NEXPOINT DIVERSIFIED REAL ESTATE TRUST 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 76 Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 81 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Year Ended December 31, 2023 and Six Months Ended December 31, 2022 83 Consolidated Statement of Operations for the Six Months Ended June 30, 2022 (Predecessor Basis) 84 Consolidated Statement of Operations for the Year Ended December 31, 2021 (Predecessor Basis) 85 Consolidated Statements of Shareholders’ Equity for the Year Ended December 31, 2023 and Six Months Ended December 31, 2022 87 Consolidated Statement of Changes in Net Assets for the Six Months Ended June 30, 2022 (Predecessor Basis) 88 Consolidated Statement of Changes in Net Assets for the Year Ended December 31, 2021 (Predecessor Basis) 88 Consolidated Statements of Cash Flows for the Year Ended December 31, 2023 and Six Months Ended December 31, 2022 91 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2022 (Predecessor Basis) 93 Consolidated Statement of Cash Flows for the Year Ended December 31, 2021 (Predecessor Basis) 95 75 Table of Contents KPMG LLP Suite 1400 2323 Ross Avenue Dallas, TX 75201-2721 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Trustees of NexPoint Diversified Real Estate Trust: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of NexPoint Diversified Real Estate Trust and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for the year ended December 31, 2023 and the six month period ended December 31, 2022 and the statements of operations, change in net assets, and cash flows for the six month period ended June 30, 2022 (predecessor basis), and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the year ended December 31, 2023, the six month period ended December 31, 2022, and the six month period ended June 30, 2022 (predecessor basis), in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 13, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company discontinued the application of investment company accounting guidance in Financial Accounting Standards Board Accounting Standard Codification Topic 946, Financial Services - Investment Companies as of July 1, 2022 due to its deregistration as an investment company, and prospectively applied other U.S. generally accepted accounting principles for companies which are not investment companies. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 76 Table of Contents The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Fair value measurement of level 3 investments As discussed in Notes 2 and 9 to the consolidated financial statements, the Company has $691.2 million of investments that are measured at fair value on a recurring basis, a portion of which uses inputs that are classified within Level 3 of the fair value hierarchy as of December 31, 2023. The Company uses an income approach, market approach, or a combination thereof to value each of these investments. Establishing fair values for these Level 3 investments is inherently subjective and dependent upon significant unobservable inputs and assumptions. We identified the evaluation of the fair value measurements for certain Level 3 investments as a critical audit matter. Complex auditor judgment and the involvement of valuation professionals with specialized skills and knowledge were required to evaluate certain assumptions used in the Company’s determination of the fair value measurements. Specifically, for investments that used the income approach, the assumptions included the capitalization rates, market rent, discount rates, and discount applied to net asset value. For investments that used the market approach, the assumptions included the discount applied to net asset value and the market value of certain spectrum assets. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls used in the fair value measurements process, including controls related to the assumptions described above. We involved valuation professionals with specialized skills and knowledge who assisted in: • evaluating the capitalization rates and discount rates by comparing them against ranges that were independently developed using publicly available market data for comparable properties. • assessing the appropriateness of the market rent assumptions by comparing them to comparable transactions and current listings of comparable properties. • determining the appropriateness of the discount applied to net asset value by comparing it to industry data available for comparable publicly traded companies. • assessing the market value of certain spectrum licenses by comparing them to a range of values developed using publicly available auction data, analyst indications of comparable spectrum, and comparable transactions. /s/ KPMG LLP We have served as the Company’s auditor since 2022. Dallas, Texas March 13, 2024 77 Table of Contents KPMG LLP Suite 1400 2323 Ross Avenue Dallas, TX 75201-2721 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Trustees of NexPoint Diversified Real Estate Trust: Opinion on Internal Control Over Financial Reporting We have audited NexPoint Diversified Real Estate Trust and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for the year ended December 31, 2023 and the six month period ended December 2022, and the statements of operations, changes in net assets, and cash flows for the six month period ended June 30, 2022 (predecessor basis) and the related notes (collectively, the consolidated financial statements), and our report dated March 13, 2024 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Independent Registered Public Accounting Firm. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 78 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP We have served as the Company’s auditor since 2022. Dallas, Texas March 13, 2024 79 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of NexPoint Diversified Real Estate Trust Opinion on the Financial Statements We have audited the accompanying consolidated statement of assets and liabilities of NexPoint Diversified Real Estate Trust (formerly NexPoint Strategic Opportunities Fund) (the “Fund”) as of December 31, 2021, the related consolidated statements of operations, changes in net assets and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2021, the results of its operations, changes in net assets and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2021, by correspondence with the custodian, agent banks, transfer agents, issuers, and brokers; when replies were not received from brokers, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Fund’s auditor since 2020. COHEN & COMPANY, LTD. Cleveland, Ohio March 10, 2022 C O H E N & C O M P A N Y , L T D . 800.229.1099 | 866.818.4538 fax | cohencpa.com Registered with the Public Company Accounting Oversight Board 80 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and par value amounts) December 31, 2023 December 31, 2022 ASSETS Consolidated Real Estate Investments Land $ 47,708 $ 47,708 Buildings and improvements 206,213 174,469 Intangible lease assets 10,979 10,979 Construction in progress 19,177 39,731 Furniture, fixtures, and equipment 362 354 Total Gross Consolidated Real Estate Investments 284,439 273,241 Accumulated depreciation and amortization ( 20,525 ) ( 7,158 ) Total Net Consolidated Real Estate Investments 263,914 266,083 Investments, at fair value ($ 533,065 and $ 576,419 with related parties, respectively) 691,238 754,910 Equity method investments ($ 7,079 and $ 7,272 with related parties, respectively) 66,263 70,656 Life insurance policies, at fair value — 67,711 Cash and cash equivalents 20,608 13,360 Restricted cash 32,561 35,289 Accounts receivable, net 4,347 1,903 Prepaid and other assets 10,431 6,441 Accrued interest and dividends 6,078 4,302 Deferred tax asset, net 2,896 2,247 TOTAL ASSETS $ 1,098,336 $ 1,222,902 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgages payable, net $ 142,186 $ 144,414 Notes payable, net ($ 20,000 and $ 0 with related party, respectively) 52,919 24,250 Prime brokerage borrowing 1,782 2,624 Accounts payable and other accrued liabilities 8,633 13,865 Income tax payable 356 10,720 Accrued real estate taxes payable 231 254 Accrued interest payable 1,398 1,115 Security deposit liability 422 416 Prepaid rents 768 1,273 Intangible lease liabilities, net 4,567 6,027 Due to affiliates — 112 Total Liabilities $ 213,262 $ 205,070 Shareholders' Equity: Preferred shares, $ 0.001 par value: 4,800,000 shares authorized; 3,359,593 shares issued and outstanding 3 3 81 Table of Contents Common shares, $ 0.001 par value: unlimited shares authorized; 38,389,600 and 37,171,807 shares issued and outstanding, respectively 38 37 Additional paid-in capital 1,011,613 999,845 Accumulated earnings (loss) ( 126,580 ) 17,947 Total Shareholders' Equity 885,074 1,017,832 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,098,336 $ 1,222,902 See Notes to Consolidated Financial Statements 82 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share amounts) For the Year Ended December 31, For the Six Months Ended December 31, 2023 2022 Revenues Rental income $ 20,309 $ 10,070 Interest income ($ 2,514 and $ 1,332 with related parties, respectively) 7,029 4,428 Dividend income ($ 26,103 and $ 10,881 with related parties, respectively) 35,638 40,600 Other income 308 32 Total revenues 63,284 55,130 Expenses Property operating expenses 7,489 3,682 Property management fees 726 296 Real estate taxes and insurance 4,377 2,695 Advisory and administrative fees 11,740 5,514 Property general and administrative expenses 4,250 302 Corporate general and administrative expenses 7,981 3,079 Conversion expenses 1,203 1,615 Depreciation and amortization 13,937 7,175 Total expenses 51,703 24,358 Operating income (loss) 11,581 30,772 Interest expense ( 15,902 ) ( 5,759 ) Equity in income (losses) of unconsolidated equity method ventures ($ 624 and $( 1,935 ) with related parties, respectively) ( 306 ) ( 2,257 ) Change in unrealized gains (losses) ($( 112,717 ) and $( 57,846 ) with related parties, respectively) ( 108,249 ) ( 92,031 ) Realized gains (losses) ( 1,634 ) ( 2,323 ) Net income (loss) before income taxes ( 114,510 ) ( 71,598 ) Income tax expense ( 2,731 ) ( 9,975 ) Net income (loss) ( 117,241 ) ( 81,573 ) Net (income) loss attributable to preferred shareholders ( 4,619 ) ( 2,310 ) Net income (loss) attributable to common shareholders $ ( 121,860 ) $ ( 83,883 ) Weighted average common shares outstanding - basic 37,334 37,172 Weighted average common shares outstanding - diluted 37,334 37,172 Earnings (loss) per share - basic $ ( 3.26 ) $ ( 2.26 ) Earnings (loss) per share - diluted $ ( 3.26 ) $ ( 2.26 ) See Notes to Consolidated Financial Statements 83 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Predecessor Basis) (in thousands) For the Six Months Ended June 30, 2022 Investment income: Income: Dividends from unaffiliated issuers $ 60,178 Dividends from affiliated issuers 15,025 Interest from unaffiliated issuers 991 Interest from affiliated issuers 3,002 Total income 79,196 Expenses: Investment advisory 6,279 Income tax expense 2,000 Legal fees 987 Interest expense and commitment fees 696 Conversion expense 471 Accounting services fees 334 Insurance 185 Reports to shareholders 136 Trustees fees 109 Audit and tax preparation fees 77 Transfer agent fees 72 Pricing fees 68 Registration fees 56 Other 322 Total operating expenses 11,792 Net investment income 67,404 Preferred dividend expenses ( 2,310 ) Net realized and unrealized gain (loss) on investments Realized gain on: Investments from unaffiliated issuers 28,893 Securities sold short 253 Net change in unrealized gain on: Investments from unaffiliated issuers ( 43,752 ) Investments from affiliated issuers 76,346 Net realized and unrealized gain on investments 61,740 Total increase in net assets resulting from operations $ 126,834 See Notes to Consolidated Financial Statements 84 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Predecessor Basis) (in thousands) For the Year Ended December 31, 2021 Investment income: Income: Dividends from unaffiliated issuers $ 74,727 Dividends from affiliated issuers 24,671 Securities lending income 6 Interest from unaffiliated issuers 4,747 Interest from affiliated issuers 2,835 ROC Reclass ( 11,850 ) Total income 95,136 Expenses: Investment advisory 11,094 Legal fees 2,206 Interest expense and commitment fees 2,435 Conversion expense 1,397 Accounting services fees 558 Insurance 145 Reports to shareholders 352 Trustees fees 275 Audit and tax preparation fees 124 Transfer agent fees 101 Pricing fees 279 Registration fees 75 Other 990 Total operating expenses 20,029 Net investment income 75,107 Preferred dividend expenses ( 4,555 ) Net realized and unrealized gain (loss) on investments Realized gain on: Investments from unaffiliated issuers ( 42,530 ) Investments from affiliated issuers 458 Securities sold short 351 Net change in unrealized gain on: Investments from unaffiliated issuers 40,480 Investments from affiliated issuers 175,495 Securities sold short 649 85 Table of Contents Net realized and unrealized gain on investments 174,903 Total increase in net assets resulting from operations $ 245,455 See Notes to Consolidated Financial Statements 86 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS ’ EQUITY (in thousands, except share and per share amounts) Preferred Shares Common Shares Additional Paid-in Capital Accumulated Earnings (Loss) Total Year Ended December 31, 2023 Number of Shares Amount Number of Shares Amount Balances, December 31, 2022 3,359,593 $ 3 37,171,807 $ 37 $ 999,845 $ 17,947 $ 1,017,832 Stock-based compensation expense — — — — 1,344 — 1,344 Shares issued to Advisor for admin and advisory fees — — 145,620 — 1,431 — 1,431 Net loss attributable to common shareholders — — — — — ( 121,860 ) ( 121,860 ) Net income attributable to preferred shareholders — — — — — 4,619 4,619 Common share dividends declared ($ 0.60 per share) — — 1,072,173 1 8,993 ( 22,667 ) ( 13,673 ) Preferred share dividends declared ($ 1.375 per share) — — — — — ( 4,619 ) ( 4,619 ) Balances, December 31, 2023 3,359,593 $ 3 38,389,600 $ 38 $ 1,011,613 $ ( 126,580 ) $ 885,074 See Notes to Consolidated Financial Statements 87 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS ’ EQUITY (in thousands, except share and per share amounts) Preferred Shares Common Shares Additional Paid-in Capital Accumulated Earnings (Loss) Total Six Months Ended December 31, 2022 Number of Shares Amount Number of Shares Amount Balances, July 1, 2022 3,359,593 $ 3 37,171,807 $ 37 $ 999,845 $ 112,983 $ 1,112,868 Net loss attributable to common shareholders — — — — — ( 83,883 ) ( 83,883 ) Net income attributable to preferred shareholders — — — — — 2,310 2,310 Common share dividends declared ($ 0.30 per share) — — — — — ( 11,153 ) ( 11,153 ) Preferred share dividends declared ($ 0.68750 per share) — — — — — ( 2,310 ) ( 2,310 ) Balances, December 31, 2022 3,359,593 $ 3 37,171,807 $ 37 $ 999,845 $ 17,947 $ 1,017,832 See Notes to Consolidated Financial Statements 88 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (Predecessor Basis) (in thousands, except share amounts) For the Six Months Ended June 30, 2022 Increase (decrease) in net assets operations: Net investment income $ 67,404 Preferred dividend expenses ( 2,310 ) Accumulated net realized gain (loss) on investments, securities sold short, written options, futures contracts, and foreign currency transactions 29,146 Net change in unrealized appreciation on investments, securities sold short, written options contracts and translation of assets and liabilities denominated in foreign currency 32,594 Net increase from operations 126,834 Distributions declared to common shareholders: Distribution ( 11,139 ) Total distributions declared to common shareholders: ( 11,139 ) Increase in net assets from operations and distributions 115,695 Share transactions: Value of distributions reinvested 1,425 Proceeds from sale of shares 1,288 Net increase from shares transactions 2,713 Total increase in net assets 118,408 Net assets Beginning of period 911,208 End of period $ 1,029,616 Change in Common Shares Issued for distribution reinvested 92,067 Net increase in common shares 92,067 See Notes to Consolidated Financial Statements 89 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (Predecessor Basis) (in thousands, except share amounts) For the Year Ended December 31, 2021 Increase (decrease) in net assets operations: Net investment income $ 75,107 Preferred dividend expenses ( 4,555 ) Accumulated net realized gain (loss) on investments, securities sold short, written options, futures contracts, and foreign currency transactions ( 41,721 ) Net change in unrealized appreciation on investments, securities sold short, written options contracts and translation of assets and liabilities denominated in foreign currency 216,624 Net increase from operations 245,455 Distributions declared to common shareholders: Distribution ( 435 ) Return of capital ( 21,766 ) Total distributions declared to common shareholders: ( 22,201 ) Increase in net assets from operations and distributions 223,254 Share transactions: Value of distributions reinvested 2,131 Cost