loss)/gain on sales and impairment of real estate, net	(14,601)		47		(30,454)		54
Investment income	89		1,339		164		1,339
Loss on forfeited deposits	(196)		—		(41,910)		—
Net loss	(48,972)		(11,638)		(141,369)		(14,351)
Dividends on and accretion to redemption value of Redeemable Series A preferred stock	2,207		2,219		4,414		4,428
Net loss attributable to redeemable noncontrolling interests in the OP	(7,346)		(1,771)		(21,206)		(2,194)
Net loss attributable to redeemable noncontrolling interests in consolidated VIEs	(4,794)		(1,191)		(8,007)		(1,191)
Net loss attributable to noncontrolling interests in consolidated VIEs	(689)		—		(1,001)		—
Net loss attributable to common stockholders	$	(38,350)	$	(10,895)	$	(115,569)	$	(15,394)
Other comprehensive (loss)/income
Unrealized gain on interest rate hedges	15,619		8,656		6,134		25,510
Total comprehensive (loss)/income	(33,353)		(2,982)		(135,235)		11,159
Dividends on and accretion to redemption value of Redeemable Series A preferred stock	2,207		2,219		4,414		4,428
Comprehensive (loss)/income attributable to redeemable noncontrolling interests in the OP	(5,003)		(449)		(20,286)		1,752
Comprehensive loss attributable to redeemable noncontrolling interests in consolidated VIEs	(4,794)		(1,191)		(8,007)		(1,191)
Comprehensive loss attributable to noncontrolling interests in consolidated VIEs	(689)		—		(1,001)		—
Comprehensive (loss)/income attributable to common stockholders	$	(25,074)	$	(3,561)	$	(110,355)	$	6,170
Weighted average common shares outstanding - basic	24,779		25,241		24,636		24,250
Weighted average common shares outstanding - diluted	24,779		25,241		24,636		24,250
Loss per share - basic	$	(1.55)	$	(0.43)	$	(4.69)	$	(0.63)
Loss per share - diluted	$	(1.55)	$	(0.43)	$	(4.69)	$	(0.63)

See Accompanying Notes to Consolidated Financial Statements

2

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(dollars in thousands, except share and per share amounts)

(Unaudited)

	Class A Common Stock
Three Months Ended June 30, 2023	Number of Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balances, March 31, 2023	24,769,760	$	249	$	734,748	$	(250,592)	$	35,937	$	520,342
Net loss attributable to common stockholders				—		(38,350)		—		(38,350)
Issuance of Class A common stock	111,591	1		5,763		—		—		5,764
Redemptions of Class A common stock	(2,920)	—		(180)		—		—		(180)
Equity-based compensation	15,888	—		1,225		—		—		1,225
Common stock dividends declared ($0.5301 per share)				—		(13,428)		—		(13,428)
Other comprehensive income attributable to common stockholders				—		—		13,276		13,276
Adjustments to reflect redemption value of redeemable noncontrolling interests in the OP				(8,248)		—		—		(8,248)
Adjustment to reflect redemption value of redeemable noncontrolling interests in consolidated VIEs				(1,371)		—		—		(1,371)
Balances, June 30, 2023	24,894,319	$	250	$	731,937	$	(302,370)	$	49,213	$	479,030

	Class A Common Stock
Six Months Ended June 30, 2023	Number of Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balances, December 31, 2022	24,615,364	$	248	$	737,129	$	(160,048)	$	43,999	$	621,328
Net loss attributable to common stockholders				—		(115,569)		—		(115,569)
Issuance of Class A common stock	221,698	2		12,489		—		—		12,491
Redemptions of Class A common stock	(2,920)	—		(180)		—		—		(180)
Equity-based compensation	60,177	—		2,082		—		—		2,082
Common stock dividends declared ($1.0602 per share)				—		(26,753)		—		(26,753)
Other comprehensive income attributable to common stockholders				—		—		5,214		5,214
Adjustments to reflect redemption value of redeemable noncontrolling interests in the OP				(18,212)		—		—		(18,212)
Adjustment to reflect redemption value of redeemable noncontrolling interests in consolidated VIEs				(1,371)		—		—		(1,371)
Balances, June 30, 2023	24,894,319	$	250	$	731,937	$	(302,370)	$	49,213	$	479,030

See Accompanying Notes to Consolidated Financial Statements

3

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(dollars in thousands, except share and per share amounts)

(Unaudited)

	Class A Common Stock
Three Months Ended June 30, 2022	Number of Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balances, March 31, 2022	24,696,441	$	247	$	780,388	$	(85,075)	$	13,439	$	708,999
Net loss attributable to common stockholders				—		(10,895)		—		(10,895)
Issuance of Class A common stock	682,149	7		40,567		—		—		40,574
Redemptions of Class A common stock	(437,357)	(4)		(26,260)		—		—		(26,264)
Offering costs				(1,150)		—		—		(1,150)
Equity-based compensation	19,252	—		916		—		—		916
Common stock dividends declared ($0.5301 per share)				—		(13,658)		—		(13,658)
Other comprehensive income attributable to common stockholders				—		—		7,334		7,334
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP				(13,159)		—		—		(13,159)
Adjustments to reflect redemption value of redeemable noncontrolling interests in consolidated VIEs				(1,191)		—		—		(1,191)
Balances, June 30, 2022	24,960,485	$	250	$	780,111	$	(109,628)	$	20,773	$	691,506

	Class A Common Stock
Six Months Ended June 30, 2022	Number of Shares	Par Value		Additional Paid-in Capital		Distributions in Excess of Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balances, December 31, 2021	21,814,248	$	219	$	651,531	$	(68,011)	$	(791)	$	582,948
Net loss attributable to common stockholders				—		(15,394)		—		(15,394)
Issuance of Class A common stock	3,589,483	36		192,658		—		—		192,694
Redemptions of Class A common stock	(492,762)	(5)		(29,261)		—		—		(29,266)
Offering costs				(1,493)		—		—		(1,493)
Equity-based compensation	49,516	—		1,675		—		—		1,675
Common stock dividends declared ($1.0602 per share)				—		(26,223)		—		(26,223)
Other comprehensive income attributable to common stockholders				—		—		21,564		21,564
Adjustments to reflect redemption value of redeemable noncontrolling interests in the OP				(33,808)		—		—		(33,808)
Adjustment to reflect redemption value of redeemable noncontrolling interests in consolidated VIEs				(1,191)		—		—		(1,191)
Balances, June 30, 2022	24,960,485	$	250	$	780,111	$	(109,628)	$	20,773	$	691,506

See Accompanying Notes to Consolidated Financial Statements

4

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

	For the Six Months Ended June 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(141,369)	$	(14,351)
Adjustments to reconcile net loss to net cash provided by operating activities
Loss/(gain) on sales and impairment of real estate, net	30,454		(54)
Depreciation and amortization	64,920		40,163
Non-cash interest amortization	4,981		3,330
Change in fair value of interest rate derivatives included in interest expense	747		(389)
Net cash received/(paid) on derivative settlements	2,419		(2,426)
Loss on extinguishment of debt	112		1,001
Equity-based compensation	5,877		3,072
Loss on forfeited deposits	41,910		—
Changes in operating assets and liabilities, net of effects of acquisitions:
Operating assets	(4,306)		(1,026)
Operating liabilities	9,649		15,932
Net cash provided by operating activities	15,394		45,252
Cash flows from investing activities
Investment in unconsolidated entity	—		(100,819)
Redemption of investment in unconsolidated entity	—		100,819
Acquisition of NexPoint Homes through VIE consolidation, net of cash received	—		(47,022)
Net proceeds from sales of real estate	63,077		7,117
Prepaid acquisition deposits	(10)		(5,673)
Insurance proceeds received	1,348		255
Acquisitions of real estate investments	(3,124)		(763,563)
Additions to real estate investments	(84,296)		(84,038)
Net cash used in investing activities	(23,005)		(892,924)
Cash flows from financing activities
Notes payable proceeds received	10,722		42,746
Notes payable payments	(6,226)		(389)
Credit facilities proceeds received	13,749		665,000
Credit facilities principal payments	(13,219)		—
Bridge facilities proceeds received	25,000		150,000
Bridge facilities principal payments	(41,805)		(150,000)
Financing costs paid	(2,232)		(6,269)
Interest rate cap premium paid	—		(12,673)
Proceeds from issuance of Class A common stock	—		153,167
Redemptions of Class A common stock paid	(17,274)		(3,002)
Offering costs paid	—		(1,850)
Dividends paid to common stockholders	(12,827)		(12,201)
Payments for taxes related to net share settlement of stock-based compensation	—		(555)
Preferred stock offering costs paid	(140)		—
Preferred stock dividends paid	(4,063)		(4,063)
Contributions from redeemable noncontrolling interests in the OP	—		4,974
Distributions to redeemable noncontrolling interests in the OP	(425)		(2,954)
Contributions from redeemable noncontrolling interests in consolidated VIEs	—		54,097
Distributions to redeemable noncontrolling interests in consolidated VIEs	(601)		—
Contributions from noncontrolling interests in consolidated VIEs	5,271		—
Distributions to noncontrolling interests in consolidated VIEs	(321)		—
Net cash (used in)/provided by financing activities	(44,391)		876,028
Change in cash and restricted cash	(52,002)		28,356
Cash and restricted cash, beginning of period	114,749		74,997
Cash and restricted cash, end of period	$	62,747	$	103,353

5

Supplemental Disclosure of Cash Flow Information
Interest paid, net of amount capitalized	$	69,517	$	6,376
Cash paid for income and franchise taxes	652		259
Supplemental Disclosure of Noncash Activities
Accrued insurance proceeds	7,382		—
Assumed liabilities in asset acquisitions	—		2,420
Accrued dividends payable to common stockholders	562		481
Accrued distributions payable to redeemable noncontrolling interests in the OP	700		626
Accrued dividends payable to preferred stockholders	2,032		4,063
Accrued redemptions payable to common stockholders	180		26,264
Accrued capital expenditures	347		898
Accretion to redemption value of Redeemable Series A preferred stock	351		365
Fair market value adjustment on assumed debt	—		89
Assumed debt on acquisitions	—		13,582
Offering costs accrued	—		(16)
Issuance of Class A common stock related to DRIP dividends	13,364		13,541
DRIP dividends to common stockholders	(13,364)		(13,541)
Contributions from redeemable noncontrolling interests in the OP related to DRIP distributions	3,645		968
DRIP distributions to redeemable noncontrolling interests in the OP	(3,645)		(968)
Contributions from redeemable noncontrolling interests in consolidated VIEs related to DRIP distributions	1,949		—
DRIP distributions to redeemable noncontrolling interests in consolidated VIEs	(1,949)		—
Contributions from noncontrolling interests in consolidated VIEs related to DRIP distributions	139		—
DRIP distributions to noncontrolling interests in consolidated VIEs	(139)		—
Real estate investments assumed in acquisition of NexPoint Homes through VIE consolidation	—		326,432
Earnest money deposits assumed in acquisition of NexPoint Homes through VIE consolidation	—		36,838
Other assets assumed in acquisition of NexPoint Homes through VIE consolidation	—		8,729
Notes payable assumed in acquisition of NexPoint Homes through VIE consolidation	—		278,530
Other liabilities assumed in acquisition of NexPoint Homes through VIE consolidation	—		4,607
Noncontrolling interests assumed in acquisition of NexPoint Homes through VIE consolidation	—		41,150

See Accompanying Notes to Consolidated Financial Statements

6

VINEBROOK HOMES TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

VineBrook Homes Trust, Inc. (the “Company”, “we”, “us,” “our”) was incorporated in Maryland on July 16, 2018 and has elected to be taxed as a real estate investment trust (“REIT”). The Company is focused on acquiring, renovating, leasing, maintaining and otherwise managing single family rental (“SFR”) home investments primarily located in large to medium size cities and suburbs located in the midwestern, heartland and southeastern United States and providing our residents with affordable, safe and clean dwellings with a high level of service. Substantially all of the Company’s business is conducted through VineBrook Homes Operating Partnership, L.P. (the “OP”), the Company’s operating partnership, as the Company owns its properties indirectly through the OP. VineBrook Homes OP GP, LLC (the “OP GP”), is the general partner of the OP. As of June 30, 2023, there were a combined 24,428,654 Class A, Class B and Class C units of the OP (collectively, “OP Units”), of which 20,545,615 Class A OP Units, or 84.1%, were owned by the Company, 2,738,854 Class B OP Units, or 11.2%, were owned by NexPoint Real Estate Opportunities, LLC (“NREO”), 91,395 Class C OP Units, or 0.4%, were owned by NRESF REIT Sub, LLC (“NRESF”), 144,231 Class C OP Units, or 0.6%, were owned by GAF REIT, LLC (“GAF REIT”) and 908,559 Class C OP Units, or 3.7%, were owned by limited partners that were sellers in the Formation Transaction (defined below) (and in certain instances affiliated with the equity holders of the Manager) (the “VineBrook Contributors”) or other Company insiders. NREO, NRESF and GAF REIT are noncontrolling limited partners unaffiliated with the Company but are affiliates of the Adviser (defined below). The Second Amended and Restated Limited Partnership Agreement of the OP (the “OP LPA”) generally provides that Class A OP Units and Class B OP Units each have 50.0% of the voting power of the OP Units, including with respect to the election of directors to the Partnership Board (defined below in Note 10), and the Class C OP Units have no voting power. Each Class A OP Unit, Class B OP Unit and Class C OP Unit otherwise represents substantially the same economic interest in the OP.

The Company began operations on November 1, 2018 as a result of the acquisition of various partnerships and limited liability companies owned and operated by the VineBrook Contributors and other third parties, which owned 4,129 SFR assets located in Ohio, Kentucky and Indiana (the “Initial Portfolio”) for a total purchase price of approximately $330.2 million, including closing and financing costs of $6.0 million (the “Formation Transaction”). On November 1, 2018, the Company accepted subscriptions for 1,097,367 shares of its Class A common stock, par value $0.01 (“Shares”), for gross proceeds of approximately $27.4 million in connection with the Formation Transaction. The proceeds from the issuance of Shares were used to acquire OP Units. The OP used the capital contribution from the Company to fund a portion of the purchase price for the Initial Portfolio. The remaining purchase price and closing costs were funded by a capital contribution totaling $70.7 million from NREO, $8.6 million of equity rolled over from VineBrook Contributors, and $241.4 million from a Federal Home Loan Mortgage Corporation (“Freddie Mac”) mortgage (the “Initial Mortgage”) provided by KeyBank N.A. (“KeyBank”). On May 1, 2019 (the “Release Date”), approximately $1.4 million worth of OP Units were released to various VineBrook Contributors from an indemnity reserve escrow that was established at the time the Initial Portfolio was acquired. From the time the escrow reserve was established until the Release Date, no indemnity claims were made against said escrow.

Between November 1, 2018 and June 30, 2023, the Company, through the SPEs (as defined in Note 3) owned by the OP, purchased 20,750 additional homes and sold 875 homes within the VineBrook reportable segment (see Note 15), and through the OP’s consolidated investment in NexPoint Homes (as defined in Note 2) purchased 2,573 additional homes and sold three homes. Together with the Initial Portfolio, the Company, through the OP’s SPEs and its consolidation of NexPoint Homes, indirectly owned an interest in 26,574 homes (the “Portfolio”) in 20 states as of June 30, 2023. The acquisitions of the additional homes in the VineBrook reportable segment were funded by loans (see Note 7), proceeds from the sale of Shares and Preferred Shares (defined below) and excess cash generated from operations.

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The Company is externally managed by NexPoint Real Estate Advisors V, L.P. (the “Adviser”), through an agreement dated November 1, 2018, subsequently amended and restated on May 4, 2020, and amended on October 25, 2022 (the “Advisory Agreement”). The Advisory Agreement will automatically renew on the anniversary of the renewal date for one-year terms thereafter, unless otherwise terminated. The Adviser provides asset management services to the Company. The OP caused the SPEs to retain VineBrook Homes, LLC (the “Manager”), which was an affiliate of certain VineBrook Contributors during the six months ended June 30, 2023, to renovate, lease, maintain, and operate the VineBrook properties under management agreements (as amended, the “Management Agreements”) that generally have an initial three-year term with one-year automatic renewals, unless otherwise terminated. The Management Agreements were supplemented by a side letter (as amended and restated, the “Side Letter”) by and among the Company, the OP, the OP GP, the Manager and certain of its affiliates. Pursuant to the Side Letter, on August 3, 2023, we completed the Internalization (defined below) of our Manager following which the Manager is a wholly-owned subsidiary of the OP and the VineBrook Portfolio is internally managed. In connection with the Internalization, the Side Letter was terminated. Certain SPEs from time to time may have property management agreements with independent third parties that are not the Manager. These are typically the result of maintaining legacy property managers after an acquisition to help transition the properties to the Manager or, in the case of a future sale, to manage the properties until they are sold. All of the Company’s investment decisions are made by our employees or employees of the Adviser, subject to general oversight by the OP’s investment committee and the Company’s board of directors (the “Board”). Because the equity holders of the Manager prior to the Internalization owned OP Units, the Manager was considered an affiliate for financial reporting disclosure purposes.

The Company’s primary investment objectives are to provide our residents with affordable, safe, clean and functional dwellings with a high level of service through institutional management and a renovation program on the homes purchased, while enhancing the cash flow and value of properties owned. We intend to acquire properties with cash flow growth potential, provide quarterly cash distributions and achieve long-term capital appreciation for our stockholders.

On August 28, 2018, the Company commenced the offering of 40,000,000 Shares through a continuous private placement (the “Private Offering”), under regulation D of the Securities Act of 1933, as amended (the “Securities Act”) (and various state securities law provisions) for a maximum of $1.0 billion of its Shares. The Private Offering closed on September 14, 2022. The initial offering price for Shares sold through the Private Offering was $25.00 per Share. The Company conducted periodic closings and sold Shares at the prior net asset value (“NAV”) per share as determined using the valuation methodology recommended by the Adviser and approved by the pricing committee (the “Pricing Committee”) of the Board (the “Valuation Methodology”), plus applicable fees and commissions. The NAV per share is calculated on a fully diluted basis. NAV may differ from the values of our real estate assets as calculated in accordance with accounting principles generally accepted in the United States (“GAAP”).

NexPoint Securities, Inc. (the “Dealer Manager”), an entity under common ownership with the Adviser, served as the sole dealer manager for the Private Offering and Raymond James & Associates, Inc. (“Raymond James”) and other unaffiliated broker-dealers served as placement agents (the “Placement Agents”) through selling agreements (“Selling Agreements”) between each Placement Agent and the Company.

The Company adopted the 2018 Long-Term Incentive Plan (the “2018 LTIP”) whereby the Board, or a committee thereof, granted awards of restricted stock units of the Company (“RSUs”) or profits interest units in the OP (“PI Units”) to certain employees of the Adviser and the Manager, or others at the discretion of the Board (including the directors and officers of the Company or other service providers of the Company or the OP). Under the terms of the 2018 LTIP, 426,307 Shares were initially reserved, subject to automatic increase on January 1st of each year beginning with January 1, 2019 by a number equal to 10% of the total number of OP Units and vested PI Units outstanding on December 31st of the preceding year, provided that the Board may act prior to each such January 1st to determine that there will be no increase for such year or that the increase will be less than the number of Shares by which the 2018 LTIP Share Reserve would otherwise increase (the “2018 LTIP Share Reserve”). In addition, the Shares available under the 2018 LTIP could not exceed in the aggregate 10% of the number of OP Units and vested PI Units outstanding at the time of measurement (the “2018 LTIP Share Maximum”). Grants could be made annually by the Board, or more or less frequently in the Board’s sole discretion. Vesting of grants made under the 2018 LTIP occur over a period of time as determined by the Board and included the achievement of performance metrics, also as determined by the Board in its sole discretion.

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On July 11, 2023, the Company’s stockholders approved the 2023 Long-Term Incentive Plan (the “2023 LTIP”) to replace the 2018 LTIP and on July 20, 2023, the Company filed a registration statement on Form S-8 registering 1,000,000 Shares which the Company may issue pursuant to the 2023 LTIP. Under the 2023 LTIP, the compensation committee of the Board may grant awards of option rights, stock appreciation rights, restricted stock, RSUs, performance shares, performance share units or cash incentive awards, or PI Units to directors and officers of the Company or other service providers of the Company and the OP. Under the terms of the 2023 LTIP, 1,000,000 Shares were initially reserved, subject to automatic increase on January 1st of each year beginning with January 1, 2024 by a number equal to 10% of the total number of OP Units and vested PI Units outstanding on December 31st of the preceding year (the “Share Reserve”), provided that the Board may act prior to each such January 1st to determine that there will be no increase for such year or that the increase will be less than the number of shares by which the Share Reserve would otherwise increase. Vesting of grants made under the 2023 LTIP will occur over a period of time as determined by the compensation committee and may include the achievement of performance metrics, also as determined by the compensation committee in its sole discretion.

2. Summary of Significant Accounting Policies

Basis of Accounting and Use of Estimates

The accompanying unaudited consolidated financial statements are presented in accordance with GAAP and the rules and regulations of the SEC. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates.

The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. References to number of properties are unaudited.

In the opinion of management, all adjustments and eliminations necessary for the fair presentation of the Company’s financial position as of June 30, 2023 and December 31, 2022 and results of operations for the three and six months ended June 30, 2023 and 2022 have been included. The unaudited information included in these interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2022 and 2021 included in our Annual Report. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any other future period.

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Principles of Consolidation

The Company accounts for subsidiary partnerships, limited liability companies, joint ventures and other similar entities in which it holds an ownership interest in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. If the Company determines the entity is not a VIE, it evaluates whether the entity should be consolidated under the voting model. The Company consolidates an entity when it controls the entity through ownership of a majority voting interest. As of June 30, 2023, the Company has determined it must consolidate the OP, its subsidiaries and the OP’s investment in NexPoint Homes Trust, Inc. (“NexPoint Homes”) (see Note 5) under the VIE model as it was determined the Company both controls the direct activities of the OP and its investments, including NexPoint Homes, and has the right to receive benefits that could potentially be significant to the OP, its subsidiaries and its investment in NexPoint Homes. The Company has control to direct the activities of the OP and its subsidiaries because the OP GP must generally receive approval of the Board to take any actions. The Company has control to direct the activities of NexPoint Homes because the OP owns approximately 82% of the outstanding equity of NexPoint Homes and the parties that beneficially own over 99% of the operating partnership of NexPoint Homes are related parties to the Company as of June 30, 2023. The consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP, its subsidiaries and NexPoint Homes. All significant intercompany accounts and transactions have been eliminated in consolidation. OP Units and equity interests in consolidated VIEs that are not owned by the Company are presented as noncontrolling interests in the consolidated financial statements, and income or loss generated is allocated between the Company and the noncontrolling interests based upon their relative ownership percentages. In these consolidated financial statements, redeemable noncontrolling interests in the OP are exclusive of any interests in NexPoint Homes and its SFR OP (as defined in Note 5). Noncontrolling interests in consolidated VIEs are representative of interests in NexPoint Homes and redeemable noncontrolling interests in consolidated VIEs are representative of interests in the SFR OP (as defined in Note 5).

Reclassifications

During the period ended June 30, 2023, the Company reclassified $1.4 million from due from Manager and $4.5 million from accounts payable and other accrued liabilities to due to Manager on the December 31, 2022 consolidated balance sheet to conform to our current presentation. During the period ended June 30, 2023, the Company reclassified $1.3 million from other income to investment income on the consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2022 to conform to our current presentation. Certain amounts classified separately as gain (loss) on sales of real estate and casualty loss, net of insurance proceeds for the prior periods have been reclassified as gain (loss) on sales and impairment of real estate, net on the consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2022 to conform to our current presentation.

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Real Estate Investments

Upon acquisition, we evaluate our acquired SFR properties for purposes of determining whether a transaction should be accounted for as an asset acquisition or business combination. Since substantially all of the fair value of our acquired properties is concentrated in a single identifiable asset or group of similar identifiable assets and the acquisitions do not include a substantive process, our purchases of homes or portfolios of homes qualify as asset acquisitions. Accordingly, upon acquisition of a property, the purchase price and related acquisition costs (“Total Consideration”) are allocated to land, buildings, improvements, fixtures, and intangible lease assets based upon their relative fair values.

The allocation of Total Consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement (“ASC 820”) (see Note 8), is based on an independent third-party valuation firm’s estimate of the fair value of the tangible and intangible assets and liabilities acquired or management’s internal analysis based on market knowledge obtained from historical transactions. The valuation methodology utilizes market comparable information, depreciated replacement cost and other estimates in allocating value to the tangible assets. The allocation of the Total Consideration to intangible lease assets represents the value associated with the in-place leases, as one month’s worth of effective gross income (rental revenue, less credit loss allowance, plus other income) as the average downtime of the assets in the portfolio is approximately one month and the assets in the portfolio are leased on a gross rental structure. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized or accreted as interest expense over the life of the debt assumed.

