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 March 31, ~~2020~~

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~~

Maryland

84-2178264

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

~~(972) 628-4100~~

(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 ☐

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 ☐

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. ☐

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

As of May ~~8, 2020,~~10, 2023, the registrant had ~~5,262,534~~17,184,231 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 March 31, ~~2020~~

2023

INDEX

~~Page~~

Page

Cautionary Statement Regarding Forward-Looking Statements

iii

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance ~~Sheet~~Sheets as of March 31, ~~2020~~2023 (Unaudited) and December 31, ~~2019~~2022

Consolidated Unaudited Statements of Operations for the Three Months Ended March 31, ~~2020~~2023 and 2022

Consolidated Unaudited Statements of Stockholders’ Equity for the Three Months Ended March 31, ~~2020~~2023 and 2022

Consolidated Unaudited Statements of Cash Flows for the Three Months Ended March 31, ~~2020~~2023 and 2022

Notes to Consolidated Unaudited Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II—OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

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

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

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

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

•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•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”) ~~management team~~ or their ~~affiliates.~~

affiliates;

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

•Our M~~anager~~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 ~~REIT~~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, ~~of the coronavirus, or COVID-19,~~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 ~~the heading~~Part I, Item1A, “Risk Factors,” ~~in our Prospectus forming a part~~ of our ~~Registration Statement~~Annual Report on Form ~~S-11, as amended (Registration No. 333-235698),~~10-K filed with the Securities and Exchange Commission (“SEC”) on ~~February 10, 2020, pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”~~March 31, 2023 (our “Annual Report”) ~~or under Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.~~

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

Table of Contents

PART 1—FINANCIAL INFORMATION

Item 1. Financial Statements

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

CONSOLIDATED BALANCE ~~SHEET~~

SHEETS

(in thousands, except share and per share amounts)


	March 31, 2020			December 31, 2019			March 31, 2023		December 31, 2022
	(Unaudited)						(Unaudited)
ASSETS						ASSETS
Cash and cash equivalents	$	197		$	—	Cash and cash equivalents	$	38,830	$	20,048
Restricted cash						Restricted cash	1,495		299
Real estate investments, net (Note 9)						Real estate investments, net (Note 9)	59,072		245,222
Loans, held-for-investment, net		22,282			—	Loans, held-for-investment, net	284,548		256,147
Preferred stock		40,374			—
Common stock investments, at fair value						Common stock investments, at fair value	76,998		78,264
Equity method investments						Equity method investments	1,000		—
Mortgage loans, held-for-investment, net		933,219			—	Mortgage loans, held-for-investment, net	723,343		726,531
Accrued interest and dividends		5,248			—	Accrued interest and dividends	17,467		15,665
Mortgage loans held in variable interest entities, at fair value		1,712,909			—	Mortgage loans held in variable interest entities, at fair value	6,747,377		6,720,246
Other assets		1,096			—
CMBS structured pass-through certificates, at fair value (Note 7)						CMBS structured pass-through certificates, at fair value (Note 7)	44,308		46,876
MSCR notes, at fair value						MSCR notes, at fair value	10,015		10,313
Mortgage backed securities, at fair value						Mortgage backed securities, at fair value	37,007		32,328
Accounts receivable and other assets						Accounts receivable and other assets	1,106		2,197
TOTAL ASSETS	$	2,715,325		$	—	TOTAL ASSETS	$	8,042,566	$	8,154,136

LIABILITIES AND STOCKHOLDERS' EQUITY						LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:						Liabilities:
Credit facility	$	788,345		$	—
Secured financing agreements, net						Secured financing agreements, net	$	687,480	$	687,885
Master repurchase agreements						Master repurchase agreements	350,399		331,020
Unsecured notes, net						Unsecured notes, net	205,176		204,960
Mortgages payable, net						Mortgages payable, net	32,235		121,236
Accounts payable and other accrued liabilities		1,636			—	Accounts payable and other accrued liabilities	5,377		6,231
Accrued interest payable		932			—	Accrued interest payable	10,189		7,986
Bonds payable held in variable interest entities, at fair value		1,607,918			—	Bonds payable held in variable interest entities, at fair value	6,278,734		6,249,804
Total Liabilities		2,398,831			—	Total Liabilities	7,569,590		7,609,122

Redeemable noncontrolling interests in the Operating Partnership		233,395			—
Redeemable noncontrolling interests in the OP						Redeemable noncontrolling interests in the OP	95,712		96,501

Stockholders' Equity:						Stockholders' Equity:
Preferred stock, $0.01 par value: 100,000,000 shares authorized; 0 shares issued		—			—
Common stock, $0.01 par value: 500,000,000 shares authorized; 5,350,000 and 10 shares issued and 5,262,534 and 10 shares outstanding, respectively		53			—
Noncontrolling interest in subsidiary						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
Common stock, $0.01 par value: 500,000,000 shares authorized; 17,471,218 and 17,366,930 shares issued and 17,184,231 and 17,079,943 shares outstanding, respectively						Common stock, $0.01 par value: 500,000,000 shares authorized; 17,471,218 and 17,366,930 shares issued and 17,184,231 and 17,079,943 shares outstanding, respectively	172		171
Additional paid-in capital		91,894			—	Additional paid-in capital	392,440		392,124
Accumulated deficit		(7,510	)		—
Common stock held in treasury at cost; 87,466 shares		(1,338	)		—
Retained earnings (accumulated deficit)						Retained earnings (accumulated deficit)	(2,697)		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)
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)
Total Stockholders' Equity		83,099			—	Total Stockholders' Equity	377,264		448,513
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,715,325		$	—	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	8,042,566	$	8,154,136

See Notes to Consolidated Financial Statements

Table of Contents

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)


	For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2020				2023		2022
Net interest income				Net interest income
Interest income	$	6,586		Interest income	$	16,161	$	31,133
Interest expense		3,331		Interest expense	(12,212)		(8,818)
Total net interest income		3,255		Total net interest income	$	3,949	$	22,315
Other income (loss)				Other income (loss)
Change in net assets related to consolidated CMBS variable interest entities		(25,159	)	Change in net assets related to consolidated CMBS variable interest entities	11,003		3,416
Loan loss provision		(212	)
Dividend income, net		447
Change in unrealized gain (loss) on CMBS structured pass-through certificates				Change in unrealized gain (loss) on CMBS structured pass-through certificates	(752)		(4,340)
Change in unrealized gain (loss) on common stock investments				Change in unrealized gain (loss) on common stock investments	(1,267)		329
Change in unrealized gain (loss) on MSCR notes				Change in unrealized gain (loss) on MSCR notes	(298)		—
Change in unrealized (loss) on mortgage backed securities				Change in unrealized (loss) on mortgage backed securities	(606)		—
Reversal of (provision for) credit losses, net				Reversal of (provision for) credit losses, net	34		(151)
Other income				Other income	317		173
Gain on deconsolidation of real estate owned				Gain on deconsolidation of real estate owned	1,490		—
Revenues from consolidated real estate owned (Note 9)				Revenues from consolidated real estate owned (Note 9)	1,028		2,387
Total other income (loss)		(24,924	)	Total other income (loss)	$	10,949	$	1,814
Operating expenses				Operating expenses
General and administrative expenses		348		General and administrative expenses	2,152		1,763
Loan servicing fees		655		Loan servicing fees	1,043		1,141
Management fees		196		Management fees	828		728
Expenses from consolidated real estate owned (Note 9)				Expenses from consolidated real estate owned (Note 9)	1,497		2,428
Total operating expenses		1,199		Total operating expenses	$	5,520	$	6,060
Net Loss		(22,868	)
Net loss attributable to redeemable noncontrolling interests		(16,515	)
Net loss attributable to common stockholders	$	(6,353	)
Net income				Net income	9,378		18,069
Net (income) attributable to preferred shareholders				Net (income) attributable to preferred shareholders	(874)		(874)
Net (income) loss attributable to redeemable noncontrolling interests				Net (income) loss attributable to redeemable noncontrolling interests	(1,937)		(4,783)
Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries				Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries	—		(6)
Net income attributable to common stockholders				Net income attributable to common stockholders	$	6,567	$	12,406

Weighted-average common shares outstanding - basic		5,223		Weighted-average common shares outstanding - basic	17,118		13,855
Weighted-average common shares outstanding - diluted		5,223		Weighted-average common shares outstanding - diluted	22,678		22,030

Loss per share - basic	$	(1.22	)
Loss per share - diluted	$	(1.22	)
Earnings per share outstanding - basic				Earnings per share outstanding - basic	$	0.38	$	0.90
Earnings per share outstanding - diluted				Earnings per share outstanding - diluted	$	0.37	$	0.78

Dividends declared per common share	$	0.2198		Dividends declared per common share	$	0.6850	$	0.5000

See Notes to Consolidated Financial Statements

Table of Contents

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~STOCKHOLDERS’~~STOCKHOLDERS’ EQUITY

(dollars in thousands)

(Unaudited)

Preferred Stock

Common Stock

Additional

Accumulated
Earnings (Loss)

Common Stock

Number of
Shares

Par Value

Number of
Shares

Par Value

Paid-in
Capital

Less
Dividends

Held in Treasury at Cost

Total

Balances, December 31, 2019

—

$
—

—

$
—

$
—

$
—

$
—

$
—

Issuance of common stock through public offering, net

—

—

5,350,000

54

91,894

—

—

91,948

Repurchase of common stock

—

—

(87,466
)

(1
)

—

—

(1,338
)

(1,339
)
Net loss attributable to common stockholders

—

—

—

—

—

(6,353
)

—

(6,353
)
Common stock dividends declared ($0.2198 per share)

—

—

—

—

—

(1,157
)

—

(1,157
)
Balances, March 31, 2020

—

$
—

5,262,534

$
53

$
91,894

$
(7,510
)

$
(1,338
)

$
83,099

~~See Notes to Consolidated Financial Statements~~


Three Months Ended March 31, 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, 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	—	—		104,288	1		316		—		—		—		—		—		317
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)	—	—		—	—		—		(1,624)		—		—		—		—		(1,624)
Net income attributable to preferred stockholders	—	—		—	—		—		874		—		—		—		—		874
Net income attributable to common stockholders	—	—		—	—		—		6,567		—		—		—		—		6,567
Preferred stock dividends declared ($0.5313 per share)	—	—		—	—		—		(874)		—		—		—		—		(874)
Common stock dividends declared ($0.6850 per share)	—	—		—	—		—		(12,075)		—		—		—		—		(12,075)
Balances, March 31, 2023	1,645,000	$	16	17,184,231	$	172	$	392,440	$	(2,697)	$	(4,195)	$	(8,567)	$	—	$	95	$	377,264


Three Months Ended March 31, 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	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	—	—		60,309	1		532		—		—		—		—		—		533
Issuance of common shares through at-the-market offering, net	—	—		91,428	1		1,811		—		—		—		—		—		1,812
Conversion of redeemable noncontrolling interests in the OP	—	—		5,169,603	51		113,484		—		—		—		—		—		113,535
Noncontrolling interest in CMBS VIEs	—	—		—	—		—		—		—		—		(7,175)		—		(7,175)
Net income attributable to preferred stockholders	—	—		—	—		—		874		—		—		—		—		874
Net income attributable to common stockholders	—	—		—	—		—		12,406		—		—		—		—		12,406
Preferred stock dividends declared ($0.5313 per share)	—	—		—	—		—		(874)		—		—		—		—		(874)
Common stock dividends declared ($0.5000 per share)	—	—		—	—		—		(7,521)		—		—		—		—		(7,521)
Balances, March 31, 2022	1,645,000	$	16	14,485,274	$	145	$	338,127	$	33,252	$	(4,195)	$	(8,567)	$	—	$	95	$	358,873

Table of Contents

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(Unaudited)


	For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2020				2023		2022
Cash flows from operating activities				Cash flows from operating activities
Net loss	$	(22,868	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income				Net income	$	9,378	$	18,069
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		1,060		Amortization of premiums	3,531		9,900
Loan loss provision, net		212
Change in unrealized loss on investments held at fair value		26,901
Accretion of discounts				Accretion of discounts	(3,500)		(3,030)
Depreciation and amortization of real estate investment				Depreciation and amortization of real estate investment	476		944
Amortization of deferred financing costs				Amortization of deferred financing costs	11		12
Reversal of (provision for) credit losses, net				Reversal of (provision for) credit losses, net	(34)		151
Net change in unrealized (gain) loss on investments held at fair value				Net change in unrealized (gain) loss on investments held at fair value	2,564		8,545
Realized gain on deconsolidation of real estate owned				Realized gain on deconsolidation of real estate owned	(1,490)		—
Vesting of stock-based compensation				Vesting of stock-based compensation	847		673
Payment in kind income				Payment in kind income	(209)		(168)
Changes in operating assets and liabilities:				Changes in operating assets and liabilities:
Accrued interest receivable		(1,632	)
Other assets		(1,096	)
Accrued interest				Accrued interest	247		(1,912)
Accounts receivable and other assets				Accounts receivable and other assets	292		(1,317)
Accrued interest payable		932		Accrued interest payable	3,290		3,711
Accounts payable, accrued expenses and other liabilities		1,636		Accounts payable, accrued expenses and other liabilities	(453)		2,138
Net cash provided by operating activities		5,145		Net cash provided by operating activities	14,950		37,716

Cash flows from investing activities				Cash flows from investing activities
Proceeds from payments received on mortgage loans held in variable interest entities		2,281		Proceeds from payments received on mortgage loans held in variable interest entities	70,071		211,277
Proceeds from payments received on mortgage loans held for investment		455		Proceeds from payments received on mortgage loans held for investment	36,743		124,633
Proceeds from payments received on mortgage backed securities				Proceeds from payments received on mortgage backed securities	517		—
Originations of bridge loan				Originations of bridge loan	—		(13,433)
Originations of loans, held-for-investment, net				Originations of loans, held-for-investment, net	(28,816)		(52,862)
Purchases of equity method investment				Purchases of equity method investment	(1,000)		—
Purchases of CMBS structured pass-through certificates, at fair value				Purchases of CMBS structured pass-through certificates, at fair value	—		(4,543)
Purchases of CMBS securitizations held in variable interest entities, at fair value				Purchases of CMBS securitizations held in variable interest entities, at fair value	—		(7,100)
Purchases of mortgage backed securities, at fair value				Purchases of mortgage backed securities, at fair value	(5,733)		—
Adjustment on deconsolidation of real estate				Adjustment on deconsolidation of real estate	(4,992)		—
Acquisitions to real estate investments				Acquisitions to real estate investments	—		(184,552)
Additions to real estate investments				Additions to real estate investments	(58)		(21)
Net cash provided by investing activities		2,736		Net cash provided by investing activities	66,732		73,399

Cash flows from financing activities				Cash flows from financing activities
Principal repayments on borrowings under secured financing agreements		(419	)	Principal repayments on borrowings under secured financing agreements	(405)		(86,410)
Bridge facility payments		(95,000	)
Distributions to bondholders of variable interest entities				Distributions to bondholders of variable interest entities	(64,480)		(195,887)
Borrowings under master repurchase agreements				Borrowings under master repurchase agreements	26,801		25,141
Principal repayments on borrowings under master repurchase agreements				Principal repayments on borrowings under master repurchase agreements	(7,422)		(14,474)
Proceeds received on borrowings under secured financing agreements				Proceeds received on borrowings under secured financing agreements	—		89,634
Proceeds received from unsecured notes offering, net				Proceeds received from unsecured notes offering, net	—		34,173
Borrowings under bridge facility				Borrowings under bridge facility	—		55,000
Proceeds from the issuance of common stock through public offering, net of offering costs		91,948		Proceeds from the issuance of common stock through public offering, net of offering costs	—		1,812
Repurchase of common stock		(1,339	)
Proceeds from the issuance of common stock				Proceeds from the issuance of common stock	—		113,535
Redemption of redeemable noncontrolling interests in the OP				Redemption of redeemable noncontrolling interests in the OP	—		(113,535)
Payments for taxes related to net share settlement of stock-based compensation				Payments for taxes related to net share settlement of stock-based compensation	(530)		(140)
Dividends paid to common stockholders		(1,157	)	Dividends paid to common stockholders	(11,771)		(7,197)
Distributions to redeemable noncontrolling interests in the Operating Partnership		(2,019	)
Dividends paid to preferred stockholders				Dividends paid to preferred stockholders	(874)		(874)
Distributions to redeemable noncontrolling interests in the OP				Distributions to redeemable noncontrolling interests in the OP	(3,023)		(3,569)
Contributions from noncontrolling interests		302		Contributions from noncontrolling interests	—		655
Net cash used in financing activities		(7,684	)	Net cash used in financing activities	(61,704)		(102,136)

Net increase in cash, cash equivalents and restricted cash		197		Net increase in cash, cash equivalents and restricted cash	19,978		8,979
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, end of period	$	197		Cash, cash equivalents and restricted cash, end of period	$	40,325	$	42,211

Supplemental Disclosure of Cash Flow Information				Supplemental Disclosure of Cash Flow Information
Interest paid				Interest paid	9,793		4,910
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 real estate investments, net on deconsolidation of real estate				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 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 mortgages payable, net on deconsolidation of real estate				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 accrued interest payable on deconsolidation of real estate				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 retained earnings on deconsolidation of real estate				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)		—
Increase in dividends payable upon vesting of restricted stock units				Increase in dividends payable upon vesting of restricted stock units	304		324

See Notes to Consolidated Financial Statements

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NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES

~~CONSOLIDATED STATEMENT OF CASH FLOWS~~

~~(in thousands)~~

~~(Unaudited)~~

Supplemental Disclosure of Cash Flow Information

Interest paid

$
3,054

Supplemental Disclosure of Noncash Activities (Note 2)

Contributions from noncontrolling interests

2,739,693

Other assets acquired from contributions from noncontrolling interests

3,616

Assumed debt on contributions from noncontrolling interests

(2,491,682
)

~~See Notes to Consolidated Financial Statements~~

~~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 ~~newly formed~~ commercial mortgage real estate investment trust ~~(“REIT”~~(a "REIT") incorporated in Maryland on June 7, 2019. ~~We intend to elect~~The Company has elected to be ~~treated~~taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with ~~our~~its taxable year ~~ending~~ended December 31, 2020. The Company is focused on originating, structuring and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and ~~preferred stock,~~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. ~~The~~As of March 31, 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 ~~interests in the OP, and the OP owns approximately 27.78% of each~~units (“SubOP Units”) of its subsidiary ~~partnerships.~~partnerships (collectively, the “Subsidiary OPs”) (see Note 14).