of shares redeemed ( 152,321 ) Proceeds from sale of shares 47,319 Net increase from shares transactions ( 102,871 ) Total increase in net assets 120,383 Net assets Beginning of period 790,825 End of period $ 911,208 Change in Common Shares Issued for distribution reinvested 162 Shares redeemed ( 8,750 ) Net increase in common shares ( 8,588 ) See Notes to Consolidated Financial Statements 90 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Year Ended December 31, For the Six Months Ended December 31, 2023 2022 Cash flows from operating activities Net loss $ ( 117,241 ) $ ( 81,573 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 13,937 7,175 Amortization of intangible lease assets and liabilities ( 1,217 ) ( 743 ) Amortization of deferred financing costs 776 67 Paid-in-kind interest ($( 1,893 ) and $( 844 ) with related parties, respectively) ( 5,952 ) ( 2,872 ) Proceeds from paid-in-kind interest on paydowns or sales from investments 3,730 — Realized (gain) loss 1,634 2,323 Net change in unrealized (gain) loss on investments held at fair value ($ 112,717 and $ 57,847 with related parties, respectively) 108,249 92,031 Equity in (income) losses of unconsolidated ventures ($( 624 ) and $ 1,935 with related parties, respectively) 306 2,257 Distributions of earnings from unconsolidated ventures ($ 817 and $ 277 with related parties, respectively) 4,087 2,418 Stock-based compensation expense 1,344 — Cash paid for life settlement premiums ( 3,355 ) ( 2,576 ) Equity security dividends reinvested ($( 5,529 ) and $ 0 with related parties, respectively) ( 5,529 ) — Deferred tax benefit ( 648 ) ( 2,247 ) Changes in operating assets and liabilities, net of effects of acquisitions: Income tax payable ( 10,364 ) 10,720 Real estate taxes payable ( 23 ) ( 2,069 ) Operating assets ( 9,077 ) 606 Operating liabilities ( 4,923 ) 5,914 Net cash provided by (used in) operating activities: ( 24,266 ) 31,431 Cash flows from investing activities Proceeds from asset redemptions ($ 4,000 and $ 0 with related parties, respectively) 4,000 — Distributions from CLO investments 9,170 18,105 Proceeds from sale of investments 16,512 14,246 Proceeds from paydowns of investments ($ 8,543 and $ 0 with related parties, respectively) 9,759 — Purchases of investments ($( 5,984 ) and $( 7,913 ) with related parties, respectively) ( 5,984 ) ( 11,276 ) Contributions to equity method investments — ( 1,382 ) Additions to consolidated real estate investments ( 10,474 ) ( 5,966 ) 91 Table of Contents Acquisitions of consolidated real estate investments — ( 26,500 ) Purchases of life settlement policies — ( 8,700 ) Proceeds from life settlement policy maturities 3,000 7,055 Net cash outflow from deconsolidation of subsidiary ( 3,993 ) — Net cash provided by (used in) investing activities 21,990 ( 14,418 ) Cash flows from financing activities Proceeds received from notes payable 39,000 13,250 Mortgage payments ( 2,364 ) ( 1,181 ) Prime brokerage borrowing 11,919 9,543 Credit facilities payments ( 10,000 ) ( 12,500 ) Prime brokerage payments ( 12,761 ) ( 14,410 ) Deferred financing costs paid ( 971 ) ( 379 ) Dividends paid to preferred shareholders ( 4,619 ) ( 2,310 ) Dividends paid to common shareholders ( 13,408 ) ( 11,153 ) Net cash provided by (used in) financing activities: 6,796 ( 19,140 ) Net increase (decrease) in cash, cash equivalents and restricted cash 4,520 ( 2,127 ) Cash, cash equivalents and restricted cash, beginning of period 48,649 50,776 Cash, cash equivalents and restricted cash, end of period $ 53,169 $ 48,649 Supplemental Disclosure of Cash Flow Information Interest paid $ 15,619 $ 5,284 Income tax paid $ 13,737 $ 1,501 Supplemental Disclosure of Noncash Activities Capitalized construction costs included in accounts payable and other accrued liabilities $ 723 $ 3,883 Fair value of assets acquired from the contribution of equity method investments $ — $ 62,510 Non-cash dividend payment $ 8,994 $ — Fair value of assets acquired from the sale of consolidated investments¹ $ 68,500 $ — Non-cash advisory fee payment $ 1,431 $ — Increase in dividends payable upon vesting of restricted stock units $ 265 $ — Adjustment to Life Insurance Policies, at fair value, on deconsolidation of entity $ ( 62,484 ) $ — Adjustment to accounts receivable on deconsolidation of entity $ ( 2,023 ) $ — (1) For more information about this transaction, refer to Note 10. Life Settlement Portfolio See Notes to Consolidated Financial Statements 92 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Predecessor Basis) (in thousands) For the Six Months Ended June 30, 2022 Cash flows from operating activities: Net increase in net assets resulting from operations $ 126,834 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Purchases of investment securities from unaffiliated issuers ( 350,369 ) Purchases of investment securities from affiliated issuers ( 105,674 ) Proceeds from the disposition of investment securities from unaffiliated issuers 428,007 Proceeds from the disposition of investment securities from affiliated issuers 2,135 Purchases of securities sold short ( 177 ) Amortization (accretion) of premiums ( 171 ) Net realized (gain) loss on investments from unaffiliated issuers ( 28,893 ) Net realized (gain) loss on securities sold short ( 253 ) Net change in unrealized depreciation on unaffiliated investments 43,752 Net change in unrealized appreciation on investments in affiliated investments ( 76,346 ) Changes in operating assets and liabilities Dividends and interest receivable 741 Due from custodian 192 Prepaid expenses and other assets ( 1,583 ) Reclaim receivable 1,250 Foreign tax reclaim receivable ( 1,274 ) Due to broker ( 1,695 ) Payable for administrative fees ( 11 ) Payable for investment advisory fees 49 Due to custodian ( 110 ) Payable for interest expense and commitment fees 82 Accrued expenses and other liabilities ( 150 ) Net cash provided by operating activities 36,336 Cash flows from financing activities: Payments on notes payable ( 26,500 ) Distributions paid in cash ( 9,714 ) Proceeds from shares sold 1,288 Proceeds from dividend reinvestment ( 44 ) Net cash used in financing activities ( 34,970 ) Net increase in cash 1,366 Cash, cash equivalents and restricted cash: Beginning of period 2,678 End of period $ 4,044 93 Table of Contents Supplemental disclosure of cash flow information Reinvestment of distributions $ 1,425 Cash paid during the period for interest expense and commitment fees $ 614 See Notes to Consolidated Financial Statements 94 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Predecessor Basis) (in thousands) For the Year Ended December 31, 2021 Cash flows from operating activities: Net increase in net assets resulting from operations $ 245,455 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Purchases of investment securities from unaffiliated issuers ( 690,913 ) Purchases of investment securities from affiliated issuers ( 438,578 ) Proceeds from the disposition of investment securities from unaffiliated issues 745,929 Proceeds from the disposition of investment securities from affiliated issues 305,977 Proceeds from return of capital of investment securities from affiliated issues 52,310 Purchases of securities sold short ( 414 ) Amortization/(accretion) of premiums ( 490 ) Net realized (gain)/loss on unaffiliated issuers 42,530 Net realized (gain)/loss on affiliated issuers ( 458 ) Net realized (gain)/loss on securities sold short ( 351 ) Net change in unrealized depreciation on unaffiliated investments ( 41,129 ) Net change in unrealized depreciation on investments in affiliated investments ( 175,495 ) Changes in operating assets and liabilities Dividends and interest receivable 202 Due from custodian ( 192 ) Prepaid expenses and other assets 743 Reclaim Receivable ( 1,250 ) Due to broker ( 5,687 ) Payable for admin fees 2 Payable for audit fees ( 391 ) Payable for investment advisory fees 103 Due to custodian 110 Payable for interest expense and commitment fees 60 Accrued expenses and other liabilities ( 7 ) Net cash flow provided by operating activities 38,066 Cash flows from financing activities: Proceeds from issuance of cumulative preferred shares 83,252 Payments on notes payable ( 2,500 ) Distributions paid in cash ( 20,070 ) Payments on shares redeemed ( 105,002 ) Proceeds from shares sold ( 72 ) Net cash flow used in financing activities ( 44,392 ) Net decrease in cash ( 6,326 ) Cash, cash equivalents, foreign currency and restricted cash: 95 Table of Contents Beginning of period 9,004 End of period $ 2,678 Supplemental disclosure of cash flow information Reinvestment of distributions $ 2,131 Cash paid during the period for interest expense and commitment fees $ 2,371 See Notes to Consolidated Financial Statements 96 Table of Contents NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Description of Business NexPoint Diversified Real Estate Trust (the "Company", "we", "us", or "our") was formed in Delaware and has elected to be taxed as a real estate investment trust (a “REIT”). Substantially all of the Company’s business is conducted through NexPoint Diversified Real Estate Trust Operating Partnership, L.P. (the "OP"), the Company’s operating partnership. The Company conducts its business (the "Portfolio") through the OP and its wholly owned taxable REIT subsidiaries ("TRSs"). The Company's wholly owned subsidiary, NexPoint Diversified Real Estate Trust OP GP, LLC (the "OP GP"), is the sole general partner of the OP. As of December 31, 2023, there were 2,000 partnership units of the OP (the “OP Units”) outstanding, of which 100.0 % were owned by the Company. On July 1, 2022 (the “Deregistration Date”), the Securities and Exchange Commission (the “SEC”) issued an order pursuant to Section 8(f) of the Investment Company Act of 1940 (the “Investment Company Act”) declaring that the Company has ceased to be an investment company under the Investment Company Act (the “Deregistration Order”). The issuance of the Deregistration Order enabled the Company to proceed with full implementation of its new business mandate to operate as a diversified REIT that focuses primarily on investing in various commercial real estate property types and across the capital structure, including but not limited to equity, mortgage debt, mezzanine debt and preferred equity (the “Business Change”). The Company is externally managed by NexPoint Real Estate Advisors X, L.P. (the “Adviser”), through an agreement dated July 1, 2022, amended on October 25, 2022 and April 11, 2023, (the “Advisory Agreement”), by and among the Company and the Adviser for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated. The Adviser manages the day-to-day operations of the Company and provides investment management services. The Company had no employees as of December 31, 2023 . All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and our board of trustees (the “Board”). The Adviser is wholly owned by NexPoint Advisors, L.P. (the “Sponsor” or “NexPoint”). As a diversified REIT, the Company’s primary investment objective is to provide both current income and capital appreciation. The Company seeks to achieve this objective through the Business Change. Target underlying property types primarily include, but are not limited to, single-family rentals, multifamily, self-storage, life science, office, industrial, hospitality, net lease and retail. The Company may, to a limited extent, hold, acquire or transact in certain non-real estate securities. 2. Summary of Significant Accounting Policies Basis of Accounting Prior to the Deregistration Date, the Company was accounted for as an investment company in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 946, Financial Services – Investment Companies, or the “Predecessor Basis.” Upon the Deregistration Order, the Company discontinued the use of the guidance in FASB ASC 946 and prospectively applied the guidance under U.S. generally accepted accounting principles (“GAAP”) required for companies that are not investment companies, or what we refer to as the “Successor Basis." As a result of these changes, our consolidated financial statements as of December 31, 2023 and 2022 and for the year ended December 31, 2023 and six months ended December 31, 2022 and thereafter, are accounted for using the Successor Basis and are presented separately from our consolidated financial statements on the Predecessor Basis, as of and for the periods prior to the Deregistration Date. The fair value of the Company’s investments and consolidated operating properties as of the Deregistration Date became the new basis in accordance with FASB ASC 946. Due to this change, the Company reallocated these fair values to the assets and liabilities of operating properties. The accompanying consolidated financial statements are presented in accordance with GAAP which 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. All significant intercompany accounts and transactions have been eliminated in consolidation. 97 Table of Contents The accompanying consolidated financial statements have been prepared according to the rules and regulations of the SEC. In the opinion of management, all adjustments and eliminations necessary for the fair presentation of the Company’s financial position as of December 31, 2023 and December 31, 2022, and results of operations for the year ended December 31, 2023, six months ended December 31, 2022, six months ended June 30, 2022 (Predecessor Basis) and year ended December 31, 2021 (Predecessor Basis) have been included. Such adjustments are normal and recurring in nature. Principles of Consolidation Upon the application for the historical cost accounting basis, the Company accounts for partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with FASB 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. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest. The consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP and its subsidiaries. The Company’s sole significant asset is its investment in the OP, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of the OP. Purchase Price Allocation Upon acquisition of a property considered to be an asset acquisition, the purchase price and related acquisition costs (“total consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets and liabilities in accordance with FASB ASC 805, Business Combinations. 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 and Disclosures (“ASC 820”) (see Note 9), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related information. 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 as interest expense over the life of the debt assumed. Real estate assets, including land, buildings, improvements, furniture, fixtures and equipment, 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. Real estate-related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the following table: Years Land Not depreciated Buildings 40 Improvements 5 - 20 Furniture, fixtures, and equipment 5 - 7 Intangible lease assets and liabilities Over lease term Construction in progress includes the cost of renovation projects being performed at the various properties. Once a project is complete, the historical cost of the renovation is placed into service in one of the categories above depending on the type of renovation project and is depreciated over the estimated useful lives as described in the table above. 