NEXPOINT REAL ESTATE FINANCE, INC.

Form 10-Q

Quarter Ended ~~June 30, 2020~~March 31, 2021

INDEX

			Page
Cautionary Statement Regarding Forward-Looking Statements			ii

			PART I—FINANCIAL INFORMATION
	~~PART I—FINANCIAL INFORMATION~~

Item 1.	Financial Statements	~~Financial Statements~~
		Consolidated Balance Sheets as of ~~June 30, 2020 (Unaudited)~~March 31, 2021(Unaudited) and December 31, ~~2019~~2020		1
		Consolidated Unaudited Statements of Operations for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020		2
		Consolidated Unaudited Statements of Stockholders’ Equity for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020		3
		Consolidated Unaudited Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2021 and 2020		4
		Notes to Consolidated Unaudited Financial Statements		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2925
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		4137
Item 4.		Controls and Procedures		4237

			PART II—OTHER INFORMATION
	~~PART II—OTHER INFORMATION~~

Item 1.		Legal Proceedings		4338
Item 1A.		Risk Factors		4338
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		4439
Item 3.		Defaults Upon Senior Securities		4439
Item 4.		Mine Safety Disclosures		4439
Item 5.		Other Information		4439
Item 6.		Exhibits		4540
Signatures					4641

Table of Contents

Cautionary Statement ~~Regardin~~gRegarding Forward-Looking Statements

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

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

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

~~Our loans and investments expose us to risks similar to and associated with debt-oriented real estate investments generally~~;

●

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

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

●

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

~~Risks associated with the current COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases;~~

●

Risks associated with the COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases;

~~Fluc~~tuations in interest rate and credit spreads, which may not be adequately protected or protected at all, by our hedging strategies, could reduce our ability to generate income on our loans and other investments, which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments;

●

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

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

●

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

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

●

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

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

●

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

●

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

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

●

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

●

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

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

●

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

If we fail to qualify as a REIT for U.S. federal income tax purposes, cash available for distributions to be paid to our stockholders could decrease materially, which would limit our ability to make distributions to our stockholders; and

●

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

Any other risks included under the heading “Risk Factors,” in our Registration Statement on Form S-11, as amended (Registration No. 333-235698), filed with the Securities and Exchange Commission (“SEC”) on February 4, 2020 under the Securities Act of 1933 (the “Securities Act”), under Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 8, 2020, or under Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.

●

Any other risks included under Part I, Item1A, “Risk Factors,” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021 or under Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.

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

Table of Contents

NEXPOINT REAL ESTATE ~~FINAN~~~~CE,~~FINANCE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	June 30, 2020			December 31, 2019		March 31, 2021			December 31, 2020
	(Unaudited)					(Unaudited)
ASSETS
Cash and cash equivalents	$	966		$	—	$	14,917		$	30,241
Restricted cash							570			3,230
Loans, held-for-investment, net		39,771			—		153,637			127,777
Preferred stock		40,947			—
Common stock, at fair value							45,460			44,626
Mortgage loans, held-for-investment, net		930,340			—		915,348			918,114
Accrued interest and dividends		6,220			—		5,646			5,078
Mortgage loans held in variable interest entities, at fair value		2,835,528			—		4,782,318			5,007,515
CMBS structured pass through certificates, at fair value (Note 7)		4,368			—
Other assets		1,118			—
CMBS structured pass through certificates, at fair value (Note 6)							38,923			38,984
Accounts receivable and other assets							3,384			745
TOTAL ASSETS	$	3,859,258		$	—	$	5,960,203		$	6,176,310

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Secured financing agreements, net	$	787,569		$	—	$	839,687		$	840,453
Master repurchase agreements		60,123					162,168			161,465
Unsecured notes, net							35,025			34,960
Accounts payable and other accrued liabilities		1,249			—		3,807			1,779
Accrued interest payable		768			—		2,791			2,311
Bonds payable held in variable interest entities, at fair value		2,671,868			—		4,496,771			4,731,429
Total Liabilities		3,521,577			—		5,540,249			5,772,397

Redeemable noncontrolling interests in the Operating Partnership		251,384			—
Redeemable noncontrolling interests in the OP							285,587			275,670

Stockholders' Equity:
Preferred stock, $0.01 par value: 100,000,000 shares authorized; 0 shares issued		—			—
Common stock, $0.01 par value: 500,000,000 shares authorized; 5,350,000 and 10 shares issued and 5,262,534 and 10 shares outstanding, respectively		53			—
Preferred stock, $0.01 par value: 100,000,000 shares authorized; 2,000,000 and 2,000,000 shares issued and 1,645,000 and 1,645,000 shares outstanding, respectively							16			16
Common stock, $0.01 par value: 500,000,000 shares authorized; 5,309,565 and 5,350,000 shares issued and 5,022,578 and 5,022,578 shares outstanding, respectively							50			50
Additional paid-in capital		91,933			—		137,845			138,043
Accumulated deficit		(4,351	)		—
Common stock held in treasury at cost; 87,466 shares		(1,338	)		—
Retained earnings							9,218			3,485
Preferred stock held in treasury at cost; 355,000 shares and 355,000, respectively							(8,567	)		(8,567	)
Common stock held in treasury at cost; 286,987 shares and 327,422 shares, respectively							(4,195	)		(4,784	)
Total Stockholders' Equity		86,297			—		134,367			128,243
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,859,258		$	—	$	5,960,203		$	6,176,310

2. Summary of Significant Accounting Policies

Basis of Accounting

The accompanying unaudited consolidated financial statements are presented in accordance with accounting principles generally accepted in the ~~United States~~U.S. (“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 unaudited 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. There have been no significant changes to the Company’s significant accounting policies during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

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

In the opinion of management, all adjustments and eliminations necessary for the fair presentation of the Company’s financial position as of ~~June 30,~~March 31, 2021 and December 31, 2020 and results of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 have been included. Such adjustments are normal and recurring in nature. The unaudited information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements ~~included~~for the year ended December 31, 2020, and notes thereto in ~~the Company’s Registration Statement~~its Annual Report on Form ~~S-11, as amended (Registration No. 333-235698),~~10-K filed with the SEC on February ~~4, 2020.~~25, 2021.

Table of Contents

~~Secured Financing and Master Repurchase Agreements~~

The Company’s borrowings under secured financing agreements and master repurchase agreements are treated as collateralized financing arrangements carried at their contractual amounts, net of unamortized debt issuance costs, if any.

Use of Estimates and Assumptions

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. It is at least reasonably possible that these estimates could change in the near term. Estimates are inherently subjective in nature and actual results could differ from our estimates and the differences could be material.

Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has evolved rapidly and, as cases of COVID-19 were identified in additional countries, many countries, including the United States, reacted by instituting quarantines, mandating business and school closures and restricting travel.

As a result of the ~~recent spike in~~ COVID-19 ~~cases in~~pandemic, the ~~United States, certain states~~Company has received and ~~cities have reinstituted restrictive quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of business that~~ may continue to operate, and/or restrictions on the types of construction projects that may continue. Management expects that additional states and cities will implement similar restrictions if the current trend continues and cannot predict when such restrictions will expire. As a result, the COVID-19 pandemic has negatively impacted, and will likely continue to negatively impact, almost every industry directly or indirectlyreceive forbearance requests and may ~~adversely impact~~experience difficulty making new investments or redeploying proceeds from repayments of our ~~performance~~existing investments, meeting financial covenants in the Company's debt obligations or accessing debt and equity capital on attractive terms, or at all. In addition, reduced economic activity may cause certain borrowers underlying the ~~value of underlying~~Company's real estate ~~collateral relating~~related assets and senior loans to ~~the Company’s investments, increase the~~become delinquent or default ~~risk applicable~~on their loans, or seek to ~~borrowers and make it relatively more difficult for the~~defer payment on, or refinance, their loans. The Company to generate attractive risk-adjusted returns. The extent to which COVID-19 impacts the Company will depend on future developments, which are highly uncertain and cannot be predicted, including additional actions taken to contain COVID-19 or treat its impact, among others. The COVID-19 outbreak, and future pandemics, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance. COVID-19 may also negatively and materially impact estimates and assumptions used by the Company including, but not limited to, fair value estimates and estimates of an allowance for loan losses.

~~We are~~is closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. ~~As of June 30, 2020,~~From inception through March 31, 2021, there have been two forbearance requests approved in ~~our~~the Company's CMBS B-Piece portfolio, representing ~~1.7%~~0.9% of ~~our~~the Company's consolidated unpaid principal balance outstanding. ~~There have also been~~Additionally, there were nine forbearance requests approved in ~~our~~the Company's SFR ~~loan book, representing 2.84%~~Loan book. However, as of ~~our consolidated unpaid principal balance outstanding.~~March 31, 2021, these loans were no longer in forbearance. Despite these forbearance requests, ~~we expect that~~ the master servicers ~~will continue~~continued to make payments to usthe Company for the portion of our CMBS B-Piece and SFR Loans that requested forbearance, and were approved by the Federal Home Loan Mortgage Corporation ("Freddie ~~Mac,~~Mac"), during the entire forbearance period. These agreed upon forbearance requests include both principal and interest payments for three months, with an option to the borrower to extend an additional three months, and require the borrower to repay Freddie Mac within twelve months of the end of the forbearance period. For additional information regarding the risks to the Company related to the COVID-19 pandemic, or any other future pandemic, see "Item 1A. Risk Factors" of our Annual Report on Form 10-K filed with the SEC on February 25, 2021.

Principles of Consolidation

The Company accounts for subsidiary partnerships in which it holds an ownership interest in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has power 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 unaudited 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. In addition, all of the Company’s debt is an obligation of the ~~OP’s subsidiary partnerships.~~Subsidiary OPs.

Table of Contents

Variable Interest Entities

The Company evaluates all of its interests in VIEs for consolidation. When the Company’s interests are determined to be variable interests, the Company assesses whether it is deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. FASB ASC Topic 810, Consolidation, defines the primary beneficiary as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the VIE which could be potentially significant. The Company considers its variable interests, as well as any variable interests of its related parties in making this determination. Where both of these factors are present, the Company is deemed to be the primary beneficiary, and it consolidates the VIE. Where either one of these factors is not present, the Company is not the primary beneficiary, and it does not consolidate the VIE.

CMBS Trusts

The Company consolidates the trusts that issue beneficial ownership interests in mortgage loans secured by commercial real estate (commonly known as CMBS) when the Company holds a variable interest in, and management considers the Company to be the primary beneficiary of those trusts. Management believes the performance of the assets that underlie CMBS issuances most significantly impact the economic performance of the trust, and the primary beneficiary is generally the entity that conducts activities that most significantly impact the performance of the underlying assets. In particular, the most subordinate tranches of CMBS expose the holder to greater variability of economic performance when compared to more senior tranches since the subordinate tranches absorb a disproportionately higher amount of the credit risk related to the underlying assets. Generally, a trust designates the most junior subordinate tranche outstanding as the controlling class, which entitles the holder of the controlling class to unilaterally appoint, remove and replace the special servicer for the trust. For the CMBS that the Company consolidates, the Company owns 100% of the most subordinate tranche of the securities issued by the trusts, which include the controlling class, and has the ability to remove and replace the special servicer.

On the Consolidated Balance Sheets as of ~~June 30, 2020, we~~March 31, 2021, the Company consolidated the ~~three~~five Freddie Mac K-Series securitization entities (the “CMBS Entities”) that wewere determined ~~were~~to be VIEs and for which ~~we determined we were~~the Company is the primary beneficiary. The CMBS Entities are independent of the Company, and the assets and liabilities of the CMBS Entities are not owned by and are not legal obligations of ours. Our exposure to the CMBS Entities is through the subordinated tranches. For financial reporting purposes, the underlying mortgage loans held by the trusts are recorded as a separate line item on the balance sheet under “Mortgage loans held in variable interest entities, at fair value.” The liabilities of the trusts consist solely of obligations to the CMBS holders of the consolidated trusts, excluding the CMBS B-Piece investments held by the Company. The liabilities are presented as “Bonds payable held in variable interest entities, at fair value” on the Consolidated Balance Sheets. The CMBS B-Pieces held by the Company and the interest earned thereon are eliminated in consolidation. Management has elected the measurement alternative in ASC 810 to report the fair value of the assets and liabilities of the consolidated CMBS Entities in order to provide users of the financial statements with better information regarding the effects of credit risk and other market factors on the CMBS B-Pieces owned by the Company. Management has elected to show interest income and interest expense related to the CMBS Entities in aggregate with the change in fair value as “Change in net assets related to consolidated CMBS variable interest entities.” The residual difference between the fair value of the CMBS Entities’ assets and liabilities represents the Company’s investments in the CMBS ~~B-Pieces.~~B-Pieces at fair value.

Investment in subsidiaries

The Company conducts its operations through the OP, which acts as the general partner of the ~~subsidiary partnerships that~~Subsidiary OPs which own ~~the~~ investments through limited liability companies that are ~~SPEs.~~SPEs and as the sole member of the Mezz LLC, which owns investments directly. The Company is the majority limited partner of the OP, holds approximately ~~90.5%~~50.28% of the OP Units in the OP and has the ability to remove the general partner of the OP with or without cause, and as such, consolidates the OP. The Company consolidates the SPEs in which it has a controlling financial interest as well as any VIEs where it is the primary beneficiary. All of the investments the SPEs own are consolidated in the unaudited consolidated financial statements. Generally, 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 notwithstanding equity pledges various lenders may have in certain entities or guarantees provided by certain entities.

Redeemable Noncontrolling Interests

Noncontrolling interests represent the ownership interests in consolidated subsidiaries held by entities other than the Company. Those noncontrolling interests that the holder is allowed to redeem before liquidation or termination of the entity that issued those interests are considered redeemable noncontrolling interests.

The ~~subsidiary partnerships of the OP~~Subsidiary OPs have redeemable noncontrolling interests classified on the Consolidated Balance Sheets as temporary equity in accordance with ASC 480. This is presented as “Redeemable noncontrolling interests in the ~~Operating Partnership”~~OP” on the Consolidated Balance Sheets and their share of “Net Income (Loss)” as “Net Income (Loss) attributable to redeemable noncontrolling interests” in the accompanying Consolidated Statements of Operations.

Table of Contents

The redeemable noncontrolling interests were initially measured at the fair value of the contributed assets in accordance with ASC 805-50. The redeemable noncontrolling interests will be adjusted to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests. Capital contributions, distributions and profits and losses are allocated to the redeemable noncontrolling interests in accordance with the terms of the partnership agreements of the ~~subsidiary partnerships.~~Subsidiary OPs.

Acquisition Accounting

The Company accounts for the ~~acquisitions of~~assets acquired in the ~~SFR Loans and CMBS B-Pieces,~~Formation Transaction as asset acquisitions pursuant to ASC 805-50 rather than as business combinations. Substantially all of the fair value of the assets acquired are concentrated in a group of similar identifiable assets, i.e. the SFR Loans represent one acquisition of similar identifiable assets, and the acquisition of the CMBS B-Pieces represents an additional acquisition of similar identifiable assets. Additionally, there were no corresponding in-place workforce, servicing platforms or any other item that could be considered an input or process associated with these assets. As such, the SFR Loans and the CMBS B-Pieces do not constitute businesses as defined by ASC 805-10-55. As the investments in the Initial Portfolio were contributed to the ~~OP’s subsidiary partnerships~~Subsidiary OPs in a non-cash transaction, cost is based on the fair value of the assets ~~acquired.~~at the time of contribution.

Formation Transaction

The Company commenced operations on February 11, 2020 upon the closing of its IPO. Prior to the closing of the IPO, the Company engaged in the Formation Transaction through which it acquired the Initial Portfolio consisting of SFR Loans, CMBS B-Pieces, mezzanine loan and preferred equity investments in real estate companies and properties in other structured real estate investments within the multifamily, SFR and self-storage asset classes. The Initial Portfolio was acquired from the Contribution Group pursuant to a contribution agreement through which the Contribution Group contributed their interest in the Initial Portfolio to SPEs owned by ~~subsidiary partnerships of~~ the ~~Company,~~Subsidiary OPs , in exchange for ~~limited partnership interests (“Sub OP Units”) in subsidiary partnerships of the OP (“Sub OPs”).~~SubOP Units. The assets and liabilities constituting the Initial Portfolio were contributed at fair value using a cutoff date of January 31, 2020. The mezzanine loan, preferred stock and preferred equity investments were valued using a discounted cash flow model using discount rates negotiated with the Contribution Group. A third-party valuation firm was utilized to value the SFR Loans using the income approach in accordance with ASC Topic 820. The income approach utilizes a discounted cash flow method to present value the expected future cash flows. The future cash flows were projected based on the terms of the loans including interest rates, current balances and servicing fees. The future cash flows depend substantially on various other assumptions such as prepayment rates, prepayment charges, default rates, expected loss given default (severity), and other inputs. The Credit Facility (defined below) contributed along with the SFR Loans was also valued using the income approach as previously described. The equity and financial liabilities of the consolidated CMBS B-Pieces were valued using broker quotes (see ~~Note 2~~“—Valuation Methodologies" below for more information on our valuation methodologies). The Bridge Facility (defined below) was originated shortly before the closing of the IPO and was contributed at its carrying value, which approximated fair value. The fair values of the contributed cash and accrued interest and dividends approximated their carrying values because of the short-term nature of these instruments. The fair values of the contributed assets described above were agreed upon by the Contribution Group and used to determine the number of ~~Sub OP~~SubOP Units issued. Any purchase premiums or discounts are amortized over the expected life of the investment.

The following table shows the par values, fair values and purchase premiums (discounts) of the Initial Portfolio as of February 11, 2020, the closing date of the IPO:

	Par value		Fair Value		Premium (Discount)			Par value		Fair Value		Premium (Discount)
Assets
Cash	$	302	$	302	$	—		$	302	$	302	$	—
Loans, held-for-investment, net		22,127		22,282		155			22,127		22,282		155
Preferred stock		40,000		40,400		400			40,000		40,400		400
Mortgage loans, held-for-investment, net		863,564		934,918		71,354			863,564		934,918		71,354
Accrued interest and dividends		3,616		3,616		—			3,616		3,616		—
Mortgage loans held in variable interest entities, at fair value		1,790,228		1,790,135		(93	)		1,790,228		1,790,135		(93	)
	$	2,719,837	$	2,791,653	$	71,816		$	2,719,837	$	2,791,653	$	71,816

Liabilities
Credit facility	$	788,764	$	788,764	$	—
Bridge facility		95,000		95,000		—
Credit Facility								$	788,764	$	788,764	$	—
Bridge Facility									95,000		95,000		—
Bonds payable held in variable interest entities, at fair value		1,655,960		1,655,960		—			1,655,960		1,655,960		—
	$	2,539,724	$	2,539,724	$	—		$	2,539,724	$	2,539,724	$	—

Total contributions	$	180,113	$	251,929	$	71,816		$	180,113	$	251,929	$	71,816

The Company considers all highly liquid investments purchased with an original maturity of three 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.

From time to time, the Company may have to post cash collateral to satisfy margin calls due to changes in fair value of the underlying collateral subject to master repurchase agreements. This cash is listed as restricted cash on the Consolidated Balance Sheets. Restricted cash is also stated at cost, which approximates fair value.

Mortgage and ~~other loans held-for-investment~~Other Loans Held-For-Investment

Loans that are held-for-investment are carried at their aggregate outstanding face amount, net of applicable (i) unamortized origination or acquisition premium and discounts, (ii) unamortized deferred fees and other direct loan origination costs, (iii) valuation allowance for loan losses and (iv) write-downs of impaired loans. The effective interest method is used to amortize origination or acquisition premiums and discounts and deferred fees or other direct loan origination costs. In circumstances where, in management’s opinion, the difference between the straight-line and effective interest methods is immaterial, the straight-line method is used. As prepayments of principal are received, any premiums paid are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets.

The Company's borrowings under secured financing agreements and master repurchase agreements are treated as collateralized financing arrangements carried at their contractual amounts, net of unamortized debt issuance costs, if any.

Interest Income - Loans held-for-investment, ~~available-for-sale securities,~~ CMBS structured pass through certificates and mortgage loans from the consolidated CMBS Entities ~~and debt securities held-to-maturity~~ where the Company expects to collect the contractual interest and principal payments are considered to be performing loans. The Company recognizes income on performing loans in accordance with the terms of the loan on an accrual basis. Interest income also includes amortization of loan premiums or discounts and loan origination costs.