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 ~~Operating Partnership~~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~~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 ~~subsidiary partnerships of~~ the ~~Company,~~Subsidiary OPs, in exchange for ~~limited partnership interests in subsidiary partnerships of the OP~~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 ~~for a three-year term set to expire~~and amended as of July 17, 2020 and November 3, 2021, that expires on February 6, ~~2023 (the~~2024 and is automatically renewed for successive one-year terms thereafter unless earlier terminated (as amended, the “Management Agreement”), by and ~~among~~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, primarily through dividends and secondarily through capital appreciation. We intend~~term. The Company intends to achieve this objective primarily by originating, structuring and investing in ~~first-lien mortgage loans, mezzanine loans, preferred equity and preferred stock, as well as multifamily CMBS securitizations. We concentrate~~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.~~areas ("MSAs"). In addition, ~~we target~~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 ~~we seek~~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

Basis of Accounting

The accompanying unaudited consolidated financial statements are presented in accordance with ~~accounting principles~~U.S. generally accepted ~~in the United States~~accounting principles (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the 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 three months ended March 31, ~~2020.~~

2023.

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

In the opinion of management, all adjustments and eliminations necessary for the fair presentation of the Company’s financial position as of March 31, ~~2020~~2023 and December 31, 2022 and results of operations for the three months ended March 31, ~~2020~~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 ~~Prospectus forming a part of~~audited consolidated financial statements for the year ended December 31, 2022, and notes thereto in its ~~Registration Statement~~Annual Report on Form ~~S-11 (Registration No. 333-235698)~~10-K filed with the SEC on ~~February 10, 2020.~~

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.

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

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

Certain states and cities have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. The Company expects that additional states and cities will implement similar restrictions and cannot predict when such restrictions will expire. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly and may adversely impact our performance or the value of underlying real estate collateral relating to the Company’s investments, increase the default risk applicable to borrowers and make it relatively more difficult for the Company to generate attractive risk-adjusted returns. The extent to which COVID-19 impacts the Company will depend on future developments, which are highly uncertain and cannot be predicted, including additional actions taken to contain COVID-19 or treat its impact, among others. The COVID-19 outbreak, and future pandemics, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance. COVID-19 may also negatively and materially impact estimates and assumptions used by the Company including, but not limited to, fair value estimates and estimates of an allowance for loan losses.

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~~.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 March 31, 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 ~~unaudited~~ consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP and its subsidiaries. The Company’s sole significant asset is its investment in the OP, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of the OP. ~~In addition, all of the Company’s debt is an obligation of the OP’s subsidiary partnerships.~~

Variable Interest Entities

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

VIE (see Note 6).

CMBS Trusts

~~CMBS~~

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 issued by the trusts, which include~~securities. The subordinate tranche includes the controlling class and has the ability to remove and replace the special servicer.

On the Consolidated Balance ~~Sheet~~Sheets as of March 31, ~~2020, we~~2023, the Company consolidated each of the ~~two~~ Freddie Mac K-Series securitization entities (the “CMBS Entities”) that wewere determined ~~were~~to be VIEs and for which ~~we determined we were~~the Company is the primary beneficiary. The CMBS Entities are independent of the Company, and the assets and liabilities of the CMBS Entities are not owned by and are not legal obligations of ours. Our exposure to the CMBS Entities is through the subordinated tranches. For financial reporting purposes, the underlying mortgage loans held by the trusts are recorded as a separate line item on the balance sheet under “Mortgage loans held in variable interest entities, at fair value.” The liabilities of the trusts consist solely of obligations to the CMBS holders of the consolidated trusts, excluding the CMBS B-Piece investments held by the Company. The liabilities are presented as “Bonds payable held in variable interest entities, at fair value” on the Consolidated Balance ~~Sheet.~~Sheets. The CMBS B-Pieces held by the Company, and the interest earned thereon are eliminated in consolidation. Management has elected the measurement alternative in ASC 810 to report the fair value of the assets and liabilities of the consolidated CMBS Entities in order to provide users of the financial statements with better information regarding the effects of credit risk and other market factors on the CMBS B-Pieces owned by the Company. Management has elected to show interest income and interest expense related to the CMBS Entities in aggregate with the change in fair value as “Change in net assets related to consolidated CMBS variable interest entities.” The residual difference between the fair value of the CMBS Entities’ assets and liabilities represents the Company’s investments in the CMBS ~~B-Pieces.~~

B-Pieces at fair value.

Investment in subsidiaries

The Company conducts its operations through the OP, which directly or through a subsidiary, acts as the general partner of the ~~subsidiary partnerships that~~Subsidiary OPs. The Subsidiary OPs own ~~the~~ investments through limited liability companies that are ~~SPEs.~~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 ~~sole~~majority limited partner of the OP ~~has~~in terms of economic interests, holding approximately 83.41% of the OP Units in the OP as of March 31, 2023 which represent 100% of the ~~limited partnership interests in~~Class A OP Units, and the OP ~~and has the ability to remove the general partner~~GP must generally receive approval of the ~~OP with or without cause, and as~~Board to take any actions. As such, the Company consolidates the OP. The Company consolidates the SPEs ~~in which~~where it ~~has a controlling financial interest~~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 ~~unaudited~~ consolidated financial statements. Generally, the assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the Company notwithstanding equity pledges various lenders may have in certain entities or guarantees provided by certain entities.

As of March 31, 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 ~~subsidiary partnerships of~~OP and the OPSubsidiary OPs have issued redeemable noncontrolling interests classified on the Consolidated Balance ~~Sheet~~Sheets as temporary equity in accordance with ASC 480. This is presented as “Redeemable noncontrolling interests in the ~~Operating Partnership”~~OP” on the Consolidated Balance ~~Sheet~~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 partnerships.~~

Subsidiary OPs and the OP.

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Acquisition Accounting

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

~~Formation Transaction~~

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

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

Restricted Cash

Par value

Fair Value

Premium (Discount)

Assets

Cash

$
302

$
302

$
—

Loans, held-for-investment, net

22,127

22,282

155

Preferred stock

40,000

40,400

400

Mortgage loans, held-for-investment, net

863,564

934,918

71,354

Accrued interest and dividends

3,616

3,616

—

Mortgage loans held in variable interest entities, at fair value

1,742,186

1,742,093

(93
)

$
2,671,795

$
2,743,611

$
71,816

Liabilities

Credit facility

$
788,764

$
788,764

$
—

Bridge facility

95,000

95,000

—

Bonds payable held in variable interest entities, at fair value

1,607,918

1,607,918

—

$
2,491,682

$
2,491,682

$
—

Total contributions

$
180,113

$
251,929

$
71,816

~~Cash and Cash Equivalents~~

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value.

Substantially all amounts on deposit with major financial institutions exceed insured limits.

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

Mortgage and ~~other loans held-for-investment~~

Other Loans Held-For-Investment, 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 ~~loan~~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 circumstances where, in management’s opinion, the difference between the straight-line and effective interest methods is immaterial, the straight-line method is used. As prepayments of principal are received, any premiums paid are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets.

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.

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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.

Income Recognition

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

~~Dividend Income -~~ ~~Dividend income is recorded when declared.~~

costs and prepayment penalties.

Realized Gain (Loss) on ~~Sale of~~ Investments - The Company recognizes the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized gains or losses, respectively. The Company reverses cumulative, unrealized gains or losses previously reported in its Consolidated ~~Statement~~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. The Company implemented the provisions of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) as of December 31, 2021. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements as a substantial portion of its revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.

In July 2018, the FASB issued 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

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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 ~~Loan~~Credit Losses

~~The~~

In prior periods, the Company, with the assistance of an independent valuations firm, ~~performs~~performed a quarterly evaluation of loans classified as held for investment for impairment on a ~~loan by loan~~loan-by-loan basis in accordance with ASC 310-10-35, Receivables, Subsequent Measurement (“ASC 310-10-35”). If ~~we deem~~the Company determined that it iswas probable that ~~we will~~it would be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan iswas indicated. If ~~we consider~~ a loan was considered to be impaired, ~~we will~~the Company would establish an allowance for loan losses, through a valuation provision in earnings that ~~reduces~~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 iswas expected solely from the collateral. For non-impaired loans with no specific allowance the Company ~~determines~~determined an allowance for loan losses in accordance with ASC 450-20, Loss Contingencies (“ASC 450-20”), which ~~represents~~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 ~~considers~~considered quantitative factors likely to cause estimated credit losses, including default rate and loss severity rates. The Company also ~~evaluates~~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, net”~~(provision)” on the accompanying Consolidated ~~Statement~~Statements of Operations.

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.

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 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, is $2.3 million. As such, the cumulative effect of adoption of ASU 2016-13 is a $1.6 million reduction in retained earnings. The reversal of (provision for) credit losses of $0.034 million is included in other income on the accompanying Consolidated Statements of Operations, resulting in a March 31, 2023 ending allowance for credit loss of $2.3 million.

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.

~~We perform~~

The Company performs a quarterly review of ~~our~~the portfolio. In conjunction with this review, ~~we assess~~the Company assesses the risk factors of each loan, including, without limitation, loan-to-value ratio, debt yield, property type, geographic and local market dynamics, physical condition, collateral, cash-flow volatility, leasing and tenant profile, loan structure, exit

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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;

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; defaultsmayexist ormaysoon occur absent material improvement; and

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

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

~~We consider~~

The Company considers loans to be past-due when a monthly payment is due and unpaid for 60 days or more. Loans will be placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when they become 120 days or more past-due unless the loan is both well secured and in the process of collection. Accrual of interest on individual loans is discontinued when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Our policy is to ~~stop~~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 three months ended March 31, 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.~~

~~Other-Than-Temporary Impairment~~

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

In the event that the fair value of debt securities held to maturity is less than amortized cost, we consider whether the unrealized holding loss represents an OTTI. If we do not expect to recover the carrying value of the debt security held-to-maturity based on future expected cash flows, an OTTI exists, and we reduce the carrying value by the impairment amount, recognize the portion of the impairment related to credit factors in earnings and the portion of the impairment related to other factors in accumulated other comprehensive income. For three months ended March 31, ~~2020, the Company has not recognized an OTTI related to its investment in debt securities held to maturity.~~

2023, there were no loans acquired with deteriorated credit quality.

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

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

Valuation of Consolidated VIEs

~~We report~~

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

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 ~~Preferred Stock~~ and Mezzanine Loans - ~~We categorize our~~ SFR Loans, preferred equity ~~preferred stock~~ and mezzanine loan investments are categorized as Level 3 assets in the fair value hierarchy. SFR Loans, preferred equity ~~preferred stock~~ and mezzanine loan investments are valued using a discounted cash flow model using discount rates derived from observable market data applied to the internal rate of return implied by the expected contractual cash flows.

The valuation is done for disclosure purposes only as these investments are not carried at fair value on the Consolidated Balance Sheets.

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

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

accounting.

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

Income Taxes

The Company ~~believes that it will operate in a manner that will allow it~~has elected to ~~qualify for taxation~~be taxed as a ~~REIT under the Code, commencing with its taxable year ending December 31, 2020.~~REIT. As a result of the Company’s ~~expected~~ REIT qualification, the Company does not expect to pay U.S. federal corporate level taxes. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90% of its “REIT taxable income,” as defined by the Code, to its stockholders. If the Company fails to meet these requirements, it could be subject to federal income tax on all of the Company’s taxable income at regular corporate rates for that year. The Company would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. Additionally, the Company will also be disqualified from electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost unless the Company is entitled to relief under specific statutory provisions. Taxable income from certain non-REIT activities is managed through a taxable REIT subsidiary (“TRS”), which is subject to U.S. federal and applicable state and local corporate income taxes. As of March 31, ~~2020,~~2023, the Company believes it is in compliance with all applicable REIT requirements and had no significant taxes associated with ~~our~~its TRS.

~~We evaluate~~

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

~~We recognize our~~

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

for open tax years 2020 through 2023.

Recent Accounting Pronouncements

Section 107 of the Jumpstart Our Business Startups Act (“JOBS Act”) p~~rovides~~provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards

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would otherwise apply to private companies. ~~We have~~The Company has elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. WeThe Company may elect to comply with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS ~~Act~~.

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

This allowance is deducted from the financial asset’s amortized cost basis to present the net amount expected to be collected. The new expected credit loss model will also apply to purchased financial assets with credit deterioration, superseding current accounting guidance for such assets. The amended guidance also amends the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and also eliminating the option for management to consider the length of time a security has been in an unrealized loss position as a factor in concluding whether or not a credit loss exists. The amended model states that an entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra account to the amortized cost basis, instead of a direct reduction of the amortized cost basis of the investment, as under current guidance. As a result, entities will recognize improvements to estimated credit losses on available-for-sale debt securities immediately in earnings as opposed to in interest income over time. There are also additional disclosure requirements included in this guidance. The amended guidance is to be applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at the date of initial application. However, certain provisions of the guidance are only required to be applied on a prospective basis. That methodology replaces the probable, incurred loss model for those assets. The new standard is effective for the Company for annual and interim periods beginning after December 15, 2023. While the Company is currently evaluating the impact ASU 2016-13 will have on the Company’s consolidated financial statements, the ultimate impact will depend on the portfolio and facts and circumstances near the date of adoption.

Act.

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

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

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

In March 2020, the FASB issued AU 2020-04, Reference Rate Reform (Topic 848):Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the U.S. Dollar London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance is effective upon issuance and generally may be elected over time through December 31, 2024. The Company has not adopted any of the optional expedients or exceptions through March 31, 2023 but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

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 three months ended March 31, 2023.

3. Loans Held for Investment,

Net

The Company’s investments in ~~SFR Loans,~~mortgage loans, mezzanine loans, ~~and~~ 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 the Consolidated Balance Sheets. The following ~~table summarizes~~tables summarize our loans ~~held for investment~~held-for-investment as of March 31, ~~2020~~2023 and December 31, 2022, respectively (dollars in thousands).

Weighted Average

Loan Type

Outstanding
Face Amount

Carrying Value (1)

Loan Count

Fixed Rate

Coupon (2)

Life (years) (3)

March 31, 2020

SFR Loans, held-for-investment

$
863,109

$
933,219

27

100.00
%

4.91
%

8.11

Mezzanine loan, held-for-investment

3,250

3,222

1

0.00
%

8.00
%
(4)

1.84

Preferred equity, held-for-investment

18,877

19,060

3

100.00
%

8.85
%

5.31

$
885,236

$
955,501

31

99.63
%

5.01
%

8.02

~~(1)~~

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

~~(2)~~

~~The weighted-average coupon is weighted on current principal balance.~~


Loan Type	Outstanding Face Amount		Carrying Value (1)		Loan Count	Weighted Average
						Fixed Rate (2)		Coupon (3)		Life (years) (4)
March 31, 2023
Mortgage loans, held-for-investment	$	687,602	$	723,343	15	100.00	%	4.81	%	5.11
Mezzanine loans, held-for-investment	133,207		135,336		22	78.31	%	9.48	%	6.05
Preferred equity, held-for-investment	150,209		149,212		13	60.26	%	11.23	%	3.49
	$	971,018	$	1,007,891	50	90.88	%	6.44	%	4.99

~~(3)~~

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.

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

~~(4)~~

Interest for the Mezzanine loan is calculated using the March 31, 2020 WSJ Prime of 3.25% plus a spread of 9.0%. A fixed minimum rate of 8.0% is paid in cash on a monthly basis. The difference between the 8.0% minimum monthly payment and the stated rate is accrued as paid-in-kind (“PIK”) interest and is compounded on a monthly basis. Accrued PIK is to be paid at maturity.

(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.

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(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)
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.

For the three months ended March 31, ~~2020,~~2023 and 2022, the loan and preferred equity portfolio activity was as follows (in thousands):

Held-for-Investment

Total

Balance at December 31, 2019

$
—

$
—

Contributions from noncontrolling interests in the OP

957,200

957,200

Proceeds from principal repayments

(455
)

(455
)
Amortization of loan premium, net (1)

(1,032
)

(1,032
)
Loan loss provision, net (2)

(212
)

(212
)
Balance at March 31, 2020

$
955,501

$
955,501

~~(1)~~

~~Includes net amortization of loan purchase premiums.~~

~~(2)~~

~~Based on management’s judgment and estimate of credit losses. See Note 2 for additional information.~~


	For the Three Months Ended March 31,
	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		—
Cumulative effect of adoption of ASU 2016-13 (See Note 2)	(1,624)		—
Originations	28,816		99,708
Proceeds from principal repayments	(36,743)		(124,633)
PIK distribution reinvested in Preferred Units	209		168
Amortization of loan premium, net (1)	(1,501)		(7,818)
Reversal of (provision for) credit losses, net	34		(151)
Balance at March 31,	$	1,007,891	$	1,056,155

(1)Includes net amortization of loan purchase premiums.

As of March 31, ~~2020,~~2023, and December 31, 2022, there were ~~$70.3~~$55.0 million and $40.9 million of unamortized premiums on loans, held-for-investment, net, respectively, on the Consolidated Balance ~~Sheet.~~

Sheets.

Table of Contents

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 ~~our~~the portfolio, ~~we assess~~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 ~~table allocates~~tables allocate the principal balance and net book value of the loan portfolio based on our internal risk ratings (dollars in thousands):

	March 31, 2020
	Number of		Carrying		% of Loan
Risk Rating								Risk Rating	March 31, 2023
	Loans		Value		Portfolio				Number of Loans	Carrying Value		% of Loan Portfolio
1		—	$	—		—		1	—	$	—	—
2		—		—		—		2	—	—		—
3		31		955,501		100.00	%	3	50	1,007,891		100.00	%
4		—		—		—		4	—	—		—
5		—		—		—		5	—	—		—
		31	$	955,501		100.00	%		50	$	1,007,891	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 March 31, ~~2020,~~2023, all 3150 loans held-for-investment in our portfolio were rated “3,” or “Satisfactory” based on the factors assessed by the Company and discussed in Note 2.

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

amounts.


Geography	March 31, 2023		December 31, 2022
Georgia	33.04	%	34.04	%
Florida	18.78	%	19.34	%
Texas	12.43	%	11.21	%
Nevada	2.80	%	0.30	%
Maryland	5.43	%	5.59	%
Minnesota	6.76	%	6.97	%
California	2.16	%	4.66	%
Alabama	3.70	%	3.81	%
North Carolina	2.69	%	2.65	%
Arkansas	1.37	%	1.42	%
Other (20 and 22 states each at <1%)	10.84	%	10.01	%
	100.00	%	100.00	%

*Included in “Other.”