98 Table of Contents Fair Value Measurements 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, FASB ASC 820, Fair Value Measurement and Disclosures 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. Valuation of Investments As of December 31, 2023 and 2022 , the Company’s fair valued investments consisted of senior loans, corporate bonds, collateralized loan obligations ("CLOs"), convertible notes, common stocks, rights, warrants, LP interests and LLC interests. The fair value of the Company’s senior loans, bonds, and CLOs are generally based on quotes received from brokers or independent pricing services. Senior loans, bonds, and CLOs with quotes that are based on actual trades with a sufficient level of activity on or near the measurement date are classified as Level 2 assets. Senior loans, bonds, and CLOs that are priced using quotes derived from implied values, indicative bids, or a limited number of actual trades are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. The Company has elected for certain of the equity method investments to be measured using fair value. The Company has elected for all debt instruments to be measured using fair value. The fair value of the Company’s common stocks, rights, and warrants that are not actively traded on national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. At the end of each calendar quarter, the Adviser evaluates the Level 2 and 3 assets and liabilities for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, the Adviser evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values the Company may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise be less liquid than publicly traded securities. The fair value of the Company’s investments in common stock, exchange-traded funds, other registered investment companies and warrants that are not actively traded on national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3 assets because the inputs 99 Table of Contents used by the brokers and pricing services to derive the values are not readily observable. The Company’s real estate investments include equity interests in limited liability companies and equity issued by REITs that invest in commercial real estate. The fair value of real estate investments that are not actively traded on national exchanges are based on internal models developed by the Adviser. The significant inputs to the models include cash flow projections for the underlying properties, capitalization rates and appraisals performed by independent valuation firms. These inputs are not readily observable, and the Company has classified the investments as Level 3 assets. Exchange-traded options are valued based on the last trade price on the primary exchange on which they trade. If an option does not trade, the mid-price, which is the mean of the bid and ask price, is utilized to value the option. The fair value of the Company’s convertible notes are categorized as Level 3 assets in the fair value hierarchy. Convertible notes are valued using a discounted cash flow model using discount rates derived from observable market data applied to the internal rate of return implied by the expected contractual cash flows. As of December 31, 2022 the Company's fair value investments also included life settlement contracts, all of which were sold during 2023 (see Note 10) The Company’s life settlement contracts were recognized at the transaction price. For each subsequent reporting period, the investments were measured at fair value by a third-party valuation specialist using a life settlement pricing model and were categorized as Level 3 assets in the fair value hierarchy. Key assumptions utilized in determining fair value included but were not limited to: (i) life expectancy estimates provided by independent third party underwriters based on actuarially developed mortality tables and industry life expectancy reports; (ii) future premium estimates; (iii) rates of return consistent with those sought by independent purchasers of life policies at the time of purchase; and (iv) offers and/or commitments from purchasers. In addition, the valuation agent would also consider recent sales as well as offers received for the life policies deemed likely to close in the near future in estimating fair value. The assumptions used to value life policies were by nature, inherently uncertain and the effect of changes in estimates could be material. The fair value measurement used in estimating the present value calculations were derived from valuation techniques that include inputs that are not based on observable market data. Changes in the fair value of the life settlement contracts were reported as net unrealized gains or losses on the Consolidated Statement of Operations (Successor Basis). Upon the death of an insured or the sale of a life policy, the Company would recognize the difference between the proceeds received and the cost of the life policy as a realized gain or loss in the Company's Consolidated Statement of Operations (Successor basis). Impairment Real estate assets and equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and capitalization rates. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. The Company’s impairment analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including determining the period the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate investment. The Company recognizes its share of the investee's comprehensive income or loss for equity method investments. If the investee is loss-making, the Company recognizes its share of the losses until its equity interest is reduced to zero. As of December 31, 2023, the Company has not recorded any impairment on its real estate assets. Held for Sale 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 and the net real estate liabilities associated with the real estate held for sale 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. As of December 31, 2023, and 2022, there are no properties held for sale. Income Taxes The Company elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code"), and expects to continue to qualify as a REIT. To qualify as a REIT, the Company must meet a 100 Table of Contents 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 shareholders. As a REIT, the Company will be subject to federal income tax on its undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount 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. If the Company fails to meet these requirements, it could be subject to 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 shareholders 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 December 31, 2023, the Company believes it is in compliance with all applicable REIT requirements. As a REIT for U.S. federal income tax purposes, the Company may deduct earnings distributed to stockholders against the income generated by our REIT operations. The Company continues to be subject to income taxes on the income of its taxable REIT subsidiaries. Our consolidated net loss before income taxes was $ 114.5 million and $ 71.6 million for the year ended December 31, 2023 and the six months ended December 31, 2022, respectively. The Company’s consolidated balance sheet as of December 31, 2023 consists of a $ 4.5 million net deferred tax asset at NHF TRS, LLC and a $ 1.6 million net deferred tax liability at NREO TRS, Inc. for a consolidated net Deferred Tax asset of $ 2.9 million. The Company's consolidated balance sheet as of December 31, 2022 consisted of a $ 3.4 million net deferred tax asset at NHF TRS, LLC and a $ 1.2 million net deferred tax liability at NREO TRS, Inc. for a consolidated net Deferred Tax asset of $ 2.2 million. The Company’s tax provision for interim periods is determined using an estimate of its annual current and deferred effective tax rates, adjusted for discrete items. Our effective tax rates for the year ended December 31, 2023 and six months ended December 31, 2022 were ( 2.38 )% and ( 13.93 )%, respectively. Our effective tax rate differs from the U.S. federal statutory corporate tax rate of 21.0% primarily due to our REIT operations generally not being subject to federal income taxes. The Company recognizes its tax positions and evaluates them using a two-step process. First, the Company determines 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, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement. The Company had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2023 and 2022. The Company and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2022, 2021 and 2020 tax years remain open to examination by tax jurisdictions to which the Company and its subsidiaries are subject. When applicable, the Company recognizes interest and/or penalties related to uncertain tax positions on its consolidated statement of operations and comprehensive income (loss). The Company has not recorded any uncertain tax positions for the years ended December 31, 2023 and 2022. A reconciliation of the statutory income tax provisions to the effective income tax provisions for the periods indicated is as follows (in thousands): 101 Table of Contents For the Period Ended December 31, 2023 2022 Expected tax at statutory rate $ ( 24,047 ) 21.0 % $ ( 15,036 ) 21.0 % Non-taxable REIT income 27,426 - 24.0 % 27,258 - 38.1 % State and local tax expense - net of federal benefit — — % — — % Change in valuation allowance ( 648 ) 0.6 % ( 2,247 ) 3.1 % Total provision $ 2,731 - 2.4 % $ 9,975 - 13.9 % Deferred Tax Assets As of December 31, 2023 and 2022, significant components of the net deferred tax assets (“DTA”) of the Company's TRSs were as follows (in thousands): Deferred Tax Asset as of December 31, 2023 Deferred Tax Asset as of December 31, 2022 Capital loss carryover from prior year $ 137 $ 2,050 Capital loss carryover to be utilized in current year — ( 1,924 ) Net operating loss carryover from prior year 442 590 Net operating loss carryover to be utilized in current year ( 138 ) ( 119 ) Unrealized tax loss on investments 17,351 16,677 Total deferred tax assets 17,792 17,274 Valuation allowance ( 14,896 ) ( 15,027 ) Net deferred tax asset $ 2,896 $ 2,247 The Company may not offset tax assets or liabilities from one TRS with those of another TRS. NHF TRS, LLC, one of the Company's TRSs, is estimated to generate a net taxable capital gain of $ 11.0 million for the year ended December 31, 2023 and generated a net taxable capital gain of $ 10.3 million for the six months ended December 31, 2022. The Company believes it is more likely than not that it will be able to harvest capital losses within this TRS during the three succeeding taxable years to be eligible for a capital loss carryback refund claim and has therefore not applied a valuation allowance to the extent of the expected future refund claim. As such, the Company has recorded a valuation allowance of $ 14.9 million and $ 15.0 million for the year ended December 31, 2023 and for the six months ended December 31, 2022 respectively, against the Company’s gross deferred tax assets to arrive at a net DTA of $ 4.5 million and $3.4 million for the year ended December 31, 2023 and six months ended December 31, 2022, respectively, to reflect the expected tax benefit associated with the unrealized tax losses at this TRS. NREO TRS, LLC ("NREO TRS") has an estimated net operating loss balance of $ 1.4 million as of December 31, 2023 that does not have an expiration date as well as an estimated $ 0.7 million capital loss balance as of December 31, 2023 that will expire if not utilized within the succeeding five taxable years. The Company believes that it will be able to fully utilize the tax assets from NREO TRS and has not therefore applied a valuation allowance to the $ 0.7 million DTA generated by this TRS. NREO TRS, one of the Company's TRSs, had an estimated net operating loss balance of $2.2 million as of December 31, 2022 that does not have an expiration date as well as an estimated $0.6 million capital loss balance as of December 31, 2022, that will expire if not utilized within the succeeding five taxable years. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments purchased with an original maturity of six months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value. Substantially all amounts on deposit with major financial institutions exceed insured limits. Restricted cash represents cash deposited in accounts related to security deposits, property taxes, insurance premiums and deductibles and other lender-required escrows. Amounts 102 Table of Contents 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. Income Recognition Rental Income – The Company has made several investments in direct real estate. The primary operations of these direct real estate investments consist of rental income earned from its tenants under lease agreements. Rental income is recognized on the straight-line method over the related terms of the leases. Tenant and resident reimbursements and other income consist of charges billed to tenants for utilities, administrative, application and other fees and are recognized when earned which is included in rental income in the accompanying consolidated statements of operations. In July 2018, the FASB issued Accounting Standards Update (“ASU") 2018-11, Leases – Targeted Improvements (“ASU 2018-11”), which provides entities with relief from the costs of implementing certain aspects of ASU 2016-02. ASU 2018-11 provides a practical expedient that allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where the Company is the lessor. The Company implemented the provisions of ASU 2018-11 and 2016-02, collectively Topic 842 Leases, effective July 1, 2022. The Company presents leases in the Consolidated Statements of Operations and began presenting all rentals and reimbursements from tenants as a single line item within rental income. Interest Income – Debt investments where the Company expects to collect the contractual interest and principal payments are considered to be performing. The Company recognizes income on performing debt investments in accordance with the terms of the investment on an accrual basis. Interest income also includes amortization of loan premiums or discounts and loan origination costs and prepayment penalties. Dividend Income – Dividends and other corporate actions are recorded on the ex-dividend date except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available and is verified. Realized Gain (Loss) on Investments - The Company recognizes the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized gains or losses, respectively. The Company reverses cumulative, unrealized gains or losses previously reported in its consolidated statement of operations on both the Successor and Predecessor basis with respect to the investment sold at the time of the sale. Unrealized Gain (Loss) on Investments – Unrealized gains and losses represent changes in fair value for equity method investments, CLO equity investments, bonds, common stock, convertible notes, LLC interests, LP interests, rights and warrants, and senior loans for which the fair value option has been elected. Expense Recognition Interest expense, in accordance with the Company’s financing agreements, is recorded on the accrual basis. Property operating expenses - Property operating expenses include property maintenance costs, salary and employee benefit costs, utilities, casualty-related expenses and recoveries and other property operating costs. Property management fees - Property management fees include fees paid to NexVest, our property manager, for managing each property directly or indirectly owned by us (see Note 13). Real estate taxes and insurance - Real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property. Insurance includes the cost of commercial, general liability, and other needed insurance for each property. Advisory and administrative fees - Advisory and administrative fees include the fees paid to our Adviser pursuant to the Advisory Agreement (see Note 13). Property general and administrative expense - Property general and administrative expenses include the costs of marketing, professional fees, general office supplies, and other administrative related costs of each property. 103 Table of Contents Corporate general and administrative expenses - Corporate general and administrative expenses include, but are not limited to, audit fees, legal fees, listing fees, board of director fees, equity-based compensation expense, investor relations costs and payments of reimbursements to our Adviser for operating expenses. Corporate general and administrative expenses and the advisory and administrative fees paid to our Adviser will not exceed 1.5% of Managed Assets (as defined below) per calendar year (or part thereof that the Advisory Agreement is in effect), calculated in accordance with the Advisory Agreement, or the Expense Cap (as defined below). This limitation ended on June 30, 2023 and did not limit the reimbursement by us of expenses related to securities offerings paid by our Adviser. The Expense Cap also does not apply to legal, accounting, financial, due diligence, and other service fees incurred in connection with mergers and acquisitions, extraordinary litigation, or other events outside our ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Additionally, in the sole discretion of the Adviser, the Adviser may elect to waive certain advisory and administrative fees otherwise due. If advisory and administrative fees are waived in a period, the waived fees for that period are considered to be waived permanently and the Adviser may not be reimbursed in the future. Conversion expense - Conversion expenses include the costs of the Business Change in conjunction with the Deregistration Order, which primarily include legal fees and other fees in preparation of the conversion. Depreciation and amortization - Depreciation and amortization costs primarily include depreciation of our properties and amortization of leases or expenses. Investments The Company holds investments in publicly traded companies and privately held entities primarily involved in the life science, multifamily, self-storage, single-family rental, mortgage lending, and hospitality industries. Each investment is evaluated to determine whether the Company has the ability to exercise significant influence, but not control, over an investee. Investments are evaluated in which Company ownership is equal to or greater than 20%, but less than or equal to 50%, of an investee’s voting stock with a presumption that the Company has this ability. For our investments in limited partnerships and functional equivalents that maintain specific ownership accounts, we presume that such ability exists when our ownership interest exceeds 3% to 5%. In addition to the Company’s ownership interest, the Company also considers whether it has a board seat or whether it participates in the policy-making process, among other criteria, to determine if we have an ability to exert significant influence, but not control, over an investee. If we determine that we have such ability, but we do not control, we account for the investment under the equity method of accounting, as described below. Investments that qualify for the equity method of accounting – Under the equity method of accounting, the Company initially recognizes its investment at cost and subsequently adjusts the carrying amount of the investments for its share of earnings and losses reported by the investee, distributions received, and other-than-temporary impairments. The Company has elected the fair value option for several of its investments that would otherwise be accounted for under the equity method (See Note 9). Distributions from these investments are accounted for as Interest and Dividend income and mark-to-market gains and losses are included in Change in Unrealized Gains/(Losses) on the consolidated Statement of Operations. For more information about the Company’s investments accounted for under the equity method, refer to Note 8 – Equity Method Investments. The Company has elected for certain of the equity method investments to be measured using fair value. Unaudited summary financial information for significant equity method investments, as determined in accordance with Rule 3-09 of Regulation S-X, for which results are not available on a timely basis, are reported on a three-month lag. Investments that do not qualify for the equity method of accounting – For investees over which we determine that we do not have the ability to exercise significant influence or control, we account for each investment depending on whether it is an investment in a (i) publicly traded company, (ii) privately held entity that reports net asset value (“NAV”) per share, or (iii) privately held entity that does not report NAV per share, as described below. Investments in publicly traded companies – Our investments in publicly traded companies are classified as investments with readily determinable fair values and are presented at fair value in our consolidated balance sheets, with changes in fair value classified in change in unrealized gain (loss) in our consolidated statement of operations. The fair values of our investments in publicly traded companies are determined based on sales prices or quotes available on securities exchanges. 