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Item 8. Financial Statements and Supplementary Data

2025-03-31 compared with 2024-03-14 · 821 added, 819 removed, 723 unchanged (69% of the section changed)

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Year Ended December 31, 2023 and Six Months Ended December 31, 2022

Consolidated Statement of Operations for the Six Months Ended June 30, 2022 (Predecessor Basis)

Consolidated Statement of Operations for the Year Ended December 31, 2021 (Predecessor Basis)

Consolidated Statements of Shareholders’ Equity for the Year Ended December 31, 2023 and Six Months Ended December 31, 2022

Consolidated Statement of Changes in Net Assets for the Six Months Ended June 30, 2022 (Predecessor Basis)

Consolidated Statement of Changes in Net Assets for the Year Ended December 31, 2021 (Predecessor Basis)

Consolidated Statements of Cash Flows for the Year Ended December 31, 2023 and Six Months Ended December 31, 2022

Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2022 (Predecessor Basis)

Consolidated Statement of Cash Flows for the Year Ended December 31, 2021 (Predecessor Basis)

2323 Ross Avenue

Dallas, TX 75201-2721

Consolidated Balance Sheets as of December 31, 2024 and 2023

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2024 and 2023

Consolidated Statements of Equity for the Years Ended December 31, 2024 and 2023

Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023

Report of Independent Registered Public Accounting Firm

2 unchanged sentences

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.

We have audited the accompanying consolidated balance sheets of NexPoint Diversified Real Estate Trust and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows for the years then ended, 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, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, 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

1 unchanged sentence

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.

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 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.

1 unchanged sentence

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.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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.

12 unchanged sentences

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.

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.

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 evaluated the design 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:

2 unchanged sentences

• 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.

We have served as the Company’s auditor since 2022.

1 unchanged sentence

March 31, 2025

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.

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.

We have served as the Company’s auditor since 2022.

Dallas, Texas

March 13, 2024

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

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

8 unchanged sentences

Furniture, fixtures, and equipment 10,124 362

Right-of-use assets ($ 712 and $ 0 with related parties, respectively)

Total Gross Consolidated Real Estate Investments 422,395 284,439

1 unchanged sentence

Total Net Consolidated Real Estate Investments 387,393 263,914

Real estate held for sale 29,890 —

Total Net Real Estate Investments 417,283 263,914

Investments, at fair value ($ 493,909 and $ 533,065 with related parties, respectively)

2 unchanged sentences

54,429 66,263

Life insurance policies, at fair value — 67,711

Investments in DSTs ($ 30,559 and $ 0 , with related parties, respectively)

Cash and cash equivalents 8,791 20,608

1 unchanged sentence

Accounts receivable, net 4,463 4,347

Prepaid and other assets 10,431 6,441

Prepaid and other assets ($ 7,315 and $ 3,586 with related parties, respectively)

17,500 10,431

Accrued interest and dividends 5,495 6,078

Interest rate caps 159 —

Deferred tax asset, net 2,618 2,896

Total Assets $ 1,224,839 $ 1,098,336

LIABILITIES AND SHAREHOLDERS' EQUITY

Mortgages payable, net $ 142,186 $ 144,414

Notes payable, net ($ 20,000 and $ 0 with related party, respectively)

LIABILITIES AND EQUITY

Mortgages payable, net ($ 10,000 and $ 0 with related parties, respectively)

$ 261,945 $ 142,186

Notes payable, net ($ 66,731 and $ 20,000 with related parties, respectively)

90,888 52,919

Prime brokerage borrowing 1,222 1,782

6 unchanged sentences

Intangible lease liabilities, net 3,139 4,567

Due to affiliates — 112

Lease liability ($ 721 and $ 0 with related parties, respectively)

Total Liabilities 391,301 213,262

Shareholders' Equity

Preferred shares, $ 0.001 par value:

Series A Preferred shares, $ 0.001 par value:

4,800,000 shares authorized;