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Collateral Property Type	March 31, 2023		December 31, 2022
Single Family Rental	71.54	%	72.26	%
Multifamily	23.67	%	23.11	%
Life Science	3.06	%	2.85	%
Self-Storage	1.73	%	1.79	%
	100.00	%	100.00	%

4. CMBS Trusts

As of March 31, 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	March 31, 2023		December 31, 2022
Mortgage loans held in variable interest entities, at fair value	$	6,747,377	$	6,720,246
Accrued interest receivable	4,370		4,029

Trust's Liabilities
Bonds payable held in variable interest entities, at fair value	(6,278,734)		(6,249,804)
Accrued interest payable	(3,514)		(3,207)

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


	For the Three Months Ended March 31,
	2023		2022
Net interest earned	$	10,643	$	7,953
Unrealized gain (loss)	360		(4,537)
Change in net assets related to consolidated CMBS variable interest entities	$	11,003	$	3,416

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


Geography	March 31, 2023		December 31, 2022
Texas	18.16	%	17.95	%
Florida	13.25	%	13.82	%
Arizona	3.97	%	6.98	%
California	8.24	%	9.28	%
Georgia	4.66	%	4.68	%
Washington	7.66	%	6.88	%
New Jersey	3.76	%	3.97	%
Nevada	2.33	%	1.99	%
Pennsylvania	1.19	%	1.01	%
Colorado	7.25	%	6.21	%
Connecticut	2.96	%	3.64	%
North Carolina	3.90	%	3.53	%
New York	3.23	%	2.76	%
Ohio	2.34	%	2.00	%
Virginia	1.89	%	1.62	%
Indiana	1.98	%	1.69	%
Illinois	1.59	%	1.37	%
Michigan	1.30	%	1.11	%
South Carolina	*		*
Maryland	1.10	%	*
Missouri	1.46	%	1.25	%
Other (21 and 22 states each at <1%)	7.78	%	8.26	%
	100.00	%	100.00	%

*Included in “Other.”


Collateral Property Type	March 31, 2023		December 31, 2022
Multifamily	97.50	%	98.45	%
Manufactured Housing	2.50	%	1.55	%
	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 and thus can exercise significant influence over NSP. NSP is a VIE and the Company has 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.

Table of Contents

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 REIT as of March 31, 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 March 31, 2023, the Company valued this investment based on the Private REIT's market approach price of $19.26 per share.

The Company owns approximately 98.0% of the total outstanding common equity of each of RFGH and 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 March 31, 2023 and December 31, 2022, respectively (in thousands, except share amounts):

Investment

Investment
Date

Property Type

Fair Value

March 31, 2023

December 31, 2022

March 31, 2023

December 31, 2022

Common Stock

NexPoint Storage Partners

11/6/2020

Self-storage

41,963

50,145

50,380

Private REIT

4/14/2022

Ground lease

1,394,213

26,853

27,884

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


	For the Three Months Ended March 31,
	2023		2022
Change in unrealized gain on NexPoint Storage Partners	$	(235)	$	329
Change in unrealized gain on Private REIT	(1,032)		—
Change in unrealized gain on common stock investments	$	(1,267)	$	329

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

Investment

Investment
Date

Property Type

Carrying Value

March 31, 2023

December 31, 2022

March 31, 2023

December 31, 2022

Common Equity

RFGH

2/10/2023

Multifamily

50,000

—

500

—

RTB

2/24/2023

Multifamily

50,000

—

500

—

6. Variable Interest Entities

Consolidated VIEs

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

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As of March 31, 2023, the Company has accounted for the following investments as unconsolidated VIEs:

~~Geography~~

Entities

Instrument

Asset Type

Percentage Ownership as of March 31, ~~2020~~

2023

Relationship as of March 31, 2023

~~Georgia~~

~~44.15~~

~~Florida~~

Unconsolidated Entities:

~~22.32~~

~~Texas~~

NexPoint Storage Partners, Inc.

Common Stock

~~6.68~~

Self-storage

25.7

VIE

~~Minnesota~~

Resmark Forney Gateway Holdings, LLC

Common equity

~~5.29~~

Multifamily

98.0

VIE

~~Alabama~~

Resmark The Brook, LLC

Common equity

~~4.21~~

~~New Jersey~~

Multifamily

98.0

~~2.04~~

~~Maryland~~

~~1.94~~

~~North Carolina~~

~~1.91~~

~~Mississippi~~

~~1.14~~

~~Michigan~~

~~1.08~~

~~Oklahoma~~

~~1.05~~

~~Tennessee~~

~~0.98~~

~~Connecticut~~

~~0.94~~

~~Missouri~~

~~0.85~~

~~New York~~

~~0.72~~

~~Illinois~~

~~0.71~~

~~Nebraska~~

~~0.65~~

~~Virginia~~

~~0.64~~

~~Massachusetts~~

~~0.61~~

~~Ohio~~

~~0.51~~

~~Indiana~~

~~0.50~~

~~South Carolina~~

~~0.45~~

~~Pennsylvania~~

~~0.25~~

~~Kentucky~~

~~0.22~~

~~Arkansas~~

~~0.15~~

~~100.00~~

VIE

~~Collateral Property Type~~	~~March 31, 2020~~
~~Single Family Rental~~		~~97.50~~	%
~~Multifamily~~		~~2.50~~	%
		~~100.00~~	%

The Company's maximum exposure to loss of value for the NSP investment, inclusive of a related guaranty, is the carrying value of the Company's $50.1 million NSP common stock investment and the guaranteed obligations with respect to NSP under the Sponsor Guaranty Agreement as described in Note 15 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 million carrying value for each investment and may include an additional $3.8 million in unfunded commitments for each investment to the extent those commitments are funded.

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

As of March 31, 2023, the Company held twelve CMBS I/O 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.

Table of Contents

The following table presents the CMBS I/O Strips, MSCR Notes and mortgage backed securities as of March 31, 2023 (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		$	1,781	Multifamily	2.02	%	14.58	%	9/25/2046
CMBS I/O Strip	8/6/2020		16,976		Multifamily	2.98	%	16.44	%	6/25/2030
CMBS I/O Strip	4/28/2021	(2)	5,582		Multifamily	1.59	%	16.02	%	1/25/2030
CMBS I/O Strip	5/27/2021		3,636		Multifamily	3.39	%	16.20	%	5/25/2030
CMBS I/O Strip	6/7/2021		442		Multifamily	2.31	%	19.65	%	11/25/2028
CMBS I/O Strip	6/11/2021	(3)	3,409		Multifamily	1.19	%	13.75	%	5/25/2029
CMBS I/O Strip	6/21/2021		1,043		Multifamily	1.18	%	17.17	%	5/25/2030
CMBS I/O Strip	8/10/2021		2,405		Multifamily	1.89	%	16.35	%	4/25/2030
CMBS I/O Strip	8/11/2021		1,322		Multifamily	3.10	%	14.08	%	7/25/2031
CMBS I/O Strip	8/24/2021		247		Multifamily	2.61	%	14.83	%	1/25/2031
CMBS I/O Strip	9/1/2021		3,673		Multifamily	1.92	%	15.48	%	6/25/2030
CMBS I/O Strip	9/11/2021		3,792		Multifamily	2.95	%	14.04	%	9/25/2031
Total			$	44,308		2.47	%	15.77	%

MSCR Notes
MSCR Notes	5/25/2022		$	3,899	Multifamily	13.98	%	13.98	%	5/25/2052
MSCR Notes	5/25/2022		4,825		Multifamily	10.98	%	10.98	%	5/25/2052
MSCR Notes	9/23/2022		1,291		Multifamily	11.33	%	12.45	%	11/25/2051
Total			$	10,015		12.19	%	12.34	%

Mortgage Backed Securities
Mortgage Backed Securities	6/1/2022		$	9,793	Single-Family	7.79	%	8.11	%	4/17/2026
Mortgage Backed Securities	6/1/2022		8,286		Single-Family	4.87	%	5.07	%	11/19/2025
Mortgage Backed Securities	7/28/2022		535		Single-Family	6.23	%	6.33	%	10/17/2027
Mortgage Backed Securities	7/28/2022		869		Single-Family	3.60	%	4.20	%	6/20/2028
Mortgage Backed Securities	9/12/2022		3,965		Multifamily	10.56	%	10.54	%	1/25/2031
Mortgage Backed Securities	9/29/2022		7,826		Self Storage	10.34	%	10.36	%	9/15/2027
Mortgage Backed Securities	3/10/2023		5,733		Multifamily	13.07	%	13.10	%	2/25/2025
Total			$	37,007		8.67	%	8.82	%

(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.

Table of Contents4.

The following table presents the CMBS I/O Strips as of December 31, 2022 (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.

Table of Contents

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 March 31,
	2023		2022
Net interest earned	$	717	$	1,165
Change in unrealized gain (loss) on CMBS structured pass-through certificates	(752)		(4,340)
Change in unrealized gain (loss) on MSCR notes	(298)		—
Change in unrealized (loss) on mortgage backed securities	(606)		—
Total	$	(939)	$	(3,175)

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, net

OnDecember 31, 2021, the Company acquired a 204-unit multifamily property in Charlotte, North Carolina (Hudson Montford). The property was 93.6% and 96.1% occupied, with effective rent per occupied unit of $1,653 per month and $1,663, per month as ofMarch 31, 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 ofMarch 31, 2023, the major components of the Company's investments in multifamily properties were as follows (in thousands):


Real Estate Investment, Net	Land		Buildings and Improvements		Intangible Lease Assets		Construction in Progress		Furniture, Fixtures and Equipment		Totals
Hudson Montford	$	10,996	$	49,837	$	—	$	26	$	629	$	61,488
Accumulated depreciation and amortization	—		(2,176)		—		—		(240)		(2,416)
Total Real Estate Investments, Net	$	10,996	$	47,661	$	—	$	26	$	389	$	59,072

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As ofDecember 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

The following table reflects the revenue and expenses for the three months ended March 31, 2023 and 2022, for our multifamily property (in thousands).


	For the Three Months Ended March 31,
	2023		2022
Revenues
Rental income	$	1,018	$	2,180
Other income	10		207
Total revenues	$	1,028	$	2,387
Expenses
Interest expense	581		669
Real estate taxes and insurance	172		404
Property operating expenses	185		367
Property general and administrative expenses	35		45
Property management fees	29		63
Depreciation and amortization	476		944
Rate cap (income) expense	194		(351)
Debt service bridge	—		287
Casualty loss	(175)		—
Total expenses	1,497		2,428
Net income (loss) from consolidated real estate owned	$	(469)	$	(41)

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10. Debt

The following table summarizes the Company’s financing arrangements in place as ofMarch 31, ~~2020:~~

March 31, 2020

Facility

Collateral

Date issued

Outstanding
face amount

Carrying
value

Maximum
facility size

Final stated
maturity

Weighted
average
interest
rate (1)

Weighted
average
life (years)
(2)

Outstanding
face amount

Carrying
value

Weighted
average
life (years)
(2)

Asset Specific Financing

Single Family Rental

Freddie Mac

7/12/2019

788,345

788,345

789,967

7/12/2029

2.44
%

8.1

863,109

933,219

8.1

Total/weighted average

$
788,345

$
788,345

$
789,967

2.44
%

8.1

$
863,109

$
933,219

8.1

~~(1)~~

~~Weighted-average interest rate is weighted using unpaid principal balances.~~

2023:

~~(2)~~

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


	March 31, 2023
	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	$	350,399	$	350,399	N/A	(5)	6.72	%	0.10	$	967,094	$	541,495	$	536,115	6.8
Asset Specific Financing
Single Family Rental loans
Freddie Mac	7/12/2019	628,228		628,228		7/12/2029		2.35	%	5.1	687,602		723,343		723,343		5.1
Mezzanine loans
Freddie Mac	10/20/2020	59,252		59,252		8/1/2031		0.30	%	7.0	96,817		99,188		99,188		7.0
Multifamily properties
CBRE	12/31/2021	32,480		32,235		6/1/2028	(6)	7.34	%	5.2	N/A		59,072		59,072		5.2
Unsecured Financing
Various	10/15/2020	36,500		35,606		10/25/2025		7.50	%	2.6	N/A		N/A		N/A		2.6
Various	4/20/2021	165,000		163,070		4/15/2026		5.75	%	3.0	N/A		N/A		N/A		N/A
Various	10/18/2022	6,500		6,500		10/18/2027		7.50	%	4.6	N/A		N/A		N/A		N/A
Total/weighted average		$	1,278,359	$	1,275,290			4.19	%	3.5	$	1,751,513	$	1,423,098	$	1,417,718	6.1

(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 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.

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The following table summarizes the Company’s financing arrangements in place as ofDecember 31, 2022:


	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		2.8
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.~~Group and the OP. The 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 March 31, ~~2020.~~2023. 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.~~ 2020. Our borrowings under the Credit Facility will mature on July 12, ~~2029.~~ 2029. However, if an Underlying Loan matures or is paid off prior to July 12, 2029, wethe Company will be required to repay the portion of the Credit Facility that is allocated to that loan.

As of March 31, 2023, the outstanding balance on the Credit Facility was $628.2 million.

We, through the Subsidiary OPs, have borrowed approximately $350.4 million under our repurchase agreements and posted $967.1 million par value of our CMBS B-Piece, CMBS I/O Strip, MSCR Notes and mortgage backed security investments as collateral for the three months ended March 31, 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

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Notes are fully guaranteed by the Company in the event that the OP cannot satisfy the obligations of the OP Notes. As of March 31, 2023, any action required under the guaranty is considered remote.

On January 25, 2022, the Company issued an additional $35.0 million aggregate principal amount of its 5.75% Senior Unsecured Notes due 2026 (the "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.

As of March 31, 2023, the outstanding principal balances related to the SFR Loans and levered mezzanine loans consisted of the following (dollars in thousands):

Outstanding

Investment

Principal

Investment

Date

Balance

Location

Property Type

Interest Type

Interest Rate

Maturity Date
SFR Loans

Senior loan

2/11/2020

$
465,689

Various

Single-family

Fixed

2.24
%

9/1/2028
Senior loan

2/11/2020

9,304

Various

Single-family

Fixed

3.51
%

2/1/2028
Senior loan

2/11/2020

4,980

Various

Single-family

Fixed

2.48
%

8/1/2023
Senior loan

2/11/2020

9,701

Various

Single-family

Fixed

2.79
%

9/1/2028
Senior loan

2/11/2020

6,955

Various

Single-family

Fixed

2.69
%

7/1/2028
Senior loan

2/11/2020

5,236

Various

Single-family

Fixed

2.64
%

10/1/2028
Senior loan

2/11/2020

11,326

Various

Single-family

Fixed

3.02
%

10/1/2028
Senior loan

2/11/2020

5,832

Various

Single-family

Fixed

2.87
%

9/1/2023
Senior loan

2/11/2020

7,711

Various

Single-family

Fixed

3.02
%

11/1/2028
Senior loan

2/11/2020

46,146

Various

Single-family

Fixed

2.14
%

10/1/2025
Senior loan

2/11/2020

9,158

Various

Single-family

Fixed

3.30
%

10/1/2028
Senior loan

2/11/2020

36,176

Various

Single-family

Fixed

2.70
%

11/1/2028
Senior loan

2/11/2020

5,973

Various

Single-family

Fixed

2.68
%

11/1/2028
Senior loan

2/11/2020

13,603

Various

Single-family

Fixed

2.61
%

11/1/2023
Senior loan

2/11/2020

5,346

Various

Single-family

Fixed

3.14
%

12/1/2028
Senior loan

2/11/2020

9,562

Various

Single-family

Fixed

3.02
%

12/1/2028
Senior loan

2/11/2020

10,036

Various

Single-family

Fixed

2.77
%

12/1/2028
Senior loan

2/11/2020

4,932

Various

Single-family

Fixed

2.97
%

1/1/2029
Senior loan

2/11/2020

8,468

Various

Single-family

Fixed

3.14
%

1/1/2029
Senior loan

2/11/2020

5,878

Various

Single-family

Fixed

2.40
%

2/1/2024
Senior loan

2/11/2020

4,279

Various

Single-family

Fixed

3.06
%

2/1/2029
Senior loan

2/11/2020

16,179

Various

Single-family

Fixed

2.91
%

2/1/2029
Senior loan

2/11/2020

7,064

Various

Single-family

Fixed

2.98
%

2/1/2029
Senior loan

2/11/2020

7,346

Various

Single-family

Fixed

2.80
%

2/1/2029
Senior loan

2/11/2020

6,191

Various

Single-family

Fixed

2.99
%

3/1/2029
Senior loan

2/11/2020

9,284

Various

Single-family

Fixed

2.45
%

3/1/2026
Senior loan

2/11/2020

55,988

Various

Single-family

Fixed

2.70
%

3/1/2029
Total

$
788,345

2.44
%

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Investment

Investment Date

Outstanding Principal Balance (1)

Location

Property Type

Interest Type

Interest Rate

Maturity Date

SFR Loans

Senior loan

2/11/2020

465,690

Various

Single-family

Fixed

2.24

9/1/2028

Senior loan

2/11/2020

46,094

Various

Single-family

Fixed

2.14

10/1/2025

Senior loan

2/11/2020

34,385

Various

Single-family

Fixed

2.70

11/1/2028

Senior loan

2/11/2020

9,251

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

8,787

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

7,974

Various

Single-family

Fixed

3.14

1/1/2029

Senior loan

2/11/2020

6,748

Various

Single-family

Fixed

2.98

2/1/2029

Senior loan

2/11/2020

5,922

Various

Single-family

Fixed

2.99

3/1/2029

Senior loan

2/11/2020

5,486

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

4,992

Various

Single-family

Fixed

2.64

10/1/2028

Senior loan

2/11/2020

4,749

Various

Single-family

Fixed

2.48

8/1/2023

Senior loan

2/11/2020

4,715

Various

Single-family

Fixed

2.97

1/1/2029

Total

628,228

2.35

Mezzanine Loans

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

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

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

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

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

2,215

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

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

1,307

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

728

Des Moines, IA

Multifamily

Fixed

0.30

3/1/2029

Total

59,252

0.30

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(1)Outstanding principal balance represents the total repurchase agreement balance outstanding as of March 31, 2023.