104 Table of Contents Investments in privately held companies – Our investments in privately held entities without readily determinable fair values consist of (i) investments in privately held entities that report NAV per share and (ii) investments in privately held entities that do not report NAV per share. These investments are accounted for as follows: Investments in privately held entities that report NAV per share – Investments in privately held entities that elect the fair value option that report NAV per share, such as our privately held investments in limited partnerships, are presented at fair value using NAV, with changes in fair value recognized in net income. We use NAV per share 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. Investments in privately held entities that do not report NAV per share – Investments in privately held entities that do not report NAV per share are accounted for using a valuation technique described further in Note 9 - Fair Value of Derivatives and Financial Instruments. Impairment evaluation of equity method investments – We monitor equity method investments not reported at fair value for indicators that a decrease in the value of the investment has occurred that is other than temporary. If such indicators are present, we are required to estimate the investment’s fair value and immediately recognize an impairment charge in an amount equal to the investment’s carrying value in excess of its estimated fair value. Distributions from equity method investments We use the “nature of the distribution” approach to determine the classification within our consolidated statements of cash flows of cash distributions received from equity method investments, including our unconsolidated real estate joint ventures and equity method non-real estate investments. Under this approach, distributions are classified based on the nature of the underlying activity that generated the cash distributions. Under the cumulative earnings approach, distributions up to the amount of cumulative equity in earnings recognized are classified as cash inflows from operating activities, and those in excess of that amount are classified as cash inflows from investing activities. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses on Financial Instruments (“ASU 2016-13”), which establishes credit losses on certain types of financial instruments. The new approach changes the impairment model for most financial assets and requires the use of a current expected credit loss ("CECL") model for financial instruments measured at amortized cost and certain other instruments. This model applies to trade and other receivables, loans, debt securities, net investments in leases and off-balance sheet credit exposures (such as loan commitments, standby letters of credit and financial guarantees not accounted for as insurance) and requires entities to estimate the lifetime expected credit loss on such instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect. The Company adopted the guidance on January 1, 2023, which did not have a material impact. In November 2023, the FASB issued ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires a public entity to disclose significant segment expenses and other segment items in interim and annual periods and expands the ASC 280 disclosure requirements for interim periods. The ASU also explicitly requires public entities with a single reportable segment to provide all segment disclosures under ASC 280, including the new disclosures under ASU 2023-07. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Management is currently evaluating this ASU to determine its impact on the Company's disclosures. 3. Business Change As discussed in Note 1, on the Deregistration Date, the SEC issued an order pursuant to Section 8(f) of the Investment Company Act declaring that the Company has ceased to be an investment company under the Investment Company Act. The issuance of the Deregistration Order enabled the Company to proceed with full implementation of the Business Change. Upon the Deregistration Order, the Company discontinued the use of guidance in FASB ASC 946. To effectuate this change, the fair values of the Company’s investments became the July 1, 2022 cost basis. The change also required the consolidation of several investments that were previously not required to be consolidated under FASB ASC 946. 105 Table of Contents June 30, 2022 Difference July 1, 2022 (Predecessor Basis) (Successor Basis) ASSETS: Consolidated Real Estate Investments Land $ — $ 21,208 (1) $ 21,208 Buildings and improvements — 158,304 (1) 158,304 Intangible lease assets — 10,979 (1) 10,979 Construction in progress — 46,052 (1) 46,052 Furniture, fixtures, and equipment — 349 (1) 349 Total Consolidated Real Estate Investments — 236,892 236,892 Investments, at fair value 1,129,544 ( 324,927 ) (2) 804,617 Equity method investments — 143,264 (3) 143,264 Life insurance policies, at fair value — 56,440 (2) 56,440 Cash and cash equivalents 4,044 12,092 (1) 16,136 Restricted cash — 34,640 (1) 34,640 Accounts receivable, net — 4,849 (1) 4,849 Accrued interest and dividends 172 2,644 (1) 2,816 Prepaid and other assets 3,896 2,479 (1) 6,375 TOTAL ASSETS $ 1,137,656 $ 168,373 $ 1,306,029 Liabilities: Mortgages payable, net $ — $ 145,908 (1) $ 145,908 Notes payable, net 16,000 7,500 (1) 23,500 Prime brokerage borrowing 7,492 — 7,492 Accounts payable and other accrued liabilities 1,296 2,026 (1) 3,322 Accrued real estate taxes payable — 2,323 (1) 2,323 Accrued interest payable — 639 (1) 639 Security deposit liability — 434 (1) 434 Prepaid rents — 1,845 (1) 1,845 Intangible lease liabilities — 6,770 (1) 6,770 Due to affiliates — 928 (1) 928 Total Liabilities 24,788 168,373 193,161 Series A cumulative preferred shares, net of deferred financing costs 83,252 ( 83,252 ) (4) — Stockholders' Equity: Preferred shares, $ 0.001 par value: 4,800,000 shares authorized; 3,359,593 shares issued and outstanding — 3 3 Common shares, $ 0.001 par value: unlimited shares authorized; 37,171,807 shares issued and outstanding 37 — 37 Additional paid-in capital 916,596 83,249 (4) 999,845 Accumulated earnings less dividends 112,983 — 112,983 Total Stockholders' Equity 1,029,616 83,252 1,112,868 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,137,656 $ 168,373 $ 1,306,029 (1) Change due to consolidation of subsidiaries that were previously accounted for at fair value. (2) Change due to investments that were previously accounted for at fair value being consolidated or accounted for using the equity method. (3) Change due to applying the equity method to investments that were previously carried at fair value. See Note 8 for more information on the Company's equity method investments. 106 Table of Contents (4) The mandatory redemption feature of the Series A Preferred Shares (defined below) expired on the Deregistration Date. As such, the Series A Preferred Shares are now accounted for as a component permanent equity. 4. Investments in Real Estate Subsidiaries The Company conducts its operations through the OP, which owns several real estate properties through single asset limited liability companies that are special purpose entities (“SPEs”). The Company consolidates the SPEs that it controls as well as any VIEs where it is the primary beneficiary. All of the properties the SPEs own are consolidated in the Company’s consolidated financial statements. The assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the Company. As of December 31, 2023 and 2022, the Company, through the OP, owned four properties through SPEs. The following table represents the Company’s ownership in each property by virtue of its 100 % ownership of the SPEs that directly own the title to each property as of December 31, 2023 and 2022: Effective Ownership Percentage at Property Name Location Year Acquired December 31, 2023 December 31, 2022 White Rock Center Dallas, Texas 2013 100 % 100 % 5916 W Loop 289 Lubbock, Texas 2013 100 % 100 % Cityplace Tower Dallas, Texas 2018 100 % 100 % NexPoint Dominion Land, LLC (1) Plano, Texas 2022 100 % 100 % (1) NexPoint Dominion Land, LLC owns 100 % of 21.5 acres of undeveloped land in Plano, Texas. 5. Consolidated Real Estate Investments As of December 31, 2023, the major components of the Company’s investments in real estate held by SPEs the Company consolidates, which are included in "Consolidated Real Estate Investments" on the Consolidated balance sheet, were as follows (in thousands): Operating Properties Land Buildings and Improvements Intangible Lease Assets Intangible Lease Liabilities Construction in Progress Furniture, Fixtures, and Equipment Totals White Rock Center $ 1,315 $ 10,345 $ 1,921 $ ( 101 ) $ — $ 5 $ 13,485 5916 W Loop 289 1,081 2,938 — — — — 4,019 Cityplace Tower 18,812 192,930 9,058 ( 6,669 ) 19,177 357 233,665 NexPoint Dominion Land, LLC 26,500 — — — — — 26,500 47,708 206,213 10,979 ( 6,770 ) 19,177 362 277,669 Accumulated depreciation and amortization — ( 13,490 ) ( 6,798 ) 2,203 — ( 237 ) ( 18,322 ) Total Operating Properties $ 47,708 $ 192,723 $ 4,181 $ ( 4,567 ) $ 19,177 $ 125 $ 259,347 107 Table of Contents As of December 31, 2022, the major components of the Company’s investments in real estate held by SPEs the Company consolidates, which are included in "Consolidated Real Estate Investments" on the Consolidated balance sheet, were as follows (in thousands): Operating Properties Land Buildings and Improvements Intangible Lease Assets Intangible Lease Liabilities Construction in Progress Furniture, Fixtures, and Equipment Totals White Rock Center $ 1,315 $ 10,314 $ 1,921 $ ( 101 ) $ — $ 5 $ 13,454 5916 W Loop 289 1,081 2,939 — — — — 4,020 Cityplace Tower 18,812 161,216 9,058 ( 6,669 ) 39,731 349 222,497 NexPoint Dominion Land, LLC 26,500 — — — — — 26,500 47,708 174,469 10,979 ( 6,770 ) 39,731 354 266,471 Accumulated depreciation and amortization — ( 4,114 ) ( 2,863 ) 743 — ( 181 ) ( 6,415 ) Total Operating Properties $ 47,708 $ 170,355 $ 8,116 $ ( 6,027 ) $ 39,731 $ 173 $ 260,056 Depreciation expense was $ 9.4 million for the year ended December 31, 2023 and $ 4.3 million for the six months ended December 31, 2022. Amortization expense related to the Company’s intangible lease assets was $ 3.9 million for the year ended December 31, 2023 and $ 2.9 million for the six months ended December 31, 2022. Amortization expense related to the Company's intangible lease liabilities was $ 1.5 million for the year ended December 31, 2023 and $ 0.7 million for the six months ended December 31, 2022. The net amount amortized as an increase to rental revenue for capitalized above and below-market lease intangibles was 1.2 million for the year ended December 31, 2023 and $ 0.6 million for the six months ended December 31, 2022. Acquisitions There were no acquisitions by the Company for the year ended December 31, 2023. We completed one acquisition in 2022. Details of the acquisition are in the table below (dollars in thousands): On August 9, 2022, the Company purchased undeveloped land in Plano, Texas through a wholly owned SPE, as detailed in the table below (dollars in thousands). The details of the Company’s acquisitions held by SPEs the Company consolidates for the six months ended December 31, 2022 were as follows (dollars in thousands): Investment Property Location Property Type Date of Acquisition Purchase Price Debt Effective Ownership NexPoint Dominion Land, LLC Plano, Texas Land August 9, 2022 $ 26,500 $ 13,250 100 % 6. Debt Cityplace Debt The Company has debt on its real estate property pursuant to a Loan Agreement, originally dated August 15, 2018 and subsequently amended (the “Loan Agreement”). The debt is limited recourse to the Company and encumbers the property. The debt had an original maturity of September 8, 2022, and the Company deferred the maturity date with the lender to May 8, 2023, with the possibility to extend for an additional four months to September 8, 2023 provided certain metrics were met. On May 8, 2023, the lender agreed to defer the maturity of the Cityplace debt by four months to September 8, 2023. Also on May 8, 2023, the parties to the Loan Agreement agreed to convert the index upon which the interest rate is based to the one-month secured overnight financing rate ("SOFR") effective as of the first interest period beginning on or after May 8, 2023. On September 8, 2023, the lender agreed to defer the maturity of the Cityplace debt by six months to March 8, 2024. The debt restructuring per the terms of the Twelfth Omnibus Amendment Agreement was considered a debt modification. The purpose of the deferral was to allow for continued discussions around refinancing the debt. Management recognizes that finding an alternative source of funding is necessary to repay the debt by the maturity 108 Table of Contents date. Management is evaluating multiple options to fund the repayment of the $ 142.3 million principal balance outstanding as of December 31, 2023, including refinancing the debt, securing additional equity or debt financing, selling a portion of the portfolio, or any combination thereof. Management believes that there is sufficient time before the maturity date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due. Due to the short term nature of the debt, the fair value of the debt is approximately the outstanding balance. The below table contains summary information related to the mortgages payable (dollars in thousands): Outstanding principal as of December 31, 2023 Interest Rate Maturity Date Note A-1 $ 101,115 7.73 % 3/8/2024 Note A-2 22,119 11.73 % 3/8/2024 Note B-1 12,729 7.73 % 3/8/2024 Note B-2 3,160 11.73 % 3/8/2024 Mezzanine Note 1 2,784 11.73 % 3/8/2024 Mezzanine Note 2 398 11.73 % 3/8/2024 Mortgages payable 142,305 Deferred financing costs, net ( 119 ) Mortgages payable, net $ 142,186 The weighted average interest rate of the Company’s debt related to its Cityplace investment was 8.5 % as of December 31, 2023 and 7.3 % as of December 31, 2022. The Loan Agreement contains customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the documents evidencing the loan, defaults in payments under any other security instrument covering any part of the property, whether junior or senior to the loan, and bankruptcy or other insolvency events. As of December 31, 2023, the Company believes it is in compliance with all covenants. Notes Payable On August 9, 2022, the Company borrowed approximately $ 13.3 million from the seller, Gabriel Legacy, LLC to finance its acquisition of 21.5 acres of land in Plano, Texas held through NexPoint Dominion Land, LLC, a wholly owned subsidiary of the OP. Due to the short term nature of the note, the fair value of the note is approximately the outstanding balance. The note bears interest at an annual rate equal to the WSJ Prime Rate and matures on August 8, 2025. On March 31, 2022, the Company, through an unconsolidated subsidiary, borrowed