Real estate assets, including land, buildings, improvements, fixtures, and intangible lease assets are stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. Expenditures for improvements, renovations, and replacements are capitalized at cost. The Company also incurs indirect costs to prepare acquired properties for rental. These costs are capitalized to the cost of the property during the period the property is undergoing activities to prepare it for its intended use. We capitalize interest, real estate taxes, insurance, utilities and other indirect costs as costs of the property only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided that expenditures for the asset have been made and the costs have been incurred. Upon completion of the renovation of our properties, all costs of operations, including repairs and maintenance, are expensed as incurred, unless the renovation meets the Company’s capitalization criteria. Real estate-related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the following table:

Land	Not depreciated
Buildings	27.5 years
Improvements and other assets	2.5 - 15 years
Acquired improvements and fixtures	1 - 8 years
Intangible lease assets	6 months

As of June 30, 2023, the gross balance and accumulated amortization related to the intangible lease assets were both less than $0.1 million. As of December 31, 2022, the gross balance and accumulated amortization related to the intangible lease assets was $6.3 million and $5.1 million, respectively. For the three months ended June 30, 2023 and 2022, the Company recognized approximately $0.1 million and $2.0 million, respectively, of amortization expense related to the intangible lease assets. For the six months ended June 30, 2023 and 2022, the Company recognized approximately $1.3 million and $2.9 million, respectively, of amortization expense related to the intangible lease assets.

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Real estate assets are reviewed for impairment quarterly or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Significant indicators of impairment may include, but are not limited to, declines in home values, rental rates or occupancy percentages, as well as significant changes in the economy. In such cases, the Company will evaluate the recoverability of the assets by comparing the estimated future cash flows expected to result from the use and eventual disposition of each asset to its carrying amount and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount. If impaired, the real estate asset will be written down to its estimated fair value. The process whereby we assess our SFR homes for impairment requires significant judgment and assessment of factors that are, at times, subject to significant uncertainty. For the three and six months ended June 30, 2023, the Company recorded approximately $14.2 million and $27.3 million of impairment charges on real estate assets, respectively, which are included in (loss)/gain on sales and impairment of real estate, net on the consolidated statements of operations and comprehensive income (loss). The impairment charge is net of insurance recovery for any casualty related damages. No significant impairments on real estate assets were recorded during the three and six months ended June 30, 2022.

Cash and restricted cash

The Company maintains cash at multiple financial institutions and, at times, these balances exceed federally insurable limits. As a result, there is a concentration of credit risk related to amounts on deposit. We believe any risks are mitigated through the size of the financial institutions at which our cash balances are held.

Restricted cash represents cash deposited in accounts related to security deposits, property taxes, insurance premiums and deductibles and other lender-required escrows. Amounts deposited in the reserve accounts associated with the loans can only be used as provided for in the respective loan agreements, and security deposits held pursuant to lease agreements are required to be segregated.

The following table provides a reconciliation of cash and restricted cash reported on the consolidated balance sheets that sum to the total of such amount shown in the consolidated statements of cash flows (in thousands):

	June 30,
	2023		2022		December 31, 2022
Cash	$	27,009	$	81,793	$	76,751
Restricted cash	35,738		21,560		37,998
Total cash and restricted cash	$	62,747	$	103,353	$	114,749

Revenue Recognition

The Company’s primary operations consist of rental income earned from its residents under lease agreements typically with terms of one year or less. The Company classifies the SFR property leases as operating leases and elects to not separate the lease component, comprised of rents from SFR properties, from the associated non-lease component, comprised of fees from SFR properties and resident charge-backs. The combined component is accounted for under the new lease accounting standard while certain resident reimbursements are accounted for as variable payments under the revenue accounting guidance. Rental income is recognized when earned. This policy effectively results in income recognition on a straight-line basis over the related terms of the leases. Resident reimbursements and other income consist of charges billed to residents for utilities, resident-caused damages, pets, and administrative, application and other fees and are recognized when earned. Historically, the Company has used a direct write-off method for uncollectible rents; wherein uncollectible rents are netted against rental income. The Company additionally has established a reserve for any accounts receivable that are not expected to be collectible, which are netted against rental income and other income. For the three months ended June 30, 2023 and 2022, rental income includes $3.3 million and $2.5 million of variable lease payments, respectively. For the six months ended June 30, 2023 and 2022, rental income includes $6.1 million and $4.7 million of variable lease payments, respectively.

Gains or losses on sales of properties are recognized pursuant to the provisions included in ASC 610-20, Other Income. We recognize a full gain or loss on sale, which is presented in (loss)/gain on sales and impairment of real estate on the consolidated statements of operations and comprehensive income (loss), when the derecognition criteria under ASC 610-20 have been met.

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Redeemable Securities

Included in the Company’s consolidated balance sheets are redeemable noncontrolling interests in the OP, redeemable noncontrolling interests in consolidated VIEs and 6.50% Series A Cumulative Redeemable Preferred Stock (the “Preferred Shares”). These interests are presented in the “mezzanine” section of the consolidated balance sheets because they do not meet the functional definition of a liability or equity under current accounting literature. The Company accounts for these under the provisions of ASC Topic 480-10-S99-3A, paragraph 15(b).

In accordance with ASC Topic 480-10-S99, since the redeemable noncontrolling interests in the OP and redeemable noncontrolling interests in consolidated VIEs have a redemption feature, they are measured at their redemption value if such value exceeds the carrying value of interests. The redemption value is based on the NAV per unit at the measurement date. The offset to the adjustment to the carrying amount of the redeemable noncontrolling interests in the OP and redeemable noncontrolling interests in consolidated VIEs is reflected in the Company’s additional paid-in capital on the consolidated balance sheets. In accordance with ASC Topic 480-10-S99, the Preferred Shares are measured at their carrying value plus the accretion to their future redemption value on the balance sheet. The accretion is reflected in the Company’s dividends on and accretion to redemption value of Series A redeemable preferred stock on the consolidated statements of operations and comprehensive income (loss).

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of the Company’s common stock outstanding, which excludes any unvested RSUs and PI Units issued pursuant to the 2018 LTIP. Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the dilutive effects of the assumed vesting of RSUs and PI Units and the conversion of OP Units and vested PI Units to Shares. During periods of net loss, the assumed vesting of RSUs and PI Units and the conversion of OP Units and vested PI Units to Shares is anti-dilutive and is not included in the calculation of earnings (loss) per share. The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods presented (in thousands, except per share amounts):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Numerator for loss per share:
Net loss	$	(48,972)	$	(11,638)	$	(141,369)	$	(14,351)
Less:
Dividends on and accretion to redemption value of Redeemable Series A preferred stock	2,207		2,219		4,414		4,428
Net loss attributable to redeemable noncontrolling interests in the OP	(7,346)		(1,771)		(21,206)		(2,194)
Net loss attributable to redeemable noncontrolling interests in consolidated VIEs	(4,794)		(1,191)		(8,007)		(1,191)
Net loss attributable to noncontrolling interests in consolidated VIEs	(689)		—		(1,001)		—
Net loss attributable to common stockholders	$	(38,350)	$	(10,895)	$	(115,569)	$	(15,394)
Denominator for earnings (loss) per share:
Weighted average common shares outstanding - basic	24,779		25,241		24,636		24,250
Weighted average unvested RSUs, PI Units, and OP Units (1)	—		—		—		—
Weighted average common shares outstanding - diluted	24,779		25,241		24,636		24,250
Earnings (loss) per weighted average common share:
Basic	$	(1.55)	$	(0.43)	$	(4.69)	$	(0.63)
Diluted	$	(1.55)	$	(0.43)	$	(4.69)	$	(0.63)

(1) For the three months ended June 30, 2023 and 2022, excludes approximately 4,566,000 shares and 4,337,000 shares, respectively, related to the assumed vesting of RSUs and PI Units and the conversion of OP Units and vested PI Units to Shares, as the effect would have been anti-dilutive. For the six months ended June 30, 2023 and 2022, excludes approximately 4,576,000 shares and 4,287,000 shares, respectively, related to the assumed vesting of RSUs and PI Units and the conversion of OP Units and vested PI Units to Shares, as the effect would have been anti-dilutive.

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Segment Reporting

Under the provision of ASC 280, Segment Reporting, the Company has determined that it has two reportable segments, VineBrook and NexPoint Homes. Both reportable segments involve activities related to acquiring, renovating, developing, leasing and operating SFR homes as rental properties. The Company’s management allocates resources and evaluates operating performance across the two segments. The VineBrook reportable segment is the legacy reportable segment and represents the majority of the Company’s operations and generally purchases homes to implement a value-add strategy. The NexPoint Homes reportable segment was formed June 8, 2022 and represents a supplemental reportable segment that generally purchases newer homes that require less rehabilitation compared to the VineBrook reportable segment. Within the VineBrook reportable segment, the Company had a geographic market concentration in one market (Cincinnati) that represents more than 10% of the total gross book value of SFR homes as of June 30, 2023.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the six months ended June 30, 2023, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future London Interbank Offered Rate (“LIBOR”) indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company has elected practical expedients within FASB ASU 2020-04 related to replacing the source of hedged transactions and continues evaluating the impact the adoption of this ASU will have on the Company’s consolidated financial statements.

In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”) which was issued to defer the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December 31, 2024. ASU 2022-06 is effective immediately for all companies. ASU 2022-06 will have no impact on the Company’s consolidated financial statements for the three and six months ended June 30, 2023.

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3. Investments in Subsidiaries

In connection with its indirect investments in real estate assets acquired, the Company, through its ownership of the OP, indirectly holds a proportional ownership interest in the Portfolio, through the OP’s beneficial ownership of all of the issued and outstanding membership interests in the special purpose limited liability companies (“SPEs”) that directly or indirectly own the Portfolio. All of the properties in the Portfolio 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, except as discussed below. Under the terms of the notes payable, except as discussed below, the lender has a mortgage interest in each real estate asset in the SPE to which the loan is made.

As of June 30, 2023, the Company, through the OP and its SPE subsidiaries, owned the Portfolio, which consisted of 24,004 properties in the VineBrook reportable segment and 2,570 properties in the NexPoint Homes reportable segment, through 13 SPEs and their various subsidiaries and through the consolidated investment in NexPoint Homes. The following table presents the ownership structure of each SPE group that directly or indirectly owns the title to each real estate asset as of June 30, 2023, the number of assets held, the cost of those assets, the resulting debt allocated to each SPE and whether the debt is a mortgage loan. The mortgage loan may be settled from the assets of the below entity or entities to which the loan is made. Loans from the credit facility dated September 20, 2019 by and between the OP (as guarantor), VB One, LLC (as borrower) (“VB One”) and KeyBank (the “Warehouse Facility”) can only be settled from the assets owned by VB One (dollars in thousands):

VIE Name	Homes	Cost Basis		OP Beneficial Ownership %		Encumbered by Mortgage (1)	Debt Allocated
NREA VB I, LLC	65	$	6,089	100	%	Yes	$	4,992
NREA VB II, LLC	167	16,772		100	%	Yes	10,654
NREA VB III, LLC	1,322	122,595		100	%	Yes	70,356
NREA VB IV, LLC	385	37,931		100	%	Yes	23,999
NREA VB V, LLC	1,828	128,222		100	%	Yes	107,109
NREA VB VI, LLC	294	28,433		100	%	Yes	18,456
NREA VB VII, LLC	36	3,171		100	%	Yes	2,954
True FM2017-1, LLC	209	19,685		100	%	Yes	10,050
VB One, LLC	13,388	1,780,125		100	%	No	1,257,357
VB Two, LLC	1,809	172,861		100	%	No	120,753
VB Three, LLC	3,822	547,633		100	%	No	333,173
VB Five, LLC	162	18,710		100	%	Yes	8,067
VB Eight, LLC	517	73,917		100	%	No	58,195
NexPoint Homes	2,570	757,554		82	%	No	475,518
	26,574	$	3,713,698				$	2,501,633	(2)

(1)Assets held, directly or indirectly, by VB One, VB Two, LLC, VB Three, LLC and VB Eight, LLC are not encumbered by a mortgage. Instead, the lender has an equity pledge in certain assets of the respective SPEs and an equity pledge in the equity of the respective SPEs.

(2)In addition to the debt allocated to the SPEs noted above, as of June 30, 2023, NexPoint Homes had approximately $102.6 million of debt (excluding amounts owed to the OP from NexPoint Homes, as these are eliminated in consolidation) not collateralized directly by homes which reflects the amount outstanding on the SFR OP Convertible Notes (as defined in Note 13) as of June 30, 2023.

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4. Real Estate Assets

As of June 30, 2023, the Company, through the OP and its SPE subsidiaries, owned 26,574 homes, including 24,004 homes in the VineBrook reportable segment and 2,570 homes in the NexPoint Homes reportable segment. As of December 31, 2022, the Company, through the OP and its SPE subsidiaries, owned 27,211 homes, including 24,657 homes in the VineBrook reportable segment and 2,554 homes in the NexPoint Homes reportable segment. The components of the Company’s real estate investments in homes were as follows (in thousands):

	Land		Buildings and improvements (1)			Intangible lease assets		Real estate held for sale, net		Total gross real estate		Accumulated depreciation and amortization
Real Estate Balances, December 31, 2022	$	632,278	$	3,098,258		$	6,319	$	3,360	$	3,740,215	$	(171,648)
Additions	424		86,603		(2)	—		—		87,027		(64,920)
Transfers to held for sale	(30,478)		(133,688)			(40)		158,387		(5,819)		5,819
Write-offs	—		—			(6,264)		—		(6,264)		6,264
Dispositions	—		(1,104)			—		(65,605)		(66,709)		(60)
Impairment	—		(7,516)		(3)	—		(27,236)		(34,752)		—
Real Estate Balances, June 30, 2023	$	602,224	$	3,042,553		$	15	$	68,906	$	3,713,698	$	(224,545)

(1)Includes capitalized interest, real estate taxes, insurance, improvements, and other costs incurred during rehabilitation of the properties.

(2)Includes capitalized interest of approximately $6.4 million and other capitalizable costs outlined in (1) above of approximately $7.1 million.

(3)During the three and six months ended June 30, 2023, there was a casualty event in the Portales market resulting in casualty impairments of $7.5 million on assets held for use, partially offset by $7.4 million of insurance recoveries.

During the three months ended June 30, 2023 and 2022, the Company recognized depreciation expense of approximately $32.0 million and $22.2 million, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized depreciation expense of approximately $63.7 million and $37.2 million, respectively.

Acquisitions and dispositions

During the six months ended June 30, 2023, the Company, through the OP, acquired two homes within the VineBrook reportable segment. During the six months ended June 30, 2023, the Company, through its consolidated investment in NexPoint Homes, acquired 19 homes. See Note 5 for additional information about NexPoint Homes.

During the six months ended June 30, 2023, the Company, through the OP, disposed of 655 homes within the VineBrook reportable segment. During the six months ended June 30, 2023, the Company, through its consolidated investment in NexPoint Homes, disposed of three homes. The Company strategically identified these homes for disposal and expects the disposal of these properties to be accretive to the Portfolio’s results of operations and overall performance.

On August 3, 2022, VB Five, LLC (“Buyer”), an indirect subsidiary of the Company, entered into a purchase agreement under which the Buyer agreed to acquire a portfolio of approximately 1,610 SFR homes located in Arizona, Florida, Georgia, Ohio and Texas (the “Tusk Portfolio”). Also on August 3, 2022, the Buyer entered into a purchase agreement under which the Buyer agreed to acquire a portfolio of approximately 1,289 SFR homes located in Arizona, Florida, Georgia, North Carolina, Ohio and Texas (the “Siete Portfolio”). On January 17, 2023, the Company, through its indirect subsidiary, VB Seven, LLC, entered into an agreement under which the acquisition of the Tusk Portfolio was terminated by the seller and the Buyer forfeited its initial deposit of approximately $23.3 million. Additionally, on January 17, 2023, the Company, through its indirect subsidiary, VB Seven, LLC, entered into an agreement under which the acquisition of the Siete Portfolio was terminated by the seller and the Buyer forfeited its initial deposit of approximately $17.7 million. The total initial deposit forfeitures of $41.0 million from the Tusk Portfolio and the Siete Portfolio are included in loss on forfeited deposits on the consolidated statement of operations and comprehensive income (loss) for the six months ended June 30, 2023.

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Held for sale properties

The Company periodically classifies real estate assets as held for sale when certain criteria are met in accordance with GAAP. At that time, the Company presents the net real estate assets separately in its consolidated balance sheet, and the Company ceases recording depreciation and amortization expense related to that property. Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell. For the three and six months ended June 30, 2023, the Company recorded approximately $14.2 million and $27.3 million of impairment charges on real estate assets held for sale, respectively. The impairment charges recorded include approximately $1.1 million and $3.6 million of casualty related impairment for the three and six months ended June 30, 2023, respectively, and are included in (loss)/gain on sales and impairment of real estate, net on the consolidated statements of operations and comprehensive income (loss). As of June 30, 2023, there are 779 properties that are classified as held for sale. These held for sale properties have a carrying amount of approximately $68.9 million.

5. NexPoint Homes Investment

During the year ended December 31, 2022, the Company, through its taxable REIT subsidiary (“the TRS”), invested approximately $100.8 million in Ensign Peak Realty, LLC (“Ensign”), an owner and operator of SFR homes. This investment was redeemed in full on June 8, 2022 in connection with the formation of NexPoint Homes, described below.

Formation of NexPoint Homes - Contribution Agreements

On June 8, 2022, the Company, through the OP, entered into a contribution agreement (the “Contribution Agreement”) with NexPoint Homes, which is externally advised by an affiliate of our Adviser. In accordance with the Contribution Agreement, the OP contributed $50.0 million to NexPoint Homes in exchange for 2,000,000 shares of Class A common stock, par value $0.01 per share of NexPoint Homes (the “NexPoint Homes Class A Shares”). The NexPoint Homes Class A Shares were issued and valued at $25.00 per share. The NexPoint Homes Class A Shares owned by the Company are eliminated in consolidation.

Following the contribution by the OP to NexPoint Homes, NexPoint Homes entered into a contribution agreement (the “SFR OP Contribution Agreement”) with NexPoint SFR Operating Partnership, L.P. (the “SFR OP”), the operating partnership of NexPoint Homes, certain funds managed by affiliates of our Adviser and certain individuals (the “Principals”) affiliated with HomeSource Operations, LLC, the external manager of the SFR OP. In accordance with the SFR OP Contribution Agreement, NexPoint Homes contributed $50.0 million to the SFR OP in exchange for 2,000,000 limited partnership units of the Operating Partnership (“SFR OP Units”). The SFR OP Units owned by NexPoint Homes are eliminated in consolidation.

On June 30, 2023, the general partner of SFR OP executed the Second Amended and Restated Limited Partnership Agreement of the SFR OP (the “SFR OP LPA”), for the purposes of subdividing and reclassifying the SFR OP Units. The SFR OP LPA generally provides that the newly created Class A Common Units and Class B Common Units will each have 50.0% of the voting power of the SFR OP Units, including with respect to the election of directors to the board of the SFR OP. The Class C Common Units will have no voting power. The reclassification of the SFR OP Units did not have a material effect on the economic interests of the holders of the SFR OP Units. In connection with the SFR OP LPA, the SFR OP Units held by NexPoint Homes were reclassified into Class A Common Units, the SFR OP Units held by NexPoint Diversified Real Estate Operating Partnership, L.P., which is advised by an affiliate of the Company’s external adviser, were reclassified into Class B Common Units and the remaining SFR OP Units, which are primarily held by affiliates of the Company, were reclassified into Class C Common Units.

On June 8, 2022, the OP loaned $50.0 million to NexPoint Homes in exchange for $50.0 million of 7.50% convertible notes of NexPoint Homes (the “NexPoint Homes Convertible Notes”). The NexPoint Homes Convertible Notes bear interest at 7.50%, are interest only during the term of the NexPoint Homes Convertible Notes and mature on June 30, 2027. From August 1, 2022 through March 31, 2027, the NexPoint Homes Convertible Notes are convertible into NexPoint Homes Class A Shares at the election of the OP at the then-current net asset value of NexPoint Homes, subject to certain limitations. Subsequent to June 8, 2022, NexPoint Homes repaid $30.5 million of the NexPoint Homes Convertible Notes and the balance of the NexPoint Homes Convertible Notes was $19.5 million as of June 30, 2023. The NexPoint Homes Convertible Notes held by the Company are eliminated in consolidation.

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On June 8, 2022, in connection with the formation of NexPoint Homes, the Company consolidated a note with Metropolitan Life Insurance Company (the “NexPoint Homes MetLife Note 1”). The NexPoint Homes MetLife Note 1 is guaranteed by the OP and bears interest at a fixed rate of 3.72% on the tranche collateralized by stabilized properties and 4.47% on the tranche collateralized by non-stabilized properties. The NexPoint Homes MetLife Note 1 is interest-only and matures and is due in full on March 3, 2027. As of June 30, 2023, the NexPoint Homes MetLife Note 1 had an outstanding principal balance of $238.4 million which is included, net of unamortized deferred financing costs, in notes payable on the consolidated balance sheets.

See Note 7 for more information on the Company’s consolidated debt related to its investment in NexPoint Homes.

Consolidation of NexPoint Homes

Under ASC 810, Consolidation, the Company has determined that NexPoint Homes represents a variable interest entity. Under the VIE model, the Company concluded that the Company both controls and directs the activities of NexPoint Homes and has the right to receive benefits that could potentially be significant to its investment in NexPoint Homes. The Company has control to direct the activities of NexPoint Homes as the OP owns approximately 82% of the outstanding equity of NexPoint Homes as of June 30, 2023 and the parties that beneficially own approximately 99% of the SFR OP are related parties to the Company. As such, the Company determined it is appropriate to consolidate NexPoint Homes. All significant intercompany accounts and transactions have been eliminated in consolidation. As NexPoint Homes continues to raise additional capital, the Company will continue to evaluate whether the entity is a VIE and if the Company is the primary beneficiary of the VIE and should consolidate the entity.

On June 30, 2023, the general partner of the SFR OP executed the SFR OP LPA which subdivided and reclassified the outstanding SFR OP Units into Class A, Class B and Class C common units. The SFR OP LPA generally provides that the newly created Class A Common Units and Class B Common Units will each have 50.0% of the voting power of the SFR OP Units, including with respect to the election of directors to the board of directors of the SFR OP. The Class C Common Units will have no voting power. The reclassification of the SFR OP Units did not have a material effect on the economic interests of the holders of the SFR OP Units. In connection with the SFR OP LPA, the SFR OP Units held by NexPoint Homes were reclassified into Class A common units. As of June 30, 2023, the Company determined it was still appropriate to consolidate NexPoint Homes.

6. Investments, at Fair Value

On November 22, 2021, the Company, through the TRS, invested $2.5 million in Vesta Ventures Fund I, LP (the “Vesta Fund”). The Vesta Fund is a closed-end fund with an initial seven-year term beginning on February 24, 2021, subject to certain extension provisions, that invests in early and growth stage technology companies that provide solutions to the SFR real estate sector. Vesta Ventures GP, LLC (the “Vesta GP”) is the general partner and managing member of the Vesta Fund and accordingly has the exclusive right to manage and control the Vesta Fund. The TRS is a limited partner in the Vesta Fund with a minority interest and accordingly has no control or influence over the Vesta Fund.

Investments in privately held entities that report NAV, such as our privately held equity investments, are presented at fair value using NAV as a practical expedient, with changes in fair value recognized in net income. We use NAV reported by limited partnerships generally without adjustment, unless we are aware of information indicating that the NAV reported by a limited partnership does not accurately reflect the fair value of the investment at our reporting date. We disclose the timing of liquidation of an investee’s assets and the date when redemption restrictions will lapse (or indicate if this timing is unknown) if the investee has communicated this information to us or has announced it publicly. We recognize both realized and unrealized gains and losses in our consolidated statements of operations. Unrealized gains and losses represent changes in NAV as a practical expedient to estimate fair value for investments in privately held entities that report NAV. Realized gains and losses on our investments represent the difference between proceeds received upon disposition of investments and their historical or adjusted cost. At June 30, 2023, the Company had no material unrealized or realized gains or losses related to the investment.

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7. Debt

As of June 30, 2023, the VineBrook Homes reportable segment had approximately $2.0 billion of debt outstanding, and the NexPoint Homes reportable segment had $578.1 million of debt outstanding. See the summary table below for further information on the Company's outstanding debt. Additionally, we have included a summary of any significant changes in debt agreements during the six months ended June 30, 2023 below.

On March 1, 2021, the Company entered into a non-recourse carveout guaranty and certain wholly owned subsidiaries of VB Three, LLC (as borrowers) entered into a $500.0 million credit agreement with JP Morgan (the “JPM Facility”). The JPM Facility is secured by equity pledges in VB Three, LLC and its wholly owned subsidiaries and bears interest at a variable rate equal to one-month LIBOR plus 2.75%. The JPM Facility is interest-only and originally matured and was due in full on March 1, 2023. On March 10, 2022, the Company entered into Amendment No. 1 to the JPM Facility, wherein each advance under the JPM Facility will bear interest at daily Secured Overnight Financing Rate (“SOFR”) plus 2.85%. The balance of the JPM Facility, net of unamortized deferred financing costs, is included in credit facilities on the consolidated balance sheets. On January 31, 2023, the Company entered into Amendment No. 2 to the JPM Facility, wherein the total facility amount was updated to $350.0 million, and the maturity date was extended to January 31, 2025, which may be extended for 12 months upon submission of an extension request, subject to approval. On March 15, 2023, the Company entered into Amendment No. 3 to the JPM Facility to give the Company credit for pledging an interest rate swap by reducing the interest reserve requirements under the JPM Facility based on the capped rate. As of June 30, 2023, the JPM Facility had $16.8 million in available capacity.

On December 28, 2022, the Company entered into a bridge credit agreement through the OP with Raymond James Bank, and subsequently borrowed $75.0 million (the “Bridge Facility III”). The Bridge Facility III accrues interest at one-month term SOFR plus a margin of 3.0%. The Bridge Facility III matures on September 30, 2023 and requires periodic principal payments and monthly interest payments.