Realized Gain (Loss) on Sale of 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 Statements of Operations with respect to the investment sold at the time of the sale.

Interest expense, in accordance with the Company’s financing agreements, is recorded on the accrual basis. General and administrative expenses are expensed as incurred.

The Company, with the assistance of an independent valuations firm, performs a quarterly evaluation of loans classified as held for investment for impairment on a loan by loan basis in accordance with ASC 310-10-35, Receivables, Subsequent Measurement (“ASC 310-10-35”). If ~~we deem~~the Company determines that it is probable that weit will be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan is indicated. If ~~we consider~~ a loan is considered to be impaired, wethe Company will establish an allowance for loan losses, through a valuation provision in earnings that reduces carrying value of the loan to the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. For non-impaired loans with no specific allowance the Company determines an allowance for loan losses in accordance with ASC 450-20, Loss Contingencies (“ASC 450-20”), which represents management’s best estimate of incurred losses inherent in the portfolio at the balance sheet date, excluding impaired loans and loans carried at fair value. Management considers quantitative factors likely to cause estimated credit losses including default rate and loss severity rates. The Company also evaluates qualitative factors such as macroeconomic conditions, evaluations of underlying collateral, trends in delinquencies and non-performing assets. Increases to (or reversals of) the allowance for loan loss are included in “Loan loss provision, net” on the accompanying Consolidated Statements of Operations.

Significant judgment is required in determining impairment and in estimating the resulting loss allowance, and actual losses, if any, could materially differ from those estimates.

The Company performs a quarterly review of ~~our~~the portfolio. In conjunction with this review, ~~we assess~~the Company assesses the risk factors of each loan, including, without limitation, loan-to-value ratio, debt yield, property type, geographic and local market dynamics, physical condition, collateral, cash-flow volatility, leasing and tenant profile, loan structure, exit plan and project sponsorship. Based on a 5-point scale, our loans are rated “1” through “5,” from least risk to greatest risk, respectively, which ratings are defined as follows:

1 – Outperform – Materially exceeds performance metrics (for example, technical milestones, occupancy, rents, net operating income) included in original or current credit underwriting and business plan;

2 – Exceeds Expectations – Collateral performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan;

3 – Satisfactory – Collateral performance meets, or is on track to meet, underwriting; business plan is met or can reasonably be achieved;

4 – Underperformance – Collateral performance falls short of underwriting, material differences exist from business plan, or both; technical milestones have been missed; defaults may exist, or may soon occur absent material improvement; and

5 – Risk of Impairment/Default – Collateral performance is significantly worse than underwriting; major variance from business plan; loan covenants or technical milestones have been breached; timely exit from loan via sale or refinancing is questionable.

The Company regularly ~~evaluate~~evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral, as well as the financial and operating capability of the borrower. Specifically, the collateral’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the collateral’s liquidation value. WeThe Company also ~~evaluate~~evaluates the financial condition of any loan guarantors, as well as any changes in the borrower’s competency in managing and operating the collateral. In addition, ~~we consider~~the Company considers the overall economic environment, real estate or industry sector and geographic sub-market in which the borrower operates. Such impairment analyses are completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants.

The Company considers loans to be past-due when a monthly payment is due and unpaid for 60 days or more. Loans will be placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when they become 120 days or more past-due unless the loan is both well secured and in the process of collection. Accrual of interest on individual loans is discontinued when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Our policy is to stop accruing interest when a loan’s delinquency exceeds 120 days. All interest accrued but not collected for loans that are placed on nonaccrual status or subsequently charged-off are reversed against interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic principal and interest payments returns and future payments are reasonably assured, in which case the loan is returned to accrual status.

For individual loans, a troubled debt restructuring is a formal restructuring of a loan where, for economic or legal reasons related to the borrower’s financial difficulties, a concession that would not otherwise be considered is granted to the borrower. The concession may be granted in various forms, including providing a below-market interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a combination of these. An individual loan that has had a troubled debt restructuring is considered to be impaired and is subject to the relevant accounting for impaired loans. As of and for the three months ended March 31, 2021, the Company had no loan modifications and thus no troubled debt restructurings.

A loan is written off when it is no longer realizable and/or it is legally discharged.

The Company will evaluate acquired loans and debt securities for which it is probable at acquisition that all contractually required payments will not be collected in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.

The Company accounts for its investment in Preferred Stock as a debt security held to maturity. Debt securities held to maturity are evaluated on a quarterly basis, and more frequently when triggering events or market conditions warrant such an evaluation, to determine whether declines in their value are other-than-temporary impairments (“OTTI”). To determine whether a loss in value is other-than-temporary,During the Company utilizes criteria including: the reasons underlying the decline, the magnitude and duration of the decline (greater or less than twelve months) and whether or not we intend to sell or expect that it is more likely than not that we will be required to sell the investment prior to an anticipated recovery of the carrying value. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.

In the event that the fair value of debt securities held to maturity is less than amortized cost, we consider whether the unrealized holding loss represents an OTTI. If we do not expect to recover the carrying value of the debt security held-to-maturity based on future expected cash flows, an OTTI exists, and we reduce the carrying value by the impairment amount, recognize the portion of the impairment related to credit factors in earnings and the portion of the impairment related to other factors in accumulated other comprehensive income. For the three ~~and six~~ months ended ~~June 30, 2020, the Company did not recognize an OTTI related to its investment in debt securities held to maturity.~~March 31, 2021, there were no loans acquired with deteriorated credit quality.

GAAP requires the categorization of the fair value of financial instruments into three broad levels that form a hierarchy based on the transparency of inputs to the valuation.

Level 1 – Inputs are adjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 – Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices 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 unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The Company follows this hierarchy for our financial instruments. Classifications will be based on the lowest level of input that is significant to the fair value measurement. ~~We review~~The Company reviews the valuation of Level 3 financial instruments as part of our quarterly process.

The Company reports the financial assets and liabilities of each consolidated CMBS trust ~~that we consolidate~~ at fair value using the measurement alternative included in Accounting Standards Update (“ASU”) No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13”). Pursuant to ASU 2014-13, ~~we measure~~ both the financial assets and financial liabilities of the consolidated CMBS trusts ~~we consolidate~~are measured using the fair value of the financial liabilities (which ~~we consider~~are considered more observable than the fair value of the financial assets) and the equity of the CMBS trusts beneficially owned by ~~us.~~the Company. As a result, ~~we presented~~ the CMBS issued by the consolidated trusts, but not beneficially owned by us, are presented as financial liabilities in our consolidated financial statements, measured at their estimated fair value; wethe Company measured the financial assets as the total estimated fair value of the CMBS issued by the consolidated trust, regardless of whether such CMBS represent interests beneficially owned by ~~us.~~the Company. Under the measurement alternative prescribed by ASU 2014-13, ~~our~~ “Net income (loss)” reflects the economic interests in the consolidated CMBS beneficially owned by ~~us,~~the Company, presented as “Change in net assets related to consolidated CMBS variable interest entities” in ~~our~~the Consolidated Statements of Operations, which includes applicable (1) changes in the fair value of CMBS beneficially owned by ~~us,~~the Company, (2) interest income, interest expense and servicing fees earned from the CMBS trusts and (3) other residual returns or losses of the CMBS trusts, if any.

CMBS Trusts - The financial liabilities and equity of the consolidated CMBS trusts were valued using broker quotes. Broker quotes represent the price that an investment could be sold for in a market transaction and represent fair market value. Loans and bonds with quotes that are based on actual trades with a sufficient level of activity on or near the valuation date are classified as Level 2 assets. Loans and bonds that are priced using quotes derived from implied values, bid/ask prices for trades that were never consummated, or a limited amount 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.

CMBS Structured Pass Through Certificates - ~~We categorize our~~ CMBS ~~Structured Pass Through Certificates~~structured pass through certificates (“CMBS I/O Strips”) are categorized as Level 2 assets in the fair value hierarchy. CMBS I/O Strips are valued byusing broker quotes. Broker quotes represent the price that an ~~independent third-party~~ investment ~~research firm that provides daily~~could be sold for in a market transaction and represent fair market ~~value price updates to our investments.~~value. Loans and bonds with quotes that are based on actual trades with a sufficient level of activity on or near the valuation date are classified as Level 2 assets.

SFR Loans, Preferred Equity Investments ~~Preferred Stock~~ and Mezzanine Loans - ~~We categorize our~~ SFR Loans, preferred equity ~~preferred stock~~ and mezzanine loan investments are categorized as Level 3 assets in the fair value hierarchy. SFR Loans, preferred equity ~~preferred stock~~ and mezzanine loan investments 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. The valuation is done for disclosure purposes only as these investments are not carried at fair value on the consolidated balance sheet.

Common Stock Investment - The common stock investment is categorized as a Level 3 asset in the fair value hierarchy. Despite our ability to exercise significant influence, the Company chose to value the investment in NexPoint Storage Partners, Inc. ("NSP") using the fair value option in accordance with ASC 825-10. See Note 5 for additional disclosures regarding the fair value of this investment.

Repurchase Agreements - ~~We generally consider our~~The repurchase agreements are categorized as Level 3 liabilities in the fair value hierarchy as such liabilities represent borrowings on collateral with terms specific to each borrower. Given the short to moderate term of the floating-rate facilities, ~~we generally expect~~the Company expects the fair value of repurchase agreements to approximate their outstanding principal balances.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis - Certain assets not measured at fair value on an ongoing basis but that are subject to fair-value adjustments only in certain circumstances, such as when there is evidence of impairment, will be measured at fair value on a nonrecurring basis. For first mortgage loans, mezzanine loans and preferred equity ~~and preferred stock~~ investments, ~~we apply~~the Company applies the amortized cost method of ~~accounting, but may be required, from time to time, to record a nonrecurring fair value adjustment in the form of a provision for loan loss or OTTI as discussed above.~~accounting.

Overall, our determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that are our best estimates after consideration of a variety of internal and external factors. When an independent valuation firm expresses an opinion on the fair value of a financial instrument in the form of a range, ~~we select~~the Company selects a value within the range provided by the independent valuation firm, generally the midpoint, to assess the reasonableness of our estimated fair value for that financial instrument.

The Company believes that it will operate in a manner that will allow it to qualify for taxation as a REIT under the Code, commencing with its taxable year ~~ending~~ended December 31, 2020. As a result of the Company’s expected REIT qualification, the Company does not expect to pay U.S. federal corporate level taxes. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90% of its “REIT taxable income,” as defined by the Code, to its stockholders. 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 stockholders in any year in which it fails to qualify as a REIT. Additionally, the Company will also be disqualified from electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost unless the Company is entitled to relief under specific statutory provisions. Taxable income from certain non-REIT activities is managed through a taxable REIT subsidiary (“TRS”), which is subject to U.S. federal and applicable state and local corporate income taxes. As of ~~June 30, 2020,~~March 31, 2021, the Company believes it is in compliance with all applicable REIT requirements and had no significant taxes associated with its TRS.

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

The Company recognizes its tax positions and ~~evaluate~~evaluates them using a two-step process. First, ~~we determine~~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, wethe 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. WeThe Company had no material unrecognized tax benefit or expense, accrued interest or penalties as of ~~June 30, 2020.~~March 31, 2021.

Section 107 of the Jumpstart Our Business Startups Act (“JOBS Act”) p~~rovides~~provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. ~~We have~~The Company has elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. WeThe Company may elect to comply with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS ~~Act~~.Act.

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 will require the use of an “expected credit loss” 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.

This allowance is deducted from the financial asset’s amortized cost basis to present the net amount expected to be collected. The new expected credit loss model will also apply to purchased financial assets with credit deterioration, superseding current accounting guidance for such assets. The amended guidance also amends the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and also eliminating the option for management to consider the length of time a security has been in an unrealized loss position as a factor in concluding whether or not a credit loss exists. The amended model states that an entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra account to the amortized cost basis, instead of a direct reduction of the amortized cost basis of the investment, as under current guidance. As a result, entities will recognize improvements to estimated credit losses on available-for-sale debt securities immediately in earnings as opposed to in interest income over time. There are also additional disclosure requirements included in this guidance. The amended guidance is to be applied on a modified retrospective basis with the cumulative

effect of initially applying the amendments recognized in retained earnings at the date of initial application. However, certain provisions of the guidance are only required to be applied on a prospective basis. That methodology replaces the probable, incurred loss model for those assets. The new standard is effective for the Company for annual and interim periods beginning after December 15, ~~2023.~~2022. While the Company is currently evaluating the impact ASU 2016-13 will have on the Company’s consolidated financial statements, the ultimate impact will depend on the portfolio and facts and circumstances near the date of adoption.

In November 2018, the FASB issued ASU 2018-19, Codification Improvementsto Topic 326, Financial Instruments – Credit Losses, which updated the effective dates of implementation to align the implementation date for annual and interim financial statements as well as clarify the scope of the guidance in ASU 2016-13. This standard’s effective date is the same as ASU 2016-13.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326. Financial Instruments – Credit Losses, which is intended to clarify the guidance introduced by ASU 2016-13. This standard’s effective date is the same as ASU 2016-13.

In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief for Topic 326. Financial Instruments – Credit Losses, which provides for an option to irrevocably elect the fair-value option for certain financial assets previously measured at amortized cost basis. Other than the Company’s investment in CMBS, the Company does not currently expect to elect the fair-value option for assets expected to be held at amortized cost. This standard’s effective date is the same as ASU 2016-13.

In March 2020, the FASB issued AU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the U.S. Dollar London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance is effective upon issuance and generally may be elected over time through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through March 31, 2021 but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

During the ~~second~~first quarter of ~~2020,~~2021, an adjustment was made in accordance with ASC Topic 250, Accounting for Changes and Error Corrections, to correct an immaterial ~~errors were identified on~~error to the Q1 2020 consolidated statement of cash ~~flows relating to the consolidation of the Company’s CMBS trusts where the Company is the primary beneficiary. The correction of these errors would result~~flows. This resulted in an increase of approximately $28.2 million in investing cash inflows with a corresponding increase in financing cash outflows infor the three months ended March 31, ~~2020 consolidated statement of cash flows.~~2020. Additionally, for the ~~three-month period~~three months ended March 31, 2020, the supplemental disclosures of non-cash investing and financing activities omitted non-cash increases in mortgage loans held in ~~VIEs~~variable interest entities and non-cash increases in bonds payable from consolidated ~~VIEs~~VIE's of approximately $48.0 million related to the consolidation of ~~VIEs~~variable interest entities resulting from contributions of CMBS B-pieces in connection with the Formation Transaction. These errors have been corrected in the year-to-date cash flow information for 2020. As a result, the table in Note 2 presenting the contributed assets and liabilities has also been corrected to reflect increases of approximately $48.0 million to both the mortgage loans held in VIEs and bonds payable held in VIEs. There was ~~no impact to total contributions. There was also~~ no impact to the Consolidated Balance Sheets, the Consolidated ~~Statement~~Statements of Operations or the Consolidated Statements of ~~Stockholders’~~Stockholders' Equity. ~~These errors have been corrected in the year-to-date cash flow information for 2020~~.

As of ~~June 30, 2020,~~March 31, 2021, all 3350 loans held-for-investment in our portfolio were rated “3,” or “Satisfactory” based on the factors assessed by the Company and discussed in Note 2.

The following tables present the geographies and property types of collateral underlying the Company’s loans held-for-investment as a percentage of the loans’ face ~~amounts:~~amounts.

Geography	March 31, 2021		~~June 30, 2020~~
Georgia		38.61	~~43.28~~	%
Florida		20.32	~~21.90~~	%
Texas		7.18	%
Maryland		~~8.49~~ 6.94	%
Minnesota		5.05	~~5.19~~	%
Alabama		3.48	~~4.13~~ %
California		2.63	%
New Jersey		1.92	~~2.00~~	%
~~Maryland~~			~~1.90~~	%
North Carolina		1.63	~~1.87~~	%
Mississippi		1.01	~~1.12~~	%
~~Michigan~~			~~1.06~~	%
~~Oklahoma~~			~~1.03~~	%
~~Tennessee~~			~~0.97~~	%
~~Connecticut~~			~~0.92~~	%
Missouri		1.25	~~0.83~~	%
~~New York~~Other (19 states each at <1%)		9.98	~~0.71~~	%

~~Illinois~~		~~0.70~~	%
~~Nebraska~~	100.00	~~0.64~~	%
~~Virginia~~		~~0.63~~	%
~~Massachusetts~~		~~0.60~~	%
~~Ohio~~		~~0.50~~	%
~~Indiana~~		~~0.49~~	%
~~South Carolina~~		~~0.44~~	%
~~Pennsylvania~~		~~0.25~~	%
~~Kentucky~~		~~0.22~~	%
~~Arkansas~~		~~0.15~~	%
		~~100.00~~	%

Collateral Property Type	March 31, 2021		~~June 30, 2020~~
Single Family Rental		~~95.61~~ 85.00	%
Multifamily		~~4.39~~ 15.00	%
		100.00	%

4. CMBS Trusts

As of March 31, 2021, the Company consolidated the CMBS Entities that it determined are VIEs and for which the Company is the primary beneficiary. The Company elected the fair-value measurement alternative in accordance with ASU 2014-13 for each of the trusts and carries the fair values of the trust’s assets and liabilities at fair value in its Consolidated Balance Sheets; recognizes changes in the trust’s net assets, including changes in fair-value adjustments and net interest earned, in its Consolidated Statements of Operations; and records cash interest received from the trusts and cash interest paid to bondholders of the CMBS not beneficially owned by the Company, as operating cash-flows.

The following table presents the Company’s recognized Trust’s Assets and Liabilities (in thousands):

Trust's Assets	March 31, 2021
Mortgage loans held in variable interest entities, at fair value	$	4,782,318
Accrued interest receivable		1,030

Trust's Liabilities
Bonds payable held in variable interest entities, at fair value		(4,496,771	)
Accrued interest payable		(771	)

Table of Contents

The following table presents “Change in net assets related to consolidated CMBS variable interest entities” (in thousands):

	For the Three Months Ended March 31,
	2021		2020
Net interest earned	$	5,700	$	1,742
Unrealized gain (loss)		15,011		(26,901	)
Change in net assets related to consolidated CMBS variable interest entities	$	20,711	$	(25,159	)

The following tables present the geographies and property types of collateral underlying the CMBS trusts consolidated by the Company as a percentage of the collateral unpaid principal balance:

Geography	March 31, 2021
Florida		16.18	%
Texas		15.21	%
Arizona		11.88	%
California		8.40	%
Georgia		7.19	%
Washington		5.88	%
Nevada		4.20	%
New Jersey		4.22	%
New York		3.05	%
Pennsylvania		3.36	%
Indiana		2.47	%
Colorado		2.31	%
Virginia		2.12	%
Ohio		2.04	%
North Carolina		2.02	%
Tennessee		1.46	%
Maryland		1.34	%
Missouri		1.22	%
South Carolina		1.10	%
Other (16 states each at <1%)		4.37	%
		100.00	%

Collateral Property Type	March 31, 2021
Multifamily		98.09	%
Manufactured Housing		1.91	%
		100.00	%

5. Common Stock

On November 6, 2020, in connection with the closing of the acquisition of Jernigan Capital, Inc. ("JCAP"), by affiliates of the Manager, each share of JCAP’s series A preferred stock issued and outstanding immediately prior to the effective time of the acquisition was converted into the right to receive one share of common stock, par value $0.01 per share, of the surviving company. As a result, the entirety of the Company’s preferred stock investment in JCAP was converted into common stock of the surviving company, NSP. NSP provides debt and equity capital to self-storage entrepreneurs with a view toward eventual outright ownership of the facilities it finances. Following the conversion, the Company owns approximately 25.8% of the total outstanding shares of NSP and thus can exercise significant influence over NSP, implying this investment should be accounted for under the equity method. The Company elected the fair-value option in accordance with ASC 825-10-10 for NSP.

