Real Estate Risk. Real estate investments are subject to various risk factors. Generally, real estate investments could be adversely affected by a recession or general economic downturn where the properties are located. The full extent of the impact and effects of the recent outbreak of COVID-19 on the future financial performance of the Fund, and specifically, on its investments and tenants to properties held by its REIT subsidiaries, are uncertain at this time. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown
Life Science Risk. Factors impacting the Life Science market. The success of life science depends, in part, on conditions in the life science market. The life science market consists of the fields of pharmaceuticals, biotechnology, biomedical technologies, nutraceuticals, cosmeceuticals, and others. Investment strategies are premised on assumptions about occupancy levels, rental rates, interest rates and other factors, and if those assumptions prove to be inaccurate, cash flows and profitability will be reduced. Recent strengthening of the U.S. economy and job growth, coupled with government programs, and interest has been driven in part by the COVID-19 pandemic, as the sector exponentially grew due to activity around vaccine development. Lab science risks differ from typical office construction, as they have very specialized infrastructure requirements. This includes the need to have space for chemicals and chemical storage, clean room spaces, special ventilation and fireproofing systems, extra power and emergency generators, among other requirements.
Self-Storage Risk. The risk of investing in the self-storage market. The success of self-storage depends, in part, on conditions in the self-storage market. The rental of self-storage space is highly competitive. Self-storage properties could be adversely affected by competitive properties in the real estate market, which could affect the operations and ultimate value. Self-storage operators must retain current tenants at favorable rates, attract quality tenants, and provide an attractive and convenient environment. There is significant competition among self-storage owners and operators and other self-storage alternatives which could have an effect on occupancy levels, rental rates, and other operating expenses.
DSTs are not suitable for all investors, and are speculative, illiquid, and involve a high degree of risk, including the possible complete loss of your investment.
DISTRIBUTIONS. We may have to fund distributions from working capital, borrow to provide funds for such distributions, use proceeds of future offerings or sell assets to the extent distributions exceed earnings or cash flows from operations. Funding distributions from working capital would restrict our operations. If we are required to sell assets to fund dividends, such asset sales may occur at a time or in a manner that is not consistent with our disposition strategy. If we borrow to fund dividends, our leverage ratios and future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. We may not be able to pay dividends in the future.
The performance data quoted here represents past performance and is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For performance data current to the most recent month-end, please call 877-665-1287.
Before investing in the Fund, you should carefully consider the Fund’s investment objectives, risks, charges and expense. For a copy of a prospectus or summary prospectus, which contains this and other information, please visit our website at nexpoint.com or call 1-877- 665-1287. Please read the fund prospectus carefully before investing.
HFM Award Criteria. HFM US Performance Awards 2023 are awarded annually and to be eligible for an award, funds entering any of the categories must apply and meet certain requirements. Funds entering any of the categories except newcomer, ESG, best digital assets and alternative risk premia must submit a 3-year track record of monthly performance data through June 2023. Funds entering the newcomer categories must have a track record of monthly performance data of at least 12 months and less than 36 months (that is between 12 and 35 months) through June 2023. Funds entering the ESG, best digital assets and alternative risk premia categories must have a track record of monthly performance data of at least 12 months through June 2022. Funds entering the long-term performance (5 years) categories must submit a 5-year track record of monthly performance data through June 2023.There were 6 funds shortlisted in the Merger Arbitrage category and 4 funds shortlisted in the Event Driven over $1bn category. Judges focus on absolute performance as well as standard deviation of returns and outperformance of the relevant HFM benchmark. They also take into consideration the relative AUM, nature of the investment strategy, track-records, other supporting materials and professional knowledge they have about shortlisted funds to come to their decisions.
NexPoint Real Estate Finance Disclosures
Any investment in this Company is speculative, illiquid, and involves a high degree of risk, including the potential loss of your entire investment.
This sales and advertising literature does not constitute an offer to sell nor a solicitation of an offer to purchase the Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”) described herein. An offering will be made only by NREF (the “Company”) with the prospectus and any accompanying prospectus supplement. This sales and advertising literature must be read in conjunction with or accompanied by the prospectus and any accompanying prospectus supplement in order to understand fully all of the implications and risks of the offering of securities to which it relates. A copy of the prospectus and any accompanying prospectus supplement must be made available to you in connection with the offering. None of the U.S. Securities and Exchange Commission (“SEC”) or any other state regulators have passed on or endorsed the merits of the offering. Any representation to the contrary is unlawful.
STABILIZED PROPERTY. Stabilized Property is defined as properties that require limited deferred funding to support leasing or ramp-up of operations and for which most capital expenditures are for value-add improvements.