On April 17, 2023, the Company, through the OP, entered into the first amendment to the bridge credit agreement with Raymond James Bank (the “Bridge Facility III Amendment No. 1”), which amended the Bridge Facility III. The Bridge Facility III Amendment No. 1 increased the borrowing capacity of the Bridge Facility III by $25.0 million to $100.0 million and requires repayment of the principal amount outstanding so that (1) by May 30, 2023, no more than $66.7 million remained outstanding, (2) by June 30, 2023, no more than $40.0 million remained outstanding and (3) by August 30, 2023, no more than $20.0 million remains outstanding. In connection with the Bridge Facility III Amendment No. 1, on April 19, 2023, the Company drew $25.0 million on the Bridge Facility III. Subsequently, the Company repaid $41.8 million of principal on the Bridge Facility III through June 30, 2023. The balance of the Bridge Facility III, net of unamortized deferred financing costs, is included in bridge facility on the consolidated balance sheets. We expect to repay the Bridge Facility III with cash flows from operations and net proceeds from the sale of homes. We also repaid a portion of the Bridge Facility III with the net proceeds from the Series B Preferred Offering (see Note 16).

As of the date of this filing, the Company is in compliance with all debt covenants in all of its debt agreements.

The weighted average interest rate of the Company’s debt was 6.7399% as of June 30, 2023 and 6.0684% as of December 31, 2022. As of June 30, 2023 and December 31, 2022, the adjusted weighted average interest rate of the Company’s debt, including the effect of derivative financial instruments, was 5.0444% and 4.9101%, respectively. For purposes of calculating the adjusted weighted average interest rate of the Company’s debt as of June 30, 2023, including the effect of derivative financial instruments, the Company has included the weighted average fixed rate of 2.2219% on its combined $1.5 billion notional amount of interest rate swap and cap agreements, representing a weighted average fixed rate for one-month LIBOR, daily SOFR and one-month term SOFR, which effectively fixes the interest rate on $1.5 billion of the Company’s floating rate indebtedness (see Note 8).

For further descriptions of the debt arrangements not included in this Form 10-Q, please see Note 7 to the consolidated financial statements in our Annual Report.

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The following table contains summary information of the Company’s debt as of June 30, 2023 and December 31, 2022 (dollars in thousands):

		Outstanding Principal as of
	Type	June 30, 2023		December 31, 2022		Interest Rate (1)	Maturity
Initial Mortgage	Floating	$	238,520	$	240,408	6.77%	12/1/2025
Warehouse Facility	Floating	1,257,357		1,270,000		7.34%	11/3/2024	(2)
JPM Facility	Floating	333,173		320,000		7.94%	1/31/2025	(3)
Bridge Facility III	Floating	58,195		75,000		8.14%	12/31/2023
MetLife Note	Fixed	120,753		124,279		3.25%	1/31/2026
TrueLane Mortgage	Fixed	10,050		10,143		5.35%	2/1/2028
Crestcore II Note	Fixed	4,444		4,651		5.12%	7/9/2029
Crestcore IV Note	Fixed	3,623		4,135		5.12%	7/9/2029
Total VineBrook reportable segment debt		$	2,026,115	$	2,048,616
NexPoint Homes MetLife Note 1	Fixed	238,428		233,545		3.76%	3/3/2027
NexPoint Homes MetLife Note 2	Fixed	174,590		171,209		5.44%	8/12/2027
NexPoint Homes KeyBank Facility	Floating	62,500		62,500		7.84%	8/12/2025
SFR OP Convertible Notes (4)	Fixed	102,557		100,100		7.50%	6/30/2027
Total debt		$	2,604,190	$	2,615,970
Debt premium, net (5)		342		378
Deferred financing costs, net of accumulated amortization of $18,012 and $12,995, respectively		(12,221)		(15,119)
		$	2,592,311	$	2,601,229

(1)Represents the interest rate as of June 30, 2023. Except for fixed rate debt, the interest rate is one-month LIBOR, daily SOFR or one-month term SOFR, plus an applicable margin. One-month LIBOR as of June 30, 2023 was 5.2177%, daily SOFR as of June 30, 2023 was 5.0900% and one-month term SOFR as of June 30, 2023 was 5.1408%.

(2)This is the stated maturity for the Warehouse Facility, but it is subject to extension options.

(3)This is the stated maturity for the JPM Facility, but it is subject to a 12-month extension option.

(4)The SFR OP Convertible Notes exclude the amounts owed to NexPoint Homes by the SFR OP, as these are eliminated in consolidation.

(5)The Company reflected valuation adjustments on its assumed fixed rate debt to adjust it to fair market value on the dates of acquisition for the difference between the fair value and the assumed principal amount of debt. The difference is amortized into interest expense over the remaining terms of the debt.

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Schedule of Debt Maturities

The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to June 30, 2023 are as follows (in thousands):

	Total
2023	$	210,421	(1)
2024	259,276		(2)
2025	1,147,766		(3)
2026	454,318		(4)
2027	515,989
Thereafter	16,420
Total	$	2,604,190

(1)Includes approximately $150.9 million of required pay downs on the Warehouse Facility related to the Consent and Sixth Amendment to the Warehouse Facility (see Note 16).

(2)Includes approximately $256.5 million of required pay downs on the Warehouse Facility related to the Consent and Sixth Amendment to the Warehouse Facility (see Note 16).

(3)Assumes the Company exercises the extension options on the Warehouse Facility, subject to approval from the lender.

(4)Assumes the Company exercises the 12-month extension option on the JPM Facility, subject to approval from the lender.

Each reporting period, management evaluates the Company’s ability to continue as a going concern in accordance with ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, by evaluating conditions and events, including assessing the liquidity needs to meet obligations as they become due within one year after the date the financial statements are issued. The Company has approximately $318.5 million of debt obligations coming due from June 30, 2023 through 12-months from the report issuance date and does not currently have sufficient liquidity to satisfy the obligations. In order to satisfy obligations as they mature, management intends to evaluate its options and may seek to make partial loan pay downs, may seek to refinance certain debt instruments, may seek additional capital through private equity offerings or through other sources of financings, may sell homes from its portfolio and may modify operations. While management believes its plans will be sufficient, the ability to execute its plans is not within management’s control. These financial statements have been prepared by management in accordance with GAAP and this basis assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. These financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Deferred Financing Costs

The Company defers costs incurred in obtaining financing and amortizes the costs over the term of the related debt 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 sheets. Upon 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. For the three months ended June 30, 2023 and 2022, amortization of deferred financing costs of approximately $2.5 million and $1.8 million, respectively, are included in interest expense on the consolidated statements of operations and comprehensive income (loss). For the six months ended June 30, 2023 and 2022, amortization of deferred financing costs of approximately $5.0 million and $3.3 million, respectively, are included in interest expense on the consolidated statements of operations and comprehensive income (loss).

Loss on Extinguishment of Debt

Loss on extinguishment of debt includes prepayment penalties and defeasance costs incurred on the early repayment of debt and other costs incurred in a debt extinguishment. Upon 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. For the six months ended June 30, 2023 and 2022, the Company incurred $0.1 million and $1.0 million of debt extinguishment costs, respectively, which are included in loss on extinguishment of debt on the consolidated statements of operations and comprehensive income (loss).

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8. Fair Value of Derivatives and Financial Instruments

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy):

•Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

•Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals.

•Level 3 inputs are the unobservable inputs for the asset or liability, which are typically based on an entity’s own assumption, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on input from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company utilizes independent third parties to perform the allocation of value analysis for each property acquisition and to perform the market valuations on its derivative financial instruments and has established policies, as described above, processes and procedures intended to ensure that the valuation methodologies for investments and derivative financial instruments are fair and consistent as of the measurement date.

Derivative Financial Instruments and Hedging Activities

The Company manages interest rate risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company has entered into an interest rate cap and interest rate swaps to manage exposures that arise from changes in interest rates. The Company’s derivative financial instruments are used to manage the Company’s risk of increased cash outflows from the floating rate loans that may result from rising interest rates, in particular the reference rate for the loans, which include one-month LIBOR, daily SOFR and one-month term SOFR. In order to minimize counterparty credit risk, the Company has entered into and expects to enter in the future into hedging arrangements and intends to only transact with major financial institutions that have high credit ratings.

The Company utilizes an Independent third party to perform the market valuations on its derivative financial instruments. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair value of the interest rate cap is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the cap. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

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To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of June 30, 2023 and December 31, 2022 were classified as Level 2 of the fair value hierarchy.

The changes in the fair value of derivative financial instruments that are designated as cash flow hedges are recorded in other comprehensive income (loss) and are subsequently reclassified into net income (loss) in the period that the hedged forecasted transaction affects earnings. Amounts reported in other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s floating rate debt. Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements but either do not meet the strict requirements to apply hedge accounting in accordance with FASB ASC 815, Derivatives and Hedging, or the Company has elected not to designate such derivatives as hedges. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in net income (loss) as interest expense.

In order to fix a portion of, and mitigate the risk associated with, the Company’s floating rate indebtedness, the Company, through the OP, has entered into 13 interest rate swap transactions with KeyBank and Mizuho with a combined notional amount of $1.2 billion. The interest rate swaps the Company has entered into effectively replace the floating interest rate (one-month LIBOR or daily SOFR) with respect to those amounts with a weighted average fixed rate of 2.3994%. The Company has designated these interest rate swaps as cash flow hedges of interest rate risk.

As of June 30, 2023, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk (dollars in thousands):

Effective Date	Expiration Date	Counterparty	Index (1)	Notional		Fixed Rate
7/1/2019	7/1/2024	KeyBank	One-Month LIBOR	$	100,000	1.6290	%
9/1/2019	12/21/2025	KeyBank	One-Month LIBOR	100,000		1.4180	%
9/1/2019	12/21/2025	KeyBank	One-Month LIBOR	50,000		1.4190	%
2/3/2020	2/1/2025	KeyBank	One-Month LIBOR	50,000		1.2790	%
3/2/2020	3/3/2025	KeyBank	One-Month LIBOR	20,000		0.9140	%
				$	320,000	1.4309	%	(2)

Effective Date	Expiration Date	Counterparty	Index (1)	Notional		Fixed Rate
3/31/2022	11/1/2025	KeyBank	Daily SOFR	$	100,000	1.5110	%
3/31/2022	11/1/2025	KeyBank	Daily SOFR	100,000		1.9190	%
3/31/2022	11/1/2025	KeyBank	Daily SOFR	50,000		2.4410	%
6/1/2022	11/1/2025	Mizuho	Daily SOFR	100,000		2.6284	%
6/1/2022	11/1/2025	Mizuho	Daily SOFR	100,000		2.9413	%
6/1/2022	11/1/2025	Mizuho	Daily SOFR	100,000		2.7900	%
7/1/2022	11/1/2025	Mizuho	Daily SOFR	100,000		2.6860	%
4/3/2023	11/1/2025	Mizuho	Daily SOFR	250,000		3.5993	%
				$	900,000	2.7438	%	(2)

(1) As of June 30, 2023, one-month LIBOR was 5.2177% and daily SOFR was 5.0900%.

(2) Represents the weighted average fixed rate of the interest rate swaps for one-month LIBOR interest rate swaps and daily SOFR interest rate swaps, respectively, which have a combined weighted average fixed rate of 2.3994%.

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Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. On April 13, 2022, the Company, through the OP, paid a premium of approximately $12.7 million and entered into an interest rate cap transaction with Goldman Sachs Bank USA (“Goldman”) with a notional amount of $300.0 million. The interest rate cap effectively caps one-month term SOFR at 1.50% on $300.0 million of floating rate debt. The interest rate cap expires on November 1, 2025.

As of June 30, 2023, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):

Derivative	Notional		Hedged Floating Rate Debt	Index	Index as of June 30, 2023		Strike Rate
Interest Rate Cap	$	300,000	Warehouse Facility	One-Month Term SOFR	5.1408	%	1.50	%

The table below presents the fair value of the Company’s derivative financial instruments, which are presented on the consolidated balance sheets as of June 30, 2023 and December 31, 2022 (in thousands):

		Asset Derivatives				Liability Derivatives
	Balance Sheet Location	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Derivatives designated as hedging instruments:
Interest rate swaps	Interest rate derivatives, at fair value	$	55,378	$	49,244	$	—	$	—
Derivatives not designated as hedging instruments:
Interest rate caps	Interest rate derivatives, at fair value	20,793		21,569		—		—
Total		$	76,171	$	70,813	$	—	$	—

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2023 and 2022 (in thousands):

		For the Three Months Ended				For the Six Months Ended
	Location of gain/(loss) recognized on Statement of Operations and Comprehensive Income/(Loss)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Derivatives designated as hedging instruments:
Interest rate swaps	Unrealized gain on interest rate hedges	$	15,619	$	8,656	$	6,134	$	25,510
Derivatives not designated as hedging instruments:
Interest rate caps	Interest expense	3,098		2,071		(747)		2,071
Total		$	18,717	$	10,727	$	5,387	$	27,581

Financial assets and liabilities for which the carrying values approximate their fair values include cash, restricted cash, accounts receivable, accounts payable, and security deposits. Generally, these assets and liabilities are short‑term in duration and are recorded at fair value on the consolidated balance sheets. For the Company’s outstanding debt, in calculating the fair value of its indebtedness, the Company used interest rate and spread assumptions that reflect current credit worthiness and market conditions available for the issuance of debt with similar terms and remaining maturities. The table below presents the carrying value (outstanding principal balance) and estimated fair value of our debt at June 30, 2023 and December 31, 2022 (in thousands):

	June 30, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Debt	$	2,604,190	$	2,400,613	$	2,615,970	$	2,515,475

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The following table sets forth a summary of the Company’s held for sale assets and real estate assets that underwent a casualty related impairment that were accounted for at fair value on a nonrecurring basis as of their respective measurement date (in thousands):

			Fair Value Hierarchy Level
Description	Fair Value		Level 1		Level 2		Level 3
Assets held at June 30, 2023
Real estate assets - impaired at March 31, 2023	$	7,808	$	—	$	—	$	7,808
Real estate assets - impaired at June 30, 2023	$	73,026	$	—	$	—	$	73,026	(1)

(1)Real estate assets impaired at June 30, 2023 include $38.1 million of assets impaired related to a casualty event in the Portales market during the three and six months ended June 30, 2023. Total casualty impairment for these properties was $7.5 million, partially offset by $7.4 million of insurance recoveries for the three and six months ended June 30, 2023.

Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value, which includes estimated selling price less estimated costs to sell. Real estate assets that experience casualty impairments are reported at their carrying amount less any losses incurred due to infrequent and unusual events such as a natural disaster or a fire.

9. Stockholders’ Equity

The Company issues shares under the Company’s distribution reinvestment program (the “DRIP”) during the six months ended June 30, 2023 and June 30, 2022 and issued Shares under the Private Offering during the six months ended June 30, 2022. Shares issued under the DRIP are issued at a 3% discount to the then-current NAV per share and the Company does not receive any cash for DRIP issuances as those dividends are instead reinvested into the Company. During the six months ended June 30, 2023 and 2022, the Company issued approximately 221,698 Shares and 3,589,483 Shares, respectively, for equity contributions of approximately $12.5 million and $192.7 million, respectively, under the DRIP and the Private Offering.

2018 Long-Term Incentive Plan

The Company adopted the 2018 LTIP whereby the Board, or a committee thereof, granted RSUs or PI Units to certain employees of the Adviser and the Manager, or others at the discretion of the Board (including the directors and officers of the Company or other service providers of the Company or the OP). The 2018 LTIP provided for the 2018 LTIP Share Reserve and the 2018 LTIP Share Maximum for issuance of RSUs or PI Units. Grants could be made annually by the Board or more or less frequently in the Board’s sole discretion. Vesting of grants made under the 2018 LTIP occur ratably over a period of time as determined by the Board and may include the achievement of performance metrics also as determined by the Board in its sole discretion.

2023 Long-Term Incentive Plan

On July 11, 2023, the Company’s stockholders approved the 2023 LTIP whereby the compensation committee may grant awards of option rights, stock appreciation rights, restricted stock, RSUs, performance shares, performance share units or cash incentive awards, or PI Units to directors and officers of the Company or other service providers of the Company and the OP. Under the terms of the 2023 LTIP, 1,000,000 Shares were initially reserved, subject to automatic increase on January 1st of each year beginning with January 1, 2024 by a number equal to 10% of the total number of OP Units and vested PI Units outstanding on December 31st of the preceding year, provided that the Board may act prior to each such January 1st to determine that there will be no increase for such year or that the increase will be less than the number of shares by which the Share Reserve would otherwise increase. Vesting of grants made under the 2023 LTIP will occur over a period of time as determined by the compensation committee and may include the achievement of performance metrics, also as determined by the compensation committee in its sole discretion. As of the date hereof, no awards have been granted yet under the 2023 LTIP.

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RSU Grants Under the 2018 LTIP

On December 10, 2019, a total of 73,700 RSUs were granted to certain employees of the Adviser and officers of the Company. On May 11, 2020, a total of 179,858 RSUs were granted to certain employees of the Adviser, officers of the Company and independent Board members. On February 15, 2021, a total of 191,506 RSUs were granted to certain employees of the Adviser, officers of the Company and independent Board members. On February 17, 2022, a total of 185,111 RSUs were granted to certain employees of the Adviser, officers of the Company and independent Board members. On April 11, 2023, a total of 186,770 RSUs were granted to certain employees of the Adviser, officers of the Company and independent Board members. The RSUs granted to certain employees of the Adviser and officers of the Company on December 10, 2019 vest over a four-year period. The RSUs granted to certain employees of the Adviser and officers of the Company on April 11, 2023, February 17, 2022, February 15, 2021 and May 11, 2020 vest 50% ratably over four years and 50% at the successful completion of an initial public offering. The RSUs granted to independent Board members fully vest on the first anniversary of the grant date. Any unvested RSU is forfeited, except in limited circumstances, as determined by the compensation committee of the Board, when the recipient is no longer employed by the Adviser. RSUs are valued at fair value (which is the NAV per share in effect) on the date of grant, with compensation expense recorded in accordance with the applicable vesting schedule that approximates a straight-line basis. Beginning on the date of grant, RSUs accrue dividends that are payable in cash on the vesting date. Once vested, the RSUs convert on a one-for-one basis into Shares.

As of June 30, 2023, the number of RSUs granted that are outstanding was as follows (dollars in thousands):

Dates	Number of RSUs		Value (1)
Outstanding December 31, 2022	488,326		$	19,943
Granted	186,770		11,774
Vested	(74,138)	(2)	(3,122)
Forfeited	—		—
Outstanding June 30, 2023	600,958		$	28,595

(1) Value is based on the number of RSUs granted multiplied by the most recent NAV per share on the date of grant, which was $63.04 for the April 11, 2023 grant, $54.14 for the February 17, 2022 grant, $36.56 for the February 15, 2021 grant, $30.82 for the May 11, 2020 grant, and $29.85 for the December 10, 2019 grant.

(2) Certain grantees elected to net the taxes owed upon vesting against the Shares issued resulting in 60,177 Shares being issued as shown on the consolidated statements of stockholders’ equity.

The vesting schedule for the outstanding RSUs is as follows:

Vest Date	RSUs Vesting
December 10, 2023	18,426
February 15, 2024	22,591
February 17, 2024	22,019
April 11, 2024	30,286
May 11, 2024	21,217
April 11, 2025	22,355
February 14, 2025	22,591
February 17, 2025	22,019
February 17, 2026	22,019
April 11, 2026	22,355
April 11, 2027	22,355
Upon successful completion of IPO	352,726
	600,958

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For the three months ended June 30, 2023 and 2022, the Company recognized approximately $1.2 million and $0.9 million, respectively, of non-cash compensation expense related to the RSUs, which is included in corporate general and administrative expenses on the consolidated statements of operations and comprehensive income (loss). For the six months ended June 30, 2023 and 2022, the Company recognized approximately $2.1 million and $1.7 million, respectively, of non-cash compensation expense related to the RSUs, which is included in corporate general and administrative expenses on the consolidated statements of operations and comprehensive income (loss).

10. Noncontrolling Interests

Redeemable Noncontrolling Interests in the OP

Other than PI Units and 6.50% Series A Cumulative Redeemable Preferred Units of the OP (“OP Preferred Units”), partnership interests in the OP are represented by OP Units. Net income (loss) is allocated pro rata to holders of OP Units and PI Units based upon net income (loss) attributable to the OP and the respective members’ OP Units and PI Units held during the period. Capital contributions, distributions, and profits and losses are allocated to PI Units and OP Units not held by the Company (the “noncontrolling interests”).

The following table presents the redeemable noncontrolling interests in the OP (in thousands):

	Balances
Redeemable noncontrolling interests in the OP, December 31, 2022	$	240,647
Net loss attributable to redeemable noncontrolling interests in the OP	(21,206)
Contributions by redeemable noncontrolling interests in the OP	3,564
Distributions to redeemable noncontrolling interests in the OP	(4,770)
Redemptions by redeemable noncontrolling interests in the OP	—
Equity-based compensation	1,945
Other comprehensive income attributable to redeemable noncontrolling interests in the OP	920
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP	18,212
Redeemable noncontrolling interests in the OP, June 30, 2023	$	239,312

As of June 30, 2023, the Company held 20,545,615 Class A OP Units, NREO held 2,738,854 Class B OP Units, NRESF held 91,395 Class C OP Units, GAF REIT held 144,231 Class C OP Units and the VineBrook Contributors and other Company insiders held 908,559 Class C OP Units.

On September 7, 2021, the general partner of the OP executed the OP LPA for the purposes of creating a board of directors of the OP (the “Partnership Board”) and subdividing and reclassifying the outstanding common partnership units of the OP into Class A, Class B and Class C OP Units. The OP LPA generally provides that the newly created Class A OP Units and Class B OP Units each have 50.0% of the voting power of the OP Units, including with respect to the election of directors to and removal of directors from the Partnership Board, and that the Class C OP Units have no voting power. The reclassification of the OP Units did not have a material effect on the economic interests of the holders of OP Units. In connection with the OP LPA, the OP Units held by the Company were reclassified into Class A OP Units, the OP Units held by NREO were reclassified into Class B OP Units and the remaining OP Units were reclassified into Class C OP Units. In addition, the OP LPA provides that holders of PI Units will receive Class C OP Units upon conversion of vested PI Units into OP Units.

The Partnership Board of the OP has exclusive authority to select, remove and replace the general partner of the OP and no other authority. The Partnership Board may replace the general partner of the OP at any time. Pursuant to the terms of the OP LPA, the Company appointed Brian Mitts as the sole initial director of the Partnership Board. The number of directors on the Partnership Board is initially one but may be increased by following the affirmative vote or consent of the majority of the voting power of the OP Units (the “Requisite Approval”). The election of directors to and removal of directors from the Partnership Board also requires the Requisite Approval.

Upon execution of the OP LPA, the Company reconsidered whether it was still the primary beneficiary of the OP. Upon reconsideration, the Company determined that it is the member of the related party group most closely associated with the OP and has the power to direct the activities that are most significant to the OP as any actions taken by the OP GP are subject to the authority and approval of the Company’s Board. Accordingly, the Company determined that it should continue to consolidate the OP.

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PI Unit Grants Under the 2018 LTIP

In connection with the 2018 LTIP, PI Units have been issued to key personnel, senior management and executives of the Manager. On April 19, 2019, a total of 40,000 PI Units were granted; on November 21, 2019, a total of 80,399 PI Units were granted; on May 11, 2020, a total of 219,826 PI Units were granted; on November 30, 2020, a total of 11,764 PI Units were granted; on May 31, 2021, a total of 246,169 PI Units were granted; on August 10, 2022, a total of 27,849 PI Units were granted; and on February 22, 2023, a total of 79,304 PI Units were granted. The PI Units are a special class of partnership interests in the OP with certain restrictions, which are convertible into Class C OP Units, subject to satisfying vesting and other conditions. PI Unit holders are entitled to receive the same distributions as holders of our OP Units (only if we declare and pay such distributions). The PI Units granted in 2019 generally fully vest over a period of two to four years. The PI Units granted on May 11, 2020 and May 31, 2021 vest 50% ratably over four years and 50% at the successful completion of an initial public offering and the PI Units granted on November 30, 2020 vest 100% ratably over four years or alternatively 100% on the successful completion of an initial public offering. The PI Units granted on August 10, 2022 and February 22, 2023 generally vest ratably over five years. Once vested and converted into Class C OP Units in accordance with the OP LPA, the PI Units will then be fully recognized as Class C OP Units, which are subject to a one year lock up period before they can be converted to Shares. Any unvested PI Unit granted to an employee of the Manager is forfeited, except in limited circumstances, as determined by the compensation committee of the Board, when the recipient is no longer employed by the Manager. PI Units are valued at fair value on the date of grant, with compensation expense recorded in accordance with the applicable vesting schedule over the periods in which the restrictions lapse, that approximates a straight-line basis. We valued the PI Units at a per-unit value equivalent to the per-share offering price of our OP Units less a discount for lack of marketability and other discounts estimated by a third-party consultant. Beginning on the date of grant, PI Units accrue dividends that are payable in cash quarterly (if we declare and pay distributions to holders of our OP Units).

As of June 30, 2023, the number of PI Units granted that are outstanding and unvested was as follows (dollars in thousands):

Dates	Number of PI Units	Value (1)
Outstanding December 31, 2022	430,102	$	16,286
Granted	79,304	4,999
Vested	(57,309)	(1,964)
Forfeited	—	—
Outstanding June 30, 2023	452,097	$	19,321

(1) Value is based on the number of PI Units granted multiplied by the estimated per unit fair value on the date of grant, which was $27.88 for the April 19, 2019 grant, $29.12 for the November 21, 2019 grant, $30.16 for the May 11, 2020 grant, $33.45 for the November 30, 2020 grant, $38.29 for the May 31, 2021 grant, $61.74 for the August 10, 2022 grant, and $63.04 for the February 22, 2023 grant.