The investment in NSP is a Level 3 asset in the fair value hierarchy and was initially measured using the entry price of the asset. This includes a one for one conversion, accrued interest and dividends and a make whole premium of 5% of the outstanding principal balance of JCAP series A preferred stock, as well as loan deposits paid on behalf of JCAP. The Company's valuation policy for common stock is to use readily available market prices on the relevant valuation date to the extent they are available. The most recent sales price for shares of JCAP common stock occurred on November 6, 2020 at $17.30 per share. This price was used to convert the JCAP common stock and JCAP series A preferred stock into shares of common stock of NSP with a price of $1,063.47 per share. As such, the Company initially measured the common stock investment in NSP using the purchase price. In addition, as this was the last observable market price and there were no significant events nor additional publicly available market prices for NSP common stock, the Company also measured the common stock investment in NSP as of December 31, 2020 using the purchase price. On a quarterly basis beginning March 31, 2021, the Company determines the value using widely accepted valuation techniques including the discounted cash flow methodology whereby observable market terminal capitalization rates and discount rates are applied to projected cash flows generated by the self-storage assets owned by NSP. Additionally, the income approach is used to determine the fair value of the development loans owned by NSP whereby contractual cash flows are discounted at observable market discount rates.

Table of Contents

The following table presents the NSP common stock investment as of March 31, 2021 (in thousands, except share amounts):

	Investment
Investment	Date	Shares		Fair Value		Property Type
Common Stock
NexPoint Storage Partners	11/6/2020		41,963	$	45,460	Self-storage

6. CMBS Structured Pass Through Certificates

As of March 31, 2021, the Company held six CMBS I/O Strips at fair value. These CMBS I/O Strips consist of interest only tranches of Freddie Mac structured pass through certificates with underlying portfolios of fixed-rate mortgage loans secured primarily by stabilized multifamily properties. See Note 2 and Note 8 for additional disclosures regarding valuation methodologies for the CMBS I/O Strips.

The following table presents the CMBS I/O Strips as of March 31, 2021 (in thousands):

	Investment
Investment	Date	Carrying Value		Property Type	Interest Rate			Current Yield			Maturity Date
CMBS I/O Strips
CMBS I/O Strip	4/15/2020	$	1,010	Multifamily		3.40	%		12.40	%	1/25/2037
CMBS I/O Strip	4/15/2020		945	Multifamily		2.94	%		12.99	%	12/25/2037
CMBS I/O Strip	5/18/2020		2,532	Multifamily		2.02	%		14.43	%	9/25/2046
CMBS I/O Strip	8/6/2020		8,147	Multifamily		0.10	%		13.73	%	6/25/2030
CMBS I/O Strip	8/6/2020		1,769	Multifamily		0.10	%		14.73	%	6/25/2030
CMBS I/O Strip	8/6/2020		24,520	Multifamily		2.98	%		13.57	%	6/25/2030
Total		$	38,923

The following table presents activity related to the Company’s CMBS I/O Strips (in thousands):

	For the Three Months Ended March 31,
	2021		2020
Interest income	$	611	$	—
Change in unrealized gain on CMBS structured pass through certificates		631		—
	$	1,242	$	—

Table of Contents

7. Debt

The following table summarizes the Company’s financing arrangements in place as of ~~June 30, 2020:~~March 31, 2021:

	June 30, 2020																			March 31, 2021
	Facility											Collateral								Facility													Collateral
	Date issued	Outstanding face amount		Carrying value		Final stated maturity	Weighted average interest rate (1)			Weighted average life (years) (2)		Outstanding face amount		Amortized cost basis		Carrying value (3)		Weighted average life (years) (2)		Date issued	Outstanding face amount		Carrying value		Final stated maturity			Weighted average interest rate ⁽¹⁾			Weighted average life (years) ⁽²⁾		Outstanding face amount		Amortized cost basis		Carrying value ⁽³⁾		Weighted average life (years) ⁽²⁾
Master Repurchase Agreements
CMBS
Mizuho⁽⁴⁾	Apr 2020		60,123		60,123	N/A⁽⁵⁾		2.61	%		0.04		184,435		152,281		139,784		8.9	Apr 2020		162,168		162,168		N/A	(5)		2.41	%		0.01		1,944,055		302,736		321,326		10.3
Asset Specific Financing
Single Family Rental
Freddie Mac	7/12/2019		787,569		787,569	7/12/2029		2.44	%		7.9		862,266		930,340		930,340		7.9	7/12/2019		779,773		779,773	7/12/2029				2.44	%		7.1		853,531		915,348		915,348		7.1
Mezzanine
Freddie Mac																				10/20/2020		59,914		59,914	8/1/2031				0.30	%		9.1		97,899		101,023		101,023		9.1
Unsecured Note
Various																				10/15/2020		36,500		35,025	10/25/2025				7.50	%		4.6		N/A		N/A		N/A		N/A
Total/weighted average		$	847,692	$	847,692			2.45	%		7.31	$	1,046,701	$	1,082,621	$	1,070,124		8.03	Total/weighted average	$	1,038,355	$	1,036,880					2.49	%		5.98	$	2,895,485	$	1,319,107	$	1,337,697		9.32

(1)	Weighted-average interest rate using unpaid principal balances.

(2)	Weighted-average life is determined using the maximum maturity date of the corresponding loans, assuming all extension options are exercised by the borrower.

(3)	~~Assets~~CMBS are shown at fair value. SFR Loans and mezzanine loans are shown at their carrying values.

(4)	In April 2020, three of our subsidiaries entered into a master repurchase agreement with Mizuho Securities (“Mizuho”). Borrowings under these repurchase agreements are collateralized by portions of the CMBS B-Pieces and CMBS I/O Strips.

(5)	The master repurchase agreement with Mizuho does not have a stated maturity date. The transactions in place have a one-month to two-month tenor and are expected to roll ~~monthly.~~accordingly.

Prior to the Formation Transaction, two of our subsidiaries entered into a loan and security agreement dated, July 12, 2019, with Freddie Mac (the “Credit Facility”). Under the Credit Facility, these entities borrowed approximately $788.8 million in connection with their acquisition of senior pooled mortgage loans backed by SFR properties (the “Underlying Loans”). No additional borrowings can be made under the Credit Facility, and our obligations will be secured by the Underlying Loans. The Credit Facility is guaranteed by certain members of the Contribution Group. The guarantors are subject to minimum net worth and liquidity covenants. The Credit Facility continues to be guaranteed by members of the Contribution Group as of ~~June 30, 2020.~~March 31, 2021. The Credit Facility was assumed by the Company as part of the Formation Transaction at carrying value which approximated fair value. As such, the remaining outstanding balance of $788.8 million was contributed to the Company on February 11, 2020. Our borrowings under the Credit

Facility will mature on July 12, 2029. However, if an Underlying Loan matures prior to July 12, 2029, wethe Company will be required to repay the portion of the Credit Facility that is allocated to that loan. As of ~~June 30, 2020,~~March 31, 2021, the outstanding balance on the Credit Facility was ~~$787.6~~$779.8 million.

In connection with our recent CMBS acquisitions and new mezzanine debt investment, we, through ~~our subsidiary partnerships,~~the Subsidiary OPs, have borrowed approximately ~~$60.1~~$162.2 million under our repurchase agreements and posted ~~$184.4 million~~$1.9 billion par value of our CMBS B-Piece and CMBS I/O Strip investments as collateral as of ~~June 30, 2020~~March 31, 2021. The CMBS B-Pieces and CMBS I/O Strips held as collateral are illiquid and irreplaceable in nature. These assets are restricted solely to satisfy the interest and principal balances owed to the lender.

On October 15, 2020, the OP issued Senior Unsecured Notes (the “Notes”) for an aggregate principal amount of $36.5 million and a coupon rate of 7.50%. The Notes are due October 15, 2025 and were sold at approximately 99% of par value for proceeds of approximately $36.1 million before offering costs. Additionally, the Notes are fully guaranteed by the Company in the event that the OP cannot satisfy the obligations of the Notes. As of March 31, 2021, any action required under the guaranty is considered remote.

On October 20, 2020, the Company acquired a portfolio of 18 mezzanine loans with an aggregate principal amount outstanding of approximately $97.9 million and a weighted average fixed interest rate of 7.54% for a price of 102% of the outstanding principal amount plus accrued interest of $0.3 million. Freddie Mac provided seller financing of approximately $59.9 million with a weighted average fixed interest rate of 0.30%. Proceeds from the Notes offering and cash on hand were used to fund the remainder of the purchase price.

Table of Contents

As of ~~June 30, 2020,~~March 31, 2021, the outstanding principal balances related to the SFR Loans and levered mezzanine loans consisted of the following (dollars in thousands):

Outstanding

Investment

Principal

Investment

Principal

Investment

Date

Balance

Location

Property Type

Interest Type

Interest Rate

Maturity Date

Date

Balance

Location

Property Type

Interest Type

Interest Rate

Maturity Date

SFR Loans

Senior loan

2/11/2020

465,689

Various

Single-family

Fixed

2.24

9/1/2028

2/11/2020

465,689

Various

Single-family

Fixed

2.24

9/1/2028

Senior loan

2/11/2020

9,270

Various

Single-family

Fixed

3.51

2/1/2028

2/11/2020

9,163

Various

Single-family

Fixed

3.51

2/1/2028

Senior loan

2/11/2020

4,962

Various

Single-family

Fixed

2.48

8/1/2023

2/11/2020

4,907

Various

Single-family

Fixed

2.48

8/1/2023

Senior loan

2/11/2020

9,668

Various

Single-family

Fixed

2.79

9/1/2028

2/11/2020

9,559

Various

Single-family

Fixed

2.79

9/1/2028

Senior loan

2/11/2020

6,930

Various

Single-family

Fixed

2.69

7/1/2028

2/11/2020

6,848

Various

Single-family

Fixed

2.69

7/1/2028

Senior loan

2/11/2020

5,218

Various

Single-family

Fixed

2.64

10/1/2028

2/11/2020

5,159

Various

Single-family

Fixed

2.64

10/1/2028

Senior loan

2/11/2020

11,289

Various

Single-family

Fixed

3.02

10/1/2028

2/11/2020

11,169

Various

Single-family

Fixed

3.02

10/1/2028

Senior loan

2/11/2020

5,814

Various

Single-family

Fixed

2.87

9/1/2023

2/11/2020

7,611

Various

Single-family

Fixed

3.02

11/1/2028

Senior loan

2/11/2020

7,688

Various

Single-family

Fixed

3.02

11/1/2028

2/11/2020

46,094

Various

Single-family

Fixed

2.14

10/1/2025

Senior loan

2/11/2020

46,146

Various

Single-family

Fixed

2.14

10/1/2025

2/11/2020

8,922

Various

Single-family

Fixed

3.30

10/1/2028

Senior loan

2/11/2020

8,964

Various

Single-family

Fixed

3.30

10/1/2028

2/11/2020

35,711

Various

Single-family

Fixed

2.70

11/1/2028

Senior loan

2/11/2020

36,067

Various

Single-family

Fixed

2.70

11/1/2028

2/11/2020

5,820

Various

Single-family

Fixed

2.68

11/1/2028

Senior loan

2/11/2020

5,953

Various

Single-family

Fixed

2.68

11/1/2028

2/11/2020

13,603

Various

Single-family

Fixed

2.61

11/1/2023

Senior loan

2/11/2020

13,603

Various

Single-family

Fixed

2.61

11/1/2023

2/11/2020

5,346

Various

Single-family

Fixed

3.14

12/1/2028

Senior loan

2/11/2020

5,346

Various

Single-family

Fixed

3.14

12/1/2028

2/11/2020

9,436

Various

Single-family

Fixed

3.02

12/1/2028

Senior loan

2/11/2020

9,532

Various

Single-family

Fixed

3.02

12/1/2028

2/11/2020

9,900

Various

Single-family

Fixed

2.77

12/1/2028

Senior loan

2/11/2020

10,004

Various

Single-family

Fixed

2.77

12/1/2028

2/11/2020

4,863

Various

Single-family

Fixed

2.97

1/1/2029

Senior loan

2/11/2020

4,915

Various

Single-family

Fixed

2.97

1/1/2029

2/11/2020

8,360

Various

Single-family

Fixed

3.14

1/1/2029

Senior loan

2/11/2020

8,442

Various

Single-family

Fixed

3.14

1/1/2029

2/11/2020

5,786

Various

Single-family

Fixed

2.40

2/1/2024

Senior loan

2/11/2020

5,856

Various

Single-family

Fixed

2.40

2/1/2024

2/11/2020

4,273

Various

Single-family

Fixed

3.06

2/1/2029

Senior loan

2/11/2020

4,279

Various

Single-family

Fixed

3.06

2/1/2029

2/11/2020

15,962

Various

Single-family

Fixed

2.91

2/1/2029

Senior loan

2/11/2020

16,128

Various

Single-family

Fixed

2.91

2/1/2029

2/11/2020

6,965

Various

Single-family

Fixed

2.98

2/1/2029

Senior loan

2/11/2020

7,041

Various

Single-family

Fixed

2.98

2/1/2029

2/11/2020

7,245

Various

Single-family

Fixed

2.80

2/1/2029

Senior loan

2/11/2020

7,322

Various

Single-family

Fixed

2.80

2/1/2029

2/11/2020

6,106

Various

Single-family

Fixed

2.99

3/1/2029

Senior loan

2/11/2020

6,170

Various

Single-family

Fixed

2.99

3/1/2029

2/11/2020

9,284

Various

Single-family

Fixed

2.45

3/1/2026

Senior loan

2/11/2020

9,284

Various

Single-family

Fixed

2.45

3/1/2026

2/11/2020

55,988

Various

Single-family

Fixed

2.70

3/1/2029

Total

779,773

2.44

Mezzanine Loans

Senior loan

10/20/2020

3,348

Wilmington, DE

Multifamily

Fixed

0.30

5/1/2029

Senior loan

10/20/2020

6,353

White Marsh, MD

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

8,723

Philadelphia, PA

Multifamily

Fixed

0.30

6/1/2029

Senior loan

10/20/2020

2,264

Daytona Beach, FL

Multifamily

Fixed

0.30

10/1/2028

Senior loan

10/20/2020

7,344

Laurel, MD

Multifamily

Fixed

0.30

4/1/2031

Senior loan

10/20/2020

1,836

Temple Hills, MD

Multifamily

Fixed

0.30

8/1/2031

Senior loan

10/20/2020

918

Temple Hills, MD

Multifamily

Fixed

0.30

8/1/2031

Senior loan

10/20/2020

3,390

Lakewood, NJ

Multifamily

Fixed

0.30

5/1/2029

Senior loan

10/20/2020

2,215

Rosedale, MD

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

4,179

North Aurora, IL

Multifamily

Fixed

0.30

1/1/2029

Senior loan

10/20/2020

5,881

Cockeysville, MD

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

4,523

Laurel, MD

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

662

Vancouver, WA

Multifamily

Fixed

0.30

11/1/2030

Senior loan

10/20/2020

1,307

Tyler, TX

Multifamily

Fixed

0.30

10/1/2028

Senior loan

10/20/2020

728

Las Vegas, NV

Multifamily

Fixed

0.30

3/1/2029

Senior loan

10/20/2020

2,026

Atlanta, GA

Multifamily

Fixed

0.30

7/1/2029

Senior loan

10/20/2020

1,763

Des Moines, IA

Multifamily

Fixed

0.30

11/1/2028

Senior loan

2/11/2020

55,988

Various

Single-family

Fixed

2.70

3/1/2029

10/20/2020

2,454

Urbandale, IA

Multifamily

Fixed

0.30

11/1/2028

Total

787,569

2.44

Total

59,914

0.30

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the activity related to the carrying value of the secured financing agreements and master repurchase agreements were as follows (in thousands):

The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to ~~June 30, 2020~~March 31, 2021 are as follows (in thousands):

On February 7, 2020, we, through our subsidiaries, entered into a $95.0 million bridge facility (the “Bridge Facility”) with KeyBank National Association (“KeyBank”) and immediately drew $95.0 million to fund a portion of the Formation Transaction. The Company used proceeds from the IPO to pay down the entirety of the Bridge Facility.

As of June 30, 2020, the Company consolidated the CMBS Entities that we determined are VIEs and for which we are the primary beneficiary. The Company elected the fair-value option for each of the trusts and carries the fair values of the trust’s assets and liabilities at fair value in its Consolidated Balance Sheets; recognizes changes in the trust’s net assets, including changes in fair-value adjustments and net interest earned, in its Consolidated Statements of Operations; and records cash interest received from the trusts and cash interest paid to bondholders of the CMBS not beneficially owned by the Company, as operating cash-flows.

~~The following table presents the Company’s recognized Trust’s Assets and Liabilities (in thousands):~~

~~The following table presents “Change in net assets related to consolidated CMBS variable interest entities” (in thousands):~~

~~The following tables present the geographies and property types of collateral underlying the CMBS trusts consolidated by the Company as a percentage of the collateral unpaid principal balance:~~

As of June 30, 2020, the Company held one preferred stock investment accounted for as a debt security held to maturity recorded at amortized cost. The preferred stock investment consists of 40,627 shares of preferred stock in Jernigan Capital, Inc., (“JCAP”), a publicly traded REIT that provides capital to private developers as well as owners and operators of self-storage facilities. The preferred stock pays a fixed quarterly cash dividend of 7% in addition to a quarterly stock dividend of $2.125 million payable on a pro rata basis to the holders of the preferred stock for the first three quarters of 2020 and for the first fiscal quarter of 2021. For the last fiscal quarter of 2020 and for the second fiscal quarter of 2021, the stock dividend varies based on the underlying company’s incremental book value and past aggregate dividends among other things, but will be no less than $2.125 million on a pro rata basis to the holders of the preferred stock.

~~The following table presents the preferred stock investments as of June 30, 2020 (in thousands, except share amounts):~~

~~The following table presents activity related to the Company’s preferred stock (in thousands):~~

As of June 30, 2020, the Company held three CMBS I/O Strips at fair value. These CMBS I/O Strips consist of interest only tranches of Freddie Mac structured pass through certificates with underlying portfolios of fixed-rate mortgage loans secured by stabilized multifamily properties.

~~The following table presents the CMBS I/O Strips as of June 30, 2020 (in thousands):~~

~~The following table presents activity related to the Company’s CMBS I/O Strips (in thousands):~~

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

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 fair values of cash and cash equivalents, accrued interest and dividends, accounts payable and other accrued liabilities and accrued interest payable approximated their carrying values because of the short-term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.

Long-term indebtedness is carried at amounts that reasonably approximate their fair value. In calculating the fair value of its long-term indebtedness, the Company used interest rate and spread assumptions that reflect current credit worthiness and market conditions available for the issuance of long-term debt with similar terms and remaining maturities. These financial instruments utilize Level 2 ~~inputs~~.inputs.

Amounts borrowed under master repurchase agreements are based on their contractual amounts which reasonably approximate their fair value given the short to moderate term and floating rate nature.

The carrying values and fair values of the Company’s financial assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments not carried at fair value as of ~~June 30, 2020~~March 31, 2021 (in thousands):

Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests in the OP (see Note 11). The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the OP are classified as Level 2 if they are adjusted to their redemption value. At ~~June 30, 2020,~~March 31, 2021, the redeemable noncontrolling interests in the OP are valued at their carrying value on the Consolidated Balance Sheets.

On March 31, 2021, the Company, the OP and the Manager entered into separate equity distribution agreements (the "Equity Distribution Agreements") with each of Raymond James & Associates, Inc., Keefe, Bruyette & Woods, Inc., Robert W. Baird & Co. Incorporated and Virtu Americas LLC (collectively, the "Sales Agents"), pursuant to which the Company may issue and sell from time to time shares of the Company's common stock and Series A Preferred Stock having an aggregate sales price of up to $100.0 million (the "ATM Program"). The Equity Distribution Agreements provide for the issuance and sale of common stock or Series A Preferred Stock by the Company through a sales agent acting as a sales agent or directly to the sales agent acting as principal for its own account at a price agreed upon at the time of sale.

Sales of shares of common stock or Series A Preferred Stock under the ATM Program, if any, may be made in transactions that are deemed to be "at the market" offerings, as defined in Rule 415 under the Securities Act including, without limitation, sales made by means of ordinary brokers' transactions on the NYSE, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices.

The Board declared ~~our second~~the first quarterly dividend of ~~2020~~2021 to common shareholders of ~~$0.40~~$0.475 per share on ~~May 4, 2020,~~February 15, 2021 which was paid on ~~June 30, 2020.~~March 31, 2021 to common stockholders of record on March 15, 2021.

