NexPoint Diversified Real Estate Trust Announces Quarterly Distribution

Rhea-AI Summary

NexPoint Diversified Real Estate Trust (NYSE: NXDT) has declared a quarterly distribution of $0.15 per common share, payable on September 30, 2024, to shareholders of record on August 15, 2024. The distribution will be a combination of cash and common shares, with the cash component not exceeding 20% in aggregate. This structure aims to comply with REIT qualification requirements while retaining capital and enhancing financial flexibility.

Shareholders can elect to receive the distribution all in cash or all in shares, with a minimum of 20% in cash for those electing cash. The number of shares issued will be calculated based on the volume-weighted average trading prices on September 18-20, 2024. Election forms must be received by September 17, 2024. NXDT expects the dividend to be taxable, regardless of the form received.

Positive

• Quarterly distribution of $0.15 per common share declared
• Distribution structure allows NXDT to comply with REIT requirements
• Retains capital and enhances financial flexibility

Negative

• Cash component to 20% of the distribution
• Potential share dilution due to stock component of distribution

Financial Analyst

NexPoint Diversified Real Estate Trust's (NXDT) announcement of a quarterly distribution merits close attention from investors. The $0.15 per share distribution, payable on September 30, 2024, represents a strategic move by the company to balance shareholder returns with capital retention.

The most intriguing aspect of this distribution is its structure. By limiting the cash component to a maximum of 20% and offering the remainder in NXDT shares, the company is effectively preserving capital while still meeting REIT qualification requirements. This approach, reminiscent of strategies employed during the 2008 financial crisis, suggests that NXDT is prioritizing financial flexibility in the current economic climate.

For investors, this distribution method presents both opportunities and considerations:

• Potential for increased ownership: Shareholders accepting stock may incrementally increase their stake in NXDT without additional cash investment.
• Tax implications: Despite the stock component, the entire distribution is expected to be treated as a taxable dividend. This could impact investors' tax planning, especially those in higher tax brackets.
• Share price pressure: The issuance of new shares could potentially dilute earnings per share and put downward pressure on the stock price in the short term.

The use of a volume-weighted average price (VWAP) over three trading days to determine the stock distribution price is a fair approach, mitigating the impact of short-term price fluctuations.

Investors should closely monitor NXDT's financial statements in the coming quarters to assess the impact of this capital preservation strategy on the company's growth initiatives and overall financial health. This distribution method may signal a cautious outlook from management, possibly reflecting broader concerns about the real estate market or economic conditions.

Real Estate Investment Specialist

NXDT's decision to offer a hybrid cash-stock distribution is a nuanced strategy that warrants careful consideration. This approach, while not uncommon in the REIT sector, often signals a company's desire to retain capital for potential opportunities or to strengthen its balance sheet.

From a real estate market perspective, this move could indicate:

• Anticipation of market volatility: By conserving cash, NXDT may be positioning itself to capitalize on potential distressed asset opportunities in the real estate market.
• Debt management: The retained capital could be earmarked for debt reduction, improving the company's financial leverage in a rising interest rate environment.
• Portfolio optimization: NXDT might be planning to reallocate capital towards more promising segments of the real estate market, requiring a larger cash reserve.

The 20% cash cap on the distribution is particularly telling. It suggests that NXDT is prioritizing liquidity over immediate shareholder payouts, which could be a prudent move in an uncertain economic climate.

For investors, it's important to evaluate NXDT's portfolio composition and recent acquisition/disposition activities. If the company has been actively repositioning its assets, this distribution strategy could be part of a broader plan to optimize its real estate holdings.

Moreover, the option for shareholders to elect all-cash distributions (subject to proration) provides some flexibility, which is commendable. However, investors should be aware that opting for cash might result in receiving less than the full $0.15 per share if cash elections exceed the 20% threshold.

In the broader context of the REIT market, NXDT's approach could set a precedent. If successful, we might see other REITs adopting similar strategies to navigate economic uncertainties while maintaining their REIT status.