6 unchanged sentences

Total Shareholders' Equity 836,508 885,074

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,098,336 $ 1,222,902

Noncontrolling interests ( 2,970 ) —

Total Equity 833,538 885,074

TOTAL LIABILITIES AND EQUITY $ 1,224,839 $ 1,098,336

See Notes to Consolidated Financial Statements

3 unchanged sentences

(in thousands, except per share amounts)

For the Year Ended December 31, For the Six Months Ended December 31,

Rental income $ 20,309 $ 10,070

For the Year Ended December 31

Rental income ($ 271 and $ 222 , with related parties, respectively)

$ 15,678 $ 20,309

Rooms 24,902 —

Food and beverage 2,200 —

Interest income ($ 2,600 and $ 2,514 with related parties, respectively)

3 unchanged sentences

Total revenues 83,222 63,284

Property operating expenses 7,489 3,682

Property management fees 726 296

Property operating expenses ($ 260 and $ 0 with related parties, respectively)

Property management fees ($ 734 and $ 726 with related parties, respectively)

Real estate taxes and insurance 6,544 4,377

Advisory and administrative fees 14,165 11,740

Property general and administrative expenses 4,250 302

Property general and administrative expenses ($ 271 and $ 222 with related parties, respectively)

Corporate general and administrative expenses 12,803 7,981

1 unchanged sentence

Depreciation and amortization 15,600 13,937

Impairment loss 7,110 —

Total expenses 87,373 51,703

2 unchanged sentences

Equity in income (losses) of unconsolidated equity method ventures ($ 649 and $ 624 with related parties, respectively)

( 306 ) ( 2,257 )

Change in unrealized gains (losses) ($( 18,829 ) and $( 112,717 ) with related parties, respectively)

( 1,348 ) ( 108,249 )

Realized gains (losses) ( 1,634 ) ( 2,323 )

Realized gains (losses) ($ 339 and $ 0 with related parties, respectively)

( 21,479 ) ( 1,634 )

Net income (loss) before income taxes ( 55,201 ) ( 114,510 )

Income tax expense ( 1,372 ) ( 2,731 )

Net income (loss) ( 117,241 ) ( 81,573 )

Net loss ( 56,573 ) ( 117,241 )

Net (income) loss attributable to preferred shareholders ( 4,619 ) ( 4,619 )

Net income (loss) attributable to common shareholders $ ( 121,860 ) $ ( 83,883 )

Net (income) loss attributable to noncontrolling interests 9,843 —

Net loss attributable to common shareholders $ ( 51,349 ) $ ( 121,860 )

Weighted average common shares outstanding - basic 40,229 37,334

Weighted average common shares outstanding - diluted 40,229 37,334

Earnings (loss) per share - basic $ ( 3.26 ) $ ( 2.26 )

Earnings (loss) per share - diluted $ ( 3.26 ) $ ( 2.26 )

See Notes to Consolidated Financial Statements

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS (Predecessor Basis)

(in thousands)

For the Six Months Ended June 30,

Investment 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

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

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

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS (Predecessor Basis)

(in thousands)

For the Year Ended December 31,

Investment 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

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

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

Net realized and unrealized gain on investments 174,903

Total increase in net assets resulting from operations $ 245,455

Loss per share - basic $ ( 1.28 ) $ ( 3.26 )

Loss per share - diluted $ ( 1.28 ) $ ( 3.26 )

See Notes to Consolidated Financial Statements

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS ’ EQUITY

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share and per share amounts)

Preferred Shares Common Shares Additional

Series A Preferred Shares Common Shares Additional

Capital Accumulated

Earnings (Loss) Total

Earnings (Loss) Noncontrolling Interests Total

Year Ended December 31, 2024 Number of

2 unchanged sentences

Balances, December 31, 2023 3,359,593 $ 3 38,389,600 $ 38 $ 1,011,613 $ ( 126,580 ) $ — $ 885,074

Noncontrolling interests from NHT Acquisition — — — — — — 6,873 6,873

Stock-based compensation expense — — 145,433 — 2,808 — — 2,808

Shares issued to Advisor for admin and advisory fees — — 145,620 — 1,431 — 1,431

Shares issued to Adviser for admin and advisory fees — — 867,627 1 5,544 — — 5,545