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The vesting schedule for the PI Units is as follows:

Vest Date	PI Units Vesting
August 10, 2023	5,570
November 1, 2023	7,200
November 21, 2023	18,425
November 30, 2023	1,470
February 22, 2024	15,861
March 30, 2024	29,831
April 25, 2024	5,171
May 11, 2024	27,478
May 27, 2024	398
November 30, 2024	1,470
February 22, 2025	15,861
March 30, 2025	29,831
April 25, 2025	5,171
May 27, 2025	398
February 22, 2026	15,861
April 25, 2026	5,171
May 27, 2026	398
February 22, 2027	15,861
April 25, 2027	5,171
May 27, 2027	398
February 22, 2028	15,860
Upon successful completion of IPO*	229,242
	452,097

*Upon successful completion of an IPO, an additional 11,764 PI Units will vest immediately instead of vesting ratably according to the schedule above on each of November 30, 2023 and November 30, 2024.

For the three months ended June 30, 2023 and 2022, the OP recognized approximately $1.0 million and $0.7 million, respectively, of non-cash compensation expense related to the PI Units, which is included in corporate general and administrative expenses on the Company’s consolidated statements of operations and comprehensive income (loss). For the six months ended June 30, 2023 and 2022, the OP recognized approximately $1.9 million and $1.4 million, respectively, of non-cash compensation expense related to the PI Units, which is included in corporate general and administrative expenses on the Company’s consolidated statements of operations and comprehensive income (loss).

The table below presents the consolidated Shares and OP Units outstanding held by the noncontrolling interests (“NCI”), as the OP Units held by the Company are eliminated in consolidation:

Period End	Shares Outstanding	OP Units Held by NCI	Consolidated Shares and NCI OP Units Outstanding
March 31, 2023	24,769,760	3,854,925	28,624,685
June 30, 2023	24,894,319	3,883,039	28,777,358

Redeemable Noncontrolling Interests in Consolidated VIEs

Partnership interests in the SFR OP are represented by SFR OP Units. Net income (loss) is allocated pro rata to holders of SFR OP Units and is based upon net income (loss) attributable to the SFR OP and the respective members’ SFR OP Units held during the period. Capital contributions, distributions, and profits and losses are allocated to SFR OP Units not held by the Company (the “redeemable noncontrolling interests in consolidated VIEs”). As of June 30, 2023, approximately 4,607,192 SFR OP Units were held by affiliates of the Company.

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The following table presents the redeemable noncontrolling interests in consolidated VIEs (in thousands):

	Balances
Redeemable noncontrolling interests in consolidated VIEs, December 31, 2022	$	112,972
Net loss attributable to redeemable noncontrolling interests in consolidated VIEs	(8,007)
Contributions by redeemable noncontrolling interests in consolidated VIEs	1,949
Distributions to redeemable noncontrolling interests in consolidated VIEs	(2,550)
Adjustment to reflect redemption value of redeemable noncontrolling interests in consolidated VIEs	1,371
Redeemable noncontrolling interests in consolidated VIEs, June 30, 2023	$	105,735

Noncontrolling Interests in Consolidated VIEs

NexPoint Homes has issued NexPoint Homes Class A Shares and NexPoint Homes Class I common stock, par value $0.01 (the “NexPoint Homes Class I Shares,” collectively with NexPoint Homes Class A Shares, the “NexPoint Homes Shares”). Interests in NexPoint Homes are represented by NexPoint Homes Shares. Both classes of NexPoint Homes Shares have the same rights and value.

Capital contributions, distributions, and profits and losses are allocated to NexPoint Homes Shares not held by the Company (the “noncontrolling interests in consolidated VIEs”).

The following table presents the noncontrolling interests in consolidated VIEs (in thousands):

	Balances
Noncontrolling interests in consolidated VIEs, December 31, 2022	$	6,906
Net loss attributable to noncontrolling interests in consolidated VIEs	(1,001)
Contributions by noncontrolling interests in consolidated VIEs	7,121
Distributions to noncontrolling interests in consolidated VIEs	(321)
Noncontrolling interests in consolidated VIEs, June 30, 2023	$	12,705

11. Redeemable Series A Preferred Stock

The Company has issued 5,000,000 Preferred Shares as of June 30, 2023. The Preferred Shares have a redemption value of $25.00 per share and are mandatorily redeemable on October 7, 2027, subject to certain extensions.

The following table presents the redeemable Series A preferred stock (dollars in thousands):

	Preferred Shares	Balances
Redeemable Series A preferred stock, December 31, 2022	5,000,000	$	121,662
Issuance of Redeemable Series A preferred stock	—	—
Issuance costs related to Redeemable Series A preferred stock	—	(140)
Net income attributable to Redeemable Series A preferred stockholders	—	4,063
Dividends declared to Redeemable Series A preferred stockholders	—	(4,063)
Accretion to redemption value	—	351
Redeemable Series A preferred stock, June 30, 2023	5,000,000	$	121,873

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12. Income Taxes

The Company has made the election and intends to be taxed as a REIT under Sections 856 through 860 of the Code and expects to continue to qualify as a REIT upon filing its tax return for the year ended December 31, 2022. NexPoint Homes intends to be taxed as a REIT under Sections 856 through 860 of the Code, which will occur upon filing the NexPoint Homes tax return for the year ended December 31, 2022. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90% of its “REIT taxable income,” as defined by the Code, to its stockholders in order for its distributed earnings to not be subject to corporate income tax. Additionally, the Company will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions it pays with respect to any calendar year are less than the sum of (1) 85% of its ordinary income, (2) 95% of its capital gain net income and (3) 100% of its undistributed income from prior years. The Company intends to operate in such a manner so as to qualify as a REIT, but no assurance can be given that the Company will operate in a manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. The Company had no significant taxes associated with its TRS for the three or six months ended June 30, 2023 or 2022.

If the Company fails to meet these requirements, it could be subject to U.S. federal income tax on all of the Company’s taxable income at regular corporate rates for that year. The Company would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. Additionally, the Company will also be disqualified from electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost unless the Company is entitled to relief under specific statutory provisions. As of June 30, 2023, the Company believes it is in compliance with all applicable REIT requirements. The Company is still subject to state and local income taxes and to federal income and excise tax on its undistributed income, however those taxes are not material to the financial statements.

The Company evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Company’s management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Company has no examinations in progress and none are expected at this time. The tax years subject to examination are 2021, 2020 and 2019.

The Company had no material unrecognized federal or state tax benefit or expense, accrued interest or penalties as of June 30, 2023. When applicable, the Company recognizes interest and/or penalties related to uncertain tax positions in corporate general and administrative expenses on its consolidated statements of operations and comprehensive income (loss).

13. Related Party Transactions

Advisory Fee

Pursuant to the Advisory Agreement, the Company will pay the Adviser, on a monthly basis in arrears, an advisory fee at an annualized rate of 0.75% of the gross asset value of the Company on a consolidated basis (excluding the value of the OP’s assets but inclusive of the Company’s pro rata share of the debt held at the OP and its SPEs). The Adviser will manage the Company’s business including, among other duties, advising the Board to issue distributions, preparing our quarterly and annual consolidated financial statements prepared under GAAP, development and maintenance of internal accounting controls, management and conduct of maintaining our REIT status, calculation of our NAV and recommending the appropriate NAV to be set by the Board, processing of sales of Shares through the Private Offering, reporting to holders of Shares, our tax filings, and other responsibilities customary for an external advisor to a business similar to ours. With certain specified exceptions, the advisory fee together with reimbursement of operating and offering expenses may not exceed 1.5% of average total assets of the Company and the OP, as determined in accordance with GAAP on a consolidated basis, at the end of each month (or partial month) (i) for which any advisory fee is calculated or (ii) during the year for which any expense reimbursement is calculated.

For the three months ended June 30, 2023 and 2022, the Company incurred advisory fees of approximately $5.8 million and $3.8 million, respectively, which are included in advisory fees on the consolidated statements of operations and comprehensive income (loss). For the six months ended June 30, 2023 and 2022, the Company incurred advisory fees of approximately $10.6 million and $6.9 million, respectively, which are included in advisory fees on the consolidated statements of operations and comprehensive income (loss).

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Management Fee

Prior to the Internalization, the equity holders of the Manager were holders of noncontrolling interests in the OP and comprised a portion of the VineBrook Contributors. Through this noncontrolling ownership, the Manager was deemed to be a related party as of June 30, 2023. Pursuant to the Management Agreements, the OP paid the Manager (i) an acquisition fee equal to 1.0% of the purchase price paid for any new property acquired during the month, (ii) a construction fee monthly in arrears that shall not exceed the greater of 10% of construction costs or $1,000, whichever is higher, in connection with the repair, renovation, improvement or development of any newly acquired property, and (iii) a property management fee monthly in arrears equal to a percentage of collected rental revenues for all properties during the month as follows:

•8.0% of collected rental revenue up to and including $45 million on an annualized basis;

•7.0% of the incremental collected rental revenue above $45 million but below and including $65 million on an annualized basis;

•6.0% of the incremental collected rental revenue above $65 million but below and including $85 million on an annualized basis; and

•5.0% of the incremental collected rental revenue above $85 million on an annualized basis.

Under the Management Agreements and the Side Letter, the aggregate fees that the Manager could earn in any fiscal year were capped such that the Manager’s EBITDA (as defined in the Management Agreements) derived from these fees could not exceed the greater of $1.0 million or 0.5% of the combined equity value of the Company and the OP on a consolidated basis, calculated on the first day of each fiscal year based on the aggregate NAV of the outstanding Shares and OP Units held other than by the Company on the last business day of the prior fiscal year (the “Manager Cap”). The aggregate fees up to the Manager Cap were payable (1) in cash in an amount equal to the tax obligations of the Manager’s equity holders resulting from the aggregate management fees earned in such fiscal year up to a maximum rate of 25% (the “Manager Cash Cap”) and (2) with respect to the remaining portion of the aggregate fees, in Class C OP Units, at a price per OP Unit equal to the Cash Amount (as defined in the OP LPA). The aggregate fees paid in cash that exceeded the Manager Cash Cap were rebated back to the OP. No Manager Cash Cap rebate was recorded for the three and six months ended June 30, 2023 and 2022.

As of June 30, 2023, the Manager was responsible for the day-to-day management of the properties, acquisition of new properties, disposition of existing properties (with acquisition and disposition decisions made under the approval of the investment committee and the Board), leasing the properties, managing resident issues and requests, collecting rents, paying operating expenses, managing maintenance issues, accounting for each property using GAAP, and other responsibilities customary for the management of SFR properties. On August 3, 2023, we completed the Internalization of our Manager following which the VineBrook Portfolio is internally managed. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—The Internalization” for additional information on the Internalization.

Property management fees are included in property management fees on the consolidated statements of operations and comprehensive income (loss) and acquisition and construction fees are capitalized into each home and are included in buildings and improvements on the consolidated balance sheet and are depreciated over the useful life of each property.

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As of June 30, 2023, approximately $2.3 million is due to the Manager, net of receivables due from the Manager, which is included in due to Manager on the consolidated balance sheet as of June 30, 2023. As of December 31, 2022, approximately $3.1 million is due to the Manager, net of receivables due from the Manager, which is included in due to Manager on the consolidated balance sheet as of December 31, 2022. The following table is a summary of fees that the OP incurred to the Manager and its affiliates, as well as reimbursements paid to the Manager and its affiliates for various operating expenses the Manager paid on the OP’s behalf, under the terms of Management Agreements and Side Letter, for the three and six months ended June 30, 2023 and 2022 (dollars in thousands):

		For the Three Months Ended June 30,				For the Six Months Ended June 30,
	Location on Financial Statements	2023		2022		2023		2022
Fees Incurred
Property management fees	Statement of Operations	$	3,737	$	3,331	$	9,144	$	6,442
Acquisition fees	Balance Sheet	—		1,015		4		6,055
Construction supervision fees	Balance Sheet	2,023		4,446		7,279		7,620
Reimbursements
Payroll and benefits	Balance Sheet and Statement of Operations	9,973		6,573		20,431		12,468
Other reimbursements	Balance Sheet and Statement of Operations	877		457		1,390		767
Totals		$	16,610	$	15,822	$	38,248	$	33,352

Internalization of the Adviser

The Company may acquire all of the outstanding equity interests of the Adviser (an “Adviser Internalization”) under certain provisions (a “Purchase Provision”) of the Advisory Agreement to effect an Adviser Internalization upon the payment of a certain fee (an “Internalization Fee”). If the Company determines to acquire the equity interests of the Adviser, the applicable Purchase Provision of the Advisory Agreement provides that the Adviser must first agree to such acquisition and that the Company will pay the Adviser an Internalization Fee equal to three times the total of the prior 12 months’ advisory fee, payable only in capital stock of the Company.

Internalization of the Manager

On June 28, 2022, the OP notified the Manager that it elected to exercise its purchase provision of the Manager under the Side Letter. As of June 30, 2023, the Internalization of the Manager had not closed. On August 3, 2023, the OP, VineBrook Management, LLC, VineBrook Development Corporation, VineBrook Homes Property Management Company, Inc., VineBrook Homes Realty Company, Inc., VineBrook Homes Services Company, Inc. and certain individuals set forth therein (each a “Contributor” and collectively, the “Contributors”) and Dana Sprong, solely in his capacity as the representative of the Contributors (the “Contributors Representative”) entered into a Contribution Agreement pursuant to which, among other things, the OP acquired all of the outstanding equity interests in the Manager (the “Internalization”). As a result of the Internalization, the Manager became a wholly owned subsidiary of the OP and the VineBrook Portfolio is now internally managed. See Note 16 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—The Internalization” for additional information on the Internalization.

Series B Preferred Offering

Ohio State Life Insurance Company, an affiliate of the Company's Adviser, purchased shares of Series B Preferred Stock in the Series B Preferred Offering (See Note 16).

Termination Fees Payable to the Adviser

If the Advisory Agreement is terminated without cause by the Company or the SPE, as applicable, or is otherwise terminated under certain conditions, the Adviser will be entitled to a termination fee (a “Termination Fee”) in the amount of three times the prior 12 months’ advisory fee, in the case of a termination of the Advisory Agreement. In addition to termination by the Company without cause, the Adviser will be entitled to the Termination Fee if the Adviser terminates the Advisory Agreement without cause or terminates the agreement due to the occurrence of certain specified breaches of the Advisory Agreement by the Company. The Advisory Agreement may be terminated without cause by the Company or the Adviser with 180 days’ notice prior to the expiration of the then-current term.

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Advance Acquisition and Construction Fee Advances Paid to the Manager

Pursuant to the Side Letter, the Manager could request from the OP from time-to-time an advance on acquisition and construction fees (the “Fee Advances”) to fund the performance of its obligations under the Management Agreements. Each Fee Advance would be repaid from future acquisition and construction fees earned by and owed to the Manager. Fee Advances are included in either the line item due from Manager on the consolidated balance sheets, or net of the line item due to Manager when applicable. As of June 30, 2023 and December 31, 2022, the Company recorded no receivable for Fee Advances. The Side Letter was terminated in connection with the Internalization.

Backstop Loans to the Manager

Pursuant to the Side Letter, in the event the Manager did not have sufficient cash flow from operations to meet its budgeted obligations under the Management Agreements, the Manager could from time to time request from the Company a temporary loan (the “Backstop Loan”) to satisfy the shortfall. Backstop Loans were interest free, could be prepaid at any time and could not exceed a principal amount that is in the aggregate equal to the lesser of the Internalization Fee or Termination Fee under the applicable Management Agreement. Unless otherwise repaid, each Backstop Loan was payable upon termination of the applicable Management Agreement. Backstop Loans are included as a reduction in payables in the line item due to Manager on the consolidated balance sheets. As of June 30, 2023 and December 31, 2022, the balance of the Backstop Loan due from the Manager was approximately $0.7 million and approximately $0.7 million, respectively. The Side Letter was terminated in connection with the Internalization.

Dealer Manager Fees

Investors may be charged a dealer manager fee of between 0.50% and 3.00% of gross investor equity by the Dealer Manager for sales of Shares pursuant to the Private Offering, subject to certain breakpoints and various terms of the Dealer Manager Agreements. At the sole discretion of the Dealer Manager, the dealer manager fee may be partially or fully waived. The dealer manager fee is paid to an affiliate of the Adviser.

Organization and Private Offering Expenses

Offering and organizational expenses (“O&O Expenses”) may be incurred in connection with sales in the Private Offering at the discretion of the Company and are borne by investors through a fee of up to 0.50% of gross investor equity for sales through Raymond James and up to 1.00% of gross investor equity for other sales. O&O Expenses are intended to reimburse the Company, Adviser and Placement Agents for the costs of maintaining the Private Offering and selling costs incurred in raising equity under the Private Offering. Payments for bona fide expenses and reimbursements are O&O Expenses which are recorded as a reduction to equity.

NexBank

The Company and the OP maintain bank accounts with an affiliate of the Adviser, NexBank N.A. (“NexBank”). NexBank charges no recurring maintenance fees on the accounts. As of June 30, 2023, in the VineBrook reportable segment, the Company and OP had less than $0.1 million and approximately $0.3 million, respectively, in cash at NexBank. As of June 30, 2023, in the NexPoint Homes reportable segment, NexPoint Homes and the SFR OP had less than $0.1 million and approximately $0.2 million, respectively, in cash at NexBank.

NexPoint Homes Transactions

In connection with the Company’s consolidated investment in NexPoint Homes, the Company consolidated non-controlling interests in NexPoint Homes that were contributed by affiliates of the Adviser. As of June 30, 2023, these affiliates had contributed approximately $115.0 million of equity to NexPoint Homes. Additionally, the Company consolidated five SFR OP convertible notes that are loans from affiliates of the Adviser to the SFR OP that bear interest at 7.50% and mature on June 30, 2027 (the “SFR OP Convertible Notes”). As of June 30, 2023, the total principal outstanding on the SFR OP Convertible Notes was approximately $102.6 million (excluding amounts owed to NexPoint Homes by the SFR OP, as these are eliminated in consolidation) which is included in notes payable on the consolidated balance sheets. For the six months ended June 30, 2023, the SFR OP recorded approximately $3.7 million of interest expense related to the SFR OP Convertible Notes. As of June 30, 2023, all interest expense related to the SFR OP Convertible Notes remained accrued within accrued interest payable on the consolidated balance sheets.

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The Company consolidated an approximately $4.8 million loan from the SFR OP to the NexPoint Homes Manager (defined below) (the “HomeSource Note”). The HomeSource Note bears interest at daily SOFR plus 2.00% and matures on February 1, 2027. In connection with the HomeSource Note, the SFR OP received a 9.99% non-voting interest in the HomeSource Operations LLC (the “HomeSource Investment”). The HomeSource Note and the HomeSource Investment are included in prepaid and other assets on the consolidated balance sheet, in addition to approximately $1.3 million of amounts due from HomeSource for interest on the HomeSource Note and routine funding.

On June 8, 2022, NexPoint Homes entered into an advisory agreement (the “NexPoint Homes Advisory Agreement”) with NexPoint Real Estate Advisors XI, LP (the “NexPoint Homes Adviser”), an affiliate of the Adviser. Under the terms of the NexPoint Homes Advisory Agreement, the NexPoint Homes Adviser manages the day-to-day affairs of NexPoint Homes for a fee equal to 0.75% of the consolidated enterprise value of NexPoint Homes. Additionally, the NexPoint Homes Adviser charges a fee equal to 0.25% of each transaction in connection with the procurement of debt of equity capital for NexPoint Homes. For the three and six months ended June 30, 2023, NexPoint Homes incurred advisory fees of approximately $0.9 million in connection with the NexPoint Homes Advisory Agreement, which is included in advisory fees on the consolidated statements of operations and comprehensive income (loss). The NexPoint Homes Adviser waived approximately $0.9 million of fees during the three months and six months ended June 30, 2023.

The NexPoint Homes portfolio is generally managed by HomeSource Operations, LLC, a Delaware limited liability company (the “NexPoint Homes Manager”), pursuant to the terms of management agreements, dated June 8, 2022 and March 30, 2023 (the “NexPoint Homes Management Agreements”), among the NexPoint Homes Manager and the SFR OP. The NexPoint Homes Manager is responsible for the day-to-day management of the NexPoint Homes portfolio, paying operating expenses, managing maintenance issues, accounting for each property using GAAP, overseeing third-party property managers and other responsibilities customary for the management of SFR properties. The NexPoint Homes Manager is entitled to an acquisition fee, a construction fee, an asset management fee and a property management fee. The acquisition fee is paid at closing of homes, the construction fee and asset management fee are paid monthly in arrears and the property management fee is paid in the month in which the fee is earned. Approximately $0.6 million and $1.0 million in fees were earned by the NexPoint Homes Manager in connection with the NexPoint Homes Management Agreement during the three and six months ended June 30, 2023, respectively. Related to the fees earned by the NexPoint Homes Manager, approximately $0.2 million and $0.3 million were expensed for the three and six months ended June 30, 2023, respectively, and $0.4 million and $0.6 million were capitalized to the property basis based on the nature of the fee for the three and six months ended June 30, 2023, respectively.

14. Commitments and Contingencies

Commitments

In the normal course of business, the Company enters into various construction related purchase commitments with parties that provide these goods and services. In the event the Company were to terminate construction services prior to the completion of projects, the Company could potentially be committed to satisfy outstanding or uncompleted purchase orders with such parties. As of June 30, 2023, management does not anticipate any material deviations from schedule or budget related to rehabilitation projects currently in process.

Contingencies

In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of all such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated balance sheets or consolidated statements of operations and comprehensive income (loss) of the Company. The Company is not involved in any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company or its properties or subsidiaries.

The Company is not aware of any environmental liability with respect to the properties it owns that could have a material adverse effect on the Company’s business, assets, or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s results of operations and cash flows.

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15. Segment Information

Reportable Segments

Following the formation of NexPoint Homes, the Company has two reportable segments. For the three and six months ended June 30, 2023 and 2022, the majority of the Company’s operations are included within the Company’s primary reportable segment, VineBrook, as the NexPoint Homes reportable segment was recently formed on June 8, 2022. All corporate related costs are included in the VineBrook segment to align with how financial information is presented to the chief operating decision maker. The following presents select operational results for the reportable segments (in thousands):

	For the Three Months Ended June 30,
	2023						2022
	Revenues		Expenses		Net loss		Revenues		Expenses		Net loss
VineBrook	$	76,403	$	99,556	$	(37,816)	$	59,719	$	68,748	$	(8,644)
NexPoint Homes	12,240		23,262		(11,156)		1,246		4,240		(2,994)
Total Company	$	88,643	$	122,818	$	(48,972)	$	60,965	$	72,988	$	(11,638)
	For the Six Months Ended June 30,
	2023						2022
	Revenues		Expenses		Net loss		Revenues		Expenses		Net loss
VineBrook	$	150,385	$	201,279	$	(123,147)	$	112,036	$	123,785	$	(11,357)
NexPoint Homes	24,363		42,526		(18,222)		1,246		4,240		(2,994)
Total Company	$	174,748	$	243,805	$	(141,369)	$	113,282	$	128,025	$	(14,351)

The following presents select balance sheet data for the reportable segments (in thousands):

	As of June 30, 2023						As of December 31, 2022
	VineBrook		NexPoint Homes		Total Company		VineBrook		NexPoint Homes		Total Company
Assets
Gross operating real estate investments	$	2,887,238	$	757,554	$	3,644,792	$	2,985,314	$	751,541	$	3,736,855
Accumulated depreciation and amortization	(198,174)		(26,371)		(224,545)		(155,957)		(15,691)		(171,648)
Net operating real estate investments	2,689,064		731,183		3,420,247		2,829,357		735,850		3,565,207
Real estate held for sale, net	68,906		—		68,906		3,360		—		3,360
Net real estate investments	2,757,970		731,183		3,489,153		2,832,717		735,850		3,568,567
Other assets	142,554		44,991		187,545		218,535		48,285		266,820
Total assets	$	2,900,524	$	776,174	$	3,676,698	$	3,051,252	$	784,135	$	3,835,387
Liabilities
Debt payable, net	$	2,016,139	$	576,172	$	2,592,311	$	2,035,991	$	565,238	$	2,601,229
Other liabilities	103,942		21,790		125,732		113,819		16,824		130,643
Total liabilities	$	2,120,081	$	597,962	$	2,718,043	$	2,149,810	$	582,062	$	2,731,872

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16. Subsequent Events

The Company evaluated subsequent events through the date the consolidated financial statements were issued, to determine if any significant events occurred subsequent to the balance sheet date that would have a material impact on these consolidated financial statements and determined the following events were material:

Dispositions

Subsequent to June 30, 2023, the Company disposed of 159 homes in the VineBrook reportable segment for net proceeds of approximately $13.7 million.

Preferred Equity Offering

On July 31, 2023, the Company issued 2,458,240 shares of 9.50% Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”), of the Company in a private offering for gross proceeds of approximately $63.7 million (the “Series B Preferred Offering”). An aggregate of approximately $2.8 million in selling commissions and fees were paid in connection therewith. Ohio State Life Insurance Company, an affiliate of the Company’s Adviser, purchased shares of Series B Preferred Stock in the Series B Preferred Offering. A majority of net proceeds were used to partially pay down the Warehouse Facility and Bridge Facility III.

