UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~June~~September 30, 2023


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

For the transition period from to

Commission File Number 001-39210

NexPoint Real Estate Finance, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland			84-2178264
(State or other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)


300 Crescent Court, Suite 700, Dallas, Texas			75201
(Address of Principal Executive Offices)			(Zip Code)

(214) 276-6300

(Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

NREF

New York Stock Exchange

8.50% Series A Cumulative Redeemable Preferred
Stock, par value 0.01 per share

NREF-PRA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of ~~August 8,~~November 13, 2023, the registrant had 17,231,913 shares of its common stock, par value $0.01 per share, outstanding.

Table of Contents

NEXPOINT REAL ESTATE FINANCE, INC.

Form 10-Q

Quarter Ended ~~June~~September 30, 2023

INDEX


		Page
Cautionary Statement Regarding Forward-Looking Statements		iii

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets as of ~~June~~September 30, 2023 (Unaudited) and December 31, 2022	1
	Consolidated Unaudited Statements of Operations for the Three and ~~and Six~~ Nine Months Ended ~~June~~Septem ber 30,, 2023 and 2022	2
	Consolidated Unaudited Statements of Stockholders’ Equity for the Three and ~~and Six~~Nine Months Ended ~~June~~September 30,, 2023 and 2022	3
	Consolidated Unaudited Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30,, 2023 and 2022	5
	Notes to Consolidated Unaudited Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4239
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6360
Item 4.	Controls and Procedures

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	6562
Item 1A.	Risk Factors	6562
Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities	6562
Item 3.	Defaults Upon Senior Securities	6562
Item 4.	Mine Safety Disclosures	6562
Item 5.	Other Information	6562
Item 6.	Exhibits	6663
Signatures		6764

Table of Contents

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to our liquidity and capital resources, our performance and results of operations contain forward-looking statements. Furthermore, all of the statements regarding future financial performance (including market conditions and demographics) are forward-looking statements. We caution investors that any forward-looking statements presented in this quarterly report are based on management’s 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 caution you therefore against relying on any of these forward-looking statements.

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

•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;

•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;

•Risks associated with the ownership of real estate;

•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 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 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 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;

•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;

iii

Table of Contents

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

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

•Risks associated with a single material weakness that was identified in our review of internal control over financial reporting and the determination that our internal control over financial reporting and disclosure controls and procedures were therefore not effective as of December 31, 2022; and

•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 March 31, 2023 (our “Annual Report”).

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this 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

PART 1—FINANCIAL INFORMATION

Item 1. Financial Statements

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	19,657	$	20,048	Cash and cash equivalents	$	10,977	$	20,048
Restricted cash	Restricted cash	1,922		299		Restricted cash	1,942		299
Real estate investments, net (Note 9)		58,613		245,222
Loans, held-for-investment, net		306,820		256,147
Common stock investments, at fair value		77,172		78,264
Equity method investments		111		—
Real estate investments, net						Real estate investments, net	58,563		245,222
Loans, held-for-investment, net ($31,416 and $46,022 with related parties, respectively)						Loans, held-for-investment, net ($31,416 and $46,022 with related parties, respectively)	320,151		256,147
Common stock investments, at fair value ($33,759 and $50,380 with related parties, respectively)						Common stock investments, at fair value ($33,759 and $50,380 with related parties, respectively)	60,709		78,264
Mortgage loans, held-for-investment, net	Mortgage loans, held-for-investment, net	710,577		726,531		Mortgage loans, held-for-investment, net	708,003		726,531
Accrued interest and dividends	Accrued interest and dividends	19,323		15,665		Accrued interest and dividends	21,489		15,665
Mortgage loans held in variable interest entities, at fair value	Mortgage loans held in variable interest entities, at fair value	6,315,488		6,720,246		Mortgage loans held in variable interest entities, at fair value	5,612,472		6,720,246
CMBS structured pass-through certificates, at fair value (Note 7)		43,531		46,876
CMBS structured pass-through certificates, at fair value						CMBS structured pass-through certificates, at fair value	42,471		46,876
MSCR notes, at fair value	MSCR notes, at fair value	10,340		10,313		MSCR notes, at fair value	10,325		10,313
Mortgage backed securities, at fair value	Mortgage backed securities, at fair value	37,876		32,328		Mortgage backed securities, at fair value	37,975		32,328
Accounts receivable and other assets	Accounts receivable and other assets	1,805		2,197		Accounts receivable and other assets	1,276		2,197
TOTAL ASSETS	TOTAL ASSETS	$	7,603,235	$	8,154,136	TOTAL ASSETS	$	6,886,353	$	8,154,136

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:	Liabilities:					Liabilities:
Secured financing agreements, net	Secured financing agreements, net	$	677,671	$	687,885	Secured financing agreements, net	$	676,900	$	687,885
Master repurchase agreements	Master repurchase agreements	333,233		331,020		Master repurchase agreements	298,009		331,020
Unsecured notes, net	Unsecured notes, net	205,398		204,960		Unsecured notes, net	205,625		204,960
Mortgages payable, net	Mortgages payable, net	32,247		121,236		Mortgages payable, net	32,205		121,236
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	8,352		6,231		Accounts payable and other accrued liabilities	3,405		6,231
Accrued interest payable	Accrued interest payable	6,385		7,986		Accrued interest payable	10,124		7,986
Bonds payable held in variable interest entities, at fair value	Bonds payable held in variable interest entities, at fair value	5,873,761		6,249,804		Bonds payable held in variable interest entities, at fair value	5,225,922		6,249,804
Total Liabilities	Total Liabilities	7,137,047		7,609,122		Total Liabilities	6,452,190		7,609,122

Redeemable noncontrolling interests in the OP	Redeemable noncontrolling interests in the OP	94,545		96,501		Redeemable noncontrolling interests in the OP	89,148		96,501

Stockholders' Equity:	Stockholders' Equity:					Stockholders' Equity:
Noncontrolling interest in subsidiary	Noncontrolling interest in subsidiary	95		64,529		Noncontrolling interest in subsidiary	95		64,529
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	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		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; 17,518,900 and 17,366,930 shares issued and 17,231,913 and 17,079,943 shares outstanding, respectively	Common stock, $0.01 par value: 500,000,000 shares authorized; 17,518,900 and 17,366,930 shares issued and 17,231,913 and 17,079,943 shares outstanding, respectively	172		171		Common stock, $0.01 par value: 500,000,000 shares authorized; 17,518,900 and 17,366,930 shares issued and 17,231,913 and 17,079,943 shares outstanding, respectively	172		171
Additional paid-in capital	Additional paid-in capital	393,435		392,124		Additional paid-in capital	394,720		392,124
Retained earnings (accumulated deficit)	Retained earnings (accumulated deficit)	(9,313)		4,435		Retained earnings (accumulated deficit)	(37,226)		4,435
Preferred stock held in treasury at cost; 355,000 shares and 355,000, respectively	Preferred stock held in treasury at cost; 355,000 shares and 355,000, respectively	(8,567)		(8,567)		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 286,987 shares, respectively	Common stock held in treasury at cost; 286,987 shares and 286,987 shares, respectively	(4,195)		(4,195)		Common stock held in treasury at cost; 286,987 shares and 286,987 shares, respectively	(4,195)		(4,195)
Total Stockholders' Equity	Total Stockholders' Equity	371,643		448,513		Total Stockholders' Equity	345,015		448,513
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	7,603,235	$	8,154,136	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	6,886,353	$	8,154,136

See Notes to Consolidated Financial Statements

Table of Contents

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Net interest income	Net interest income									Net interest income
Interest income	Interest income	$	17,299	$	16,394	$	33,460	$	47,527	Interest income	$	18,014	$	14,893	$	51,474	$	62,420
Interest expense	Interest expense	(13,094)		(9,107)		(25,306)		(17,925)		Interest expense	(13,197)		(10,682)		(38,503)		(28,607)
Total net interest income	Total net interest income	4,205		7,287		8,154		29,602		Total net interest income	4,817		4,211		12,971		33,813
Other income (loss)	Other income (loss)									Other income (loss)
Change in net assets related to consolidated CMBS variable interest entities	Change in net assets related to consolidated CMBS variable interest entities	6,886		4,551		17,889		7,967		Change in net assets related to consolidated CMBS variable interest entities	7,037		(2,648)		24,926		5,319
Change in unrealized gain (loss) on CMBS structured pass-through certificates	Change in unrealized gain (loss) on CMBS structured pass-through certificates	968		(3,311)		216		(7,651)		Change in unrealized gain (loss) on CMBS structured pass-through certificates	710		(3,904)		926		(11,555)
Change in unrealized gain (loss) on common stock investments	Change in unrealized gain (loss) on common stock investments	175		3,019		(1,092)		3,348		Change in unrealized gain (loss) on common stock investments	(16,464)		(3,189)		(17,556)		159
Change in unrealized gain (loss) on MSCR notes	Change in unrealized gain (loss) on MSCR notes	326		(191)		28		(191)		Change in unrealized gain (loss) on MSCR notes	(15)		44		13		(147)
Change in unrealized (loss) on mortgage backed securities	Change in unrealized (loss) on mortgage backed securities	826		(39)		220		(39)		Change in unrealized (loss) on mortgage backed securities	27		(317)		247		(356)
Reversal of (provision for) credit losses, net		6		87		40		(64)
Reversal of (provision for) credit losses										Reversal of (provision for) credit losses	(6,276)		7		(6,236)		(57)
Realized Losses										Realized Losses	—		(1,084)		—		(1,084)
Other income	Other income	36		65		353		238		Other income	38		115		391		353
Gain on deconsolidation of real estate owned	Gain on deconsolidation of real estate owned	—		—		1,490		—		Gain on deconsolidation of real estate owned	—		—		1,490		—
Gain on extinguishment of debt	Gain on extinguishment of debt	—		17		—		17		Gain on extinguishment of debt	—		—		—		17
Equity in income (losses) of equity method investments	Equity in income (losses) of equity method investments	(889)		—		(889)		—		Equity in income (losses) of equity method investments	(1,675)		—		(2,564)		—
Revenues from consolidated real estate owned (Note 9)		1,036		3,266		2,064		5,653
Revenues from consolidated real estate owned										Revenues from consolidated real estate owned	1,083		3,455		3,147		9,108
Total other income (loss)	Total other income (loss)	9,370		7,464		20,319		9,278		Total other income (loss)	(15,535)		(7,521)		4,784		1,757
Operating expenses	Operating expenses									Operating expenses
General and administrative expenses	General and administrative expenses	2,377		1,868		4,529		3,631		General and administrative expenses	2,524		1,677		7,053		5,308
Loan servicing fees	Loan servicing fees	1,063		1,080		2,106		2,221		Loan servicing fees	1,049		1,112		3,155		3,333
Management fees	Management fees	822		780		1,650		1,508		Management fees	820		822		2,470		2,330
Expenses from consolidated real estate owned (Note 9)		836		3,549		2,333		5,977
Expenses from consolidated real estate owned										Expenses from consolidated real estate owned	1,939		2,442		4,272		8,419
Total operating expenses	Total operating expenses	5,098		7,277		10,618		13,337		Total operating expenses	6,332		6,053		16,950		19,390
Net income		8,477		7,474		17,855		25,543
Net (income) attributable to preferred shareholders		(874)		(882)		(1,748)		(1,756)
Net income (loss)										Net income (loss)	(17,050)		(9,363)		805		16,180
Net (income) loss attributable to preferred shareholders										Net (income) loss attributable to preferred shareholders	(874)		(874)		(2,622)		(2,630)
Net (income) loss attributable to redeemable noncontrolling interests	Net (income) loss attributable to redeemable noncontrolling interests	(1,856)		(2,186)		(3,793)		(6,969)		Net (income) loss attributable to redeemable noncontrolling interests	2,374		1,889		(1,419)		(5,080)
Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries	Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries	—		(556)		—		(562)		Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries	—		(941)		—		(1,503)
Net income attributable to common stockholders		$	5,747	$	3,850	$	12,314	$	16,256
Net income (loss) attributable to common stockholders										Net income (loss) attributable to common stockholders	$	(15,550)	$	(9,289)	$	(3,236)	$	6,967

Weighted-average common shares outstanding - basic	Weighted-average common shares outstanding - basic	17,213		14,748		17,166		14,304		Weighted-average common shares outstanding - basic	17,232		14,962		17,188		14,526
Weighted-average common shares outstanding - diluted	Weighted-average common shares outstanding - diluted	23,080		22,494		22,880		22,263		Weighted-average common shares outstanding - diluted	23,086		22,678		22,950		22,402

Earnings per share outstanding - basic		$	0.33	$	0.26	$	0.72	$	1.14
Earnings per share outstanding - diluted		$	0.33	$	0.26	$	0.70	$	1.04
Earnings (loss) per share outstanding - basic										Earnings (loss) per share outstanding - basic	$	(0.90)	$	(0.62)	$	(0.19)	$	0.48
Earnings (loss) per share outstanding - diluted										Earnings (loss) per share outstanding - diluted	$	(0.90)	$	(0.62)	$	(0.19)	$	0.48

Dividends declared per common share	Dividends declared per common share	$	0.6850	$	0.5000	$	1.3700	$	1.0000	Dividends declared per common share	$	0.6850	$	0.5000	$	2.0550	$	1.5000

See Notes to Consolidated Financial Statements

Table of Contents

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

(Unaudited)


Three Months Ended June 30, 2023		Series A Preferred Stock			Common Stock			Additional Paid-in Capital				Retained Earnings (accumulated deficit) Less Dividends		Common Stock Held in Treasury at Cost				Preferred Stock Held in Treasury at Cost				Noncontrolling interest in CMBS VIEs		Noncontrolling interest in Subsidiary					Total
		Number of Shares	Par Value		Number of Shares	Par Value
Balances, March 31, 2023		1,645,000	$	16	17,184,231	$	172			$	392,440					$	(2,697)			$	(4,195)					$	(8,567)						$	—				$	95			$	377,264
Vesting of stock-based compensation		—	—		47,682	—		995				—		—				—				—		—					995
Three Months Ended September 30, 2023																												Three Months Ended September 30, 2023				Series A Preferred Stock									Common Stock							Additional Paid-in Capital				Retained Earnings (accumulated deficit) Less Dividends			Common Stock Held in Treasury at Cost				Preferred Stock Held in Treasury at Cost				Noncontrolling interest in Subsidiary				Total
																																Number of Shares				Par Value					Number of Shares				Par Value
Balances, June 30, 2023																												Balances, June 30, 2023				1,645,000				$	16				17,231,913				$	172				$	393,435						$	(9,313)			$	(4,195)			$	(8,567)			$	95	$	371,643
Stock-based compensation expense																												Stock-based compensation expense				—				—					—				—			1,285				—			—				—				—				1,285
Net income attributable to preferred stockholders	Net income attributable to preferred stockholders	—	—		—	—		—				874		—				—				—		—					874		Net income attributable to preferred stockholders				—					—				—			—				—			874				—				—				—				874
Net income attributable to common stockholders		—	—		—	—		—				5,747		—				—				—		—					5,747
Net loss attributable to common stockholders																												Net loss attributable to common stockholders				—				—					—				—			—				(15,550)			—				—				—				(15,550)
Preferred stock dividends declared ($0.5313 per share)	Preferred stock dividends declared ($0.5313 per share)	—	—		—	—		—				(874)		—				—				—		—					(874)		Preferred stock dividends declared ($0.5313 per share)				—					—				—			—				—			(874)				—				—				—				(874)
Common stock dividends declared ($0.6850 per share)	Common stock dividends declared ($0.6850 per share)	—	—		—	—		—				(12,363)		—				—				—		—					(12,363)		Common stock dividends declared ($0.6850 per share)				—					—				—			—				—			(12,363)				—				—				—				(12,363)
Balances, June 30, 2023		1,645,000	$	16	17,231,913	$	172	$	393,435			$	(9,313)	$	(4,195)			$	(8,567)			$	—	$	95				$	371,643
Balances, September 30, 2023																												Balances, September 30, 2023				1,645,000				$	16				17,231,913				$	172		$	394,720			$	(37,226)		$	(4,195)			$	(8,567)			$	95			$	345,015


Six Months Ended June 30, 2023		Series A Preferred Stock			Common Stock			Additional Paid-in Capital				Retained Earnings Less Dividends		Common Stock Held in Treasury at Cost				Preferred Stock Held in Treasury at Cost				Noncontrolling interest in CMBS VIEs		Noncontrolling interest in Subsidiary					Total
		Number of Shares	Par Value		Number of Shares	Par Value
Nine Months Ended September 30, 2023																												Nine Months Ended September 30, 2023					Series A Preferred Stock								Common Stock							Additional Paid-in Capital					Retained Earnings Less Dividends					Common Stock Held in Treasury at Cost				Preferred Stock Held in Treasury at Cost				Noncontrolling interest in Subsidiary				Total
																																Number of Shares				Par Value				Number of Shares			Par Value
Balances, December 31, 2022	Balances, December 31, 2022	1,645,000	$	16	17,079,943	$	171			$	392,124					$	4,435			$	(4,195)					$	(8,567)				$	—			$	64,529			$	448,513	Balances, December 31, 2022			1,645,000			$			16					17,079,943					$	171			$	392,124			$	4,435			$	(4,195)	$	(8,567)	$	64,529	$	448,513
Vesting of stock-based compensation	Vesting of stock-based compensation	—	—		151,970	1		1,311				—		—				—				—		—					1,312		Vesting of stock-based compensation			—				—				151,970			1				2,596					—					—				—				—				2,597
Adjustment to noncontrolling interest in subsidiary on deconsolidation of real estate	Adjustment to noncontrolling interest in subsidiary on deconsolidation of real estate	—	—		—	—		—				—		—				—				—		(64,434)					(64,434)		Adjustment to noncontrolling interest in subsidiary on deconsolidation of real estate			—				—				—			—				—					—					—				—				(64,434)				(64,434)
Cumulative effect of adoption of ASU 2016-13 (See Note 2)	Cumulative effect of adoption of ASU 2016-13 (See Note 2)		—			—		—				(1,624)		—				—				—		—					(1,624)		Cumulative effect of adoption of ASU 2016-13 (See Note 2)							—							—				—					(1,624)					—				—				—				(1,624)
Net income attributable to preferred stockholders	Net income attributable to preferred stockholders	—	—		—	—		—				1,748		—				—				—		—					1,748		Net income attributable to preferred stockholders			—				—				—			—				—					2,622					—				—				—				2,622
Net income attributable to common stockholders		—	—		—	—		—				12,314		—				—				—		—					12,314
Net loss attributable to common stockholders																												Net loss attributable to common stockholders				—				—				—			—			—					(3,236)							—				—				—				(3,236)
Preferred stock dividends declared ($1.0626 per share)	Preferred stock dividends declared ($1.0626 per share)	—	—		—	—		—				(1,748)		—				—				—		—					(1,748)		Preferred stock dividends declared ($1.0626 per share)			—				—				—			—				—					(2,622)					—				—				—				(2,622)
Common stock dividends declared ($1.3700 per share)		—	—		—	—		—				(24,438)		—				—				—		—					(24,438)
Balances, June 30, 2023		1,645,000	$	16	17,231,913	$	172	$	393,435			$	(9,313)	$	(4,195)			$	(8,567)			$	—	$	95				$	371,643
Common stock dividends declared ($2.0550 per share)																												Common stock dividends declared ($2.0550 per share)				—				—				—			—			—					(36,801)					—				—				—				(36,801)
Balances, September 30, 2023																												Balances, September 30, 2023				1,645,000				$	16			17,231,913			$	172		$	394,720				$	(37,226)				$	(4,195)			$	(8,567)			$	95			$	345,015

Table of Contents

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

(Unaudited)


Three Months Ended June 30, 2022		Series A Preferred Stock			Common Stock			Additional Paid-in Capital				Retained Earnings (accumulated deficit) Less Dividends		Common Stock Held in Treasury at Cost				Preferred Stock Held in Treasury at Cost				Noncontrolling interest in CMBS VIEs		Noncontrolling interest in Subsidiary					Total
		Number of Shares	Par Value		Number of Shares	Par Value
Balances, March 31, 2022		1,645,000	$	16	14,485,274	$	145			$	338,617					$	33,252			$	(4,195)					$	(8,567)						$	—				$	701			$	359,969
Vesting of stock-based compensation		—	—		54,185	1		520				—		—				—				—		—					521
Three Months Ended September 30, 2022																												Three Months Ended September 30, 2022				Series A Preferred Stock									Common Stock							Additional Paid-in Capital				Retained Earnings (accumulated deficit) Less Dividends			Common Stock Held in Treasury at Cost				Preferred Stock Held in Treasury at Cost				Noncontrolling interest in Subsidiary				Total
																																Number of Shares				Par Value					Number of Shares				Par Value
Balances, June 30, 2022																												Balances, June 30, 2022				1,645,000				$	16				14,949,631				$	150				$	348,266						$	29,339			$	(4,195)			$	(8,567)			$	33,942	$	398,951
Stock-based compensation expense																												Stock-based compensation expense				—				—					—				—			870				—			—				—				—				870
Adjustment to noncontrolling interest in subsidiary on consolidation of real estate	Adjustment to noncontrolling interest in subsidiary on consolidation of real estate	—	—		—	—		—				—		—				—				—		33,241					33,241		Adjustment to noncontrolling interest in subsidiary on consolidation of real estate				—					—				—			—				—			—				—				—				18,096				18,096
Issuance of common shares through at-the-market offering, net	Issuance of common shares through at-the-market offering, net	—	—		410,172	4		9,129				—		—				—				—		—					9,133		Issuance of common shares through at-the-market offering, net				—					—				30,128			—				573			—				—				—				—				573
Net income attributable to preferred stockholders	Net income attributable to preferred stockholders	—	—		—	—		—				882		—				—				—		—					882		Net income attributable to preferred stockholders				—					—				—			—				—			874				—				—				—				874
Net income attributable to common stockholders	Net income attributable to common stockholders	—	—		—	—		—				3,850		—				—				—		—					3,850		Net income attributable to common stockholders				—					—				—			—				—			(9,289)				—				—				—				(9,289)
Preferred stock dividends declared ($0.5313 per share)	Preferred stock dividends declared ($0.5313 per share)	—	—		—	—		—				(882)		—				—				—		—					(882)		Preferred stock dividends declared ($0.5313 per share)				—					—				—			—				—			(874)				—				—				—				(874)
Common stock dividends declared ($0.5000 per share)	Common stock dividends declared ($0.5000 per share)	—	—		—	—		—				(7,763)		—				—				—		—					(7,763)		Common stock dividends declared ($0.5000 per share)				—					—				—			—				—			(7,776)				—				—				—				(7,776)
Balances, June 30, 2022		1,645,000	$	16	14,949,631	$	150	$	348,266			$	29,339	$	(4,195)			$	(8,567)			$	—	$	33,942				$	398,951
Balances, September30, 2022																												Balances, September30, 2022				1,645,000				$	16				14,979,759				$	150		$	349,709			$	12,274		$	(4,195)			$	(8,567)			$	52,038			$	401,425


Six Months Ended June 30, 2022		Series A Preferred Stock			Common Stock			Additional Paid-in Capital				Retained Earnings Less Dividends		Common Stock Held in Treasury at Cost				Preferred Stock Held in Treasury at Cost				Noncontrolling interest in CMBS VIEs		Noncontrolling interest in Subsidiary					Total
		Number of Shares	Par Value		Number of Shares	Par Value
Nine Months Ended September 30, 2022																												Nine Months Ended September 30, 2022					Series A Preferred Stock								Common Stock							Additional Paid-in Capital					Retained Earnings Less Dividends					Common Stock Held in Treasury at Cost				Preferred Stock Held in Treasury at Cost					Noncontrolling interest in CMBS VIEs					Noncontrolling interest in Subsidiary					Total
																																Number of Shares				Par Value				Number of Shares			Par Value
Balances, December 31, 2021	Balances, December 31, 2021	1,645,000	$	16	9,163,934	$	92			$	222,300					$	28,367			$	(4,195)					$	(8,567)				$	7,175			$	701			$	245,889	Balances, December 31, 2021			1,645,000			$			16					9,163,934							$	92				$	222,300				$	28,367				$	(4,195)		$	(8,567)	$	7,175	$	95	$	245,283
Vesting of stock-based compensation	Vesting of stock-based compensation	—	—		114,494	1		1,053				—		—				—				—		—					1,054		Vesting of stock-based compensation			—				—				114,494			1				1,923					—					—					—					—					—					1,924
Adjustment to noncontrolling interest in subsidiary on consolidation of real estate	Adjustment to noncontrolling interest in subsidiary on consolidation of real estate		—			—		490				—		—				—				—		33,241					33,731		Adjustment to noncontrolling interest in subsidiary on consolidation of real estate			—				—				—			—				490					—					—					—					—					51,943					52,433
Issuance of common shares through at-the-market offering, net	Issuance of common shares through at-the-market offering, net	—	—		501,600	5		10,940				—		—				—				—		—					10,945		Issuance of common shares through at-the-market offering, net			—				—				531,728			5				11,513					—					—					—					—					—					11,518
Conversion of redeemable noncontrolling interests in the OP	Conversion of redeemable noncontrolling interests in the OP	—	—		5,169,603	52		113,483				—		—				—				—		—					113,535		Conversion of redeemable noncontrolling interests in the OP			—				—				5,169,603			52				113,483					—					—					—					—					—					113,535
Noncontrolling interest in CMBS VIEs	Noncontrolling interest in CMBS VIEs	—	—		—	—		—				—		—				—				(7,175)		—					(7,175)		Noncontrolling interest in CMBS VIEs			—				—				—			—				—					—					—					—					(7,175)					—					(7,175)
Net income attributable to preferred stockholders	Net income attributable to preferred stockholders	—	—		—	—		—				1,756		—				—				—		—					1,756		Net income attributable to preferred stockholders			—				—				—			—				—					2,630					—					—					—					—					2,630
Net income attributable to common stockholders	Net income attributable to common stockholders	—	—		—	—		—				16,256		—				—				—		—					16,256		Net income attributable to common stockholders			—				—				—			—				—					6,967					—					—					—					—					6,967
Preferred stock dividends declared ($1.0626 per share)	Preferred stock dividends declared ($1.0626 per share)	—	—		—	—		—				(1,756)		—				—				—		—					(1,756)		Preferred stock dividends declared ($1.0626 per share)			—				—				—			—				—					(2,630)					—					—					—					—					(2,630)
Common stock dividends declared ($1.0000 per share)		—	—		—	—		—				(15,284)		—				—				—		—					(15,284)
Balances, June 30, 2022		1,645,000	$	16	14,949,631	$	150	$	348,266			$	29,339	$	(4,195)			$	(8,567)			$	—	$	33,942				$	398,951
Common stock dividends declared ($1.5000 per share)																												Common stock dividends declared ($1.5000 per share)				—				—				—			—			—					(23,060)							—				—					—					—					(23,060)
Balances, September 30, 2022																												Balances, September 30, 2022				1,645,000				$	16			14,979,759			$	150		$	349,709				$	12,274				$	(4,195)			$	(8,567)				$	—				$	52,038				$	401,425

Table of Contents

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(Unaudited)


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
		2023		2022			2023		2022
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	17,855	$	25,543	Net income	$	805	$	16,180
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums	Amortization of premiums	7,337		13,754		Amortization of premiums	10,867		17,179
Accretion of discounts	Accretion of discounts	(7,072)		(6,274)		Accretion of discounts	(10,110)		(9,791)
Depreciation and amortization of real estate investment	Depreciation and amortization of real estate investment	954		1,890		Depreciation and amortization of real estate investment	1,430		2,435
Amortization of deferred financing costs	Amortization of deferred financing costs	22		24		Amortization of deferred financing costs	(4)		36
Provision for (reversal of) credit losses, net	Provision for (reversal of) credit losses, net	(40)		64		Provision for (reversal of) credit losses, net	6,236		57
Net change in unrealized (gain) loss on investments held at fair value	Net change in unrealized (gain) loss on investments held at fair value	4,272		12,729		Net change in unrealized (gain) loss on investments held at fair value	22,780		32,202
Realized Losses						Realized Losses	—		1,084
Equity in (income) losses of unconsolidated equity method ventures	Equity in (income) losses of unconsolidated equity method ventures	889		—		Equity in (income) losses of unconsolidated equity method ventures	2,564		—
Realized gain on deconsolidation of real estate owned	Realized gain on deconsolidation of real estate owned	(1,490)		—		Realized gain on deconsolidation of real estate owned	(1,490)		—
Vesting of stock-based compensation		2,109		1,544
Stock-based compensation expense						Stock-based compensation expense	3,394		2,414
Payment in kind income	Payment in kind income	(1,794)		(346)		Payment in kind income	(4,076)		(528)
Gain on extinguishment of debt	Gain on extinguishment of debt	—		(17)		Gain on extinguishment of debt	—		(17)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accrued interest		(1,609)		(1,681)
Accrued interest and dividends receivable						Accrued interest and dividends receivable	(3,775)		(7,605)
Accounts receivable and other assets	Accounts receivable and other assets	(407)		(672)		Accounts receivable and other assets	122		(317)
Accrued interest payable	Accrued interest payable	(514)		508		Accrued interest payable	3,225		4,264
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	1,963		3,631		Accounts payable, accrued expenses and other liabilities	(3,540)		1,202
Net cash provided by operating activities	Net cash provided by operating activities	22,475		50,697		Net cash provided by operating activities	28,428		58,795

Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Proceeds from payments received on mortgage loans held in variable interest entities	Proceeds from payments received on mortgage loans held in variable interest entities	444,463		740,723		Proceeds from payments received on mortgage loans held in variable interest entities	626,053		964,225
Proceeds from payments received on mortgage loans held for investment	Proceeds from payments received on mortgage loans held for investment	53,856		172,121		Proceeds from payments received on mortgage loans held for investment	58,246		178,306
Proceeds from payments received on bridge loan						Proceeds from payments received on bridge loan	—		13,500
Proceeds from payments received on mortgage backed securities	Proceeds from payments received on mortgage backed securities	546		—		Proceeds from payments received on mortgage backed securities	546		—
Originations of bridge loan	Originations of bridge loan	—		(13,434)		Originations of bridge loan	—		(13,434)
Originations of loans, held-for-investment, net	Originations of loans, held-for-investment, net	(55,684)		(65,352)		Originations of loans, held-for-investment, net	(76,355)		(91,587)
Purchases of equity method investments	Purchases of equity method investments	(1,000)		—		Purchases of equity method investments	(2,564)		—
Purchases of CMBS structured pass-through certificates, at fair value		—		(4,543)
Purchases of CMBS certificates, at fair value						Purchases of CMBS certificates, at fair value	—		(4,542)
Proceeds from sales of CMBS certificates, at fair value						Proceeds from sales of CMBS certificates, at fair value	44,788		6,962
Purchases of CMBS securitizations held in variable interest entities, at fair value	Purchases of CMBS securitizations held in variable interest entities, at fair value	—		(44,823)		Purchases of CMBS securitizations held in variable interest entities, at fair value	—		(115,276)
Purchases of MSCR notes, at fair value	Purchases of MSCR notes, at fair value	—		(9,000)		Purchases of MSCR notes, at fair value	—		(10,365)
Purchases of mortgage backed securities, at fair value	Purchases of mortgage backed securities, at fair value	(5,733)		—		Purchases of mortgage backed securities, at fair value	(5,733)		(25,946)
Purchases of SFR pass-through certificates, at fair value		—		(19,491)
Proceeds held in escrow for unsettled purchase						Proceeds held in escrow for unsettled purchase	—		(3,990)
Adjustment on deconsolidation of real estate	Adjustment on deconsolidation of real estate	(4,992)		—		Adjustment on deconsolidation of real estate	(4,992)		—
Acquisitions of real estate investments	Acquisitions of real estate investments	—		(184,552)		Acquisitions of real estate investments	—		(184,552)
Additions to real estate investments	Additions to real estate investments	(78)		(49)		Additions to real estate investments	(504)		(106)
Net cash provided by investing activities	Net cash provided by investing activities	431,378		571,600		Net cash provided by investing activities	639,485		713,195

Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Principal repayments on borrowings under secured financing agreements	Principal repayments on borrowings under secured financing agreements	(10,214)		(92,444)		Principal repayments on borrowings under secured financing agreements	(10,985)		(97,724)
Distributions to bondholders of variable interest entities	Distributions to bondholders of variable interest entities	(412,456)		(691,744)		Distributions to bondholders of variable interest entities	(583,462)		(892,138)
Borrowings under master repurchase agreements	Borrowings under master repurchase agreements	44,704		69,470		Borrowings under master repurchase agreements	44,892		128,988
Principal repayments on borrowings under master repurchase agreements	Principal repayments on borrowings under master repurchase agreements	(42,489)		(43,439)		Principal repayments on borrowings under master repurchase agreements	(77,903)		(64,275)
Proceeds received on borrowings under secured financing agreements	Proceeds received on borrowings under secured financing agreements	—		89,634		Proceeds received on borrowings under secured financing agreements	—		89,634
Proceeds received from unsecured notes offering, net		—		34,174
Proceeds received from unsecured notes offering						Proceeds received from unsecured notes offering	—		34,174
Repurchase of unsecured notes	Repurchase of unsecured notes	—		(2,879)		Repurchase of unsecured notes	—		(4,829)
Borrowings under bridge facility	Borrowings under bridge facility	—		55,000		Borrowings under bridge facility	—		55,000
Bridge facility payments	Bridge facility payments	—		(34,543)		Bridge facility payments	—		(55,000)
Proceeds from the issuance of common stock through public offering, net of offering costs	Proceeds from the issuance of common stock through public offering, net of offering costs	—		10,945		Proceeds from the issuance of common stock through public offering, net of offering costs	—		11,518
Proceeds from the issuance of common stock	Proceeds from the issuance of common stock	—		113,535		Proceeds from the issuance of common stock	—		113,535
Redemption of redeemable noncontrolling interests in the OP		—		(113,535)
Proceeds from issuance of common stock through at-the-market offering, net of offering costs						Proceeds from issuance of common stock through at-the-market offering, net of offering costs	—		(113,535)
Principal repayments on mortgages payable						Principal repayments on mortgages payable	(16)		—
Payments for taxes related to net share settlement of stock-based compensation	Payments for taxes related to net share settlement of stock-based compensation	(797)		(490)		Payments for taxes related to net share settlement of stock-based compensation	(797)		(490)
Dividends paid to common stockholders	Dividends paid to common stockholders	(23,575)		(14,671)		Dividends paid to common stockholders	(35,379)		(22,161)
Dividends paid to preferred stockholders	Dividends paid to preferred stockholders	(1,748)		(1,756)		Dividends paid to preferred stockholders	(2,622)		(2,630)
Distributions to redeemable noncontrolling interests in the OP	Distributions to redeemable noncontrolling interests in the OP	(6,046)		(7,242)		Distributions to redeemable noncontrolling interests in the OP	(9,069)		(10,812)
Contributions from noncontrolling interests	Contributions from noncontrolling interests	—		35,507		Contributions from noncontrolling interests	—		56,704
Net cash used in financing activities	Net cash used in financing activities	(452,621)		(594,478)		Net cash used in financing activities	(675,341)		(774,041)

Net increase in cash, cash equivalents and restricted cash		1,232		27,819
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(7,428)		(2,051)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	20,347		33,232		Cash, cash equivalents and restricted cash, beginning of period	20,347		33,232
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	21,579	$	61,051	Cash, cash equivalents and restricted cash, end of period	$	12,919	$	31,181

Supplemental Disclosure of Cash Flow Information	Supplemental Disclosure of Cash Flow Information					Supplemental Disclosure of Cash Flow Information
Interest paid	Interest paid	26,468		17,008		Interest paid	35,700		23,723
Supplemental Disclosure of Noncash Investing and Financing Activities	Supplemental Disclosure of Noncash Investing and Financing Activities					Supplemental Disclosure of Noncash Investing and Financing Activities
Adjustment to loans, held for investment, net on deconsolidation of real estate	Adjustment to loans, held for investment, net on deconsolidation of real estate	36,022		—		Adjustment to loans, held for investment, net on deconsolidation of real estate	36,022		—
Adjustment to real estate investments, net on deconsolidation of real estate	Adjustment to real estate investments, net on deconsolidation of real estate	(185,732)		—		Adjustment to real estate investments, net on deconsolidation of real estate	(185,732)		—
Adjustment to accrued interest and dividends on deconsolidation of real estate	Adjustment to accrued interest and dividends on deconsolidation of real estate	2,049		—		Adjustment to accrued interest and dividends on deconsolidation of real estate	2,049		—
Adjustment to accounts receivable and other assets on deconsolidation of real estate	Adjustment to accounts receivable and other assets on deconsolidation of real estate	(799)		—		Adjustment to accounts receivable and other assets on deconsolidation of real estate	(799)		—
Adjustment to mortgages payable, net on deconsolidation of real estate	Adjustment to mortgages payable, net on deconsolidation of real estate	89,012		—		Adjustment to mortgages payable, net on deconsolidation of real estate	89,012		—
Adjustment to accounts payable and accrued liabilities on deconsolidation of real estate	Adjustment to accounts payable and accrued liabilities on deconsolidation of real estate	705		—		Adjustment to accounts payable and accrued liabilities on deconsolidation of real estate	705		—
Adjustment to accrued interest payable on deconsolidation of real estate	Adjustment to accrued interest payable on deconsolidation of real estate	1,087		—		Adjustment to accrued interest payable on deconsolidation of real estate	1,087		—
Adjustment to noncontrolling interest in subsidiary on deconsolidation of real estate	Adjustment to noncontrolling interest in subsidiary on deconsolidation of real estate	64,434		—		Adjustment to noncontrolling interest in subsidiary on deconsolidation of real estate	64,434		—
Adjustment to retained earnings on deconsolidation of real estate	Adjustment to retained earnings on deconsolidation of real estate	1,490		—		Adjustment to retained earnings on deconsolidation of real estate	1,490		—
Adjustment to redeemable noncontrolling interest in the OP on deconsolidation of real estate	Adjustment to redeemable noncontrolling interest in the OP on deconsolidation of real estate	(297)		—		Adjustment to redeemable noncontrolling interest in the OP on deconsolidation of real estate	(297)		—
Increase in dividends payable upon vesting of restricted stock units	Increase in dividends payable upon vesting of restricted stock units	863		613		Increase in dividends payable upon vesting of restricted stock units	863		899
Consolidation of mortgage loans and bonds payable held in variable interest entities	Consolidation of mortgage loans and bonds payable held in variable interest entities	—		375,468		Consolidation of mortgage loans and bonds payable held in variable interest entities	—		1,244,826
Conversion of convertible notes to common stock	Conversion of convertible notes to common stock	—		25,000		Conversion of convertible notes to common stock	—		25,000
Due to brokers for repurchase of unsecured notes, not yet settled	Due to brokers for repurchase of unsecured notes, not yet settled	—		1,950		Due to brokers for repurchase of unsecured notes, not yet settled	—		7,980

See Notes to Consolidated Financial Statements

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NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

NexPoint Real Estate Finance, Inc. (the “Company”, “we”, “our”) is a commercial mortgage real estate investment trust (a "REIT") incorporated in Maryland on June 7, 2019. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, ~~2020.~~2020 and the Company believes the current organization and method of operation will enable it to maintain its status as a REIT. The Company is focused on originating, structuring and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common equity investments, as well as multifamily commercial mortgage-backed securities securitizations (“CMBS securitizations”), multifamily structured credit risk notes (“MSCR Notes”) and mortgage-backed securities, or our target assets. Substantially all of the Company’s business is conducted through NexPoint Real Estate Finance Operating Partnership, L.P. (the “OP”), the Company’s operating partnership. As of ~~June~~September 30, 2023, the Company holds approximately 83.41% of the common limited partnership units in the OP (“OP Units”) which represents 100.00% of the Class A OP Units, and the OP owned all of the common limited partnership units (“SubOP Units”) of its subsidiary partnerships (collectively, the “Subsidiary OPs”) (see Note ~~14)~~13).

The OP also directly owns all of the membership interests of a limited liability company (the “Mezz LLC”) through which it owns a portfolio of mezzanine loans, as further discussed below. NexPoint Real Estate Finance OP GP, LLC (the “OP GP”) is the sole general partner of the OP.

The Company commenced operations on February 11, 2020 upon the closing of its initial public offering of shares of its common stock (the “IPO”). Prior to the closing of the IPO, the Company engaged in a series of transactions through which it acquired an initial portfolio consisting of senior pooled mortgage loans backed by single family rental (“SFR”) properties (the “SFR Loans”), the junior most bonds of multifamily CMBS securitizations (the “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”). The Initial Portfolio was acquired from affiliates (the “Contribution Group”) of NexPoint Advisors, L.P. (our “Sponsor”), pursuant to a contribution agreement with the Contribution Group through which the Contribution Group contributed their interest in the Initial Portfolio to special purpose entities (“SPEs”) owned by the Subsidiary OPs, in exchange for SubOP Units (the “Formation Transaction”). Subsequent to the Formation Transaction, the Company has continued to invest in asset types and real estate sectors within the Initial Portfolio and expanded to include additional asset types and real estate sectors.

The Company is externally managed by NexPoint Real Estate Advisors VII, L.P. (the “Manager”) through a management agreement dated February 6, 2020 and amended as of July 17, 2020 and November 3, 2021, that expires on February 6, 2024 and is automatically renewed for successive one-year terms thereafter unless earlier terminated (as amended, the “Management Agreement”), by and between the Company and the Manager. The Manager conducts substantially all of the Company’s operations and provides asset management services for its real estate investments. The Company expects it will only have accounting employees while the Management Agreement is in effect. All of the Company’s investment decisions are made by the Manager, subject to general oversight by the Manager’s investment committee and the Company’s board of directors (the “Board”). The Manager is wholly owned by our Sponsor.

The Company’s primary investment objective is to generate attractive, risk-adjusted returns for stockholders over the long term. The Company intends to achieve this objective primarily by originating, structuring and investing in our target assets. The Company concentrates on investments in real estate sectors where our senior management team has operating expertise, including in the multifamily, SFR, self-storage, life science, hospitality and office sectors predominantly in the top 50 metropolitan statistical areas ("MSAs"). In addition, the Company targets lending or investing in properties that are stabilized or have a “light transitional” business plan, meaning a property that requires limited deferred funding to support leasing or ramp-up of operations and for which most capital expenditures are for value-add improvements. Through active portfolio management the Company seeks to take advantage of market opportunities to achieve a superior portfolio risk-mix that delivers attractive total returns.

2. Summary of Significant Accounting Policies

Readers of this Quarterly Report on Form 10-Q (the "Quarterly Report") should refer to the audited financial statements and notes to consolidated financial statements of the Company for the year ended December 31, 2022, which are included in our Annual Report on Form 10-K ("Annual Report"), filed with the United States Securities and Exchange Commission (the "SEC") and also available on our website (nref.nexpoint.com), since we have omitted from this Quarterly Report certain footnote disclosures which would substantially duplicate those contained in such audited financial

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statements. You should also refer to Note 2, Summary of Significant Accounting Policies, in the notes to consolidated financial statements in our Annual Report for further discussion of our significant accounting policies and estimates. Information contained on, or accessible through, our website is not incorporated by reference into and does not constitute a part of this Quarterly Report or any other report or documents we file or furnish with the SEC.

General

In accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as issued by the SEC, these Condensed Consolidated Financial Statements do not include all of the information and disclosures required by U.S. generally accepted accounting principles ("GAAP") for complete financial statements. Readers of this Quarterly Report should refer to the Company's audited Consolidated Financial Statements, which are included in the Company’s Annual Report. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows, and equity for the interim periods have been included. The results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, and future fiscal years.

Basis of Accounting

The accompanying unaudited consolidated financial statements are presented in accordance with ~~U.S. generally accepted accounting principles (“GAAP”).~~GAAP. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts

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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~~nine months ended ~~June~~September 30, 2023.

The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the ~~Securities and Exchange Commission (the "SEC").~~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, 2023 and December 31, 2022 and results of operations for the six months ended June 30, 2023 and 2022 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 for the year ended December 31, 2022, and notes thereto in its Annual Report on Form 10-K filed with the SEC on March 31, 2023.

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.

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. As of ~~June~~September 30, 2023, the Company has determined it must consolidate the OP and the Subsidiary OPs under the VIE model as it was determined the Company both controls the direct activities of the OP and Subsidiary OPs and possesses the right to receive benefits that could potentially be significant to the OP and Subsidiary OPs. The consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP and its subsidiaries. The Company’s sole significant asset is its investment in the OP, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of the OP.

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

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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 (see Note 6).

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

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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. The subordinate tranche includes the controlling class and has the ability to remove and replace the special servicer.

On the Consolidated Balance Sheets as of ~~June~~September 30, 2023, the Company consolidated each of the Freddie Mac K-Series securitization entities (the “CMBS Entities”) that were determined to be VIEs and for which 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 at fair value.

~~Investment in subsidiaries~~

The Company conducts its operations through the OP, which directly or through a subsidiary, acts as the general partner of the Subsidiary OPs. The Subsidiary OPs own investments through limited liability companies that are SPEs which own investments directly. The OP is the sole member of the Mezz LLC, which owns investments directly. The OP has three classes of OP Units: Class A, Class B and Class C. Class A OP Units and Class B OP Units each have 50.0% of the voting power of the OP Units and Class C OP Units have no voting power. Each Class A OP Unit, Class B OP Unit and Class C OP Unit otherwise represents substantially the same economic interest in the OP. The Company is the majority limited partner of the OP in terms of economic interests, holding approximately 83.41% of the OP Units in the OP as of June 30, 2023 which represent 100% of the Class A OP Units, and the OP GP must generally receive approval of the Board to take any actions. As such, the Company consolidates the OP. The Company consolidates the SPEs where it is the primary beneficiary, as well as any VIEs where it is the primary beneficiary. All of the investments the SPEs own are consolidated in the 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. As of June 30, 2023, there are no outstanding redeemable noncontrolling interests issued by the Subsidiary OPs.

~~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 OP and the Subsidiary OPs have issued 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 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.

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 OPs and the OP.

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~~Cash, Cash Equivalents and Restricted Cash~~

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, net

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 credit 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 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.

~~Purchase Price Allocation~~

The Company considers the acquisition of real estate investments as asset acquisitions. Upon acquisition of a property, the purchase price and related acquisition costs (“total consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment and intangible lease assets, in accordance with FASB ASC 805, ~~Business Combinations. Acquisition costs are capitalized in accordance with FASB ASC 805.~~

~~The allocation of total consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820,~~ ~~Fair Value Measurement and Disclosures~~ (“ASC 820”) (see Note 11), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related information. The allocation of the total consideration to intangible lease assets represents the value associated with the in-place leases, which may include lost rent, leasing commissions, legal and other related costs, which the Company, as buyer of the property, did not have to incur to obtain the residents. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized as interest expense over the life of the debt assumed.

Real estate assets, including land, buildings, improvements, furniture, fixtures and equipment, and intangible lease assets are stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. Expenditures for improvements, renovations and replacements are capitalized at cost. Real estate-related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the following table:


~~Land~~			~~Not depreciated~~
~~Buildings~~			~~30 years~~
~~Improvements~~			~~15 years~~
~~Furniture, fixtures, and equipment~~			~~3 years~~
~~Intangible lease assets~~			~~6 months~~

Post-acquisition, construction in progress includes the cost of renovation projects being performed at the various properties. Once a project is complete, the historical cost of the renovation is placed into service in one of the categories above depending on the type of renovation project and is depreciated over the estimated useful lives as described in the table above.

~~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.

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~~Income Recognition~~

~~Interest Income~~ - Loans and mortgage loans held-for-investment, CMBS structured pass-through certificates, mortgage loans held in variable interest entities, bridge loans, MSCR Notes and mortgage backed securities 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 and prepayment penalties.

~~Realized Gain (Loss) on Investments~~ - The Company recognizes the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized gains or losses, respectively. The Company reverses cumulative, unrealized gains or losses previously reported in its Consolidated Statements of Operations with respect to the investment sold at the time of the sale.

~~Rental Revenue~~

The Company owns one multifamily property whereby its primary operations consist of rental income earned from its residents under lease agreements typically with terms of one year or less. See Note 9 for additional information regarding this multifamily property. Rental income is recognized when earned. This policy effectively results in income recognition on the straight-line method over the related terms of the leases. The Company records an allowance to reflect revenue that may not be collectable. This is recorded through a provision for bad debts, which is included in revenues from consolidated real estate owned in the accompanying Consolidated Statements of Operations. Resident reimbursements and other income consist of charges billed to residents for utilities, carport and garage rental, pets and administrative, application and other fees and are recognized when earned.

~~In July 2018, the FASB issued Accounting Standard Update ("ASU") 2018-11,~~ ~~Leases – Targeted Improvements~~ (“ASU 2018-11”), which provides entities with relief from the costs of implementing certain aspects of ASU 2016-02. ASU 2018-11 provides a practical expedient that allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where the Company is the lessor. The Company implemented the provisions of ASU 2018-11 and 2016-02, collectively Topic 842 Leases (“ASC 842”), effective January 1, 2022. The Company presents the disclosure of leases in the consolidated statements of operations and began presenting all rentals and reimbursements from tenants within revenues and expenses from consolidated real estate owned on the Consolidated Statements of Operations (Note 9).

~~Expense Recognition~~

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

Allowance for Credit Losses

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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 considered quantitative factors likely to cause estimated credit losses, including default rate and loss severity rates. The Company also evaluated 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 for the fiscal year ended December 31, 2022 are included in “Loan loss (provision)” on the accompanying Consolidated Statements of Operations.

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impairment model for most financial assets and requires the use of a current expected credit loss ("CECL") model for financial instruments measured at amortized cost and certain other instruments. This model applies to trade and other receivables, loans, debt securities, net investments in leases and off-balance sheet credit exposures (such as loan commitments, standby letters of credit and financial guarantees not accounted for as insurance) and requires entities to estimate the lifetime expected credit loss on such instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect.

We adopted the guidance as of January 1, 2023. The implementation process included the utilization of loan loss forecasting models, updates to our loan credit loss policy documentation, changes to internal reporting processes and related internal controls, and overall operational readiness for our adoption of the new standard. We have implemented loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for our loan portfolio. The CECL forecasting methods used by the Company include (i) a probability of default and loss given default method using underlying third-party CMBS/Commercial Real Estate loan database with historical loan losses from 1998 to 2022, and (ii) probability weighted expected cash flow method, depending on the type of loan and the availability of relevant historical market loan loss data. We might use other acceptable alternative approaches in the future depending on, among other factors, the type of loan, underlying collateral, and availability of relevant historical market loan loss data. Significant inputs to our forecasting methods include (i) key loan-specific inputs such as loan-to-value, vintage year, loan-term, underlying property type, occupancy, geographic location, performance against the underwritten business plan, and our internal loan risk rating, and (ii) a macro-economic environment forecast. The reasonable and supportable forecast period is determined based on the Company’s assessment of the most likely scenario of assumptions and plausible outcomes for the U.S. economy, current portfolio composition, level of historical loss forecast estimates, material changes in growth and credit strategy and other factors that may affect its loss experience. The Company regularly evaluates the reasonable and supportable forecast period to determine if a change is needed. The Company has determined that economic forecasts used in our CECL model can be reasonable and supportable over four quarters as it provides enough time to account for the expected changes of the economic conditions and the performance of the underlying assets. Beyond the Company’s reasonable and supportable forecast period, the Company immediately reverts to historical loss information. The Company considers an immediate reversion period appropriate in the CECL model because it provides a suitable balance between the stability of historical data and the flexibility to account for changing market conditions. The allowance for loan and lease losses reserve as of December 31, 2022, was $0.7 million and the CECL reserve as of January 1, 2023, was $2.3 million. As such, the cumulative effect of adoption of ASU 2016-13 was a $1.6 million reduction in retained earnings. The ~~reversal of (provision for)~~provision for credit losses of ~~$0.04~~$6.28 million for the three and nine months ended September 30, 2023 is included in other income on the accompanying Consolidated Statements of Operations, resulting in an ending allowance for credit loss of ~~$2.3~~$8.54 million ~~for the six months ended June~~as of September 30, 2023.

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 the portfolio. In conjunction with this review, 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 and 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;

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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 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. The Company also 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, 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,

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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 cease 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 ~~six~~nine months ended ~~June~~September 30, 2023, 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. During the ~~six~~nine months ended ~~June~~September 30, 2023, there were no loans acquired with deteriorated credit quality.

~~Fair Value~~

~~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 may~~include quoted prices for similar instruments in active markets, and inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals.

~~Level 3 – Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, related market activity for the asset or liability.~~

The Company ~~follows this hierarchy~~also recognizes a liability for ~~our financial instruments. Classifications will be based on~~expected credit losses for off-balance sheet exposures if the ~~lowest level of input that is significant~~Company has a present contractual obligation to extend the ~~fair value measurement. The Company reviews the valuation of Level 3 financial instruments as part of our quarterly process.~~

~~Valuation of Consolidated VIEs~~

~~The Company reports the financial assets and liabilities of each consolidated CMBS trust at fair value using the measurement alternative included in ASU No. 2014-13, Measuring the Financial Assets~~credit and the Financial Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13”). Pursuant to ASU 2014-13, both the financial assets and financial liabilities of the consolidated CMBS trusts are measured using the fair value of the financial liabilities (which are considered more observable than the fair value of the financial assets) and the equity of the CMBS trusts beneficially ownedobligation is not unconditionally cancelable by the Company. As a result, 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; the 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 the Company. Under the measuremententity.

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alternative prescribed by ASU 2014-13, “Net income (loss)” reflects the economic interests in the consolidated CMBS beneficially owned by the Company, presented as “Change in net assets related to consolidated CMBS variable interest entities” in the Consolidated Statements of Operations, which includes applicable (1) changes in the fair value of CMBS beneficially owned by 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.

~~Valuation Methodologies~~

~~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, MSCR Notes and Mortgage Backed Securities~~ - Interest only tranches of CMBS structured pass-through certificates (“CMBS I/O Strips”), MSCR Notes and mortgage backed securities are categorized as Level 2 assets in the fair value hierarchy. CMBS I/O Strips, MSCR Notes and mortgage backed securities 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.

~~SFR Loans, Preferred Equity Investments and Mezzanine Loans~~ - SFR Loans, preferred equity and mezzanine loan investments are categorized as Level 3 assets in the fair value hierarchy. SFR Loans, preferred equity 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 Sheets.

~~Common Stock Investments -~~ The common stock investment in NexPoint Storage Partners, Inc. (“NSP”) 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 NSP investment using the fair value option in accordance with ASC 825-10. The common stock investment in a private ground lease REIT (the “Private REIT”) is presented at fair value using the fair value option in accordance with ASC 825-10. The investment is categorized as a Level 3 asset in the fair value hierarchy.

~~Equity Method Investments -~~ Under the equity method of accounting, the Company initially recognizes its investment at cost and subsequently adjusts the carrying amount of the investments for its share of earnings and losses reported by the investee, distributions received, and other-than-temporary impairments.

~~Repurchase Agreements~~ - 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, 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 investments, the Company applies the amortized cost method of 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, 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.

~~Income Taxes~~

The Company has elected to be taxed as a REIT. As a result of the Company’s 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

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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, 2023, 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. There are no examinations in progress, and none are expected at this time.

The Company recognizes its tax positions and evaluates them using a two-step process. First, the Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement. The Company had no material unrecognized tax benefit or expense, accrued interest or penalties for open tax years 2020 through 2023.

Recent Accounting Pronouncements

Section 107 of the Jumpstart Our Business Startups Act (“JOBS Act”) 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. 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

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effective dates for such new or revised standards. The 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.

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

3. Loans Held for Investment, Net

The Company’s investments in mortgage loans, mezzanine loans, preferred equity and convertible notes are accounted for as loans held for investment. The mortgage loans are presented as “Mortgage loans, held-for-investment, net” and the mezzanine loans, preferred equity and convertible notes are presented as “Loans, held-for-investment, net” on

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the Consolidated Balance Sheets. The following tables summarize our loans held-for-investment as of ~~June~~September 30, 2023 and December 31, 2022, respectively (dollars in thousands):

Loan Type Outstanding Face Amount Carrying Value (1) Loan Count Weighted Average
Fixed Rate (2) Coupon (3) Life (years) (4)
June 30, 2023
Mortgage loans, held-for-investment $ 676,698 $ 710,577 13 100.00 % 4.80 % 4.89
Mezzanine loans, held-for-investment 133,207 135,308 22 78.31 % 9.54 % 5.80
Preferred equity, held-for-investment 172,611 171,512 16 49.70 % 12.17 % 2.65
$ 982,516 $ 1,017,397 51 88.22 % 6.74 % 4.62

~~(1)Carrying value includes the outstanding face amount plus unamortized purchase premiums/discounts and any allowance for loan losses.~~

~~(2)The weighted-average of loans paying a fixed rate is weighted on current principal balance.~~

~~(3)The weighted-average coupon is weighted on outstanding face amount.~~

~~(4)~~The weighted-average life is weighted on outstanding face amount and assumes no prepayments. The maturity date for preferred equity investments represents the maturity date of the senior mortgage, as the preferred equity investments require repayment upon the sale or refinancing of the asset.


Loan Type	Outstanding Face Amount		Carrying Value (1)		Loan Count	Weighted Average
						Fixed Rate (2)		Coupon (3)		Life (years) (4)
September 30, 2023
Mortgage loans, held-for-investment	$	675,844	$	708,003	13	100.00	%	4.79	%	4.64
Mezzanine loans, held-for-investment	133,207		135,079		22	78.31	%	9.60	%	5.55
Preferred equity, held-for-investment	187,173		180,072		16	46.22	%	12.18	%	2.58
Promissory note, held-for-investment	5,000		5,000		1	11.00	%	11.00	%	1.00
	$	1,001,224	$	1,028,154	52	86.62	%	6.85	%	4.36


Loan Type	Outstanding Face Amount		Carrying Value (1)		Loan Count	Weighted Average
						Fixed Rate (2)		Coupon (3)		Life (years) (4)
December 31, 2022
Mortgage loans, held-for-investment	$	688,046	$	726,531	15	100.00	%	4.81	%	5.36
Mezzanine loans, held-for-investment	163,021		165,182		23	63.99	%	10.42	%	5.39
Preferred equity, held-for-investment	91,382		90,965		10	67.69	%	11.51	%	2.76
	$	942,449	$	982,678	48	90.64	%	6.43	%	5.11

(1)Carrying value includes the outstanding face amount plus unamortized purchase premiums/discounts and any allowance for loan losses.

(2)The weighted-average of loans paying a fixed rate is weighted on current principal balance.

(3)The weighted-average coupon is weighted on outstanding face amount.

(4)The weighted-average life is weighted on outstanding face amount and assumes no prepayments. The maturity date for preferred equity investments represents the maturity date of the senior mortgage, as the preferred equity investments require repayment upon the sale or refinancing of the asset.

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For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the loan and preferred equity portfolio activity was as follows (in thousands):


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
		2023		2022			2023		2022
Balance at December 31,		$	982,678	$	1,088,881
Recognition of retained preferred equity investment upon deconsolidation of real estate (Note 15)		36,022		—
Balance at January 1,						Balance at January 1,	$	982,678	$	1,088,881
Recognition of retained preferred equity investment upon deconsolidation of real estate (Note 14)						Recognition of retained preferred equity investment upon deconsolidation of real estate (Note 14)	36,022		—
Cumulative effect of adoption of ASU 2016-13 (See Note 2)	Cumulative effect of adoption of ASU 2016-13 (See Note 2)	(1,624)		—		Cumulative effect of adoption of ASU 2016-13 (See Note 2)	(1,624)		—
Conversion of convertible bonds to common stock	Conversion of convertible bonds to common stock	—		(25,000)		Conversion of convertible bonds to common stock	—		(25,000)
Originations	Originations	55,684		112,199		Originations	76,355		156,934
Proceeds from principal repayments	Proceeds from principal repayments	(53,856)		(172,121)		Proceeds from principal repayments	(58,246)		(196,825)
PIK distribution reinvested in Preferred Units	PIK distribution reinvested in Preferred Units	1,794		346		PIK distribution reinvested in Preferred Units	4,076		528
Amortization of loan premium, net (1)	Amortization of loan premium, net (1)	(3,341)		(9,657)		Amortization of loan premium, net (1)	(4,871)		(11,591)
Reversal of (provision for) credit losses, net		40		(64)
Balance at June 30,		$	1,017,397	$	994,584
(Provision for) reversal of credit losses, net						(Provision for) reversal of credit losses, net	(6,236)		(57)
Balance at September 30,						Balance at September 30,	$	1,028,154	$	1,012,870

(1)Includes net amortization of loan purchase premiums.

As of ~~June~~September 30, 2023, and December 31, 2022, there were $36.0 million and $40.9 million of unamortized premiums on loans, held-for-investment, net, respectively, on the Consolidated Balance Sheets.

As discussed in Note 2, the Company evaluates loans classified as held-for-investment on a loan-by-loan basis every quarter. In conjunction with the review of the portfolio, the Company assesses the risk factors of each loan and assign a risk rating based on a variety of factors. Loans are rated “1” through “5,” from least risk to greatest risk, respectively. See Note 2 for a more detailed discussion of the risk factors and ratings. The following tables allocate the principal balance and net book value of the loan portfolio based on our internal risk ratings (dollars in thousands):


Risk Rating	Risk Rating	June 30, 2023					Risk Rating	September 30, 2023
		Number of Loans	Carrying Value		% of Loan Portfolio			Number of Loans	Carrying Value		% of Loan Portfolio
1	1	—	$	—	—		1	—	$	—	—
2	2	—	—		—		2	—	—		—
3	3	51	1,017,397		100.00	%	3	48	999,080		97.17	%
4	4	—	—		—		4	3	25,199		2.45	%
5	5	—	—		—		5	1	3,875		0.38	%
		51	$	1,017,397	100.00	%		52	$	1,028,154	100.00	%


Risk Rating	December 31, 2022
	Number of Loans	Carrying Value		% of Loan Portfolio
1	—	$	—	—
2	—	—		—
3	48	982,678		100.00	%
4	—	—		—
5	—	—		—
	48	$	982,678	100.00	%

As of ~~June~~September 30, 2023, ~~all 51~~52 loans held-for-investment in our portfolio were rated “3,” or “Satisfactory”, 3 loans held-for-investment in our portfolio were rated "4," or "Underperformance", and 1 loan held-for-investment in our portfolio

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was rated "5," or "Risk of Impairment/Default", based on the factors assessed by the Company and discussed in Note 2. Our loan portfolio had a weighted-average risk rating of 3.04 as of September 30, 2023, and 3.00 as of December 31, 2022.

During the three months ended September 30, 2023, the Company identified a preferred equity investment secured by the underlying property in Atlanta, Georgia that was assigned a risk rating of “5” due to certain conditions that negatively impacted the preferred investment’s cash flow. The Company replaced the existing manager and took over the property’s operations. See Note 16 for additional information regarding Alexander at the District. As the loan was considered a collateral-dependent financial asset under GAAP, a specific allowance for credit losses of $5.8 million was recorded as of September 30, 2023 based on the Company’s estimation of the fair value of the underlying collateral property and the loan’s amortized cost basis.

