Company: NXDT
Filing Date: 2025-06-12
Form Type: S-4
Source: 0001437749-25-020201
Chunk: 61

Company: NEXPOINT DIVERSIFIED REAL ESTATE TRUST
Filing Date: 2025-06-12
Form: S-4
Chunk 61
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 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 we will be successful in avoiding this excise tax.

Income Tests. In order to maintain New NXDT’s qualification as a REIT, New NXDT annually must satisfy two gross income requirements.

| ● | First, New NXDT must derive at least 75% of its gross income for each taxable year, excluding gross income from prohibited transactions, directly or indirectly from investments relating to real property or mortgages on real property, including interest income derived from mortgage loans secured by real property or interests in real property (including certain types of CMBS), “rents from real property,” distributions received from other REIT