Net loss attributable to common shareholders — — — — — ( 51,349 ) — ( 51,349 )

Net income attributable to preferred shareholders — — — — — 4,619 4,619

Common share dividends declared ($ 0.60 per share)

Net loss attributable to noncontrolling interests — — — — — — ( 9,843 ) ( 9,843 )

Net income attributable to Series A preferred shareholders — — — — — 4,619 — 4,619

Common share distributions declared ($ 0.60 per share)

— — 3,276,909 4 19,315 ( 24,889 ) — ( 5,570 )

Preferred share dividends declared ($ 1.375 per share)

Series A preferred share distributions declared ($ 1.3750 per share)

— — — — — ( 4,619 ) — ( 4,619 )

2 unchanged sentences

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS ’ EQUITY

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share and per share amounts)

Preferred Shares Common Shares Additional

Series A Preferred Shares Common Shares Additional

Capital Accumulated

Earnings (Loss) Total

Six Months Ended December 31, 2022 Number of

Year Ended December 31, 2023 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

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 Adviser 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 ($ 0.30 per share)

Common share distributions declared ($ 0.60 per share)

— — 1,072,173 1 8,993 ( 22,667 ) ( 13,673 )

Preferred share dividends declared ($ 0.68750 per share)

Series A preferred shares distributions declared ($ 1.3750 per share)

— — — — — ( 4,619 ) ( 4,619 )

2 unchanged sentences

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,

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:

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

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

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,

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:

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

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

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,

For the Year Ended December 31,

Cash flows from operating activities

Net loss $ ( 56,573 ) $ ( 117,241 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 15,600 13,937

1 unchanged sentence

Amortization of deferred financing costs 696 776

Amortization of fair value adjustment of assumed debt 1,140 —

Paid-in-kind interest ($( 5,845 ) and $( 1,893 ) with related parties, respectively)

( 10,089 ) ( 5,952 )

Proceeds from paid-in-kind interest on paydowns or sales from investments 3,730 —

Realized (gain) loss 1,634 2,323

Proceeds from paid-in-kind interest 2,517 3,730

Net cash received on derivative settlements 932 —

Realized loss 21,479 1,634

Net change in unrealized (gain) loss on investments held at fair value ($ 18,829 and $ 112,717 with related parties, respectively)

1,348 108,249

Unrealized (gain) loss on interest rate derivatives ( 27 ) —

Impairment loss 7,110 —

Equity in (income) losses of unconsolidated ventures ($( 649 ) and $ 624 with related parties, respectively)

3 unchanged sentences

Equity security dividends reinvested ($( 5,459 ) and $( 5,529 ) with related parties, respectively)

Deferred tax benefit ( 648 ) ( 2,247 )

( 5,476 ) ( 5,529 )

Deferred tax (benefit) expense 278 ( 648 )

Changes in operating assets and liabilities, net of effects of acquisitions:

3 unchanged sentences

Operating liabilities 6,004 ( 4,923 )

Net cash provided by (used in) operating activities:

( 24,266 ) 31,431

Net cash used in operating activities ( 11,665 ) ( 24,266 )

Cash flows from investing activities

Proceeds from asset redemptions ($ 19,136 and $ 4,000 with related parties, respectively)

22,701 13,759

Distributions from CLO investments 1,266 9,170

Proceeds from sale of investments 2,438 16,512

Proceeds from paydowns of investments ($ 8,543 and $ 0 with related parties, respectively)

Net cash acquired in acquisition of NexPoint Hospitality Trust 42,749 —

Purchases of investments ($( 34,787 ) and $( 5,984 ) with related parties, respectively)

( 34,907 ) ( 5,984 )

Contributions to equity method investments — ( 1,382 )

Additions to consolidated real estate investments ( 8,273 ) ( 10,474 )

Acquisitions of consolidated real estate investments — ( 26,500 )

Purchases of life settlement policies — ( 8,700 )

Proceeds from life settlement policy maturities — 3,000

Net cash outflow from deconsolidation of subsidiary ( 3,993 ) —

Net cash provided by (used in) investing activities 21,990 ( 14,418 )

Cash outflow from deconsolidation of investment — ( 3,993 )