The following tables present the carrying value of the loan portfolio by the Company's internal risk rating and year of origination as of September 30, 2023 and December 31, 2022 (dollars in thousands):


September 30, 2023
	Carrying Value by Year of Origination (1)
Risk Rating	Number of Loans	Outstanding Face Amount		2023		2022		2021		2020		2019		Prior		Total Carrying Value
1	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2	—	—		—		—		—		—		—		—		—
3	48	966,711		70,402		70,733		44,133		19,159		774,691		19,962		999,080
4	3	24,763		—		8,438		—		—		16,761		—		25,199
5	1	9,750		—		—		3,875		—		—		—		3,875
	52	$	1,001,224	$	70,402	$	79,171	$	48,008	$	19,159	$	791,452	$	19,962	$	1,028,154


December 31, 2022
	Carrying Value by Year of Origination (1)
Risk Rating	Number of Loans	Outstanding Face Amount		2022		2021		2020		2019		2018		Prior		Total Carrying Value
1	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2	—	—		—		—		—		—		—		—		—
3	48	999,080		72,606		98,129		17,500		774,381		20,062		—		982,678
4	—	—		—		—		—		—		—		—		—
5	—	—		—		—		—		—		—		—		—
	48	$	999,080	$	72,606	$	98,129	$	17,500	$	774,381	$	20,062	$	—	$	982,678

(1)Represents the date a loan was originated or acquired.

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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.


Geography	Geography	June 30, 2023		December 31, 2022		Geography	September 30, 2023		December 31, 2022
Georgia	Georgia	32.45	%	34.04	%	Georgia	32.45	%	34.04	%
Florida	Florida	18.46	%	19.34	%	Florida	18.45	%	19.34	%
Texas	Texas	12.63	%	11.21	%	Texas	12.65	%	11.21	%
Nevada	Nevada	2.75	%	*		Nevada	2.75	%	*
Maryland	Maryland	5.34	%	5.59	%	Maryland	5.34	%	5.59	%
Minnesota	Minnesota	6.65	%	6.97	%	Minnesota	6.65	%	6.97	%
California	California	4.34	%	4.66	%	California	4.39	%	4.66	%
Alabama	Alabama	3.64	%	3.81	%	Alabama	3.63	%	3.81	%
North Carolina	North Carolina	2.67	%	2.65	%	North Carolina	2.69	%	2.65	%
Virginia	Virginia	1.67	%	*		Virginia	1.66	%	*
Arkansas	Arkansas	1.35	%	1.42	%	Arkansas	1.35	%	1.42	%
Other (18 and 19 states each at <1%)	Other (18 and 19 states each at <1%)	8.05	%	10.31	%	Other (18 and 19 states each at <1%)	7.99	%	10.31	%
		100.00	%	100.00	%		100.00	%	100.00	%

*Included in “Other.”


Collateral Property Type	Collateral Property Type	June 30, 2023		December 31, 2022		Collateral Property Type	September 30, 2023		December 31, 2022
Single Family Rental	Single Family Rental	69.37	%	72.26	%	Single Family Rental	69.26	%	72.26	%
Multifamily	Multifamily	23.30	%	23.11	%	Multifamily	23.32	%	23.11	%
Life Science	Life Science	5.63	%	2.85	%	Life Science	5.71	%	2.85	%
Self-Storage	Self-Storage	1.70	%	1.79	%	Self-Storage	1.70	%	1.79	%
		100.00	%	100.00	%		100.00	%	100.00	%

4. CMBS Trusts

As of ~~June~~September 30, 2023, the Company consolidated all of 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 financing cash flows.

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


Trust's Assets	Trust's Assets	June 30, 2023		December 31, 2022		Trust's Assets	September 30, 2023		December 31, 2022
Mortgage loans held in variable interest entities, at fair value	Mortgage loans held in variable interest entities, at fair value	$	6,315,488	$	6,720,246	Mortgage loans held in variable interest entities, at fair value	$	5,612,472	$	6,720,246
Accrued interest receivable	Accrued interest receivable	3,509		4,029		Accrued interest receivable	3,390		4,029

Trust's Liabilities	Trust's Liabilities					Trust's Liabilities
Bonds payable held in variable interest entities, at fair value	Bonds payable held in variable interest entities, at fair value	(5,873,761)		(6,249,804)		Bonds payable held in variable interest entities, at fair value	(5,225,922)		(6,249,804)
Accrued interest payable	Accrued interest payable	(2,777)		(3,207)		Accrued interest payable	(2,740)		(3,207)

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


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Net interest earned	Net interest earned	$	10,887	$	8,215	$	21,530	$	16,168	Net interest earned	$	9,804	$	9,455	$	31,334	$	25,623
Unrealized gain (loss)	Unrealized gain (loss)	(4,001)		(3,664)		(3,641)		(8,201)		Unrealized gain (loss)	(2,767)		(12,103)		(6,408)		(20,304)
Change in net assets related to consolidated CMBS variable interest entities	Change in net assets related to consolidated CMBS variable interest entities	$	6,886	$	4,551	$	17,889	$	7,967	Change in net assets related to consolidated CMBS variable interest entities	$	7,037	$	(2,648)	$	24,926	$	5,319

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	Geography	June 30, 2023		December 31, 2022		Geography	September 30, 2023		December 31, 2022
Texas	Texas	17.05	%	17.95	%	Texas	15.77	%	17.95	%
Florida	Florida	13.68	%	13.82	%	Florida	14.07	%	13.82	%
Arizona	Arizona	6.89	%	6.98	%	Arizona	4.02	%	6.98	%
California	California	8.99	%	9.28	%	California	8.64	%	9.28	%
Georgia	Georgia	4.57	%	4.68	%	Georgia	4.33	%	4.68	%
Washington	Washington	6.98	%	6.88	%	Washington	7.71	%	6.88	%
New Jersey	New Jersey	3.57	%	3.97	%	New Jersey	3.99	%	3.97	%
Nevada	Nevada	2.21	%	1.99	%	Nevada	2.48	%	1.99	%
Pennsylvania	Pennsylvania	1.13	%	1.01	%	Pennsylvania	1.26	%	1.01	%
Colorado	Colorado	6.87	%	6.21	%	Colorado	7.70	%	6.21	%
Connecticut	Connecticut	2.80	%	3.64	%	Connecticut	2.04	%	3.64	%
North Carolina	North Carolina	3.69	%	3.53	%	North Carolina	4.14	%	3.53	%
New York	New York	3.06	%	2.76	%	New York	3.35	%	2.76	%
Ohio	Ohio	2.22	%	2.00	%	Ohio	2.48	%	2.00	%
Virginia	Virginia	1.80	%	1.62	%	Virginia	2.02	%	1.62	%
Indiana	Indiana	1.88	%	1.69	%	Indiana	2.11	%	1.69	%
Illinois	Illinois	1.51	%	1.37	%	Illinois	1.64	%	1.37	%
Michigan	Michigan	1.23	%	1.11	%	Michigan	1.37	%	1.11	%
Maryland	Maryland	1.05	%	*		Maryland	1.17	%	*
Missouri	Missouri	1.39	%	1.25	%	Missouri	1.55	%	1.25	%
Other (21 and 22 states each at <1%)	Other (21 and 22 states each at <1%)	7.43	%	8.26	%	Other (21 and 22 states each at <1%)	8.16	%	8.26	%
		100.00	%	100.00	%		100.00	%	100.00	%

*Included in “Other.”


Collateral Property Type	Collateral Property Type	June 30, 2023		December 31, 2022		Collateral Property Type	September 30, 2023		December 31, 2022
Multifamily	Multifamily	97.64	%	98.45	%	Multifamily	97.35	%	98.45	%
Manufactured Housing	Manufactured Housing	2.36	%	1.55	%	Manufactured Housing	2.65	%	1.55	%
		100.00	%	100.00	%		100.00	%	100.00	%

5. Common Stock ~~and Equity Method~~ Investments

The Company owns approximately 25.7% of the total outstanding shares of common stock of ~~NSP~~NexPoint Storage Partners, Inc. ("NSP") and thus can exercise significant influence over NSP. NSP is a VIE and the Company has ~~determined that it is not the primary~~

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determined that it is not the primary beneficiary of NSP. The investment qualifies to be accounted for using the equity method. However, 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. 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. On a quarterly basis, the Company determines the value using widely accepted valuation techniques. A bottoms up approach was used by valuing the wholly-owned self-storage assets in aggregate and development loans individually. In this bottoms-up approach, the discounted cash flow methodology is applied to 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. In addition, as a secondary check for reasonableness, a top down approach was applied whereby observable market terminal capitalization rates and discount rates are applied to the consolidated NSP cash flows. The valuation relies primarily on the bottoms-up approach, but uses the top down approach to corroborate the bottoms-up conclusion with a reasonable precision.

The Company owns approximately 6.36% of the total outstanding shares of common stock of ~~the Private~~a private ground lease REIT (the "Private REIT") as of ~~June~~September 30, 2023. The Company elected the fair-value option in accordance with ASC 825-10-10 for the Private REIT.

The investment in the Private REIT is a Level 3 asset in the fair value hierarchy and was initially measured using the convertible notes conversion share price of $17.50. On April 14, 2022, the two convertible notes converted into 1,394,213 shares or $25.0 million of common stock in the Private REIT, the parent company of the borrower under the convertible notes. As of ~~June~~September 30, 2023, the Company valued this investment based on the Private REIT's market approach price of ~~$18.76~~$19.33 per share.

The Company owns approximately 98.0% of the total outstanding common equity of each of Resmark Forney Gateway Holdings, LLC ("RFGH") and Resmark The Brook, LLC ("RTB"). The investments in RFGH and RTB are equity method investments. These investments are held in entities that are considered VIEs as the power to direct activities is not proportional to ownership interests. The Company is not the primary beneficiary, but is deemed to have significant influence, and as such accounts for them using the equity method.

The following table presents the common stock investments as of ~~June~~September 30, 2023 and December 31, 2022, respectively (in thousands, except share amounts):

Investment Investment
Date Property Type Shares Fair Value
June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022
Common Stock
NexPoint Storage Partners 11/6/2020 Self-storage 41,963 41,963 $ 51,017 $ 50,380
Private REIT 4/14/2022 Ground lease 1,394,213 1,394,213 26,155 27,884

~~Table of Contents~~

Investment

Investment
Date

Property Type

Fair Value

September 30, 2023

December 31, 2022

September 30, 2023

December 31, 2022

Common Stock

NexPoint Storage Partners

11/6/2020

Self-storage

41,963

33,759

50,380

Private REIT

4/14/2022

Ground lease

1,394,213

26,950

27,884

The following table presents “Change in unrealized gain on common stock investments” (in thousands):

For the Three Months Ended June 30, For the Six Months Ended June 30,
2023 2022 2023 2022
Change in unrealized gain on NexPoint Storage Partners $ 872 $ 134 $ 637 $ 463
Change in unrealized gain (loss) on Private REIT (697) 2,885 (1,729) 2,885
Change in unrealized gain on common stock investments $ 175 $ 3,019 $ (1,092) $ 3,348

~~The following table presents the equity method investments as of June 30, 2023 and December 31, 2022, respectively (in thousands, except share amounts):~~

Investment Investment
Date Property Type Shares Carrying Value
June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022
Common Equity
RFGH 2/10/2023 Multifamily 50,000 — $ — $ —
RTB 2/24/2023 Multifamily 50,000 — 111 —


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Change in unrealized gain on NexPoint Storage Partners	$	(17,258)	$	(3,189)	$	(16,621)	$	(2,726)
Change in unrealized gain (loss) on Private REIT	794		—		(935)		2,885
Change in unrealized gain on common stock investments	$	(16,464)	$	(3,189)	$	(17,556)	$	159

6. Variable Interest Entities

Consolidated VIEs

Table of Contents

At the end of each reporting period, the Company reassesses whether it remains the primary beneficiary for VIEs consolidated under the VIE model.

As of ~~June~~September 30, 2023, the Company has accounted for the following investments as unconsolidated VIEs:

Entities

Instrument

Asset Type

Percentage Ownership as of ~~June~~September 30, 2023

Relationship as of ~~June~~September 30, 2023

Unconsolidated Entities:

NexPoint Storage Partners, Inc.

Common Stock

Self-storage

25.7

VIE

Resmark Forney Gateway Holdings, LLC

Common Equity

Multifamily

98.0

VIE

Resmark The Brook, LLC

Common Equity

Multifamily

98.0

VIE

Alexander at the District

Common Equity

Multifamily

25.7

VIE

The Company's maximum exposure to loss of value for the NSP investment, inclusive of a related guaranty, is the ~~carrying~~fair value of the Company's ~~$51.0~~$33.8 million NSP common stock investment and the guaranteed obligations with respect to NSP under the Sponsor Guaranty Agreement as defined below and described in Note 1514 of $83.8 million. The Company's maximum exposure to loss of value for the RFGH and RTB common equity investments is the ~~$0.5~~$1.0 million carrying value for each investment and may include an additional ~~$3.8~~$2.8 million in unfunded commitments for each investment to the extent those commitments are funded. The Company's maximum exposure to loss of value for the Alexander at the District common equity investment is the $0.6 million carrying value of the investment. See Note 3 for further details.

7. CMBS Structured Pass-Through Certificates, MSCR Notes and Mortgage Backed Securities

As of ~~June~~September 30, 2023, the Company held twelve CMBS interest only strips ("CMBS I/O ~~Strips,~~Strips"), three MSCR Notes and seven mortgage backed securities at fair value. The 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. The MSCR Notes are unguaranteed securities designed to transfer to investors a portion of the credit risk associated with eligible multifamily mortgages linked to a reference pool. Mortgage backed securities receive principal and interest on floating-rate loans secured by SFR, multifamily and self-storage properties. ~~See Note 2 and Note 11 for additional disclosures regarding valuation methodologies for the CMBS I/O Strips, MSCR Notes and mortgage backed securities.~~

2017

Table of Contents

The following table presents the CMBS I/O Strips, MSCR Notes and mortgage backed securities as of ~~June~~September 30, 2023 ~~(in~~(dollars in thousands):


Investment	Investment	Investment Date		Carrying Value		Property Type	Interest Rate		Current Yield (1)		Maturity Date	Investment	Investment Date		Carrying Value		Property Type	Interest Rate		Current Yield (1)		Maturity Date
CMBS I/O Strips	CMBS I/O Strips											CMBS I/O Strips
CMBS I/O Strip	CMBS I/O Strip	5/18/2020		$	1,701	Multifamily	2.09	%	15.11	%	9/25/2046	CMBS I/O Strip	5/18/2020		$	1,638	Multifamily	2.09	%	15.13	%	9/25/2046
CMBS I/O Strip	CMBS I/O Strip	8/6/2020		16,992		Multifamily	3.08	%	17.48	%	6/25/2030	CMBS I/O Strip	8/6/2020		16,840		Multifamily	3.08	%	18.00	%	6/25/2030
CMBS I/O Strip	CMBS I/O Strip	4/28/2021	(2)	5,348		Multifamily	1.71	%	17.77	%	1/25/2030	CMBS I/O Strip	4/28/2021	(2)	5,078		Multifamily	1.71	%	18.36	%	1/25/2030
CMBS I/O Strip	CMBS I/O Strip	5/27/2021		3,486		Multifamily	3.50	%	17.23	%	5/25/2030	CMBS I/O Strip	5/27/2021		3,446		Multifamily	3.50	%	17.77	%	5/25/2030
CMBS I/O Strip	CMBS I/O Strip	6/7/2021		421		Multifamily	2.39	%	21.17	%	11/25/2028	CMBS I/O Strip	6/7/2021		404		Multifamily	2.39	%	22.06	%	11/25/2028
CMBS I/O Strip	CMBS I/O Strip	6/11/2021	(3)	3,675		Multifamily	1.33	%	16.02	%	5/25/2029	CMBS I/O Strip	6/11/2021	(3)	3,610		Multifamily	1.32	%	16.11	%	5/25/2029
CMBS I/O Strip	CMBS I/O Strip	6/21/2021		915		Multifamily	1.29	%	19.21	%	5/25/2030	CMBS I/O Strip	6/21/2021		815		Multifamily	1.28	%	19.34	%	5/25/2030
CMBS I/O Strip	CMBS I/O Strip	8/10/2021		2,305		Multifamily	1.96	%	17.47	%	4/25/2030	CMBS I/O Strip	8/10/2021		2,270		Multifamily	1.96	%	18.03	%	4/25/2030
CMBS I/O Strip	CMBS I/O Strip	8/11/2021		1,274		Multifamily	3.20	%	14.91	%	7/25/2031	CMBS I/O Strip	8/11/2021		1,225		Multifamily	3.20	%	15.30	%	7/25/2031
CMBS I/O Strip	CMBS I/O Strip	8/24/2021		237		Multifamily	2.70	%	15.76	%	1/25/2031	CMBS I/O Strip	8/24/2021		227		Multifamily	2.70	%	16.21	%	1/25/2031
CMBS I/O Strip	CMBS I/O Strip	9/1/2021		3,521		Multifamily	2.04	%	16.94	%	6/25/2030	CMBS I/O Strip	9/1/2021		3,400		Multifamily	2.04	%	17.47	%	6/25/2030
CMBS I/O Strip	CMBS I/O Strip	9/11/2021		3,656		Multifamily	3.05	%	14.87	%	9/25/2031	CMBS I/O Strip	9/11/2021		3,518		Multifamily	3.05	%	15.24	%	9/25/2031
Total	Total			$	43,531		2.57	%	17.00	%		Total			$	42,471		2.58	%	17.46	%

MSCR Notes	MSCR Notes											MSCR Notes
MSCR Notes	MSCR Notes	5/25/2022		$	4,020	Multifamily	14.47	%	14.47	%	5/25/2052	MSCR Notes	5/25/2022		$	4,020	Multifamily	14.79	%	14.79	%	5/25/2052
MSCR Notes	MSCR Notes	5/25/2022		5,000		Multifamily	11.47	%	11.47	%	5/25/2052	MSCR Notes	5/25/2022		5,000		Multifamily	11.79	%	11.79	%	5/25/2052
MSCR Notes	MSCR Notes	9/23/2022		1,320		Multifamily	11.82	%	12.99	%	11/25/2051	MSCR Notes	9/23/2022		1,305		Multifamily	12.14	%	13.34	%	11/25/2051
Total	Total			$	10,340		12.68	%	12.83	%		Total			$	10,325		13.00	%	13.15	%

Mortgage Backed Securities	Mortgage Backed Securities											Mortgage Backed Securities
Mortgage Backed Securities	Mortgage Backed Securities	6/1/2022		$	9,821	Single-Family	8.37	%	8.69	%	4/17/2026	Mortgage Backed Securities	6/1/2022		$	9,898	Single-Family	8.63	%	8.93	%	4/17/2026
Mortgage Backed Securities	Mortgage Backed Securities	6/1/2022		9,130		Single-Family	4.87	%	5.05	%	11/19/2025	Mortgage Backed Securities	6/1/2022		9,173		Single-Family	4.87	%	5.03	%	11/19/2025
Mortgage Backed Securities	Mortgage Backed Securities	7/28/2022		535		Single-Family	6.23	%	6.32	%	10/17/2027	Mortgage Backed Securities	7/28/2022		529		Single-Family	6.23	%	6.32	%	10/17/2027
Mortgage Backed Securities	Mortgage Backed Securities	7/28/2022		852		Single-Family	3.60	%	4.18	%	6/20/2028	Mortgage Backed Securities	7/28/2022		845		Single-Family	3.60	%	4.15	%	6/20/2028
Mortgage Backed Securities	Mortgage Backed Securities	9/12/2022		3,963		Multifamily	11.07	%	11.05	%	1/25/2031	Mortgage Backed Securities	9/12/2022		3,937		Multifamily	11.35	%	11.33	%	1/25/2031
Mortgage Backed Securities	Mortgage Backed Securities	9/29/2022		7,837		Self Storage	10.84	%	10.86	%	9/15/2027	Mortgage Backed Securities	9/29/2022		7,856		Self Storage	11.09	%	11.11	%	9/15/2027
Mortgage Backed Securities	Mortgage Backed Securities	3/10/2023		5,738		Multifamily	13.56	%	13.59	%	2/25/2025	Mortgage Backed Securities	3/10/2023		5,737		Multifamily	13.72	%	13.75	%	2/25/2025
Total	Total			$	37,876		8.97	%	9.11	%		Total			$	37,975		9.14	%	9.27	%

(1)Current yield is the annualized income earned divided by the cost basis of the investment.

(2)The Company, through the Subsidiary OPs, purchased approximately $50.0 million and $15.0 million aggregate notional amount of the X1 interest-only tranche of the FHMS K-107 CMBS I/O Strip on April 28, 2021 and May 4, 2021, respectively.

(3)The Company, through the Subsidiary OPs, purchased approximately $80.0 million, $35.0 million, $40.0 million and $50.0 million aggregate notional amount of the X1 interest-only tranche of the FRESB 2019-SB64 CMBS I/O Strip on June 11, 2021, September 29, 2021, February 3, 2022 and March 18, 2022, respectively.

2118

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The following table presents the CMBS I/O Strips, MSCR Notes and Mortgage Backed Securities as of December 31, 2022 ~~(in~~(dollars in thousands):


Investment	Investment Date		Carrying Value		Property Type	Interest Rate		Current Yield (1)		Maturity Date
CMBS I/O Strips
CMBS I/O Strip	5/18/2020		$	1,807	Multifamily	2.02	%	14.56	%	9/25/2046
CMBS I/O Strip	8/6/2020		18,364		Multifamily	2.98	%	15.98	%	6/25/2030
CMBS I/O Strip	4/28/2021	(2)	5,676		Multifamily	1.59	%	15.52	%	1/25/2030
CMBS I/O Strip	5/27/2021		3,693		Multifamily	3.39	%	15.73	%	5/25/2030
CMBS I/O Strip	6/7/2021		455		Multifamily	2.31	%	18.91	%	11/25/2028
CMBS I/O Strip	6/11/2021	(3)	4,188		Multifamily	1.19	%	13.34	%	5/25/2029
CMBS I/O Strip	6/21/2021		1,117		Multifamily	1.18	%	16.77	%	5/25/2030
CMBS I/O Strip	8/10/2021		2,445		Multifamily	1.89	%	15.87	%	4/25/2030
CMBS I/O Strip	8/11/2021		1,333		Multifamily	3.10	%	13.74	%	7/25/2031
CMBS I/O Strip	8/24/2021		250		Multifamily	2.61	%	14.44	%	1/25/2031
CMBS I/O Strip	9/1/2021		3,726		Multifamily	1.92	%	15.03	%	6/25/2030
CMBS I/O Strip	9/11/2021		3,822		Multifamily	2.95	%	13.70	%	9/25/2031
Total			$	46,876		2.46	%	15.32	%

MSCR Notes
MSCR Notes	5/25/2022		$	4,019	Multifamily	13.02	%	13.02	%	5/25/2052
MSCR Notes	5/25/2022		4,988		Multifamily	10.02	%	10.02	%	5/25/2052
MSCR Notes	9/23/2022		1,306		Multifamily	10.37	%	11.40	%	11/25/2051
Total			$	10,313		11.23	%	11.36	%

Mortgage Backed Securities
Mortgage Backed Securities	6/1/2022		$	9,638	Single-Family	7.08	%	7.39	%	4/17/2026
Mortgage Backed Securities	6/1/2022		8,966		Single-Family	4.87	%	5.08	%	11/19/2025
Mortgage Backed Securities	7/28/2022		526		Single-Family	6.23	%	6.33	%	10/17/2027
Mortgage Backed Securities	7/28/2022		819		Single-Family	3.60	%	4.23	%	6/20/2028
Mortgage Backed Securities	9/12/2022		4,473		Multifamily	9.29	%	9.27	%	1/25/2031
Mortgage Backed Securities	9/29/2022		7,906		Self Storage	9.57	%	9.59	%	9/15/2027
Total			$	32,328		7.28	%	7.45	%

(1)Current yield is the annualized income earned divided by the cost basis of the investment.

The following table presents activity related to the Company’s CMBS I/O Strips, MSCR Notes and mortgage backed securities (in thousands):


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Net interest earned	Net interest earned	$	778	$	1,409	$	1,495	$	2,574	Net interest earned	$	775	$	2,237	$	2,270	$	4,811
Change in unrealized gain (loss) on CMBS structured pass-through certificates	Change in unrealized gain (loss) on CMBS structured pass-through certificates	968		(3,311)		216		(7,651)		Change in unrealized gain (loss) on CMBS structured pass-through certificates	710		(3,904)		926		(11,555)
Change in unrealized gain (loss) on MSCR notes	Change in unrealized gain (loss) on MSCR notes	326		(191)		28		(191)		Change in unrealized gain (loss) on MSCR notes	(15)		44		13		(147)
Change in unrealized (loss) on mortgage backed securities	Change in unrealized (loss) on mortgage backed securities	826		(39)		220		(39)		Change in unrealized (loss) on mortgage backed securities	27		(317)		247		(356)
Total	Total	$	2,898	$	(2,132)	$	1,959	$	(5,307)	Total	$	1,497	$	(1,940)	$	3,456	$	(7,247)

2219

Table of Contents

8.~~Bridge Loan~~

On March 31, 2022, the Company, through one of the Subsidiary OPs, originated a bridge loan for $13.5 million. The bridge loan was secured by a development property in Las Vegas, Nevada, and was used by the borrower to finance the acquisition of the property prior to obtaining construction financing. The loan bore interest at a rate of 1.50% plus the Wall Street Journal Prime Rate (“WSJ Prime”) and was set to mature on October 1, 2022. On August 9, 2022, the bridge loan was paid off.

9. Real Estate ~~Investment,~~Investments, net

On December 31, 2021, the Company acquired a 204-unit multifamily property in Charlotte, North Carolina (Hudson Montford). The property was ~~92.6%~~95.1% and 96.1% occupied, with effective rent per occupied unit of ~~$1,700~~$1,689 per month and $1,663, per month as of ~~June~~September 30, 2023, ~~(unaudited)~~ and December 31, 2022, respectively. On February 1, 2022, the Company acquired a 368-unit multifamily property in Las Vegas, Nevada (Elysian at Hughes Center). As of December 31, 2022, the property was 94.0% occupied with effective rent per occupied unit of $1,927 per month as of December 31, 2022. The Company no longer maintains a common equity interest in this property and through a restructuring effective January 1, 2023, the investment is deconsolidated and presented solely as a preferred equity investment in 2023.

As of ~~June~~September 30, 2023, the major components of the Company's investment in multifamily property was as follows (in thousands):


Real Estate Investment, Net	Real Estate Investment, Net	Land		Buildings and Improvements		Intangible Lease Assets		Construction in Progress		Furniture, Fixtures and Equipment		Totals		Real Estate Investment, Net	Land		Buildings and Improvements		Intangible Lease Assets		Construction in Progress		Furniture, Fixtures and Equipment		Totals
Hudson Montford	Hudson Montford	$	10,996	$	49,844	$	—	$	23	$	644	$	61,507	Hudson Montford	$	10,996	$	49,856	$	—	$	401	$	680	$	61,933
Accumulated depreciation and amortization	Accumulated depreciation and amortization	—		(2,600)		—		—		(294)		(2,894)		Accumulated depreciation and amortization	—		(3,025)		—		—		(345)		(3,370)
Total Real Estate Investments, Net		$	10,996	$	47,244	$	—	$	23	$	350	$	58,613
Total Real Estate Investment, Net														Total Real Estate Investment, Net	$	10,996	$	46,831	$	—	$	401	$	335	$	58,563

As of December 31, 2022, the major components of the Company's investments in multifamily properties were as follows (in thousands):


Real Estate Investments, Net	Land		Buildings and Improvements		Intangible Lease Assets		Construction in Progress		Furniture, Fixtures and Equipment		Totals
Hudson Montford	$	10,996	$	49,831	$	—	$	2	$	602	$	61,431
Elysian at Hughes	25,590		160,141		—		—		—		185,731
Accumulated depreciation and amortization	—		(1,752)		—		—		(188)		(1,940)
Total Real Estate Investments, Net	$	36,586	$	208,220	$	—	$	2	$	414	$	245,222

2320

Table of Contents

The following table reflects the revenue and expenses for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, for our multifamily property (in thousands).


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Revenues	Revenues									Revenues
Rental income	Rental income	$	1,007	$	2,895	$	2,025	$	5,075	Rental income	$	1,032	$	3,061	$	3,057	$	8,136
Other income	Other income	29		371		39		578		Other income	51		394		90		972
Total revenues	Total revenues	1,036		3,266		2,064		5,653		Total revenues	1,083		3,455		3,147		9,108
Expenses	Expenses									Expenses
Interest expense	Interest expense	631		1,201		1,212		1,870		Interest expense	664		1,016		1,876		2,886
Real estate taxes and insurance	Real estate taxes and insurance	176		368		348		772		Real estate taxes and insurance	164		363		512		1,135
Property operating expenses	Property operating expenses	204		633		389		1,000		Property operating expenses	201		793		590		1,793
Property general and administrative expenses	Property general and administrative expenses	37		146		72		191		Property general and administrative expenses	39		56		111		247
Property management fees	Property management fees	30		78		59		141		Property management fees	31		79		90		220
Depreciation and amortization	Depreciation and amortization	478		946		954		1,890		Depreciation and amortization	476		545		1,430		2,435
Rate cap (income) expense	Rate cap (income) expense	(720)		(152)		(526)		(503)		Rate cap (income) expense	345		(420)		(181)		(923)
Debt service bridge	Debt service bridge	—		329		—		616		Debt service bridge	—		10		—		626
Casualty loss	Casualty loss	—		—		(175)		—		Casualty loss	19		—		(156)		—
Total expenses	Total expenses	836		3,549		2,333		5,977		Total expenses	1,939		2,442		4,272		8,419
Net income (loss) from consolidated real estate owned	Net income (loss) from consolidated real estate owned	$	200	$	(283)	$	(269)	$	(324)	Net income (loss) from consolidated real estate owned	$	(856)	$	1,013	$	(1,125)	$	689

~~10.~~

Table of Contents

9. Debt

The following table summarizes the Company’s financing arrangements in place as of ~~June~~September 30, ~~2023:~~2023 (dollars in thousands):


		June 30, 2023																		September 30, 2023
		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	Master Repurchase Agreements																		Master Repurchase Agreements
CMBS	CMBS																		CMBS
Mizuho(4)	Mizuho(4)	4/15/2020	$	333,233	$	333,233	N/A	(5)	7.01	%	0.1	$	943,172	$	520,293	$	513,115	6.6	Mizuho(4)	4/15/2020	$	298,009	$	298,009	N/A	(5)	7.23	%	0.1	$	853,574	$	434,890	$	425,949	6.6
Asset Specific Financing	Asset Specific Financing																		Asset Specific Financing
Single Family Rental loans	Single Family Rental loans																		Single Family Rental loans
Freddie Mac	Freddie Mac	7/12/2019	618,419		618,419		7/12/2029		2.34	%	4.9	676,698		710,577		710,577		4.9	Freddie Mac	7/12/2019	617,648		617,648		7/12/2029		2.34	%	4.6	675,844		708,003		708,003		4.6
Mezzanine loans	Mezzanine loans																		Mezzanine loans
Freddie Mac	Freddie Mac	10/20/2020	59,252		59,252		8/1/2031		0.30	%	6.8	96,817		99,137		99,137		6.8	Freddie Mac	10/20/2020	59,252		59,252		8/1/2031		0.30	%	6.5	96,817		98,898		98,898		6.5
Multifamily properties	Multifamily properties																		Multifamily properties
CBRE	CBRE	12/31/2021	32,480		32,247		6/1/2028	(6)	7.78	%	4.9	N/A		58,613		58,613		4.9	CBRE	12/31/2021	32,425		32,205		6/1/2028	(6)	7.78	%	4.7	N/A		58,563		58,563		4.7
Unsecured Financing	Unsecured Financing																		Unsecured Financing
Various	Various	10/15/2020	36,500		35,686		10/25/2025		7.50	%	2.3	N/A		N/A		N/A		N/A	Various	10/15/2020	36,500		35,768		10/25/2025		7.50	%	2.1	N/A		N/A		N/A		N/A
Various	Various	4/20/2021	165,000		163,212		4/15/2026		5.75	%	2.8	N/A		N/A		N/A		N/A	Various	4/20/2021	165,000		163,357		4/15/2026		5.75	%	2.5	N/A		N/A		N/A		N/A
Various	Various	10/18/2022	6,500		6,500		10/18/2027		7.50	%	4.3	N/A		N/A		N/A		N/A	Various	10/18/2022	6,500		6,500		10/18/2027		7.50	%	4.1	N/A		N/A		N/A		N/A
Total/weighted average	Total/weighted average		$	1,251,384	$	1,248,549			4.26	%	3.3	$	1,716,687	$	1,388,620	$	1,381,442	5.9	Total/weighted average		$	1,215,334	$	1,212,739			4.23	%	3.2	$	1,626,235	$	1,300,354	$	1,291,413	5.7

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

~~Table of Contents~~

(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 on an unconsolidated basis. SFR Loans and mezzanine loans are shown at amortized cost.