Internalization

On August 3, 2023, the OP, the Contributors and the Contributors Representative entered into the Contribution Agreement pursuant to which, among other things, the OP acquired all of the outstanding equity interests in the Manager. As a result of the Internalization, the Manager became a wholly owned subsidiary of the OP and the VineBrook Portfolio is now internally managed.

2023 LTIP

On July 11, 2023, the Company’s stockholders approved the 2023 LTIP whereby the compensation committee may grant awards of option rights, stock appreciation rights, restricted stock, RSUs, performance shares, performance share units or cash incentive awards, or PI Units to directors and officers of the Company or other service providers of the Company and the OP. Under the terms of the 2023 LTIP, 1,000,000 Shares were initially reserved, subject to automatic increase on January 1st of each year beginning with January 1, 2024 by a number equal to 10% of the total number of OP Units and vested PI Units outstanding on December 31st of the preceding year, provided that the Board may act prior to each such January 1st to determine that there will be no increase for such year or that the increase will be less than the number of shares by which the Share Reserve would otherwise increase. Vesting of grants made under the 2023 LTIP will occur over a period of time as determined by the compensation committee and may include the achievement of performance metrics, also as determined by the compensation committee in its sole discretion.

Warehouse Facility Amendment

On July 31, 2023, the Company entered into a Consent and Sixth Amendment to the Warehouse Facility with KeyBank, as administrative agent, and the other lenders party thereto which, among other things, provides for (1) the revision of certain financial tests required under the Warehouse Facility and removal of others; (2) a waiver of certain covenant breaches identified by the administrative agent and the Company prior to the execution of the amendment; (3) consent for the sale of shares to directors, officers and other affiliates under the Series B Preferred Offering, (4) consent for the Internalization, subject to certain conditions; (5) a modification of the applicable margins, including an increase upon extensions; (6) modifications and additions of certain covenants; (7) a modification of the twelve-month extension option to be two six-month extensions; (8) prepayments of outstanding amounts under the Warehouse Facility through the sale of assets and other capital raising events and in certain other situations until the amount outstanding, and the commitment under the Warehouse Facility is reduced to $850 million (the “Commitment Reduction”); (9) no obligations for further lending under the Warehouse Facility until certain conditions are satisfied, including achievement of the Commitment Reduction, and no further increase in the Warehouse Facility through the accordion feature of the Warehouse Facility; and (10) restrictions on the redemption by the Company and its subsidiaries of any preferred or common equity.

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Bridge Facility III Amendments

On July 7, 2023, the Company entered into a Consent, Waiver and Second Amendment to Bridge Facility III with Raymond James, as administrative agent, and the other lenders party thereto, in which the lenders under Bridge Facility III agreed to a waiver under the Bridge Facility III permitting the Company to pay, on or before July 21, 2023, the remaining principal payment of approximately $18.2 million previously due on June 30, 2023. On July 26, 2023, the Company and the lenders under the Bridge Facility III entered into a letter agreement permitting the Company to pay, on or before August 4, 2023, the remaining principal payment of approximately $18.2 million previously due on June 21, 2023.

On July 31, 2023, the Company entered into a Waiver and Third Amendment to Bridge Facility III with Raymond James Bank, as administrative agent, and the other lenders party thereto which, among other things, provides for (1) the extension of the maturity date to December 31, 2023, (2) the revision of certain financial tests required under the Bridge Facility III; (3) a waiver of certain covenant breaches identified by the administrative agent and the Company prior to the execution of the amendment; (4) a modification of the applicable rates; (5) a modification of certain covenants; (6) prepayments of outstanding amounts under the Bridge Facility III until the amount outstanding has been repaid in full; (7) consent for the sale of shares to directors, officers and other affiliates in the Series B Preferred Offering; and (8) restrictions on the redemption by the Company and its subsidiaries of any preferred or common equity.

Dividends

The Company intends to approve, declare and pay dividends four times a year in the month following the end of each fiscal quarter.

NAV Determination

In accordance with the Valuation Methodology, on August 1, 2023, the Company determined that its NAV per share calculated on a fully diluted basis was $61.63 as of June 30, 2023. Shares and OP Units issued under the respective DRIPs will be issued a 3% discount to the NAV per share in effect.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and our historical results of operations. The following should be read in conjunction with our financial statements and accompanying notes included herein and with our annual report on Form 10-K (our “Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this Form 10-Q. See “Cautionary Note Regarding Forward-Looking Statements” in this report and the information under the heading “Risk Factors” in Part I, Item IA, “Risk Factors” of our Annual Report. Our management believes the assumptions underlying the Company’s financial statements and accompanying notes are reasonable. However, the Company’s financial statements and accompanying notes may not be an indication of our financial condition and results of operations in the future.

Overview

The Company is an owner and operator of SFR homes for lease. The Company’s primary investment objectives are to provide our residents with affordable, safe, clean and functional dwellings with a high level of service through institutional management and a renovation program on the homes purchased, while enhancing the cash flow and value of properties owned. We intend to acquire properties with cash flow growth potential, provide quarterly cash distributions and achieve long-term capital appreciation for our stockholders. The Company has two reportable segments, VineBrook and NexPoint Homes. The VineBrook reportable segment is the Company’s primary reportable segment comprised of 24,004 homes as of June 30, 2023 which represents a significant majority of the Company’s consolidated portfolio and operations. The VineBrook reportable segment is the legacy reportable segment and generally purchases homes to implement a value-add strategy. The NexPoint Homes reportable segment is a supplementary reportable segment added during 2022 comprised of 2,570 homes as of June 30, 2023 and represents a minority of the Company’s consolidated portfolio and operations. The NexPoint Homes reportable segment is a consolidated and supplemental reportable segment that generally purchases newer homes that require less rehabilitation compared to the VineBrook reportable segment. As of June 30, 2023, we, through our OP and its consolidated subsidiaries, owned and operated 26,574 SFR homes located in 20 states.

As of June 30, 2023, our VineBrook Portfolio consisted of 24,004 SFR homes primarily located in the midwestern, heartland and southeastern United States. As of June 30, 2023, the VineBrook Portfolio had occupancy of approximately 89.8% with a weighted average monthly effective rent of $1,201 per occupied home. As of June 30, 2023, the VineBrook Portfolio had a stabilized occupancy of approximately 95.9% with a weighted average monthly stabilized effective rent of $1,221 per occupied home and 39.8% of homes in our VineBrook Portfolio were excluded from being stabilized because the homes were in rehabilitation, were purchased with residents in place or are classified as held for sale. Substantially all of the Company’s business is conducted through the OP, as the Company owns its homes indirectly through the OP. VineBrook Homes OP GP, LLC, is the OP GP. As of June 30, 2023, there were 24,428,654 OP Units outstanding, of which 20,545,615 Class A OP Units, or 84.1% of the OP Units outstanding, were owned by the Company. Please see the notes to the financial statements for the breakdown of the non-controlling ownership of our OP.

As of December 31, 2022, our VineBrook Portfolio consisted of 24,657 SFR homes primarily located in the midwestern, heartland and southeastern United States. As of December 31, 2022, the VineBrook Portfolio had occupancy of approximately 83.4% with a weighted average monthly effective rent of $1,155 per occupied home. As of December 31, 2022, the VineBrook Portfolio had a stabilized occupancy of approximately 95.3% with a weighted average monthly stabilized effective rent of $1,176 per occupied home and 47.9% of homes in our VineBrook Portfolio were excluded from being stabilized either because the homes were in rehabilitation or were purchased with residents in place. As of December 31, 2022, there were 24,183,798 OP Units outstanding, of which 20,366,423 Class A OP Units, or 84.2% of the OP Units outstanding, were owned by the Company.

We are primarily focused on acquiring, renovating, leasing, maintaining and otherwise managing SFR home investments primarily located in large to medium size cities and suburbs located in the midwestern, heartland and southeastern United States. We intend to employ targeted management and a value-add program at a majority of our homes in an attempt to improve rental rates and the net operating income (“NOI”) at our homes, enhance cash flow, provide quarterly cash distributions and achieve long-term capital appreciation for our stockholders as well as provide our residents with affordable, safe and clean dwellings with a high quality of service. We are externally managed by the Adviser through the Advisory Agreement, which will automatically renew on the anniversary of the renewal date for one-year terms thereafter, unless otherwise terminated.

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We began operations on November 1, 2018 as a result of the acquisition of various partnerships and limited liability companies owned and operated by the VineBrook Contributors and other third parties, which owned the Initial Portfolio of approximately 4,129 SFR assets located in Ohio, Kentucky and Indiana for a total purchase price of approximately $330.2 million, including closing and financing costs of approximately $6.0 million. On November 1, 2018, the Company accepted subscriptions for 1,097,367 Shares for gross proceeds of approximately $27.4 million in connection with the Formation Transaction. The proceeds from the issuance of such Shares were used to acquire OP Units. The OP used the capital contribution from the Company to fund a portion of the purchase price for the Initial Portfolio. The remaining purchase price and closing costs were funded by a capital contribution totaling $70.7 million from NREO, $8.6 million of equity rolled over from VineBrook Contributors, and $241.4 million from the Initial Mortgage.

On August 28, 2018, the Company commenced the offering of 40,000,000 Shares through the Private Offering under Regulation D of the Securities Act (and various state securities law provisions) for a maximum of $1.0 billion of its Shares. The Private Offering closed on September 14, 2022. The initial offering price for Shares sold through the Private Offering was $25.00 per share. The Company sold Shares in periodic closings at a purchase price generally equal to the NAV per share as determined using the Valuation Methodology and as recommended by the Adviser and approved by the Pricing Committee, plus applicable fees and commissions. The NAV per share is calculated on a fully diluted basis. For sales through Raymond James, the purchaser subscribed for a gross amount based on NAV per share and separately paid the applicable fees upfront from the purchaser’s account with Raymond James. For sales through a broker-dealer other than Raymond James, the purchaser subscribed for a gross amount based on a public offering price (“POP”), which includes the applicable upfront fees and commissions. NAV may differ from the values of our real estate assets as calculated in accordance with GAAP.

On October 15, 2021, a lawsuit (the “Bankruptcy Trust Lawsuit”) was filed by a litigation subtrust formed in connection with the Highland bankruptcy in the United States Bankruptcy Court for the Northern District of Texas against various persons and entities, including NexPoint Advisors, L.P., the parent of our Adviser, and James Dondero. 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 York, County of New York against Mr. Dondero and a number of other persons and entities, 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 Adviser and Mr. Dondero have informed us they believe the Bankruptcy Trust Lawsuit has no merit, and Mr. Dondero has informed us he believes the UBS Lawsuit has no merit; we have been advised that the defendants named in each of the lawsuits intend to vigorously defend against the claims. We do not expect the Bankruptcy Trust Lawsuit or the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.

On February 22, 2023, as previously disclosed, the Board formed an independent special committee to oversee a review of the potential impact to the Company of the UBS Lawsuit and the Bankruptcy Trust Lawsuit. The special committee retained Reichman Jorgensen Lehman Feldberg LLP (“Reichman Jorgensen”) as independent legal counsel to advise the special committee on the review. Reichman Jorgensen has reported to the special committee that they have substantially completed their review and found no evidence that the Company engaged in any conduct that would expose it to liability from the UBS Lawsuit or the Bankruptcy Trust Lawsuit. On June 13, 2023, the special committee delivered these findings to the Board. Following the review of the special committee, we reaffirm our expectation that neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.

In December 2022, we received a letter from the US Senate Committee on Banking, Housing and Urban Affairs with questions about our operations and business practices. We cannot currently predict the timing, outcome or scope of this inquiry.

The Internalization

As of June 30, 2023, most of the VineBrook Portfolio was managed by the Manager pursuant to the terms of the Management Agreements, the Manager and various wholly owned subsidiaries of the OP that own the SPEs. The Manager, although an affiliate because the owners of the Manager are significant holders of OP Units, was independent from the Company and NexPoint. The Manager was responsible for the day-to-day management of the properties, leasing the properties, managing resident situations, collecting rents, paying operating expenses, managing maintenance issues, accounting for each property using GAAP and other responsibilities customary for the management of SFR properties. In addition, the Manager was generally responsible for the identification of potential SFR properties and the acquisition and disposition of SFR properties approved by the Investment Committee or pursuant to authority delegated to the Manager by the Investment Committee.

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The Management Agreements were supplemented by the Side Letter, under the terms of which the Company and the OP had the right and option (but not the obligation) to purchase all of the equity interests of the Manager (the “Internalization”) at a price calculated by a formula specified in the Side Letter (the “Call Right”). The purpose of the Call Right was to provide the Company and the OP with the ability to internally perform the responsibilities and obligations of the Manager under the Management Agreements. On June 28, 2022, the Company sent a notice (the “Call Right Notice”) to the Manager notifying the Manager of its intention to exercise its Call Right and internalize the Manager.

On August 3, 2023, the OP, the Contributors and the Contributors Representative entered into a Contribution Agreement pursuant to which, among other things, the OP acquired all of the outstanding equity interests in the Manager. As a result of sending the Call Right Notice, the Internalization Fee the Company paid to acquire the Manager was $20.3 million, which was fixed based on May 31, 2022 data. The Internalization Fee was paid in a combination of cash and OP Units. As a result of the Internalization, the Manager became a wholly owned subsidiary of the OP and the VineBrook Portfolio is now internally managed.

The Internalization process was overseen by an independent special committee of the Board, comprised solely of all of the disinterested directors. The Company also made one-time equity grants under the 2023 LTIP to certain employees who the Company hired in connection with the Internalization.

Following the Internalization, the Manager’s internalized employees continue to be responsible for the day-to-day management of the properties, the identification of potential SFR properties and the acquisition and disposition of SFR properties. The Adviser’s duties did not change as a result of the Internalization. Certain SPEs from time to time may have property management agreements with independent third parties that are not the Manager. These are typically the result of maintaining legacy property managers after an acquisition to help transition the properties to the Manager or, in the case of a future sale, to manage the properties until they are sold.

Tusk and Siete Portfolio Acquisitions

On August 3, 2022, VB Five, LLC (“Buyer”), an indirect subsidiary of the Company, entered into a purchase agreement under which the Buyer agreed to acquire a portfolio of approximately 1,610 SFR homes located in Arizona, Florida, Georgia, Ohio and Texas (the “Tusk Portfolio”). Also on August 3, 2022, the Buyer entered into a purchase agreement under which the Buyer agreed to acquire a portfolio of approximately 1,289 SFR homes located in Arizona, Florida, Georgia, North Carolina, Ohio and Texas (the “Siete Portfolio”). On January 17, 2023, the Company, through its indirect subsidiary, VB Seven, LLC, entered into an agreement under which the acquisition of the Tusk Portfolio was terminated by the seller and the Buyer forfeited its initial deposit of approximately $23.3 million. Additionally, on January 17, 2023, the Company, through its indirect subsidiary, VB Seven, LLC, entered into an agreement under which the acquisition of the Siete Portfolio was terminated by the seller and the Buyer forfeited its initial deposit of approximately $17.7 million. The initial deposit forfeitures of the Tusk Portfolio and the Siete Portfolio are included in loss on forfeited deposits on the consolidated statement of operations and comprehensive income (loss) for the six months ended June 30, 2023.

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Our VineBrook Portfolio

Since our formation, we have significantly grown our VineBrook Portfolio, which only includes homes in the VineBrook reportable segment. When the Company began operations on November 1, 2018, the Initial Portfolio consisted of 4,129 homes located in Ohio, Kentucky and Indiana. As of June 30, 2023 and 2022, the VineBrook Portfolio consisted of 24,004 and 21,943 homes, respectively, in 18 states. As of June 30, 2023 and 2022, the VineBrook Portfolio had an occupancy of 89.8% and 82.5%, respectively, and a weighted average monthly effective rent of $1,201 and $1,102, respectively, per occupied home. As of June 30, 2023 and 2022, the occupancy of stabilized homes in our VineBrook Portfolio was 95.9% and 95.1%, respectively, and the weighted average monthly effective rent of occupied stabilized homes was $1,221 and $1,128, respectively. As of June 30, 2023 and 2022, 39.8% and 52.1%, respectively, of homes in our VineBrook Portfolio were excluded from being stabilized because the homes were in rehabilitation, were purchased with residents in place or were classified as held for sale. The table below provides summary information regarding our VineBrook Portfolio as of June 30, 2023.

Market	State	# of Homes	Portfolio Occupancy		Average Effective Rent		# of Stabilized Homes	Stabilized Occupancy		Stabilized Average Monthly Rent
Cincinnati	OH, KY	3,211	94.7	%	$	1,242	2,499	95.7	%	$	1,262
Dayton	OH	2,851	92.8	%	1,177		2,507	96.6	%	1,170
Columbus	OH	1,683	96.0	%	1,224		1,473	96.6	%	1,228
St. Louis	MO	2,281	80.2	%	1,113		1,019	95.6	%	1,135
Indianapolis	IN	1,473	92.6	%	1,207		965	94.9	%	1,240
Birmingham	AL	1,092	94.6	%	1,218		493	94.3	%	1,229
Columbia	SC	1,048	90.6	%	1,308		428	96.3	%	1,371
Kansas City	MO, KS	1,180	93.7	%	1,245		737	96.7	%	1,237
Jackson	MS	1,127	75.7	%	1,167		633	95.6	%	1,180
Memphis	TN, MS	1,597	80.7	%	1,008		779	93.3	%	1,047
Augusta	GA, SC	713	94.4	%	1,149		372	96.2	%	1,265
Milwaukee	WI	947	84.7	%	1,205		489	96.7	%	1,279
Atlanta	GA	774	88.6	%	1,466		138	95.7	%	1,793
Pittsburgh	PA	424	89.6	%	1,075		267	97.8	%	1,122
Pensacola	FL	300	95.7	%	1,405		123	97.6	%	1,471
Greenville	SC	398	94.2	%	1,279		224	96.0	%	1,387
Little Rock	AR	315	82.2	%	1,021		249	94.4	%	1,034
Huntsville	AL	298	92.6	%	1,287		170	97.1	%	1,314
Raeford	NC	250	96.0	%	1,139		84	97.6	%	1,253
Portales	NM	350	92.6	%	1,121		119	95.0	%	1,210
Omaha	NE, IA	319	92.5	%	1,231		276	94.9	%	1,249
Triad	NC	251	86.5	%	1,340		153	96.7	%	1,371
Montgomery	AL	331	94.6	%	1,200		242	95.5	%	1,226
Charleston	SC	12	100.0	%	1,722		—	n/a		n/a
Sub-Total/Average		23,225	89.8	%	$	1,201	14,439	95.9	%	$	1,221
Held for Sale		779	n/a		n/a		n/a	n/a		n/a
Total/Average		24,004	89.8	%	$	1,201	14,439	95.9	%	$	1,221

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As of December 31, 2022, the VineBrook Portfolio consisted of 24,657 homes in 18 states. As of December 31, 2022, the VineBrook Portfolio had an occupancy of 83.4% and a weighted average monthly effective rent of $1,155 per occupied home. As of December 31, 2022, the occupancy of stabilized homes in our VineBrook Portfolio was 95.3% and the weighted average monthly effective rent of occupied stabilized homes was $1,176. As of December 31, 2022, 47.9% of homes in our VineBrook Portfolio were excluded from being stabilized either because the homes were in rehabilitation or were purchased with residents in place. The table below provides summary information regarding our VineBrook Portfolio as of December 31, 2022.

Market	State	# of Homes	Portfolio Occupancy		Average Effective Rent		# of Stabilized Homes	Stabilized Occupancy		Stabilized Average Monthly Rent
Cincinnati	OH, KY	3,357	90.8	%	$	1,216	2,443	95.0	%	$	1,233
Dayton	OH	2,922	89.0	%	1,113		2,429	96.9	%	1,107
Columbus	OH	1,703	94.7	%	1,175		1,418	97.7	%	1,179
St. Louis	MO	2,452	72.1	%	1,075		876	89.2	%	1,091
Indianapolis	IN	1,488	93.5	%	1,162		894	96.5	%	1,193
Birmingham	AL	1,118	93.6	%	1,187		412	95.6	%	1,197
Columbia	SC	1,097	85.9	%	1,245		337	96.4	%	1,309
Kansas City	MO, KS	1,209	90.7	%	1,200		655	95.3	%	1,178
Jackson	MS	1,307	64.2	%	1,149		512	96.7	%	1,168
Memphis	TN, MS	1,818	69.9	%	972		656	92.1	%	1,015
Augusta	GA, SC	846	73.3	%	1,072		269	92.9	%	1,225
Milwaukee	WI	1,032	70.2	%	1,159		385	93.5	%	1,254
Atlanta	GA	805	87.6	%	1,334		61	96.7	%	1,760
Pittsburgh	PA	522	61.5	%	1,044		196	94.9	%	1,121
Pensacola	FL	300	96.0	%	1,352		86	90.7	%	1,462
Greenville	SC	400	88.8	%	1,243		191	92.1	%	1,366
Little Rock	AR	392	57.9	%	988		195	95.9	%	1,007
Huntsville	AL	307	86.3	%	1,252		141	93.6	%	1,296
Raeford	NC	250	97.6	%	1,041		59	100.0	%	1,184
Portales	NM	350	96.0	%	1,073		69	97.1	%	1,159
Omaha	NE, IA	322	88.5	%	1,194		225	96.9	%	1,205
Triad	NC	263	83.3	%	1,249		130	98.5	%	1,290
Montgomery	AL	349	90.3	%	1,161		210	97.1	%	1,186
Charleston	SC	23	100.0	%	1,386		—	n/a		n/a
Sub-Total/Average		24,632	83.4	%	$	1,155	12,849	95.3	%	$	1,176
Held for Sale		25	n/a		n/a		n/a	n/a		n/a
Total/Average		24,657	83.4	%	$	1,155	12,849	95.3	%	$	1,176

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NexPoint Homes Portfolio

NexPoint Homes is an owner and operator of SFR homes for lease. As of June 30, 2023, the NexPoint Homes portfolio consisted of 2,570 SFR homes primarily located in the midwestern and southeastern United States. As of June 30, 2023, NexPoint Homes had occupancy of approximately 93.3% with a weighted average monthly effective rent of $1,686 per occupied home. NexPoint Homes’ activities include acquiring, renovating, developing, leasing and operating SFR homes as rental properties. For the NexPoint Homes reportable segment, a home is classified as stabilized once it has been rented or has been rehabilitated by the Company and available for rent for a period greater than 30 days. As of June 30, 2023, the number of stabilized homes in the NexPoint Homes portfolio was 2,404, the occupancy of stabilized homes was 99.7%, and the weighted average monthly effective rent of stabilized occupied homes was $1,692. See Note 5 to our consolidated financial statements, NexPoint Homes Investment, for additional details on the formation of NexPoint Homes.

The table below provides summary information regarding the NexPoint Homes portfolio as of June 30, 2023.

Market	State	# of Homes	Portfolio Occupancy		Average Effective Rent		# of Stabilized Homes	Stabilized Occupancy		Stabilized Average Monthly Rent
Atlanta	GA	211	93.8	%	$	1,993	199	99.5	%	$	2,003
Birmingham	AL	133	91.7	%	1,551		122	100.0	%	1,551
Charlotte	NC	68	97.1	%	1,946		66	100.0	%	1,946
Dallas/Ft Worth	TX	51	92.2	%	2,281		47	100.0	%	2,281
Fayetteville	AR	440	90.9	%	1,593		402	99.5	%	1,602
Huntsville	AL	71	88.7	%	1,903		64	98.4	%	1,934
Kansas City	MO, KS	146	93.2	%	1,860		136	100.0	%	1,860
Little Rock	AR	211	94.8	%	1,389		200	100.0	%	1,389
Memphis	TN, MS	158	90.5	%	1,496		143	100.0	%	1,496
Oklahoma City	OK	514	94.6	%	1,637		487	99.8	%	1,641
San Antonio	TX	199	95.0	%	1,742		189	100.0	%	1,742
Triad	NC	50	96.0	%	1,718		48	100.0	%	1,718
Tulsa	OK	176	95.5	%	1,621		168	100.0	%	1,621
Other (1)	AL,FL,KS,TX	142	92.3	%	1,840		133	98.5	%	1,874
Sub-Total/Average		2,570	93.3	%	$	1,686	2,404	99.7	%	$	1,692
Held for Sale		—	n/a		n/a		n/a	n/a		n/a
Total/Average		2,570	93.3	%	$	1,686	2,404	99.7	%	$	1,692

(1)Contains markets that have less than 50 homes which include Mobile, Jacksonville, Orlando, Tampa, Wichita, Austin and Houston.

The following table sets forth a summary of operating results for the NexPoint Homes reportable segment for the three and six months ended June 30, 2023 (in thousands):

	For the Three Months Ended June 30, 2023		For the Six Months Ended June 30, 2023
Total revenues	$	12,240	$	24,363
Total expenses	23,262		42,526
Net loss	$	(11,156)	$	(18,222)

The NexPoint Homes reportable segment began operations on June 8, 2022 and currently does not contribute significantly to the Company’s consolidated operations. The Company anticipates revenues from the NexPoint Homes reportable segment to increase as the reportable segment’s operations begin to scale. As NexPoint Homes continues to raise additional capital, the Company’s direct ownership interest in NexPoint Homes will decrease which may eventually result in deconsolidation of NexPoint Homes. The Company will continue to evaluate whether the entity is a VIE and if the Company is the primary beneficiary of the VIE and should consolidate the entity.

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Components of Revenues and Expenses

The following is a description of the components of our revenues and expenses.

Revenues

Rental Income. Our revenues are derived primarily from rental revenue, net of any concessions and uncollectible amounts, collected from residents of our SFR homes under lease agreements which typically have a term of one year. Also included are utility reimbursements, late fees, pet fees, and other rental fees charged to residents.