For the three months ended March 31, ~~2020,~~2023 and 2022, the activity related to the carrying value of the ~~Credit Facility~~master repurchase agreements, secured financing agreements and unsecured financing were as follows (in thousands):

Balances as of December 31, 2019

$
—

Assumption of debt

788,764

Principal repayments

(419
)
Balances as of March 31, 2020

$
788,345


	For the Three Months Ended March 31,
	2023		2022
Balances as of December 31,	$	1,345,101	$	1,273,051
Adjustment to mortgages payable, net on deconsolidation of real estate	(89,012)		—
Principal borrowings	26,801		148,948
Principal repayments	(7,827)		(100,884)
Accretion of discounts	216		197
Amortization of deferred financing costs	11		12
Balances as of March 31,	$	1,275,290	$	1,321,324

Schedule of Debt Maturities

The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to March 31, ~~2020~~2023 are as follows (in thousands):

Year

Non-recourse

Total

2020

$
—

$
—

2021

—

—

2022

—

—

2023

(24,415
)

(24,415
)
2024

(5,878
)

(5,878
)
Thereafter

(758,052
)

(758,052
)

$
(788,345
)

$
(788,345
)


Year	Recourse		Non-recourse		Total
2023(1)	$	—	$	(355,148)	$	(355,148)
2024	—		(5,486)		(5,486)
2025	(36,500)		(46,094)		(82,594)
2026	(197,480)		(9,284)		(206,764)
2027	(6,500)		—		(6,500)
Thereafter	—		(621,867)		(621,867)
	$	(240,480)	$	(1,037,879)	$	(1,278,359)

~~KeyBank Bridge Facility~~

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

~~During the three months ended March 31, 2020, the Company used proceeds from the IPO to pay down the entirety of the Bridge Facility. As of March 31, 2020, the facility is extinguished.~~

~~5. CMBS Trusts~~

~~As of March 31, 2020, the Company consolidated the CMBS Entities that we determined are VIEs and for which we are the primary beneficiary.~~ (1)The ~~Company elected the fair-value option for each of the trusts and carries the fair values of the trust’s assets and liabilities at fair value~~transactions in ~~its Consolidated Balance Sheet; recognizes changes~~place in the ~~trust’s net assets, including changes in fair-value adjustments~~master repurchase agreement with Mizuho have a one-month to two-month tenor and ~~net interest earned, in its Consolidate Statements of Operations; and records cash interest received from the trusts, net of cash interest paid~~are expected to ~~CMBS not beneficially owned by the Company, as operating cash-flows.~~

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

roll accordingly.

Trust's Assets

March 31, 2020

Mortgage loans held in variable interest entities, at fair value

$
1,712,909

Accrued interest receivable

751

Trust's Liabilities

Bonds payable held in variable interest entities, at fair value

(1,607,918
)
Accrued interest payable

(558
)

$
105,184

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

For the Three Months Ended March 31, 2020

Net interest earned

$
1,742

Unrealized gain (loss)

(26,901
)
Change in net assets related to consolidated CMBS variable interest entities

$
(25,159
)

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

Geography

March 31, 2020

Collateral Property Type

March 31, 2020

Arizona

18.25
%

Multifamily

99.20
%
Florida

17.06
%

Manufactured Housing

0.80
%
Texas

12.96
%

100.00
%
Georgia

9.25
%

Washington

8.96
%

Nevada

6.71
%

Pennsylvania

6.62
%

California

6.43
%

Tennessee

3.20
%

Louisiana

2.81
%

Utah

2.50
%

Colorado

2.43
%

Oregon

1.32
%

New York

1.21
%

Alabama

0.28
%

100.00
%

~~6. Preferred Stock~~

As of March 31, 2020 the Company held one preferred stock investment accounted for as a debt security held to maturity recorded at amortized cost. The preferred stock investment consists of 40,000 shares of preferred stock in Jernigan Capital, Inc., (“JCAP”), a publicly traded REIT that provides capital to private developers as well as owners and operators of self-storage facilities. The preferred stock pays a fixed quarterly cash dividend of 7% in addition to a quarterly stock dividend of $2.125 million payable on a pro rata basis to the holders of the preferred stock for the first three quarters of 2020 and for the first fiscal quarter of 2021. For the last fiscal quarter of 2020 and for the second fiscal quarter of 2021, the stock dividend varies based on the underlying company’s incremental book value and past aggregate dividends among other things, but will be no less than $2.125 million on a pro rata basis to the holders of the preferred stock.

~~The following table presents the preferred stock investments as of March 31, 2020 (in thousands, except share amounts):~~

Investment

Investment

Date

Shares

Carrying Value (1)

Property Type

Interest Rate

Maturity Date
Preferred Stock

Jernigan Capital

2/11/2020

40,000

40,374

Self-storage

7.00
%

12/31/2021

~~(1)~~

~~Carrying value includes an unamortized purchase premium of approximately $0.4 million.~~

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

For the Three Months Ended March 31, 2020

Dividend income

$
473

Amortization of premium on preferred stock investment

(26
)

$
447

7.11. 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.

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.

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Derivative Financial Instruments and Hedging Activities

The Company is 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 economic risks, including 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 may enter into derivative financial instruments to manage exposures that arise from business activities that result 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 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 March 31, 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 March 31, 2023, this interest rate cap had a fair value of approximately $1.1 million.

Financial Instruments Carried at Fair Value

See Note 52 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.

~~Long-term indebtedness is carried at amounts that reasonably approximate their fair value.~~ In calculating the fair value of its long-term indebtedness, the Company used interest rate and spread assumptions that reflect current ~~credit worthiness~~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~~.

inputs.

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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.

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 March 31, ~~2020~~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
Cash and cash equivalents	$	197	$	197	$	—	$	—	$	197	Cash and cash equivalents	$	38,830	$	38,830	$	—	$	—	$	38,830
Restricted cash											Restricted cash	1,495		1,495		—		—		1,495
Real estate investment, net											Real estate investment, net	59,072		—		—		59,072		59,072
Loans, held-for-investment, net		22,282		—		—		22,304		22,304	Loans, held-for-investment, net	284,548		—		—		290,503		290,503
Preferred stock		40,374		—		—		39,091		39,091
Common stock investments, at fair value											Common stock investments, at fair value	76,998		—		—		76,998		76,998
Equity method investments											Equity method investments	1,000		—		—		1,000		1,000
Mortgage loans, held-for-investment, net		933,219		—		—		915,380		915,380	Mortgage loans, held-for-investment, net	723,343		—		—		717,651		717,651
Accrued interest and dividends		5,248		5,248		—		—		5,248
Accrued interest											Accrued interest	17,467		17,467		—		—		17,467
Mortgage loans held in variable interest entities, at fair value		1,712,909		—		1,712,909		—		1,712,909	Mortgage loans held in variable interest entities, at fair value	6,747,377		—		6,747,377		—		6,747,377
Other assets		1,096		1,096		—		—		1,096
CMBS structured pass-through certificates, at fair value											CMBS structured pass-through certificates, at fair value	44,308		—		44,308		—		44,308
MSCR notes, at fair value											MSCR notes, at fair value	10,015		—		10,015		—		10,015
Mortgage backed securities, at fair value											Mortgage backed securities, at fair value	37,007		—		37,007		—		37,007
Accounts receivable and other assets											Accounts receivable and other assets	1,106		1,106		—		—		1,106
	$	2,715,325	$	6,541	$	1,712,909	$	976,774	$	2,696,224		$	8,042,566	$	58,898	$	6,838,707	$	1,145,224	$	8,042,829

Liabilities											Liabilities
Credit facility	$	788,345	$	—	$	—	$	789,401	$	789,401
Secured financing agreements, net											Secured financing agreements, net	$	687,480	$	—	$	—	$	713,253	$	713,253
Master repurchase agreements											Master repurchase agreements	350,399		—		—		350,399		350,399
Unsecured notes, net											Unsecured notes, net	205,176		—		178,073		—		178,073
Mortgages payable, net											Mortgages payable, net	32,235		—		—		32,235		32,235
Accounts payable and other accrued liabilities		1,636		1,636		—		—		1,636	Accounts payable and other accrued liabilities	5,377		5,377		—		—		5,377
Accrued interest payable		932		932		—		—		932	Accrued interest payable	10,189		10,189		—		—		10,189
Bonds payable held in variable interest entities, at fair value		1,607,918		—		1,607,918		—		1,607,918	Bonds payable held in variable interest entities, at fair value	6,278,734		—		6,278,734		—		6,278,734
	$	2,398,831	$	2,568	$	1,607,918	$	789,401	$	2,399,887		$	7,569,590	$	15,566	$	6,456,807	$	1,095,887	$	7,568,260

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			Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	20,048	$	20,048	$	—	$	—	$	20,048
Restricted cash	299		299		—		—		299
Real estate investments, net	245,222		—		—		245,222		245,222
Loans, held-for-investment, net	256,147		—		—		255,254		255,254
Common stock investments, at fair value	78,264		—		—		78,264		78,264
Mortgage loans, held-for-investment, net	726,531		—		—		727,533		727,533
Accrued interest	15,665		15,665		—		—		15,665
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	46,876		—		46,876		—		46,876
MSCR notes, at fair value	10,313		—		10,313		—		10,313
Mortgage backed securities, at fair value	32,328		—		32,328		—		32,328
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

Liabilities
Secured financing agreements, net	$	687,885	$	—	$	—	$	713,253	$	713,253
Master repurchase agreements	331,020		—		—		331,020		331,020
Unsecured notes, net	204,960		—		175,560		—		175,560
Mortgages payable, net	121,236		—		—		121,236		121,236
Accounts payable and other accrued liabilities	6,231		6,236		—		—		6,236
Accrued interest payable	7,986		7,986		—		—		7,986
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

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 three months ended March 31, 2023 (dollars in thousands):


	Carrying Value		Valuation Technique	Unobservable Inputs	Range	Weighted Average
Common stock investment, at fair value	$	50,145	Discounted cash flow	Terminal cap rate	5.13% - 5.63%	5.38	%
				Discount rate	7.75% - 9.75%	8.75	%
Common stock investment, at fair value	26,853		Market approach	Yield	3.35% - 5.00%	3.81	%

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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 three months ended March 31, 2023:


	Balance as of 12/31/22		Change in Unrealized Gains /(Losses)		Balance as of 03/31/23
Common stock investment, at fair value	$	50,380	$	(235)	$	50,145
Common stock investment, at fair value	27,884		(1,031)		26,853

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 ~~10)~~14). 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 March 31, ~~2020,~~2023, the redeemable noncontrolling interests in the OP are valued at their carrying value on the ~~consolidated balance sheet.~~

8.Consolidated Balance Sheets (see Note 14).

12. Stockholders’ Equity

Common Stock

~~On February 11, 2020,~~

During the three months ended March 31, 2023, the Company ~~completed its IPO of 5,000,000~~issued 104,288 shares of common stock par value $0.01 per share, at a price of $19.00 per share. In connection with the IPO, the Company sold an additional 350,000 shares of common stock, par value $0.01 per share, at a price of $19.00 per share pursuant to the partial exercise of the underwriters’ option to purchase additional shares. Gross proceeds from the IPO and partial exercise was approximately $101.7 million. Underwriting discounts and commissions of approximately $6.9 million and offering expenses of approximately $2.9 million were deducted from additional paid in capital.

its long-term incentive plan (see “Long Term Incentive Plan” below).

As of March 31, ~~2020,~~2023, the Company had ~~5,350,000~~17,471,218 shares of common stock, par value $0.01 per share, issued and ~~5,262,534~~17,184,231 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.

Share Repurchase Program

On March 9, 2020, the Board authorized a share repurchase program (the “Prior Share Repurchase Program”) through which the Company tocould 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 ~~March 9, 2022 (the “Share Repurchase Program”).~~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 corporate considerations, including whether the Company’s common stock is trading at a significant discount to ~~net asset value~~NAV per

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share. Repurchases under this program may be discontinued at any time. AsThe Company has not made any purchases under the Share Repurchase Program as of ~~March~~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 ~~had repurchased 87,466~~filed a registration statement on Form S-8 registering 1,319,734 shares of ~~its~~ common stock, par value $0.01 per share, ~~at a total cost of approximately $1.3 million, or $15.30 per share. The 87,466 shares of common stock are classified as treasury stock and reduce~~which the ~~number of shares of~~Company may issue pursuant to the ~~Company’s common stock outstanding and, accordingly, are considered in the weighted-average number of shares outstanding during the period.~~

~~Long Term Incentive Plan~~

~~On January 31,~~ 2020 ~~the Company’s sole stockholder approved a long-term incentive plan (the “2020 LTIP”).~~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.

~~Dividends~~

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, employees 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, and 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. The following table includes the number of restricted stock units granted, vested, forfeited and outstanding as of March 31, 2023:


	2023
	Number of Units		Weighted Average Grant Date Fair Value
Outstanding January 1, 2023	577,360		$	17.88
Granted	—		19.85
Vested	(133,109)	(1)	19.39
Forfeited	—		20.81
Outstanding March 31, 2023	444,251		$	17.35

(1)Certain key employees of the Manager elected to net the taxes owed upon vesting against the shares issued resulting in 104,288 shares being issued as shown on the consolidated statements of stockholders' equity.

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The vesting schedule for the restricted stock units as of March 31, 2023 is as follows:


	Shares Vesting
	February	May	Total
2023	—	68,569	68,569
2024	120,640	68,564	189,204
2025	120,646	—	120,646
2026	65,832	—	65,832
Total	307,118	137,133	444,251

At-The-Market-Offering

On March ~~16, 2020,~~15, 2022, the ~~Company’s~~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.

The following table contains summary information of the 2022 ATM Program since its inception through March 31, 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

At the 2021 annual meeting of the Company, the Company's stockholders approved the potential issuance of 13,758,905.9 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. On September 8, 2021, the Company redeemed approximately

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1,479,132 OP Units and issued 1,479,132 shares of common stock to the redeeming unitholders. On January 7, 2022, the Company 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 March 31, 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 ~~$0.2198~~2023 to common stockholders of $0.50 per share ~~payable~~on February 22, 2023, which was paid on March 31, ~~2020~~2023, to common stockholders of record on March ~~23, 2020.~~

9.15, 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.

13. Earnings ~~(Loss)~~ Per Share

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

Diluted earnings ~~(loss)~~ per share is computed by adjusting basic earnings ~~(loss)~~ per share for the dilutive effect of the assumed vesting of restricted stock units. Additionally, the Company includes the dilutive effect of the potential redemption of OP Units for common shares in accordance with the amended partnership agreement of the OP (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.

The effect of the conversion of common units in the OP (“OP Units”) held by noncontrolling limited partners is not reflected in the computation of basic and diluted earnings (loss) per share, as they are exchangeable for common stock on a one-for-one basis. The income (loss) allocable to such units is allocated on this same basis and reflected as net income (loss) attributable to redeemable noncontrolling interests in the OP in the accompanying Consolidated Statements of Operations. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings (loss) per share. See Note 10 for additional information.

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

For the Three Months Ended March 31,

2020

Numerator for loss per share:

Net loss

$
(22,868
)
Net loss attributable to redeemable noncontrolling interests

(16,515
)
Net loss attributable to common stockholders

$
(6,353
)

Denominator for earnings (loss) per share:

Weighted-average common shares outstanding

5,223

Denominator for basic loss per share

5,223

Weighted-average unvested restricted stock units

—

Denominator for diluted earnings per share

5,223

Earnings (loss) per weighted average common share:

Basic

$
(1.22
)
Diluted

$
(1.22
)


	For the Three Months Ended March 31,
	2023		2022
Net income attributable to common stockholders	$	6,567	$	12,406

Earnings for basic computations
Net income attributable to redeemable noncontrolling interests	1,937		4,783
Net income for diluted computations	$	8,504	$	17,189

Weighted-average common shares outstanding
Average number of common shares outstanding - basic	17,118		13,855
Average number of unvested restricted stock units	522		525
Average number of OP Units and SubOP Units	5,038		7,650
Average number of common shares outstanding - diluted	22,678		22,030
Earnings per weighted average common share:
Basic	$	0.38	$	0.90
Diluted	$	0.37	$	0.78

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14. Noncontrolling Interests

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

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

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

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

Redeemable Noncontrolling Interests in the OP

Interests in the OP held by limited partners are represented by OP Units. As of March 31, ~~2020,~~2023, the Company isholds the ~~sole limited partner~~majority economic interests in the OP. Net income ~~(loss)~~ is allocated to holders of OP Units based upon net income ~~(loss)~~ attributable to common stockholders and the weighted-average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to OP Units in accordance with the terms of the ~~partnership agreement of the OP.~~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.

~~In connection with the IPO on February 11, 2020, the Company and the OP GP amended the partnership agreement of the OP (the “OP Amendment”).~~

Pursuant to the OP ~~Amendment,~~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 ~~partnership agreement of the OP)~~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 ~~Share~~Shares Amount ~~(one~~(generally one share of common stock of the Company for each OP ~~Unit),~~Unit, subject to adjustment) as defined in the ~~partnership agreement of the OP.~~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 ~~and primary beneficiary~~ of the ~~Sub OPs, consolidates~~OP receives a notice of redemption from the ~~Sub OPs.~~

limited partner, or the first business day thereafter (the “Valuation Date”). The Ten Day VWAP calculated based on a Valuation Date of March 31, 2023 was $15.27, 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 redeem all of their OP Units with a Valuation Date of March 31, 2023 and (3) the Company then elected to purchase all of the OP Units by paying the Cash Amount, the Company would have paid $76.9 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.

As of March 31, 2023, the Company owns 83.41% of the OP Units representing 100% of the Class A OP Units. See Note 12 for additional disclosures regarding redemption of OP Units.

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The following table sets forth the redeemable noncontrolling interests in the OP (reflecting the OP’s consolidation of the ~~Sub~~Subsidiary OPs) for the three months ended March 31, ~~2020~~2023 (in thousands):

Redeemable noncontrolling interests in the OP, December 31, 2019

$
—

Net loss attributable to redeemable noncontrolling interests in the OP

(16,515
)
Contributions from redeemable noncontrolling interests in the OP

251,929

Distributions to redeemable noncontrolling interests in the OP

(2,019
)
Redeemable noncontrolling interests in the OP, March 31, 2020

$
233,395


	For the Three Months Ended March 31,
	2023		2022
Redeemable noncontrolling interests in the OP, December 31,	$	96,501	$	261,423
Adjustment to redeemable noncontrolling interest in the OP on deconsolidation of real estate	297		—
Net income attributable to redeemable noncontrolling interests in the OP	1,937		4,943
Redemption of redeemable noncontrolling interests in the OP	—		(113,535)
Distributions to redeemable noncontrolling interests in the OP	(3,023)		(3,569)
Redeemable noncontrolling interests in the OP, March 31,	$	95,712	$	149,262

~~11.~~

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

March 31, 2023

17,184,231

5,038,382

22,222,613

15. Related Party Transactions

Management Fee

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

“Equity” means (a) the sum of (1) total stockholders’ equity immediately prior to the closing of the IPO, plus (2) the net proceeds received by the Company from all issuances of the Company’s ~~common stock~~equity securities in and after the IPO, plus (3) the Company’s cumulative ~~Core~~ Earnings 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 ~~stockholders~~common stock from and after the IPO to the end of the most recently completed calendar quarter and (2) all amounts that the Company or any of its subsidiaries has paid to repurchase for cash the shares of the Company’s ~~common stock~~equity securities from and after the IPO to the end of the most recently completed calendar quarter. In the Company’s calculation of Equity, the Company will adjust its calculation of ~~Core Earnings~~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 ~~Core Earnings.~~EAD. Additionally, for the avoidance of doubt, Equity ~~will~~does not include the assets contributed to the Company in the Formation Transaction.