WEIGHTED AVERAGE DEBT SERVICE COVERAGE RATIO. This statistic shows investors and lenders whether a company has enough income to pay its debts by measuring the firm’s available cash flow to pay current debt obligations.
INDUSTRY AVERAGE: The tickers included in the industry average are: ARI, STWD, ABR, RC, LADR, BRSP, BXMT, CMTG, FBRT, KREF, TRTX, ACRE, GMPT, LFT, and ACR. The total leverage for each ticker is 2.8x, 2.9x, 3.6x, 3.4x, 2.5x, 2.2x, 4.2x, 2.6x, 2.2x, 4.1x, 2.6x, 2.0x, 2.2x, 5.0x, and 3.9x., respectively. The portfolio weighted average term in years is 2.4, 2.9, 1.3, N/A, 2.0, 2.6, 2.6, N/A, 3.1, 2.8, 2.6, 1.2, 1.8, 1.3, and 3.0, respectively. The Industry Average is comprised of 15 publicly tranded mortgage REITs and was selected because they are a representative example of MREITs similar to NREF.
NREF is a publicly traded real estate investment trust (REIT), with its common stock and Series A Preferred Stock listed on the New York Stock Exchange under the symbols “NREF“ and “NREF-PRA” primarily focused on originating, structuring and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common stock investments, as well as multifamily, and SFR commercial mortgage-backed securities securitizations, multifamily structured credit risk notes and mortgage-backed securities.
An investment in NREF involves substantial risk. See the “Risk Factors” sections of the prospectus and any accompanying prospectus supplement for a discussion of material risks related to an investment in NREF’s Series B Preferred Stock, which include, but are not limited to, the following:
There is currently no public trading market for our Series B Preferred Stock, and one may never exist; therefore, a holder’s ability to dispose of shares of Series B Preferred Stock will likely be limited.
Because we conduct substantially all of our operations through NexPoint Real Estate Finance Operating Partnership, L.P. (“OP”), our ability to pay dividends on our Series B Preferred Stock depends almost entirely on the distributions we receive from the OP. We may not be able to pay dividends regularly on our Series B Preferred Stock.
The rights of the holders of our Series B Preferred Stock or of our common stock (which holders of Series B Preferred Stock may become upon receipt of redemption payments in shares of our common stock for any shares of Series B Preferred Stock) could be subordinated and/or diluted by the incurrence of additional debt or the issuance of additional shares of preferred stock or common stock, as applicable, and other transactions.
The Company’s 5.75% Senior Unsecured Notes due 2026, the OP’s 7.50% Senior Unsecured Notes due 2025 and future offerings of debt securities or shares of our capital stock expressly designated as ranking senior to our Series B Preferred Stock as to distribution rights and rights upon our liquidation, dissolution or winding up may adversely affect value of our Series B Preferred Stock.
The Series B Preferred Stock has not been rated.
In the event a holder of our Series B Preferred Stock exercises their redemption option we may redeem such shares of Series B Preferred Stock either for cash, or for shares of our common stock, or any combination thereof, in our sole discretion.
Dividend payments on the Series B Preferred Stock are not guaranteed. We may use borrowed funds or funds from other sources to pay dividends, which may adversely impact our operations.
We intend to use the net proceeds from the offering of the Series B Preferred Stock to fund future investments and for other general corporate purposes, but the offering will not be conditioned upon the closing of pending property investments and we will have broad discretion to determine alternative uses of proceeds.
The Series B Preferred Stock will bear a risk of early redemption by us.
There is no guarantee we will exercise our option to redeem all or a portion of the Series B Preferred Stock in connection with a change of control.
Holders of the Series B Preferred Stock will be subject to inflation risk.
Holders of the Series B Preferred Stock have extremely limited voting rights.
The amount of the liquidation preference is fixed and holders of Series B Preferred Stock will have no right to receive any greater payment.
Our charter, including the Articles Supplementary establishing the Series B Preferred Stock, contains restrictions upon ownership and transfer of such preferred stock and shares of our common stock which may be issued upon the redemption of shares of Series B Preferred Stock, at the Company’s option.
Our ability to pay dividends or redeem shares is limited by the requirements of Maryland law.
If our common stock and the Series A Cumulative Redeemable Preferred Stock are no longer listed on the NYSE or another national securities exchange, we may be required to terminate any continuous offering(s) of Series B Preferred Stock.
To the extent that our distributions represent a return of capital for tax purposes, stockholders may recognize an increased gain or a reduced loss upon subsequent sales (including cash redemptions) of their shares of Series B Preferred Stock.
Holders of Series B Preferred Stock may recognize dividend income on constructive dividends without a corresponding cash payment.
Shares of Series B Preferred Stock may be redeemed for shares of our common stock, which rank junior to the Series B Preferred Stock with respect to dividends and upon liquidation.