The Board declared a dividend to preferred stockholders of $0.53125 per share on March 15, 2021, which was paid on April 25, 2021 to preferred stockholders of record on March 25, 2021.

10. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the ~~weighted- average~~weighted-average number of shares of the Company’s common stock outstanding and excludes any unvested restricted stock units issued pursuant to the 2020 LTIP.

Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the dilutive effect of the assumed vesting of restricted stock units. Additionally, the Company includes the dilutive effect of the potential redemption of OP Units for common shares in accordance with the amended partnership agreement of the OP. During periods of net loss, the assumed vesting of restricted stock units is anti-dilutive and is not included in the calculation of earnings (loss) per share.

~~The effect~~

Table of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted earnings (loss) per share, as they are exchangeable for common stock on a one-for-one basis. The income (loss) allocable to such units is allocated on this same basis and reflected as net income (loss) attributable to redeemable noncontrolling interests in the OP in the accompanying Consolidated Statements of Operations. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings (loss) per share. See Note 11 for additional information.

Contents

The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods presented (in thousands, except per share amounts):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2020

2020

Numerator for earnings (loss) per share:

Net income (loss)

$
19,273

$
(3,595
)
Net income (loss) attributable to redeemable noncontrolling interests

14,003

(2,512
)
Net income (loss) attributable to common stockholders

$
5,270

$
(1,083
)

Denominator for earnings (loss) per share:

Weighted-average common shares outstanding

5,263

5,248

Denominator for basic earnings (loss) per share

5,263

5,248

Weighted-average unvested restricted stock units

30

—

Denominator for diluted earnings per share (1)

5,292

5,248

Earnings (loss) per weighted average common share:

Basic

$
1.00

$
(0.21
)
Diluted

$
1.00

$
(0.21
)

	For the Three Months Ended March 31,
	2021		2020
Net income attributable to common stockholders	$	8,367	$	(6,353	)

Earnings for basic computations
Net income attributable to redeemable noncontrolling interests		15,829		(16,515	)
Net income for diluted computations	$	24,196	$	(22,868	)

Weighted-average common shares outstanding
Average number of common shares outstanding - basic		5,023		5,223
Average number of unvested restricted stock units		389		—
Average number of OP Units		13,787		12,596
Average number of common shares outstanding - diluted		19,199		17,819
Earnings (loss) per weighted average common share:
Basic	$	1.67	$	(1.22	)
Diluted	$	1.26	$	(1.22	)

~~(1)~~

~~If the Company sustains a net loss for a period presented, unvested restricted stock units are not included in the diluted earnings per share calculation.~~

11. Noncontrolling Interests

Redeemable Noncontrolling Interests in the Subsidiary ~~Operating Partnerships~~OPs

In connection with the Formation Transaction, the Contribution Group contributed assets to SPEs owned by ~~subsidiary partnerships~~Subsidiary OPs of the Company in exchange for ~~Sub OP~~SubOP Units. Net income (loss) is allocated to holders of ~~Sub OP~~SubOP Units based upon net income (loss) attributable to common stockholders and the weighted-average number of ~~Sub OP~~SubOP Units outstanding to total common shares plus ~~Sub OP~~SubOP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to ~~Sub OP~~SubOP Units in accordance with the terms of the partnership agreement of the ~~Sub~~Subsidiary OPs. Each time the ~~Sub~~Subsidiary OPs distribute cash, limited partners of the ~~Sub~~Subsidiary OPs receive their pro-rata share of the distribution. Redeemable noncontrolling interests in the ~~Sub~~Subsidiary OPs have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests in the ~~Sub~~Subsidiary OPs.

In connection with the issuance of ~~Sub OP~~SubOP Units to the Contribution Group on February 11, 2020, the ~~Sub~~Subsidiary OPs and the OP amended the partnership agreements of the ~~Sub~~Subsidiary OPs (the ~~“Sub~~“Subsidiary OP Amendments”). Pursuant to the ~~Sub~~Subsidiary OP Amendments, limited partners holding ~~Sub OP~~SubOP Units have the right to cause each of the ~~Sub OP~~Subsidiary OPs to redeem their units at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership ~~agreement~~agreements of the ~~Sub~~Subsidiary OPs), provided that such OPSubOP Units have been outstanding for at least one year.

The OP is the general partner of the ~~Sub~~Subsidiary OPs and may, in its sole discretion, purchase the ~~Sub OP~~SubOP Units by paying to the ~~Sub OP~~SubOP Unit holder either the Cash Amount or the OP Unit Amount (one OP Unit for each ~~Sub OP~~SubOP Unit, subject to adjustment), as defined in the partnership ~~agreement~~agreements of the ~~Sub OP.~~Subsidiary OPs. Notwithstanding the foregoing, a limited partner will not be entitled to exercise its redemption right to the extent the issuance of the OP Units to the redeeming limited partner would (1) be prohibited, as determined in the OP’s sole discretion, or (2) cause the acquisition of OP Units by such redeeming limited partner to be “integrated” with any other distribution of OP Units for purposes of complying with the Securities ~~Act.~~Act of 1933, as amended (the "Securities Act").

The OP, as the general partner and primary beneficiary of the ~~Sub~~Subsidiary OPs, consolidates the ~~Sub~~Subsidiary OPs.

Table of Contents

Redeemable Noncontrolling Interests in the OP

Interests in the OP held by limited partners are represented by OP Units. As of ~~June 30, 2020,~~March 31, 2021, the Company is the majority limited partner in the OP. Net income (loss) is allocated to holders of OP Units based upon net income (loss) attributable to common stockholders and the weighted-average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to OP Units in accordance with the terms of the partnership agreement of the OP. Each time the OP distributes cash to the Company, limited partners of the OP receive their pro-rata share of the distribution. Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests in the OP.

In connection with the IPO on February 11, 2020, the Company and the OP GP amended the partnership agreement of the OP (the “OP Amendment”). Pursuant to the OP Amendment, limited partners holding OP Units have the right to cause the OP to redeem their units at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the ~~OP)~~OP and discussed further below), provided that such OP Units have been outstanding for at least one year. The Company may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT ~~Share~~Shares Amount ~~(one~~(generally one share of common stock of the Company for each OP ~~Unit),~~Unit, subject to adjustment) as defined in the partnership agreement of the OP. Notwithstanding the foregoing, a limited partner will not be entitled to exercise its redemption right to the extent the issuance of the Company’s common stock to the redeeming limited partner would (1) be prohibited, as determined in the Company’s sole discretion, under the Company’s charter or (2) cause the acquisition of common stock by such redeeming limited partner to be “integrated” with any other distribution of the Company’s common stock for purposes of complying with the Securities Act. Accordingly, the Company records the OP Units held by noncontrolling limited partners outside of permanent equity and reports the OP Units at the greater of their carrying value or their redemption value using the Company’s stock price at each balance sheet date.

The Cash Amount is defined in the partnership agreement of the OP as the greater of the most recent NAV of the Company as determined by our Board and the volume-weighted average price of the Company's common stock, which because the Company's common stock is listed on the New York Stock Exchange (the "NYSE") will be calculated for the ten consecutive trading days (the "Ten Day VWAP") immediately preceding the date on which the general partner of the OP receives a notice of redemption from the limited partner, or the first business day thereafter (the "Valuation Date"). The Ten Day VWAP calculated based on a Valuation Date of March 31, 2021 was $18.40 and there were 13,787,123 OP Units outstanding. Assuming (1) that the Ten Day VWAP exceeded the NAV, (2) that all OP unitholders exercised their right to cause the OP to redeem all of their OP Units with a Valuation Date of March 31, 2021, and (3) that the Company then elected to purchase all of the OP Units by paying the Cash Amount, the Company would have paid $253.7 million in cash consideration to redeem the OP Units.

On July 30, 2020, NREF OP IV, L.P. (“OP IV”), one of the Subsidiary OPs, entered into subscription agreements with certain entities affiliated with the Manager (the “Manager Affiliates”), which were then-current majority owners of OP IV, for 359,000 SubOP Units in OP IV for total consideration of approximately $6.6 million. On August 4, 2020, OP IV entered into additional subscription agreements with the Manager Affiliates for 267,320 SubOP Units in OP IV for total consideration of approximately $4.9 million. The total number of SubOP Units issued was calculated by dividing the total consideration by the combined book value of the Company’s common stock and the SubOP Units, on a per share or unit basis, as of June 30, 2020, or $18.33 per SubOP Unit.

On September 30, 2020, the unitholders (other than the OP) of OP IV exercised their redemption right for 100% of their units outstanding. Following direction and approval of the Board and the general partner of OP IV, the OP purchased the tendered OP IV units in exchange for an equal number of OP Units. After the transaction, OP IV is wholly-owned by the OP and the Company owns 50.28% of the OP.

The following table sets forth the redeemable noncontrolling interests in the OP (reflecting the OP’s consolidation of the ~~Sub~~Subsidiary OPs) for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 (in thousands):

Redeemable noncontrolling interests in the OP, December 31, 2019

$
—

Contributions from redeemable noncontrolling interests in the OP

261,929

Net loss attributable to redeemable noncontrolling interests in the OP

(2,512
)
Distributions to redeemable noncontrolling interests in the OP

(8,033
)
Redeemable noncontrolling interests in the OP, June 30, 2020

$
251,384

Redeemable noncontrolling interests in the OP, December 31, 2020	$	275,670
Contributions from redeemable noncontrolling interests in the OP		—
Net income attributable to redeemable noncontrolling interests in the OP		15,829
Distributions to redeemable noncontrolling interests in the OP		(5,912	)
Redeemable noncontrolling interests in the OP, March 31, 2021	$	285,587

On July 20, 2020, in connection with the anticipated issuance by the Company of the Series A Preferred Stock, the OP GP , following the direction and approval of the Board, amended the partnership agreement of the OP to provide for the issuance of 8.50% Series A Cumulative Redeemable Preferred Units (liquidation preference $25.00 per unit) in our OP (the “Series A Preferred Units”). The Company contributed the net proceeds from the sale of the Series A Preferred Stock to the OP in exchange for the same number of Series A Preferred Units. The Series A Preferred Units have economic terms that are substantially the same as the terms of the Series A Preferred Stock. The Series A Preferred Units rank, as to distributions and upon liquidation, senior to OP Units. On March 31, 2021, in connection with the Company's ATM Program (as defined below), the OP GP, following the direction and approval of the Board, further amended the partnership agreement of the OP to provide for the issuance of additional Series A Preferred Units.

Table of Contents

12. Related Party Transactions

Formation Transaction

The Company commenced operations on February 11, 2020 upon the closing of its IPO. Prior to the closing of the IPO, the Company engaged in the Formation Transaction through which it acquired the Initial Portfolio. The Initial Portfolio was acquired from the Contribution Group, which was comprised of affiliates of our Sponsor, pursuant to a contribution agreement with the Contribution Group through which the Contribution Group contributed their interest in the Initial Portfolio to SPEs owned by the Subsidiary OPs, in exchange for SubOP Units. See Note 1 for additional disclosures regarding the Formation Transaction and Note 11 for more information regarding the noncontrolling interests in the Subsidiary OPs held by the Contribution Group.

The Formation Transaction was a related party transaction between the Contribution Group and the Company as the entities in the Contribution Group are affiliates of our Sponsor. See Note 1 for additional disclosures regarding the Formation Transaction.

Management Fee

In accordance with the Management Agreement, the Company pays the Manager an ~~advisory~~annual management fee equal to 1.5% of Equity (as defined below), paid monthly, in cash or shares of Company common stock at the election of our Manager (the “Annual Fee”). The duties performed by the Company’s Manager under the terms of the Management Agreement include, but are not limited to: providing daily management for the Company, selecting and working with third-party service providers, formulating an investment strategy for the Company and selecting suitable investments, managing the Company’s outstanding debt and its interest rate exposure and determining when to sell assets.

“Equity” means (a) the sum of (1) total stockholders’ equity immediately prior to the IPO, plus (2) the net proceeds received by the Company from all issuances of the Company’s ~~common stock~~equity securities in and after the IPO, plus (3) the Company’s cumulative Core Earnings (as defined below) from and after the IPO to the end of the most recently completed calendar quarter, (b) less (1) any distributions to the holders of the Company’s ~~stockholders~~common stock from and after the IPO to the end of the most recently completed calendar quarter and (2) all amounts that the Company or any of its subsidiaries has paid to repurchase for cash the shares of the Company’s ~~common stock~~equity securities from and after the IPO to the end of the most recently completed calendar quarter. In the Company’s calculation of Equity, the Company will adjust its calculation of Core Earnings to remove the compensation expense relating to awards granted under one or more of its long-term incentive plans that is added back in the calculation of Core Earnings. Additionally, for the avoidance of doubt, Equity ~~will~~does not include the assets contributed to the Company in the Formation Transaction.

“Core Earnings” means the net income (loss) attributable to the common stockholders of the Company, computed in accordance with GAAP, including realized gains and losses not otherwise included in net income (loss), excluding any unrealized gains or losses or other similar non-cash items that are included in net income (loss) for the applicable reporting period, regardless of whether such items are included in other comprehensive (loss), or in net income (loss) and adding back amortization of stock-based compensation. Net income (loss) attributable to common stockholders may also be adjusted for one-time events pursuant to changes in GAAP and certain material non-cash income or expense items, in each case after discussions between the Manager and the independent directors of the Board and approved by a majority of the independent directors of the Board.

Pursuant to the terms of the Management Agreement, the Company is required to pay directly or reimburse the Manager for all documented Operating Expenses and Offering Expenses it incurs on behalf of the Company. “Operating Expenses” include legal, accounting, financial and due diligence services performed by the Manager that outside professionals or outside consultants would otherwise perform, the Company’s pro rata share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Manager required for the Company’s operations, and compensation expenses under the 2020 LTIP. “Offering Expenses” include all expenses (other than underwriters’ discounts) in connection with an offering of securities, including, without limitation, legal, accounting, printing, mailing and filing fees and other documented offering expenses. For the ~~six~~three months ended ~~June 30, 2020, the Company reimbursed the Manager for approximately $0.1 million of~~March 31, 2021, there were no Offering Expenses that were paid on the ~~Company’s behalf.~~

~~The Initial Portfolio was acquired from the Contribution Group, which consisted of affiliates of our Sponsor, pursuant to a contribution agreement with the Contribution Group through~~Company's behalf for which the ~~Contribution Group contributed their interest in~~Company reimbursed the Initial Portfolio to SPEs owned by subsidiary partnerships of the Company in exchange for Sub OP Units (see Notes 1 and 2 for more information). The Contribution Group owns the noncontrolling interests in the Sub OPs (see Note 11 for more information).Manager.

Connections at Buffalo Pointe Contribution

On May 29, 2020, ~~we and~~ the OP entered into a contribution agreement (the “Buffalo Pointe Contribution Agreement”) with entities affiliated with executive officers of the Company and the Manager (the “BP Contributors”), whereby the BP Contributors contributed their respective preferred membership interests in NexPoint Buffalo Pointe Holdings, LLC (“Buffalo Pointe”), to the OP for total consideration of $10.0 million paid in OP Units. A total of 564,334.09 OP Units were issued to the BP Contributors, which was calculated by dividing the total consideration of $10.0 million by the combined book value of the Company’s common stock and the ~~Sub OP~~SubOP Units, on a per share or unit basis, as of the end of the first quarter, or $17.72 per OP Unit. Buffalo Pointe owns a stabilized multifamily property located in Houston, Texas with ~~93%~~95.2% occupancy as of ~~June 30, 2020.~~March 31, 2021. The preferred equity investment pays current interest at a rate of 6.5%, deferred interest at a rate of 4.5%, has ~~an LTV~~a loan-to-value ratio of ~~84%~~82.9% and a maturity date of May 1, 2030.

Pursuant to the OP’s limited partnership agreement and the Buffalo Pointe Contribution Agreement, thethe BP Contributors have the right to cause our OP to redeem their OP Units for cash or, at our election, shares of our common stock on a one-for-one basis, subject to adjustment, as provided and subject to the limitations in our OP’s limited partnership agreement, provided the OP Units have been outstanding for at least one year and our stockholders have approved the issuance of shares of common stock to the BP Contributors.

Jernigan Capital Acquisition

On November 6, 2020, a subsidiary of the Company and affiliates of our Manager completed a merger with JCAP, taking that entity private, and converting the Company’s preferred stock investment into common shares of NSP, the surviving entity. See Note 5 for additional disclosure regarding this transaction.

RSU Issuance

On May 8, 2020, in accordance with the 2020 LTIP, the Company granted 14,739 restricted stock units to its directors, on June 24, 2020, the Company granted 274,274 restricted stock units to its officers and other employees of the Manager, on November 2, 2020, the Company granted 1,838 restricted stock units to the sole member of the general partner of one of the Company’s subsidiaries, and on February 22, 2021 the Company granted 232,184 restricted stock units to its directors, officers employees and certain key employees of the Manager and its affiliates. See Note 9 for additional disclosures.

Table of Contents

Expense Cap

Pursuant to the terms of the Management Agreement, direct payment of operating expenses by the Company, which includes compensation expense relating to equity awards granted under the 2020 LTIP, together with reimbursement of operating expenses to the Manager, plus the Annual Fee, may not exceed 2.5% of equity book value (the “Expense Cap”) for any calendar year or portion thereof, provided, however, that this limitation will not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions and other events outside the ordinary course of 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. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, operating expenses did not exceed the Expense Cap.

For the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, the Company incurred management fees of ~~$0.5 million.~~$0.5 million and $0.2 million, respectively.

13. Commitments and Contingencies

~~13.~~The Company is not aware of any contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our consolidated financial statements.

The Notes previously mentioned in Note 7 are fully guaranteed by the Company. As of March 31, 2021, there has been no indication that the OP will not be able to satisfy the terms of the Notes. The Company considers any action required under the guaranty to be remote.

14. Subsequent Events

~~Series A Preferred Stock Offering~~At-The-Market-Offering

~~On July 24, 2020,~~No issuances of securities under the ATM Program occurred in the quarter ended March 31, 2021. Subsequent to quarter end and as of April 30, 2021, the Company had issued ~~2,000,000~~259,685 shares of ~~its 8.5% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”)~~common stock at aan average price ~~to the public~~ of ~~$24.00~~$20.27 per share for gross proceeds of ~~$48.0~~approximately $5.3 million. The Company paid approximately $0.1 million ~~before deducting underwriting discounts and commissions and other estimated offering expenses. In addition,~~in fees to the ~~underwriters have been granted a 30-day option~~Sales Agents with respect to ~~purchase up to an additional 300,000 shares~~such sales which were netted against the gross proceeds.

Unsecured Notes Offering

On April 20, 2021, the Company issued $75 million in aggregate principal amount of ~~the Series A Preferred Stock at the public offering price, less underwriting discounts and commissions. The Series A Preferred Stock has a $25.00 per share liquidation preference.~~

In connection with the Series A Preferred Stock offering, one of the Sub OPs purchased 455,000 shares of the Series A Preferred Stock at the public offering price of $24.00 per share. On August 4, 2020, prior to settlement of the purchase, the underwriter sold 100,000 shares of the Series A Preferred Stockits 5.75% Senior Notes due 2026 at a price equal to 99.5% of ~~$23.50 per share to~~par value for proceeds of approximately $73.1 million after original issue discount and underwriting fees. An account advised by NexAnnuity Asset Management, L.P., an ~~unaffiliated third-party investor as part~~affiliate of the ~~primary offering. The Company reimbursed~~Manager, purchased $2.5 million par value of the ~~underwriter for the differential between the $24.00 per share issue price and the $23.50 per share price paid by the third-party investor.~~

~~Asset Purchases~~

~~The Company made the following purchases subsequent to June 30, 2020:~~5.75% Senior Notes.

