Company: NXDT
Filing Date: 2025-04-11
Form Type: S-4
Source: 0001437749-25-011826
Chunk: 155

Company: NEXPOINT DIVERSIFIED REAL ESTATE TRUST
Filing Date: 2025-04-11
Form: S-4
Chunk 155
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 a REIT is a partner in a partnership, Treasury regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to that proportionate share. In addition, the character of the assets and gross income of the partnership will retain the same character in the hands of the REIT for purposes of the rules of the Code defining REITs, including satisfying the gross income tests and the asset tests. Thus, New NXDT’s proportionate share of the assets, liabilities and items of income of any partnership in which New NXDT is a partner, will be treated as assets, liabilities and items of income of New NXDT for purposes of applying the requirements described in this section. Thus, actions taken by partnerships in which New NXDT owns an interest, either directly or through one or more tiers of partnerships or disregarded entity subsidiaries, can affect New NXDT’s ability to satisfy the REIT income and asset tests and the determination of whether New NXDT has net income from prohibited transactions. See the fourth bullet point under the heading “Taxation of New NXDT as a Real Estate Investment Trust” above for a brief description of prohibited transactions.

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Taxable Real Estate Investment Trust Subsidiaries. A TRS is any corporation in which a REIT directly or indirectly owns stock, provided that the REIT and that corporation make a joint election to treat that corporation as a TRS. The election can be revoked at any time as long as the REIT and the TRS revoke such election jointly. In addition, if a TRS holds, directly or indirectly, more than 35% of the securities of any other corporation other than a REIT (by vote or by value), then that other corporation is also treated as a TRS. A corporation can be a TRS with respect to more than one REIT.

A TRS is subject to U.S. federal income tax as a C corporation at the corporate rate and may also be subject to state and local taxation. New NXDT is not treated for U.S. federal income tax purposes as holding the assets of a TRS or as receiving any income that the TRS earns. Rather, the interests issued by a TRS to New NXDT is an asset in the hands of New NXDT, and any dividends paid or deemed paid by any TRS will also be taxable; either (1) to New NXDT to the extent