“~~Core Earnings”~~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. ~~Net~~For the purpose of calculating EAD for the Annual Fee, net income (loss) attributable to common stockholders may also be adjusted for ~~one-time events pursuant to changes in~~the effects of certain GAAP adjustments and ~~certain material non-cash income or expense items,~~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.

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,

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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 three months ended March 31, ~~2020, the Company reimbursed the Manager for approximately $0.1 million of~~2023, there were no Offering Expenses that were paid on the Company’s ~~behalf.~~

~~The Initial Portfolio was acquired from affiliates of our Sponsor (the~~behalf for which the Company reimbursed the Manager.

Connections at Buffalo Pointe Contribution ~~Group), pursuant to~~

On May 29, 2020, the OP entered into a contribution agreement (the “Buffalo Pointe Contribution Agreement”) with ~~the Contribution Group through which the Contribution Group contributed their interest in the Initial Portfolio to SPEs owned by subsidiary partnerships~~entities affiliated with executive officers of the Company ~~in exchange for limited partnership~~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 ~~Sub OPs (see Notes~~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 $1.2 million on January 9, 2023, March 6, 2023 and March 28, 2023. Buffalo Pointe owns a stabilized multifamily property located in Houston, Texas with 91.5% occupancy as of March 31, 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 73.4% 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, and 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. See Note 12 for ~~more information). The Contribution Group owns~~additional disclosures.

OP Unit Redemptions

At the ~~noncontrolling interests~~2021 annual meeting of the Company, the Company's stockholders approved the potential issuance of 13,758,905.9 shares of the Company's common stock to related parties in connection with the ~~Sub OPs (see Note 10~~redemption of their OP Units or SubOP Units that may be redeemed for ~~more information).~~

OP Units. On September 8, 2021, the Company redeemed approximately 1,479,132 OP Units and issued 1,479,132 shares of common stock to the redeeming unitholders. On January 7, 2022, the Company 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.

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 toof 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,~~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 three months ended March 31, ~~2020,~~2023, operating expenses did not exceed the Expense Cap.

For the three months ended March 31, ~~2020,~~2023 and 2022, the Company incurred management fees of ~~$0.2 million.~~

~~12. Subsequent Events~~

~~Acquisitions/Financing~~

$0.8 million and $0.7 million, respectively.

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Notes Offering

On April ~~15, 2020,~~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. 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, ~~OPs, purchased~~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 ~~$3.1~~$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 March 31, 2023, the Company owns approximately 25.7% of the total outstanding shares of common stock of NSP.

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.

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 equity investment using a market approach and performing a benchmarking analysis to comparable transactions.

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16. 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 ~~X3 tranche~~option of the ~~Freddie Mac K-1510 CMBS~~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 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, and on March 3, 2023, the Company funded $1.7 million. As of March 31, 2023, the Company may have the obligation to fund an additional $30.9 million by September 29, 2023, which the issuer may extend for up to two years 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 ~~of $28.10. Approximately $0.6 million of~~equal to the purchase price ~~was financed through~~of the Preferred Units to be redeemed plus any accrued and unpaid distributions thereon and a ~~repurchase agreement bearing an interest rate~~cash redemption fee. Upon the redemption of ~~1.50% over 1-month LIBOR. The underlying portfolio consists~~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 ~~45 fixed-rate mortgage loans, secured by multifamily properties.~~

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 March 31, 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 March 31, 2023.

On ~~April 15, 2020~~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 ~~OPs, purchased~~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 ~~$3.2~~$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 March 31, 2023, the Company owns approximately 25.7% of the total outstanding shares of common stock of NSP. As of March 31, 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 in Note 10 are fully guaranteed by the Company. As of March 31, 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 multifamily property located in Surprise, Arizona. The Company has not funded this investment as of March 31, 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. Further, participation rights following the distribution of the Company's preferred return and return of capital, additional cash flow and net sale proceeds shall be distributed as follows:

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

•10% to the Company/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 ~~X3 tranche~~preferred units with respect to a multifamily property development located in Forney, Texas, of which $16.3 million was unfunded as of March 31, 2023. Further, the Company committed to purchase

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$4.3 million of common equity with respect to the same property, of which $3.8 million was unfunded as of March 31, 2023.

On February 10, 2023, the Company, through one of the ~~Freddie Mac K-1513 CMBS at~~Subsidiary OPs, through a ~~price of $23.10. Approximately $0.5~~unit purchase agreement, committed to purchase $30.3 million of the ~~purchase price~~preferred units with respect to a multifamily property development located in Richmond, Virginia, of which $19.1 million was ~~financed through a repurchase agreement bearing an interest rate~~unfunded as of ~~1.50% over 1-month LIBOR. The underlying portfolio consists of 47 fixed-rate mortgage loans, secured by multifamily properties.~~

~~On April 21, 2020,~~March 31, 2023. Further, the Company committed to purchase $4.3 million of common equity with respect to the same property, of which $3.8 million was unfunded as of March 31, 2023.

17. Subsequent Events

Preferred Equity Investment

The Company, through ~~the Sub OPs, entered into a repurchase agreement and borrowed approximately $48.8 million. Approximately $134.4 million par value~~one of the Company’s CMBS B-Piece investments were posted as collateral. The loan bears interest at 2.75% over 1-month LIBOR. A portion of the proceeds were used to finance the purchase of the Class D tranche of the Freddie Mac K-107 CMBS.

~~On April 23, 2020, the Company, through the Sub~~Subsidiary OPs, purchased ~~an aggregate principal amount of approximately $82.0~~$21.0 million of the ~~Class D tranche~~Preferred Units on April 6, 2023, in accordance with the terms of the ~~Freddie Mac K-107 CMBS at a price of $57.18. The underlying portfolio consists of 50 fixed-rate mortgage loans, secured by multifamily properties. T~~he Company owns 100% of the most subordinate tranche of this CMBS trust, which includes the controlling class, and has the ability to remove and replace the special servicer. As such, it is expected that this CMBS trust will be consolidated by the Company.

Company's existing purchase agreement.

Dividends Declared

~~On May 4, 2020, the~~

The Board declared athe second regular quarterly dividend of ~~$0.40~~2023 to common stockholders of $0.50 per share ~~payable~~on April 24, 2023, to be paid on June 30, ~~2020~~2023, to common stockholders of record on June 15, ~~2020.~~

2023.

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

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

The following is a discussion and analysis of our financial condition and ~~our historical~~ results of operations. The following should be read in conjunction with our financial statements and accompanying ~~notes.~~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 ~~quarterly~~annual report. See “Cautionary Statement Regarding Forward-Looking Statements” ~~in this report,~~ and ~~the risk factors set forth under the heading~~ “Risk Factors” in ~~our Prospectus forming a part~~Part I, Item 1A, “Risk Factors” of our ~~Registration Statement~~Annual Report on Form ~~S-11, as amended, filed with~~10-K for the ~~SEC on February 10, 2020.~~

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 ~~newly formed~~ 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 ~~preferred stock,~~common equity investments, as well as multifamily CMBS ~~securitizations.~~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 ~~metropolitan statistical areas.~~MSAs. In addition, we target lending or investing in properties that are stabilized or have a light-transitional business plan.

Our investment objective is to generate attractive, risk-adjusted returns for stockholders over the long ~~term, primarily through dividends and secondarily through capital appreciation.~~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 March 31, ~~2020~~2023 approximately ~~$9.0~~$18.4 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 ~~$13.3~~$20.4 billion of loans and debt or credit related investments as of March 31, ~~2020~~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 ~~intend to elect~~elected to be treated as a REIT for U.S. federal income tax purposes ~~beginning~~commencing with our taxable year ~~ending~~ended December 31, 2020. We also intend to operate our business in a manner that will permit us to maintain one or more exclusions or exemptions from registration under the Investment Company Act.

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.

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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 March 31, 2023. The amounts in the table below are as of the purchase or investment date:


Investment	Investment Date	Tranche	Outstanding Principal Amount			Cost (% of Par Value)		Coupon (1)		Current Yield (1)		Maturity Date	Interest Rate Type
Preferred Equity	1/9/2023	N/A	$	1,166,000		100.0	%	11.00	%	11.00	%	5/1/2030	Fixed Rate
Preferred Equity	1/12/2023	N/A	1,005,025			99.8	%	10.00	%	10.02	%	9/29/2023	Fixed Rate
Preferred Equity	2/10/2023	N/A	14,000,000			99.0	%	11.00	%	11.11	%	2/10/2025	Fixed Rate
Common Stock	2/10/2023	N/A	500,000			100.0	%	N/A		N/A		N/A	N/A
Preferred Equity	2/24/2023	N/A	11,200,000			99.0	%	11.00	%	11.11	%	2/10/2025	Fixed Rate
Common Stock	2/24/2023	N/A	500,000			100.0	%	N/A		N/A		N/A	N/A
Preferred Equity	3/3/2023	N/A	1,710,553			100.0	%	10.00	%	10.00	%	9/29/2023	Fixed Rate
FREMF 2018-KF44	3/10/2023	C	5,746,955		(2)	99.8	%	13.07	%	13.10	%	2/25/2025	Floating Rate
			$	35,828,533

(1)Current yield and coupon as of March 31, 2023.

(2)Includes investments made on January 9, 2023, March 6, 2023 and March 28, 2023. The Company first invested in preferred equity from this issuer on May 29, 2020.

Redemptions and Sales

The following investments were redeemed or sold during the three months ended March 31, 2023:


Investment	Investment Date	Disposition Date	Amortized Cost Basis		Redemption/Sales Proceeds		Prepayment Penalties		Net Gain (Loss) on Repayment
Preferred Equity	12/28/2021	1/13/2023	$	6,758,707	$	6,758,707	$	—	$	—
Preferred Equity	12/28/2021	2/16/2023	1,490,000		1,490,000		—		—
Preferred Equity	12/28/2021	3/24/2023	3,206,618		3,206,618		—		—
Mezzanine Loan	1/21/2021	3/24/2023	24,681,963		24,844,117		—		162,154
			$	36,137,289	$	36,299,442	$	—	$	162,154

In addition, the Company’s indirect common equity investment in Elysian at Hughes Center was transferred effective January 1, 2023. For additional information, see Note 15 to our consolidated financials statements.

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 isand prepayment penalties are also included as ~~a component~~components of interest income.

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

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The following table presents the components of net interest income for the three months ended March 31, ~~2020~~2023 and 2022 (dollars in thousands):

For the Three Months Ended March 31, 2020

Interest income/

Average

(expense)

Balance (1)

Yield (2)

Interest income

SFR Loans, held-for-investment

$
6,099

$
934,175

3.97
%
Mezzanine loan

81

3,221

15.28
%
Preferred equity

406

19,061

12.96
%
Total interest income

$
6,586

$
956,456

4.19
%
Interest expense

Long-term seller financing

(3,331
)

(788,554
)

2.57
%
Total interest expense

$
(3,331
)

$
(788,554
)

2.57
%
Net interest income (3)

$
3,255

~~(1)~~

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


	For the Three Months Ended March 31,												$ Change		% Change
	2023						2022
	Interest income/ (expense)		Average Balance (1)		Yield (2)		Interest income/ (expense)		Average Balance (1)		Yield (2)
Interest income
SFR Loans, held-for-investment	$	6,619	$	725,833	3.64	%	$	22,138	$	767,567	11.54	%	$	(15,519)	(70.1)	%
Mezzanine loans, held-for-investment	4,140		155,299		10.68	%	3,508		152,982		9.17	%	632		18.0	%
Preferred equity, held-for-investment	3,778		138,728		10.88	%	2,956		86,385		13.68	%	822		27.8	%
Convertible notes, held-for-investment	—		—		N/A		1,253		54,563		9.19	%	(1,253)		(100.0)	%
CMBS structured pass-through certificates, at fair value	539		46,020		4.68	%	1,278		72,762		7.03	%	(739)		(57.8)	%
MSCR notes	311		10,214		12.16	%	—		—		N/A		311		N/A
Mortgage backed securities	774		33,888		9.12	%	—		—		N/A		774		N/A
Total interest income	$	16,161	$	1,109,981	5.82	%	$	31,133	$	1,134,259	11.28	%	$	(14,972)	(48.1)	%
Interest expense
Master repurchase agreements, net	(5,083)		(331,400)		6.12	%	(1,518)		(298,872)		2.03	%	(3,565)		234.8	%
Long-term seller financing, net	(3,735)		(687,629)		2.16	%	(4,109)		(733,050)		2.24	%	374		(9.1)	%
Unsecured notes, net	(3,394)		(205,068)		6.64	%	(3,191)		(197,091)		6.48	%	(203)		6.4	%
Total interest expense	$	(12,212)	$	(1,224,097)	4.00	%	$	(8,818)	$	(1,229,013)	2.87	%	$	(3,394)	38.5	%
Net interest income (3)	$	3,949					$	22,315					$	(18,366)	(82.3)	%

(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~~

(2)Yield calculated on an annualized basis.

~~(3)~~

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

~~Other Income (Loss)~~

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

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 54 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.

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

~~Dividend Income~~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). ~~Dividend~~Reflects the total revenues for our multifamily property. Revenues include rental income ~~represents~~from the multifamily property.

Other income. Includes placement fees, exit fees and other miscellaneous income ~~earned on our Preferred Stock investment.~~

items.

Operating Expenses

~~General and administrative~~

G&A expenses. ~~General and administrative (“~~G~~&A”)~~&A expenses include, but are not limited to, ~~loan servicing fees,~~ audit fees, legal fees, listing fees, ~~board of director~~Board fees, equity-based and other compensation ~~expense,~~expenses, investor-relations costs and payments of reimbursements to our Manager. The Manager will be reimbursed for expenses it incurs on behalf of the Company. However, our Manager is responsible, and we will not reimburse our Manager or its affiliates, for the salaries or benefits to be paid to personnel of our Manager or its affiliates who serve as our officers, except that 50% of the salary of our VP of Finance is allocated to us and we may grant equity awards to our officers under the NexPoint Real Estate Finance, Inc. 2020 ~~LTIP.~~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.~~

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). 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 March 31, ~~2020~~

2023 and 2022

The following table sets forth a summary of our operating results for the three months ended March 31, ~~2020~~2023 and 2022 (in thousands):


	For the Three Months Ended March 31,				For the Three Months Ended March 31,				$ Change				% Change
	2020				2023		2022
Net interest income	$	3,255		Net interest income	$	3,949	$	22,315			$	(18,366)			(82.3)	%
Other income (loss)		(24,924	)	Other income (loss)	10,949		1,814		9,135				503.6	%
Operating expenses		1,199		Operating expenses	(5,520)		(6,060)		540				(8.9)	%
Net loss		(22,868	)
Net loss attributable to redeemable noncontrolling interests in the Operating Partnership		(16,515	)
Net loss attributable to common stockholders	$	(6,353	)
Net income				Net income	9,378		18,069		(8,691)				(48.1)	%
Net (income) attributable to preferred shareholders				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	(1,937)		(4,783)		2,846				(59.5)	%
Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries				Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries	—		(6)		6				N/A
Net income (loss) attributable to common stockholders				Net income (loss) attributable to common stockholders	$	6,567	$	12,406	$	(5,839)			(47.1)	%

~~We commenced operations on February 11, 2020 and therefore, have no period to compare results~~

The change in our net income for the three months ended March 31, ~~2020. Our~~2023 as compared to the net ~~loss~~income for the three months ended March 31, ~~2020~~2022 primarily relates to a decrease in prepayment penalty income. Our net income attributable to common stockholders for the three months ended March 31, 2023 was approximately ~~$6.4~~$6.6 million. We earned approximately ~~$3.3~~$3.9 million in net interest income, ~~incurred $24.9~~generated income of $10.9 million in other ~~loss, and~~income, incurred

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operating expenses of ~~$1.2~~$5.5 million, allocated $0.9 million of income to preferred stockholders and allocated $1.9 million of income to redeemable noncontrolling interests for the three months ended March 31, 2023.

Revenues

Net interest income. Net interest incomewas $3.9 million for the three months ended March 31, ~~2020.~~

~~Revenues~~

~~Net interest income.~~ ~~Net interest income was $3.3~~2023, compared to $22.3 million for the three months ended March 31, ~~2020.~~

2022, which was a decrease of approximately $18.4 million. The decrease between the periods is primarily due to a decrease in prepayment penalty income related to early paydowns. As of March 31, 2023, we owned 87 discrete investments compared to 71 as of March 31, 2022.

Other ~~income.~~income (loss). Other income was ~~$24.9~~$10.9 million for the three months ended March 31, ~~2020~~2023, compared to other income of $1.8 million for the three months ended March 31, 2022, which was an increase of approximately $9.1 million. This was primarily due to an increase in the change in net assets related to consolidated CMBS ~~VIEs of $25.2 million, an increase in our loan loss provision, net of $0.2 million and dividend income of $0.4 million.~~

VIEs.

Expenses

~~General and administrative~~

G&A expenses. G&A expenses were ~~$0.3~~$2.2 million for the three months ended March 31, ~~2020.~~

2023, compared to $1.8 million for the three months ended March 31, 2022, which was an increase of approximately $0.4 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 $1.0 million for the three months ended March 31, 2023, compared to $1.1 million for the three months ended March 31, 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 $0.8 million for the three months ended March 31, 2023, compared to $0.7 million for the three months ended March 31, ~~2020.~~

2022, which was an increase of approximately $0.1 million. The increase between the periods was primarily due to an increase in equity as defined by the Management ~~fees.~~ ~~Management fees were $0.2 million for the three months ended March 31, 2020.~~

Agreement.

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, ~~Core Earnings~~EAD, CAD and book value per share.