Securitization

Purchase Date

Tranche

Outstanding
Face Amount

Cost (% of Par Value)

Underlying Loan Count

Interest Rate Type

FREMF 2020-KF81

7/30/2020

Class C

$
67,165,464

100.0
%

42

Floating Rate

FREMF 2020-K113

8/6/2020

Class D

108,643,404

33.3
%

62

Zero Coupon

FREMF 2020-K113

8/6/2020

X2A

1,180,587,000

0.8
%

N/A

Interest Only

FREMF 2020-K113

8/6/2020

X2B

267,986,404

0.7
%

N/A

Interest Only

FREMF 2020-K113

8/6/2020

X3

108,643,404

23.1
%

N/A

Interest Only

$
1,733,025,676

104

CMBS Acquisitions

~~The~~On April 28, 2021, the Company, ~~owns 100%~~through a Subsidiary OP, purchased approximately $50.0 million aggregate notional amount of the ~~most subordinate~~X1 interest-only tranche of the Freddie Mac ~~KF-81~~K-107 CMBS at a price equal to 12.06% of par value, or approximately $6.1 million. Approximately $4.6 million of the purchase price was financed through a repurchase agreement bearing an interest rate of 0.5% over one-month LIBOR. The investment has a coupon rate of 1.71%, a yield of approximately 14.04% and ~~K113 trusts,~~a maturity date of January 25, 2030.

On April 29, 2021, the Company, through the Subsidiary OPs, purchased approximately $76.0 million in aggregate principal amount of the Class CS tranche of the Freddie Mac KF-108 CMBS at a price equal to 100% of par value, representing 100% of the Class CS tranche. The underlying portfolio consists of 37 floating-rate mortgage loans which ~~include~~are secured by multifamily properties. The Class CS tranche is the most subordinated tranche of this CMBS securitization, which includes the controlling class, and as a result the Company has the ability to remove and replace the special ~~servicers.~~servicer. As such, it is expected that ~~these~~this CMBS ~~trusts~~securitization will be consolidated by the Company.

~~Financing~~

On July 30, 2020, the Company entered into an unsecured loan agreement (the “Credit Agreement”) with Raymond James Bank, N.A., as the lender (the “Lender”), providing for a loan in the aggregate principal amount of $86.1 million (the “Credit Facility”). The Credit Facility is structured in two tranches as follows: (i) the first tranche of $21.1 million was made available on July 30, 2020 and (ii) the second tranche of $65.0 million was made available on August 5, 2020. On August 5, 2020, the first tranche of $21.1 million was repaid in full. On August 7, 2020, a payment of $55.0 million was made towards the $65.0 million outstanding under the second tranche. Each draw under the Credit Facility matures ten days after funding. The Credit Facility bears interest at a rate of one-month LIBOR plus 2.00% for the first ten days of any draw period, after which the Lender can, in its sole discretion, extend the Credit Facility at a rate of one-month LIBOR plus 4.00% unless the securities required by the Credit Agreement are delivered and taken as collateral, in which case the rate shall stay at one-month LIBOR plus 2.00%.

On July 30, 2020, the Company’s subsidiary NREF OP IV, L.P. (“NREF OP IV”) entered into subscription agreements with certain entities affiliated with the Manager (the “Manager Affiliates”), which are majority owners of NREF OP IV, for 359,000 Sub OP Units in NREF OP IV for total consideration of approximately $6.6 million. ~~On August 4, 2020, NREF OP IV entered into additional subscription agreements with the Manager Affiliates for 267,320 Sub OP Units in NREF OP IV for total consideration of approximately $4.9 million.~~ The total number of Sub OP Units issued was calculated by dividing the total consideration by the combined book value of the Company’s common stock and the Sub OP Units, on a per share or unit basis, as of the end of the second quarter, or $18.33 per Sub OP Unit.

On August 5, 2020, the Company borrowed approximately $36.9 million through a repurchase agreement. Approximately $67.2 million par value of the Company’s CMBS B-Piece investments were posted as collateral. The loan bears interest at a rate of 2.6% over one-month LIBOR.

On August 7, 2020, the Company borrowed approximately $42.8 million through a repurchase agreement. Approximately $108.6 million par value of the Company’s CMBS B-Piece investments and $1.6 billion notional value of the Company’s CMBS I/O Strips were posted as collateral. The loan bears interest at a rate of 2.5% over one-month LIBOR.

~~Equity Financing~~

On August 3, 2020, a subsidiary of the OP (“REIT Sub”) entered into an equity commitment letter (the “Equity Commitment Letter”) in connection with a proposed transaction (the “Proposed Transaction”) involving affiliates of the Manager (the “Consortium”). Pursuant to the Equity Commitment Letter, REIT Sub has committed to provide an aggregate equity contribution of approximately $227.0 million (the “Equity Commitment”) to finance the Proposed Transaction, subject to certain reductions for any additional third-party equity or debt financing. The Company is neither a party to the Equity Commitment Letter nor guaranteeing the obligations of REIT Sub under the Equity Commitment Letter.

The obligation of REIT Sub to fund the Equity Commitment will terminate automatically and immediately upon the earliest to occur of (a) the valid termination of the agreement and plan of merger (the “Merger Agreement”) related to the Proposed Transaction in accordance with its terms, (b) the closing of the Proposed Transaction or (c) the target company or any of its affiliates or representatives asserting any claim, subject to certain exceptions, against the Consortium or any of its affiliates or representatives in connection with the Equity Commitment Letter, the Merger Agreement or any of the transactions contemplated by the Equity Commitment Letter or the Merger Agreement

~~Mezzanine Loan Repayment~~

On August 5, 2020, the Company executed a payoff letter with the borrower of a $3.3 million mezzanine loan. The outstanding principal balance of $3.3 million, accrued interest of $0.5 million and an exit fee of $32,500 was paid to the Company on August 7, 2020 per the terms of the letter.

Dividends Declared

On ~~July 27, 2020,~~April 26, 2021, the Board declared a quarterly dividend of ~~$0.40~~$0.4750 per share, payable on ~~September~~June 30, ~~2020~~2021 to common stockholders of record on ~~September~~June 15, ~~2020.~~2021.

~~Management Agreement~~

On July 17, 2020, in connection with the Series A Preferred Stock offering, the Management Agreement was amended to update the definition of “Equity” to include the net proceeds received by the Company from all issuances of the Company’s equity securities, including the Series A Preferred Stock, in and after the IPO, and exclude all amounts the Company or any of its subsidiaries have paid to repurchase for cash shares of the Company’s equity securities from and after the IPO to the end of the most recently completed calendar quarter.

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

The following is a discussion and analysis of our financial condition and results of operations. The following should be read in conjunction with our financial statements and accompanying notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this quarterly report. See ~~“Cautionary~~“Cautionary Statement Regarding Forward-Looking ~~Statements”~~Statements” in this report, and the ~~risk factors set forth under the heading “Risk Factors”~~“Risk Factors” in Part 1, Item 1A, "Risk Factors" of our ~~Registration Statement~~Annual Report on Form ~~S-11, as amended (Registration No. 333-235698),~~10-K filed with the SEC on February 4, 2020, under Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and under Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.25, 2021.

Overview

We are a commercial mortgage REIT incorporated in Maryland on June 7, 2019. Our strategy is to originate, structure and invest in first-lien mortgage loans, mezzanine loans, preferred equity and ~~preferred~~common stock, as well as multifamily CMBS securitizations. We primarily focus on investments in real estate sectors where our senior management team has operating expertise, including in the multifamily, SFR, self-storage, hospitality and office sectors predominantly in the top 50 ~~metropolitan statistical areas.~~MSAs. In addition, we target lending or investing in properties that are stabilized or have a light-transitional business plan.

Our investment objective is to generate attractive, risk-adjusted returns for stockholders over the long term. We seek to employ a flexible and relative-value focused investment strategy and expect to re-allocate capital periodically among our target investment classes. We believe this flexibility will enable us to efficiently manage risk and deliver attractive risk-adjusted returns under a variety of market conditions and economic cycles. For highlights of our recent acquisition, financing and other activity, see "—Investments in the Quarter” and “—Liquidity and Capital Resources” below. Our business continues to be subject to the uncertainties associated with COVID-19. For additional information, see Note 2 to our consolidated financial statements.

We are externally managed by our Manager, a subsidiary of our Sponsor, an SEC-registered investment advisor, which has extensive real estate experience, having completed as of ~~June 30, 2020~~March 31, 2021 approximately ~~$9.9~~$12.4 billion of gross real estate transactions since the beginning of 2012. In addition, our Sponsor, together with its affiliates, including NexBank, SSB is one of the most experienced global alternative credit managers managing approximately ~~$13.3~~$13.0 billion of loans and debt or credit related investments as of ~~June 30, 2020~~March 31, 2021 and has managed credit investments for over 25 years. We believe our relationship with our Sponsor benefits us by providing access to resources including research capabilities, an extensive relationship network, other proprietary information, scalability, and a vast wealth of knowledge of information on real estate in our target assets and sectors.

We intend to elect to be treated as a REIT for U.S. federal income tax purposes beginning with our taxable year ~~ending~~ended December 31, 2020. We also intend to operate our business in a manner that will permit us to maintain one or more exclusions or exemptions from registration under the Investment Company ~~Act~~Act.

Investments in the Quarter

On January 21, 2021, the Company issued two mezzanine loans encompassing an A-note and B-note structure, with an aggregate principal amount outstanding of ~~1940.~~approximately $26.4 million. The $24.8 million A-note matures on January 21, 2024, plus two one-year extensions and the $1.6 million B-note matures on February 21, 2022. The A-note generates interest income at a rate of the Wall Street Journal (“WSJ”) Prime Rate plus a spread with a minimum all-in rate of 12.5% for the first 25 months, and 14.5% thereafter. The B-note generates interest income at a rate of WSJ Prime Rate plus a spread over the index of 10.0%, with a minimum all-in rate of 12.5%. A fixed minimum rate of 8.0% is paid in cash on a monthly basis. The difference between the 8.0% minimum monthly payment and the all-in rate is accrued as paid-in-kind interest and is compounded on a monthly basis.

Components of Our Revenues and Expenses

Net Interest Income

Interest income. Our earnings are primarily attributable to the interest income from mortgage loans, mezzanine loan and preferred equity investments. Loan premium/discount amortization is also included as a component of interest income.

Interest expense. Interest expense represents interest accrued on our various financing obligations used to fund our investments and is shown as a deduction to arrive at net interest income.

Table of Contents

The following table presents the components of net interest income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 (dollars in thousands):

	For the Three Months Ended June 30, 2020									For the Six Months Ended June 30, 2020									For the Three Months Ended March 31, 2021									For the Three Months Ended March 31, 2020
	Interest income/			Average						Interest income/			Average						Interest income/			Average						Interest income/			Average
	(expense)			Balance (1)			Yield (2)			(expense)			Balance (1)			Yield (2)			(expense)			Balance (1)			Yield (2)			(expense)			Balance (1)			Yield (2)
Interest income
SFR Loans, held-for-investment	$	8,790		$	932,776			3.77	%	$	14,889		$	932,776			3.86	%	$	8,733		$	917,113			3.81	%	$	6,099		$	934,175			3.97	%
Mezzanine loan		227			6,972			13.02	%		308			6,972			10.68	%
Mezzanine loans																				2,736			113,260			9.66	%		81			3,221			15.28	%
Preferred equity		699			24,054			11.62	%		1,105			24,054			11.10	%		569			19,209			11.85	%		406			19,061			12.96	%
CMBS structured pass through certificates, at fair value		105			4,368			9.62	%		105			2,184			11.62	%		611			38,954			6.27	%		—			—			N/A
Total interest income	$	9,821		$	968,170			4.06	%	$	16,407		$	965,986			4.11	%	$	12,649		$	1,088,536			4.65	%	$	6,586		$	956,457			4.13	%
Interest expense
Repurchase agreements		(309	)		(56,323	)		2.19	%		(309	)		(33,794	)		2.21	%		(819	)		(162,122	)		2.02	%		—			—			N/A
Long-term seller financing		(4,907	)		(788,554	)		2.49	%		(8,238	)		(818,228	)		2.43	%		(4,929	)		(780,080	)		2.53	%		(3,331	)		(788,554	)		2.57	%
Unsecured Notes																				(749	)		(36,500	)		8.21	%		—			—			N/A
Total interest expense	$	(5,216	)	$	(844,877	)		2.47	%	$	(8,547	)	$	(852,022	)		2.42	%	$	(6,497	)	$	(978,702	)		2.66	%	$	(3,331	)	$	(788,554	)		2.57	%
Net interest income (3)	$	4,605								$	7,860								$	6,152								$	3,255

(1)	Average balances for the SFR Loans, the mezzanine loan and preferred equity are calculated based upon carrying values.

~~Realized losses.~~ ~~Realized losses relate to the difference between par and amortized cost on SFR Loan principal payments.~~

Change in net assets related to consolidated CMBS variable interest entities. Includes unrealized gain (loss) based on changes in the fair value of the assets and liabilities of the CMBS trusts and net interest earned on the consolidated CMBS trusts. See Note 54 to our consolidated financial statements for additional information.

Change in unrealized gain on CMBS structured pass through certificates. Includes unrealized gain (loss) based on changes in the fair value of the CMBS I/O Strips. See Note 6 to our consolidated financial statements for additional information.

Change in unrealized gain on common stock held at fair value. Includes unrealized gain (loss) based on changes in the fair value of our common stock investment in NSP. See Note 5 to our consolidated financial statements for additional information.

Loan loss provision, net. Loan loss provision, net represents the change in our allowance for loan losses. See Note 2 to our consolidated financial statements for additional information.

Dividend ~~Income~~income. Dividend income represents the 7%accrued interest income and quarterly cash ~~interest~~and stock dividends earned on our ~~Preferred Stock~~preferred stock investment in JCAP.

Realized losses. Realized losses relate to the difference between par and amortized cost on SFR Loan principal payments. Realized losses include the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as ~~well as~~realized losses. The Company reverses cumulative unrealized gains or losses previously reported in its Consolidate Statements of Operations with respect to the ~~quarterly stock dividend as discussed in Note 6.~~investment sold at the time of the sale.

Other income. Includes prepayment fees, placement fees, exit fees and other miscellaneous income items.

G&A expenses. ~~General and administrative (“~~G~~&A”)~~&A expenses include, but are not limited to, audit fees, legal fees, listing fees, ~~board of director~~Board fees, equity-based and other compensation ~~expense,~~expenses, investor-relations costs and payments of reimbursements to our Manager. The Manager will be reimbursed for expenses it incurs on behalf of the Company. However, our Manager is responsible, and we will not reimburse our Manager or its affiliates, for the salaries or benefits to be paid to personnel of our Manager or its affiliates who serve as our officers, except that 50% of the salary of our VP of Finance is allocated to us and we may grant equity awards to our officers under the 2020 LTIP. Direct payment of operating expenses by us, which includes compensation expense relating to equity awards granted under the 2020 LTIP, together with reimbursement of operating expenses to our Manager, plus the Annual Fee, may not exceed 2.5% of equity book value determined in accordance with GAAP, for any calendar year or portion thereof, provided, however, that this limitation will not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions and 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. To the extent total corporate G&A expenses would otherwise exceed 2.5% of equity book value, our Manager will waive all or a portion of its Annual Fee to keep our total corporate G&A expenses at or below 2.5% of equity book value.

Loan servicing fees. We pay various service providers fees for loan servicing of our SFR Loans and consolidated CMBS trusts. We classify the expenses related to the administration of the SFR Loans as servicing fees while the fees associated with the CMBS trusts are included as a component of the change in net assets related to consolidated CMBS VIEs.

Management fees. Management fees include fees paid to our Manager pursuant to the Management Agreement.

The following table sets forth a summary of our operating results for the three months ended ~~June 30,~~ March 31, 2021 and 2020 (in thousands):

~~We commenced operations on February 11, 2020 and, therefore, have no period to compare results for the three months ended June 30, 2020. Our~~The change in our net income for the three months ended ~~June 30,~~March 31, 2021 as compared to the net loss for the three months ended March 31, 2020 primarily relates to increases in net interest income and other income including changes in net assets related to consolidated CMBS VIEs, and the fact that the prior period was a partial quarter as the Company did not begin significant operations until February 11, 2020. Our net income attributable to common stockholders for the three months ended March 31, 2021 was approximately ~~$5.3~~$8.4 million. We earned approximately ~~$4.6~~$6.2 million in net interest income, ~~$17.1~~$22.3 million in other income, incurred operating expenses of ~~$2.4~~$3.4 million, allocated $0.9 million of income to preferred stockholders and allocated ~~$14.0~~$15.8 million of income to redeemable noncontrolling interest in the OP for the three months ended ~~June 30, 2020.~~

Net interest income. Net interest incomewas ~~$4.6~~$6.2 million for the three months ended ~~June 30, 2020.~~

~~Other income.~~ ~~Other income was $17.1~~March 31, 2021 compared to $3.3 million for the three months ended ~~June 30, 2020.~~March 31, 2020 which was an increase of approximately $2.9 million. The increase between the periods is primarily due to an increase in investments and the number of days in operation compared to the prior period. As of March 31, 2021 we own 62 discrete investments compared to 34 as of March 31, 2020.

Other income. Other income was $22.3 million for the three months ended March 31, 2021 compared to a loss of $24.9 million for the three months ended March 31, 2020 which was an increase of approximately $47.2 million. This was primarily due to ~~the gain on change~~an increase in net assets related to consolidated CMBS VIEs ~~of $15.0 million~~ and ~~dividend income of $1.8 million.~~an increase in fair value marks between the periods.

G&A expenses. G&A expenses were ~~$0.8~~$1.5 million for the three months ended ~~June 30, 2020.~~

~~Loan servicing fees.~~ ~~Loan servicing fees were $1.2~~March 31, 2021. compared to $0.3 million for the three months ended ~~June 30, 2020.~~March 31, 2020 which was an increase of approximately $1.2 million. The increase between the periods was primarily due to a $0.5 million increase in legal fees and the number of days in operation compared to the prior period.

Loan servicing fees. ~~Management~~ Loan servicing fees were ~~$0.4~~$1.3 million for the three months ended ~~June 30, 2020.~~

~~The following table sets forth a summary of our operating results for the six months ended June 30, 2020 (in thousands):~~

March 31, 2021 Our net loss for the six months ended June 30, 2020 was approximately $1.1 million. We earned approximately $7.9 million in net interest income, incurred $7.9 million in other loss, incurred operating expenses of $3.6 million and allocated $2.5 million of loss. compared to ~~redeemable noncontrolling interests in the OP for the six months ended June 30, 2020.~~

~~Net interest income.~~ ~~Net interest income was $7.9~~$0.7 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2020 which was an increase of approximately $0.6 million. The increase between the periods was primarily due to an increase in loans in the portfolio and the number of days in operation compared to the prior period.

Management fees. Management fees were $0.5 million ~~loss~~ for the ~~six~~three months ended ~~June 30, 2020. This~~March 31, 2021. compared to $0.2 million for the three months ended March 31, 2020 which was an increase of approximately $0.3 million. The increase between the periods was primarily due to the ~~loss on change~~number of days in ~~net assets related~~operation compared to ~~consolidated CMBS VIEs of $10.1 million, partially offset by dividend income of $2.3 million.~~the prior period.

~~General and administrative expenses.~~ ~~G&A expenses were $1.2 million for the six months ended June 30, 2020.~~

~~Loan servicing fees.~~ ~~Loan servicing fees were $1.8 million for the six months ended June 30, 2020.~~

~~Management fees.~~ ~~Management fees were $0.5 million for the six months ended June 30, 2020.~~

As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Core Earnings, CAD and book value per share.

The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share (in thousands, except per share data):

We use Core Earnings to evaluate our performance which excludes the effects of certain GAAP adjustments and transactions that we believe are not indicative of our current operations and loan performance. Core Earnings is a non-GAAP financial measure of performance. Core Earnings is defined as the net income (loss) attributable to our common stockholders computed in accordance with GAAP, including realized gains and losses not otherwise included in net income (loss), excluding any unrealized gains or losses or other similar non-cash items that are included in net income (loss) for the applicable reporting period, regardless of whether such items are included in other comprehensive income (loss), or in net income (loss) and adding back amortization of stock-based ~~compensation.~~compensation and our loan loss provision.

We believe providing Core Earnings as a supplement to GAAP net income (loss) to our investors is helpful to their assessment of our performance. Core Earnings should not be used as a substitute for GAAP net income (loss). The methodology used to calculate Core Earnings may differ from other REITs. As such, our Core Earnings may not be comparable to similar measures provided by other REITs.