Net cash provided by investing activities 25,974 21,990

Cash flows from financing activities

Proceeds received from notes payable — 39,000

Mortgage proceeds received ($ 9,900 and $ 0 with related parties, respectively)

Mortgage payments ( 4,777 ) ( 2,364 )

3 unchanged sentences

Deferred financing costs paid ( 463 ) ( 971 )

Dividends paid to preferred shareholders ( 4,619 ) ( 2,310 )

Dividends paid to common shareholders ( 13,408 ) ( 11,153 )

Payments for taxes related to net share settlement of stock-based compensation ( 202 ) —

Distributions paid to Series A preferred shareholders ( 4,619 ) ( 4,619 )

Distributions paid to common shareholders ( 4,941 ) ( 13,408 )

Net cash provided by (used in) financing activities ( 18,577 ) 6,796

6,796 ( 19,140 )

Net increase (decrease) in cash, cash equivalents and restricted cash ( 4,268 ) 4,520

Cash, cash equivalents and restricted cash, beginning of period 48,649 50,776

Cash, cash equivalents and restricted cash, end of period $ 53,169 $ 48,649

Cash, cash equivalents and restricted cash, beginning of year 53,169 48,649

Cash, cash equivalents and restricted cash, end of year $ 48,901 $ 53,169

Supplemental Disclosure of Cash Flow Information

2 unchanged sentences

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 distribution payment $ 19,319 $ 8,994

Fair value assets acquired from the sale of consolidated investments* $ — $ 68,500

Non-cash advisory fee payment $ 5,545 $ 1,431

Increase in dividends payable upon vesting of restricted stock units $ 628 $ 265

Real estate investments assumed in acquisition of NexPoint Hospitality Trust $ ( 167,624 ) $ —

DST investments assumed in acquisition of NexPoint Hospitality Trust $ ( 5,000 ) $ —

Interest rate caps assumed in acquisition of NexPoint Hospitality Trust $ ( 1,064 ) $ —

Notes payable assumed in acquisition of NexPoint Hospitality Trust $ 50,694 $ —

Mortgages payable assumed in acquisition of NexPoint Hospitality Trust $ 114,640 $ —

Right of use assets assumed in acquisition of NexPoint Hospitality Trust $ ( 1,465 ) $ —

Accrued interest payable assumed in acquisition of NexPoint Hospitality Trust $ 6,353 $ —

Noncontrolling interests assumed in acquisition of NexPoint Hospitality Trust $ 6,873 $ —

Deconsolidated investments at fair value from the acquisition of NexPoint Hospitality Trust $ 24,981 $ —

Accounts receivable and other assets assumed in acquisition of NexPoint Hospitality Trust $ ( 1,305 ) $ —

Prepaid assets and other assets assumed in acquisition of NexPoint Hospitality Trust $ ( 1,492 ) $ —

Accounts payable and other liabilities assumed in acquisition of NexPoint Hospitality Trust $ 14,276 $ —

Real estate taxes payable assumed in acquisition of NexPoint Hospitality Trust $ 1,233 $ —

Change in capitalized construction costs included in accounts payable and other accrued liabilities $ 698 $ 723

Adjustment to Life Insurance Policies, at fair value, on deconsolidation of entity $ — $ ( 62,484 )

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Predecessor Basis)

(in thousands)

For the Six Months Ended June 30,

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

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

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Predecessor Basis)

(in thousands)

For the Year Ended December 31,

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:

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

NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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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”), through an agreement dated July 1, 2022, amended on October 25, 2022, April 11, 2023 and July 22, 2024 (the “Advisory Agreement”), by and among the Company and the Adviser for an initial three-year term that will expire on July 1, 2025 and successive one-year terms thereafter unless earlier terminated.

The Adviser manages the day-to-day operations of the Company and provides investment management services.

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The Company may, to a limited extent, hold, acquire or transact in certain non-real estate securities.

Asset Acquisition

NHT Acquisition

On April 10, 2024, NexPoint Real Estate Partners, LLC (“NREP”), an entity advised by an affiliate of the Adviser, and Highland Capital Management, L.P.