DALLAS, July 31, 2024 /PRNewswire/ -- NexPoint Diversified Real Estate Trust ("NXDT") (NYSE: NXDT) announced today that its board of trustees has declared a quarterly distribution of $0.15 per common share of NXDT, consisting of a combination of cash and common shares of NXDT. The distribution will be payable on September 30, 2024, to shareholders of record on August 15, 2024.

The board of trustees has determined that the cash component of the distribution (other than cash paid in lieu of fractional shares) will not exceed 20% in the aggregate, with the balance payable in common shares of NXDT. This will allow NXDT to comply with the real estate investment trust ("REIT") qualification requirements under the Internal Revenue Code, while retaining capital and enhancing NXDT's financial flexibility.

In accordance with the provisions of IRS Revenue Procedure 2017-45, shareholders will be asked to make an election to receive the distribution all in cash or all in shares. To the extent that more than 20% of cash is elected in the aggregate, the cash portion will be prorated. Shareholders who elect to receive the distribution in cash will receive at least 20% of the distribution in cash. Shareholders who do not make an election will receive the distribution entirely in common shares of NXDT. The number of shares issued as a result of the distribution will be calculated based on the volume weighted average trading prices of NXDT's common shares on the New York Stock Exchange on September 18, 19 and 20, 2024.

An election notice and election form will be mailed to shareholders of record after the record date. The properly completed election form to receive cash or common shares must be received by Equiniti Trust Company, NXDT's transfer agent, prior to 5:00 p.m. Eastern Time on September 17, 2024.

Shareholders who hold their shares through a bank or broker should inform the bank or broker of their election. NXDT expects the dividend to be a taxable dividend to shareholders, regardless of whether a particular shareholder receives the dividend in the form of cash or shares. Shareholders are urged to consult with their tax advisers for proper tax treatment of NXDT's distributions. NXDT reserves the right to pay future dividends entirely in cash.

About NexPoint Diversified Real Estate Trust (NYSE: NXDT)

NexPoint Diversified Real Estate Trust is an externally advised, publicly traded, diversified REIT focused on the acquisition, development, and management of opportunistic and value-add investments throughout the United States across multiple sectors where NexPoint and its affiliates have operational expertise. NXDT is externally advised by NexPoint Real Estate Advisors X, L.P. For more information, please visit nxdt.nexpoint.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to the tax status of the distribution, and NXDT's capital retention and financial flexibility contain forward-looking statements. We caution investors that any forward-looking statements presented in this press release are based on management's current beliefs and assumptions made by, and information currently available to, management. When used, the words "will," "retain," "expect" and "enhance," the negative version of these words and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control, including those described in greater detail in our filings with the Securities and Exchange Commission (the "SEC") particularly those described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements and encourage you to review our other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statement.

CONTACTS

Investor Relations
Kristen Thomas
IR@nexpoint.com

Media Relations
Prosek Partners for NexPoint
pro-nexpoint@prosek.com

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SOURCE NexPoint Diversified Real Estate Trust

FAQ

What is the quarterly distribution amount for NexPoint Diversified Real Estate Trust (NXDT)?

NexPoint Diversified Real Estate Trust (NXDT) has declared a quarterly distribution of $0.15 per common share.

When is the payment date for NXDT's quarterly distribution?

The quarterly distribution for NXDT will be payable on September 30, 2024.

What is the record date for NXDT's quarterly distribution?

The record date for NXDT's quarterly distribution is August 15, 2024.

How will NXDT's quarterly distribution be paid?

NXDT's quarterly distribution will be paid as a combination of cash and common shares, with the cash component not exceeding 20% in aggregate.

Can shareholders choose how to receive NXDT's distribution?

Yes, shareholders can elect to receive the distribution all in cash or all in shares, with those electing cash receiving at least 20% of the distribution in cash.