We also use Core Earnings as a component of the management fee paid to our Manager. As consideration for the Manager’s services, we will pay our Manager an annual management fee of 1.5% of Equity, paid monthly, in cash or shares of our common stock at the election of our Manager. “Equity” means (a) the sum of (1) total stockholders’ equity immediately prior to our IPO, plus (2) the net proceeds received from all issuances of our ~~common stock~~equity securities in and after the IPO, plus (3) our cumulative Core Earnings from and after the IPO to the end of the most recently completed calendar quarter, (b) less (1) any distributions to our ~~stockholders~~holders of common stock from and after the IPO to the end of the most recently completed calendar quarter and (2) all amounts that we have paid to repurchase for cash the shares our ~~common stock~~equity securities from and after the IPO to the end of the most recently completed calendar quarter. In our calculation of Equity, we will adjust our calculation of Core Earnings to (i) remove the compensation expense relating to awards granted under one or more of our long-term incentive plans that is added back in our calculation of Core Earnings and (ii) adjust net income (loss) attributable to common stockholders for (x) one-time events pursuant to changes in GAAP and (y) certain material non-cash income or expense items, in each case of (x) and (y) after discussions between the Manager and independent directors of our Board and approved by a majority of the independent directors of our Board. Additionally, for the avoidance of doubt, Equity ~~will~~does not include the assets contributed to us in the Formation Transaction.

The following table provides a reconciliation of Core Earnings to GAAP net income (loss) attributable to common stockholders (in thousands, except per share amount):

The following table provides a reconciliation of Core Earnings to GAAP net income including the dilutive effect of non-controlling interests (in thousands, except per share amount):

CAD is a non-GAAP measure. We believe that it provides meaningful information that is used by investors, analysts and our management to evaluate and determine trends in cash flow as it is not affected by non-cash items. CAD is also a useful measure used by our Board to determine our dividend and the long-term viability of the current dividend. CAD does not represent net income or cash flows from operating activities and should not be considered as an alternative to GAAP net income, an indication of our GAAP cash flows from operating activities, a measure of our liquidity or an indication of funds available for our cash needs. In addition, our methodology for calculating it may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures and, accordingly, our reported CAD may not be comparable to the CAD reported by other companies.

We calculate CAD by adjusting net income (loss) attributable to common shareholders by adding back amortization of stock-based compensation, amortization of premiums on our former preferred stock investment in JCAP and our loan loss provision, net and by removing the change in unrealized loss on our investments held at fair value, accretion of discounts, stock dividends receivable on preferred stock that was converted to common stock and stock dividends received.

The following table provides a reconciliation of CAD including the dilutive effect of non-controlling interests (in thousands, except per share amounts):

The following table calculates our book value per share (in thousands, except per share data):

Book value per share as of ~~June 30, 2020,~~March 31, 2021, includes the impact of ~~$10.1~~$20.7 million, or ~~$0.51~~$1.44 per common share, ~~of unrealized losses from our~~due to the change in net assets related to consolidated CMBS ~~VIEs and the impact of $2.9 million, or $0.55 per common share, of offering costs associated with the IPO.~~VIEs.

Due to the large noncontrolling interest in the ~~Sub~~Subsidiary OPs (see Note 11 to our consolidated financial statements, for more information), we believe it is useful to also look at book value on a combined basis as shown in the table below ~~(in~~(in thousands, except per share data):

Our portfolio consists of SFR Loans, CMBS B-Pieces, CMBS I/O Strips, a mezzanine ~~loan,~~loans, preferred equity investments, and a ~~preferred~~common stock investment with a combined unpaid principal balance of ~~$1.2~~$3.0 billion at ~~June 30, 2020~~March 31, 2021 and assumes the CMBS Entities’ assets and liabilities are not consolidated. The following table sets forth additional information relating to our portfolio as of ~~June 30, 2020~~ ~~(dollars~~March 31, 2021 (dollars in thousands):

Current

Remaining

Investment

Principal

Term (3)

Investment (1)

Date

Amount

Net Equity (2)

Location

Property Type

Coupon

(years)

SFR Loans

1

Senior loan

2/11/2020

$
508,700

$
84,661

Various

Single-family

4.65
%

8.18

2

Senior loan

2/11/2020

10,650

1,708

Various

Single-family

5.35
%

7.59

3

Senior loan

2/11/2020

5,614

887

Various

Single-family

5.33
%

3.09

4

Senior loan

2/11/2020

10,590

1,754

Various

Single-family

5.30
%

8.18

5

Senior loan

2/11/2020

7,619

1,264

Various

Single-family

5.08
%

8.01

6

Senior loan

2/11/2020

5,679

948

Various

Single-family

5.24
%

8.26

7

Senior loan

2/11/2020

12,332

2,053

Various

Single-family

5.54
%

8.26

8

Senior loan

2/11/2020

6,577

1,042

Various

Single-family

5.79
%

3.17

9

Senior loan

2/11/2020

8,283

1,397

Various

Single-family

5.85
%

8.35

10

Senior loan

2/11/2020

51,362

8,354

Various

Single-family

4.74
%

5.26

11

Senior loan

2/11/2020

9,666

1,626

Various

Single-family

6.10
%

8.26

12

Senior loan

2/11/2020

38,399

6,497

Various

Single-family

5.55
%

8.35

13

Senior loan

2/11/2020

6,378

1,075

Various

Single-family

5.47
%

8.35

14

Senior loan

2/11/2020

15,300

2,434

Various

Single-family

5.46
%

3.34

15

Senior loan

2/11/2020

5,760

968

Various

Single-family

5.99
%

8.43

16

Senior loan

2/11/2020

10,251

1,732

Various

Single-family

5.72
%

8.43

17

Senior loan

2/11/2020

10,670

1,803

Various

Single-family

5.60
%

8.43

18

Senior loan

2/11/2020

5,374

894

Various

Single-family

5.46
%

8.51

19

Senior loan

2/11/2020

9,256

1,546

Various

Single-family

5.88
%

8.51

20

Senior loan

2/11/2020

6,702

1,064

Various

Single-family

4.83
%

3.59

21

Senior loan

2/11/2020

4,736

782

Various

Single-family

5.35
%

8.60

22

Senior loan

2/11/2020

17,328

2,924

Various

Single-family

5.61
%

8.60

23

Senior loan

2/11/2020

7,770

1,287

Various

Single-family

5.34
%

8.60

24

Senior loan

2/11/2020

7,896

1,331

Various

Single-family

5.47
%

8.60

25

Senior loan

2/11/2020

6,829

1,126

Various

Single-family

5.46
%

8.67

26

Senior loan

2/11/2020

10,523

1,696

Various

Single-family

4.72
%

5.67

27

Senior loan

2/11/2020

62,023

10,211

Various

Single-family

4.95
%

8.67

Total

862,266

143,063

4.91
%

7.86

CMBS B-Piece

1

CMBS B-Piece

2/11/2020

75,205

(4)

65,428

Various

Multifamily

6.33
%

5.66

2

CMBS B-Piece

2/11/2020

56,387

(4)

50,748

Various

Multifamily

6.33
%

6.41

3

CMBS B-Piece

4/23/2020

81,999

(4)

47,484

Various

Multifamily

3.62
%

9.66

Total

213,592

163,660

5.29
%

7.39

CMBS I/O Strips

1

CMBS I/O Strip

4/15/2020

3,088

(5)

936

Various

Multifamily

3.52
%

16.58

2

CMBS I/O Strip

4/15/2020

3,214

(5)

859

Various

Multifamily

3.03
%

17.50

3

CMBS I/O Strip

5/18/2020

17,590

(5)

2,573

Various

Multifamily

2.09
%

26.25

Total

23,892

4,368

2.40
%

23.83

Mezzanine Loan

1

Mezzanine

2/11/2020

3,250

3,226

Charleston, SC

Multifamily

12.25
%

1.59

2

Mezzanine

6/12/2020

7,500

7,500

Houston, TX

Multifamily

6.50
%

3.00

10,750

10,726

8.24
%

2.58

Preferred Equity

1

Preferred Equity

2/11/2020

5,056

5,291

Jackson, MS

Multifamily

12.50
%

7.42

2

Preferred Equity

2/11/2020

3,821

3,977

Corpus Christi, TX

Multifamily

15.25
%

2.09

3

Preferred Equity

2/11/2020

10,000

9,776

Columbus, GA

Multifamily

11.50
%

5.01

4

Preferred Equity

5/29/2020

10,000

10,000

Houston, TX

Multifamily

6.50
%

9.84

Total

28,877

29,045

10.44
%

6.72

Preferred Stock

1

Preferred Stock

2/11/2020

40,627

(6)

40,947

N/A

N/A

7.00
%

N/A

(6)	~~Preferred~~Common stock consists of ~~JCAP preferred~~NSP common stock.

Table of Contents

The following table details overall statistics for our portfolio as of ~~June 30, 2020~~March 31, 2021 (dollars in thousands):

	Total			Floating Rate			Fixed Rate			Total			Floating Rate			Fixed Rate			Common Stock
	Portfolio			Investments			Investments			Portfolio			Investments			Investments			Investments
Number of investments	40			3			37				62			5			57			1
Principal balance(1)	$	1,180,004		$	134,843		$	1,045,161		$	1,411,791		$	205,001		$	1,206,790			N/A
Carrying value	$	1,179,381		$	119,403		$	1,059,978		$	1,439,359		$	205,501		$	1,233,858		$	45,460
Weighted-average cash coupon		5.10	%		6.37	%		4.93	%		5.36	%		8.00	%		4.91	%		N/A
Weighted-average all-in yield		4.54	%		8.59	%		4.08	%		5.06	%		8.31	%		4.51	%		N/A

(1)	Cost is used in lieu of principal balance for CMBS I/O Strips.

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of funds necessary to pay for our ongoing commitments to repay borrowings, maintain our investments, make distributions to our stockholders and other general business needs. Our investments generate liquidity on an ongoing basis through principal and interest payments, prepayments and dividends.

Our long-term liquidity requirements consist primarily of acquiring additional investments, scheduled debt payments and distributions. We expect to meet our long-term liquidity requirements through various sources of capital, which may include future debt or equity issuances, net cash provided by operations and other secured and unsecured borrowings. Our leverage is matched in term and structure to provide stable contractual spreads which will protect us from fluctuations in market interest rates over the long-term. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, borrowing restrictions imposed by lenders, general market conditions for REITs and our operating performance and liquidity.

Asset Metrics

Debt Metrics

Investment

Fixed/Floating Rate

Interest Rate

Maturity Date

Fixed/Floating Rate

Interest Rate

Maturity Date

SFR Loans

Senior loan

Fixed

4.65%

9/1/2028

Fixed

2.24%

9/1/2028

Senior loan

Fixed

5.35%

2/1/2028

Fixed

3.51%

2/1/2028

Senior loan

Fixed

5.33%

8/1/2023

Fixed

2.48%

8/1/2023

Senior loan

Fixed

5.30%

9/1/2028

Fixed

2.79%

9/1/2028

Senior loan

Fixed

5.08%

7/1/2028

Fixed

2.69%

7/1/2028

Senior loan

Fixed

5.24%

10/1/2028

Fixed

2.64%

10/1/2028

Senior loan

Fixed

5.54%

10/1/2028

Fixed

3.02%

10/1/2028

Senior loan

Fixed

5.85%

11/1/2028

Fixed

3.02%

11/1/2028

Senior loan

Fixed

4.74%

10/1/2025

Fixed

2.14%

10/1/2025

Senior loan

Fixed

6.10%

10/1/2028

Fixed

3.30%

10/1/2028

Senior loan

Fixed

5.55%

11/1/2028

Fixed

2.70%

11/1/2028

Senior loan

Fixed

5.47%

11/1/2028

Fixed

2.68%

11/1/2028

Senior loan

Fixed

5.46%

11/1/2023

Fixed

2.61%

11/1/2023

Senior loan

Fixed

5.99%

12/1/2028

Fixed

3.14%

12/1/2028

Senior loan

Fixed

5.72%

12/1/2028

Fixed

3.02%

12/1/2028

Senior loan

Fixed

5.60%

12/1/2028

Fixed

2.77%

12/1/2028

Senior loan

Fixed

5.46%

1/1/2029

Fixed

2.97%

1/1/2029

Senior loan

Fixed

5.88%

1/1/2029

Fixed

3.14%

1/1/2029

Senior loan

Fixed

4.83%

2/1/2024

Fixed

2.40%

2/1/2024

Senior loan

Fixed

5.35%

2/1/2029

Fixed

3.06%

2/1/2029

Senior loan

Fixed

5.61%

2/1/2029

Fixed

2.91%

2/1/2029

Senior loan

Fixed

5.34%

2/1/2029

Fixed

2.98%

2/1/2029

Senior loan

Fixed

5.47%

2/1/2029

Fixed

2.80%

2/1/2029

Senior loan

Fixed

5.46%

3/1/2029

Fixed

2.99%

3/1/2029

Senior loan

Fixed

4.72%

3/1/2026

Fixed

2.45%

3/1/2026

Senior loan

Fixed

4.95%

3/1/2029

Fixed

2.70%

3/1/2029

Mezzanine Loan

Mezzanine

Fixed

7.50%

5/1/2029

Fixed

0.30%

5/1/2029

Mezzanine

Fixed

7.42%

7/1/2031

Fixed

0.30%

7/1/2031

Mezzanine

Fixed

7.59%

6/1/2029

Fixed

0.30%

6/1/2029

Mezzanine

Fixed

7.83%

10/1/2028

Fixed

0.30%

10/1/2028

Mezzanine

Fixed

7.71%

4/1/2031

Fixed

0.30%

4/1/2031

Mezzanine

Fixed

7.32%

8/1/2031

Fixed

0.30%

8/1/2031

Mezzanine

Fixed

7.22%

8/1/2031

Fixed

0.30%

8/1/2031

Mezzanine

Fixed

7.33%

5/1/2029

Fixed

0.30%

5/1/2029

Mezzanine

Fixed

7.42%

7/1/2031

Fixed

0.30%

7/1/2031

Mezzanine

Fixed

7.53%

1/1/2029

Fixed

0.30%

1/1/2029

Mezzanine

Fixed

7.42%

7/1/2031

Fixed

0.30%

7/1/2031

Mezzanine

Fixed

7.42%

4/1/2031

Fixed

0.30%

4/1/2031

Mezzanine

Fixed

8.70%

11/1/2030

Fixed

0.30%

11/1/2030

Mezzanine

Fixed

7.74%

10/1/2028

Fixed

0.30%

10/1/2028

Mezzanine

Fixed

7.71%

3/1/2029

Fixed

0.30%

3/1/2029

Mezzanine

Fixed

6.91%

7/1/2029

Fixed

0.30%

7/1/2029

Mezzanine

Fixed

7.89%

11/1/2028

Fixed

0.30%

11/1/2028

Mezzanine

Fixed

7.89%

11/1/2028

Fixed

0.30%

11/1/2028

Table of Contents

Our primary sources of liquidity and capital resources to date consist of cash generated from our operating results and the following:

KeyBank Bridge Facility

On February 7, 2020, we, through our subsidiaries, entered into a $95.0 million ~~Bridge Facility~~bridge facility (the "Bridge Facility") with KeyBank National Association ("KeyBank") and immediately drew $95.0 million to fund a portion of the Formation Transaction. ~~The Company~~We used proceeds from the IPO to pay down the entirety of the Bridge Facility.

Raymond James Bridge Facility

On July 30, 2020, we, through our subsidiaries, entered into an $86.0 million bridge facility (the "RJ Bridge Facility") with Raymond James Bank, N.A. and drew $21.0 million on July 30, 2020 and $65.0 million on August 7, 2020. We used proceeds from the RJ Bridge Facility ~~(see Note 4).~~to finance the acquisitions of the FREMF 2020-KF81 and FREMF 2020-K113 securitization. The RJ Bridge Facility was repaid in full in August 2020.

Freddie Mac Credit ~~Facility~~Facilities

Prior to the Formation Transaction, two of our subsidiaries entered into a loan and security agreement, dated July 12, 2019, with Freddie Mac (the “Credit Facility”). Under the Credit Facility, these entities borrowed approximately $788.8 million in connection with their acquisition of senior pooled mortgage loans backed by SFR properties (the “Underlying Loans”). No additional borrowings can be made under the Credit Facility, and our obligations will be secured by the Underlying Loans. The Credit Facility was assumed by the Company as part of the Formation Transaction. As such, the remaining outstanding balance of $788.8 million was contributed to the Company on February 11, 2020. Our borrowings under the Credit Facility will mature on July 12, 2029. However, if an Underlying Loan matures prior to July 12, 2029, we will be required to repay the portion of the Credit Facility that is allocated to that loan (see Note 4)7 to our consolidated financial statements for additional information). As of ~~June 30, 2020,~~March 31, 2021, the outstanding balance on the Credit Facility was ~~$787.6~~$779.8 million.

On October 20, 2020, the Company acquired a portfolio of 18 mezzanine loans with an aggregate principal amount outstanding of approximately $97.9 million. Freddie Mac provided seller financing of approximately $59.9 million with a weighted average fixed interest rate of 0.30%. Proceeds for the notes offering (discussed below) and cash on hand were used to fund the remainder of the purchase price.

Cash Generated from IPO

On February 11, 2020, we completed our IPO in which we sold 5,350,000 shares of common stock (including 350,000 shares pursuant to the partial exercise of the underwriters’ option to purchase additional shares) at a price of $19.00 per share for gross proceeds of approximately $101.7 million. The IPO generated net proceeds of approximately ~~$91.9~~$91.5 million to us after deducting underwriting discounts and commissions of approximately $6.9 million and offering expenses of approximately ~~$2.9~~$3.3 million.

We contributed the net proceeds from the IPO to our OP in exchange for OP Units and our OP contributed the net proceeds from the IPO to our ~~Sub~~Subsidiary OPs for ~~Sub OP~~SubOP Units. Our ~~Sub~~Subsidiary OPs used the net proceeds from the IPO to repay the amount outstanding under the $95 million Bridge Facility, consistent with our investment strategy and guidelines.

Preferred Stock Offering

As discussed in Note ~~13, o~~n9 to our consolidated financial statements, on July ~~17,~~24, 2020, the Company issued 2,000,000 shares of its 8.50% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”) at a price to the public of $24.00 per share, for gross proceeds of $48.0 million before deducting underwriting discounts and commissions and other estimated offering expenses. In addition, the underwriters have been granted a 30-day option to purchase up to an additional 300,000 shares of the Series A Preferred Stock at the public offering price, less underwriting discounts and commissions. The Series A Preferred Stock has a $25.00 per share liquidation ~~preference~~.preference.

Notes Offering

On October 15, 2020, the OP issued unsecured notes with a coupon rate of 7.5% and aggregate principal amount of $36.5 million at approximately 99% of par value for proceeds of approximately $36.1 million before offering costs.

Repurchase Agreements

From time to time, we may enter into repurchase agreements to finance the acquisition of our target assets. Repurchase agreements will effectively allow us to borrow against loans and securities that we own in an amount equal to (1) the market value of such loans and/or securities multiplied by (2) the applicable advance rate. Under these agreements, we will sell our loans and securities to a counterparty and agree to repurchase the same loans and securities from the counterparty at a price equal to the original sales price plus an interest factor. During the term of a repurchase agreement, we will receive the principal and interest on the related loans and securities and pay interest to the lender under the repurchase agreement. At any point in time, the amounts and the cost of our repurchase borrowings will be based ~~upon~~on the assets being financed. For example, higher risk assets will result in lower advance rates (i.e., levels of leverage) at higher borrowing costs. In addition, these facilities may include various financial covenants and limited recourse guarantees.

As discussed in Note ~~13,~~7 to our consolidated financial statements, in connection with our recent CMBS acquisitions, ~~and new mezzanine debt investment,~~ we, through ~~our subsidiary partnerships,~~the OP and the Subsidiary OPs, have borrowed approximately ~~$60.1~~$162.2 million under our repurchase agreements and posted ~~$184.4 million~~approximately $1.9 billion par value of our CMBS B-Piece and CMBS I/O Strip investments as collateral. The CMBS B-Pieces and CMBS I/O Strips held as collateral are illiquid and irreplaceable in nature. These assets are restricted solely to satisfy the interest and principal balances owed to the lender. ~~Refer~~

Table of Contents

The table below provides additional details regarding recent borrowings under the master repurchase agreements:

March 31, 2021

Facility

Collateral

Date issued

Outstanding face amount

Carrying value

Final stated maturity

Weighted average interest rate (1)

Weighted average life (years) (2)

Outstanding face amount

Amortized cost basis

Carrying value (3)

Weighted average life (years) (2)

Master Repurchase Agreements

CMBS

Mizuho(4)

Apr 2020

162,168

N/A

⁽⁵⁾

2.41

0.01

1,944,055

302,736

321,326

10.3

(1)	Weighted-average interest rate using unpaid principal balances.