approximately $ 13.5 million from NexPoint Real Estate Finance, Inc. ("NREF"), an entity advised by an affiliate of the Adviser, to finance its acquisition of a 77.0 % interest in Tivoli North Property. The bridge note bore interest at an annual rate equal to the WSJ Prime Rate plus 1.5 % and had a maturity date of October 1, 2022. The Company refinanced this bridge note with PNC Bank, N.A ("PNC Bank") on August 8, 2022. The new loan had a principal amount of $ 13.5 million and bears interest at an annual rate of daily simple SOFR plus 3.5 %. Proceeds from the note with PNC Bank were used to repay in full the financing provided by NREF on August 9, 2022. On August 8, 2023, the Company elected to extend the maturity date of this loan to January 8, 2024. On January 8, 2024, the Company elected to extend maturity date of this loan to August 8, 2024. Credit Facility On January 8, 2021, the Company entered into a $ 30.0 million credit facility (the "Credit Facility") with Raymond James Bank, N.A. and drew the full balance. On October 20, 2023, Raymond James Bank, N.A. agreed to amend the terms of the Credit Facility, which, among other things, extended the maturity date to October 6, 2025 and increased the credit limit to $ 20.0 million. On October 23, 2023, the Company drew $ 6.0 million of the available balance. On November 20, 2023, the Company drew the remaining $ 13.0 million of the available balance. During the year ended December 31, 2023, the Company paid down $ 10.0 million on the Credit Facility. As of December 31, 2023, the Credit Facility had an outstanding balance of $ 20.0 million and bore interest at the one-month SOFR plus 4.25 %. Due to the short term nature of 109 Table of Contents the debt, the fair value of the debt is approximately the outstanding balance. Management believes that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due. Revolving Credit Facility On May 22, 2023, the Company entered into a $ 20.0 million revolving credit facility (the "NexBank Revolver") with NexBank, in the initial principal balance of $ 20.0 million, with the option for the Company to receive additional disbursements thereunder up to a maximum of $ 50.0 million. As of December 31, 2023, the NexBank Revolver bears interest at one-month SOFR plus 3.50 % and matures on May 21, 2024, with the option to extend the maturity up to two times, each by six months . Due to the short term nature of the debt, the fair value of the debt is approximately the outstanding balance. As of December 31, 2023, the NexBank Revolver had an outstanding balance of $ 20.0 million. Deferred Financing Costs The Company defers costs incurred in obtaining financing and amortizes the costs over the terms of the related loans using the straight-line method, which approximates the effective interest method. Deferred financing costs, net of amortization, are recorded as a reduction from the related debt on the Company’s consolidated balance sheet. Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to loss on extinguishment of debt and modification costs. Prime Brokerage Borrowing Effective July 2, 2022, the Company entered a prime brokerage account with Jefferies to hold securities owned by the Company (the "Prime Brokerage"). The Company from time to time borrows against the value of these securities. As of December 31, 2023, the Company had a margin balance of approximately $ 1.8 million outstanding with Jefferies bearing interest at the Overnight Bank Funding Rate plus 0.50 %. Securities with a fair value of approximately $ 9.3 million are pledged as collateral against this margin balance. This arrangement has no stated maturity date. Due to the floating interest rate nature of the debt, the fair value of the debt is approximately the outstanding balance. Schedule of Debt Maturities The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to December 31, 2023 are as follows (in thousands): Mortgages Payable Notes Payable Prime Brokerage Borrowing Total 2024 $ 142,305 $ 29,000 $ — $ 171,305 2025 — 24,250 — 24,250 2026 — — — — 2027 — — — — 2028 — — — — Thereafter — — 1,782 1,782 Total $ 142,305 $ 53,250 $ 1,782 $ 197,337 110 Table of Contents 7. Variable Interest Entities As of December 31, 2023 and 2022, the Company does not consolidate the investments below as it does not have a controlling financial interest in these investments: Entities Instrument Asset Type Percentage Ownership as of December 31, 2023 Percentage Ownership as of December 31, 2022 Relationship as of December 31, 2023 Relationship as of December 31, 2022 Unconsolidated Entities: NexPoint Storage Partners, Inc. Common stock Self-storage 52.9 % 53.1 % VIE VIE NexPoint Storage Partners Operating Company, LLC LLC interest Self-storage 30.0 % 30.5 % VIE VIE Perilune Aero Equity Holdings One, LLC LLC interest Aircraft 16.4 % 16.4 % VIE VIE SFR WLIF III, LLC LLC interest Single-family rental 20.0 % 20.0 % VIE VIE NexPoint Real Estate Finance Operating Partnership, L.P. LP interest Mortgage 15.6 % 16.1 % VIE VIE VineBrook Homes Operating Partnership, L.P. LP interest Single-family rental 11.2 % 11.1 % VIE VIE NexPoint SFR Operating Partnership, L.P. LP interest Single-family rental 30.8 % 31.0 % VIE VIE IQHQ Holdings, LP LP interest Life science 1.3 % 1.2 % VIE VIE NexAnnuity Holdings, Inc. Preferred Shares Annuities 100.0 % (1) N/A VIE N/A (1) The Company owns 100% of the preferred stock of NexAnnuity Holdings, Inc., but it does not own any of the outstanding common stock of NexAnnunity Holdings, Inc. Consolidated VIEs The Company did not have any consolidated VIEs as of and for the years ended December 31, 2023 and 2022. 111 Table of Contents 8. Equity Method Investments Below is a summary of the Company’s equity method investments as of December 31, 2023 (dollars in thousands): Investee Name Instrument Asset Type NXDT Percentage Ownership Investment Basis Share of Investee's Net Assets (1) Basis Difference (2) Share of Earnings (Loss) Sandstone Pasadena Apartments, LLC LLC interest Multifamily 50.0 % $ 11,458 $ ( 9,590 ) $ 21,048 $ — AM Uptown Hotel, LLC LLC interest Hospitality 60.0 % (3) 23,158 17,581 5,577 ( 426 ) SFR WLIF III, LLC LLC interest Single-family rental 20.0 % 7,079 7,241 ( 162 ) 555 Las Vegas Land Owner, LLC LLC interest Land 77.0 % (4) 12,312 12,312 — — Perilune Aero Equity Holdings One, LLC LLC interest Aircraft 16.4 % (7) 12,256 10,488 1,768 1,441 Claymore Holdings, LLC LLC interest N/A 50.0 % (5) — (6) — — — Allenby, LLC LLC interest N/A 50.0 % (5) — (6) — — — Haygood, LLC LLC interest N/A 31.0 % (8) — (6) — — — $ 66,263 $ 38,032 $ 28,231 $ 1,570 Below is a summary of the Company's investments as of December 31, 2023 that qualify for equity method accounting for which the Company has elected to account for using the fair value option. Amounts are included in "investments, at fair value" on the consolidated balance sheets. 112 Table of Contents Investee Name Instrument Asset Type NXDT Percentage Ownership Fair Value NexPoint Real Estate Finance Operating Partnership, L.P. LP interest Mortgage 15.6 % (7) $ 76,688 (6) NexPoint Real Estate Finance, Inc. Common stock Mortgage 12.0 % (7) 33,075 (6) VineBrook Homes Operating Partnership, L.P. LP interest Single-family rental 11.2 % (7) 146,516 (6) NexPoint Storage Partners, Inc. Common stock Self-storage 52.9 % (3) 68,187 (6) NexPoint Storage Partners Operating Company, LLC LLC interest Self-storage 30.0 % 37,157 (6) NexPoint SFR Operating Partnership, L.P. LP interest Single-family rental 30.8 % 49,383 (6) NexPoint Hospitality Trust Common stock Hospitality 46.2 % 4,886 (6) LLV Holdco, LLC LLC interest Land 26.8 % 2,242 (6) $ 418,134 Below is a summary of the Company’s equity method investments as of December 31, 2022 (dollars in thousands): Investee Name Instrument Asset Type NXDT Percentage Ownership Investment Basis Share of Investee's Net Assets (1) Basis Difference (2) Share of Earnings (Loss) Sandstone Pasadena Apartments, LLC LLC interest Multifamily 50.0 % $ 13,013 $ — $ 13,013 $ ( 217 ) AM Uptown Hotel, LLC LLC interest Hospitality 60.0 % (3) 27,136 21,334 5,802 ( 227 ) SFR WLIF III, LLC LLC interest Single-family rental 20.0 % 7,272 7,466 ( 194 ) 280 Las Vegas Land Owner, LLC LLC interest Land 77.0 % (4) 12,312 12,312 — — Perilune Aero Equity Holdings One, LLC LLC interest Aircraft 16.4 % (7) 10,923 8,751 2,172 665 Claymore Holdings, LLC LLC interest N/A 50.0 % (5) — (6) — — — Allenby, LLC LLC interest N/A 50.0 % (5) — (6) — — — $ 70,656 $ 49,863 $ 20,793 $ 501 Below is a summary of the Company's investments as of December 31, 2022 that qualify for equity method accounting for which the Company has elected to account for using the fair value option. Amounts are included in "investments, at fair value" on the consolidated balance sheets. 113 Table of Contents Investee Name Instrument Asset Type NXDT Percentage Ownership Fair Value NexPoint Real Estate Finance Operating Partnership, L.P. LP interest Mortgage 16.1 % (7) $ 77,370 (6) NexPoint Real Estate Finance, Inc. Common stock Mortgage 12.3 % (7) 33,369 (6) VineBrook Homes Operating Partnership, L.P. LP interest Single-family rental 11.1 % (7) 169,661 (6) NexPoint Storage Partners, Inc. Common stock Self-storage 53.1 % (3) 103,695 (6) NexPoint Storage Partners Operating Company, LLC LLC interest Self-storage 30.5 % 56,505 (6) NexPoint SFR Operating Partnership, L.P. LP interest Single-family rental 31.0 % 53,480 (6) NexPoint Hospitality Trust Common stock Hospitality 45.4 % 27,685 (6) LLV Holdco, LLC LLC interest Land 26.8 % 4,331 (6) $ 526,096 (1) Represents the Company’s percentage share of net assets of the investee per the investee’s books and records. (2) Represents the difference between the basis at which the investments in unconsolidated ventures are carried by the Company and the Company's proportionate share of the equity method investee's net assets. To the extent that the Company’s cost basis is different from the basis reflected at the joint venture level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of equity in earnings of the joint venture. (3) The Company owns greater than 50% of the outstanding common equity but is not deemed to be the primary beneficiary or have a controlling financial interest of the investee and as such, accounts for the investee using the equity method. (4) The Company owns 100 % of Las Vegas Land Owner, LLC which owns 77 % of a joint venture that owns an 8.5 acre tract of land (the "Tivoli North Property"). Through a tenants in common arrangement, the Company shares control and as such accounts for this investment using the equity method. (5) The Company has a 50 % non-controlling interest in Claymore Holdings, LLC (“Claymore”) and Allenby, LLC, (“Allenby”). The Company has determined it is not the primary beneficiary and does not consolidate these entities. (6) The Company has elected the fair value option with respect to these investments. The basis in these investments is their fair value. (7) The Company owns less than 20% of the investee but has significant influence due to members of the management team serving on the board of the investee or its parent and as such, accounts for the investee using the equity method. (8) The Company has a 31 % non-controlling interest in Haygood, LLC, (“Haygood”). The Company has determined it is not the primary beneficiary and does not consolidate this entity. (9) The Company owns less than 20% of the investee but has significant influence due to the legal nature of a partnership that implies an inherent right to influence the operating and financial policies of the partnership. 114 Table of Contents Significant Equity Method Investments The table below presents the unaudited summary balance sheets for the Company’s significant equity method investments as of September 30, 2023 (dollars in thousands). The Company reports these unaudited summary balance sheets on a quarter lag. For purposes of equity method investments, significance is determined in accordance with Rule 3-09 of Regulation S-X. NREF and VineBrook Homes Trust, Inc. ("VineBrook") do not prepare standalone financials for their operating companies as all operations and investments are owned through their operating companies and are consolidated by the corporate entities. As such, only the financial information for NREF and VineBrook are presented below. As of December 31, 2023, NexPoint Storage Partners, Inc. ("NSP") no longer qualifies as a significant equity method investment. NREF VineBrook ASSETS Investments $ 6,814,871 $ 2,500 Real estate assets 58,563 3,359,816 Cash and cash equivalents 10,977 34,115 Other assets 1,942 208,109 TOTAL ASSETS $ 6,886,353 $ 3,604,540 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Debt $ 1,212,740 $ 2,487,524 Other liabilities 5,239,450 148,345 Total Liabilities 6,452,190 2,635,869 Redeemable noncontrolling interests in the operating company 89,148 482,149 Noncontrolling interests in consolidated VIEs — 12,786 Total Shareholders' Equity 345,015 473,736 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,886,353 $ 3,604,540 The table below presents the unaudited summary statement of operations for the nine months ended September 30, 2023, for the Company’s significant equity method investments (dollars in thousands). NREF VineBrook Revenues Rental income $ 3,057 $ 259,121 Net interest income 12,971 — Other income — 4,362 Total revenues 16,028 263,483 Expenses Total expenses 16,950 368,968 Gain (loss) on sales and impairment of real estate — ( 65,108 ) Other income (expense) 1,727 ( 43,130 ) Unrealized gain (loss) on derivatives — 6,297 Total comprehensive income (loss) $ 805 $ ( 207,426 ) 115 Table of Contents The table below presents the unaudited summary balance sheets for the Company’s significant equity method investments as of December 31, 2022 (dollars in thousands). NREF, NSP and VineBrook do not prepare standalone financials for their operating companies as all operations and investments are owned through their operating companies and are consolidated by the corporate entities. As such, only the financial information for NREF, NSP and VineBrook are presented below. NREF VineBrook NSP ASSETS Investments $ 7,886,370 $ 2,500 $ — Real estate assets 245,222 3,568,567 1,310,059 Cash and cash equivalents 17,671 114,749 14,665 Other assets 3,011 150,921 174,952 TOTAL ASSETS $ 8,152,274 $ 3,836,737 $ 1,499,676 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Debt $ 1,345,101 $ 2,601,229 $ 902,659 Other liabilities 6,264,026 131,993 391,356 Total Liabilities $ 7,609,127 $ 2,733,222 $ 1,294,015 Redeemable noncontrolling interests in the operating company 97,567 475,281 205,114 Noncontrolling interests in consolidated VIEs $ — $ 6,906 $ 4,035 Total Shareholders' Equity 445,580 621,328 ( 3,488 ) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,152,274 $ 3,836,737 $ 1,499,676 The table below presents the unaudited summary statement of operations for the year ended December 31, 2022 for the Company’s significant equity method investments (dollars in thousands). NREF VineBrook NSP Revenues Rental income $ 11,116 $ 262,433 $ 74,639 Net interest income 37,733 — 6,125 Other income — 6,898 4,119 Total revenues $ 48,849 $ 269,331 $ 84,883 Expenses Total expenses 20,044 319,835 85,340 Gain (loss) on sales of real estate $ — $ ( 519 ) $ ( 1,406 ) Other income (expense) ( 14,591 ) 1,361 ( 77,408 ) Unrealized gain (loss) on derivatives — 52,833 — Total comprehensive income (loss) $ 14,214 $ 3,171 $ ( 79,271 ) 9. Fair Value of Financial Instruments The table below summarizes the Company’s assets within the valuation hierarchy carried at fair value on a recurring basis as of December 31, 2023 (in thousands): 116 Table of Contents Fair Value Cost Basis Level 1 Level 2 Level 3 Total Assets Bond $ 17 $ — $ 30 $ — $ 30 CLO 24,187 — — 1,215 1,215 Common stock 311,576 42,832 — 176,256 219,088 Convertible notes 46,385 — — 42,251 42,251 LLC interest 66,825 — — 39,399 39,399 LP interest 326,555 — 76,688 195,898 272,586 Preferred Shares 66,268 — — 66,268 66,268 Rights and warrants 3,937 — 3,993 — 3,993 Senior loan 46,174 — 55 46,353 46,408 $ 891,924 $ 42,832 $ 80,766 $ 567,640 $ 691,238 The table below summarizes the Company’s assets within the valuation hierarchy carried at fair value on a recurring basis as of December 31, 2022 (in thousands): Fair Value Cost Basis Level 1 Level 2 Level 3 Total Assets Bond $ 17 $ — $ 20 $ — $ 20 CLO 34,958 — 563 6,412 6,975 Common stock 325,275 53,872 — 234,667 288,539 Convertible notes 54,802 — — 50,828 50,828 Life settlement 64,267 — — 67,711 67,711 LLC interest 66,492 — — 60,836 60,836 LP interest 321,026 — 77,370 223,141 300,511 Rights and warrants 3,947 — 3,794 — 3,794 Senior loan 43,399 — 66 43,341 43,407 $ 914,183 $ 53,872 $ 81,813 $ 686,936 $ 822,621 The table below sets forth a summary of changes in the Company’s Level 3 assets (assets measured at fair value using significant unobservable inputs) for the year ended December 31, 2023 (in thousands): December 31, 2022 Contributions/ Purchases Paid in- kind dividends Transfer Into Level 3 Redemptions/ conversions Return of capital Realized gain/(loss) Unrealized gain/(loss) December 31, 2023 CLO $ 6,412 $ — $ — $ 563 $ — $ ( 9,170 ) $ ( 1,601 ) $ 5,011 $ 1,215 Common stock 234,667 — — — ( 305 ) — — ( 58,106 ) 176,256 Convertible notes 50,828 — 125 — ( 8,542 ) — — ( 160 ) 42,251 Life settlement 67,711 3,355 — — ( 67,506 ) — ( 1,101 ) ( 2,459 ) — LLC interest 60,836 334 — — — — — ( 21,771 ) 39,399 LP interest 223,141 5,528 — — — — — ( 32,771 ) 195,898 Preferred Shares — 68,500 1,768 — ( 4,000 ) — — — 66,268 Senior loan 43,341 5,500 4,059 — ( 7,007 ) — 223 237 46,353 Total $ 686,936 $ 83,217 $ 5,952 $ 563 $ ( 87,360 ) $ ( 9,170 ) $ ( 2,479 ) $ ( 110,019 ) $ 567,640 117 Table of Contents The table below sets forth a summary of changes in the Company’s Level 3 assets (assets measured at fair value using significant unobservable inputs) for the six months ended December 31, 2022 (in thousands): July 1, 2022 Contributions/ Purchases Paid in- kind dividends Redemptions/ Conversions Return of capital Realized gain/(loss) Unrealized gain/(loss) December 31, 2022 Common Equity $ 257,346 $ 3,363 $ — $ — $ ( 443 ) $ — $ ( 25,599 ) $ 234,667 Convertible Notes 51,858 2,784 160 — — — ( 3,974 ) 50,828 Life settlement 56,440 11,276 — ( 7,055 ) — 3,489 3,561 67,711 LP Interests 227,309 5,780 — ( 10,872 ) — 113 811 223,141 CLO 52,500 — — — ( 18,105 ) — ( 27,983 ) 6,412 LLC Interests 3,982 62,510 — — — — ( 5,656 ) 60,836 Senior Loans 40,997 443 2,048 ( 27 ) — ( 126 ) 6 43,341 Total $ 690,432 $ 86,156 $ 2,208 $ ( 17,954 ) $ ( 18,548 ) $ 3,476 $ ( 58,834 ) $ 686,936 The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the significant unobservable inputs used in the fair valuation of assets categorized within Level 3 of the fair value hierarchy as of December 31, 2023. 