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 March 31,

2020

Net loss attributable to common stockholders

$
(6,353
)
Weighted-average common shares outstanding - basic and diluted

5,223

Net loss per share, basic and diluted

(1.22
)
Dividends declared per share

$
0.2198


	For the Three Months Ended March 31,				% Change
	2023		2022
Net income attributable to common stockholders	$	6,567	$	12,406	(47.1)	%
Net income attributable to redeemable noncontrolling interests	1,937		4,783		(59.5)	%

Weighted-average number of shares of common stock outstanding
Basic	17,118		13,855		23.6	%
Diluted	22,678		22,030		2.9	%
Net income per share, basic	$	0.38	$	0.90	(57.2)	%
Net income per share, diluted	$	0.37	$	0.78	(51.9)	%
Dividends declared per share	$	0.6850	$	0.5000	37.0	%

~~Core Earnings~~

~~We use Core~~

Earnings ~~to evaluate our performance which excludes the effects of certain GAAP adjustments~~Available for Distribution and ~~transactions that we believe are not indicative of our current operations and loan performance. Core Earnings~~Cash Available for Distribution

EAD is a non-GAAP financial ~~measure~~measure. EAD has replaced our prior presentation of ~~performance.~~Core Earnings. In addition, Core Earnings results from prior reporting periods have been relabeled EAD. In line with evolving industry practices, we believe EAD more accurately reflects the principal purpose of the measure than the term Core Earnings and will serve as a useful indicator for investors in evaluating our performance and our long-term ability to pay distributions. EAD is defined

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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 ~~Core Earnings~~EAD as a supplement to GAAP net income (loss) to our investors is helpful to their assessment of our ~~performance. Core Earnings~~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 ~~used~~considered as ~~a substitute for~~an alternative to GAAP net income, ~~(loss). The methodology used to calculate Core Earnings may differ~~an indication of our GAAP cash flows from ~~other REITs. As such,~~operating activities, a measure of our ~~Core Earnings~~liquidity or an indication of funds available for our cash needs. Our computation of EAD may not be comparable to ~~similar measures provided~~EAD reported by other REITs.

We also use ~~Core Earnings~~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 ~~common stock~~equity securities in and after the IPO, plus (3) our cumulative ~~Core Earnings~~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 ~~stockholders~~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 ~~common stock~~equity securities from and after the IPO to the end of the most recently completed calendar quarter. In our calculation of Equity, we will adjust our calculation of ~~Core Earnings~~EAD to ~~(i)~~ remove the compensation expense relating to awards granted under one or more of our long-term incentive plans that is added back in our calculation of ~~Core Earnings and (ii) adjust~~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 ~~(x) one-time events pursuant to changes in~~the effects of certain GAAP adjustments and ~~(y) certain material non-cash income or expense items,~~transactions that may not be indicative of our current operations, in each case ~~of (x) and (y)~~ after discussions between the Manager and the independent directors of our Board and approved by a majority of the independent directors of our Board. ~~Additionally,~~

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 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 ~~the avoidance~~our cash needs. Our computation of ~~doubt, Equity will~~CAD may not ~~include the assets contributed~~be comparable to ~~us in the Formation Transaction.~~

CAD reported by other REITs.

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The following table provides a reconciliation of ~~Core Earnings~~EAD and CAD to GAAP net income (loss) attributable to common stockholders for the three months ended March 31, 2023 and 2022 (in thousands, except per share ~~amount)~~amounts):

For the Three Months Ended March 31,

2020

Net loss attributable to common stockholders

$
(6,353
)
Adjustments

Loan loss provision, net

59

Unrealized (gains) or losses

7,473

Core Earnings

$
1,179

Weighted-average common shares outstanding - basic

5,223

Weighted-average common shares outstanding - diluted

5,223

Core Earnings per Diluted Weighted-Average Share

$
0.23


	For the Three Months Ended March 31,				% Change
	2023		2022
Net income attributable to common stockholders	$	6,567	$	12,406	(47.1)	%
Adjustments
Amortization of stock-based compensation	847		673		25.9	%
Provision for (reversal of) credit losses, net	(28)		—		N/A
Unrealized (gains) or losses (1)	2,139		6,512		(67.2)	%
EAD attributable to common stockholders	$	9,524	$	19,591	(51.4)	%

EAD per Diluted Weighted-Average Share	$	0.54	$	1.36	(60.3)	%

Adjustments
Amortization of premiums	$	2,945	$	7,545	(61.0)	%
Accretion of discounts	(2,919)		(2,309)		26.4	%
Depreciation and amortization of real estate investment	397		719		(44.8)	%
Amortization of deferred financing costs	9		9		N/A
CAD attributable to common stockholders	$	9,956	$	25,555	(61.0)	%

CAD per Diluted Weighted-Average Share	$	0.56	$	1.78	(68.5)	%

Weighted-average common shares outstanding - basic	17,118		13,855		23.6	%
Weighted-average common shares outstanding - diluted (2)	17,640		14,380		22.7	%

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

(2)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 months ended March 31, 2023 and 2022 (in thousands, except per share amounts):


	For the Three Months Ended March 31,				% Change
	2023		2022
Net income (loss) attributable to common stockholders	$	6,567	$	12,406	(47.1)	%
Net income attributable to redeemable noncontrolling interests	1,937		4,783		(59.5)	%

Adjustments
Amortization of stock-based compensation	847		673		25.9	%
Provision for (reversal of) credit losses, net	(34)		—		N/A
Unrealized (gains) or losses (1)	2,564		8,545		(70.0)	%
EAD	$	11,881	$	26,407	(55.0)	%

EAD per Diluted Weighted-Average Share	$	0.52	$	1.20	(56.7)	%

Adjustments
Amortization of premiums	$	3,531	$	9,900	(64.3)	%
Accretion of discounts	(3,500)		(3,030)		15.5	%
Depreciation and amortization of real estate investment	476		944		(49.6)	%
Amortization of deferred financing costs	11		12		(8.3)	%
CAD	$	12,399	$	34,233	(63.8)	%

CAD per Diluted Weighted-Average Share	$	0.55	$	1.55	(64.5)	%

Weighted-average common shares outstanding - basic	17,118		13,855		23.6	%
Weighted-average common shares outstanding - diluted	22,678		22,030		2.9	%

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

Book Value per Share

/ Unit

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

	March 31, 2020
Stockholders' equity	$	83,099
				March 31, 2023		December 31, 2022
Common stockholders' equity			Common stockholders' equity	$	339,659	$	346,474
Shares of common stock outstanding at period end		5,262,534	Shares of common stock outstanding at period end	17,184		17,080
Book value per share of common stock	$	15.79	Book value per share of common stock	$	19.77	$	20.29

~~Book value per share as~~

Table of March 31, 2020, includes the impact $25.2 million or, $1.31 per common share, unrealized losses from our CMBS investments and the impact of $2.9 million, or $0.55 per common share, of offering costs associated with the IPO.

Contents

Due to the large noncontrolling interest in the ~~Sub OPs~~OP (see Note ~~10,~~14 to our consolidated financial statements, for more information), we believe it is useful to also look at book value on a combined basis as shown in the table below ~~(in~~(in thousands, except per share data):

March 31, 2020

Stockholders' equity

$
83,099

Redeemable noncontrolling interests in the Operating Partnership

233,395

Total equity

$
316,494

Redeemable Sub OP units at period end

12,596,469

Shares of common stock outstanding at period end

5,262,534

Combined shares of common stock and redeemable Sub OP units

$
17,859,003

Combined book value per share

$
17.72


	March 31, 2023		December 31, 2022
Common stockholders' equity	$	339,659	$	346,474
Redeemable noncontrolling interests in the OP	95,712		96,501
Total equity	$	435,371	$	442,975

Redeemable OP Units at period end	5,038		5,038
Shares of common stock outstanding at period end	17,184		17,080
Combined shares of common stock and redeemable OP Units	22,223		22,118
Combined book value per share / unit	$	19.59	$	20.03

Our Portfolio

Our portfolio consists of SFR Loans, CMBS B-Pieces, aCMBS I/O Strips, mezzanine ~~loan,~~loans, preferred equity investments, common equity investments, a multifamily property, MSCR Notes and ~~a preferred stock investment~~mortgage backed securities with a combined unpaid principal balance of ~~$1.1~~$2.0 billion atas of March 31, ~~2020~~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 March 31, ~~2020~~ ~~(dollars~~2023 (dollars in thousands):

Current

Remaining

Investment

Principal

Term (5)

Investment (1)

Date (2)

Amount

Net Equity (3)

Location

Property Type

Coupon (4)

(years)

SFR Loans

1

Senior loan

2/11/2020

$
508,700

$
85,754

Various

Single-family

4.65
%

8.43

2

Senior loan

2/11/2020

10,688

1,722

Various

Single-family

5.35
%

7.84

3

Senior loan

2/11/2020

5,633

908

Various

Single-family

5.33
%

3.34

4

Senior loan

2/11/2020

10,627

1,782

Various

Single-family

5.30
%

8.43

5

Senior loan

2/11/2020

7,647

1,283

Various

Single-family

5.08
%

8.26

6

Senior loan

2/11/2020

5,699

963

Various

Single-family

5.24
%

8.51

7

Senior loan

2/11/2020

12,373

2,085

Various

Single-family

5.54
%

8.51

8

Senior loan

2/11/2020

6,597

1,065

Various

Single-family

5.79
%

3.42

9

Senior loan

2/11/2020

8,308

1,421

Various

Single-family

5.85
%

8.59

10

Senior loan

2/11/2020

51,362

8,489

Various

Single-family

4.74
%

5.51

11

Senior loan

2/11/2020

9,875

1,684

Various

Single-family

6.10
%

8.51

12

Senior loan

2/11/2020

38,516

6,622

Various

Single-family

5.55
%

8.59

13

Senior loan

2/11/2020

6,399

1,095

Various

Single-family

5.47
%

8.59

14

Senior loan

2/11/2020

15,300

2,486

Various

Single-family

5.46
%

3.59

15

Senior loan

2/11/2020

5,760

981

Various

Single-family

5.99
%

8.68

16

Senior loan

2/11/2020

10,283

1,763

Various

Single-family

5.72
%

8.68

17

Senior loan

2/11/2020

10,704

1,837

Various

Single-family

5.60
%

8.68

18

Senior loan

2/11/2020

5,392

908

Various

Single-family

5.46
%

8.76

19

Senior loan

2/11/2020

9,284

1,568

Various

Single-family

5.88
%

8.76

20

Senior loan

2/11/2020

6,727

1,082

Various

Single-family

4.83
%

3.84

21

Senior loan

2/11/2020

4,736

789

Various

Single-family

5.35
%

8.85

22

Senior loan

2/11/2020

17,382

2,975

Various

Single-family

5.61
%

8.85

23

Senior loan

2/11/2020

7,797

1,304

Various

Single-family

5.34
%

8.85

24

Senior loan

2/11/2020

7,922

1,354

Various

Single-family

5.47
%

8.85

25

Senior loan

2/11/2020

6,851

1,141

Various

Single-family

5.46
%

8.92

26

Senior loan

2/11/2020

10,523

1,714

Various

Single-family

4.72
%

5.92

27

Senior loan

2/11/2020

62,023

10,311

Various

Single-family

4.95
%

8.92

Total

863,109

145,086

4.91
%

8.11

CMBS B-Piece

1

CMBS B-Piece

2/11/2020

75,589

(6)

62,693

Various

Multifamily

L + 6.00%

5.91

2

CMBS B-Piece

2/11/2020

56,396

(6)

42,298

Various

Multifamily

L + 6.00%

6.66

Total

131,985

104,991

L + 6.00%

6.23

Mezzanine Loan

1

Mezzanine

2/11/2020

3,250

3,222

Charleston, SC

Multifamily

Prime + 9.00%

1.84

Preferred Equity

1

Preferred Equity

2/11/2020

5,056

5,297

Jackson, MS

Multifamily

12.50
%

7.67

2

Preferred Equity

2/11/2020

3,821

3,995

Corpus Christi, TX

Multifamily

15.25
%

2.34

3

Preferred Equity

2/11/2020

10,000

9,768

Columbus, GA

Multifamily

11.50
%

5.25

Total

18,877

19,060

12.53
%

5.31

Preferred Stock

1

Preferred Stock

2/11/2020

40,000

(7)

40,374

N/A

N/A

7.00
%

N/A

~~(1)~~

Our total portfolio represents the current principal amount of the consolidated SFR Loans, the mezzanine loan, preferred equity, and preferred stock, as well as the net equity of our CMBS B-Piece investments.


	Investment (1)	Investment Date	Current Principal Amount			Net Equity (2)		Location	Property Type	Coupon		Current Yield (3)		Remaining Term (4) (years)
	SFR Loans
1	Senior loan	2/11/2020	$	508,700		$	72,097	Various	Single-family	4.65	%	4.40	%	5.43
2	Senior loan	2/11/2020	10,095			1,520		Various	Single-family	5.35	%	5.24	%	4.84
3	Senior loan	2/11/2020	5,372			654		Various	Single-family	5.33	%	5.30	%	0.34
4	Senior loan	2/11/2020	10,133			1,444		Various	Single-family	5.30	%	5.02	%	5.43
5	Senior loan	2/11/2020	5,433			770		Various	Single-family	5.24	%	4.94	%	5.51
6	Senior loan	2/11/2020	51,304			6,798		Various	Single-family	4.74	%	4.60	%	2.51
7	Senior loan	2/11/2020	9,494			1,337		Various	Single-family	6.10	%	5.71	%	5.51
8	Senior loan	2/11/2020	36,609			5,043		Various	Single-family	5.55	%	5.15	%	5.59
9	Senior loan	2/11/2020	5,760			812		Various	Single-family	5.99	%	5.60	%	5.68
10	Senior loan	2/11/2020	5,155			10,911		Various	Single-family	5.46	%	5.16	%	5.76
11	Senior loan	2/11/2020	8,743			1,270		Various	Single-family	5.88	%	5.56	%	5.76
12	Senior loan	2/11/2020	6,279			850		Various	Single-family	4.83	%	4.79	%	0.84
13	Senior loan	2/11/2020	7,448			1,086		Various	Single-family	5.34	%	5.08	%	5.85
14	Senior loan	2/11/2020	6,554			959		Various	Single-family	5.46	%	5.20	%	5.92
15	Senior loan	2/11/2020	10,523			1,490		Various	Single-family	4.72	%	4.61	%	2.92
	Total		687,602			107,041				4.81	%	4.56	%	5.11

	CMBS B-Piece
1	CMBS B-Piece	2/11/2020	24,288		(5)	8,746		Various	Multifamily	9.72	%	9.73	%	2.91
2	CMBS B-Piece	2/11/2020	28,581		(5)	10,794		Various	Multifamily	10.57	%	10.56	%	3.66
3	CMBS B-Piece	4/23/2020	81,999		(5)	26,207		Various	Multifamily	3.50	%	5.32	%	6.91
4	CMBS B-Piece	7/30/2020	20,702		(5)	8,970		Various	Multifamily	13.57	%	13.57	%	4.24
5	CMBS B-Piece	8/6/2020	108,643		(5)	16,161		Various	Multifamily	0.00	%	8.61	%	7.24
6	CMBS B-Piece	4/20/2021	43,053		(5)	12,604		Various	Multifamily	10.56	%	10.56	%	7.91
7	CMBS B-Piece	6/30/2021	108,305		(5)	26,961		Various	Multifamily	0.00	%	9.50	%	3.76
8	CMBS B-Piece	12/9/2021	54,436		(5)	18,177		Various	Multifamily	9.56	%	9.56	%	1.57
9	CMBS B-Piece	5/2/2022	35,060		(5)	12,245		Various	Multifamily	4.22	%	4.54	%	15.67

~~(2)~~

~~All investments are assumed to have been entered into on February 11, 2020.~~

Table of Contents

~~(3)~~

~~Net equity represents the carrying value less borrowings.~~


10	CMBS B-Piece	7/28/2022		70,477	(5)	24,396	Various	Multifamily	9.56	%	9.56	%	6.32
	Total			575,544		165,261			5.04	%	8.73	%	5.98

	CMBS I/O Strips
1	CMBS I/O Strip	5/18/2020		17,590	(6)	503	Various	Multifamily	2.02	%	14.58	%	23.50
2	CMBS I/O Strip	8/6/2020		108,643	(6)	6,791	Various	Multifamily	2.98	%	16.44	%	7.24
3	CMBS I/O Strip	4/28/2021	(7)	64,714	(6)	1,603	Various	Multifamily	1.59	%	16.02	%	6.83
4	CMBS I/O Strip	5/27/2021		20,000	(6)	1,046	Various	Multifamily	3.39	%	16.20	%	7.16
5	CMBS I/O Strip	6/7/2021		4,266	(6)	122	Various	Multifamily	2.31	%	19.65	%	5.66
6	CMBS I/O Strip	6/11/2021	(8)	113,634	(6)	1,989	Various	Multifamily	1.19	%	13.75	%	6.16
7	CMBS I/O Strip	6/24/2021		26,094	(6)	625	Various	Multifamily	1.18	%	17.17	%	7.16
8	CMBS I/O Strip	8/10/2021		25,000	(6)	765	Various	Multifamily	1.89	%	16.35	%	7.07
9	CMBS I/O Strip	8/11/2021		6,942	(6)	493	Various	Multifamily	3.10	%	14.08	%	8.32
10	CMBS I/O Strip	8/24/2021		1,625	(6)	247	Various	Multifamily	2.61	%	14.83	%	7.83
11	CMBS I/O Strip	9/1/2021		34,625	(6)	3,673	Various	Multifamily	1.92	%	15.48	%	7.24
12	CMBS I/O Strip	9/11/2021		20,902	(6)	3,792	Various	Multifamily	2.95	%	14.04	%	8.49
	Total			444,035		21,649			2.04	%	15.45	%	7.59

	Mezzanine Loan
1	Mezzanine	6/12/2020		7,500		7,500	Houston, TX	Multifamily	11.00	%	11.00	%	1.25
2	Mezzanine	10/20/2020		5,470		2,263	Wilmington, DE	Multifamily	7.50	%	7.31	%	6.09
3	Mezzanine	10/20/2020		10,380		4,314	White Marsh, MD	Multifamily	7.42	%	7.22	%	8.26
4	Mezzanine	10/20/2020		14,253		5,917	Philadelphia, PA	Multifamily	7.59	%	7.39	%	6.18
5	Mezzanine	10/20/2020		3,700		1,528	Daytona Beach, FL	Multifamily	7.83	%	7.64	%	5.51
6	Mezzanine	10/20/2020		12,000		4,986	Laurel, MD	Multifamily	7.71	%	7.50	%	8.01
7	Mezzanine	10/20/2020		3,000		1,247	Temple Hills, MD	Multifamily	7.32	%	7.12	%	8.34
8	Mezzanine	10/20/2020		1,500		623	Temple Hills, MD	Multifamily	7.22	%	7.03	%	8.34
9	Mezzanine	10/20/2020		5,540		2,291	Lakewood, NJ	Multifamily	7.33	%	7.15	%	6.09
10	Mezzanine	10/20/2020		6,829		2,822	Rosedale, MD	Multifamily	7.53	%	7.34	%	5.76
11	Mezzanine	10/20/2020		3,620		1,504	North Aurora, IL	Multifamily	7.42	%	7.22	%	8.26
12	Mezzanine	10/20/2020		9,610		3,994	Cockeysville, MD	Multifamily	7.42	%	7.22	%	8.26
13	Mezzanine	10/20/2020		7,390		3,071	Laurel, MD	Multifamily	7.42	%	7.22	%	8.26
14	Mezzanine	10/20/2020		2,135		882	Tyler, TX	Multifamily	7.74	%	7.55	%	5.51
15	Mezzanine	10/20/2020		1,190		492	Las Vegas, NV	Multifamily	7.71	%	7.52	%	5.92
16	Mezzanine	10/20/2020		3,310		1,369	Atlanta, GA	Multifamily	6.91	%	6.74	%	6.26
17	Mezzanine	10/20/2020		2,880		1,190	Des Moines, IA	Multifamily	7.89	%	7.70	%	5.59
18	Mezzanine	10/20/2020		4,010		1,657	Urbandale, IA	Multifamily	7.89	%	7.70	%	5.59
19	Mezzanine	11/18/2021		12,600		12,494	Irving, TX	Multifamily	15.82	%	15.95	%	5.68
20	Mezzanine	12/29/2021		7,760		7,695	Rogers, AR	Multifamily	15.82	%	15.95	%	1.78
21	Mezzanine	6/9/2022		4,500		4,466	Rogers, AR	Multifamily	15.23	%	15.35	%	2.19
22	Mezzanine	10/5/2022	(9)	4,030		3,993	Kirkland, WA	Multifamily	15.25	%	15.39	%	4.76
	Total			133,207		76,298			9.48	%	9.37	%	6.05