(“Highland”), a third party, entered into a Purchase Agreement ("Purchase Agreement") whereby Highland agreed to sell, among other things, 2,176,257 NHT Units to NREP.

The Purchase Agreement was funded in part by cash of $ 0.8 million provided to NREP by the Company that was allocated for the sale of the NHT Units.

Then on April 19, 2024, the Company, NexPoint Real Estate Opportunities, LLC ("NREO"), a wholly owned subsidiary of the Company, and NREP entered into an Assignment of Interests Agreement whereby NREP distributed, assigned, conveyed, transferred, set over, and delivered to NREO its right to purchase the NHT Units under the Purchase Agreement and all of its rights, title and interest in, to and under the NHT Units, including all voting, consent and financial rights, free and clear of all liens and encumbrances (the “NHT Acquisition”).

As a result, the Company owned 53.65 % of the outstanding NHT Units and was determined to hold the controlling financial interest in NHT and as a result consolidated NHT.

The NHT Acquisition was accounted for as an asset acquisition under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, Business Combinations .

Because the Company did not wholly own NHT following the NHT Acquisition, the Company recognized a noncontrolling interest (“NCI”) of $ 6.9 million, which was recorded at fair value when the controlling financial interest was acquired.

The Company also recorded an unrealized gain on its previously held interest in NHT of $ 3.9 million.

On November 22, 2024, the Company announced that it had entered into an Agreement and Plan of Merger pursuant to which it would acquire the remaining outstanding NHT Units in a merger transaction (the “NHT Merger”) for

approximately $ 5.7 million, to be paid principally in common shares of the Company, with limited partnership interests of the OP paid for the equity interests of NHT Operating Partnership, LLC (“NHT OP”).

On February 21, 2025, NHT’s unitholders voted to approve the NHT Merger.

The NHT Merger is expected to close in the second quarter of 2025.

The accumulated cost of the acquisition was allocated to the acquired assets and liabilities based on their relative fair values as follows (in thousands):

Land $ 22,673

Buildings and improvements 128,616

Construction in progress 3,613

Furniture, fixtures, and equipment 12,722

Investments, at fair value 5,000

Cash and cash equivalents 38,467

Restricted cash 5,065

Prepaid and other assets 4,001

Right-of-use asset 1,465

Interest-rate cap 1,064

Mortgages payable ( 114,640 )

Notes payable ( 70,529 )

Accounts payable and other accrued liabilities ( 21,826 )

Accrued real estate taxes ( 1,233 )

Identifiable Net Assets Acquired $ 14,458

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.

The accompanying consolidated financial statements are presented in accordance with U.S.

generally accepted accounting principles (“GAAP”).

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the consolidated financial statements and the amounts of revenues and expenses during the reporting periods.

Actual amounts realized or paid could differ from those estimates.

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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.

In the opinion of management, all adjustments and eliminations necessary for the fair presentation of the Company’s financial position as of December 31, 2024 and December 31, 2023, and results of operations for the years ended December 31, 2024 and 2023 have been included.

Such adjustments are normal and recurring in nature.

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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:

Land Not depreciated

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.

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

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).

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.

U.S REIT Status

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

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.

To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90% of its “REIT taxable income,” as defined by the Code, to its 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.

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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.

federal income tax purposes, the Company may deduct earnings distributed to shareholders 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.

A reconciliation of the deferred tax asset (liability) for the periods indicated is as follows (in thousands):

As of December 31,

NHF TRS NREO TRS NHT TRSs Combined NHF TRS NREO TRS Combined

Deferred Tax Assets $ 14,942 $ 290 $ 6,561 $ 21,793 $ 19,384 $ 441 $ 19,825

Valuation Allowance ( 10,487 ) — ( 6,535 ) ( 17,022 ) ( 14,896 ) — ( 14,896 )

Deferred Tax Liability — ( 2,127 ) ( 26 ) ( 2,153 ) — ( 2,033 ) ( 2,033 )

Deferred Tax Asset (Liability), net of Valuation Allowance $ 4,455 $ ( 1,837 ) $ — $ 2,618 $ 4,488 $ ( 1,592 ) $ 2,896

The Company’s tax provision for annual 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, 2024 and 2023 were ( 2.49 )% and ( 2.38 )%, respectively.

