Company: NXDT
Filing Date: 2025-03-31
Form Type: 10-K
Source: 0001356115-25-000003
Chunk: 322

Company: NEXPOINT DIVERSIFIED REAL ESTATE TRUST
Filing Date: 2025-03-31
Form: 10-K
Item: Item 1
Chunk 322
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 opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Fair value measurement of level 3 investments

As discussed in Notes 3 and 9 to the consolidated financial statements, the Company has $643.4 million of investments that are measured at fair value on a recurring basis, a portion of which uses inputs that are classified within Level 3 of the fair value hierarchy as of December 31, 2024. The Company uses an income approach, market approach, or a combination thereof to value each of these investments. Establishing fair values for these Level 3 investments is inherently subjective and dependent upon significant unobservable inputs and assumptions.

We identified the evaluation of the fair value measurements for certain Level 3 investments as a critical audit matter. Complex auditor judgment and the involvement of valuation professionals with specialized skills and knowledge were required to evaluate certain assumptions used in the Company’s determination of the fair value measurements. Specifically, for investments that used the income approach, the assumptions included the capitalization rates, market rent, discount 

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rates, and discount applied to net asset value. For investments that used the market approach, the assumptions included the discount applied to net asset value.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls used in the fair value measurements process, including controls related to the assumptions described above. We involved valuation professionals with specialized skills and knowledge who assisted in:

•evaluating the capitalization rates and discount rates by comparing them against ranges that were independently developed using publicly available market data for comparable properties

•assessing the appropriateness of the market rent assumptions by comparing them to comparable transactions and current listings of comparable properties

•determining the appropriateness of the discount applied to net asset value by comparing it to industry data available for comparable publicly traded companies

/s/ KPMG LLP

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

Dallas, Texas 

March 31, 2025

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NEXPOINT DIVERSIFIED REAL ESTATE TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value amounts)

December 31, 2024December 31, 2023ASSETS Consolidated Real Estate InvestmentsLand$62,227 $47,708 Buildings and improvements312,200 206,213 Intangible lease assets10,979 10,979 Construction in progress24,689