(4)On April 15, 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, CMBS I/O Strips, MSCR Notes and mortgage backed securities.

(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.

(6)Debt was assumed upon acquisition of this property and recorded at the outstanding principal amount, net of debt issuance costs. The loan can be prepaid at a 1.0% prepayment premium on any unpaid principal. The loan is open to pre-payment in the last three months of the term.

Table of Contents

The following table summarizes the Company’s financing arrangements in place as of December 31, ~~2022:~~2022 (dollars in thousands):


	December 31, 2022
	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)	4/15/2020	$	331,020	$	331,020	N/A	(5)	5.83	%	0.2	$	974,440	$	543,919	$	539,736	7.0
Asset Specific Financing
Single Family Rental loans
Freddie Mac	7/12/2019	628,633		628,633		7/12/2029		2.35	%	5.4	688,046		726,531		726,531		5.4
Mezzanine loans
Freddie Mac	10/20/2020	59,252		59,252		8/1/2031		0.30	%	7.3	105,817		108,390		108,390		7.3
Multifamily properties
CBRE	12/31/2021	32,480		32,176		6/1/2028	(6)	5.80	%	5.4	N/A		59,491		59,491		5.4
CBRE	2/1/2022	89,634		89,060		2/1/2032		3.52	%	9.1	N/A		185,731		185,731		9.1
Unsecured Financing
Various	10/15/2020	36,500		35,530		10/25/2025		7.50	%	2.8	N/A		N/A		N/A		N/A
Various	4/20/2021	165,000		162,930		4/15/2026		5.75	%	3.3	N/A		N/A		N/A		N/A
Various	10/18/2022	6,500		6,500		10/18/2027		7.50	%	4.8	N/A		N/A		N/A		N/A
Total/weighted average		$	1,349,019	$	1,345,101			3.85	%	4.1	$	1,768,303	$	1,624,062	$	1,619,879	6.4

(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 on an unconsolidated basis. SFR Loans and mezzanine loans are shown at amortized cost.

(4)On April 15, 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, CMBS I/O Strips, MSCR Notes and mortgage backed securities.

(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.

~~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 and the OP. The

~~Table of Contents~~

guarantors are subject to minimum net worth and liquidity covenants. The Credit Facility continues to be guaranteed by members of the Contribution Group and the OP as of June 30, 2023. The Company considers any action required under the guarantee to be remote. 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 or is paid off prior to July 12, 2029, the Company will be required to repay the portion of the Credit Facility that is allocated to that loan. As of June 30, 2023, the outstanding balance on the Credit Facility was $618.4 million.

We, through the Subsidiary OPs, have borrowed approximately ~~$333.2~~$298.0 million under our repurchase agreements and posted ~~$943.2 million~~$1.2 billion par value of our CMBS B-Piece, CMBS I/O Strip, MSCR Notes and mortgage backed security investments as collateral ~~for the six months ended June~~as of September 30, 2023. The CMBS B-Pieces, CMBS I/O Strips, MSCR Notes and mortgage backed securities 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 7.50% Senior Unsecured Notes (the “OP Notes”) for an aggregate principal amount of $36.5 million and a coupon rate of 7.50%. The OP 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 OP Notes are fully guaranteed by the Companylender, as described in ~~the event that the OP cannot satisfy the obligations of the OP Notes.~~

On April 20, 2021, the Company issued $75.0 million in aggregate principal amount of its 5.75% Senior Unsecured Notes due 2026 (the "5.75% Notes") at a price equal to 99.5% of par value for proceeds of approximately $73.1 million after original issue discount and underwriting fees.

On December 20, 2021, the Company issued an additional $60.0 million aggregate principal amount of its 5.75% Notes at a price equal to 102.8% par value, including accrued interest, for proceeds of approximately $60.9 million after original issue discount and underwriting fees.

On January 25, 2022, the Company issued an additional $35.0 million aggregate principal amount of its 5.75% Notes at a price equal to 100.9% par value, including accrued interest, for proceeds of approximately $35.1 million after original issue discount and underwriting fees.

On May 20, 2022, the Company purchased $3.0 million aggregate principal amount of its 5.75% Notes at a price equal to 96.3% par value, including accrued interest, for approximately $2.9 million. The purchased 5.75% Notes were cancelled upon settlement.

On June 30, 2022, the Company purchased $2.0 million aggregate principal amount of its 5.75% Notes at a price equal to 96.5% par value, including accrued interest, for approximately $2.0 million. The purchased 5.75% Notes were cancelled upon settlement.our Annual Report.

As of ~~June~~September 30, 2023, the outstanding principal balances related to the SFR Loans and levered ~~mezzanine loans~~Mezzanine Loans consisted of the following (dollars in thousands):

2623

Table of Contents

Investment

Investment Date

Outstanding Principal Balance (1)

Location

Property Type

Interest Type

Interest Rate

Maturity Date

Investment

Investment Date

Outstanding Principal Balance (1)

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

Senior loan

2/11/2020

465,690

Various

Single-family

Fixed

2.24

9/1/2028

Senior loan

2/11/2020

46,093

Various

Single-family

Fixed

2.14

10/1/2025

Senior loan

2/11/2020

46,094

Various

Single-family

Fixed

2.14

10/1/2025

Senior loan

2/11/2020

34,249

Various

Single-family

Fixed

2.70

11/1/2028

Senior loan

2/11/2020

34,112

Various

Single-family

Fixed

2.70

11/1/2028

Senior loan

2/11/2020

9,211

Various

Single-family

Fixed

2.79

9/1/2028

Senior loan

2/11/2020

9,170

Various

Single-family

Fixed

2.79

9/1/2028

Senior loan

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

Senior loan

2/11/2020

8,747

Various

Single-family

Fixed

3.51

2/1/2028

Senior loan

2/11/2020

8,558

Various

Single-family

Fixed

3.51

2/1/2028

Senior loan

2/11/2020

8,805

Various

Single-family

Fixed

3.30

10/1/2028

Senior loan

2/11/2020

8,805

Various

Single-family

Fixed

3.30

10/1/2028

Senior loan

2/11/2020

7,944

Various

Single-family

Fixed

3.14

1/1/2029

Senior loan

2/11/2020

7,913

Various

Single-family

Fixed

3.14

1/1/2029

Senior loan

2/11/2020

6,721

Various

Single-family

Fixed

2.98

2/1/2029

Senior loan

2/11/2020

6,524

Various

Single-family

Fixed

2.98

2/1/2029

Senior loan

2/11/2020

5,898

Various

Single-family

Fixed

2.99

3/1/2029

Senior loan

2/11/2020

5,874

Various

Single-family

Fixed

2.99

3/1/2029

Senior loan

2/11/2020

5,461

Various

Single-family

Fixed

2.40

2/1/2024

Senior loan

2/11/2020

5,435

Various

Single-family

Fixed

2.40

2/1/2024

Senior loan

2/11/2020

5,346

Various

Single-family

Fixed

3.14

12/1/2028

Senior loan

2/11/2020

5,240

Various

Single-family

Fixed

3.14

12/1/2028

Senior loan

2/11/2020

4,971

Various

Single-family

Fixed

2.64

10/1/2028

Senior loan

2/11/2020

4,949

Various

Single-family

Fixed

2.64

10/1/2028

Total

618,419

2.34

Total

617,648

2.34

Mezzanine Loans

Senior loan

10/20/2020

8,723

Wilmington, DE

Multifamily

Fixed

0.30

6/1/2029

Senior loan

10/20/2020

8,723

Wilmington, DE

Multifamily

Fixed

0.30

6/1/2029

Senior loan

10/20/2020

7,344

White Marsh, MD

Multifamily

Fixed

0.30

4/1/2031

Senior loan

10/20/2020

7,344

White Marsh, MD

Multifamily

Fixed

0.30

4/1/2031

Senior loan

10/20/2020

6,353

Philadelphia, PA

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

6,353

Philadelphia, PA

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

5,881

Daytona Beach, FL

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

5,881

Daytona Beach, FL

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

4,523

Laurel, MD

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

4,179

Temple Hills, MD

Multifamily

Fixed

0.30

1/1/2029

Senior loan

10/20/2020

4,179

Temple Hills, MD

Multifamily

Fixed

0.30

1/1/2029

Senior loan

10/20/2020

3,390

Temple Hills, MD

Multifamily

Fixed

0.30

5/1/2029

Senior loan

10/20/2020

3,390

Temple Hills, MD

Multifamily

Fixed

0.30

5/1/2029

Senior loan

10/20/2020

3,348

Lakewood, NJ

Multifamily

Fixed

0.30

5/1/2029

Senior loan

10/20/2020

3,348

Lakewood, NJ

Multifamily

Fixed

0.30

5/1/2029

Senior loan

10/20/2020

2,454

North Aurora, IL

Multifamily

Fixed

0.30

11/1/2028

Senior loan

10/20/2020

2,454

North Aurora, IL

Multifamily

Fixed

0.30

11/1/2028

Senior loan

10/20/2020

2,264

Rosedale, MD

Multifamily

Fixed

0.30

10/1/2028

Senior loan

10/20/2020

2,264

Rosedale, MD

Multifamily

Fixed

0.30

10/1/2028

Senior loan

10/20/2020

2,215

Cockeysville, MD

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

2,215

Cockeysville, MD

Multifamily

Fixed

0.30

7/1/2031

Senior loan

10/20/2020

2,026

Laurel, MD

Multifamily

Fixed

0.30

7/1/2029

Senior loan

10/20/2020

2,026

Laurel, MD

Multifamily

Fixed

0.30

7/1/2029

Senior loan

10/20/2020

1,836

Vancouver, WA

Multifamily

Fixed

0.30

8/1/2031

Senior loan

10/20/2020

1,836

Vancouver, WA

Multifamily

Fixed

0.30

8/1/2031

Senior loan

10/20/2020

1,763

Tyler, TX

Multifamily

Fixed

0.30

11/1/2028

Senior loan

10/20/2020

1,763

Tyler, TX

Multifamily

Fixed

0.30

11/1/2028

Senior loan

10/20/2020

1,307

Las Vegas, NV

Multifamily

Fixed

0.30

10/1/2028

Senior loan

10/20/2020

1,307

Las Vegas, NV

Multifamily

Fixed

0.30

10/1/2028

Senior loan

10/20/2020

918

Atlanta, GA

Multifamily

Fixed

0.30

8/1/2031

Senior loan

10/20/2020

918

Atlanta, GA

Multifamily

Fixed

0.30

8/1/2031

Senior loan

10/20/2020

728

Des Moines, IA

Multifamily

Fixed

0.30

3/1/2029

Senior loan

10/20/2020

728

Des Moines, IA

Multifamily

Fixed

0.30

3/1/2029

Total

59,252

0.30

Total

59,252

0.30

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Table of Contents

(1)Outstanding principal balance represents the total repurchase agreement balance outstanding as of ~~June~~September 30, 2023.

For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the activity related to the carrying value of the master repurchase agreements, secured financing agreements and unsecured financing were as follows (in thousands):


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
		2023		2022			2023		2022
Balances as of January 1,	Balances as of January 1,	$	1,345,101	$	1,273,051	Balances as of January 1,	$	1,345,101	$	1,273,051
Adjustment to mortgages payable, net on deconsolidation of real estate	Adjustment to mortgages payable, net on deconsolidation of real estate	(89,012)		—		Adjustment to mortgages payable, net on deconsolidation of real estate	(89,012)		—
Principal borrowings	Principal borrowings	44,704		193,278		Principal borrowings	44,892		252,796
Principal repayments	Principal repayments	(52,703)		(135,883)		Principal repayments	(88,888)		(161,999)
Repurchase of unsecured notes	Repurchase of unsecured notes	—		(2,879)		Repurchase of unsecured notes	—		(2,879)
Repurchase of unsecured notes, not yet settled	Repurchase of unsecured notes, not yet settled	—		(1,950)		Repurchase of unsecured notes, not yet settled	—		(1,950)
Accretion of discounts	Accretion of discounts	437		374		Accretion of discounts	666		572
Amortization of deferred financing costs	Amortization of deferred financing costs	22		24		Amortization of deferred financing costs	(20)		36
Balances as of June 30,		$	1,248,549	$	1,326,015
Balances as of September 30,						Balances as of September 30,	$	1,212,739	$	1,359,627

Schedule of Debt Maturities

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


Year	Year	Recourse		Non-recourse		Total		Year	Recourse		Non-recourse		Total
2023(1)	2023(1)	$	—	$	333,233	$	333,233	2023(1)	$	—	$	298,009	$	298,009
2024	2024	—		5,461		5,461		2024	—		5,435		5,435
2025	2025	36,500		46,094		82,594		2025	36,500		46,094		82,594
2026	2026	197,479		9,284		206,763		2026	197,426		9,284		206,710
2027	2027	6,500		—		6,500		2027	6,500		—		6,500
Thereafter	Thereafter	—		616,833		616,833		Thereafter	—		616,086		616,086
		$	240,479	$	1,010,905	$	1,251,384		$	240,426	$	974,908	$	1,215,334

(1)The transactions in place in the master repurchase agreement with Mizuho have a one-month to two-month tenor and are expected to roll accordingly.

~~11.~~10. Fair Value of Financial Instruments

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

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

•Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, related market activity for the asset or liability.

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Table of Contents

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.

Derivative Financial Instruments and Hedging Activities

~~The Company is~~In the normal course of business, our operations are exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economicmarket risks, including the effect of changes in interest ~~rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company~~rates. We may enter into derivative financial instruments to ~~manage exposures that arise~~offset this underlying market risk. There have been no significant changes in our policy and strategy from ~~business activities that result~~what was disclosed in the ~~receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative~~ financial ~~instruments are used to manage differences~~statements included in the amount, timing and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings. In order to minimize counterparty credit risk, the Company enters into and expects to enter into hedging arrangements only with major financial institutions that have high credit ratings.

The Company utilizes an independent third party to perform the market valuations on its derivative financial instruments. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of June 30, 2023 and December 31, 2022 were classified as Level 2 of the fair value hierarchy.

The Company’s main objective in using interest rate derivatives is to add stability to interest expense related to floating rate debt. To accomplish this objective, the Company primarily uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. On December 30, 2021, the Company, through a subsidiary, entered into a $32.5 million interest rate cap agreement at a strike rate of 2.29% to hedge the variable cash flows associated with the Company's floating rate debt. The interest rate cap terminates on June 1, 2024. As of June 30, 2023, this interest rate cap had a fair value of approximately $1.0 million.our Annual Report.

Financial Instruments Carried at Fair Value

See Note 2 and Notes 4 through 7 for additional information.

Financial Instruments Not Carried at Fair Value

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.

~~Table of Contents~~

In calculating the fair value of its long-term indebtedness, the Company used interest rate and spread assumptions that reflect current creditworthiness and market conditions available for the issuance of long-term debt with similar terms and remaining maturities. These financial instruments utilize Level 2 inputs.

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

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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~~September 30, 2023 (in thousands):


				Fair Value											Fair Value
		Carrying Value		Level 1		Level 2		Level 3		Total			Carrying Value		Level 1		Level 2		Level 3		Total
Assets	Assets											Assets
Cash and cash equivalents	Cash and cash equivalents	$	19,657	$	19,657	$	—	$	—	$	19,657	Cash and cash equivalents	$	10,977	$	10,977	$	—	$	—	$	10,977
Restricted cash	Restricted cash	1,922		1,922		—		—		1,922		Restricted cash	1,942		1,942		—		—		1,942
Loans, held-for-investment, net	Loans, held-for-investment, net	306,820		—		—		313,182		313,182		Loans, held-for-investment, net	320,151		—		—		329,344		329,344
Common stock investments, at fair value	Common stock investments, at fair value	77,172		—		—		77,172		77,172		Common stock investments, at fair value	60,709		—		—		60,709		60,709
Equity method investments		111		—		—		111		111
Mortgage loans, held-for-investment, net	Mortgage loans, held-for-investment, net	710,577		—		—		697,907		697,907		Mortgage loans, held-for-investment, net	708,003		—		—		689,312		689,312
Accrued interest	Accrued interest	19,323		19,323		—		—		19,323		Accrued interest	21,489		21,489		—		—		21,489
Mortgage loans held in variable interest entities, at fair value	Mortgage loans held in variable interest entities, at fair value	6,315,488		—		6,315,488		—		6,315,488		Mortgage loans held in variable interest entities, at fair value	5,612,472		—		5,612,472		—		5,612,472
CMBS structured pass-through certificates, at fair value	CMBS structured pass-through certificates, at fair value	43,531		—		43,531		—		43,531		CMBS structured pass-through certificates, at fair value	42,471		—		42,471		—		42,471
MSCR notes, at fair value	MSCR notes, at fair value	10,340		—		10,340		—		10,340		MSCR notes, at fair value	10,325		—		10,325		—		10,325
Mortgage backed securities, at fair value	Mortgage backed securities, at fair value	37,876		—		37,876		—		37,876		Mortgage backed securities, at fair value	37,975		—		37,975		—		37,975
Accounts receivable and other assets	Accounts receivable and other assets	1,805		1,805		—		—		1,805		Accounts receivable and other assets	1,276		1,276		—		—		1,276
		$	7,544,622	$	42,707	$	6,407,235	$	1,088,372	$	7,538,314		$	6,827,790	$	35,684	$	5,703,243	$	1,079,365	$	6,818,292

Liabilities	Liabilities											Liabilities
Secured financing agreements, net	Secured financing agreements, net	$	677,671	$	—	$	—	$	696,252	$	696,252	Secured financing agreements, net	$	676,900	$	—	$	—	$	691,428	$	691,428
Master repurchase agreements	Master repurchase agreements	333,233		—		—		333,233		333,233		Master repurchase agreements	298,009		—		—		298,009		298,009
Unsecured notes, net	Unsecured notes, net	205,398		—		178,116		—		178,116		Unsecured notes, net	205,625		—		178,116		—		178,116
Mortgages payable, net	Mortgages payable, net	32,247		—		—		25,465		25,465		Mortgages payable, net	32,205		—		—		25,471		25,471
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	8,352		8,352		—		—		8,352		Accounts payable and other accrued liabilities	3,405		3,405		—		—		3,405
Accrued interest payable	Accrued interest payable	6,385		6,385		—		—		6,385		Accrued interest payable	10,124		10,124		—		—		10,124
Bonds payable held in variable interest entities, at fair value	Bonds payable held in variable interest entities, at fair value	5,873,761		—		5,873,761		—		5,873,761		Bonds payable held in variable interest entities, at fair value	5,225,922		—		5,225,922		—		5,225,922
		$	7,137,047	$	14,737	$	6,051,877	$	1,054,950	$	7,121,564		$	6,452,190	$	13,529	$	5,404,038	$	1,014,908	$	6,432,475

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				Fair Value											Fair Value
		Carrying Value		Level 1		Level 2		Level 3		Total			Carrying Value		Level 1		Level 2		Level 3		Total
Assets	Assets											Assets
Cash and cash equivalents	Cash and cash equivalents	$	20,048	$	20,048	$	—	$	—	$	20,048	Cash and cash equivalents	$	20,048	$	20,048	$	—	$	—	$	20,048
Restricted cash	Restricted cash	299		299		—		—		299		Restricted cash	299		299		—		—		299
Real estate investments, net		245,222		—		—		245,222		245,222
Loans, held-for-investment, net	Loans, held-for-investment, net	256,147		—		—		255,254		255,254		Loans, held-for-investment, net	256,147		—		—		255,254		255,254
Common stock investment, at fair value	Common stock investment, at fair value	78,264		—		—		78,264		78,264		Common stock investment, at fair value	78,264		—		—		78,264		78,264
Mortgage loans, held-for-investment, net	Mortgage loans, held-for-investment, net	726,531		—		—		727,533		727,533		Mortgage loans, held-for-investment, net	726,531		—		—		727,533		727,533
Accrued interest	Accrued interest	15,665		15,665		—		—		15,665		Accrued interest	15,665		15,665		—		—		15,665
Mortgage loans held in variable interest entities, at fair value	Mortgage loans held in variable interest entities, at fair value	6,720,246		—		6,720,246		—		6,720,246		Mortgage loans held in variable interest entities, at fair value	6,720,246		—		6,720,246		—		6,720,246
CMBS structured pass-through certificates, at fair value	CMBS structured pass-through certificates, at fair value	46,876		—		46,876		—		46,876		CMBS structured pass-through certificates, at fair value	46,876		—		46,876		—		46,876
MSCR notes, at fair value	MSCR notes, at fair value	10,313		—		10,313		—		10,313		MSCR notes, at fair value	10,313		—		10,313		—		10,313
Mortgage backed securities, at fair value	Mortgage backed securities, at fair value	32,328		—		32,328		—		32,328		Mortgage backed securities, at fair value	32,328		—		32,328		—		32,328
Accounts receivable and other assets	Accounts receivable and other assets	2,197		2,197		—		—		2,197		Accounts receivable and other assets	2,197		2,197		—		—		2,197
		$	8,154,136	$	38,209	$	6,809,763	$	1,306,273	$	8,154,245		$	7,908,914	$	38,209	$	6,809,763	$	1,061,051	$	7,909,023

Liabilities	Liabilities											Liabilities
Secured financing agreements, net	Secured financing agreements, net	$	687,885	$	—	$	—	$	713,253	$	713,253	Secured financing agreements, net	$	687,885	$	—	$	—	$	713,253	$	713,253
Master repurchase agreements	Master repurchase agreements	331,020		—		—		331,020		331,020		Master repurchase agreements	331,020		—		—		331,020		331,020
Unsecured notes, net	Unsecured notes, net	204,960		—		175,560		—		175,560		Unsecured notes, net	204,960		—		175,560		—		175,560
Mortgages payable, net	Mortgages payable, net	121,236		—		—		121,236		121,236		Mortgages payable, net	121,236		—		—		121,236		121,236
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	6,231		6,236		—		—		6,236		Accounts payable and other accrued liabilities	6,231		6,236		—		—		6,236
Accrued interest payable	Accrued interest payable	7,986		7,986		—		—		7,986		Accrued interest payable	7,986		7,986		—		—		7,986
Bonds payable held in variable interest entities, at fair value	Bonds payable held in variable interest entities, at fair value	6,249,804		—		6,249,804		—		6,249,804		Bonds payable held in variable interest entities, at fair value	6,249,804		—		6,249,804		—		6,249,804
		$	7,609,122	$	14,222	$	6,425,364	$	1,165,509	$	7,605,095		$	7,609,122	$	14,222	$	6,425,364	$	1,165,509	$	7,605,095

The significant unobservable inputs used in the fair value measurement of the Company’s investment in NSP are the discount rate and terminal capitalization rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. The Company's investment in the Private REIT was transferred out of level 2 to level 3 due to a lack of observable market data for the three months ended December 31, 2022. The following is a summary of significant unobservable inputs used in the fair valuation of the Company's Level 3 assets carried at fair value on the Consolidated Balance Sheets ~~for the six months ended June~~as of September 30, 2023 (dollars in thousands):


		Carrying Value		Valuation Technique	Unobservable Inputs	Range	Weighted Average (1)			Carrying Value		Valuation Technique	Unobservable Inputs	Range	Weighted Average (1)
NexPoint Storage Partners	NexPoint Storage Partners	$	51,017	Discounted cash flow	Terminal cap rate	5.25% - 5.75%	5.50	%	NexPoint Storage Partners	$	33,759	Discounted cash flow	Terminal cap rate	5.13% - 5.63%	5.38	%
					Discount rate	7.50% - 9.50%	8.50	%					Discount rate	7.75% - 9.75%	8.75	%
Private REIT	Private REIT	$	26,155	Market approach	NAV / sh multiple	1.00 - 1.10x	1.05x		Private REIT	$	26,950	Market approach	NAV per share multiple	1.00 - 1.21x	1.11x

(1)Averages are weighted based on the fair value of the related instrument

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The table below reflects a summary of changes for the Company's Level 3 common stock assets carried at fair value on the Consolidated Balance Sheets for the ~~six~~nine months ended ~~June~~September 30, 2023:

Balance as of 12/31/22 Change in Unrealized Gains/(Losses) Balance as of 6/30/23
Common stock investment, at fair value $ 50,380 $ 637 $ 51,017
Common stock investment, at fair value $ 27,884 $ (1,729) $ 26,155


	Balance as of 12/31/22		Change in Unrealized Gains/(Losses)		Balance as of 9/30/23
NexPoint Storage Partners	$	50,380	$	(16,621)	$	33,759
Private REIT	$	27,884	$	(934)	$	26,950

Other Financial Instruments Carried at Fair Value

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 ~~14)~~13). 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~~September 30, 2023, the redeemable noncontrolling interests in the OP are valued at their carrying value on the Consolidated Balance Sheets (see Note ~~14)~~13).

~~12.~~11. Stockholders’ Equity

Common Stock

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company issued 151,970 shares of common stock pursuant to ~~its long-term incentive plan (see “Long~~the NexPoint Real Estate Finance 2020 Long Term Incentive ~~Plan” below)~~Plan (the "2020 LTIP").

As of ~~June~~September 30, 2023, the Company had 17,518,900 shares of common stock, par value $0.01 per share, issued and 17,231,913 shares of common stock, par value $0.01 per share, outstanding.

Preferred Stock

On July 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 of approximately $1.2 million and other offering expenses of approximately $0.8 million. The Series A Preferred Stock has a $25.00 per share liquidation preference.

As of September 30, 2023, the Company has 1,645,000 shares of Series A Preferred Stock issued and outstanding.

Share Repurchase Program

On March 9, 2020, the Board authorized a share repurchase program (the “Prior Share Repurchase Program”) through which the Company could repurchase an indeterminate number of shares of our common stock at an aggregate market value of up to $10.0 million in shares of its common stock, par value $0.01 per share, during a two-year period that expired on March 9, 2022. On September 28, 2020, the Board authorized the expansion of the Prior Share Repurchase Program to include the Company’s Series A Preferred Stock with the same period and repurchase limit. The Company was able to utilize various methods to affect the repurchases, and the timing and extent of the repurchases will depend upon several factors, including market and business conditions, regulatory requirements and other corporate considerations, including whether the Company’s common stock is trading at a significant discount to net asset value ("NAV") per share. From inception through expiration, the Company repurchased 327,422 shares of its common stock, par value $0.01 per share, at a total cost of approximately $4.8 million, or $14.61 per share. These repurchased shares of common stock are classified as treasury stock and reduce the number of shares of the Company’s common stock outstanding and, accordingly, are considered in the weighted-average number of shares outstanding during the period. On March 3, 2021, the Company cancelled 40,435 shares of common stock, reducing the total classified as treasury stock to 286,987.

On February 22, 2023, the Board authorized a share repurchase program (the “Share Repurchase Program”) through which the Company may repurchase an indeterminate number of shares of our common stock and Series A Preferred Stock at an aggregate market value of up to $20.0 million in shares of its common stock during a two-year period set to expire on February 22, 2025. The Company may utilize various methods to affect the repurchases, and the timing and extent of the repurchases will depend upon several factors, including market and business conditions, regulatory requirements and other

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corporate considerations, including whether the Company’s common stock is trading at a significant discount to NAV per

~~Table of Contents~~

share. Repurchases under this program may be discontinued at any time. The Company has not made any purchases under the Share Repurchase Program as of the date of this report.

~~Long Term Incentive Plan~~

On January 31, 2020, the NexPoint Real Estate Finance, Inc. 2020 Long Term Incentive Plan (the “2020 LTIP”) was approved, and on May 7, 2020, the Company filed a registration statement on Form S-8 registering 1,319,734 shares of common stock, par value $0.01 per share, which the Company may issue pursuant to the 2020 LTIP. The 2020 LTIP authorizes the compensation committee of the Board to provide equity-based compensation in the form of stock options, appreciation rights, restricted shares, restricted stock units, performance shares, performance units and certain other awards denominated or payable in, or otherwise based on, the Company’s common stock or factors that may influence the value of the Company’s common stock, plus cash incentive awards, for the purpose of providing the Company’s directors, officers and other key employees (and those of the Manager and the Company’s subsidiaries), the Company’s non-employee directors, and potentially certain non-employees who perform employee-type functions, incentives and rewards for performance.

~~Restricted Stock Units.~~ Under the 2020 LTIP, restricted stock units may be granted to the Company’s directors, officers and other key employees (and those of the Manager and the Company’s subsidiaries) and typically vest over a ~~three~~ ~~to five-year period for officers, employees and certain key employees of the Manager and annually for directors. The most recent grant of restricted stock units to officers, em~~ployees and certain key employees of the Manager will vest over a four-year period. Beginning on the date of grant, restricted stock units earn dividends that are payable in cash on the vesting date. On May 8, 2020, pursuant to 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, on February 22, 2021, the Company granted 220,352 restricted stock units to its officers and other employees of the Manager and 11,832 restricted stock units to its directors, on November 8, 2021, the Company granted 1,201 restricted stock units to the sole member of the general partner of one of the Company's subsidiaries, on February 21, 2022, the Company granted 264,476 restricted stock units to its officers and other employees of the Manager and 12,464 restricted stock units to its directors, and on April 4, 2023, the Company granted 418,685 restricted stock units to its officers and other employees of the Manager and 21,370 restricted stock units to its directors. The following table includes the number of restricted stock units granted, vested, forfeited and outstanding as of ~~June~~September 30, 2023:


		2023					2023
		Number of Units		Weighted Average Grant Date Fair Value			Number of Units		Weighted Average Grant Date Fair Value
Outstanding January 1, 2023	Outstanding January 1, 2023	577,360		$	17.88	Outstanding January 1, 2023	577,360		$	17.88
Granted	Granted	440,055		15.14		Granted	440,055		15.14
Vested	Vested	(201,678)	(1)	17.27		Vested	(201,678)	(1)	17.27
Forfeited	Forfeited	—		—		Forfeited	—		—
Outstanding June 30, 2023		815,737		$	16.71
Outstanding September 30, 2023						Outstanding September 30, 2023	815,737		$	16.71

(1)Certain key employees of the Manager elected to net the taxes owed upon vesting against the shares issued resulting in 151,970 shares being issued as shown on the consolidated statements of stockholders' equity.

~~Table~~The following table includes the number of ~~Contents~~

~~The vesting schedule for the~~ restricted stock units granted, vested, forfeited and outstanding as of ~~June~~September 30, ~~2023 is as follows:~~2023:


	Shares Vesting
	February	April	May	Total
2024	120,640	126,042	68,564	315,246
2025	120,646	104,672	—	225,318
2026	65,832	104,670	—	170,502
2027	—	104,671	—	104,671
Total	307,118	440,055	68,564	815,737

At-The-Market-Offering

On March 15, 2022, the Company, the OP and the Manager entered into separate equity distribution agreements (the “2022 Equity Distribution Agreements”) with each of Raymond James, Keefe, Bruyette & Woods, Inc., Robert W. Baird & Co. Incorporated and Virtu Americas LLC (collectively, the “2022 Sales Agents”), pursuant to which the Company could 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 “2022 ATM Program”). The 2022 Equity Distribution Agreements provided 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 2022 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 of 1933 (the "Securities Act") including, without limitation, sales made by means of ordinary brokers' transactions on the New York Stock Exchange (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.