	Preferred Equity
1	Preferred Equity	5/29/2020		11,166		11,166	Houston, TX	Multifamily	11.00	%	11.00	%	7.09
2	Preferred Equity	9/29/2021		8,820		8,806	Holly Springs, NC	Life Science	10.00	%	10.02	%	0.50
3	Preferred Equity	10/26/2021		9,750		9,695	Atlanta, GA	Multifamily	11.00	%	11.06	%	1.61
4	Preferred Equity	12/28/2021	(10)	24,566		24,566	Las Vegas, NV	Multifamily	10.50	%	10.50	%	8.93

~~(4)~~

~~One-month LIBOR (“L”) was 0.9929% at March 31, 2020 and the WSJ Prime rate (“Prime”) was 3.25% at March 31, 2020. The weighted-average coupon is weighted on current principal balance.~~

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5	Preferred Equity	1/14/2022		21,207	21,207	Vacaville, CA	Life Science	10.00	%	10.00	%	0.50
6	Preferred Equity	4/7/2022	(11)	4,000	3,964	Beaumont, TX	Self-Storage	14.50	%	14.63	%	7.43
7	Preferred Equity	6/8/2022		4,000	3,963	Temple, TX	Self-Storage	13.78	%	13.91	%	7.43
8	Preferred Equity	7/1/2022	(12)	9,000	8,922	Medley, FL	Self-Storage	11.00	%	11.10	%	4.25
9	Preferred Equity	8/10/2022		8,500	8,430	Plano, TX	Multifamily	15.34	%	15.47	%	2.45
10	Preferred Equity	9/30/2022		9,000	8,921	Fort Worth, TX	Multifamily	14.23	%	14.36	%	2.51
11	Preferred Equity	10/19/2022		15,000	14,925	Woodbury, MN	Life Science	10.00	%	10.05	%	0.50
12	Preferred Equity	2/10/2023		14,000	13,860	Forney, TX	Multifamily	11.00	%	11.11	%	1.87
13	Preferred Equity	2/24/2023		11,200	11,088	Richmond, VA	Multifamily	11.00	%	11.11	%	1.87
	Total			150,209	149,513			11.22	%	11.28	%	3.49

	Common Equity
1	Common Stock	11/6/2020		N/A	50,145	N/A	Self-Storage	N/A		N/A		N/A
2	Common Stock	4/14/2022		N/A	26,853	N/A	Ground Lease	N/A		N/A		N/A
3	Common Equity	2/10/2023		N/A	500	Forney, TX	Multifamily	N/A		N/A		N/A
4	Common Equity	2/24/2023		N/A	500	Richmond, VA	Multifamily	N/A		N/A		N/A
	Total				77,998

	Real Estate
1	Real Estate	12/31/2021	(13)	N/A	27,267	Charlotte, NC	Multifamily	N/A		N/A		N/A

	MSCR Notes
1	MSCR Note	5/25/2022		4,000	1,901	Various	Multifamily	13.98	%	13.98	%	29.17
2	MSCR Note	5/25/2022		5,000	2,325	Various	Multifamily	10.98	%	10.98	%	29.17
3	MSCR Note	9/23/2022		1,500	365	Various	Multifamily	11.33	%	12.45	%	28.67
	Total			10,500	4,591			12.17	%	12.33	%	29.10

	Mortgage Backed Securities
1	Mortgage Backed Securities	6/1/2022		10,074	2,262	Various	Single-family	4.87	%	5.07	%	2.64
2	Mortgage Backed Securities	6/1/2022		10,419	3,690	Various	Single-family	7.79	%	8.11	%	3.05
3	Mortgage Backed Securities	7/28/2022		575	269	Various	Single-family	6.23	%	6.33	%	4.55
4	Mortgage Backed Securities	7/28/2022		1,057	356	Various	Single-family	3.60	%	4.20	%	5.23
5	Mortgage Backed Securities	9/12/2022		3,955	1,388	Various	Multifamily	10.56	%	10.54	%	7.83
6	Mortgage Backed Securities	9/29/2022		8,000	7,826	Various	Self-Storage	10.34	%	10.36	%	4.46
7	Mortgage Backed Securities	3/10/2023		5,747	2,285	Various	Multifamily	13.07	%	13.10	%	1.91
	Total			39,827	18,076			8.47	%	8.62	%	3.62

~~(5)~~

~~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.

(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.

~~(6)~~

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

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

~~(7)~~

~~Preferred stock consists of JCAP preferred stock.~~

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

(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.

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(10)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.

(11)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.

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

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

The following table details overall statistics for our portfolio as of March 31, ~~2020~~2023 (dollars in thousands):

	Total			Floating Rate			Fixed Rate
	Portfolio			Investments			Investments					Total Portfolio					Floating Rate Investments					Fixed Rate Investments				Common Equity Investments			Real Estate Investment
Number of investments	36			3			33			Number of investments		87					24					58				4			1
Principal balance(1)	$	1,057,221		$	135,235		$	921,986		$	1,655,145				$	368,748				$	1,286,397				N/A			N/A
Carrying value	$	1,101,076		$	108,211		$	992,865		Carrying value		$	1,707,201				$	365,100				$	1,205,031			$	77,998		$	59,072
Weighted-average cash coupon		7.54	%		6.19	%		7.73	%	Weighted-average cash coupon		5.67		%			9.13		%			4.68		%		N/A			N/A
Weighted-average all-in yield		6.69	%		7.75	%		6.57	%	Weighted-average all-in yield		6.71		%			11.17		%			5.35		%		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 March 31, 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, anticipated debt service payments, potential obligations to purchase Preferred Units and dividend requirements for the

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long-term.

Asset Metrics

Debt Metrics

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

5.35%

2/1/2028

Fixed

3.51%

2/1/2028

1.84%

Senior loan

Fixed

5.33%

8/1/2023

Fixed

2.48%

8/1/2023

2.85%

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

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

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

5.46%

1/1/2029

Fixed

2.97%

1/1/2029

2.49%

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

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

4.72%

3/1/2026

Fixed

2.45%

3/1/2026

2.27%

Mezzanine Loan

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

7.59%

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

7.71%

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

7.22%

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

7.53%

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%

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

7.74%

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

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%

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

~~KeyBank Bridge Facility~~

On February 7, 2020, we, through our subsidiaries, entered into a $95.0 million Bridge Facility with KeyBank and immediately drew $95.0 million to fund a portion of the Formation Transaction. During the three months ended March 31, 2020, the Company used proceeds from the IPO to pay down the entirety of the Bridge Facility (see Note 4). As of March 31, 2020, the facility is extinguished.

Freddie Mac Credit ~~Facility~~

Facilities

Prior to the Formation Transaction, two of our subsidiaries entered into a loan and security agreement, dated July 12, 2019, with Freddie Mac (the “Credit Facility”). Under the Credit Facility, these entities borrowed approximately $788.8 million in connection with their acquisition of senior pooled mortgage loans backed by SFR properties (the “Underlying Loans”). No additional borrowings can be made under the Credit Facility, and our obligations will be secured by the

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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 under the Credit Facility will mature on July 12, ~~2029. However,~~2029; however, if an Underlying Loan matures prior to July 12, 2029, we will be required to repay the portion of the Credit Facility that is allocated to that loan (see Note ~~4).~~

~~Cash Generated from IPO~~

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

~~We contributed the net proceeds from the IPO~~10 to our ~~OP in exchange~~consolidated financial statements for ~~limited partnership interests in~~additional information). As of March 31, 2023, the ~~OP and our OP contributed~~outstanding balance on the ~~net proceeds from the IPO to our Sub OPs for limited partnership interests in the Sub OPs. Our Sub OPs used the net proceeds from the IPO to repay the amount outstanding under the $95 million Bridge~~Credit Facility ~~consistent with our investment strategy and guidelines.~~

was $628.2 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 ~~upon~~on the assets being financed. For example, higher risk assets will result in lower advance rates (i.e., levels of leverage) at higher borrowing costs. In addition, these facilities may include various financial covenants and limited recourse guarantees.

As discussed in Note 10 to our consolidated financial statements, in connection with our recent CMBS acquisitions, we, through the OP and the Subsidiary OPs, have borrowed approximately $350.4 million under our repurchase agreements and posted approximately $967.1 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.

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

March 31, 2023

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

350,399

N/A

(5)

6.72

0.10

967,094

541,495

536,115

6.8

(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 March 31, 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 12 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 3.9% of our portfolio by unpaid principal balance as of March 31, 2023 pays interest at a variable rate that is tied to LIBOR. On March 5, 2021, the Financial Conduct Authority of the U.K. announced that all of the LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) immediately after December 31, 2021, in the case of the 1-week and 2-month US dollar settings; and (ii) immediately after June 30, 2023, in the case of the remaining one-month, three-month, six-month and twelve-month US dollar settings. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee convened by the U.S. Federal Reserve Board and comprised of large U.S. financial institutions, has recommended replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate ("SOFR"), an index calculated by short-term repurchase agreements backed by U.S. Treasury securities. Approximately 12.9% of our portfolio by unpaid principal balance as of March 31, 2023 pays interest at a variable rate that is tied to SOFR, and it is anticipated that future investments we make may have variable interest rates tied to SOFR. Although there have been issuances utilizing SOFR, or the Sterling Over Night Index Average, an alternative reference rate that is based on transactions, it is unknown whether these alternative rates will attain market acceptance as a replacement for LIBOR. In connection with the foregoing, we may need to renegotiate some of our agreements to determine a replacement index rate. As of March 31, 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 transition to have 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.~~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 March 31, ~~2020,~~2023, our cash and cash equivalents were ~~$0.2~~$40.3 million.

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

Cash Flows

The following table presents selected data from our Consolidated Statements of Cash Flows for the three months ended March 31, ~~2020~~2023 and March 31, 2022 (in thousands):


	For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2020				2023		2022
Net cash provided by operating activities	$	5,145		Net cash provided by operating activities	$	14,950	$	37,716
Net cash provided by investing activities		2,736		Net cash provided by investing activities	66,732		73,399
Net cash used in financing activities		(7,684	)
Net cash (used in) financing activities				Net cash (used in) financing activities	(61,704)		(102,136)
Net increase in cash, cash equivalents and restricted cash		197		Net increase in cash, cash equivalents and restricted cash	19,978		8,979
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, end of period	$	197		Cash, cash equivalents and restricted cash, end of period	$	40,325	$	42,211

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Cash flows from operating activities. During the three months ended March 31, ~~2020,~~2023, net cash provided by operating activities was ~~$5.1 million.~~$15.0 million, compared to net cash provided by operating activities of $37.7 million for the three months ended March 31, 2022. This decrease was primarily due to the decrease in interest income generated by our investments.

Cash flows from investing activities. During the three months ended March 31, ~~2020,~~2023, net cash provided by investing activities was ~~$2.7 million.~~$66.7 million, compared to net cash provided by operating activities of $73.4 million for the three months ended March 31, 2022. This decrease was primarily driven by ~~principal~~the decrease in proceeds received from payments on mortgage loans ~~held-for-investment and mortgage loans~~ held in VIEs.

Cash flows from financing activities. During the three months ended March 31, ~~2020,~~2023, net cash used in financing activities was ~~$7.7 million.~~$61.7 million, compared to net cash used in financing activities of $102.1 million for the three months ended March 31, 2022. This decrease was primarily driven by ~~payment~~the decrease in distributions to bondholders of ~~the Bridge Facility of $95.0 million and partially offset by the net proceeds from the IPO of approximately $91.9 million.~~

VIEs.

Emerging Growth Company and Smaller Reporting Company Status

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

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

Income Taxes

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

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.~~

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

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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 March 31, ~~2020.~~

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 REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income, which is not used to pay a dividend on the Series A Preferred Stock, to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.

We will make dividend payments to holders of our common stock based on our estimate of taxable earnings per share of common stock, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair-value adjustments, differences in premium amortization and discount accretion and non-deductible ~~general and administrative~~G&A expenses. Our quarterly dividends per share of our common stock may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared our first regular quarterly dividend of ~~2020~~2023 to common stockholders of ~~$0.2198~~$0.50 per share on ~~March 16, 2020,~~February 22, 2023, which was paid on March 31, ~~2020 and funded out~~2023 to common stockholders of ~~cash flows from operations.~~

record as of March 15, 2023. Our 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. 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.

Off-Balance Sheet Arrangements

As of March 31, ~~2020,~~2023, we had ~~no off-balance~~one off balance sheet ~~arrangements~~arrangement that ~~have~~has or ~~are~~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.

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 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 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 March 31, 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. 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 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, and on March 3, 2023, the Company funded $1.7 million. As of March 31, 2023, the Company may have the obligation to fund an additional $30.9 million by September 29, 2023, which the issuer may extend for up to two years 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 March 31, 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 March 31, 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 March 31, 2023, the Company owns approximately 25.7% of the total outstanding shares of common stock of NSP. As of March 31, 2023, the Company has not recorded any contingencies on its Consolidated Balance Sheets as the obligation under the guaranty is considered remote.

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

•10% to the Company/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 million was unfunded as of March 31, 2023. Further, the Company committed to purchase $4.3 million of common equity with respect to the same property, of which $3.8 million was unfunded as of March 31, 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 Mechanicsville, Virginia, of which $19.1 million was unfunded as of March 31, 2023. Further, the Company committed to purchase $4.3 million of common equity with respect to the same property, of which $3.8 million was unfunded as of March 31, 2023.

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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 ~~we consider critical~~involve significant estimation uncertainty that have or are reasonably likely to ~~understanding~~have a material impact on our financial condition or results of ~~operations where there is uncertainty or where significant judgment is required.~~ 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 ~~“Summary of Significant Accounting Policies”~~ to our consolidated financial ~~statements included in this quarterly report.~~

statements.

Allowance for ~~Loan~~Credit Losses

~~The~~

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

~~Income Recognition~~

~~Loans held-for-investment, available-for-sale securities, mortgage loans from the consolidated CMBS entities and debt securities held-to-maturity where~~

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Valuation of Common Equity

As of March 31, 2023, the Company ~~expects to collect~~owns approximately 25.7% of the ~~contractual interest~~total outstanding shares of NSP and ~~principal payments are considered to be performing loans.~~thus can exercise significant influence over NSP. The Company ~~recognizes income on performing loans in accordance with~~elected the terms of the loan on an accrual basis. Interest income also includes amortization of loan premiums or discounts and loan origination costs. We consider loans to be past due when a monthly payment is due and unpaid for 60 days or more. Loans will be placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when they become 120 days or more past due unless the loan is both well secured and in the process of collection. Accrual of interest on individual loans is discontinued when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Our policy is to stop accruing interest when a loan’s delinquency exceeds 120 days. All interest accrued but not collected for loans that are placed on nonaccrual status or subsequently charged-off are reversed against interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic principal and interest payments returns and future payments are reasonably assured, in which case the loan is returned to accrual status.

~~Formation Transaction~~

The Company commenced operations on February 11, 2020 upon the closing of its IPO. Prior to the closing of the IPO, the Company engaged in the Formation Transaction through which it acquired the Initial Portfolio consisting of SFR Loans, CMBS B-Pieces, mezzanine loan and preferred equity investments in real estate companies and properties in other structured real estate investments within the multifamily, SFR and self-storage asset classes. The Initial Portfolio was acquired from the Contribution Group pursuant to a

contribution agreement through which the Contribution Group contributed their interest in the Initial Portfolio to SPEs owned by subsidiary partnerships of the Company, in exchange for limited partnership interests in subsidiary partnerships of the OP. The assets and liabilities constituting the Initial Portfolio were contributed at fair value using a cutoff date of January 31, 2020. The mezzanine loan, preferred stock and preferred equity investments were valued using a discounted cash flow model using discount rates negotiated with the Contribution Group. A third-party valuation firm was utilized to value the SFR Loans using the income approachfair-value option in accordance with ASC ~~Topic~~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. ~~The income approach utilizes a~~Specifically, these techniques include the discounted cash flow ~~method~~methodology whereby observable market terminal capitalization rates and discount rates are applied to ~~present value the expected future cash flows. The future~~projected cash flows ~~were~~generated by self-storage assets owned by NSP. The necessary inputs for the valuation include projected ~~based on the terms of the loans including interest rates, current balances and servicing fees. The future~~ cash flows ~~depend substantially on various other~~of NSP, terminal capitalization rates and discount rates. These inputs are reflective of public company comparables, but are assumptions ~~such as prepayment rates, prepayment charges, default rates, expected loss given default (severity),~~ and other inputs. The Credit Facility contributed along with the SFR Loans was also valued using the income approach as previously described. The equity and financial liabilities of the consolidated CMBS B-Pieces were valued using broker quotes (see Note 2 for more information on our valuation methodologies). The Bridge Facility was originated shortly before the closing of the IPO and was contributed at its carrying value which approximated fair value. The fair values of the contributed cash and accrued interest and dividends approximated their carrying values because of the short-term nature of these instruments. The fair values of the contributed assets described above were agreed upon by the Contribution Group and used to determine the number of Sub OP Units issued. Any purchase premiums or discounts are amortized over the expected life of the investment.