118 Table of Contents Category Valuation Technique Significant Unobservable Inputs Input Value(s) (Arithmetic Mean) Fair Value CLO Discounted Net Asset Value Discount N/A $ 1,215 Common Stock Market Approach Unadjusted Price/MHz-PoP $ 0.10 — $ 0.90 $( 0.48 ) 176,256 Discounted Cash Flow Discount Rate 7.5 % — 13.90 % ( 9.18 )% Market Rent (per sqft) $ 11.50 — $ 41.00 $( 26.25 ) RevPAR $ 75.00 — $ 145.00 $( 102.00 ) Capitalization Rates 5.25 % — 9.5 % ( 7.58 )% NAV Approach Discount Rate 10.00 % Multiples Analysis Multiple of EBITDA 3.00 x — 4.00 x ( 3.50 )x Multiple of NAV 1.00 x — 1.25 x ( 1.13 )x Recent Transaction Implied Enterprise Value from Transaction Price ($mm) $ 841.00 N/A $ 25.31 — $ 28.00 $( 26.66 ) Discount to NAV ( 25.00 )% — ( 10.00 )% ( 17.50 )% Offer Price per Share $ 1.10 Convertible Notes Discounted Cash Flow Discount Rate 6.08 % — 10.25 % ( 8.17 )% 42,251 Option Pricing Model Volatilty 55.00 % — 65.00 % ( 60.00 )% LLC Interest Discounted Cash Flow Discount Rate 7.50 % — 30.50 % 14 % 39,399 Market Rent (per sqft) $ 11.5 — $ 41 $( 26.25 ) Capitalization Rate 5.25 % LP Interest Direct Capitalization Approach Capitalization Rate 4.00 % — 6.80 % 5.51 % 195,898 Discount to NAV ( 12.5 )% — ( 2.5 )% (- 7.5 %) Market Approach Capitalization Rate 5.00 % — 5.50 % ( 5.22 )% Recent Transaction Price per Share $ 21.59 Preferred Shares Recent Transaction Price per Share $ 1,000 66,268 Senior Loan Discounted Cash Flow Discount Rate 12.30 % — 20.00 % ( 16.15 )% 46,353 Total $ 567,640 119 Table of Contents The following is a summary of the significant unobservable inputs used in the fair valuation of assets categorized within Level 3 of the fair value hierarchy as of December 31, 2022. Category Valuation Technique Significant Unobservable Inputs Input Value(s) (Arithmetic Mean) Fair Value CLO Discounted Net Asset Value Discount 70 % $ 6,412 Common Stock Market Approach Unadjusted Price/MHz-PoP $ 0.09 % - $ 0.95 % ( 0.515 %) $ 234,667 NAV / sh multiple $ 1.10 x - $ 1.45 x $( 1.28 )x Discounted Cash Flow Discount Rate 8.63 % - 14.5 % ( 9.98 )% Market Rent (per sqft) $ 16 - $ 58 $( 23.38 ) RevPAR $ 75 - $ 189 $ 110.4 Capitalization Rates 5.38 % - 9.25 % ( 8.4 )% Recent Transaction Implied Enterprise Value from Transaction Price ($mm) $ 841 N/A $ 25.31 - $ 28 $( 26.66 ) Convertible Notes Discounted Cash Flow Discount Rate 8 % 50,828 Life Settlement Discounted Cash Flow Discount Rate 14 % 67,711 Life Expectancy (Months) 12 - 196 74 Months LLC Interest Discounted Cash Flow Discount Rate 8.75 % - 30 % ( 19.38 )% 60,836 Market Rent (per sqft) $ 16 - $ 58 $( 23.38 ) Capitalization Rate 5.38 % LP Interest Discounted Cash Flow Discount Rate 6.4 % - 9.1 % ( 7.75 )% 223,141 Capitalization Rate 3.5 % - 6.8 % ( 5.15 )% Recent Transaction Cost Price per Share $ 25 Senior Loan Discounted Cash Flow Discount Rate 11.5 % - 20 % ( 15.75 )% $ 43,341 Total $ 686,936 10. Life Settlement Portfolio Prior to September 1, 2023, the Company, through one of its TRSs, owned 100 % of the outstanding equity and debt of Specialty Financial Products, Ltd. ("SFP"), an Ireland domiciled private company with limited liability and a Designated 120 Table of Contents Activity Company. At the proposal of NexAnnuity Asset Management, L.P. ("NexAnnuity"), an affiliate of the Adviser, SFP was formed for the purpose of entering into acquisitions of U.S. life settlement policies approved by NexAnnuity and funded by the issuance of debt securities, or the Structured Note purchased by the Company. SFP utilizes proceeds from maturing life settlement contracts to repay the Structured Note and to further invest in life settlement contracts. Prior to September 1, 2023, as the Company owned the outstanding ordinary shares of and Structured Note issued by SFP, the Company consolidated SFP in its entirety. On September 1, 2023, the Company, through one of its TRSs, entered into a contribution agreement to transfer the Structured Note in SFP and all its rights, title and interests to NHI and its wholly owned subsidiaries, a related party. The Company also transferred all of its ordinary shares in SFP to a separate share trustee. In exchange, the Company was issued 68,500 shares of Class A Preferred Stock in NHI. As a result, the Company now holds none of the outstanding equity and debt of SFP, and SFP no longer meets the requirements for consolidation under ASC 810 – Consolidation. The Company will have no continuing involvement with SFP. As such, SFP has been deconsolidated herein as of September 1, 2023. The Class A Preferred Stock in NexAnnuity Holdings, Inc. is accounted for as an investment in an equity security. However, management has elected to account for the investment using the fair value option and presented it within Investments, at fair value. The fair value of the Class A Preferred Stock is its original issue price of $ 1,000 per share due to the recent nature of the transaction. Dividends on the Class A Preferred Stock are cumulative and are payable quarterly on March 31, June 30, September 30, and December 31 at an annual rate of 8.0 % for years one through seven, 9.5 % for years eight through ten, 11.0 % for years eleven through thirteen, and 12.0 % for years fourteen through sixteen and thereafter. The transfer of the Structured Note of SFP qualified as a sale under ASC 860 – Transfers and Servicing as (1) the transfer legally isolated the transferred assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to pledge or exchange the assets and provides more than a trivial benefit to the transferor, and (3) the transferor does not maintain effective control over the transferred assets. As of December 31, 2022, the Company’s life settlement portfolio consists of the following (dollars in thousands): Number of Policies Face Value (Death Benefit) Acquisition Cost Premium Cost Estimated Fair Value Total Range Total Range Total Range Total Range Total 28 $1,500 -$15,000 $ 142,952 $350 - $3,895 $ 48,132 $0 - $580 $ 4,589 $117 - $6,095 $ 67,711 Remaining Life Expectancy (in years) Number Face Value Fair Value 0 - 1 2 $ 7,000 $ 5,950 1 - 2 2 7,350 4,774 2 - 3 5 19,061 11,393 3 - 4 8 51,351 27,648 4 - 5 3 17,100 7,978 Thereafter 8 41,090 9,968 Total 28 $ 142,952 $ 67,711 During the six months ended December 31, 2022, the Company purchased three policies with a combined face value of $ 28.0 million for $ 8.7 million, had one policy mature with an aggregate net death benefit of $ 7.0 million, and paid $ 2.6 million in premiums to keep the life settlement contracts in force. 11. Shareholders ’ Equity Common Shares As of December 31, 2023, the Company had 38,389,600 common shares, par value $ 0.001 per share, issued and outstanding. 1,217,792.99 shares of which were issued during the year ended December 31, 2023. 121 Table of Contents During the year ended December 31, 2023, the Company paid a distribution of $ 0.15 per share on its common shares on March 31, 2023 to shareholders of record on March 15, 2023, June 30, 2023 to shareholders of record on June 15, 2023, September 29, 2023 to shareholders of record on August 14, 2023 and December 29, 2023 to shareholders of record on November 17, 2023. The dividends paid on September 29, 2023 and December 29, 2023 consisted of a combination of cash and shares, with the cash component of the dividend (other than cash paid in lieu of fractional shares) comprising 20 % of the dividend, with the balance being paid in the Company's common shares. During the six months ended June 30, 2022, the Company issued 92,067 common shares pursuant to its dividend reinvestment plan that was terminated on July 1, 2022. No shares were issued during the six months ended December 31, 2022. As of December 31, 2022, the Company had 37,171,807 common shares, par value $ 0.001 per share, issued and outstanding. During the six months ended December 31, 2022, the Company paid distributions on its common shares on August 1, August 31, September 30 and December 30, 2022. For July, August and September, these distributions were paid in the amount of $ 0.05 per share. Beginning in October, the distribution was updated to $ 0.15 per share and payable quarterly. Preferred Shares On January 8, 2021, the Company issued 3,359,593 5.50 % Series A Cumulative Preferred Shares, par value $ 0.001 per share, liquidation preference $ 25.00 per share ("Series A Preferred Shares") with an aggregate liquidation preference of approximately $ 84.0 million. The Series A Preferred Shares were issued as part of the consideration for an exchange offer for a portion of the Company’s common shares. The Series A Preferred Shares are callable beginning on December 15, 2023 at a price of $ 25 per share. The Company may exercise its call option at the Company's discretion. As a result, these are included in permanent equity. During the year ended December 31, 2023, the Company declared four distributions on its Series A Preferred Shares, each in the amount of $ 0.34375 per share, which were paid to holders of Series A Preferred Shares on March 31, 2023 to shareholders of record on March 24, 2023, on June 30, 2023 to shareholders of record on June 23, 2023, on October 2, 2023 to shareholders of record on September 25, 2023 and on January 2, 2024 to shareholders of record on December 12, 2023. The Company sent funding to the transfer agent for the fourth quarter dividend prior to December 31, 2023, which was then paid to shareholders on January 2, 2024. During the six months ended December 31, 2022, the Company declared distributions on its Series A Preferred Shares on September 1, 2022 and December 6, 2022, in the amount of $ 0.34375 per share, respectively. The Company sent funding to the transfer agent prior to September 30, 2022 and December 31, 2022, which were then paid to shareholders on September 30, 2022 and January 3, 2023. Dividends on the Series A Preferred Shares are cumulative from their original issue date at the annual rate of 5.5 % of the $ 25 per share liquidation preference and are payable quarterly on March 31, June 30, September 30, and December 31 of each year, or in each case on the next succeeding business day. Long Term Incentive Plan On January 30, 2023, the Company’s shareholders approved a long-term incentive plan (the “2023 LTIP”) and the Company subsequently filed a registration statement on Form S-8 registering 2,545,000 common shares, which the Company may issue pursuant to the 2023 LTIP. The 2023 LTIP authorizes the compensation committee of the Board to provide equity-based compensation in the form of share options, appreciation rights, restricted shares, restricted share units, performance shares, performance units and certain other awards denominated or payable in, or otherwise based on, the Company’s common shares or factors that may influence the value of the Company’s common shares, plus cash incentive awards, for the purpose of providing the Company’s trustees, officers and other key employees (and those of the Adviser and the Company’s subsidiaries), and potentially certain nonemployees who perform employee-type functions, incentives and rewards for performance (the "participants"). Restricted Share Units. Under the 2023 LTIP, restricted share units may be granted to the participants and typically vest over a three to five-year period for officers, employees and certain key employees of the Adviser and annually for trustees. The most recent grant of restricted share units to officers, employees and certain key employees of the Adviser 122 Table of Contents will vest over a four-year period. Beginning on the date of grant, restricted share units earn dividends that are payable in cash on the vesting date. Compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award. Forfeitures are recognized as they occur. On April 4, 2023, pursuant to the 2023 LTIP, the Company granted 37,313 restricted share units to its trustees and 566,169 restricted share units to its officers and other employees of the Adviser. The following table includes the number of restricted share units granted, vested, forfeited and outstanding as of and for the year ended December 31, 2023: 2023 Number of Units Weighted Average Grant Date Fair Value Outstanding January 1, 2023 — $ — Granted 603,482 10.45 Vested — — Forfeited ( 13,576 ) — Outstanding December 31, 2023 589,906 $ 10.45 The following table contains information regarding the vesting of restricted share units under the 2023 LTIP for the next five calendar years subsequent to December 31, 2023: Shares Vesting April Total 2024 178,856 178,856 2025 140,404 140,404 2026 135,323 135,323 2027 135,323 135,323 2028 — — Total 589,906 589,906 For the year ended December 31, 2023, the Company recognized approximately $ 1.4 million of equity-based compensation expense related to grants of restricted share units. As of December 31, 2023, the Company had recognized a liability of approximately $ 0.3 million related to dividends earned on restricted share units that are payable in cash upon vesting. As of December 31, 2023, total unrecognized compensation expense on restricted share units was approximately $ 4.8 million, and the expense is expected to be recognized over a weighted average vesting period of 1.6 years. 12. Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of the Company’s common shares outstanding and excludes any unvested restricted share units issued pursuant to the 2023 LTIP. Diluted earnings (loss) per share is computed by adjusting basic earnings per share for the dilutive effect of the assumed vesting of restricted share units. During periods of net loss, the assumed vesting of restricted share units is anti-dilutive and is not included in the calculation of earnings (loss) per share. 123 Table of Contents The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts): Year Ended December 31, Six Months Ended December 31, 2023 2022 Numerator for loss per share: Net income (loss) attributable to common shareholders $ ( 121,860 ) $ ( 83,883 ) Denominator for loss per share: Weighted average common shares outstanding 37,334 37,172 Denominator for basic and diluted loss per share 37,334 37,172 Weighted average unvested restricted share units 440 — Denominator for diluted loss per share (1) 37,334 37,172 Loss per weighted average common share: Basic $ ( 3.26 ) $ ( 2.26 ) Diluted $ ( 3.26 ) $ ( 2.26 ) (1) For the year ended December 31, 2023 and the six months ended December 31, 2022, this excludes approximately 439,601 and 0 shares, respectively, related to assumed vesting of restricted share units as the effect would be anti-dilutive. 13. Related Party Transactions Advisory and Administrative Fees Prior to the Deregistration Date, the Company was party to an investment advisory agreement (the "Former Advisory Agreement") with an affiliate of the Adviser (the "Former Adviser") pursuant to which the Former Adviser provided investment advisory services to the Company and certain of its subsidiaries. The Company's contractual fee under the Former Advisory Agreement was an annual fee, payable monthly, in an amount equal to 1.00 % an amount (the "Former Managed Assets”) equal to the total assets of the Company, including any form of investment leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Company’s investment objectives and policies, and/or (iv) any other means. The Former Adviser was permitted to waive a portion of its fees. Prior to the Deregistration Date, the Company was also party to an administration services agreement (the “Administration Services Agreement”) pursuant to which the Former Adviser previously performed administrative functions for us in connection with our operation as a closed-end investment company. For its services, the Former Adviser received an annual fee, payable monthly, in an amount equal to 0.20 % of the average weekly value of the Former Managed Assets. In connection with the Business Change and effective on the Deregistration Date, the Company terminated its investment advisory agreement and its administrative services agreement with the Former Adviser and entered into the Advisory Agreement with the Adviser, a subsidiary of NexPoint. The Company also terminated the investment advisory agreements between NexPoint and its wholly owned subsidiaries, NexPoint Real Estate Opportunities, LLC ("NREO") and NexPoint Real Estate Capital, LLC, effective on the Deregistration Date. Pursuant to the Advisory Agreement, subject to the overall supervision of our Board, the Adviser manages the day-to-day operations of the Company, and provides investment management services. 