Company: NXDT
Filing Date: 2025-04-11
Form Type: S-4
Source: 0001437749-25-011826
Chunk: 156

Company: NEXPOINT DIVERSIFIED REAL ESTATE TRUST
Filing Date: 2025-04-11
Form: S-4
Chunk 156
---
 the dividend is retained by New NXDT, or (2) to New NXDT’s stockholders to the extent the dividends received from the TRS are paid to New NXDT’s stockholders. New NXDT may hold more than 10% of the stock of a TRS without jeopardizing its qualification as a REIT under the Code notwithstanding the rule described below under “–Asset Tests” that generally precludes ownership of more than 10% of any issuer’s securities. However, as noted below, in order for New NXDT to qualify as a REIT under the Code, the securities of all of the TRSs in which New NXDT has invested either directly or indirectly may not represent more than 20% of the total value of New NXDT’s assets. We expect that the aggregate value of all of New NXDT’s interests in TRSs will represent less than 20% of the total value of New NXDT’s assets; however, we cannot assure you that New NXDT will always satisfy this requirement. Other than certain activities related to operating or managing a lodging or health care facility, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of the parent REIT. As a result, New NXDT may use such entities to indirectly undertake activities that the REIT rules might otherwise preclude it from doing directly or through pass-through subsidiaries. For example, New NXDT may use TRSs or other taxable subsidiary corporations to conduct activities that give rise to certain categories of income such as management fees or activities that would be treated if undertaken directly by it as prohibited transactions.

Certain restrictions imposed on TRSs (as well as on taxable corporations generally) are intended to ensure that such entities will be subject to appropriate levels of U.S. federal income taxation. First, overall limitations on the deductibility of net interest expense by businesses could apply to a TRS. In addition, if amounts are paid to a REIT or deducted by a TRS due to transactions between the REIT and a TRS that exceed the amount that would be paid to or deducted by a party in an arm’s-length transaction, the REIT generally will be subject to an excise tax equal to 100% of such excess. We intend to scrutinize all of New NXDT’s transactions with any of its subsidiaries that are treated as a TRS in an effort to ensure that New NXDT does not become subject to this excise tax; however, we cannot assure you that