Our effective tax rate differs from the U.S.

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A reconciliation of the statutory income tax provisions to the effective income tax provisions for the periods indicated is as follows (in thousands):

For the Period Ended December 31,

For the Year Ended December 31,

Expected tax at statutory rate $ ( 11,592 ) 21.0 % $ ( 24,047 ) 21.0 %

Non-taxable REIT income 10,838 - 19.6 % 27,426 - 24.0 %

State and local tax expense - net of federal benefit — — % — — %

Change in valuation allowance 2,126 - 3.9 % ( 648 ) 0.6 %

Total provision $ 1,372 - 2.5 % $ 2,731 - 2.4 %

Canadian mutual fund status

NHT is a mutual fund trust pursuant to the Income Tax Act (Canada) (the “Tax Act”).

Under current tax legislation, a mutual fund trust that is not a specified investment flow-through trust (“SIFT”) pursuant to the Tax Act generally is entitled to deduct distributions of taxable income such that it is not liable to pay Canadian income taxes provided that its taxable income is fully distributed to unitholders.

NHT intends to qualify as a mutual fund trust that is not a SIFT and to make distributions not less than the amount necessary to ensure that NHT will not be liable to pay Canadian income taxes.

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):

As of December 31, 2024, 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, 2024 Deferred Tax Asset as of December 31, 2023

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Valuation allowance ( 17,022 ) ( 14,896 )

Deferred tax liability ( 2,153 ) ( 2,033 )

Net deferred tax asset $ 2,618 $ 2,896

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.

NHF TRS, LLC, one of the Company's TRSs, is estimated to generate a net taxable capital loss of $ 7.9 million for the year ended December 31, 2024 and generated a net taxable capital gain of $ 10.9 million for the year ended December 31, 2023.

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.

As such, the Company has recorded a valuation allowance of $ 10.5 million and $ 14.9 million as of December 31, 2024 and 2023, respectively, against the Company’s gross deferred tax assets to arrive at a net DTA of $ 4.5 million and $ 4.5 million as of December 31, 2024 and 2023, 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 $ 0.7 million as of December 31, 2024 that does not have an expiration date as well as an estimated $ 0.7 million capital loss balance as of December 31, 2024 that will expire if not utilized within the succeeding three 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 $ 0.3 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.

NREO TRS, one of the Company's TRSs, had 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 four taxable years.

Cash, Cash Equivalents and Restricted Cash

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Restricted cash represents cash deposited in accounts related to security deposits, property taxes, insurance premiums and deductibles and other lender-required escrows.

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.

Amounts deposited in the reserve accounts associated with the loans can only be used as provided for in the respective loan agreements, and security deposits held pursuant to lease agreements are required to be segregated.

Income Recognition

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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.

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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.

The Company reverses cumulative, unrealized gains or losses previously reported in its Consolidated Statement of Operations 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.

Hotel Revenue Recognition

The Company generally recognizes revenue in accordance with ASC 606, Revenue From Contracts with Customers , which requires five steps to evaluate revenue recognition:

(i) identify the contract(s) with a customer;

(ii) identity the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

Rooms revenue is recognized over the length of a customer’s hotel stay.

Food and beverage (“F&B”) revenue generally consists of goods and ancillary service charges the customer separately chooses to purchase and are recognized generally when the goods or services are provided to the customer.

Expense Recognition

Interest expense, in accordance with the Company’s financing agreements, is recorded on the accrual basis.

Interest expense - 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).

Property management fees - Property management fees include fees paid to NexVest, our property manager, for managing each property directly or indirectly owned by us (see Note 14 to our consolidated financial statements) and other property managers for managing the day-to-day operations of our hotels.

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.

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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.

Summarized financial information for significant equity method investments, as determined in accordance with Rule 8-03(b)(3) 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.

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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.

Fair Value Measurements

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability.

• 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 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.

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.

Valuation of Investments

As of December 31, 2024 and 2023 , 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.