Other income. Other income includes ancillary income earned from residents such as non-refundable fees, application fees, move-out fees, and other miscellaneous fees charged to residents.

Expenses

Property operating expenses. Property operating expenses include property maintenance costs, turn costs (costs incurred in making a home ready for the next resident after the prior resident vacates the home), leasing costs and the associated salary and employee benefit costs, utilities, vehicle leases and HOA fees. Certain property operating costs are capitalized in accordance with our capitalization policy. Certain turn costs are capitalized to buildings and improvements if they improve the condition of the home or return it to its original condition and exceed $1,500 in cost. Upon being occupied, expenditures up to $1,500 for ordinary repairs and maintenance thereafter are expensed as incurred, and we capitalize expenditures that improve the condition of the home in excess of $1,500.

Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending on the location of each home. Insurance includes the cost of property, general liability, and other needed insurance for each property. Certain real estate taxes and insurance costs are capitalized in accordance with our capitalization policy.

Property management fees. Property management fees include fees paid to the Manager for managing each property, presented net of fee rebates related to the Manager Cap (see Note 13 to our consolidated financial statements).

Advisory fees. Advisory fees include the fees paid to our Adviser pursuant to the Advisory Agreement (see Note 13 to our consolidated financial statements).

Corporate general and administrative expenses. Corporate general and administrative expenses include, but are not limited to, audit fees, legal fees, tax preparation fees, Board fees, equity-based compensation expense and corporate payroll.

Property general and administrative expenses. Property general and administrative expenses include the costs of marketing, professional fees, legal fees, general office supplies, and other administrative related costs incurred in operating the properties.

Depreciation and amortization. Depreciation and amortization costs primarily include depreciation of our homes and amortization of acquired in-place leases, recognized over their respective useful lives.

Interest expense. Interest expense primarily includes the cost of interest expense on debt, payments and receipts related to our interest rate derivatives, the change in fair value of interest rate derivatives not designated as hedges and the amortization of deferred financing costs. Certain interest costs are capitalized in accordance with our capitalization policy.

Loss on extinguishment of debt. Loss on extinguishment of debt includes prepayment penalties and defeasance costs, the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt related to the early repayment of debt and other costs incurred in a debt extinguishment.

Gain/(loss) on sales and impairment of real estate, net. Gain/(loss) on sales and impairment of real estate, net, includes the gain or loss recognized upon sales of homes and impairment charges recorded on real estate assets, including casualty gains or losses incurred on homes. Gain/(loss) on sales of real estate is calculated by deducting the carrying value of the real estate and costs incurred to sell the properties from the sales prices of the homes. Impairment of real estate assets is calculated by calculating the lower of the carrying amount or estimated fair value less estimated costs to sell for held for sale properties. Casualty gains and losses include gains or losses incurred on homes, net of insurance proceeds received, that experience an infrequent and unusual event such as a natural disaster or fire.

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Investment income. Investment income includes income from the loan from the SFR OP to HomeSource Operations, LLC (the “HomeSource Note”). See Note 13 to our consolidated financial statements. Additionally, investment income in 2022 includes income from the investment in Ensign. See Note 5 to our consolidated financial statements.

Loss on forfeited deposits. Loss on forfeited deposits includes forfeitures of deposits related to the termination of acquisition agreements, which primarily includes forfeitures of deposits related to the termination of the Tusk Portfolio and Siete Portfolio acquisition agreements.

Consolidated Results of Operations for the Three Months Ended June 30, 2023 and 2022

The three months ended June 30, 2023 compared to the three months ended June 30, 2022

The following table sets forth a summary of our consolidated operating results for the three months ended June 30, 2023 and 2022 (in thousands):

	For the Three Months Ended June 30,
	2023		2022		$ Change
Total revenues	$	88,643	$	60,965	$	27,678
Total expenses	(122,818)		(72,988)		(49,830)
Loss on extinguishment of debt	(89)		(1,001)		912
(Loss)/gain on sales and impairment of real estate, net	(14,601)		47		(14,648)
Investment income	89		1,339		(1,250)
Loss on forfeited deposits	(196)		—		(196)
Net loss	(48,972)		(11,638)		(37,334)
Dividends on and accretion to redemption value of Redeemable Series A preferred stock	2,207		2,219		(12)
Net loss attributable to redeemable noncontrolling interests in the OP	(7,346)		(1,771)		(5,575)
Net loss attributable to redeemable noncontrolling interests in consolidated VIEs	(4,794)		(1,191)		(3,603)
Net loss attributable to noncontrolling interests in consolidated VIEs	(689)		—		(689)
Net loss attributable to common stockholders	$	(38,350)	$	(10,895)	$	(27,455)

The change in our net loss between the periods primarily relates to increases in property operating expenses, real estate taxes and insurance costs, corporate general and administrative expenses, property general and administrative expenses, depreciation and amortization, interest expense and loss on sales and impairment of real estate, net, partially offset by an increase in rental income.

Revenues

Rental income. Rental income was $87.4 million for the three months ended June 30, 2023 compared to $59.4 million for the three months ended June 30, 2022, which was an increase of $28.0 million. The increase between the periods was primarily due to growth in our Portfolio and increases in rental rates over the past year.

Other income. Other income was $1.2 million for the three months ended June 30, 2023 compared to $1.5 million for the three months ended June 30, 2022, which was a decrease of $0.3 million. The decrease between the periods was primarily due to an increase in the reserve allocated to move out charges in the current year.

Expenses

Property operating expenses. Property operating expenses were $17.7 million for the three months ended June 30, 2023 compared to $12.4 million for the three months ended June 30, 2022, which was an increase of $5.3 million. The increase between the periods was primarily due to growth in our Portfolio over the past year and an increase in repairs and maintenance, turnover and landscaping costs. For the three months ended June 30, 2023 and 2022, turn costs represented approximately 15% and 12%, respectively, of our property operating expenses.

Real estate taxes and insurance. Real estate taxes and insurance were $16.9 million for the three months ended June 30, 2023 compared to $10.9 million for the three months ended June 30, 2022, which was an increase of $6.0 million. The increase between the periods was primarily due to growth in our Portfolio over the past year as well as an increase in property tax assessments.

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Property management fees. Property management fees were $4.8 million for the three months ended June 30, 2023 compared to $3.4 million for the three months ended June 30, 2022, which was an increase of $1.4 million. The increase between the periods was primarily due to growth in our Portfolio and increases in rental rates over the past year.

Advisory fees. Advisory fees were $5.8 million for the three months ended June 30, 2023 compared to $3.8 million for the three months ended June 30, 2022, which was an increase of $2.0 million. The increase between the periods was primarily due to increases in real estate assets under management and total debt principal outstanding.

Corporate general and administrative expenses. Corporate general and administrative expenses were $7.4 million for the three months ended June 30, 2023 compared to $2.5 million for the three months ended June 30, 2022, which was an increase of $4.9 million. The increase between the periods was primarily due to increases in equity-based compensation expense and other corporate expenses as our operations continued to gain scale.

Property general and administrative expenses. Property general and administrative expenses were $6.6 million for the three months ended June 30, 2023 compared to $4.6 million for the three months ended June 30, 2022, which was an increase of $2.0 million. The increase between the periods was primarily due to growth in our Portfolio over the past year.

Depreciation and amortization. Depreciation and amortization costs were $32.1 million for the three months ended June 30, 2023 compared to $24.2 million for the three months ended June 30, 2022, which was an increase of $7.9 million. The increase between the periods was primarily due to growth in our Portfolio over the past year.

Interest expense. Interest expense was $31.5 million for the three months ended June 30, 2023 compared to $11.2 million for the three months ended June 30, 2022, which was an increase of $20.3 million. The increase between the periods was primarily due to an increase in interest on debt and amortization of deferred financing costs, as we increased our total debt principal outstanding and witnessed an increase in our weighted average interest rate during the past year, which was partially offset by the change in fair value of interest rate derivatives included in interest expense, which reduced interest expense by approximately $3.1 million. The following table details the various costs included in interest expense for the three months ended June 30, 2023 and 2022 (in thousands):

	For the Three Months Ended June 30,
	2023		2022		$ Change
Gross interest cost	$	34,066	$	14,022	$	20,044
Capitalized interest	(2,610)		(2,867)		257
Total	$	31,456	$	11,155	$	20,301

Loss on extinguishment of debt. Loss on extinguishment of debt was $0.1 million for the three months ended June 30, 2023 compared to $1.0 million for the three months ended June 30, 2022, which was a decrease of $0.9 million. The decrease between the periods was primarily due to a decrease in debt extinguishment activity in the current year.

(Loss)/gain on sales and impairment of real estate, net. Loss on sales and impairment of real estate, net was $14.6 million for the three months ended June 30, 2023 compared to a gain of less than $0.1 million for the three months ended June 30, 2022, which was an increase in loss of $14.6 million. The increase between the periods was primarily due to an increase in impairment charges on held for sale assets and disposition activity in the current year. The Company strategically identifies homes for disposal and expects the disposal of these properties to be accretive to the Portfolio’s results of operation and overall performance.

Investment income. Investment income was $0.1 million for the three months ended June 30, 2023 compared to $1.3 million for the three months ended June 30, 2022, which was a decrease of $1.2 million. The decrease between the periods was primarily due to a decrease in interest income from the investment in Ensign, as this investment was redeemed on June 8, 2022.

Loss on forfeited deposits. Loss on forfeited deposits was $0.2 million for the three months ended June 30, 2023 compared $0.0 million for the three months ended June 30, 2022, which was an increase in loss of $0.2 million. The increase between the periods was primarily due to legal fees and other costs associated with the termination of acquisition agreements in the current year.

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Consolidated Results of Operations for the Six Months Ended June 30, 2023 and 2022

The six months ended June 30, 2023 compared to the six months ended June 30, 2022

The following table sets forth a summary of our consolidated operating results for the six months ended June 30, 2023 and 2022 (in thousands):

	For the Six Months Ended June 30,
	2023		2022		$ Change
Total revenues	$	174,748	$	113,282	$	61,466
Total expenses	(243,805)		(128,025)		(115,780)
Loss on extinguishment of debt	(112)		(1,001)		889
(Loss)/gain on sales and impairment of real estate, net	(30,454)		54		(30,508)
Investment income	164		1,339		(1,175)
Loss on forfeited deposits	(41,910)		—		(41,910)
Net loss	(141,369)		(14,351)		(127,018)
Dividends on and accretion to redemption value of Redeemable Series A preferred stock	4,414		4,428		(14)
Net loss attributable to redeemable noncontrolling interests in the OP	(21,206)		(2,194)		(19,012)
Net loss attributable to redeemable noncontrolling interests in consolidated VIEs	(8,007)		(1,191)		(6,816)
Net loss attributable to noncontrolling interests in consolidated VIEs	(1,001)		—		(1,001)
Net loss attributable to common stockholders	$	(115,569)	$	(15,394)	$	(100,175)

The change in our net loss between the periods primarily relates to increases in property operating expenses, real estate taxes and insurance costs, corporate general and administrative expenses, property general and administrative expenses, depreciation and amortization, interest expense, loss on sales and impairment of real estate, net and loss on forfeited deposits, partially offset by an increase in rental income.

Revenues

Rental income. Rental income was $171.9 million for the six months ended June 30, 2023 compared to $110.4 million for the six months ended June 30, 2022, which was an increase of $61.5 million. The increase between the periods was primarily due to growth in our Portfolio and increases in rental rates over the past year.

Other income. Other income was $2.8 million for the six months ended June 30, 2023 compared to $2.9 million for the six months ended June 30, 2022, which was a decrease of $0.1 million. The decrease between the periods was primarily due to an increase in the reserve allocated to move out charges in the current year.

Expenses

Property operating expenses. Property operating expenses were $35.7 million for the six months ended June 30, 2023 compared to $21.0 million for the six months ended June 30, 2022, which was an increase of $14.7 million. The increase between the periods was primarily due to growth in our Portfolio over the past year and an increase in repairs and maintenance, turnover and landscaping costs. For the six months ended June 30, 2023 and 2022, turn costs represented approximately 15% and 13%, respectively, of our property operating expenses.

Real estate taxes and insurance. Real estate taxes and insurance were $32.1 million for the six months ended June 30, 2023 compared to $20.5 million for the six months ended June 30, 2022, which was an increase of $11.6 million. The increase between the periods was primarily due to growth in our Portfolio over the past year as well as an increase in property tax assessments.

Property management fees. Property management fees were $11.1 million for the six months ended June 30, 2023 compared to $6.5 million for the six months ended June 30, 2022, which was an increase of $4.6 million. The increase between the periods was primarily due to growth in our Portfolio and increases in rental rates over the past year.

Advisory fees. Advisory fees were $10.6 million for the six months ended June 30, 2023 compared to $6.9 million for the six months ended June 30, 2022, which was an increase of $3.7 million. The increase between the periods was primarily due to increases in real estate assets under management and total debt principal outstanding.

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Corporate general and administrative expenses. Corporate general and administrative expenses were $10.3 million for the six months ended June 30, 2023 compared to $4.6 million for the six months ended June 30, 2022, which was an increase of $5.7 million. The increase between the periods was primarily due to increases in equity-based compensation expense and other corporate expenses as our operations continued to gain scale.

Property general and administrative expenses. Property general and administrative expenses were $12.2 million for the six months ended June 30, 2023 compared to $7.5 million for the six months ended June 30, 2022, which was an increase of $4.7 million. The increase between the periods was primarily due to growth in our Portfolio over the past year.

Depreciation and amortization. Depreciation and amortization costs were $64.9 million for the six months ended June 30, 2023 compared to $40.2 million for the six months ended June 30, 2022, which was an increase of $24.7 million. The increase between the periods was primarily due to growth in our Portfolio over the past year.

Interest expense. Interest expense was $66.8 million for the six months ended June 30, 2023 compared to $20.8 million for the six months ended June 30, 2022, which was an increase of $46.0 million. The increase between the periods was primarily due to an increase in interest on debt and amortization of deferred financing costs, as we increased our total debt principal outstanding and witnessed an increase in our weighted average interest rate during the past year, in addition to the change in fair value of interest rate derivatives included in interest expense of approximately $0.7 million. The following table details the various costs included in interest expense for the six months ended June 30, 2023 and 2022 (in thousands):

	For the Six Months Ended June 30,
	2023		2022		$ Change
Gross interest cost	$	73,211	$	25,649	$	47,562
Capitalized interest	(6,432)		(4,874)		(1,558)
Total	$	66,779	$	20,775	$	46,004

Loss on extinguishment of debt. Loss on extinguishment of debt was $0.1 million for the six months ended June 30, 2023 compared to $1.0 million for the six months ended June 30, 2022, which was a decrease of $0.9 million. The decrease between the periods was primarily due to a decrease in debt extinguishment activity in the current year.

(Loss)/gain on sales and impairment of real estate, net. Loss on sales and impairment of real estate, net was $30.5 million for the six months ended June 30, 2023 compared to a gain of $0.1 million for the six months ended June 30, 2022, which was an increase in loss of $30.5 million. The increase between the periods was primarily due to an increase in impairment charges on held for sale assets and disposition activity in the current year. The Company strategically identifies homes for disposal and expects the disposal of these properties to be accretive to the Portfolio’s results of operation and overall performance.

Investment income. Investment income was $0.2 million for the six months ended June 30, 2023 compared to $1.3 million for the six months ended June 30, 2022, which was a decrease of $1.1 million. The decrease between the periods was primarily due to a decrease in interest income from the investment in Ensign, as this investment was redeemed on June 8, 2022.

Loss on forfeited deposits. Loss on forfeited deposits was $41.9 million for the six months ended June 30, 2023 compared $0.0 million for the six months ended June 30, 2022, which was an increase in loss of $41.9 million. The increase between the periods was primarily due to forfeitures of deposits related to the termination of the Tusk Portfolio and Siete Portfolio acquisition agreements.

49

Non-GAAP Measurements

Net Operating Income

NOI is a non-GAAP financial measure of performance. NOI is used by 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 not affected by (1) interest expense, (2) advisory fees, (3) the impact of depreciation and amortization expenses, (4) gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP or impairment charges, including casualty gains or losses (5) corporate general and administrative expenses, (6) property general and administrative expenses, (7) investment income, (8) loss on forfeited deposits and (9) other gains and losses that are specific to us, including loss on extinguishment of debt. The cost of funds is eliminated from net income (loss) because it is specific to our particular financing capabilities and constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital, or in the case of assumed debt, decisions made by others, which may have changed or may change in the future. Advisory fees are eliminated because they do not reflect continuing operating costs of the property owner. Depreciation and amortization expenses, gains or losses from the sale of operating real estate assets and impairment charges are eliminated because they may not accurately represent the actual change in value in our homes that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale, which will usually change from period to period. Casualty gains or losses, included within impairment charges, do not reflect continuing operating costs of the property owner and typically the economic impact, aside from deductible or risk retention, is covered by insurance. Corporate general and administrative expenses are eliminated because they do not reflect the ongoing operating activity performed at the properties. Property general and administrative expenses are eliminated because they represent expenses such as legal, professional, centralized leasing, technology support, and accounting functions. Investment income is eliminated because it does not reflect the ongoing operating activity performed at the properties. Loss on forfeited deposits are excluded because of the infrequent and unusual nature of this activity. Losses on extinguished debt are excluded because they do not reflect continuing operating costs of the property owner. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales or sustained damage at similar times. We believe that eliminating these items from net income is useful because the resulting measure captures the actual ongoing revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.

However, the usefulness of NOI is limited because it excludes corporate general and administrative expenses, property general and administrative expense, interest expense, gain (loss) on sales and impairment of real estate, which includes impairment charges and casualty gains or losses, advisory fees, depreciation and amortization expense, investment income, losses on forfeited deposits and other gains and losses, including loss on extinguishment of debt as determined under GAAP, and the level of capital expenditures and other costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income, which further limits its usefulness.

NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere regarding the components of net income (loss) that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

50

The following table, which has not been adjusted for the effects of noncontrolling interests (“NCI”), reconciles our NOI for the three and six months ended June 30, 2023 and 2022 to net loss, the most directly comparable GAAP financial measure on a consolidated basis (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(48,972)	$	(11,638)	$	(141,369)	$	(14,351)
Adjustments to reconcile net loss to NOI:
Advisory fees	5,802		3,844		10,648		6,930
Corporate general and administrative expenses	7,409		2,478		10,305		4,640
Property general and administrative expenses	6,590		4,625		12,220		7,498
Depreciation and amortization	32,080		24,207		64,920		40,163
Interest expense	31,456		11,155		66,779		20,775
Loss on extinguishment of debt	89		1,001		112		1,001
Loss/(gain) on sales and impairment of real estate, net	14,601		(47)		30,454		(54)
Investment income	(89)		(1,339)		(164)		(1,339)
Loss on forfeited deposits	196		—		41,910		—
NOI	$	49,162	$	34,286	$	95,815	$	65,263

The following table, which has not been adjusted for the effects of NCI, reconciles our NOI for the three and six months ended June 30, 2023 to net loss, the most directly comparable GAAP financial measure by reportable segment (in thousands):

	For the Three Months Ended June 30, 2023						For the Six Months Ended June 30, 2023
	VineBrook		NexPoint Homes		Total		VineBrook		NexPoint Homes		Total
Net loss	$	(37,816)	$	(11,156)	$	(48,972)	$	(123,147)	$	(18,222)	$	(141,369)
Adjustments to reconcile net loss to NOI:
Advisory fees	4,888		914		5,802		9,734		914		10,648
Corporate general and administrative expenses	5,072		2,337		7,409		7,447		2,858		10,305
Property general and administrative expenses	6,269		321		6,590		11,834		386		12,220
Depreciation and amortization	24,897		7,183		32,080		50,197		14,723		64,920
Interest expense	23,575		7,881		31,456		51,138		15,641		66,779
Loss on extinguishment of debt	89		—		89		112		—		112
Loss on sales and impairment of real estate, net	14,378		223		14,601		30,231		223		30,454
Investment income	—		(89)		(89)		—		(164)		(164)
Loss on forfeited deposits	196		—		196		41,910		—		41,910
NOI	$	41,548	$	7,614	$	49,162	$	79,456	$	16,359	$	95,815

51

Net Operating Income for Our Q2 Same Home and Non-Q2 Same Home Properties for the Three Months Ended June 30, 2023 and 2022

There are 8,280 homes in our Q2 2023 same home pool for the three months ended June 30, 2023 and 2022 (our “Q2 Same Home” properties). To be included as a “Q2 Same Home,” homes must be in the VineBrook reportable segment and (i) must have been stabilized for at least 90 days in advance of the first day of the previous fiscal year and be held through the current reporting period-end or (ii) acquired as stabilized in advance of the first day of the initial reporting period and be held through the current reporting period-end. Q2 Same Home properties as of June 30, 2023 and June 30, 2022 were stabilized by October 1, 2021 and held through June 30, 2023 or acquired as stabilized on February 8, 2022 as a portion of the Prager Portfolio and held through June 30, 2023. Q2 Same Home properties do not include homes held for sale. Homes that are stabilized are included as Q2 Same Home properties, whether occupied or vacant. Consistent with the National Rental Home Council’s definition of stabilized, a property is classified as stabilized once it has been rehabilitated by the Company and then initially leased or available for rent for a period greater than 30 days. To be included in our stabilized occupancy and effective rent statistics, the property needs to be stabilized for greater than 90 days. Additionally, according to the National Rental Home Council, a property acquired and deemed to not be in need of an upfront renovation may be added to or withheld from the stabilized portfolio based on management’s discretion. Historically, we have generally purchased the majority of our properties in bulk and have not considered them stabilized on acquisition if we cannot confirm that each property in the acquired portfolio is not in need of an upfront renovation. The Company determined that 700 homes in a contiguous neighborhood acquired in connection with the acquisition of the Prager Portfolio were not in need of an upfront renovation and were considered stabilized upon acquisition and were held during the entirety of the three months ended June 30, 2023 and 2022, as such were added to the Q2 Same Home pool. We view Q2 Same Home NOI as an important measure of the operating performance of our homes because it allows us to compare operating results of homes owned for the entirety of the current and comparable periods and therefore eliminate variations caused by acquisitions or dispositions during the periods.

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The following table reflects the revenues, property operating expenses and NOI for the three months ended June 30, 2023 and 2022 for our Q2 Same Home properties, which total 8,280 properties for the three months ended June 30, 2023 and 2022, and Non-Q2 Same Home properties (dollars in thousands):

	For the Three Months Ended June 30,
	2023		2022		$ Change		% Change
Revenues
Q2 Same Home
Rental income (1)	$	28,249	$	26,064	$	2,185	8.4	%
Other income (1)	73		374		(301)		-80.5	%
Q2 Same Home revenues	28,322		26,438		1,884		7.1	%
Non-Q2 Same Home
Rental income (1)	58,523		32,716		25,807		78.9	%
Other income (1)	282		496		(214)		-43.1	%
Non-Q2 Same Home revenues	58,805		33,212		25,593		77.1	%
Total revenues	87,127		59,650		27,477		46.1	%
Operating expenses
Q2 Same Home
Property operating expenses (1)	5,344		4,186		1,158		27.7	%
Real estate taxes and insurance	5,141		4,221		920		21.8	%
Property management fees (2)	1,410		1,495		(85)		-5.7	%
Q2 Same Home operating expenses	11,895		9,902		1,993		20.1	%
Non-Q2 Same Home
Property operating expenses (1)	10,871		6,856		4,015		58.6	%
Real estate taxes and insurance	11,779		6,693		5,086		76.0	%
Property management fees (2)	3,420		1,913		1,507		78.8	%
Non-Q2 Same Home operating expenses	26,070		15,462		10,608		68.6	%
Total operating expenses	37,965		25,364		12,601		49.7	%
NOI
Q2 Same Home	16,427		16,536		(109)		-0.7	%
Non-Q2 Same Home	32,735		17,750		14,985		84.4	%
Total NOI	$	49,162	$	34,286	$	14,876	43.4	%

(1)Presented net of resident chargebacks.

(2)Fees incurred to the Manager.

See reconciliation of net income (loss) to NOI above under “—Net Operating Income.”

53

Q2 Same Home Results of Operations for the Three Months Ended June 30, 2023 and 2022

As of June 30, 2023, our Q2 Same Home properties were approximately 95.5% occupied with a weighted average monthly effective rent per occupied home of $1,182. As of June 30, 2022, our Q2 Same Home properties were approximately 94.7% occupied with a weighted average monthly effective rent per occupied home of $1,100. For our Q2 Same Home properties, we recorded the following operating results for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022:

Revenues

Rental income. Rental income was $28.2 million for the three months ended June 30, 2023 compared to $26.1 million for the three months ended June 30, 2022, which was an increase of approximately $2.1 million, or 8.4%. The increase is related to a 7.5% increase in the weighted average monthly effective rent per occupied home and a 0.8% increase in occupancy.

Other income. Other income was $0.1 million for the three months ended June 30, 2023 compared to $0.4 million for the three months ended June 30, 2022, which was a decrease of approximately $0.3 million, or 80.5%. The decrease is related to an increase in the reserve allocated to move out charges in the current year.

Expenses

Property operating expenses. Property operating expenses were $5.3 million for the three months ended June 30, 2023 compared to $4.2 million for the three months ended June 30, 2022, which was an increase of approximately $1.1 million, or 27.7%. The increase is primarily related to an increase in repair and maintenance expenses of approximately $0.4 million, an increase in turn costs of approximately $0.2 million, an increase in landscaping costs of approximately $0.2 million and an increase in water and sewer costs of approximately $0.2 million.