124 Table of Contents As of December 31, 2023, as consideration for the Adviser’s services under the Advisory Agreement, we pay our Adviser an annual fee (the "Advisory Fee") of 1.00 % of Managed Assets and an annual fee (the "Administrative Fee" and, together with the Advisory Fee, the "Fees") of 0.20 % of the Company’s Managed Assets (defined below). On April 11, 2023, we entered into an amendment to the Advisory Agreement whereby the monthly installment of the Fees shall be paid in cash unless the Adviser elects, in its sole discretion, to receive all or a portion of the monthly installment of the Fees in common shares of the Company, subject to certain restrictions including that in no event shall the common shares issued to the Adviser under the Advisory Agreement exceed five percent of the number of common shares or five percent of the voting power of the Company outstanding prior to the first such issuance (the “Share Cap”) and that in no event shall the common shares issued to the Adviser under the Advisory Agreement exceed 6,000,000 common shares; provided, however, that the Share Cap will not apply if the Company’s shareholders have approved issuances in excess of the Share Cap. At the Company’s 2023 annual meeting of shareholders, the Company’s shareholders did not approve issuances in excess of the Share Cap. During the year ended December 31, 2023, we issued 145,619.99 common shares to the Advisor in payment of the Fees in an amount of $ 1.43 million. Under the Advisory Agreement, “Managed Assets” means an amount equal to the total assets of the Company, including any form of leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing to purchase or develop real estate or other investments, borrowing through a credit facility, or the issuance of debt securities), (ii) the issuance of preferred shares or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Company’s investment objectives and policies, and/or (iv) any other means. In the event the Company holds collateralized mortgage-backed securities ("CMBS") where the Company holds the controlling tranche of the securitization and is required to consolidate under GAAP all assets and liabilities of a specific CMBS trust, the consolidated assets and liabilities of the consolidated trust will be netted to calculate the allowable amount to be included as Managed Assets. In addition, in the event the Company consolidates another entity it does not wholly own as a result of owning a controlling interest in such entity or otherwise, Managed Assets will be calculated without giving effect to such consolidation and instead such entity’s assets, leverage, expenses, liabilities and obligations will, on a pro rata basis consistent with the Company’s percentage ownership, be considered those of the Company for purposes of calculation of Managed Assets. The Adviser computes Managed Assets as of the end of each fiscal quarter and then computes each installment of the Fees as promptly as possible after the end of the month with respect to which such installment is payable. Reimbursement of Expenses; Expense Cap The Company is required to pay directly or reimburse the Adviser for all of the documented “operating expenses” (all out-of-pocket expenses of the Adviser in performing services for us, including but not limited to the expenses incurred by the Adviser in connection with any provision by the Adviser of legal, accounting, financial, due diligence, investor relations or other services performed by the Adviser that outside professionals or outside consultants would otherwise perform and our pro rata share of rent, telephone, utilities, office furniture, equipment, machinery or other office, internal and overhead expenses of the Adviser required for our operations) and any and all expenses (other than underwriters' discounts) paid or to be paid by us in connection with an offering of our securities, including, without limitation, our legal, accounting, printing, mailing and filing fees and other documented offering expenses (collectively, "Offering Expenses"), paid or incurred by the Adviser or its affiliates in connection with the services it provides to us pursuant to the Advisory Agreement. Direct payment of operating expenses by us together with reimbursement of operating expenses to the Adviser, plus compensation expenses relating to equity awards granted under a long-term incentive plan and all other corporate general and administrative expenses of the Company, including the Fees payable under the Advisory Agreement, could not exceed 1.5 % (the "Expense Cap") of Managed Assets, calculated as of the end of each quarter, for the twelve-month period which followed the Company’s receipt of the Deregistration Order. This limitation ended on June 30, 2023 and did not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions or other events outside the ordinary course of our business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of certain real estate-related investments; provided, in the event the Company consolidated another entity that it does not wholly own as a result of owning a controlling interest in such entity or otherwise, expenses would have been calculated without giving effect to such consolidation and instead such entity’s expenses would have been, on a pro rata basis consistent with the Company’s percentage ownership, be considered those of the Company for purposes of calculation of expenses. On occasion, the Adviser may waive additional fees to the extent assets are invested in certain affiliated investments. The Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket expenses paid on the Company’s behalf. Once waived, those expenses were considered permanently waived and became non-recoupable. 125 Table of Contents The Advisory Agreement has an initial term of three years that will expire on July 1, 2025, and successive additional one-year terms thereafter unless earlier terminated. We have the right to terminate the Advisory Agreement on 30 days’ written notice upon the occurrence of a cause event (as defined in the Advisory Agreement). The Advisory Agreement can be terminated by us or the Adviser without cause upon the expiration of the then-current term with at least 180 days’ written notice to the other party prior to the expiration of such term. The Adviser may also terminate the agreement with 30 days’ written notice if we have materially breached the agreement and such breach has continued for 30 days before we are given such notice. In addition, the Advisory Agreement will automatically terminate in the event of an Advisers Act Assignment (as defined in the Advisory Agreement) unless we provide written consent. A termination fee will be payable to the Adviser by us upon termination of the Advisory Agreement for any reason, including non-renewal, other than a termination by us upon the occurrence of a cause event or due to an Advisers Act Assignment. The termination fee will be equal to three times the Fees earned by the Adviser during the twelve month period immediately preceding the most recently completed calendar quarter prior to the effective termination date; provided, however, if the Advisory Agreement is terminated prior to the one year anniversary of the date of the Advisory Agreement, the Fees earned during such period will be annualized for purposes of calculating the Fees. For the year ended December 31, 2023, the Company incurred Administrative Fees and Advisory Fees of $ 13.7 million, which excludes $ 2.0 million, in fees that were waived to comply with the Expense Cap. Revolving Credit Facility On May 22, 2023, the Company entered into the NexBank Revolver pursuant to which the Company in the initial principal amount of $ 20.0 million, with the option for the Company to receive additional disbursements thereunder up to a maximum amount of $ 50.0 million and bears interest at one-month SOFR plus 3.50 % and matures on May 21, 2024. The Company drew the $ 20.0 million on May 22, 2023. As of December 31, 2023, the NexBank Revolver had an outstanding balance of $ 20.0 million. Guaranties of NexPoint Storage Partners, Inc. Debt On July 2, 2021, the Company, together with Highland Opportunities and Income Fund (“HFRO”) and Highland Global Allocation Fund (collectively, the “Co-Guarantors”) as limited guarantors, entered into a Guaranty of Recourse Obligations (“SAFStor Recourse Guaranty I”) in favor of ACORE Capital Mortgage, LP (“ACORE”) in its capacity as Administrative Agent for and on behalf of the Lenders under a Loan Agreement ("SAFStor Loan Agreement I"), in an aggregate principal amount of $ 235.86 million, for the benefit of entities indirectly owned by SAFStor NREA JV – I, LLC (“SAFStor – I”), SAFStor NREA JV – III, LLC (“SAFStor – III”), SAFStor NREA JV – IV, LLC (“SAFStor – IV”), SAFStor NREA JV – V, LLC (“SAFStor – V”), SAFStor NREA JV – VI, LLC (“SAFStor – VI”), SAFStor NREA JV – VII, LLC (“SAFStor – VII”), and SAFStor NREA JV – VIII, LLC (“SAFStor – VIII”) (collectively, “SAFStor”), pursuant to which the Company and the Co-Guarantors guaranteed certain obligations of SAFStor. On July 2, 2021, the Company also entered a substantively identical guaranty in favor of ACORE in its capacity as Administrative Agent for and on behalf of the Lenders under a Mezzanine Loan Agreement ("SAFStor Mezzanine Loan Agreement I"), in the amount of $ 6.05 million, for the benefit of entities indirectly owned by SAFStor. On December 8, 2022, NSP completed a transaction that resulted in it acquiring 100 % of the equity interest in SAFStor. On April 24, 2023, the Company joined certain separate guaranties previously made in favor of ACORE by the Co-Guarantors pursuant to an Omnibus Amendment to and Reaffirmation of Loan Documents (the “SAFStor Recourse Guaranty II”) in favor of ACORE in its capacity as (i) Administrative Agent for and on behalf of the Lenders under a Loan Agreement (“SAFStor Loan Agreement II”), in an aggregate principal amount of $ 41.99 million, for the benefit of SAFStor, and (ii) Administrative Agent for and on behalf of the Lenders under a Mezzanine Loan Agreement (“SAFStor Mezzanine Loan Agreement II”), in the amount of $ 1.08 million, for the benefit of entities indirectly owned by SAFStor. Pursuant to the SAFStor Recourse Guaranty I and SAFStor Recourse Guaranty II, the Company guarantees the loss recourse liability and obligation for any Recourse Liabilities (as defined in the respective SAFStor Loan Agreement) arising out of or in connection with certain bad acts, such as if the borrower takes actions that are fraudulent or improper or upon certain violations of the respective SAFStor Loan Agreement. The Company also guarantees the full payment of the debt upon the occurrence of any Springing Recourse Events (as defined in the respective SAFStor Loan Agreement), such as if the borrower voluntarily files a bankruptcy or similar liquidation or reorganization action or upon certain other violations of the respective SAFStor Loan Agreement. The guarantees by the Company are limited for loss recourse events, to the loss attributable to properties in which it indirectly owns an interest and for Springing Recourse Events (as defined in the respective SAFStor Loan 126 Table of Contents Agreement) to the pro-rata share of the aggregate liability of all guarantors within the pool of the guarantor properties. As of December 31, 2023, the outstanding balance of the pools of guaranties is $ 270.96 million. On September 14, 2022, the Company entered into guaranties (the “BS Guaranties”) for the benefit of JPMorgan Chase Bank, National Association (“JPM”) and any additional or subsequent lenders from time to time (collectively, “BS Lender”) under a loan agreement (the "BS Loan Agreement"), pursuant to which the Company guaranteed certain obligations of the borrowers (“BS Borrower”) under the BS Loan Agreement. The Company, through its ownership in NSP, owns an indirect interest in BS Borrower and entered into the BS Guaranties as a condition of BS Lender lending to BS Borrower under the BS Loan Agreement. Pursuant to the BS Guaranties, the Company guaranteed certain carrying obligations, including interest payments, of BS Borrower and certain recourse obligations of BS Borrower pertaining to exculpation or indemnification of BS Lender. The BS Guaranties also provide that the Company may be required to repay principal amounts upon the occurrence of certain events, including certain action or inaction by BS Borrower, but does not provide for a full guarantee of repayment in all circumstances. The BS Loan Agreement provides for a single initial advance of the loan in the amount of $ 221.8 million to BS Borrower on the closing date and provides BS Borrower the right to request additional advances in connection with subsequently acquired properties. Amounts outstanding under the BS Loan Agreement are due and payable on March 9, 2024 which date may, at the option of BS Borrower, be extended for an additional six months upon the satisfaction of certain terms and conditions. Borrowings outstanding under the BS Loan Agreement are secured by mortgages on real property owned by one or more of the borrowers comprising BS Borrower and bear interest at the one-month SOFR, subject to a floor of 0.5 %, plus an applicable spread of approximately 4.0 % with respect to approximately $ 149.9 million of principal as of December 31, 2023 and approximately 5.4 % with respect to approximately $ 46.9 million of principal as of December 31, 2023. On December 8, 2022 and in connection with a restructuring of NSP, the Company, together with NREF, Highland Opportunities and Income Fund ("HFRO") and NexPoint Real Estate Strategies Fund (collectively, the "NSP Co-Guarantors"), as guarantors, entered into a Sponsor Guaranty Agreement in favor of Extra Space Storage, LP ("Extra Space") pursuant to which the Company and the NSP Co-Guarantors guaranteed obligations of NSP with respect to accrued dividends on NSP’s newly created Series D Preferred Stock and two promissory notes in an aggregate principal amount of approximately $ 64.2 million issued to Extra Space. The guaranties by the Company and the NSP Co-Guarantors were capped at $ 97.6 million, and each of the Company and the NSP Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP’s common stock. On February 15, 2023, NSP paid down approximately $ 15.0 million of these promissory notes, resulting in an aggregate principal amount of approximately $ 49.2 million. On December 8, 2023, NSP paid down the remaining principal balance of $ 49.2 million. The Series D Preferred Stock remains outstanding as of December 31, 2023. Separately, on September 14, 2022, the Company entered into a Guaranty Agreement (Recourse Obligations), dated September 14, 2022 (the “CMBS Guaranty”) for the benefit of JPM and any additional or subsequent lenders from time to time (collectively, the “CMBS Lender”) under a loan agreement (the "CMBS Loan Agreement"), by and among the borrowers thereunder (collectively, “CMBS Borrower”) and the CMBS Lender. The Company, through its ownership in NSP, owns an indirect interest in CMBS Borrower and entered into the CMBS Guaranty as a condition of CMBS Lender lending to CMBS Borrower under the CMBS Loan Agreement. Pursuant to the CMBS Guaranty, the Company guaranteed certain recourse obligations of CMBS Borrower pertaining to exculpation or indemnification of CMBS Lender. The CMBS Guaranty also provides that the Company may be required to repay principal amounts upon the occurrence of certain events, including certain action or inaction by CMBS Borrower, but does not provide for a full guarantee of repayment in all circumstances. The CMBS Loan Agreement provides for a loan of $ 356.5 million to CMBS Borrower. Amounts outstanding under the CMBS Loan Agreement are due and payable on September 9, 2024 which date may, at the option of CMBS Borrower, be extended for three successive one-year terms upon the satisfaction of certain terms and conditions. Borrowings outstanding under the CMBS Loan Agreement are secured by mortgages on real property owned by one or more of the borrowers comprising CMBS Borrower and bear interest at one-month SOFR plus a spread of approximately 3.6 %, which will increase by 0.1 % upon a second extension of the loan maturity and by an additional approximately 0.15 % upon a third extension of the loan maturity. Subsidiary Investment Management Agreement SFP is a party to a management agreement (the "SFP IMA") with NexAnnuity pursuant to which NexAnnuity provides investment management services to SFP. Mr. Dondero serves as President of NexAnnuity, which is indirectly owned by a trust of which Mr. Dondero is the primary beneficiary. As discussed in Note 10, the Company disposed of its interest in SFP on September 1, 2023. Prior to its disposition, the Company paid $ 0.1 million in management fees to NexAnnuity. 