Company: NXDT
Filing Date: 2025-11-13
Form Type: 10-Q
Source: 0001628280-25-052132
Chunk: 187

Company: NEXPOINT DIVERSIFIED REAL ESTATE TRUST
Filing Date: 2025-11-13
Form: 10-Q
Item: Item 1
Chunk 187
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 interest rate cap agreement related to the notes payable on the Park City and Bradenton properties. As of September 30, 2025, the interest rate cap agreements effectively cap one-month SOFR on $38.6 million of the NHT segment's floating rate mortgage and mezzanine indebtedness at a weighted average rate of 6.70%.To comply with the provisions of ASC 820, Fair Value Measurement, the NHT segment incorporates credit valuation adjustments to appropriately reflect both the NHT segment’s own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. 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 NHT segment’s derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the NHT segment and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to the NHT segment's derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. Additionally, in the case of interest rate caps, the NHT segment has no performance obligation, so no credit valuation adjustment is necessary. As a result, all of the Hospitality segment’s derivatives held as of September 30, 2025 were classified as Level 2 of the fair value hierarchy. 

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Changes in fair value of the interest rate caps are recorded directly as interest expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). For the three months ended September 30, 2025 and 2024, NHT recorded $(11.7) thousand and $(0.1) million, respectively, in interest expense related to changes in the fair value of interest rate caps. For the nine months ended September 30, 2025 and 2024, NHT recorded $(23.2) thousand, and $0.1 million, respectively in interest expense related to changes in the fair value of interest rate caps. The combined fair value of the interest rate caps is $0.3 million as of September 30, 2025, and is recorded as interest rate caps in the Consolidated Balance Sheets. As of September 30, 2025, the Hospitality segment had the following outstanding interest rate caps:Type of DerivativeHedged Financial InstrumentNotionalStrike RateReference RateTermination