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The following table contains summary information of the 2022 ATM Program since its inception through ~~June~~September 30, 2023:


Gross Proceeds	$	12,575,493
Shares of Common Stock Issued	531,728
Gross Average Sale Price per Share of Common Stock	$	23.65

Sales Commissions	$	188,655
Offering Costs	888,249
Net Proceeds	$	11,498,589
Average Price Per Share, net	$	21.62

Noncontrolling Interest in Subsidiary

On April 1, 2021, a subsidiary of one of the Subsidiary OPs (such subsidiary, the “REIT Sub”) closed its issuance of 125 preferred membership units of the REIT Sub (the “Preferred Membership Units”) at a price of $1,000 per unit, for gross proceeds of approximately $0.1 million, net of offering costs and initial administrative expenses. Holders of Preferred Membership Units are entitled to receive distributions semiannually from the REIT Sub at a per annum rate equal to 12.0% of the total of the purchase price of $1,000 per unit plus accumulated and unpaid distributions. The Preferred Membership Units are generally redeemable by the REIT Sub at any time for $1,000 per unit plus accumulated and unpaid distributions and an additional redemption premium if the Preferred Membership Units are redeemed on or before December 31, 2023. The issuance of the 125 Preferred Membership Units is presented as “Noncontrolling interest in subsidiary” on the Consolidated Balance Sheets and Consolidated Statements of Stockholders’ Equity.

OP Unit Redemptions

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~~1,479,132 OP Units~~30, 2023 and ~~issued 1,479,132 shares of common stock to the redeeming unitholders. On January 7,~~December 31, 2022, the Company had redeemed ~~approximately 4,774,570 OP Units~~ and issued 4,774,570 shares of common stock to the redeeming unitholders. On February 14, 2022, the Company redeemed approximately 395,033 OP Units and issued 395,033 shares of common stock to the redeeming unitholders. On December 23, 2022, the Company redeemed 2,100,000 OP Units and issued 2,100,000 shares of common stock to the redeeming unitholders. As of June 30, 2023, the Company had issued 8,748,735 shares of the Company's common stock to redeeming unitholders.

Dividends

The Board declared a dividend to preferred stockholders of $0.53125 per share on December 15, 2022, which was paid on January 25, 2023, to preferred stockholders of record as of January 13, 2023.

The Board declared a dividend to preferred stockholders of $0.53125 per share on February 22, 2023, which was paid on April 25, 2023, to preferred stockholders of record as of April 13, 2023.

The Board declared the first regular quarterly dividend of 2023 to common stockholders of $0.50 per share on February 22, 2023, which was paid on March 31, 2023, to common stockholders of record on March 15, 2023.

The Board declared a special dividend to common stockholders of $0.185 per share on February 22, 2023, which was paid on March 31, 2023, to common stockholders of record on March 15, 2023.

The Board declared the second regular quarterly dividend of 2023 to common stockholders of $0.50 per share on April 24, 2023, which was paid on June 30, 2023, to common stockholders of record on June 15, 2023.

The Board declared a special dividend to common stockholders of $0.185 per share on April 24, 2023, which was paid on June 30, 2023, to common stockholders of record on June 15, 2023.

The Board declared a dividend to preferred stockholders of $0.53125 per share on June 13, 2023, which was paid on July 25, 2023, to preferred stockholders of record as of July 13, 2023.

The Board declared the third regular quarterly dividend of 2023 to common stockholders of $0.50 per share on July 25, 2023, which was paid on September 29, 2023, to common stockholders of record on September 15, 2023.

~~13.~~The Board declared a special dividend to common stockholders of $0.185 per share on July 25, 2023, which was paid on September 29, 2023, to common stockholders of record on September 15, 2023.

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The Board declared a dividend to preferred stockholders of $0.53125 per share on September 19, 2023, which was paid on October 25, 2023, to preferred stockholders of record as of October 13, 2023.

12. Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the 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 per share is computed by adjusting basic earnings 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 (the "OP LPA"). 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.

~~Table of Contents~~

The following table sets forth the computation of basic and diluted earnings 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,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Net income attributable to common stockholders		$	5,747	$	3,850	$	12,314	$	16,256
Net income (loss) attributable to common stockholders										Net income (loss) attributable to common stockholders	$	(15,550)	$	(9,289)	$	(3,236)	$	6,967

Earnings for basic computations	Earnings for basic computations									Earnings for basic computations
Net income attributable to redeemable noncontrolling interests		1,856		2,186		3,793		6,969
Net income (loss) attributable to redeemable noncontrolling interests										Net income (loss) attributable to redeemable noncontrolling interests	(2,374)		(1,889)		1,419		5,080
Net income for diluted computations	Net income for diluted computations	$	7,603	$	6,036	$	16,107	$	23,225	Net income for diluted computations	$	(17,924)	$	(11,178)	$	(1,817)	$	12,047

Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Average number of common shares outstanding - basic	Average number of common shares outstanding - basic	17,213		14,748		17,166		14,304		Average number of common shares outstanding - basic	17,232		14,962		17,188		14,526
Average number of unvested restricted stock units	Average number of unvested restricted stock units	829		608		676		566		Average number of unvested restricted stock units	816		578		723		569
Average number of OP Units and SubOP Units	Average number of OP Units and SubOP Units	5,038		7,138		5,038		7,393		Average number of OP Units and SubOP Units	5,038		7,138		5,038		7,307
Average number of common shares outstanding - diluted	Average number of common shares outstanding - diluted	23,080		22,494		22,880		22,263		Average number of common shares outstanding - diluted	23,086		22,678		22,949		22,402
Earnings per weighted average common share:	Earnings per weighted average common share:									Earnings per weighted average common share:
Basic	Basic	$	0.33	$	0.26	$	0.72	$	1.14	Basic	$	(0.90)	$	(0.62)	$	(0.19)	$	0.48
Diluted	Diluted	$	0.33	$	0.26	$	0.70	$	1.04	Diluted	$	(0.90)	$	(0.62)	$	(0.19)	$	0.48

~~14.~~

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13. Noncontrolling Interests

Redeemable Noncontrolling Interests in the OP

Interests in the OP held by limited partners are represented by OP Units. As of June 30, 2023, the Company holds the majority economic interests in the OP. Net income is allocated to holders of OP Units based upon net income 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 OP LPA. 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.

Pursuant to the OP LPA, 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 OP LPA), 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 Shares Amount (generally one share of common stock of the Company for each OP Unit, subject to adjustment) as defined in the OP LPA. 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 OP LPA 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 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 June 30, 2023 was $15.09, and there were 5,038,382 OP Units outstanding other than those held by the Company. Assuming that (1) the Ten Day VWAP exceeded the NAV, (2) all OP unitholders exercised their right to cause the OP to

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redeem all of their OP Units with a Valuation Date of June 30, 2023 and (3) the Company then elected to purchase all of the OP Units by paying the Cash Amount, the Company would have paid $76.0 million in cash consideration to redeem the OP Units.

On September 8, 2021, the general partner of the OP executed the OP LPA for the purposes of creating a board of directors of the OP (the “Partnership Board”) and subdividing and reclassifying the outstanding OP Units into Class A, Class B and Class C OP Units. The OP LPA generally provides that the newly created Class A OP Units and Class B OP Units each have 50.0% of the voting power of the OP Units, including with respect to the election of directors to and removal of directors from the Partnership Board, and that the Class C OP Units have no voting power. The reclassification of the OP Units did not have a material effect on the economic interests of the holders of OP Units. In connection with the adoption of the OP LPA, the OP Units held by the Company were reclassified into Class A OP Units, the OP Units held by a subsidiary of NexPoint Diversified Real Estate Trust were reclassified into Class B OP Units and the remaining OP Units were reclassified into Class C OP Units.

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

The following table sets forth the redeemable noncontrolling interests in the OP (reflecting the OP’s consolidation of the Subsidiary OPs) for the ~~six~~nine months ended ~~June~~September 30, 2023, and ~~June~~September 30, 2022 (in thousands):


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
		2023		2022			2023		2022
Redeemable noncontrolling interests in the OP, December 31,		$	96,501	$	261,423
Redeemable noncontrolling interests in the OP, January 1,						Redeemable noncontrolling interests in the OP, January 1,	$	96,501	$	261,423
Adjustment to redeemable noncontrolling interest in the OP on deconsolidation of real estate	Adjustment to redeemable noncontrolling interest in the OP on deconsolidation of real estate	297		—		Adjustment to redeemable noncontrolling interest in the OP on deconsolidation of real estate	297		—
Net income attributable to redeemable noncontrolling interests in the OP	Net income attributable to redeemable noncontrolling interests in the OP	3,793		6,969		Net income attributable to redeemable noncontrolling interests in the OP	1,419		5,080
Redemption of redeemable noncontrolling interests in the OP	Redemption of redeemable noncontrolling interests in the OP	—		(113,535)		Redemption of redeemable noncontrolling interests in the OP	—		(113,535)
Distributions to redeemable noncontrolling interests in the OP	Distributions to redeemable noncontrolling interests in the OP	(6,046)		(7,139)		Distributions to redeemable noncontrolling interests in the OP	(9,069)		(10,708)
Redeemable noncontrolling interests in the OP, June 30,		$	94,545	$	147,718
Redeemable noncontrolling interests in the OP, September 30,						Redeemable noncontrolling interests in the OP, September 30,	$	89,148	$	142,260

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

Period End

Common Shares Outstanding

OP Units Held by NCI

Combined Outstanding

Period End

Common Shares Outstanding

OP Units Held by NCI

Combined Outstanding

June 30, 2023

17,231,913

5,038,382

22,270,295

September 30, 2023

17,231,913

5,038,382

22,270,295

~~15.~~14. Related Party Transactions

Management Fee

In accordance with the Management Agreement, the Company pays the Manager an 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 closing of the IPO, plus (2) the net proceeds received by the Company from all issuances of the Company’s equity securities in and after the IPO, plus (3) the Company’s cumulative Earnings Available for Distribution (“EAD”) (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 common

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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 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 EAD 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 EAD. Additionally, for the avoidance of doubt, Equity does not include the assets contributed to the Company in the Formation Transaction.

“EAD” 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 income (loss), or in net income (loss) and adding back amortization of stock-based compensation. For the purpose of calculating EAD for the Annual Fee, net income (loss) attributable to common stockholders may also be adjusted for the effects of certain GAAP adjustments and transactions that may not be indicative of the Company’s current operations, 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. EAD has replaced our prior presentation of Core Earnings.

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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~~nine months ended ~~June~~September 30, 2023, there were no Offering Expenses that were paid on the Company’s behalf for which the Company reimbursed the Manager.

Connections at Buffalo Pointe Contribution

On May 29, 2020, 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 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 SubOP Units, on a per share or unit basis, as of the end of the first quarter, or $17.72 per OP Unit. The Company additionally contributed an aggregate of approximately ~~$1.4~~$1.7 million on January 9, 2023, March 6, 2023, March 28, 2023, ~~and~~ May 25, 2023, and August 16, 2023. Buffalo Pointe owns a stabilized multifamily property located in Houston, Texas with ~~90.3%~~90.5% occupancy as of ~~June~~September 30, 2023. The preferred equity investment pays current interest at a rate of 6.5%, deferred interest at a rate of 4.5%, has a loan-to-value ratio of ~~73.0%~~75.6% and a maturity date of May 1, 2030.

Pursuant to the OP LPA and the Buffalo Pointe Contribution Agreement, the 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 LPA, 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. On May 11, 2021, our stockholders approved the issuance of such shares upon the exercise of the BP Contributors' redemption rights.

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, on February 22, 2021, the Company granted 233,385 restricted stock units to its directors, officers employees and certain key employees of the Manager and its affiliates, the Company granted 1,201 restricted stock units to the sole member of the general partner of one of the Company's subsidiaries, on February 21, 2022, the Company granted 264,476 restricted stock units to its officers and other employees of the Manager and 12,464 restricted stock units to its directors, and on April 4, 2023, the Company granted 418,685 restricted stock units to its officers and other employees of the Manager and 21,370 restricted stock units to its directors. ~~See Note 12 for additional disclosures.~~

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OP Unit Redemptions

At the 2021 annual meeting of the Company, the Company's stockholders approved the potential issuance of ~~13,758,905.9~~13,758,906 shares of the Company's common stock to related parties in connection with the redemption of their OP Units or SubOP Units that may be redeemed for OP Units. OnAs of September ~~8, 2021, the Company redeemed approximately 1,479,132 OP Units~~30, 2023 and ~~issued 1,479,132 shares of common stock to the redeeming unitholders. On January 7,~~December 31, 2022, the Company had redeemed ~~approximately 4,774,570 OP Units~~ and issued ~~4,774,570~~8,748,735 shares of the Company's common stock to the redeeming unitholders. On February 14, 2022, the Company redeemed approximately 395,033 OP Units and issued 395,033 shares of common stock to the redeeming unitholders. On December 23, 2022, the Company redeemed 2,100,000 OP Units and issued 2,100,000 shares of common stock to the redeeming unitholders.

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 of 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~~nine months ended ~~June~~September 30, 2023, and 2022, operating expenses did not exceed the Expense Cap.

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For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the Company incurred management fees of ~~$1.7~~$2.5 million and ~~$1.5~~$2.3 million, respectively.

Notes Offering

On April 20, 2021, the Company issued $75.0 million aggregate amount of its 5.75% Notes at a price equal to 99.5% 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 affiliate of the Manager, purchased $2.5 million par value of the 5.75% Notes at issuance.

Bridge Loan

On March 31, 2022, the Company, through one of the Subsidiary OPs, originated a bridge loan for $13.5 ~~million.~~million to a subsidiary of an entity advised by an affiliate of the Manager. The bridge loan was secured by a development property in Las Vegas, Nevada, and was used by the borrower to finance the acquisition of the property prior to obtaining construction financing. The loan bore interest at a rate of 1.50% plus the WSJ Prime Rate and was set to mature on October 1, 2022. On August 9, 2022, the bridge loan was paid off. ~~The borrower under the bridge loan was a subsidiary of an entity advised by an affiliate of the Manager.~~

NSP Guaranty

On December 8, 2022 and in connection with a restructuring of NSP, the Company, through REIT Sub, together with NexPoint Diversified Real Estate Trust, Highland Income Fund and NexPoint Real Estate Strategies Fund (collectively, the "Co-Guarantors"), as guarantors, entered into a ~~Sponsor Guaranty Agreement~~sponsor guaranty agreement in favor of Extra Space Storage, LP ("Extra Space") pursuant to which REIT Sub and the Co-Guarantors guaranteed obligations of NSP with respect to NSP’s newly created Series D Preferred Stock and ~~two~~one promissory ~~notes~~note in an aggregate principal amount of approximately ~~$64.2~~$49.2 million issued to Extra ~~Space.~~Space (the "Sponsor Guaranty Agreement"). The guaranties by REIT Sub and the Co-Guarantors are capped at $97.6 million, which ~~cap amount~~ will be reduced as the guaranteed obligations of NSP are paid. Each of REIT Sub and the Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP’s common stock. The maximum liability of the Company under the guaranties is approximately $83.8 million. As

NSP Promissory Note

On September 29, 2023, a subsidiary of ~~June 30, 2023,~~NSP issued $5.0 million aggregate amount of a 11.00% note maturing on September 29, 2024 to a subsidiary of the Company ~~owns approximately 25.7% of the total outstanding shares of common stock of NSP.~~(the "Promissory Note").

Convertible Promissory Note

On October 18, 2022, the Company, through a subsidiary, borrowed $6.5 million from NFRO REIT Sub, LLC (the "Holder") and issued $6.5 million aggregate amount of a 7.50% note to the Holder maturing on October 18, 2027. Beginning on January 1, 2023 through June 30, 2027, the Holder may elect to convert all or any part of the outstanding principal and accrued but unpaid interest due, and all other amounts due and payable to the Holder thereunder or in connection therewith, into equity interests of an affiliate of the borrower.

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Elysian at Hughes Center

On February 1, 2022, the Company, through a subsidiary (the “Trust”), purchased the Elysian at Hughes Center, a 368-unit multifamily property in Las Vegas, Nevada, for a total of $184.1 million. The Trust is managed by an affiliate of the Manager (the “Asset Manager”). Effective January 1, 2023, the Company restructured this investment such that it does not meet the requirements for consolidation under ASC 810 – Consolidation and has been deconsolidated herein as of January 1, 2023 and presented as a preferred equity investment. As of December 31, 2022, the Company owned a preferred equity investment and indirect common equity interests in Elysian at Hughes Center, which resulted in the consolidation at year end. However, the common equity interests have been transferred to the Asset Manager in exchange for $54,000 and a guarantee of payments due to the Company in respect of its preferred equity investment if the investment is not redeemed prior to the close of the ongoing private offering of Class I Beneficial Interests in the Trust, which will continue until the maximum offering amount of $115.3 million has been reached or, if earlier, until December 31, 2023. The Company’s preferred investments were initially made from December 28, 2021 through July 26, 2022 and totaled $65.3 million. Following the transfer of the common equity interests, the Company no longer is the primary beneficiary of the Trust and as such does not consolidate it. The Company recognized a gain on deconsolidation of $1.5 million related to the residual effect of removing the consolidated assets and liabilities from the Consolidated Balance Sheets. The fair value of the preferred equity investment still approximates its par value so no portion of the gain on deconsolidation is related to a remeasurement of the fair value of the preferred equity investment. Management determined the fair value of the preferred

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equity investment using a market approach and performing a benchmarking analysis to comparable transactions. As of ~~June~~September 30, 2023, ~~$47.0~~$50.5 million of the Company's preferred investment in Elysian at Hughes Center had been redeemed, resulting in a remaining principal balance of ~~$18.4~~$14.8 million.

Cellipont

On May 17, 2023, the Company, through one of the Subsidiary OPs, committed to purchase $4.2 million of the preferred units with respect to a life sciences property development located in Houston, Texas, of which $0.2 million was unfunded as of ~~June~~September 30, 2023. The investment was entered into as a co-investment with affiliates of the Company.

~~16.~~15. Commitments and Contingencies

Except as otherwise disclosed below, 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.

On September 29, 2021, the Company, through one of the Subsidiary OPs, entered into an agreement to purchase up to $50.0 million in a new preferred equity investment (the “Preferred Units”) upon notice from the issuer. Subject to certain conditions, the Company may be required to purchase an additional $25.0 million of Preferred Units at the option of the issuer. The funds are expected to be used to capitalize special purpose limited liability companies (“PropCos”) to engage in sale-and-leaseback transactions and development transactions on life science real property. ~~The Company funded $3.0 million on~~On September, 22, 2023, the issuer exercised its right to extend the final obligation date to purchase any additional Preferred Units to September 29, 2021, on November 8, 2021, the Company funded $30.0 million which was subsequently redeemed in 2022, on December 20, 2021, the Company funded $3.8 million, on January 14, 2022, the Company funded $0.9 million, on January 19, 2022, the Company funded $0.2 million, on January 27, 2022, the Company funded $18.5 million, on October 19, 2022, the Company funded $15.0 million, on January, 12, 2023, the Company funded $1.0 million, on March 3, 2023, the Company funded $1.7 million, and on April 6, 2023, the Company funded $21.1 million.2024. As of ~~June~~September 30, 2023, the Company may have the obligation to fund an additional ~~$9.8~~$6.6 million by September 29, ~~2023,~~2024, which the issuer may extend for up to ~~two years~~one year at its option for an extension fee. The Preferred Units accrue distributions at a rate of 10.0% annually, compounded monthly. Distributions on the Preferred Units will be paid in cash with respect to stabilized PropCos and paid in kind with respect to unstabilized PropCos. The obligations of the issuer will be supported by a pledge of all equity units of the PropCos. All or a portion of the Preferred Units may be redeemed at any time for a redemption price equal to the purchase price of the Preferred Units to be redeemed plus any accrued and unpaid distributions thereon and a cash redemption fee. Upon the redemption of any Preferred Units and if the parties agree, the remaining amount to be funded by the Company may be increased by the aggregate purchase price of the redeemed Preferred Units. In addition, if the issuer experiences a change of control, the redemption price will also include a payment equal to the amount needed to achieve a multiple on invested capital ("MOIC") equal to 1.25x for unstabilized PropCos and 1.10x for stabilized PropCos. As of ~~June~~September 30, 2023, the Company has not recorded any contingencies on its Consolidated Balance Sheets as the obligation to fund additional Preferred Units other than under the existing commitment is considered ~~remote.~~

See Note 15 to our consolidated financial statements for information regarding the NSP Sponsor Guaranty Agreement. As of June 30, 2023, the Company has not recorded any contingencies on its Consolidated Balance Sheets as the obligation under the guaranty is considered remote.

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The OP Notes previously described in Note 10 are fully guaranteed by the Company. As of June 30, 2023, there has been no indication that the OP will not be able to satisfy the terms of the OP Notes. The Company considers any action required under the guaranty to be remote.

On March 14, 2023, the Company, through one of the Subsidiary OPs, committed to fund $24.0 million of preferred equity with respect to a ground up construction horizontal single-family property located in Phoenix, Arizona, of which ~~$22.8~~$20.1 million was unfunded as of ~~June~~September 30, 2023. The preferred equity investment provides a floating annual return that is the greater of prime rate plus 5.0% or 11.25%, compounded monthly with a MOIC of 1.30x and 1.0% placement fee. The Company was also issued a common interest at the time of its first funding of preferred equity on May 16, 2023. The common interest allows the Company to receive a 10% profit share once aggregate distributions exceed the 20% IRR hurdle as shown below. There was no value ascribed to the common interest as of ~~June~~September 30, 2023. Further, once the Company's preferred equity and accrued interest has been repaid, any additional cash flow and net sale proceeds shall be distributed as follows:

•0% to the Company and 100% to issuer up to a 20.0% internal rate of return ("IRR")

•10% to the Company and 90% to issuer thereafter

On February 10, 2023, the Company, through one of the Subsidiary OPs, through a unit purchase agreement, committed to purchase $30.3 million of the preferred units with respect to a multifamily property development located in Forney, Texas, of which ~~$16.3~~$9.4 million was unfunded as of ~~June~~September 30, 2023. Further, the Company committed to purchase $4.3 million of common equity with respect to the same property, of which ~~$3.8~~$3.3 million was unfunded as of ~~June~~September 30, 2023.

On February 10, 2023, the Company, through one of the Subsidiary OPs, through a unit purchase agreement, committed to purchase $30.3 million of the preferred units with respect to a multifamily property development located in Richmond, Virginia, of which ~~$19.1~~$16.1 million was unfunded as of ~~June~~September 30, 2023. Further, the Company committed to

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purchase $4.3 million of common equity with respect to the same property, of which ~~$3.8~~$3.3 million was unfunded as of ~~June~~September 30, 2023.

The table below shows the Company's unfunded commitments by investment type as of September 30, 2023 and December 31, 2022 (in thousands):


Investment Type	September 30, 2023		December 31, 2022
	Unfunded Commitments		Unfunded Commitments
Preferred Equity	$	52,200	$	25,000
Common Equity	6,600		—
	$	58,800	$	25,000

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16. Subsequent Events

Alexander at the District

The Company, through its subsidiaries, holds a preferred equity investment in SPG Alexander JV LLC, which owns a 280 unit multifamily property in Atlanta, Georgia. On ~~May 17,~~October 10, 2023, the Company exercised its right to terminate and replace the existing manager of SPG Alexander JV, LLC, with NREF Alexander Manager, LLC, which the Company has 100% ownership of through ~~one~~the OP. The OP is the primary beneficiary of SPG Alexander JV LLC as of October 10, 2023, the property is expected to be consolidated in our consolidated financial statements in the fourth quarter.

Dividends Declared

The Board declared the fourth regular quarterly dividend of 2023 to common stockholders of $0.50 per share on October 30, 2023, to be paid on December 29, 2023, to common stockholders of record on December 15, 2023.

The Board declared a special dividend to common stockholders of $0.185 per share on October 30, 2023, to be paid on December 29, 2023, to common stockholders of record on December 15, 2023.

Series B Preferred Stock Offering

On November 2, 2023, the Company announced the launch of a continuous public offering of up to 16,000,000 shares of its newly designated 9.00% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”) at a price to the public of $25.00 per share, for gross proceeds of $400 million. NexPoint Securities, Inc., an affiliate of the ~~Subsidiary OPs, committed~~Manager, will serve as the Company’s dealer manager (the "Dealer Manager") in connection with the offering. The Dealer Manager will use its reasonable best efforts to ~~purchase $4.2 million~~sell the shares of Series B Preferred Stock offered in the offering, and the Company will pay the Dealer Manager, subject to the discounts and other special circumstances described or referenced therein, (i) selling commissions of 7.0% of the ~~preferred units with respect to~~aggregate gross proceeds from sales of Series B Preferred Stock in the offering (“Selling Commissions”) and (ii) a ~~life sciences property development located in Houston, Texas,~~dealer manager fee of ~~which $0.2 million was unfunded as of June 30, 2023. The investment was entered into as a co-investment with affiliates~~3.0% of the ~~Company.~~gross proceeds from sales of Series B Preferred Stock in the offering (the “Dealer Manager Fee”). The Dealer Manager, subject to federal and state securities laws, will reallow all or any portion of the Selling Commissions and may reallow a portion of the Dealer Manager Fee to other securities dealers that the Dealer Manager may retain who sold the shares of Series B Preferred Stock as will be described more fully in the agreements between such dealers and the Dealer Manager. The Company expects that the offering will terminate on the earlier of the date the Company sells all 16,000,000 shares of the Series B Preferred Stock in the offering or March 14, 2025 (which is the third anniversary of the effective date of the Company’s registration statement), which may be extended by the Company’s board of directors in its sole discretion. The board of directors may elect to terminate this offering at any time.

~~17. Subsequent Events~~

Preferred Equity Investments

The Company, through one of the Subsidiary OPs, purchased ~~$0.7~~$11.0 million of ~~the Preferred Units~~preferred units on ~~July 14,~~November 9, 2023 ~~in accordance~~ with ~~the terms of the Company's existing purchase agreement.~~respect to a life science focused real estate company.

~~The Company, through one of the Subsidiary OPs, purchased $2.4 million of the Preferred Units on July~~NSP Promissory Note

On October 27, 2023, the Promissory Note of $5.0 million was repaid in ~~accordance with the terms of the Company's existing purchase agreement.~~full plus accrued interest.

~~Dividends Declared~~

The Board declared the third regular quarterly dividend of 2023 to common stockholders of $0.50 per share on July 24, 2023, to be paid on September 29, 2023, to common stockholders of record on September 15, 2023.

~~The Board declared a special dividend to common stockholders of $0.185 per share on July 24, 2023, to be paid on September 29, 2023, to common stockholders of record on September 15, 2023.~~

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

The following is a discussion and analysis of our financial condition and results of operations. The following should be read in conjunction with our financial statements and accompanying notes included herein and with our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this ~~annual~~quarterly report. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022. Our management believes the assumptions underlying the Company's financial statements and accompanying notes are reasonable. However, the Company's financial statements and accompanying notes may not be an indication of our financial condition and results of operations in the future.

Overview

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, convertible notes, multifamily properties and common equity investments, as well as multifamily CMBS securitizations, MSCR Notes and mortgage-backed securities, or our target assets. We primarily focus on investments in real estate sectors where our senior management team has operating expertise, including in the multifamily, SFR, self-storage, life science, hospitality and office sectors predominantly in the top 50 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.

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~~September 30, 2023 approximately ~~$18.7~~$22.0 billion of gross real estate transactions since the beginning of 2012. In addition, our Sponsor, together with its affiliates, including NexBank, is one of the most experienced global alternative credit managers managing approximately ~~$20.9~~$26.4 billion of loans and debt or credit related investments as of ~~June~~September 30, 2023 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 elected to be treated as a REIT for U.S. federal income tax purposes commencing with our taxable year 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.

On October 15, 2021, a lawsuit (the “Bankruptcy Trust Lawsuit”) was filed by a litigation subtrust formed in connection with Highland’s bankruptcy against various persons and entities, including our Sponsor and James Dondero. In addition, on February 8, 2023, a lawsuit (the “UBS Lawsuit”) was filed by UBS Securities LLC and its affiliate against Mr. Dondero and a number of other persons and entities. Neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit include claims related to our business or our assets or operations. Our Sponsor and Mr. Dondero have informed us they believe the Bankruptcy Trust Lawsuit has no merit, and Mr. Dondero has informed us he believes the UBS Lawsuit has no merit; we have been advised that the defendants named in each of the lawsuits intend to vigorously defend against the claims. We do not expect the Bankruptcy Trust Lawsuit or the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.

On February 22, 2023, as previously disclosed, the Board formed an independent special committee to oversee a review of the potential impact to the Company of the UBS Lawsuit and the Bankruptcy Trust Lawsuit. The special committee retained Reichman Jorgensen Lehman Feldberg LLP (“Reichman Jorgensen”) as independent legal counsel to advise the special committee on the review. Reichman Jorgensen has reported to the special committee that they have substantially completed their review and found no evidence that the Company engaged in any conduct that would expose it to liability from the UBS Lawsuit or the Bankruptcy Trust Lawsuit. On June 13, 2023, the special committee delivered these findings to the Board. Following the review of the special committee, we reaffirm our expectation that neither the

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Bankruptcy Trust Lawsuit nor the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.

Purchases and Dispositions in the Quarter

Acquisitions and Originations

The Company acquired or originated the following investments through the Subsidiary OPs in the three months ended ~~June~~September 30, 2023. The amounts in the table below are as of the purchase or investment date:


Investment	Investment	Investment Date	Tranche	Outstanding Principal Amount			Cost (% of Par Value)		Coupon (1)		Current Yield (1)		Maturity Date	Interest Rate Type	Investment	Property Type	Investment Date	Outstanding Principal Amount			Cost (% of Par Value)		Coupon (1)		Current Yield (1)		Maturity Date	Interest Rate Type
Preferred Equity	Preferred Equity	4/6/2023	N/A	21,105,528			100.0	%	17.50	%	17.50	%	9/29/2023	Fixed Rate	Preferred Equity	Life Science	7/11/2023	$	241,528		99.0	%	13.00	%	13.13	%	6/1/2026	Floating Rate
Preferred Equity	Preferred Equity	5/25/2023	N/A	228,365		(2)	100.0	%	11.00	%	11.00	%	5/1/2030	Fixed Rate	Preferred Equity	Single-family	7/14/2023	2,720,000		(2)	99.0	%	13.50	%	13.64	%	4/28/2027	Floating Rate
Preferred Equity	Preferred Equity	5/16/2023	N/A	1,200,000		(3)	99.0	%	13.25	%	13.38	%	4/28/2027	Floating Rate	Preferred Equity	Multifamily	7/27/2023	6,900,000		(3)	99.0	%	11.00	%	11.11	%	2/10/2025	Floating Rate
Preferred Equity	Preferred Equity	5/17/2023	N/A	3,950,391		(4)	99.0	%	13.00	%	13.13	%	8/17/2024	Fixed Rate	Preferred Equity	Multifamily	8/16/2023	303,841			100.0	%	11.00	%	11.00	%	5/1/2030	Fixed Rate
Preferred Equity															Preferred Equity	Multifamily	8/24/2023	3,000,000		(4)	99.0	%	11.00	%	11.11	%	2/10/2025	Floating Rate
Common Equity															Common Equity	Multifamily	8/28/2023	500,000			100.0	%	N/A		N/A		N/A	N/A
Common Equity															Common Equity	Multifamily	8/28/2023	500,000			100.0	%	N/A		N/A		N/A	N/A
Common Equity															Common Equity	Multifamily	9/8/2023	846,511		(5)	66.7	%	N/A		N/A		N/A	N/A
Preferred Equity															Preferred Equity	Life Science	9/27/2023	3,173,932			99.5	%	10.00	%	10.05	%	9/29/2024	Fixed Rate
Promissory Note															Promissory Note	Self-Storage	9/29/2023	5,000,000			100.0	%	11.00	%	11.00	%	9/29/2024	Fixed Rate
				$	26,484,284													$	23,185,812

(1)Current yield and coupon as of ~~June~~September 30, 2023.

(2)~~The Company first invested in preferred equity from this issuer~~Includes investments made on ~~May 29, 2020.~~July 14, 2023, August 11, 2023, and September 12, 2023.

(3)Includes investments made on ~~May 16,~~July 27, 2023, August 24, 2023, and ~~June 12,~~September 18, 2023.