Real estate taxes and insurance. Real estate taxes and insurance costs were $5.1 million for the three months ended June 30, 2023 compared to $4.2 million for the three months ended June 30, 2022, which was an increase of approximately $0.9 million, or 21.8%. The increase is primarily related to an increase in real estate taxes of approximately $0.9 million.

Property management fees. Property management fees remained relatively consistent at $1.4 million for the three months ended June 30, 2023 compared to $1.5 million for the three months ended June 30, 2022, which was a decrease of less than $0.1 million.

The following table reflects a reconciliation of Q2 Same Home and Non-Q2 Same Home revenues and operating expenses to total revenues and operating expenses, including resident chargebacks, for the three months ended June 30, 2023 and 2022 (dollars in thousands):

	For the Three Months Ended June 30,
	2023		2022
Q2 Same Home revenues	$	28,322	$	26,438
Non-Q2 Same Home revenues	58,805		33,212
Chargebacks	1,516		1,315
Total revenues	88,643		60,965
Q2 Same Home operating expenses	11,895		9,902
Non-Q2 Same Home operating expenses	26,070		15,462
Chargebacks	1,516		1,315
Total operating expenses	$	39,481	$	26,679

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Net Operating Income for Our Same Home and Non-Same Home Properties for the Six Months Ended June 30, 2023 and 2022

There are 7,580 homes in our 2023 same home pool for the six months ended June 30, 2023 and 2022 (our “Same Home” properties). To be included as a “Same Home,” homes must be in the VineBrook reportable segment and must have been stabilized for at least 90 days in advance of the first day of the previous fiscal year and be held through the current reporting period-end. Same Home properties for the six months ended June 30, 2023 and 2022 were stabilized by October 1, 2021 and held through June 30, 2023. Same Home properties do not include homes held for sale. Homes that are stabilized are included as Same Home properties, whether occupied or vacant. We view Same Home NOI as an important measure of the operating performance of our homes because it allows us to compare operating results of homes owned for the entirety of the current and comparable periods and therefore eliminate variations caused by acquisitions or dispositions during the periods. Same Home results for the six months ended June 30, 2023 and 2022 exclude the impact of the 700 homes acquired in connection with the acquisition of the Prager Portfolio on February 8, 2022 that are included in the Q2 Same Home pool described above because these homes were not owned for the entirety of the six months ended June 30, 2023 and 2022.

The following table reflects the revenues, property operating expenses and NOI for the six months ended June 30, 2023 and 2022 for our Same Home properties, which total 7,580 properties for the six months ended June 30, 2023 and 2022, and Non-Same Home properties (dollars in thousands):

	For the Six Months Ended June 30,
	2023		2022		$ Change		% Change
Revenues
Same Home
Rental income (1)	$	50,460	$	47,107	$	3,353	7.1	%
Other income (1)	134		707		(573)		-81.0	%
Same Home revenues	50,594		47,814		2,780		5.8	%
Non-Same Home
Rental income (1)	118,743		62,182		56,561		91.0	%
Other income (1)	2,080		994		1,086		109.3	%
Non-Same Home revenues	120,823		63,176		57,647		91.2	%
Total revenues	171,417		110,990		60,427		54.4	%
Operating expenses
Same Home
Property operating expenses (1)	10,001		7,259		2,742		37.8	%
Real estate taxes and insurance	9,666		7,884		1,782		22.6	%
Property management fees (2)	3,159		2,770		389		14.0	%
Same Home operating expenses	22,826		17,913		4,913		27.4	%
Non-Same Home
Property operating expenses (1)	22,381		11,493		10,888		94.7	%
Real estate taxes and insurance	22,429		12,572		9,857		78.4	%
Property management fees (2)	7,966		3,749		4,217		112.5	%
Non-Same Home operating expenses	52,776		27,814		24,962		89.7	%
Total operating expenses	75,602		45,727		29,875		65.3	%
NOI
Same Home	27,768		29,901		(2,133)		-7.1	%
Non-Same Home	68,047		35,362		32,685		92.4	%
Total NOI	$	95,815	$	65,263	$	30,552	46.8	%

(1)Presented net of resident chargebacks.

(2)Fees incurred to the Manager.

See reconciliation of net income (loss) to NOI above under “—Net Operating Income.”

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Same Home Results of Operations for the Six Months Ended June 30, 2023 and 2022

As of June 30, 2023, our Same Home properties were approximately 95.6% occupied with a weighted average monthly effective rent per occupied home of $1,177. As of June 30, 2022, our Same Home properties were approximately 94.6% occupied with a weighted average monthly effective rent per occupied home of $1,098. For our Same Home properties, we recorded the following operating results for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022:

Revenues

Rental income. Rental income was $50.5 million for the six months ended June 30, 2023 compared to $47.1 million for the six months ended June 30, 2022, which was an increase of approximately $3.4 million, or 7.1%. The increase is related to a 7.2% increase in the weighted average monthly effective rent per occupied home and a 1.1% increase in occupancy.

Other income. Other income was $0.1 million for the six months ended June 30, 2023 compared to $0.7 million for the six months ended June 30, 2022, which was a decrease of approximately $0.6 million, or 81.0%. The decrease is related to an increase in the reserve allocated to move out charges in the current year.

Expenses

Property operating expenses. Property operating expenses were $10.0 million for the six months ended June 30, 2023 compared to $7.3 million for the six months ended June 30, 2022, which was an increase of approximately $2.7 million, or 37.8%. The increase is primarily related to an increase in repair and maintenance expenses of approximately $1.0 million, an increase in turn costs of approximately $0.8 million, an increase in water and sewer costs of approximately $0.4 million and an increase in landscaping costs of approximately $0.4 million.

Real estate taxes and insurance. Real estate taxes and insurance costs were $9.7 million for the six months ended June 30, 2023 compared to $7.9 million for the six months ended June 30, 2022, which was an increase of approximately $1.8 million, or 22.6%. The increase is primarily related to an increase in real estate taxes of approximately $1.7 million.

Property management fees. Property management fees were $3.2 million for the six months ended June 30, 2023 compared to $2.8 million for the six months ended June 30, 2022, which was an increase of approximately $0.4 million or 14.0%. The increase is related to an increase in rental income resulting in a higher property management fee.

The following table reflects a reconciliation of Same Home and Non-Same Home revenues and operating expenses to total revenues and operating expenses, including resident chargebacks, for the six months ended June 30, 2023 and 2022 (dollars in thousands):

	For the Six Months Ended June 30,
	2023		2022
Same Home revenues	$	50,594	$	47,814
Non-Same Home revenues	120,823		63,176
Chargebacks	3,331		2,292
Total revenues	174,748		113,282
Same Home operating expenses	22,826		17,913
Non-Same Home operating expenses	52,776		27,814
Chargebacks	3,331		2,292
Total operating expenses	$	78,933	$	48,019

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FFO, Core FFO and AFFO

We believe that net income (loss), as defined by GAAP, is the most appropriate earnings measure. We also believe that funds from operations attributable to common stockholders and NCI of the OP (“FFO”) as defined by the National Association of Real Estate Investments Trusts (“NAREIT”), core funds from operations attributable to common stockholders and NCI of the OP (“Core FFO”) and adjusted funds from operations attributable to common stockholders and NCI of the OP (“AFFO”) are important non-GAAP supplemental measures of operating performance for a REIT. We present FFO, Core FFO and AFFO for the VineBrook reportable segment (“VineBrook FFO,” “VineBrook Core FFO” and “VineBrook AFFO,” respectively).

Since the historical cost accounting convention used for real estate assets requires depreciation except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income (loss), as defined by GAAP. FFO is defined by NAREIT as net income (loss) computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization. We compute VineBrook FFO in accordance with NAREIT’s definition. Our presentation differs slightly from NAREIT’s in that we begin with VineBrook net income (loss) attributable to common stockholders and add VineBrook net income (loss) attributable to NCI in the OP and then make the adjustments to arrive at VineBrook FFO.

VineBrook Core FFO makes certain adjustments to VineBrook FFO, which relate to items that are either not likely to occur on a regular basis or are otherwise not representative of the ongoing operating performance of our Portfolio. VineBrook Core FFO adjusts VineBrook FFO to remove items such as the amortization of deferred financing costs, gains or losses on extinguishment of debt, losses on forfeited deposits, changes in fair value of interest rate derivatives included in interest expense, equity-based compensation expense and reportable segment-specific investment income. We believe VineBrook Core FFO is useful as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs.

VineBrook AFFO makes certain adjustments to VineBrook Core FFO in order to arrive at a more refined measure of the operating performance of our VineBrook Portfolio. There is no industry standard definition of AFFO and the method of calculating AFFO is divergent across the industry. VineBrook AFFO adjusts VineBrook Core FFO to remove recurring capital expenditures, which are costs necessary to help preserve the value and maintain functionality of our homes. We believe VineBrook AFFO is useful as a supplemental gauge of the operating performance of our VineBrook reportable segment and is useful in comparing our operating performance with other REITs.

Basic and diluted weighted average shares in our VineBrook FFO/Core FFO/AFFO table includes both our Shares and OP Units. NexPoint Homes Shares and SFR OP Units are not part of this count as the metrics in the VineBrook FFO/Core FFO/AFFO table only pertain to the VineBrook reportable segment.

We believe that the use of FFO, Core FFO and AFFO, combined with the required GAAP presentations, improves the understanding of operating results of REITs and makes comparisons of operating results among such companies more meaningful. While FFO, Core FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income (loss) as defined by GAAP and should not be considered as an alternative or substitute to those measures in evaluating our liquidity or operating performance. FFO, Core FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. Further, our computation of VineBrook FFO, VineBrook Core FFO and VineBrook AFFO may not be comparable to FFO, Core FFO and AFFO reported by other REITs.

57

The FFO, Core FFO and AFFO results discussed further below are for the VineBrook reportable segment, and reconcile to net loss for the VineBrook reportable segment for the three and six months ended June 30, 2023 and 2022. See below for a reconciliation of VineBrook net loss to consolidated net loss for the three and six months ended June 30, 2023 and 2022:

	For the Three Months Ended June 30, 2023						For the Six Months Ended June 30, 2023
	VineBrook		NexPoint Homes		Total		VineBrook		NexPoint Homes		Total
Net loss attributable to common stockholders	$	(33,148)	$	(5,202)	$	(38,350)	$	(107,102)	$	(8,467)	$	(115,569)
Net loss attributable to redeemable NCI in the OP	(6,875)		(471)		(7,346)		(20,459)		(747)		(21,206)
Net loss attributable to redeemable NCI in consolidated VIEs	—		(4,794)		(4,794)		—		(8,007)		(8,007)
Net loss attributable to NCI in consolidated VIEs	—		(689)		(689)		—		(1,001)		(1,001)

	For the Three Months Ended June 30, 2022						For the Six Months Ended June 30, 2022
	VineBrook		NexPoint Homes		Total		VineBrook		NexPoint Homes		Total
Net loss attributable to common stockholders	$	(9,580)	$	(1,315)	$	(10,895)	$	(14,079)	$	(1,315)	$	(15,394)
Net loss attributable to redeemable NCI in the OP	(1,283)		(488)		(1,771)		(1,706)		(488)		(2,194)
Net loss attributable to redeemable NCI in consolidated VIEs	—		(1,191)		(1,191)		—		(1,191)		(1,191)

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The three months ended June 30, 2023 as compared to the three months ended June 30, 2022

The following table reconciles our calculations of FFO, Core FFO and AFFO to the VineBrook reportable segment’s net loss for the three months ended June 30, 2023 and 2022, which is reconciled to consolidated net loss above, the most directly comparable GAAP financial measure (in thousands, except per share amounts):

	For the Three Months Ended June 30,
	2023		2022		$ Change		% Change
Net loss attributable to common stockholders	$	(33,148)	$	(9,580)	$	(23,568)	246.0	%
Net loss attributable to NCI in the OP	(6,875)		(1,283)		(5,592)		435.9	%
Depreciation and amortization	24,897		23,412		1,485		6.3	%
Loss/(gain) on sales and impairment of real estate, net	14,378		(47)		14,425		N/M
FFO attributable to common stockholders and NCI in the OP	(748)		12,502		(13,250)		-106.0	%
FFO per share - basic	$	(0.03)	$	0.43	$	(0.46)	-107.0	%
FFO per share - diluted	$	(0.03)	$	0.42	$	(0.45)	-107.1	%
Investment income (1)	1,255		240		1,015		422.9	%
Loss on forfeited deposits	196		—		196		100.0	%
Amortization of deferred financing costs	2,293		1,793		500		27.9	%
Loss on extinguishment of debt	89		1,001		(912)		-91.1	%
Change in fair value of interest rate derivatives included in interest expense	(3,098)		—		(3,098)		-100.0	%
Equity-based compensation expense	2,259		1,617		642		39.7	%
Core FFO attributable to common stockholders and NCI in the OP	2,246		17,153		(14,907)		-86.9	%
Core FFO per share - basic	$	0.08	$	0.59	$	(0.51)	-86.4	%
Core FFO per share - diluted	$	0.08	$	0.58	$	(0.50)	-86.2	%
Recurring capital expenditures	(4,958)		(2,777)		(2,181)		78.5	%
AFFO attributable to common stockholders and NCI in the OP	(2,712)		14,376		(17,088)		-118.9	%
AFFO per share - basic	$	(0.09)	$	0.49	$	(0.58)	-118.4	%
AFFO per share - diluted	$	(0.09)	$	0.49	$	(0.58)	-118.4	%
Weighted average shares outstanding - basic	28,863		29,092
Weighted average shares outstanding - diluted (2)	29,345		29,578
Dividends declared per share	$	0.5301	$	0.5301
Net loss attributable to common stockholders per share/unit - diluted (3)	$	(1.55)	$	(0.43)
Net loss attributable to common stockholders Coverage - diluted (4)	-2.92x		-0.81x
FFO Coverage - diluted (5)	-0.06x		0.79x
Core FFO Coverage - diluted (5)	0.15x		1.09x
AFFO Coverage - diluted (5)	-0.17x		0.92x

(1)Investment income in the table above includes approximately $0.4 million of interest income from the NexPoint Homes Convertible Notes and approximately $0.8 million of dividend income from the investment in NexPoint Homes for the three months ended June 30, 2023. Additionally, investment income in the table above includes approximately $0.2 million of interest income from the NexPoint Homes Convertible Notes for the three months ended June 30, 2022. The VineBrook reportable segment interest and dividend income related to NexPoint Homes are eliminated on the consolidated statements of operations and comprehensive income (loss) but are added back to Core FFO since these funds are attributable to the standalone VineBrook reportable segment.

(2)For the three months ended June 30, 2023 and 2022, includes approximately 471,000 shares and 444,000 shares, respectively, related to the assumed vesting of RSUs and PI Units not contingent upon an IPO.

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(3)For the three months ended June 30, 2023 and 2022, the net loss attributable to common stockholders per share/unit (diluted) includes $(0.21) per common share and $(0.05) per common share, respectively, related to the allocated loss per common share attributable to the NexPoint Homes reportable segment.

(4)Indicates coverage ratio of net loss attributable to common stockholders per share (diluted) over dividends declared per common share during the period.

(5)Indicates coverage ratio of FFO/Core FFO/AFFO per common share (diluted) over dividends declared per common share during the period.

VineBrook FFO was $(0.7 million) for the three months ended June 30, 2023 compared to $12.5 million for the three months ended June 30, 2022, which was a decrease of approximately $13.2 million. The change in VineBrook FFO between the periods primarily relates to increases in the VineBrook reportable segment’s total property operating expenses of $9.5 million, the VineBrook reportable segment’s advisory fees of $1.0 million, the VineBrook reportable segment’s corporate general and administrative expenses of $2.6 million, the VineBrook reportable segment’s property general and administrative expenses of $2.7 million and the VineBrook reportable segment’s interest expense of $13.4 million, partially offset by an increase in the VineBrook reportable segment’s rental income of $17.7 million.

VineBrook Core FFO was $2.2 million for the three months ended June 30, 2023 compared to $17.2 million for the three months ended June 30, 2022, which was a decrease of approximately $15.0 million. The change in VineBrook Core FFO between the periods primarily relates to a decrease in VineBrook FFO and decreases in the VineBrook reportable segment’s loss on extinguishment of debt of $0.9 million and the change in fair value of interest rate derivatives included in interest expense of $3.1 million, partially offset by an increase in the VineBrook reportable segment’s investment income from the investment in NexPoint Homes of $1.0 million.

VineBrook AFFO was $(2.7 million) for the three months ended June 30, 2023 compared to $14.4 million for the three months ended June 30, 2022, which was a decrease of approximately $17.1 million. The change in VineBrook AFFO between the periods primarily relates to a decrease in VineBrook Core FFO and an increase in the VineBrook reportable segment’s recurring capital expenditures of $2.2 million.

The changes in diluted VineBrook FFO per share, VineBrook Core FFO per share and VineBrook AFFO per share for the three months ended June 30, 2022 were primarily related to a 132.1% change in VineBrook interest expense (or 133.9% on a per share basis). The weighted average interest rate of debt increased from 3.6611% as of June 30, 2022 to 7.1302% as of June 30, 2023 for the VineBrook reportable segment, which has contributed to the decline in our VineBrook FFO, VineBrook Core FFO and VineBrook AFFO per share results. The Company has entered into 14 interest rate derivative agreements with a combined notional amount of approximately $1.5 billion in order to partially offset the impact of increasing interest rates.

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The six months ended June 30, 2023 as compared to the six months ended June 30, 2022

The following table reconciles our calculations of FFO, Core FFO and AFFO to the VineBrook reportable segment’s net loss for the six months ended June 30, 2023 and 2022, which is reconciled to consolidated net loss above, the most directly comparable GAAP financial measure (in thousands, except per share amounts):

	For the Six Months Ended June 30,
	2023		2022		$ Change		% Change
Net loss attributable to common stockholders	$	(107,102)	$	(14,079)	$	(93,023)	660.7	%
Net loss attributable to NCI in the OP	(20,459)		(1,706)		(18,753)		1099.2	%
Depreciation and amortization	50,197		39,368		10,829		27.5	%
Loss/(gain) on sales and impairment of real estate, net	30,231		(54)		30,285		N/M
FFO attributable to common stockholders and NCI in the OP	(47,133)		23,529		(70,662)		-300.3	%
FFO per share - basic	$	(1.64)	$	0.84	$	(2.48)	-295.2	%
FFO per share - diluted	$	(1.64)	$	0.82	$	(2.46)	-300.0	%
Investment income (1)	2,546		240		2,306		960.8	%
Loss on forfeited deposits	41,910		—		41,910		100.0	%
Amortization of deferred financing costs	4,620		3,319		1,301		39.2	%
Loss on extinguishment of debt	112		1,001		(889)		-88.8	%
Change in fair value of interest rate derivatives included in interest expense	747		—		747		100.0	%
Equity-based compensation expense	4,027		3,072		955		31.1	%
Core FFO attributable to common stockholders and NCI in the OP	6,829		31,161		(24,332)		-78.1	%
Core FFO per share - basic	$	0.24	$	1.11	$	(0.87)	-78.4	%
Core FFO per share - diluted	$	0.23	$	1.09	$	(0.86)	-78.9	%
Recurring capital expenditures	(8,991)		(5,183)		(3,808)		73.5	%
AFFO attributable to common stockholders and NCI in the OP	(2,162)		25,978		(28,140)		-108.3	%
AFFO per share - basic	$	(0.08)	$	0.93	$	(1.01)	-108.6	%
AFFO per share - diluted	$	(0.08)	$	0.91	$	(0.99)	-108.8	%
Weighted average shares outstanding - basic	28,754		28,047
Weighted average shares outstanding - diluted (2)	29,212		28,537
Dividends declared per share	$	1.0602	$	1.0602
Net loss attributable to common stockholders per share/unit - diluted (3)	$	(4.69)	$	(0.63)
Net loss attributable to common stockholders Coverage - diluted (4)	-4.42x		-0.59x
FFO Coverage - diluted (5)	-1.55x		0.77x
Core FFO Coverage - diluted (5)	0.22x		1.03x
AFFO Coverage - diluted (5)	-0.08x		0.86x

(1)Investment income in the table above includes approximately $0.9 million of interest income from the NexPoint Homes Convertible Notes and approximately $1.7 million of dividend income from the investment in NexPoint Homes for the six months ended June 30, 2023. Additionally, investment income in the table above includes approximately $0.2 million of interest income from the NexPoint Homes Convertible Notes for the six months ended June 30, 2022. The VineBrook reportable segment interest and dividend income related to NexPoint Homes are eliminated on the consolidated statements of operations and comprehensive income (loss) but are added back to Core FFO since these funds are attributable to the standalone VineBrook reportable segment.

(2)For the six months ended June 30, 2023 and 2022, includes approximately 471,000 shares and 444,000 shares, respectively, related to the assumed vesting of RSUs and PI Units not contingent upon an IPO.

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(3)For the six months ended June 30, 2023 and 2022, the net loss attributable to common stockholders per share/unit (diluted) includes $(0.34) per common share and $(0.05) per common share, respectively, related to the allocated loss per common share attributable to the NexPoint Homes reportable segment.

(4)Indicates coverage ratio of net loss attributable to common stockholders per share (diluted) over dividends declared per common share during the period.

(5)Indicates coverage ratio of FFO/Core FFO/AFFO per common share (diluted) over dividends declared per common share during the period.

VineBrook FFO was $(47.1 million) for the six months ended June 30, 2023 compared to $23.5 million for the six months ended June 30, 2022, which was a decrease of approximately $70.6 million. The change in VineBrook FFO between the periods primarily relates to increases in the VineBrook reportable segment’s total property operating expenses of $24.3 million, the VineBrook reportable segment’s advisory fees of $2.8 million, the VineBrook reportable segment’s corporate general and administrative expenses of $2.8 million, the VineBrook reportable segment’s property general and administrative expenses of $5.4 million, the VineBrook reportable segment’s interest expense of $31.4 million and the VineBrook reportable segment’s loss on forfeited deposits of $41.9 million partially offset by an increase in the VineBrook reportable segment’s rental income of $39.6 million.

VineBrook Core FFO was $6.8 million for the six months ended June 30, 2023 compared to $31.2 million for the six months ended June 30, 2022, which was a decrease of approximately $24.4 million. The change in VineBrook Core FFO between the periods primarily relates to a decrease in VineBrook FFO, partially offset by increases in the VineBrook reportable segment’s investment income from the investment in NexPoint Homes of $2.3 million and the VineBrook reportable segment’s loss on forfeited deposits of $41.9 million, which are each added back to arrive at VineBrook Core FFO.

VineBrook AFFO was $(2.2 million) for the six months ended June 30, 2023 compared to $26.0 million for the six months ended June 30, 2022, which was a decrease of approximately $28.2 million. The change in VineBrook AFFO between the periods primarily relates to a decrease in VineBrook Core FFO and an increase in the VineBrook reportable segment’s recurring capital expenditures of $3.8 million.

The changes in diluted VineBrook FFO per share, VineBrook Core FFO per share and VineBrook AFFO per share for the six months ended June 30, 2022 were primarily related to a 158.6% change in VineBrook interest expense (or 152.6% on a per share basis). The weighted average interest rate of debt increased from 3.6611% as of June 30, 2022 to 7.1302% as of June 30, 2023 for the VineBrook reportable segment, which has contributed to the decline in our VineBrook FFO, VineBrook Core FFO and VineBrook AFFO per share results. The Company has entered into 14 interest rate derivative agreements with a combined notional amount of approximately $1.5 billion in order to partially offset the impact of increasing interest rates. Additionally, the change in diluted VineBrook FFO per share includes the impact of initial deposit forfeitures of $41.0 million related to the termination of the Tusk Portfolio and Siete Portfolio acquisition agreements, which is an infrequent and unusual item.

Net Asset Value

The purchase price at which Shares may be repurchased in accordance with the terms of the Share Repurchase Plan is generally based on the most recent NAV per share in effect at the time of repurchase, and Shares or OP Units issued under the applicable DRIP generally reflect a 3% discount to the then-current NAV per share. The sale price of the Shares sold in the Private Offering as well as the sale price of OP Units was equal to the most recent NAV per share in effect at the time a subscription agreement or funds were received, plus applicable fees and commissions.

Effective for valuations beginning on July 31, 2021, the Company implemented an amended and restated Valuation Methodology as approved by our Board. Under the Valuation Methodology, Green Street calculates a preliminary NAV by valuing the portfolio in accordance with the Valuation Methodology. Green Street then recommends the preliminary NAV to the Adviser. Based on this recommendation, the Adviser then calculates transaction costs and makes any other adjustments, including costs of internalization, determined necessary to finalize NAV. The finalized NAV is then approved by the Pricing Committee.