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

~~Valuation of CMBS Trusts~~

We report the financial assets and liabilities of each CMBS trust that we consolidate at fair value using the measurement alternative included in Accounting Standards Update (“ASU”) No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13”). Pursuant to ASU 2014-13, we measure both the financial assets and financial liabilities of the CMBS trusts we consolidate using the fair value of the financial liabilities (which we consider more observable than the fair value of the financial assets) and the equity of the CMBS trusts beneficially owned by us.estimates. As a result, ~~we presented~~ the ~~CMBS issued by~~determination of fair value involves significant estimation uncertainty because it involves subjective judgments and estimates that are based on unobservable inputs. For the ~~consolidated trusts, but not beneficially owned by us, as financial liabilities~~three months ended March 31, 2023, the unrealized loss related to the change in fair value estimate is $0.2 million. See Notes 5 and 11 to our consolidated financial statements ~~measured at their estimated fair value; we measured~~for additional disclosures regarding the ~~financial assets as~~valuation of NSP.

As of March 31, 2023, the Company owns approximately 6.36% of the total estimated fair value of the CMBS issued by the consolidated trust, regardless of whether such CMBS represent interests beneficially owned by us. Under the measurement alternative prescribed by ASU 2014-13, our “Net income (loss)” reflects the economic interests in the consolidated CMBS beneficially owned by us, presented as “Change in net assets related to consolidated CMBS variable interest entities” in our Consolidated Statements of Operations, which includes applicable (1) changes in the fair value of CMBS beneficially owned by us, (2) interest income, interest expense and servicing fees earned from the CMBS trusts and (3) other residual returns or losses of the CMBS trusts, if any.

~~The financial liabilities and~~outstanding common equity of the ~~consolidated CMBS trusts are valued~~Private REIT. The Company records the Private REIT at fair value in accordance with ASC 321. The valuation is determined using ~~broker quotes. Broker quotes represent the price that an investment could be sold for in~~ a market ~~transaction~~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 ~~represent fair market value. Loans and bonds with quotes~~estimates that are ~~based on actual trades with a sufficient level of activity on or near~~unobservable. For the three months ended March 31, 2023, the unrealized loss related to the change in fair value estimate is $1.0 million. See Notes 5 and 11 to our consolidated financial statements for additional disclosures regarding the valuation ~~date are classified as Level 2 assets. Loans~~of the Private REIT.

As of March 31, 2023, the Company owns approximately 98.0% of the total outstanding common equity of each of RFGH and ~~bonds that are priced using quotes derived from implied values, bid/ask prices~~RTB. The Company presented RFGH and RTB at the recent transaction price for ~~trades that were never consummated, or a limited amount of actual trades are classified as Level 3 assets because~~ the ~~inputs used by~~three months ended March 31, 2023. See Notes 5 and 11 to our consolidated financial statements for additional disclosures regarding the ~~brokers~~equity method investments RFGH and ~~pricing services to derive the values are not readily observable.~~

RTB.

REIT Tax Election

We ~~intend to elect~~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 three months ended March 31, ~~2020.~~2023 and March 31, 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

~~We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity prepayment rates and market value, while at the same time seeking to provide an opportunity~~

Not required for our stockholders to realize attractive risk-adjusted returns. While risks are inherent in any business enterprise, we seek to quantify and justify risks in light of available returns and to maintain capital levels consistent with the risks we undertake.

~~Credit Risk~~

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

~~Credit Yield Risk~~

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

~~Interest Rate Risk~~

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

~~The following table shows the sensitivity of net interest income to 1/8~~^th ~~percent changes in interest rates for the Company’s floating rate assets and liabilities as of March 31, 2020:~~

smaller reporting companies.

Change in Interest Rates

Annual change to net interest income

0.125%

$
169,040

0.250%

338,080

0.375%

507,120

0.500%

676,160

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

~~Prepayment risk~~

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

~~Financing Risk~~

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

~~Real Estate Risk~~

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

~~We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance~~

Management nonetheless determined that the ~~objectives~~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 ~~controls systems~~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 March 31, 2023.

Remediation Plan

Management is committed to implementing changes to our internal control over financial reporting to ensure that the material weakness is remediated. We have evaluated the impact of the 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.

While we believe that these actions will remediate the material weakness, we have not completed all of the corrective processes, procedures and related evaluation or remediation that we believe are ~~met,~~necessary. As we continue to evaluate and ~~no evaluation~~work to remediate the material weakness, we may take additional measures to address the material weakness.

Until the remediation steps set forth above, including the efforts to implement the necessary control activities we identify, are fully implemented and concluded to be operating effectively for a sufficient period of ~~controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.~~

time, the material weakness described above will not be considered remediated.

Changes in Internal Control over Financial Reporting

~~There has been no change~~

Other than ongoing remediation to address the 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 ~~three months~~quarter ended March 31, ~~2020~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART ~~II—~~II—OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

~~Except as set forth below, there~~

There have been no material changes to the risk factors previously disclosed under ~~the heading~~Part I, Item 1A, “Risk Factors” in our ~~Prospectus forming a part of our Registration Statement~~Annual Report on Form ~~S-11, as amended,~~10-K filed with the SEC on ~~February 10, 2020:~~

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

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

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

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

31, 2023.

reduced economic activity could result in a prolonged recession, which could negatively impact the value of commercial and residential real estate, which negatively impacts the value of our investments, potentially materially;

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

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

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

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

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

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including additional actions taken to contain COVID-19 or treat its impact, among others. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance. Moreover, many risk factors set forth in our Prospectus should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

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

~~Unregistered Sales of Equity Securities~~

On June 10, 2019, in connection with our formation and initial capitalization, we issued 10 shares of common stock to Brian Mitts in exchange for $10.00 in cash. Such issuance was exempt from the requirements of the Securities Act pursuant to Section 4(a)(2) thereof. These shares were repurchased by the Company at the closing of the IPO for $10.00.

~~Use of Proceeds from Registered Securities~~

On February 11, 2020, we sold 5,000,000 shares of our common stock at a price of $19.00 per share for gross proceeds of approximately $95.0 million. On February 25, 2020, we sold 350,000 shares of our common stock at a price of $19.00 per share for gross proceeds of approximately $6.7 million pursuant to the partial exercise of the underwriters’ option to purchase additional shares. In total, we sold 5,350,000 shares for gross proceeds of $101.7 million. The shares offered and sold in the IPO were registered under the Securities Act pursuant to our Registration Statement on Form S-11 (File No. 333-235698), as amended (the “Registration Statement”), which was declared effective by the SEC on February 6, 2020. The Registration Statement registered a total of 5,750,000 shares of common stock with a maximum aggregate offering price of up to approximately $120.8 million. Raymond James & Associates, Inc., Keefe, Bruyette & Woods, Inc. and Robert W. Baird & Co. Inc served as underwriters for the IPO.

The IPO generated net proceeds of approximately $91.9 million to us after deducting underwriting discounts and commissions of approximately $6.9 million and offering expenses of approximately $2.9 million. Except as described herein, all of the expenses were direct or indirect payments to persons other than: (i) our directors, officers or any of their associates; (ii) persons owning ten percent (10%) or more of our common stock; or (iii) our affiliates. We contributed the net proceeds from the IPO to our OP in exchange for limited partnership interests in the OP and our OP contributed the net proceeds from the IPO to our Sub OPs for limited partnership interests in the Sub OPs. Our Sub OPs used the net proceeds from the IPO to repay the amount outstanding under the $95 million Bridge Facility, consistent with our investment strategy and guidelines.

~~Repurchase of Shares~~

On March 9, 2020, we announced that our Board authorized us to repurchase an indeterminate number of shares of our common stock at an aggregate market value of up to $10.0 million during a two-year period that is set to expire on March 9, 2022. We repurchased 87,466 shares of common stock during the three months ended March 31, 2020 as shown in the table below.

Period

Total Number
of Shares Purchased

Average Price
Paid Per Share

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

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

Beginning Balance

—

$
—

—

$
—

January 1 – January 31

—

—

—

10.0

February 1 – February 29

—

—

—

10.0

March 1 – March 31

87,466

15.30

87,466

8.7

Balance as of March 31, 2020

87,466

$
15.30

87,466

$
8.7

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits

EXHIBIT INDEX

~~Exhibit Number~~	~~Description~~
Exhibit Number			Description
2.1* 3.1			~~Contribution and Assignment of Interests Agreement, by and among NexPoint Real Estate Finance, Inc. and the Contribution Group~~

3.1*	~~Articles of Amendment and Restatement of NexPoint Real Estate Finance, Inc.~~

3.2*	Amended and Restated Bylaws of NexPoint Real Estate Finance, Inc.

10.1*	~~Amended and Restated Limited Partnership Agreement of NexPoint Real Estate Finance Operating Partnership, L.P.~~

10.2*	~~Management Agreement, by and between NexPoint Real Estate Finance, Inc. and NexPoint Real Estate Advisors VII, L.P.~~

10.3*	~~Amended and Restated Limited Partnership Agreement of NREF OP I, L.P.~~

10.4*	~~Amended and Restated Limited Partnership Agreement of NREF OP II, L.P.~~

10.5*	~~Amended and Restated Limited Partnership Agreement of NREF OP IV, L.P.~~

~~10.6~~	Loan and Security Agreement, dated as of July 12, 2019, by and among NexPoint WLIF I Borrower, LLC, NexPoint WLIF II Borrower, LLC, and NexPoint WLIF III Borrower, LLC, as Borrower, and Federal Home Loan Mortgage Corporation, as Lender (incorporated by reference to Exhibit ~~10.4 to Amendment No. 2~~3.1 to the ~~Registration Statement~~Current Report on Form ~~S-11,~~8-K, filed by the Company on ~~January~~February 27, ~~2020, File No. 333-235698)~~2023).

10.7* 31.1*			~~NexPoint Real Estate Finance, Inc. 2020 Long Term Incentive Plan~~

~~10.8~~	Form of Indemnification Agreement (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the Registration Statement on Form S-11, filed by the Company on January 27, 2020, File No. 333-235698)

10.9*	~~Registration Rights Agreement, by and between NexPoint Real Estate Finance, Inc. and NexPoint Real Estate Advisors VII, L.P.~~

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

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

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

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

+	~~Furnished herewith.~~

______________________

* Filed herewith.

+ Furnished herewith.

Table of Contents ~~SIGNATURES~~

SIGNATURES

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

NEXPOINT REAL ESTATE FINANCE, INC.

~~Signature~~

~~Title~~

~~Date~~

Signature

Title

Date

/s/ Jim Dondero

~~President~~Chairman of the Board and ~~Director~~

~~May 8, 2020~~

~~Jim Dondero~~

President
(Principal Executive Officer)

May 10, 2023

Jim Dondero

/s/ Brian Mitts

Director, Chief Financial Officer, Executive VP-Finance, Secretary and ~~Director~~

~~May 8, 2020~~

~~Brian Mitts~~

Treasurer
(Principal Financial Officer and Principal
Accounting Officer)

May 10, 2023

Brian Mitts

	Preferred Stock				Common Stock						Additional		Accumulated Earnings (Loss)			Common Stock
	Number of Shares		Par Value		Number of Shares			Par Value			Paid-in Capital		Less Dividends			Held in Treasury at Cost			Total
Balances, December 31, 2019		—	$	—		—		$	—		$	—	$	—		$	—		$	—
Issuance of common stock through public offering, net		—		—		5,350,000			54			91,894		—			—			91,948
Repurchase of common stock		—		—		(87,466	)		(1	)		—		—			(1,338	)		(1,339	)
Net loss attributable to common stockholders		—		—		—			—			—		(6,353	)		—			(6,353	)
Common stock dividends declared ($0.2198 per share)		—		—		—			—			—		(1,157	)		—			(1,157	)
Balances, March 31, 2020		—	$	—		5,262,534		$	53		$	91,894	$	(7,510	)	$	(1,338	)	$	83,099

Supplemental Disclosure of Cash Flow Information
Interest paid	$	3,054
Supplemental Disclosure of Noncash Activities (Note 2)
Contributions from noncontrolling interests		2,739,693
Other assets acquired from contributions from noncontrolling interests		3,616
Assumed debt on contributions from noncontrolling interests		(2,491,682	)

	Par value		Fair Value		Premium (Discount)
Assets
Cash	$	302	$	302	$	—
Loans, held-for-investment, net		22,127		22,282		155
Preferred stock		40,000		40,400		400
Mortgage loans, held-for-investment, net		863,564		934,918		71,354
Accrued interest and dividends		3,616		3,616		—
Mortgage loans held in variable interest entities, at fair value		1,742,186		1,742,093		(93	)
	$	2,671,795	$	2,743,611	$	71,816

Liabilities
Credit facility	$	788,764	$	788,764	$	—
Bridge facility		95,000		95,000		—
Bonds payable held in variable interest entities, at fair value		1,607,918		1,607,918		—
	$	2,491,682	$	2,491,682	$	—

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

	Held-for-Investment			Total
Balance at December 31, 2019	$	—		$	—
Contributions from noncontrolling interests in the OP		957,200			957,200
Proceeds from principal repayments		(455	)		(455	)
Amortization of loan premium, net (1)		(1,032	)		(1,032	)
Loan loss provision, net (2)		(212	)		(212	)
Balance at March 31, 2020	$	955,501		$	955,501

Balances as of December 31, 2019	$	—
Assumption of debt		788,764
Principal repayments		(419	)
Balances as of March 31, 2020	$	788,345

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

	For the Three Months Ended March 31, 2020
Dividend income	$	473
Amortization of premium on preferred stock investment		(26	)
	$	447

	For the Three Months Ended March 31,
	2020
Numerator for loss per share:
Net loss	$	(22,868	)
Net loss attributable to redeemable noncontrolling interests		(16,515	)
Net loss attributable to common stockholders	$	(6,353	)

Denominator for earnings (loss) per share:
Weighted-average common shares outstanding		5,223
Denominator for basic loss per share		5,223
Weighted-average unvested restricted stock units		—
Denominator for diluted earnings per share		5,223

Earnings (loss) per weighted average common share:
Basic	$	(1.22	)
Diluted	$	(1.22	)

	For the Three Months Ended March 31, 2020
	Interest income/			Average
	(expense)			Balance (1)			Yield (2)
Interest income
SFR Loans, held-for-investment	$	6,099		$	934,175			3.97	%
Mezzanine loan		81			3,221			15.28	%
Preferred equity		406			19,061			12.96	%
Total interest income	$	6,586		$	956,456			4.19	%
Interest expense
Long-term seller financing		(3,331	)		(788,554	)		2.57	%
Total interest expense	$	(3,331	)	$	(788,554	)		2.57	%
Net interest income (3)	$	3,255

			Current										Remaining
		Investment	Principal										Term (5)
	Investment (1)	Date (2)	Amount			Net Equity (3)		Location	Property Type	Coupon (4)			(years)
	SFR Loans
1	Senior loan	2/11/2020	$	508,700		$	85,754	Various	Single-family		4.65	%		8.43
2	Senior loan	2/11/2020		10,688			1,722	Various	Single-family		5.35	%		7.84
3	Senior loan	2/11/2020		5,633			908	Various	Single-family		5.33	%		3.34
4	Senior loan	2/11/2020		10,627			1,782	Various	Single-family		5.30	%		8.43
5	Senior loan	2/11/2020		7,647			1,283	Various	Single-family		5.08	%		8.26
6	Senior loan	2/11/2020		5,699			963	Various	Single-family		5.24	%		8.51
7	Senior loan	2/11/2020		12,373			2,085	Various	Single-family		5.54	%		8.51
8	Senior loan	2/11/2020		6,597			1,065	Various	Single-family		5.79	%		3.42
9	Senior loan	2/11/2020		8,308			1,421	Various	Single-family		5.85	%		8.59
10	Senior loan	2/11/2020		51,362			8,489	Various	Single-family		4.74	%		5.51
11	Senior loan	2/11/2020		9,875			1,684	Various	Single-family		6.10	%		8.51
12	Senior loan	2/11/2020		38,516			6,622	Various	Single-family		5.55	%		8.59
13	Senior loan	2/11/2020		6,399			1,095	Various	Single-family		5.47	%		8.59
14	Senior loan	2/11/2020		15,300			2,486	Various	Single-family		5.46	%		3.59
15	Senior loan	2/11/2020		5,760			981	Various	Single-family		5.99	%		8.68
16	Senior loan	2/11/2020		10,283			1,763	Various	Single-family		5.72	%		8.68
17	Senior loan	2/11/2020		10,704			1,837	Various	Single-family		5.60	%		8.68
18	Senior loan	2/11/2020		5,392			908	Various	Single-family		5.46	%		8.76
19	Senior loan	2/11/2020		9,284			1,568	Various	Single-family		5.88	%		8.76
20	Senior loan	2/11/2020		6,727			1,082	Various	Single-family		4.83	%		3.84
21	Senior loan	2/11/2020		4,736			789	Various	Single-family		5.35	%		8.85
22	Senior loan	2/11/2020		17,382			2,975	Various	Single-family		5.61	%		8.85
23	Senior loan	2/11/2020		7,797			1,304	Various	Single-family		5.34	%		8.85
24	Senior loan	2/11/2020		7,922			1,354	Various	Single-family		5.47	%		8.85
25	Senior loan	2/11/2020		6,851			1,141	Various	Single-family		5.46	%		8.92
26	Senior loan	2/11/2020		10,523			1,714	Various	Single-family		4.72	%		5.92
27	Senior loan	2/11/2020		62,023			10,311	Various	Single-family		4.95	%		8.92
	Total			863,109			145,086				4.91	%		8.11

	CMBS B-Piece
1	CMBS B-Piece	2/11/2020		75,589	(6)		62,693	Various	Multifamily	L + 6.00%				5.91
2	CMBS B-Piece	2/11/2020		56,396	(6)		42,298	Various	Multifamily	L + 6.00%				6.66
	Total			131,985			104,991			L + 6.00%				6.23

	Mezzanine Loan
1	Mezzanine	2/11/2020		3,250			3,222	Charleston, SC	Multifamily	Prime + 9.00%				1.84

	Preferred Equity
1	Preferred Equity	2/11/2020		5,056			5,297	Jackson, MS	Multifamily		12.50	%		7.67
2	Preferred Equity	2/11/2020		3,821			3,995	Corpus Christi, TX	Multifamily		15.25	%		2.34
3	Preferred Equity	2/11/2020		10,000			9,768	Columbus, GA	Multifamily		11.50	%		5.25
	Total			18,877			19,060				12.53	%		5.31

	Preferred Stock
1	Preferred Stock	2/11/2020		40,000	(7)		40,374	N/A	N/A		7.00	%	N/A

Change in Interest Rates	Annual change to net interest income
0.125%	$	169,040
0.250%		338,080
0.375%		507,120
0.500%		676,160

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs (in millions)
Beginning Balance		—	$	—		—	$	—
January 1 – January 31		—		—		—		10.0
February 1 – February 29		—		—		—		10.0
March 1 – March 31		87,466		15.30		87,466		8.7
Balance as of March 31, 2020		87,466	$	15.30		87,466	$	8.7

300 Crescent Court, Suite 700, Dallas, Texas

(Address of Principal Executive Offices)

(Zip Code)