(4)Includes investments made on ~~May 17,~~August 24, 2023, and ~~June~~September 18, 2023.

(5)Includes investments made on September 8, 2023, September 14, 2023, September 22, 2023, and September 28, 2023.

Redemptions and Sales

The following investments were redeemed or sold during the three months ended ~~June~~September 30, 2023:


Investment	Investment	Investment Date	Disposition Date	Amortized Cost Basis		Redemption/Sales Proceeds		Prepayment Penalties		Net Gain (Loss) on Repayment		Investment	Property Type	Investment Date	Disposition Date	Amortized Cost Basis		Redemption/Sales Proceeds		Prepayment Penalties		Net Gain (Loss) on Repayment
Preferred Equity	Preferred Equity	12/28/2021	4/25/2023	$	1,292,054	$	1,292,054	$	—	$	—	Preferred Equity	Multifamily	12/28/2021	8/4/2023	$	3,470,504	$	3,470,504	$	—	$	—
Preferred Equity	Preferred Equity	12/28/2021	5/17/2023	1,915,695		1,915,695		—		—		Preferred Equity	Multifamily	12/28/2021	9/12/2023	64,635		64,635		—		—
SFR Loan		2/11/2020	5/25/2023	5,543,934		5,148,347		457,889		62,302
SFR Loan		2/11/2020	6/25/2023	5,545,153		5,356,022		—		(189,131)
Preferred Equity		12/28/2021	6/26/2023	3,000,000		3,000,000		—		—
CMBS B-Piece												CMBS B-Piece	Multifamily	12/9/2021	9/27/2023	45,411,874		44,787,461		—		(624,413)
				$	17,296,836	$	16,712,118	$	457,889	$	(126,829)					$	48,947,014	$	48,322,600	$	—	$	(624,413)

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 and prepayment penalties are also included as components of interest income.

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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 ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (dollars in thousands):


		For the Six Months Ended June 30,												$ Change				% Change			For the Nine Months Ended September 30,																								$ Change				% Change
		2023						2022								2023												2022
		Interest income/ (expense)		Average Balance (1)		Yield (2)		Interest income/ (expense)		Average Balance (1)		Yield (2)				Interest income/ (expense)							Average Balance (1)				Yield (2)				Interest income/ (expense)				Average Balance (1)				Yield (2)
Interest income	Interest income																								Interest income
SFR Loans, held-for-investment	SFR Loans, held-for-investment	$	13,508	$	722,066	3.74	%	$	29,808	$	752,414	7.92	%			$	(16,300)			(54.7)	%	SFR Loans, held-for-investment	$	20,650			$	722,066			5.72	%			$	37,105			$	746,111			7.92	%			$	(16,455)			(44.3)	%
Mezzanine loans, held-for-investment	Mezzanine loans, held-for-investment	7,433		147,871		10.06	%	7,073		153,713		9.20	%	360				5.1	%	Mezzanine loans, held-for-investment	10,781				147,871				14.58	%			10,981				157,789				9.20	%			(200)				(1.8)	%
Preferred equity, held-for-investment	Preferred equity, held-for-investment	9,008		152,370		11.82	%	5,003		94,423		14.98	%	4,005				80.1	%	Preferred equity, held-for-investment	14,585				152,370				19.14	%			6,667				102,471				14.98	%			7,918				118.8	%
Convertible notes, held-for-investment	Convertible notes, held-for-investment	—		—		N/A		2,545		47,821		10.64	%	(2,545)				(100.0)	%	Convertible notes, held-for-investment	—				—				N/A				2,545				47,821				10.64	%			(2,545)				(100.0)	%
CMBS structured pass-through certificates, at fair value	CMBS structured pass-through certificates, at fair value	1,143		45,034		5.08	%	2,707		68,183		7.94	%	(1,564)				(57.8)	%	CMBS structured pass-through certificates, at fair value	1,760				45,034				7.82	%			4,017				66,442				7.94	%			(2,257)				(56.2)	%
Bridge loan	Bridge loan	—		N/A		N/A		221		6,787		6.51	%	(221)				(100.0)	%	Bridge loan	—				N/A				N/A				346				6,787				6.51	%			(346)				(100.0)	%
MSCR notes	MSCR notes	643		10,169		12.64	%	78		1,790		8.71	%	565				724.4	%	MSCR notes	988				10,169				19.44	%			299				4,385				8.71	%			689				230.4	%
Mortgage backed securities	Mortgage backed securities	1,725		35,592		9.70	%	92		3,231		5.70	%	1,633				1775.0	%	Mortgage backed securities	2,710				35,592				15.22	%			460				11,025				5.70	%			2,250				489.1	%
Total interest income	Total interest income	$	33,460	$	1,113,102	6.01	%	$	47,527	$	1,128,362	8.79	%	$	(14,067)			(29.6)	%	Total interest income	$	51,474			$	1,113,103			9.25	%			$	62,420			$	1,142,831			8.79	%			$	(10,946)			(17.5)	%
Interest expense	Interest expense																			Interest expense
Master repurchase agreements, net	Master repurchase agreements, net	$	(11,016)	$	(333,771)	6.60	%	$	(3,470)	$	(305,456)	2.27	%	$	(7,546)			217.5	%	Master repurchase agreements, net	$	(17,029)			$	(333,771)			10.20	%			$	(6,832)			$	(317,117)			2.27	%			$	(10,197)			149.3	%
Long-term seller financing, net	Long-term seller financing, net	(7,494)		(685,072)		2.18	%	(7,941)		(719,798)		2.21	%	447				(5.6)	%	Long-term seller financing, net	(11,271)				(685,072)				3.30	%			(11,993)				(711,001)				2.21	%			722				(6.0)	%
Unsecured notes, net	Unsecured notes, net	(6,796)		(205,196)		6.62	%	(6,514)		(200,796)		6.49	%	(282)				4.3	%	Unsecured notes, net	(10,203)				(205,196)				9.94	%			(9,782)				(201,697)				6.49	%			(421)				4.3	%
Total interest expense	Total interest expense	$	(25,306)	$	(1,224,039)	4.14	%	$	(17,925)	$	(1,226,050)	2.92	%	$	(7,381)			41.2	%	Total interest expense	$	(38,503)			$	(1,224,039)			6.30	%			$	(28,607)			$	(1,229,815)			2.92	%			$	(9,896)			34.6	%
Net interest income (3)	Net interest income (3)	$	8,154					$	29,602					$	(21,448)			(72.5)	%	Net interest income (3)	$	12,971											$	33,813											$	(20,842)			(61.6)	%

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

(2)Yield calculated on an annualized basis.

(3)Net interest income is calculated as the difference between total interest income and total interest expense.

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The following table presents the components of net interest income for the three months ended ~~June~~September 30, 2023 and 2022 (dollars in thousands):


		For the Three Months Ended June 30,												$ Change				% Change			For the Three Months Ended September 30,																								$ Change				% Change
		2023						2022								2023												2022
		Interest income/ (expense)		Average Balance (1)		Yield (2)		Interest income/ (expense)		Average Balance (1)		Yield (2)				Interest income/ (expense)							Average Balance (1)				Yield (2)				Interest income/ (expense)				Average Balance (1)				Yield (2)
Interest income	Interest income																								Interest income
SFR Loans, held-for-investment	SFR Loans, held-for-investment	$	6,889	$	718,299	3.84	%	$	7,670	$	737,261	4.16	%			$	(781)			(10.2)	%	SFR Loans, held-for-investment	$	7,142			$	718,299			3.98	%			$	7,297			$	733,505			4.16	%			$	(155)			(2.1)	%
Mezzanine loans, held-for-investment	Mezzanine loans, held-for-investment	3,293		140,444		9.38	%	3,565		154,445		9.23	%	(272)				(7.6)	%	Mezzanine loans, held-for-investment	3,348				140,444				9.54	%			3,908				165,939				9.23	%			(560)				(14.3)	%
Preferred equity, held-for-investment	Preferred equity, held-for-investment	5,230		166,012		12.60	%	2,047		102,461		12.78	%	3,183				155.5	%	Preferred equity, held-for-investment	5,577				166,012				13.44	%			1,664				118,567				12.78	%			3,913				235.2	%
Convertible bond, held-for-investment	Convertible bond, held-for-investment	—		N/A		N/A		1,292		27,596		18.73	%	(1,292)				(100.0)	%	Convertible bond, held-for-investment	—				N/A				N/A				—				—				18.73	%			N/A				N/A
CMBS structured pass through certificates, at fair value	CMBS structured pass through certificates, at fair value	604		44,049		5.48	%	1,429		63,604		8.99	%	(825)				(57.7)	%	CMBS structured pass through certificates, at fair value	617				44,049				5.60	%			1,310				62,960				8.99	%			(693)				(52.9)	%
Bridge loan	Bridge loan	—		N/A		N/A		221		13,500		6.55	%	(221)				(100.0)	%	Bridge loan	—				N/A				N/A				125				4,500				6.55	%			(125)				(100.0)	%
MSCR notes	MSCR notes	332		10,123		13.12	%	78		3,560		8.76	%	254				325.6	%	MSCR notes	345				10,123				13.63	%			221				9,500				8.76	%			124				56.1	%
Mortgage backed securities	Mortgage backed securities	951		37,297		10.20	%	92		6,426		5.73	%	859				933.7	%	Mortgage backed securities	985				37,297				10.56	%			368				26,455				5.73	%			617				167.7	%
Total interest income	Total interest income	$	17,299	$	1,116,224	6.20	%	$	16,394	$	1,108,853	6.36	%	$	905			5.5	%	Total interest income	$	18,014			$	1,116,224			6.46	%			$	14,893			$	1,121,426			6.36	%			$	3,121			21.0	%
Interest expense	Interest expense																			Interest expense
Master Repurchase agreements		$	(5,933)	$	(336,141)	7.06	%	$	(1,952)	$	(312,041)	2.50	%	$	(3,981)			203.9	%
Repurchase agreements																				Repurchase agreements	$	(6,013)			$	(336,141)			7.16	%			$	(3,362)			$	(340,438)			2.50	%			$	(2,651)			78.9	%
Long-term seller financing	Long-term seller financing	(3,759)		(682,515)		2.20	%	(3,832)		(695,883)		2.20	%	73				(1.9)	%	Long-term seller financing	(3,777)				(682,515)				2.21	%			(4,052)				(693,405)				2.20	%			275				(6.8)	%
Unsecured Notes	Unsecured Notes	(3,402)		(205,324)		6.63	%	(3,323)		(204,500)		6.50	%	(79)				2.4	%	Unsecured Notes	(3,407)				(205,324)				6.64	%			(3,268)				(203,500)				6.50	%			(139)				4.3	%
Total interest expense	Total interest expense	$	(13,094)	$	(1,223,980)	4.28	%	$	(9,107)	$	(1,212,424)	3.00	%	$	(3,987)			43.8	%	Total interest expense	$	(13,197)			$	(1,223,980)			4.31	%			$	(10,682)			$	(1,237,343)			3.00	%			$	(2,515)			23.5	%
Net interest income (3)	Net interest income (3)	$	4,205					$	7,287					$	(3,082)			(42.3)	%	Net interest income (3)	$	4,817											$	4,211											$	606			14.4	%

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

(2)Yield calculated on an annualized basis.

(3)Net interest income is calculated as the difference between total interest income and total interest expense.

Other Income (Loss)

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 4 to our consolidated financial statements for additional information.

Change in unrealized gain (loss) 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 7 to our consolidated financial statements for additional information.

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

Change in unrealized gain (loss) on MSCR notes. Includes unrealized gain (loss) based on changes in the fair value of our MSCR Notes. See Note 7 to our consolidated financial statements for additional information.

Change in unrealized gain on mortgage-backed securities. Includes unrealized gain (loss) based on changes in the fair value of our mortgage backed securities. See Note 7 to our consolidated financial statements for additional information.

Reversal of (provision for) credit losses, net. Reversal of (provision for) credit losses, net represents the change in our allowance for loan losses. See Note 2 to our consolidated financial statements for additional information.

Realized losses. Realized losses include the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized losses. 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.

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Revenues from consolidated real estate owned (Note 9)8). Reflects the total revenues for our multifamily property. Revenues include rental income from the multifamily property.

Equity in Income (Losses) of Equity Method Investments. Equity in earnings (losses) of unconsolidated ventures represents the change in our basis in equity method investments resulting from our share of the investments’ income and expenses. Profit and loss from equity method investments for which we’ve elected the fair value option are classified in divided income, change in unrealized gains and realized gains as applicable.

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

Operating Expenses

G&A expenses. G&A expenses include, but are not limited to, audit fees, legal fees, listing fees, Board fees, equity-based and other compensation 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 NexPoint Real Estate Finance, Inc. 2020 Long Term Incentive Plan (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, mezzanine loans and consolidated CMBS trusts. We classify the expenses related to the administration of the SFR Loans and mezzanine 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 variable interest entities (“VIEs”).

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

Expenses from consolidated real estate owned (Note 9)8). Reflects the total expenses for our multifamily properties. Expenses include interest, real estate taxes and insurance, operating, general and administrative, management fees, depreciation and amortization, rate cap (income) expense, and debt service bridge expenses of the multifamily properties.

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

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


		For the Three Months Ended June 30,				$ Change				% Change			For the Three Months Ended September 30,								$ Change			% Change
		2023		2022					2023					2022
Net interest income	Net interest income	$4,205		$7,287				$(3,082)					(42.3)		%	Net interest income	$4,817			$4,211			$606			14.4	%
Other income (loss)	Other income (loss)	9,370		7,464		1,906				25.5	%	Other income (loss)	(15,535)					(7,521)			(8,014)			106.6	%
Operating expenses	Operating expenses	(5,098)		(7,277)		2,179				(29.9)	%	Operating expenses	(6,332)					(6,053)			(279)			4.6	%
Net income	Net income	8,477		7,474		1,003				13.4	%	Net income	(17,050)					(9,363)			(7,687)			82.1	%
Net (income) attributable to preferred shareholders	Net (income) attributable to preferred shareholders	(874)		(882)		8				(0.9)	%	Net (income) attributable to preferred shareholders	(874)					(874)			N/A			N/A
Net (income) attributable to redeemable noncontrolling interests	Net (income) attributable to redeemable noncontrolling interests	(1,856)		(2,186)		330				(15.1)	%	Net (income) attributable to redeemable noncontrolling interests	2,374					1,889			485			25.7	%
Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries	Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries	—		(556)		556				N/A		Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries	—					(941)			941			(100.0)	%
Net income attributable to common stockholders		$	5,747	$	3,850	$	1,897			49.3	%
Net (loss) attributable to common stockholders												Net (loss) attributable to common stockholders	$	(15,550)				$	(9,289)		$	(6,261)		67.4	%

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The change in our net income for the three months ended ~~June~~September 30, 2023 as compared to the net income for the three months ended ~~June~~September 30, 2022 primarily relates to an increase in interest expense. Our net income attributable to common stockholders for the three months ended ~~June~~September 30, 2023 was approximately ~~$5.7~~$(15.6) million. We earned approximately ~~$4.2~~$4.8 million in net interest income, generated income of ~~$9.4~~$(15.5) million in other income, incurred operating expenses of ~~$5.1~~$6.3 million, allocated $0.9 million of income to preferred stockholders and allocated ~~$1.9~~$2.4 million of income to redeemable noncontrolling interests for the three months ended ~~June~~September 30, 2023.

Revenues

Net interest income. Net interest income was $4.8 million for the three months ended September 30, 2023, compared to $4.2 million for the three months ended ~~June~~September 30, 2022, which was an increase of approximately $0.6 million. The increase between the periods is primarily due to an increase of preferred equity investments in the portfolio compared to the prior period. As of September 30, 2023, we owned 89 discrete investments compared to ~~$7.3~~81 as of September 30, 2022.

Other income (loss). Other loss was $15.5 million for the three months ended ~~June~~September 30, 2023, compared to other loss of $7.5 million for the three months ended September 30, 2022, which was a decrease of approximately ~~$3.1~~$8.0 million. This was primarily due to an increase in unrealized losses on our common stock investments and an increase in our provision for credit losses compared to the prior period.

Expenses

G&A expenses. G&A expenses were $2.5 million for the three months ended September 30, 2023, compared to $1.7 million for the three months ended September 30, 2022, which was an increase of approximately $0.8 million. The increase between the periods was primarily due to an increase in accounting, auditing and legal fees compared to the prior period.

Loan servicing fees. Loan servicing fees were $1.0 million for the three months ended September 30, 2023, compared to $1.1 million for the three months ended September 30, 2022, which was a decrease of approximately $0.1 million. The decrease between the periods was primarily due to a decrease in SFR Loans and mezzanine loans in the portfolio compared to the prior period.

Management fees. Management fees were $0.8 million for the three months ended September 30, 2023, compared to $0.8 million for the three months ended September 30, 2022.

Expenses from consolidated real estate owned. Expenses from consolidated real estate owned were $1.9 million for the three months ended September 30, 2023, compared to $2.4 million for the three months ended September 30, 2022. The decrease is due to the deconsolidation of Elysian at Hughes Center.

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

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


	For the Nine Months Ended September 30,				$ Change		% Change
	2023		2022
Net interest income	$	12,971	$	33,813	$	(20,842)	(61.6)	%
Other income (loss)	4,784		1,757		3,027		172.3	%
Operating expenses	(16,950)		(19,390)		2,440		(12.6)	%
Net income	805		16,180		(15,375)		(95.0)	%
Net (income) attributable to preferred shareholders	(2,622)		(2,630)		8		(0.3)	%
Net (income) attributable to redeemable noncontrolling interests	(1,419)		(5,080)		3,661		(72.1)	%
Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries	—		(1,503)		1,503		(100.0)	%
Net income (loss) attributable to common stockholders	$	(3,236)	$	6,967	$	(10,203)	(146.4)	%

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The change in our net income for the nine months ended September 30, 2023 as compared to the net income for the nine months ended September 30, 2022 primarily relates to a decrease in prepayment penalty income and an increase in unrealized losses on our common stock investments. Our net loss attributable to common stockholders for the nine months ended September 30, 2023 was approximately $3.2 million. We earned approximately $13.0 million in net interest income, generated income of $4.8 million in other income, incurred operating expenses of $17.0 million, allocated $2.6 million of income to preferred stockholders and allocated $1.4 million of income to redeemable noncontrolling interests for the nine months ended September 30, 2023.

Revenues

Net interest income. Net interest incomewas $13.0 million for the nine months ended September 30, 2023, compared to $33.8 million for the nine months ended September 30, 2022, which was a decrease of approximately $20.8 million. The decrease between the periods is primarily due to ~~increased~~a decrease in prepayment penalty income related to early paydowns as well as an increase in interest ~~expense.~~costs on borrowings. As of ~~June~~September 30, 2023, we owned 8889 discrete investments compared to 7681 as of ~~June~~September 30, 2022.

Other income (loss). Other income was ~~$9.4~~$4.8 million for the ~~three~~nine months ended ~~June~~September 30, 2023, compared to other income of ~~$7.5~~$1.8 million for the ~~three~~nine months ended ~~June~~September 30, 2022, which was an increase of approximately ~~$1.9~~$3.0 million. This was primarily due to an increase in the change in net assets related to consolidated CMBS VIEs.

Expenses

G&A expenses. G&A expenses were ~~$2.4~~$7.1 million for the ~~three~~nine months ended ~~June~~September 30, 2023, compared to ~~$1.9~~$5.3 million for the ~~three~~nine months ended ~~June~~September 30, 2022, which was an increase of approximately ~~$0.5~~$1.5 million. The increase between the periods was primarily due to an increase in accounting, auditing and ~~auditing~~legal fees compared to the prior period.

Loan servicing fees. Loan servicing fees were ~~$1.1~~$3.2 million for the ~~three~~nine months ended ~~June~~September 30, 2023, compared to ~~$1.1~~$3.3 million for the ~~three~~nine months ended ~~June 30, 2022.~~

~~Management fees.~~ ~~Management fees were $0.8 million for the three months ended June 30, 2023, compared to $0.8 million for the three months ended June 30, 2022.~~

~~Expenses from consolidated real estate owned~~. Expenses from consolidated real estate owned were $0.8 million for the three months ended June 30, 2023, compared to $3.5 million for the three months ended June 30, 2022. The decrease is due to the deconsolidation of Elysian at Hughes Center.

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

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

For the Six Months Ended June 30, $ Change % Change
2023 2022
Net interest income $ 8,154 $ 29,602 $ (21,448) (72.5) %
Other income (loss) 20,319 9,278 11,041 119.0 %
Operating expenses (10,618) (13,337) 2,719 (20.4) %
Net income 17,855 25,543 (7,688) (30.1) %
Net (income) attributable to preferred shareholders (1,748) (1,756) 8 (0.5) %
Net (income) attributable to redeemable noncontrolling interests (3,793) (6,969) 3,176 (45.6) %
Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries — (562) 562 N/A
Net income attributable to common stockholders $ 12,314 $ 16,256 $ (3,942) (24.2) %

The change in our net income for the six months ended June 30, 2023 as compared to the net income for the six months ended June 30, 2022 primarily relates to a decrease in prepayment penalty income. Our net income attributable to common stockholders for the six months ended June 30, 2023 was approximately $12.3 million. We earned approximately $8.2 million in net interest income, generated income of $20.3 million in other income, incurred operating expenses of

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~~$10.6 million, allocated $1.7 million of income to preferred stockholders and allocated $3.8 million of income to redeemable noncontrolling interests for the six months ended June 30, 2023.~~

~~Revenues~~

~~Net interest income.~~ ~~Net interest income~~was $8.2 million for the six months ended June 30, 2023, compared to $29.6 million for the six months ended June 30, 2022, which was a decrease of approximately $21.4 million. The decrease between the periods is primarily due to a decrease in prepayment penalty income related to early paydowns. As of June 30, 2023, we owned 88 discrete investments compared to 76 as of June 30, 2022.

~~Other income (loss).~~ Other income was $20.3 million for the six months ended June 30, 2023, compared to other income of $9.3 million for the six months ended June 30, 2022, which was an increase of approximately $11.0 million. This was primarily due to an increase in the change in net assets related to consolidated CMBS VIEs.

~~Expenses~~

~~G&A expenses.~~ G&A expenses were $4.5 million for the six months ended June 30, 2023, compared to $3.6 million for the six months ended June 30, 2022, which was an increase of approximately $0.9 million. The increase between the periods was primarily due to an increase in accounting and auditing fees compared to the prior period.

~~Loan servicing fees.~~ ~~Loan servicing fees were $2.1 million for the six months ended June 30, 2023, compared to $2.2 million for the six months ended June~~September 30, 2022, which was a decrease of approximately $0.1 million. The decrease between the periods was primarily due to a decrease in SFR Loans in the portfolio compared to the prior period.

Management fees. Management fees were ~~$1.7~~$2.5 million for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~$1.5~~$2.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022, which was an increase of approximately ~~$0.1~~$0.2 million. The increase between the periods was primarily due to an increase in equity as defined by the Management Agreement.

Expenses from consolidated real estate owned. Expenses from consolidated real estate owned were ~~$2.3~~$4.3 million for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~$6.0 million~~$8.4 for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease is due to the deconsolidation of Elysian at Hughes Center.

Key Financial Measures and Indicators

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

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Earnings Per Share and Dividends Declared

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):

For the Three Months Ended June 30, % Change For the Six Months Ended June 30, % Change
2023 2022 2023 2022
Net income attributable to common stockholders $ 5,747 $ 3,850 49.3 % $ 12,314 $ 16,256 (24.2) %
Net income attributable to redeemable noncontrolling interests 1,856 2,186 (15.1) % 3,793 6,969 (45.6) %

Weighted-average number of shares of common stock outstanding
Basic 17,213 14,748 16.7 % 17,166 14,304 20.0 %
Diluted 23,080 22,494 2.6 % 22,880 22,263 2.8 %
Net income per share, basic $ 0.33 $ 0.26 27.9 % $ 0.72 $ 1.14 (36.9) %
Net income per share, diluted $ 0.33 $ 0.26 26.7 % $ 0.70 $ 1.04 (32.7) %
Dividends declared per share $ 0.6850 $ 0.5000 37.0 % $ 1.3700 $ 1.0000 37.0 %

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	For the Three Months Ended September 30,				% Change		For the Nine Months Ended September 30,				% Change
	2023		2022				2023		2022
Net income attributable to common stockholders	$	(15,550)	$	(9,289)	67.4	%	$	(3,236)	$	6,967	(146.4)	%
Net income attributable to redeemable noncontrolling interests	(2,374)		(1,889)		25.7	%	1,419		5,080		(72.1)	%

Weighted-average number of shares of common stock outstanding
Basic	17,232		14,962		15.2	%	17,188		14,526		18.3	%
Diluted	23,086		22,678		1.8	%	22,950		22,402		2.4	%
Net income per share, basic	$	(0.90)	$	(0.62)	45.4	%	$	(0.19)	$	0.48	(139.3)	%
Net income per share, diluted	$	(0.90)	$	(0.62)	45.2	%	$	(0.19)	$	0.48	(139.6)	%
Dividends declared per share	$	0.6850	$	0.5000	37.0	%	$	2.0550	$	1.5000	37.0	%

Earnings Available for Distribution and Cash Available for Distribution

EAD is a non-GAAP financial measure. ~~EAD has replaced our prior presentation of Core Earnings. In addition, Core Earnings results from prior reporting periods have been relabeled EAD. In line with evolving industry practices, we~~We believe EAD ~~more accurately reflects the principal purpose of the measure than the term Core Earnings and will serve~~serves as a useful indicator for investors in evaluating our performance and our long-term ability to pay distributions. EAD 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. Net income (loss) attributable to common stockholders may also be adjusted for the effects of certain GAAP adjustments and transactions that may not be indicative of our current operations.

We use EAD 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 to assess our long-term ability to pay distributions. We believe providing EAD as a supplement to GAAP net income (loss) to our investors is helpful to their assessment of our performance and our long term ability to pay distributions. EAD 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. Our computation of EAD may not be comparable to EAD reported by other REITs.

We also use EAD 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 the closing of our IPO, plus (2) the net proceeds received by us from all issuances of our equity securities in and after the IPO, plus (3) our cumulative EAD from and after the IPO to the end of the most recently completed calendar quarter, (b) less (1) any distributions to our 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 of our 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 EAD to 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 EAD. Additionally, for the avoidance of doubt, Equity does not include the assets contributed to us in the Formation Transaction. For the purpose of calculating EAD for the management fee, net income (loss) attributable to common stockholders may be adjusted for the effects of certain GAAP adjustments and transactions that may not be indicative of our current operations, in each case after discussions between the Manager and the independent directors of our Board and approved by a majority of the independent directors of our Board.

CAD is a non-GAAP financial measure. We calculate CAD by adjusting EAD by adding back amortization of premiums, depreciation and amortization of real estate investment, amortization of deferred financing costs and by

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removing accretion of discounts and non-cash items, such as stock dividends. We use CAD to evaluate our performance and our current ability to pay distributions. We also believe that providing CAD as a supplement to GAAP net income (loss) to our investors is helpful to their assessment of our performance and our current ability to pay distributions. 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. Our computation of CAD may not be comparable to CAD reported by other REITs.

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The following table provides a reconciliation of EAD and CAD to GAAP net income (loss) attributable to common stockholders for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (in thousands, except per share amounts):


		For the Three Months Ended June 30,				% Change				For the Six Months Ended June 30,									% Change			For the Three Months Ended September 30,									% Change			For the Nine Months Ended September 30,					% Change
		2023		2022				2023				2022						2023					2022						2023					2022
Net income attributable to common stockholders	Net income attributable to common stockholders	$	5,747	$	3,850			49.3	%			$	12,314			$	16,256					(24.2)		%	Net income attributable to common stockholders	$	(15,550)			$		(9,289)		67.4		%	$	(3,236)	$	6,967		(146.4)	%
Adjustments	Adjustments																				Adjustments
Amortization of stock-based compensation	Amortization of stock-based compensation	1,262		871		44.9	%			2,109				1,544					36.6	%	Amortization of stock-based compensation	1,285					870				47.7		%	3,394			2,414		40.6		%
Provision for (reversal of) credit losses, net		(6)		—		N/A				(33)				—					N/A
Unrealized (gains) or losses (1)		1,424		3,302		(56.9)	%			3,563				9,814					(63.7)	%
Provision for (reversal of) credit losses																					Provision for (reversal of) credit losses	5,235					—				N/A			5,202			—		N/A
Equity in income (losses) of equity method investments (1)																					Equity in income (losses) of equity method investments (1)	1,397					—				N/A			2,139			—		N/A
Unrealized (gains) or losses (2)																					Unrealized (gains) or losses (2)	15,438					14,054				(9.8)		%	19,001			23,868		(20.4)		%
EAD attributable to common stockholders	EAD attributable to common stockholders	$	8,427	$	8,023	5.0	%			$	17,953			$	27,614				(35.0)	%	EAD attributable to common stockholders	$	7,805				$	5,635			38.5		%	$	26,499		$	33,249	(20.3)		%

EAD per Diluted Weighted-Average Share	EAD per Diluted Weighted-Average Share	$	0.47	$	0.52	(9.6)	%			$	1.01			$	1.86				(45.7)	%	EAD per Diluted Weighted-Average Share	$	0.43				$	0.36			19.3		%	$	1.48		$	2.20	(32.7)		%

Adjustments	Adjustments																				Adjustments
Amortization of premiums	Amortization of premiums	$	3,175	$	2,945	7.8	%			$	6,120			$	10,490				(41.7)	%	Amortization of premiums	$	2,944				$	2,617			12.5		%	$	9,064		$	13,108	(30.8)		%
Accretion of discounts	Accretion of discounts	(2,980)		(2,479)		20.2	%			(5,899)				(4,788)					23.2	%	Accretion of discounts	(2,534)					(2,688)				5.7		%	(8,433)			(7,476)		12.8		%
Depreciation and amortization of real estate investment	Depreciation and amortization of real estate investment	399		723		(44.8)	%			796				1,442					(44.8)	%	Depreciation and amortization of real estate investment	397					417				4.8		%	1,193			1,859		(35.8)		%
Amortization of deferred financing costs	Amortization of deferred financing costs	9		9		—	%			18				18					—	%	Amortization of deferred financing costs	(21)					9				337.1		%	(3)			27		(112.4)		%
CAD attributable to common stockholders	CAD attributable to common stockholders	$	9,030	$	9,221	(2.1)	%			$	18,988			$	34,776				(45.4)	%	CAD attributable to common stockholders	$	8,591				$	5,990			43.4		%	$	28,320		$	40,767	(30.5)		%

CAD per Diluted Weighted-Average Share	CAD per Diluted Weighted-Average Share	$	0.50	$	0.60	(16.7)	%			$	1.06			$	2.34				(54.7)	%	CAD per Diluted Weighted-Average Share	$	0.48				$	0.39			23.5		%	$	1.58		$	2.70	(41.5)		%

Weighted-average common shares outstanding - basic	Weighted-average common shares outstanding - basic	17,213		14,748		16.7	%			17,166				14,304					20.0	%	Weighted-average common shares outstanding - basic	17,232					14,962				15.2		%	17,188			14,526		18.3		%
Weighted-average common shares outstanding - diluted (2)		18,042		15,356		17.5	%			17,842				14,870					20.0	%
Weighted-average common shares outstanding - diluted (3)																					Weighted-average common shares outstanding - diluted (3)	18,048					15,540				16.1		%	17,911			15,095		18.7		%

(1)Starting in the third quarter of 2023, we are adjusting EAD to remove the (income) / loss from equity method investments as it does not represent distributable earnings. We will include income from equity method investments to the extent that we receive cash distributions and upon realizing gains and/or losses.

(2)Unrealized gains are the net change in unrealized loss on investments held at fair value applicable to common stockholders.

~~(2)~~(3)Weighted-average diluted shares outstanding does not include dilutive effect of redeemable non-controlling interests.