(2)	Weighted-average life is determined using the maximum maturity date of the corresponding loans, assuming all extension options are exercised by the borrower.

(3)	CMBS are shown at fair value.
(4)	In April 2020, three of our subsidiaries entered into a master repurchase agreement with Mizuho. Borrowings under these repurchase agreements are collateralized by portions of the CMBS B-Pieces and CMBS I/O Strips.
(5)	The master repurchase agreement with Mizuho does not have a stated maturity date. The transactions in place have a one-month to two-month tenor and are expected to roll accordingly.

At-The-Market Offering

On March 31, 2021, the Company, the OP and the Manager separately entered into the Equity Distribution Agreements with the Sales Agents, pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock and Series A Preferred Stock having an aggregate sales price of up to $100.0 million in the ATM Program. The Equity Distribution Agreements provide for the issuance and sale of common stock or Series A Preferred Stock by the Company through a sales agent acting as a sales agent or directly to the sales agent acting as principal for its own account at a price agreed upon at the time of sale. No issuances of securities under the ATM Program occurred in the quarter ended March 31, 2021. For additional information about the ATM Program, see Note 13 to our consolidated financial statements.

Unsecured Notes Offering

On April 20, 2021, the Company issued $75 million in aggregate principal amount of its 5.75% Senior Notes due 2026 at a price equal to 99.5% of par value for ~~additional disclosures on repurchase agreements subsequent~~proceeds of approximately $73.1 million after original issue discount and underwriting fees.

LIBOR Transition

Approximately 6.0% of our portfolio by unpaid principal balance as of March 31, 2021 pays interest at a variable rate that is tied to LIBOR, and it is anticipated that future investments we make may have variable interest rates tied to LIBOR. On March 5, 2021, the Financial Conduct Authority of the U.K. (the "FCA") announced that all of the LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) immediately after December 31, 2021, in the case of the 1-week and 2-month US dollar settings; and (ii) immediately after June 30, 2023, in the case of the remaining one-month, three-month, six-month and twelve-month US dollar settings. The tenors that were extended to June 30, ~~2020.~~2023 are more widely used and are the tenors used in our LIBOR-based debt. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee convened by the U.S. Federal Reserve Board and comprised of large U.S. financial institutions, has identified as a best-practice replacement the Secured Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements backed by U.S. Treasury securities. Although there have been a few issuances utilizing SOFR, it is unknown whether SOFR or another alternative reference rate will attain market acceptance as a replacement for LIBOR. In connection with the foregoing, we may need to renegotiate some of our agreements to determine a replacement index or rate of interest. As of March 31, 2021, the Company has not received any LIBOR transition notices under its loan agreements. Any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations, cash flows and the market value of our investments and result in mismatches with the interest rate of investments that we are financing.

Other Potential Sources of Financing

We may seek additional sources of liquidity from further repurchase facilities, other borrowings and future offerings of common and preferred equity and debt securities and contributions from existing holders of the OP or ~~Sub~~Subsidiary OPs. As discussed in Note 13, NREF OP IV entered into subscription agreements with the Manager Affiliates in late July and early August for 626,320 Sub OP Units in NREF OP IV for total consideration of approximately $11.5 million. In addition, we may apply our existing cash and cash equivalents and cash flows from operations to any liquidity needs. As of ~~June 30, 2020,~~March 31, 2021, our cash and cash equivalents were ~~$1.0~~$14.9 million.

We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month period following ~~June 30, 2020.~~March 31, 2021.

Cash Flows

The following table presents selected data from our Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020 (in thousands):

	For the Six Months Ended June 30,			For the Three Months Ended March 31,
	2020			2021			2020
Net cash provided by operating activities	$	11,909		$	9,076		$	5,145
Net cash (used) in investing activities		(21,377	)
Net cash provided by financing activities		10,434
Net increase in cash, cash equivalents and restricted cash		966
Net cash provided by investing activities					71,409			30,936
Net cash used in financing activities					(98,469	)		(35,884	)
Net increase (decrease) in cash, cash equivalents and restricted cash					(17,984	)		197
Cash, cash equivalents and restricted cash, beginning of period		-			33,471			—
Cash, cash equivalents and restricted cash, end of period	$	966		$	15,487		$	197

Cash flows from operating activities. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, net cash provided by operating activities was ~~$11.9 million.~~$9.1 million compared to net cash provided by operating activities of $5.1 million for the three months ended March 31, 2020. This increase was primarily due to the interest income generated by our ~~investments.~~investments and the change in unrealized loss on investments held at fair value.

Cash flows from investing activities. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, net cash ~~used in~~provided by investing activities was ~~$21.4 million.~~$71.4 million compared to net cash provided by operating activities of $30.9 million for the three months ended March 31, 2020. This increase was primarily driven by ~~purchases of~~proceeds received from payments on mortgage loans held in ~~VIEs and purchases of loans held-for-investment.~~VIEs.

Cash flows from financing activities. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, net cash ~~provided by~~used in financing activities was ~~$10.4 million.~~$98.5 million compared to net cash used in financing activities of $35.9 million for the three months ended March 31, 2020. This increase was primarily driven by ~~payment~~distributions to bondholders of ~~the Bridge Facility of $95.0 million, and offset by borrowings under secured repurchase agreements of $60.1 million and net proceeds from the IPO of approximately $91.9 million.~~VIEs.

Emerging Growth Company and Smaller Reporting Company Status

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Exchange Act, for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. We may elect to comply with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS Act.

We are also a “smaller reporting company” as defined in Regulation S-K under the Securities Act, and may elect to take advantage of certain of the scaled disclosures available to smaller reporting companies. We may be a smaller reporting company even after we are no longer an “emerging growth company.”

Income Taxes

We intend to elect to be treated as a REIT for U.S. federal income tax purposes, beginning with our taxable year ~~ending~~ended December 31, 2020. We believe that our organization and proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. 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. We had no significant taxes associated with our TRS for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

Table of Contents

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

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

We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement. We had no material unrecognized tax benefit or expense, accrued interest or penalties as of ~~June 30, 2020.~~March 31, 2021.

Dividends

We intend to make regular quarterly dividend payments to holders of our common stock. We also intend to make the accrued dividend payments on the Series A Preferred Stock, which are payable quarterly in arrears as provided in the articles supplementary setting forth the terms of the Series A Preferred Stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income, which is not used to pay a dividend on the Series A Preferred Stock, to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.

We will make dividend payments to holders of our common stock based on our estimate of taxable earnings per share of common stock, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair-value adjustments, differences in premium amortization and discount accretion, and non-deductible ~~general and administrative~~G&A expenses. Our quarterly dividends per share of our common stock may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared our ~~second~~first quarterly dividend of ~~2020~~2021 to common stockholders of ~~$0.40~~$0.4750 per share on ~~May 4, 2020,~~February 15, 2021, which was paid on ~~June 30, 2020.~~March 31, 2021 to common stockholders of record on March 15, 2021. On March 15, 2021, our Board declared the third preferred stock dividend of $0.53125 per share, which was paid on April 25, 2021 to preferred stockholders of record on March 25, 2021.

Off-Balance Sheet Arrangements

As of ~~June 30, 2020,~~March 31, 2021, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Commitments and Contingencies

The Company is not aware of any contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our consolidated financial statements.

Critical AccountingPolicies and Estimates

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

Table of Contents

Allowance for Loan Losses

The Company ~~with the assistance of an independent valuations firm,~~ performs a quarterly evaluation of loans classified as held for investment for impairment on a loan by loan basis in accordance with ASC 310-10-35, Receivables, Subsequent Measurement (“ASC 310-10-35”). If we deem that it is probable that we will be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan is indicated. If we consider a loan to be impaired, we will establish an allowance for loan losses, through a valuation provision in earnings that reduces carrying value of the loan to the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. For non-impaired loans with no specific allowance the Company determines an allowance for loan losses in accordance with ASC 450-20, Loss Contingencies (“ASC 450-20”), which represents management’s best estimate of incurred losses inherent in the portfolio at the balance sheet date, excluding impaired loans and loans carried at fair value. Management considers quantitative factors likely to cause estimated credit losses including default rate and loss severity rates. The Company also evaluates qualitative factors such as macroeconomic conditions, evaluations of underlying collateral, trends in delinquencies and non-performing assets. Increases to (or reversals of) the allowance for loan loss are included in “Loan loss provision, net” on the accompanying Consolidated Statements of Operations.

Significant judgment is required in determining impairment and in estimating the resulting loss allowance, and actual losses, if any, could materially differ from those estimates.

~~Income Recognition~~

Loans held-for-investment, available-for-sale securities, CMBS I/O Strips, mortgage loans from the consolidated CMBS entities and debt securities held-to-maturity where the Company expects to collect the contractual interest and principal payments are considered to be performing loans. The Company recognizes income on performing loans in accordance with the terms of the loan on an accrual basis. Interest income also includes amortization of loan premiums or discounts and loan origination costs. We consider loans to be past due when a monthly payment is due and unpaid for 60 days or more. Loans will be placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when they become 120 days or more past due unless the loan is both well secured and in the process of collection. Accrual of interest on individual loans is discontinued when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Our policy is to stop accruing interest when a loan’s delinquency exceeds 120 days. All interest accrued but not collected for loans that are placed on nonaccrual status or subsequently charged-off are reversed against interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic principal and interest payments returns and future payments are reasonably assured, in which case the loan is returned to accrual status.

~~Formation Transaction~~

The Company commenced operations on February 11, 2020 upon the closing of its IPO. Prior to the closing of the IPO, the Company engaged in the Formation Transaction through which it acquired the Initial Portfolio consisting of SFR Loans, CMBS B-Pieces, mezzanine loan and preferred equity investments in real estate companies and properties in other structured real estate investments within the multifamily, SFR and self-storage asset classes. The Initial Portfolio was acquired from the Contribution Group pursuant to a contribution agreement through which the Contribution Group contributed their interest in the Initial Portfolio to SPEs owned by subsidiary partnerships of the Company in exchange for Sub OP Units. The assets and liabilities constituting the Initial Portfolio were contributed at fair value using a cutoff date of January 31, 2020. The mezzanine loan, preferred stock and preferred equity investments were valued using a discounted cash flow model using discount rates negotiated with the Contribution Group. A third-party valuation firm was utilized to value the SFR Loans using the income approach in accordance with ASC Topic 820. The income approach utilizes a discounted cash flow method to present value the expected future cash flows. The future cash flows were projected based on the terms of the loans including interest rates, current balances and servicing fees. The future cash flows depend substantially on various other assumptions such as prepayment rates, prepayment charges, default rates, expected loss given default (severity), and other inputs. The Credit Facility contributed along with the SFR Loans was also valued using the income approach as previously described. The equity and financial liabilities of the consolidated CMBS B-Pieces were valued using broker quotes (see Note 2 for more information on our valuation methodologies). The Bridge Facility was originated shortly before the closing of the IPO and was contributed at its carrying value which approximated fair value. The fair values of the contributed cash and accrued interest and dividends approximated their carrying values because of the short-term nature of these instruments. The fair values of the contributed assets described above were agreed upon by the Contribution Group and used to determine the number of Sub OP Units issued. Any purchase premiums or discounts are amortized over the expected life of the investment.

~~The following table shows the par values, fair values and purchase premiums (discounts) of the Initial Portfolio as February 11, 2020, the closing date of the IPO:~~

Par value

Fair Value

Premium (Discount)

Assets

Cash

$
302

$
302

$
—

Loans, held-for-investment, net

22,127

22,282

155

Preferred stock

40,000

40,400

400

Mortgage loans, held-for-investment, net

863,564

934,918

71,354

Accrued interest and dividends

3,616

3,616

—

Mortgage loans held in variable interest entities, at fair value

1,790,228

1,790,135

(93
)

$
2,719,837

$
2,791,653

$
71,816

Liabilities

Credit facility

$
788,764

$
788,764

$
—

Bridge facility

95,000

95,000

—

Bonds payable held in variable interest entities, at fair value

1,655,960

1,655,960

—

$
2,539,724

$
2,539,724

$
—

Total contributions

$
180,113

$
251,929

$
71,816

Table of Contents

~~Valuation of CMBS Trusts~~

We report the financial assets and liabilities of each CMBS trust that we consolidate at fair value using the measurement alternative included in Accounting Standards Update (“ASU”) No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13”). Pursuant to ASU 2014-13, we measure both the financial assets and financial liabilities of the CMBS trusts we consolidate using the fair value of the financial liabilities (which we consider more observable than the fair value of the financial assets) and the equity of the CMBS trusts beneficially owned by us. As a result, we presented the CMBS issued by the consolidated trusts, but not beneficially owned by us, as financial liabilities in our consolidated financial statements, measured at their estimated fair value; we measured the financial assets as the total estimated fair value of the CMBS issued by the consolidated trust, regardless of whether such CMBS represent interests beneficially owned by us. Under the measurement alternative prescribed by ASU 2014-13, our “Net income (loss)” reflects the economic interests in the consolidated CMBS beneficially owned by us, presented as “Change in net assets related to consolidated CMBS variable interest entities” in our Consolidated Statements of Operations, which includes applicable (1) changes in the fair value of CMBS beneficially owned by us, (2) interest income, interest expense and servicing fees earned from the CMBS trusts and (3) other residual returns or losses of the CMBS trusts, if any.

The financial liabilities and equity of the consolidated CMBS trusts are valued using broker quotes. Broker quotes represent the price that an investment could be sold for in a market transaction and represent fair market value. Loans and bonds with quotes that are based on actual trades with a sufficient level of activity on or near the valuation date are classified as Level 2 assets. Loans and bonds that are priced using quotes derived from implied values, bid/ask prices for trades that were never consummated, or a limited amount 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.

REIT Tax Election

We intend to elect to be treated as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our “REIT taxable income,” as defined by the Code, to our stockholders. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. We believe that our organization and current and proposed method of operation will allow us to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify as a REIT.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity prepayment rates and market value, while at the same time seeking to provide an opportunity for our stockholders to realize attractive risk-adjusted returns. While risks are inherent in any business enterprise, we seek to quantify and justify risks in light of available returns and to maintain capital levels consistent with the risks we undertake.

~~Credit Risk~~

Our investments are subject to credit risk, including the risk of default. The performance and value of our investments depend upon the ability of the sponsor or homeowner to pay interest and principal due to us. To monitor this risk, ~~our Manager will use active asset surveillance to evaluate collateral pool performance and will proactively manage positions.~~

~~Credit Yield Risk~~

Credit yields measure the return demanded on financial instruments by the lending market based on their risk of default. Increasing supply of credit-sensitive financial instruments and reduced demand will generally cause the market to require a higher yield on such financial instruments, resulting in a lower price for the financial instruments we hold.

~~Interest Rate Risk~~

Generally, the composition of our investments is such that rising interest rates will increase our net income, while declining interest rates will decrease net income. If interest rates decline, the value of our fixed-rate investments may increase and if interest rates were to increase, the value of these fixed-rate investments may decrease; however, the interest income generated by these investments would not be affected by market interest rates. Further, the interest rates we pay under repurchase agreements may be variable. Accordingly, our interest expense would generally increase as interest rates increase and decrease as interest rates decrease.

~~The following table shows the sensitivity of net interest income to 1/8~~^th ~~percent increases in interest rates for the Company’s floating rate assets and liabilities as of June 30, 2020:~~

Change in Interest Rates

Annual change to net interest income

0.125%

$
93,400

0.250%

186,800

0.375%

280,200

0.500%

373,600

Not required for smaller reporting companies.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks.

~~Prepayment risk~~

Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets.

~~Financing Risk~~

We may finance our target assets with borrowed funds under repurchase agreements and other credit facilities. Over time, as market conditions change, we may use other forms of leverage in addition to these methods of financing. Weakness or volatility in the financial markets, the commercial real estate and mortgage markets and the economy generally could adversely affect one or more of our lenders or potential lenders and could cause one or more of our lenders or potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.

~~Real Estate Risk~~

The market values of commercial mortgage assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could cause us to suffer losses.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and Chief Financial Officer, evaluated, as of ~~June 30, 2020,~~March 31, 2021, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June 30, 2020,~~March 31, 2021, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

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

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15-d-15(f) under the Exchange Act) that occurred during the quarter ended ~~June 30, 2020~~March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART ~~II—~~II—OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

~~Except as set forth below, there~~

There have been no material changes to the risk factors previously disclosed under ~~the heading~~Part I, Item 1A, “Risk Factors” in our ~~Registration Statement~~Annual Report on Form ~~S-11, as amended (Registration No. 333-235698),~~10-K filed with the SEC on February ~~4, 2020:~~25, 2021.

The current COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

As a result of the recent spike in COVID-19 cases in the United States, certain states and cities have reinstituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. We expect that additional states and cities will implement similar restrictions if the current trend continues and cannot predict when such restrictions will expire. As a result, the COVID-19 pandemic has negatively impacted, and will likely continue to negatively impact, almost every industry directly or indirectly, which may adversely impact our performance or the value of underlying real estate collateral relating to our investments, increase the default risk applicable to borrowers and make it relatively more difficult for us to generate attractive risk-adjusted returns.

~~The COVID-19 outbreak, and future pandemics, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance due to, among other factors:~~

reduced economic activity may cause certain borrowers underlying our real estate related assets and senior loans to become delinquent or default on their loans, or seek to defer payment on, or refinance, their loans;

~~reduced economic activity could result in a prolonged recession, which could negatively impact the value~~

Table of ~~commercial and residential real estate, which negatively impacts the value of our investments, potentially materially;~~

Contents

difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis, or at all;

the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants in our debt obligations and result in a default and potentially an acceleration of indebtedness;

~~uncertainties created by the COVID-19 pandemic could make it difficult to estimate provisions for loan losses;~~

a general decline in business activity and demand for mortgage financing, servicing and other real estate and real estate related transactions, which could adversely affect our ability to make new investments or to redeploy the proceeds from repayments of our existing investments; and

the potential negative impact on the health of the employees of our Manager, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. Currently, many of our Manager’s employees are working remotely. An extended period of remote work arrangements could introduce operational risk, including, but not limited to, cybersecurity risks, impair our ability to manage our business and negatively impact our internal controls over financial reporting. In addition, as of ~~June 30, 2020,~~March 31, 2021, there have been two forbearance requests approved in our CMBS B-Piece portfolio, representing ~~1.7%~~0.9% of our unpaid principal balance outstanding. There ~~have also been~~were nine forbearance requests approved in our SFR ~~loan~~Loan book, ~~representing 2.84%~~but as of ~~our consolidated unpaid principal balance outstanding.~~March 31, 2021, these were no longer in forbearance.

The extent to which COVID-19 ~~impacts~~continues to impact our business will depend on future developments, which are highly uncertain and cannot be predicted, including additional actions taken to contain COVID-19 or treat its impact, among others. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance. Moreover, many risk factors set forth in our ~~Registration Statement on~~ Form ~~S-11, as amended (Registration No. 333-235698),~~10-K filed with the SEC on February ~~4, 2020,~~25, 2021, should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

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

~~Repurchase of Shares~~

On March 9, 2020, we announced that our Board authorized us to repurchase an indeterminate number of shares of our common stock at an aggregate market value of up to $10.0 million during a two-year period that is set to expire on March 9, 2022. Since inception, we have repurchased 87,466 shares of common stock, par value $0.01 per share, at a total cost of approximately $1.3 million, or $15.30 per share as shown in the table below.

Period

Total Number
of Shares Purchased

Average Price
Paid Per Share

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Approximate Dollar Value
of Shares that may yet be
Purchased under the
Plans or Programs (in
millions)

Beginning Balance

87,466

$
15.30

87,466

$
8.7

April 1 – April 30

—

—

—

8.7

May 1 – May 31

—

—

—

8.7

June 1 – June 30

—

—

—

8.7

Balance as of June 30, 2020

87,466

$
15.30

87,466

$
8.7

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits

EXHIBIT INDEX

ExhibitNumber		Description

3.1

~~10.1†~~		~~Form~~Articles Supplementary to the Articles of ~~Restricted~~Amendment and Restatement of NexPoint Real Estate Finance, Inc., classifying and designating an additional 9,000,000 shares of the Company’s 8.50% Series A Cumulative Redeemable Preferred Stock, ~~Units Agreement (Directors)~~par value $0.01 per share (incorporated by reference to Exhibit ~~10.10~~3.1 to the ~~Company’s Registration Statement~~Current Report on Form ~~S-11~~8-K, filed ~~with~~by the ~~SEC~~Company on ~~July 15, 2020)~~April 1, 2021, file No. 001-39210).