We established the offering price for the Series B Preferred Stock pursuant to discussions among us and our affiliated dealer manager; as a result, the actual value of an investment in the Series B Preferred Stock may be substantially less than the amount paid.
The dealer manager’s relationship with us and the payment to it of substantial commissions and fees in connection with this offering may cause a conflict of interest and may hinder the dealer manager’s performance of its due diligence obligations.
If we fail to pay dividends to holders of our preferred stock or otherwise lose our eligibility to file registration statements on Form S-3 with the SEC, it may impair our ability to raise capital in the Series B Preferred Stock offering.
Compliance with the SEC’s Regulation Best Interest by participating broker-dealers may negatively impact our ability to raise capital in the Series B Preferred Stock offering, which could harm our ability to achieve our investment objectives.
Additional material risks related to an investment in NREF’s Series B Preferred Stock include other risks under Part I, Item 1A, “Risk Factors” in NREF’s Annual Report on Form 10-K filed with the SEC, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the SEC. You should review these risk factors and the risk factors in the prospectus and any accompanying prospectus supplement carefully before investing in the Series B Preferred Stock.
NREF has a shelf registration statement on Form S-3 (No. 333-263300) that the SEC declared effective on March 14, 2022, pursuant to which the offering of the Series B Preferred Stock is being made. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Website at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in the offering will arrange to send you the prospectus if you request it by calling toll-free 1-(833) 697-7253.
Summary of Fees and Expenses: Investors will be subject to the following fees and expenses as part of the offering: selling commissions, dealer manager fee, and other offering expenses. Please see the prospectus and any accompanying prospectus supplement for a complete listing of all fees and expenses related to the offering.
This material contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. Forward-looking statements include, among others, statements regarding the payment of dividends, the Company’s intent not to list the Series B Preferred Stock, certain risks related to the Series B Preferred Stock and other statements identified by words such as “expect,” “intend,” “may,” “will,” “could,” the negative version of these words and similar expressions that do not relate solely to historical matters. Forward-looking statements are based on NREF’s current expectations and assumptions regarding capital market conditions, NREF’s business, the economy and other future conditions. 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 NREF’s control. 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. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions, and those described in greater detail in our filings with the SEC, particularly those described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers should not place undue reliance on any forward-looking statements and are encouraged to review the Company’s Annual Report on Form 10-K and the Company’s other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statement. Any forward-looking statement made in this material speaks only as of the date on which it is made. NREF undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
Merger Arbitrage Disclosures
The advisor to NexPoint Merger Arbitrage Fund is NexPoint Asset Management, L.P. (“Advisor”). The Advisor and NexPoint Securities, Inc. are affiliated.
On May 12, 2016, the Predecessor Fund transferred its assets to the Fund in exchange for the Fund’s Class Z shares. The investment policies, objectives, guidelines and restrictions of the Fund are in all material respects equivalent to those of the Predecessor Fund. In addition, the Predecessor Fund’s portfolio manager is the current portfolio manager of the Fund. As a mutual fund registered under the 1940 Act, the Fund is subject to certain restrictions under the 1940 Act and the Internal Revenue Code of 1986, as amended (the “Code”) to which the Predecessor Fund was not subject. Had the Predecessor Fund been registered under the 1940 Act and been subject to the provisions of the 1940 Act and the Code, its investment performance could have been adversely affected, but these restrictions are not expected to have a material effect on the Fund’s investment program.