127 Table of Contents In exchange for its services, the SFP IMA provided that NexAnnuity would receive a management fee (the "SFP Management Fee") paid monthly in an amount equal to 1.0 % of the average weekly value of an amount equal to the total assets of SFP, including any form of leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the investment objective, investment guidelines and policies under the SFP IMA, and/or (iv) any other means, plus any value added tax or any other applicable tax, if any, thereon. NexAnnuity could waive all or a portion of the SFP Management Fee. Other Related Party Transactions The Company has in the past, and may in the future, utilize the services of affiliated parties. The Company holds multiple operating accounts at NexBank an affiliate of the Adviser through common beneficial ownership. The Company’s operating properties, other than undeveloped land, are managed by NexVest Realty Advisors, LLC ("NexVest"), an affiliate of the Adviser. For year ended December 31, 2023 and 2022, the Company through its subsidiaries has paid approximately $ 0.7 million and $ 0.7 million, respectively, in property management fees to NexVest. The property management agreement with NexVest for the retail property in Lubbock, Texas is dated January 1, 2014 and had a fixed fee of $ 750 per month. Effective January 1, 2023, the property management agreement was amended and the property management fee was increased to $ 1,200 per month. The property management agreement with NexVest for Cityplace Tower is dated August 15, 2018, and the management fee is calculated on 3 % of gross revenues, with a minimum fee of $ 20,000 per month. The property management agreement with NexVest for the White Rock Center is dated June 1, 2013, and the management fee is calculated on 4 % of gross receipts, payable monthly. The property management agreement with NexVest for Cityplace Tower also allows for the manager, as the agent of CP Tower Owner, LLC (“Owner”), to draw on the operating account when required in connection with the operation or maintenance of the property, the payment of certain expenses defined in the agreement, or as expressly approved in writing by Owner. For the year ended 2023, Cityplace Tower reimbursed $ 1.9 million to NexVest for these expenses. The Company is a limited guarantor and an indemnitor on one of NexPoint Hospitality Trust's ("NHTs") loans with an aggregate principal amount of $ 77.4 million as of December 31, 2023. NHT is a publicly traded hospitality REIT that is managed by an affiliate of the Adviser. The obligations include a customary environmental indemnity and a so-called "bad boy" guarantee, which is generally only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper. The Company has not recorded a contingent liability as NHT is current on all debt payments and in compliance with all debt compliance provisions. On March 31, 2022, the Company, through an unconsolidated subsidiary, borrowed approximately $ 13.5 million from NREF, an entity advised by an affiliate of the Adviser, to finance its acquisition of an interest in Tivoli North Property. The bridge note bore interest at an annual rate equal to the WSJ Prime Rate plus 1.5 % and had a maturity date of October 1, 2022. The Company refinanced this bridge note with PNC Bank, N.A ("PNC Bank") on August 8, 2022. The new loan had a principal amount of $ 13.5 million and bears interest at an annual rate of daily simple SOFR plus 3.5 %. Proceeds from the note with PNC Bank were used to repay in full the financing provided by NREF on August 9, 2022 and matures on August 8, 2024. On December 8, 2022, the Company, through NREO, entered into a Contribution Agreement pursuant to which NREO contributed all of its interests in the joint ventures (the "SAFStor Ventures") with SAFStor NREA GP – I, LLC, SAFStor NREA GP – II, LLC and NREA GP – III, LLC to NexPoint Storage Partners Operating Company, LLC (the "NSP OC") in exchange for approximately 47,064 newly created Class B common operating company units of the NSP OC ("Class B Units"), representing 14.8 % of the outstanding combined classes of common units of the NSP OC (the "NSP OC Common Units") immediately after NREO’s acquisition of Class B Units. The NSP OC is the operating company of NSP, of which the Company owns approximately 86,369 shares, or 52.9 %, of the outstanding common stock as of December 31, 2023. In connection with the foregoing, the NSP OC acquired all of the other interests in the SAFStor Ventures from affiliates of the Adviser following which they were wholly owned by a subsidiary of the NSP OC. The SAFStor Ventures are invested, through subsidiaries, in various self-storage real estate development projects primarily located on the East Coast of the United States. As of December 31, 2023, the Company owns approximately 47,064 Class B Units, or 30.0 %, of the outstanding NSP OC Common Units. On December 23, 2022, the Company, through NREO, redeemed 2,100,000 common units of limited partnership (the "NREF OP Units") of NexPoint Real Estate Finance Operating Partnership, L.P. (the "NREF OP") for 2,100,000 shares of 128 Table of Contents common stock of NREF. The NREF OP is the operating partnership of NREF, a publicly traded mortgage REIT managed by an affiliate of the Adviser. On September 1, 2023, the Company, through one of its wholly owned TRSs, entered into a contribution agreement to transfer the Structured Note in SFP and all its rights, title and interests to related party NexAnnuity Holdings, Inc. and its wholly owned subsidiaries. The Company also transferred all of its ordinary shares in SFP to a separate share trustee. In exchange, the Company was issued 68,500 shares of Class A Preferred Stock in NexAnnuity Holdings, Inc. On September 28, 2023, the Company, through one of its wholly owned TRSs, redeemed 2,000 shares of Class A Preferred Stock in NexAnnuity Holdings, Inc. On October 24, 2023, the Company, through one of its wholly owned TRSs, redeemed 1,000 shares of Class A Preferred Stock in NexAnnuity Holdings, Inc. On November 10, 2023, the Company, through one of its wholly owned TRSs, redeemed 1,000 shares of Class A Preferred Stock in NexAnnuity Holdings, Inc. Related Party Investments The Company, from time to time, may invest in entities managed by affiliates of the Adviser. For the year ended and as of December 31, 2023, the Company has the following investments in entities managed or advised by, or directly or indirectly owned by entities managed or advised by, affiliates of the Adviser (in thousands). Related Party Investment Fair Value/Carrying Value Change in Unrealized Gain/(Loss) Realized Gain/(Loss) Equity in income (loss) Interest and Dividends Total Income NexPoint Hospitality Trust Common Stock $ 4,886 $ ( 22,800 ) $ — $ — $ 610 $ ( 22,190 ) NexPoint Real Estate Finance, Inc. Common Stock 33,075 ( 294 ) — — 5,754 5,460 NexPoint Storage Partners, Inc. Common Stock 68,187 ( 35,506 ) — — — ( 35,506 ) NexPoint Residential Trust, Inc. Common Stock 3,154 ( 821 ) — — 155 ( 666 ) NexPoint SFR Operating Partnership, L.P. Convertible Notes 20,814 7 — — 1,822 1,829 NexPoint Hospitality Trust Convertible Notes 21,437 ( 166 ) — — 644 478 NexPoint Storage Partners Operating Company, LLC LLC Units 37,157 ( 19,349 ) — — — ( 19,349 ) SFR WLIF III, LLC LLC Units 7,079 — — 624 — 624 Claymore Holdings, LLC LLC Units — — — — — — Allenby, LLC LLC Units — ( 304 ) — — — ( 304 ) Haygood, LLC. LLC Units — ( 31 ) — — — ( 31 ) VineBrook Homes Operating Partnership, L.P. Partnership Units 146,516 ( 27,463 ) — — 4,318 ( 23,145 ) 129 Table of Contents NexPoint Real Estate Finance Operating Partnership, L.P. Partnership Units 76,688 ( 682 ) — — 11,686 11,004 NexPoint SFR Operating Partnership, L.P. Partnership Units 49,383 ( 5,308 ) — — 1,813 ( 3,495 ) NexAnnuity Holdings, Inc. Preferred Shares 66,268 — — — 1,768 1,768 NexPoint Storage Partners Operating Company, LLC Promissory Note 5,000 — — — 39 39 NexPoint SFR Operating Partnership, L.P. Promissory Note 500 — — — 8 8 Total $ 540,144 $ ( 112,717 ) $ — $ 624 $ 28,617 $ ( 83,476 ) 130 Table of Contents For the six months ended and as of December 31, 2022, the Company has the following investments in entities managed or advised by, or directly or indirectly owned by entities managed or advised by, affiliates of the Adviser (in thousands). Related Party Investment Fair Value Change in Unrealized Gain/(Loss) Realized Gain/(Loss) Interest and Dividends Total Income SFR WLIF III, LLC LLC Units $ 7,272 $ 315 $ — $ — $ 315 NexPoint Residential Trust, Inc. Common Stock 3,825 ( 1,657 ) — 70 ( 1,587 ) NexPoint Hospitality Trust Common Stock 27,685 1,086 — — 1,086 NexPoint Hospitality Trust Convertible Notes 21,479 ( 3,323 ) — 152 ( 3,171 ) NexPoint Storage Partners, Inc. Common Stock 103,695 ( 17,584 ) — — ( 17,584 ) NexPoint Storage Partners Operating Company, LLC LLC Units 56,505 ( 6,004 ) — — ( 6,004 ) NexPoint SFR Operating Partnership, L.P. Partnership Units 53,480 31 — 988 1,019 NexPoint SFR Operating Partnership, L.P. Convertible Notes 29,350 ( 650 ) — 1,181 531 Claymore Holdings, LLC LLC Units — — — — — Allenby, LLC LLC Units — — — — — NexPoint Real Estate Finance Operating Partnership, L.P. Partnership Units 77,370 ( 21,327 ) — 6,969 ( 14,358 ) NexPoint Real Estate Finance, Inc. Common Stock 33,369 ( 9,198 ) — — ( 9,198 ) VineBrook Homes Operating Partnership, L.P. Partnership Units 169,661 780 — 2,853 3,633 Total $ 583,691 $ ( 57,531 ) $ — $ 12,213 $ ( 45,318 ) 131 Table of Contents 14. Commitments and Contingencies Commitments On December 8, 2022 and in connection with a restructuring of NSP, the Company, together with the NSP Co-Guarantors, as guarantors, entered into a Sponsor Guaranty Agreement in favor of Extra Space pursuant to which the Company and the NSP Co-Guarantors guaranteed obligations of NSP with respect to accrued dividends on NSP’s newly created Series D Preferred Stock and two promissory notes in an aggregate principal amount of approximately $ 64.2 million issued to Extra Space. The guaranties by the Company and the NSP Co-Guarantors were capped at $ 97.6 million, and each of the Company and the NSP Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP’s common stock. On February 15, 2023, NSP paid down approximately $ 15.0 million of these promissory notes, resulting in an aggregate principal amount of approximately $ 49.2 million. On December 8, 2023, NSP paid down the remaining principal balance of $ 49.2 million. The NSP Series D Preferred Stock remains outstanding as of December 31, 2023. On July 2, 2021, the Company, together the Co-Guarantors as limited guarantors, entered into a SAFStor Recourse Guaranty I in favor of ACORE in its capacity as Administrative Agent for and on behalf of the Lenders under the SAFStor Loan Agreement I, in an aggregate principal amount of $ 235.86 million, for the benefit of entities indirectly owned by SAFStor, pursuant to which the Company and the Co-Guarantors guaranteed certain obligations of SAFStor. On July 2, 2021, the Company also entered a substantively identical guaranty in favor of ACORE in its capacity as Administrative Agent for and on behalf of the Lenders under the SAFStor Mezzanine Loan Agreement I, in the amount of $ 6.05 million, for the benefit of entities indirectly owned by SAFStor. On April 24, 2023, the Company joined certain separate guaranties previously made in favor of ACORE by the Co-Guarantors pursuant to the SAFStor Recourse Guaranty II in favor of ACORE in its capacity as (i) Administrative Agent for and on behalf of the Lenders under the SAFStor Loan Agreement II, for the benefit of SAFStor, and (ii) Administrative Agent for and on behalf of the Lenders under the SAFStor Mezzanine Loan Agreement II, for the benefit of entities indirectly owned by SAFStor. See Note 13 for additional information. The Company is a limited guarantor and an indemnitor on one of NHT's loans with an aggregate principal amount of $ 77.4 million outstanding, as of December 31, 2023. The obligations include a customary environmental indemnity and a so-called "bad boy" guarantee, which is generally only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper. The Company has not recorded a contingent liability as NHT is current on all debt payments and in compliance with all debt compliance provisions. The Company is a guarantor and an indemnitor on one of Cityplace’s loans with an aggregate principal amount of $ 142.3 million as of December 31, 2023. The obligations include a completion guarantee, which is generally only applicable if and when the borrower, which is a subsidiary of the Company, directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily terminates construction services prior to the completion of the project, files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper. As of December 31, 2023, management does not anticipate any material deviations from schedule or budget related to construction projects current in process, and Cityplace is current on all debt payments and in compliance with all debt compliance provisions. Contingencies In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of all such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated balance sheets or consolidated statements of operations and comprehensive income (loss) of the Company. The Company is not involved in any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company or its properties or subsidiaries. Environmental liabilities could have a material adverse effect on the Company’s business, assets, cash flows or results of operations. As of December 31, 2023, the Company was not aware of any environmental liabilities. There can be no assurance that material environmental liabilities do not exist. Claymore, Allenby and Haygood are engaged in ongoing litigation that could result in a possible gain contingency to the Company. The probability, timing, and potential amount of recovery, if any, are unknown. 132 Table of Contents 15. Operating Leases Lessor Accounting The following table summarizes the future minimum lease payments to the Company as the lessor under the operating lease obligations at December 31, 2023 (in thousands). These amounts do not reflect future rental revenues from renewal or replacement of existing leases. Reimbursements of operating expenses and variable rent increases are excluded from the table below. Year: Operating Leases 2024 $ 9,672 2025 9,256 2026 7,931 2027 7,097 2028 5,513 Thereafter 22,718 Total $ 62,187 The following table lists the tenants where the rental revenue from the tenants during the period presented represented 10% or more of total rental income in the Company’s consolidated statements of operations (in thousands): For the Year Ended December 31, 2023 Six Months Ended December 31, 2022 Tenant Rental Income Rental Income Hudson Advisors LLC $ 2,610 $ 1,424 16. Subsequent Events Dividends Declared On February 2, 2024, the Board approved a quarterly dividend of $ 0.15 per common share, payable on March 28, 2024 to shareholders of record on February 16, 2024. The dividend on the Company’s common shares consists of a combination of cash and shares, with the cash component of the dividend (other than cash paid in lieu of fractional shares) not to exceed 20 % in the aggregate, with the balance being paid in the Company’s common shares. Also on February 2, 2024, the Board approved a quarterly dividend of $ 0.34375 per Series A Preferred Share, payable on April 1, 2024 to shareholders of record on March 25, 2024. Issuance of Common Shares to Adviser On January 12, 2024, the Company issued 169,920.62 common shares to the Adviser as payment of a portion of the monthly Advisory Fees pursuant to the Advisory Agreement. Redemption of Series A Preferred Stock in NexAnnuity Holdings, Inc. On January 12, 2024, NHI, in its sole discretion redeemed 1,700 shares of Class A Preferred Stock in NHI held by one of the Company's wholly owned TRSs for $ 1.7 million. 133 Table of Contents Cityplace Debt Extension On March 8, 2024, the lender agreed to defer the maturity of the Cityplace debt by twelve months to March 8, 2025. The terms of this extension require a 0.25 % extension fee, with the loan continuing to amortize during the extension period, as well as a waiver to purchase an interest rate cap. NSP BS Guaranties Extension On March 8, 2024, the BS Lender agreed to extend the maturity date to March 22, 2024, which will allow NSP to use February 2024 financials to calculate the Debt Yield (as defined in the BS Loan Agreement), which is part of the process for obtaining a longer extension. 134 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.