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The following table provides a reconciliation of EAD and CAD to GAAP net income including the dilutive effect of non-controlling interests for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (in thousands, except per share amounts):


		For the Three Months Ended June 30,				% Change				For the Six Months Ended June 30,									% Change			For the Three Months Ended September 30,						% Change				For the Nine Months Ended September 30,				% Change
		2023		2022				2023				2022						2023					2022				2023					2022
Net income attributable to common stockholders		$	5,747	$	3,850			49.3	%			$	12,314			$	16,256					(24.2)		%
Net income (loss) attributable to common stockholders																					Net income (loss) attributable to common stockholders	(15,550)			(9,289)				67.4		%		(3,236)		6,967		(146.4)		%
Net income attributable to redeemable noncontrolling interests	Net income attributable to redeemable noncontrolling interests	1,856		2,186		(15.1)	%			3,793				6,969					(45.6)	%	Net income attributable to redeemable noncontrolling interests	(2,374)			(1,889)			25.7		%		1,419		(2,630)		(154.0)		%

Adjustments	Adjustments																				Adjustments
Amortization of stock-based compensation	Amortization of stock-based compensation	1,262		871		44.9	%			2,109				1,544					36.6	%	Amortization of stock-based compensation	1,285			870			47.7		%		3,394		2,414		40.6		%
Provision for (reversal of) credit losses, net		(6)		—		N/A				(40)				—					N/A
Provision for (reversal of) credit losses																					Provision for (reversal of) credit losses	6,276			—			N/A				6,236		—		N/A
Equity in income (losses) of equity method investments (1)																					Equity in income (losses) of equity method investments (1)	1,675			—			N/A				2,564		—		N/A
Unrealized (gains) or losses ~~(1)~~(2)	Unrealized (gains) or losses ~~(1)~~(2)	1,708		4,184		(59.2)	%			4,272				12,729					(66.4)	%	Unrealized (gains) or losses ~~(1)~~(2)	18,508			19,473			(5.0)		%		22,780		32,202		29.3		%
EAD	EAD	$	10,567	$	11,091	(4.7)	%			$	22,448			$	37,498				(40.1)	%	EAD	$	9,820		$	9,165		7.1		%		$	33,157	$	38,953	(14.9)		%

EAD per Diluted Weighted-Average Share	EAD per Diluted Weighted-Average Share	$	0.46	$	0.49	(6.1)	%			$	0.98			$	1.68				(41.7)	%	EAD per Diluted Weighted-Average Share	$	0.43		$	0.40		7.5		%		$	1.44	$	1.74	(17.2)		%

Adjustments	Adjustments																				Adjustments
Amortization of premiums	Amortization of premiums	$	3,806	$	3,854	(1.2)	%			$	7,337			$	13,754				(46.7)	%	Amortization of premiums	$	3,530		$	3,425		3.1		%		$	10,867	$	17,179	(36.7)		%
Accretion of discounts	Accretion of discounts	(3,572)		(3,244)		10.1	%			(7,072)				(6,274)					12.7	%	Accretion of discounts	(3,038)			(3,517)			(13.6)		%		(10,110)		(9,791)		(3.3)		%
Depreciation and amortization of real estate investment	Depreciation and amortization of real estate investment	478		946		(49.5)	%			954				1,890					(49.5)	%	Depreciation and amortization of real estate investment	476			545			(12.7)		%		1,430		2,435		41.3		%
Amortization of deferred financing costs	Amortization of deferred financing costs	11		12		(8.3)	%			22				24					(8.3)	%	Amortization of deferred financing costs	(26)			12			(316.7)		%		(4)		36		111.1		%
CAD	CAD	$	11,290	$	12,659	(10.8)	%			$	23,689			$	46,892				(49.5)	%	CAD	$	10,762		$	9,630		11.8		%		$	35,340	$	48,812	(27.6)		%

CAD per Diluted Weighted-Average Share	CAD per Diluted Weighted-Average Share	$	0.49	$	0.56	(12.5)	%			$	1.04			$	2.11				(50.7)	%	CAD per Diluted Weighted-Average Share	$	0.47		$	0.42		11.9		%		$	1.54	$	2.18	(29.4)		%

Weighted-average common shares outstanding - basic	Weighted-average common shares outstanding - basic	17,213		14,748		16.7	%			17,166				14,304					20.0	%	Weighted-average common shares outstanding - basic	17,232			14,962			15.2		%		17,188		14,526		18.3		%
Weighted-average common shares outstanding - diluted	Weighted-average common shares outstanding - diluted	23,080		22,494		2.6	%			22,880				22,263					2.8	%	Weighted-average common shares outstanding - diluted	23,086			22,678			1.8		%		22,950		22,402		2.4		%

(2)Unrealized gains are the net change in unrealized loss on investments held at fair value.

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Book Value per Share / Unit

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

June 30, 2023 December 31, 2022
Common stockholders' equity $ 334,038 $ 346,474
Shares of common stock outstanding at period end 17,232 17,080
Book value per share of common stock $ 19.38 $ 20.29

~~Table of Contents~~


	September 30, 2023		December 31, 2022
Common stockholders' equity	$	307,410	$	346,474
Shares of common stock outstanding at period end	17,232		17,080
Book value per share of common stock	$	17.84	$	20.29

Due to the large noncontrolling interest in the OP (see Note 1413 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 thousands, except per share data):


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Common stockholders' equity	Common stockholders' equity	$	334,038	$	346,474	Common stockholders' equity	$	307,410	$	346,474
Redeemable noncontrolling interests in the OP	Redeemable noncontrolling interests in the OP	94,545		96,501		Redeemable noncontrolling interests in the OP	89,148		96,501
Total equity	Total equity	$	428,583	$	442,975	Total equity	$	396,558	$	442,975

Redeemable OP Units at period end	Redeemable OP Units at period end	5,038		5,038		Redeemable OP Units at period end	5,038		5,038
Shares of common stock outstanding at period end	Shares of common stock outstanding at period end	17,232		17,080		Shares of common stock outstanding at period end	17,232		17,080
Combined shares of common stock and redeemable OP Units	Combined shares of common stock and redeemable OP Units	22,270		22,118		Combined shares of common stock and redeemable OP Units	22,270		22,118
Combined book value per share / unit	Combined book value per share / unit	$	19.24	$	20.03	Combined book value per share / unit	$	17.81	$	20.03

Our Portfolio

Our portfolio consists of SFR Loans, CMBS B-Pieces, CMBS I/O Strips, mezzanine loans, preferred equity investments, common equity investments, a multifamily property, MSCR Notes and mortgage backed securities with a combined unpaid principal balance of $2.0 billion as of ~~June~~September 30, 2023 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~~September 30, 2023 (dollars in thousands):


		Investment (1)	Investment Date	Current Principal Amount			Net Equity (2)		Location	Property Type	Coupon		Current Yield (3)		Remaining Term (4) (years)		Investment (1)	Investment Date	Current Principal Amount			Net Equity (2)		Location	Property Type	Coupon		Current Yield (3)		Remaining Term (4) (years)
		SFR Loans															SFR Loans
1	1	Senior loan	2/11/2020	$	508,700		$	70,903	Various	Single-family	4.65	%	4.41	%	5.18	1	Senior loan	2/11/2020	$	508,700		$	69,689	Various	Single-family	4.65	%	4.42	%	4.93
2	2	Senior loan	2/11/2020	10,049			1,503		Various	Single-family	5.35	%	5.25	%	4.59	2	Senior loan	2/11/2020	9,832			1,462		Various	Single-family	5.35	%	5.25	%	4.34
3	3	Senior loan	2/11/2020	10,090			1,415		Various	Single-family	5.30	%	5.03	%	5.18	3	Senior loan	2/11/2020	10,045			1,386		Various	Single-family	5.30	%	5.04	%	4.93
4	4	Senior loan	2/11/2020	5,410			754		Various	Single-family	5.24	%	4.95	%	5.26	4	Senior loan	2/11/2020	5,386			737		Various	Single-family	5.24	%	4.96	%	5.01
5	5	Senior loan	2/11/2020	51,304			6,651		Various	Single-family	4.74	%	4.61	%	2.26	5	Senior loan	2/11/2020	51,304			6,502		Various	Single-family	4.74	%	4.62	%	2.01
6	6	Senior loan	2/11/2020	9,494			1,311		Various	Single-family	6.10	%	5.73	%	5.26	6	Senior loan	2/11/2020	9,494			1,286		Various	Single-family	6.10	%	5.74	%	5.01
7	7	Senior loan	2/11/2020	36,465			4,913		Various	Single-family	5.55	%	5.17	%	5.35	7	Senior loan	2/11/2020	36,319			4,782		Various	Single-family	5.55	%	5.18	%	5.09
8	8	Senior loan	2/11/2020	5,760			797		Various	Single-family	5.99	%	5.62	%	5.43	8	Senior loan	2/11/2020	5,645			766		Various	Single-family	5.99	%	5.63	%	5.18
9	9	Senior loan	2/11/2020	8,710			1,246		Various	Single-family	5.88	%	5.57	%	5.51	9	Senior loan	2/11/2020	8,676			1,223		Various	Single-family	5.88	%	5.58	%	5.26
10	10	Senior loan	2/11/2020	6,249			831		Various	Single-family	4.83	%	4.80	%	0.59	10	Senior loan	2/11/2020	6,218			810		Various	Single-family	4.83	%	4.81	%	0.34
11	11	Senior loan	2/11/2020	7,417			1,067		Various	Single-family	5.34	%	5.09	%	5.60	11	Senior loan	2/11/2020	7,200			1,022		Various	Single-family	5.34	%	5.10	%	5.35
12	12	Senior loan	2/11/2020	6,528			943		Various	Single-family	5.46	%	5.21	%	5.67	12	Senior loan	2/11/2020	6,501			927		Various	Single-family	5.46	%	5.22	%	5.42
13	13	Senior loan	2/11/2020	10,522			1,470		Various	Single-family	4.72	%	4.62	%	2.67	13	Senior loan	2/11/2020	10,523			1,450		Various	Single-family	4.72	%	4.63	%	2.42
		Total		676,698			93,804				4.80	%	4.56	%	4.89		Total		675,843			92,042				4.79	%	4.57	%	4.64

		CMBS B-Piece															CMBS B-Piece
1	1	CMBS B-Piece	2/11/2020	22,667		(5)	7,601		Various	Multifamily	9.98	%	9.99	%	2.66	1	CMBS B-Piece	2/11/2020	22,624		(5)	8,032		Various	Multifamily	9.76	%	9.77	%	2.41
2		CMBS B-Piece	2/11/2020	28,581		(5)	10,292		Various	Multifamily	11.06	%	11.05	%	3.41
3		CMBS B-Piece	4/23/2020	81,999		(5)	24,576		Various	Multifamily	3.62	%	5.43	%	6.66
4		CMBS B-Piece	7/30/2020	16,943		(5)	4,752		Various	Multifamily	14.06	%	14.06	%	3.99
5		CMBS B-Piece	8/6/2020	108,643		(5)	20,316		Various	Multifamily	0.00	%	9.08	%	6.99
6		CMBS B-Piece	4/20/2021	33,975		(5)	11,497		Various	Multifamily	11.07	%	11.07	%	7.66
7		CMBS B-Piece	6/30/2021	108,305		(5)	27,755		Various	Multifamily	0.00	%	9.78	%	3.51
8		CMBS B-Piece	12/9/2021	45,412		(5)	16,023		Various	Multifamily	10.07	%	10.07	%	1.32
9		CMBS B-Piece	5/2/2022	34,094		(5)	10,442		Various	Multifamily	4.36	%	4.69	%	15.42
10		CMBS B-Piece	7/28/2022	68,484		(5)	24,674		Various	Multifamily	10.07	%	10.07	%	6.07
		Total		549,103			157,928				5.01	%	9.02	%	5.78

5249

Table of Contents


2															2	CMBS B-Piece	2/11/2020		28,581	(5)	10,292	Various	Multifamily	10.92	%	10.91	%	3.16
3															3	CMBS B-Piece	4/23/2020		81,999	(5)	23,543	Various	Multifamily	3.62	%	5.36	%	6.41
4															4	CMBS B-Piece	7/30/2020		16,906	(5)	5,747	Various	Multifamily	14.22	%	14.22	%	3.74
5															5	CMBS B-Piece	8/6/2020		108,643	(5)	20,826	Various	Multifamily	0.00	%	9.28	%	6.74
6															6	CMBS B-Piece	4/20/2021		29,306	(5)	9,990	Various	Multifamily	11.35	%	11.35	%	7.41
7															7	CMBS B-Piece	6/30/2021		108,305	(5)	26,800	Various	Multifamily	0.00	%	10.38	%	3.25
8															8	CMBS B-Piece	5/2/2022		33,327	(5)	9,982	Various	Multifamily	4.35	%	4.68	%	15.16
9															9	CMBS B-Piece	7/28/2022		63,399	(5)	22,706	Various	Multifamily	10.35	%	10.35	%	5.82
																Total			493,090		137,918			4.47	%	9.11	%	5.90

		CMBS I/O Strips														CMBS I/O Strip
1	1	CMBS I/O Strip	5/18/2020		17,590	(6)	501	Various	Multifamily	2.09	%	15.11	%	23.25	1	CMBS I/O Strip	5/18/2020		17,590	(6)	438	Various	Multifamily	2.09	%	15.13	%	23.00
2	2	CMBS I/O Strip	8/6/2020		108,643	(6)	5,157	Various	Multifamily	3.08	%	17.48	%	6.99	2	CMBS I/O Strip	8/6/2020		108,643	(6)	5,005	Various	Multifamily	3.08	%	18.00	%	6.74
3	3	CMBS I/O Strip	4/28/2021	(7)	64,662	(6)	1,322	Various	Multifamily	1.71	%	17.77	%	6.58	3	CMBS I/O Strip	4/28/2021	(7)	64,609	(6)	1,054	Various	Multifamily	1.71	%	18.36	%	6.33
4	4	CMBS I/O Strip	5/27/2021		20,000	(6)	1,036	Various	Multifamily	3.50	%	17.23	%	6.91	4	CMBS I/O Strip	5/27/2021		20,000	(6)	1,031	Various	Multifamily	3.50	%	17.77	%	6.65
5	5	CMBS I/O Strip	6/7/2021		4,266	(6)	113	Various	Multifamily	2.39	%	21.17	%	5.41	5	CMBS I/O Strip	6/7/2021		4,266	(6)	113	Various	Multifamily	2.39	%	22.06	%	5.16
6	6	CMBS I/O Strip	6/11/2021	(8)	113,084	(6)	1,827	Various	Multifamily	1.33	%	16.02	%	5.91	6	CMBS I/O Strip	6/11/2021	(8)	109,072	(6)	2,042	Various	Multifamily	1.32	%	16.11	%	5.65
7	7	CMBS I/O Strip	6/24/2021		25,995	(6)	312	Various	Multifamily	1.29	%	19.21	%	6.91	7	CMBS I/O Strip	6/24/2021		25,630	(6)	235	Various	Multifamily	1.28	%	19.34	%	6.65
8	8	CMBS I/O Strip	8/10/2021		25,000	(6)	577	Various	Multifamily	1.96	%	17.47	%	6.82	8	CMBS I/O Strip	8/10/2021		25,000	(6)	542	Various	Multifamily	1.96	%	18.03	%	6.57
9	9	CMBS I/O Strip	8/11/2021		6,942	(6)	399	Various	Multifamily	3.20	%	14.91	%	8.07	9	CMBS I/O Strip	8/11/2021		6,942	(6)	350	Various	Multifamily	3.20	%	15.30	%	7.82
10	10	CMBS I/O Strip	8/24/2021		1,625	(6)	237	Various	Multifamily	2.70	%	15.76	%	7.58	10	CMBS I/O Strip	8/24/2021		1,625	(6)	227	Various	Multifamily	2.70	%	16.21	%	7.33
11	11	CMBS I/O Strip	9/1/2021		34,625	(6)	3,521	Various	Multifamily	2.04	%	16.94	%	6.99	11	CMBS I/O Strip	9/1/2021		34,625	(6)	3,400	Various	Multifamily	2.04	%	17.47	%	6.74
12	12	CMBS I/O Strip	9/11/2021		20,902	(6)	3,656	Various	Multifamily	3.05	%	14.87	%	8.24	12	CMBS I/O Strip	9/11/2021		20,902	(6)	3,518	Various	Multifamily	3.05	%	15.24	%	7.99
		Total			443,334		18,658			2.16	%	16.97	%	7.34		Total			438,904		17,955			2.16	%	17.35	%	7.11

		Mezzanine Loan														Mezzanine
1	1	Mezzanine	6/12/2020		7,500		7,500	Houston, TX	Multifamily	11.00	%	11.00	%	1.01	1	Mezzanine	6/12/2020		7,500		7,500	Houston, TX	Multifamily	11.00	%	11.00	%	0.75
2	2	Mezzanine	10/20/2020		5,470		2,258	Wilmington, DE	Multifamily	7.50	%	7.32	%	5.84	2	Mezzanine	10/20/2020		5,470		2,253	Wilmington, DE	Multifamily	7.50	%	7.32	%	5.59
3	3	Mezzanine	10/20/2020		10,380		4,308	White Marsh, MD	Multifamily	7.42	%	7.23	%	8.01	3	Mezzanine	10/20/2020		10,380		4,301	White Marsh, MD	Multifamily	7.42	%	7.23	%	7.76
4	4	Mezzanine	10/20/2020		14,253		5,905	Philadelphia, PA	Multifamily	7.59	%	7.40	%	5.93	4	Mezzanine	10/20/2020		14,253		5,892	Philadelphia, PA	Multifamily	7.59	%	7.40	%	5.67
5	5	Mezzanine	10/20/2020		3,700		1,525	Daytona Beach, FL	Multifamily	7.83	%	7.65	%	5.26	5	Mezzanine	10/20/2020		3,700		1,521	Daytona Beach, FL	Multifamily	7.83	%	7.65	%	5.01
6	6	Mezzanine	10/20/2020		12,000		4,978	Laurel, MD	Multifamily	7.71	%	7.51	%	7.76	6	Mezzanine	10/20/2020		12,000		4,971	Laurel, MD	Multifamily	7.71	%	7.51	%	7.51
7	7	Mezzanine	10/20/2020		3,000		1,245	Temple Hills, MD	Multifamily	7.32	%	7.13	%	8.09	7	Mezzanine	10/20/2020		3,000		1,243	Temple Hills, MD	Multifamily	7.32	%	7.13	%	7.84
8	8	Mezzanine	10/20/2020		1,500		622	Temple Hills, MD	Multifamily	7.22	%	7.03	%	8.09	8	Mezzanine	10/20/2020		1,500		622	Temple Hills, MD	Multifamily	7.22	%	7.03	%	7.84
9	9	Mezzanine	10/20/2020		5,540		2,287	Lakewood, NJ	Multifamily	7.33	%	7.15	%	5.84	9	Mezzanine	10/20/2020		5,540		2,282	Lakewood, NJ	Multifamily	7.33	%	7.16	%	5.59
10	10	Mezzanine	10/20/2020		6,829		2,816	Rosedale, MD	Multifamily	7.53	%	7.35	%	5.51	10	Mezzanine	10/20/2020		6,829		2,810	Rosedale, MD	Multifamily	7.53	%	7.36	%	5.26
11	11	Mezzanine	10/20/2020		3,620		1,502	North Aurora, IL	Multifamily	7.42	%	7.23	%	8.01	11	Mezzanine	10/20/2020		3,620		1,500	North Aurora, IL	Multifamily	7.42	%	7.23	%	7.76
12	12	Mezzanine	10/20/2020		9,610		3,988	Cockeysville, MD	Multifamily	7.42	%	7.23	%	8.01	12	Mezzanine	10/20/2020		9,610		3,982	Cockeysville, MD	Multifamily	7.42	%	7.23	%	7.76
13	13	Mezzanine	10/20/2020		7,390		3,067	Laurel, MD	Multifamily	7.42	%	7.23	%	8.01	13	Mezzanine	10/20/2020		7,390		3,062	Laurel, MD	Multifamily	7.42	%	7.23	%	7.76
14	14	Mezzanine	10/20/2020		2,135		880	Tyler, TX	Multifamily	7.74	%	7.56	%	5.26	14	Mezzanine	10/20/2020		2,135		878	Tyler, TX	Multifamily	7.74	%	7.56	%	5.01
15	15	Mezzanine	10/20/2020		1,190		491	Las Vegas, NV	Multifamily	7.71	%	7.52	%	5.67	15	Mezzanine	10/20/2020		1,190		490	Las Vegas, NV	Multifamily	7.71	%	7.53	%	5.42
16	16	Mezzanine	10/20/2020		3,310		1,366	Atlanta, GA	Multifamily	6.91	%	6.74	%	6.01	16	Mezzanine	10/20/2020		3,310		1,364	Atlanta, GA	Multifamily	6.91	%	6.75	%	5.76
17	17	Mezzanine	10/20/2020		2,880		1,187	Des Moines, IA	Multifamily	7.89	%	7.70	%	5.35	17	Mezzanine	10/20/2020		2,880		1,185	Des Moines, IA	Multifamily	7.89	%	7.71	%	5.09
18	18	Mezzanine	10/20/2020		4,010		1,653	Urbandale, IA	Multifamily	7.89	%	7.70	%	5.35	18	Mezzanine	10/20/2020		4,010		1,649	Urbandale, IA	Multifamily	7.89	%	7.71	%	5.09
19	19	Mezzanine	11/18/2021		12,600		12,498	Irving, TX	Multifamily	16.00	%	16.13	%	5.43	19	Mezzanine	11/18/2021		12,600		12,502	Irving, TX	Multifamily	16.27	%	16.40	%	5.18
20	20	Mezzanine	12/29/2021		7,760		7,709	Rogers, AR	Multifamily	16.00	%	16.11	%	1.53	20	Mezzanine	12/29/2021		7,760		7,709	Rogers, AR	Multifamily	16.27	%	16.38	%	1.28
21	21	Mezzanine	6/9/2022		4,500		4,470	Rogers, AR	Multifamily	15.75	%	15.86	%	1.95	21	Mezzanine	6/9/2022		4,500		4,473	Rogers, AR	Multifamily	16.01	%	16.11	%	1.69
22	22	Mezzanine	10/5/2022	(9)	4,030		3,994	Kirkland, WA	Multifamily	15.75	%	15.89	%	4.51	22	Mezzanine	10/5/2022	(9)	4,030		3,996	Kirkland, WA	Multifamily	16.01	%	16.15	%	4.26
		Total			133,207		76,249			9.54	%	9.43	%	5.80		Total			133,207		76,185			9.60	%	9.49	%	5.55

		Preferred Equity														Preferred Equity
1	1	Preferred Equity	5/29/2020	(10)	11,394		11,394	Houston, TX	Multifamily	11.00	%	11.00	%	6.84	1	Preferred Equity	5/29/2020	(10)	11,698		11,698	Houston, TX	Multifamily	11.00	%	11.00	%	6.59
2	2	Preferred Equity	9/29/2021		9,040		9,033	Holly Springs, NC	Life Science	10.00	%	10.01	%	0.25	2	Preferred Equity	9/29/2021		9,268		9,252	Holly Springs, NC	Life Science	10.00	%	10.02	%	1.00
3		Preferred Equity	10/26/2021		9,750		9,703	Atlanta, GA	Multifamily	11.00	%	11.05	%	1.36
4		Preferred Equity	12/28/2021	(11)	18,359		18,359	Las Vegas, NV	Multifamily	10.50	%	10.50	%	8.68
5		Preferred Equity	1/14/2022		22,242		22,237	Vacaville, CA	Life Science	10.00	%	10.00	%	0.25
6		Preferred Equity	4/7/2022	(12)	4,000		3,965	Beaumont, TX	Self-Storage	15.03	%	15.16	%	7.18
7		Preferred Equity	6/8/2022		4,000		3,964	Temple, TX	Self-Storage	14.31	%	14.44	%	7.18
8		Preferred Equity	7/1/2022	(13)	9,000		8,926	Medley, FL	Self-Storage	11.00	%	11.09	%	4.01
9		Preferred Equity	8/10/2022		8,500		8,436	Plano, TX	Multifamily	15.84	%	15.96	%	2.20
10		Preferred Equity	9/30/2022		9,000		8,928	Fort Worth, TX	Multifamily	14.75	%	14.87	%	2.26

5350

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3														3	Preferred Equity	10/26/2021		9,750	9,712	Atlanta, GA	Multifamily	11.00	%	11.04	%	1.10
4														4	Preferred Equity	12/28/2021	(11)	14,823	14,823	Las Vegas, NV	Multifamily	10.50	%	10.50	%	8.42
5														5	Preferred Equity	1/14/2022		22,802	22,805	Vacaville, CA	Life Science	10.00	%	10.00	%	1.00
6														6	Preferred Equity	4/7/2022	(12)	4,000	3,966	Beaumont, TX	Self-Storage	15.27	%	15.40	%	6.93
7														7	Preferred Equity	6/8/2022		4,000	3,966	Temple, TX	Self-Storage	14.55	%	14.68	%	6.93
8														8	Preferred Equity	7/1/2022	(13)	9,000	8,930	Medley, FL	Self-Storage	11.00	%	11.09	%	3.75
9														9	Preferred Equity	8/10/2022		8,500	8,443	Plano, TX	Multifamily	16.10	%	16.21	%	1.95
10														10	Preferred Equity	9/30/2022		9,000	8,936	Fort Worth, TX	Multifamily	15.01	%	15.12	%	2.01
11	11	Preferred Equity	10/19/2022		15,000	14,975	Woodbury, MN	Life Science	10.00	%	10.02	%	0.25	11	Preferred Equity	10/19/2022		18,174	18,184	Woodbury, MN	Life Science	10.00	%	9.99	%	1.00
12	12	Preferred Equity	2/10/2023		14,000	13,883	Forney, TX	Multifamily	11.00	%	11.09	%	1.62	12	Preferred Equity	2/10/2023		20,900	20,769	Forney, TX	Multifamily	11.00	%	11.07	%	1.37
13	13	Preferred Equity	2/24/2023		11,200	11,108	Richmond, VA	Multifamily	11.00	%	11.09	%	1.62	13	Preferred Equity	2/24/2023		14,200	14,115	Richmond, VA	Multifamily	11.00	%	11.07	%	1.37
14	14	Preferred Equity	4/6/2023		21,976	21,921	Temecula, CA	Life Science	17.50	%	17.54	%	0.25	14	Preferred Equity	4/6/2023		22,945	22,936	Temecula, CA	Life Science	17.50	%	17.51	%	1.00
15	15	Preferred Equity	5/16/2023	(14)	1,200	1,188	Phoenix, AZ	Single-family	13.25	%	13.38	%	3.83	15	Preferred Equity	5/16/2023	(14)	3,920	3,882	Phoenix, AZ	Single-family	13.50	%	13.63	%	3.58
16	16	Preferred Equity	5/17/2023	(15)	3,950	3,911	Houston, TX	Life Science	13.00	%	13.13	%	2.92	16	Preferred Equity	5/17/2023	(15)	4,192	4,150	Houston, TX	Life Science	13.00	%	13.13	%	2.67
		Total			172,611	171,931			12.17	%	12.22	%	2.65		Total			187,172	186,567			12.18	%	12.22	%	2.58

		Common Equity													Common Equity
1	1	Common Stock	11/6/2020		N/A	51,017	N/A	Self-Storage	N/A		N/A		N/A	1	Common Stock	11/6/2020		N/A	33,759	N/A	Self-Storage	N/A		N/A		N/A
2	2	Common Stock	4/14/2022		N/A	26,155	N/A	Ground Lease	N/A		N/A		N/A	2	Common Stock	4/14/2022		N/A	26,950	N/A	Ground Lease	N/A		N/A		N/A
3	3	Common Equity	2/10/2023		N/A	—	Forney, TX	Multifamily	N/A		N/A		N/A	3	Common Equity	2/10/2023		N/A	—	Forney, TX	Multifamily	N/A		N/A		N/A
4	4	Common Equity	2/24/2023		N/A	111	Richmond, VA	Multifamily	N/A		N/A		N/A	4	Common Equity	2/24/2023		N/A	—	Richmond, VA	Multifamily	N/A		N/A		N/A
5														5	Common Equity	9/8/2023		N/A	—	Atlanta, GA	Multifamily	N/A		N/A		N/A
		Total				77,283									Total				60,709

															Real Estate
1														1	Real Estate	12/31/2021	(16)	N/A	26,358	Charlotte, NC	Multifamily	N/A		N/A		N/A

		Real Estate													Promissory Note
1	1	Real Estate	12/31/2021	(16)	N/A	26,366	Charlotte, NC	Multifamily	N/A		N/A		N/A	1	Promissory Note	9/29/2023		5,000	5,000	Dallas, TX	Self-Storage	11.00	%	11.00	%	1.00

		MSCR Notes													MSCR Notes
1	1	MSCR Note	5/25/2022		4,000	2,101	Various	Multifamily	14.47	%	14.47	%	28.92	1	MSCR Note	5/25/2022		4,000	2,021	Various	Multifamily	14.79	%	14.79	%	28.67
2	2	MSCR Note	5/25/2022		5,000	2,314	Various	Multifamily	11.47	%	11.47	%	28.92	2	MSCR Note	5/25/2022		5,000	2,250	Various	Multifamily	11.79	%	11.79	%	28.67
3	3	MSCR Note	9/23/2022		1,500	664	Various	Multifamily	11.82	%	12.99	%	28.42	3	MSCR Note	9/23/2022		1,500	1,305	Various	Multifamily	12.14	%	13.34	%	28.17
		Total			10,500	5,079			12.66	%	12.83	%	28.85		Total			10,500	5,576			12.98	%	13.15	%	28.60

		Mortgage Backed Securities													Mortgage Backed Securities
1	1	Mortgage Backed Securities	6/1/2022		10,074	3,222	Various	Single-family	4.87	%	5.05	%	2.39	1	Mortgage Backed Securities	6/1/2022		10,074	2,535	Various	Single-family	4.87	%	5.03	%	2.14
2	2	Mortgage Backed Securities	6/1/2022		10,419	3,486	Various	Single-family	8.37	%	8.69	%	2.80	2	Mortgage Backed Securities	6/1/2022		10,419	3,498	Various	Single-family	8.63	%	8.93	%	2.55
3	3	Mortgage Backed Securities	7/28/2022		575	268	Various	Single-family	6.23	%	6.32	%	4.30	3	Mortgage Backed Securities	7/28/2022		575	266	Various	Single-family	6.23	%	6.32	%	4.05
4	4	Mortgage Backed Securities	7/28/2022		1,057	348	Various	Single-family	3.60	%	4.18	%	4.98	4	Mortgage Backed Securities	7/28/2022		1,057	350	Various	Single-family	3.60	%	4.15	%	4.73
5	5	Mortgage Backed Securities	9/12/2022		3,927	1,404	Various	Multifamily	11.07	%	11.05	%	7.58	5	Mortgage Backed Securities	9/12/2022		3,927	1,378	Various	Multifamily	11.35	%	11.33	%	7.33
6	6	Mortgage Backed Securities	9/29/2022		8,000	7,837	Various	Self-Storage	10.84	%	10.86	%	4.21	6	Mortgage Backed Securities	9/29/2022		8,000	7,856	Various	Self-Storage	11.09	%	11.11	%	3.96
7	7	Mortgage Backed Securities	3/10/2023		5,747	2,012	Various	Multifamily	13.56	%	13.59	%	1.66	7	Mortgage Backed Securities	3/10/2023		5,747	1,983	Various	Multifamily	13.72	%	13.75	%	1.41
		Total			39,799	18,577			8.84	%	8.99	%	3.37		Total			39,799	17,866			9.01	%	9.15	%	3.12

(1)Our total portfolio represents the current principal amount of the consolidated SFR Loans, CMBS I/O Strips, mezzanine loans, preferred equity, multifamily properties, MSCR Notes and mortgage backed securities as well as the net equity of our CMBS B-Piece investments.

(2)Net equity represents the carrying value less borrowings collateralized by the investment.

(3)Current yield is the annualized income earned divided by the cost basis of the investment.