BLOOMBERG US AGGREGATE BOND INDEX. The Bloomberg US Aggregate Bond Index is a broad-based, unmanaged, market-weighted index that is comprised of investment grade, US dollar-denominated, fixed-rate taxable debt instruments. S&P 500 Index: S&P 500 Index is an index of a basket of 500 stocks designed to provide a broad snapshot of the overall U.S. equity market. Criteria for inclusion: U.S. Company, market capitalization must be in excess of US$ 3 billion, public float of at least 50%, financial viability, adequate liquidity and reasonable price, sector balance, and company type. Ordinary cash dividends are applied on the ex-date in calculating the total return series. “Special dividends” are those dividends that are outside of the normal payment pattern established historically by the issuing corporation. The total return index series reflect both ordinary and special dividends. DERIVATIVES RISK. Derivatives, such as futures and options, are subject to the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index. Derivatives also expose the Fund to the credit risk of the derivative counterparty. Derivative contracts may expire worthless and the use of derivatives may result in losses to the Fund. LEVERAGE RISK. Leverage may increase the risk of loss, cause fluctuations in the market value of the Fund’s portfolio to have disproportionately large effects or cause the NAV of the Fund generally to decline faster than it would otherwise. MICRO, SMALL AND MID-CAP SECURITIES RISK. Investments in securities of companies with micro, small or medium capitalizations involve certain risks that may differ from, or be greater than, those for larger companies, such as higher volatility, lower trading volume, fewer business lines and lack of public information. NON-DIVERSIFICATION RISK. As a non-diversified fund, the Fund may invest a larger portion of its assets in the securities of one or a few issuers than a diversified fund. A non-diversified fund’s investment in fewer issuers may result in the fund’s shares being more sensitive to the economic results of those issuers. An investment in the Fund could fluctuate in value more than an investment in a diversified fund. NON-U.S. SECURITIES RISK. Investments in securities of non-U.S. issuers involve certain risks not involved in domestic investments (for example, expropriation or political or economic instability). SHORT SALES RISK. The risk of short sales theoretically involves unlimited loss potential since the market price of securities sold short may continuously increase. HEDGING RISK. Although intended to limit or reduce investment risk, hedging strategies may also limit or reduce the potential for profit. There is no assurance that hedging strategies will be successful. TECHNICAL TERMS: ANNUALIZED RETURN: The annualized return is the geometric mean of the returns with respect to one year CORRELATION: A statistical measure of how two securities move in relation to each other MAXIMUM DRAWDOWN: The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough. Drawdowns help determine an investment’s financial risk. SHARPE RATIO: A measure of risk-adjusted performance. The Sharpe ratio is calculated for by dividing a fund’s annualized excess returns over the risk-free rate by its annualized standard deviation. STANDARD DEVIATION: Standard deviation of returns measures the average a return series deviates from its mean. It is often used as a measure of risk. Higher standard deviation represents higher volatility. BONDS: Bonds are represented by The Bloomberg US Aggregate Bond.
Source: SEI
Event Driven Disclosures
The advisor to the NexPoint Event Driven Fund is NexPoint Asset Management, L.P. (“Advisor”). The Advisor and NexPoint Securities, Inc. are affiliated.
Derivatives Risk. Derivatives, such as futures and options, are subject to the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index. Derivatives also expose the Fund to the credit risk of the derivative counterparty. Derivative contracts may expire worthless and the use of derivatives may result in losses to the Fund. Leverage Risk. Leverage may increase the risk of loss, cause fluctuations in the market value of the Fund’s portfolio to have disproportionately large effects or cause the NAV of the Fund generally to decline faster than it would otherwise. Micro, Small and Mid-Cap Securities Risk. Investments in securities of companies with micro, small or medium capitalizations involve certain risks that may differ from, or be greater than, those for larger companies, such as higher volatility, lower trading volume, fewer business lines and lack of public information. Non-U.S. Securities Risk. Investments in securities of non-U.S. issuers involve certain risks not involved in domestic investments (for example, expropriation or political or economic instability). Portfolio Turnover Risk. High portfolio turnover will increase the Fund’s transaction costs and may result in increased realization of net short-term capital gains, higher taxable distributions and lower after-tax performance. Short Sales Risk. The risk of short sales theoretically involves unlimited loss potential since the market price of securities sold short may continuously increase. Hedging Risk. Hedging is a strategy for reducing exposure to investment risk. An investor can hedge the risk of one investment by taking an offsetting position in another investment. The values of the offsetting investments should be inversely correlated. There is no assurance that hedging strategies will be successful.
Merger Arbitrage and Event-Driven Risk is the risk that the Adviser’s evaluation of the outcome of a proposed event, whether it be a merger, reorganization, regulatory issue or other event, will prove incorrect and that the Fund’s return on the investment will be negative. Even if the Adviser’s judgment regarding the likelihood of a specific outcome proves correct, the expected event may be delayed or completed on terms other than those originally proposed, which may cause the Fund to lose money. The Fund’s expected gain on an individual arbitrage investment is normally considerably smaller than the possible loss should the transaction be unexpectedly terminated.
Special Purpose Acquisition Companies Risk is the risk that the Fund may invest in stock of, warrants to purchase stock of, and other interests in special purpose acquisition companies or similar special purpose entities that pool funds to seek potential acquisition opportunities (collectively, “SPACs”). Because SPACs and similar entities have no operating history or ongoing business other than seeking acquisitions, the value of their securities is particularly dependent on the ability of the entity’s management to identify and complete a profitable acquisition.
S&P 500 Total Return Index is an index of a basket of 500 stocks designed to provide a broad snapshot of the overall U.S. equity market. The total return index series reflects both ordinary and special dividends. Investors cannot invest directly into an index.
MAXIMUM DRAWDOWN: The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough. Drawdowns help determine an investment’s financial risk. STANDARD DEVIATION: Standard deviation of returns measures the average a return series deviates from its mean. It is often used as a measure of risk. Higher standard deviation represents higher volatility.
Source: SEI