~~10.2†~~
10.1	~~Form of Restricted Stock Units Agreement (Officers) (incorporated by reference to Exhibit 10.11~~Fifth Amendment to the ~~Company’s Registration Statement on Form S-11 filed with the SEC on July 15, 2020).~~

~~10.3~~		~~Buffalo Pointe Contribution~~Amended and Restated Limited Partnership Agreement ~~dated May 29, 2020, by and among the Company, the OP and the Buffalo Pointe Contributors~~of NexPoint Real Estate Finance Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the ~~Company’s~~ Current Report on Form 8-K, filed ~~with~~by the ~~SEC~~Company on ~~May 29, 2020)~~April 1, 2021, file No. 001-39210).

~~10.4~~		Amended and Restated Limited Liability Company Agreement of NexPoint Buffalo Pointe Holdings, LLC (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-11 filed with the SEC on July 15, 2020).

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1⁺		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

+ Furnished herewith.

*	~~Filed herewith.~~

†	~~Management contract, compensatory plan or arrangement~~

Table of Contents

+	~~Furnished herewith.~~

~~SIGNATURES~~SIGNATURES

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

NEXPOINT REAL ESTATE FINANCE, INC.

Signature	Title		Date

/s/ Jim Dondero	Chairman of the Board and President	~~President and Director~~		~~August 10, 2020~~April 30, 2021
Jim Dondero	(Principal Executive Officer)

/s/ Brian Mitts	Director, Chief Financial Officer, Executive VP-Finance, Secretary and ~~Director~~Treasurer		~~August 10, 2020~~April 30, 2021
Brian Mitts	(Principal Financial Officer and Principal Accounting Officer)

~~300 Crescent Court,~~2515 McKinney Avenue, Suite ~~700,~~1100, Dallas, Texas	75201
(Address of Principal Executive Offices)		~~75201~~
(Zip Code)

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller reporting company	☒
Emerging growth company	☒

	For the Six Months Ended June 30,			For the Three Months Ended March 31,
	2020			2021			2020
Cash flows from operating activities
Net loss	$	(3,595	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income (loss)				$	25,070		$	(22,868	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of premiums		3,088			2,516			1,060
Accretion of discounts		(412	)		(1,668	)		—
Loan loss provision, net		293			124			212
Change in unrealized loss on investments held at fair value		14,834
Net change in unrealized (gain) loss on investments held at fair value					(16,476	)		26,901
Net realized losses					65			—
Vesting of stock-based compensation		39			391			—
Changes in operating assets and liabilities:
Accrued interest and dividends receivable		(3,231	)		(568	)		(1,632	)
Other assets		(1,118	)
Accounts receivable and other assets					(2,639	)		(1,096	)
Accrued interest payable		768			480			932
Accounts payable, accrued expenses and other liabilities		1,243			1,781			1,636
Net cash provided by operating activities		11,909			9,076			5,145

Cash flows from investing activities
Proceeds from payments received on mortgage loans held in variable interest entities		35,785			96,451			30,481
Proceeds from payments received on mortgage loans held for investment		1,298			834			455
Purchases of loans, held-for-investment, net		(7,500	)
Purchases of CMBS structured pass through certificates, at fair value		(4,076	)
Purchases of CMBS securitizations held in variable interest entities, at fair value		(46,884	)
Net cash (used in) investing activities		(21,377	)
Originations of loans, held-for-investment, net					(25,876	)		—
Net cash provided by investing activities					71,409			30,936

Cash flows from financing activities
Principal repayments on borrowings under secured financing agreements		(1,195	)		(766	)		(419	)
Distributions to bondholders of variable interest entities		(33,110	)		(89,234	)		(28,200	)
Borrowings under master repurchase agreements		60,123			5,737			—
Bridge facility payments		(95,000	)
Principal repayments on borrowings under master repurchase agreements					(5,034	)		—
Bridge Facility payments					—			(95,000	)
Proceeds from the issuance of common stock through public offering, net of offering costs		91,948			—			91,948
Repurchase of common stock		(1,339	)		—			(1,339	)
Dividends paid to common stockholders		(3,262	)		(2,386	)		(1,157	)
Distributions to redeemable noncontrolling interests in the Operating Partnership		(8,033	)
Dividends paid to preferred stockholders					(874	)		—
Distributions to redeemable noncontrolling interests in the OP					(5,912	)		(2,019	)
Contributions from noncontrolling interests		302			—			302
Net cash provided by financing activities		10,434
Net cash used in financing activities					(98,469	)		(35,884	)

Net increase in cash, cash equivalents and restricted cash		966
Net increase (decrease) in cash, cash equivalents and restricted cash					(17,984	)		197
Cash, cash equivalents and restricted cash, beginning of period		—			33,471			—
Cash, cash equivalents and restricted cash, end of period	$	966		$	15,487		$	197

Supplemental Disclosure of Cash Flow Information
Interest paid	$	9,626		$	7,289	$	3,054
Supplemental Disclosure of Noncash Activities (Note 2)
Contributions from noncontrolling interests, including consolidation of the associated mortgage loans held in variable interest entities		2,797,735			—		2,787,735
Other assets acquired from contributions from noncontrolling interests		3,616			—		3,616
Assumed debt on contributions from noncontrolling interests, including consolidation of the associated bonds payable held in variable interest entities		(2,539,724	)		—		(2,539,724	)
Consolidation of mortgage loans and bonds payable held in variable interest entities		1,011,315
Increase in dividends payable upon vesting of restricted stock units		6			248		—
Stock dividends		627
Increase in dividends payable to preferred stockholders					874		—

							Weighted Average														Weighted Average
Loan Type	Outstanding Face Amount		Carrying Value (1)		Loan Count		Fixed Rate (2)			Coupon (3)			Life (years) (4)		Outstanding Face Amount		Carrying Value (1)		Loan Count		Fixed Rate (2)			Coupon (3)			Life (years) (4)
June 30, 2020
March 31, 2021
SFR Loans, held-for-investment	$	862,266	$	930,340		27		100.00	%		4.91	%		7.86	$	853,531	$	915,348		26		100.00	%		4.90	%		7.14
Mezzanine loan, held-for-investment		10,750		10,726		2		69.77	%		6.95	%		2.58		131,784		134,439		21		79.98	%		8.62	%		7.42
Preferred equity, held-for-investment		28,877		29,045		4		100.00	%		8.04	%		6.72		18,877		19,198		3		100.00	%		7.79	%		6.87
	$	901,893	$	970,111		33		99.64	%		5.04	%		7.76	$	1,004,192	$	1,068,985		50		97.37	%		5.45	%		7.17


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


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

	For the Three Months Ended June 30,			For the Six Months Ended June 30,			For the Three Months Ended March 31,
	2020			2020			2021			2020
Net interest income
Interest income	$	9,821		$	16,407		$	12,649		$	6,586
Interest expense		5,216			8,547			(6,497	)		(3,331	)
Total net interest income	$	4,605			7,860		$	6,152		$	3,255
Other income (loss)
Change in net assets related to consolidated CMBS variable interest entities		15,032			(10,127	)		20,711			(25,159	)
Change in unrealized gain on CMBS structured pass through certificates		301			301			631			—
Change in unrealized gain on common stock								834			—
Loan loss provision		(81	)		(293	)		(124	)		(212	)
Dividend income, net		1,805			2,252			—			447
Realized losses								(65	)		—
Other income								303			—
Total other income (loss)	$	17,057			(7,867	)	$	22,290		$	(24,924	)
Operating expenses
General and administrative expenses		846			1,194			1,518			348
Loan servicing fees		1,192			1,847			1,336			655
Management fees		351			547			518			196
Total operating expenses	$	2,389			3,588		$	3,372		$	1,199
Net income (loss)		19,273			(3,595	)
Net income (loss) attributable to redeemable noncontrolling interests		14,003			(2,512	)
Net income								25,070			(22,868	)
Preferred stock dividends								(874	)		—
Net (income) loss attributable to redeemable noncontrolling interests								(15,829	)		16,515
Net income (loss) attributable to common stockholders	$	5,270		$	(1,083	)		8,367		$	(6,353	)

Weighted-average common shares outstanding - basic		5,263			5,248			5,023			5,223
Weighted-average common shares outstanding - diluted		5,292			5,248			19,199			5,223

Earnings (loss) per share - basic	$	1.00		$	(0.21	)	$	1.67		$	(1.22	)
Earnings (loss) per share - diluted	$	1.00		$	(0.21	)	$	1.26		$	(1.22	)

Dividends declared per common share	$	0.4000		$	0.6198		$	0.4750		$	0.2198

	Preferred Stock				Common Stock				Additional		Accumulated Earnings (Loss)			Common Stock
Three Months ended June 30, 2020	Number of Shares		Par Value		Number of Shares		Par Value		Paid-in Capital		Less Dividends			Held in Treasury at Cost			Total
Balances, March 31, 2020		—	$	—		5,262,534	$	53	$	91,894	$	(7,510	)	$	(1,338	)	$	83,099
Issuance of common stock through public offering, net		—		—		—		—		—		—			—			—
Vesting of stock-based compensation		—		—		—		—		39		—			—			39
Repurchase of common stock		—		—		—		—		—		—			—			—
Net income attributable to common stockholders		—		—		—		—		—		5,270			—			5,270
Common stock dividends declared ($0.4000 per share)		—		—		—		—		—		(2,111	)		—			(2,111	)
Balances, June 30, 2020		—	$	—		5,262,534	$	53	$	91,933	$	(4,351	)	$	(1,338	)	$	86,297

	Held-for-Investment			Total
Balance at December 31, 2019	$	—		$	—
Contributions from noncontrolling interests in the OP		967,201			967,201
Originations		7,500			7,500
Proceeds from principal repayments		(1,298	)		(1,298	)
Amortization of loan premium, net (1)		(2,999	)		(2,999	)
Loan loss provision, net (2)		(293	)		(293	)
Balance at June 30, 2020	$	970,111		$	970,111

	Held-for-Investment
Balance at December 31, 2020	$	1,045,891
Originations		25,876
Proceeds from principal repayments (1)		(834	)
Amortization of loan premium, net (2)		(1,759	)
Loan loss provision, net (3)		(124	)
Realized losses		(65	)
Balance at March 31, 2021	$	1,068,985

(1)	Includes principal repayments on SFR Loans.
(2)	Includes net amortization of loan purchase premiums.

	June 30, 2020							March 31, 2021
	Number of		Carrying		% of Loan			Number of		Carrying		% of Loan
Risk Rating	Loans		Value		Portfolio			Loans		Value		Portfolio
1		—	$	—		—			—	$	—		—
2		—		—		—			—		—		—
3		33		970,111		100.00	%		50		1,068,985		100.00	%
4		—		—		—			—		—		—
5		—		—		—			—		—		—
		33	$	970,111		100.00	%		50	$	1,068,985		100.00	%

Balances as of December 31, 2019	$	—
Assumption of debt		788,764
Principal borrowings		60,123
Principal repayments		(1,195	)
Deferred debt financing costs		—
Amortization of deferred financing costs		—
Balances as of June 30, 2020	$	847,692

Balances as of December 31, 2020	$	1,036,878
Principal borrowings		5,737
Principal repayments		(5,800	)
Accretion of loan discounts		65
Balances as of March 31, 2021	$	1,036,880

Year	Non-recourse			Total			Recourse			Non-recourse			Total
2020	$	(60,123	)	$	(60,123	)
2021		—			—
2021¹								—		$	(162,168	)	$	(162,168	)
2022		—			—			—			—			—
2023		(24,379	)		(24,379	)		—			(18,510	)		(18,510	)
2024		(5,856	)		(5,856	)		—			(5,786	)		(5,786	)
2025								—			(46,094	)		(46,094	)
Thereafter		(757,334	)		(757,334	)		(36,500	)		(769,297	)		(805,797	)
	$	(847,692	)	$	(847,692	)	$	(36,500	)	$	(1,001,855	)	$	(1,038,355	)

	For the Six Months Ended June 30, 2020
Net interest earned	$	4,595
Unrealized loss		(14,722	)
Change in net assets related to consolidated CMBS variable interest entities	$	(10,127	)

	For the Six Months Ended June 30, 2020
Dividend income	$	2,332
Amortization of premium on preferred stock investment		(80	)
	$	2,252

	2020				2021
	Number of Units		Weighted Average Grant Date Fair Value		Number of Units		Weighted Average Grant Date Fair Value
Outstanding January 1, 2020		—	$	—
Outstanding January 1, 2021						290,851	$	12.12
Granted		289,013		12.11		232,184		19.39
Vested		—		—		—		—
Forfeited		—		—		—		—
Outstanding June 30, 2020		289,013	$	12.11
Outstanding March 31, 2021						523,035	$	15.35

Redeemable noncontrolling interests in the OP, December 31, 2019	$	—
Contributions from redeemable noncontrolling interests in the OP		261,929
Net loss attributable to redeemable noncontrolling interests in the OP		(2,512	)
Distributions to redeemable noncontrolling interests in the OP		(8,033	)
Redeemable noncontrolling interests in the OP, June 30, 2020	$	251,384

Securitization	Purchase Date	Tranche	Outstanding Face Amount		Cost (% of Par Value)			Underlying Loan Count		Interest Rate Type
FREMF 2020-KF81	7/30/2020	Class C	$	67,165,464		100.0	%		42	Floating Rate
FREMF 2020-K113	8/6/2020	Class D		108,643,404		33.3	%		62	Zero Coupon
FREMF 2020-K113	8/6/2020	X2A		1,180,587,000		0.8	%	N/A		Interest Only
FREMF 2020-K113	8/6/2020	X2B		267,986,404		0.7	%	N/A		Interest Only
FREMF 2020-K113	8/6/2020	X3		108,643,404		23.1	%	N/A		Interest Only
			$	1,733,025,676					104

	March 31, 2021		December 31, 2020
Common stockholders' equity	$	96,857	$	90,733
Redeemable noncontrolling interests in the OP		285,587		275,670
Total equity	$	382,444	$	366,403

Redeemable SubOP Units at period end		13,787		13,787
Shares of common stock outstanding at period end		5,023		5,023
Combined shares of common stock and redeemable SubOP Units		18,810		18,810
Combined book value per share	$	20.33	$	19.48

	June 30, 2020
Stockholders' equity	$	86,297
Redeemable noncontrolling interests in the Operating Partnership		251,384
Total equity	$	337,681

Redeemable Sub OP units at period end		13,160,803
Shares of common stock outstanding at period end		5,262,534
Combined shares of common stock and redeemable Sub OP units	$	18,423,337
Combined book value per share	$	18.33

			Current										Remaining
		Investment	Principal										Term (3)
	Investment (1)	Date	Amount			Net Equity (2)		Location	Property Type	Coupon			(years)
	SFR Loans
1	Senior loan	2/11/2020	$	508,700		$	84,661	Various	Single-family		4.65	%		8.18
2	Senior loan	2/11/2020		10,650			1,708	Various	Single-family		5.35	%		7.59
3	Senior loan	2/11/2020		5,614			887	Various	Single-family		5.33	%		3.09
4	Senior loan	2/11/2020		10,590			1,754	Various	Single-family		5.30	%		8.18
5	Senior loan	2/11/2020		7,619			1,264	Various	Single-family		5.08	%		8.01
6	Senior loan	2/11/2020		5,679			948	Various	Single-family		5.24	%		8.26
7	Senior loan	2/11/2020		12,332			2,053	Various	Single-family		5.54	%		8.26
8	Senior loan	2/11/2020		6,577			1,042	Various	Single-family		5.79	%		3.17
9	Senior loan	2/11/2020		8,283			1,397	Various	Single-family		5.85	%		8.35
10	Senior loan	2/11/2020		51,362			8,354	Various	Single-family		4.74	%		5.26
11	Senior loan	2/11/2020		9,666			1,626	Various	Single-family		6.10	%		8.26
12	Senior loan	2/11/2020		38,399			6,497	Various	Single-family		5.55	%		8.35
13	Senior loan	2/11/2020		6,378			1,075	Various	Single-family		5.47	%		8.35
14	Senior loan	2/11/2020		15,300			2,434	Various	Single-family		5.46	%		3.34
15	Senior loan	2/11/2020		5,760			968	Various	Single-family		5.99	%		8.43
16	Senior loan	2/11/2020		10,251			1,732	Various	Single-family		5.72	%		8.43
17	Senior loan	2/11/2020		10,670			1,803	Various	Single-family		5.60	%		8.43
18	Senior loan	2/11/2020		5,374			894	Various	Single-family		5.46	%		8.51
19	Senior loan	2/11/2020		9,256			1,546	Various	Single-family		5.88	%		8.51
20	Senior loan	2/11/2020		6,702			1,064	Various	Single-family		4.83	%		3.59
21	Senior loan	2/11/2020		4,736			782	Various	Single-family		5.35	%		8.60
22	Senior loan	2/11/2020		17,328			2,924	Various	Single-family		5.61	%		8.60
23	Senior loan	2/11/2020		7,770			1,287	Various	Single-family		5.34	%		8.60
24	Senior loan	2/11/2020		7,896			1,331	Various	Single-family		5.47	%		8.60
25	Senior loan	2/11/2020		6,829			1,126	Various	Single-family		5.46	%		8.67
26	Senior loan	2/11/2020		10,523			1,696	Various	Single-family		4.72	%		5.67
27	Senior loan	2/11/2020		62,023			10,211	Various	Single-family		4.95	%		8.67
	Total			862,266			143,063				4.91	%		7.86

	CMBS B-Piece
1	CMBS B-Piece	2/11/2020		75,205	(4)		65,428	Various	Multifamily		6.33	%		5.66
2	CMBS B-Piece	2/11/2020		56,387	(4)		50,748	Various	Multifamily		6.33	%		6.41
3	CMBS B-Piece	4/23/2020		81,999	(4)		47,484	Various	Multifamily		3.62	%		9.66
	Total			213,592			163,660				5.29	%		7.39

	CMBS I/O Strips
1	CMBS I/O Strip	4/15/2020		3,088	(5)		936	Various	Multifamily		3.52	%		16.58
2	CMBS I/O Strip	4/15/2020		3,214	(5)		859	Various	Multifamily		3.03	%		17.50
3	CMBS I/O Strip	5/18/2020		17,590	(5)		2,573	Various	Multifamily		2.09	%		26.25
	Total			23,892			4,368				2.40	%		23.83

	Mezzanine Loan
1	Mezzanine	2/11/2020		3,250			3,226	Charleston, SC	Multifamily		12.25	%		1.59
2	Mezzanine	6/12/2020		7,500			7,500	Houston, TX	Multifamily		6.50	%		3.00
				10,750			10,726				8.24	%		2.58
	Preferred Equity
1	Preferred Equity	2/11/2020		5,056			5,291	Jackson, MS	Multifamily		12.50	%		7.42
2	Preferred Equity	2/11/2020		3,821			3,977	Corpus Christi, TX	Multifamily		15.25	%		2.09
3	Preferred Equity	2/11/2020		10,000			9,776	Columbus, GA	Multifamily		11.50	%		5.01
4	Preferred Equity	5/29/2020		10,000			10,000	Houston, TX	Multifamily		6.50	%		9.84
	Total			28,877			29,045				10.44	%		6.72

	Preferred Stock
1	Preferred Stock	2/11/2020		40,627	(6)		40,947	N/A	N/A		7.00	%	N/A

Change in Interest Rates	Annual change to net interest income
0.125%	$	93,400
0.250%		186,800
0.375%		280,200
0.500%		373,600

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs (in millions)
Beginning Balance		87,466	$	15.30		87,466	$	8.7
April 1 – April 30		—		—		—		8.7
May 1 – May 31		—		—		—		8.7
June 1 – June 30		—		—		—		8.7
Balance as of June 30, 2020		87,466	$	15.30		87,466	$	8.7