NEXPOINT DIVERSIFIED REAL ESTATE TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

NexPoint Diversified Real Estate Trust (the "Company", "we", "us", or "our") was formed in Delaware and has elected to be taxed as a real estate investment trust (a “REIT”). Substantially all of the Company’s business is conducted through NexPoint Diversified Real Estate Trust Operating Partnership, L.P. (the "OP"), the Company’s operating partnership. The Company conducts its business (the "Portfolio") through the OP and its wholly owned taxable REIT subsidiaries ("TRSs"). The Company's wholly owned subsidiary, NexPoint Diversified Real Estate Trust OP GP, LLC (the "OP GP"), is the sole general partner of the OP. As of June 30, 2025, there were 44,536,894.47 common units of the OP outstanding, of which 99.96% were owned by the Company,3,359,593 Series A Preferred Units of the OP outstanding, of which 100.0% were owned by the Company, and 145,554 Series B Preferred Units of the OP, of which 100.0% were owned by the Company.

The Company is externally managed by NexPoint Real Estate Advisors X, L.P. (the “Adviser”), through an agreement dated July 1, 2022, amended on October 25, 2022, April 11, 2023 and July 22, 2024 (the “Advisory Agreement”), by and among the Company and the Adviser for a term that will expire on July 1, 2026 and successiveone-year terms thereafter unless earlier terminated. The Adviser manages the day-to-day operations of the Company and provides investment management services. The Company had no employees as of June 30, 2025. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and our board of trustees (the “Board”). The Adviser is wholly owned by NexPoint Advisors, L.P. (the “Sponsor” or “NexPoint”).

As a diversified REIT, the Company’s primary investment objective is to provide both current income and capital appreciation. Target underlying property types primarily include, but are not limited to, single-family rentals, multifamily, self-storage, life science, office, industrial, hospitality, net lease, retail and small-bay industrial. The Company may, to a limited extent, hold, acquire or transact in certain non-real estate securities.

2. Asset Acquisition

NHT Acquisition

On April 10, 2024, NexPoint Real Estate Partners, LLC (“NREP”), an entity advised by an affiliate of the Adviser, and Highland Capital Management, L.P. (“Highland”), a third party, entered into a Purchase Agreement ("Purchase Agreement") whereby Highland agreed to sell, among other things,2,176,257 units (the “NHT Units”) of NexPoint Hospitality Trust (“NHT”) to NREP. The Purchase Agreement was funded in part by cash of $0.8 million provided to NREP by the Company that was allocated for the sale of the NHT Units. Then on April 19, 2024, the Company, NexPoint Real Estate Opportunities, LLC ("NREO"), a wholly owned subsidiary of the Company, and NREP entered into an Assignment of Interests Agreement whereby NREP distributed, assigned, conveyed, transferred, set over, and delivered to NREO its right to purchase the NHT Units under the Purchase Agreement and all of its rights, title and interest in, to and under the NHT Units, including all voting, consent and financial rights, free and clear of all liens and encumbrances (the “NHT Acquisition”). As a result, the Company owned 53.65% of the outstanding NHT Units and was determined to hold the controlling financial interest in NHT and as a result consolidated NHT. The NHT Acquisition was accounted for as an asset acquisition under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, Business Combinations.

Because the Company did not wholly own NHT following the NHT Acquisition, the Company recognized a noncontrolling interest (“NCI”) of $6.9 million, which was recorded at fair value when the controlling financial interest was acquired. The Company also recorded an unrealized gain on its previously held interest in NHT of $3.9 million.

On November 22, 2024, the Company announced that it had entered into an Agreement and Plan of Merger (the “NHT Merger Agreement”) pursuant to which it would acquire the remaining outstanding NHT Units in a merger transaction (the “NHT Merger”). On February 21, 2025, NHT’s unitholders voted to approve the NHT Merger. On April 17, 2025, the Company consummated the NHT Merger in accordance with the NHT Merger Agreement.

As consideration for the NHT Merger, the Company issued 1,084,593 common shares to the former unitholders of NHT and caused the OP to issue 227,728.5 profits interest units to certain individuals employed by an affiliate of the Adviser as replacement awards for profits interest units they were previously granted by NHT and 19,881.2299 limited partnership units to one of the members of NHT’s operating company. Additionally, the Company issued promissory notes to certain unitholders of NHT that may be deemed affiliates of the Company in an aggregate principal amount of approximately $0.8 million in lieu of common shares they otherwise would have been entitled to receive in consideration for the NHT Merger. Unitholders of NHT who elected to receive a cash payment for the redemption of their units received aggregate payments of approximately $76.0 thousand from NHT in a reorganization transaction consummated prior to the consummation of the NHT Merger. NHT also paid an aggregate of approximately $0.9 million to redeem certain deferred units held by its trustees prior to the consummation of the NHT Merger.

The accumulated cost of the NHT Acquisition was allocated to the acquired assets and liabilities based on their relative fair values as of April 10, 2024, as follows (in thousands):