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(4)The weighted-average life is weighted on current principal balance and assumes no prepayments. The maturity date for preferred equity investments represents the maturity date of the senior mortgage, as the preferred equity investments require repayment upon the sale or refinancing of the asset.

(5)The CMBS B-Pieces are shown on an unconsolidated basis reflecting the value of our investments.

(6)The number shown represents the notional value on which interest is calculated for the CMBS I/O Strips. CMBS I/O Strips receive no principal payments and the notional value decreases as the underlying loans are paid off.

(7)The Company, through the Subsidiary OPs, purchased approximately $50.0 million and $15.0 million aggregate notional amount of the X1 interest-only tranche of the FHMS K-107 CMBS I/O Strip on April 28, 2021 and May 4, 2021, respectively.

(8)The Company, through the Subsidiary OPs, purchased approximately $80.0 million, $35.0 million, $40.0 million and $50.0 million aggregate notional amount of the X1 interest-only tranche of the FRESB 2019-SB64 CMBS I/O Strip on June 11, 2021 and September 29, 2021, February 3, 2022 and March 18, 2022, respectively.

(9)The Company reclassified this investment from preferred equity to a mezzanine loan effective January 1, 2023.

(10)The Company, through the Subsidiary OPs, invested $10.0 million on May 29, 2020, an aggregate of $1.2 million on January 9, 2023, March 6, 2023 and March 28, 2023, and $0.2 million on May 25, 2023 in this preferred equity investment.

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(11)The Company, through the Subsidiary OPs, invested $5.0 million, $1.8 million, $40.1 million and $18.5 million in this real estate investment on December 28, 2021, January, 27, 2022, February 1, 2022 and July 26, 2022, respectively.

(12)The Company, through the Subsidiary OPs, invested $2.7 million and $1.3 million in this preferred equity investment on April 7, 2022 and May 3, 2022, respectively.

(13)The Company reclassified this investment from a mezzanine loan to preferred equity effective January 1, 2023.

(14)The Company, through the Subsidiary OPs, invested $0.5 million and $0.7 million in this preferred equity investment on May 16, 2023 and June 12, 2023, respectively.

(15)The Company, through the Subsidiary OPs, invested $3.7 million and $0.3 million in this preferred equity investment on May 17, 2023 and June 24, 2023, respectively.

(16)Real Estate is a 204-unit multifamily property.

The following table details overall statistics for our portfolio as of ~~June~~September 30, 2023 (dollars in thousands):


		Total Portfolio			Floating Rate Investments			Fixed Rate Investments			Common Equity Investments		Real Estate Investment			Total Portfolio			Floating Rate Investments			Fixed Rate Investments			Common Equity Investments		Real Estate Investment
Number of investments	Number of investments	88			27			56			4		1		Number of investments	89			26			57			5		1
Principal balance (1)	Principal balance (1)	$	1,638,429		$	370,371		$	1,268,058		N/A		N/A		Principal balance (1)	$	1,594,353		$	328,956		$	1,265,397		N/A		N/A
Carrying value	Carrying value	$	1,689,030		$	366,719		$	1,186,415		$	77,283	$	58,613	Carrying value	$	1,633,287		$	325,879		$	1,188,136		$	60,709	$	58,563
Weighted-average cash coupon	Weighted-average cash coupon	6.02		%	10.04		%	4.85		%	N/A		N/A		Weighted-average cash coupon	5.92		%	10.01		%	4.86		%	N/A		N/A
Weighted-average all-in yield	Weighted-average all-in yield	6.96		%	12.01		%	5.40		%	N/A		N/A		Weighted-average all-in yield	6.90		%	12.44		%	5.38		%	N/A		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. 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, potential obligations to purchase up to $30.9 million of the Preferred Units (defined below) and dividend requirements for the twelve-month period following ~~June~~September 30, 2023.

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. We believe that our various sources of capital, which may include future debt or equity issuances, net cash provided by operations and other secured and unsecured borrowings, will provide sufficient funds for our operations,

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anticipated debt service payments, potential obligations to purchase investments under the Company's commitments noted in Note 15 to our consolidated financial statements and dividend requirements for the long-term.

~~Table of Contents~~

Asset Metrics

Debt Metrics

Asset Metrics

Debt Metrics

Investment

Fixed/Floating Rate

Interest Rate

Maturity Date

Fixed/Floating Rate

Interest Rate

Maturity Date

Net Spread

Investment

Fixed/Floating Rate

Interest Rate

Maturity Date

Fixed/Floating Rate

Interest Rate

Maturity Date

Net Spread

SFR Loans

Senior loan

Fixed

4.65%

9/1/2028

Fixed

2.24%

9/1/2028

2.41%

Senior loan

Fixed

4.65%

9/1/2028

Fixed

2.24%

9/1/2028

2.41%

Senior loan

Fixed

5.35%

2/1/2028

Fixed

3.51%

2/1/2028

1.84%

Senior loan

Fixed

5.35%

2/1/2028

Fixed

3.51%

2/1/2028

1.84%

Senior loan

Fixed

5.30%

9/1/2028

Fixed

2.79%

9/1/2028

2.51%

Senior loan

Fixed

5.30%

9/1/2028

Fixed

2.79%

9/1/2028

2.51%

Senior loan

Fixed

5.24%

10/1/2028

Fixed

2.64%

10/1/2028

2.60%

Senior loan

Fixed

5.24%

10/1/2028

Fixed

2.64%

10/1/2028

2.60%

Senior loan

Fixed

4.74%

10/1/2025

Fixed

2.14%

10/1/2025

2.60%

Senior loan

Fixed

4.74%

10/1/2025

Fixed

2.14%

10/1/2025

2.60%

Senior loan

Fixed

6.10%

10/1/2028

Fixed

3.30%

10/1/2028

2.80%

Senior loan

Fixed

6.10%

10/1/2028

Fixed

3.30%

10/1/2028

2.80%

Senior loan

Fixed

5.55%

11/1/2028

Fixed

2.70%

11/1/2028

2.85%

Senior loan

Fixed

5.55%

11/1/2028

Fixed

2.70%

11/1/2028

2.85%

Senior loan

Fixed

5.99%

12/1/2028

Fixed

3.14%

12/1/2028

2.85%

Senior loan

Fixed

5.99%

12/1/2028

Fixed

3.14%

12/1/2028

2.85%

Senior loan

Fixed

5.88%

1/1/2029

Fixed

3.14%

1/1/2029

2.74%

Senior loan

Fixed

5.88%

1/1/2029

Fixed

3.14%

1/1/2029

2.74%

Senior loan

Fixed

4.83%

2/1/2024

Fixed

2.40%

2/1/2024

2.43%

Senior loan

Fixed

4.83%

2/1/2024

Fixed

2.40%

2/1/2024

2.43%

Senior loan

Fixed

5.34%

2/1/2029

Fixed

2.98%

2/1/2029

2.36%

Senior loan

Fixed

5.34%

2/1/2029

Fixed

2.98%

2/1/2029

2.36%

Senior loan

Fixed

5.46%

3/1/2029

Fixed

2.99%

3/1/2029

2.47%

Senior loan

Fixed

5.46%

3/1/2029

Fixed

2.99%

3/1/2029

2.47%

Senior loan

Fixed

4.72%

3/1/2026

Fixed

2.45%

3/1/2026

2.27%

Senior loan

Fixed

4.72%

3/1/2026

Fixed

2.45%

3/1/2026

2.27%

Mezzanine Loans

Mezzanine Loan

Mezzanine

Fixed

7.50%

5/1/2029

Fixed

0.30%

5/1/2029

7.20%

Mezzanine

Fixed

7.50%

5/1/2029

Fixed

0.30%

5/1/2029

7.20%

Mezzanine

Fixed

7.42%

7/1/2031

Fixed

0.30%

7/1/2031

7.12%

Mezzanine

Fixed

7.42%

7/1/2031

Fixed

0.30%

7/1/2031

7.12%

Mezzanine

Fixed

7.59%

6/1/2029

Fixed

0.30%

6/1/2029

7.29%

Mezzanine

Fixed

7.59%

6/1/2029

Fixed

0.30%

6/1/2029

7.29%

Mezzanine

Fixed

7.83%

10/1/2028

Fixed

0.30%

10/1/2028

7.53%

Mezzanine

Fixed

7.83%

10/1/2028

Fixed

0.30%

10/1/2028

7.53%

Mezzanine

Fixed

7.71%

4/1/2031

Fixed

0.30%

4/1/2031

7.41%

Mezzanine

Fixed

7.71%

4/1/2031

Fixed

0.30%

4/1/2031

7.41%

Mezzanine

Fixed

7.32%

8/1/2031

Fixed

0.30%

8/1/2031

7.02%

Mezzanine

Fixed

7.32%

8/1/2031

Fixed

0.30%

8/1/2031

7.02%

Mezzanine

Fixed

7.22%

8/1/2031

Fixed

0.30%

8/1/2031

6.92%

Mezzanine

Fixed

7.22%

8/1/2031

Fixed

0.30%

8/1/2031

6.92%

Mezzanine

Fixed

7.33%

5/1/2029

Fixed

0.30%

5/1/2029

7.03%

Mezzanine

Fixed

7.33%

5/1/2029

Fixed

0.30%

5/1/2029

7.03%

Mezzanine

Fixed

7.53%

7/1/2031

Fixed

0.30%

7/1/2031

7.23%

Mezzanine

Fixed

7.53%

7/1/2031

Fixed

0.30%

7/1/2031

7.23%

Mezzanine

Fixed

7.42%

1/1/2029

Fixed

0.30%

1/1/2029

7.12%

Mezzanine

Fixed

7.42%

1/1/2029

Fixed

0.30%

1/1/2029

7.12%

Mezzanine

Fixed

7.42%

7/1/2031

Fixed

0.30%

7/1/2031

7.12%

Mezzanine

Fixed

7.42%

7/1/2031

Fixed

0.30%

7/1/2031

7.12%

Mezzanine

Fixed

7.42%

4/1/2031

Fixed

0.30%

4/1/2031

7.12%

Mezzanine

Fixed

7.42%

4/1/2031

Fixed

0.30%

4/1/2031

7.12%

Mezzanine

Fixed

7.74%

10/1/2028

Fixed

0.30%

10/1/2028

7.44%

Mezzanine

Fixed

7.74%

10/1/2028

Fixed

0.30%

10/1/2028

7.44%

Mezzanine

Fixed

7.71%

3/1/2029

Fixed

0.30%

3/1/2029

7.41%

Mezzanine

Fixed

7.71%

3/1/2029

Fixed

0.30%

3/1/2029

7.41%

Mezzanine

Fixed

6.91%

7/1/2029

Fixed

0.30%

7/1/2029

6.61%

Mezzanine

Fixed

6.91%

7/1/2029

Fixed

0.30%

7/1/2029

6.61%

Mezzanine

Fixed

7.89%

11/1/2028

Fixed

0.30%

11/1/2028

7.59%

Mezzanine

Fixed

7.89%

11/1/2028

Fixed

0.30%

11/1/2028

7.59%

Mezzanine

Fixed

7.89%

11/1/2028

Fixed

0.30%

11/1/2028

7.59%

Mezzanine

Fixed

7.89%

11/1/2028

Fixed

0.30%

11/1/2028

7.59%

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

Freddie Mac Credit 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

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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

~~Table of Contents~~

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 10 to our consolidated financial statements for additional information).~~loan. As of ~~June~~September 30, 2023, the outstanding balance on the Credit Facility was ~~$618.4~~$617.6 million.

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 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 109 to our consolidated financial statements, in connection with our CMBS acquisitions, we, through the OP and the Subsidiary OPs, have borrowed approximately ~~$333.2~~$298.0 million under our repurchase agreements and posted approximately ~~$943.2~~$853.6 million par value of our CMBS B-Piece, CMBS I/O Strip, MSCR Notes and mortgage backed security investments as collateral. The CMBS B-Pieces, CMBS I/O Strips, MSCR Notes and mortgage backed securities 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.~~lender as described in our Annual Report.

The table below provides additional details regarding recent borrowings under the master repurchase agreements (dollars in thousands):

June 30, 2023

September 30, 2023

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)

4/15/2020

333,233

N/A

(5)

7.01

0.1

943,172

520,293

513,115

6.6

Mizuho(4)

4/15/2020

298,009

N/A

(5)

7.23

0.1

853,574

434,890

425,949

6.6

(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 on an unconsolidated basis.

(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 15, 2022, the Company, the OP and the Manager separately entered into the 2022 Equity Distribution Agreements with the 2022 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 2022 ATM Program. The 2022 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. As of ~~June~~September 30, 2023, pursuant to the 2022 Equity Distribution Agreements, the Company has sold 531,728 shares of its common stock and zero shares of Series A Preferred Stock for total gross sales of $12.6 million. For additional information about the 2022 ATM Program, see Note 1211 to our consolidated financial statements.

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Company Notes Offering

On January 25, 2022, the Company issued $35.0 million in aggregate principal amount of its 5.75% Notes at a price equal to 100.9% par value, including accrued interest, for proceeds of approximately $35.1 million after original issue discount and underwriting fees.

LIBOR Transition

~~Approximately 3.7% of our portfolio by unpaid principal balance as of~~Following June 30, 2023, ~~pays interest at a variable rate that is tied to~~all of the U.S. Dollar London Interbank Offered Rate ("LIBOR")~~. Following June 30, 2023, all of the LIBOR~~ settings have ceased to be provided by any administrator and are no longer representative. Approximately ~~12.1%~~13.3% of our portfolio by unpaid principal balance as of ~~June~~September 30, 2023 pays interest at a variable rate that is tied to the Secured Overnight Financing Rate ("SOFR”), and it is anticipated that future investments we make may have variable interest rates tied to SOFR. As of June 30, 2023, the Company ~~has~~ received LIBOR transition notices under its loan agreements tied to LIBOR stating such loans will transition to SOFR on the first adjustment date subsequent to June 30, 2023. ~~The Company expects this~~As of September 30, 2023, the transition ~~to have~~has had an immaterial effect on the effected loans' interest rates. 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 Subsidiary OPs. In addition, we may apply our existing cash and cash equivalents and cash flows from operations to any liquidity needs. As of ~~June~~September 30, 2023, our cash and cash equivalents were ~~$21.6~~$12.9 million.

Cash Flows

The following table presents selected data from our Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022 (in thousands):


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
		2023		2022			2023		2022
Net cash provided by operating activities	Net cash provided by operating activities	$	22,475	$	50,697	Net cash provided by operating activities	$	28,428	$	58,795
Net cash provided by investing activities	Net cash provided by investing activities	431,378		571,600		Net cash provided by investing activities	639,485		713,195
Net cash (used in) financing activities	Net cash (used in) financing activities	(452,621)		(594,478)		Net cash (used in) financing activities	(675,341)		(774,041)
Net increase in cash, cash equivalents and restricted cash		1,232		27,819
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(7,428)		(2,051)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	20,347		33,232		Cash, cash equivalents and restricted cash, beginning of period	20,347		33,232
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	21,579	$	61,051	Cash, cash equivalents and restricted cash, end of period	$	12,919	$	31,181

Cash flows from operating activities. During the ~~six~~nine months ended ~~June~~September 30, 2023, net cash provided by operating activities was ~~$22.5~~$28.4 million, compared to net cash provided by operating activities of ~~$50.7~~$58.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022. This decrease was due to ~~the decrease in interest income generated by our investments and~~ an increase in ~~interest expense.~~provision for credit losses and a decrease in unrealized losses on investments held at fair value.

Cash flows from investing activities. During the ~~six~~nine months ended ~~June~~September 30, 2023, net cash provided by investing activities was ~~$431.4~~$639.5 million, compared to net cash provided by operating activities of ~~$571.6~~$713.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022. This decrease was primarily driven by the decrease in proceeds ~~received~~ from payments on mortgage loans held in ~~VIEs as well as a decrease in real estate acquisitions.~~variable interest entities.

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Cash flows from financing activities. During the ~~six~~nine months ended ~~June~~September 30, 2023, net cash used in financing activities was ~~$452.6~~$675.3 million, compared to net cash used in financing activities of ~~$594.5~~$774.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022. This decrease was primarily driven by the decrease in distributions to bondholders of 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 elected to be treated as a REIT for U.S. federal income tax purposes, beginning with our taxable year 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 months ended June 30, 2023.

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 for open tax years 2020 through 2023.

We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement. We had no material unrecognized tax benefit or expense, accrued interest or penalties as of June 30, 2023.

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

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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 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 the second regular quarterly dividend of 2023 to common stockholders of $0.50 per share on April 24, 2023, which was paid on June 30, 2023, to common stockholders of record as of June 15, 2023. Our Board declared the third regular quarterly dividend to common stockholders of $0.50 per share on July 24, 2023, which was paid on September 29, 2023, to stockholders of record as of September 15, 2023. Our Board also declared a special dividend to common stockholders of $0.185 per share on April 24, 2023, which was paid on June 30, 2023, to common stockholders of record as of June 15, 2023. Our Board also declared a special dividend to common stockholders of $0.185 per share on July 24, 2023, which was paid on September 29, 2023, to common stockholders of record as of September 15, 2023. On December 15, 2022, our Board declared a preferred stock dividend of $0.53125 per share, which was paid on January 25, 2023 to preferred stockholders of record as of January 13, 2023. On February 22, 2023, our Board declared a preferred stock dividend of $0.53125 per share, which was paid on April 25, 2023 to preferred stockholders of record as of April 13, 2023. On June 13, 2023, our Board declared a dividend to preferred stockholders of $0.53125 per share, which was paid on July 25, 2023 to preferred stockholders of record as of July 13, 2023.

Off-Balance Sheet Arrangements

As of ~~June~~September 30, 2023, we had one off balance sheet arrangement that has or is reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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On December 8, 2022 and in connection with a restructuring of NSP, the Company, through REIT Sub, together with the Co-Guarantors, as guarantors, entered into a Sponsor Guaranty Agreement in favor of Extra Space pursuant to which REIT Sub and the Co-Guarantors guaranteed obligations of NSP with respect to NSP’s newly created Series D Preferred Stock and ~~two~~one promissory ~~notes~~note in an aggregate principal amount of approximately ~~$64.2~~$49.2 million issued to Extra Space. The guaranties by REIT Sub and the Co-Guarantors are capped at $97.6 million, which ~~amount~~ will be reduced as the guaranteed obligations of NSP are paid. Each of REIT Sub and the Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP’s common stock. The maximum liability of REIT Sub under the guaranties is approximately $83.8 million. As of ~~June~~September 30, 2023, the Company owns approximately 25.7% of the total outstanding shares of common stock of NSP.

Commitments and Contingencies

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issuer may extend for up to ~~two years~~one year at its option for an extension fee. The Preferred Units accrue distributions at a rate of 10.0% annually, compounded monthly. Distributions on the Preferred Units will be paid in cash with respect to stabilized PropCos and paid in kind with respect to unstabilized PropCos. The obligations of the issuer will be supported by a pledge of all equity units of the PropCos. All or a portion of the Preferred Units may be redeemed at any time for a redemption price equal to the purchase price of the Preferred Units to be redeemed plus any accrued and unpaid distributions thereon and a cash redemption fee. Upon the redemption of any Preferred Units and if the parties agree, the remaining amount to be funded by the Company may be increased by the aggregate purchase price of the redeemed Preferred Units. In addition, if the issuer experiences a change of control, the redemption price will also include a payment equal to the amount needed to achieve MOIC equal to 1.25x for unstabilized PropCos and 1.10x for stabilized PropCos. As of ~~June~~September 30, 2023, the Company has not recorded any contingencies on its Consolidated Balance Sheets as the obligation to fund additional Preferred Units other than under the existing commitment is considered remote for the three months ended ~~June~~September 30, 2023.

On December 8, 2022 and in connection with a restructuring of NSP, the Company, through REIT Sub, together with NexPoint Diversified Real Estate Trust, Highland Income Fund and NexPoint Real Estate Strategies Fund (collectively, the "Co-Guarantors"), as guarantors, entered into a Sponsor Guaranty Agreement in favor of Extra Space Storage, LP ("Extra Space") pursuant to which REIT Sub and the Co-Guarantors guaranteed obligations of NSP with respect to NSP’s newly created Series D Preferred Stock and two promissory notes in an aggregate principal amount of approximately $64.2 million issued to Extra Space. The guaranties by REIT Sub and the Co-Guarantors are capped at $97.6 million, which cap amount will be reduced as the guaranteed obligations of NSP are paid. Each of REIT Sub and the Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP’s common stock. The maximum liability of REIT Sub under the guaranties is approximately $83.8 million. As of ~~June~~September 30, 2023, the Company owns approximately 25.7% of the total outstanding shares of common stock of NSP. ~~As of June 30, 2023, the Company has not recorded any contingencies on its Consolidated Balance Sheets as the obligation under the guaranty is considered remote.~~

The ~~OP Notes previously described~~Company provides certain guarantees in connection with the NSP Sponsor Guaranty Agreement. See Note ~~10 are fully guaranteed by the Company. As of June 30, 2023, there has been no indication that the OP will not be able~~14 to ~~satisfy the terms of the OP Notes. The Company considers any action required under the guaranty to be remote.~~our Consolidated Financial Statements for further details.

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•0% to the Company and 100% to issuer up to a 20.0% IRR

•10% to the Company and 90% to issuer thereafter

On February 10, 2023, the Company, through one of the Subsidiary OPs, through a unit purchase agreement, committed to purchase $30.3 million of the preferred units with respect to a multifamily property development located in Richmond, Virginia, of which ~~$19.1~~$16.1 million was unfunded as of ~~June~~September 30, 2023. Further, the Company committed to purchase $4.3 million of common equity with respect to the same property, of which ~~$3.8~~$3.3 million was unfunded as of ~~June~~September 30, 2023.

~~On May 17, 2023,~~The table below shows the Company, through one of the Subsidiary OPs, committed to purchase $4.2 million of the preferred units with respect to a life sciences property development located in Houston, Texas, of which $0.2 million wasCompany's unfunded commitments by investment type as of ~~June~~September 30, ~~2023. The investment was entered into as a co-investment with affiliates of the Company.~~2023 and December 31, 2022 (in thousands):


Investment Type	September 30, 2023		December 31, 2022
	Unfunded Commitments		Unfunded Commitments
Preferred Equity	$	52,200	$	25,000
Common Equity	6,600		—
	$	58,800	$	25,000

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Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts. These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. Below is a discussion of the accounting policies and estimates that involve significant estimation uncertainty that have or are reasonably likely to have a material impact on our financial condition or results of operations. 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 to our consolidated financial statements.

Allowance for Credit Losses

In periods ending on or prior to December 31, 2022, the Company, with the assistance of an independent valuations firm, performed 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 the Company determined that it was probable that it would be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan was indicated. If a loan was considered to be impaired, the Company would establish an allowance for loan losses, through a valuation provision in earnings that reduced 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 was expected solely from the collateral. For non-impaired loans with no specific allowance the Company determined an allowance for loan losses in accordance with ASC 450-20, Loss Contingencies (“ASC 450-20”), which represented 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 considered quantitative factors likely to cause estimated credit losses, including default rate and loss severity rates. The Company also evaluated 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 for the fiscal year ended December 31, 2022 are included in “Loan loss (provision)” on the accompanying Consolidated Statements of Operations.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses on Financial Instruments (“ASU 2016-13”), which establishes credit losses on certain types of financial instruments. The new approach changes the impairment model for most financial assets and requires the use of a current expected credit loss ("CECL") model for financial instruments measured at amortized cost and certain other instruments. This model applies to trade and other receivables, loans, debt securities, net investments in leases and off-balance sheet credit exposures (such as loan commitments, standby letters of credit and financial guarantees not accounted for as insurance) and requires entities to estimate the lifetime expected credit loss on such instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect.

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.

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Valuation of Common Equity

As of ~~June~~September 30, 2023, the Company owns approximately 25.7% of the total outstanding shares of NSP and thus can exercise significant influence over NSP. The Company elected the fair-value option in accordance with ASC 825-10-10. On a quarterly basis, the Company, with the assistance of an independent third-party valuation firm, determines the fair value for subsequent measurement absent a readily available market price. The valuation is determined using widely accepted valuation techniques consistent with the principles of ASC 820. Specifically, these techniques include the discounted cash flow methodology whereby observable market terminal capitalization rates and discount rates are applied to projected cash flows generated by self-storage assets owned by NSP. The necessary inputs for the valuation include projected cash flows of NSP, terminal capitalization rates and discount rates. These inputs are reflective of public company comparables, but are assumptions and estimates. As a result, the determination of fair value involves significant estimation uncertainty because it involves subjective judgments and estimates that are based on unobservable inputs. For the ~~six~~nine months ended ~~June~~September 30, 2023, the unrealized loss related to the change in fair value estimate is ~~$0.6~~$16.6 million. See Notes 5 and 1110 to our consolidated financial statements for additional disclosures regarding the valuation of NSP.

As of ~~June~~September 30, 2023, the Company owns approximately 6.36% of the total outstanding common equity of the Private REIT. The Company records the Private REIT at fair value in accordance with ASC 321. The valuation is determined using a market approach. The necessary input for the valuation includes the yield of the Private REIT. As a result, the determination of fair value is uncertain because it involves subjective judgments and estimates that are unobservable. For the ~~six~~nine months ended ~~June~~September 30, 2023, the unrealized loss related to the change in fair value estimate is ~~$1.7~~$0.9 million. See Notes 5 and 1110 to our consolidated financial statements for additional disclosures regarding the valuation of the Private REIT.

As of ~~June~~September 30, 2023, the Company owns approximately 98.0% of the total outstanding common equity of each of RFGH and RTB. The Company holds RFGH and RTB based on the Company's proportionate share of income (losses) for the three and ~~six~~nine months ended ~~June~~September 30, 2023. See Notes 5 and 1110 to our consolidated financial statements for additional disclosures regarding the equity method investments RFGH and RTB.

Considerations Related to Tightening Monetary Policy

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The macroeconomic environment remains challenging as central banks have continued to rapidly raise interest rates. The rising rate environment, coupled with large bank failures in early 2023 and ongoing economic uncertainty, has limited credit availability to commercial real estate. Less available and more expensive debt capital has had pronounced effects on the capital markets, making property acquisitions and other investments harder to finance. Similar factors also impact the timing of and proceeds generated from asset sales and our ability to obtain debt capital.

REIT Tax Election

We elected 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~~nine months ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022. 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

Not required for smaller reporting companies.

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~~September 30, 2023, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of ~~June~~September 30, 2023, due to the material weakness described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2022 (the "Material Weakness"), 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.

Management nonetheless determined that the consolidated financial statements and related financial information included in this quarterly report fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with GAAP. Management’s

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determination is based on a number of factors, including, but not limited to, management’s performance of additional analysis and other post-closing procedures as of and for the three months ended ~~June~~September 30, 2023.

Remediation Plan

Management is committed to implementing changes to our internal control over financial reporting to ensure that the ~~material weakness~~Material Weakness is remediated. We have evaluated the impact of the ~~material weakness~~Material Weakness and have implemented the following changes:

We implemented a pre-close and post-close acquisition checklist for proposed investments. The pre-close checklist includes a formal accounting analysis and review of the contract terms and structure of the proposed investment. Subsequently, after a transaction closes, accounting personnel will obtain the final executed documents and compare and review for any changes to initial accounting conclusions reached in the pre-check review. Any differences will be corrected prior to the quarter close. Management believes that this control will prevent the conditions that led to the ~~material weakness described above.~~Material Weakness.

While we believe that these actions will remediate the ~~material weakness,~~Material Weakness, as of September 30, 2023, the corrective processes ~~have~~had not been in place for a sufficient period of time for evaluation. ~~As we continue to evaluate and work to remediate the material weakness, we may take additional measures to address the material weakness.~~

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Until the remediation steps set forth above, including evaluation and any additional measures we may take, are fully implemented and concluded to be operating effectively for a sufficient period of time, the ~~material weakness described above~~Material Weakness will not be considered remediated.

Changes in Internal Control over Financial Reporting

Other than ongoing remediation to address the ~~material weakness~~Material Weakness in internal control over financial reporting described above, there has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~June~~September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 31, 2023.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~On November 9, 2023 (the “Separation Date”), Matt Goetz resigned from his position as Senior VP-Investments and Asset Management of the Company. Mr. Goetz’s resignation is not a result of any disagreement with the Company on any matter relating to its operations, policies or practices.

In connection with his resignation from the Company and its affiliates, Mr. Goetz and the Company, the Manager, NexPoint Advisors, L.P. (“NREA”), NexPoint Residential Trust, Inc. (“NXRT”), NexPoint Real Estate Advisors, L.P., NexPoint Diversified Real Estate Trust (“NXDT”), NexPoint Real Estate Advisors X, L.P., VineBrook Homes Trust, Inc. (“VineBrook”), and NexPoint Real Estate Advisors V, L.P. entered into a Separation Agreement, dated November 9, 2023 (the “Separation Agreement”). Pursuant to the Separation Agreement, NREA will subsidize Mr. Goetz’s COBRA premium for a period of twelve months and 72,675 restricted stock units granted to Mr. Goetz by the Company will immediately vest as of the Separation Date and will settle on the original scheduled vesting dates, subject to Mr. Goetz’s continued compliance with existing restrictive covenants. In addition, pursuant to the Separation Agreement, 11,453 restricted stock units granted to Mr. Goetz by NXRT, 11,300 restricted share units granted to Mr. Goetz by NXDT and 4,279 restricted stock units granted to Mr. Goetz by VineBrook will immediately vest as of the Separation Date and will settle on the original scheduled vesting dates, subject to Mr. Goetz’s continued compliance with existing restrictive covenants. The approximate value of the restricted stock units of the Company that are vesting on the Separation Date is $1.2 million and the approximate value of the aggregate restricted stock units of the Company, NXRT, NXDT and VineBrook that are vesting on the Separation Date is $2 million.

The Separation Agreement additionally contains, among other things, mutual non-disparagement provisions and a mutual release of claims by Mr. Goetz and the Company.

In connection with the Separation Agreement, Mr. Goetz, the Company, NXRT, NXDT and VineBrook entered into a vesting agreement pursuant to which, among other things, the award agreements between Mr. Goetz and the Company relating to his restricted stock unit grants were amended to account for his separation and accelerated vesting of a portion of his outstanding restricted stock unit grants pursuant to the Separation Agreement.

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The foregoing summary of the Separation Agreement does not purport to be complete and is qualified in its entirety by reference to the Separation Agreement, a copy of which is filed as Exhibit 10.1 to this Quarterly Report and is incorporated herein by reference.

Item 6. Exhibits

EXHIBIT INDEX


Exhibit Number			Description
10.1*			Separation Agreement, dated as of November 9, 2023, by and among NexPoint Advisors, L.P., NexPoint Residential Trust, Inc., NexPoint Real Estate Advisors, L.P., NexPoint Real Estate Finance, Inc., NexPoint Real Estate Advisors VII, L.P., NexPoint Diversified Real Estate Trust, NexPoint Real Estate Advisors X, L.P., VineBrook Homes Trust, Inc., NexPoint Real Estate Advisors V, L.P. and Matthew Goetz

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

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

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

101.INS*			Inline XBRL Instance Document (The instance document does not appear in the interactive date file because its XBRL tags are embedded within the inline XBRL document)

101.SCH*			Inline XBRL Taxonomy Extension Schema Document

101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

______________________

* Filed herewith.

+ Furnished herewith.

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SIGNATURES

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

NEXPOINT REAL ESTATE FINANCE, INC.

Signature

Title

Date

/s/ Jim Dondero

Chairman of the Board and President
(Principal Executive Officer)

~~August 8,~~November 13, 2023

Jim Dondero

/s/ Brian Mitts

Director, Chief Financial Officer, Executive VP-Finance, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)

~~August 8,~~November 13, 2023

Brian Mitts

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	Balance as of 12/31/22		Change in Unrealized Gains/(Losses)		Balance as of 6/30/23
Common stock investment, at fair value	$	50,380	$	637	$	51,017
Common stock investment, at fair value	$	27,884	$	(1,729)	$	26,155