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On and before March 31, 2020, NAV was determined as of the end of each quarter. Beginning April 30, 2020, NAV was determined as of the end of each month. Effective for NAV determined on and after December 31, 2021, NAV has been determined as of the end of each quarter. NAV per share is calculated on a fully diluted basis. The table below illustrates the changes in NAV since inception:

Date	NAV per share
November 1, 2018	$	25.00
December 31, 2018	28.27
March 31, 2019	28.75
June 30, 2019	28.88
September 30, 2019	29.85
December 31, 2019	30.58
March 31, 2020	30.59
April 30, 2020	30.82
May 31, 2020	31.08
June 30, 2020	31.24
July 31, 2020	31.47
August 31, 2020	32.91
September 30, 2020	34.00
October 31, 2020	34.18
November 30, 2020	34.38
December 31, 2020	36.56
January 31, 2021	36.56
February 28, 2021	36.68
March 31, 2021	36.82
April 30, 2021	37.85
May 31, 2021	38.68
June 30, 2021	40.82
July 31, 2021	43.76
August 31, 2021	46.19
September 30, 2021	47.90
October 31, 2021	49.09
November 30, 2021	51.38
December 31, 2021	54.14
March 31, 2022	59.85
June 30, 2022	62.75
September 30, 2022	62.97
December 31, 2022	63.04
March 31, 2023	61.32
June 30, 2023	61.63

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Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of funds necessary to pay for debt maturities, operating expenses and other expenditures directly associated with our homes, including:

•recurring maintenance necessary to maintain our homes;

•interest expense and scheduled principal payments on outstanding indebtedness;

•distributions necessary to qualify for taxation as a REIT;

•advisory fees payable to our Adviser;

•general and administrative expenses;

•capital expenditures related to upcoming acquisitions and rehabilitation of owned homes; and

•offering expenses related to raising equity.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and debt financing. Our JPM Facility has an additional $16.8 million of capacity as of June 30, 2023.

Our long-term liquidity requirements consist primarily of funds necessary to pay for the scheduled debt payments and distributions, renovations and other capital expenditures to improve our homes. Each reporting period, management evaluates the Company’s ability to continue as a going concern in accordance with ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, by evaluating conditions and events, including assessing the liquidity needs to meet obligations as they become due within one year after the date the financial statements are issued. The Company has approximately $318.5 million of debt obligations coming due from June 30, 2023 through 12-months from the report issuance date and does not currently have sufficient liquidity to satisfy the obligations. In order to satisfy obligations as they mature, management intends to evaluate its options and may seek to make partial loan pay downs, may seek to refinance certain debt instruments, may seek additional capital through private equity offerings or through other sources of financings, may sell homes from its portfolio and may modify operations. While management believes its plans will be sufficient, the ability to execute its plans is not within management’s control. These financial statements have been prepared by management in accordance with GAAP and this basis assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. These financial statements do not include any adjustments that may result from the outcome of this uncertainty.

There are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity, market perceptions about us and restrictions on sales of properties under the Code. The success of our business strategy will depend, in part, on our ability to access these various capital sources.

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Our homes will require periodic capital expenditures and renovation to remain competitive. Also, acquisitions of new homes will require significant capital outlays. Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures and acquisitions through retained earnings long-term is limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects could be materially and adversely affected.

We believe that our available cash, expected operating cash flows, net proceeds from the sale of homes 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 June 30, 2023, except as would not be expected to have a material adverse effect. We believe that the various sources of long-term capital, which may include public or private issuances of common equity, preferred equity or debt, draws on our revolving credit facilities, existing working capital, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements in the long-term, except as would not be expected to have a material adverse effect.

Cash Flows

The six months ended June 30, 2023 as compared to the six months ended June 30, 2022

The following table presents selected data from our consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 (in thousands):

	For the Six Months Ended June 30,
	2023		2022		$ Change
Net cash provided by operating activities	$	15,394	$	45,252	$	(29,858)
Net cash used in investing activities	(23,005)		(892,924)		869,919
Net cash (used in)/provided by financing activities	(44,391)		876,028		(920,419)
Change in cash and restricted cash	(52,002)		28,356		(80,358)
Cash and restricted cash, beginning of period	114,749		74,997		39,752
Cash and restricted cash, end of period	$	62,747	$	103,353	$	(40,606)

Cash flows from operating activities. During the six months ended June 30, 2023, net cash provided by operating activities was $15.4 million compared to net cash provided by operating activities of $45.3 million for the six months ended June 30, 2022. The change in cash flows from operating activities was due to an increase in interest expense and other expenses partially offset by an increase in net operating income.

Cash flows from investing activities. During the six months ended June 30, 2023, net cash used in investing activities was $23.0 million compared to net cash used in investing activities of $892.9 million for the six months ended June 30, 2022. The change in cash flows from investing activities was mainly due to a decrease in acquisitions of real estate investments, a decrease in acquisition of NexPoint Homes through VIE consolidation, net of cash received and an increase in net proceeds from sales of real estate.

Cash flows from financing activities. During the six months ended June 30, 2023, net cash used in financing activities was $44.4 million compared to net cash provided by financing activities of $876.0 million for the six months ended June 30, 2022. The change in cash flows from financing activities was mainly due to decreases in credit facilities proceeds received, bridge facilities proceeds received and proceeds from the issuance of Class A common stock.

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Debt, Derivatives and Hedging Activity

Debt

As of June 30, 2023, the VineBrook reportable segment had aggregate debt outstanding to third parties of approximately $2.0 billion at a weighted average interest rate of 7.1302% and an adjusted weighted average interest rate of 4.9508%. For purposes of calculating the adjusted weighted average interest rate of our debt outstanding, we have included the weighted average fixed rate of 2.2219%, representing a weighted average fixed rate for one-month London Interbank Offered Rate (“LIBOR”), Secured Overnight Financing Rate (“SOFR”) for the applicable interest period (“one-month term SOFR”) and daily SOFR, on our combined $1.5 billion notional amount of interest rate swap agreements and interest rate cap agreement, which effectively fixes the interest rate on $1.5 billion of our floating rate debt. See Notes 7 and 8 to our consolidated financial statements for additional information.

The following table sets forth a summary of our mortgage loan indebtedness for the VineBrook reportable segment as of June 30, 2023:

	Type	Outstanding Principal as of June 30, 2023		Interest Rate (1)	Maturity
Initial Mortgage	Floating	$	238,520	6.77%	12/1/2025
Warehouse Facility	Floating	1,257,357		7.34%	11/3/2024	(2)
JPM Facility	Floating	333,173		7.94%	1/31/2025	(3)
Bridge Facility III	Floating	58,195		8.14%	12/31/2023
MetLife Note	Fixed	120,753		3.25%	1/31/2026
TrueLane Mortgage	Fixed	10,050		5.35%	2/1/2028
Crestcore II Note	Fixed	4,444		5.12%	7/9/2029
Crestcore IV Note	Fixed	3,623		5.12%	7/9/2029
Total Outstanding Principal		$	2,026,115

(1)Represents the interest rate as of June 30, 2023. Except for fixed rate debt, the interest rate is one-month LIBOR, daily SOFR or one-month term SOFR, plus an applicable margin. One-month LIBOR as of June 30, 2023 was 5.2177%, daily SOFR as of June 30, 2023 was 5.0900% and one-month term SOFR as of June 30, 2023 was 5.1408%.

(2)This is the stated maturity for the Warehouse Facility, but it is subject to extension options.

(3)This is the stated maturity for the JPM Facility, but it is subject to a 12-month extension option.

In addition to the mortgage loan indebtedness for the VineBrook reportable segment presented above, the NexPoint Homes reportable segment had $578.1 million of debt outstanding at June 30, 2023 (excluding amounts owed to the OP by NexPoint Homes, as these are eliminated in consolidation). See Notes 5, 7 and 13 to the consolidated financial statements.

We have included a summary of any significant changes in debt agreements for the VineBrook reportable segment below.

On March 1, 2021, the Company entered into a non-recourse carveout guaranty and certain wholly owned subsidiaries of VB Three, LLC (as borrowers) entered into a $500.0 million credit agreement with JP Morgan (the “JPM Facility”). The JPM Facility is secured by equity pledges in VB Three, LLC and its wholly owned subsidiaries and bears interest at a variable rate equal to one-month LIBOR plus 2.75%. The JPM Facility is interest-only and originally matured and was due in full on March 1, 2023. On March 10, 2022, the Company entered into Amendment No. 1 to the JPM Facility, wherein each advance under the JPM Facility will bear interest at daily SOFR plus 2.85%. The balance of the JPM Facility, net of unamortized deferred financing costs, is included in credit facilities on the consolidated balance sheets. On January 31, 2023, the Company entered into Amendment No. 2 to the JPM Facility, wherein the total facility amount was updated to $350.0 million, and the maturity date was extended to January 31, 2025, which may be extended for 12 months upon submission of an extension request, subject to approval. On March 15, 2023, the Company entered into Amendment No. 3 to the JPM Facility to give the Company credit for pledging an interest rate swap by reducing the interest reserve requirements under the JPM Facility based on the capped rate. As of June 30, 2023, the JPM Facility had $16.8 million in available capacity.

On July 31, 2023, the Company entered into a Consent and Sixth Amendment to the Warehouse Facility with KeyBank, as administrative agent, and the other lenders party thereto which, among other things, provides for (1) the

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revision of certain financial tests required under the Warehouse Facility and removal of others; (2) a waiver of certain covenant breaches identified by the administrative agent and the Company prior to the execution of the amendment; (3) consent for the sale of shares to directors, officers and other affiliates in the Series B Preferred Offering under the Reserved Share Program, (4) consent for the Internalization, subject to certain conditions; (5) a modification of the applicable margins, including an increase upon extensions; (6) modifications and additions of certain covenants; (7) a modification of the twelve-month extension option to be two six-month extensions; (8) prepayments of outstanding amounts under the Warehouse Facility through the sale of assets and other capital raising events and in certain other situations until the amount outstanding, and the commitment under the Warehouse Facility is reduced to $850 million (the “Commitment Reduction”); (9) no obligations for further lending under the Warehouse Facility until certain conditions are satisfied, including achievement of the Commitment Reduction, and no further increase in the Warehouse Facility through the accordion feature of the Warehouse Facility; and (10) restrictions on the redemption by the Company and its subsidiaries of any preferred or common equity.

On December 28, 2022, the Company entered into a bridge credit agreement through the OP with Raymond James Bank, and subsequently borrowed $75.0 million (the “Bridge Facility III”). The Bridge Facility III accrues interest at one-month term SOFR plus a margin of 3.0%. The Bridge Facility III matures on September 30, 2023 and requires periodic principal payments and monthly interest payments.

On April 17, 2023, the Company, through the OP, entered into the first amendment to the bridge credit agreement with Raymond James Bank (the “Bridge Facility III Amendment No. 1”), which amended the Bridge Facility III. The Bridge Facility III Amendment No. 1 increased the borrowing capacity of the Bridge Facility III by $25.0 million to $100.0 million and requires repayment of the principal amount outstanding so that (1) by May 30, 2023, no more than $66.7 million remains outstanding, (2) by June 30, 2023, no more than $40.0 million remains outstanding and (3) by August 30, 2023, no more than $20.0 million remains outstanding. In connection with the Bridge Facility III Amendment No. 1, on April 19, 2023, the Company drew $25.0 million on the Bridge Facility III. Subsequently, the Company repaid $41.8 million of principal on the Bridge Facility III through June 30, 2023.

On July 7, 2023, the Company entered into the second amendment to Bridge Facility III with Raymond James, in which the lenders under Bridge Facility III have agreed to a waiver under the Bridge Facility III permitting the Company to pay, on or before July 21, 2023, the remaining principal payment of approximately $18.2 million previously due on June 30, 2023. On July 26, 2023, the Company and the lenders under the Bridge Facility III entered into a letter agreement permitting the Company to pay, on or before August 4, 2023, the remaining principal payment of approximately $18.2 million previously due on June 21, 2023. On July 31, 2023, the Company entered into a Waiver and Third Amendment to Bridge Facility III with Raymond James Bank, as administrative agent, and the other lenders party thereto which, among other things, provides for (1) the extension of the maturity date to December 31, 2023, (2) the revision of certain financial tests required under the Bridge Facility III; (3) a waiver of certain covenant breaches identified by the administrative agent and the Company prior to the execution of the amendment; (4) a modification of the applicable rates; (5) a modification of certain covenants; (6) prepayments of outstanding amounts under the Bridge Facility III until the amount outstanding has been repaid in full; (7) consent for the sale of shares to directors, officers and other affiliates in the Series B Preferred Offering; and (8) restrictions on the redemption by the Company and its subsidiaries of any preferred or common equity. The balance of the Bridge Facility III, net of unamortized deferred financing costs, is included in bridge facility on the consolidated balance sheets. We expect to repay the Bridge Facility III with cash flows from operations, net proceeds from the sale of homes or through the sale of securities.

As of the date of this filing, the Company was in compliance with all debt covenants in all of its debt agreements related to the VineBrook reportable segment.

We intend to invest in additional homes as suitable opportunities arise and adequate sources of equity and debt financing are available. We expect that future investments in properties, including any improvements or renovations of current or newly acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, future borrowings and the proceeds from additional issuances of Shares, Preferred Shares or other securities or property dispositions.

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Although we expect to be subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing Shares, Preferred Shares or other debt or equity securities, on terms that are acceptable to us or at all.

Furthermore, following the completion of our renovations 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.

For further descriptions of the debt arrangements not included in this Form 10-Q, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Debt, Derivatives and Hedging Activity” in our Annual Report.

Interest Rate Derivative Agreements

We have entered into and expect to continue to enter into interest rate swap and cap agreements with various third parties to fix or cap the floating interest rates on a majority of our floating rate mortgage debt outstanding. The interest rate swap agreements generally have a term of approximately three to six years and effectively establish a fixed interest rate on debt on the underlying notional amounts. In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we, through the OP, have entered into 13 interest rate swap transactions with KeyBank and Mizuho Capital Markets LLC (“Mizuho”) with a combined notional amount of $1.2 billion. As of June 30, 2023, the interest rate swaps we have entered into effectively replace the floating interest rate (one-month LIBOR or daily SOFR) with respect to $1.2 billion of our floating rate mortgage debt outstanding with a weighted average fixed rate of 2.3994%. As of June 30, 2023, interest rate swap agreements effectively covered $1.2 billion, or 64.6%, of our $1.9 billion of floating rate debt outstanding for the VineBrook reportable segment. During the term of these interest rate swap agreements, we are required to make monthly fixed rate payments of 2.3994%, on a weighted average basis, on the notional amounts, while KeyBank and Mizuho are obligated to make monthly floating rate payments based on one-month LIBOR or daily SOFR to us referencing the same notional amounts. For purposes of hedge accounting under ASC 815, Derivatives and Hedging, we have designated these interest rate swaps as cash flow hedges of interest rate risk. See Notes 7 and 8 to our consolidated financial statements for additional information.

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On April 13, 2022, we paid a premium of approximately $12.7 million and entered into an interest rate cap transaction with Goldman Sachs Bank USA (“Goldman”) with a notional amount of $300.0 million. The interest rate cap effectively caps one-month term SOFR on $300.0 million of our floating rate debt at 1.50%. The interest rate cap expires on November 1, 2025.

Reference Rate Reform

LIBOR ceased publication on June 30, 2023. The Company holds debt and derivatives that use LIBOR as the reference rate as of June 30, 2023. Beginning on July 1, 2023, LIBOR rates will be replaced with SOFR as the reference rate for the remaining LIBOR debt and derivative instruments, with applicable spread adjustments. The Company does not anticipate any material changes for all-in rates of debt or derivative instruments from the cessation of LIBOR and transition to SOFR as the reference rate.

REIT Tax Election and Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and expect to continue to qualify as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our “REIT taxable income,” as defined by the Code, to our stockholders. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable U.S. federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the three and six months ended June 30, 2023 and 2022. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. NexPoint Homes intends to be taxed as a REIT under Sections 856 through 860 of the Code, which will occur upon filing the NexPoint Homes tax return for the year ended December 31, 2022.

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. 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 to stockholders. As a REIT, we will be subject to U.S. 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.

If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.

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 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. We have no examinations in progress and none are expected at this time.

We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

We had no material unrecognized tax benefit or expense, accrued interest or penalties as of June 30, 2023. We and our subsidiaries are subject to U.S. federal income tax as well as income tax of various state and local jurisdictions. The 2021, 2020 and 2019 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we recognize interest and/or penalties related to uncertain tax positions in corporate general and administrative expense on our consolidated statements of operations and comprehensive income (loss).

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Dividends

We intend to make regular quarterly dividend payments to holders of our Shares. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income to holders of our Shares out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.

We will make dividend payments based on our estimate of taxable earnings per share of common stock, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses. Our dividends per share may be substantially different than our taxable earnings and GAAP earnings per share.

Inflation

Inflation primarily impacts our results of operations as a result of increased operating costs, including property operating expenses such as turnover, repair and maintenance costs, real estate taxes, and corporate and property general and administrative expenses. There has also been a corresponding increase in rents nationwide that has affected the real estate market. The majority of our lease terms are for a period of one year or less and reset to market if renewed. The majority of our leases also contain protection provisions applicable to reimbursement billings for utilities. While high levels of inflation may also negatively impact consumer income, credit availability, and spending, among other factors and limit our resident's ability to absorb rent increases, due to the short-term nature of our leases, we do not believe this had a material impact on our results of operations for the three months ended June 30, 2023.

Inflation may also affect the overall cost of debt, as the implied cost of capital increases. The Federal Reserve, in response to or in anticipation of continued inflation concerns, could continue to raise interest rates. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate derivatives, which to date have included interest rate cap and interest rate swap agreements.

Seasonality

We believe that our business and related operating results will be impacted by seasonal factors throughout the year. We experience higher levels of resident move-outs and move-ins during the late spring and summer months, which impacts both our rental revenues and related turnover costs. Furthermore, our property operating costs are seasonally impacted in certain markets for expenses such as repairs to heating, ventilation and air conditioning systems, turn costs and landscaping expenses during the summer season. Additionally, our SFR properties are at greater risk in certain markets for adverse weather conditions such as extreme cold weather in winter months and hurricanes in late summer months.

Off-Balance Sheet Arrangements

As of June 30, 2023 and December 31, 2022, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts. These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. 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. A discussion of recently issued accounting pronouncements and our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this report.

Real Estate Investments

Upon acquisition, we evaluate our acquired SFR properties for purposes of determining whether a transaction should be accounted for as an asset acquisition or business combination. Since substantially all of the fair value of our acquired properties is concentrated in a single identifiable asset or group of similar identifiable assets and the acquisitions do not include a substantive process, our purchases of homes or portfolios of homes qualify as asset acquisitions. Accordingly, upon acquisition of a property, the purchase price and related acquisition costs (the “Total Consideration”) are allocated to land, buildings, improvements, fixtures, and intangible lease assets based upon their relative fair values.

The allocation of Total Consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement (“ASC 820”) (see Note 8 to our consolidated financial statements), is based on an independent third-party valuation firm’s estimate of the fair value of the tangible and intangible assets and liabilities acquired, or management's internal analysis based on market knowledge obtained from historical transactions. The valuation methodology utilizes market comparable information, depreciated replacement cost and other estimates in allocating value to the tangible assets. The allocation of the Total Consideration to intangible lease assets represents the value associated with the in-place leases, as one month’s worth of effective gross income (rental revenue, less credit loss allowance, plus other income) as the average downtime of the assets in the portfolio is approximately one month and the assets in the portfolio are leased on a gross rental structure. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized or accreted as interest expense over the life of the debt assumed.

The allocation of Total Consideration to the various components of properties acquired during the year can have an effect on our net income/(loss) due to the useful depreciable and amortizable lives applicable to each component and the recognition of the related depreciation and amortization expense. For example, if a greater portion of the Total Consideration is allocated to land, which does not depreciate, our net income would be higher. Typically, we allocate between 10% to 30% of the Total Consideration to land.

Real estate assets, including land, buildings, improvements, fixtures, and intangible lease assets are stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. Expenditures for improvements, renovations, and replacements are capitalized at cost. The Company also incurs costs to prepare acquired properties for rental. These costs are capitalized to the cost of the property during the period the property is undergoing activities to prepare it for its intended use. We capitalize interest costs as a cost of the property only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided that expenditures for the asset have been made and interest costs have been incurred. Upon completion of the renovation of our properties, all costs of operations, including repairs and maintenance, are expensed as incurred, unless the renovation meets the Company’s capitalization criteria.

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Impairment

Real estate assets are reviewed for impairment quarterly or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Significant indicators of impairment may include, but are not limited to, declines in home values, rental rates or occupancy percentages, as well as significant changes in the economy. In such cases, the Company will evaluate the recoverability of the assets by comparing the estimated future cash flows expected to result from the use and eventual disposition of each asset to its carrying amount and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount. If impaired, the real estate asset will be written down to its estimated fair value. The process whereby we assess our SFR homes for impairment requires significant judgment and assessment of factors that are, at times, subject to significant uncertainty. For the three and six months ended June 30, 2023, the Company recorded approximately $14.2 million and $27.3 million of impairment charges on real estate assets, respectively, which are included in (loss)/gain on sales and impairment of real estate, net on the consolidated statements of operations and comprehensive income (loss). No significant impairments on real estate assets were recorded during the years ended December 31, 2022 and 2021 or the three and six months ended June 30, 2022.

Implications of being an Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “ JOBS Act”) and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. We may elect to comply with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS Act.

We could remain an “emerging growth company” until the earliest of (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of shares of our common stock pursuant to an effective registration statement, (2) the last day of the fiscal year in which our annual gross revenues exceed $1.07 billion, (3) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (4) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Pursuant to the Instructions to paragraph (c) of Item 305 of Regulation S-K, information is not required to be disclosed under Item 305(c) of Regulation S-K for interim periods until after the first fiscal year end in which Item 305 is applicable, which for us will be interim periods after December 31, 2023.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and Chief Financial Officer, evaluated, as of June 30, 2023, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2023, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

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We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15-d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed under Item 1A, “Risk Factors,” of our Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Shares

The following table presents information regarding the DRIP that have not been previously disclosed in Current Reports on Form 8-K (dollars in thousands, except per share amounts).

	Common Stock DRIP
Date	Shares Reinvested	Sale Price (1)		Gross Contribution (2)
June 30, 2023	111,664	$	59.48	$	6,642

(1)Shares issued under DRIP are generally issued at a 3% discount to the Company’s then-current NAV.

(2)For Shares issued under the DRIP, we do not receive any cash proceeds from the transaction as the shareholder receives shares in lieu of the cash dividend. Refer to Note 9 for further discussion.

No underwriting discount or commission is applicable to sales pursuant to the DRIP.

The Company issued the Shares noted above to accredited investors in reliance upon the exemptions from registration under the Securities Act Securities Act provided by Rule 506(b) under Regulation D promulgated under the Securities Act and Section 4(a)(2) of the Securities Act.

Amended and Restated Share Repurchase Plan

On April 24, 2023 the Board approved an amended and restated share repurchase plan (the “Amended Share Repurchase Plan”). The Amended Share Repurchase Plan superseded and replaced the Company’s share repurchase plan that began on November 1, 2019 (the “Prior Share Repurchase Plan”). The Amended Share Repurchase Plan is substantially similar to the Prior Share Repurchase Plan, but (i) clarifies that to have Shares repurchased, the repurchase request and required documentation must be received by the last business day of the first month of such quarter, (ii) clarifies that repurchase requests not delivered timely on the last business day of the first month of a quarter will not be executed and must be resubmitted after the start of the next quarter and (iii) removes references to the Private Offering that was terminated on September 14, 2022 and a fee on early repurchases that fell away on November 1, 2020.

Under the Amended Share Repurchase Plan, investors may request on a quarterly basis that the Company repurchase all or a portion of their Shares. Under the Amended Share Repurchase Plan, Shares will be repurchased at the then-current NAV per share in effect. The total amount of aggregate repurchases of Shares is limited to no more than 5% of the Company’s aggregate NAV per calendar quarter. The Company is not obligated to repurchase any Shares under the Amended Share Repurchase Plan and may choose to repurchase only some, or even none, of the Shares that have been asked to be repurchased in any particular quarter, in the sole discretion of the Board. Notwithstanding any suspension of the Amended Share Repurchase Plan, the Board may permit the repurchase of Shares held by a stockholder who has died, is deemed to have a qualified disability (as such term is defined in Section 72(m)(7) of the Internal Revenue Code) or similar extenuating hardship circumstances, subject to the conditions and limitations in the Amended Share Repurchase Plan.

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Under the Amended Share Repurchase Plan, investors may request that the Company repurchase all or a portion of their Shares by submitting a repurchase request and required documentation to our transfer agent by 4:00 p.m. (Eastern time) on the last business day of the first month of any quarter. Settlements of share repurchases will be made in cash within three business days of the last calendar day of such quarter (a “repurchase date”). An investor may withdraw his or her repurchase request by notifying the Company’s transfer agent, directly or through his or her financial intermediary, on the Company’s toll-free automated telephone customer service number by 4:00 p.m. (Eastern time) on the applicable repurchase date (or, if such repurchase date is not a business day, the prior business day). If a repurchase order is received after 4:00 p.m. (Eastern time) on the last business day of the first month of a quarter, the purchase order will not be executed and must be resubmitted after the start of the next quarter.

The table below contains information regarding the repurchases of Shares by the Company pursuant to the Share Repurchase Plan during the three months ended June 30, 2023:

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs (in thousands)
April 1 - April 30	—	$	—	—	$	—
May 1 - May 31	—	—		—	—
June 1 - June 30	2,920	61.32		2,920	76,146
Total	2,920	$	61.32	2,920	$	76,146

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

EXHIBIT INDEX

Exhibit Number	Description
10.1	Second Amended and Restated Limited Partnership Agreement of NexPoint SFR Operating Partnership, L.P., dated June 30, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on June 30, 2023).
10.2	VineBrook Homes Trust, Inc. Share Repurchase Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on April 27, 2023).
31.1*	Certification of President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+	Certification of President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*    Filed herewith.

+    Furnished herewith.

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SIGNATURES

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

VINEBROOK HOMES TRUST, INC.

Signature	Title	Date
/s/ Brian Mitts		August 14, 2023
Brian Mitts	President, Chief Financial Officer, Treasurer and Assistant Secretary
	(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

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